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Peak Cheap Energy

Fighting MSM disinformation and oversimplifications about cost of shale oil and other energy related topics:
as Arthur Berman noted "Shale oil is not a revolution, it is a retirement party"

News Casino Capitalism Recommended Links Secular Stagnation Gas wars Oil glut fallacy Subprime oil: Deflation of the USA shale oil bubble
Paper oil, Minsky financial instability hypothesis and casino capitalism Slightly skeptical view of oil price forecasts Paper oil and record oil futures trading volumes MSM propagated myth about Saudis defending this market share Russia oil production Iran return to western oil markets fear mongering Oil Burden: amount on money spend on energy vs. global GDP
Energy returned on energy invested (ERoEI) Energy Geopolitics Great condensate con A note of ERoEI decline Cushing is filling up hysteria Plato Oil as Hubert Peak in condition of rising oil prices Media disinformation about Plato oil and Hubert peak
Energy disinformation agency and friends Big Fukushima Debate Oil consumption growth The fiasco of suburbia US military energy consumption Media-Military-Industrial Complex Neoconservatism
Neocolonialism as Financial Imperialism  All wars are bankers wars Predator state Bakken Reality Check Junk bond bubble Debt enslavement Neoliberalism as a New Form of Corporatism
IMF as the key institution for neoliberal debt enslavement Media disinformation about Plato oil and Hubert peak Fiat money, gold and petrodollar Energy Bookshelf Financial Quotes Financial Humor Etc
80 years ago the Nobel Prize winning chemist explained where oil DOES come into the picture:

Though it was not understood a century ago, and though as yet the applications of the knowledge to the economics of life are not generally realized, life in its physical aspect is fundamentally a struggle for energy, …

Soddy, Frederick M.A., F.R.S.. Wealth, Virtual Wealth and Debt (Kindle Locations 1089-1091). Distributed Proofreaders Canada.

The ‘backing’ for the petrodollar now includes the monetized value of Chinese and third world labor and natural resources as well as OPEC oil. But controlling the outcome of life’s “struggle for energy” is still the crumbling cornerstone of both US foreign and domestic economic policies:

  • control the world’s access to energy and it has no choice but submitting to the hegemon’s will
  • the U.S. political system is now owned lock, stock and barrel by a financial / military industrial / fossil fuels complex (am I forgetting anybody?). The powers that be are trying to preserve the existing status quo by insuring that life remains a “struggle for energy”.

The denizens of Wall Street and Washington can perhaps be forgiven for believing they were the “masters of the universe” at the conclusion of WWII. What they can NOT be forgiven is their belief – then or now – is that “the end of history” had arrived (unless they cause it).

Steven comment on Michael Klare Delusional Thinking in Washington, The Desperate Plight of a Declining Superpower


Introduction

Nemesis eventually catches hubris.

"Shale oil is not a revolution, it is a retirement party"
Arthur Berman

When oil is traded too cheaply, the victim of such trades is always the future generations. The drop in oil prices in 2014-2017 might have been a curse, not the blessing as it slowed down or stopped the adaptation processes to the "end of cheap oil". The process that was already in place with $4 per gallon ($1 per liter) gas in the USA, when sales of large SUV dropped considerably and used large SUV could be  bought for a half of its usual price.  The reality is a harsh mistress: the situation in 2018 with depletion of existing oil deposits and new discoveries is now worse than in, say, 2000.  Technology an and will prolong the agony so so far there is no viable solution to "hydrocarbon age".

As of 2018 in the USA consumer still continue to do the same things as before 2008. Such as buying large SUVs. Which fits Albert Einstein definition of insanity ("doing the same thing over and over again and expecting different results"). As one NYT commenter noted (Moscow on the Brazos):

I don't get it. We're supposed to be running out of oil, right? Or has that changed? $2 gas and we've gone past the Bell Curve of supply and use? And now we're all drunk on cheap gas. I'm happy to see new innovative efficient technology, new electric and hybrid cars but now they're selling boatloads of SUVs and pickup trucks. They are back in big style. They are better now, instead of 11 mpg they're 15 mpg.

As IEA )which is a noted chaierleader of position "do not worry, be happy" as for the end of chep oil) noted in iea.org

In a Low Oil Price Scenario, longer payback periods mean that the world misses out on almost 15% of the energy savings seen in our central scenario, foregoing around $800 billion-worth of efficiency improvements in cars, trucks, aircraft and other end-use equipment, holding back the much-needed energy transition.

At the same time, the current slump in oil prices proved to be pretty long (started in Sept 2018)  and defy all expectations. That means that any person who tried to predict commodities price in the current environment is suspect ;-).  In a "very long run" the supply/demand dynamic is at work, but market for the period less then a year prices can be pretty arbitrary and completely disconnected with the cost of producing oil and supply and remand ration. This is a side effect of financialization when the volume of "paper oil" traded is the order of magnitude larger then the volume of actual oil expected for any given period.  That is another proof that neoliberalism is an unstable system with a built-in positive feedback loop. As such neoliberalism is quite capable of dragging us through shortages, depressions, environmental disasters, and even wars on the way from one equilibrium to another. So all those general considerations that are provided below are nothing but an educated guess. As John Kenneth Galbraith aptly said: "The only function of economic forecasting is to make astrology look respectable." Readers beware...

This is a skeptical page that was created due to strong doubts about MSM coverage of the current oil prices slump. Especially the idea of oil glut (which in the USA for some strange reason coincide with rising imports of oil.

in this sense MSM cries about getting close to self-sufficency look strange. Yes some tipes of oil-like products produced by shale wells are not very desirable (condensate) and they are stored distorting the whole picture but with rising imports thee can be not "oil glut". But not for the US MSMs. This looks like a phenomenon which came directly from  Geroge Orwell's novel 1984  where it was called "doublespeak". 

The first thing to understand is that at a given stage of developing of drilling and other related technologies there is a minimal price of oil below which production can be continued only at a loss. This price point is different for different types of oil, and slightly varies between different regions but it does exist. For example, a shale/tight oil well often costs around $6-8 million, which needs to be amortized over the life of a well which in the case of shale/tight oil is approximately five-six years. To make things worse unlike conventional wells that can produce approximately at the same rate for a decade, those wells experience a steep decline after two first years. With more half of oil extracted in the first two years. The cost is much higher for non-conventional oil producers than for conventional producers and that means that at prices below, say, $70-$80 per barrel production of shale oil leaves the trail of junk bonds production as well. One is impossible without the other. 

Canadian tar sand production is even more expensive. Deep water drilling is somewhere in between conventional and non-conventional oil, pricewise.

There are different estimates, but most analysts agree that the US shale/tight oil producers need around $70-$80 per barrel to be able to pay their debts and around $60-$70 to break even. Those numbers are slightly less for deep water oil ($40-$50) and slightly higher for Canadian tar sands. The picture below illustrated difference prices to produce different types of oil ( see below) is reproduced from What Me Worry About Peak Oil  by Art Berman (December 27, 2015 ):

This means that production of light oil from tight zones need the price of $70-80 per barrel to pay the debt.  The same applies to extra heavy, deep water, and EOR projects. Offshore arctic and ultra deep water are extremely expensive and with their own special environmental risks as BP recently discovered. The implication seems to be that "non-conventional" oil projects do require prices in $80-$100 range to continue pump oil at the same rate (Red Queen's race - Wikipedia) and this implies continued drilling of new wells.

In this sense 2010-2013 were gold age for oil production worldwide, as prices were close or above $100 and billions were invested in high cost oil resources

All-in-all it looks that "Shale oil is not a revolution, it is a retirement party" as aptly observed Arthur Berman).

Now prices dropped below $33 (as of Jan 6, 2015) and at this level of prices all tight oil producers  are losing money  on each barrel of oil they produce. Debt fueled boom in the shale space will most likely never return. Most shale players managed to survive 2015 (some due to hedges; some due to junk bond dent they accumulate and still did not put into capex). But to survive in 2016 will be more difficult and they are in danger of defaulting on their bonds. Mass extinction might well be in the cards, if low prices persist for the whole year.

 when the almighty money almagamations like the Carlyle Group swoop in and buy up all the distressed assets, we just might see oil prices rebound. The vultures won’t have the motive to short the heck out of oil, like they are now.

Junk bonds has duration around five-seven years, so bonds taken in 2010 will be due soon and refinancing them now is very difficult. That means weaker non-conventional oil producers will probably be bankrupt if not in 2016, then in 2017, if prices stay low. This process already stated with something like a dozen bankruptcies in 2015. According to OilPrice.com more expected in 2016:

At the same time world demand for oil will continues to grow and will grow in 2016 probably by 1.3 Mb/d or more.  In 2015 it rose from 92.45 to 93.82 Mb/d. The only country that has additional capacities now is Iran but how quickly it can expand production in low price regime and whether it will be willing to sell additional oil at such low prices to get currency is difficult to predict. Some think that Iran will be able to add another 0.5 Mb/d in 2016 which can only compensate for the drop of US production and nothing else. Production in all other countries will be iether stable or slightly declining due to natural decline of wells with age and lack of capital investments in new drilling. Typical estimate is 1% decline or around 1MB/d of lost supply. Natural rate of decline of most conventional wells is around 6% and non-conventional around 20 (not evenly distributed; the first year production can even rise).  It it doubtful that remaining capital investments will be able to offset everything but 1% of decline. Real decline from non-OPEC members in 2016 can be more.

Actually even Saudis managed only marginally increase their exports in 2015; they just exported slightly more oil  (around  +0.3Mb/d more) at very low prices which supports the current low oil price regime, but not their economy which ended 2015 with a record deficit around $100 billions by Saudis estimates ($150 by IMF estimates). What is Saudis motivation of doing this (and depleting both their coffers and oil reserves) is a difficult question to answer but probably this is an economic war with Iran. The second important source of support of low prices is Wall Street games with futures.

