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Why oil prices will bounce back … eventually

Consumption

When an asset class takes a swan dive off the cliff, fortunes can be lost trying to call the bottom. It’s often impossible to tell whether the asset in question is on a suicide run or undergoing a short-term correction. And so it is with oil.

Oil prices are down by a third since June and are less than half of their 2008 high of $147 (U.S.) a barrel. So time to buy? If I knew how to call bottoms, I would not be a miserable, ink-stained wretch; I would be filthy rich and living in a villa on the Amalfi Coast or Côte d’Azur, martini in each hand. But allow me to present four ideas of why the foundation for a compelling oil price bounce-back is being set even as prices tumble. I’m just not going to tell you when that might happen, because I have no clue.

The best cure for low prices is low prices.

In the late 1990s, oil, in nominal dollars, fell to $10 a barrel and the Economist famously predicted that $5 oil was coming, a call that, 25 years later, still haunts the magazine like an obsessed lover from your youth. Of course, the low price stimulated demand and drivers flooded into showrooms to buy rolling, gas-slurping pigs like Ford Explorers. At the same time, the low price choked off exploration and development, constraining supply.

By 2005, oil was at $60 and would more than double again before peaking out and crashing during the financial crisis – just as low prices cure themselves, so do high prices. We don’t know if the current price of $70 a barrel can be considered low, but we do know that prices in the $60-to-$70 range will hurt the high-cost producers, a group that would include the deep-well offshore operators, the oil sands and some of the short-life U.S. shale oil wells (Société Générale says the big American shale plays, such as the Bakken, need about $65 to keep pumping). As capital expenditure budgets get crunched – and they’re getting crunched now – supply will eventually fall. But that may not happen quickly because the big production projects that are already under construction can’t be cancelled or slimmed-down. But rest assured, it will happen.

Peak oil is real, depending on how you define oil.

Euan Mearns, an oil analyst I like a lot because he is independent and not really an analyst – he’s a geologist and good researcher who strays off the beaten path – produced a fascinating little chart recently on his Energy Matters site. The chart showed that conventional oil and condensate – the “black” oil that comes out of the ground easily and relatively cheaply and can be refined into gasoline – reached a production level of 73 million barrels a day in 2005. Guess what? Almost a decade later, conventional oil production has not climbed even though prices were high for most of that time.

What drove global production up to the current 92 million barrels a day or so was non-conventional production – the oil sands, U.S. shale oil, biofuels and natural gas liquids. The problem is that most of this production is highly expensive and a lot of it, like the gas liquids, is refined into heating fuels, such as butane, not transportation fuels, which are the biggest oil products market. Barring a technological breakthrough, the world has probably seen “peak” conventional oil production. That means any significant production gains will have to come from non-conventional oil. Continued low prices can only damage that production.

The e-car revolution isn’t.

To listen to Elon Musk, the Tesla e-car founder, and other locomotion-by-battery cheerleaders, e-cars are set to make huge market inroads after finding themselves parked on the sidelines for a century. If they are right, global oil demand will fall and the price will react accordingly, since cars are the biggest users of oil. And wouldn’t it be nice to see our streets plugged with quiet, clean electric machines instead of cars powered by C02-belching internal combustion engines? The flaw in the vision is that the e-car revolution is nowhere in sight. The U.S. market for e-cars and hybrids – the latter are cars powered by batteries and gasoline engines, like the Toyota Prius – is only about 4 per cent of auto sales. And the market for plug-in electric cars is actually declining. Low oil prices could well keep a tight lid on e-car and hybrid sales as the cost of a fill-up goes from extortionate to a price of a bad family meal.

Busting national budgets.

OPEC has 12 member states and most of them need prices far higher than $70 a barrel to clear their budgets. While some, such as Saudi Arabia, theoretically have the financial flexibility and health (such as low debt-to-GDP ratios and high foreign reserves) to withstand low prices for years, more than a few do not. If low prices persist, they will reach their pain thresholds and demand production cuts to prop up the price.

