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$1 Trillion In Global CapEx At "Unambiguous" Risk As A Result Of Crude Crash

Tyler Durden's picture




 

Just like with the Mohammed Islam story, the religious belief by the cheerleading crew that the crashing price of oil is so "unambiguously, unquestionably, undisputably" good for the US is so taken for granted, that nobody actually checked the facts.So here is one such attempt by the FT, which writes that "almost $1 trillion of spending on future oil projects is at risk as a result of the plunge in crude to $60."

The price plunge has shaken the energy industry, throwing some of the majors’ most ambitious plans into doubt and pummelling oil company shares. Projects in challenging frontier regions like the deep waters of the Gulf of Mexico are predicated on high oil prices and may not be economic with oil at $60 a barrel — the level Brent was trading at on Monday afternoon.

 

Goldman has examined 400 oil and gasfields around the world, many of which are still awaiting a final investment decision. Its analysis, based on a $70 oil price, shows that fields representing 2.3m b/d of output by 2020 and awaiting a green light have now become uneconomic. That figure rises to 7.5m b/d of production by 2025. The analysis excludes US shale.

 

The bank shows that companies will need to cut costs by up to 30 per cent — for example by forcing suppliers to take steep price cuts — to make these projects profitable at $70 a barrel.

 

In total, the production at risk from such fields adds up to $930bn of investment.

And just in case the waking up fact-checkers are confused, in the definition of GDP is Y = C + I + G + (X ? M), I is Investment.

Which means $1 trillion less in global investment. But that's ok, because Americans who are about to receive their November 401(k) statements showing a plunge in their retirement holdings courtesy of the collapse in Energy stocks, will rush to spend all those low crude price "tax-savings"... on things aside from Obamacare that is. Surely that wil lmore than make up for the collapse on the investment side.

 

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Tue, 12/16/2014 - 11:59 | 5558473 JRobby
JRobby's picture

Supply numbers revised downward in 3, 2, 1........

Late February or so

Tue, 12/16/2014 - 12:06 | 5558483 observer007
observer007's picture

The Russian banking system is taking a big hit by a combination of a shock rate hike and the collapsing ruble. Shares in Russia's largest banking group, Sberbank, fell on Tuesday amid rumours that the bank had stopped lending to customers. Rumours abound…

 

Ruble crash will destroy financial system

latest:

http://tersee.com/#!q=ruble&t=text

Tue, 12/16/2014 - 12:09 | 5558509 GetZeeGold
GetZeeGold's picture

 

 

 

Screw it....the American public has 302 more trillion where that came from. It's just that we have to unwind it.

Tue, 12/16/2014 - 12:15 | 5558526 Kaiser Sousa
Kaiser Sousa's picture

"The UK’s Johnson Matthey (LSE:JMAT) was formed nearly two centuries ago by a gold assayer, but on Monday the company took a step back from those roots, announcing plans to divest its gold and silver refining business to Asahi Holdings (TSE:5857).

Asahi, a collector, refiner and recycler of precious and rare metals from waste materials, will pay Johnson Matthey US$186 million in cash for the unit, with the deal expected to close in March 2015.

Explaining the move, Johnson Matthey CEO Rob MacLeod said it fits with the company’s “long term strategy to focus on areas where [it] can use [its] expertise in chemistry and its applications to deliver high technology solutions or that provide a strategic service to the wider Johnson Matthey group.”

It’s easy to see why the company chose now to hone that focus. As resource market participants well know, the space has been hit hard in 2014, and Johnson Matthey hasn’t escaped the carnage — its half-year results, released on November 20, reveal that its gold and silver refining business saw sales drop 23 percent from the year-ago period. Its underlying profit also sank."

http://silverinvestingnews.com/27294/johnson-matthey-asahi-gold-silver-r...

Tue, 12/16/2014 - 12:23 | 5558567 Clint Liquor
Clint Liquor's picture

Gold and Silver refining dropped 23%. Holy Shit, that means there will be 23% less to buy!

Tue, 12/16/2014 - 12:41 | 5558681 flyingpigg
flyingpigg's picture

Not really. It means 23% less refinery production is available but since we are not talking a commodity which is all consumed (as oil or wheat), inventory can be sold as well. Yes, I know, most stackers will not sell... 

