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Here Comes $75 Oil

Here Comes $75 Oil thumbnail

The long-term outlook for global oil prices is lower, perhaps much lower, giving a strong boost to the U.S. economy while potentially crippling the economy of Vladimir Putin’s Russia. Vast new discoveries of oil and natural gas in the U.S. and around the globe could drive the oil price to as low as $75 a barrel over the next five years from a current $100.

The demand side, too, will put pressure on the supremacy of petroleum. For the first time in its 150-year history, the internal combustion engine can be run efficiently on alternative fuels from a number of sources, including natural gas. As these alternatives are increasingly introduced, global consumption of oil will slow its growth and flatten out.

Citigroup’s head of global commodity research, Edward Morse, believes the combination of flattening consumption and rising production should mean that “the $90-a-barrel floor on the world oil price over the past few years will become a $90 ceiling.” Within a new trading range with a $90 ceiling, Morse sees an average of $75 as plausible.

That’s a far cry from the old paradigm, promoted in the past 40 years, which posited ever-greater demand for petroleum as developing economies grew, and a slowdown on the supply side — the looming prospect of “peak oil,” whereby global production maxes out and falls into decline. To the contrary, unconventional sources of crude oil totaling more than a trillion barrels — the equivalent of more than 30 years of extra supply — have been discovered in the past five years. The majority is recoverable at $75 or less, and much is now being tapped.

Within the next five years, growth in U.S. production of oil should make this country a net exporter, ending a pattern that has persisted since World War II. “While this country will still be importing plenty of medium and heavy crudes, most of the imports will come from Canada and Mexico,” says Morse. “So the U.S. will no longer have to worry about disruptions in supply that might disrupt economic activity. That’s why we call it the era of North American energy independence.”

British economist Alfred Marshall famously likened supply and demand to the blades of scissors, and the blades are also poised to cut oil prices in the rest of the world. On the supply side, unconventional sources of oil are being tapped in countries that include India, Bahrain, and Uganda. On the demand side, a third of the auto fleet in Brazil can already run on fuel other than petroleum.

THE RECENT AGGRESSION by the oil-and-gas exporting nation of Russia reminds us of the fragility of global energy supplies. At the same time, the oil-and-gas abundance in this country has influenced concrete proposals for dealing with Russia. Energy consultant Philip Verleger has publicly proposed as a “meaningful response to Russian aggression” that the U.S. sell the nearly 700 million barrels in its Strategic Petroleum Reserve as a way to “drive oil prices down and impose significant harm on Russia,” since the SPR is “no longer needed for national security.” And an editorial in The Wall Street Journal recently proposed that the Department of Energy “approve immediately the 25 applications for liquefied natural gas…export terminals,” since “every dollar of U.S. gas is one less dollar flowing to Mr. Putin’s economy.”

Such proposals would have been unthinkable as recently as five years ago, when the old paradigm was still dominant and domestic supplies of oil and gas were a source of worry.

Over the next five years, the effects of the global oil-and-gas boom should prove a grim object lesson for the Russian economy on the downside of the “resource curse.” Russia’s economy “largely depends on energy exports,” according to a study from the U.S. Energy Information Administration. That works well when prices are high, but quite badly when prices fall.

Oil-and-gas revenues account for 70% of Russia’s total exports and more than half the income of its federal government. Russia exports more than seven million barrels of oil a day, second only to Saudi Arabia. One key difference between Russia and the No. 1 exporter is that more than 60% of Russian oil is produced in Siberia, where costs are much higher. A fall in the world price to $75 from $100 would therefore have a much greater impact on the net revenues that Russia earns from oil than is earned by the Saudis.

The downside of the resource curse could also be felt in Russia’s reliance on sales of natural gas. About 75% of Russia’s natural gas exports go to Western Europe, providing 30% of its requirements, at prices that are two and three times the price in the U.S. That enormous premium stems from the fact that there is no world market for natural gas, given the prohibitive cost of shipping it in its unaltered state. Hence, the argument for accelerated approval of liquefied-natural-gas export terminals. With abundant natural gas now available in so much of the world — including Australia, South Africa, Brazil, and Argentina — within the next five years, something resembling a global market in liquefied natural gas will likely develop. That would break the local monopoly of the Russians in their market, enabling Europeans to buy from other sources, and weighing on the premium Russian gas now commands.