According to the International Monetary Fund, Deutsche Bank and other sources, At least nine OPEC members need prices north of $75 a barrel to balance their books. The ones that require the highest prices are Iran (about $140), Venezuela, Nigeria and Algeria (about $120 each) and Ecuador (about $117). Saudi Arabia requires $95 oil. Kuwait, United Arab Emirates and Qatar should feel no pain at the current price, which is not to say they like the current price.

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36 Comments on "Why oil prices will bounce back … eventually"

  1. Davy on Sat, 29th Nov 2014 8:21 am 

    This time may be different. There may only be a vicious spiral down of economic and energy related issues magnifying and reinforcing in an unstoppable gravity sucking force. This force is beyond corn porn econ 101. We are now in the territory of systematic forces and thermodynamics. Human’s econ 101 worked while a growth based economy was healthy and oil was not in depletion of quantity and economic value. We now have lower quality oil products at higher cost mixing with an economy drowning in debt. I would like to know how long that cocktail can be stirred before there is a perfect shit storm

  2. bobinget on Sat, 29th Nov 2014 8:43 am 

    Davy needn’t go further then his nearest Wal-Mart
    “Black Friday Sales” for answers.

  3. eugene on Sat, 29th Nov 2014 8:55 am 

    My read is it’s difficult to know what we’re even talking about. Some think we need $65 a barrel, some 80-90 and others think 120 or so. The definition of oil we had, we didn’t like, so we added in all kinds of others like “condensates” to get a number we liked better. Some use the price at the well head, others somewhere else. We can’t decide if the low prices are the US trying to destroy Russia, others Russia/Saudi Arabia trying to destroy the shales.

    It appears to me that, frequently, somebody must write an article for some reason so with very minimal knowledge and, certainly, no real research we get an article written from the particular bias of the author. Unlike Davy, I think we are in the land of BS, agendas and a total lack of knowing what is going on. Yrs ago, a friend and I (we know nothing) decided this would be an up/down thing with the long term of prices ever rising and the long term forecast of “not good”.

  4. ghung on Sat, 29th Nov 2014 9:00 am 

    “I would like to know how long that cocktail can be stirred before there is a perfect shit storm.”

    “Black Friday Sales” for answers?

    “Gun sales boom on Black Friday: Almost 3 background checks per second”

    http://www.cnn.com/2014/11/28/us/black-friday-gun-sales/index.html?hpt=hp_t2

  5. Davy on Sat, 29th Nov 2014 9:03 am 

    How about this G-man on background checks:

    http://www.zerohedge.com/news/2014-11-28/black-friday-and-ferguson-effect

  6. buddavis on Sat, 29th Nov 2014 9:04 am 

    There is alot of bullshit on this board. All the way around from the peakers to the cornucopias. Both in articles and posts. I do not pretend to know everything in the oil industry, but what little I know seems to be in conflict with what I read hear. I have seen some ridiculous posts from the optimists, but I have seen some absolutely batshit crazy posts from the peakers as well.

    Every new shale play article is Exhibit 1 that the era of plentiful gas and oil is here, while all the recent articles about the oil price crash is Exhibit 1 that the collapse is upon us and in 5 years oil will be trading at $10.

    We do not know what we do not know. I enjoy the technical information, but the predictions, I suspect, will be proven to be wildly false over the next 5 years. On both sides.

    Just my opinion.

  7. Plantagenet on Sat, 29th Nov 2014 9:19 am 

    We know that conventional oil has peaked. We know that after the peak oil production declines. We know that tight oil shale production has supplied ALL the new oil in the market since 2005

    This is KSAs last hurrah. They are stupid to sell their oil so cheap

  8. Aire on Sat, 29th Nov 2014 9:48 am 

    Buddavis – where exactly do you see the oil industry being in 5 years ? In the same situation ? That’s the only thing that seems unlikely..

  9. peakyeast on Sat, 29th Nov 2014 9:59 am 

    To me describing shale plays as a proof of plentiful gas and oil – is absolutely batsh!t crazy.

