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Joe Costello: Tale of Two Revolutions
Below is a comment from my friend Joe Costello, who has been skeptical of the optimistic claims for shale oil since early on. Joe is the co-author of Of, By, For: The New Politics of Money, Debt & Democracy. -- Chris
Someone left a baby in the car park
Never any reason
Don't you listen, one more sob story
Someone is calling
Don't you listen, don't interfere
Ignore it and it will go away
Someone is calling
Don't you listen
-- P.I.L
Let's take a look at two revolutions moved by the same underlying force, the end of the era of cheap oil. The first is the so-called "shale-oil revolution," which really was never much of a revolution, more a scraping of the bottom of the barrel. In the most recent released statistics from the Bakken oil fields by the state of North Dakota(tx theoildrum), we see its taking more and more wells drilled to basically stand still. Notice two things; oil has been coming out of the Bakken for over six decades, and at the beginning of the shale-revolution in 2007, there were 300 wells, today 5600. This revolution grows ever more expensive and less revolutionary every day. In fact, it has become so problematic, its shortcomings can't even be happy faced or ignored by Wall Street. Forbes writes,
"The big shale fields cover hundreds of thousands, even millions of acres. But the quality of the geology is not homogenous across the landscape. There are sweet spots in these fields, which the companies, naturally, drill first because they want to make back what they spent to acquire the acreage in the first place (often in excess of $10,000 per acre)."
"Trouble is, as these sweet spots are developed the companies have to move down the continuum of sweetness, and profitability. That costs more. Analysts at Bernstein Research wrote last month that “cost inflation continues to rise, and as commodity prices are ‘capped’ by rising supply, net income margins in the sector are now at their lowest in a decade. This is not sustainable. Either prices must rise or costs must fall.”
"The alternative is that they simply cut back on drilling. Bernstein figures that the marginal cost of non-OPEC production is now at $104.5 per barrel. What’s more, the researchers found an “unprecedented” jump in the marginal costs of U.S. fields, from $89 a barrel in 2011 to $114 a barrel in 2012. This implies that some U.S. producers were losing money on oil they brought to market — and doing so knowingly, says Bernstein."
So much for that revolution, but don't worry about the oil companies losing money, price rises are assured. Particularly since the 20th century oil soaked development model has been spread across the globe by US banks, it is after all, what they know. The IEA notes for the first time in history, non-OECD countries oil consumption surpasses the OECD, keep in mind, the OECD, still using half the current global oil supply, is only 14% of the planet's population, and of course, we here in the US with less than 5% of the planet's population use 22% of the planet's oil.
The second revolution is directly connected to oil in the Middle East. You could say this revolution started with the Occupation of Iraq, but that wouldn't really be right. It's been ongoing since at least our 1970's Middle East policies -- "One mistake after another." The Independent has good summing up of this revolution,
"For the first time, all of America’s ‘friends’ in the region are Sunni Muslims and all of its enemies are Shiites. Breaking all President Barack Obama’s rules of disengagement, the US is now fully engaged on the side of armed groups which include the most extreme Sunni Islamist movements in the Middle East."
"Washington’s excuse for its new Middle East adventure – that it must arm Assad’s enemies because the Damascus regime has used sarin gas against them – convinces no-one in the Middle East. Final proof of the use of gas by either side in Syria remains almost as nebulous as President George W. Bush’s claim that Saddam’s Iraq possessed weapons of mass destruction."
Of course this isn't the first time we've allied with Sunni "freedom fighters," one might even call it an American tradition. So both revolutions continue, such that they are, more than a little confusing, but with one underlying theme -- oil.
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wow under Flak attack, again. Flak how much oil based products do YOU use? Idiot never answers direct questions just goes on an on about evil carbon energy..Flak what do you replace oil with?? and how quickly?? he she it will never answer because there is nothing that has the advantages of oil to maintain a modern world.
Hey dingleberry, oil is irreplaceable and, at best, global production is on a plateau with no where to go but down... To make matters worse, we are also fucked by AGW...
Can you grok that?
whoa, I think I had an epiphany! Our new strategy in the war on terror is, if you can't beat Al Qaeda, join Al Qaeda. BRILLIANT.
Aww cmon environmentalist, they have been catching water on fire for centuries, this is nothing new! Does it increase the chances of contamination, maybe so, but to stop it outright due to the risk is insane! We need oil, if not, we go back to throwing rocks, until a vialble alternative means is developed, that is economical. Got that, hope so....
The earl boss, earl...it's all about the earl...and power! The earl of sandwhich is eating us for lunch, get use to it.
Arthur Bernstein is well-known as one of the most "conservative" of the shale analysts. His numbers on both shale-oil and gas are among the most pessimistic in the industry. His points are well taken, and are a welcome part of the dialog, but it needs to be understood in perpsective.
