Low Oil Prices: An Indication of Major Problems Ahead?

Many people, including most Peak Oilers, expect that oil prices will rise endlessly. They expect rising oil prices because, over time, companies find it necessary to access more difficult-to-extract oil. Accessing such oil tends to be increasingly expensive because it tends to require the use of greater quantities of resources and more advanced technology. This issue is sometimes referred to as diminishing returns. Figure 1 shows how oil prices might be expected to rise, if the higher costs encountered as a result of diminishing returns can be fully recovered from the ultimate customers of this oil.

Figure 1. Chart showing expected long-term rise in oil prices as the full cost of oil production becomes increasingly expensive due to diminishing returns.

In my view, this analysis suggesting ever-rising prices is incomplete. After a point, prices can’t really keep up with rising costs because the wages of many workers lag behind the growing cost of extraction.

The economy is a networked system facing many pressures, including a growing level of debt and the rising use of technology. When these pressures are considered, my analysis indicates that oil prices may fall too low for producers, rather than rise too high for consumers. Oil companies may close down if prices remain too low. Because of this, low oil prices should be of just as much concern as high oil prices.

In recent years, we have heard a great deal about the possibility of Peak Oil, including high oil prices. If the issue we are facing is really prices that are too low for producers, then there seems to be the possibility of a different limits issue, called Collapse. Many early economies seem to have collapsed as they reached resource limits. Collapse seems to be characterized by growing wealth disparity, inadequate wages for non-elite workers, failing governments, debt defaults, resource wars, and epidemics. Eventually, population associated with collapsed economies may fall very low or completely disappear. As Collapse approaches, commodity prices seem to be low, rather than high.

The low oil prices we have been seeing recently fit in disturbingly well with the hypothesis that the world economy is reaching affordability limits for a wide range of commodities, nearly all of which are subject to diminishing returns. This is a different problem than most researchers have been concerned about. In this article, I explain this situation further.

One thing that is a little confusing is the relative roles of diminishing returns and efficiency. I see diminishing returns as being more or less the opposite of growing efficiency.

Figure 2.

The fact that inflation-adjusted oil prices are now much higher than they were in the 1940s to 1960s is a sign that for oil, the contest between diminishing returns and efficiency has basically been won by diminishing returns for over 40 years.

Figure 3.

Oil Prices Cannot Rise Endlessly

It makes no sense for oil prices to rise endlessly, for what is inherently growing inefficiency. Endlessly rising prices for oil would be similar to paying a human laborer more and more for building widgets, during a time that that laborer becomes increasingly disabled. If the number of widgets that the worker can produce in one hour decreases by 50%, logically that worker’s wages should fall by 50%, not rise to make up for his/her growing inefficiency.

The problem with paying higher prices for what is equivalent to growing inefficiency can be hidden for a while, if the economy is growing rapidly enough. The way that the growing inefficiency is hidden is by adding Debt and Complexity (Figure 4).

Figure 4.

Growing complexity is very closely related to “Technology will save us.” Growing complexity involves the use of more advanced machinery and ever-more specialized workers. Businesses become larger and more hierarchical. International trade becomes increasingly important. Financial products such as derivatives become common.

Growing debt goes hand in hand with growing complexity. Businesses need growing debt to support capital expenditures for their new technology. Consumers find growing debt helpful in affording major purchases, such as homes and vehicles. Governments make debt-like promises of pensions to citizen. Thanks to these promised pensions, families can have fewer children and devote fewer years to child care at home.

The problem with adding complexity and adding debt is that they, too, reach diminishing returns. The easiest (and cheapest) fixes tend to be added first. For example, irrigating a field in a dry area may be an easy and cheap way to fix a problem with inadequate food supply. There may be other approaches that could be used as well, such as breeding crops that do well with little rainfall, but the payback on this investment may be smaller and later.

