Not long ago, I wrote Ten Reasons Why High Oil Prices are a Problem. If high oil prices can be a problem, how can low oil prices also be a problem? In particular, how can the steep drop in oil prices we have recently been experiencing also be a problem?
Let me explain some of the issues:
Issue 1. If the price of oil is too low, it will simply be left in the ground.
The world badly needs oil for many purposes: to power its cars, to plant it fields, to operate its oil-powered irrigation pumps, and to act as a raw material for making many kinds of products, including medicines and fabrics.
If the price of oil is too low, it will be left in the ground. With low oil prices, production may drop off rapidly. High price encourages more production and more substitutes; low price leads to a whole series of secondary effects (debt defaults resulting from deflation, job loss, collapse of oil exporters, loss of letters of credit needed for exports, bank failures) that indirectly lead to a much quicker decline in oil production.
The view is sometimes expressed that once 50% of oil is extracted, the amount of oil we can extract will gradually begin to decline, for geological reasons. This view is only true if high prices prevail, as we hit limits. If our problem is low oil prices because of debt problems or other issues, then the decline is likely to be far more rapid. With low oil prices, even what we consider to be proved oil reserves today may be left in the ground.
Issue 2. The drop in oil prices is already having an impact on shale extraction and offshore drilling.
While many claims have been made that US shale drilling can be profitable at low prices, actions speak louder than words. (The problem may be a cash flow problem rather than profitability, but either problem cuts off drilling.) Reuters indicates that new oil and gas well permits tumbled by 40% in November.
Offshore drilling is also being affected. Transocean, the owner of the biggest fleet of deep water drilling rigs, recently took a $2.76 billion charge, among a “drilling rig glut.”
3. Shale operations have a huge impact on US employment.
Zero Hedge posted the following chart of employment growth, in states with and without current drilling from shale formations:
Figure 1. Jobs in States with and without Shale Formations, from Zero Hedge.
Clearly, the shale states are doing much better, job-wise. According to the article, since December 2007, shale states have added 1.36 million jobs, while non-shale states have lost 424,000 jobs. The growth in jobs includes all types of employment, including jobs only indirectly related to oil and gas production, such as jobs involved with the construction of a new supermarket to serve the growing population.
It might be noted that even the “Non-Shale” states have benefited to some extent from shale drilling. Some support jobs related to shale extraction, such as extraction of sand used in fracking, college courses to educate new engineers, and manufacturing of parts for drilling equipment, are in states other than those with shale formations. Also, all states benefit from the lower oil imports required.
Issue 4. Low oil prices tend to cause debt defaults that have wide ranging consequences. If defaults become widespread, they could affect bank deposits and international trade.
With low oil prices, it becomes much more difficult for shale drillers to pay back the loans they have taken out. Cash flow is much lower, and interest rates on new loans are likely much higher. The huge amount of debt that shale drillers have taken on suddenly becomes at-risk. Energy debt currently accounts for 16% of the US junk bond market, so the amount at risk is substantial.
Dropping oil prices affect international debt as well. The value of Venezuelan bonds recently fell to 51 cents on the dollar, because of the high default risk with low oil prices. Russia’s Rosneft is also reported to be having difficulty with its loans.
There are many ways banks might be adversely affected by defaults, including
- Directly by defaults on loans held by a bank
- Indirectly, by defaults on securities the bank owns that relate to loans elsewhere
- By derivative defaults made more likely by sharp changes in interest rates or in currency levels
- By liquidity problems, relating to the need to quickly sell or buy securities related to ETFs
After the many bank bailouts in 2008, there has been discussion of changing the system so that there is no longer a need to bail out “too big to fail” banks. One proposal that has been discussed is to force bank depositors and pension funds to cover part of the losses, using Cyprus-style bail-ins. According to some reports, such an approach has been approved by the G20 at a meeting the weekend of November 16, 2014. If this is true, our bank accounts and pension plans could already be at risk.1
Another bank-related issue if debt defaults become widespread, is the possibility that junk bonds and Letters of Credit2 will become outrageously expensive for companies that have poor credit ratings. Supply chains often include some businesses with poor credit ratings. Thus, even businesses with good credit ratings may find their supply chains broken by companies that can no longer afford high-priced credit. This was one of the issues in the 2008 credit crisis.
Issue 5. Low oil prices can lead to collapses of oil exporters, and loss of virtually all of the oil they export.
The collapse of the Former Soviet Union in 1991 seems to be related to a drop in oil prices.
Figure 2. Oil production and price of the Former Soviet Union, based on BP Statistical Review of World Energy 2013.
Oil prices dropped dramatically in the 1980s after the issues that gave rise to the earlier spike were mitigated. The Soviet Union was dependent on oil for its export revenue. With low oil prices, its ability to invest in new production was impaired, and its export revenue dried up. The Soviet Union collapsed for a number of reasons, some of them financial, in late 1991, after several years of low oil prices had had a chance to affect its economy.
Many oil-exporting countries are at risk of collapse if oil prices stay very low very long. Venezuela is a clear risk, with its big debt problem. Nigeria’s economy is reported to be “tanking.” Russia even has a possibility of collapse, although probably not in the near future.
Even apart from collapse, there is the possibility of increased unrest in the Middle East, as oil-exporting nations find it necessary to cut back on their food and oil subsidies. There is also more possibility of warfare among groups, including new groups such as ISIL. When everyone is prosperous, there is little reason to fight, but when oil-related funds dry up, fighting among neighbors increases, as does unrest among those with lower subsidies.
Issue 6. The benefits to consumers of a drop in oil prices are likely to be much smaller than the adverse impact on consumers of an oil price rise.
When oil prices rose, businesses were quick to add fuel surcharges. They are less quick to offer fuel rebates when oil prices go down. They will try to keep the benefit of the oil price drop for themselves for as long as possible.
Airlines seem to be more interested in adding flights than reducing ticket prices in response to lower oil prices, perhaps because additional planes are already available. Their intent is to increase profits, through an increase in ticket sales, not to give consumers the benefit of lower prices.
In some cases, governments will take advantage of the lower oil prices to increase their revenue. China recently raised its oil products consumption tax, so that the government gets part of the benefit of lower prices. Malaysia is using the low oil prices as a time to reduce oil subsidies.
Most businesses recognize that the oil price drop is at most a temporary situation, since the cost of extraction continues to rise (because we are getting oil from more difficult-to-extract locations). Because this price drop is only temporary, few business people are saying to themselves, “Wow, oil is cheap again! I am going to invest a huge amount of money in a new road building company [or other business that depends on cheap oil].” Instead, they are cautious, making changes that require little capital investment and that can easily be reversed. While there may be some jobs added, those added will tend to be ones that can easily be dropped if oil prices rise again.
Issue 7. Hoped for crude and LNG sales abroad are likely to disappear, with low oil prices.
There has been a great deal of publicity about the desire of US oil and gas producers to sell both crude oil and LNG abroad, so as to be able to take advantage of higher oil and gas prices outside the US. With a big drop in oil prices, these hopes are likely to be dashed. Already, we are seeing the story, Asia stops buying US crude oil. According to this story, “There’s so much oversupply that Middle East crudes are now trading at discounts and it is not economical to bring over crudes from the US anymore.”
LNG prices tend to drop if oil prices drop. (Some LNG prices are linked to oil prices, but even those that are not directly linked are likely to be affected by the lower demand for energy products.) At these lower prices, the financial incentive to export LNG becomes much less. Even fluctuating LNG prices become a problem for those considering investment in infrastructure such as ships to transport LNG.
Issue 8. Hoped-for increases in renewables will become more difficult, if oil prices are low.
Many people believe that renewables can eventually take over the role of fossil fuels. (I am not of the view that this is possible.) For those with this view, low oil prices are a problem, because they discourage the hoped-for transition to renewables.
Despite all of the statements made about renewables, they don’t really substitute for oil. Biofuels come closest, but they are simply oil-extenders. We add ethanol made from corn to gasoline to extend its quantity. But it still takes oil to operate the farm equipment to grow the corn, and oil to transport the corn to the ethanol plant. If oil isn’t around, the biofuel production system comes to a screeching halt.
Issue 9. A major drop in oil prices tends to lead to deflation, and because of this, difficulty in repaying debts.
If oil prices rise, so do food prices, and the price of making most goods. Thus rising oil prices contribute to inflation. The reverse of this is true as well. Falling oil prices tend to lead to a lower price for growing food and a lower price for making most goods. The net result can be deflation. Not all countries are affected equally; some experience this result to a greater extent than others.
Those countries experiencing deflation are likely to eventually have problems with debt defaults, because it will become more difficult for workers to repay loans, if wages are drifting downward. These same countries are likely to experience an outflow of investment funds because investors realize that funds invested these countries will not earn an adequate return. This outflow of funds will tend to push their currencies down, relative to other currencies. This is at least part of what has been happening in recent months.
The value of the dollar has been rising rapidly, relative to many other currencies. Debt repayment is likely to especially be a problem for those countries where substantial debt is denominated in US dollars, but whose local currency has recently fallen in value relative to the US dollar.
Figure 3. US Dollar Index from Intercontinental Exchange
The big increase in the US dollar index came since June 2014 (Figure 3), which coincides with the drop in oil prices. Those countries with low currency prices, including Japan, Europe, Brazil, Argentina, and South Africa, find it expensive to import goods of all kinds, including those made with oil products. This is part of what reduces demand for oil products.
China’s yuan is relatively closely tied to the dollar. The collapse of other currencies relative to the US dollar makes Chinese exports more expensive, and is part of the reason why the Chinese economy has been doing less well recently. There are no doubt other reasons why China’s growth is lower recently, and thus its growth in debt. China is now trying to lower the level of its currency.
Issue 10. The drop in oil prices seems to reflect a basic underlying problem: the world is reaching the limits of its debt expansion.
There is a natural limit to the amount of debt that a government, or business, or individual can borrow. At some point, interest payments become so high, that it becomes difficult to cover other needed expenses. The obvious way around this problem is to lower interest rates to practically zero, through Quantitative Easing (QE) and other techniques.
(Increasing debt is a big part of what pumps up “demand” for oil, and because of this, oil prices. If this is confusing, think of buying a car. It is much easier to buy a car with a loan than without one. So adding debt allows goods to be more affordable. Reducing debt levels has the opposite effect.)
QE doesn’t work as a long-term technique, because it tends to create bubbles in asset prices, such as stock market prices and prices of farmland. It also tends to encourage investment in enterprises that have questionable chance of success. Arguably, investment in shale oil and gas operations are in this category.
As it turns out, it looks very much as if the presence or absence of QE may have an impact on oil prices as well (Figure 4), providing the “uplift” needed to keep oil prices high enough to cover production costs.
Figure 4. World “liquids production” (that is oil and oil substitutes) based on EIA data, plus OPEC estimates and judgment of author for August to October 2014. Oil price is monthly average Brent oil spot price, based on EIA data.
The sharp drop in price in 2008 was credit-related, and was only solved when the US initiated its program of QE started in late November 2008. Oil prices began to rise in December 2008. The US has had three periods of QE, with the last of these, QE3, finally tapering down and ending in October 2014. Since QE seems to have been part of the solution that stopped the drop in oil prices in 2008, we should not be surprised if discontinuing QE is contributing to the drop in oil prices now.
Part of the problem seems to be the differential effect that happens when other countries are continuing to use QE, but the US not. The US dollar tends to rise, relative to other currencies. This situation contributes to the situation shown in Figure 3.
QE allows more borrowing from the future than would be possible if market interest rates really had to be paid. This allows financiers to temporarily disguise a growing problem of un-affordability of oil and other commodities.
The problem we have is that, because we live in a finite world, we reach a point where it becomes more expensive to produce commodities of many kinds: oil (deeper wells, fracking), coal (farther from markets, so more transport costs), metals (poorer ore quality), fresh water (desalination needed), and food (more irrigation needed). Wages don’t rise correspondingly, because more and more labor is needed to provide less and less actual benefit, in terms of the commodities produced and goods made from those commodities. Thus, workers find themselves becoming poorer and poorer, in terms of what they can afford to purchase.
QE allows financiers to disguise a growing mismatch between what it costs to produce commodities, and what customers can really afford. Thus, QE allows commodity prices to rise to levels that are unaffordable by customers, unless customers’ lack of income is disguised by a continued growth in debt.
Once commodity prices (including oil prices) fall to levels that are affordable based on the incomes of customers, they fall to levels that cut out a large share of production of these commodities. As commodity production drops to levels that can be produced at affordable prices, so does the world’s ability to make goods and services. Unfortunately, the goods whose production is likely to be cut back if commodity production is cut back are those of every kind, including houses, cars, food, and electrical transmission equipment.
Conclusion
There are really two different problems that a person can be concerned about:
- Peak oil: the possibility that oil prices will rise, and because of this production will fall in a rounded curve. Substitutes that are possible because of high prices will perhaps take over.
- Debt related collapse: oil limits will play out in a very different way than most have imagined, through lower oil prices as limits to growth in debt are reached, and thus a collapse in oil “demand” (really affordability). The collapse in production, when it comes, will be sharper and will affect the entire economy, not just oil.
In my view, a rapid drop in oil prices is likely a symptom that we are approaching a debt-related collapse–in other words, the second of these two problems. Underlying this debt-related collapse is the fact that we seem to be reaching the limits of a finite world. There is a growing mismatch between what workers in oil importing countries can afford, and the rising real costs of extraction, including associated governmental costs. This has been covered up to date by rising debt, but at some point, it will not be possible to keep increasing the debt sufficiently.
The timing of collapse may not be immediate. Low oil prices take a while to work their way through the system. It is also possible that the world’s financiers will put off a major collapse for a while longer, through more QE, or more programs related to QE. For example, actually getting money into the hands of customers would seem to be temporarily helpful.
At some point the debt situation will eventually reach a breaking point. One way this could happen is through an increase in interest rates. If this happens, world economic growth is likely to slow greatly. Oil and commodity prices will fall further. Debt defaults will skyrocket. Not only will oil production drop, but production of many other commodities will drop, including natural gas and coal. In such a scenario, the downslope of all energy use is likely to be quite steep, perhaps similar to what is shown in the following chart.
