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Is fast crash becoming more likely?

General discussions of the systemic, societal and civilisational effects of depletion.

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Re: Why a fast crash is inevitable

Unread postby shortonoil » Fri 11 Aug 2017, 14:31:31

There's no way to provide a useful model of a commodity and its impact on the economy without covering supply and demand.


That is like saying that there is no way of knowing that the earth circles the sun unless it is dictated by economic principles. Ridiculous. You left out 99% of the human store of knowledge. Petroleum production is an energy producing process, and if supply and demand where to work, it would be because of the energy it supplies; not the number of bath tubs that can be filled up with it!

Petroleum supplies energy to power the economy. If it supplies enough energy the economy grows. A bigger economy can use more petroleum. If it doesn't supply enough the economy contracts, and requires less petroleum. No supply and demand in operation. Just the strength of the economy, and petroleum's ability to supply energy.

We know that the world now has a contracting economy because its debt is growing faster than its GDP. Its net worth is declining. Since 2014 world GDP has fallen by $3.33 trillion; the debt pile has grown by $43. The weaker economy will require less petroleum to power it. The price will fall, just as it has done from June of 2014, and inventories will grow just as they have done. No supply and demand required, just an understanding of petroleum’s ever declining ability to power the economy.

http://data.worldbank.org/indicator/NY.GDP.MKTP.CD
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Re: Why a fast crash is inevitable

Unread postby rockdoc123 » Fri 11 Aug 2017, 14:55:02

Petroleum supplies energy to power the economy. If it supplies enough energy the economy grows. A bigger economy can use more petroleum. If it doesn't supply enough the economy contracts, and requires less petroleum. No supply and demand in operation. Just the strength of the economy, and petroleum's ability to supply energy.


Ridiculous....cart before the horse.
Oil and gas companies drill for hydrocarbons because they can make money doing so, if they didn't make money they would not drill. The reason they make money is because refineries can make money by buying that oil and making it into products which they in turn can make additional money from and gas to power providers who can purchase natural gas and convert it to electricity at a profit. The ability to sell the end products is what drives demand, if people want more the entire supply chain will respond the best way it can, if they want less then the entire supply chain has to adjust to the new reality.
Thermodynamics can be used to describe processes, it does not cause them to happen. IF people did not want the products created from hydrocarbons (demand) then the companies who drill, collect, transport and crack those hydrocarbons would not be willing to do so (supply).
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Re: Why a fast crash is inevitable

Unread postby donstewart » Fri 11 Aug 2017, 15:24:54

@rockdoc
You need to take a look at:
http://prosperouswaydown.com/principles ... m-empower/

Maximum (Em)Power is about survival. Those individual and species who don't do it well don't survive. The fossil fuel powered civilization can be viewed through this lens. Those who start from demand and supply curves, treating everything as how a consumer chooses between spending their money on hula hoops versus popsicles, is completely missing the larger picture.

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Re: Why a fast crash is inevitable

Unread postby rockdoc123 » Fri 11 Aug 2017, 15:33:24

Those who start from demand and supply curves, treating everything as how a consumer chooses between spending their money on hula hoops versus popsicles, is completely missing the larger picture.


well all I can say to that is that I spent 35+ years in the oil and gas industry and never once was anything but supply and demand used as the water mark for judging where oil and gas prices were going by any company. It was a regular discussion in operating committee meetings at every company I worked at. So according to you all the oil and gas companies that have ever existed, who found all the oil and gas and produced it, made it available for your vehicles, heat, cooling, etc. all got it wrong! :roll:

Christ on a cracker! I'll have to phone a few of my former colleagues who built successful companies, employed hundreds of people, improved the lives of countless others and are now happily retired with scads of cash and tell them they all didn't know what they were doing...they didn't see the big picture.
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Re: Why a fast crash is inevitable

Unread postby donstewart » Fri 11 Aug 2017, 17:03:23

@rocdoc
A strategy works for a little while, then it doesn't work any more. That is why 99.99 percent of all species have gone extinct. What Odum and other scientists and people like BW Hill in his own way are doing is exploring WHY things are the way they are, and how changes in the fundamentals might change the behavior necessary for survival.

For many years all the oil company executives needed to understand was that the Maximum Empower Law was on their side. (That is a little overstated, but fundamentally true.)