A major drawback of adding complexity is that doing so tends to increase wage and wealth disparity. When an employer pays high wages to supervisory workers and highly skilled workers, this leaves fewer funds with which to pay less skilled workers. Furthermore, the huge amount of capital goods required in this more complex economy tends to disproportionately benefit workers who are already highly paid. This happens because the owners of shares of stock in companies tend to overlap with employees who are already highly paid. Low paid employees can’t afford such purchases.

The net result of greater wage and wealth disparity is that it becomes increasingly difficult to keep prices high enough for oil producers. The many workers with low wages find it difficult to afford homes and families of their own. Their low purchasing power tends to hold down prices of commodities of all kinds. The higher wages of the highly trained and supervisory staff don’t make up for the shortfall in commodity demand because these highly paid workers spend their wages differently. They tend to spend proportionately more on services rather than on commodity-intensive goods. For example, they may send their children to elite colleges and pay for tax avoidance services. These services use relatively little in the way of commodities.

Once the Economy Slows Too Much, the Whole System Tends to Implode

A growing economy can hide a multitude of problems. Paying back debt with interest is easy, if a worker finds his wages growing. In fact, it doesn’t matter if the growth that supports his growing wages comes from inflationary growth or “real” growth, since debt repayment is typically not adjusted for inflation.

Figure 5. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Both real growth and inflationary growth help workers have enough funds left at the end of the period for other goods they need, despite repaying debt with interest.

Once the economy stops growing, the whole system tends to implode. Wage disparity becomes a huge problem. It becomes impossible to repay debt with interest. Young people find that their standards of living are lower than those of their parents. Investments do not appear to be worthwhile without government subsidies. Businesses find that economies of scale no longer work to their advantage. Pension promises become overwhelming, compared to the wages of young people.

The Real Situation with Oil Prices

The real situation with oil prices–and in fact with respect to commodity prices in general–is approximately like that shown in Figure 6.

Figure 6.

What tends to happen is that oil prices tend to fall farther and farther behind what producers require, if they are truly to make adequate reinvestment in new fields and also pay high taxes to their governments. This should not be too surprising because oil prices represent a compromise between what citizens can afford and what producers require.

Figure 7. Illustration indicating that the world has already reached a point where no oil price works for both oil suppliers and oil consumers.

In the years before diminishing returns became too much of a problem (back before 2005, for example), it was possible to find prices that were within an acceptable range for both sellers and buyers. As diminishing returns has become an increasing problem, the price that consumers can afford has tended to fall increasingly far below the price that producers require. This is why oil prices at first fall a little too low for producers, and eventually seem likely to fall far below what producers need to stay in business. The problem is that no price works for both producers and consumers.

Affordability Issues Affect All Commodity Prices, Not Just Oil

We are dealing with a situation in which a growing share of workers (and would be workers) find it difficult to afford a home and family, because of wage disparity issues. Some workers have been displaced from their jobs by robots or by globalization. Some spend many years in advanced schooling and are left with large amounts of debt, making it difficult to afford a home, a family, and other things that many in the older generation were able to take for granted. Many of today’s workers are in low-wage countries; they cannot afford very much of the output of the world economy.

At the same time, diminishing returns affect nearly all commodities, just as they affect oil. Mineral ores are affected by diminishing returns because the highest grade ores tend to be extracted first. Food production is also subject to diminishing returns because population keeps rising, but arable land does not. As a result, each year it is necessary to grow more food per arable acre, leading to a need for more complexity (more irrigation or more fertilizer, or better hybrid seed), often at higher cost.

When the problem of growing wage disparity is matched up with the problem of diminishing returns for the many different types of commodity production, the same problem occurs that occurs with oil. Prices of a wide range of commodities tend to fall below the cost of production–first by a little and, if the debt bubble pops, by a whole lot.

We hear people say, “Of course oil prices will rise. Oil is a necessity.” The thing that they don’t realize is that the problem affects a much bigger “package” of commodities than just oil prices. In fact, finished goods and services of all kinds made with these commodities are also affected, including new homes and vehicles. Thus, the pattern we see of low oil prices, relative to what is required for true profitability, is really an extremely widespread problem.