Figure 5. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.
Related Articles:
Low Oil Prices: Sign of a Debt Bubble Collapse, Leading to the End of Oil Supply?
WSJ Gets it Wrong on “Why Peak Oil Predictions Haven’t Come True”
Eight Pieces of Our Oil Price Predicament
Notes:
[1] There is of course insurance by the FDIC and the PBGC, but the actual funding for these two insurance programs is tiny in relationship to the kind of risk that would occur if there were widespread debt defaults and derivative defaults affecting many banks and many pension plans at once. While depositors and pension holders might try to collect this insurance, there wouldn’t be enough money to actually cover these demands. This problem would be similar to the issue that arose in Iceland in 2008. Insurance would seem to be available, but in practice, would not pay out much.
Also, I learned after writing this post that bail-ins were mandated for US banks by the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010. In the language of the summary, bank depositors are “unsecured creditors,” and are thus among those to whom the burden of loss is transferred. The FDIC is not allowed to borrow extra funds, beyond bank funds, to cover this loss.
[2] LOCs are required when goods are shipped internationally, before payment has actually been made. They offer a guarantee that a buyer will be able to “make good” on his promise to pay for goods when they arrive.
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Dear Gail and All
Since I have trouble getting people to read about Edo Japan, I have decided to write a short comment connecting George Mobus’ Principles of Systems Science and Azby Brown’s description of the ‘no fossil fuel’ economy of Edo in the early 1800s.
Mobus notes the importance of pattern recognition for human existence and flourishing. New born infants spend a lot of time putting together the pattern recognition which permits them to relate to mommy’s face. A skilled poker player recognizes an enormous number of patterns…not calculations of odds as a computer might do it.
‘Repeated experience furnishes our fundamental means of recognizing the regularity of relationship that constitutes pattern or organization.’ My point is that those of us who are thrust into a very strange world by, let us say, the sudden collapse of industrial civilization, will likely die because we cannot recognize helpful patterns because we have not ‘repeatedly experienced’ them.
While Edo did not use fossil fuels, they did support a complex economy. Here, for example, are two excerpts describing daily life for a carpenter going about his trade and his domestic arrangements in the city of Edo:
‘Lanterns and umbrellas have a particularly involved repair ecology. Since both are made of paper mounted to thin frames—bamboo in the case of umbrellas, wood or bamboo in the case of lanterns—the methods used to repair them are similar, and often the same craftsman will make a living performing both tasks. Umbrellas can be repaired and recovered many times before they are ready to be replaced, but the oil- and tannin-treated waterproof paper will eventually become too brittle to be rendered serviceable with just a few pasted-on patches, and the binding cords and bamboo slides and handles will break or become too worn to be reliable. At this point the umbrella can be sold to a used-umbrella buyer. They assess the umbrella’s condition and assign it one of three grades, and the price they offer for it varies accordingly. These tradesmen are mainly interested in the frame, which can be disassembled, refurbished, rewound, recovered, and resold. Some of the work may be subcontracted out; umbrella- and lantern-making is a typical side job for low-ranking samurai. The old oiled paper—still waterproof—is favored by the few butchers in town for wrapping meat.
Paramount among the recycling specialists are the used-clothes dealers. Many are itinerant, but used clothes shops abound; some estimate there are as many as four thousand used clothes dealers in Edo. In fact, it is no exaggeration to say that the typical townsman rarely buys new clothes.’ [And continues on with the saga of how clothing is used until it becomes a rag or fuel.]
‘Because Sadakichi is a house carpenter, he spends some of his time at the workshop preparing the beams and columns for the houses and storage buildings that comprise most of the company’s business. The remainder of the time he is at the various worksites assembling the building frames and finishing the wood construction. Though they occasionally take work in distant parts of town, usually as a favor to a relative or an old friend of the master, it’s usually a pretty short walk from home to a building site in Kanda or Nihombashi.
Sadakichi is a good carpenter, and he spent a long apprenticeship to become ‘full fledged’, able to perform all the tasks he might be called upon to do. He is thirty years old, and while some of his colleagues have already become independent, Sadakichi doesn’t yet have the capital or the backing from relatives to set up his own workshop. He is saving for that day, though, and his current humble lifestyle allows him to put away more money.’
I won’t quote the food stall article, but I will summarize a few points. Because fuel is precious, and because cooking in bulk is more fuel efficient than cooking for a single household, food is usually purchased from the thousands of food vendors. Our carpenter can buy food with a few steps out his door. The ‘fast food’ may be less expensive than cooking it yourself, when you factor in the cost of fuel.
I think it is safe to say that these descriptions are not at all like the Mad Max fantasies which are usually spun out on this site. The biggest dangers, as I see it, are a descent into uncontrolled violence, the failure of the government to shrink so that people can do what they need to do, and the inability of people to imagine and recognize the patterns of behavior and relationships which will let them thrive in a world without fossil fuels.
I can’t think of anything an individual can do about the first two, but the patterns are something where practice makes perfect, as George points out.
Don Stewart
Hey now, it takes a bit for the library to get the book to me! I just requested it yesterday and as my library is only open a few days a week will take a bit for me to get it and read it 😉 So yes, you did interest someone in reading about “old-times” 😀
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Dear Gail and All
I have recently speculated that less than a billion people will be willing to do what they need to do in order to survive.
This excellent post does a much better job explaining what is likely to happen in a collapse. The author doesn’t put numbers on it, but I don’t think we need to worry about ‘feeding 9 billion’.
Considering the very small number of people who are even willing to read Azby Brown’s work on Edo Japan, perhaps I should reduce my number to ‘tens of thousands’.
Don Stewart
http://www.resilience.org/stories/2014-12-12/panarchy-implications-for-economic-social-policy
Due to this, human society may be unable to even contemplate actions that would be beneficial to its ability to successfully traverse the process of reorganization.
Don,
Thanks for your link to the Panarchy paper, it’s an excellent article, well worth reading entirely. Here’s a link to the original:
http://www.humanitystest.com/panarchy-implications-for-economic-social-policy/?cb=0434583060676232
A quote from the introduction, that tells everything:
“Efficiency, through the reuse of existing structures and increased connectivity, is traded for lower resilience.”
One small point which, in my view, is not sufficiently underlined in the article, is that most of the modifications in environmental conditions are actually caused by this “efficiency” in dissipating the energy. The higher the efficiency, the faster the change in external conditions. Together with lower resilience => collapse.
It’s the MEP principle (Maximum Entropy Production) that François Roddier explains much better than I’ll ever be able to. In short, any dissipative structure reduces its internal entropy, and by doing it, increases entropy of its surroundings (like when you sweep the dust out of your house).
For the rest it’s a remarkable text that should be studied in schools.
“Efficiency, through the reuse of existing structures and increased connectivity, is traded for lower resilience.”
HT Odum did the seminal work on this.
He claims there exists a “maximum power point” in the graph of efficiency versus resources consumed in attaining that efficiency. The Laws of Thermodynamics dictate that achieving 100% efficiency would require infinite resources!
I think time and nature should be our guide. If nature comes up with 8% efficiency in 3,400,000,000 years, what makes us think we can do better in 60 years? (Yea, we have actually come up with better, but at what sunken emergy cost? And is that cost sustainable?)
The sooner we realize that our energy budget is some fraction of the Earth’s “basic productivity” — the energy collected by all the photosynthetic plants — the sooner we can learn to live within that budget.
Yes Jan,
the article refers to Tainter and a few others, but unfortunately not to Odum.
His daughter Mary (now Logan) is keeping up the good job. I know I read a couple of very interesting articles she wrote about same topic, such as this one:
http://prosperouswaydown.com/self-organizing-societies/#more-6927
Re. the “low-energy society”, I don’t think possible to scale it up before our high-energy civilisation has crashed entirely. Only then, and provided there are some human survivors and sufficient healthy biomass, that the radioactivity, the temperature, the chemical hazards (+GMO +nano), etc.. remain within reasonable limits in the long term (think eg of climate feeback-loops), AND that said survivors are wise enough to re-build their organisations based on cooperation rather than competition (many IFs), then maybe we can imagine they will enjoy some kind of low-speed evolution in harmony with what remains of Nature.
Until one of these groups decides to appropriate whatever they can in order to increase their own power (and artificial comfort). The cooperative groups won’t be able to resist them, and the (our) story will repeat all over again.
Jan,
one more thought from your links about photosynthesis and evolution of the plants.
I find amazing to realize that Oxygen is a green plant’s waste ; which means that all animal evolution was based on the availability of this “scrap”.
For us humans, I think that a big part of our problem comes from our inability to manage, not only our resources, but also our waste. We should have set up interwoven processes, each one using as much as possible of the waste from the other, and producing as much as possible of re-usable stuff as waste. Instead of that, we’re making money in producing energy-guzzling phosphate, which surplus will be washed off at first rain, while a natural ecosystem is able to re-use it up to 70 times (acc. to a comment by Don Stewart in an earlier post). We’ve been taking advantage of isolated phenomena, while we should have been inspired by complex systems, interconnections, cycles and ecosystems.
Hi Gail, thanks for posting this. Just wanted to let you know that this article has been linked on /r/priceofoil (http://www.reddit.com/r/priceofoil/), a community dedicated to discussing the wider economic and geopolitical impacts of fluctuating oil prices. We’d love for you to drop in and say high some time!
Gail, one thing keeps bothering me about the current scenario, and the assumption that expensive oil will “stay in the ground:” where does the infrastructure go when the wildcatters “go under?”
There is infrastructure in place to extract this difficult oil. It is paid for — with debt, but if the company declares bankruptcy, the debt is cancelled, and someone like Gordon Gecko (“greed is good!”) can pick it up for 10 cents on the dollar, and start it pumping again for a fraction of the prior company’s “sunken cost” that caused it to need $80+ in order to make money.
What are the operating costs of these frack’d wells? We all know their sunken cost is high, but that’s all about to be written off. Can’t they be re-started profitably after their sunken costs are blown off?
Yes, I realize their investors will lose a bundle, and that could have a ripple effect through the economy, but the infrastructure is still there to pump the oil.
Jan,
When things get bad enough: Confiscation and Nationalization.
Dear Jan
I’m not an expert….but I’ll hazard a few guesses. Shale wells are unlike conventional wells in that there is no reservoir from which oil or gas are produced. So our conventional ideas of a reservoir ‘depleting’ are not useful.
You may remember that one of the causal factors in The Hills Group model was the ‘water cut’. How much water is the well having to lift to the surface in order to produce a barrel of oil? There was some discussion on Peak Oil News that for a fracked well, the water cut is effectively zero or very low. You get back out the water you put in, but there is no dome of rocks under which either oil or gas or water will accumulate.
A fracked well is essentially shattered rocks in the close vicinity of a pipe through which they can flow oil and gas to the surface. I don’t think there are any nodding donkeys, although I have never seen a fracked well.
The notion of an SEC mandated method for determining ‘reserves’ is also not very useful with a fracked well. The geologists have pretty good methods for estimating the amount of oil left in a pool under a dome, but there is no pool in the shale. The oil and gas is held in tiny pore spaces. I think that is one of the reasons there was a recent flurry of posts about the small amount of ‘reserves’ claimed by the fracking companies. It seems to me that the work of David Hughes is as good a number as we have on the potential future production from fracked wells. David defined the geographic extent of the sweet spots, estimated the percentage of the sweet spots already drilled, and so estimated how much remains to be drilled.
If a fracking company goes bankrupt, then the fracked wells will continue to produce, but at a steeply declining amount. A lot of people quote 40 percent per year as the decline rate if drilling stops.
The fracking equipment still exists, and some new company or reorganized company or vulture company could buy up that equipment and begin to drill again. Assuming that we had an untidy transition over several years, the leases would probably have to be renegotiated. All of the fracking fluids and water and sand and the energy which has to be purchased and the crews hired and the pipe bought would still have to be paid for. In addition, the oil and gas have to be transported to the infrastructure which can take them to a refinery or distribution point.
Shortonoil has made the statement several times that ‘half the shale oil is used to produce more shale oil’. I never really understood exactly what he is talking about. It sounds related to a very low EROEI. Which indicates that a high percentage of the fracking cost is current expenses as opposed to depreciation of long lived capital assets.
Don Stewart
Thanks for your thoughts on fracking economics. It seems frack’d oil is produced by continual drilling, in which case, I agree that the sunken costs do not buy a vulture capitalist very much.
Rune Likvern has a post on the rising water cut of wells. http://fractionalflow.com/2014/12/11/will-the-bakken-red-queen-outrun-growth-in-water-cut/ So what you have heard about not having big water cuts is wrong. They water out, but not at the same time.
The fracked wells don’t continue to produce unless someone takes the effort to maintain them. Gas must be collected and piped away. Water must be separated out. Someone must come and fix the problems that come up, fairly often.
The frackers and the well drilling companies are separate contractors, with separate supply chains. They don’t necessarily work, if their supply chains don’t work. For example, if they depend on electricity, and the electricity doesn’t work, then you can’t count on them.
The big issues are (1) skilled workers and (2) supply lines for broken parts. When the price goes to $60 dollars, workers leave and find jobs in other industries. Supply lines get broken, especially when lines of credit dry up for many players. So even though it looks like there are refineries and pipelines and drilling equipment, getting it all to work simultaneously becomes harder and harder, especially when the price of oil is low. There are minimum operating levels as well. Also, the drilling rig that has been rented disappears off the scene, and is no longer available.
What the economy can pay for it will pay for and what it can’t it won’t. The value of oil is steadily dropping and so is the world economy. We will pay for less and less over time.
(Back to Greece)
Politically the Euro crisis is getting worse rather than better and Europe continues to suffer from widespread political dysfunction. Electoral systems are ceasing to function across the continent to provide stable centrist governments and to exclude the ‘extremes’ of right and left.
Well, the government of Greece, with 26% unemployment, is now tottering and could fall later this month, following the fall of that of Sweden last week due to the far right holding the balance of power.
Samaras on Monday called an early presidential election and a general election would be held in January if the government loses. The far left Syriza could then either form or fail to form a government.
