[Tanada]

Clicking your heels together and saying "slo decline, slo decline" over and over doesn't alter the fact that marginal oil is becoming unprofitable. Oil extraction is a money making business, not an energy making business. When the customer can't pay to produce the most expensive oil, production of that oil stops, if another producer of less expensive oil can't make up the shortfall, decline takes over.

Just that simple.

This is a key point Pops raised and I have been thinking about it since I saw his post.

Oil producers are in the business of extracting oil from reservoirs for a profit. Because we find the product they produce extremely useful in our culture we are willing to pay them well for providing that product, but there is a limit to what our civilization can afford to pay. Estimates range from a low of $100.00/bbl where the USA is more or less now, and $147.00/bbl where we were when the economy in the USA and Europe fell apart. Theoretically $147.00 won't break us this time because we are much more efficient in 2014 than we were in 2008, and this argument does have some logic and statistics supporting it.

In the USA the Government subsidizes all sorts of businesses that are not profitable when it is deemed in the public interest to do so, like Solar Power, Grain Farming, Helium storage... the list is very long. Would it be in the best interests of TPTB to subsidize oil production to keep world oil prices under that $147.00/bbl danger level? Solar, Wind, Ethanol have all at one time or another gotten generous production subsidies from the Federal Government, just like the agrigiant corn farmers in Iowa do every year. If the Federal Government passed a subsidy tomorrow that stated every barrel of oil produced in the territory of the United States would not only be tax free, but that the company producing it would get a $20.00/bbl subsidy for every barrel produced what kind of an impact would that have on the future production plans of oil companies in the USA? Would it set off a new round of massive investment in oil fields? Or would it just increase the profit margins of the oil companies?

[Plantagenet]

We already subsidize oil drilling in the US by various tax breaks and accounting loopholes oil companies receive for new equipment, new drilling, depletion, etc.

These tax breaks have become a political football with Ds opposing tax breaks for oil companies and Rs saying they are needed to boost domestic oil production

[careinke]

In the USA the Government subsidizes all sorts of businesses that are not profitable when it is deemed in the public interest to do so, like Solar Power, Grain Farming, Helium storage... the list is very long. Would it be in the best interests of TPTB to subsidize oil production to keep world oil prices under that $147.00/bbl danger level? Solar, Wind, Ethanol have all at one time or another gotten generous production subsidies from the Federal Government, just like the agrigiant corn farmers in Iowa do every year. If the Federal Government passed a subsidy tomorrow that stated every barrel of oil produced in the territory of the United States would not only be tax free, but that the company producing it would get a $20.00/bbl subsidy for every barrel produced what kind of an impact would that have on the future production plans of oil companies in the USA? Would it set off a new round of massive investment in oil fields? Or would it just increase the profit margins of the oil companies?

Why would you do this? To speed up the collapse, increase global warming? I don't get it.

Remove all energy subsidies, tax carbon at the well head or port of entry, raise the tax every year.

[Subjectivist]

In the USA the Government subsidizes all sorts of businesses that are not profitable when it is deemed in the public interest to do so, like Solar Power, Grain Farming, Helium storage... the list is very long. Would it be in the best interests of TPTB to subsidize oil production to keep world oil prices under that $147.00/bbl danger level? Solar, Wind, Ethanol have all at one time or another gotten generous production subsidies from the Federal Government, just like the agrigiant corn farmers in Iowa do every year. If the Federal Government passed a subsidy tomorrow that stated every barrel of oil produced in the territory of the United States would not only be tax free, but that the company producing it would get a $20.00/bbl subsidy for every barrel produced what kind of an impact would that have on the future production plans of oil companies in the USA? Would it set off a new round of massive investment in oil fields? Or would it just increase the profit margins of the oil companies?

Why would you do this? To speed up the collapse, increase global warming? I don't get it.

Remove all energy subsidies, tax carbon at the well head or port of entry, raise the tax every year.

When did Tanada get the power to set industry subsidies and how do I get Tanada to give me one?

The question is should there be subsidies with the implication that you get more of whatever you subsidize. As a general rule subsidies work, that is why they are so popular with both politicians and lobbyists. Should they be instituted for the oil industry? Well that all depends, if the grace period created by he subsidies is used to transition to som alternative energy then yes.