    To me its proof that we are at the last leg of our fossil-oil journey.

  10. Kenz300 on Sat, 29th Nov 2014 10:12 am 

    Will tar sands in Canada be developed or will it not be profitable?

    Is a pipeline from Canada to the US needed?

    The fossil fuel industry will do all they can to try to keep the world hooked on fossil fuels and that includes influencing politicians.

    $70 a barrel and dropping oil changes the economics of many oil development projects.

    Climate Change is real…… cheap oil prices will keep us hooked on fossil fuels a while longer and do more damage to the environment.

  11. rockman on Sat, 29th Nov 2014 10:20 am 

    Bud – I see it as you do. It would be very easy for me to predict the state of the oil patch in 1 year…3 years…6 years…10 years…etc. All someone needs to tell me is the condition of the global economy at those times. Granted as we approach global PO, if we aren’t there now, the dynamic might be a bit different. But from the first days of the petroleum age economic vitality has determined oil/NG prices in the long term and the general condition of the oil patch. I see no reason to expect that relationship to change.

  12. Northwest Resident on Sat, 29th Nov 2014 10:54 am 

    “But from the first days of the petroleum age economic vitality has determined oil/NG prices in the long term and the general condition of the oil patch.”

    But isn’t it conversely true that the price of oil has always been a major factor in economic vitality?

    How can we have economic vitality if the energy that is required to drive the economy is in rapid decline?

    The state of the oil patch at any time in the future is likely to be one of needing ever increasing amounts of debt/investment to extract ever more difficult and costly sources of oil. The same is true of all natural resources and commodities — ever more energy and debt needed to extract constantly decreasing amounts of remaining resources at ever higher costs.

    There IS a reason why the world economy is many trillion$ in debt and the price of oil along with the price of all commodities are falling. And there is a reason why the US, Japanese, Chinese and European countries must constantly inject massive stimulus into their economies to keep said economies from collapsing. Demand destruction, resource scarcity, decreasing returns and more are all here to stay, and not just to stay, but to rule the roost.

  13. SugarSeam on Sat, 29th Nov 2014 11:17 am 

    ^ exactly… just where would global oil price be right now without the $16 trillion in cash injections since 2008?

  14. buddavis on Sat, 29th Nov 2014 11:18 am 

    Aire

    I was raised in the oil patch and make my living in it. 4th generation. They have been saying we are running out of Oil since my Great grandfather was drilling wells. AND THEY WERE RIGHT!

    I remember the bust in 85 because it hurt really bad, even though I was in school. I remember producers getting $8/barrel 15 years ago because they were selling sour oil at a discount to WTI.

    There was no way in hell I would have predicted oil would be at $150 in 2005.

    The only thing I know is, I do not know what I do not know. I am an optimist but I also appreciate the peak theory. Numbers do not lie. But shortonoil has a link to a graph in his posts (I assume he is a peaker) that makes no sense. Stating Oil will be absolutely worthless in 6 years because nobody can afford it. How in the hell are we going to run the economy. Hell with that, how will civilization survive? That is the most preposterous thing I have ever seen posted. It is the different side of the same coin with the cornucopias.

    I am not going to tell you what the price will be in 5, 10 or 20 years. I have no clue. Been watching it for too long and know not to try and predict it. All I can tell you is it will go up and it will go down, and we will use fossil fuels til there is none left OR there is a better alternative (i.e.more efficient fuel). And I do not see a better alternative coming down the pike. And I mean something that is scalable and not just a supplement. We need alternatives to supplement but what is used now can never replace fossil fuels.

    All I can tell you is price will go up, price will go down, and as long as there is a demand, bankers will lend, drillers will drill and producers will produce.

    Hope everyone had a Happy Thanksgiving and cheer up. The world is not on the verge of Armageddon.