He has said the most profitable gas well brings gas in at a cost of at least $5 per mcf (thousand cubic feet), whereas others say there are Marcellus wells delivering at the $2 level. So Arthur's not always exactly right.
Once you drill one of these wells, you have to let it produce even if it ultimately looses money. The drilling costs are sunk, and you have to produce before the lease runs out, and also service the debt. Many producers sold shares in loosing wells to foreigners who wanted to understand the technology. They are now wise, and not doing anymore stupid investments.
Fracking has been done for over 100 years. The modern horizontal hydro-fracking can be safe as long as it's done responsibly. In the early rush to bring shale wells online, there were many inexperienced drillers and geologists who made some bad decisions, causing avoidable problems and giving fracking a bad name. Lots of things are dangersous but we do them anyway. If driving on a two lane country road is safe, then so is fracking. Just stay on the right side of the road.
In the end shale oil or gas will not bring about a new Saudi America. The supplies are welcome and essential to keep prices from skyrocketing. But we will never see anything like Gawhar's 200 Billion Barrels of light sweet crude, in porous rock at a few thousand feet, ever again. On the other hand, we've bought ourselves some time; hopefully, we use it wisely.
There are two issues with fracking:
1) Potential contamination of ground water. Call me old fashioned but fracking in the NYC and Cheasapeake Bay watersheds strikes me as lunacy... If you want to frack in Bakken or that shithole of a state Texas, go ahead, but don;t fuck the water supplies for ~100 million people...
2) Failure of well casing leading to significant CH4 leakage. It does not take much leakage to completely negate any gain NG has over coal vis a vis CHG emissions. Casing failures are at the 1-3% level. Too high in other words...
A third lesser issue is that current drought and aquifer depletion is leading to a serious cofrontation between Ag and oil interests. In some regions fracking is providing unsustainable demands on the local water supply....
As for a bridge, the $186 billion in 2012 domestic O&G CAPEX would go a lot further if invested in other alternative energy sources....
http://fracknation.com/
You sound like AlGore and globullshit warming...
clean drinking water is sooo overrated.
And you come across as a scientifically illiterate person easily fooled by slick propaganda...
So either you are a fool or a disingenuous oaf....
actually- niedermeyer was always more of a sneaky little shit.
More of this Peak Oil nonsense? Honestly, why is the price so low if in reality the supply is lower than what is suggested?
He's saying 1. the low hanging cheap fruit has been picked over ( nobody tries to get oil up from 3 miles down in the sea unless its a last resort) and 2. Obowelmovement's ME policy is guided by the 12 Tribesman to decide which Muslim tribe gets to bury it in our ass with control of ME oil.
Get it through your head, the US only cares that ME oil is priced in dollars...
I know dat- it's why Iran and their bourse's oil-for-gold has got to go (also why MoMar is pushing up daisies)
The ultimate roll over of the EFS and Bakken production will be extraordinary...
I suspect that the costs of production are tightly held secrets. Or perhaps, the willingness of the big oil companies to subsidize production are tightly held secrets. My point is that the oil price is controlled and manipulated. Here's an unsolicited suggestion to big oil. Boycott. Cut production. Engineer shortages. You could then extort whatever it is you want (e.g. Iran's bounty). It isn't called black gold for nuthin.
what I want to know is the comment of Bud Abott! Can't have Costello w/o Abott!
If Costello were Dick...ens, this title could have been : A tale of two shitties, sorry titties, sorry cities !
Not that I disagree with Rose...Bud-Joe!
"This implies that some U.S. producers were losing money on oil they brought to market — and doing so knowingly, says Bernstein."
Key point in this article. Price suppression in oil is following very similar patterns to the gold market. Both gold and oil are pricing below wholesale production breakevens. When (not if) oil breaks out on a USD basis, the 2% Fed inflation target will seem pretty silly.
The 2% inflation "target" is much more sinister than "silly"; and it's certainly merely an item in the propaganda agenda. Inflation is running around 7.5-8.5%/ year in the Us. Both Hot Dogs and Gasolene cost twice as much as they did when the Obamanation was first elected.
wow. "and the sun rises in the East and sets in the West." oh look! the internal combustion engine! hahahahaha. that'll never fly! i mean give me a break. you people in New York City are so hopelessly stuck in Luddite Past you make even the Nazi Party sound fun and inviting. What other ideas are you invested in that none only are stuck in the past...but WEDDED to it...Chris? Still sitting on a trillion dollar book of unmarketable securities are ya'? "let's throw some nation states in there" just for shits and giggles shall we?
try this Costello on first: http://www.youtube.com/watch?v=jfFunjzyIsE