Here Comes The Double Dip Pt. 3

[Daniel_Plainview]

John Michael Greer: The descent into stasis

* * * America’s “empire of time,” its once-immense energy resource base, has been drawn down at breakneck rates for more than a century and a half. Recent handwaving around shale gas reserves has served mostly to pump up the price of drilling company stocks, and enabled a certain number of rich men in influential positions to get away with another round of looting; we’ve all heard the strident claims that the United States will become an energy exporter sometime very soon, but the numbers don’t even begin to add up, and it’s a safe bet that a few years down the road shale gas will have gone the way of ethanol and all the other energy sources that were allegedly going to replace petroleum and keep the industrial age running smoothly ahead. The American economy is utterly dependent on very large quantities of petroleum; so is the American military; drastic changes, going far beyond the baby steps involved in manufacturing a few electric cars or running a naval vessel or two on biodiesel, would have to get started well in advance to cushion the end of either dependency, and those changes are not taking place.

The consequences of the end of these two empires can’t be dealt with on the battlefield, as the long debate over the shape of America’s human ecology was, and it can’t be dealt with by jerry-rigging a set of temporary expedients to overcome the mismatch between real wealth and a dysfunctional financial system, as the crisis of the Great Depression was. It will require massive changes in every aspect of American life, starting with a steep decline in standards of living and the forced abandonment of privileges most Americans think of as theirs by right. That would be an immense crisis at the best of times, and these are not the best of times; our political system has spent the last thirty years trying to evade exactly these issues, while sinking further and further into stasis, and it’s our luck that the crisis seems to be arriving just as American politics freeze up completely.

That might result in the kind of systemic shock that brings another long-shot candidate with a radical following into the White House, and catalyzes immense natonal changes. It might also result in the more extreme form of systemic shock that shatters a nation into fragments. In the weeks to come we’ll be discussing both those possibilities, and others.

My apologies to John Michael Greer for offering only a snippet of his wisdom.

[Plantagenet]

it’s a safe bet that a few years down the road shale gas will have gone the way of ethanol and all the other energy sources that were allegedly going to replace petroleum and keep the industrial age running smoothly ahead.

Why is that a safe bet?

Ethanol was a government subsidized boondoggle that never made economic sense. Turn off the government subsidies and it will struggle to survive. Shale is quite different----it requires no subsidy and scientific studies show there is a 100-200 year supply at current US rates of consumption. There is a heck of a lot of gas out there and who can doubt it will all be produced as peak oil drives prices energy higher and higher.

Mr. Greer is a great polemicist, but for him to try to lump corn ethanol with shale gas doesn't make sense IMHO. They are very different things with very different economics. In particular, there is ZERO chance shale gas will be gone "in a few years" as Mr. Greer claims

[Lore]

Why is that a safe bet?

For the following reasons.

Shale gas reserve estimates of recoverable gas have been overstated.

The use of of NG has not yet been fully exploited, at which time prices will be commensurate with other fossil fuel energy sources.

The technology requires the expense of several millions of dollars per well, only to see those wells decline in a years time to 30% of their original output.

Not all wells are equal in output. Once the more productive wells are tapped it will be more costly to justify drilling for what's left.

NG, like oil, is traded in a world market and the price of the commodity will depend on the highest bidder which can be expected to increase with demand.

[Plantagenet]

Shale gas reserve estimates of recoverable gas have been overstated.

Sorry, but you don't have any expertise in evaluating geologic data. The corporate and university and USGS scientists (and President Obama) all say we've got a 100-200 years of supply at current rates of use. Believe what you want, but those are the scientific facts.

The use of of NG has not yet been fully exploited, at which time prices will be commensurate with other fossil fuel energy sources.

Of course. Thats how supply and demand works. We've currently got excess supply in the USA so the prices are low. If the price for NG goes up that will just encourage more expiration and development of shale gas.

The technology requires the expense of several millions of dollars per well, only to see those wells decline in a years time to 30% of their original output.

