[Plantagenet]

Plantagenet, You still seem to have missed the primary point in my previous post, that all that equipment for drilling and actually doing the fracing itself requires large quantities of oil and water.

Not at all. Its just such an obvious point I didn't think it needed additional comment.

All the infrastructure and expertise doesn't exist (even in many cases even for conventional drilling) in say France, or Argentina or Australia.

That isn't true. France is the home of a large oil company active around the world (Total) and an extremely important energy services company named Schlumberger. France also has highly prospective tight shales. The Vaca Muerte oil shale project in Argentina is a joint venture between Chevron, Exxon and several local companies at a site holding 16gb of oil, and Chevron and Exxon have access to as much infrastructure and expertise as money can buy---they just drilled and frakked their first wells there. Australia is a first world country that has long hosted energy projects and has huge potential for oil shale development. Its ridiculous to suggest that Australia couldn't do frakking.

Technically recoverable reserves of LTO are about 350 Gigabarrels, so we could say that only a quarter of that is economically recoverable (87 Gb) at <200 USD/barrel, and spread over an area much larger than the LTO shale being fraced in the U.S. 87 Gb is 3 years of global oil use.

The "3 years of global use" is a meaningless number. Nobody is planning to turn off the valves on all the other worlds oil producers and rely only on frakking for three years----what frakking is doing is SUPPLEMENTING conventional sources of oil. Frakking will be generating tight oil for decades.

LTO production outside of the U.S will develop very slowly, as it's now 8 years after fracing started in the U.S. I don't see it happening for a paltry ultimately recoverable quantity of 87 Gb

???

87,000,000,000 barrels of oil is "paltry"? Hmmm....lets convert that into dollars, shall we.

At $110-$115 bbl, that comes to.....about 10 trillion dollars. I guess we'll just have to differ on this. I don't think 87 Gb of oil or 10 trillion dollars is "paltry" at all.

[Simon_R]

I am confused, I thought we were in peak oil and the price of oil was simply rising out of control (Zombies optional)
Now I hear we are not (mainly as the doomers failed in their peak predictions), maybe someone from the other camp (cornucopians I believe) could make a prediction when the cost of fuel at the pumps will be going down ?

Thanks

Simon

[AgentR11]

That's the fiction though, that prices would rise out of control; which is foolish. Price, supply, and demand are circularly dependent on each other; when price rises, motivation to increase production happens, but just as potently, pressure comes to bear to reduce demand; thus moderating the rate and amplitude of the price rise. Similarly, if production goes to maximum possible flow rate, then the price and demand become the sliding scale.

The key left out in most of the insta-doom fictions, is that demand is extremely sensitive to any quick change in price. People notice a 30cent/gallon increase as if it were a knife in the back, even if most people can't tell you whether a carton of 18 eggs sells for $2 or $3; and routinely buy 2L soda at a $1.67 even while knowing it periodically sells for a $1.

Demand destruction is the biggest variable, and it is a fast and effective remedy to peak oil, and the post peak decline.

In short, demand destruction is neither the problem, nor the symptom. Its the solution, and happens whether planned for or desired, or not.

[ralfy]

Oil production cost has increased together with the cost of finding new oil, and that's caused by physical limitations which are part of peak oil. At the same time, the market can barely tolerate high prices as most people worldwide earn only a few dollars daily.

Thus, demand destruction takes place. It is the result of peak oil. A solution, on the other, will consist of technology or other sources of energy that will negate those physical limitations.

[Plantagenet]

I am confused, I thought we were in peak oil

Thanks

Simon

We're close but not quite to the peak yet. Thanks to new production from US fracking global oil production is still going up at circa 1% per year.

[MD]

Gail gets a little lost in analysis paralysis (we are obligated to forgive her for this, she is an actuary after all), but her theme is generally sound.

It's easy to see where we are headed. Fossil fuel economic segments will continue to prosper and falter at the same time, due to diminishing returns.

As that plays out many peoples will suffer and die, and the world will change yet again.

A+B=C

A. Fossil Fuel.

B. Diminishing Returns.

C. A new world.

Yes, it's that simple.

[JV153]

87,000,000,000 barrels of oil is "paltry"? Hmmm....lets convert that into dollars, shall we.

At $110-$115 bbl, that comes to.....about 10 trillion dollars. I guess we'll just have to differ on this. I don't think 87 Gb of oil or 10 trillion dollars is "paltry" at all.