Tue, 12/16/2014 - 12:27 | 5558589 MalteseFalcon
MalteseFalcon's picture

Uh, "We" are in a war. I know you oil-types thought that it would be some 18 year olds sitting in the trenchs, but it's you.  Now when the whistle sounds you are to hop over that razor wire and run east as fast as you can for as far as you can.  Don't forget to shout.

Long live the Empire!!!!

Tue, 12/16/2014 - 12:29 | 5558607 AustrianJim
AustrianJim's picture

Maybe this is the ultimate contrarian indicator.

Tue, 12/16/2014 - 12:08 | 5558511 SWRichmond
SWRichmond's picture

So does this CapEx spending collapse impact GDP here in the US?

Just sayin'...time for more deficit spending.

Tue, 12/16/2014 - 12:23 | 5558566 JRobby
JRobby's picture

GDP? What is that? Oh, that wheel they spin with all positive numbers above 3? That number?

Tue, 12/16/2014 - 12:38 | 5558656 RaceToTheBottom
RaceToTheBottom's picture

Nothing more WS bailouts won't help.  Its for the children in North Dakoda....

Tue, 12/16/2014 - 13:08 | 5558835 Georgia_Boy
Georgia_Boy's picture

The bad news of the shale bust etc. comes quickly, the good news of most Americans benefitting will develop more slowly.  Those who can detach from their personal feelings on the matter and follow the realities will adjust the best.

Tue, 12/16/2014 - 13:34 | 5558953 NotApplicable
NotApplicable's picture

Nah, they'll just add it back in as a savings somewhere else. Or better yet, hedonically adjust it to a "capex equivalent."

Tue, 12/16/2014 - 14:42 | 5559309 sun tzu
sun tzu's picture

I don't know why you were down arrowed. A Russian collapse would trigger an EU banking collapse due to exposure to Russian government and commercial debt. This could be the black swan event that unravels the ponzi. 

Tue, 12/16/2014 - 12:13 | 5558525 Jumbotron
Jumbotron's picture

That's $60 Brent.  The really big hard to get at projects track Brent more.  Watch what happens when Brent breaks $58.  When it's $57.xx and falling .....watch this thing accelerate.

 

Tue, 12/16/2014 - 12:25 | 5558581 JRobby
JRobby's picture

59.26 at 11:24 EST

Tue, 12/16/2014 - 13:26 | 5558910 KnuckleDragger-X
KnuckleDragger-X's picture

Yep, the game is not over....

Tue, 12/16/2014 - 12:01 | 5558475 fuu
fuu's picture

Saves more for stock buy backs which is how true economic growth is acheived.

Tue, 12/16/2014 - 12:02 | 5558478 JustPrintMoreDuh
JustPrintMoreDuh's picture

Had to laugh at the graph ... supply, demand & equilibrium.  So cute. 

Tue, 12/16/2014 - 12:07 | 5558500 buzzsaw99
buzzsaw99's picture

econ 101 chart = quaint. the only supply that matters is how much clownbux will old yeller give to her friends this time.

Tue, 12/16/2014 - 12:01 | 5558480 firstdivision
firstdivision's picture

"Must. Reach. 50. Daily. Moving. Average.", were the Yellen's final words.

 

 

Tue, 12/16/2014 - 12:04 | 5558490 Dr. Engali
Dr. Engali's picture

It's all fake, there is no spoon.

Tue, 12/16/2014 - 12:38 | 5558659 Ignatius
Ignatius's picture

"...the religious belief by the cheerleading crew that the crashing price of oil is so "unambiguously, unquestionably, undisputably" good for the US is so taken for granted..."

And Citi snuck in a bailout provision for their derivative positions as a kind of off-hand hobby.

Tue, 12/16/2014 - 12:07 | 5558505 NoWayJose
NoWayJose's picture

Maybe someone is figuring out that that $1 Trillion in oil projects actually goes to buy equipment and pay workers a decent wage -- and to allow prodution of oil so that debts (the debt held by the big banks who are leading the assault on oil) can be repaid?