  15. buddavis on Sat, 29th Nov 2014 11:19 am 

    Meant I would not predict in 2005 oil would get to $150

  16. bobinget on Sat, 29th Nov 2014 11:21 am 

    All readers here should know by now.
    This so called oil ‘glut’ consists of about 700,000
    ‘extra’ barrels a day. Out of 92 million barrels consumed daily… WW.

    Seven hundred thousand barrels gets burned every 50 minutes, under an hour, 24/7 in the US.
    Last week US consumed 19.9 M B p/d .
    This coming week I’m betting Thursday’s EIA report
    will show 20 million barrels burned up daily in US.

    IOWs for perfection we need only consume 100,000
    extra barrels daily in the US. If consumption comes in at around 20 M B p/d Saudi press hacks will simply come up with a different whine.

  17. shortonoil on Sat, 29th Nov 2014 12:20 pm 

    But shortonoil has a link to a graph in his posts (I assume he is a peaker) that makes no sense.

    The day before Alaric marched into to Rome, and destroyed the Empire forever, heiresses where still to be seen riding to the baths in their gold gilded chariots, in flowing silk robes, followed by 50 retainers. Rome had ruled the world for almost a 1000 years, and it was beyond anyone to believe that it could fall; much less in a day.

    The next greatest empire was built on oil, and like the listeners to sounds of armies outside the gates of Rome, their senses can not detect an ominous presences. The world is burning 76 mb/d, and the price has fallen to the point that no new oil can be found. How long would you think that can continue?

  18. rockman on Sat, 29th Nov 2014 12:41 pm 

    NR – Exactly. That’s why I keep tossing out the POD. None of these factors exist in a vacuum. But while there have been times when economies maintained some stability during periods of increasing oil prices you’ll never find a time when economic recessions didn’t lead to an oil price collapse. Economies have some coping methods to deal with rising prices. OTOH the oil patch, including OPEC, has never been able to sustain itself during periods of demand destruction.

  19. dave thompson on Sat, 29th Nov 2014 12:56 pm 

    The multinational corporations along with transnational bankers, know what they are doing, all owned and operated by the .01%. We the people meanwhile are led on a corporate run media blitz of confusion and obfuscation. The interconnected economy of the planet is a put on by the people who own it all, will own it all and are making all the money in the process. Drive on America go spend yourself into a tizzy, tis the season. Low crude oil prices will push up the 4th quarter numbers giving the elite overlords the profit of more, that is desired.

  20. buddavis on Sat, 29th Nov 2014 1:32 pm 

    Short

    Price is down because there is more supply than demand. Regardless of why.

    My question is, canyou tell me what is going to replace that energy that oil provides? The idea that oil has begun it’s short. Decline to zero value has no evidence. It is as irrational as those production curves for the various shale plays increasing along a straight line decades out from now.

  21. Northwest Resident on Sat, 29th Nov 2014 1:55 pm 

    buddavis — I’ll let shortonoil answer your post if he so chooses. But from my perspective, decline to zero value is a logical and irrefutable fact over time.

    Ask yourself this, buddavis. How much energy does it take to extract a barrel of shale oil?

    Another question. How much energy does it take today to extract the average barrel of globally produced oil, compared to how much energy it took to extract the average barrel of globally produced oil ten or twenty years ago?

    The honest answer is that it takes significantly more energy (and expense) today to extract the average barrel of oil than it did ten or twenty years ago.

    And that fact — that phenomenon — is on a direct path to the day when the energy provided by the average barrel of oil will be equal to or less than the amount of energy required to extract said barrel of oil. At that point, we reach ZERO value for the average barrel of oil.

    Of course, long before that day arrives, the more expensive sources will be shut down. Still, if you keep up with the information related to the major conventional oil fields (and I assume you do), you know that nearly ALL of those major fields are in decline and being pumped out fast. Even the so-called “cheap” oil is running out fast.

    Where does that leave us at some point in the future? Answer: At the point where the ONLY oil left is that which requires an equal or greater amount of oil to extract than is provided by the oil extracted. And that leads us directly to the ZERO VALUE conclusion.

    Do you disagree?

