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Guest Post: Dangerous Ideas

Tyler Durden's picture


Submitted by Chris Martenson

Dangerous Ideas

We are at a key turning moment in history. The actions that we will soon decide to take will be determined by the beliefs we hold. At a time like this, holding the wrong set of beliefs can destroy your wealth, sap your joy, and even prove to be life-shortening.

Knowing the 'right' sets of beliefs to hold is never easy, but it is especially difficult at large turning points because, by definition, most people are holding onto old beliefs. Running against the crowd is difficult for everyone and impossible for many.

“If you think you can or think you cannot, you are correct.” 

~ Henry Ford

Beliefs matter. A lot. 

One’s experiences in life and one’s beliefs are closely connected, an idea that we explore in depth in our seminars. (The next ones are coming up in March and June). For instance, simply believing in the likelihood of success vastly improves the chances of good things happening to us and our accomplishing difficult tasks. 

Whether it is the case that our beliefs help to shape reality, or merely how we experience it, is a distinction without a difference. 

The tricky part is that our beliefs are usually hidden from us. Without conscious examination, they escape notice: lurking, shaping, and coloring our daily lives. Worse, beliefs quite often are not ‘ours’ in the sense that we create them by our individual thoughts and experiences. Instead, they are gifted to us by our society, culture, and media. Of course, when such beliefs are cynically shaped by those wishing to influence us (advertisers and big media come to mind), ‘gifted’ might not be the appropriate word.

Two very obvious efforts at shaping beliefs are currently being run in the US by various parties wishing to shape our collective beliefs to their liking. One is around the ‘necessity’ and desirability of going to war with Iran. The second, which we will examine closely in this report, concerns Peak Oil.

Whether or not Peak Oil is true cannot possibly be in doubt. Within anything other than a geological frame of time, oil is a finite substance. When it is burned, it is gone. Without stretching our brains very far, it is easy to conclude that anything that is finite and consumed will someday be gone. 

Peak Oil, then, is really an observation, not a theory.

It draws upon and has at its disposal decades of experience with individual oil fields, producing basins, and entire countries all repetitively experiencing the exact same behavior: Oil production increases up to a point, and then it decreases afterwards. This is not theory; it is a related set of facts and careful observations.

It's odd that so many people will trust a psychiatrist to administer psychoactive drugs, about which so little is actually known, yet distrust Peak Oil, an idea about which so much is definitively known. As you can see, I am of the opinion that for some people, information (or data) and beliefs have an awkward relationship at best, and a non-existent one at worst. 

The only aspect of Peak Oil that is theory is the precise moment at which the world will experience its final peak in flow rates. When the peak will happen is a theory; Peak Oil itself is not. Because of this, it is flow rates that we care most about, which constitute a description of quantity. But we need to also concern ourselves with the net energy returned from the oil we expend effort to obtain, which is a matter of the quality of the oil.  

Those are the two "Q's" that matter. Quantity and quality.

Given all this, note the headlines of the next two linked articles that recently appeared in the news media. Ask yourself, What sorts of beliefs are they reinforcing? And which ones they are minimizing, if not attacking?

The End of the Peak Oil Theory

Feb 16, 2012

If you haven't noticed, the oil apocalypse has been delayed -- again -- and the doomsday predictors are undoubtedly eating crow while they concoct another mega disaster. "Peak oil," the theory that oil production will soon hit a peak and begin declining, sending the world into an economic disaster, failed to live up to its hype again.

It's amazing how fast perceptions of our energy future can change. One day prevailing wisdom tells us that energy costs are going to rise uncontrollably as oil production declines and new energy sources fail to live up to their promise. The next, our problems are solved, and our reliance on foreign oil appears to be evaporating before our eyes.


Citigroup Says Peak Oil Is Dead

Feb 17, 2012

Citigroup announced to the world Thursday that peak oil is dead. The controversial idea that world crude oil production is almost at its peak and will soon begin an irrevocable long-term decline has been laid to rest in the highly productive shale oil formations of North Dakota, with potentially big consequences for oil prices, the bank said.

“The belief that global oil production has peaked, or is on the cusp of doing so, has helped to fuel oil’s more than decade-long rally,” Citigroup said in a note to clients. “This is now all changing because of what is happening in North Dakota,” where new technology has led to a large and unexpected surge in oil production from shale rock.

After decades of decline, “U.S. oil production is now on the rise, entirely because of shale oil production,” said Citigroup. Shale oil could add almost 3.5 million barrels a day to US oil production between 2010 and 2022 and has already slashed 1 million barrels a day from U.S. oil imports. One day it may allow the U.S. and Canada to be self-sufficient in oil, it said.


Obviously the idea of Peak Oil as a concept is directly under attack in these articles, but there are a host of underlying beliefs in play as well. One concerns the ability of the US (once again) to become self-sufficient in oil by applying a bit of good old-fashioned ingenuity and a healthy slathering of high technology.

Another seems to be the belief that we might not have to change our ways after all; that the energy will be there in sufficient quantity (and quality!) to support an indefinite continuation of past consumption and growth far into the future.  Don't worry, be happy is the message.

Avoiding Propaganda

The definition of propaganda is "a form of communication that is aimed at influencing the attitude of a community towards some cause or position." It usually involves the selective use of facts or the avoidance of appropriate context, coupled with loaded messages and words, in order to elicit an emotional rather than rational response.

Whether the goal is to lead an otherwise unwilling populace towards war or to drive the purchase of a new car, propaganda is not only alive and well, but getting steadily better. Consider it a technology; like any technology, it is constantly being refined using the latest and greatest research, studies, and testing.

If you'd like to parse the articles further, go back and re-read them, looking for 'shaping' words that create impressions and are designed to elicit confidence, exude authority, or in other ways bypass the reader's own critical thought processes. Examples of such words and phrases would be 'controversial,' 'concoct,' and 'laid to rest.' These are not neutral words, but heavily biased ones, and we are so surrounded by them in what otherwise appear to be (and should be, ideally) informational articles that they often escape notice. 

The emotions being evoked possibly include: feeling silly for holding the wrong ideas (a form of social shame), anger (at being grievously misled by those nasty "Peak Oilers"), and elation ("Yay! No changes necessary!"). 

These same sorts of emotional devices are constantly at work in the fields of finance, politics, investing, and advertising. Propaganda is a means to an end, and some argue that it can be beneficial if it moves us towards a better future and/or outcome. 

But the risk here is that we are faced with propaganda that is sending the exact wrong messages at a very critical time.

What Could Possibly Go Wrong?

For a moment, let's accept the emotional premise of the above articles and shape our decisions around the idea that Peak Oil has been debunked and is a failed concept. What would change? 

For starters, we can drop our concerns about the implications of steadily rising energy prices. Instead of buying smaller cars, more efficient homes, and placing our investments in those sectors that will prove resilient to higher energy costs, we can just go back to ignoring energy costs as a factor, content with knowing that they will be going down, not up.

Next, we can dispense with any concerns we might have had about how we will grow the economy going forward. Because you need energy -- especially oil -- to grow an economy, we can wholeheartedly invest in the stock market, confident that growth will once again emerge as it always has, unchanged and unfettered. 10% real, annualized returns are coming back!

The relief at being able to count on the future resembling the past, only bigger and presumably better, is palpable and seductive. 

The only problem here is, what if that view of the future is wrong? Then what?


All your plans for happiness, safety, wealth, and comfort go right out the window.

And the odd part is that adjusting to the idea of Peak Oil when it can nudge you towards using less energy more efficiently is just good business and good wealth preservation practice under any circumstances, with high oil prices or low. It really makes no sense to internalize any messages that seek to belittle Peak Oil. In fact, it makes sense to spot them and reject them as rapidly as possible. The risks are just too asymmetrical

Is Peak Oil Really Dead?

Okay, now it's time for a little data to put the above claims of Peak Oil being dead into proper context. In Part II of this report we'll examine the data more closely, but for now this chart from the US Department of Energy should suffice to show where we are in terms of the US oil production story.

Yes, the Bakken could produce as much as 2 million barrels per day (bpd) up from roughly 500 thousand bpd, maybe as much as 3 million bpd, but the US imports roughly 8 million bpd today under even severe economic conditions, and as much as 10 million bpd under happier economic conditions. 

The Bakken and other shale plays are simply not going to replace all of that -- ever. Note, too, the slope of the line before the 'Bakken bump,' and observe that whatever gains are realized from shale oil will be fighting depletion losses from the rest of the tired fields under production.

And the Bakken will someday peak, too, and then where will we be? In the same place as before, wondering where we are going to get our next fix.

A Better Narrative

I would not mind the excitement over the Bakken as much as I do if it came along with a suitable narrative that made sense. Something along the lines of, "The Bakken is very exciting because it offers us the chance to use domestic supply to begin to move away from our national oil dependence and towards a more sustainable energy future, one where we are not shackled to the need for endless production increases to fuel exponential economic growth. This transition will even make our monetary system much more healthy and robust."

But it is never packaged that way. Instead the message is always something like, "Don't worry, be happy (and just get back to whatever it is you do, and be sure to shop a lot)!"

At the very least, the Bakken should be telling the authors of the above articles and positions something quite different than what they are relating. For one thing, the amount of technology and constant expertise involved in squeezing the oil out of the formation clearly tells us that the easy, cheap oil is gone.