The Greek stock market lost 13% on Tuesday, the worst day since 1987 and 10 year bonds are back over 8%, where they were back in 2010.
Greece has already got most of its bail out money and it could be about to take it run, with a default and possible Grexit. Needless to say, banks would not take kindly…
Quote:
Gambling on Greek elections
http://www.khaleejtimes.com/kt-article-display-1.asp?xfile=data/opinion/2014/December/opinion_December17.xml§ion=opinion
No sooner had this announcement (of presidential elections) been made than the stock markets took a tumble. On what has been called Greece’s Black Tuesday, the Athens stock exchange suffered its biggest loss in one day since 1987.
The message this sends is clear and leaves no room for misinterpretation — in the short term, investors do not have faith in this tactic, and thus in Greece as a whole, and the consequences of this are grave.
What the stock market plunge is telling Samaras is that investors are not willing to side with him on this gamble. The support in parliament for Samaras is not concrete enough to instill confidence on the ground.
It’s certainly not going to inspire bondholders and has already panicked the International Monetary Fund, the European Union and the European Central Bank. Mere hours before the announcement, eurozone ministers had approved a two-month extension to the existing Greek bailout programme.
Samaras is gambling that an early election will help him secure the 180 parliamentary votes that he needs from a total of 300 in order to stay in power for the rest of his term. The risk involved is enormous. If Samaras loses, current polls place the center-left and the vocally anti-austerity party SYRIZA on course to win a general election.
http://www.khaleejtimes.com/images/greek11122014.jpg
Quote:
RPT-Maths works against Greek premier in presidential gambit
http://www.reuters.com/article/2014/12/11/greece-vote-idUSL6N0TU4DB20141211?feedType=RSS&feedName=bondsNews
To survive, Samaras needs 180 votes in the 300-seat chamber but he has the guaranteed support of only 155 lawmakers in the government parties. Both he and Alexis Tsipras, leader of the anti-bailout opposition Syriza party, are therefore courting independent lawmakers over the remaining 25 votes.
Even if Samaras wins over every independent lawmaker, which is unlikely since some have openly promised to vote against the government candidate, he would still fall short by one vote.
Indeed, if all opposition lawmakers vote against the government nominee, former European Union commissioner Stavros Dimas, that will be enough to bring down the government: the five opposition parties control 121 seats, the exact number needed to prevent a government win.
“The final outcome is likely to be decided by only a single-digit number of votes,” said Blanka Kolenikova, an analyst with IHS Global Insight.
The British TV news channels never report on any of the serious news anymore that is happening in Europe. It is pure propaganda, sheltered coverage of all the “right on” cultural and political causes in a desperate attempt to maintain normality in the face of the rise of UKIP.
http://www.telegraph.co.uk/finance/economics/11279646/Six-triggers-that-could-renew-a-eurozone-crisis-in-2015.html
Six triggers that could renew a eurozone crisis in 2015
Tensions in the eurozone’s largest economies could pull the region apart next year, as a number of political risks could bubble over, according to Nordea
Lots of things to boil over.
They seem to be queuing up. The ‘cross-sectarian’ government of Northern Ireland could be about to fall.
David Cameron of Britain Leaves Talks on Northern Ireland
http://www.nytimes.com/2014/12/13/world/europe/david-cameron-britain-northern-ireland-talks.html
quote:
Mr. Cameron’s main bargaining tool was the amount of money he was willing to release to Northern Ireland’s government to ease its chronic budgetary shortfalls. Northern Ireland has already requested an additional 100 million pounds, or about $157 million, just to balance the books this financial year, but the region is also facing a £200 million penalty if it does not agree to a package of welfare cuts. Many observers believe that it would be unable to withstand that financial blow, impelling the collapse of its fledgling cross-sectarian government.
*
Meanwhile the Sweden Democrats have risen 5% in the polls to nearly 18% after bringing down the government, which could force the centre left and right into a grand coalition, even though they just failed to agree a budget.
http://www.economist.com/news/europe/21636058-far-right-may-be-more-popular-staying-out-government-reticent-populists
Thanks for the update!
Greece and other European countries have been hanging on by a thread for a long time. If they have problems because of oil prices, they would have happened anyway. As Bush said, “Bring ’em on”… it’s time for smoke and mirrors to go away and for rubber to hit the pavement.
Gail, maybe you could have a talk with Notforoil, he didn’t predict an oil price collapse happening this fast. His model, if I’m not mistaken, predicted oil at about 75 dollars per barrel in 2015. We seem to be in some sort of free fall right now. Only time is going to determine the out come of this.
Predicting a free-fall, and how it will play out is difficult. This is usually associated with a slow-down in debt growth–something that is very hard to model.
Thanks for the idea. I might consider that, if things slow down a bit. It is pretty busy before Christmas.
Follow up quote from Shortonoil, I, obviously like what he says;
shortonoil on Fri, 12th Dec 2014 5:13 pm
I would not be surprised if they slowly push oil up to a price around $65 and keep it there for a while.
Our model puts crude at $76/barrel for 2015:
http://www.thehillsgroup.org/depletion2_022.htm
We think that oil has been over sold by the market at this point. But the other side of the coin is that you will never see oil at $100/barrel again, at least for not more than a day. It would be like the 2008 rush to $147. That was obviously not sustainable either. Oil, like any other commodity has a maximum price that the economy can afford to pay for it. That maximum price can be determined by the energy dynamics of the crude, and the processes needed to produce it, and its products.
What’s happening is a typical undershoot of physics – same thing happened when the stock market dropped in 2008 – it’ll come back, maybe overshoot some, but settle at a reasonable point. But equity markets are different – hype an speculation drive equity markets. As far as oil, we now have a more realistic view of actual supply and demand. Hopefully “sky is falling” speculation is over. Best thing is, with US production an established reality, we are no longer at the mercy of Middle East producers nor will we be so affected by what will always be instability in that region – this could be one reason the Saudis are acting as they are… they no longer control all the bats, balls, and gloves in the game..
Our own system is a bit unstable at this point, witness the stock market on the 12th of December. I am more and more a believer in the Hillsgroup model. There is a maximum price that our society can afford to pay for oil and that price will drop each year as the world economy and our economy decline. In a way the sky is falling. By 2030 to 2035 the world’s economy will no longer be run on oil. By 2020 shale, tar sands and deep water drilling will be off line. What sort of economy will that leave us.
Before 2020, we will have huge debt problems to contend with. Those may create unfixable problems with the financial system.
If the Bill that just passed in CON-gress is an indication they are expecting serious problems in the future by allowing banks to continue and expand their theft of Americans.
In a finite world, it becomes more and more expensive to extract commodities of many kinds, including oil. People’s wages don’t go up, they go down, because of diminishing returns: it takes more labor as well as more resources of every kind to extract oil and other commodities. Thus, productivity is in some sense falling, which is a big reason why wages of the common worker are tending to stay flat or even fall.
This combination means that we have two conflicting indicators of oil prices–one rising, and one falling. In fact, these indicators are moving farther and farther apart, with affordability of oil declining over time and cost of extraction rising. Governments can hide this problem for a time with QE, leading to ultra low interest rates. But once the take their foot off of the QE “gas,” or the effect of diminishing returns becomes too great, the affordability issue becomes a problem.
In physics, we often have situations of oscillation. Here, we are getting oscillation between high prices and low oil prices. Neither of them is really sustainable, because one is unacceptable to producers; the other is unacceptable to consumers. The final result seems likely to be collapse.
Good point Gail. The price of oil has nowhere to go but down because wages have declined and consumers can’t afford high prices. OTOH, producers of oil need a HIGH price to make it viable and cost effective to get it out of the ground. If they are not making money or their loans are no longer at ZIRP then they bleed to death financially and go out of business.
“Here, we are getting oscillation between high prices and low oil prices. Neither of them is really sustainable, because one is unacceptable to producers; the other is unacceptable to consumers. The final result seems likely to be collapse.”
That’s very well put, Gail. That’s the conundrum in a nutshell. Meanwhile as this disaster in the making moves ever closer people are starting families, having babies, buying houses, starting businesses oblivious to the cliff just ahead.
Paul Craig Robers says that the American people are insouciant; my word would be asleep. Gail is trying to wake people up. Gail and Shortonoil have waken me up.
shortonoil on Sat, 13th Dec 2014 2:27 pm
Paul Craig Roberts is right. There are some very evil creatures in positions of great power in this nation. Be warned; your life is no more significant to them than an insect’s.
Shortonoil has a blunt way of putting things. Gail is ever the diplomat.
“What’s happening is a typical undershoot of physics – same thing happened when the stock market dropped in 2008 – it’ll come back, maybe overshoot some, but settle at a reasonable point.”
I don’t know about the “settle” part.
HT Odum argued that a “steady state” is an unnatural thing. I prefer to think of it as “punctuated equilibrium.” The lynx-hare studies show that that the only constant is change, dictated by the logistics equation.
This is my main argument with Herman Daly and the “steady staters.” Let’s not waste too much time and energy working toward a “steady state,” rather, let’s work on strategies for managing the lowest dips, as well as the highest peaks.
That is what the Rimini Protocol was designed to do. It basically said that individual nations would pump no more oil than the aggregate depletion rate, which is arguably 3% or so, since 2005. If we had followed that, the whole tight oil glut would not have happened.
Not that I think it is even possible for everyone to follow this or that strategy, and that’s the beauty of diversity: you have a larger solution space when you don’t dictate the nature of the problem.
OPEC now wants $40 a barrel for oil, yikes !
http://www.zerohedge.com/news/2014-12-14/crude-crash-set-continue-after-arab-emirates-hint-40-oil-coming-next
Pingback: Petrodollar Ponzi Madness | Lewis Mariani Publishing
Hi Jan – sorry about your goats. Have you tried feeding them whole squash and pumpkins? The seeds are supposed to be anti-parasitical. Our nine goats can eat a 165 pound pumpkin in two days. There needs to be a whole lot more research into making do with less hay. Hard to do with horses and even cows but should be doable with goats especially if you live in a place where they can browse on weeds and trees. We are planning to do more with mangels, turnips and radishes next year. Those can be stored for after the pumpkin and squash runs out.
Probably should be investing in more scythes. People who want to drink milk are going to have to pitch in with the haying when the big equipment stops running.
We’ve fed them all our pumpkins and mangels.
I grow a lot of mangels. They make a good trap crop. We have wireworm problems; we surround our beets, carrots, and potatoes with mangels, and the wireworms get so distracted they leave the valuable root crops alone. Then we feed the wormy mangels to the goats, who can use the extra protein. 🙂
I maintained an acre of grass with a scythe a few years ago. It’s not particularly hard nor time-consuming, but it does take time away from other more pressing things.
Thanks for the advice. Wormy mangels sound perfect and I agree about your fence comments re goats. We find it easier to fence in what we want to protect and then let the goats eat the rest. You can invest in fences or you can employ shepherds, by the way. That is a good way to keep kids busy and used to be an honorable profession.
Jan, I think collapse starts when my neighbours start knocking on my door asking for food. I think collapse is in full swing three nights later when they kick the door down and take the food. This scenario will play out worldwide at different times depending on the local stockpiles. Until then, I see people adapting and making do. After that event it is full on end of civilization. I am currently thinking about how I will respond when this happens. So far, I’m leaning toward emptying my freezer and having a neighbourhood barbecue, opening my wine cellar and all getting roaring drunk. Then my wife and I will take a handful of her pain meds and get out of the away of those young enough and ruthless enough to stay alive. And good luck to them.
“I am currently thinking about how I will respond when this happens.”
You gotta figure out how to be worth more alive than dead. Or at least, you need to be able to convince others of that!
Reblogged this on Damn the Matrix and commented:
The low oil price has apparently already made its first victim…
http://www.abc.net.au/news/2014-12-11/oil-price-drop-claims-first-wa-victim-red-fork-energy/5962020
Where this will lead is anyone’s guess, but the ducks are all lining up on the wall for another crash…..
“Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year.”
http://www.bloomberg.com/news/2014-12-11/fed-bubble-bursts-in-550-billion-of-energy-debt-credit-markets.html
I notice the article says:
With lower prices, the amount that is economic to extract will go down, so reserves will go down. That will reduce lending capability because of the small barrels that are economic to extract. Also the $ per barrel are lower, so expected future cash flow is a lot lower. With higher interest rates, the amount available to lend could be a lot lower.
From your article about Red Fork:
“By some reports, $15 trillion of funds has been lent to this business, so it may well be in fact that it’s not the oil companies that are in trouble, it’s the banks.”
Australian dollars, I assume, but still quite a big amount… even for the banks.
Hope our “Paul” is enjoying his trip in Europe and living it up without worry.
There is a real different tone here now….
A toast for “Paul”!
After the collapse he probably won’t be able to make trips to Europe. I would be interested in his opinion of what is going on there.
My two cents worth:
http://www.cnbc.com/id/102255513
The FED will bail out the American shalemiracle-workers, because they are too important to go bust. A global debtcrisis will be averted and the Americans will keep fracking the soil they depend on. Just like Easter Island, they won’t stop until it’s too late.
Perhaps. But I wouldn’t count on it.
hi Gail
first i want to say great post,
with a collapse in oil production and with that economic growth we will need to transition to a “sustainable economy”. such a transition will be painful and Paul may be right as the human population is in overshoot. http://www.paulchefurka.ca/Population.html .
i also wonder about Ghawar which the Saudis are using to lower prices. i use the jug of beer and a straw analogy where if you drink by yourself it will last a long time, but if you try to increase production by letting your friends stick in a straw, you will not see a peak production but rather a slurping noise at the end.
get used to using less oil. try and remember those lessons your grandmother taught you after living through the great depression
Dear Gail and All
Attempting to move the discussion of ‘renewables’ forward, here are some thoughts triggered by George Mobus.
George discusses whether a box of jumbled mechanical watch parts is complex, or whether an assembled watch is complex. He concludes that most people regard the assembled watch as complex, while the jumble of parts is not complex.
Quote:
The structural complexity of the assembled watch was actually inherent in the parts. There are only so many (actually very few) ways in which the parts could go together to produce a working watch….the watchmaker has to do work on the parts in order to obtain realized complex organization from the potential complexity of the parts.