AMY JAFFE, EXECUTIVE DIRECTOR for energy and sustainability at the University of California, Davis, co-authored a recent study with Rice University economics professor Mahmoud El-Gamal predicting that barring a “war that destroys physical installations for the production and/or transport of oil,” the oil price will “fall precipitously over the medium term of three to five years.”

Jaffe believes the average price could fall below $75, based in part on her view that oil-production costs are not fixed. “Research shows that costs track oil prices and not the other way around,” she observes. As oil prices move lower, demand for drilling rigs and related equipment falls, lowering the cost of drilling. And that’s bad news for Putin.

“The Russian government’s budget is expected to need an oil price of over $100 to stay balanced between now and 2020,” Jaffe says. “A $75 average could make the ruble’s recent tailspin look trivial by comparison.”

Steve Briese, publisher and writer of the Bullish Review of Commodity Insiders newsletter, is currently projecting an imminent plunge in the oil price to the $70 region. His bearish outlook is based on the recent peak in the net short position of businesses involved with oil. These businesses, also called “commercials,” use futures and options on West Texas Intermediate crude traded on the New York Mercantile Exchange as part of their business strategy.

The futures and options market in WTI crude is actively used by refiners that would naturally take long positions in these derivative contracts to hedge against a price rise, and producers who would naturally take short positions in order to hedge against a price decline. The fact that the net short position of these commercials recently set a record indicates that refineries are lightening up on their long positions. While this leaves them exposed to a price rise, it also means they will benefit if the price declines.

Briese uses published data from the Commodity Futures Trading Commission to track the bets of these bona fide hedgers with an eye to betting accordingly. In his view, since they are in the oil business and therefore close to the scene, they are the true insiders, whose consensus outlook is better than anyone else’s. Perhaps these insiders recognize that the new paradigm is here to stay.

THE GAME CHANGERS on the supply side are the three new types of oil production that have not been counted as part of the oil supply until recently: deepwater oil, shale oil, and oil sands. Each of these sources of oil has been estimated at more than 300 billion barrels, totaling more than one trillion barrels in all. That’s a huge addition to previously estimated reserves of some 1.5 trillion barrels. According to Citigroup energy analyst Eric Lee, a good proportion of the extra trillion barrels could be recoverable at $75 a barrel or less. In fact, he notes that a $75 cost estimate could even be on the high side, as production costs for shale and even deepwater can continue to fall over time.

Deepwater oil has been tallied at 317 billion barrels by the Norway-based oil-and-gas source Rystad Energy. Of that total, Rystad estimates that 53 billion barrels are recoverable off the shores of North America.

What slowed development of deepwater drilling was the 2010 disaster in the Gulf of Mexico involving BP (ticker: BP), which killed 11 people and spilled millions of barrels of oil. But two weeks ago, the Environmental Protection Agency lifted the ban on BP’s right to bid on oil leases in the Gulf of Mexico. A few days later, BP bid successfully on 24 leases in the Gulf in an auction held in New Orleans. Elsewhere, activity had already picked up in regions that include East Africa (63 billion barrels) and the Asia-Pacific region (32 billion barrels).

Shale oil, recoverable mainly through hydraulic fracturing, or fracking, has been estimated by the U.S. Energy Information Administration at 345 billion barrels, of which 58 billion barrels are recoverable in the U.S. The EIA report of June 2013 estimates that the 310-million-barrel increase in U.S. oil production in 2012 over 2011 was “largely attributable to increased production from shales and other tight sources.”

Oil sands, according to the BP Statistical Review, are found in just two countries: Canada, at 167.8 billion barrels, and Venezuela, at 220 billion. In the oil-sands case, it is not clear whether production would continue with $75 oil. But as Citigroup’s Morse points out, “While current investors might be discouraged by $75, other companies would be open to investing, including state-owned companies in the Far East, since the cash flow would be robust for 40 years or so.” Investors with a 40-year outlook might not be deterred by a $75 average price if they are bullish on a long-term basis.