The complexity is on display if one just bothers to look. Here's a prime example relating to new attempts to squeeze more oil out of the tight shale formation:

While PetroBakken is bullish on dry natural gas injection, the company isn't ruling out the possibility of injecting water-or other fluids-for future projects in other areas of the Bakken.

PetroBakken is using the pilots to test different concepts or well configurations. For example, in the second pilot-which will inject natural gas at a rate of about two million cubic feet per day-gas will be injected along the entire horizontal section of the injection well, so the flood front will hit the toe of each of four perpendicular producing wells.

"As gas breaks through at the toe of each well, we have the ability to simply plug off the toe area of the producing horizontal well and mitigate the cycling of the gas at that port," LaPrade explains.

"The front would continue to move along the horizontal producing leg to the next port, where we would again plug that port off as the gas breaks through."

Typical wells in the Bakken come in at an average 200 barrels of oil per day and decline about 70-75 per cent in the first year before flattening out at 30-40 barrels per day.


I think this is incredible ingenuity, and I admire the creativity and engineering on display. But all of this effort to fight the natural tendency of a Bakken well to produce at 30-40 bpd clearly is not the same thing as chunking a vertical well a thousand feet down and getting 1,000 to 10,000 bpd flow rates. The cost to produce a unit of energy is much higher in the Bakken case than in traditional, historical oil plays.  

That is, net energy is lower than in the past, which cycles us back to the quality argument. The difference between cheap and expensive oil is important and clearly on display here, but that subtlety has somehow eluded the authors of the above articles.


Efforts are underway to convince the general populace that our energy concerns are a thing of the past and that the new energy discoveries in the Bakken and other shale formations have proven Peak Oil to be a mistaken idea. Some efforts go even further and flatly state that energy independence is right around the corner.

Nothing could be further from the truth. 

There is a very clear relationship between economic growth and sufficient quantities of high quality energy. A crude measure of energy quality is its price. The lower the price for a unit of energy, the higher its quality (or net energy), but this is a very crude measure that can and often is heavily distorted by subsidies, market pressures, and other factors. As we squint at the world price for oil and note that Brent today is trading at $120 per barrel, it is clear that this high price is signaling that energy is now more expensive than it used to be.

By adopting the belief that Peak Oil has been debunked, one runs the risk of missing the larger story that our current economic model is unsustainable. And that stocks and bonds and other traditional investments that derive a large portion of their current value from expectations of future growth simply may not perform anything like they have in the past. And worse, that recent and continuing efforts to revive the old economy by printing money risk the destruction of the money system itself. 

Given this all-too-human tendency to attempt to preserve the status quo, in this case by printing money, I must reiterate my advice to be sure that gold forms a significant portion of your core portfolio.   

In Part II: Preparing for a Future Defined by Peak Oil, we do the math to show that even using the rosiest estimates, there is no way for the Bakken field to get the US anywhere close to "energy independence" nor stave off the arriving society-changing impact of Peak Oil. 

If that's the case, then what's to be done?

Now, more than ever, is the time to develop a full understanding of what the arrival of Peak Oil will do to world economies, financial investments like stocks and bonds, and our energy-indulgent way of living. As I have been writing for some time now, the next twenty years are certain to be quite different from the past twenty. Use the time you have now to invest in the pursuits -- and there are many -- that will reduce your vulnerability to the effects of rising energy costs, and learn that prosperity in such a future is possible if we lay the groundwork for it now.

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


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Wed, 02/22/2012 - 12:20 | 2185040 francis_sawyer
francis_sawyer's picture

Peak "easy street' bitchez!

Wed, 02/22/2012 - 12:23 | 2185052 Roy Bush
Roy Bush's picture

Here's a dangerous idea:


Wed, 02/22/2012 - 12:45 | 2185102 LawsofPhysics
LawsofPhysics's picture

Defining what oil "is" is NOT the problem fucknut.  I worked for a company that engineered bacteria to make oil from various sugars (See LS9 INC).  It is the required FLUX of oil that is required in order to maintain things as they are.  Moreover, it is the capital and ENERGY that needs to be invested relative to the return on that investment (in real terms or BTUs, calories etc.)  If the net energy that is recovered from any process is less than what has to be invested, then the process is no longer profitable.  Wake the fuck up dude.


By the way, if you think the cost associated with engineering bacteria to produce oil is low, you are a moron.  Moreover, the cost associated with growing the plants and refining the input sugars is also high.  I don't normally pimp for a company, but LS9's website is worth a look.

here;s the link (for the completely moronic Bob Jones or Liberty University graduate)

Wed, 02/22/2012 - 12:46 | 2185144 Offtheradar
Offtheradar's picture

Oil typically gushes out of the ground.  We are now literally trying to "squeeze the sponge" (see Canadian tar sands) to just keep up.  Not good.

Wed, 02/22/2012 - 12:53 | 2185165 Roy Bush
Roy Bush's picture

what a load of rubbish...we're going to run all the cars and trucks and heat all our houses with bacteria?! ha ha ha.  That sounds almost as preposterious of GW's idea that we are going to harvest switchgrass. 

The fact of the matter is that there is quite a lot of oil out there....because it primarily comes from the center of the earth.  Yes, oil can also be derived from decaying plant matter, however, oil sands, oil shale and deep-sea drilling will always be around. 

As for the "fuck nut" sound a little hateful.  I was just throwing an interesting point out to all the ZH readers. Also, I agree with the author in that the world is running out of the easy and cheap "light sweet crude".  A lot of people in this world are going to have to get used to living with more expensive oil or the scientists out there are going to have to come up with some better and more efficient way to power the world.

Wed, 02/22/2012 - 12:57 | 2185184 Flakmeister
Flakmeister's picture

There are no shortage of morons here at the Hedge that think we can run the world on sugar fed-algae....

I'll give you a hint, LoP ain't one one of them...

So, I gather that you ascribe to the Abiotic theory of oil generation... How is the evidence for that theory coming along?

Wed, 02/22/2012 - 13:05 | 2185218 Roy Bush
Roy Bush's picture

Pretty good me thinks...I think the Deep Water Horizon mess pretty much proves it.  What was the depth of that well?  35k feet or something?  Whether or not abiotic oil has enough time to regenerate itself within the total lifespan of mankind is really the question..and I think the answer is no, especially with the population we currently have on this planet.

Wed, 02/22/2012 - 13:11 | 2185241 LawsofPhysics
LawsofPhysics's picture

LOL!!!  Go to B.P.'s website.  The depth of the well was approaching 14,000 feet so you are a bit off.  Moreover this isn't even halfway through the fucking crust, so you still have a LONG way to go in terms of the fucking "center of the earth".

But you got one thing correct, living standards will decline.

Wed, 02/22/2012 - 13:17 | 2185268 Roy Bush
Roy Bush's picture

I think you're wrong on this one....35,050 was the depth.  The deepest well in history in the Tiber oil field off the coast of Texas.

And yes, living standard will decline or some new technology will have to be developed.

Wed, 02/22/2012 - 13:28 | 2185321 LawsofPhysics
LawsofPhysics's picture

Okay, let's assume that B.P. is lying (wouldn't be that unusual).  The earth's crust is 31-40 miles thick, or an average of 192,000 feet.  Again you are not even half-way through.  Man I hope you don't invest using such "qualtiy" information.  details do matter.

Wed, 02/22/2012 - 13:41 | 2185384 Roy Bush
Roy Bush's picture

Is that what you say to yourself to fall asleep at night. Wow. "Details do matter"..."Details do matter"...zzzzzzz

I don't know what you're arguing about.  It's not like I'm saying you can put an oil well over a volcano.  It's a little bit more complex than that. 

Wed, 02/22/2012 - 13:57 | 2185455 Flakmeister
Flakmeister's picture

So, at what depth was the DWH again???

You might want to study this for a while

Wed, 02/22/2012 - 14:06 | 2185502 Buzz Fuzzel
Buzz Fuzzel's picture

Where does it all come from?  What would you think if there was another celestial body in our solar system largely made of hydrocarbons?  When exactly did titan have dinosaurs roaming its surface?

If hydrocarbons occur on other planets in the universe without evidence of life processes forming them is it possible that God is laughing at all of us.  Is it possible that there is a larger plan in play than even the most self assured among us can fathom?


Wed, 02/22/2012 - 14:30 | 2185602 donsluck
donsluck's picture

None of this matters. The limits of the hydrocarbon economy is environmental degradation, not consumption. Oil and shale oil in particular are not compatible with life, not even our life.

Wed, 02/22/2012 - 14:35 | 2185620 Flakmeister
Flakmeister's picture

Lets play a little game....

What would happen to a methane "lake" on the earth ~1 billion years ago, even in the absence of oxygen?

Do you know?

I'll give you a two hints

1/2 m <v>2 = 3/2 kT and ve2 = 2GM/r

Get back to me when you catch on....

Wed, 02/22/2012 - 15:01 | 2185740 flyme
flyme's picture

Tapping a Methane "lake" = bad news.

Wed, 02/22/2012 - 15:09 | 2185781 GreenPlease
GreenPlease's picture

The methane "lake" wouldn't be a "lake". It would be our atmosphere. Unlike Titan, temperatures here on earth are too high (and pressures are too low) to maintain methane in its liquid form.  

So, unless there was an oranism that existed 1billion years ago that somehow defied the laws of thermodynamics and had a metabolic pathway that allowed for the conversion of methane to heavier chain hydrocarbon while freeing energy for itself.... or maybe there was a rather prolific organism that somehow replicated FT processes yet science has managed to miss this organism?