Not all NG wells decline to 30% in a years time. You just don't know what you are talking about.

NG, like oil, is traded in a world market.

You just don't know very much about this topic. Natural gas is NOT traded in a world market and there is no global price for NG. For instance, the price of NG in the central US today is a fraction of what NG costs today in Europe.

[Lore]

Sorry, but you don't have any expertise in evaluating geologic data. The corporate and university and USGS scientists (and President Obama) all say we've got a 100-200 years of supply at current rates of use. Believe what you want, but those are the scientific facts.

Obviously either does the U.S. Energy Dept.

U.S. Cuts Estimate for Marcellus Shale Gas Reserves by 66%
http://www.bloomberg.com/news/2012-01-2 ... -data.html

Of course. Thats how supply and demand works. We've currently got excess supply in the USA so the prices are low. If the price for NG goes up that will just encourage more expiration and development of shale gas.

What that means is the price of NG will eventually be competitive with the price of other fossil fuels. Which means, high, and we're back to square one again with a limited resource.

Not all NG wells decline to 30% in a years time. You just don't know what you are talking about.

Berman: Some of them never produced to begin with. No one talks about dry holes in shale plays, but there are bona fide dry holes-maybe 5 or 6 or 7 percent that are operational failures for some reason. So that’s included. There are wells that, let’s just call them inactive; they produced, and now they’re inactive, which means they are no longer producing to sales. They are effectively either shut-in or plugged. Combined, that’s probably less than 10 percent of the total wells. But then there are all the wells that are producing a preposterously low amount of gas; my cut-off is 1 million cubic feet a month, which is only 30,000 cubic feet per day. Yet those volumes, at today’s gas prices, don’t even cover your lease/operating expenses. I say that from personal experience. I work in a little tiny company that has nowhere near the overhead of Chesapeake Energy or a Devon Energy. I do all the geology and all the geophysics and there’s four or five other people, and if we’ve got a well that’s making a million a month, we’re going to plug it because we’re losing money; it’s costing us more to run it than we’re getting in revenue.

So why do they keep producing these things? Well, that’s part of the whole syndrome. It’s all about production numbers. They call these things asset plays or resource plays; that reflects where many are coming from, because they’re not profit plays. The interest is more in how big are the reserves, how much are we growing production, and that’s what the market rewards. If you’re growing production, that’s good-the market likes that. The fact that you’re growing production and creating a monstrous surplus that’s causing the price of gas to go through the floor, which makes everybody effectively lose money….apparently the market doesn’t care about that. So that’s the goal: to show that they have this huge level of production, and that production is growing.

But are you making any money? The answer to that is…no. Most of these companies are operating at 200 to 300 to 400 percent of cash flow; capital expenditures are significantly higher than their cash flows. So they’re not making money. Why the market supports those kinds of activities…we can have all sorts of philosophical discussions about it but we know that’s the way it works sometimes. And if you look at the shareholder value in some of these companies, there is either very little, none, or negative. If you take the companies’ asset values and you subtract their huge debts, many companies have negative shareholder value. So that’s the bottom line on my story. I’m not wishing that shale plays go away, I’m not against them, I’m not disputing their importance. I’m just saying that they haven’t demonstrated any sustainable value yet.
http://www.theoildrum.com/node/6785

You just don't know very much about this topic. Natural gas is NOT traded in a world market and there is no global price for NG. For instance, the price of NG in the central US today is a fraction of what NG costs today in Europe.

Different markets affect each other's prices for the commodity, just like oil, and with LNG even more so. You do know that NG is a commodity don't you?

[dorlomin]

Companies must raise £28 trillion to finance 'wall' of debt

Hmmm a touch sensationalist but it seems clear enough. The rolling over of outstanding debt is going to be a huge issue in the coming years.

Lack of growth is going to weigh like a rock around the neck.

[Plantagenet]

Lack of growth is going to weigh like a rock around the neck.