Meanwhile, at current prices, the BP Statistical Review reveals 25.9 billion barrels of Canadian oil sands as “under active development.”

On the demand side, petroleum’s monopoly of the transportation market is being challenged by abundant natural gas recoverable from shale. According to estimates by Advanced Resources International, an energy consulting firm that compiles data in conjunction with the EIA, shale-gas resources in the U.S. amount to a staggering 1,161 trillion cubic feet, compared with 285 trillion cubic feet in Russia, and a world total of 7,795 trillion cubic feet. On a British-thermal-units basis, 7,795 trillion cubic feet of natural gas is the equivalent of 1.4 trillion barrels of crude oil.

AS THE NEARBY CHART SHOWS, domestic oil and natural-gas prices used to track each other fairly closely. The reason for the correlation: Oil drilling invariably produces natural gas as a byproduct. By 2009, however, the correlation began to break down, with natural-gas prices moving to a steep discount to oil prices, as gas production soared. A barrel of oil contains the energy-equivalent of some 5.55 million BTUs. At the current natural-gas spot price of $4.30 per million BTUs, a barrel at $75 buys nearly 17.5 million BTUs-worth of natural gas — more than three times as much.

This multiple is already being exploited. In a major study, Citigroup’s Morse, together with a team of other analysts, has calculated that there is huge potential for savings if trucks, buses, ships, and ultimately passenger vehicles are run with natural gas rather than petroleum fuels. The study also notes that the conversion is well under way. Waste Management (WM) has made it known that 80% of the trucks it buys are fueled by cheaper natural gas. Cummins (CMI) and joint-venture partner Westport Innovations (WPRT) sell an engine that runs on both liquid natural gas and compressed natural gas. Westport Innovations specializes in retrofitting engines with natural-gas components.

According to the Citigroup study, the low-hanging fruit lies in commercial fleets setting up refueling stations along routes of 400 miles or less. In the U.S., that includes heavily trafficked routes in the Northeast and in Southern California. Intracity traffic that includes passenger buses and other short-haul vehicles can also shift to natural gas.

Transportation accounts for nearly half of the oil the world consumes each year, and trucks alone use nearly one of every nine barrels consumed. Also ripe for natural-gas substitution is the consumption of oil for industrial uses — accounting for more than one in five barrels consumed — and for electricity generation, which still accounts for one in 18 barrels consumed worldwide. Moreover, when mixed with petroleum, fuels that can be made from natural gas, like ethanol and methanol, can help meet ever-more-stringent Corporate Average Fuel Economy, or CAFE standards, being mandated over the next several years.

Taken together, these trends should be more than enough to cause global consumption of oil to slow its growth over the next several years and then flatten out. There is even the potential for global oil demand to begin declining. Yossie Hollander, co-founder of the Fuel Freedom Foundation, a nonprofit dedicated to breaking the world’s oil addiction, argues that passenger vehicles can run economically on methanol and ethanol made from various sources, including natural gas.

“Methanol can be made today competitively with existing technology, from energy resources with which the United States is well endowed — natural gas, coal, biomass, garbage, or any other organic material,” Gal Luft, an advisor to the Fuel Freedom Foundation, argues in Petropoly, co-authored by Anne Korin. “In the future, perhaps even recycled carbon dioxide could be commercially converted into methanol, providing an elegant solution to the otherwise seemingly economically irresolvable issue of fossil-fuels-derived greenhouse-gas emissions.”

THE OIL AND GAS BOOM is not welcome to environmentalists, although it should be. The replacement of coal with natural gas for electricity generation has reduced carbon-dioxide emissions, and emissions of sulfur dioxide and nitrogen oxides fall as natural gas replaces petroleum. Also, lower energy prices confer disproportionate benefits on people of modest means, who spend a larger share of their income on energy than do richer folk.

But the dangers of deepwater drilling and of fracking, and the use of fossil fuels for decades to come, are already provoking pushback from the greens. In the end, however, as Trevor Houser of the Peterson Institute remarks, “Provided that industry accepts reasonable levels of regulatory oversight, the oil-and-gas boom is unlikely to be stopped by environmentalists.”

