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The Peak Oil Crisis: The Mother of All Bubbles

Consumption

We can thank Saddam Hussein for contributing the saying “mother of” to the English language when he declared that any attack on Iraq would result in the “mother of all battles.” When applied to the peak oil story, “mother of all bubbles” fits nicely into the times in which we are living. Students of history know that the world has been through many economic bubbles when economic optimism drowned out objectivity. Most of us remember the dot.com and housing bubbles of recent vintage.

Our current bubble is shale oil, which if the media, pundits, and even the government are to be believed, will soon bring us 30 years of prosperity. America will be energy independent; we will become the world’s biggest oil producer; a major oil exporter; prices will fall; and jobs will be created due to all the oil and natural gas that is flooding the country. Mexico, Brazil, deepwater Gulf, Canada tar sands – oil will be coming from everywhere. They might even have to give the stuff away as they do in Venezuela.

There are, of course reasons to doubt that all of these potential sources of oil will be supplying us as much oil and gas as some believe – at least not at affordable prices – in the near future. For the present, however, it is clear U.S. shale oil production has reached bubble status. Hardly a week goes by without a story on how, thanks to horizontal drilling and “fracking” of impervious rock, American is on its way to energy independence and a bright new future as the world’s biggest energy producer.

Never mentioned in these stories is the cost involved in drilling and fracking the new horizontal oil wells; the fact that these new wells are nearly dry in two-three years; that the natural gas producers are going broke; or that the future of deep water oil production is not looking so good due to high and rapidly rising costs of production. Also lost in the euphoria is the undeniable fact that the world’s existing oil wells are drying up at the rate of 3-4 million b/d each year so that it is taking all the efforts of the oil industry just to keep conventional oil production flat. The growth in what is loosely deemed “oil” these days is now coming from fracked wells, biofuels, natural gas liquids, and mythical “refinery gains” in which the products of refining take up more volume than the original crude did. No real energy comes from these refinery gains, just more full barrels.

Last week the Department of Energy added its weight to the euphoria by announcing that the US shale oil boom is going to be bigger and last longer than anyone thought. Instead of contributing only 2 million barrels a day (b/d) to U.S. crude production, shale oil output will climb by another 2 million b/d in the next three years so by the end of 2016 the US will be producing a grand total of 9.6 million barrels from all sources. To make matters even better, the government says this level of production will continue until 2021 after which it will decline so slowly that we will never notice. How’s that for a Christmas present?

The problem, of course, is that this optimistic scenario is highly unlikely to play out the way our government is telling us. The Department of Energy’s optimism probably is based on the spectacular increases in fracked oil production during the past two years – far exceeding what the government’s analysts had been expecting as recently as last year. This recent surge in production, however, came at a price. The most productive places in our shale oil fields are being drilled first and intensively. Why drill a well that will only produce 300 b/d day when for the same money you can drill one that will produce 1,500 b/d or more? In the U.S.’s two most productive shale oil deposits drillers have been directing their efforts to a very limited number of “sweet spots” where they get the most profitable results. When places to drill in these sweet spots are gone, growth will be over.

Rarely put into context is the rapid decline in production from fracked oil wells. According to the EIA, it is currently taking more than 7 out of every 10 barrels of oil produced from new fracked wells just to maintain production from existing wells. This number is climbing rapidly. When 10 out of 10 barrels of new oil production go to maintain production, it is game-over.

How soon 10 out of 10 will be reached is a matter of some debate. Some observers believe it can happen as soon as 2014 in which case the government’s 4.6 million b/d of US produced oil will never happen. Others see the shale oil continuing to grow into 2015, 2016, or even 2017 but not at the 600,000 b/d each year as the government says. Nearly all outside observers agree, however, that when places to drill productive new wells run out, shale oil production will decline at circa 45 percent a year and will not continue to provide large amounts of oil into the 2040s as we are being told.

All this says we are getting close to a turning point in the history of our oil production in the next year or so. Either U.S. shale oil production continues to climb at spectacular rates or the industry will be unable to increase production by enough to offset decline. By the end of 2014 we should have a better idea of whether recent trends will reverse or carry on for a while.

