There is a special species of idiot at large in the financial media space who believe absolutely in the desperate and tragic public relations bullshit that this society churns out to convince itself that the techno-industrial high life can continue indefinitely, despite the mandates of reality — in particular, the fairy tales about oil: we’re cruising to energy independence… the shale oil “miracle” will keep us driving to WalMart forever… our wells doth overflow as if this were Saudi America… don’t worry, be happy…!
Such a true believer is John Mauldin, the investment hustler and writer of the newsletter Thoughts From the Frontline, who called me out for obloquy in his latest edition. After dissing me, he said:
“I have written for years that Peak Oil is nonsense. Longtime readers know that I’m a believer in ever-accelerating technological transformation, but I have to admit I did not see the exponential transformation of the drilling business as it is currently unfolding. The changes are truly breathtaking and have gone largely unnoticed.”
Mauldin is going to be very disappointed when he discovers that the vaunted efficiencies in shale drilling and fracking he’s hyping will only accelerate the depletion of wells which, at best, produce a few hundred barrels of oil a day, and only for the first year, after which they deplete by at least half that rate, and after four years are little better than “stripper” wells. The PR shills at Cambridge Energy Research (Dan Yergin’s propaganda mill for the oil industry) must have pumped a five-gallon jug of Kool-Aid down poor John’s craw. He believes every whopper they spin out — e.g. that “Right now, some US shale operators can break even at $10/barrel.”
The truth is the shale oil industry couldn’t make a profit at $100/barrel. The drilling and fracking boom that began around 2005 was paid for with high-risk, high-yield junk bond financing and other sketchy, poorly collateralized financing. Most of the earnings in the early years of shale oil came from flipping land leases to greater fools. Now that the price of oil has fallen by more than 50 percent in the past year, the prospect dims for that junk financing to be repaid. Since that was “bottom-of-the-barrel” financing, the odds are that the shale producers will have a very hard time finding more borrowed money to keep up the relentless pace of drilling needed to stay ahead of the short depletion rates. They are also running out “sweet spots” that are worth drilling.
We will look back on the shale oil frenzy of 2005 to 2015 as a very interesting industrial stunt borne of desperation. It gave a floundering industry something to do with all its equipment and its trained personnel, and it gave wishful hucksters something to wish for, but it never penciled-out economically. Shale oil production turned down in 2015 and the money will not be there to get the production back to where it was before the price crash. Ever.
Some additional uncomfortable truths should temper the manic fantasies of hypsters like Mauldin. One is that we are no longer in the cheap oil age. All the new oil available now is expensive oil — whether it’s Bakken shale or deep water or arctic oil — and it costs too much for our techno-industrial society to run on. That is why the world financial system is imploding: we can’t borrow enough money from the future to keep this game going, and we can’t pay back the money we’ve already borrowed. We have to get another game going, one consistent with contraction and with much lower energy use. But that is not an acceptable option to the people running things. They are determined to keep the current matrix of rackets going at all costs, and the certain result will be very messy collapse of economies and governments.
Industrial economies face a fatal predicament: Oil above $75/barrel crushes economies; under $75/barrel it crushes oil companies. We’ve oscillated back and forth between those conditions since 2005. The net effect in the USA is that the middle class is rapidly going broke. All the financial shenanigans aimed at propping up Wall Street and Potemkin stock markets was carried out at the expense of the middle class, now deprived of jobs, incomes, vocations, stability, and prospects. They may already be at the point where they can’t afford oil at any price. That “energy deflation” dynamic, in the words of Steve Ludlum at the Economic Undertow blog, is a self-reinforcing feedback loop that beats a path straight to epochal paradigm shift: get smaller, get local, get real, or get out.
The hypsters and hucksters won’t believe this until it jumps up and bites them on the lips. These are the same idiots who believe we are going to continue Happy Motoring by other means — self-driving, all-electric cars — and who think there is some reason for human beings to travel to other planets when we haven’t even demonstrated that we can plausibly continue life on this one.