Unfortunately we have had from November 2005 to January 2014 as a grace period/plateau whatvever you want to call it. Token levels of transition have been made, but realistically almost everyone in the USA who was oil dependent in 2005 is still oil dependent today. Sure demand is down, mostly because the economy has been stagnant while prices have stayed high compared too before.

So subsidies if they get enacted will probably just extend BAU a few months or a couple years longer without actually changing the course of events. Will they get enacted? Politicians by their very nature tend to be interventionists so someone somewhere will enact them and if that results in the appearence of health for whatever country does it the other politicians will want it for their countries. After all Politics is all about appearences, not substance.

[Tanada]

In the USA the Government subsidizes all sorts of businesses that are not profitable when it is deemed in the public interest to do so, like Solar Power, Grain Farming, Helium storage... the list is very long. Would it be in the best interests of TPTB to subsidize oil production to keep world oil prices under that $147.00/bbl danger level? Solar, Wind, Ethanol have all at one time or another gotten generous production subsidies from the Federal Government, just like the agrigiant corn farmers in Iowa do every year. If the Federal Government passed a subsidy tomorrow that stated every barrel of oil produced in the territory of the United States would not only be tax free, but that the company producing it would get a $20.00/bbl subsidy for every barrel produced what kind of an impact would that have on the future production plans of oil companies in the USA? Would it set off a new round of massive investment in oil fields? Or would it just increase the profit margins of the oil companies?

Why would you do this? To speed up the collapse, increase global warming? I don't get it.

Remove all energy subsidies, tax carbon at the well head or port of entry, raise the tax every year.

Don't shoot the messenger, I never said that I would do it or that I think its a wonderful idea whose time has come. I asked if you think the government will do so at some point in time in an attempt to keep production of oil as high as possible despite it being a money losing proposition.

[Tanada]

We already subsidize oil drilling in the US by various tax breaks and accounting loopholes oil companies receive for new equipment, new drilling, depletion, etc.

These tax breaks have become a political football with Ds opposing tax breaks for oil companies and Rs saying they are needed to boost domestic oil production

I am referring to an outright subsidy like the Iowa corn farmers get, not just some tax breaks and accounting loopholes. For example, if world oil depletion has kicked in and there is a 1 Million bbl/day shortfall causing the price to zoom back up so that the economy is ready to collapse could you see the Obama administration releasing oil from the SPR to make up the short fall? I certainly think that would be a possibility. In that situation some Senator from Alaska or Texas or even Ohio will introduce a bill to "temporarily" off set the high cost of oil production by paying any domestic producer $X.YZ a barrel to produce more oil and eliminate the shortfall.

Would such a subsidy pass Congress and be signed by the President? If not why not, they subsidize all sorts of things deemed vital like Food and Health Care already.

[Ibon]

I fully expect to see an increase in government subsidies to the oil industry when the cost of extracting low grade fossil fuels exceeds the price the consumer can afford to pay, something Pops and others have been pointing out. Count on it.

[yellowcanoe]

Almost all Western nations, with the notable exception of the US, have significant taxes on gasoline and diesel fuel. So the more relevant question is how to replace lost tax revenue as we transition away from these fuels? Even the US with its comparatively low fuel taxes is already feeling the pinch as the reduced consumption of gasoline is leaving governments short of money for road maintenance.

The transition to more expensive sources of oil such as the tar sands in Alberta also has a negative impact on the amount of royalties that governments can collect. Because the cost of production is so high it simply isn't possible to collect the same level of royalties you would from a conventional oil field.

Most governments are deeply in debt and are having trouble maintaining their current revenue. The money that would be required to subsidize FF simply isn't there.

[Timo]

NO! Absolutely no subsidies. No tax breaks! No perks for energy production. PERIOD!!! A rapid decline in FF consumption is what this planet fundamentally needs for survival, and the only way to acheive that reduction is to force the world's population to pay the true, full cost of all energy we consume. If we really did pay the unsubsidized cost of oil, then our consumption would plummet. I know there would be lots of unpleasant consequences for everyone if that were to happen overnight, but on the upside, world population would decrease substantially. CO2 emmissions would decrease dramatically. Alternatives would finally have a market for transition. Short term pain for a long term gain. I'm OK with that, even if i don't survive the downside curve.