All economic bubbles eventually break causing varying amounts of economic damage. When the America’s shale oil bubble breaks it is likely to be serious for these sources of energy have been making major contributions to keeping our economy growing in recent years. When the shale oil is gone, economic conditions are likely to get much tougher as conventional sources of oil are drying up steadily and energy costs are likely to go much higher.

FCNP



27 Comments on "The Peak Oil Crisis: The Mother of All Bubbles"

  1. Dave Thompson on Tue, 24th Dec 2013 7:43 pm 

    Saying that it gets expensive is saying there is a cheaper way. We on this planet have to realize now; Energy inputs = economy, economy = energy inputs. The money and interest on debt and investment is all a smoke screen to the real life physics of our finite world.

  2. Northwest Resident on Tue, 24th Dec 2013 7:51 pm 

    In the unclassified version of the Joint Operating Environment of 2010, top military strategists named 2015 as the year when they anticipate a 10% (at least) “shortfall” in fossil fuel energy, with dire security implications. All of the government and oil industry hype and predictions of growing production are intended for the sole purpose of keeping the investment money coming, without which, the entire house of cards would collapse immediately. We can debate whether TPTB are lying to us simply because they are fully invested in the economic system that has put them on top of the world and are blinded to the coming shortfall, or because they are desparately trying to Buy Time to prepare for that coming shortfall. My own guess is that they are not stupid or blinded (not most, anyway), and they are keeping the system going in order to make their preparations — much the same way that the Nazi Party lied to its populace in order to provide cover for their individual escape plans. This is a time when every AWARE person should be preparing — mentally, physically and/or strategically. When the chain reaction starts, it will be too late to prepare. The catalyst that begins the chain reaction could be just around the corner, or a little ways over the hill, but it isn’t far away, that we can be sure of.

  3. GregT on Tue, 24th Dec 2013 8:00 pm 

    The above comments sum up the reality of our situation.

    The time to prepare is NOW.

  4. Bob Inget on Tue, 24th Dec 2013 9:06 pm 

    Could it be possible we as individuals are ‘preparing’ for uncertain events while ignoring far more evident eventualities? How long should we cling to old fears in the face of new realities?

    In most of our life experiences we witnessed more ‘change’ than any past generations. If you or I did not predict
    variations in recording devices since 1979 (Sony Walkman) to 2013’s Google Glass or i-Phone, the demise of network television and now cable, then the ‘record’ industry, automated surgery,
    self driving drone electric powered cars that can summoned from miles away where a previous user no longer needed it.
    In a world where drone ships,aircraft can deliver cargo or deal death to a single individual thousands of miles
    distant. Do you still believe aircraft carriers, nuclear weapons have MILITARY
    value in 2014? Will you resist GMO medicine delivered by tiny robots or a engineered virus to save the lives of YOUR loved ones because of a predisposed bias? None of the above developments are
    in the future any more than is fracking concrete to extract minerals.

    WE are as a species resistant to change.
    Some more adventurous types embrace transformation, others are fearful.

    If science gets in the way of deeply held beliefs, it might have been simpler to accept new ideas were it not for powerful forces determined to keep their
    industry, political force, religion dominant. Status quo vs change.

    Who here predicted sexual minorities
    would gain equal status with the majority in the Armed Forces and matrimony this early in the 21st century? I’ll bet some here are still
    reluctant to accept the legal, social reality.

    Americans elected a mixed race President and will elect a female.. one day.
    Who woulda thought?

    Of course we need to prepare!

    WE need to stop ignoring science if we disagree with its laws.

    We need to elect peoples representatives
    who embrace change, sustainability.

    That’s a genuine ‘prepper’.

  5. Stilgar on Tue, 24th Dec 2013 9:30 pm 

    Bob, so all we need to do is ignore the laws of thermodynamics, embrace change and presto magic, techno energy fix is on the way to save the economy, provide lots of growth and pay off debt?