“The history of mankind,” observes Morse, “at least since the invention of the wheel, is a history of cheaper and cheaper energy. Modern civilization would be impossible without cheap energy. I believe we are entering another period of cheaper energy that should last 50 years or more.”

Barrons



32 Comments on "Here Comes $75 Oil"

  1. westexas on Sat, 29th Mar 2014 3:22 pm 

    From 2004:

    Digital Rules
    Capitalism’s Amazing Resilience
    Rich Karlgaard, 11.01.04, 12:00 AM ET
    http://www.forbes.com/forbes/2004/1101/041.html

    Excerpt:

    . . . where will oil prices be a year from now–$75 a barrel? $100?

    Wrong numbers, says Daniel Yergin. Wrong direction, too. Try $38. Yergin knows oil. He is a founder and the chairman of Cambridge Energy Research Associates, a consultancy that has 230 employees, with offices worldwide. He is also a recipient of the United States Energy Award and a member of the Secretary of Energy’s Advisory Board. A former Harvard professor, Yergin is best known for his Pulitzer Prize-winning book on oil, The Prize: The Epic Quest for Oil, Money and Power.

  2. Nony on Sat, 29th Mar 2014 3:33 pm 

    I think there is some cartel dynamics in the current high pricing. If we really got all the suppliers fighting it out for market share (OPEC lost discipline), we could have a price crash. Like what happened in the early 80s. The history of petroleum production is replete with cartels and efforts by suppliers to collude and raise price. Our energy policy should not be “independence” but low prices. Whatever promotes that, better.

  3. Davy, Hermann, MO on Sat, 29th Mar 2014 3:34 pm 

    I agree West. In a collapsed economy with little money, bankruptcies, and economic depression oil will probably around $38

  4. GregT on Sat, 29th Mar 2014 3:42 pm 

    And then the US will become energy independent, and a net exporter of oil. The global 1% will still need jet fuel for their private jets and gasoline for their yachts.

  5. Plantagenet on Sat, 29th Mar 2014 3:57 pm 

    Fantasizing about an oil price collapse must be very pleasant. Its as though everyone is now on medical marijuana, wishing away peak oil and high energy prices on a cloud of THC bliss.

  6. Davy, Hermann, MO on Sat, 29th Mar 2014 4:03 pm 

    Basically this is just an offshoot of the Ponzi scheme debt thinking that is present in our debt bubble economy being kept alive by financial repression by global central Banks. Their policies of Zirp, QE and other globally related efforts are nothing more than the cannibalization of the lower classes by wealth transfer and corporate welfare. These policies are trickledown theory in action but backfired with the unintended consequences of enriching the rich and sucking the poor dry. No value judgment here just reality. In any case probably the last best effort to keep BAU going. The alternative is stimulate the bottom up by taxing the rich and enriching the poor. We all know that will never fly. In the end we are broke anyhow. Money is funny today. Debt is in the stratosphere value on the ground. Barron is a sounding board for these wishful thinking of politics, energy, and markets. There is the ever-present effort to act like you have answers and solutions to move the markets in your desired direction. These people are paid to make markets. They are not paid to guide society to what is good for society. These people are pathological in their pursuit of returns through greed. It has been bred into the current economic system. Those that get returns are promoted. Those with ethics and social justice are passed over. No money in it. This is a financial house of cards that is being driven by a historically high bull investor sentiment. This herd is assured of return by the collusion of the central banks and political establishment. It will end nasty and ugly but hey it will end nasty and ugly anyway. Overshoot is what it is and it can’t be sugar coated. Reality is not nice except when it wants to be and unfortunately

  7. Nony on Sat, 29th Mar 2014 4:07 pm 

    I wants the low oil prices. I wants it.

    https://www.youtube.com/watch?v=Gk4Ntcq5uNg

    😉

  8. rockman on Sat, 29th Mar 2014 4:08 pm 

    Nony – “Like what happened in the early 80s”. You might want to check your calendar…it isn’t 1986 today. And OPEC doesn’t have the excess production capability it had 28 YEARS AGO. I would hope by now folks understood that demand has much more impact the supply on prices. The world is currently supplying more oil then ever before and we have very high prices. We can surely see $75 oil…even less. All we need is a nice recession to knock down demand. Let’s keep our collective fingers crossed. LOL.

