Guest Post: The Really, Really Big Picture

Tyler Durden's picture

Submitted by Chris Martenson of Peak Prosperity,

[Many longtime followers of the Crash Course have asked Chris to update his forecasts for Peak Oil in light of the production increases in shale oil and gas over recent years. What started out as a modest effort at clarification morphed into a much more massive 3-report treatise as Chris sifted through mountains of new data that ultimately left him more convinced than ever we are facing a global net energy crisis despite misguided media efforts intended to convince us otherwise. His reports are being released in series over the next several weeks; the first installment is below.]

There has been a very strong and concerted public-relations effort to spin the recent shale energy plays of the U.S. as complete game-changers for the world energy outlook.  These efforts do not square up well with the data and are creating a vast misperception about the current risks and future opportunities among the general populace and energy organizations alike.  The world remains quite hopelessly addicted to petroleum, and the future will be shaped by scarcity – not abundance, as some have claimed.

This series of reports will assemble the relevant data into a simple and easy-to-understand story that has the appropriate context to provide a meaningful place to begin a conversation and make decisions.

Since completing the Crash Course in October of 2008, much has gone as I anticipated in the way of money printing, official neglect of the main predicaments we face, and generally higher petroleum costs (2012 was the record so far on a yearly basis).

What has not changed is the general trajectory of liquid fuels becoming increasingly expensive and more difficult to produce.  I know that this runs counter to virtually every news article that has come out recently.  It is time to separate the data and facts from the hype.  Much has recently been either muddied or presented so far out of context as to be more distortive than helpful.

This entire body of analysis is so large that it will be broken into three pieces. 

The first is a general world outlook for petroleum that presents the macro picture, provides some necessary clarifications on definitions, and illustrates that all of the data is consistent with the idea that the world is on a plateau of oil production.  Here we note that exactly zero of the major energy outlooks provided by the IEA, the EIA, PB, and especially the inexcusably sloppy piece put out under the auspices of Harvard (the Maugheri report of 2012) all failed to make any mention of the declining net energy provided by any of the new unconventional oil finds.  This is a crucial oversight.

The second report will focus on natural gas in the U.S., with a particular emphasis on shale gas, the supposed game-changer that we have read so much about.  There are some very important elements to this story, but the punch line is that there's nowhere near "100 years" of this magic fuel, it costs more to produce than it is being sold for at present here in early 2013, and – once we include the idea of future increases in consumption – there may only be in the vicinity of 20-30 years of proven and probable reserves. And that is if and only if prices rise by a factor of 2.5x or more from the current $3.30 per therm market price. 

The third will focus on tight oil, often called shale oil (not to be confused with oil shale, a very common mistake), and make the case that, while it may have some modifying effect to the Peak Oil story, it lacks the ability to return the world to anywhere near its prior glory years of ~2% per year growth in global oil output. 

The summary of all three reports leads to the conclusion that all efforts to cram the world full of fresh rounds of new debt lending are going to end in failure because the requisite net energy is simply not there to support continued debt accumulations running several-fold faster than actual economic productive output.

Enormous risks are continuing to build in the world's financial landscape, and the continued unwillingness to confront the truth about our global energy predicament is both puzzling and frightening. The conclusion is that our future resilience as individuals, corporations, or countries will hinge to a very large degree on whether or not we heed the warning signs and adapt our lives and habits to the actual circumstances.

The Really, Really Big Picture

The really big picture goes like this:  Humans discovered about 400 million years worth of stored sunlight in the form of coal, oil, and natural gas, and have developed technologies that will essentially see all of that treasure burned up in just 300 to 400 years. 

On the faulty assumption that fossil fuels will always be a resource we could draw upon, we fashioned economic, monetary, and other assorted belief systems based on permanent abundance, plus a species population on track to number around 9 billion souls by 2050.