  22. Apneaman on Sat, 29th Nov 2014 2:14 pm 

    The Globe and Mail. Canada’s most corrupt newspaper.

  23. GregT on Sat, 29th Nov 2014 2:20 pm 

    bud,

    From your previous post:

    “How in the hell are we going to run the economy. Hell with that, how will civilization survive?”

    From your post above:

    “My question is, can you tell me what is going to replace that energy that oil provides?”

    You are asking the right questions. I don’t think that you’re going to like the answers.

    We are not going to run the economy, at least not an economy like what we have now. BAU (business as usual) is coming to an end.
    Civilization will survive, in some form. It just won’t resemble the civilization that we have become accustomed to.
    Nothing will replace the energy that oil provides. We will need to learn how to make do with less energy. Much less energy.

    If you haven’t already read the Hirsch report, it can be found here:
    http://www.netl.doe.gov/publications/others/pdf/oil_peaking_netl.pdf

    A couple of quotes from the report:

    “The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented.”

    “World oil peaking is going to happen, and will likely be abrupt.”

    “The world has never faced a problem like this. Without massive mitigation
    more than a decade before the fact, the problem will be pervasive and will
    not be temporary. Previous energy transitions (wood to coal and coal to oil)
    were gradual and evolutionary; oil peaking will be abrupt and revolutionary.”

  24. nemteck on Sat, 29th Nov 2014 3:07 pm 

    buddavis you are one of the very few that sees the bullshit shortonoil of the hillgroup is sometimes producing.

    The hillgroup must be either naive or stupid to post oil prices far into the future trying to impress us with science using thermodynamics and entropy.

    I am a theoretical physicist (PhD U of Toronto) using the entropy principle in my work on decision algorithms. This is why I cannot stand people using physics principles they do not understand.

    shortonoil on Sun, 26th Oct 2014 8:10 am: “…. the price of oil is falling toward $0.00/barrel. That will occur sometime in the 2030-2035 time frame”. One could write a science fiction story for that period entitled “A world without humans” or “How rats killed the last human”.

    The hillgroup apparently thought that this scenario would arrive earlier and posted the table:
    shortonoil on Fri, 7th Nov 2014 8:16 am
    2012….$104.60
    2013……96.20
    2014……87.40
    2015……77.30
    2016……65.90
    2017……54.20
    2018……41.20
    2019……26.90

    I graphed the numbers and behold the are on a straight line that is awfully suspicious to me. How is it that every year the oil price would fall the same ratio?

    Not even respecting rudimentary math principles, the straight line is just hanging there without boundary conditions. So, for example, one can extend the straight line, arriving at an oil price of $0.00 in May 2021 and smashing trough to negative numbers as if one gets paid when filling up a car.

    Suppose in a hypothetical scenario one agrees that the oil price will be zero one day and for the first few years one can guess some prices. But those numbers should lie on a hyperbola, a decaying exponential function , or any other nonlinear curve that gently approach zero at a future date.

  25. shortonoil on Sat, 29th Nov 2014 3:44 pm 

    My question is, canyou tell me what is going to replace that energy that oil provides?

    Petroleum took 5.7 to 570 million years to form. It was a one shot gift from nature to humanity. It will never return. At this point in time we have consumed about 75% of the oil that can provide any benefit to modern civilization. The last 25% will be orders of magnitude more expensive to produce than was the first 75%. If there ever will be a substitute for petroleum it is not now on the horizon, and there can be no assurances that even if it does exist that it will ever come to fruition. Our present civilization is an oil based civilization, and when oil is no longer able to power it, the civilization that it built will go!

    There was never any guarantee that we would slide slowly down the back side of Hubbert’s curve. It was just an assumption that everyone wanted to believe. As GregT pointed out in the Hirsch report “oil peaking will be abrupt and revolutionary.”

    We are 100% convinced that Hirsch was correct, and we have spent years, and have invested 10’s of thousands of man hours in coming to that conclusion.

    http://www.thehillsgroup.org/

  26. shortonoil on Sat, 29th Nov 2014 3:54 pm 

    I graphed the numbers and behold the are on a straight line that is awfully suspicious to me. How is it that every year the oil price would fall the same ratio?