The movement from potential to realized complexity will require careful and extensive consideration. It not only highlights the thermodynamic framework of systems science, it also introduces us into the nature of process, emergence, and evolution. In some respects, we constantly assess potential connectivity as we deal with every situation (always processes?), from crossing a street to eating a sandwich. In other ways, potential always moves forward beyond our grasp as realized connections make entirely new forms of connectivity possible….It is a challenge for systems science to figure out, with hindsight, the process of transforming, evolving connectivity that has brought this realization. For an observer studying systemic potential just after the big bang, such a potential would be deeply buried in layers of modes of potential connectivity (chemistry, biology, sociology, economics, etc.) that would evolve over billions of years. From the array of potential complexity, some realized complexity emerges, with its own array of further potentials and some realization with yet further potentials.
End Quote
Now consider two broad themes in terms of solar PV and windmills generating electricity or pumping water. The first is the challenge that the two Google scientists thought they would tackle: produce commodity electricity so cheaply with PVs and windmills that fossil fuel generated electricity is driven from the marketplace. The second challenge would be: Design a hybrid system which uses sunshine and falling water and gravity and biology in the optimum configurations, but extended with PV panels and windmills.
An example of a natural system extended with PV panels is rotational grazing, controlled by lightweight electric wires given a charge by small PV panels. The energy and design intelligence which predominately power and guide the system are supplied by Mother Nature. But the wires and the PV panels are human additions. The only meaningful measure of the efficiency with which energy and materials are used and produced includes both the work done by Mother Nature and the work done with the human systems.
I predict that the effort to simply drop PV panels and windmills into the current electrical grid will fail. What will work is the finding of the new connections that George describes.
Oversimplified, we will invent Edo Japan with PV panels.
Don Stewart
Why not simply make a bunch of small pastures separated by low stone walls made from the rocks in the field, like in Ireland? That way, you are not dependant on electric fences. just rotate the animals between the pastures as needed.
You could even burn fossil fuels now, as a one-time investment in making the pastures. With good mortar, the fences should last millennia.
“Why not simply make a bunch of small pastures separated by low stone walls made from the rocks in the field, like in Ireland?”
“Low stone walls” might work for cattle, but we’d call them “goat toys” here. 🙂
(If a fence won’t hold water, it won’t hold a goat. Unless you make it more attractive inside the fence than outside. Which sorta defeats the purpose of a fence.)
What kind of goats are you raising, Nubians? There are breeds that are better at grazing that don’t jump around. My sister had nubians when we were kids, those things are a real pain, always doing exactly the opposite of what you want. In that case, 10 foot fencing keeps deer under control, should work for goats.
We have Sables, Nubians, Snubians (Saanen-Nubian cross) and Lamanchas.
I’ve never met a goat of any breed that didn’t like to climb on rocks.
Dear Gail and All
Second part of Rob Hopkins interview with Azby Brown on Edo Japan:
http://www.resilience.org/stories/2014-12-11/learning-from-japan-s-edo-period-what-is-just-enough
Answers a number of questions which have been asked here:
1. Were they happy
2. How did they compare to Europe
3. What about the Samurai
4. How did they combine better living with steady state physical economy
5. What lessons can we learn
6. Why aren’t we doing much of anything about the lessons
Don Stewart
Here we have the story playing out in Norway right now:
http://www.bloomberg.com/news/2014-12-11/norway-surprises-with-rate-cut-as-oil-slump-weighs-correct-.html
I understand that there are quite a few laid off oil workers–and likely more later. I would expect quite a few of them have high mortgages. Will Norway’s unemployment benefits be sufficient to prevent defaults?
Gail wrote:
“I understand that there are quite a few laid off oil workers – and likely more later. I would expect quite a few of them have high mortgages. Will Norway’s unemployment benefits be sufficient to prevent defaults?”
The mean salary in Statoil is more than $ 135 000, maximum unemployment benefits are a lot lower – we have some interesting times ahead…
The Schiller Institute is holding a conference this Saturday at Columbia University:
Alexander Hamilton’s New BRICS Paradigm Can Save the U.S.
The sanctions are working to build cooperative development to lift people out of poverty.
This was the policy of America’s Alexander Hamilton, the first Secretary of the Treasury of the United States. Hamilton built a sovereign United States, not a Confederacy, through a series of economic reports, including the Report on The National Bank, published December 13, 1790.
BRICSUS
Sounds like latin
Let’s rule out nuclear energy as the solution
The coming nuclear energy crunch
http://www.theguardian.com/environment/earth-insight/2013/jul/02/nuclear-energy-crunch-uranium-peak-blackouts
“This amount will not be sufficient to fuel the existing and planned nuclear power plants during the next 10–20 years. In fact, we find that it will be difficult to avoid supply shortages even under a slow 1% year worldwide nuclear energy phase-out scenario up to 2025. We thus suggest that a worldwide nuclear energy phase-out is in order.”
I think I read somewhere that to generate enough electricity to replace fossil fuels we’d need 5000 nuclear plants (we currently have 432 active plants).
Not going to happen.
5000 nukes or 15 billion solar panels + pumped hydro storage. They both come out to about 10 trillion dollars at BRICS prices or 50 trillion dollars at US/EU/Japan prices.
Only the BRICS can afford to do this. Cost of doing business is too high in the trilaterals
Michael Dittmar (author of the article you quote) looks that uranium supplies based on reserves. I think what is important is the ability to get the price up high enough to enable extraction. In fact, uranium seems to have the same problem that oil and natural gas does–difficulty getting the price up high enough. This is a recent chart
http://www.uxc.com/review/UxCPriceChart.aspx?chart=spot-u3o8-full
Regardless of the method, I think we come to the same conclusion–it is hard to get enough uranium out. If the world could run on electricity alone, I suppose it might be possible to pump up uranium prices higher. Right now, they are tied in with our need for everything else as well.
Uranium shortages? Sounds good
Landgrabbing
Dear all,
someone recently posted an article about “peak-soil”, saying that if the current rates of degradation continue, all of the world’s top-soil could be gone within 60 years.
http://newsdaily.com/2014/12/only-60-years-of-farming-left-if-soil-degradation-continues/#C309ijxbCbB1PJTU.99
So, for those who think or hope there will be “something” on Earth after the collapse, I think important to consider both sides of the problem: first we must regenerate arable land and revive the soils with permaculture et al. (see Don’s posts), and on the other hand we should try to slow down the ongoing destruction, ie deforestation and land-grabbing for mining industry, infrastructure buildings, and -overall- large scale plantations for both food industry and biofuels.
Looks like the latter (mostly sugar-cane for ethanol and palm-oil for bio-diesel) are the most powerful engines of landgrabbing at the moment.
Reliable and accurate figures are very difficult to obtain, but some are trying to do the job. The French journalist Agnes Stienne has tried to gather info and report it on very nice hand-drawn maps and illustrations:
One for Europe (interactive map):
http://visionscarto.net/accaparement-des-terres
another for USA, India and China:
http://visionscarto.net/accaparement-chine-inde-etats-unis
According to A.Stienne, at end of Sept.2014 (and starting in year 2000), the total surface was 36 Mha (million hectares) of concluded deals, plus 14 Mha of intended deals, splitted as follows:
– EU: 17 Mha (total incl.intended deals)
– USA: 10,4 Mha concl.+ 0,5 Mha intended
– India: 2,6 Mha concl.+ 3 Mha intended
– China: 2 Mha concl.+ 1,3 Mha intended
.
Today Landmatrix states 39 Mha concluded + 16 Mha intended (of which ca 12% should fail). http://landmatrix.org/en/
(to give an idea, 36 Mha is the size of Germany, and 55 Mha that of France)
The surfaces are huge, so are the damages on the soils, the biodiversity and the populations. For example, tens of millions of Indian farmers have been evicted (I’ve read 14m, it could be up to 30m… see eg the marchs led by Rajagopal
http://www.ektaparishad.com/Home/TabId/55/ArtMID/709/ArticleID/84/Millions-Can-Walk.aspx),
in Cambodia they talk about half a million evicted (5% of total population!):
http://www.phnompenhpost.com/national/world-bank-spotlight
etc etc…
For more information please see Grain and Oakland-institute websites:
http://www.grain.org/article/entries/4479-grain-releases-data-set-with-over-400-global-land-grabs
http://www.oaklandinstitute.org/
The following article describes the process by which most of the farmers are evicted: mostly, it’s the commons, lands declared as unowned (ie not covered by west-style property rights) that are sold by governments to foreign investors. This way the governments are getting fresh money, as well as promise of future economic growth for their country. If needed, the world-bank gives support to the governments in order to adjust the laws so that deals can be labelled as legal.
http://wealthofthecommons.org/essay/global-land-grab-new-enclosures
What a wonderful species we are, for all other species as well as for ourselves.
Thanks for the rather disturbing information. (I think you posted something different on this subject before too.)
It is all rather ironic that we take poor people’s land and also encourage deforestation, in the name of “renewable” biofuels. Then destroy the soil.
I am sure it is a way to increase debt though, and thus pump up the price of oil and other commodities. We have to keep thinking up ways to “grow” if we are to keep the whole system from collapsing.
Like eating our own body in order to stay alive a while more.
It works, in the beginning…
The article comes right on time for a free falling oil price. It would be “nice” to see – for once – the financial world reflecting reality, i.e. the end of growth etc. But for this to be true, the oil price would have to stay somewhere down here, at least not spike right up again and settle back in the $80-110 area.
Most analysts want to explain the current price beahviour with an oil “glut” coming over a relatively normal world economy, we should even benefit by cheaper energy costs. If the price recovers in 2015, their story will prevail.
Yes, one year seems to be a good time line, to see more clearly.
And thank you for all the insights during the last year.
I don’t think the PTB would stand by and watch the price of oil drop like this. They control every other asset price therefore they could just as easily manipulate the price of oil higher or lower as required.
I absolutely do not believe that the Saudi’s are behind this with the purpose of killing off much of the shale plays, just as I don’t believe the nonsense about a production glut.
Does anyone think that the United States and the corporations which control the country would stand for a minnow like Saudi Arabia over turning their carefully orchestrated ‘shale revolution’
And, not only that, would they stand by and allow peripherals to damage the overall production of oil by forcing the prices down and bankrupting not only shale but oil majors.
I find that difficult to believe.
These may be better explanations:
1. The US is trying to gut Russia and get rid of Putin
2. The central banks are seeing that QE ZIRP are no longer having much effect so they need to introduce some other form of stimulus. $60 dollar oil is definitely a powerful way to stimulate economic activity.
But, $60 oil comes with a huge price. It is the death knell for capex because oil majors were already cutting with oil at $110. Also low priced oil puts huge deflationary pressures on an already troubled global economy.
If the above is true, then might this not be a signal that we the end game approaches? Are the central bankers telling us that the they are willing to pay those prices in order to keep the economy going for a while longer?
If, on the other hand, this is about unseating Putin then this is one hell of a dangerous game we are playing. If this goes on for very long future oil production will be jeopardized and there is also the risk that Putin is pushed into a corner and reacts with a barrage of nuclear weapons.
He may be thinking “if you want to do a Saddam or Gaddafi on me, then I will take the rest of you rats down with me”
The tell of course is whether we see any production reductions. If total wellhead output is curtailed in response to standard econ 101 demand signals, then it will provide greater support to the theory that prices are responding to deflation.
However, if on the other hand we see no reflection of economic reality on gross production, well, then we know for sure the true nature of the game. As you say – and I am 100% in complete agreement – all markets are controlled. As such, it renders traditional fundamental analyses, like Gail’s, as moot. That’s not to say it isn’t necessary – after all, the conclusions are what used to motivate action and justify intervention.
In fact, what it really proves is that making money in the markets doesn’t reflect any form of traditional investing, but simply a tribute or skim taken by the cronies. If you knew a strategic decision had been made to eliminate the threat of a recalcitrant Russia using the oil weapon, you could make a killing shorting oil, going long USD. And guess what? They have.
I think another issue people are missing is this: the US/EU doesn’t want Russia defeated per se, we simply want them to buy in and participate in the global USD reserve system. That’s why Putin is the problem – he’s attempting to solidify the position of a strong, independent Russia. By why do the nukes have to fly just because of him?
That’s where the media comes into play. Imagine 20 something Russians being exposed to how Western millennials live on student debt, welfare, etc, whiling away their days at coffee shots, playing on social media, getting tatted up, and generally having a pretty relaxed life. Now compare that actually having to work, to produce, to effect personal discipline, the whole host of requirements. Which would you choose?
Especially, **especially** if you were cut a sweet-heart deal to have preferential treatment on freshly printed reserves. Which would you pick? Support some notion of nationalism, were you were the tool, or join the global consumption party where you got first dibs on everything? So look to political opposition to Putin with whom the West is negotiating, financing, etc.
I agree with most of that.
Very strange these days, to see a market plunge like that, and like the elites don’t care. Now all we need for the plunge to be really big, maybe even a black swan event, is not to reverse back up too soon and too high.
Come on, what you’re talking about, “B9K9”?
I agree East-West affairs should not involve brutality, but as a currency war it is expected to involve winners and loosers in terms of material standard of living. I couldn’t recommend buying in the american banking dream, to be honest, and I doubt much people in Russia would be willing to do it.
“The US is trying to gut Russia and get rid of Putin”
This would not be the first time!
The Former Soviet Union fell when Reagan got the Saudis to drop oil below the FSU’s cost of extraction.
SlowRider,
Yes, you’re right. Its funny actually to watch the financial journalist world try and wrap these weird oil price moves, into a nice conventional package of explanations. As if, somehow, this is perfectly natural and “the consumer will benefit” blah, blah, blah. Are they willfully ignorant or really stupid?
I wonder how many times I have read that there is an “oil glut” in the past month. Strange when there is no oil glut and production is almost flat year on year.
If only I had one dollar for each time I read that lie.
Tell a big enough lie enough times, and people will believe it.
I agree.
Just saying – a severe fall in real demand (e.g. from China) would mean a relative “glut”, even with flat production.
If there are no buyers, it is a glut. The is related to affordability, not quantity of oil, but people don’t realize that.