Let's not forget that if oil is buried ~>15,000 feet it starts to spontaneously decompose into lighter and lighter hydrocarbons until, eventually, all that's left is methane. The only exceptions to this are wells drilled under water (at which point you use the ocean floor as your starting depth) and oil deposits that are located under geological formations with unusually high thermal conductivity such as the Tupi field in Brazil at which point 18,000 feet is about the limit to how deep oil can exist. 

Abiotic oil = dead theory

Wed, 02/22/2012 - 15:28 | 2185883 snowball777
snowball777's picture

Paging Goddard...

Wed, 02/22/2012 - 16:53 | 2186261 Buzz Fuzzel
Buzz Fuzzel's picture

Lets talk about the rules of the game. . .

"We should take care not to make the intellect our god; it has, of course, powerful muscles, but no personality."  Albert Einstein

"Whoever undertakes to set himself up as a judge of Truth and Knowledge is shipwrecked by the laughter of the Gods."  Albert Einstein

"My religion consists of a humble admiration of the illimitable superior spirit who reveals himself in the slight details we are able to perceive with our frail and feeble mind."  Albert Einstein

"When the solution is simple, God is answering."  Albert Einstein

Get back to me when you catch on....

Wed, 02/22/2012 - 17:02 | 2186290 Flakmeister
Flakmeister's picture

Relying on quotes from Einstein...

Classic DK....

Did you figure out what I was hinting at?

You might want to look at the effects of UV on methane as well... 

Wed, 02/22/2012 - 20:11 | 2187099 Buzz Fuzzel
Buzz Fuzzel's picture

DK?  Perhaps you need to read quote #2 again.  Are you prepared to learn that what you know is not so?  The solution really is quite simple.  Classic DK indeed.

Wed, 02/22/2012 - 20:57 | 2187251 Flakmeister
Flakmeister's picture

BTW, you do know what DK you?

Thu, 02/23/2012 - 02:26 | 2188015 Buzz Fuzzel
Buzz Fuzzel's picture

You seem to be bothered by the lack of certainty.  Not knowing troubles you doesn't it?

For someone who projects scientific certitude you seem remarkably incurious about the thoughts of one of history's greatest scientific minds.  Perhaps you should review those quotes again.  "God is answering"


Thu, 02/23/2012 - 11:02 | 2188882 Flakmeister
Flakmeister's picture


That's why I own a first edition of "The Meaning of Relativity"


Wed, 02/22/2012 - 20:10 | 2187094 New World Chaos
New World Chaos's picture

The methane would escape to space.  In the absence of oxygen, UV rays would strip hydrogen off the methane and the hydrogen would escape to space very quickly, while the carbon forms more complex molecules which ultimately end up on the surface.  This is what happened on Titan. 

If there are large amounts of oil in the mantle left over from the Earth's formation, the rate of bubbling up into the crust should reach equilibrium with the rate of bubbling up onto the surface.  You can debunk abiotic oil as a sustainable energy source simply by realizing that there were never enough La Brea Tar Pits around the world to supply our energy habit.  Whatever comes up from the mantle must be a trickle at best.

Wed, 02/22/2012 - 15:22 | 2185847 Whats that smell
Whats that smell's picture

Certainly  the earth has a creamy nougat center of low-sulfer light crude oil!

God ain't laughing but I am at you.

Wed, 02/22/2012 - 14:16 | 2185547 Matt
Matt's picture

35,000 feet is the depth counting the water on top, plus the distance they drilled thru sedimentary rock. What is sedimentary rock made of? Are you proposing Abiotic Limestone?

The Russians allegedly have drilled down deeper than that, thru igneous rock, where no organic materials were. If that is true, then the oil could have been created abiotically; however, that does not matter.

If it takes 100 million years to produce an oil field containing 50 billion barrels of oil, then it is irrelevant in human time spans. The rate of production of new oil is all that matters when determing what the PEAK of PEAK oil is.

Keep in mind the PEAK of a mountain is the top, not the bottom; no one is talking about running out of oil completely, simply about hitting a maximum level of production, then having declining production from there.

Wed, 02/22/2012 - 15:26 | 2185871 aphlaque_duck
aphlaque_duck's picture

Correct there is still oil post-peak, even quite a lot of oil, but that doesn't mean a steady decline in activity according to the volume of oil produced. Extraction costs are getting really high (diminishing EROI), such that many applications for oil (like ferrying meat bags in 3000lb cars back and forth to their "jobs") would be simply insane to spend any oil on in the future.

Most importantly all assets which have any element of growth expectation priced into them will lose that value.

This is why post-peak is truly a diferent paradigm and not merely "less of the same". Would you invest in a business that is certain to be smaller in the future? As soon as people figure out what is happening they will ALL pile in to traditional money. It's going to be epic.

Wed, 02/22/2012 - 13:33 | 2185339 oddjob
oddjob's picture

In what world do you trust anything that BP says?

Wed, 02/22/2012 - 13:36 | 2185364 LawsofPhysics
LawsofPhysics's picture

not much, but most of the time they do like to stretch the truth on how far they can drill.  You know that "mine is bigger than yours" thing.

Wed, 02/22/2012 - 13:16 | 2185262 Flakmeister
Flakmeister's picture

Umm... The DWH proves it?? One blowout  does it for you?

Why arent we drilling down like that on solid ground??? It would be lot cheaper and easier....

Have you ever looked at a cross section of the GOM geology?

Here, try to reconcile this data with your theory:

Deep Drilling Summary

Wed, 02/22/2012 - 13:13 | 2185248 LawsofPhysics
LawsofPhysics's picture

Hey Falk, Algea make their OWN sugars (photosynthesis), again details do matter.  Ah back to work.

Wed, 02/22/2012 - 13:26 | 2185306 Flakmeister
Flakmeister's picture

This was from a discussion on Solazyme from a guy I know...

AS part of my job I have to evaluate bio-feedstocks for petrochemical production and biofuels. I would be very, very cautious about the europoria over Solazyme. It simply does not add up.

Feeding algae sugar or carbohydrates is not a panacea. Some very simple maths will demonstrate the folly of this so called approach.

Using sucrose as the feed (a hexose sugar) the yield of algae oil could be estimated as follows:

Hexose (C6H12O6) -> 2 Ethanol 2(C2H6O) + 2CO2
MW 180 46 44
Weight 100 51.1 48.9
Energy 17 MJ/Kg 29 MJ/Kg

I have chosen this route as it would be similar to what would be needed to feed the algae i.e the sugar would have to be metabilised.

The above yeild is the theoretical yeild to ethanol. The ethanol would have to be dehydrated. The dehydration of ethanol would yield ethylene which is effectively the Ch2 repeating unit of fuel hydrocarbons.

Ethanol (C2H6O) -> Ethylene (C2H4) + H2O
MW 46 28 18
Weight 100 60.8 39.2
Energy 29MJ/Kg 48 MJ/Kg

The algae oil would be roughly repeating Ch2 units with a fatty acid group and some olefinic bonds. Converting the ethylene units into this structure would invove a further reduction in mass, as the algae would metabilise some of the hydrocarbon to survive as respiration. Thus the yield on algae would be even lower than

1 x 0.51 x 0.608 = 0.31. Theoretical maximum.

A realistic yield, allowing for losses and matabilism would be about 0.2 of the starting weight.

So 1 kg of sugar might produce 0.2 Kg of algae oil which would have to be further refined. The algae oil would have an energy content similar to biodiesel at about 39 MJ/Kg

Efficiency so far

Sugar 17 MJ/Kg

Algae Oil 39 Mj/Kg

39 x 0.2/ 17 = 45%

But the algae oil is not usable and would need further processing. The best option ( not Kior) would be mild hydrocracking to crack the algae into the jet and diesel range. This might produce about 65% of middle distillates and the rest light material, including CO2. The light material could be used a fuel gas(absolute necessity).

The finshed jet/diesel would have an energy content of about 43MJ/Kg

So 0.2 x 0.65 = ~0.13 Kg finished fuel

0.13Kg x 43 MJ/Kg = 5.59 MJ

5.59/17 = 32.8%

Cost of Sugar $460 pmt

Cost of Jet $980 pmt Dec 2011

Very roughly 8 Kg sugar = 1 Kg Jet

8 x 460 = $3680

Hmm. No wonder it has been slow to take off.

Of course the use of pure sugar would not the the route. Sugar cane juice could be used, but the producer would expect an equivalent net back as if he were producing sugar, ethanol or Solazymes algae. Only the US Navy is s dumb that is ploughing million into this type of crackopot idea.

Solazyme will then shift the question over to cellulosic sugars. Great. The biomass will contain something like 50% sugars but you will have one hell of a job getting them out. So far it has not be done on a commercial scale, only a comical ssale, and is nver likely to be done.

See also

Wed, 02/22/2012 - 13:34 | 2185348 LawsofPhysics
LawsofPhysics's picture

Initially algae needed to be supplemented in order to make higher oil levels.  Like most things in the natural world, even algae have a tendency to make only what they need for their own consumption survival (evolution is funny like that).

If you want the algae to do more you have to force them to (requires energy) and give them additional sources of sugar (more energy) to sustain.

The ONLY way this becomes profitable is if you can engineer in the production of some high dollar compounds (like wax-esters) for other commercial applications.  basically, the production of oil alone will never be profitable, but I would invest in companies that sell the enzymes comapanies like Solazyme are using, they are still making money.