The key problem here is that shale and tight oil producers were not that profitable at above $100 per barrel oil price range that existed in 2010-2013 and accumulated large amount of debt (several hundreds of billions, mostly in junk bonds) during those "good times" . The debt that now needs to be serviced so they have an albatross around their necks.

The destruction of oil supply while very gradual already started albeit slowly, as decline of wells is still compensated by hedging, new drilling and projects that have been started in the "good old days" are still coming online. This decline might well accelerate toward the middle of 2016, if prices do not recover. In any case hedges will expire somewhere in 2016 and after that it will be clear who is swimming naked.

In other words the current oil prices are IMHO not sustainable (too low) even in one-two year timeframe. When most hedges expire and the number of bankruptcies start to increase, Wall Street might be unable to press oil futures down anymore so push back in prices can be pretty violent. .

BTW Saudis lost around $100 billions this year and their foreign reserves shrunk to around $600 billions. Projected loss for 2016 is around $85 billions. So they need around one decade to deplete their foreign currency reserves.

Some suspicious consistency in the US MSM stories about oil price slump

“Where ideas are concerned, America can be counted on to do one of two things: take a good idea and run it completely into the ground, or take a bad idea and run it completely into the ground.”

—George Carlin

Oh what a tangled web we weave, When first we practice to deceive!"

Walter Scott, Marmion, Canto vi, Stanza 17

 

To make the story short current MSM behaviour is highly irresponsible and suggests that all of them are in the pockets of Wall Street or worse. After all oil is a irreplaceable commodity that will eventually run out. Low oil prices from this point of view are the last thing we need. It's like drinking party on the deck of Titanic. What should be done is creating the infrastructure for living with much less oil available. Which is possible only with high prices for this commodity. also the destruction of oil patch that now is happening should be get so much cheerleading. It is a tragedy for many people. The ability to fill gas tank for less then 2 dollars is not everything in this life. 

Economist Herbert Stein (1916-1999) wrote in 1986: "if it can’t go on forever it will stop." Despite this self-evident truth there is interesting, highly correlated bias, in coverage of oil prices slump for most of the US MSM: all predict essentially that current low oil prices will stay if nor forever, then for a very long time. And that what happened in 2015 is not anomaly, despite clear indicators that at this price most US producers sell their barrels at loss.  They salivate that this situation will continue in the first half of 2016 and well into 2017. They also completely discard negative externalities of this event.  As oil has crashed to $33 levels there is  a lot of MSM talk that the current price is really the long term historical average price, that 2005-2014 was an anomaly (bubble) and that we will stay in this range (say, $20-$40) for years to come.  Actually you can bet that at any price point MSM will claim that the cost of extraction is 20% lower, no matter what the price level is.

You can bet that at any price point MSM will claim that the cost of extraction is 20% lower, no matter what the price level is.

Yes, there are few places in the Middle East and Russia from which oil can be profitably extracted at this price range. But those countries depend on oil for revenue to balance the budget so even in those places this situation is unsustainable.  More then 80% sources of oil are unprofitable at those prices. That includes all shale/tight oil and all deep offshore anywhere in the world.

Still for some unknown to me reason in MSM low oil prices (below the cost of production) and depletion of valuable natural resource are now considered to be a universal good. While at best this is nothing more then initiated by Saudis "Hail Mary pass" to save Western civilization from secular stagnation. Externalities be damned, full speed ahead. Shale oil industry and destruction of its workforce, junk bond market troubles are just collateral damage. Does not matter one bit. Give us cheap oil brother and all will be fine.
 

For some unknown to me reason in MSM low oil prices (below the cost of production) and depletion of valuable natural resource are now considered to be a universal good. While at best this is nothing more then initiated by Saudis "Hail Mary pass" to save Western civilization from secular stagnation. Externalities be damned, full speed ahead. Shale oil industry and destruction of its workforce, junk bond market troubles are just collateral damage. Does not matter one bit. Give us cheap oil brother and all will be fine.

But at the same time never try to catch falling oil barrel ;-). Market can stay irrational longer than you can stay solvent.

Also strange and suspicious is that most MSM peruse suspiciously similar and questionable, or outright false, if we look at the facts, stories:

  1. Quicker depletion of a valuable and irreplaceable national resource due to low prices does not matter.  Existing wells deplete 5-8% per year (tight oil more that that) so you need to discover, drill and put on line at least the same amount in order to maintains the same volume of oil production. That costs money, and if money are not here nobody will drill. So natural tendency of production at low oil price (which now man below $70-$80 per barrel) is down, not up. 
     
  2. Saudis are fighting for their market share and flooding the world with oil.  This hypothesis is advanced despite the fact that their exports are stagnant and had grown in 2015 only by around 0.2-0.3 Mb/d (see Saudi Arabia oil production and forecast for 2016). Which is a miserable amount. What fight for market share: they can sell all theoil they produce.  In 2014 they exported around 7.1 Mb/d and in 2015 around 7.3 Mb/d. Plus/minus 0.1 Mb/d. So nothing essentially changed as for the level of their exports taking into account that the growth of world consumption for 2015 is over 1 Mb/d.   Their real strategy is dumping their exports at low price undercutting other producers to bring the price down.  In other words they are using what is called "predatory pricing" and to achieve that they tapped into their currency reserves to the tune of $100 billion a year. They are burning their currency reserves at the speed at which they can exhaust them from six years to decade, losing the investment grade in three.  Also most of their fields are old and semi-exhausted, so maintaining high production might even damage them, cutting short their useful life and the total amount of oil Saudis can recover from them. 

    Saudi shipments rose to 7.364 million barrels a day in October, 2015, according to the latest figures from the Joint Organizations Data Initiative (JODI).  Shipments averaged 7.11 million barrels a day in 2014, down from an 11-year high of 7.54 million barrels a day in 2013 and the lowest in three previous years. So Saudis failed even match their 2013 exports in 2015.

  3. Iran is able and willing to throw on the market another 0.5-0.7 Mb/d in 2016 further depressing prices. This hypothesis is advanced despite explicit statements from the Iran leadership that they will not give any future customer additional discounts above those that exist today.  while Iran leadership is definitely irrational, blocking the temporary freeze agreement, and willing to hurt the county future by increasing oil production as much as they can in low oil price environment (hurting their ally Russia in the process), they are not completely stupid and they do not have much money to drill anyway.  As they now have access to their previously frozen foreign reserves they definitely can wait a year or two before coming to the market with the new supply.  also increase of supply is not instant, it requires time and money, even taking into account that Iran has some underdeveloped fields that can be profitably put into production even at low prices that exist to today. This is a better strategy then coming with new supply at the point of ridiculously low prices. Although everything can happen. Middle Eastern nations are unpredictable.
     
  4. A very conservative estimate of the decline of non-OPEC production for the next year. Most assume that it will be limited to roughly 0.5 Mb/d. But the rate of natural decline of existing conventional oil wells is 3-6% and reduced capital expenses mean less new production is coming online in 2016 and 2017. Assuming 1% depletion that's around 1MB/d that should disappear in 2016. Add to this hard crash that is possible for the US shale producers and the estimate 1.5 Mb/d drop does not look outrageously high. But those consideration somehow disappeared from all considerations from MSM and they operate under assumption that supply from existing wells is indefinite and decline is a rounding error.  Only increase in supply is material and eminent (again Iran supply story get the most prominence). 
     
  5. The US MSM propagate the following bogus narrative: "there is an oil glut in the USA market in particular despite the fact that the USA increasing their import of oil. To cry about glut on oil in the country which imports each month in 2015 more and more oil is something new to me.  This is something from Orwell novel Nineteen Eighty-Four and is called doublespeak. If you are an oil producer, you don’t pump oil unless you have orders for it.  If you pump oil without orders, then you need your own storage to store it. In no way you ship it to Cushing, Oklahoma with their 80 Mb storage capacity as your customers can be in completely different part of the USA and it's you who need to pay for storage. That's the privilege used by refineries to regulate their input in case of maintenance, seasonal peaks, etc.  You don’t ship any oil without getting paid for it. So oil glut theory claim that they are producers which have oil shipped to customers and customers did not use it. Putting it in storage instead. And this bogus "theory" is propagated by MSM for more then 18 month now. It' time for MSM to stop to propagate this nonsense. 
     
  6. Cheap oil is here to stay and current situation will last to 2017 in worst case or to 2020-2040 in the best. IEA forecasts are viewed as facts, despite clear interest in lower oil prices.  In reality just cutting capital investment along with depletion of  existing fields (almost 6% for conventional wells, around 20% per year but very unevenly spread for shale/tight oil wells) guarantee diminishing supply. To compensate for 5% depletion the world now needs to find and put into production approximately 5 Mb/d of oil. In other words the world is losing approximately 1 Mb/s of supply per quarter. This loss a very difficult to stop, although it was possible for the last several years because huge capital investments in oil industry caused by high oil prices. 2010-2014 has shown that with high oil prices the decline can be stopped and reversed.  The problem is that adequate capital investments are thing in the past and now most oil companies need to adapt to starvation mode as for capital investment in the oil industry. That spells huge trouble for Norway, Russia, GB,  and other nations with mostly conventional wells.  It will be a miracle if they can maintain they level of production at prices below $40 for more then one-two years (there is some inertia here and new projects are continuing to come online for around 18 months since the start of the price drop; that means till mid, or last quarter of 2016, depending were you put the start of oil price drop). 
     
  7. MSM instantly forgot about previous concerns and the reversal of efficiency of the US car fleet. In 2015 SUVs again became the most popular category of personal car with sales of large SUVs booming. This deterioration of the US fleet efficiency happens along with slow down of sales of hybrids and, especially, electrical cars.
     
  8. Growth of demand during the current period of below $2 per gallon gas for some, unexplained reason will be slower then the explosive growth of demand in 2015. for some reason is is expected to be  limited to around 1% or 1.3-1.4 Mb/d worldwide.
     