Interest Rate Policies Affect Affordability

Commodity prices bear surprisingly little relationship to the cost of production. Instead, they seem to depend more on interest rate policies of government agencies. If interest rates rise or fall, this tends to have a big impact on household budgets, because monthly auto payments and home payments depend on interest rates. For example, US interest rates spiked in 1981.

Figure 8. US short and long term interest rates. Graph by FRED.

This spike in interest rates led to a major cutback in energy consumption and in GDP growth.

Figure 9. World GDP Growth versus Energy Consumption Growth, based on data of 2018 BP Statistical Review of World Energy and GDP data in 2010$ amounts, from the World Bank.

Oil prices began to slide, with the higher interest rates.

Figure 10.

Figure 11 indicates that the popping of a debt bubble (mostly relating to US sub-prime housing) sent oil prices down in 2008. Once interest rates were lowered through the US adoption of Quantitative Easing (QE), oil prices rose again. They fell again, when the US discontinued QE.

Figure 11. Figure showing collapsing debt bubble at the time US oil prices peaked, and the use of Quantitative Easing (QE) to stimulate the economy, and thus bring prices back up again.

While these charts show oil prices, there is a tendency for a broad range of commodity prices to move more or less together. This happens because the commodity price issue seems to be driven to a significant extent by the affordability of finished goods and services, including homes, automobiles, and restaurant food.

If the collapse of a major debt bubble occurs again, the world seems likely to experience impacts somewhat similar to those in 2008, depending, of course, on the location(s) and size(s) of the debt bubble(s). A wide variety of commodity prices are likely to fall very low; asset prices may also be affected. This time, however, government organizations seem to have fewer tools for pulling the world economy out of a prolonged slump because interest rates are already very low. Thus, the issues are likely to look more like a widespread economic problem (including far too low commodity prices) than an oil problem.

Lack of Growth in Energy Consumption Per Capita Seems to Lead to Collapse Scenarios

When we look back, the good times from an economic viewpoint occurred when energy consumption per capita (top red parts on Figure 12) were rising rapidly.

Figure 12.

The bad times for the economy were the valleys in Figure 12. Separate labels for these valleys have been added in Figure 13. If energy consumption is not growing relative to the rising world population, collapse in at least a part of the world economy tends to occur.

Figure 13.

The laws of physics tell us that energy consumption is required for movement and for heat. These are the basic processes involved in GDP generation, and in electricity transmission. Thus, it is logical to believe that energy consumption is required for GDP growth. We can see in Figure 9 that growth in energy consumption tends to come before GDP growth, strongly suggesting that it is the cause of GDP growth. This further confirms what the laws of physics tell us.

The fact that partial collapses tend to occur when the growth in energy consumption per capita falls too low is further confirmation of the way the economics system really operates. The Panic of 1857 occurred when the asset price bubble enabled by the California Gold Rush collapsed. Home, farm, and commodity prices fell very low. The problems ultimately were finally resolved in the US Civil War (1861 to 1865).

Similarly, the Depression of the 1930s was preceded by a stock market crash in 1929. During the Great Depression, wage disparity was a major problem. Commodity prices fell very low, as did farm prices. The issues of the Depression were not fully resolved until World War II.

At this point, world growth in energy consumption per capita seems to be falling again. We are also starting to see evidence of some of the same problems associated with earlier collapses: growing wage disparity, growing debt bubbles, and increasingly war-like behavior by world leaders. We should be aware that today’s low oil prices, together with these other symptoms of economic distress, may be pointing to yet another collapse scenario on the horizon.

Oil’s Role in the Economy Is Different From What Many Have Assumed

We have heard for a long time that the world is running out of oil, and we need to find substitutes. The story should have been, “Affordability of all commodities is falling too low, because of diminishing returns and growing wage disparity. We need to find rapidly rising quantities of very, very cheap energy products. We need a cheap substitute for oil. We cannot afford to substitute high-cost energy products for low-cost energy products. High-cost energy products affect the economy too adversely.”