    As I have told you several times before that is not a straight line, it is the tail end of a skewed logistic curve. You can see the entire curve in the second graph on this page:

    http://www.thehillsgroup.org/depletion2_022.htm

    Since I have pointed out that page to you before, you apparently have some other agenda at work, and it is obviously not a pursue of the truth.

  27. Dubya on Sat, 29th Nov 2014 4:28 pm 

    It is obvious oil prices will decline to zero, as argued above. I might also pay $50 for a 50 ml bottle of bicycle chain lube if it would let me ride my bikes instead of walking. So oil will be at the same time worth about $200,000 per barrel.

    Like Schrödinger’s cat both these conditions are true simultaneously.

    I will leave the predictions to those more qualified than myself.

  28. Dubya on Sat, 29th Nov 2014 4:36 pm 

    Someone is currently typing that bicycles require a fossil fuelled industrial system, wih which I partially agree. However pre-1700 society still had a use for lubricants, and the local alternative is shooting a bear In the fall and rendering his fat.

  29. Davy on Sat, 29th Nov 2014 6:20 pm 

    W’ya, we likely will never get close to the end of the oil from a systematic point of view. As Greg mentioned from the Hirsch report ““oil peaking will be abrupt and revolutionary.” Our complex system is just not able to absorb much variance from a normal and function properly. When the bumpy descent begins the turbulence and instability will at some point cause the BAU airfoil to stall. BAU is very similar to an airfoil needing airflow to lift it above the entropic decay of nature. When the speed is reduced because our energy source has depleted a stall will occur. Not only is our energy to run the airfoil reduced the engine of BAU, the economy, has a piston misfiring.

    It is more and more likely we have made the shift to descent around now. Global economic debt has hit diminishing returns and is no longer effective at lifting consumption. It is now a drag on growth. Oil is depleting and supply will stagnate with the effects of the debt bubble deflation. Once descent sets in with momentum nothing is going to stop it. The effects will be dramatic with economic chaos. When I say chaos I mean randomness of economic abandonment, dysfunctional systems, and crashing confidence. These conditions will contract liquidity from lack of confidence and trust.

    Oil supply is as much geologic as economic. When both variables are bearish expect dramatic effects at some point. I still believe we will be on a bumpy descent that will resemble the bumpy plateau we have been on since 2005. We still have significant momentum from BAU’s growth period. The difference with a bumpy descent is the economics. The economics will be an economics of contraction. This most likely will be a market induced recession that will permeate the wider economy. The problem with this recession is it will not end. This recession will be the inflection to a new paradigm of descent. This is profound and will likely be rejected by the corn porns who will hang on to hopium. They will hang on to the notion of recovery. This recovery will likely never materialize. What may materialize is a landing at a reboot far down the economic ladder. A landing that will be post BAU.

  30. rockman on Sat, 29th Nov 2014 8:52 pm 

    A world where the price of oil goes to $0/bbl? I suppose in theory it’s a possibility if one envision a world where no one can afford to buy oil. Seems as if the world is that broke it will be unable to pay for much of the other necessities: food, water, shelter…and BLUE BELL ICE CREAM!!! Just kill me now. LOL.

  31. meld on Sun, 30th Nov 2014 6:05 am 

    It’s all very interesting. At some point oil will fall to $0 simply because it will no longer be being extracted. Will the feudal lords of the 22nd century still be willing to buy oil so they can drive to see the king? probably unlikely.

    Everyone seems to be trying to bankrupt everyone else at the moment, it’s economic warfare and the person with the most resilient way of projecting force will win. That isn’t the US by the way. At the moment IS seems to have the most resilient army on the planet and they are growing in strength. No I’m not confusing power with resilience. The US has the most power but it is super fragile. IS hasn’t huge amounts of power but ironically that makes it super resilient. All it takes is a tech to come along to negate all the US’s spying and weapons tech and they will crumble. That tech will probably be very low tech and easily reproducible.

