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Gail Tverberg: This Is The Beginning Of The End For Oil Production
Submitted by Adam Taggart via Peak Prosperity,
With the recent collapse in the price of oil, Gail Tverberg, returns to discuss the likely impact on the US shale oil industry, as well as the global market for oil.
Gail is a professional actuary who applies classic risk assessment procedures to global resources: studying issues such as oil & natural gas depletion, water shortages, climate change, etc. These days, she writes at her website OurFiniteWorld.com.
While as an actuary, Gail is one to avoid hyperbole and the let the numbers speak, her analysis of the outlook for future oil production is nothing short of dire:
What we need is cheap energy. We need cheap, liquid oil. When it’s high-priced it really messes up the economy. We need oil to run our cars and to operate our trucks and such things, but it needs to be cheap. And it suddenly is today.
But, you have to be able to keep pulling it out at that same price. And the critical thing is, we can’t keep pulling it out at that price. What is going to happen, I’m afraid, is that once production goes down, we won’t be able to get it back up again.
There’s several reasons. One of them is that very low interest rates have been helping keep production up. Once you get your interest rates back up because there’s been a lot of failures, particularly in the shale industry, the costs will be higher. So, they can’t pump it out for the same price that they had it before. But, there’s also the issue that these old wells need to be produced continuously and they need continuous investment. If you cut that off, it’s going to be very hard to restart them. So, there will need to be an extra investment just to get it back online. Trying to do that becomes extremely difficult when the price is low. If it’s really an affordability issue, you've got a double hurdle then. Not only do you have to get the price up, but you have to get the price very high so you can get lots of investment dollars so you can kind of make up for lost time, besides everything else. As we know, it takes a long time to get new production online.I think, too, that it gets to be even worse than that, because financial institutions have sold derivatives based on the assumption that things can kind of go along as normal. So, you start seeing very strange motions in terms of the rise of the dollar, the fall of the dollar, and a variety of other things besides just these oil price changes. Over time, what you're going to get is a bunch of business failures. That’s going to come through these derivatives and it’s going to come through the financial system in a different way than just the oil price itself would. We have multiple impacts of these things, some of which are not obvious when you just first look at the story.Suppose you have a derivatives problem. If you have a derivatives problem and you have to go back against depositors, your depositors are things like companies that are making payroll payments. So, the big danger is that these payroll funds will be taken in this process of taking the money away to try to get enough money to fund the derivatives problem. Or, they might not be derivatives problems. They might be other kinds of problems that are putting banks under.
If you start taking the money from the oil companies that they were going to use to pay their employees or if you take the money from electricity companies that they were going to use to buy coal or that they were going to use to pay their employees, you have a very bad effect on the economy, which has nothing to do with the shape of the oil depletion curve.
As I said, the big issue I see is an affordability issue. I don't see oil prices bouncing back up again, or certainly not bouncing up very long, for very far. So, for oil production, this is basically the beginning of the end…what we're seeing is the beginning of Peak Oil, basically. The oil production will actually permanently turn down at this point because we will not be able to get it back up, and because of all the financial situations coming along.
Click the play button below to listen to Chris' interview with Gail Tverberg (44m:20s)
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We all have an extremely hard time talking about actual issues of economics because our system of Finance has gotten so far away from any reality. The issue with oil isn't finance, it's EROEI; Energy Returned On Energy Invested. In other words, as soon as it takes a barrel of oil's worth of energy to extract a barrel of oil, it's all over. We aren't there yet. That's the real energy equation. The Finance issue is a pernicious distraction.
Derivatives aren't real. That's what people can't keep in mind. The US Dollar isn't real, either. All this abstraction isn't real. Oil in the ground, energy used to produce food and get it to us; that is real. Up to this point, and for some time into the future, we'll continue to price all our energy, transactions and various endeavors in some form of currency. But at some point, and it's coming sooner rather than later, we're going to realize all the abstractions are in fact bullshit, but our needs for energy and food are real.
So, sure, maybe the price of oil isn't going up anytime soon, which tells you how fucked up our abstract Finance mental framework has become. That doesn't mean we aren't going to be using and needing energy. And it doesn't mean the whole success of modern civilization as a going concern isn't all about EROEI. It just means we're going to have to walk away from a completely broken, debauched, and illogical system of abstract financial flim-flam.