  9. Nony on Sat, 29th Mar 2014 4:23 pm 

    Rock,

    1. You could be right. History rhymes rather than repeating. And water does run downhill. But I sure remember the 70s and early 80s. If you said we would have 20 years of $20 oil people would have laughed at you and said “what are you going to predict next? Berlin Wall falling?” 😉

    Those 20 years of cheap oil (1985-2005) didn’t happen because we were in a global recession and volume dropped. Volume expanded throughout that period.

    It really might be different now, I concede that. Still, the value is so high here that I really want it checked rather than assumed. The industry has a history of attempted and sometimes successful cartels. The 2008-9 OPEC action clearly was cartel price control (when they cut 6 million bpd on a dime and raised price from 47…that was not running out…that was price control).

    2. Oil futures market is backwarded. Not what Hotelling’s rule would predict in a simple scenario of Hubbard resource-eating depletion.

    http://www-personal.umich.edu/~kelloggr/HotellingPressure_140103.pdf

    Depletion is one aspect of the price setting. But there’s more going on…

  10. Jerry McManus on Sat, 29th Mar 2014 4:29 pm 

    “Modern civilization would be impossible without cheap energy.”

    Well, at least they got one thing right.

  11. Stilgar Wilcox on Sat, 29th Mar 2014 5:25 pm 

    75 a barrel is the nightmare scenario we don’t want, because if at 100 WTI & 110 Brent is not high enough to maintain Capex by the majors, then anything less will reduce it even more, reducing future supply of conventional, and shelving many non-conventional sources. The overall effect would be a decline from peak oil supply. Anything that reduces supply also reduces economic activity. Substitution and efficiency will only go so far.

    The OECD’s have already pushed desperate, radical fiscal policies as far as they will go before interest rates begin rising again. Yellen stated recently interest rates will begin rising approx. 6 months after tapering QE to zero.

    Couple reduced oil supply and rising interest rates and that’s a recipe for layoffs, defaults and a deep recession from which we may not be able to pull out.

    Now you might respond by saying 75 a barrel will increase economic activity but the hole from which we must rise gets higher all the time when considering 100-110 oil price is not high enough to warrant sufficient capex to increase supply. So even if price rose back up to current prices it’s still not high enough, which means we will then be permanently at a sub-peak oil level of production, most likely moving in the direction of descent.

    Our only hope is once price rises due to constrained supply (from reduced capex), the world economy can respond by further adjusting to higher oil prices to substantiate sufficient capex to maintain or increase oil supply, to generate growth.

    Just pick a direction:

    Lower price, descend from peak.

    Higher price, maintain plateau or possibly increase peak.

  12. Dave Thompson on Sat, 29th Mar 2014 5:36 pm 

    $75 a barrel means good by tar sands and fracking. The $75 level will last for a week but I doubt even that long.

  13. J-Gav on Sat, 29th Mar 2014 5:40 pm 

    Let’s remember that “cheap oil” is a relative term. If oil hits $75/bbl but, in the meantime, an economic crash has intervened, fewer people may be able to afford that than the $100 today.

    It’s a pretty safe bet that there will be price fluctuations. Their impact, however, will depend entirely on the economic context they occur in.

  14. nemteck on Sat, 29th Mar 2014 5:45 pm 

    One of the best entertaining article I have read in a long time. I read it already twice. For those readers who can not stomach the article, here are some beautiful highlights:

    “…… unconventional sources of crude oil totalling more than a trillion barrels [where] the majority is recoverable at $75 or less.

    “ U.S. production of oil should make this country a net exporter. While …. still be importing plenty of medium and heavy crude.

    “A fall in the world price to $75 from $100 would therefore have a much greater impact on the net revenues that Russia earns from oil than is earned by the Saudis.” How about Bakken, et all?

  15. bobinget on Sat, 29th Mar 2014 6:04 pm 

    “The oil price at which shale producers break even ranges from $60 in the Bakken to $80 in Eagle Ford, reckons Michael Cohen of Barclays.”