Wed, 02/22/2012 - 14:05 | 2185495 Flakmeister
Flakmeister's picture

So we basically agree....

You are better off selling picks and shovels to the Gold Diggers than digging for gold yourself....

Wed, 02/22/2012 - 15:33 | 2185929 snowball777
snowball777's picture

Worst foie ever.

Wed, 02/22/2012 - 17:53 | 2186521 George Orwell
George Orwell's picture

Flakmeister, I would like to thank you for all your comments.  You and few other people like Trav, LawsofPhysics, CrashIsOptimistic, etc are the reason why I read the comments on oil stories.    Keep up the good work!



Wed, 02/22/2012 - 13:05 | 2185220 LawsofPhysics
LawsofPhysics's picture

You clearly don't know how to read.  For if you could actually read and comprehend you would see that we agree on at least one point.  In particular, that life is about to get hard for many people as the FLUX can not be sustained.

As to LS9, it is a real company that can in no way meet demand, but still a very real company none the less.  Let me spell it out for you again slowly;

First, the technology is bacteria that can convert one form of carbon (sugars) into another (Oil).  Again, no where do I say or do they claim that "we're going to run all the cars and trucks and heat all our houses with bacteria" as you said.  Again you either can not read or can not comprehend.  Details matter. 

Second, there is absolutely no peer-reviewed scientific evidence that oil spews from the "center of the earth".  In fact, most of the peer-reviewed scientific data points to a center that is mostly molten iron that is under tremedous pressure and in a unique magnetic/electronic state that is very fluid and gives rise to the magnetic current/field of the earth itself.

Again, educate yourself, there really are people who dedicate their entire lives to making observations and developing technology to sort this kind of shit out.  Propaganda helps no one.

But I digress, it gets ugly moving forward either way, hedge accordingly.

Wed, 02/22/2012 - 15:25 | 2185860 GreenPlease
GreenPlease's picture

While "flux" is the correct term, you might consider using the word "flow" as most readers would be more likely to understand its meaning.

Wed, 02/22/2012 - 12:57 | 2185182 CH1
CH1's picture

Defining what oil "is" is NOT the problem fucknut.

Ah, yes, everyone who disagrees is a fucknut.... and you have 400 years of experience in every field. 


Wed, 02/22/2012 - 13:20 | 2185277 LawsofPhysics
LawsofPhysics's picture

...and everything that is written on a website or anywhere is the truth.  Sorry, details matter and my "passion" for details sometimes gets the better of me.

Invest in all things physical and trustworthy friends and family as I anticipate more snake oil salemen than ever moving forward.

Wed, 02/22/2012 - 12:50 | 2185159 kaiserhoff
kaiserhoff's picture

Exactly, oil is not a fossil fuel, and if it were, it wouldn't matter.

How do you make oil?

Take any organic matter: leaves, garbage, international bankers..., put it in a tank, pump out the oxygen and add heat.  In a few hours you will get a substance that looks and smells like diesel fuel, because IT IS DIESEL FUEL.

Wed, 02/22/2012 - 12:58 | 2185190 Flakmeister
Flakmeister's picture

So, I presume that you have such an arrangement in your backyard???


Wed, 02/22/2012 - 13:08 | 2185228 kaiserhoff
kaiserhoff's picture

Farmers have done it in the midwest for 45 years, but please don't tell the thought police.

It is smelly, messy, has to be carefully filtered, and I wouldn't use it in a brand new engine you're really proud of, because like everything else, there is a learning curve.  No more or less high tech than making your own hootch.

Wed, 02/22/2012 - 13:23 | 2185288 LawsofPhysics
LawsofPhysics's picture

Flux remains the problem.  Even the best eforts on our properties recovers about 1 % of the energy originally invested.  The BTU out/BTU in and RATE with which you can recover is all that matters.


But hey, americans could stand to lose a little weight, so its all good.

Wed, 02/22/2012 - 15:27 | 2185881 GreenPlease
GreenPlease's picture

I've been on a lot of farms in the midwest and I've never seen a farmer with his own pyrolysis rig. BTW, it's not diesel, it's tar. A lot of the hydrogen becomes dissociated. So, unless you recover it or catalytically recombine it with carbon, you'll be left with an extremely heavy hydrocarbon.

Wed, 02/22/2012 - 15:35 | 2185942 snowball777
snowball777's picture

What do you provide the heat with again?

Wed, 02/22/2012 - 15:42 | 2185975 GreenPlease
GreenPlease's picture

Ideally you recover and fully oxidize the carbon monoxide and the pure carbon from prior cycles to provide the heat. One of the problems with pyrolysis is that it is most efficiently done in batches but this leads to low capacity utilization and thus a high capital cost per unit. Fluidized beds have been tried but with little success thus far.

Also, centralized facilities don't make much sense because transporting the biomass takes quite a bit of energy (and thus costs a lot). Small pyrolisis units are needed but, again, this increses the capital intensity.

Wed, 02/22/2012 - 14:13 | 2185528 Rockfish
Rockfish's picture



"There's a dollar sign behind almost everything."

Wed, 02/22/2012 - 14:35 | 2185622 ian807
ian807's picture

If you mean "dangerously stupid" then you're probably correct. This has been debunked so many times, there's little point in going over it again (Look here if you're interested).

Wed, 02/22/2012 - 17:09 | 2186327 Cheduba
Cheduba's picture

Absolutely amazing video.  Besides calling oil a "fossil fuel" to imply scarcity, peak oil is mathematically IMPOSSIBLE.  The market sets the price for oil and deposits that don't appear to be feasible right now become economic to extract once oil hits a certain price.

I worked at a copper mine for two years.  Several years ago, copper was priced at less than $1 per poiund (say like in 1999), which made for extremely tough times to be a copper mine as there were decreasing ore grades and increasing costs that squeezed their margins.  However, as copper demand picked up (from China, housing bubble, etc.), the price of copper rose, and mines were opened that were profitable at $2-$3 per pound that weren't profitable at less than $1 per pound.  For example, Freeport McMoRan closed their Chino mine during the stock market crash of 2008 because copper prices were dropping towards $1 per pound again, but when copper prices were driven higher by central bank printing, the Chino mine was opened again because it was now economic at $3-$4 per pound of copper.

If oil was $3000 per barrel, every small puddle of oil would be economic to harvest, people would be stealing plastic bottles to sell on the black market, and we would create technology to literally filter oil particles from the air!  All of this supply would then cause the price of oil to crater until it reached a sustainable equilibrium price.  Peak Oil was predictited to have happened in the 1970s, but it will NEVER HAPPEN because of market forces of supply and demand.

Wed, 02/22/2012 - 20:41 | 2187175 New World Chaos
New World Chaos's picture

Price does not matter if getting a barrel of oil requires more than one barrel of oil to drill the average well and create all the machines, maintainence infrastructure, etc. which will be needed.  That's the endgame.  The ONLY way past this is to find another energy source pronto.  Otherwise, we will go back to a pre-industrial society (with a scenic detour through Mad Max 1.5: Golden Age of Cannibalism).

Thu, 02/23/2012 - 12:31 | 2189331 Cheduba
Cheduba's picture

I call bunk on it ever taking more than one barrel of oil to make a barrel of oil.  In the following article, it states that 84% of energy inputs in the oil industry came from burning natural gas, which has been extremely cheap due to an abundant oversupply.  So, oil companies have been using a cheaper fuel (set by market prices) for most of their energy inputs to produce oil.  The ratio of oil-gas outputs to oil-gas inputs was 27 to 1, so again, my argument is that the market always naturally corrects for the problem of lower energy outputs by producers using the most economically feasible inputs.

There are many distortions in the market price of oil (currency manipulation, speculation, subsidies, tax breaks, price fixing, etc.), but in the end, the market will always account for the declining energy content of oil.  The only difference is that some of the current activities from globalization like making goods in China and shipping them by barge around the world will become uneconomic and unsustainable due to the impact from lowered oil energy content and the resulting higher energy prices.  The world will eventually be forced to move to a more localized system because of this.  I used to worry about a Mad Max scenario from running out of oil, but remember that the market is highly dynamic and it responds to lower EROEI.


By the way, the breakdown of society is the one thing that keeps me up at night, especially the thought of cannibalism (like in "The Road").

Thu, 02/23/2012 - 12:47 | 2189394 Flakmeister
Flakmeister's picture

You misunderstood what he wrote...

He is talking about a limiting case that may or may not arise...

And you do understand the concept of BTU arbitrage?

For example, would you be producing crude from Bitumen if you had to pay Asian LNG rates for NG? You might, only if the resulting oil is not used as an energy source but as a feedstock to high value added pesticides etc...

Thu, 02/23/2012 - 15:33 | 2190061 Cheduba
Cheduba's picture

I believe I understand the limiting case where it takes more energy to pull oil out of the ground than the energy you get from burning the oil, but market forces would push prices higher to account for the lower efficiency of extracting oil from a lower quality deposit.  The resulting higher prices would make low-grade deposits economic again and thus worth the energy it takes to mine.

I'm afraid I'm not familiar with BTU arbitrage and after searching the internet, I could not find much information, but I would be interested in what you mean.  In your example, I would say that it was situational and it could be economic to produce crude from Bitumen under those conditions if market prices dictated that was the most logical thing to do (say if there was an abundant supply of pesticides while farmers returned to more natural methods).