I would cite Hussman's last couple of weekly comments to support your views.... his call on CHF last week was interesting reading in hind sight.
http://www.hussmanfunds.com/weeklyMarketComment.html
further reading ... The Automatic Earth.... Jesse's Cafe Americain and many of the other well reasoned and thought out blogs posted to the left...
" The issue with oil isn't finance, it's EROEI; Energy Returned On Energy Invested. In other words, as soon as it takes a barrel of oil's worth of energy to extract a barrel of oil, it's all over. "
Ignoring that a chunk of the oil is not burned, but used for plasctic, pharmacueticals, etc. Let's say you have a mini-economy with oil production at 100 barrels per day. Each day, they must save 1 barrel for tomorrow, and they use 99 barrels. The 1 barrel powers all the machinery and feeds all the workers and transports everything so that the next 100 barrels can be extracted.
If reserves are unlimited, and EROEI drops to 10:1, they will need to produce 110 barrels so they can consume 100 and save 10 to reinvest tomorrow.
If the reserve is limited, then suddenly they produce 100 barrels but only have 90 to use; they must cut out 10 barrels of consumption; their economy must shrink or become more energy efficient.
With a Hubbert's Curve version, they start with 100 barrels per day, and invest 1 each day, keep 99 for themselves (100:1 EROEI). At the Peak, they may be producing 1000 barrels per day, and reinvesting 50 (20:1 EROEI). When they fall back down to 100 bpd production, they may be reinvesting 50 barrels to get the 100 (2:1 EROEI).
EROEI is only part of the equation, flow rate and stock also matter.
Bullshit.
Calling bullshit is good.... not citing facts to support your statment is indeed bullshit....
What a crock of crap.
So are you capable of sharing the reasoning process and facts that you base your statement on...
"...what we're seeing is the beginning of Peak Oil"
Not quite. We already entered "Peak Oil" several years ago in 2006-7. What is going on now with the Saudis collapsing the oil price is nothing less than criminal. It will just bring forward the date when the world runs out of cheap, easy oil and the price gets forced up to levels that will plunge the global economy into ongoing deep recession.
The saudis don't care that they are giving away cheaply a resource that once gone is gone forever. They are very old men who will be dead soon. They have more money than they can ever spend. All they care about is their psychotic need for power over others. It is a mental illness.
dead on (pun intended)
some think peak of the easy (and real) stuff was 2004/5 but it doesn't really matter
all that really matters is that we are on the downslope now and our entire SYSTEM is built on the fantasy of a never ending upslope
2004/5 may well be right, marking the date is not an exact science. As some experts have said for years: "we will only know the exact moment by looking in the rear view mirror".
It is not the oil that is expensive it is the dollars that are cheap. If they would stop devaluing the price of currency via their corrupt banking and debtor system, oil would find a rational price in a rational system and all the fluff and wasted capital adventures like premium cars, houses, businesses and people would no longer be around.
When I hear some so called professional industry insider rage for 15 minutes about what is wrong with the economy and they don't once breach the topic of the corrupt central banking system, I know that it is someone talking their book at the behest of their masters in finance.
They don't want to talk about the problem because they are afraid of being suicided
Go back to being the financially kept woman you are little girl!
You are quite correct! One need only look at a long term graph of the gold:oil ratio and your point is immediately found to be true. When valued in ounces of gold the price of oil is remarkably stable.
Obviously you have not read much of Gail's work.......
Thank you for the wonderful laugh...... regarding refering to Gail as a "little girl"............
I know of very few men as "brave" as you....... giggle........
Anybody that has to hide under the blanket of the central banking system has yet to grow up
So what would happen if say the Russians decided to price their oil in ounces of gold, priced at a discount to the US$ price of gold.
"So what would happen if say the Russians decided to price their oil in ounces of gold, priced at a discount to the US$ price of gold."
Short answer? All-out war
It would make no difference.
Given the distortions that money printing produces in the financial industry and the valuation of assets, I would not be suprised if cheap oil actually does last a while. But, we aren't running out of hydrocarbons any time soon.
Hydrocarbons do not require dead dinosaurs or algae to form. They form naturally as part of biogeochemical cycles, so you just have to find them and extract them. Price is another matter.
Or, you could go into space and get yourself as much fucking hydrocarbons as you want. They found hydrocarbons in a fucking nebula, so you don't need dead dinosaurs to form oil. You can go to Titan and get yourself as much methane as you want. Last time I checked, there were no dinosaurs on Titan.
http://scitechdaily.com/astronomers-find-hydrocarbon-in-the-horsehead-ne...