Tue, 12/16/2014 - 12:48 | 5558723 headhunt
headhunt's picture

better than $1 trillion in 'solar' projects - which go bankrupt

Tue, 12/16/2014 - 12:50 | 5558724 headhunt
headhunt's picture

better than $1 trillion in 'solar' projects - which go bankrupt

Tue, 12/16/2014 - 13:02 | 5558778 gcjohns1971
gcjohns1971's picture

Because they don't allow production to continue so that debts can be paid.

That's what QE is for.

As for the $1 Trillion question: 

This is childish analysis to assume that because this money will not invest in oil (not at all a foregone conclusion)  it will just evaporate.  

The adult question is to ask:  "Where it will go, and what are likely to be the consequences of such a tidal-wave of money?".

Given the size, one might want to ask where CAN IT GO?

It could always go to treasuries for a while, pushing down the yield despite the end of QE.

But the tide also goes out, sooner or later, on such investments.

Tue, 12/16/2014 - 13:36 | 5558970 NotApplicable
NotApplicable's picture

Go??? What ever would make you think it exists now? That money never exists until some bank approves a loan.

Tue, 12/16/2014 - 16:06 | 5559682 Omen IV
Omen IV's picture

To China Dummy!

they have the manufacturing base and are the principal industry based consumer in the world  - it becomes THEIR cash flow positive

americans get a tank of gas in their honda thats all there is - no industry left  and the oil and gas industry gets Bankruptcy and a fire sale of acreage undrilled leases

Tue, 12/16/2014 - 12:09 | 5558507 Bell's 2 hearted
Bell's 2 hearted's picture
"$1 Trilliion In Global CapEx At "Unambiguous" Risk As A Result Of Crude Crash"

 

 

 "do not light and hold M-80s"

Tue, 12/16/2014 - 12:09 | 5558513 alexmark2013
alexmark2013's picture
2015 Crash Has Begun: This Truly Is A Global Financial Panic, X22Report, Rick Rule, Harry Dent (Video) http://investmentwatchblog.com/2015-crash-has-begun-this-truly-is-a-global-financial-panic-x22report-rick-rule-harry-dent-video/
Tue, 12/16/2014 - 12:10 | 5558515 jon
jon's picture

so what? that's the fucking point. the capital will be free for other investments.

typical broken window fallacy: you have absolutely no idea that putting the money elsewhere will definitely be a worse investment than oil.

the savings rate in this country should be through the roof right now. the currency, and not the level of economic activity in any particular industry/sector, is what's broken.

Tue, 12/16/2014 - 12:15 | 5558530 Bell's 2 hearted
Bell's 2 hearted's picture

Amerikans too broke and in debt up to their ears to save

 

paycheck to paycheck ... or is it government check to government check?

Tue, 12/16/2014 - 13:41 | 5558993 NotApplicable
NotApplicable's picture

Why do you refer to credit as capital? BTW, it's always been free to seek yield elsewhere, 'cept dammit, there's not any yield to be had otherwise.

Which is why it's all piled up in energy, the very last refuge of capital malinvestment.

Tue, 12/16/2014 - 12:15 | 5558532 ejmoosa
ejmoosa's picture

Too many eggs in one basket is always a risky endeavor.

It's really amazing how many never seem to learn this lesson.

Tue, 12/16/2014 - 12:17 | 5558534 youngman
youngman's picture

I have said before I think the oil and gas boom was 40% of our growth in our economy the last 6 years.......when that goes..there is not much left to support the USA....you can help peole sign up for Obamacare..that seems to be a good job....but not much else...and trucks sales will plumit as construction stops..

Tue, 12/16/2014 - 12:33 | 5558636 disabledvet
disabledvet's picture

USA was an industrial economy long before oil ever mattered.

 

Good luck replicating GM anywhere else on the planet.  Toyota Camry's and Honda Accords?  There's reason they get made in the USA.

"Oil" only exist(ed) to make sure we can over charge for everything. Shale oil is a game changer because it means the USA produces a million more barrels a day than in consumes.  Since oil can't be exported what you are seeing to me is the actual price of production.

And that's just oil.  The USA has been the worlds biggest natural gas producer for some time now.  This is now showing up at the point of retail save for with the Air Force, Navy and Marine Corps that appear to be paying the "Government rate" for everything right now.