In fact, the whole “Peak Oil” story is not really right. Neither is the “Renewables will save us” story, especially if the renewables require subsidies and are not very scalable. Energy prices can never be expected to rise high enough for renewables to become economic.

The issues we should truly be concerned about are Collapse, as encountered by many economies previously. If Collapse occurs, it seems likely to cut off production of many commodities, including oil and much of the food supply, indirectly because of low prices.

Low oil prices and low prices of other commodities are signs that we truly should be concerned about. Too many people have missed this point. They have been taken in by the false models of economists and by the confusion of Peak Oilers. At this point, we should start considering the very real possibility that our next world problem is likely to be Collapse of at least a portion of the world economy.

Interesting times seem to be ahead.

 

 

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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1,394 Responses to Low Oil Prices: An Indication of Major Problems Ahead?

  1. Uncle Bill says:

    Economic Growth seems to be doing just fine

    Analysis: Fossil-fuel Emissions in 2018 Increasing at Fastest Rate for Seven Years
    Analysis: Fossil-fuel Emissions in 2018 Increasing at Fastest Rate for Seven Years thumbnail
    Hopes that global CO2 emissions might be nearing a peak have been dashed by preliminary data showing that output from fossil fuels and industry will grow by around 2.7% in 2018, the largest increase in seven years

    • Hurray! This is what is keeping collapse away.

      • Tim Groves says:

        Gail, have you hardened your stance recently, or clarified your thinking on this issue?

        How long is it since you became convinced that declining FF use was incompatible with maintaining the economic system?

        • A long time ago, I believe. Renewables don’t scale well at all. Our problem is a per capita energy problem. Renewables can never fill the void. I perhaps I didn’t have a way of expressing the problem before.

          Once coal companies go broke, and natural gas companies go broke, we are “up a creek, without a paddle.”

      • Artleads says:

        Some of the trouble with growing the use of FFs seems to be based on optics–the delusional belief that all that’s required is an ethical conversion to make renewables work. This belief ties up a huge segment of the population that could be using their energies in better ways. Some of the trouble seems to be with conflating growth with the way growth happens now. It could be that some things just need to change. This extreme case should clarify why the concept of growth needs to change. Under the current assessment of growth, it is legitimate to pour oil into the sea so as to provide jobs cleaning it up. But many other “investment” not really much more inexpensive than throwing oil into the sea are not being made. Since the poor are so numerous and desperate, they won’t fuss too much at investments for their betterment that are at once rough, cheap, primitive, but wise. Those investments are not being made, just like FFs are being disparaged, because nobody knows how to plan around the obstacles in a systematic and logical way. We have an enormous number of obstacles in place that have nothing to do with physics, and everything to do with culture, miseducation and mindset.

        • This, unfortunately, seems to be how our self-organized system works. People need to believe that there is a solution. There are a huge number of jobs made possible by the belief that, eventually, high-priced solutions will work.

          I am supposed to talk to an IEEE group next week. I expect if I bring up this issue, I will receive boos. The educational system and academic research areas depend on funding that support this belief system. I expect that this is part of the reason that college professors tend to be predominantly Democrats. I am married to a college professor, and my children all follow this same belief system. I am not sure that there is a whole lot a person can do to fix the situation.

        • Artleads says:

          Creating a civilized living arrangement for the poorest can be done without any money to speak of. If the desperately poor don’t mind living under an overpass, why would they mind living in a well appointed shed? There are many thousands of students in related fields who can work on such settings for free. The problem is the false notion by those with more power that it “looks bad” to house people in a shed. Better to turn a blind eye and let them live under an overpass. Then it’s somebody else’s problem. That is based on false standards nurtured by our cultural drivers. it also is bad for raising demand.