It's all about the cost of production........... that is what Gail's work speaks to........ Several years ago she did a great piece on the cost of production on the Canadian tar sands.... (it is in the oil drum archives) the thing is that some times the investment people fail to do the necessary due diligent investigation and don't include all of the "cost of production.......e
This is also very common in the "faux green" community.... which include wind mills and PV systems... Gail has rightfully taken them out to the "wood shed" for a good beating.....
All you flat earth peak oil people really crack me up. Oil and natural gas are abiotic. If they were biotic, i.e. derived from fossils, then they wouldn't exist on other planets and moons in our solar system. You see, dinosaurs never lived on Titan. That means they are renewable by geological processes. Mkay?
Carbohydrates (like CO2) ->geology-> Hydrocarbon.
Hydrocarbon -> work -> Carbohydrate.
See?
The price of oil is what they want it to be and it has nothing to do with technology or limited supplies. You've been duped.
Or perhaps you're right and there is no way the oil producers would jack up the price of oil just to make a profit, all while selling the idea of "peak oil" like they've been doing for fifty years.
Keep believing.
Rolling eyes.....
"During the 60 million-year-long Carboniferous period on Earth vast carbon beds were laid down from the burial of ancient forests in marshy swamps.
The trees did not decay but were instead converted into peat and under extreme pressure to coal.
But 300 million years ago, something changed to stop this deposition of coal.
of course more pressure crude etc....
The evolution of the humble fungus..... aka mushroom.....
http://www.abc.net.au/science/articles/2012/06/29/3534160.htm
You fellas here sure are good at finance but you suck at physics, chemistry, and geology.
Please explain to me where the hydrocarbons on Titan come from....
And for the love of creation please don't use an ABC source.
You are an ignorant person. just sayin'.
Claiming what you just wrote and that you have ANY knowledge is the epitome of clueless!
Indeed, painful to watch, snail meets razor.
Neither of you, brilliant people, in your haste to waste me, gave an answer to the question:
Where do the hydrocarbons on Titan come from? Please, please explain. A formula would be an added bonus. You can use either empirical or molecular, your choice. I'll wait....
That's what I thought. You can't answer because your brain has been infiltrated by propaganda all your life. Your knowledge is false, based on lies. Public education at it's finest.
At very low temperates, and with HUGE gravity influence,it has a "methane cycle" similar to our "water cycle". The methane gas is ALL over the universe. In Titan it does not have to be of life origin.
That cycle has NOTHING to do with "petroleum" production in the earth, by earth's planetary processes, which are LOTS different than Titan, a moon of Jupiter.
You really are an idiot.
Titan, a moon of Jupiter.
Please, quit while you're behind.
That's what I psted you freak.
READ BEFORE you type.
Your emotions are getting the best of you everyman. Titan is not a moon of Jupiter. It is a moon of Saturn.
You are exposing yourself as nothing but a reactionary.
You have missed the forest through the trees.
Goggle Fred Hoyle and his discovery of hydrocarbon interstellar chemistry via spectroscopic analysis of light absorption and emission lines.
btw, I'm a geologist by trade and thoroughly accept biotic origins of oil, simply due to my seeing in the flesh the profusion of time-sequence stratigraphy and included fossils which materially substantiate this to be totally undeniable, and that hydrocarbon reserves were generated in crustal sedimentary rocks via prosaic biotic burial processes, all within the Phanerozoic (Age of Life, the past ~670 million years), when all of these buried HC deposits were generated.
I've seen zero material evidence of anything else occurring or operating to produce hydrocarbon deposits.
We only know about these deposits via the hard work of geos of earlier times who worked out exactly which age sediments, the sediment types, and which LIFE ENVIRONMENTS that were laid them down, then by identifying these within the rock cores drilled and mapped in 3D, were able to predict where deposits would likely be within structural formations of such sediments.
That's how we found them - via the fossil clues - hence 'fossil fuels'.
