Below is a comment from my friend Joe Costello, who has been skeptical of the optimistic claims for shale oil since early on. Joe is the co-author of Of, By, For: The New Politics of Money, Debt & Democracy. [4] -- Chris
Someone left a baby in the car park
Never any reason
Don't you listen, one more sob story
Someone is calling
Don't you listen, don't interfere
Ignore it and it will go away
Someone is calling
Don't you listen
-- P.I.L
Let's take a look at two revolutions moved by the same underlying force, the end of the era of cheap oil. The first is the so-called "shale-oil revolution," which really was never much of a revolution, more a scraping of the bottom of the barrel. In the most recent released statistics from the Bakken oil fields by the state of North Dakota(tx theoildrum), we see its taking more and more wells drilled to basically stand still. Notice two things; oil has been coming out of the Bakken for over six decades, and at the beginning of the shale-revolution in 2007, there were 300 wells, today 5600. This revolution grows ever more expensive and less revolutionary every day. In fact, it has become so problematic, its shortcomings can't even be happy faced or ignored by Wall Street. Forbes writes,
"The big shale fields cover hundreds of thousands, even millions of acres. But the quality of the geology is not homogenous across the landscape. There are sweet spots in these fields, which the companies, naturally, drill first because they want to make back what they spent to acquire the acreage in the first place (often in excess of $10,000 per acre)."
"Trouble is, as these sweet spots are developed the companies have to move down the continuum of sweetness, and profitability. That costs more. Analysts at Bernstein Research wrote last month that “cost inflation continues to rise, and as commodity prices are ‘capped’ by rising supply, net income margins in the sector are now at their lowest in a decade. This is not sustainable. Either prices must rise or costs must fall.”
"The alternative is that they simply cut back on drilling. Bernstein figures that the marginal cost of non-OPEC production is now at $104.5 per barrel. What’s more, the researchers found an “unprecedented” jump in the marginal costs of U.S. fields, from $89 a barrel in 2011 to $114 a barrel in 2012. This implies that some U.S. producers were losing money on oil they brought to market — and doing so knowingly, says Bernstein."
So much for that revolution, but don't worry about the oil companies losing money, price rises are assured. Particularly since the 20th century oil soaked development model has been spread across the globe by US banks, it is after all, what they know. The IEA notes for the first time in history, non-OECD countries oil consumption surpasses the OECD, keep in mind, the OECD, still using half the current global oil supply, is only 14% of the planet's population, and of course, we here in the US with less than 5% of the planet's population use 22% of the planet's oil.
The second revolution is directly connected to oil in the Middle East. You could say this revolution started with the Occupation of Iraq, but that wouldn't really be right. It's been ongoing since at least our 1970's Middle East policies -- "One mistake after another." The Independent has good summing up of this revolution,
"For the first time, all of America’s ‘friends’ in the region are Sunni Muslims and all of its enemies are Shiites. Breaking all President Barack Obama’s rules of disengagement, the US is now fully engaged on the side of armed groups which include the most extreme Sunni Islamist movements in the Middle East."
"Washington’s excuse for its new Middle East adventure – that it must arm Assad’s enemies because the Damascus regime has used sarin gas against them – convinces no-one in the Middle East. Final proof of the use of gas by either side in Syria remains almost as nebulous as President George W. Bush’s claim that Saddam’s Iraq possessed weapons of mass destruction."
Of course this isn't the first time we've allied with Sunni "freedom fighters," one might even call it an American tradition. So both revolutions continue, such that they are, more than a little confusing, but with one underlying theme -- oil.