    “Maintaining a field’s production levels means constant drilling. The International Energy Agency reckons maintaining production at 1m barrels per day in the Bakken requires 2,500 new wells a year; a large conventional field in southern Iraq needs just 60.”

    Any thoughts as to what $75. oil will do for North American consumption? Should we forget about baked Alaska?

    It’s being said time and time again, so it must be true cause we read it on the internet, ‘all easy to get oil
    is gone, low hanging fruit etc’.
    Seventy-five dollar oil cannot support ultra deep exploration and drilling… that’s a fact.

    Wikipedia

    “Transocean Ltd. is one of the world’s largest offshore drilling contractors. The Swiss-based company rents floating mobile drill rigs, along with the equipment and personnel for operations, to oil and gas companies at an average daily rate of US$282,700 (2010).[1] Transocean’s day rates extend as high as US$650,000 for its deep-water drillships, which house dual activity derricks and can drill in ultra-deep ocean depths of 10,000 ft (3,000 m).[2] Recently, Transocean has been implicated in the Deepwater Horizon oil spill resulting from the explosion of one of its oil rigs in the Gulf of Mexico.”
    Spills are to Big Oil a business expense. An expense hardly covered in current E&P costs.

  16. paulo1 on Sat, 29th Mar 2014 6:11 pm 

    Tar Sands production returns vary as to company and site. Established companies and operations such as syncrude are said to make money below $50.00. Newer operations who have financing to cover obscene costruction costs need $75.00.

    No, Oil Sands will be here to stay provided there is no worldwide price collapse. New projects might be put on hold but established producers will maintain cash flow.

    Paulo

  17. Bob Owens on Sat, 29th Mar 2014 7:33 pm 

    I love articles like this! They are so bloody delusional that I get to stop reading them real quick! Comedy Central would have fun with this! How do they dream this stuff up? Whatever they are smoking I want some.

  18. kervennic on Sat, 29th Mar 2014 7:43 pm 

    What is this crap ?

  19. Kenz300 on Sat, 29th Mar 2014 7:47 pm 

    Deep water drilling, tar sands and shale oil can not be profitable or produced at prices that low………

    If the price of oil dropped so would the supply.

  20. rj on Sat, 29th Mar 2014 8:50 pm 

    Yeah, maybe he can research a Citigroup stock chart while he’s at it. Bwahahaha

  21. clif14 on Sat, 29th Mar 2014 9:03 pm 

    During the oil crunch 70s traffic dropped to a trickle here in AR. In the past year I have noticed a significant decrease in cars on the road. Suspect traffic will be on a must travel basis as the cost of gas keeps going up…and it will because of the demand from China alone. Oil majors have recently decreased cap. expenditures and many producers are selling “non strathegic” operations. Does not sound like there is an excess of oil. The rest of the world will buy the “excess” provided by the continued decrease in consumption by US citizens. BAU will mean continuing to tighten the belt for the 99%!:)

  22. Meld on Sat, 29th Mar 2014 10:46 pm 

    “The history of mankind,” observes Morse, “at least since the invention of the wheel, is a history of cheaper and cheaper energy. Modern civilization would be impossible without cheap energy. I believe we are entering another period of cheaper energy that should last 50 years or more.”

    That is a pretty scary statement from someone who gets listened to. That argument basically boils sown to, “Energy must get cheaper because otherwise civilization will collapse, and civilization can’t collapse because energy is going to get cheaper” If I met this person in a back alley I’d run for my life.

  23. sandu on Sun, 30th Mar 2014 12:34 am 

    no mention of the LNG price in Asia, over 18$ (20$ this winter) on spot that is at oil parity.
    If Brent goes under 90$ every body will drop LNG and burn cheaper oil.
    Some people talked about 75$ and reduction of supply but i think that would happen in 2-3 years for big projects like tar sands but very fast for shale oil. relapsing LNG with oil will happen over night at 75$ a barrel

    of course this will bankrupt US LNG exports 🙂 (btw: i see natural gas in US at 9-10$ after 2016 winter so no US LNG export even on normal scenario in my opinion)

    there is only one case in my opinion that will get 75$ and that is of course another economic crash like 2008.