There are two numbers to keep firmly in mind.  The first is 22, and the other is 10.  In the past 22 years, half of all of the oil ever burned has been burned.  Such is the nature of exponentially increasing demand.  And the oil burned in the last 22 years was the easy and cheap stuff discovered 30 to 40 years ago.  Which brings us to the number 10.  

In every calorie of food that comes to your table are hidden 10 calories of fossil fuels, making modern agriculture and food delivery the first type in history that consumes more energy than it delivers.  Someday fossil fuels will be all gone.  That day may be far off in the future, but preparing for that day could (and one could argue should) easily require every bit of time we have.

What galls me at this stage is that all of the pronouncements of additional oil being squeezed, fractured, and otherwise expensively coaxed out of the ground are being delivered with the message that there's so much available, there's nothing to worry about (at least, not yet.)  The message seems to be that we can just leave those challenges for future people, who we expect to be at least as clever as us, so they'll surely manage just fine.

Instead, the chart above illustrates that on a reasonably significant timeline, the age of fossil fuels will be intense and historically quite short.  The real question is not Will it run out? but Where would we like to be, and what should the future look like when it finally runs out?  The former question suggests that "maintain the status quo" is the correct response, while the latter question suggests that we had better be investing this once-in-a-species bequeathment very judiciously and wisely. 

Energy is vital to our economy and our easy, modern lives.  Without energy, there would be no economy.  The more expensive our energy is, the more of our economy is dedicated to getting energy instead of other pursuits and activities.  Among the various forms of energy, petroleum is the king of transportation fuels and is indispensible to our global economy and way of life.

To what do we owe the recent explosion in technology and living standards?  To me the answer is simple: energy. 


Because a very large proportion of our society was no longer tied up with the time-consuming tasks of growing their own food or building and heating their own shelter, they were free to do other very clever things, like devote their lives to advancing technology.  

When energy starts to get out of reach either economically or geologically, then people revert to more basic things, like trying to stay warm – such as this fellow:

Greeks Raid Forests in Search of Wood to Heat Homes

Jan 11, 2013

EGALEO, Greece—While patrolling on a recent cold night, environmentalist Grigoris Gourdomichalis caught a young man illegally chopping down a tree on public land in the mountains above Athens.

When confronted, the man broke down in tears, saying he was unemployed and needed the wood to warm the home he shares with his wife and four small children, because he could no longer afford heating oil.

"It was a tough choice, but I decided just to let him go" with the wood, said Mr. Gourdomichalis, head of the locally financed Environmental Association of Municipalities of Athens, which works to protect forests around Egaleo, a western suburb of the capital.

Tens of thousands of trees have disappeared from parks and woodlands this winter across Greece, authorities said, in a worsening problem that has had tragic consequences as the crisis-hit country's impoverished residents, too broke to pay for electricity or fuel, turn to fireplaces and wood stoves for heat.

I think it is safe to assume that all of the people in Greece who are chopping down trees to stay warm are not simultaneously working on the next generation of technology.  Energy first; everything else second.  In other words, our perceived wealth and well-being are both derivatives of energy. 

Like every other organism bestowed with abundant food – in this case, fossil fuels that we have converted into food, mobility, shelter, warmth, and a vast array of consumer goods – we first embarked on a remarkable path of exponential population growth.  Along with these assorted freedoms from securing the basics of living, we also fashioned monetary and economic systems that are fully dependent on perpetual exponential growth for their vitality and well-being.  These, too, owe their very sustenance to energy.

It bears repeating:  Not just energy is important here, but net energy.  It's the energy left over after we find and produce energy that is available for society to do all of its complicated and clever things.

Not only is the world struggling right now to increase global oil production, but all of the new and unconventional finds offer us dramatically less net energy to use as we wish. 

Where We Are, in Three Simple Charts

One narrative that is being heavily marketed right now is that the shale plays are true game-changers and there's really nothing to worry about for the foreseeable future.  Heck, the story says that the U.S. will soon exceed Saudi Arabia in oil production and become energy independent, that it has so much natural gas that it might as well build export terminals, and that there's 100 years of natural gas just waiting to be used.