You can make up any internet fantasy you like but it doesn't change one bit what the physical rock outcrops show, or where and how the geos and drillers find the oil, gas and coal measures, and that these often all coincide. Coal tends to brim with fossil plants from swamps and forests that have been buried and slowly converted, via heating and pressure of burial, insitu, into coal. Then it's broken further ('cracked') into associated oil, and also gas components, that are often driven off the fossilized coal. We have a stack of these deposits over a vast area (a former large shallow inland sea many millions of years back) in Eastern Australia and the physical evidence of the fossil origins is powerful, absolutely overwhelming, and completely undeniable.
But fight reality all you want.
I have respect for your opinion element, after reading many of your comments. And, it's good to discuss this with a real geologist, other that other pretenders around here. I am a biologist, with much experience in chem, biochem, and physics, but no geology. That being said, if it is the case that as you proclaim biotic origin of hydrocarbons is real, does that inherently mean that abiotic generation is not real?
Should we dismiss the evidence at hand or accept the published research? Published research is a little different than internet fantasies don't you think, even if some research can be debated?
Is it part of the scientific process to dismiss possibilities?
I suppose a trip to Titan is in order, unless you can provide the answer for the formula:
A 0.2500 g sample of a compound known to contain carbon, hydrogen and oxygen undergoes complete combustion to produce 0.3664 g of CO2 and 0.1500 g of H2O. What is the empirical formula of this compound?
Joker, while basic chemistry appears to be the same everywhere, or so the spectrographs indicate, accumulating stores of natural resources had to have some natural process to develop that.
I do not dispute that some abiotic oil is possible. However, that does not mean that the oil and coal found in the Earth's crust were not primarily "fossil fuels."
I am quite familiar with the sayings that related hydrocarbons to carbohydrates. There is plenty of organic chemistry there. Similarly, one can readily speculate about how stars make water, etc. ... However, none of that overthrows the basic geology that labels petroleum as a "fossil fuel" which was stored in the Earth from the original source of tropical oceans, over millions of years.
The existence of some aboitic oil does not mean that the oil that we depend upon was not of biotic origin. A LOT of time and trouble went into looking for oil, and developing theories about where it was found and why. Those insights are NOT overthrown by the possible basic organic chemistry that can make oil in other ways, in other places.
Then fuck oil. Fuck petroleum.
Hydrocarbon = energy. That's all we need to know.
I would bet my last silver dollar that those in the know know how to convert it cheaply.
If a couple of dudes in Texas in the 50's can modify a 57 chevy to get 100 miles/gal only to have the patent be bought out by big oil, then that tells you all you need to know about "peak oil". It's a scam. It's why I can't find a pickup that gets more than 17 highway. It's bullshit. Oil is a scam.
I don't care what form the energy comes from you can bet it wouldn't take much to develp the technology to make it work, if it doesn't exist already. If methane is renewable, it works for me. And it is.
Thank you and Element for at least providing valid arguments against inorganic oil but my underlying point stands; hydrocarbon is energy and hydrocarbon is inorganic.
Life is based on carbon, not the other way around. Oil is manipulated like everything else.
WOW There are actually people like you that have no clue of geologic or chemical processes,nor knowledge of the oil/financial/economic/value/price discovery/fat money relationship.
Seems like ALL of that is WAY beyond you.
No, I do have a clue that there is no such thing as price discovery, especially when it comes to oil. Value is what someone is willing to pay for something, nothing more. And if most people buy into the propaganda that there is a limited supply of oil then they will pay more for it. There is no such thing as price discovery today. You are either a shill or a dupe if you believe the price of oil is set by supply and demand. Stop buying and selling the lies.
Not to mention oil is already cheap. Cheapest energy source on the the planet.
OK genius, if it is "abiotic" as you say, then it can be synthesized, meaning you can make a formulaic chemical reaction and than it does not take time to make it.
If you know so much, synthesize some oil, or point out a way to synthesize some.
Pointing to other Planetary bodies and saying it is there, when we "just think it it" with no proof, is WITHOUT merit and shows you for the charlatan you are.
With your abiotic and biotic argument you exposed you as a "creationist", and are totally discredited, and THAT is A LIE! I thought lying is not what a good Christian should do.
Simply stated you are an ignorant liar. I have seen your sorry kind all over, and you are pathetic. Go somewhere else with your stupidity.
First of all, I'm an atheist, the creation statement was an expression.
Second, ever heard of synthetic oil?
Methane has been synthetically created in a lab, try google scholar, it's much better than google for these subjects.