I could very well be missing your point, let me know if I am.

Thu, 02/23/2012 - 15:59 | 2190213 Flakmeister
Flakmeister's picture

BTU arbitrage arises when the cost of a given energy source is such that you can transform one form of energy into another for a economic profit...In practice, one is almost always converting something to a liquid fuel..

To use my example, if there was no realtively cheap NG available, the Tar Sands would be a no-go (at least for an extended period)....

It is also why GTL (Gas to liquids) is a long term loosing proposition..

Currently, imported LNG into Asia is priced almost exactly at parity on a BTU basis with oil...

Another great example is NGL (ethane, propane etc...)  as oil has become more scarce, the ratio of NGL to diesel has asymptotically approached the ratio of their BTU content by volume....BTU arbitrage is no longer possible..

When we reach the limit that to produce a barrel of oil will require a comparable amount of energy, oil will no longer be a primary source of energy, its value will reside in the chemistry that you can do with it....

Thu, 02/23/2012 - 16:42 | 2190420 Cheduba
Cheduba's picture

Interesting, I would be curious as to what happened with the BTU arbitrage right after the stock market crash of 2008 because the prices of everything seemed to be reverting to more normal levels until the general reversal in March 2009.

At some point, global demand will collapse again as policies that are unsustainable end (like the China bubble bursting and supplying oil to troops in Afghanistan).  It should be instructive to see what the energy density of oil is from that point forward.

I fully acknowledge how logical the idea sounds and it is a terrifying prospect. What makes me skeptical about the whole situation is reading stories about how the USA is most likely purposely restricting supply through measures like not having enough refining capacity and legislation restricting or even banning oil extraction.  My personal belief is that I think the economic feasibility of extraction will take care of itself and the prospects of running out of oil are just a meme promoting scarcity of oil so that humanity believes it always has to fight for control of oil.

Thu, 02/23/2012 - 16:53 | 2190506 Flakmeister
Flakmeister's picture

Got to the EIA website and look up the time series for Refinery capacity and Oil Imports...

You will then realize that the US Refining issue is a red herring....

Tue, 03/13/2012 - 18:23 | 2252097 Cheduba
Cheduba's picture

Necro thread I know, but this article sums up the artificial "scarcity" meme well.  Zerohedge and thedailybell are all the news I will ever need and they go well together.

Wed, 02/22/2012 - 12:43 | 2185132 Silver Bug
Silver Bug's picture

This will be a heated debate for a long time to come.

Wed, 02/22/2012 - 14:22 | 2185567 greyghost
greyghost's picture

the only thing dangerous is this guest posters constant peak anal peak oil got to sell my book. buy oil running gold running oil running oil running out. me thinks the players are losing their grip......just look at natural gas, they can't stop finding it. hell everyone needs to remember that all the great know the all preach save the planet? now go figure that the largest consumer of oil is the u.s. yet we don't do much drilling here...really? damn at this rate it is only a matter of time before reports of peak natural gas....the figures were all could we be so stupid and triple count the same gas. oh me oh my anyone for peak natural gas...lets start now!!!!!! anyone wonder why all the crap about gas in the water....was it always there....or is this a way stop drilling?

Wed, 02/22/2012 - 14:38 | 2185637 ian807
ian807's picture

It's too bad that you are unable to use either google or a calculator. Judicious application of both the the issue of hydrocarbon depletion would have saved you embarrasing yourself in public with an ungrammatical rant. I can help with the google part. Click here for a numerate discussion of what we're facing.

Wed, 02/22/2012 - 15:19 | 2185823 GreenPlease
GreenPlease's picture

Slate: What the Frack?

We don't have as much gas as you think. The current depressed price of NG has more to do with a leftward shift in demand than a rightward shift in supply. This is a trend that will soon revese as we'll to bring ~4tcf of annual demand online for power generation between now and 2020.

While you're at it, look at the decline curve of a horizontal well in a shale gas formation. Do a little math and estimate the drill rate required to keep current production levels where they are. Shale is a crap resource. We're literally scraping the bottom of the barrel.


Wed, 02/22/2012 - 12:21 | 2185044 Flakmeister
Flakmeister's picture

Puts the Bakken into perspective eh?

Wed, 02/22/2012 - 12:30 | 2185081 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

What is peaking is "high quality oil", not oil in general. In the future, the lower grades of oil will replace the light, sweet crude being currently used. It will drive the price of refined products up significantly, at least 50%. Most likely more. It will be an economic drag on the developed world. What is even more scary, NO ALTERNATIVE EXISTS AT THE PRESENT TIME.

Wed, 02/22/2012 - 12:35 | 2185104 Flakmeister
Flakmeister's picture

Sorry... nothing to do with quality, aside from the fact that "quality" oil actually flows and is not tar or trapped in some kind of rock....

The lower grades have been replacing the good stuff for years... google up the history API and sulphur content of US imports over the years at the EIA.....

 Peak oil occurs when no amount of fiat thrown at the problem increases the flow (not reserves).... We are there...

Wed, 02/22/2012 - 12:41 | 2185124 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Flak, yes you are right. Lower qualities of oil are already being tapped, like the tar sands. As the light, sweet, easily accessible sources are further depleted, the majors will resort to even lower grades. This stuff is difficult to refine and extract. The price will spike accordingly. As for now though, the oil boom has resulted in a glut of crude on the market with a rigged commodities market artificially driving the price up.

I agree with the concept of "Peak Oil". Too often they do not address the near term realities of supply and demand along with other short term fixes.

Wed, 02/22/2012 - 15:45 | 2185979 GreenPlease
GreenPlease's picture

@Flak: IMO, on net, we've been in decline for several years already. It would be handy if we could see how much petroleum the petroleum industry uses now compared to years past. Moving fracing fluids, drill pipe, concrete, etc. ain't free (in either monetary or energy terms).

Wed, 02/22/2012 - 15:58 | 2186050 Flakmeister
Flakmeister's picture

Most peoples eye's glaze over here when EROEI is brought up...

Hell it's bad enough to just look at the Energy content of "All Liquids" over the past 10 years....

Wed, 02/22/2012 - 16:05 | 2186085 malek
malek's picture

Now do the EROEI on PV or wind turbines... then do it once more including storage and transportation of that energy

*then* some eyes are going to glaze over

Wed, 02/22/2012 - 16:54 | 2186262 GreenPlease
GreenPlease's picture

I've actually done the EROEI on PV and Wind (as well as various forms of nuclear, conventional coal, IGCC coal, nat gas, etc). It really depends on how complete your accounting is. For example, what sort of energy cost do you assign to decomisshioning a nuclear power plant? Many studies that peg nuclear in the 10-15:1 neighborhood put a very onerous cost on decomisshioning and, IMO, that is anappropriate. Also, what value to you assign to the embodied energy in, say, a broken solar panel? The silicon is still of a 7N grade and the silver tracing is easily recovered. In fact, we don't really need any new infrastructure to recycle solar planels. All you need to do is delaminate the glass, heat the panel to melt off the silver, break the silicon up into chunks, run said silicon through a CZ oven (the same oven/type of oven that made the ingot in the first place), slice the ingot into wafers, and then put it back on an assembly line.

The only reason we don't do this now is because the panels don't break in sufficient quantity to justify a dedicated line. That brings up another point: what lifetime do you assess to a PV panel (or a nuclear plant, coal plant, etc). Most EROEI studies give PV panels a 25 year lifetime when, in reality, >50 years is realistic (the inverters won't make it that long). 

Now to your question about storage: it's not that important for solar PV below 40% grid penetration because power production from PV nicely follows intraday electricity demand. Wind is a whole different story and is a rather problematic energy source IMO. The grid can't really take more than 10% wind without serious upgrades to infrastructure.

PV wins on transportation as it is easily localized (that's one of its advantages it can actually help grid stability). If you talk to utility execs one of the things they're most afraid of distributed generation and PV anywhere near grid parity (which is rapidly approaching). There's a chance that, sometime in the next ten years, utility companies could enter into a liquidity trap of sorts where they need to raise rates to service debt on increasingly underutilized power plants (due to distributed generation, efficiency, etc.) This, in turn, will further incentise users to invest in efficiency and distributed generation. 

Starting to get a little random but don't forget that storage is, by design, part of most CST plants: they can produce power 24hrs a day and including this storage actually REDUCES the LCOE by increasing load factor and decreasing the size of turbines and gensets for a given field size. 

Note that i don't have an interest (ownership, employee, etc.) in any PV company. I've just been paid to analyze the energy industry. PV and nuclear are winners in the long term. Expect big moves from PV in the next three years but don't expect any CIGS manufacturers to survive (Solyndra was a CIGS manufacturer). Coal won't go away for a long time (but it will get more and more expensive). Natural gas will dissappoint. Oil will continue to get more expensive (with occasional liquidity driven dips) and hope of an oil abundant and oil independent America will turn into "nope".

PS: EROEI ranges

Nuclear: 15-60:1

Coal: 15-60:1 (this will fall as we start to mine lower grades and thinner seams)

NatGas: 6-25:1 (you lose a lot of energy at compressor stations)

Wind: 6-20:1 (I don't see any room for improvement)

PV: 10-28:1 (Still lots of room for improvement, 35:1 feasible in the medium term, expect the average to rise)

Hydro: >40:1

Frankly, we should be pursuing breeder reactors such as the PRISM or the LFTR. Proliferation concerns can be avoided with PRISM if we were to just spike the plutoniu with a hard-gamma emitter. Proliferation is a non-concern with the LFTR.