Yup.

Colin Campbell predicted that high oil prices would hurt the poorest countries first because they wouldn't be able to afford high priced oil. Its rather a surprise that high energy prices are dampening down growth and wiping out the economies of the wealthiest set of countries in the world----the EU.


A double dip recession is hitting the EU

[SeaGypsy]

There are not many of us writing here who have spent time in Asia during the boom. Campbell was wrong and it was obvious to me, should have been to everyone. I think inward looking America prefers to continue to believe it is the engine of the world and if it runs poorly so slows down the world. What has become obvious, is that the engine for the global economy is not where the mass of activity (still USA/ Europe/ 1st world Asia), but where the mass of growth. The surprising thing to those not familiar with Asia, is the cultural influence on frugality and capability to make more with less. This is a truly key aspect of Asian culture and thinking. One main reason this will continue to be the Asian century.

[OilFinder2]

Isn't it odd how certain doomers, who, prior to me posting this a month ago, had never said a single thing about shale gas/oil in this thread? Funny how I point out all the jobs and economic activity these things are creating, and will create, and - suddenly! - someone gets the idea that it's something to be attacked in this thread! One would think aforementioned person(s) had difficulties with original thinking, and only got ideas when someone else mentioned it first!

So, along that same line, here's another one of those!



-- Dow Chemical to build $1.7 billion ethlylene cracker plant in Freeport, Texas, as part of $4 billion plan to expand four Houston-area facilities which will create thousands of construction jobs and hundreds of permanent jobs
-- Huge expansion of rail facilities in south Texas to accomodate surge in railcars carrying everything from petroleum to fracking sand to NGL's to pipes and other construction materials
-- Chevron-Phillips to build world's largest 1-hexane processing plant in Baytown, TX
-- 105-mile oil pipeline project in south Texas
-- 150,000 bpd capacity additions coming to Mont Belivieu, Texas NGL fractionators. Same company also adding 173 miles of NGL pipeline
-- $240 million investment in 200 miles of pipeline and a cryogenic processing plant in Bee County, Texas
-- $350 million fractionator coming to Mont Belvieu, Texas to process 100,000 bpd of NGL's
-- 65-mile addition to south Texas pipeline

That's just the beginning. You can find pages of Eagle Ford midstream infrastructure news here.

And this out today:

Eagle Ford impact pegged at $25 billion in 2011

The Eagle Ford Shale has been touted as a modern-day Spindletop, and a study released Wednesday underscored that view.

The vast oil and gas play in South Texas contributed $25 billion in total economic output to a 20-county South Texas region last year and provided 47,097 full-time jobs, according to a study prepared by the Center for Community and Business Research at the University of Texas at San Antonio's Institute for Economic Development.

In a single year — 2011 — the shale development added more economic oomph to South Texas than an earlier UTSA study predicted would occur over nearly a decade.

That earlier projection estimated that the Eagle Ford would account directly and indirectly for almost $21.5 billion in economic output by 2020.

The new study estimates that the shale will create 117,000 jobs by 2021, more than 11/2 times the 68,000 full-time jobs the earlier study had projected.

[...]

[ralfy]

"51 Months After The Start Of The Recession, Here Is The Report Card"

http://www.zerohedge.com/news/51-months ... eport-card

[dorlomin]

Lack of growth is going to weigh like a rock around the neck.

Yup.

Colin Campbell predicted that high oil prices would hurt the poorest countries first because they wouldn't be able to afford high priced oil. Its rather a surprise that high energy prices are dampening down growth and wiping out the economies of the wealthiest set of countries in the world----the EU.


A double dip recession is hitting the EU

Everyone has a pet theory. Mine is that all that is happening is the US and EU are finding all the manufacturing jobs that they outsourced are now missing from their economies. In previous recessions when it started people and companies would stop buying goods as the future would be so uncertain. As other staff members were made redundant or other businesses went to the wall first, most found their jobs more secure or they now had a small bit less competition and so felt slightly more secure in their futures. This meant they could go out and buy big ticket household items or invest in new capital machinary to capitalise on the coming recovery. This drove the recovery. The sudden release of pent up spending produced more demand at the factory and hence employment.