If somebody uses 87 Gb of oil then you use a lot of oil and you have a big bill to pay .
I'm not convinced that 10 trillion dollars would be enough to extract 87 Gb of LTO available to the end consumer. 10 trillion USD is 2 million drilled wells at 5,000,000 USD a piece.

[MD]

87,000,000,000 barrels of oil is "paltry"? Hmmm....lets convert that into dollars, shall we.

At $110-$115 bbl, that comes to.....about 10 trillion dollars. I guess we'll just have to differ on this. I don't think 87 Gb of oil or 10 trillion dollars is "paltry" at all.

If somebody uses 87 Gb of oil then you use a lot of oil and you have a big bill to pay .
I'm not convinced that 10 trillion dollars would be enough to extract 87 Gb of LTO available to the end consumer. 10 trillion USD is 2 million drilled wells at 5,000,000 USD a piece.

Y'all are arguing about meaningless numbers. Go back and look for your key indicators again. You missed this time. Good luck!

[JV153]

It's easy to see where we are headed. Fossil fuel economic segments will continue to prosper and falter at the same time, due to diminishing returns.

That was my point .. 2 million driled wells for 87 Gb is an example of diminishing returns. I just tried to give a reasonable metric to it. Now if each well has a 10 hp diesel pumpjack.. obviously Plantagenet's theory of widespread LTO production is out in complete la-la land.
http://www.youtube.com/watch?v=NuT2qv3WSSg

[Pops]

Actually, I'm pretty sure Gail's point is the situation isn't simple at all, that simplistic predictions like bell curves, extrapolating the past or any version of party line doom or techno-dazzle are bound to fail.

It is very difficult to build models that cross academic areas, so we tend to find models that reflect “silo” thinking of one particular academic specialty. These models can offer some insight, but it is easy to assume that they have more predictive value than they do.

Which is why I liked this post, if there is one thing I've learned around here it's that if,then works good in the binary world but doesn't really apply in the meat world.

For example, early in the discussions here, the government would come up from time to time as an agent of mitigation perhaps (tho probably more often as internment camp administrator, LOL) but today the US government seems not only laughably ineffective but increasingly, intentionally so.

When the board first opened the talk was about the oil companies getting fat on skyhigh prices and killing the economy - the opposite seems to be happening with the economy not able to pay the freight and the majors taking it on the bottom line:




Prior to '08 zombies were bikers not mortgages, Thermal Depolymerization, ethanol, hydrogen, bio-everything (not to mention Junian Methane) were the silver bullets to rapid oil depletion but turns out the press releases all say the solution is... oil wells that rapidly deplete.


One simple solution and or obvious result of increasing oil prices would logically be fewer vehicles ...




And a expensive oil economy would obviously show up in a depressed equity market:




--
About the only simplistic answer to 'where we're headed' I can think of is: "in the long run we're all dead."
Aside from that I'm pretty sure it's all guesswork.

[JV153]

One simple solution and or obvious result of increasing oil prices would logically be fewer vehicles ...

Yes, I'm familiar with vehicle production figures.

Well, here's a simple story regarding an automobile purchase. This story is retold exactly as it happened.

We bought a demo passenger car and the salesman said, just before we left : " The needle shows almost completely empty, but you can drive it the 55 km to your home, it will make it". This was in 2003.
..and it was interesting what he didn't say, like "happy motoring" or "and come back again soon, please".
Nobody ever said "happy motoring" either when I lived in Canada.

I did have a couple guys say "give us your money" in Toronto once, and same thing in Finland, although they were women, and it was slightly different, "give us your money, now (nyt)" .

https://www.youtube.com/watch?v=n0NYBTkE1yQ Grayson grills Bernanke
https://www.youtube.com/watch?v=Ms-F9VC47FI GM executives grilled over use of private jets
https://www.youtube.com/watch?v=6WQtRI7A064 A strange video with Bill Gates
http://dotsub.com/view/b0283182-4c24-4b ... script/eng Transcript of Bill Gates speech
I guess Bill Gate's wants you to reduce your carbon footprint so that he can have more for himself.

Does that more or less give you an idea of where we are going ?

[AgentR11]

In short, demand destruction is neither the problem, nor the symptom. Its the solution, and happens whether planned for or desired, or not.