But it just may be that the operating rules are changing...Don Stewart
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Re: Why a fast crash is inevitable

Unread postby onlooker » Fri 11 Aug 2017, 17:18:51

Well, I think I can reply to this latest round of discourse between Short and Rockdoc, as it is not too technical. Rockdoc, I thought Short did a great job of explaining why the thermodynamic balance is of paramount importance in analyzing the economic ramifications of this balance. I think you are too inured to the economic jargon and principles by your own admission. OIL is not like the other resources and thus does not fit neatly into the supply/demand equation or other economic principles. As Short explained ultimately the energy to power the economy is what matters. It is you who are seeing it in reverse. Supply and demand will follow this energetic status. For Oil and other energy sources to a lesser degree dictate what amount of economic activity can take place or not. Those who stay affixed to economic dogma refuse to concede this basic dynamic. Supply of oil cannot increase in an environment of declining net energy and neither can effective demand as not enough energy/money exists to allow this to happen. Finally, as Short has pointed out for the time being Debt is masking this as the Oil Industry is in effect cannibalizing the rest of the Economy via lending and attaining the highest priority, allowing the Industry to remain viable temporarily.
“"If you think the economy is more important than the environment, try holding your breath while counting your money"”
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Re: Why a fast crash is inevitable

Unread postby rockdoc123 » Fri 11 Aug 2017, 18:30:37

Poppycock. Do you think the early explorers for oil and gas cared anything about thermodynamics? Of course they didn't, they saw that there was a chance to make a lot of money, just like the first folks to build refineries and Ford motor company etc etc. Not a single person related to this industry other than the small bunch of yahoos on this sight could care less about it.

As I have said before thermodynamics can be used to describe processes but it is not something that causes things to happen, that is decisions made by people.
Those decisions are driven by economic considerations as far as oil and gas is concerned and as a consequence decisions are influenced by supply and demand.

And as I have pointed out numerous times you guys have no clue how to read oil and gas company financial filings, if you did there wouldn't be comments made that they are all bankrupt, aren't making any money or that they can't pay their debts. Nothing could be further from the truth. The few companies that have not been able to restructure their debts were bought by other companies that have no problem dealing with that debt. And exactly how is the oil and gas industry "canabilizing" the rest of the economy? That makes no sense given they get their debt from investment bankers who have a certain amount of their portfolio dedicated to investments in oil and gas, that money either gets invested in O&G companies now or it sits on their books until something good comes along, it isn't immediately thrown into some other industry. The central bank doesn't somehow "print" money and give it to oil companies as one idiot here seemed to suggest.
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Re: Why a fast crash is inevitable

Unread postby onlooker » Fri 11 Aug 2017, 18:49:06

Sorry, but you are the one who still is not understanding. Short has posted portions of the Income Statements of some prominent energy companies and it clearly shows the losses they are sustaining. Does not take a genious to read that. Also, ultimately the money investment banks can lend out derives from "opening of the faucet" that comes from the Central Bank.
The economic decisions made by people do NOT override the energetic status rather they are bounded by it. The business side of the Industry would like people to believe your version, but common sense will allow one to see that all these economic considerations and decisions are delineated by the geophysical limitations. Within those limitations yes they can move and wheel and deal but only within those limitations. Increasingly going forward those limitations will become more limiting as the Net Energy available to the Economy as a whole continues declining.
“"If you think the economy is more important than the environment, try holding your breath while counting your money"”
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Re: Why a fast crash is inevitable

Unread postby rockdoc123 » Fri 11 Aug 2017, 19:04:01

Short has posted portions of the Income Statements of some prominent energy companies and it clearly shows the losses they are sustaining


and as I said you guys don't know what it is you are looking at as I pointed out for a number of companies. The numbers you guys jump up and down about include non-cash items that say nothing about a companies year on year profitability, those of us who did for a living know enough to go to the actual submissions to SEC or TSE and pull them apart rather than copying something from a stock promotion site without actually understanding what makes up that number. I posted awhile ago the cash flow numbers which were all positive for the vast majority of the 50 top companies in the US.

Also, ultimately the money investment banks can lend out derives from "opening of the faucet" that comes from the Central Bank.


That applied back when some of the banks had a liquidity crisis but most of the ones who invest in oil and gas had no problems, hence the large investments made by them in 2010 and 2011.

The business side of the Industry would like people to believe your version, but common sense will allow one to see that all these economic considerations and decisions are delineated by the geophysical limitations. Within those limitations yes they can move and wheel and deal but only within those limitations. Increasingly going forward those limitations will become more limiting as the Net Energy available to the Economy as a whole continues declining.