Wed, 02/22/2012 - 20:49 | 2187230 New World Chaos
New World Chaos's picture

Excellent post.  Thanks for focusing on EROEI.  Simple, crucial, and often ignored.

Thu, 02/23/2012 - 04:00 | 2188108 malek
malek's picture

because power production from PV nicely follows intraday electricity demand

What? On cloudy days too? That's a joke, right??

And suddenly towards the end you bring up CST? Sorry but overall ST beats PV by a mile. And lifetime of PV depends on how much decreasing efficiency you are willing to take. It seems the newer, cheaper made PV panels have a shorter lifetime.

Exactly nothing will happen in the PV field in the next three years, just as before. Some Californians will plaster their roof with PV, state subsidized for sure, when ST would have lowered their external *primary energy* usage much more.

Wed, 02/22/2012 - 13:26 | 2185292 CrashisOptimistic
CrashisOptimistic's picture

I have asked myself recently why one posts comments to ZH.  I don't have an answer.

Item from the article and folks, this is probably the most important part of the article:

"Typical wells in the Bakken come in at an average 200 barrels of oil per day and decline about 70-75 per cent in the first year"

Here is why this is important.  This is why the estimates of eventual Bakken production are horribly wrong.  Those estimates are using conventional well behavior.  A conventional well produces oil with a fast ramp up to several thousand barrels/day and can hold that or decline slowly for 10 years, where slowly means 5%/yr.  That's what high permability does.  The oil can flow towards the low pressure area of the well bore from farther away in the rock.

But the Bakken is not that.  It is low permeability around the well bore.  The only high permeability rock is the horizontal layer the well is snaking along.  It is sandwiched above and below by shale, that is low permeability rock through which oil won't flow.

So the decline rate of the well is very steep as the horizontal layer is drained.  70%/yr and then a trickle.

The models don't have this in them.  Yet.  There's no conspiracy to get it wrong.  They just haven't changed all the numbers from conventional coefficients.  So they presume wells producing for far more years than they will and this gets additive for the overall field production prediction.

I'll be surprised, really surprised, if the Bakken ever flows more than 750K/day.  The collapse in production from "old" wells (those more than 6 mos old) will start to hit the ramp pretty soon.

Wed, 02/22/2012 - 13:29 | 2185323 CrashisOptimistic
CrashisOptimistic's picture

re: "quality" oil.

The real meaning of this is the absurd addition of NGLs to crude when quoting barrel for barrel production, calling it "all liquids" when one barrel has 1/2 the BTUs of energy vs the other barrel.

But in the overall scheme of things, it doesn't matter.  People are going to die.  There is nothing that can be done.

Wed, 02/22/2012 - 14:27 | 2185588 That Peak Oil Guy
That Peak Oil Guy's picture

Actually, there may be a conspiracy to get it wrong.  Usually the way this works is the early investors create a bunch of hype based on the great performance of the first year.  This gets them more investors so they can cash out before the production crashes.  So there is good financial incentive to make those early projections as rosy as possible to lure in the suckers.

Wed, 02/22/2012 - 15:00 | 2185737 CrashisOptimistic
CrashisOptimistic's picture

There is some of that going on.

Wed, 02/22/2012 - 15:06 | 2185768 flyme
flyme's picture

- It's not just the decline rate that needs to be considered... That means more wellheads to tap into each layer, making this field's oil more costly to extract.

Wed, 02/22/2012 - 15:47 | 2185991 GreenPlease
GreenPlease's picture

IIRC, Ghawar originally produced something like 2.5mbpd from ~50 wells (I know, 50,000bpd per well sounds insane). Today, Ghawar produces ~5mpbd from 10,000+ producing wells and 20,000+ injection wells.

Wed, 02/22/2012 - 16:04 | 2186079 GreenPlease
GreenPlease's picture

Don't forget that low porosity and permeability also leads to low recovery rates. Sandstone reserviors might see 30% recovery under primary production, 50% under secondary recovery, and 60% under tertiary recovery. Carbonate reserviors go more like 15%, 25%, 50% (steam flooding helps carbonate reserviors a lot). Shales are more like 1.5-2.5%, NA, and 10% (I'm not aware of any reinjection programs in shale wells). 

Porosity, permeability, pressure, contact area, and water cut: these are the factors that determine flow rate and recovery.

Wed, 02/22/2012 - 13:43 | 2185396 Canadian Dirtlump
Canadian Dirtlump's picture

The Bakken is a game changer for sure. While the thought of reduced energy return on investment for conventional and unconventional oil is something I think it pretty obvious as years go by generally, this revolution in tight oil is quite something.

In addition to the Bakken we have been revisiting fields in alberta (Cardiem for example and now viking) which are decades old with the same drilling technology and having a well that has done 4 barrels a day for years get recompleted and do 40 or 50. The new wells drilled are getting a good return at these prices and would be viable at far lower oil prices. The wells do taper off a fair bit initially but the ones we've seen drilled over the last few years certainly seem to be holding well.


Wed, 02/22/2012 - 13:57 | 2185448 CrashisOptimistic
CrashisOptimistic's picture

But that's not something you can extrapolate.

Geology decides this.  Some old, dead wells, have shale layers.


You can't envision redrilling every dead well on the planet.  There is no shale for most of them.  You can go horizontal in some instances and resurrect some wells But You Cannot Extrapolate That Globally.

The geology is completely different for maybe 95% of conventional fields.  Journalists don't understand this.  They are paid to make two phone calls to accommodate the two-source rule, and wind up talking to two different guys who read the same wrong information.

When there are shale layers of rock, you can snake between them.  When there are no shale layers, which is usually true in fields, there's no point in horizontals.

But never mind.  It doesn't matter if people think everything will be okay.  It doesn't matter if they know it's not going to be okay.  There's nothing they can do in either case.

Wed, 02/22/2012 - 12:21 | 2185045 dark pools of soros
dark pools of soros's picture

the only transition from cheap oil is less people

Wed, 02/22/2012 - 12:29 | 2185079 LawsofPhysics
LawsofPhysics's picture

...or a lower standard of living for most.

Wed, 02/22/2012 - 13:58 | 2185465 margaris
margaris's picture

or less wasting of energy, water, etc...

Why having two tvs and a beamer, and a heated swimming pool, and two cars?

What devices stay on when you leave your home?

In the future you will have to pay dearly for those if you want them...

So you see.... it can be done without lowering the standard... just keep the "extravagance" at bay!

I recently did a checkup in my apartment and bureau.... and I now try to lower my power consumption by 50%... it is doable... but i need to invest a little money:

- master slave powerboards..

- lower power cpus..

- better isolation of house ... so lesser heating required

- LED lightbulbs & strips.

- all my pocket devices like phone, tablets etc are being solar charged... so all the Adapters are not needed and not used.

(new solar panel generations can produce enough Ah to recharge small devices even when cloudy weather.)


I love the progress so far...

Wed, 02/22/2012 - 14:10 | 2185511 dark pools of soros
dark pools of soros's picture

were your cell phones delivered to you on rays of light?  


anyway, you can't produce, store and distribute enough food to feed the current population without cheap oil regardless if they all live under bridges using no energy



Wed, 02/22/2012 - 14:39 | 2185642 Matt
Matt's picture

I bet even at global production of 20 Mbpd of oil and equivelents, we could feed everyone. Will we be able to fly tropical fruits in from all over the world in the middle of Winter? No.

Will people outside the Tropics need to have more canned and jarred food in Winter? yes.

Will America continue to be able to use 10 percent of arable land to produce ethanol from corn at an EROEI of 1:1.4 (negative return)? No.

There are some major changes that will happen one way or another, sooner or later; how harsh the transition depends on how long society continues to deny, extend and pretend.

This whole "just in time" supply system of shipping everything overnight by jet rather than transporting by ship and train and storing in a warehouse will end for most products, as the economics swing back to favouring the later once again.

Wed, 02/22/2012 - 15:02 | 2185748 margaris
margaris's picture

Good points!

Future generations will call our times the "crazy wasteful times"...

shipping bananas 5000 miles away and stuff... absolutely crazy...


There is a future for humanity if food is grown locally, and even created in every household (as energy should be)


Wed, 02/22/2012 - 14:49 | 2185695 margaris
margaris's picture

Ofcourse, every device I use had to be produced...whats your point? Even the solar panels that probably wasted more energy to be created than they might give back in 5-10 years.... Its an investment for the future.

If you buy the newest cellphone every 3 months... then you are part of the problem... 

but then again I dont want to miss out on those tablets. My cellphone is rather old... but a tablet to read books (save the paper save the trees) makes much sense to me.... although again there is a dark side with the whole foxconn-problematic... but I wouldnt mind to pay more if that could be solved..

As for the rest:

most people on earth are already living in absolute poverty. For them, nothing will change.... they already are at the bottom with everyday crisis mode!

On the other hand, we have the rich obese heart-desease-ridden folks here in the first world...

If they continue to eat & consume 20 times more then the rest, we have a problem, yes.

But I believe the world can feed 12 billion people.

Not meat everyday of course. But the eating habits will change anyway...

So stop with your "depopulation nightmares & conspiracies".... Many people are already dying... not because the planet is at its limits.... but because big corporations are actively murdering them with their inhumane policies!