There is proof that Titan has an atmosphere that is nothing but natural gas, mostly methane, and that it bubbles up from deep lakes. Again, google scholar. This is what was detected by NASA's gas chromatograph mass spectrometer aboard the Cassini-Huygens probe that landed on Titan in 2005 (where you been?).
Ignorance or projection....find a mirror, look in it.
Nice try. But methane is only on of the "Hydrocarbons" in Petroleum or what we call oil.
Read my post again you idiot. I said that Titan has a methane cycle like our water cycle, I said that you freak. . That includes RAIN nd the gas in ATMOSPHERE.
SHUT up while you are behind, and go back to school and get you money back, if you even attended.
Synthetic gas? Synthetic diesel? Not at an energy neutral or less production. Look into it scholar that is what these enlightened people (not you) have been posting about th E85, takes more energy to produce.
Your straw-man arguments are tedious. You can keep posting, but that does not mean you are intelligent, understand, or won the argument.
You didn't build that. (energy and technology did.)
Obama: If You've Got A Business, You Didn't Build That
http://www.youtube.com/watch?v=YKjPI6no5ng (0:55)
So anyways, I'm bouncing around the net before headin back to my favorite haunt at ZH and I stumble across this...
"The Nasa climate scientists who claimed 2014 set a new record for global warmth last night admitted they were only 38 per cent sure this was true.
In a press release on Friday, Nasa’s Goddard Institute for Space Studies (GISS) claimed its analysis of world temperatures showed ‘2014 was the warmest year on record’.
http://www.dailymail.co.uk/news/article-2915061/Nasa-climate-scientists-said-2014-warmest-year-record-38-sure-right.html?ito=social-twitter_mailonline
...now I distinctly remember last Friday one of the ABC squirrels breathlessly barking and shaking her tail that 2014 was the hottest year on record!!! over the air waves according to NASA "climate scientists" as if a hawk was going to swoop down out of the sky and carry her away to be devoured.
I do not remember that same ABC squirrel saying NASA gave that scientific fact as having only a 38% probability of being true.
Now why is that? ;-)
Because they are douche bags?
David Suzuki gets owned on Aussie talk show
http://www.youtube.com/watch?v=1mIVZnnqm7o (32:32)
I think that would be it Goldi, hysterical douchebags...lol.
And no one will ever see or hear (well very few anyways) that "climate scientists" admitted their "scientific fact" had a less than 50-50 shot at actually being anywhere close to truth.
Apparently things have changed in the world of "science", when I was coming up science could tell you why and predict when the tides rose & fell, when the sun rose & set and why that is, with 100% probability ;-)
But that's a priceless Steinway!
http://www.youtube.com/watch?v=74YLwinLT7M (0:35)
100% probability, your memory deceives you. 95% or 90% confidence, yes.
So, that would be a 62% chance of NASA 'truth' today? lol
http://judithcurry.com/2015/01/16/warmest-year-pause-and-all-that/
Blame this fiasco on NASA, not the MSM. NASA is a self-servicing bureacracy (I realize that phrase is redundant). If NASA were honest, this 'finding' would never have seen the light of day, or at least it would have been buried in a technical report where the 38% probability would have been front and center. Releasing this to the ignorant MSM (again: redundant) was a political move.
Bolden is responsible, not the MSM airheads.
I feel like I'm just not getting it at all when an obviously respected actuary, Gail Tverberg, who has a webpage she administers called "OurFiniteWorld" talks to a depth focused analyst like Chris Martensen of "Peak Prosperity" for 45 minutes and they focus on the growth model.
It seems like "Finite" and "Peak" would imply that they are aware than that we are over the hump.
Not one word about degrowth. That's the part I don't get because quality of life is likely to improve in a managed degrowth environment.
"In light of a Harris Health System budget shortfall for the coming fiscal year projected to be in excess of $70 million, last Friday (Jan. 9) the system's administration began implementing a cost-cutting plan, which includes a reduction in force that will eliminate 262 total jobs, including 113 currently staffed positions," according to a statement.
http://www.bizjournals.com/houston/morning_call/2015/01/houston-hospital...
Baffling how this can occur in this Robust Rekovery.
Sounds like the algo that wrote this has turned long on oil
The most interesting thing she is saying here are the consequences of the new bail-ins.
People immediately think of their own money.
But those on low incomes will have their deposits backed by guarantee and the rich hear about it and move their money.
It is companies that get wiped and all their emloyees.