  2. Yoshua says:

    The German GDP contracted in the last quarter, the stock market is down almost 20 percent and DB is falling ever lower.

    With Brexit, populism in Italy and riots in France, Eurocrisis 2.0 will most likely hit the European core.

    Meanwhile the stock markets in the U.S are falling again and are now negative for the year.

    Things are not looking so good anymore. At least the WTI seems to be holding at USD 50.

    • Harry McGibbs says:

      Japan, Italy, Sweden and Switzerland also posted contractions, the last two surprising economists.

      Corporate debt way too high in the US.

      The US housing market is looking vulnerable. The Australian housing market is crashing 2008-style.

      Car sales are down in many markets – Mexico, Canada, the UK, the US (although SUV sales are up there), China, notably.

      China really struggling to maintain its growth rate, too. Credit growth weakening there and money supply sitting near record lows.

      Factory and export orders hitting the skids around the world. Global trade on the brink of contraction.

      And of course we have lots of problems in emerging markets like Turkey and Argentina, which will worsen if the Fed pushes ahead with another interest rate rise in December.

      • Switzerland opened(liberalized) in mid 1990s lot of its formerly protective domestic markets, they are nowadays much more vulnerable on these huge swings around the world. That being said it’s today and obviously continues to be much better unemployed within CH than in IT/FR/DE..

      • Yoshua says:

        US ISM Non-Manufacturing Index rises in November to 60.7, from 60.3.

        Second highest level in 13 years.

        Business activity index jumps to 65.2, from 62.5, highest ina decade.

        New orders sub-index rises to 62.5, from 61.5, second highest in 15 years..

        The U.S is living in a parallel universe?

        • Harry McGibbs says:

          Until the sugar high of Trump’s tax cuts wears off. The stronger $ thanks to the Fed’s tightening is also sucking in wealth from the rest of the world.

          Of course there are lots of weaknesses if you look closely enough – too much outstanding student debt, government debt, corporate debt, consumer debt… the shale industry.

          And signs that all is not quite as rosy as official figures suggest: all the unemployed that have ‘dropped out’ of official data because they have stopped looking for work, the 40% of American adults who can’t afford a $400 emergency expense, the homeless in LA etc.

          • Harry McGibbs says:

            ““When credit starts looking dicey, investors quickly pay attention and for good reason,” says Michael Mackenzie in the Financial Times. In 2008, US subprime mortgage loans triggered the financial crisis. Now, eyes are turning to record high corporate debt, with investors fearful that we are heading into a “typical late-cycle period where the excesses of corporate borrowing come home to roost”.

            “Already, 2018 is proving to be the worst year for investors in both investment-grade and high-yield (“junk”) debt since 2008, with total returns negative for the year.”

            https://moneyweek.com/499030/the-credit-boom-is-on-borrowed-time/

          • The fact that the US is very close to being a net energy exporter in oil, natural gas, and coal is helping as well.

            China, in comparison, is now the world’s largest importer of oil, natural gas, and coal (unless this changes in 2018).

            China is having a hard time keeping “peak coal” from dropping its coal production. Coal prices are not staying high enough for producers. It needs to keep out imports, to keep prices sufficiently high.

  3. Yoshua says:

    EIA

    Crude: -7.323M
    Cushing: 1.729M
    Gasoline: 1.699M
    Distillates: 3.811M

    Back to normal again.

  4. Baby Doomer says:

    University of California: Environmental Science & Technology (Malyshkina 2010)

    1. It Will Take 131 Years to Replace Oil with Alternatives
    2. World oil production will peak between 2010-2030
    3. World proven oil reserves gone by 2041
    https://www.scribd.com/document/394656677/Future-Sustainability-Forecasting-by-Exchange-Markets-Basic-Theory-and-an-Application-Malyshkina-2010

    A global energy assessment (Jefferson 2015)