    Reminds me of that song with the lyrics, I need a new drug, one that won’t, etc. I guess we could all sing that song about the need for a new energy source. I need a new liquid energy source, one that won’t cost too much. One that won’t pollute or cause global warming. One that will generate growth and not cause conflict.

    There’s still time but it’s going to have to be scaled up real quickly. What magic new liquid do you have in mind?

  6. mike on Tue, 24th Dec 2013 9:48 pm 

    We’ve had Golda Meir, Indira Gandhi, Margaret Thatcher, Angela Merkel, Christina Kirchner in Argentina, Helen Clark in NZ, Julia Gillard, Dilma Roussef, Sirimavo Bandaranaike in SrilLanka………Never a woman POTUS. When? God, when it happens, (if) the cacaphony of self congratulation and self admiration blasting out from the Great Democracy will be nauseating. As if they were the first to get a female leader and showing the rest of the world what should be done.

  7. Pacman on Tue, 24th Dec 2013 9:58 pm 

    So this is the optimistic angle and it predicts 30 years of prosperity. Err. 30 years? Is that all. It’ll take longer that 30 years to change the energy infrastructure. This just buys is time and a very unpredictable measure of time at that

  8. rollin on Tue, 24th Dec 2013 10:35 pm 

    The USA was known for it’s ideas and inventions, they were the primary driving force behind modern life. New and wondrous inventions were the lifeblood of the US.

    Now the US is just wanting to be the big fossil energy producer, the oil tycoon. Never will happen, just a spurt but is this what the US has become? Just another commodity pusher?

  9. Tom Mannis on Tue, 24th Dec 2013 11:16 pm 

    When the oil shale is gone? And when does your crystal ball say that will be? Oil – any kind of usable oil – is abundant. In all of human history, we’ve only begun to tap into the trillions of barrels in the earth. Politics and economics currently prevent us from tapping into much of the reserves already known. There are undoubtedly vast quantities yet to be discovered. Bubble? Meh.

  10. DC on Tue, 24th Dec 2013 11:49 pm 

    Bob, a lot of those ‘changes’ you mention were simply your corporations consolidating there monopoly-like control over there various markets. And I am even less clear on what you think a female puppet president of the US will accomplish.Hillary ROLF!? Would a woman president bring more hope and change than the Mr Black Hope and Change (didnt)?

    Face it Bob, the US is a regressive nation in every respect of the word. Who owns cable TV…women presidents, robo-surgery only a few % of the population can actually afford? The only ‘change’ that I have witnessed in the last few decades is that of corporations consolidating their control over the world. Useless gee-haws like I-craps are not ‘changing’ the world. But they are making people more anti-social,easy to track, dumb and poorer for buying a new one every 18months.

    Thats change I guess. Not useful in any way, but yea, lets call it change, for he worse.

  11. Bob Inget on Wed, 25th Dec 2013 12:09 am 

    Don’t harbor no illusions about magic fluids OR bullets.

    The thread, getting ‘prepared’.
    I’m taking
    what seems to be an unpopular position.
    “Get prepared for better times near term, not
    ‘end times’ or some such BS”.

    I live, in Nicaragua or Costa Rica in winter. THe contrast between these two
    peoples is palpable.
    If Venezuela changes its political policies, runs short of exportable oil,
    the people in Nicaragua will be able to handle matters with dignity and adapt
    to the situation. Ticos, so much more
    like folks in the US will collapse in utter shock and resentment.

    (Nicaragua being the poorest nation in Central America, Costa Rica one of the richest)

  12. Makati1 on Wed, 25th Dec 2013 12:52 am 

    While this article is about climate change denial, it applies to all of the topics we discuss here. Peak oil deniers have an even bigger fund behind them. Take a few minutes to read:

    http://www.commondreams.org/headline/2013/12/23-5

    “Millions in Dark Money Funding Climate Change Denial: Report”

  13. Dave Thompson on Wed, 25th Dec 2013 6:10 am 

    This man is very well informed and paints a dire picture of the planets future. When the subject of self reenforcing feed back loops comes up take note, it is truly frightening. http://www.youtube.com/watch?feature=player_detailpage&v=nEGlYXumguI

  14. Daniel Hood on Wed, 25th Dec 2013 2:42 pm 

    @ Dale Thompson…

    “The money and interest on debt and investment is all a smoke screen to the real life physics of our finite world.”