Suddenly random companies go under affecting all sorts of supply chains and it spreads.
The unseen consequences of the bail ins
The oil production-use cycle is like a dynamic wave that can lose momentum and die.
If it is not profitable to invest in it because of demand not being able to respond to higher production costs - well, thats it.
And it is not a slow gradual descent. I have seen people die, and the breathing in the end becomes shallow, erratic, interrupted, comes back in spurts, before it finally ends.
Of course a narrow band of activities will still demand we pump the oil out of the ground, but on a much smaller scale than today.
I hope the Saudis have invested in something beside oil; they have a big drop to look forward to
There is no analogy between the type of death you may observe and
the decision of the heirs to the fortune to invest in drilling an oil well.
Asside from the influence of declining demand, low interest rates, and hidden voodoo derivatives, the rapid decline in oil prices we have seen is still largely due to strategic supply side manipulation by Saudi Arabia. Their demonstrated willingness to over produce on the margin at a substantial cost to their own oil revenue is the new revelation that will most influence marginal high-cost oil production for a long time. Even after high-cost production is shut in and/or demand and prices start to rise again, the only high cost production to return will be that with a short-term investment horizon. Few are going to make a long-term investment in high-cost oil recovery knowing the Saudis can pull this stunt at any time and drive project ROI into the red. The Saudis are showing the world they hold a huge club over the supply side of the oil industry which they can use any time at their discretion. That’s the biggest new risk factor that will curb long-term investments or reinvestments in high-cost oil production and supply. It does not imply sustained oversupply of low cost oil like we have today.
All oil analysts suffer from believing they know the future.
Such hubris.
Is Tverberg omniscient? Why do we need to keep pulling it out at that same price? The world did not end over the past decade and the fluxuating oil price.
Why won't we be able to get it back up again? Does Tverberg know where all oil reserves on earth are? If so, then he should share this information.
Does he know what all recovery technology will be for the next 100 years, and what can and cannot be pulled out of the ground?
Every single one of these Peakers suffer from the same logical fallacies - it's so predictable.
He is a she. Females can be analysts as well.
Stateside
Just another fucking article about how cheap oil is bad for us. Bullshit. That oil and gas in the ground will just get better and better. Gloom and doom to get you to pay for carbon tax, cap and trade and electric cars that requre 4X the total amount of energy required to produce a normal one. Not to mention what the batteries are going to do to the environment.
But, there’s also the issue that these old wells need to be produced continuously and they need continuous investment. If you cut that off, it’s going to be very hard to restart them. So, there will need to be an extra investment just to get it back online. ......................... As we know, it takes a long time to get new production online. This lady has no clue but not surprising since she has no experience or background with oil exploration and production so she just tosses nonsensical comments out. The production in Texas has tripled in five years and she acts like it's going to collapse tomorrow because somehow higher interest rates are going to stop lending. It doesn't take that long to get new production on line and that is the excuse for the current low price environment.Right. It just took $200 billion in junk bonds, $300 billion in junk bank loans that are still on their books or maybe, luckily for them, that they unloaded onto some naive pension plan. Plus there are the hundreds of billions dollars of private capital invested. But, thanks to the repressive, despotic and Unconstitutional Federal Reserve Bank's ZIRP and QEs and Operation Twist the interest rates were on those loans were very, very low, especially by historical norms.
Those loans are secured by very poor collateral because the cash flow from each well drilled only lasts about two years. I've read the reports by the North Dakota natural resources department wherein they report the production from every well. Every well with at least twelve months of production data show very steep declines in output.
I'll be generous, which also makes the mental mathematical calculations easier, and assume 50% year-over-year decline rates. Assume that the Exploration and Production (E&P) operator's wells outputs are falling by 50% yoy and that in six months the price at the wellhead has dropped by 60% (so far to date, as it could continue falling and stay low for a long time). In another six months, assuming current price at the wellhead, the average E&P operator will have seen their EBITDA (earnings before interest, taxes, depreciation and amortization), from wells drilled when oil prices began their historic plunge, fall by 80%.
The highest net debt to EBITDA ratio among the ten most highly leveraged publicly traded E&P corporations, with at least $100 million in revenues for the last twelve months, range from 3.0 to an eye-popping 12.6, with a median of 4.5.