Johnathon Cahn says that stock market collapses come in seven year increments. The last stock market collapse was in the fall of 2008.
Jonathan Cahn’s book is the Mystery of Shemitah.
I doubt that oil prices will recover well in the 2015 timeframe. I suppose a bounce back up to $80 is possible, but only if the world economy gets better than it is today.
It is hard to see how higher world economic growth will take place in 2015. Lower oil prices are moving some would-be oil payments from one side of the globe to the other, and in the process, making it impossible for some borrowers (for example in Africa, and operating shale extraction) to repay debt. Low oil prices are leading oil companies to reduce new investment, leading to fewer oil-related jobs in the future. The conflicts generated by lower oil prices are leading to less globalization rather than more. Meanwhile, oil fields are getting more depleted, so the true cost of extraction is rising.
A quote from Rockman over at Peak oil news: “And back to chicken vs. egg: are low oil prices going to cause a weaker economy or has the eventual weakening of the economy brought oil prices down.” I have been philosophizing on this for some time.
Creedon: I am uncertain that the weak economy is what is driving oil prices down.
As has been demonstrated, the weak economy is not driving down the stock markets because of massive interventions by the banks.
http://suneetc.files.wordpress.com/2013/05/bloomberg-surpise-index-vs-sp.jpg
If I am wrong then we are likely very close to the edge of the cliff.
There appears to be a cliff on your chart.
The weakening of the economy brought oil prices down.
Now with oil prices down, contraction of the debt market will be exacerbated. Rates will rise on junk bonds. Banks will refuse to renew revolving lines of credit, because oil prices are low, for businesses dependent on oil revenue.
With oil prices down, there will be a contraction in employment in oil and gas, and in other industries supporting workers in oil and gas. This won’t take place immediately, but it will add to the tendency toward contraction.
Low oil prices will lead to deflation in Europe, Japan, and a number of other countries. This will make debt hard to repay. So will the large amount of dollar denominated debt, when other currencies have fallen relative to the dollar.
Gail says that with oil prices down there will be contraction….
This from the BBC UK today, talking about the North Sea fields..
http://www.bbc.com/news/business-30525539
Oil companies and service providers are cutting staff and investment to save money.
Robin Allan, chairman of the independent explorers’ association Brindex, told the BBC that the industry was “close to collapse”.
Almost no new projects in the North Sea are profitable with oil below $60 a barrel, he claims.
Retreat
“It’s almost impossible to make money at these oil prices”, Mr Allan, who is a director of Premier Oil in addition to chairing Brindex, told the BBC. “It’s a huge crisis.”
“This has happened before, and the industry adapts, but the adaptation is one of slashing people, slashing projects and reducing costs wherever possible, and that’s painful for our staff, painful for companies and painful for the country.
“It’s close to collapse. In terms of new investments – there will be none, everyone is retreating, people are being laid off at most companies this week and in the coming weeks. Budgets for 2015 are being cut by everyone.”
Mr Allan said many of the job cuts across the industry would not have been publicly announced. Oil workers are often employed as contractors, which are easier for employers to cut.
His remarks echo comments made by the veteran oil man and government adviser Sir Ian Wood, who last week predicted a wave of job losses in the North Sea over the next 18 months.
Decline
The US-based oil giant ConocoPhillips is cutting 230 out of 1,650 jobs in the UK.
This month it announced a 20% reduction in its worldwide capital expenditure budget, in response to falling oil prices.
Other big oil firms are expected to make similar cuts to their drilling and exploration budgets. Research from the investment bank Goldman Sachs predicted that they would need to cut capital expenditure by 30% to restore their profitability at current prices.
Service providers to the industry have also been hit. Texas-based oilfield services company Schlumberger cut back its UK-based fleet of geological survey ships in December, taking an $800m loss and cutting an unspecified number of jobs.
Aberdeen-based Wood Group announced a pay freeze for staff, and cut rates for its contractors.
UK oil and gas production has been in decline since 1999 – though the rate of decline slowed in 2013, a year which saw the highest level of investment on record.
The industry was hoping to see continued high levels of investment, stemming the inevitable decline of production as North Sea’s resources are used up. But falling oil prices have put that in doubt.
Title of the article you reference is pretty amazing as well. North Sea oil industry ‘close to collapse’
Interesting, the Daily Telegraph has picked up on the base and superstructure theory. Peter Oborne thinks that the Euro is a base without its necessary political superstructure, a single government. He thinks that the EU will now collapse; it is in depression, the single currency is not viable without a single government but the mainstream parties have lost the necessary authority to bring it about since the Euro crisis and the rise of the far right and left. He thinks that a new Euro confined to NW Europe will consolidate around Germany, with other, secondary countries attached to the Union.
However he does not seem to be aware of the deeper, more general crisis of the economic base. He thinks that the EU is in crisis because the common currency was imposed before the construction of the necessary single government. A different perspective might suggest that the crisis in the EU is in fact a symptom imposed by geological and financial limits. The economic growth required to sustain the single currency has been thwarted by the end of cheap, plentiful oil and the associated limits of debt. Otherwise the stable development of the base may well have led eventually to a single adequate superstructure.
According to my suggested analysis, the EU crisis that we are witnessing is not the result of a simple political failure to accompany the base at the outset with the superstructure, which could have developed later, rather it is part of a much broader crisis of capital, a global and final catastrophe that manifests in financial, political, and ultimately demographic collapse. The development of the EU, like the global economy, has been stuffed by Peak Oil. What we are witnessing is the beginning of the retreat of globalism, which depended on global economic development, and a return to the localism that has characterised most of human history. That is what it means for the superstructure to follow the base.
There will in my opinion be no continuation of mass industrialism under any form of political organisation, however “radical” it might have seemed to 19th century theorists. Then the fall of the Soviet Union was not so much the “end of history” as its prelude. What follows will be more of the order of scattered notes.
Quote from the article:
“But the outlook would change with a new European architecture based around a greater Germany.”
It is very late, a minute to midnight, and more than a little ironic, for the British political class to take THAT line! The whole of British policy for a century has been aimed to avoid German centrality at all costs, even the loss of, what, seventy million lives to that end. I suspect that we are all about to reap what we have sown.
http://www.telegraph.co.uk/news/worldnews/europe/eu/11286161/The-euro-is-heading-for-disaster-what-luck-for-David-Cameron.html
The euro is heading for disaster – what luck for David Cameron!
The final unwinding of the disastrous single currency could give Britain everything it wants from Europe
You are both right, as the problems are intertwined. Just imagine that the EU had had a unified treasury and was able to reflate. How long before the oil price went sky high, as in 2008, and then came crashing down again?
The euro consists of countries without oil. Anyone with oil went elsewhere. Thus, it is those especially likely not to do well flocking together. It is hard to see that it can continue for very long. I agree:
i just don’t buy the logic behind this article . Of cause there are some issues created with a lower oil price but to insinuate that there are not greater long term benefits is simply false.
I believe you have it backwards. The lower oil price is beneficial in the short term if anything, because it will give a little boost to growth.
But in the long term it will be disastrous because it will mean that capex gets slashed and that means exploration budgets get crushed meaning that we eventually end up with a situation where production is outstripped by demand and we get $147 oil or higher yet again.
That is exactly what happened in 2008. And shale oil was the relief valve when it came online.
Gail’s article is an excellent summary of the problems that are associated with cheap oil.
You say you disagree. Wonderful. But can you provide specifics? Where is she wrong?
Why??? Because Main Street Media talks this way?
It is now placing comments in random places even though we have only 366.
I suspect that it is due to the comments moved down the bottom. It might be better to delete them all.
Sorry. I don’t know how to fix the problem. You could mention who you are trying to reply to, but very often the same person has several comments.
David Stockman
“We are now far advanced into the third central bank generated bubble of the last two decades, but our monetary politburo has taken no notice whatsoever of its self-evident leading wave. Namely, the massive malinvestments and debt mania in the shale patch.”
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Dear Gail
Let me see if I can be clearer about debt.
I was a child of poverty and the late depression. Everyone I knew thought that being in debt was akin to living in sin. My parents didn’t owe anyone anything until I was 20 years old. Neither of my grandparents had any debt, ever.
Then I graduated from college (with money in my pocket, instead of debt) and went to work for a corporation. The new hires went through some ‘management training’, designed to show us how corporations worked. We were divided into teams which made widgets and marketed them and sold them. I was made the Chief Financial Officer of our team. As you might expect, I was all about reinvesting retained earnings in the business. But the price of the product we were selling kept rising, and the production manager wanted to make more and more. We didn’t have enough retained earnings to finance the expansion of the plant, so I reluctantly borrowed money. The price kept going up, even as we were doubling and tripling production. We finally made all the monopoly money the banker had and the game was halted.
What we didn’t know was that one of the other teams had fallen under the spell of a Marketing type, who was buying expensive advertising campaigns which kept driving up the price. But he wasn’t putting any money into the plant, and, in fact, had alienated the only two people on the team who were actually making widgets, and they had filed a union grievance and walked out. (On my team, all of us sat and made widgets when we weren’t actually busy with our white collar jobs.)
What this tells us is that retained earnings can finance a slow and steady expansion, with relatively low systemic risk. If a small fish tries to swallow a large fish in a hostile takeover, then the small fish has to get a lot of money from somewhere: equity investors or debt. Similarly, if a small company (say, IBM making selectric typewriters) wants to become a computer giant, it is similarly going to have to raise money from someplace. Consider Rosneft and the exploration of the Arctic. Why do you think they took on Exxon as a partner in a 400 million dollar well? You can think of political reasons and technology partnership reasons, but another reason is probably just to spread the risk.
If it’s a sure thing, you want to keep the equity to yourself, so that you get all the benefits. You will borrow some money if you need it and interest rates are low. If you have plenty of cash, such as Apple, then you don’t need to borrow money…but you may anyway with ZIRP.
If it’s risky or you need technology partners, then you will take in equity investors to spread the risk. The equity partners will also take on lots of debt which is owed by a shell corporation so that they are both leveraged on the upside and protected on the downside.
If you are a wildcatter (in the generic sense) and full of confidence in yourself, you will do your best to attract investors who absorb all the risk while you get most all of any profits.
For someone like an automobile company, the problems go back to Karl Marx. Marx observed that industrial capitalism is quite capable of making far more widgets than the market can absorb. Plants can be automated and run 24 hours per day. So the manufacturer perceives that they can expand the market by offering cheap debt. And so we get zero payments for 12 months and sub-prime loans and other come-ons. It’s not because the manufacturer couldn’t build cars without going into debt or offering loans to their customers, its that the market mechanisms identified by Marx work viciously to promote debt as the solution.
Consider my example of the motor scooter. Most automobile manufacturers are far more interested in selling automobiles with risky sub-prime loans than they are selling motor scooters for cash. If the government can be counted on to buy the defaulted loans, so much the better. That’s known as moral hazard.
Can we describe the selling of automobiles to sub-prime borrowers, and the suppression of the sale of motor scooters, as ‘bringing demand forward in time’? That’s a tricky question. Based on my childhood, you can probably imagine the words I might use to describe it.
Don Stewart
The price of oil (and other fossil fuels) is a major determiner of your company’s ability to create retained earnings. Low oil price is also a major determiner of rising inflation-adjusted wages. Back when you went to school, the model was based on what was available then.
As the price of oil has increased, the ability to create earnings using this model has deteriorated. Businesses need lower and lower interest rates, in order to do “sort of” OK.
If we were to go off fossil fuels, there would be practically no earnings to finance future expansion. In fact, it probably wouldn’t happen.
What happens depends on the use of cheap fossil fuels to pump up the system.
Gail
I will agree that financial fraud has permitted a lot of bubbles to be blown, and mal-investments to be made. It’s a form of Overshoot.
Let’s assume for the sake of argument that the state of fossil fuels no longer permits growth of BAU. Then the only sane solution is to stop seeking growth with BAU. As I say elsewhere, we would have to seek slow and incremental improvements, reminiscent of Edo Japan.
Edo DID produce surpluses. If you read the Azby Brown/ Rob Hopkins interview you will see that there was abundant nightlife in the cities. They were not starving. It is possible to retain some earnings in such a society and invest in new methods of production. In fact, Edo witnessed quite a lively forestry and agriculture culture of innovation. But I have never heard mention of lots of debt. I suppose somebody starting a new restaurant or night club in Edo might have taken out a loan, but I doubt they had any equivalent of the Federal Reserve or the TBTF banks.
If your point is that BAU requires the sort of growth that we have been financing with monetary inflation, I agree. If your point is that such insane practices are the only thing we can do, I disagree.
Don Stewart
No additional comment needed
Read the whole thing. Who needs a tinfoil hat.
http://www.theguardian.com/environment/earth-insight/2014/jun/12/pentagon-mass-civil-breakdown?CMP=ema_565
There are a lot of smart people in the Pentagon, State, CIA. But they have to get paid. A collapse will cut the credit worthiness of the USA total. Taxes will be much harder to levy and get paid. I see the government as being much smaller. We will revert to growing and trading for our food. Now, I’m not looking past my lifetime (25 more years). I see the collapse as the failure of the banking system, and it will come first. Anyone can guess how the bad debts will be dealt with or written off.
Everyone will find it much harder to earn a living. I don’t see door to door robbery, but I do see a lot of initial killing when the government cannot payout SS, food stamps, et al. That should last no more than 30 days.
I see no reason to fear a crack down on the public at large. That takes money, new money, which the government won’t have to spare. I see the initial collapse taking society back to 1910, hopefully with cell phones still working. The pentagon can study their hearts out, but they cannot follow through with plans without pay. The US government will see interest rates at 8 to 12% after default, immediately. Hello?
A crackdown on the public at large requires oil. Money is just a claim on resources like oil. What good is money for a crackdown if there is no oil to buy? It doesn’t mean they won’t try a crackdown, but they will not be able to keep it up. You think cops will put their lives on the line after their retirement accounts have just been vaporized, especially when people who are worried about where their next meal will come from are the ones that they are supposed to crack down on? Especially if they are worried about where their next meal is going to come from?