  9. China slowed down and her oil consumption will be stagnant or down despite boom in car sales, as if the number of cars of the road is disconnected with oil use. In reality transportation is around 60% of country oil use. Right, but China oil consumption is still growing and will continue to grow in 2016. Those trends can co-exist for a while. So electrical consumption decline does not mean that the oil consumption decline is eminent.

    The same situation can exist in other countries such as the USA - slowing of the economy along with growth of oil consumption. All those new SUVs on the road need fuel to run.
     
  10. The assumption that the destruction of shale/tight oil companies with excessive debt loads in the USA  will be gradual and slow. Despite the fact that they currently produce at a loss  each barrel of oil they sell.  Also it will be orderly without major disruption of production -- just a gradual decline despite dramatically lower capital expenses. The assumption of most US MSM is that US production will stay close to current levels due to Gulf production or due to by waiving some magic wand by Obama administration.
     
  11. Junk bond problem does not exist or is of minor importance despite the fact that there are over 100 billions of shale oil book related junk bonds on the market. Similarly losses of financial sector from hedges in 2015 are non-existent as well (only Mexicans got several billions or additional revenue due to hedges).

The question is from where all those MSM deceptive and false  "talking points" originate.

The end of cheap oil hypothesis

The "end of cheap oil" hypothesis can be simplified to several postulates:

  1. Mankind demand for oil will continues to grow, although the pace of growth slows down with the increase of the price of oil as well as due to stagnation of world economy caused by high oil prices. That does not exclude temporary (often multiyear) oil price slumps or highs: instability is the nature of financial system under neoliberalism. 
  2. The supply of oil profitably extractable at any given price point below $100 (such $40, $50, $60 per barrel) will continue to shrink. Total extractable supply of oil can grow only by adding more and more expensive source of oil, sources with lower EROEI. New technology of extraction (especially horizontal drilling) can somewhat offset decline of EROEI but can't reverse it.  Simple calculation by dividing "proven world reserves" by annual consumption suggest that at prices below $100 in 2014 dollars they will be exhausted in approximately half a century (assuming $50 a barrel price point) peakoilbarrel.com, comment 12/11/2015 at 7:34 am)
    Proved oil reserves at 1700.1 billion barrels, 52.5 years of supply.

    Reference:

    http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/oil-review-by-energy-type/oil-reserves.html

    At 50 USD per barrel, the value is 50×1,700,100,000,000=85,005,000,000,000 usd

    Not enough, 100 USD per barrel will be better. 85 trillion dollars to spend so 1700.1 billion barrels of oil can be extracted and burned in 52.5 years. An absolute bargain. Current consumption at 32.85 billion per year, 365×90,000,000, 1700.1/32.85=51.75 years.

  3. The search for new sources of hydrocarbons by G7 countries will intensify over time and will likely generate resources wars. At least two resource wars already happened: Iraq and Libya. Wars are fought over access to and control of oil resources with high EROEI as well as other vital natural resources. With rising human population, competition for these resources might increase triggering conflicts, large and small. Industrialized nations already started to invade weaker countries to secure access to oil which is essential to the survival of modern industrial civilization (Iraq and Libya, and if we think about pipelines to Europe, Syria). 
  4. Very high price of oil (let's say above $100 per barrel)  leads to stagnation in all major industrialized countries and first of all the USA as well as eventual debt collapse of neoliberal economies and slow down or reverse of neoliberal globalization.
  5. The current "Race to burn what's left" is irrational.  Low oil prices destroy and delay investment in new supplies, slow down efficiency gains, encourage consumption and sow the seeds of the next big boom in prices.  If we assume that at each price point only a finite amount of oil can be profitably extracted from Earth (which is a planet, that is now well researched for oil), the current year and a half slump in oil prices looks extremely suspicious. It means robbing future generations, as conservation efforts are now derailed. Sales of SUVs and small trucks in the USA are up.  Trillions in equity and bond losses, hundred thousands of ruined retirement accounts and there is a severe recession knocking on the door for the US economy. The US are selling their last drops of oil at prices below production cost. In my opinion it would be wiser to save the oil that is currently  produce in strategic reserves and sell it when prices are much higher.

Please note that the US government patiently observes the current situation and does not try to influence the price by buying oil for their strategic oil reserve, although in the past it used to do such things. MSM coverage of oil also suggests strong establishment bias toward lower prices. As if this is the last "Heil Mary" pass in geostrategic game for the USA dominance.  So there are higher priorities in play here then the destiny of the US shale industry and more rapid exhaustion of national oil reserves. At the same time oil price slum is equivalent to a huge stimulus  to the USA economy, but it does have some significant side affects. If we assume $93.17-49.08=44.09 price drop for 2015 and the daily consumption of around  19.58 Mb/s that comes to 222 billions a year.

The current drop of oil prices also represent huge stimulus to EU,  China, Japan and other all other industrialized countries without or with little own oil reserves. If this were organized as a part of Russian sanctions package, this was a brilliant strategy. All industrialized countries in which own consumption far exceeds own production, are essentially isolated from negative affect of countersanctions   by the low price of oil.  In other worlds this is a huge global economic stimulus to the "masters of the universe" and at the same time stern warning to one of the last "resource nationalists" which try to pursue independence from Washington foreign policy.

The key question here: was it engineered by neoliberal strategists in Washington, DC and their masters in major Wall Street banks (in this case this was a really brilliant move)? Or is this ugly side effect of unhinged capitalism known as neoliberalism where oil companies overinvested in new projects due to greed and many new projects are coming simultaneously  online, while demand for oil grows more slowly then they expected. In any case at one point Saudi Arabia decided to dump its oil on the market and fun started. Was it the order from Washington or thier own initiave is unclear.

In recent years oil consumption was growing at slower pace dur to high oil prices. Per Michael Klare 2005 projection of oil consumption in 2015 was 105 Mb/d (millions of barrels per day); actual in 2015 was around 93 Mb/d as high price of oil stimulated investment in energy saving technologies. That includes not only small and hybrid cars (which actually did not improve much from, say, 1990 level, as the size of small car in the USA had grown considerably, but also cars and trucks working on natural gas, blending gas with alcohol (up to 10%), tax breaks for electrical cars ($7500 currently on many "pure electrical" models of small passenger cars, half of that on hybrids). Now this positive trend is partially reversed.  

But there were other signs of introduction of energy saving technologies which indirectly cut oil consumption, especially in chemical industry which will stay:     

For example the energy cost to major chemicals of running their plants is significant in the united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy intensity by 22 percent through a structured program targeting process improvements. This has saved 1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion.

Note on the term "conspiracy theories"

Conspiracy theory was the term invented by CIA to whitewash their participation in JFK assassination, which got a wider use and became a common term in English language.  Here is how the term is defined in Wikipedia:

A conspiracy theory is an explanatory hypothesis that suggests that two or more persons, a group, or an organization of having caused or covered up, through secret planning and deliberate action, an event or situation which is typically taken to be illegal or harmful. Although the existence of a proven conspiracy involving United States President Richard Nixon and his aides in the Watergate scandal of the 1970s has been claimed as validation of conspiracy theories in general,[1] the term "conspiracy theory" has acquired a derogatory meaning and is often used to dismiss or ridicule beliefs in conspiracies.[2]

Such things as the current oil slump probably could never happen purely due to market forces (and notion of "free market" is another neoliberal lie; neoliberal markets are neither free nor fair). Oil is not a regular commodity. Oil is a strategic resource. So I think it is naïve to analyze it strictly in supply-demand terms.  Geopolitics plays very important role in oil prices and always was. Remember how the USSR was brought to its knees by dropping the oil prices in late 80th.

Remember Iraq war with one million of Iraqis dead. Was not this a blatant attempt to secure oil resources for the USA majors? Remember Libyan color revolution and Hillary reaction to the horrible death of poor colonel. Is not this about collision of French desire to secure oil supplies and Washington desire to get rid on a dictator who was an obstacle to neoliberal agenda?

And Syria war unleashed to achieve what ? It all about remapping Middle East by toppling "not friendly enough" to Washington regimes. It took longer then "seven countries in five years"  as Rumsfeld promised (https://www.youtube.com/watch?v=9RC1Mepk_Sw) but it looks like the plan itself is still current: 

“We’re going to take out seven countries in 5 years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran”

General Wesley Clark. Retired 4-star U.S. Army general,
Supreme Allied Commander of NATO during the 1999 War on Yugoslavia .

It is clear that recent "petro wars" in the Middle East were about execution of a  US strategy which was not only about globalism and the USA world dominance, but also about oil.

The oil market has always been driven by geopolitics, and it was a factor that contributed to unleashing both WWI and WWII. Or, if you want, geopolitics has been very strongly influenced by the supply and distribution of crude oil for at least a century. To talk in pure supply/demand terms about such a strategic, vital for human civilization commodity is absurd.
and the whole idea the Kingdom of  Saudi Arabia, a vassal state completely dependent in its survival on the USA unleashes a price war against the USA shale production looks very suspect. nevertheless it is propagated by major MSM like 100% true.

In other words oil was and is a major weapon of economic war. And dumping oil prices is especially potent weapon against countries with significant oil exports such as Russia, Venezuela, Iran, Iraq, etc.  You can kill several birds with one stone.

The key question here is classic cue bono ? Which country is the major beneficiary of the current oil prices crash. The answer is -- the USA (despite some troubles of shale producers which started in late 2015 when most hedges expired). So  it is plausible to suggest that the USA elite including Wall Street banks played an important role in slamming oil prices to reach some important geopolitical goal, significance of which supersede the value of destruction of the USA shale industry.  After all the US financial industry can for a short time distort price of any commodity to any desired level.  HFT is a perfect tool for that and that was explicitly mentioned on Aleynikov trial  by Goldman officials.

