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15919Re: [gaiapc] Could oil demand peak in a few years?

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  • narguimbau@earthlink.net
    29 Dec, 2017

      I don't think Gail is INTENDING to mislead either.  She does great work.  My thought generally is that production of gas and oil is being supported when it isn't really profitable to protect a GDP that will crumble when the unsupported production itself crumbles.  The reason I suspect shenanigans as to conventional crude is that it climbed to a predicted peak and then just stayed there, violating almost universally-held expectations that after the peak it would follow the Hubbert curve downwards.  Flat production after the expected peak says they are forcing production, turning conventional crude into something that is being produced uneconomically and perhaps even with EROI less than 1..  That will result in not much time in conventional crude production REALLY tumbling.  2008 was a mark of approximately 1 trllion barrels left of convional crude, and obviously with that constraint demand will peak soon because they will be trying to sell stuff which is eroi<1.  I'm not going to quibble about what "demand" is.

      On 12/27/2017 10:31 PM, Jada Thacker jadathacker@... [gaiapc] wrote:
      Nick, I don't think Gail is intending to mislead. She's correctly pointing out that for-profit businesses do in fact have to make a profit to be viable in the long term. And you are right, too: money is being made on oil/gas lease sales, on the receipt of "fake" (borrowed) oil company dividends, on oil company stock/bond speculation, and no doubt oil company CEO's are making a bundle on bonuses that increase with stock by-backs.

      But sooner or later, the compounding interest on the unpaid debt that was incurred by producing unprofitable oil/gas will outstrip the oil companies' ability to pay or roll over. And when that happens the creditors holding all that debt will start to see the value of those debt assets evaporating. That's going to be an insurmountable problem. According to Chris Martenson, energy companies borrowed $300 billion to finance the so-far unprofitable fracking boom. These same companies are showing huge losses, slashing or canceling future exploration and production budgets, and still borrowing more money. There is an end to this game.

      Money ultimately has value only because it is exchangeable for consumable energy products, not the other way around. Wall Street and orthodox economists, on the other hand, think energy products have value because they are exchangeable for money. Energy comes from nature; money comes from human artifice. It's said "nature bats last" because it does.

      You may be right that investment shenanigans also are involved with conventional production, but I tend to doubt it. Most legacy "stripper" wells were drilled and paid for a long time ago (I helped with this!); while legacy wells produce only 10 barrels a day (more or less) there are a half a million of them, which accounts for about half of US domestic production. The deep offshore and fracking accounts for the lion's share of the debt, and all of the increase in domestic production since the North Slope oil dwindled to a trickle. 

      I haven't read Richard Heinberg's book Snake Oil about the fracking "revolution," but I have heard him claim elsewhere that the whole thing is basically an investment bubble. Not only is it unprofitable at prices society can afford, but most of what it produces is so light it isn't even considered "oil" by API metrics and must be mixed with heavier petroleum, such as tar sands stuff (which in its raw state also is not API oil), to be refinable.

      While you wonder about US "viable reserves" with good reason to do so, that is not an industry term. Of several definitions for "reserves," the most apt is "proven reserves." Proven reserves by definition must be demonstrably producible at current levels of technology and price. So, according to the industry's own metric, it appears all the additional oil produced in the US since conventional (legacy stripper wells) peaked production in 2005 no longer meets the definition of "proven reserves" because it is now unaffordable even at a break-even price.

      You asked "what supports" the fracking phenomenon. My judgment is that unaffordable debt explains it -- both from the production end and the consumption end. Along with a lot of other folks out there, I expect a "bigger than major" reshuffle of the deck of debt cards, and maybe sooner than later.


      On Wednesday, December 27, 2017 7:04 PM, "'narguimbau@...' narguimbau@... [gaiapc]" <gaiapc@...> wrote:

      Because of the unexplained difference between production since the once-predicted 2008 peak and the production crash that I and many many others predicted for post-2012, I'm beginning to think Wall Street investment shenanigans arte also responsible for the level of production of conventional as well as unconventional crude.
      Strangely, I think Gail's  "oil that cannot be sold at a profit will not continue to be produced" is at least misleading, because the profit may come from somewhere else than sale of the oil.  It may come from an inveestment, with investments being spent on getting the oil out of the ground and expecting it to be sold at a profit later.  Profit may come from sale of the lease rather than sale of the oil, and the value of the lease is pure guesswork.  Once the well is drilled, oil will be sold to pay for the drilling no matter how poor the return is.  The "break-even point" for shale oil is said to be $80/barrel and the "break-even point for fracked natural gas is said to be over $6/thousand cubic feet,  which are prices never met,  but drilling and selling continues with abandon, not very clearly why,  making it unclear why we are said to have or ever to have had any viable reserves of either or are just carrying on to create an illusion.  Investment in Bakkin in fact, was considered a fool's errand for decades because it was known to have huge reserves that were  economically inviable, and that still is probably true..  You tell me what supports it.

      On 12/27/2017 12:49 PM, Jada Thacker jadathacker@... [gaiapc] wrote:.

      As Gail points out, however, oil that cannot be sold for a profit will not continue to be produced,

      Nick is altogether correct that Wall Street investment shenanigans are responsible for the current uber-debt-financed production of high-priced, unconventional oil/gas. Similarly, consumer debt historically allowed consumers to "consume beyond their means." But this only works as long as the debt level remains serviceable. For producer and consumer alike, those days are numbered. 

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