Unfortunately, none of this is really true.  Here's how I can make the case for that assertion using just three charts. 

This first chart comes to us from the EIA courtesy of one Mr. Sweetnam, a former director at the EIA who was promptly reassigned to a distant position when his superiors discovered that this chart revealing declines in existing conventional oil fields had been released to the public.

What this graph shows is the projected decline of all known projects in 2009 (so this does not have the U.S. shale 'revolution' baked into it, but I'll get to that shortly), and it shows that those projects are going to slip from delivering 85 million barrels per day (bpd) of crude oil to just 45 million bpd between 2012 and 2030.  In other words, 40 million bpd will go missing.  But it's worse than that, because demand is expected to grow, leaving a gap of more than 60 million bpd by 2030.

If that sounds like a lot, it is, but that's just an assumed rate of production decline of 4.8% per year, which is right in the midzone of expert estimates.  Some estimate decline rates as high as 6.5%, which would really amplify the drop and the resulting gap.

The top line is showing how much oil demand would grow if it was going to expand at the usual historical rates.  The gap between those two modeled states is 43 million barrels.  To put that in a U.S. shale context, the EIA projects that the domestic shale plays might deliver as much as 3 million barrels per day by 2020, which is nothing to sneeze at, but even with that there's a projected 40 million bpd shortfall

The second chart I want you to look at is this one which shows total world crude oil production over the past 12 years:

Between 2004 and 2012, the total supply of global crude oil + condensates (a definition which excludes the non-transportation fuels known as natural gas plant liquids and biofuels) has just flopped around in a tight band with only 5% wiggle.

It bears noting here that the 2004 average spot price for crude oil (using the Brent contract, as that better defines the 'world oil' price) was $38.35/bbl, while the average 2012 spot price was $111.63, or 2.9 times higher than the 2004 price. 

Despite this near tripling in price, the global supply is just sitting there stuck on a plateau.  Economically speaking, this is not supposed to happen.  What is supposed to happen is that suppliers will react to these higher prices and deliver more to the market, and then prices will settle down.  But that hasn't happened, which indicates that global oil supplies are, as expected, constrained by something other than market forces.

This brings us to the third chart of global spending on oil projects:

What also happened during the time that global supplies of crude oil were undulating along that 5% plateau?  Global expenditures on oil projects jumped by 100% from $300 billion per year to $600 billion.  With a 100% increase in capital spending by the petroleum industry, we saw petroleum supplies remain more or less stuck in the exact same spot. 

I am of the impression that $600 billion a year is a lot of money and that the people dedicating that capital are applying it to the very best projects available.  I make the further assumption that when a project is identified and pursued, it is brought on line as rapidly as possible.  There are not that many ways to look at this data other than noting that we are spending more and more to get the same...for now.

If you want to know why oil costs over $110 on the world stage, the last two charts above give you the answer:  There's just not that much of it to go around.

Despite all of this effort and expense, the world is basically treading water with respect to overall production.  The reason for that is contained in the first chart out of these three:  The race is now on to bring new projects on line quickly enough to offset the losses from existing fields. 

Petroleum is neither a U.S. issue nor any other specific country's issue, but rather a global commodity of immense importance. While the development of the shale plays in the U.S. is of domestic importance, it has not altered the global dynamic of static oil production – at least not detectably in the global supply charts. Not yet.

Conclusion (to Part I)

In Part II: How Energy Woes Will Trigger Financial Crisis, we look at the latest global petroleum supply and demand data and see clearly that cheap oil has become extinct. That era is over for humankind. 

My prediction is that the underlying rates of depletion will continue to fight the recent production gains in the U.S. and elsewhere in the world until they soon come to a standstill, eventually swamping even heroic efforts. 

Steadily rising energy costs and decreasing net energy yields will simply not be able to fund the future economic growth and consumptive lifestyles that developed nations are depending on (and that developing nations are aspiring to). In fact, the persistent global economic weakness we've been experiencing over the past years is an expected symptom of the throttling constraint decreasing net energy places on growth.