It might well be that the current low price is playing double role: to stimulate Western economies and simultaneously serve as the most important part of package of sanctions against Russia. Obama actually hinted that this is true. And Saudi Arabia did play similar role in the past -- crash of oil prices did  facilitated the dissolution of the USSR, which lost the major part of its export revenue).

I would like to stress it again that the idea that Saudi Arabia is engaged in price war against the USA to defend its market share is extremely questionable. By all measures KSA is a satellite state, vassal of the USA if you like. How vassal state can act in such a way without the USA blessing ?  Economic conditions are now not equal to 2008 so the current drop of oil prices can't be explained by panic.  And without using the power of US-controlled financial markets it id doubful that it is possible to accomplish such a quick and sustained drop. 

The USA has long history of using oil as a geopolitical tool. Not only to crash the USSR but also to lure Japan into WWII. Oil embargo against imperial Japan served essentially as a declaration of war and it was read by Imperial Japan leadership exactly this way  (the leadership, which actually has little or no illusions that Japan will lose, but decided not to surrender without armed struggle). There is some evidence that Perl Harbor was not defended specifically to make entrance into the war with Japan more dramatic and more acceptable to the population of the USA, as a reaction on the clear act of aggression by Japan (although air carriers were sent to sea to save them).

And population of Earth still grow, as well as the number of cars and, especially tracks on the road. Similarly the number of airplanes and ships.  Until that trend stops the "long term"  trend for oil price should be up as chances of finding large deposit of "cheap oil" are not close to zero.  Of course "In a long run we all are dead" maxim applies.

But as of 2015 the planet is pretty well explored for this vital commodity. That means that the cost of oil extraction rises with time because the cheapest to extract oil is removed first. Actually this is now true for most commodities, including metals.

To get oil now deeper wells are needed, or fracking equipment and fracking sand and liquids, or you get oil that is too heavy or oil which contains too much sulfur. That means that  special refineries need to be build. In any case more resources are need to produce the same amount of petrol and diesel for transportation and other purposes. It is natural to think that price will gradually rise due to diminishing returns on capital used for extraction.  According to Barclays Capital (cited by  Steven Kopits),  the costs of extracting oil began increasing by 10.9% per year, since 1999 from $5 to almost $25 per barrel.  Add to this transportation cost to refineries, interest on debt, etc and we are probably talking about "magic" figure of $60 per barrel.  So in 2015 any price below it is strongly suspect and probably is temporary. Although the4 rule is "never to say never" and for investors in oil ETNs (such USO, OIL, etc) Keyes saying that market can be irrational longer the you can stay solvent fully applies.  The same saying is now looming over the heads of shale companies executives. As of December 2015 bloodbath has began.

So the question is really about how long the current low oil prices (oil slump) will last. One year is definitely enough to eliminate hedges. And in December of 2015 they are mostly gone (two year hedges do exist but are a rarety)  Capital expenses are now slashed to the bones, but project that take several years to complete will still come into production and that will support the level of oil production at least for one year till Jan 2017. We also can probably see some consolidation of the oil industry. Weak players start being eliminated.

Three years are enough to eliminate most new capital investment and to finish projects which started before slump. Capital investment goes to a screeching halt. After that much depends on the speed of decline of existing wells and pace on increasing of global consumption. that actually includes growth of internal consumption in three major oil producing nations such as USA, Russia and Saudi Arabia. Of those three Saudi Arabia experiences especially quick rise in internal oil demand.

In any case since mid 2015 the price of oil on spot market dropped almost to one third of max price previously achieved. As of Aug 8, 2015 the spot price for October, 2015 delivery was around $44 per barrel. This is a dramatic drop from over $100 per barrel price peak achieved earlier. 

"Cheap oil" is the cornerstone of the current neoliberal world order; it's end means end of US dominated world

We need to understand that "cheap oil" is the cornerstone of the current neoliberal social system including the level of neoliberal globalization that is underway since late 80th. So for the USA elite a lot is in stake if price of oil consistently stays, say, over $100. The USA world domination which is so cherished by neocons and for which they are ready to fight endless wars is in stake.  Also countries that "do not deserve it in view of neoliberal elite (and are only partially controlled by the USA), such as Iran and Russia, can became fabulously rich. And they understand that "the end of cheap oil" might bring great socio-economic changes within the USA itself as neolibel fairy tale about "tricke down" prosperity will be exposed as a fraud. and American people can became rightfully angry, despite all efforts to brainwash them and to fond external target for their anger. In this sense we can view the current oil slump as a brave attempt, "The Last Hurrah" attack of the old neoliberal guard  which came to power in 1980th to postpone inevitable social changes (and first of all demise of neoliberalism and by extension the USA role as a global hegemon). the important of oil for the US as the center or global neoliberal empire was well described in 2002 article by Bill Christison (Oil and the Middle East)

April 5, 2002

Back in March CounterPunch published Christison's devastating critique of the strategies and conduct of the US war of terrorism. (See our archive by scrolling down to "Search CounterPunch.)) These new remarks, which he has made available to CounterPunch were delivered to various peace groups in Santa Fe, New Mexico on early April.Bill Christison joined the CIA in 1950, and served on the analysis side of the Agency for 28 years. From the early 1970s he served as National Intelligence Officer (principal adviser to the Director of Central Intelligence on certain areas) for, at various times, Southeast Asia, South Asia and Africa. Before he retired in 1979 he was Director of the CIA's Office of Regional and Political Analysis, a 250-person unit His wife Kathy also worked in the CIA, retiring in 1979.Since then she has been mainly preoccupied by the issue of Palestine.

I've been asked to talk today about the topic, "U.S. Oil Policy as a Juggernaut in U.S. Foreign Policy." That's a great title. When you hear the word "juggernaut," what you think of--at least what I think of--is a monster machine of some sort, maybe the heaviest heavy tank you can imagine, rumbling down a city street, unstoppable, crushing everything in its way, and even destroying the paving of the street as it goes. Well, that comes pretty close to describing what I believe about the long-term effects of our oil, and other, foreign policies in the Middle East. But if we look ahead, rather than at the past or the present, my hope is that, by changing some of our own foreign policies, U.S. oil policy will in the future no longer be a destructive juggernaut.

It's worth spending a minute to talk about why oil is so important to the United States. The world's total use of energy from all sources--from petroleum, natural gas, coal, wood, hydropower, nuclear, geothermal, solar, and wind power--has increased in recent years roughly as the global population has also increased. Petroleum contributes the greatest single amount -- about two-fifths of the world's total energy output, and natural gas (which is in some ways related to oil) more than another one-fifth. The United States alone uses about one-quarter of the world's total energy output, but has less than five percent of the world's population. The U.S. itself does not produce anywhere near the amount of energy that it consumes. According to statistics of the U.S. Department of Energy, the United States used in the year 2000 almost 100 quadrillion Btu's--or British Thermal Units--of energy. But of those 100 quadrillion Btu's, the U.S. had to import close to 30 percent. The United States is, hands down, the most profligate user of energy, by far, on this whole globe.

With respect to oil alone, the U.S. imported in the year 2000 almost two-thirds of the oil that it used. The importance of Saudi Arabia as a supplier of the U.S., needs to be emphasized, but not just because the Saudis hold the largest known but still untapped oil reserves in the world. What is even more important to the U.S. at the moment is that Saudi Arabia has the largest installed but unused rapid production capacity--that is, oil wells, pumping equipment and so forth already there but not used to meet current, or "normal," production needs. In any emergency that cut off oil supplies from anywhere else in the world, Saudi Arabia would one of very few, and maybe the only, nation that could easily and quickly increase its oil production without a waiting period measured in months rather than a few days. This obviously adds to what any general or admiral would call the strategic value of Saudi Arabia to the United States.

There is another characteristic of the global oil industry that we should all understand. It is an industry dominated by a half-dozen extremely large, global corporations--including ExxonMobil (these two firms merged in 1999), British Petroleum, Shell, Texaco, Gulf and Socal. Fifty to 75 years ago these companies might have been swashbuckling, unregulated corporations seeking to maximize profits and avoid the controls of any governments by all means fair or foul. Today, however, these companies by no means have the same personalities that they had years ago. In the Middle East, at least, the governments of the area have nationalized practically all oil production, and the companies or their subsidiaries have gradually worked out mutually supportive relationships with the local governments, under which the companies continue to manage most of the oil production and global oil trade, while the governments, and OPEC, make the basic decisions on how much oil to produce. The companies continue to make large profits, which keep them happy enough.

In their relations with the U.S. and other advanced nations, the companies no longer shun government regulation, because most of the regulations imposed on them are supportive of, and increase the profits of, the companies themselves. The regulations fall more into the area of corporate welfare than into the area of inducing the corporations to become better citizens. In the U.S., the ties of the oil companies with both of the major political parties are close and mutually profitable. Up to a few months ago, these same comments would have applied to Enron, which was clearly one of the world's largest energy companies, even though it was not one of the largest global oil companies.

I started out by comparing the long-term effects of U.S. oil policies to a juggernaut. To show you why, I want to go back almost 60 years, to February 1945. In that month, President Franklin D. Roosevelt, while returning from the Yalta Conference, met with King Ibn Saud of Saudi Arabia on a U.S. warship in the middle of the Suez Canal. Two months later, Roosevelt was dead, but this meeting was probably one of his most important acts as a world leader The actual records of the conversations between these two men have never been released by either of their governments, but it is quite clear that an agreement was reached under which the United States guaranteed for the indefinite future the security and stability of the Saudi monarchy. In return, the Saudi King guaranteed U.S. access to, and joint development of, the massive Saudi oil reserves, also for the indefinite future. These mutual guarantees were later, implicitly at least, extended to apply to the other, and smaller, Gulf state monarchies, from the Arab Emirates to Bahrain and Kuwait. All of these guarantees were reinforced by the U.S. war against Iraq in 1990-1991, and these guarantees still today form the basis of U.S. oil policies in the Middle East.