[careinke]

Why would you do this? To speed up the collapse, increase global warming? I don't get it.

Remove all energy subsidies, tax carbon at the well head or port of entry, raise the tax every year.

Don't shoot the messenger, I never said that I would do it or that I think its a wonderful idea whose time has come. I asked if you think the government will do so at some point in time in an attempt to keep production of oil as high as possible despite it being a money losing proposition.

Sorry, bad wording. My opening sentence should have said, "Why would anyone do this?"

That said, it is still a spectacularly bad idea on so many levels. We need to start adapting to the coming reality. You don't do that by subsidizing one of the major things causing our problem. Instead, you should heavily tax it, hopefully killing it. Yes, I feel the same way about the current subsidies too.

To my way of thinking, anyone who advocates such an idea is either; Ignorant, Stupid, Evil, or a politician. So of course we will end up doing it................

[dolanbaker]

The only way that governments this side of the pond can subsidise fuel would be to reduce the taxation on it, but as already stated the loss of revenue would be unbearable for most governments.

It is also important to remember that most oil is imported here.

[AndyA]

The Planet is fine, the people are fracked.
I doubt the ceiling is $147, most likely a lot higher, I don't see the evidence for a firm ceiling.
Of the types of subsidies I think tax breaks for oil co's is the most likely, rather then a fixed minimum price. I doubt you'll see OPEC type subsidies where the price of fuel at the pump is set by the state. Even so I highly doubt you'll see anything like that until we are on the downslope in Global production, 10% down maybe more. A lot can change between now and then.
Remember 'Drill Baby Drill'? I have NFI what that was about, other then 'nothing should come between us and our oil.'

[Subjectivist]

The only way that governments this side of the pond can subsidise fuel would be to reduce the taxation on it, but as already stated the loss of revenue would be unbearable for most governments.

It is also important to remember that most oil is imported here.

You mean to say your central banks wouldn't just print the money needed because a shortage is an emergency?

[Pops]

I don't know about "should" but I'm thinking they almost certainly will. As mentioned here and elsewhere, the only cost that is within anyone's control are royalties/taxes/whatever. As the cost to produce grows and grows governments will have no choice but to cut taxes or watch new production dry up overnight. The US take (of course) is already low by world standards, many states are higher in fact.

A report released Tuesday by the U.S. Government Accountability Office (GAO) found that the Department of the Interior has “discontinued” an effort to increase the royalty rate that companies must pay to the government for extracting oil and gas from onshore public lands. The report also raises serious questions about whether taxpayers are receiving a fair return for the extraction of their natural resources.
Currently, oil and gas companies are required to pay 12.5 percent in royalties for drilling onshore. But royalty rates for drilling offshore are usually set at 18.75 percent, while most Western oil and gas producing states charge between 16.67 and 18.75 percent. The state of Texas charges a 25 percent royalty rate. In a 2007 report, GAO found that the U.S. government “receives one of the lowest government takes in the world.”

http://thinkprogress.org/climate/2013/1 ... lty-rates/

[dolanbaker]

The only way that governments this side of the pond can subsidise fuel would be to reduce the taxation on it, but as already stated the loss of revenue would be unbearable for most governments.

It is also important to remember that most oil is imported here.

You mean to say your central banks wouldn't just print the money needed because a shortage is an emergency?

Very unlikely, as this time the money will be going into the "real economy" as opposed to the banking & financial economy.

Inflation would go through the roof, having said that, it is still a possibility as that may be the way out of unsustainable debt, inflate it away!

[Plantagenet]

Remember 'Drill Baby Drill'? I have NFI what that was about....

It's about drilling and fracking thousands of wells to get a bit more oil, as we do every year now in the US

[Keith_McClary]

For example, if world oil depletion has kicked in and there is a 1 Million bbl/day shortfall causing the price to zoom back up so that the economy is ready to collapse could you see the Obama administration releasing oil from the SPR to make up the short fall? I certainly think that would be a possibility. In that situation some Senator from Alaska or Texas or even Ohio will introduce a bill to "temporarily" off set the high cost of oil production by paying any domestic producer $X.YZ a barrel to produce more oil and eliminate the shortfall.