As I averred last week, America is at the bottom of a self-knowledge low cycle in which we are incapable of constructing a coherent story about what is happening to us. The techno-industrial fiesta was such a special experience that we can’t believe it might be coming to an end. So, one option is to believe stories that have no basis in reality. As Tom McGuane wrote some forty years ago: “Life in the old USA gizzard had changed and only a clown could fail to notice. So being a clown was a possibility.”
The third World Made By Hand novel
!! Is available !!
(The Fourth and final is finished and on the way — Spring 2016)
“Kunstler skewers everything from kitsch to greed, prejudice, bloodshed, and brainwashing in this wily, funny, rip-roaring, and profoundly provocative page- turner, leaving no doubt that the prescriptive yet devilishly satiric A World Made by Hand series will continue.” — Booklist
My local indie booksellers… Battenkill Books (Autographed by the Author) … or Northshire Books…
or Amazon…
I don’t believe Mauldin’s $10/barrel, nor do I believe this author’s $100/barrel.
“Oil above $75/barrel crushes economies; under $75/barrel it crushes oil companies.”
So obviously we can fix the problem by setting the oil price at exactly $75.00/barrel from now on, and we’ll be living like Goldilocks.
Kunstler is getting tedious and repetitive. It’s like the Max Headroom of oil-doomsayers. He has correctly identified one very large problem, but he keeps bringing it back up constantly because he apparently has nothing else to write about. There are other big problems as well, and perhaps more importantly, while oil is going to be an issue for us really soon, I don’t think Kunstler has a particularly good crystal ball compared to various other random prognosticators.
Penn Head , what do you honestly know about oil production ?About shale oil production?The answer is nothing. This is one of the reasons Penn head is your
Name.
“I have written for years that Peak Oil is nonsense.” ——– John Maudlin
Irrevocable and total loss of credibility right there.
@Pb, I have a degree in geoscience and a father who’s a geologist. We talk about oil issues regularly. I’ve done extensive reading on oil issues, not just from the doom crowd but from the academic and industry side as well. Although I don’t work in the oil industry I definitely know a lot more about it than the average guy, and probably more than Kunstler.
Persnickity…I’ve read a few articles about “Oil Regeneration ” in other words oil that is found in wells that have been thought to be dry . It seems that some geologists are questioning their thoughts on how long it takes oil to form.
Just another crummy commercial… for his books!!! I agree that he can see some of the problems we are facing, but has he done anything about them? Can he lay brick, fix a car, skin a deer or forge a simple tool? I would bet not. In a world made by hand these skills may be very important. His main talent seems to be bellyaching and pointing his finger which I don’t see much demand for.
@Buckhed: I haven’t seen questions about length of time to form – not saying they aren’t out there, just I haven’t seen them yet. For a long time there has been a minority view of “abiotic oil”, claiming oil can be formed by earth processes unrelated to carbon-rich sediments. It’s possible that oil can be formed both ways, but unlikely that abiotic is the primary way.
It’s quite common for old oil fields to “refill” or seem to refill. It is probably due to the field not having been completely used the first time, or having more complicated structure than was originally perceived. It’s great to have found oil, but no miracle cure.
You probably know this, but for the benefit of any who don’t, “peak oil” refers not to having used up all or some specific amount of all oil, but instead reaching a peak in daily flow rates from producing fields. Since oil is consumed constantly, the rate of production matters just as much as the total potential future production, and when the rate declines we are in trouble regardless of how many years may remain of that dwindling production. We could discover colossal amounts of oil somewhere, but if we can’t produce it at a rate that offsets the decline of current production, we’re still in serious trouble.
Charles Hugh Smith nailed it a year or two ago:
“Certainty sells better than hedged hesitancy.”
This is why we’re saturated with people telling us they know the future.
In fact, no one does. This world we share is a vast complex system whose operation we understand little more than an ant understands physics. We can see trends. We can see trend reversals. We can see repeated instances of “the unexpected,” yet we (as a group) cannot let go of the guru/follower model where the guru expresses certainty in order to fulfill a desperate need for predictability where there can be no expectation thereof.
It’s an adventure. Try to stop worrying so much about it.