    That’s one of the smartest statements I’ve heard yet re this game we pretend to play.

    Our guys are concluding that global economic collapse brought about by energy extraction decline leading to rising energy prices will likely mitigate the threat of rising global temperatures and therefore climate change. I often sit in amazement at the Climate Change crowd as they project 100 years down the line ignoring the threat of the greatest power down in our species is likely to ever witness. The trend over the next 50 years will be declining economic activity in most industries(deleveraging)rising geopolitical instabilities and a forced increase in other critical activities such as local agriculture in desperate searc for food security. If food production is not increased in a sustained, intense, collaborative way then we believe there will be increased global disorder. Eventually global population levels will decline as energy in all forms we need to survive becomes that much scarcer.

    Beware the Spanish proverb:

    “Lo que la civilizacion de la anarquia son solo siete comidas”

    “Civilization and anarchy are only seven meals apart”

  15. Daniel Hood on Wed, 25th Dec 2013 2:45 pm 

    Sorry typo error meant Dave Thompson,

    Just slapped the ball n chain’s cat for walking across the keyboard distracting me. Nothing compared to our politicians though.

    2015 and beyond should start to get interesting.

    Merry Xmas

  16. Kenz300 on Wed, 25th Dec 2013 4:09 pm 

    Climate Change is happening … no matter what the Koch brothers, oil companies and coal companies say. They are spending millions to keep their fossil fuel profit machines running.

    The price of oil will continue to rise making any alternative more attractive. The billion plus populations of China and India are the driving force in rising world wide demand for oil.

    Electric, flex-fuel, hybrid, biofuel, CNG and LNG vehicles are all growing in popularity as the price of oil rises.

    Better yet, buy a bicycle or use mass transit for your daily commute. You will save energy and save money on your transportation costs. Cities ned to become more people centered and less auto centered.

    Like we have been told before it is dangerous to put all your eggs in one basket. It is good to have options.

  17. rollin on Wed, 25th Dec 2013 5:55 pm 

    Decades ago a sci-fi story warned of the upcoming takeover of the world by big insurance and big finance. Now we add fossil fuel corporations.

  18. J-Gav on Wed, 25th Dec 2013 11:44 pm 

    Dave – Re: your link. McPherson’s a known extinctionist (he says by 2040 we’re outta here) and is not alone. On the other side in the ‘declinist’ debate there’s John Michael Greer, for example, who says it’ll be a long drawn-out affair, as history would seem to teach us regarding empires.

    It’s not easy to describe any comfortable middle ground between such views. That’s nevertheless where I would place myself. Can’t entirely rule out the possibility of a brutal and rapid civilizational collapse (potentially leading to extinction), but tend to think it’ll be somewhat more stepwise, with some steps down bringing harder knocks than others.

  19. RICHARD RALPH ROEHL on Thu, 26th Dec 2013 1:28 am 

    Ass… usual, not a single word about the ‘rrraging’ EXPONENTIAL growth of the global human population scenario.

    I predict that the United States of Perpetual War Profiteering will not exist by 2050 or 2060. And the rest of humanity on Planet Over-birth Earth will suffer a massive EXTINCTION EVENT before the end of the 21st century. If GLOBAL CLIMATE OSCILLATION doesn’t do the deed, then several future Fukushima horrors will do it.

  20. James A. Hellams on Thu, 26th Dec 2013 1:31 am 

    In this article, the DOE states that the grand total of oil production from all sources will reach 9.6 million barrels of oil per day. They imply that this will help to make us energy independent. This is the worst case of self denial of the reality of peak oil that I have seen to date.