  32. Davy on Sun, 30th Nov 2014 6:41 am 

    Yea, meld great resilience until they are hungry and thirsty. I agree during the transition ISIL will be a force of change but long term sustainability and residence in a region destroyed? A region sure to be hit by the worst of climate change already dry and lacking water.

  33. bill c on Sun, 30th Nov 2014 7:52 am 

    my theory is price is down to 30 dollars within one year never to return ,the Saudis have chucked the towel in they know the fight is over even though they do not say so,prepare for major changes to our lifestyles some bad some good

  34. Cloud9 on Sun, 30th Nov 2014 9:30 am 

    There are a lot of factions vying for the Peak Oil narrative.

    Oil is a strategic resource. The police state is propped up by it. Commercial agriculture is totally dependent on it. Our mega cities cannot be pacified without it.

    The question is how do we get from where we are to a level of energy consumption that is sustainable? The answer is pretty simple. We have to shed a prodigious amount of consumption. How do we do that?

    The current crop of preening politicians can only promise more. So as a class, they are largely useless.

    I am positive that the actuaries for some major corporations have run the numbers. And I am convinced that certain insiders are positioning themselves to profit from the coming chaos. They as a class may retain enough capital to reboot the system at a much lower level of consumption at some point in the future. Killing all the rich may be counter productive.

    There are some very smart young colonels in the world’s militaries who have gamed peak oil. They are doing everything possible to maintain the integrity of their commands. Consequently, sizable pockets of the military will remain as viable forces post collapse. Who controls these units and to what ends is of vital importance. It will be very tempting for the various factions vying for control to try and seize the local military in an effort to manage the descent and quell the chaos to their advantage.

    The obvious way to reduce consumption is to reduce population. As we approach Seneca’s Cliff and systemic failure of our just in time delivery systems what do we do with our excess population? History has some lessons. The Armenian Genocide is a classic example of what happens to a population deprived of water. In three or four days, the problem sorts itself out. The south west is at risk. The Kulak Genocide demonstrates what happens to a population that is denied the means to feed itself. In a matter of weeks the situation sorts itself out. Our mega cities are at risk. The Rwandan Genocide shows us what happens to societies that cleave along the lines of ethnicity during times of stress. In 100 days the Hutu majority was able to reduce the Rwandan population by 20% with three dollar machetes imported from China. Imagine what we can do with our millions of guns and billions of rounds of ammunition. Local minorities are at risk all over the country. Then of course, there is disease. The Black Death killed one third of Europe’s population. Contaminated water supplies, privation and collapse of infrastructure may breed a pandemic that will do a better job of reducing consumption than all the other listed possibilities. All of us are at risk.

    If there is any silver lining to any of this it is that these horrors are relatively brief in the scheme of things. History favors young adults. In the end, a warm hearth, food, family and friends are what matter most. Good luck and look to your own.

  35. Kenz300 on Sun, 30th Nov 2014 10:25 am 

    A monopoly is trying to drive out its competition…

    Nothing new here……

    KSA wants to drive down competition from shale, tar sands and deep water projects. Lower oil prices will do just that.

  36. sparks on Sun, 30th Nov 2014 1:20 pm 

    I will offer a controversial opinion here. I think Short’s analysis is spot on. However, I disagree with the conclusion that the price of oil will drop so quickly. Rather, I expect oil to become a rarified luxury item for the well-to-do, like caviar perhaps. So in future years it will be available in small quantities at very high prices. Let’s say $20 per gallon of gasoline. Why? Because, like vinyl records, there will always be internal combustion engine aficionados, with antique automobiles, specialty motorcycles, etc. The gasoline will be produced at an energy loss, but it would just be considered an energy “conversion” from one form, to the desired liquid transportation-hobby form. So yes, writ large Short is correct, in that there will not be a mass market at high oil prices. But I think there will be a specialty market at very high prices. Isn’t that the way it always goes with humanity?

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