I don't consider "demand destruction" either a 'variable', 'remedy' or 'solution'. It is the destruction of an economy, and refers to the terminal incapacity of a society to effectively purchase, or even utilize petroleum at a given price. It is the end game, the disintegration of infrastructure and economy caused by relentless high oil prices.

The amputee doesn't like losing a foot or a finger.
Problem is... he dies otherwise.

Demand Destruction is amputation for the economy. It is messy, painful, harsh, forever scaring; and necessary for survival.
And yes, it is the end game, and we've been in it since the first step function power-down of the economy a few years ago.

Most importantly here, notice how flat the recovery period is, vs the "V"'ish shape of the prior ones; and that is *WITH* all those trillions of dollars of QE stimulus.



There will be more of these.

Pop's vehicle miles driven is smoother, but also smooths out the abruptness in that it doesn't display the fact that not only are miles falling, the amount of fuel used for each of those miles is also falling. (bad + good = less-bad)

[AgentR11]

From London FT: "The IMF has recently published research noting an unprecedented and synchronised slowdown in growth for emerging economies." Also Lagarde's crew using the word, "mediocre" for overall economic growth. Ow.

Second verse, same as the first. This is Power Down, without the Hippy Kumbaya moment. Increasing the Oligarch's share of a gradually shrinking pie that occasionally has a slice cut off and tossed out. We'll get overall negative real growth with positive nominal growth via QE mark-X as the next step from what we already have which is negative per cap growth coupled with positive nominal per cap growth.

Thus, no safe communes; no rampant permaculture reset, no suffering Bankers and Capitalists. They will be on top of the heap, all the way down the glide slope.

[Quinny]

Suppose this is one reason there is the need for revolution

Interesting really despite us being poles apart politically I tend to agree with a lot that you post.

From London FT: "The IMF has recently published research noting an unprecedented and synchronised slowdown in growth for emerging economies." Also Lagarde's crew using the word, "mediocre" for overall economic growth. Ow.

Second verse, same as the first. This is Power Down, without the Hippy Kumbaya moment. Increasing the Oligarch's share of a gradually shrinking pie that occasionally has a slice cut off and tossed out. We'll get overall negative real growth with positive nominal growth via QE mark-X as the next step from what we already have which is negative per cap growth coupled with positive nominal per cap growth.

Thus, no safe communes; no rampant permaculture reset, no suffering Bankers and Capitalists. They will be on top of the heap, all the way down the glide slope.

[Keith_McClary]

potential global shale resources (not including marine shales)

And the shale boom is mostly coming from three counties in ND - so tiny they don't even show on the map.

[radon1]

Suppose this is one reason there is the need for revolution

Question is: suppose the revolution is made, what's next?

[Ibon]

Suppose this is one reason there is the need for revolution

Question is: suppose the revolution is made, what's next?

The only "revolution" that will unite a divided world is one that dissolves and breaks down all polarities.
That revolution will be made by non human agency and it will not discriminate by your political views.

[Pops]

The modern economy is the largest civilisational bubble ever blown, but alas it is inflated with dinosaur farts, swamp gas and the vapors of our ancestors. Once the air clears things will get back to normal.

Meanwhile, normal today is celebration at the news the unemployment rate is below 6%. The people who actually want work but don't have enough is given to be (after myriad "adjustments") something like 12% - if one can put any faith in the numbers put out by the Ministry of Truth. Turns out the actual percentage of the population employed however is about the same as 1978 before mom went to work. That would be fine except most people are living on a 2-income budget - stagnant incomes at that.

Here is the participation rate for 25-54 year olds:




Then there's the stock market where computers vie with each other to "capture" value, no wonder work is passé. Interestingly, there is a strange correlation between government borrowing and stock value today - it's almost as if the government is borrowing money from the 99 and handing it over to the 1%:




Maybe the economy goes in a dramatic pop, but probably not. Hopefully it's a slow sagging, shriveling, shrinking econo-raisin; a party balloon forgotten behind the couch. At least that way there are fewer pinch points. Most likely some of both depending on the season, mixed in with a boom here and there to get a little more of the cabbie's money into the "market."

Regardless, deflation is the only end state of inflation.


Oh well. Here is a post full of doom charts if you're interested:
http://www.marketoracle.co.uk/Article47494.html

[Quinny]

Got this email today - I know they are trying to sell an investment strategy, but I think much of the analysis is spot on.