    How can 9.6 million barrels of oil production per day ever make us energy independent; when the average daily oil consumption of the US is 20 million barrels of oil per day?

  21. GregT on Thu, 26th Dec 2013 8:43 pm 

    McPherson is a leading world expert in Natural Resources and Ecology & Evolutionary Biology. His view is not one of ‘rapid civilizational collapse’, it is one of rapid biological collapse, caused by human ‘civilization’ that will lead to planetary extinction.. He has a tad more insight into the subject at hand, than the vast majority of people on this planet. His warnings should not be taken lightly, and YES, he is not at all alone in his views.

    If we choose not to listen to our scientists, and they are all wrong, everything will be just wonderful. If we choose not to listen to them, and they are correct, we are in for a very ugly future. I highly suspect the latter will be the case. We have not shown, and are still not showing, any signs of heeding the warnings from our scientific communities.

  22. action on Fri, 27th Dec 2013 1:22 am 

    You guys want to know The Secret? – Just let go. Let it all go. The time will come for the massive collapse, and the planning you’ll do in fear and anticapation won’t buy you half a decade. Go to a place where you csn live off the land and your life will still end in short order. Last I checked people living off the land without modern society are lucky to see forty. This unfortunately is as good as it gets. Party on. Life is short however you look at, you can’t live forever. I just want to be the one acting with composer and dignity when eveeryone else is eating each other. I want to have my eyes open, whatever the experience. So we’re destroying the planet and western civilation is in its death throws – party on. We live a short while then its over. Existence is struggle, and life all in all is nothing nice, why run away from the end, you won’t escape it.

  23. Makati1 on Fri, 27th Dec 2013 10:33 am 

    Really? I don’t plan to escape it, just make it a bit easier for me and mine. If you have kids, do you tell them what you know and think is going to happen?

    Do you still ask them what they want to do when they grow up? Do you buy them I-toys knowing that they will waste valuable hours/days/years playing mindless games when they could be outdoors enjoying what is left of nature? Do you take them to the zoo? Museums? Do they know where the local library is and how to use it? Do they know how to think? Comprehend what they read? Understand money? Etc …

    Just askin’.

  24. action on Fri, 27th Dec 2013 1:18 pm 

    Not my fault you made the mistake of having kids, good luck with that.

  25. edboyle on Fri, 27th Dec 2013 4:50 pm 

    so current recovery in economy globally duue to relaxatioon in oil markets due to shale oil a bit of Russian oil. Whan the deccline comes of several million barrels per day then mabe the money pumps won’t help the economies keep on track. Growth in China is from Coal and in USA through cheap fracking oil, releasing other energy sources for Europe and others. Give it two to three years to renew recessionary tendencies which in some high unemployment areas won’t be ending by then. And with bad climatte problems revolutions could get going again due to food shortages, drought. See India food subsidies approved in WTO agreement recently as exception. What if India gets to be like East Africa in terms of need for food aid? Or eventually China? Millions have died there before but now they have bigger armies and weapons they could spread their displeasure against foreign countries in war or terror or into revolutions. Revolutionary governemtns are unstable and expansionary in gerneral. I am starting to sound like aCIA/DOD analyst I suppose.

  26. Northwest Resident on Fri, 27th Dec 2013 8:45 pm 

    action, you’re missing the whole point of being alive. The goal is to “win” by surviving and procreating. If you don’t enjoy the competition, then by all means, bow out with a tip of your hat and be forgotten. Don’t blame some of us for wanting to kick up a little dust and make an all-out effort to beat the odds — some of us get satisfaction and enjoyment out of playing the game, to win.

  27. action on Fri, 27th Dec 2013 9:17 pm 

    To win by surviving and procreating – thanks I needed the laugh. By that logic you’re no more intelligent than an insect. Please stop procreating, we have enough idiots as it is, no need to add your retarded genes into the mix. You sound rediculous. Life isn’t a game, and you can’t win, you can only experience. Now go back to doing whatever stupid thing it is that you do and leave the conversation to intelligent humanbeings. Go sniff someone’s ass or something.

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