But over the past 20 years the loss of jobs now means that that growth in demand was elsewhere so the recvory was only ever feeble.

Emerging economies are growing faster than the price of energy. So they can bouy up through the current energy crunch. Deveoped economies are reducing in there net wealth so as people stop buying on credit cards and borrowed money they are buying less energy from a much larger per capita amount than the emerging economies. This is creating spare capacity for the dollar\euro rich emerging manufacturing economies. They are able to grow their energy consumption still as westerners downsize their demand.

The real global poor, those who are not part of the East Asian boom however are feeling just as Dr Campbell suggested they would. The Egypts and Pakistans of this world.

In the west the huge personal credit boom in the 2000s covered for the loss of manufacturing (although the spare labour capacity was taken up by the service sector which did help a huge amount) but then when it turned out the money lent was struggling to get repaid the financials had a crash. Then the state stepped in to shore up banks and continue spending. That spending has kept money flowing through the economies but the time has not been spent dealing with the underlying malaise.

Now we are slowing getting to the point where governments take away their excess spending and we see the real state of the western economies. No growth for most because without government spending there is nothing to grow with.

At this phase peak oil is not in the driving seat. But it is a clear break on the economy. Sucking money away from being productively employed developing new mechanisms for humans to exchange labour for added value.

But that sucking will not go away and only get bigger and worse. It will go to notoriously unproductive economies. Those built on extraction of resources and the associated corruption and graft, not to economies well known for the efficient employment of productive capital (be it financial or human). Another place conventional economics fails, failing to realise one of the consaquencies of peak oil is that capital is not accumulated by those most able to employ it effeciently hence able to acquire more to enhance efficiency. Its going to make ice rinks in the desert.

On an aside, some analysts are making early calls for the US to be in recession.

[dsula]

The surprising thing to those not familiar with Asia, is the cultural influence on frugality and capability to make more with less. This is a truly key aspect of Asian culture and thinking.

Frugal is who HAS to get by with little. Has nothing to do with culture.

[Daniel_Plainview]

In the west the huge personal credit boom in the 2000s covered for the loss of manufacturing (although the spare labour capacity was taken up by the service sector which did help a huge amount) but then when it turned out the money lent was struggling to get repaid the financials had a crash. Then the state stepped in to shore up banks and continue spending. That spending has kept money flowing through the economies but the time has not been spent dealing with the underlying malaise.

Only 9% of the US economy is now manufacturing (down from over 20% under Reagan). The remainder of the US economy is finance, health care, fast food retail, and other service sectors.

The US economy has been "hollowed-out" and eviscerated ... and what's left is a pastiche of part-time, temp jobs designed to satisfy the US consumer. Historians will take note that this dynamic manifests JUST BEFORE the collapse of the empire.

Now we are slowing getting to the point where governments take away their excess spending and we see the real state of the western economies. No growth for most because without government spending there is nothing to grow with.

The US govt and Federal Reserve have opted for a series of "bubble economies;" when one bubble pops, interest rates are lowered until another bubble forms. When interest rates are at zero, then the solution is to print money and monetize the debt. However, historically, this has NEVER worked (even Heli-Ben Bernanke admits this), and instead leads to heightened long-term pain.

Historians will take note that the US tried every conceivable finance gimmick just before its collapse.

[Daniel_Plainview]

At this phase peak oil is not in the driving seat.

Peak oil is everything. Over 90% of human industrial civilization directly relies on fossil fuel energy, and the remaining 10% indirectly relies on it.

When cheap oil runs out, human industrial civilization will collapse.