Consider a hypothetical planet with two continents:
Postlandia is past peak and digging down the resource pyramid.
Prelandia is pre peak and still has some sweet spots left.
There is a world market in oil and Postlandia is a net importer.

Now suppose Postlandia puts a subsidy on domestic production. In the short term this might boost global production and keep world prices down.

One effect would be to discourage development of Prelandian cheap & easy oil in favour of Postlandian expensive oil. In the longer term, this would accelerate the decline in Postlandia.

[Subjectivist]

I don't know about "should" but I'm thinking they almost certainly will. As mentioned here and elsewhere, the only cost that is within anyone's control are royalties/taxes/whatever. As the cost to produce grows and grows governments will have no choice but to cut taxes or watch new production dry up overnight. The US take (of course) is already low by world standards, many states are higher in fact.

A report released Tuesday by the U.S. Government Accountability Office (GAO) found that the Department of the Interior has “discontinued” an effort to increase the royalty rate that companies must pay to the government for extracting oil and gas from onshore public lands. The report also raises serious questions about whether taxpayers are receiving a fair return for the extraction of their natural resources.
Currently, oil and gas companies are required to pay 12.5 percent in royalties for drilling onshore. But royalty rates for drilling offshore are usually set at 18.75 percent, while most Western oil and gas producing states charge between 16.67 and 18.75 percent. The state of Texas charges a 25 percent royalty rate. In a 2007 report, GAO found that the U.S. government “receives one of the lowest government takes in the world.”

http://thinkprogress.org/climate/2013/1 ... lty-rates/

I think ultimately the governments will have to decide what is worth more, the oil taxes they take in or the economic acivity that the oil generates in the whole economy? For the highest tax countries they can slowly lower taxes so hat prices seem stable to the consumers. Subsidies would come after taxes are rescinded. Of course given government common sense they might add subsidies while leaving taxes in place so that they can say they are still raking in X in taxes from the oil producers.

[Unit30Bull]

Another point worth mentioning is that current law distributes only 51% of the federal royalty to the feds and 49% of the federal royalty to the state in which the federal lands are located. So the feds truly are giving up a lot of royalty.

However the other side of the picture is in New Mexico O&G companies can get an approved APD (Application for Permit to Drill) from the NM State Land Office in less that 14 business days and that same APD could take 4-6 months from the BLM (Bureau of Land Management aka Federal Lands) with many stipulations such as Lesser Prairie Chicken, Sand Dune Lizard, Shinnery Oak Sand Dune Habitat, Playas and Alkali Lakes, Potash, Raptor Nests and Heronries, etc...

[Tanada]

For example, if world oil depletion has kicked in and there is a 1 Million bbl/day shortfall causing the price to zoom back up so that the economy is ready to collapse could you see the Obama administration releasing oil from the SPR to make up the short fall? I certainly think that would be a possibility. In that situation some Senator from Alaska or Texas or even Ohio will introduce a bill to "temporarily" off set the high cost of oil production by paying any domestic producer $X.YZ a barrel to produce more oil and eliminate the shortfall.

Consider a hypothetical planet with two continents:
Postlandia is past peak and digging down the resource pyramid.
Prelandia is pre peak and still has some sweet spots left.
There is a world market in oil and Postlandia is a net importer.

Now suppose Postlandia puts a subsidy on domestic production. In the short term this might boost global production and keep world prices down.

One effect would be to discourage development of Prelandian cheap & easy oil in favour of Postlandian expensive oil. In the longer term, this would accelerate the decline in Postlandia.

But does your example say anything about how the politicians on this Earth will behave?

Take two cases,

Saudi Arabia is a huge exporter of petroleum, as we all know. Most of us also know KSA already heavily subsidizes the price of consumer refinery products within their country. Gasoline, instead of paying a fuel tax to the state receives a large subsidy to keep pump prices very low compared to most of the world.

For the other case take the UK where not only do oil producers pay a large extraction tax to the government, the end consumer of those same refinery products particularly Diesel Fuel and Gasoline, pay a very large excise or 'road' tax. In the USA road taxes are by law used for road maintenance and construction, but in the UK they are also added to the general fund and spent for other government programs as well as road work.

Will the UK government keep the excise 'road' tax on end consumers to prevent extra consumption but subsidize oil production to keep the economy functioning on the down slope?