So for close to 60 years now, the U.S. has continued to prop up and support these authoritarian governments. I'd like to give you an example of how this has worked in the case of Saudi Arabia. This is from an article that appeared in The Nation magazine last November, written by a British expert on world security affairs. Here are a few lines from this article. "To protect the Saudi regime against its external enemies, the United States has steadily expanded its military presence in the region. [T]o protect the royal family against its internal enemies, US personnel have become deeply involved in the regime's internal security apparatus. At the same time, the vast and highly conspicuous accumulation of wealth by the royal family has alienated it from the larger Saudi population and led to charges of systemic corruption. In response, the regime has outlawed all forms of political debate in the kingdom (there is no parliament, no free speech, no political party, no right of assembly) and used its US-trained security forces to quash overt expressions of dissent. All these effects have generated covert opposition to the regime and occasional acts of violence"

The United States pursued policies like these not only in Saudi Arabia and the smaller Gulf States, but elsewhere in the Middle East as well. When the U.S. overthrew Mossadegh in Iran in 1953, and reinstalled the Shah in power, Washington began carrying out precisely the same policies in Iran as it employed in Saudi Arabia. The Shah's secret police, known as SAVAK, and the Iranian military forces both grew markedly stronger. For 26 years the Shah's repressive regime succeeded in smothering internal dissent. In 1979, however, major internal dissent did erupt, supported by radical Islamic clerics who wanted all U.S. influence out of their land. The Shah was quickly overthrown. U.S. experiences in Iran since that date should have suggested to people in Washington that just perhaps the strong U.S. support for repressive regimes in the Middle East was not the ideal long-term policy for us to pursue. No reexamination of U.S. foreign policy ever got started, however, because the United States was immediately consumed by the horrible insult Iranians imposed on us when they held over 50 Americans from the U.S. Embassy hostage for more than a year.

Then, in the 1980s, the U.S. spent the decade quietly cozying up to Saddam Hussein, the dictatorial ruler of Iraq, which was and is another big oil producer of the Middle East. Since Iran was now a U.S. enemy, the U.S. supported Iraq in its war against Iran. The U.S. did not criticize Saddam Hussein even when he employed chemical warfare to gas sizable numbers of Kurdish people in his own country. The United States only abandoned him in 1990, when he crossed the U.S. over Kuwait. Even here, the diplomatic signals Saddam received from the U.S. until shortly before he invaded Kuwait were very unclear. Once again, when the break finally came, the U.S. administration gave no thought to reappraising its own policies throughout the region. A decision was made in favor of going to war to end this threat to U.S. hegemony and U.S. access to oil, and that was that.

Now, in the year 2002, this almost-60-year-old Middle East oil policy of the United States is showing signs of even more fraying at the edges. Beyond any question in my opinion, one of the root causes behind the terrorism of September 11 was this very U.S. policy of supporting for the past half-century and more these authoritarian and often corrupt Arab and Muslim governments. There exists a high degree of anger among many Muslims with their own governments, which have for so long been supported by the U.S.

Osama bin Laden is a good example of this particular root cause behind the September 11 terrorism. His wrath was directed as much against the Saudi government, for example, as it was against the United States. His opposition to what used to be his own government was probably the main reason why he had the support of a majority of the young men under 25 in Saudi Arabia. He received similar support from many young men in other Arab and Muslim states as well. Right now these groups of angry young men obviously no longer have a viable leader in Osama bin Laden, but other extremist leaders are almost sure to arise. In addition, the next generation of leaders in at least some of these states may well emerge from among these young men. If any of them do come into power, their future governments will likely be more anti-American than the present governments, which Washington likes to call "moderate," but which are really nothing of the sort. If we have not reduced our energy dependence on oil in the meantime, we may face serious trouble.

The U.S. should therefore adopt quite draconian measures immediately to reduce its overall energy usage, including its dependence on Mideast oil. It is unlikely, for the near future at least, that the U.S. will solve a future energy crunch through alternative power sources or by "clean" coal, nuclear power, or Alaskan oil usage. The U.S. also should not count on oil supplies from Central Asia as a way to ignore the need for conservation.

The U.S. should also, over time and gradually, reduce its ties with the present governments in many Muslim states, and try to develop improved relations with opposition elements there, actively seeking out democratically inclined groups. Such steps will be necessary if there is to be any hope of reducing support for future Osama bin Ladens that arises from the anger of Arabs and Muslims with their own governments.

I want to turn now to another foreign policy problem that the U.S. faces in the Middle East, one that has become more tightly intertwined with U.S. oil policies since September 11. Ever since shortly after World War II, the U.S. has had not one but two fundamental foreign policies in the Middle East. The first policy, which I've already talked about, has been to support authoritarian and undemocratic governments in the oil nations in an effort to guarantee the long-term easy access to Middle East oil at "reasonable" prices. The other policy, equally important, has been to provide strong support to Israel and to guarantee the security of Israel as a Jewish state, also for the long term.

Over the last fifty-plus years, there has been a fair amount of tension and conflict between these two policies. The United States under President Harry Truman was, as I'm sure you all know, instrumental in helping to establish the state of Israel in 1948. But even then, one of the reasons for the opposition to Truman's desires by many other U.S. officials, including the Secretary of State, General George Marshall, was that it might endanger the west's access to oil from the Arab nations.

As it has turned out, for most of the period since World War II, the U.S. has managed to keep its two basic policies in the Middle East pretty much apart from each other--in separate boxes so to speak--and to keep the tensions between them in check. The very existence of the Cold War, which provided the bogey-man of a common enemy, helped in this regard. The one obvious time when the U.S. proved unable to keep the tensions between its two policies under control was the OPEC oil embargo against the west in late 1973 and early 1974. The Arab-Israeli war of 1973, and specifically the U.S. response of resupplying Israel with large amounts of new military equipment, precipitated the embargo, and many of us here can remember the gas lines that resulted in this country. But the gas lines only lasted a few months, and then we all went back to normal. But we should remember those months as a perfect example of the fact that there are indeed real conflicting interests involved in the two basic U.S. foreign policies in the Middle East.

Overall, though, because the United States has been able to hold these conflicting interests in check for most of the past half century, I think that Washington has allowed the tensions to grow, more or less ignored by U.S. policymakers, to a point where they are going to be exceedingly difficult to deal with in the future. Since September 11, a number of things have happened that make it more impossible than ever to separate the effects of the Israel-Palestine problem from the effects of the continuing U.S. support for most authoritarian governments of the oil nations in the area.

In Saudi Arabia and most of the small Gulf States, the position of the monarchies has become more precarious, as these monarchies have been subjected to more criticism since September 11 from public opinion in the United States than has been the case for years. In normal circumstances, when these monarchies are confident that the U.S. guarantee of their security is strong and unbreakable, most of them will not worry too much about other issues that might further weaken their domestic position. The George W. Bush administration is undoubtedly reassuring them that the U.S. security guarantee is still in effect, but they cannot help but be worried about its permanence when they see public opinion in this country changing. This puts pressure on the monarchies to pay more attention to the opinion of their own Arab "street." And the opinion of this Arab "street" is today more intensely critical than ever of Israel's policies on Palestine and the continued occupation of the West Bank and Gaza.

The U.S. government, from September 11 right up to the present, has made it clearer than ever to the world at large that it will unilaterally decide what actions around the world constitute "terrorism," and what actions do not. Specifically, in the minds of Arabs and Muslims everywhere, the U.S. seems to have accepted all actions by Palestinians against Israelis, including acts against Israeli soldiers as well as those against innocent civilians, as being terrorism. At the same time, however, the U.S. appears to believe that no acts by Israelis against Palestinians constitute terrorism. Arabs see this as a double standard. When, also at the same time, Arabs see their own rulers expressing support for the "war on terrorism" as it is defined by the U.S., their antagonism toward their own rulers intensifies. And the rulers themselves, recognizing this antagonism, feel greater concern for their own positions.

I'd like to express a note of caution here. I certainly do not know for sure whether any, or some, or all of the governments in Arab oil nations--the dictatorial governments whose stability and security the U.S. has guaranteed for almost 60 years--will collapse in the near future. Of course change can happen rapidly and without warning. The best minds in the U.S. government had no inkling that the Shah of Iran was going to be ousted a week before it happened in 1979. But even governments that seem to be falling apart can sometimes last for years, until some totally unforeseen shove comes along that pushes them over the edge.

What I am more sure of is that these Arab oil governments are now under greater pressure to change than they have been for years, because of developments since September 11. Therefore the U.S. should be actively encouraging--though never using military force to do so--a gradual movement toward greater political democracy in these nations. And in order to reduce the importance of one major factor leading to greater instability in the region, the U.S. should immediately begin to play a far more active role than it has recently in pressing for a solution to the Israel-Palestine problem based on two truly sovereign nations, with strong treaty guarantees from the United States of the future security of both of these nations.

Simultaneously,  wars for access to cheap oil (Iraq, Libya) can  be viewed as desperate attempts to find a way out of "secular stagnation", in which advanced economies found themselves after 2008 (or, more correctly, after 2000). And history proves that war is not always necessary. Sometimes other mechanisms work as well. So lowering of oil price for a considerable perios can also be viewed as a  clever "Hail Mary" pass to save Western economies which suffer from stagnation (aka "new normal") characterized by low economic growth, high level of debt,  and high unemployment rate --  along with deflationary tendencies at the end of debt expansion super cycle. 

And this precious product then is by-and-large wasted. In most Western countries population uses a lot more energy than they absolutely have to use, burning lion share of it in personal transportation.  Industries produce a lot of unnecessary or outright harmful crap, which sell only by the power of marketing.  Some industries produce crap exclusively and can be eliminated ;-). Most people in the USA could probably cut their private gas consumption by 50% or more with little or no harful effects (less car trips, sharing of cars, use of hybrid and electrical cars for commute, telecommuting, etc).