PS: People want energy, they don’t care how it arrives. Oil has been the method for a century, and who knows, perhaps it will remain so for quite a while. Nuclear (as it is) sucks, but it is the one area of science that actually looks promising…if political calculation ever would get out of the way. Wind, hydro and such are toys destined to never provide energy in excess of the fully-fleshed-out cost of their use (hydro is efficient, but flooding land is not and nature can still serve up problems–Lake Mead.)
Doom & Gloom sells, but it’s never been right. Mankind’s problems are all man-made now, and crossing the valley ahead (of the failure of political organization of society) promises great difficulty. It won’t be a lack of petroleum that causes problems any more than a lack of whale oil caused the spread of darkness at the end of the 19th century.
I still find it hilarious that we’re still talking about “peak oil” seven years after the peak price in oil.
This is why watching the gold market is entertaining. Memories are SOOOOO short; I recall quite well how the Rick Rule/Doug Casey/Bill Bonner/etc. crowd was maniacally Pro Gold all the way from 1980 to about 2000, during it’s epic fall in real terms of something like 93%.
“There’s a shortage, there’s a shortage!!”
Then, right about when stocks were rolling over and gold was double-bottoming at $253/oz, even the hardest core gold bugs capitulated, within months of the low.
This cycle NEVER fails. NEVER. And yet no one seems to learn from it at all.
PS: In a vast deflation of the US dollar credit bubble, oil could easily hit $10. Who knows? Gold could hit $95 for all I know. What I do know is that those who espouse certainty are damn fools.
I witnessed the whole peak oil debate from it’s beginning. I was a member of ‘Life after the oil crash forum’, and the ‘The Oil Drum’, both very popular sites.
Well, the ‘LATOC’ forum was shut down by it’s owner as it devolved into a henhouse of uberPC libtards and feminists, or am I repeating myself?
The oil drum’s end is best described by the Wiki entry:
“In 2013, The Oil Drum announced that it would stop publishing new content and would turn into an archive resource. Reasons cited for this change include server costs and a dwindling number of contributors of high-quality content. Other sources claimed that the site was archived to prevent further embarrassment to contributors as global oil production continued to increase.”
I was quite taken in by the peak oil argument for a while. It fit my survivalist/doomer mentality at the time. Shame nothing happened. Did you all know, according to the highest ranked ‘experts’ being published at these sites, that we should be little better than cavemen at this point? That our great-grandkids will be poking through the rubble of what were once fine cities looking for metal to fashion into spearpoints?
The last point could turn out to be true, but it won’t be because of peak oil.
A handful of self-proclaimed experts made a lot of money selling this bullshit and then disappeared. James Kunstler is still at it because it’s all he has.
I’d be looking at companies that manufacture filter systems that clean the fracking chemicals out of water. They’re going to do well going forward.
Penn head are you trying to impress me with your academia credentials.I got my degree from the university of The Bahamas . It was third world and blacker then the heart Africa therefore my paper is worth more then yours. I am also morally superior. Now what was you saying ?
Peak oil may have just been “off” by a decade or so.
As world population increases to 8b, 9b, 10b and beyond then demand for oil will obviously increase, and since oil is a non-renewable resource (fuck abiotic bullshit), then Peak Oil WILL arrive in short order.
Just for sake of debate, what effect would LNG powered fuel cell cars have if they were embraced by the masses. Before the shit starts flying and everybody gets all bunged up, this is posed as a “what if”?
Peak oil as a theory is almost tautologically correct. The only question – which is the BIG question – is when the peak will occur. Just a few years ago it looked like 2005 was the peak, but the fracking and shale experiment in the US produced a huge increase in production for a couple years. Here are some good charts:
http://peakoilbarrel.com/world-oil-yearly-production-charts/
As Jim Quinn has been telling you, the fracking bubble seems to have popped and is not likely to restart. Meanwhile non-US production has been increasingly concentrated in the OPEC countries and has been essentially flat. The oil economy is not good at all.
The timing of peak oil matters, because if it’s far in the future, chances are excellent that some inventor-scientist will have come up with a useful replacement and we can transition from one energy source to another as we did from wood to coal and coal to oil. If peak oil is already past, the chances of doing that are much smaller. I’ll leave it at that, there are many places to read up on this for anyone interested.