Jesus wept, please use terms you actually understand....geophysical limitations? That does not have the meaning you apparently think it does.

Net Energy has squat to do with how much oil and gas can be recovered other than it could theoretically be calculated and so what, no one uses it to make decisions. What determines what gets recovered is whether or not someone can make a profit on it. Do you actually think there is some twat out there sitting down and calculating out the Gibbs Free Energy associated with drilling a new prospect or a new well? I can tell you there isn't and there never has been, on the contrary there are reams of staff at companies assigned the task of figuring out costs, tarriffs, taxes, royalties and revenues based on a host of price decks.
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Re: Why a fast crash is inevitable

Unread postby onlooker » Fri 11 Aug 2017, 19:17:10

I understand quite well what Geophysical limitations are. Do you? Of course that is the main considerations profit and the monetary calculations. I am not disputing that. I am saying at a deeper level those monetary considerations are representations of energy. What is money then? It is the medium by which economic activity is transacted. But in reality it is an abstraction. The available energy is the true economic fundamental at play. So the accountants and such can do all their profit calculations and such etc. but all that is taking place within the context of energy availability or lack thereof. In turn that is what will ultimately dictate the soundness and profitability of the entire Economy.
“"If you think the economy is more important than the environment, try holding your breath while counting your money"”
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Re: Why a fast crash is inevitable

Unread postby SeaGypsy » Fri 11 Aug 2017, 19:42:54

But there isn't an alternative to the abstraction you refer to Onlooker. It remains to be seen how capitalism works in a genuinely constrained energy environment, but given four decades since the advent of globalism, nobody has come up with an alternative economics which has any chance of working.

There's a thread here somewhere about cannibalistic capitalism- which seems the unavoidable development, given the realities- there isn't going to be enough to go around, so does it keep going around (in a contracting economy) or not?

The way i read Rockdocs line is it's not going to matter what other abstractions are in play besides the direct real time economic ones. Can these remain feasible in an overall contraction? There is an industry in developing other than financial abstractions, which generally struggle for intellectual validity, let alone real world application.
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Re: Why a fast crash is inevitable

Unread postby onlooker » Fri 11 Aug 2017, 19:53:51

Nice to hear from you again Sea. Well yes in the day to day running of the Economy what people will notice is the financial situation ie. money. That is already happening in terms of stories of economic hardship. However, with respect to my conversation with Rockdoc, I am trying to get him to concede that a central theme of this planet now is this question of what is more real, the physical world or its representation via money. Money is our way of transacting economically. But, one must concede the physical limitations of this planet is more and more imposing on economic activity. No amount of money can replace the vitality and fecundity of this planet. That applies to Oil and to any other physical resource. This is what some have trouble fully grasping.
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Re: Why a fast crash is inevitable

Unread postby SeaGypsy » Fri 11 Aug 2017, 20:08:16

I don't think it's a winnable argument. In terms of ultimately recoverable resource, someone is going to be doing that recovery, for as long as someone is going to make doing so worthwhile. Right now is End of the World Day, for thousands of people, when it's millions, will someone still pay someone enough to keep extracting resources? Or does the system just snap & the whole gambit becomes unviable? That's what it boils down to.
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Re: Why a fast crash is inevitable

Unread postby ralfy » Fri 11 Aug 2017, 20:20:42

kublikhan wrote:Ok if you don't like Outcast_Searcher and rockdoc123 maybe pstarr will resonate better with you:

pstarr wrote:oil depletion is a geologic event. It doesn't occur in quarterly periods and can't be explained away by sound bytes.
+1

Oil depletion happens gradually over long time spans. Commodity cycles happen over shorter periods of times. Depletion of ore veins causes mining companies to dig a little deeper each year. And depletion of oil causes oil companies to target slightly more marginal oil plays every year. Slightly raising monetary and energy costs year over year(all else being equal). On the other hand, swings in commodity cycles can produce much more violent swings. Hundreds of companies going bankrupt. Thousands of people getting laid off. Millions of barrels of oil not getting drilled. Billions of capex deferred.


The global capitalist economy which feeds on that oil needs more oil each time to support both a growing population and a growing global middle class. In which case, we will see not just oil depletion across a long time span but an increasing gap between what is available and what is needed.