But this is not true of major industries, air and sea transport.  Those are areas where the limits set by "end of cheap oil" strike hard. At $4 per gallon and higher some (heavy/bulky) goods produced in China are already uneconomic to ship to the USA. That already started to affect  furniture industry. And we need get serious about planning, and the subsequent modifications in our energy usage pattern. Transition to the world with less "cheap oil" takes a lot of time and money to implement.

It might well be possible to replace around 20% of today’s oil consumption with renewable. Hybrid and electrical cars don't save much energy (lithium battery production consumes a lot of energy and rare metals which are very expensive to mine and refine) but they allow to substitute burning of oil to burning coal to produce electricity. 

Just the fact that oil industry now resorted to two  ecologically dangerous methods of extraction of shale oil and tar sands oil indirectly proves "top cheap oil" hypothesis. Why bother if cheap oil is plentiful? It's simply stupid to invest money in such extraction schemes unless you really believe in the "end of cheap oil".  If you object to this that means that you can't think clearly an dispassionately.

In both cases the size of ecological damage will be certain only decades later. it might be something like destroying America to save it. IMHO in no way the US shale production could be the decisive factor in spot prices drop of this magnitude (to closer $30 in 2015 dollars which so 30/2.4 in 1983 dollars ). And in 2014-2015 economic contraction did not reached 2008 levels to justify it from this point of view. EROEI of shale oil is way too low for shale oil to be competitive at current prices:  it is a complex and not very efficient process of conversion of energy and junk bonds into oil. It is far from just drilling a hole  and collecting oil which  flows under internal pressure  like in old good times.  Horizontal drilling greatly helps (and is the essence of most new methods of oil extraction with one (upper) well used to inject stream or chemicals and the other below it to collect oil) , but does not change the whole picture or lower EROEI of those methods. According to Wikipedia:

A 1984 study estimated the EROEI of the various known oil-shale deposits as varying between 0.7–13.3[75] although known oil-shale extraction development projects assert an EROEI between 3 to 10. According to the World Energy Outlook 2010, the EROEI of ex-situ processing is typically 4 to 5 while of in-situ processing it may be even as low as 2. However, according to the EIA most of used energy can be provided by burning the spent shale or oil-shale gas.[76]

Same problem of low EROEI is true about tar sands. Simplifying you can think about extraction of oil from tar sands as the industrial process of converting energy of  natural gas and junk bonds into oil. Approximately  280–350 kWh of energy is needed to extract a barrel of bitumen and upgrade it to synthetic crude. Most of this energy is produced by burning natural gas. Assuming $.1 per kilowatt we will get energy cost alone around 28-$35 a barrel. You probably should double this number to account for capital expenses and other costs.  

Is oil commodity or under neoliberalism this is another currency subject to standard currency attacks

A commodity currency is a name given to currencies of countries which depend heavily on the export of certain raw materials for income. These countries are typically developing countries, e.g. countries like Burundi, Tanzania, Papua New Guinea; but also include developed countries like Canada and Australia.

Befor assendance of neoliberalism in 1980th world oil prices were determined largely by real daily supply and demand. It was the province of oil buyers and oil sellers. Then Goldman Sachs decided to buy the small Wall Street commodity brokerage, J. Aron in the 1980th They had their eye set on transforming how oil is traded in world markets.

It was the advent of “paper oil,” oil traded in futures, contracts independent of delivery of physical crude, easier for the large banks to manipulate based on rumors and derivative market skullduggery, as a handful of Wall Street banks dominated oil futures trades and knew just who held what positions, a convenient insider role that is rarely mentioned inn polite company. It was the beginning of transforming oil trading into a casino where Goldman Sachs, Morgan Stanley, JP MorganChase and a few other giant Wall Street banks ran the crap tables. Essentially they invented another commodity currency. In the foreign exchange market, commodity currencies generally refer to the Australian dollar, Canadian dollar, New Zealand dollar, Norwegian krone, South African rand, Brazilian real, Russian ruble and the Chilean peso.

It looks like oil also became not pure commodity, but a new commodity currency. New York really trades overwhelmingly on a non-physical oil basis these days. Nobody checks if sellers of the futures have actual oil to settle. All settmenta are in dollar. In other words oil was virtualized.

In addtionan there are multiple oil ETFs (which are prefect way to rob lemmings -- naive investors who decided that oil is more reliable store of value then stocks)

Symbol  Name  Assets*  Avg Vol  YTD  1 Year  3 Year  5 Year  Inception  ER  ETF Home Page  Liquidity  Expenses 
USO United States Oil Fund $2,578,400.00 25,967,785 -28.05% -57.77% -59.14% -56.62% 2006-04-10 0.45% View A+ A+
OIL S&P GSCI Crude Oil Tot Ret Idx ETN $866,760.90 4,389,938 -33.41% -63.17% -64.50% -62.10% 2006-08-15 0.75% View A B
DBO DB Oil Fund $513,040.00 331,095 -27.39% -58.67% -58.24% -53.53% 2007-01-05 0.78% View A B-
BNO United States Brent Oil Fund $91,324.50 128,165 -26.08% -57.43% -59.34% -35.66% 2010-06-02 0.90% View A- C+
USL United States 12 Month Oil $70,752.00 84,619 -22.71%

As with futures, several questions arise about OIL ETFs. In any case as dollar finance is unlimited (via printing press) that creates completely new environment for commodities, when the price can be completely detached from reality.  In a way, oil ETFs are not that different then gold EFT which became pure "virtual currency" called "gold"  -- yet another financial speculation vehicle (Something Just Snapped At The Comex Zero Hedge):

As of Friday the comex gold "coverage" or amount of paper claims on every ounce of physical, was literally off the chart, soaring to a mindblowing 207 ounces of paper gold claims for every ounce of deliverable gold. This also means that the dilution ratio between physical gold and paper gold has hit a new all-time low of just 0.48%!

Similarly to games with gold we see "naked" shorting of oil:

United States Oil Fund LP (ETF) Short Interest Down 6.7% in July (USO) by Max Byerly

Aug 18th, 2015 | Ticker Report

Shares of United States Oil Fund LP (ETF) (NYSE:USO) were the target of a significant decline in short interest in the month of July. As of July 31st, there was short interest totalling 45,855,306 shares, a decline of 6.7% from the July 15th total of 49,139,106 shares, AnalystRatings.NET reports. Based on an average trading volume of 23,230,679 shares, the short-interest ratio is currently 2.0 days.

United States Oil Fund LP (NYSE:USO) opened at 13.89 on Tuesday. United States Oil Fund LP has a 52 week low of $13.86 and a 52 week high of $35.83. The company’s 50-day moving average is $16.41 and its 200 day moving average is $18.44.

United States Oil Fund, LP (NYSE:USO) is a commodity pool that issues limited partnership interests (shares) traded on the NYSE Arca, Inc. The investment objective of USO is for changes in percentage terms of its shares’ per share net asset value (NAV) to reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract for light, sweet crude oil traded on the New York Mercantile Exchange (the NYMEX). The Company’s general partner is United States Commodity Funds LLC. The net assets of USO consist primarily of investments in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other the United States and foreign exchanges.

Here is an interesting graph of money manager positions on NYMEX WTI (only NYMEX and only WTI):

The key question here is: "To what extent oil is still a commodity, and to what extent it is now yet another "virtual currency" subject to standard currency attacks ?" Naked selling of oil futures via shorting of OIL ETFs is not only possible, but highly profitable path for such attacks (4 Ways to Short Oil with ETFs - May 16, 2013 - Zacks.com).  All those tricks are possible due to free convertibility to US dollars, which unlike oil do not have any Earth-based limitations as for quantity and, what is more important, quality (gas liquids and shale oil are not equivalent to "classic' oil and refining of them produce mainly gasoline, instead of full spectrum of products; they should be considered "oil substitutes" and counted separately). And small amount injected in ETF can move spot oil market vary efficiently. So tail can wag the dog.

Who finance such attacks as losses can be substantial is an interesting question the answer on which I do not know, but recent behaviour of oil prices is typical for a currency attack as data about real oil extraction does not produce any optimism as for elimination of "peal cheap oil" phenomenon. But for speculators and gulling retail investors this does not matter. Casino is a casino. What is interesting the US MSM produce highly deceptive and well coordinated picture suggesting that there is government involvement in the whole scheme ( see below Russia sanctions section).

All those talks about crisis of overproduction are suspect. To a certain extent this might be a factor  due to slowing down of China economy and perma recession in the USA along with better small cars efficiency. But it is impossible to hide the fact that it was Saudi Arabia that decided to lower the oil prices and started to move in this direction ( An Oil Price 'Cold War' With Saudi Arabia Experts Disagree - US News) much like that did to economically crash the USSR in late 80th, early 90th.  I think that talk about attack on the USA shale industry does not make much sense, as Saudi Arabia is a vassal state and such move is punishable for a vassal:

Some experts declared it the start of a “cold war” with Saudi Arabia, as described by two University of Texas professors in an op-ed in the Dallas Morning News. Other analysts, however, contend that the Saudis are merely trying to defend against other exporters to the U.S.

“There’s another conflict brewing in the Middle East — the intensifying oil battle between Saudi Arabia and Texas,” Isaac Barchas and Michael Webber, who teach at the University of Texas at Austin, wrote in the op-ed.

As Webber, deputy director of the university's Energy Institute, describes to U.S. News, "Ford versus GM, Dell versus Apple: these are big companies duking it out for market share. Why would it be any different for oil. Is it a military war? No. But it's a market share war."

There are three main parts to his and Barchas' argument:

  1. Hydraulic fracturing, or fracking, has unleashed an energy boom here in the U.S., reducing net crude oil and petroleum product imports to their lowest levels since 1987.
  2. With more oil now available on the market, combined with a sluggish global economy that’s reduced demand in Europe and China, benchmark Brent crude oil prices have fallen by roughly 27 percent since June – their lowest point in four years.
  3. Saudi Arabia, the U.S's.second-largest source of imported oil behind Canada, is trying to retain its market share by undercutting American producers. The goal: drive down prices far enough to scare away Wall Street investors or simply make fracking unprofitable, forcing U.S. companies to take their drill rigs offline to reduce supply and clearing the way for more Saudi oil imports.