    The World in the 21st Century is faced with huge challenges that go far beyond, but importantly include, energy challenges on the supply, access, and use sides. So severe are these challenges, mainly arising from the demands of a rapidly increasing human population on the Earth’s limited resources, that the future existence of large numbers of people may be threatened with
    extinction. In that sense, we may be observing the twilight of the Anthropocene (Human) Age.
    https://www.scribd.com/document/394043449/A-Global-Energy-Assessment-Jefferson-2015

    Projection of world fossil fuels by country (Mohr, 2015) Fuel

    Over 900 different regions and subfuel situations were modeled using three URR scenarios of Low, High, and Best Guess. All three scenarios indicate that the consistent strong growth in world fossil fuel production is likely to cease after 2025. The Low and Best Guess scenarios are projected to peak before 2025 and decline thereafter. The High scenario is anticipated to have a strong growth to 2025 before stagnating in production for 50 years and thereafter declining.
    https://www.scribd.com/document/375110317/Projection-of-World-Fossil-Fuels-by-Country-Mohr-2015

    IEA Chief warns of world oil shortages by 2020 as discoveries fall to record lows
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Arabia’s Energy Minister Warns of World Oil Shortages Ahead
    https://www.wsj.com/articles/saudi-minister-sees-end-of-oil-price-slump-1476870790

    There will be an oil shortage in the 2020’s, Goldman Sachs says
    https://www.cnbc.com/2018/11/09/goldman-sachs-there-will-be-an-oil-shortage-in-the-2020s.html

    Wood Mackenzie warns of oil and gas supply crunch
    https://www.ft.com/content/a1eb0e58-d7a4-11e8-ab8e-6be0dcf18713

    Imminent peak oil could burst US, global economic bubble – study
    https://www.theguardian.com/environment/earth-insight/2013/nov/19/peak-oil-economicgrowth

    German Military (leaked) Peak Oil study: oil is used in the production of 95% of all industrial goods, so a shortage of oil would collapse the world economy & world governments
    https://www.scribd.com/document/387459134/german

    • Dennis L. says:

      These guys are good: “1. It Will Take 131 Years to Replace Oil with Alternatives” The weatherman has difficulty with next week, they must see a linear system.
      What was the world like 131 years ago? That was 1887, any predictions from that time for the year 2000?

      Again quote: “German Military (leaked) Peak Oil study: oil is used in the production of 95% of all industrial goods, so a shortage of oil would collapse the world economy & world governments.” Well, they have some experience with this issue, seems they tried to borrow a bit from Russia in the 1940s and it didn’t go well, they did experience collapse.

      Another quote: “There will be an oil shortage in the 2020’s, Goldman Sachs says” The real question is how are they hedging? Or, more simply, follow the money.

      One thing ASPO got right was holding a meeting in Lisbon, beautiful city, wonderful boat ride on the Tagus with a good scotch on board as I recall.

      If memory serves me right, many on this site were predicting doom in 2016, things don’t look that bad.

      Kunstler has given up forecasting the stock market, he predicted a crash about 10,000 or so points ago.

      That’s it, the world is going to end, I am going dancing, now before all the clocks stop and the super market shelves are barren leaving only snow covered grass upon which to dine.

      It is cold here in MN, snow on the ground, Santa’s sleigh will have the advantage of reduced friction when departing from the roof tops in this area. Conservation is always good.

      Things change, life is not guaranteed nor is it easy, but it is doable. Work hard enough at finding failure and it can be found, finding the antithesis is trick.

      It is a beautiful world.

      Dennis L.

      • jupiviv says:

        It’s only doom if you expect the FF powered illusion that is BAU to continue forever, and the alternative unthinkable. I say its time the world, and humanity, moved on. I don’t know what that means, but I know it doesn’t mean some sick techno-disney utopia where everyone besides oneself is obsolete.

      • Tim Groves says:

        The headlines in 1887 screamed

        “Our Cities are Choking on Horse Droppings and It Will Take 131 Years to Replace Hay with Alternatives”,

        “Researchers Find Link Between London Fog and Coal Fires” and

        “Gas Lighting Can’t Hold a Candle to the Real Thing.”