Historians will take note that the US made 3 major blunders leading to its collapse:

1. The US''s absolute reliance upon cheap fossil fuels for its perpetual growth paradigm;

2. The US's continued commitment to that strategy even amid overpowering evidence that it will lead to collapse; and

3. The quintessentially "short-sighted", "business as usual" mentality in politics and business, culminating in bailouts, ZIRP, QE, deficit-bonanzas, etc. (yeah, this is truly pathetic stuff ... so sad ...).

[Daniel_Plainview]

Spanish banks need €100bn amid international aid warning
Spanish banks need €100bn (£80.2bn) of extra capital which is “likely” to require international aid, analysts have warned, as Madrid prepares another attempt to rescue its financial sector alone.

Prime minister Mariano Rajoy is on Friday expected to demand that Spanish banks raise an extra €30bn to guard against toxic debts. But analysts at RBS said this was too small and that the €10bn Madrid injected into Bankia this week was “just the start”. Fears over the crisis sent the euro to its lowest level against the pound since August 2008. “Spanish banks face a €68bn capital shortfall over the next three years on increasing bad loan provisions and regulatory capital, in our view,” analysts said. “Capital needs could exceed €98bn in a deeper recession scenario.”

They added: “The other Spanish banks will likely need external help to avoid insolvency. We think public funds alone will not be enough to support all Spanish banks.” Experts have warned that Spain does not have the resources to support its bank and, like Ireland, will have to seek international aid.

[OilFinder2]

Consumer Sentiment in U.S. Climbed in May to Four-Year High

Consumer confidence rose in May to the highest level in four years, indicating falling fuel costs are helping households look beyond a retreat in stocks and weaker employment growth.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 77.8, the highest since January 2008, from 76.4 the prior month. The gauge was projected to drop to 76, according to the median forecast of 68 economists surveyed by Bloomberg News.

Gasoline prices that have declined 21 cents from an almost one-year high may help household finances just as job growth slowed in April to weakest pace in five months. The extra income that comes from cheaper fuel may help consumers maintain the spending that accounts for 70 percent of the economy.

“Confidence has been boosted by lower gasoline prices, which has more than offset the stabilization in equity prices,” said Paul Dales, a senior U.S. economist at Capital Economics Ltd. in London who forecast sentiment would climb to a survey- high 78. “At the same time, perhaps the slowdown in the labor market we’ve seen in recent months has been a bit overblown, and in fact people are getting a bit more encouraged about the jobs outlook.”

Estimates in the Bloomberg survey ranged from 73.5 to 78. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.

[...]

[OilFinder2]

And from our largest trading partner. Looks like someone else is decoupling from the Eurozone too!



Canada Adds 58,200 Jobs in April, Unemployment Hits 7.3%

Canadian employment rose almost six times faster than economists forecast in April, led by private- sector and full-time positions, creating the largest two-month increase in more than 30 years and leading investors to raise bets on higher interest rates.

Employment rose by 58,200 following a March jump of 82,300 that was the biggest since September 2008, Statistics Canada said today in Ottawa. The labor force grew by 72,500, lifting the jobless rate to 7.3 percent from 7.2 percent. Economists surveyed by Bloomberg News projected a 10,000 gain in jobs and 7.3 percent unemployment, according to the median forecasts.

Canada’s recovery may prompt central bank Governor Mark Carney to raise borrowing costs this year, leading the Group of 10 nations, according to Toronto-Dominion Bank. The Bank of Canada said last month higher interest rates may be needed because of faster-than-expected growth, while a report yesterday showed a fifth straight trade surplus.

“It’s the strongest vote of confidence you can get,” said John Clinkard, economist at Deutsche Bank AG in Toronto, in a telephone interview. Companies are “catching up” after delaying hiring earlier in the recovery, he said.

Canada’s dollar appreciated 0.6 percent to 99.63 cents per U.S. dollar at 10:08 a.m. in Toronto. Earlier it weakened as much as 0.3 percent. Bonds fell, with the yield on the 2-year government benchmark rising nine basis points to 1.33 percent.