Second, oil companies, like other for-profit businesses, must profit to cover costs, debts, and increasing costs of getting more oil. That also means that not only do prices have to go up, the energy available will be decrease but the more expensive oil requires more processing and/or is deeper to extract.

Companies can sell more assets, declare bankruptcy and look for fresh lines of credit, lay off people, and cut investments, but that can last in the long term, unless one imagines some computer game economy where everyone argues that the future is bright because those numbers in hard drives keep going up.

So, you see, the last thing that you want to see is oil depletion, whether slowly or otherwise, because in order for the same global economy to thrive, it will need not just the opposite of that but significant increases in production. In the case of a growing global middle class and resources overall, the equivalent of at least on more planet.

To answer that question, you have to answer two others first:
1. How much longer will the oil industry exist? NOT how much longer until the oil industry peaks. How much longer will the oil industry continues to operate at all? So this estimate must include the long down slope of oil as well.


I don't see the point of that question. If most oil companies fall apart and one or more still operate selling small amounts of oil, then one can argue that the industry still exists.

2. On average, how long is the oil commodity cycle?

For the first question, Jean Laherrère made some projections out to 2100 here. Even in 2100 there is still a fair amount of oil production going on. If we extend the decline rates further into the future, oil production(including extra heavy oil) dwindles down to fairly low level by 2140. So lets use that as a cutoff date.


What you want find out is not an oil commodity cycle but the effect of a gap between oil available and what a global capitalist economy needs and wants. Keep in mind that oil production does not exist in a vacuum, such that if there is still "a fair amount of oil production going on," then we're fine.

For the second question:
THERE ARE CLEARLY-DEFINED oil price super-cycles that have existed since the dawn of the "Age of Oil". These super-cycles have historically lasted an average of 27 years, with a minimum period of 21 years and a maximum of 32 years.
Oil price super-cycles

2140 - 2017 = 123 years remaining in oil age. With oil super cycles ranging from 21-32 years. That gives us 4-6 more boom bust cycles in the oil age. As for how bad the busts would be I'd say, comparable to the levels of the 1985-1986 oil bust or the 2015-2016 oil bust.


A cycle involves production going up and down periodically. A global capitalist economy thrives only if the same cycle takes places amidst a continuous upward trend. A global capitalist economy that is driven by competition and dreams of house-flipping will require a steeper upward trend.
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Re: Why a fast crash is inevitable

Unread postby rockdoc123 » Fri 11 Aug 2017, 20:51:56

I understand quite well what Geophysical limitations are.


define it then...as I said you haven't a clue what you are talking about.

I am not disputing that. I am saying at a deeper level those monetary considerations are representations of energy. What is money then? It is the medium by which economic activity is transacted.


Oh Jesus wept...save it for a philosophy course. It has nothing whatsoever to do with the decisions that are made and the consequences.
As I said you can stand back and describe lots of activities in the context of thermodynamics, but thermodynamics doesn't make it happen, decisions by people do.
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Re: Why a fast crash is inevitable

Unread postby rockdoc123 » Fri 11 Aug 2017, 21:06:35

However, with respect to my conversation with Rockdoc, I am trying to get him to concede that a central theme of this planet now is this question of what is more real, the physical world or its representation via money. Money is our way of transacting economically. But, one must concede the physical limitations of this planet is more and more imposing on economic activity. No amount of money can replace the vitality and fecundity of this planet.


God save us from theoretical blather. The "physical world versus its representation via money" WTF is wrong with you? Are you wealthy enough that you don't give a stuff about what drives people to get up in the morning and go to work? Are you one of these people who inherited scads of dosh and don't have to worry about actually doing anything for a living ever? Do you actually believe people would have produced hydrocarbons in the first place if they couldn't have somehow made out like bandits?

The physical world is driven by commerce it has been since the first person on this planet traded a stone tool for a haunch of elk. You can stand back and try to describe it all as being driven by some description which includes thermodynamic considerations but it has absolutely nothing whatsoever to do with why things happen.
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Re: Is fast crash becoming more likely?