And 30 days is reasonable if you assume that everything is going to break all at once. There is no rule that says that things cannot break in stages. Hope that the break is sudden and fast, and plan on it being a long drawn out process.
The G8 / G20 summits in Toronto 2010 cost nearly $1 billion. If we use that as a benchmark, say $1 billion per week to lock down a large city, using today’s dollars and just using that to predict oil and other uses, it would take a huge chunk of America’s GDP to maintain a nationwide militarized state throughout a year, and that is only if the economy was somehow still functioning.
“Everybody has a plan, until they get punched in the mouth.”
~Mike Tyson
“In a hundred years this all won’t matter”
– Jimmy Buffet
Dear Gail and All
I am not sure this is a permitted topic here, since it is off at a tangent.
It concerns the practical question of trying to protect monetary assets from government seizure during a bail-in. For example, I saw one article which rated the banks as ‘most likely to require bail-ins’ and those ‘least likely to require bail-ins’. The US made the top 10 list of exposed banks, while banks in Singapore and Switzerland were in the bottom tier of exposure.
There is also the question of small banks and credit unions. My understanding is that many of these now function almost solely as retail establishments, and simply send the money that their clients deposit on to the TBTF banks to churn. I assume that the small banks are ‘depositors’ and would get a haircut, which means lots of them would simply fail. But I don’t know that for a fact.
What about IRA’s held by non-bank financial institutions such as insurance companies? Are they essentially like the TBTF banks, gambling in risky ventures which can quickly go sour? Do the ‘bail-in’ regulations govern them also? I believe that insurance companies are guaranteed by the various States, which I do not find comforting.
What about cash in safe deposit boxes. I believe there is a limit to how much cash can be withdrawn from a checking account. But presumably one could put cash in a safe deposit box and periodically put cash in or take cash out as the need arose. So long as interest rates are zero, there is no loss of interest income. And we can assume that those offering 3 percent are gambling in the junk bond field, and we all have an inkling where that is headed.
During the Depression, the government required that safe deposit boxes be opened and that gold had to be turned in for cash. The US government has, in recent years, gotten very aggressive about foreign bank accounts, and has angered many people around the globe by trying to collect income taxes on those with very flimsy connections to the US….such as the Mayor of London.
I do not expect anyone to come up with anything foolproof to protect us from the Feds, but does anyone have any knowledge which might be useful?
Don Stewart
Don, I’m of the opinion that when things go south, the rule will be that if you don’t hold it physically, it’s not yours. If you think that gold or silver will be the monetary future on the other side of the bottleneck, do not put them into a safe deposit box. You’re not the only one with a key. If you think that cash will still be valuable, use your mattress. I personally think that other things will be more useful than gold, silver and cash, but you get the point. And maybe after things calm down, those will make a resurgence. Who knows? Capitol controls are common in failing economies, and what you don’t have now, you may not be able to get in the future. When supply chains really start to break, we will be in a more visceral state of existence, where what you can put from hand to mouth makes more of a difference than what you own on paper, and in those circumstances, people will not always play fair with your stuff.
As far as IRAs, 401ks, etc… don’t be surprised if, after a Wall Street crash, the government says “to protect you from those evil bankers, we’re mandating that X% of your retirement accounts be held in US Treasury securities, the safest thing EVER! And we guarantee that you’ll get Y% returns!” If things don’t crash too quickly, they’ll eventually be faced with stealing your retirement account, then printing money when that runs out, or just printing money. It’ll be the equivalent of robbing a bank because that’s where the money is.
Not a 100% solution but maybe a 10% solution. Bury it in the ground.
How many sites and where to place the sites I do not have advice.
What, seeds, tools, spices, medicine, guns, ammo, books on farming and farm production, vitamins, long store food, alcohol, band aids and simple medical supplies, etc….
This may be the article you read. It has links to other publications. http://www.zerohedge.com/contributed/2013-12-13/part-8-9-key-considerations-protect-deposits-bail-ins
Keeping a little extra cash on hand probably doesn’t hurt. Cash under the mattress is probably safer than in the bank.
I work n a small bank, so if I hear the balloon is about to go up, ill give u a warning by posting on this blog. However we need to have some sort of code so the gov wont bust me, so I’ll post, “The Archdruid’s beard is on fire.” When u c that run down to your bank and get everything!
I guess it might be helpful. I wonder myself when and how to disconnect from BAU and cash out. It’s really hard decision. I don’t want to make ‘false start’ and spend 10 more years keeping the cash in the mattress, as some suggest. It’s not healthy/safe these days.
dashui,
Thanks in advance for the advance warning. We could sure use someone like you.
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Dear Gail and All
Pertaining to previous dissuasion about the bail in requirements cemented at the G20 meeting. I find the numbers in this article to be thought provoking. The usual story is that the derivatives are all off-setting, so there is no real risk. but the derivatives are so huge compared to the deposits that even a slight miscalculation could wipe out the deposits.
Don Stewart
http://www.zerohedge.com/news/2014-12-09/european-banks-risk-bail-ins-2015-moodys-and-sp-warn
In the U.S., the derivatives market involved financial transactions to the value of a phenomenal $297.5 trillion in March 2013. Deposits at U.S. commercial banks were valued at a mere $9.3 trillion.
Quote from previously noted link; “Depositors in some Cyprus banks saw 50% or more of their life savings confiscated overnight. This is not talked about constantly on CNN.
Thanks! This is a link Ellen Brown sent to me, when I wrote to her asking for more information on the bail-ins.
http://www.financialstabilityboard.org/wp-content/uploads/Overview-of-Progress-in-the-Implementation-of-the-G20-Recommendations-for-Strengthening-Financial-Stability.pdf
Thank you Gail.
I’ve tried to go through this report and found it very harsh reading and understanding its iplicit meanings (I’m far from being specialist; that doesn’ help). I nevertheless think the interesting part should be hidden somewhere in §.3 “Ending TPTB”.
The footnote #18 page 9 opens a document about TLACs: “Adequacy of loss-absorbing capacity of global systemically important banks in resolution”, where I found this (top of p.5):
“Resolution strategies and the resolution plans which operationalize them should set out how firms may be resolved without severe systemic disruption, without exposing public funds to loss, and while ensuring continuity of systemically important (or “critical”) functions. Losses should be absorbed in the first place by shareholders and then by unsecured and uninsured creditors consistent with the statutory hierarchy of creditor claims.”
http://www.financialstabilityboard.org/wp-content/uploads/TLAC-Condoc-6-Nov-2014-FINAL.pdf
Then I wasn’t able to find out neither if this “hierarchy of creditors” had been modified, nor what exactly “unsecured/uninsured” means. Maybe it’s hidden in the document about “Key Attributes” (footnote #17) or some appendix.
Dear Stefeun
Also see this development from the last few hours. As I understand it, Citibank wrote some language into the funding bill which was passed by an exhausted Congress which insures that derivative losses are covered by either the depositors or the taxpayers.
Don Stewart
http://www.zerohedge.com/news/2014-12-12/presenting-303-trillion-derivatives-us-taxpayers-are-now-hook
Don,
I think in this article they talk only of getting money from taxpayers (ie government), not directly from depositors.
But seen the astoundingly huge amounts involved, I start thinking one or the other way won’t make any big difference once things start to go really bad. Maybe going through taxes -like in 2008- could slightly delay the dire outcome, but even the feasibility of such process is unclear next time ; my 2 cents.
Dear Stefeun
Chris Martenson has some calculations done by Jim Rickards about the size of the potential financial losses in US tight oil….they are twice the size of the losses in junk real estate in 2007. So here we are 7 years later and everything is in worse shape. Europe is weaker. Japan is weaker. China is not growing. Commodity prices are down. And the Central Banks ZIRP has driven all the investments into the high yield space, which is heavily invested in tight oil and shale gas. The TBTF banks can write sections of budget accords which magically get enacted into law after midnight.
Where does one escape to?
Don Stewart
I wouldn’t suggest Antarctica, although that has the benefit of virtually no population.
Africa is an area that is likely to default on a lot of debt as well. It is very much involved with commodities of a number of types, including oil. Lately, it has been doing quite a bit of borrowing. This cannot continue. Venezuela is frequently mentioned as a country that cannot continue for long. And Greece is doing worse recently.
I don’t know if Australia has much debt, but it certainly is in the commodity business as well.
Of course, the FDIC has very little money actually in it. Dodd-Frank seems to limit the amount of borrowing the FDIC can do. According to this summary,
People with bank deposits are unsecured creditors. Those with deposits in excess of the insured amount are uninsured creditors. Both come out pretty low in rankings if there isn’t enough to go around.
There is a plan to add a layer of Bail In Securities, above normal capital level, as a buffer to try to protect depositors somewhat. (Otherwise, depositors are likely to end up out in the cold.) But it is not clear the buffer method would work very well. Why Bail-In Securities are Fools Gold. Apparently, regulators think that they can get pension plans to contribute quite a bit of this addition layer of capital for banks. Banks wouldn’t be able to contribute. The rules haven’t really been set, though. I agree with the author that pension funds would be ill advised to buy these bonds. The likely buyers would be hedge funds, but they would be here today, gone tomorrow, and couldn’t provide enough capital to protect investors.
This is an article about the buffer proposal.
http://uk.reuters.com/article/2014/11/10/g20-banks-regulations-idUKL6N0SY0PW20141110
Thanks Gail for your links and comments.
Quote from A.D.Persaud’s peer-reviewed paper:
“Bail-in securities will help to address idiosyncratic bank failures where the circumstances are unique to one institution, confidence in the system is not at risk, and the scope for contagion is limited. But authorities are already quite good at resolving these individual gone concerns, often with the help of some creditor bail-in or haircut. (…)
The circumstances that the authorities are much less good at resolving are those where many banks run into trouble around the same time. It is in these situations that bail-in securities are likely to make matters worse not better.”
I feel like from now-on, any attempt to fix a problem is likely to accelerate worsening of the whole situation.
I agree. This is a link to a post I wrote for The Oil Drum, back at the beginning of 2008, talking about the events I expected that year. Peak Oil and the Financial Markets: A Forecast for 2008.
I was asked to write a forecast for 2015 for an actuarial publication in the UK.
I wonder how many shale producers will go out of business in the next year, even if the price then recovers. And will the banks be hesitant to lend to shale producers in a market characterised by wild fluctuations in oil price? Also, have the Mid East petro states been forced to refuse to lower production because of the need to fund their own states? Will oil countries get vicious in the market to bring down their competitors and to boost their own profits? Is that viable, for long, in an interconnected global economy? I wonder if events over the next year will herald the eventual end of most oil besides that of the big companies. Does this foreshadow an oil death spiral? And is the global economy about to crash anyway because of the end of QE and ZIRP? Does OPEC know that and they just want to get what they can while they can?
An article in Wednesday’s Daily Telegraph reports that the Bank of America reckons that OPEC is over, since Saudi refused to lower production at the last meeting, to the benefit of only the Mid East petro states. Oil will now be market driven with wild fluctuations in price and peripheral producers such as Venizuela and Nigeria will be driven out of business, shale projects in Argentina and Mexico will be choked, Canada and Russia will also be affected, and major companies will have to cut back on projects. 15% of US shale producers are now selling below profit and 55% will be knackered if oil falls below $55. (It has fallen from $115 to $65 in the last three months to five year lows.) Bank of America expects oil price to fall to $50 in six months and a sharp rebound to maybe $90 next year due to the consumption of surpluses. Citigroup on the other hand argues that US shale marginals are closer to $40.
http://i.telegraph.co.uk/multimedia/archive/03133/shale_fields_cost_3133134a.PNG
This bit sounds ominous, as the Fed tapers QE and raises interest rates. Over half of global GDP is supported by ZIRP:
Bank of America said quantitative easing in Europe and Japan will cover just 35pc of the global stimulus lost as the Fed pulls back, creating a treacherous hiatus for markets. It warned that the full effect of Fed tapering had yet to be felt. From now on the markets cannot expected to be rescued every time there is a squall. “The threshold for the Fed to return to QE will be high. This is why we believe we are entering a phase in which bad news will be bad news and volatility will likely rise,” it said.
What is clear is that the world has become addicted to central bank stimulus. Bank of America said 56pc of global GDP is currently supported by zero interest rates, and so are 83pc of the free-floating equities on global bourses. Half of all government bonds in the world yield less that 1pc. Roughly 1.4bn people are experiencing negative rates in one form or another.
These are astonishing figures, evidence of a 1930s-style depression, albeit one that is still contained. Nobody knows what will happen as the Fed tries break out of the stimulus trap, including Fed officials themselves.
http://www.telegraph.co.uk/finance/oilprices/11283875/Bank-of-America-sees-50-oil-as-Opec-dies.html
The other side of the coin is that US shale is putting downward pressure on OPEC production.
http://www.bloomberg.com/news/2014-12-10/opec-says-2015-demand-for-its-crude-will-be-weakest-in-12-years.html
quote:
OPEC cut the forecast for how much crude oil it will need to provide in 2015 to the lowest in 12 years amid surging U.S. shale supplies and reduced estimates for global consumption.
The Organization of Petroleum Exporting Countries lowered its projection for 2015 by about 300,000 barrels a day, to 28.9 million a day. That’s about 1.15 million a day less than the group’s 12 members pumped last month, and the 30-million barrel target they reaffirmed at a meeting in Vienna on Nov. 27. The impact of this year’s 40 percent price collapse on supply and demand remains unclear, OPEC said.
“The downward revision reflects the upward adjustment of non-OPEC supply as well as the downward revision in global demand,” the group’s Vienna-based research department said in its monthly oil market report.
Brent crude futures collapsed to a five-year low of $65.29 a barrel in London yesterday amid speculation that OPEC’s decision to maintain output levels despite swelling North American supplies will intensify the glut in global oil markets.
Demand for OPEC’s crude will slump to 28.92 million barrels a day next year, according to the report. That’s below the 28.93 million required in 2009, and the lowest since the 27.05 million a day level needed in 2003, the group’s data show.
Come on, the MSM doesn’t exist to inform, it exists to sell advertising.
The notion that shale producers will cut back production or exit the business is ridiculous. What part of ‘economic warfare’ is difficult to understand? In total war, all resources are made available, including something as trivial as the Fed covering the debts/losses of shale producers.