As Chip Register, managing director of consulting firm Sapient Global Markets asserted in a blog post on Forbes, “The Saudis have put a bull’s-eye on the U.S. shale industry.”

Other experts, however, expressed strong skepticism with this view.

“It’s not a personalized attack,” Steven Kopits, managing director of the consulting firm Princeton Energy Advisors, says of the Saudi discount. “Saudi Arabia is looking out for its own interests, not trying to undermine other people’s interests.” 

Jan Kalicki, public policy scholar and energy lead at The Wilson Center, a nonpartisan think tank, agrees.

“Any real impact on shale in the U.S. is going to require more than a price adjustment of this kind," he says.

U.S. shale fields can start and stop production relatively quickly. Technological advances, meanwhile, have sharply lowered the break-even point – no longer does fracking rank as one of the most expensive forms of oil production. It can still turn a profit at current prices of $80 a barrel, but depending on the type of well, fracking operations might even be able make money at prices as low as $55 a barrel.

Hence, “trying to apply predatory pricing in the oil business will only work in the very short run, if at all,” says Paul Sullivan, economics professor at National Defense University.

I think here the target is probably Russia. Telegraph reported  that Saudis offer Russia secret oil deal if it drops Syria - Telegraph

The revelations come amid high tension in the Middle East, with US, British, and French warship poised for missile strikes in Syria. Iran has threatened to retaliate.

The strategic jitters pushed Brent crude prices to a five-month high of $112 a barrel. “We are only one incident away from a serious oil spike. The market is a lot tighter than people think,” said Chris Skrebowski, editor of Petroleum Review.

Leaked transcripts of a closed-door meeting between Russia’s Vladimir Putin and Saudi Prince Bandar bin Sultan shed an extraordinary light on the hard-nosed Realpolitik of the two sides.

Prince Bandar, head of Saudi intelligence, allegedly confronted the Kremlin with a mix of inducements and threats in a bid to break the deadlock over Syria. “Let us examine how to put together a unified Russian-Saudi strategy on the subject of oil. The aim is to agree on the price of oil and production quantities that keep the price stable in global oil markets,” he said at the four-hour meeting with Mr Putin. They met at Mr Putin’s dacha outside Moscow three weeks ago.

“We understand Russia’s great interest in the oil and gas in the Mediterranean from Israel to Cyprus. And we understand the importance of the Russian gas pipeline to Europe. We are not interested in competing with that. We can cooperate in this area,” he said, purporting to speak with the full backing of the US.

Oil futures

Oil ETNs such USO or OIL does not have any intrinsic value. They are based on oil futures. Like is that case with currency future contracts, empirical studies suggest, not only is the oil futures price a biased estimate of the future spot price, but more often  it even gets the direction wrong. If the futures price suggests the oil will depreciate, it can well appreciate instead. In addition you can buy or sell options on oil making this commodity a real paradise for speculators.

Speculators definitely have expectations about the future oil spot price.  But often they demonstrate herd behavior driving the price to extremes as trading futures is trading "virtual oil" (futures are settled in dollars, never in actual commodity). This is especially true about short selling which can drive oil to really unprofitable for all major producers price. Recently they manage to drive it to less then $40 a barrel, the price at which only selected low cost producers can get the oil form the ground (to say nothing to invest in additional exploration or pay the cost of infrastructure and such). You ability to see oil short via specialized ETF or other means is limited only by your dollar reserves and the availability of counter party (and you can play certain games with this counterparty issue). 

Here is example of prices on Aug 31, 2015 (which also is a nice demonstration of dramatic dynamics that is possible in a single day) :

Chart Current Session Prior Day Opt's
Open Time Set Chg Vol Set Op Int
Oct'15 45.00 19:28
Aug 31
49.20
3.98 719704 45.22 440212 Call Put
Nov'15 45.69 19:28
Aug 31
49.93
3.95 137067 45.98 215025 Call Put
Dec'15 46.57 19:29
Aug 31
50.77
3.91 162736 46.86 243840 Call Put
Jan'16 47.50 19:28
Aug 31
51.63
3.91 57430 47.72 102471 Call Put
Feb'16 47.50 19:28
Aug 31
52.38
3.93 38475 48.45 50167 Call Put
Mar'16 48.25 19:29
Aug 31
52.98
3.92 38170 49.06 73615 Call Put
Apr'16 48.75 19:29
Aug 31
53.47
3.86 14106 49.61 25925 Call Put
May'16 48.99 19:28
Aug 31
53.85
3.76 7934 50.09 23357 Call Put
Jun'16 49.86 19:28
Aug 31
54.16
3.64 44230 50.52 103798 Call Put
Jul'16 50.29 19:28
Aug 31
54.38
3.53 3938 50.85 21832 Call Put
Aug'16 50.03 19:28
Aug 31
54.61
3.42 2511 51.19 16337 Call Put
Sep'16 50.72 19:28
Aug 31
54.87
3.31 8091 51.56 42572 Call Put
Oct'16
-
19:28
Aug 31
55.16
3.20 1164 51.96 17226 Call Put
Nov'16
-
19:28
Aug 31
55.48
3.11 1038 52.37 17809 Call Put
Dec'16 52.59 19:28
Aug 31
55.81
3.02 56618 52.79 133005 Call Put
Jan'17
-
19:28
Aug 31
56.05
2.94 598 53.11 14894 Call Put
Feb'17
-
19:29
Aug 31
56.31
2.87 277 53.44 8034 Call Put
Mar'17 55.45 19:29
Aug 31
56.59
2.81 988 53.78 9195 Call Put
Apr'17
-
19:28
Aug 31
56.85
2.75 465 54.10 3543 Call Put
May'17
-
19:29
Aug 31
57.08
2.69 435 54.39 2930 Call Put
Jun'17 53.69 19:29
Aug 31
57.34
2.64 5669 54.70 21475 Call Put
Jul'17 56.32 19:28
Aug 31
57.55
2.60 143 54.95 3120 Call Put
Aug'17
-
19:29
Aug 31
57.81
2.57 48 55.24 1760 Call Put
Sep'17
-
19:28
Aug 31
58.11
2.56 71 55.55 3982 Call Put
Oct'17
-
19:28
Aug 31
58.41
2.54 15 55.87 1184 Call Put
Nov'17
-
19:28
Aug 31
58.73
2.53 15 56.20 1270 Call Put
Dec'17 55.75 19:28
Aug 31
59.05
2.51 9588 56.54 44135 Call Put
Jan'18
-
19:28
Aug 31
59.21
2.49
-
56.72 1532 Call Put
Feb'18
-
19:28
Aug 31
59.38
2.46
-
56.92 312 Call Put
Mar'18
-
19:28
Aug 31
59.57
2.43
-
57.14 2688 Call Put
Apr'18
-
19:29
Aug 31
59.77
2.40
-
57.37 63 Call Put
May'18
-
19:28
Aug 31
59.98
2.37
-
57.61 516 Call Put
Jun'18
-
19:29
Aug 31
60.21
2.34 226 57.87 3700 Call Put
Jul'18
-
19:28
Aug 31
60.35
2.30
-
58.05 296 Call Put
Aug'18
-
19:28
Aug 31
60.52
2.27
-
58.25 61 Call Put
Sep'18
-
19:28
Aug 31
60.69
2.23
-
58.46 461 Call Put
Oct'18
-
19:28
Aug 31
60.87
2.20
-
58.67 61 Call Put
Nov'18
-
19:28
Aug 31
61.05
2.16
-
58.89 311 Call Put
Dec'18 58.54 19:28
Aug 31
61.24
2.12 2002 59.12 19416 Call Put
Jan'19
-
19:28
Aug 31
61.35
2.10
-
59.25 204 Call Put
Feb'19
-
19:28
Aug 31
61.48
2.08
-
59.40 4 Call Put
Mar'19
-
19:28
Aug 31
61.62
2.06
-
59.56 454 Call Put
Apr'19
-
19:28
Aug 31
61.78
2.04
-
59.74 4 Call Put
May'19
-
19:28
Aug 31
61.96
2.02
-
59.94 4 Call Put
Jun'19
-
19:28
Aug 31
62.15
2.00
-
60.15 1185 Call Put
Jul'19
-
19:28
Aug 31
62.20
1.98
-
60.22 5 Call Put
Aug'19
-
19:28
Aug 31
62.29
1.96
-
60.33 4 Call Put
Sep'19
-
19:28
Aug 31
62.41
1.94
-
60.47 4 Call Put
Oct'19
-
19:28
Aug 31
62.55
1.92
-
60.63 4 Call Put
Nov'19
-
19:28
Aug 31
62.72
1.90
-
60.82 104 Call Put
Dec'19
-
19:28
Aug 31
62.93
1.88 158 61.05 6628 Call Put
Jan'20
-
19:29
Aug 31
63.00
1.86
-
61.14
-
Call Put
Feb'20
-
19:29
Aug 31
63.08
1.84
-
61.24
-
Call Put
Mar'20
-
19:28
Aug 31
63.17
1.82
-
61.35
-
Call Put
Apr'20
-
19:28
Aug 31
63.28
1.80
-
61.48
-
Call Put
May'20
-
19:28
Aug 31
63.41
1.78
-
61.63
-
Call Put
Jun'20
-
19:28
Aug 31
63.56
1.76
-
61.80
-
Call Put
Jul'20
-
19:28
Aug 31
63.57
1.74
-
61.83
-
Call Put
Aug'20
-
19:28
Aug 31
63.62
1.72
-
61.90
-
Call Put
Sep'20
-
19:29
Aug 31
63.70
1.70
-
62.00
-
Call Put
Oct'20
-
19:29
Aug 31
63.83
1.68
-
62.15
-
Call Put
Nov'20
-
19:28
Aug 31
63.97
1.66
-
62.31
-
Call Put
Dec'20 64.00 19:28
Aug 31
64.14
1.64 14 62.50 1935 Call Put
Jun'21
-
19:28
Aug 31
64.59
1.57
-
63.02
-
Call Put
Dec'21
-
19:28
Aug 31
65.04
1.50 1 63.54 440 Call Put
Jun'22
-
19:28
Aug 31
65.34
1.50
-
63.84
-
Call Put
Dec'22
-
19:28
Aug 31
65.64
1.50
-
64.14 180 Call Put
Jun'23
-
19:29
Aug 31
65.64
1.50
-
64.14
-
Call Put