[...]

[Daniel_Plainview]

NYT: Japan to Nationalize Fukushima Utility

The Japanese government has been scrambling to keep the utility company from collapsing so it can meet the billions of dollars in compensation claims and decommission the reactors at Fukushima Daiichi, all while continuing to provide the Tokyo metropolis with stable electricity.

The government is also eager to push through reforms to restore public trust in a company that has played a vital role in Japan’s energy policy but has also admitted safety lapses and cover-ups at its power plants. The $12.5 billion bailout comes at a time when the government itself is carrying a debt burden that has mushroomed to more than twice the size of the economy.

“I ask that you rebuild the trust that has been lost,” Yukio Edano, the Japanese trade minister, told executives of the utility on Wednesday after his ministry approved the 10-year plan.

“We consider the plan a new start and are prepared to thoroughly carry it out,” said Toshio Nishizawa, president of Tokyo Electric, also known as Tepco.

The Fukushima Daiichi plant was heavily damaged by a powerful earthquake and tsunami in March 2011, which eventually led to multiple meltdowns at the site and a huge radiation leak that forced tens of thousands from their homes.

The government has separately committed 2.4 trillion yen ($30.1 billion) in taxpayer money to meet compensation payments arising from the accident. But estimates of the payments that Tepco might have to make have reached many tens of billions of dollars, making further government support likely.

Finances at Tepco have also been battered by the costs of decommissioning at least four of the Fukushima plant’s six reactors, a process that could take decades. And the utility has been incurring large fuel costs as it makes up for capacity lost at Fukushima Daiichi, as well as two other nuclear power plants that have been shut down since the quake. Tepco has pushed to reopen at least one of those plants but has so far been hampered by local opposition.

Tepco will issue special shares of up to 1 trillion yen to the government, which will acquire majority voting rights. The government will cede control of Tepco once its credibility is restored enough that it can raise money through the corporate bond market.

To further shore up its finances, Tepco is expected to raise electricity rates — as much as 10 percent for normal households — in a move that is certain to add to the public anger already directed at the company over the disaster.

The plan also calls for Tepco to make cost savings of 3.36 trillion yen ($42.2 billion) over 10 years. It calls for all of Tepco’s 16 directors to resign at its next shareholders’ meeting, in June, and for the new board to have a majority of outside directors.

Tepco has already announced that a new president, Naomi Hirose, will take over in June, pending shareholder approval. Kazuhiko Shimokobe, a corporate turnaround lawyer, is slated to become Tepco’s next chairman, succeeding Tsunehisa Katsumata, who became something of a national villain for what appeared to be a lack of remorse after the nuclear calamity. Mr. Katsumata never visited Fukushima to meet with victims after the accident. Tepco said earlier this week that he had been busy directing the company response from its headquarters in Tokyo.

“This plan forms the basis for how a new Tokyo Electric will proceed with reforms,” said Mr. Edano, the trade minister. “I strongly hope that under new management, Tepco will become more sensitive to the victims of the disaster, as well as its customers and the wider public, change the way it shares information, and reform its corporate culture.”

Whoa ... if you've ever wanted evidence of one massive, ongoing clusterfuck ... here it is.

BTW: Cesium in Fukushima Prefecture 122 Times Higher than in Belarus Evacuation Zone


Upon reviewing the nature and causes of collapse, historians will stress how increasingly desperate the various energy-starved nations had become ... whether the evidence derived from Fukushima, fracking, or frenzied efforts to finesse oil from the Gulf of Mexico.

What a clusterfuck.

[Daniel_Plainview]

... leading investors to raise bets on higher interest rates ...

Hmm ... higher interest rates ... One wonders what that would do to the Cornucopian bubbles ...

[OilFinder2]

In Canada???

It'll raise the value of the Canadian dollar, thus improving Canadian consumer purchasing power - that's what it'll do.