The whole point of this offensive is to destroy Russia. Any rudimentary strategic plan would address their 3-4 advantages:
– natural resources
– gold reserves
– defensible boundaries
– mono culture
We can see what is occurring in the crude and financial markets to reduce their foreign income to nil. That means ramp up production, cover the operating short-falls and losses via backdoor QE, and short the sh!t out of the gold markets.
Attacking their defensible boundaries of course explains Ukraine, but the mono culture requires a little more nuance. That’s where the power of Western media comes into play; the siren song appealing to young Russians about joining the easy life & consumption party must be pretty alluring.
You can still make a lot of money in these markets if you follow the ball, and not the diversions.
Also to tell us what to think.
We are in “a heap of trouble.” It seems to me that “peak oil” comes through low oil prices, rather than high oil prices.
You are a cautious lady. Your above quote that “we are in a heap of trouble is disturbing.
Totally off and on topic:
There is a marvelous 11 minute TED talk where a designer buys a toaster at an appliance store for 4 pounds ( about $6.25 ), and tries to duplicate it from scratch — from smelting the ore and forming the metal, to producing the plastic. It is funny and very sobering which him struggle and fail.
http://www.ted.com/talks/thomas_thwaites_how_i_built_a_toaster_from_scratch#t-19317
If he had focused on function over form, and been a bit more of a perfectionist, he probably would have had more success.
I would focus on getting a working element first, and keep iterating until that works, then move on to making a spring on a timer and making a case.
Fascinating idea microwaving iron ore, I don’t think i would try that.
I don’t think people ever stop to think about the details of anything simple.
I am sure they wouldn’t think about the detail of getting electricity. Or the detail that electric utilities need a functioning financial system, or they are not able to pay their workers. Everything is much more complicated and interconnected than a person might expect.
“I am sure they wouldn’t think about the detail of getting electricity.”
Exactly !
….or as Mike Tyson’s famous quote: “Everyone has a plan until they get punched in the mouth”.
The problem is that the entire system is tied to cheap oil, directly or indirectly. When the time arrives for that day of reckoning the best prepared maybe be shocked at what transpires.
Even if you assume the electric supply as a given, the toaster is impossible for an individual to build.
Never mind a toaster. Try making a ball point pen from scratch.
Never mind a ball-point pen. Try making a pencil from scratch. I’ve looked into it.
Dear Jan and Others
I think you guys are on the wrong track. Take a look at Edo…what did they do?
In terms of calculating, they used abacuses. They even had people who specialized in abacus repair.
In terms of communicating verbally. The basis in all traditional societies was memory. Homer reciting his poems would be an early paradigm. Probably the custom of having one or two witnesses was an effort to bring more reliability into the process of remembering what the terms of an agreement were. When something needed to be written, they could use various methods. One is to inscribe a clay tablet…we still have those from ancient Mesopotamia. People wrote on bark. Daniel Boone carved his name on a tree trunk.
More flexible were papers. The ancient Egyptians used papyrus. The Japanese used, I think, rice paper. They still make very fine rice papers for artists. The paper was expensive in Edo.
As writing implements, they could use a variety of things. I imagine that, being Orientals, they mostly used bristle brushes. If they had been signing the Declaration of Independence, they would have used a quill pen. Chinese scholars ground their ink before they started to do their calligraphy.
It would likely to a total waste of time to try to make pencils and ball point pens.
Don Stewart
I, Pencil. A right wing screed from 1958 http://fee.org/freeman/detail/i-pencil/
James asks “So you’re saying we should support the US’s shameless attempt to exploit Russia by bringing them into the consumerist fold knowing full well that even that is just another version of extend and pretend? In a word, bullshit! The financial cancer that is now eating the US alive from within needs to be contained and eradicated. The fact that US citizens will be devastated in the process is our own fault for ever getting in bed with this unholy beast in the first place.”
James, as a young boy, my great-grand father was chased during the ant-German hysteria during WW1. Did Bernays and the other propagandists know full well that stories of Germans bayoneting innocent Belgium infants was a fantasy? And yet, if you spoke out/up, you could end up like Eugene Debs, originally sentenced to 10 years in prison by this little ditty, which you might be surprised to know that the 1919 Sedition act is still in force:
http://en.wikipedia.org/wiki/Sedition_Act_of_1918
Anyone publicly opposing the current state of war is a fool. This isn’t Iraq, Iran, or a host of other minor-league MENA targets. Ask yourself this: why Russia? Doesn’t that tell you something about the state of affairs, and indicator that we are much closer to the even horizon that Gail so eloquently describes.
Before you were born, the trap was set. To stupidly put your head in the noose is your affair, but I’m on the Russia is the evil empire bandwagon.
We should be grateful that we are on the winning team because we get the spoils.
One could have been born in iraq, Libya, Somalia or any one of a number of countries that are on the losing team.
There is no middle ground. You are either winning or you are losing.
If our team captain has determined we must confront Russia, then assume there is a good reason for this, and that this relates to us remaining the winning team.
Cheering for Russia could be detrimental to your economic status (although I do agree, it is easy to cheer for Putin when you observe our team leaders’ hypocrisy)
“confront Russia, assume there is a good reason for this”
Well, I guess we could consider extending the Ponzi and preserving USD reserve status as “good reasons”. LOL Seriously, the entire Western project is dependent on reducing Russia to the status of vassal state. If we cannot incorporate their $trillions of valuable natural resources into the global monetary system, it will have very significant consequences for our standard of living.
As an aside, it sometimes feels like there’s significant cognitive dissonance taking place on this blog forum. Most posters expressing an opinion seem to be in complete agreement with Gail’s prognostications, and yet, they cannot mentally reconcile what her message really means.
Her message is simple: as a long term prospect, BAU is dead. But in the interim, every conceivable means of attempting to extend BAU will be utilized. Russia isn’t the real target, but simply a means to an end. If one cannot fully comprehend the seriousness of our collective situation, then it might behoove them to remain quiet.
Stupidly sympathizing with the other team, no matter how much you may disagree with current US/EU policy, or view our actions as immoral and/or hypocritical, is a sure loser. You’ll end up poor, harassed, and possibly in jail.
Correct.
One has to wonder if all the thought and effort that goes into the articles on this site is wasted.
B9,
Yes, you are mostly right, but I disagree with you that our leadership is collectively rubbing their hands together and saying, “ah, yes, we must turn Russia into a vassal state so that we can incorporate their wealth into the global monetary system!” [fade to evil laughter]. The world just doesn’t work that way. Events spin out of control. The center cannot hold. The falcon cannot hear the falconer, and something slouches towards Bethlehem to be born. That is what is really happening and everyone is powerless to either control it or stop it. How about reading some Yeats instead.
THE SECOND COMING
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
(there’s more, but you’ll have to google it)
Great article :
Oil as a Political Weapon
The Economic Consequences of Global Oil Deflation
by JACK RASMUS
Jack Rasmus is the author of the forthcoming book, ‘Transitions to Global Depression’, Clarity Press, 2015; and Epic Recession: Prelude to Global Depression and Obama’s Economy, both by Pluto Press, 2010 and 2012
A new wild card has just been introduced into an already increasingly unstable global economy: a growing world glut of oil and consequent oil price deflation.
But even before that ‘worse’ may occur, the rapid drop of oil prices since last June is having the very same effect right now, in the present, that the US Federal Reserve’s policy shift may also have in the near future: that is, it is causing the US dollar to rise and EME currencies to fall, thus setting in motion the aforementioned destabilizing effects on their economies. It is just that the oil deflation-rising US dollar effect is impacting the oil and commodity export dependent EMEs first and most severely at the moment. A more general negative impact may soon follow, and most certainly will sometime in 2015.
Link to the full article in “Counterpunch” by Mr. Rasmus
http://www.counterpunch.org/2014/12/08/the-economic-consequences-of-global-oil-deflation/
Thank you for this link. The world economy has many moving parts, as soon as we think we have the answer, we find we have missed some part.
Thanks for that link as well. As the article points out, it’s what Gail has been saying:
“Third, decline in financial assets tied to oil could increase the tendency toward global financial instability. Oil deflation may lead to widespread bankruptcies and defaults for various non-financial companies, which will in turn precipitate financial instability events in banks tied to those companies. The collapse of financial assets associated with oil could also have a further ‘chain effect’ on other forms of financial assets, thus spreading the financial instability to other credit markets.
Saudi Arabia and its neocon friends in the USA are targeting both Iran and Russia with their new policy of driving down the price of oil. The impact of oil deflation is already severely affecting the Russian and Iranian economies. In other words, this policy or promoting global oil price deflation finds favor with significant political interests in the USA, who want to generate a deeper disruption of Russian and Iranian economies for reasons of global political objectives. It will not be the first time that oil is used as a global political weapon, nor the last.”
Thanks! This is a link to the article: http://www.counterpunch.org/2014/12/08/the-economic-consequences-of-global-oil-deflation/
Dear Gail and All
I have spoken many times about Azby Brown and his book on Edo Japan and the sustainable society that they maintained for 250 years….with no fossil fuels.
Thanks to Rob Hopkins, you can hear Azby’s TED talk and Rob’s interview with Azby:
http://www.resilience.org/stories/2014-12-09/knowing-what-just-enough-is
This is not, perhaps, exactly ‘steady state’, since things got steadily better in terms of many measurable outcomes. It is also not ‘ideal’ because of the social stratification. Nevertheless, I think that anyone who is actually willing to look at this society and compare it to what we have today is bound to be impressed.
Don Stewart
Hi Don,
“I have spoken many times about Azby Brown and his book on Edo Japan and the sustainable society that they maintained for 250 years….with no fossil fuels.”
Not sure what relevance that period is relative to today, for today billions would have to die to maintain steady state with no fossil fuels.
I think nature will see to it some sort of equilibrium is found, with/without our consent.
Daniel Hood
One of the disappointing things is that people like you are unwilling to look.
Waving your arms about 7.2 billion and the disappearance of fossil fuels doesn’t solve any problems I can think of. Learning to live without fossil fuels MIGHT solve some. A society which did it for 250 years deserves a look.
Don Stewart
“Waving your arms about 7.2 billion and the disappearance of fossil fuels doesn’t solve any problems I can think of. Learning to live without fossil fuels MIGHT solve some. A society which did it for 250 years deserves a look.”
I tend to agree with that. When humans go into survival mode they tend to be creative and will try anything to stay alive. Gail for her part says trying to do something is better than nothing.
But here’s the rub, this entire MODERN SYSTEM and SOCIETY for the last 200 years or so has been built on and around fossil fuels. The system is now so COMPLEX and INTERWOVEN into everything we EAT, DRINK or the GOODS we buy that once it’s out of the system it’s nearly impossible to replace with any other alternative that is currently available to maintain a 7B+ global population that keeps growing.
I’m all for people trying, whether it’s enough when that day of reckoning arrives for the fossil fuel world waits to be seen.
Dear Rodster
And what makes you think that maintaining a population of 7.2 billion should be my first priority?
I recently stated here that I guesstimate that fewer than billion will actually be willing to do what they need to do to survive. I can’t think of anything I can do about that.
The graphs will look like the collapse of the cod or the sudden collapse of rabbits and foxes. Get out your Overshoot book and refresh your memory.
But if several hundred million do survive, then they can benefit from studying the patterns which worked before. Intentional communities who aim at making it through the bottleneck may also benefit.
Don Stewart
I’ll say it once again. Trying is better than not trying. As John Michael Greer says we could be looking at somewhere between we’re all gone or we all survive. Only your hairdresser knows for sure. I don’t have the answer how many will survive and neither do you.
Rodster
Donella Meadows said ‘We can’t control systems or figure them out. But we can dance with them.’
I don’t expect anyone to believe that I, Don Stewart, have a crystal ball. All I am trying to do is say, ‘Hey, here is a pretty recent example of a civilization that danced pretty well…take a look’. But an amazing number of people are unwilling to look.
Don Stewart
Don,
I’ve looked a bit at Edo Japan. Fascinating stuff. 25-30 million people sustained on those tiny islands without industrial society. Sustainable farming practices. They did have the sea to draw resources from. How did they fare on not raping the sea? That I don’t know. But they seem to have done pretty well for themselves.
One thing I want to know if we shift to something inspired by Edo Japan is can we do without the asshole samurai who are allowed to kill at even a perceived insult?
Dear garand555
Azby’s book talks about the way the real nobility got control of the samurai. Essentially, they kept reducing their real standard of living. The samurai mostly had subsistence gardens and some sort of profession after a reasonable period of time. There were no wars in Edo, so the martial skills of the samurai were not very well respected. I imagine they all kept their swords for ceremonies.
Given the hundreds of years of warfare which had preceded Edo, the initial preferences they were given was just political realism. It would be as if the US were to declare Peace tomorrow. But instead of disbanding the army, we just confined them to their bases and let them parade around and fire the tank once a year. And gradually starved them so that they started gardens and took jobs in town.
Don Stewart
Glad to see the evolution in your thinking Don. Just a little while ago you were claiming that permaculture could feed 15B!
Dear Ravinathan
Sepp Holzer claims permaculture can feed 15 billion. I haven’t heard him expand on that statement. I would guess that he is talking about our continuing ability to do what Sepp does, which is use earthmoving equipment to optimize water (and, to a lesser extent, microclimates). And to continue to use fossil fuels for processing (e.g., drying grains) and transporting.
I have also frequently referred to Toby Hemenway’s statement in answer to a question at Duke that, without fossil fuels, he would think the Earth might support somewhere between 500 million and 2 billion.
My own opinion is that if fossil fuels disappeared in 2015, we would see a very sharp reduction in world population, perhaps to 500 million, and then a subsequent recovery as a subsistence society gets organized (similar to Edo). Edo had 35 million people on some crowded islands with not much arable land. Maybe 2 billion for a mature Edo style society is reasonable. But I haven’t done any studies.