Unread postby kublikhan » Sat 12 Aug 2017, 01:40:40

ralfy wrote:The global capitalist economy which feeds on that oil needs more oil each time to support both a growing population and a growing global middle class. In which case, we will see not just oil depletion across a long time span but an increasing gap between what is available and what is needed.
We have already seen the developed economies level off/shrink their oil consumption while at the same time growing their economy. At this point in time, they are still very much oil dependent economies. However that doesn't mean that just because it took Y amount of oil to growth their economy by X amount last year, those same values are also required for next year. More fuel efficient cars, alternate transportation methods, recycling, structural shifts in the economy to sectors that consume less oil, all of these things enable an economy to grow while consuming less oil. At this point the oil consumption decline rate of the advanced economies has been fairly shallow. If the oil consumption decline rate becomes sharper, I would expect the effects on the economy will become sharper as well.

ralfy wrote:Second, oil companies, like other for-profit businesses, must profit to cover costs, debts, and increasing costs of getting more oil. That also means that not only do prices have to go up, the energy available will be decrease but the more expensive oil requires more processing and/or is deeper to extract.

Companies can sell more assets, declare bankruptcy and look for fresh lines of credit, lay off people, and cut investments, but that can last in the long term, unless one imagines some computer game economy where everyone argues that the future is bright because those numbers in hard drives keep going up.
It doesn't go on indefinitely. It's cyclical. During the bust times, the seeds of the next boom are planted. It might be hard for you to see it right now, but I would not get too comfortable with low oil prices if I were you. It might take years, but eventually the oil price will come back up. Oil company bankruptcies will taper off. Layoffs will give way to new hiring. Investment declines reverse and turn into investment growth.

ralfy wrote:So, you see, the last thing that you want to see is oil depletion, whether slowly or otherwise, because in order for the same global economy to thrive, it will need not just the opposite of that but significant increases in production. In the case of a growing global middle class and resources overall, the equivalent of at least on more planet.
Our wants are irrelevant. Oil is depleting whether we want it to or not. We only have one Earth worth of resources to work with. If that means our current path of growing our global economy by feeding it ever larger amounts of oil will become impossible at some point, so be it. I did not join this site because I thought peak oil was BS. I joined it to explore the issues of oil depletion.
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Re: Is fast crash becoming more likely?

Unread postby Tanada » Sat 12 Aug 2017, 07:25:01

Even the IEA is now predicting the glut is at an end. This means prices will once again be responding to a market in supply/demand balance and we will be back where we were.

It is possible the Fracking industry will create another boom and crash from glut in 2018, however the world as a whole is consuming about 5 MM/bbl/d more than it was in 2013 which is roughly equal to what the Frackers were producing at their peak. If they manage to go higher faster than demand growth then we get another splash of glut and prices crash again. If not prices will rise to force marginal user out of the market until supply/demand are once again in balance.

I do find it interesting that prices never went down to a level that stopped drilling and fracking, let alone stopped conventional drilling. Sure a lot of drilling stopped and a lot of marginal drilling ended, but even at the nadir fracking was still going on with hundreds of wells being completed every month.
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Re: Is fast crash becoming more likely?

Unread postby Observerbrb » Sat 12 Aug 2017, 07:39:44

Tanada wrote:Even the IEA is now predicting the glut is at an end. This means prices will once again be responding to a market in supply/demand balance and we will be back where we were.



IEA has predicted the glut will end since 2015. Why is this time different?

The International Energy Agency said Tuesday that it expects the global crude oil glut to start disappearing in the first half of next year, much earlier than it previously predicted

http://money.cnn.com/2016/12/13/investi ... index.html

OPEC is winning, IEA says

http://money.cnn.com/2015/12/11/investi ... index.html

IEA Sees Oil Glut Gone By 2017

http://oilprice.com/Energy/Crude-Oil/IE ... -2017.html

IEA: Crude Production to Fall Behind Demand
‘Our balances show essentially no oversupply during the second half of the year,(2016)’ International Energy Agency says

https://www.wsj.com/articles/iea-sees-o ... 1470902402
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Re: Is fast crash becoming more likely?

Unread postby onlooker » Sat 12 Aug 2017, 07:42:34

Tanada wrote:E
prices never went down to a level that stopped drilling and fracking, let alone stopped conventional drilling. Sure a lot of drilling stopped and a lot of marginal drilling ended, but even at the nadir fracking was still going on with hundreds of wells being completed every month.

Yes but at what level of profitability? It seems the whole lending regime is masking the worsening economic rationale of unconventional sources.
As for the oil price going up, well shall see if that happens as classical supply/demand dynamics dictates it should or whether the Etp will stand strong in predicting a continued trend of a lowering of the price.
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