If you care about the future of the economy, your standard of living (or that of your children), and/or your quality of life, you need to fully understand this relationship between growth and net energy. Your individual future (and our collective one) depends on it.

Click here to read Part II of this report (free executive summary; enrollment required for full access).

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NotApplicable's picture

Speaking of foolish, do you realize you're conversing with Trav?

trav777's picture

yes i do and i wasn't referring to you specifically; it was the collective "you."

GFY anyway lol

Matt's picture

I don't think we need to drug everyone and cause selective amounts of brain damage with fetal alcohol syndrome to create a sustainable society. Just get people to believe its their Dharma to clean toilets for a living.

trav777's picture

stratification is stickier if you use alcohol

Nothing To See Here's picture

Peak oil theories are just like peak food theories and other Malthusian fear-inducing population control methods. Amazing that we still don't get that humanity could survive any scarcity if we'd let the free market operate normally...

Flakmeister's picture


Yep the free market failed when the US peaked in 1970....

Must have been those Commie Vegans that took over in Texas...

Totentänzerlied's picture

Who's the troll? He never said humanity could continue in exactly its present and recent fashion - which is, really, the entire point.

We agree that there's a scarcity issue here. I take it you disagree that a free market system would cope with scarcity better than our current kluged abomination of a system which prefers to say "Lord Keynes" three times fast and pretend resources are infinite?

Flakmeister's picture

The free market... sorry, but I must laugh at your naivite...

The free market cannot discount future values on the scale that H. Sapiens requires...

Tell me how the free markets have discounted the value of the Ogallala aquifer, the Grand Banks cod fisheries, the Amazon rain forest? I could go on and on....

Besides the free market is as real as Maxwell's Demon or the tooth fairy for that matter...


Herd Redirection Committee's picture

The current paradigm is 'planned obsolescence' meets 'consumerism'.  There is a good chance that as a society we could be doing things MUCH more efficiently.  You know, by not designing things that are out of date in 6-12 months (cell/smart phones, for the avg. person).  By having light bulbs that don't burn out after a mere 2000 hours.

We could save a lot of energy and a lot of materials just by rearranging our perspective from one of abundace to one of scarcity.

BTW, the whole universe is full of energy.   When is someone going to finally invent the bloody Matter to Energy (and vice versa) Converter?

trav777's picture

or when the USSR peaked in 1989...or indonesia in 1998 or the UK in 2000 or Mexico in 2004, or when 54/65 top oil producing nations peaked.


Dark_Horse's picture

...but "scarcity" doesn't operate normally.

It's manuipulated, to provide the highest return on its satiation.


metaforge's picture

Yup - cuz capitalism trumps physics - every time.

secret_sam's picture

If we just assume that oil automatically replenishes itself from the deepest bowels of the Earff, everything will work out fine.

AnAnonymous's picture

I believe that 500,000,000 people is the appropriate level to maintain the balance with nature.

500 Millions 'americans' are still too many to maintain the balance with nature.

500 Millions 'americans' will be proven to be too many to maintain the balance with nature.

TheFourthStooge-ing's picture

AnAnonymous bleated:

500 Millions 'americans' are still too many to maintain the balance with nature.

500 Millions 'americans' will be proven to be too many to maintain the balance with nature.

Good thing there are only 300 million Americans, huh?

Over a billion of Chineses, though, somehow that will be causing the Chinese citizenism elite some kind of problems downthere.

Bear with it.

Argentbilly's picture

So do the Georgia Guidestones. 

Dark_Horse's picture

Don't worry, there's plenty of energy dense fat that can be liposuctioned out of the average US citizen and used as biofuel to power their basic needs for a while, just enough time for the de-pop plan transition to the implementation phase.

After that, it's Soylent Green to feed the chosen few surviving.