Don Stewart
Hi Don,
Richard Heinberg warns the following…
We don’t face a problem, problems can usually be “solved” more like we face a predicament, there’s a huge difference. Problems can be solved (for the better) for example we moved from hunter gathering to agriculture to slaves to steam to coal to oil & gas & nuclear etc. thereby unleashing the overpopulation bomb which I think Gail has said before in her previous posts “overpopulation has now finally morphed into both an energy and financial crisis”
Predicaments on the other hand can only be “managed” they can’t be solved (for the better in the eyes of society). We mortgaged the lives of 7.3 billion people, (1800 circa 1 billion to 2015 7.3 billion) off the back of cheap easy access fossil fuels and we designed a monetary system to mask the physical finite nature of the world we live in, we’re facing this perfect storm, a confluence of factors; the huge debt bomb and biggest debt bubble in our species history, exponential overpopulation, the disaster of globalization, the massaging of data by our leaders to the point where the economic trends are now completely obscured & worst of all a rapidly declining energy returns cliff edge.
It’s not so much we’ll learn to “live” without fossil fuels, we have no choice but to try to survive the best we can. In an energy declining society, learning to live with less will work for a while but then things will become unbearable. There’s a spanish proverb, “civilization and anarachy are only 7 meals apart”. Most people struggle to get their head around the magnitutde of the “predicament” we face.
Dear Daniel Hood
I specifically had Heinberg’s formulation of the ‘predicament’ vs. ‘problem’ in mind when I chose my words.
The reason I think SOME PEOPLE will find a way through the problem is because human happiness is really not about moving physical mountains. In a reductionist sense, it is about moving hormones. Humans with access to far less external energy than we have, have been just as happy as we are…or happier.
Don Stewart
Don, I simply could not agree with you more. There’s something so satisfying ‘downsizing’, living a healthy, frugal life, jumping off the zombie consumer bandwaggon. It’s like being born again. I’m relatively fortunate in that I can do it whilst having lived that insane life previously. I’m 36 never married but steady partner who doesn’t rely on me from a consumer point of view, no kids, no debts, no mortgage, no rent to pay, a few assets dotted around with a little income. I run everyday so my fitness levels are where they need to be (8k sub 40), drink water rather than alcohol, don’t smoke, drink hard, party like a maniac. The last few years has seen me take a keen active interest in food, energy, water security and nature in general from a physics, engineering standpoint, so my education levels are constantly improving.
I think mankind’s greatest shortcoming is our inability to understand energy, what it is, how to use it wisely rather than abuse it, waste it, take advantage of it. The fact of energy commonality’s obscured by the use of different units to describe, measure different forms. Food measured in nutritional calories; work measured as kilowatt-hours, fossil fuels expressed as gallons, barrels or tonnes of oil, cubic feet or cubic metres of natural gas and tonnes of coal. But these differing calibrations shouldn’t be allowed to disguise the fundamental commonality of all forms of energy and yet we have billions ignorant.
How did we get to this?
“I’m 36 never married but steady partner who doesn’t rely on me from a consumer point of view, no kids, no debts, no mortgage, no rent to pay, a few assets dotted around with a little income. I run everyday so my fitness levels are where they need to be (8k sub 40), drink water rather than alcohol, don’t smoke, drink hard, party like a maniac. The last few years has seen me take a keen active interest in food, energy, water security and nature in general from a physics, engineering standpoint, so my education levels are constantly improving.”
Congratulations!
But do you think you can go on, on your own? We could use someone like you!
I have seen the future, and such as it is can be summed up as: “cooperation.” The days of the rugged individualist were driven by high energy levels.
So, regardless of where you do it, I’d say your next step is to join together with others in building a micro-sustainable future for your group.
Thanks Jan, to be honest when I see the kids in Africa dying in the streets from ebola, abandoned to their fate I don’t really care what happens to me anymore, I’m one of the lucky ones on this planet, I already won the lottery of life. I’ve got to live my youth through the era of abundance. I’ve accepted whatever my fate is it is, just try to do what you can with those around you within your areas of influence. I recognise the world is heading for almighty collapse and I’m fine with that, it’s accepted, I’ve done all I can to prepare financially, mentally, physically etc.
If I got wiped out tomorrow, I’ll go out thanking my lucky stars I experienced life in all its glory but I wont be leaving kids behind to struggle through the mess we’ve left future generations.
Now I appreciate the little things that no one ever notices, like being able to put my shoes on and run by the beach, or open a bottle of water and take a drink, check out pretty girls and receive a smile or a look, that kind of thing.
Most people still aren’t anywhere near where I am, doubt they ever will be so rather than sounding the alarm to everyone, you just take each day as it comes, everday is a bonus.
“We are going to die, and that makes us the lucky ones. Most people are never going to die because they are never going to be born. The potential people who could have been here in my place but who will in fact never see the light of day outnumber the sand grains of Arabia. Certainly those unborn ghosts include greater poets than Keats, scientists greater than Newton. We know this because the set of possible people allowed by our DNA so massively exceeds the set of actual people. In the teeth of these stupefying odds it is you and I, in our ordinariness, that are here.We privileged few, who won the lottery of birth against all odds, how dare we whine at our inevitable return to that prior state from which the vast majority have never stirred”
Richard Dawkins…
Russia is scheduled t build 20 to 24 nuclear reactors for India. Well, thank goodness they will not be building reactors for Europe. U.S. sanctions are serving the BRICS well.
Should wise investor countries build as many nuclear reactor now while the oil lasts?
Well, if you ignore decommissioning, and the dangers of nuclear, it could be something to consider.
2015 may be the year of Peak Uranium, so it may be a little late to jump on that bandwagon: http://www.theguardian.com/environment/earth-insight/2013/jul/02/nuclear-energy-crunch-uranium-peak-blackouts
If there is a sudden breakthrough in breeder reactors or thorium, then it may be an amazing opportunity. That or fusion, but I wouldn’t go all-in on those hopes.
Russia to build 12 reactors in India. Sanction are working to build a stronger BRICS.
This is a link to an article someone sent today: “US Cold War Policy Has Backfired”
http://www.informationclearinghouse.info/article40442.htm
So basically if oil prices drop.. They stop extracting oil and the supply goes down then prices will come back up because it will be in high demand. We can’t survive without oil.. It seems like this is the one thing everyone should invest in because the oil companies will always make money no matter what happens in this industry. Seems like with oil being low other industries should thrive as well.. However, media portrays opposite.. Hmm Interesting ..
Some oil companies are going to go out of business. Actually, eventually all will, but short term, with prices this low, you can look at the junk bonds sold to finance drilling operations and understand that some of them are going to go under, and there will be comparisons to Enron.
You are repeating a popular myth, but it is not really true. Even if we can’t survive without oil, we have to be able to afford higher-priced oil, for the price of oil to go up. With wages barely holding their own, and dropping for some, this doesn’t go on very long. The difference between (what we can afford) and (what it costs to produce the oil — including associated governmental costs) is what brings down the system.
“we have to be able to afford higher-priced oil, for the price of oil to go up.”
Unless America joins OPEC and together they slash production to bring the price up to a new price target. Or production falls enough from producers shutting in production that is below operating costs.
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EU in its energy security strategy study released during the summer foresees oil rationing as a response tool in case of oil shortages. Tools used during war and in centralised economies will be considered to respond to the crisis.The hospitals, police, firefighters would have priority in the rationing, according to the study.
To avoid a speedy collapse some capitalist states may turn into communist style centralised economies. Oil rationing is mentioned as a response tool in the energy security strategy of EU released during the summer. Hospitals, firefighters, police would have priority among the users.
Rationing is only a short term plan.
There are no substitutes for oil. Some may be able to afford alternative sources, but even those will have to adjust their standard of living. This is why I disfavor the author’s disapproval of subsidizing solar energy devices. I’m thinking if one has 10% of current use of energy from solar, they will be very happy compared to those with none.
If it is such a good investment, why do you need to subsidize it? Why do you need to take money from me, so that you can afford your purchase?
If there weren’t regulations and laws and pollution to worry about, the best thing to do would be to buy a big cast iron boiler system with turbine for electricity, and stockpile a few tons of coal.
Much more efficient compared to turning the coal into solar panels, except then you have pollution in a developed country instead of in China.
More than subsidizing alternatives, the really meaningful measure is volume based taxes on fossile fuels (that favors both alternatives and conservation/efficiency), and decreasing taxes on work. But in world a QE not much makes sense clearly, and so late …
All we had to do to produce the solar panels giving you this “solar” energy was dig more coal out of the ground now, so that the panel (plus inverter, plus batteries) could be created. Over the next thirty years, with enough luck, you will use enough energy to make up for the coal used in making those devices. Maybe you will even come out a little ahead. But is that a solution? Pulling more coal out now, to make devices, which might save a little energy in the future over and above what is needed to make the panels, depending on how we count the energy required to make and maintain the panels. The world as a whole comes out behind on this project, unless we can stop making the panels, and live on the stored energy.
There are no substitutes for oil.
Sure there are. I can hop on my horse with a bedroll and make a 100 mile trip that way. I can also hit my neighbor up and ask him to hook his horses up to his wagon and take goods to market.
Not that I’ve ever done such things, but there is one alternative to oil for you. True horsepower.
I’ll let anybody reading this imagine the consequences of going back to such a system.
“I can hop on my horse with a bedroll and make a 100 mile trip that way… I’ll let anybody reading this imagine the consequences of going back to such a system.”
Well, first of all, take 25% of farmland away from growing crops and put it into growing “fuel.”
Oh wait… we’re doing that already…
Dear Jan and Garand555
I am reminded of a story about the good old days in Wyoming. A couple of decades ago the lone Representative from Wyoming was talking about his ancestors…his parents, as I remember. The father had homesteaded in Wyoming and spent a few years developing his ranch. Once he had a sustainable ranch, he began to think about a wife.
Someone told him about a ranch a hundred miles away where lived a young woman, who was suitable for marriage. He waited until winter when the workload was lighter, saddled his horse. At night, he slept on the frozen ground. After a few days he arrived at the ranch, and announced his intentions. The family welcomed him to sleep in the bunkhouse, and woo their daughter. After a few days, she said ‘Yes’. They set off and slept on the frozen ground.
The next spring, the Methodist circuit rider came around. The man and his now pregnant bride to be were married.
There are many lessons in that story…Don Stewart
The stock boom comes as Chinese industry battles with massive overcapacity in everything from steel to shipbuilding, coal output, cement and solar panels
China’s stock market boom has reached outright mania, with equities galloping higher at a parabolic rate, despite threats of a crackdown by regulators and the continued slowdown of the national economy.
The Shanghai Composite Index has risen 32pc in the past six weeks, blowing through 3,000 to a three-and-a-half-year high even though corporate earnings are declining steeply.
Many families are taking out brokerage loans to buy stocks, increasing leverage and risk. Margin debt has risen to more than $130bn from nothing three years ago. This is now 1.2pc of GDP. “Turnover, leverage and account openings have all soared and there is a sense of mania taking hold,” said Mark Williams, from Capital Economics.
http://www.telegraph.co.uk/finance/china-business/11281346/Chinas-stock-mania-decouples-from-economic-reality.html
I notice the above article says:
This is cut back in debt is no doubt part of what is causing the lower oil prices.
Did Peak Oil Arrive In 2014?
The recent price crash in crude oil, if it lasts for any length of time, will certainly affect oil production. The question is, just how great an effect will it have and how soon? In this post I want to concentrate on what is, or was, happening to world oil production even before the price crash.
Russia, the largest producer of crude oil in the world, will peak in 2014. There are various estimates of how fast their production will decline but best case, for Russia, puts their decline at about 2% per year. They say they are depending on the Bazhenov Shale and Arctic offshore just to keep production flat in 2015. Well that is not going to happen, not in the next few years anyway. And if prices stay in the current range, it is unlikely to ever happen.
OPEC is a wild card but there is little doubt that they are producing flat out right now. Only Iran has any real any real chance of increasing production very much and that only if sanctions are lifted. Libya has already increased production significantly and could increase more, but very little. With the violence still going on in Libya, there is a greater chance that their production will decline.
But before we go any further let’s look at what the EIA is predicting for 2015 for both the USA and the rest of non-OPEC? The below charts are from the EIA’s Short-Term Energy Outlook. Current data is through October 2014 and the projected data is through December 2015. All data is in million barrels per day. Also, very important, the data is Total Liquids which includes NGLs, bio fuels and refinery process gain. The EIA, for U.S. production even counts refinery process gain on imported oil.
More http://seekingalpha.com/article/2740045-did-peak-oil-arrive-in-2014
Thanks! This is a link to a Ron Patterson post.
Gail, you didn’t mention explicitly futures : Shale oil producer have secured their oil production for the 2 coming years with futures.
So the real risk is on those who garanty the oil price. From 110$/100$ to 60$/50$ they will have fill a huge gap, and maybe go bankrupt in some month.
“Gail, you didn’t mention explicitly futures : Shale oil producer have secured their oil production for the 2 coming years with futures.
So the real risk is on those who garanty the oil price. From 110$/100$ to 60$/50$ they will have fill a huge gap, and maybe go bankrupt in some month.”
If an oil refinery hedged out half of production at $100 with futures, and then buys the other half at $50 spot, they’ll have a combined average price of $75 per barrel. All they have to do is sell the refined products at a profit. This can help explain why gasoline prices don’t fall as much as oil spot prices.
On the other hand, it sounds like a lot of people bought into the peak oil thesis, and thus assumed that oil prices can only go up, resulting in the vast majority all being on the long side. A lot of that is pure paper contracts for speculation, with no intention of ever taking delivery. It will be interesting to see how this all works out.
Matthew
http://www.zerohedge.com/news/2014-12-09/mystery-crude-oil-liquidator-god-crude-oil-trading-out
This guy was very long oil
Don Stewart
You are right–I should probably have explicitly mentioned futures contracts related to oil prices. These normally don’t go out very far, but they might last two years for some producers. The folks on the other end of those contracts will be doing extraordinarily badly, relative to the amount they were paid for the contracts. There is also a huge “paper” market in contracts too. Those who are in the wrong end on these contracts will have big problems as well.
I suppose we should start watching the papers for news about big “oops” situations with respect to these contracts. It would seem like we could see problems pretty soon, with respect to these contracts. Also, with respect to the big moves in currencies.