  5. Volvo740 says:

    Consumption of vehicles collapsed in the quarter following the front-loading of car sales in the previous quarter, ahead of changes in both Swedish tax rules and international emissions tests, it said.

    https://www.bloomberg.com/news/articles/2018-11-29/swedish-economy-contracts-as-riksbank-prepares-to-hike-rates

  6. Volvo740 says:

    Bloomberg: “2019 die-off expected to lead to global over supply of oil”

    • The US has been heading more and more this direction. Weekly data isn’t terribly accurate. We will see whether the same pattern holds up in monthly data.

    • Duncan Idaho says:

      Well, it really is basic math.
      If you use 20 million barrels a day, and you produce 11 million barrels a day–
      What is your net worth in oil?
      Are you a net exporter?
      Inquiring minds want to know——

      • Davidin100millionbilliontrillionzillionyears says:

        Duncan, you are absolutely correct…

        the article is very fuzzy:

        “… net imports of about 3 million barrels a day on average so far in 2018…”

        and then later:

        “The U.S. imports more than 7 million barrels a day of crude from all over the globe to help feed its refineries, which consume more than 17 million barrels each day.”

        so “America turned into a net oil exporter last week…”

        the weekly data must be absolutely wrong…

        • ive been trying to figure that one too

        • Slow Paul says:

          Just read the headlines please.

        • Look at the detail data I provided a link to before. It shows that for the latest week, net imports of crude oil were 4.0 million barrels. This breaks down to gross crude oil imports of 7.2 million barrels per day, and crude oil exports of 3.2 million barrels per day. These exports are up at a higher level than they have been recently, perhaps representing the sale of some of the oil that had been in the Strategic Petroleum Reserve.

          On the products side, the report shows imports of 1.6 barrels a day (somewhat lower than recent numbers) and exports of 5.8 million barrels a day. The biggest category of product exports is distillate fuel oil (diesel), but there are many other types as well. Propane exports recently seem to be at a higher than usual level.

          So the data certainly supports the statement “The U.S. imports more than 7 million barrels a day of crude from all over the globe to help feed its refineries.” Another report shows crude oil refinery input of 17.5 million barrels per day, and gross refinery inputs of 17.8 million barrels a day. A sub-report says that this includes 0.9 million barrels a day of fuel ethanol. US refineries are running at 95.5% of capacity, which is pretty much “all out.” Oil companies make money by refining imported oil and exporting the finished products, sometimes to the countries that send us the crude oil in the first place.

          I am not sure that the weekly data is wrong. Our intuition regarding how the system works is wrong. US consumption of oil products was 20.5 million barrels per day. This includes “refinery expansion,” because cracking heavy oil using natural gas raises the volume of the output. The US, with its cheap natural gas, specializes in doing this. Europe couldn’t do this if it wanted to. It doesn’t have the heavy oil refineries, and it doesn’t have the cheap natural gas supply.

      • zenny says:

        People always forget the state of Canada yea know the other snow state that is not Texas.

  7. Slow Paul says:

    Seems like discussing doom is all dandy if your life is comfortable. But when modern luxuries like water is shut off, life is a drudgery.

    • Tom says:

      This is why the vast majority try to ignore collapse. Because they don’t want to end up 58 years old, living in a hovel with no water, broke, and selling Christmas Trees for $12.50/hr. Of course they we are all going to end up there or much worse but in the mean time you gotta go out and earn a decent living.

      • jupiviv says:

        Surfing through his other vids tells me he is a pessimistic Green-topian, which isn’t exactly the same as predicting the end of BAU.

        • Slow Paul says:

          I would say that he is on the near term human extinction train. Problem is, “near term” may last a couple of decades. And McPherson et al. might not be correct in his predictions about runaway glowball worming. If so, we are in for the long haul, the creeping impoverishment of slow collapse for each individual.