Wed, 02/22/2012 - 15:33 | 2185927 dark pools of soros
dark pools of soros's picture

it is not a conspiracy - you really need to go look at some historic oil/population growth charts, macro usage graphs, and brush up on logistics/cost to scale


consumer air travel will be the first major casualty. It will only be for the rich.  Many of Matt's points are correct, those are all signs of the decline.    The population will grow as much as it can be sustained and shrink accordingly

To think people will be civil, to think people won't take more than they need while starving others shows how rosy your glasses are.  Do you not see the current resource wars raging at this moment?


screw all the charts I mentioned, just read up on social history of mankind



Wed, 02/22/2012 - 15:49 | 2185996 margaris
margaris's picture

I see your points.

But I distinctively separate "the people" from "their governments".

I think many people on planet earth are already (and have been) trying to live within their means, and to do something... build a stable community, be more healthy etc...

You dont see many governments do that. Ultimately every government wants to be totalitarian.

So I share your pessimism: we have definitely entered far into the phase of "amok running governments"

But I have faith in the people, or we would never have reached where we are!

Wed, 02/22/2012 - 14:37 | 2185632 Flakmeister
Flakmeister's picture

Thank you....

Wed, 02/22/2012 - 14:57 | 2185730 margaris
margaris's picture

Jevons Paradoxon applied to a single household like mine... postulates that with my 50% efficiency I will then be somehow tempted to use TWICE as much for whatever reason and offset any energy saving?

But why should I do that? Why isn't this concept considering the will of people to live within their means?

So, applied to my case, I disagree with this whole paradoxon.

Wed, 02/22/2012 - 15:30 | 2185906 GreenPlease
GreenPlease's picture

People always seem to think that the extrapolation from the micro to the macro is linear...

Wed, 02/22/2012 - 15:52 | 2185958 margaris
margaris's picture

its the reason why i love people but hate governments.

The people actually live within their means when it makes sense to them. And a stable life/family/community is a very good argument for everyone to do so.

But Governments will NEVER do that. They will ultimately destabilize, start wars, abuse and waste the maximum amount possible,

every fucking time in history!!!

Wed, 02/22/2012 - 15:38 | 2185953 snowball777
snowball777's picture

You need only eliminate some of the peaks with some local generative capacity and we can amazingly idle a not-insignificant portion of the current plants online.

Fight heart disease and terrorism: ride a bike!

Wed, 02/22/2012 - 15:56 | 2186041 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture

Macro Micro, Jevon's Paradox and Peak Oil are on the Macro side, single households are Micro.

Wed, 02/22/2012 - 16:09 | 2186106 margaris
margaris's picture

you cant have the macro without the micro(s).

Only reason macro is not the expected sum of consumption of all micros is because the macro (meaning: "bad corrupt government") is

a technocrat-squid (multiple times the expected consumption)

instead of

an organic network (supposedly LOWER consumption then the sum of all micros)

Wed, 02/22/2012 - 17:14 | 2186353 GreenPlease
GreenPlease's picture

"A person is smart. People are dumb, panicky dangerous animals and you know it."

The difference between the behavior of the macro and the micro is what is known as an emergent phenomenon. Technically, the atoms we are composed of are dead yet we are alive (open to philisophical debate of course). 

Wed, 02/22/2012 - 14:41 | 2185651 Matt
Matt's picture

Jevon's Paradox can only exist if there is more to consume. If you are consuming 100 percent of available energy and you increase effiecieny 50 percent, you can still only consume 100 percent, but get twice the productivity from it.

Wed, 02/22/2012 - 14:52 | 2185706 margaris
margaris's picture

The more efficient your energy consumption is... the more you are reaching the level of possible self sustainability thru "clean" energy.

Wed, 02/22/2012 - 15:49 | 2185994 snowball777
snowball777's picture

I prefer to use mine to make fertilizers and plastics.


Wed, 02/22/2012 - 16:02 | 2186072 margaris
margaris's picture

you forgot the /sarc?


Wed, 02/22/2012 - 15:37 | 2185949 GreenPlease
GreenPlease's picture

Jevon's Paradox applies to net energy. Basically, as efficiency rises our ability to successfully tap lower quality energy reserviors increases. Nature likes log-normal distributions. When looking at a resource base Methane Hydrates>Shales>Sandstone Reserviors. Moving from sandstone reserviors to shales increases your resource base by about an order of magnitude and then likewise moving from shales to methane hydrates. However, the question is, how much of that resource base can we utilize? There are limits to efficiency and, as we tap lower and lower quality energy reserviors, parasitic losses rise very quickly reducing the net energy available to society.

The exact math on this sort of an issue isn't really that important. To paraphrasie Taleb, we need to stop thinking in terms of efficient vs non-efficeint (keep using fossil fuels vs. proactively switch to alternatives) and instead think in terms of not robust and robust (again, keep using fossil fuels vs. proactively switch to alternatives).


Wed, 02/22/2012 - 15:41 | 2185971 margaris
margaris's picture

Jevon's paradoxon is based on economic studies and predictions.

So therefore you may not use the scientific math (like inphysics, astronomy etc...)

but the more mystical psycho-math of economics... and therefore its worth CRAP.

Wed, 02/22/2012 - 15:56 | 2186035 GreenPlease
GreenPlease's picture

If you read The Coal Question, you won't find a single reference to the cost of coal production which, under traditional terms, would rule it out as an economic assesment. While WS Jevons was an economist (the father of utility theory and microeconomics), his assessment of British Coal production was based on things such as estimated reserves, production and consumption data, the thermodynamic efficiency of steam engines, etc. FWIW, he predicted that British coal production would peak in the first decade of the 20th century. IIRC, it peaked in 1906.

BTW: I'm an actual economist. Yeah, most of what we do is crap. There are a lot of people in the profession who aren't happy with the way things are (over emphasis on econometric studies, basically post-hoc rationalizing policies that really only benefit the wealthy, etc.)

Wed, 02/22/2012 - 16:10 | 2186110 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture

Among actual economists, would it be controversial to assert that income inequality leads to a shortfall in agregate demand?

Wed, 02/22/2012 - 16:16 | 2186131 margaris
margaris's picture

is it true that henry ford once said: " if I dont pay my workers a decent wage, who is going to buy my cars?"

Wed, 02/22/2012 - 17:16 | 2186361 GreenPlease
GreenPlease's picture

I cannot testify to the accuracy of that quote though I've heard the same one. Another similar quote that I've heard is from Lee Iaccoca which goes roughly like "how is the robot going to buy the cars that it makes?"

Wed, 02/22/2012 - 17:11 | 2186340 GreenPlease
GreenPlease's picture

The group is pretty evenly split. 50% would rip into you with a fury, 40% would agree with you, 10% would neither agree nor disagree but instead say "there's something there".

Wed, 02/22/2012 - 19:00 | 2186827 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture


Wed, 02/22/2012 - 14:21 | 2185562 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture

Do you mean most people in rich countries?  From the global perspective there isn't much room for the majority to reduce consumption.

Wed, 02/22/2012 - 15:50 | 2186007 snowball777
snowball777's picture

Sure there is; it's just not humane.


Wed, 02/22/2012 - 16:17 | 2186132 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture

Humane or not, going from subsistence to starvation more closely resembles less people than a lower standard of living.

Wed, 02/22/2012 - 16:08 | 2186096 malek
malek's picture

or becoming more efficient - to save on usage, not to use more

Wed, 02/22/2012 - 12:31 | 2185086 ms1408
ms1408's picture

Honestly, are libertarians still talking about the need for cheap oil? Climate change is destroying the earth and will lead to a sea level rise of 6 to 20 metres if we don't start cutting emissions soon. The Obama administration has failed to deliver on its promise to cut emissions and provide sufficient funds for researching and building alternative sources of energy. We need a President who will end our dependence on oil once and for all and fund all our energy needs with wind farms and solar panels.

Wed, 02/22/2012 - 12:36 | 2185110 LawsofPhysics
LawsofPhysics's picture

Shhhhh, I am trying to front run that beach front property.  Something else for the grandkids.

Wed, 02/22/2012 - 14:11 | 2185524 Sean7k
Sean7k's picture

6 to 20 METRES?  What are you quoting from? The worse scenarios talk about 1-2 metres by 2100. Get a grip.

Wed, 02/22/2012 - 16:22 | 2186150 Flakmeister
Flakmeister's picture

And what happens after 2100??

Wed, 02/22/2012 - 14:44 | 2185671 Matt
Matt's picture

Too late. If Global Warming is true, I'm pretty sure the Methane Clathrate Gun has been fired, and run-away warming is soon going to be to such an extent it will dwarf human activity by a couple orders of magnitude.

Wed, 02/22/2012 - 15:51 | 2186017 snowball777
snowball777's picture

I dug the Solyndra auction too.

Wed, 02/22/2012 - 12:26 | 2185047 Cognitive Dissonance
Cognitive Dissonance's picture

Perception, for intents and purposes, is reality. I find many people will argue this point while at the same time agreeing that there is something called a herd mentality and that this herd mentality can be influenced to such a great degree that the current reality (as experienced by the herd) is essentially changed.....regardless of how long or short that change remains in place.

The fact that the PONZI depends upon the suspension of disbelief speaks volumes in support of my statement.

Wed, 02/22/2012 - 12:35 | 2185109 oldman
oldman's picture

Dear CD,


Only by leaving the 'human context' can one understand that 'I don't know' is the only reality. That leap of consciousness is necessarily the only way we will survive.