The first E&P bankruptcy has already been filed. A private concern that drills in Texas, WBH Energy LP and it's partners, filed for bankruptcy saying a lender refused to advance more money. If you have been paying attention to the Energy High Yield index you know that interest rates have spiked dramatically for these undercapitalized E&P operators. Investors are now desperately trying to unload all junk bond holdings.
The questions for all are:
1. From whom will E&P corporations borrow the hundreds of billions dollars required to maintain production?
2. What interest rate will they have to pay?
3. But, most importantly, can they sell their oil at prices high enough to be profitable corporations without destroying our economies?
Sit down with a good cup of coffee and read this: http://www.permaculturenews.org/files/Peak%20Oil_Study%20EN.pdf
After you have read it, plan accordingly.
Dumbest article on zero in a while....dope prices wont recover nor production? Lol so it will fall from sky?
These comments are most likely taken from an interview. Ms. Tverberg is extremely well informed on this subject and her written publications are very informative. Our civilization is increasingly stressed by the falling EROEI (energy return on energy invested) of fossil fuels.
Despite what you may have been taught bi school, World War II was largely fought over access to the energy lying in known oil fields in the Soviet Union and the Dutch East Indies.
Hitler invaded Russia largely to gain the desperately needed crude oil lying in the Caucasus oil fields. Nazi military forces did capture the fields but the oil field workers thoroughly destroyed everything and prevented the oil from fueling Nazi Germany's forces.
Imperial Japanese military forces took the Dutch East Indies and their richly valuable oil fields. Despite extensive sabotage by Dutch oil field workers prior to the invasion the Japanese soon had them producing crude oil. Japanese oil tankers, followed by the rest of the Japanese merchant fleet, were the highest priority targets for US submarines.
More likely what will never happen again is shale oil competing with less expensive to access oil. When the easy stuff runs out, then shale oil will renew. But the only ones that will be able to afford it is the criminal elite.
Oh, please...
Should she be correct, Ms. T will need to do some actuarial work and calculate her probability (as a non-producer) of maintaining employment, transporting herself to what employmen she might be lucky enough to have, and securing other day to day necessities like getting enough to eat on a regular basis.
If her prediction that we are at the beginning of permanent down trend of oil production "because of all the financial situations coming along" is accurate, then a society that can't get capital deployed to produce the life blood of modern day life, sure as hell won't be able to get much else done either. If she is accruate, she has a bleak future.
I believe Ms. T's fear, and the fear of others who might have capital, will ensure the fortunes of those with the risk appetite to get it done when oil demand returns
Back to killin' snakes
Ms. Tverberg is extremely well informed and writes very informative articles one should read before dismissing her views that seem to be excerpted from a general interview. She has a site where she posts her writings. They are very detailed and contain facts and mathematical data.
The sole force behind the "Shale Oil Revolution" was the Federal Reserve Bank's repression of interest rates with ZIRP, various QE's, Operation Twist and various other machinations. Shale oil development, amongst a host of others enabled by the Fed, will prove to have been a massive malinvestment in hindsight.
With their revenues crashing between the hammer of low oil prices and the anvil of precipitous oil well decline rates exceeding 50% year-over-year there are going to be mass casualties among shale oil E&P operators, associated suppliers and mass collateral casualties in the entire country from unemployment.
There is going to be mass capital destruction from Fed-enabled malinvestments. All of the loans that go bad have to be paid. By someone, somehow, in a transparent manner because we are not China. China's GDP is grossly overstated because they have no legal mechanisms to force the powerful to repay their loans or to file for bankruptcy if they can't. In China they extend and pretend. If one believes China's banking data, they have practically perfected the art of banking, never making more than a few trivial bad loans. So, don't believe anything about China surpassing the US in GDP.
But, the Shale oil E&P operators are responsible for $200 billion in junk bonds and $300 billion in junk loans. The amount of private capital invested must be similarly enormous. The collateral are wells with steep decline rates and what will become a glut of equipment and piping eventually valued at scrap metal prices.
When oil prices rebound there may not be nearly as much capital to invest as one might imagine. We will still be contending with the massive capital destruction from six-years of Fed-enabled malinvestments. Because every bad loan does eventually get paid off. The lender, whether bank, pension plan, insurance company, or government, may book the loss or some other entity might insure against the loss if they are sufficiently well capitalized. Or, the Federal government might get hoodwinked—again—into taking the loss.
I just got back from the future, they call today the good old days.
Some things never change