This much I know:  you can fight the war on terror by outsourcing the whole thing to GM....but that ain't true of a war with Russia.

Nor a war of Russia against us I might add...

Tue, 12/16/2014 - 12:47 | 5558709 Schmuck Raker
Schmuck Raker's picture

The other day I saw an ad on ZH for a "Free Medicine Discount Card'.

Keep an eye peeled for it.

Tue, 12/16/2014 - 16:08 | 5559688 Omen IV
Omen IV's picture

you are a fucking idiot

Tue, 12/16/2014 - 12:22 | 5558550 Coldcall
Coldcall's picture

The FT are not exactly the fountain of reasoned analysis, this is the media arm of the Eurozone we are talking about. Same people who thought Uk should join the euro. That would have gone so well.

 

Tue, 12/16/2014 - 12:32 | 5558628 arby63
arby63's picture

Bullish! Yellen just cranked up the presses! It's Tuesday and DOW to the moon! Nothing to see here. Move along.

Tue, 12/16/2014 - 12:34 | 5558641 L_Conquistador
L_Conquistador's picture

I'm safe.  My money is all tied up in ethanol mutual funds.   (Does anyone know why I can't get ahold of my fund manager?)

Tue, 12/16/2014 - 12:42 | 5558683 Schmuck Raker
Schmuck Raker's picture

"The analysis excludes US shale."

I bet the analysis also excludes pipelines from Russia to China.

Tue, 12/16/2014 - 12:58 | 5558771 juggalo1
juggalo1's picture

Isn't this somewhat like the broken window analogy?  Energy crisis eases as world now well-supplied with oil.  Less energy spent finding and extracting oil.  Resources available for other things?  The reason WHY crude is dropping is important., but in and of itself less effort and energy spend finding hydrocarbons means more for other things.  That is a good thing.

Tue, 12/16/2014 - 13:15 | 5558861 Pareto
Pareto's picture

True, but, (and lets be analytically fair about this), price deflation does not discriminate, and so we better see price declines everywhere, and of course, we won't until we see a return to a positive interest rate environment (real).  See that's the thing, you can't talk about broken windows and free markets unless and until interest rate suppression is abandoned and are allowed to reflect the true cost of capital.  Because this - is a good thing too.

Tue, 12/16/2014 - 13:00 | 5558788 apes hit
apes hit's picture

Isn't this supposed to be a capitalist market, i.e., when there are significant changes in the economy -- whether they be driven by environmental, technological, process, etc., changes -- there will be winners and losers as the economy and individual businesses adjust to these changes? Yes, unemployment and investment losses will occur in energy-related markets/areas (note: I'm heavily invested in energy funds/stocks so, short-term at least, I'm currently on the "loser" side of the equation), but overall net to the U.S. economy, lower oil prices should be a good thing since it has the potential to improve employment and encourage investment elsewhere in the economy.

I'd argue it is the malinvestments that are occurring because of Federal Reserve and Political actions that are intensifying these ups and downs. They may be trying to smooth things (or just enrich themselves and their crony buddies depending on how cynical one wants to be), but in the end their actions create a roller coaster ride which, I fear, may end with the whole economy falling off the tracks.....

Tue, 12/16/2014 - 13:06 | 5558814 cigarEngineer
cigarEngineer's picture

I can't believe such BS is being posted here. That $1T in investment won't just vaporize. Those savings will be invested elsewhere. It's a zero-sum game. Instead of being booked as profits on exceedingly-costly oil, it will be booked as savings by customers who will use that money elsewhere in the economy. 

Tue, 12/16/2014 - 13:21 | 5558892 RSDallas
RSDallas's picture

You have to soak up that malinvested QE somehow.

Tue, 12/16/2014 - 13:38 | 5558973 DebtTheNewEquity
DebtTheNewEquity's picture

Are falling oil prices good for the actualy humans that occupy this taxing regime called the USA?  Of course, even if some do lose their jobs, they will gain the main benefit of a free market --> Lower Prices.

 

Is it good for the incredibly levered financial system, the stawk markets, the very Oily PE firms and many other feeders at the trough of easy money?  Certainly not.

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