October 7, 2014
The Single Most Important Thing You'll Read All Day
The single most important issue for understanding why the finacnial system is not healthy and why we’re set to have an even bigger crash than in 2008 has to do with one word…
Collateral.
Collateral is an underlying asset that is pledged when a party enters into a financial arrangement. It is essentially a promise that should things go awry, you have some “thing” that is of value, which the other party can get access to in order to compensate them for their losses.
You no doubt are familiar with this concept on a personal level: any time you take out a bank loan the bank wants something pledged as collateral should you fail to pay the money back.
In this sense, collateral is a kind of “insurance” for any financial transaction; it is a way that the parties involved mitigate the risk of their deal not working out.
As many of you know, our entire global financial system is based on leverage or borrowed money. Collateral is what allows this to work. Without collateral, there is no trust between financial institutions. Without trust there is no borrowed money. And without borrowed money, money does not enter the financial system.
In this sense, collateral is the “reality” underlying the “imaginary” or “borrowed” component of leverage: the asset is real and can be used to back-stop a proposed deal/ trade that has yet to come to fruition.
On a consumer level, our bank deposits (cash), homes, and other assets are the collateral pledged when we borrow money from a bank to finance something. This applies to everyone in the US all the way up to the multi-billionaire bracket.
On a corporate level, companies pledge various assets as collateral for their corporate loans. For manufacturing firms, this might be the actual steel inventory they own. For property companies, it’s portions of their real estate portfolios.
And for financial firms, at the top of the corporate food chain, it’s sovereign bonds.
Modern financial theory dictates that sovereign bonds are the most “risk free” assets in the financial system (equity, municipal bond, corporate bonds, and the like are all below sovereign bonds in terms of risk profile). The reason for this is because it is far more likely for a company to go belly up than a country.
Because of this, the entire Western financial system has sovereign bonds (US Treasuries, German Bunds, Japanese sovereign bonds, etc.) as the senior most asset pledged as collateral for hundreds of trillions of Dollars worth of trades.
Indeed, the global derivatives market is roughly $700 trillion in size. That’s over TEN TIMES the world’s GDP. And sovereign bonds… including even bonds from bankrupt countries such as Spain… are one of, if not the primary collateral underlying all of these trades.
How did the world get this way?
Back in 2004, the large banks (think Goldman, JP Morgan, etc.) lobbied the SEC to allow them to increase their leverage levels. In very simple terms, the banks wanted to use the same collateral to backstop much larger trades. So whereas before a bank might have $1 worth of collateral for every $10 worth of trades, under the new regulation, banks would be able to have $1 worth of collateral for every $20, $30, even $50 worth of trades.
Another component of the ruling was that the banks could abandon “mark to market” valuations for their securities. What this means is that the banks no longer had to value what they owned accurately, or based on what the “market” would pay for them.
Instead, the banks could value everything they owned, including their massive derivatives portfolios worth tens of trillions of Dollars using in-house models… or basically make believe.
This sounds completely ludicrous, but that is precisely the environment that banks operated in post-2004. As a result, today US banks alone are sitting on over $200 TRILLION worth of derivatives trades. These are trades that the banks can value at whatever valuation they want.
Now, every large bank/ broker dealer knows that the other banks/dealers are overstating the value of their securities. As a result, these derivatives trades, like all financial instruments, require collateral to be pledged to insure that if the trades blow up, the other party has access to some asset to compensate it for the loss.
As a result, the ultimate backstop for the $700+ trillion derivatives market today is sovereign bonds.
However, there is one BIG problem with the Fed, Bank of Japan, and Bank of England’s QE programs… they’ve SHRUNKEN the global pool of high grade collateral.
By actively buying Treasuries, Japanese bonds, etc. central banks have soaked up over $10 trillion worth of high grade collateral from the system.
As Zero Hedge has done a great job of exploring, the results of this are already showing up in the bond market with fund managers admitting that there is little if any liquidity in the corporate bond market.
The same problem applies to the sovereign bond market with bond managers putting money into fixed income derivatives because they can’t get their hands on sovereign bonds themselves.
It is not coincidence that the first ever International Conference on Sovereign Bond Markets took place this year… nor is it coincidence that “liquidity” was the first topic of focus.
This has the makings of a Crash that will be far worse than 2008. If you’ll recall, 2008 was primarily an investment banking crisis. However, when the next crisis hits, it will be a global bond crisis. And given that bond liquidity is already a trickle when bonds area rallying one can only imagine the selling panic that would ensue once the market turns.