  24. Makati1 on Sun, 30th Mar 2014 1:39 am 

    I don’t think we want to see a world of $75 or less oil, but I do think there is a good chance of it’s happening.

  25. rollin on Sun, 30th Mar 2014 1:52 am 

    This article is not nearly as entertaining as the conservative radio station I tune into once in a while. It’s great to hear the conservative BAU side of the story. Whenever they start talking in specifics the amount of erroneous “facts” that are spewed onto the airwaves is amazing.
    Today I heard one commentator talking about energy. A pure case of fiction touted as reality. Would have me ROFL if it wasn’t part of a movement to politically control the government and country.

  26. Kenz300 on Sun, 30th Mar 2014 2:29 am 

    Sounds like an article written by the fossil fuel industry to scare away investments in alternatives to them.

  27. GregT on Sun, 30th Mar 2014 7:49 am 

    Kenz,

    There are no alternatives to fossil fuels, your thought process is flawed. Also, what exactly do you think that investments are? And where does that investment capital come from?

    You are putting the cart before the horse Kenz. Energy does not come from investment capital. Investment capital comes from excess energy. As energy density declines, so does capital, so does economic output, and so does societal complexity.

  28. Beery on Sun, 30th Mar 2014 11:09 am 

    LOL! When I read the headline, I thought it meant $75 per GALLON.

    I love these articles – they always bring out the loony fringe of folks saying that $30 oil and technology-based utopia is just around the corner.

  29. Davy, Hermann, MO on Sun, 30th Mar 2014 12:13 pm 

    Greg, Kenz is a believer in the shining AltE cities of the future. He reminds me of post moon landings times of my youth how we were enamored by those who claimed space travel and outposts on mars. I even herd recently goof ball billionaires claiming asteroid mining. He is a believer in lobby of plenty and technological exuberism but with a green tint. He fails to see the systematic ramifications of a global system ready to contract and break to a lower level of economic activity. He may admit to a population in overshoot and limits of growth but believes ALtE is the answer. I can’t quite understand how he thinks AGW can be managed and mitigated with all the mentioned predicaments. AGW is much more than technological it is also ecological. Habitat destruction and agricultural development are also major contributors. I am all for the proper AltE development to help us in the decent to a postindustrial man and post globalism economic society. Yet, don’t be misled or mislead people that AltE will save us from ourselves.

  30. Kenz300 on Sun, 30th Mar 2014 1:02 pm 

    The energy transition tipping point is here – SmartPlanet

    http://www.smartplanet.com/blog/the-take/the-energy-transition-tipping-point-is-here/?tag=nl.e660&s_cid=e660&ttag=e660&ftag=TRE4eb29b5

    NRDC: The Cost of Climate Change

    http://www.nrdc.org/globalWarming/cost/contents.asp

  31. meld on Sun, 30th Mar 2014 1:49 pm 

    @Kenz – the majority of energy sources are solar (except geothermal) Fossil fuels are actually solar energy. So think of it this way, by taking away fossil fuels we are in a way actually destroying billions of “solar panels”, all of which have to be replaced by solar panels using energy from fossil fuel “solar panels” that we are busy destroying. meditate on the sentence and get back to me 🙂

  32. shortonoil on Sun, 30th Mar 2014 2:03 pm 

    1960 crude was selling for $2.88/barrel, now its $100/barrel. Does anyone one else notice a pattern here? The non conventionals that geologists, and the industry have known about for the last 75 years, and previously not believed to be worth pursuing are now going to save the world, and depress prices back to affordable oil! Russia now needs $100 oil to stay afloat, and the Saudi’s are horizontal drilling their fields to get the last few feet of oil left in their once 350 foot seam. Majors are selling assets just to pay stock dividends?

    Sure sounds like the world is going to be awash in low priced, high quality petroleum any day now! By our calculations the cost of producing the world’s 72 mb/d (if you believe that number) will increase by $260 billion in 2014. Hardly a recipe for declining petroleum prices. But, maybe Barron’s is right and oil will fall to $75/b. What they didn’t say is that if it that does happen is that there are going to be signs on pumps all around the world saying “OUT OF GAS”!

    http://www.thehillsgroup.org

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