George Orwell's picture

Once again. Peak Oil will lead us global nuclear war. What is the best way to kill 2-3 billion people so that they do not use YOUR oil? Nuclear Weapons. If we launch half of our nuclear arsenal against China, India, Pakistan, Bangladesh, Indonesia, Philippines, Nigeria, etc, we can easily eliminate 30-40 million barrels per day of oil demand.

That's oil that you can use to drive your fat asses around town in a Chevy Suburban.  Get it? There is not enough oil for the average Chinese or Indian person to haul their fat asses around down in a 4x4. Either you give up driving or you nuke them so that they stop using YOUR oil.

An alternative to nuclear war is to unleash biological weapons on them. The problem with bio weapons is that the virus can come back and kill your own people. That can be tolerated as collateral damage though. We can kill the people but leave the infrastructure intact if we use bio-agents on them.


George Orwell

Matt's picture

Or the powers that be could simply arm their militaries with depleted uranium weapons, encourage the use of plastic bottles, burn coal, and get people to consume tons of glucose-fructose to slowly sterilize the population while increasing cancer and heart disease.

Flakmeister's picture

A tad simplistic....

Actually more than a tad...

Hey Toten-liber-bieber (what ever the fuck it is), here is one of those guys that want's to play God that you were talking about...

secret_sam's picture

No worries.  Thanks to the pioneering work of the Travistas, we'll soon have a germ that kills negroes only.  That'll solve all problems.

steve from virginia's picture




Simply cut off credit (to Greece, Spain, Portugal ... France, Italy and Germany ...) and all that consumption is exportable. 15million barrels per day.


Because of their 'euro', the swine are trapped and cannot create their own credit.


That's where all that 'Replace Saudi Arabia' talk comes from, we're stealing from the Europeans, they are too dumb to figure out what's going on!


All it takes is Wall Street not lending to them, how simple!


secret_sam's picture

Hey, killin' the Euro works for ME.

BigJim's picture

And not just the Negroes!

Trav666 is a huge fan of high IQs... and we all know which of the the three groups (negroid, caucasoid, mongoloid) has the highest average IQ, don't we?

There's a reason Trav picked a yellow face for his avatar, Whitey.

secret_sam's picture

North Korea kicks ass.  Must be the high IQs and the lack of diversity.

AgAu_man's picture

Future Lord's Prayer:  "... and give us our daily energy, and forgive us for fuel-sins... and lead us not into energy temptation."  ;-)

otto skorzeny's picture

just wait-when a US citizen goes to chop down some trees to heat his home and family when the SHTF some forest preserve goon cop will mow him down-"The Koch brothers and Weyerhauser own these trees-bitchez"

LongSoupLine's picture

otto, you got that fucking right...

Shit, just look what happens now when some poor fucking Downs syndrome guy wants to watch an extra movie...fucking sick:

otto skorzeny's picture

I'll go one better (or worse) google christina eilman to see how the CPD rolls-Trav would not approve. and that asshole rahm would disarm citizens and let these animals roam the streets.

Dark_Horse's picture

or possibly illegal to chop down a tree on your own property. (In a very dark future)

In some places it's currently illegal to capture rain water on your own property, citing that you do not have the water rights.

another step or two and they will get their laws around your trees, citing CO2 sequestration via carbon credit system.


Matt's picture

Around here, there are types of trees you cannot cut down - Gerry Oak, and maybe Arbutus. Imagine that, you have a tree that is leaning, going to fall on your house, the power line, the neighbors house, so you cut it down and get a $5000 fine or something ridiculous like that.

AgAu_man's picture

Otto, I think you and your Up-Arrow friends may be missing the whole Declining Consumption implications:

Less means less for everyone, because... a lower tide strands all boats -- big or small.  And it means a less complex society.  Less spare energy for everything.  Including less energy to find depleting or depleted OLD energy.

No more leveraging Old Sunshine (from fossils).  "Thou Shallt Earn Thy Living By The Sweat Of Thy Brow!"  Or by the sweat of leveraged muscle-power.  Savvy?