    • Davidin100millionbilliontrillionzillionyears says:

      “Seems like discussing doom is all dandy if your life is comfortable. But when modern luxuries like water is shut off, life is a drudgery.”

      yes, but more than that…

      “life is comfortable” means plenty of surplus energy…

      so we can do lots of stuff besides just trying to stay alive with bare minimums of shelter and food and drinkable water…

      we can post on OFW and gamble and eat imported dark chocolate…

      I can have some fun making comments about preppers who should be planning for storage of 200 or 300 years of supplies, because planning for 20 or 30 years is futile!

      and poke here and there with my (probably correct!) predictions that we first world persons will be okay at least until 2030…

      and of course…

      “life is comfortable” enables me to write:

      BAU tonight, baby!

  8. Baby Doomer says:

    Schlumberger: A drop in US Shale activity

    US production has surprised to the upside, partly in the Gulf of Mexico and partly from the US shale basins. There was a surge in hydraulic fracturing activity in the second quarter, especially in the Permian. This activity surge levelled off in the third quarter and is dropping in the fourth quarter, which will show up in the first half production numbers for 2019.

    The record high production from the core part of OPEC and Russia is simply coming from activated spare capacity, aimed at dampening the accelerating upwards trajectory of the oil price in the third quarter and leaving the remaining OPEC spare capacity at a record low level.

    https://www.slb.com/news/presentations/2018/2018_1204_schorn_cowen.aspx

  9. MC says:

    Hi,

    Could you please do a post on how much oil and gas can be extracted with an EROI of 2, regardless of the price. BP reported 1.6 Trillion Barrels, which is around 50 years worth of usage, give or take a decade as a variance.

    • It depends on how much coal can be extracted with an EROEI of 50:1, at the same time. It is the average EROEI of all energy products combined that matters. It is not possible to add anything with an EROEI that is lower than what is being removed. This is one reason why renewables can’t substitute for higher EROEI products. Total energy consumption per capita needs to rise. For this to happen, price needs to fall in inflation and energy efficiency adjusted terms.

    • Davidin100millionbilliontrillionzillionyears says:

      hi MC…

      if it’s extracted with an EROI of 2, then it has to be shipped to refineries, refined, and shipped to end users…

      so, what do YOU think the EROI then is? 1?

      if so, then there is no energy surplus…

      then…

      it does the end users no good unless they have the machines to use it…

      so there must be enough surplus energy at “extraction” in order to build these machines and get them to the end users…

      so now…

      what do YOU think is the minimum EROI necessary at extraction?

      maybe 5?

      then after refining it’s maybe 3…

      then the surplus energy in that “3” can be used to make machinery that runs on those refined products…

      now…

      do you want to restate your question?

      • Gregory Machala says:

        I am sure to maintain what we have the EROEI for energy products has to be much more and 2:1. Probably more that 10:1. To build a new infrastructure I would imagine would take 50:1 or more. We built our current infrastructure mostly with upwards of 100:1 returns on investment in the first half of the 20th century. So, it takes a lot to kick-start a new infrastructure. That is another reason why I am certain that solar and wind “renewable” infrastructure is an impossibility at this late stage.

    • MG says:

      And what about the availability of suitable workforce? With ageing and deteriorating populations, the energy of human resources goes down. (E.g. when you go mining coal instead of caring for the elderly and disabled, those who need help die and the overall consumption goes down.)

      The wages (i.e. energy that can be bought with the earned money) becomes too low for hiring workforce that is becoming scarce. The energy becomes too costly (i.e. more and more out of the reach) for the weakening populations.

      I guess those who are counting EROI do not understand the close relationship between the population and energy.

      • The EROI group is basically a peak oil group. They are worrying about “running out” of oil and high prices. The idea of population never crossed their minds, I don’t think. In fact, quantity is not a subject discussed at all. EROI is all about measuring costs “at the wellhead.” This is a job that keeps graduate students busy and provides lots of input for academic papers.

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