Is this true?

I don't know, but I think so                       om

Wed, 02/22/2012 - 13:01 | 2185181 Cognitive Dissonance
Cognitive Dissonance's picture

Nice twist oldman. And I agree......I think. :)

The perceived "certainty" of numbers, statistics, law, the herd etc. is that all (PONZI) thought memes have one intent convince us that "this" reality is the only reality. If we as a collective and most importantly as individuals were to truly understand how false our so-called present reality is (and then 'act' upon that understanding) this insanity would come to a screeching halt.

This is what I mean when I say that all we need do is to withdraw our support, not just from the PONZI, but from the entire false "money meme" paradigm.

Wed, 02/22/2012 - 13:42 | 2185387 oldman
oldman's picture


Thanks for your amplification.

This is the 'do-nothing' war that have possibilities extremely few people comprehend. To take it a step further with you. the active resistance that seems to be our limit conceptually, only feeds and energizes the other side that, as you point out, has no power of its own. What I mean by this is that the mindset of the other side is rigid and limited that it constantly requires active resistance to function; it has nothing of its own(the ultimate usary?).

No one seems to understand that we have the opportunity to take a breath here and allow the machine to die before we allow it to reorganize itself. The system as cannot stand on its own since it has collapsed by virtue of its dysfunctionality. We 'little people' can be the tools, the fuel, or we can simply stand aside. This is the basis of the 'do-nothing' philosophy.

Maybe it is just too simple---we are drugged by our constant activity and have no faith in the obvious (.is this what is meant by 'decadence'?).

As always, your comments are thought-provoking and I certainly appreciate your view. 

Thanks, again     om

BTW, 'I don't know" comes from a five year old friend of mine and something that I keep in front of me in my few moments of rationality.              

Wed, 02/22/2012 - 14:14 | 2185540 Sean7k
Sean7k's picture

Kind of like the author pimping all the great investment opportunities from forming the "right" conclusions from the propaganda? 

CD, maybe you need to rerun some of your pieces.

Wed, 02/22/2012 - 16:02 | 2186071 Cognitive Dissonance
Cognitive Dissonance's picture

I was thinking that today. But then I might not be able to resist the temptation to rewrite to incorporate my latest thinking. Then all hell might break loose. :)

Wed, 02/22/2012 - 12:22 | 2185048 Miss anthrope
Miss anthrope's picture

hello does anyone remember the angry guy smashing stuff with a bat in his garage?

i was looking for it on youtube.

The one who knew all his statistics

thank you!!!

Wed, 02/22/2012 - 12:30 | 2185078 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Karl Denninger?

Wed, 02/22/2012 - 12:42 | 2185127 dick cheneys ghost
dick cheneys ghost's picture

wall street pro........this guy should run for office........

Wed, 02/22/2012 - 15:02 | 2185747 Matt
Matt's picture

LOL he was totally pissed, back in 2009, that they would double the national debt in 10 years. I fear he underestimated the level of debt. 

Wed, 02/22/2012 - 20:26 | 2187154 Miss anthrope
Miss anthrope's picture

God Bless you !!!!!  I was searching for this so long.   I LOVE ZERO HEDGE..... ZERO HEDGE YOU ARE THE GREATEST LOVER EVER.

Wed, 02/22/2012 - 14:01 | 2185478 azzhatter
azzhatter's picture

I thought that was denninger

Wed, 02/22/2012 - 13:03 | 2185214 Xanadu_doo
Xanadu_doo's picture

YES! YES! LOVE this guy!

Wed, 02/22/2012 - 13:35 | 2185357 BeerBrewer09
BeerBrewer09's picture


Hittin dingers with figurines in your barn. FTMFW

Wed, 02/22/2012 - 12:22 | 2185049 AC_Doctor
AC_Doctor's picture

The Teleprompter Clown want everyone to drive a Chevy Volt and charge it with solar panels.

Wed, 02/22/2012 - 12:24 | 2185059 Flakmeister
Flakmeister's picture

Why don't you ask DCFusor here.... He apparently has such an arrangement currently (and is laughing at the rest of us)....

Wed, 02/22/2012 - 12:28 | 2185075 francis_sawyer
francis_sawyer's picture

cue up the soliloquy...

to be immediately followed by browbeating...

Wed, 02/22/2012 - 14:02 | 2185480 DoChenRollingBearing
DoChenRollingBearing's picture

My emails with DCFusor show that he is very happy doing just that.  He LIKES his Volt!  And, yes, he has solar panels to charge it.  LOTS of solar panels, some of them old.  But, he has a very special situation that allows him to do lots of interesting things that few of us can.  

He did not tell me if he IS laughing at us, maybe so!

DCFusor also posts at  Interesting and smart guy.

Wed, 02/22/2012 - 14:10 | 2185516 DCFusor
DCFusor's picture

I do have such a setup, and it's working great, the Volt and my home are both charging as I type - with more panels coming next week so I can even do it on cloudy days here.  Not much more to say on that - it's not cheap upfront, you have to live in a place big enough to have the solar panels, and therefore it won't work for people who insist on overcrowding themselves in cities.  But it does work for me - I chose to cut and run from DC way back when, and am glad to be out of that cesspool for entirely other reasons too.

So, solar works for some, not for all, and it won't quite do everything even for me without me putting in even more money than I'm willing to do - I use propane for cooking for example, because it's just "cooking with gas" - I could live without, but choose not to at the present prices.  And I'd point out that with my 30 lbs or so a year of use for that - one can easily have a few 30lb spare tanks bought at today's prices...the markets aren't the only investments you can make, you know.

The real deal here is nothing to do with oil - we've either screwed the pooch there or not and there's little we humans will be able to do about since we can only change in a crisis - and that will be too late by far, particularly if the crisis is climate change, but even if it's just oil pricing out of sight.

It's to do with power and freedom.  I have only a phone bill, easily ditched if things get really bad.  I don't have to work for a living anymore, I'm no one's wage slave.  Green is just fine with me, but it's not the motivation at all.  I'd pretty much second much of Maternsen's observations.  The thing to do is get out of the highly-interdependent cities first, then work on the rest.  No zombie apocalspe is possible here - no hoards of hungy people buring down your apartment or shooting you to get your gold stash.  Not enough people for that, and we're all pretty ready for bad times - farmers have to be anyway.

I did all this with little to no thought of peak oil, climate change, whatever the boogie man du jour happens to be - it's about being free, not so dependent.  You can't get it perfect alone, but it's worth getting closer than most are now.




Wed, 02/22/2012 - 12:33 | 2185092 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Obama has tanked the solar industry by investing tax dollars in the poorly run companies.  If you believe he had intentions other than to tank solar, you have been duped.

Wed, 02/22/2012 - 13:46 | 2185407 amadeusb4
amadeusb4's picture

Yes, because overcapacity and shrinking energy demand had nothing to do with it.

Wed, 02/22/2012 - 14:14 | 2185537 DCFusor
DCFusor's picture

Chinese dumping of cheap (and unreliable as Google (and others) has found out the hard way) had a little to do with it.  The issues predate Obummer by a little bit.  American manufacture is catching up fine without help.  My latest panels were made in the SW US by Schott glass - and cost $1.47/watt.  My first panels, made by Solarex (BP is shutting that down) cost $7/watt, back in 1980 - in those dollars.  I was an early adopter and it was kind of tough, but the water's fine now.

Solyndra was an utter joke to anyone who has ever run a company - total fantasy about what capex is needed - and a fraud that just happened to benefit some campaign bundlers who cheated the bankruptcy law.  That had nothing to do with alt energy - it had everything to do with cronyism.  I believe that was pointed out here awhile back.

Wed, 02/22/2012 - 12:33 | 2185094 Roy Bush
Roy Bush's picture

I always love the push toward hybrids and electrical vehicles because it is such an illusion.  The total carbon footprint of these vehicles because of the coltan mining and battery manufacture is more than a conventional automobile. 

Wed, 02/22/2012 - 12:59 | 2185196 pods
pods's picture

My car, being driven in a manner which optimizes efficiency, gets 36-39 mpg real world averaged over a tank full, and is not a hybrid.  I could only imagine what the stats would be if we actually took the improved power generation and scaled down the engine size, instead of increasing horsepower.

Instead of having a 200 horsepower sedan we could have one that had 120, and instead of a 120 hp economy, we could run then at like 80 again.

But the market is not really supporting this.  



Wed, 02/22/2012 - 13:00 | 2185199 Flakmeister
Flakmeister's picture

Please provide the evidence for such a claim and be sure to state who paid for the study...

We can wait, some of us are very patient...

Wed, 02/22/2012 - 14:15 | 2185546 DCFusor
DCFusor's picture

Fact check - you're just dead wrong about that.  Get your info from somewhere else than the idiots on Faux - who we can remember, won that court case so they didn't have to tell the truth to call it news.  You think they didn't take advantage of that to protect some vested interests with illiquid investments in the oil patch?  Hell, I own some oil royalty streams myself - they are a living bitch to sell out to anyone, tons of legal restrictions and a cartel that gets first dibs and never bids more than a dime.

Wed, 02/22/2012 - 15:54 | 2186026 Roy Bush
Roy Bush's picture

Here's one after a search.  I can find more of them if you want.  Do your own research.

I've read other ones as well.

Do NOT follow this link or you will be banned from the site!