Matt's picture

You think the tree cutting issue is going to be way after the oil runs out? It is happening in Greece NOW. I am surprised it did not happen in New Jersey right after Superstorm Sandy.

SgtShaftoe's picture

Enough with the Malthusian doom bullshit. It's fucking stupid, period. We have real problems. INNOVATION is the limit to human population, not some fucking commodity. When price signals make oil uneconomical, a new form of energy is developed and used. I seem to remember that people were warning that the entire population of UK would starve and die because they were exhausting the forests. Then they found coal... then they were predicting imminent doom due to the impossibility of feeding the population, then they made a wheat hybrid that dramatically increased production. Linear thinking is stupid.

Austrian leaning people should understand this point reflexively. Chris, enough hand waving, you're embarrassing yourself...and you're completely and demonstrably wrong.

We will just find a new or many new energy sources, the world will go on. We should really be concerned with psychopaths in power and the currency /banking system. Priorities, Ladies and Gentlemen... Priorities

Julian Simon empirically destroyed this argument 30 years ago in his book "The Ultimate Resource" and The Ultimate Resource II".

centerline's picture

And the comparable replacement for oil in terms of EROEI is?

How many "things" that are part of everyday life have coal byproducts in them?

Plus, you have just made the same mistake of throwing out a theory (Malthus) for the tech and distribution lines instead of merging those theories into something that makes sense.

About the only way we avoid some sort of practical limit at some point - even if oil was "forever" - is to get off this rock.  I would suggest comparisons to bacterial growth as required reading the meantime.

Nothing To See Here's picture

People trying to prove that oil is irrepleceable by pointing that we don't know any replacement yet are economically illeterate, period. Most innovations happen either by accident, or by market forces when price signals/cost incentives are adequate. Oil is just still too cheap to force free innovation.

"The mind cannot foresee its own advance."  - F.A. Hayek

centerline's picture

However, different EROEI, byproducts, outputs/derivatives, etc. force many other things in society change as well.  Akin to chaning the tires on a moving car.  There just isn't a good solution that makes for a smooth transition.  That either takes time or a great deal of cooperation - and leadership.  We have none of these.

hidingfromhelis's picture

We're still dealing with a flat tire by rotating the tires and continuing our drive.  Too many people have a vested interest in denying EROEI, and will continue to do so as long as they are incentivized.  Research and trial of alternatives is great, but subsidizing mass production of something with a negative EROEI is a net increase in energy consumption regardless of how much greenwashing goes on.  Sustainable?  No.

Matt's picture

"or by market forces when price signals/cost incentives are adequate. Oil is just still too cheap to force free innovation."


What do you do when the status quo works in collusion to suppress the price signals? When the price of oil is subsidized, and the money supply is growing, so a large portion of the percieved increase in fuel price is just inflation? How does anyone calculate, with any degree of accuracy, the real price of a unit of energy, and then price out a new source of energy that does not even exist yet?

The price of oil may not rise sufficiently until well into a major shortage, especially with "anti-price gouging laws" that punish people for increasing the price on a limited resource.

Flakmeister's picture

Well... maybe you could explain to us how physical limits on chemical energy density are ripe to repealed?

We know nukes, and to be blunt, we fucked them up...

Basically the energy that our civilization is and has been based on is one form or another of condensed solar energy...


trav777's picture

in the case of nuclear, VERY highly condensed lol

Flakmeister's picture

Yep... never thought of it that way though....

We are stardust, we are golden.....

trav777's picture

visit can be done and made to work but it will not be easy to abandon the 60s

secret_sam's picture

How's this for a thought...

The "Milennials" (or their kids, if it takes that long) are raised in an environment in which it's trivial to completely abandon ALL historic tradition.  Exposure to every possible ethnic and cultural practice ever recognized will let those rebellious youngsters define a highly specific "vision of society"  that overnight becomes "moderate centrism" among all humans regardless of level of financial or political or charismatic power.

Or maybe ya call it a "Come to Jesus moment."  For everyone.  I'm thinking it's a relatively common concept.