Is this  the mixture of overproduction crisis and intelligence operation with unforeseen side effects (blowback)

If we assume that the current event are a complex mixture of overproduction crisis, secular stagnation and intelligence operation with the goal to squeeze Russia (and as a side effect hurt Iran revenues)  that we should expect it lasting for several years, enough to destroy the opponents economically. So changes of recovering of oil prices in 2016 from this point of view are slip. For Russia this is a double blow as oil prices also affect natural gas prices. And it is true that Russian leadership were completely unprepared to this course of events, so the damage is great and real. As noted "Obama’s foreign policy goals get a boost from plunging oil prices" (Washingtonpost, Dec 23, 2015):

Plunging crude oil prices are diverting hundreds of billions of dollars away from the treasure chests of oil-exporting nations, putting some of the United States’ adversaries under greater stress.

After two years of falling prices, the effects have reverberated across the globe, fueling economic discontent in Venezuela, changing Russia’s economic and political calculations, and dampening Iranian leaders’ hopes of a financial windfall when sanctions linked to its nuclear program will be lifted next year.

At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration’s foreign policy goals: pressuring Russian President Vladi­mir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States.

https://www.washingtonpost.com/business/economy/as-crude-oil-prices-plunge-so-do-oil-exporters-revenue-hopes/2015/12/23/ed552372-a900-11e5-8058-480b572b4aae_story.html?hpid=hp_hp-top-table-main_oil-910pm%3Ahomepage%2Fstory

But there are some visible side effect, with some probably not well anticipated:

All that means that dramatic drop in oil prices is a mixed blessing. Mike Whitney lists several other factors( Oil Price Blowback , Jan 6, 2015, Counterpunch)

Up to now, of course, Russia, Iran and Venezuela have taken the biggest hit, but that will probably change as time goes on. What the Obama administration should be worried about is the second-order effects that will eventually show up in terms of higher unemployment, market volatility, and wobbly bank balance sheets. That’s where the real damage is going to crop up because that’s where red ink and bad loans can metastasize into a full-blown financial crisis. Check out this blurb from Nick Cunningham at Oilprice.com and you’ll see what I mean:

“According to an assessment from the Federal Reserve Bank of Dallas, an estimated 250,000 jobs across eight U.S. states could be lost in 2015 if oil prices don’t rise. More than 50 percent of those job losses would occur in Texas, which leads the nation in oil production.

There are some early signs that a slowdown in drilling could spread to the manufacturing sector in Texas… One executive at a metal manufacturing company said in the survey, “the drop in crude oil prices is going to make things ugly… quickly.” Another company that manufactures machinery told the Dallas Fed, “Low oil prices will drive reductions in U.S. drilling rigs, which will in turn reduce the market for our products.”

The sentiment was similar for a chemical manufacturer, who said “lower oil prices will adversely impact margins. Energy volatility will cause our customers to keep inventories tight.”

States like Texas, North Dakota, Oklahoma, and Louisiana have seen their economies boom over the last few years as oil production surged. But the sector is now deflating, leaving gashes in employment rolls and state budgets.” (Low Prices Lead To Layoffs In The Oil Patch, Nick Cunningham, Oilprice.com)

Of course industries lay-off workers all the time and it doesn’t always lead to a financial crisis. But unemployment is just one part of the picture, lower personal consumption is another. Take a look:

“Falling oil prices are a bigger drag on economic growth than the incremental “savings” received by the consumer…..Another way to show this graphically is to look at the annual changes in Personal Consumption Expenditures (PCE) in aggregate as compared to the subsection of PCE spent on energy and related products. This is shown in the chart below.

Lower Energy Prices To Lower PCE (Personal Consumption Expenditures):

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(The Gasoline Price Myth, Lance Roberts, oilprice.com)

See? So despite what you might have read in the MSM, lower gas prices do not translate into greater personal consumption or more robust growth. Quiet the contrary, they tend to intensify deflationary pressures and reduce activity which is a damper on growth.

Then there’s the knock-on effects that crashing prices and layoffs have on other industries like mining, manufacturing and chemical production. Here’s more from Oil Price:

“Oil and gas production makeup a hefty chunk of the “mining and manufacturing” component of the employment rolls. Since 2000, when the oil price boom gained traction, Texas has comprised more than 40% of all jobs in the country according to first quarter data from the Dallas Federal Reserve…

The majority of the jobs “created” since the financial crisis have been lower wage paying jobs in retail, healthcare and other service sectors of the economy. Conversely, the jobs created within the energy space are some of the highest wage paying opportunities available in engineering, technology, accounting, legal, etc. In fact, each job created in energy related areas has had a “ripple effect” of creating 2.8 jobs elsewhere in the economy from piping to coatings, trucking and transportation, restaurants and retail….

The obvious ramification of the plunge in oil prices is that eventually the loss of revenue will lead to cuts in production, declines in capital expenditure plans (which comprise almost 1/4th of all capex expenditures in the S&P 500), freezes and/or reductions in employment, and declines in revenue and profitability…

Simply put, lower oil and gasoline prices may have a bigger detraction on the economy than the “savings” provided to consumers.” (The Gasoline Price Myth, Lance Roberts, oilprice.com)

None of this sounds very reassuring, does it? And yet, all we hear from the media is how the economy is going to reach “escape velocity” on the back of cheap oil. Nonsense. This is just more “green shoots” baloney wrapped in public relations hype. The fact is, the economy needs the good-paying jobs more than it needs low-priced energy. But now that prices are tumbling, those jobs are going to disappear which is going to be a drag on growth.

Now check out these headlines I picked up on Google News that help to show what’s going on off the radar:

Measuring oil production and consumption: BBL,  MMbbl and Mb/d

In a way the USA (along with Canada) is an exceptional (read backward) country which still was unable (or more correctly unwilling) to switch to metric system.  In the USA oil production and  consumption by volume is usually measured in  barrels (BBL). One BBL equals 42 US gallons  or approximately 159 liters; 6.29 barrels equal one cubic meter and (on average) 7.33 barrels weigh one metric ton (1000 kilograms). Energy-wise one barrel of crude approximately equals 5604 cubic-feet of natural gas, 1.45 barrels of liquefied natural gas (LNG), or about one barrel of gas condensate.

When converting volume measures into weight measures a coefficient based on so called API gravity  is used. The latter is a measure of how heavy or light a petroleum liquid is compared to water: if its API gravity is greater than 10, it is lighter and floats on water; if less than 10, it is heavier and sinks. In other words this is a measure that is inverse of density. Although mathematically, API gravity is a dimensionless value,  for historical reasons it is measures in 'degrees' like angles. In this case this is degrees on a hydrometer instrument. API gravity values of most petroleum liquids fall between 10 and 70 degrees. From Wikipedia:

Crude oil is classified as light, medium, or heavy according to its measured API gravity.

Crude oil with API gravity less than 10° is referred to as extra heavy oil or bitumen. Bitumen derived from oil sands deposits in Alberta, Canada, has an API gravity of around 8°. It can be diluted with lighter hydrocarbons to produce diluted bitumen, which has an API gravity of less than 22.3°, or further "upgraded" to an API gravity of 31 to 33° as synthetic crude.[7]

Oil companies that are listed on American stock exchanges typically report their production in thousand or million barrels. Abbreviations like Mbbl (one thousand barrels), or MMbbl (one million barrels) are used. Often Mb/d is used instead of MMbbl per day.  This actually preferable notation that is used in this page.

As density of the oil varies it is not that easy to convert one metric into another for example volume into weight  as the following quote illustrates (Open Thread, Oil and Gas - Peak Oil Barrel ):

One problem is the estimate of Russian average barrels per metric ton, often it is assumed that this is 7.3 or 7.33 barrels per metric ton. If 7.33 barrels per ton is correct the average API gravity would be 33.4 degrees.

The Urals blend is about 31.7 degrees API or 7.25 barrels per metric ton.

On political motives for reporting less Russian output, possibly the US government wants the sanctions to affect Russian oil output and has some influence on what is reported by the EIA. Likewise the Russian government wants to show that sanctions are not affecting them and might influence the Russian oil ministry to report higher output.

Possibly this could happen or the average API gravity of Russian output may be different than we think, if API gravity is 31.7 degrees (Urals blend) then output in April would have been 10.55 Mb/d, JODI had about 10.1 Mb/d in April.

AlexS showed that the NGL numbers reported by the EIA and Jodi may be about 350 kb/d too high (perhaps some condensate is being included in NGL that should be part of C+C output). If we added 350 kb/d to JODI’s April 2015 estimate of C+C output we get about 10.45 Mb/d for Russia, now the difference is only 100 kb/d, take the average and call it 10.5 Mb/d+/- 50 kb/d. That is a better explanation than “politics” in my opinion.

Great Condensate Con: What liquids are counted as oil in statistical reports such as EIA

There are several different liquids that are usually counted as oil.  Three major are crude, condensate and Natural Gas Liquids. The total all three is often counted as would oil production which now is over 90 Mb/d. But by how much nobody knows. The EIA reports crude plus condensate  as "oil".  EIA has total world production of Crude Oil, NGPL, and Other Liquids at 93,770,000 barrels per day in June 2015.  This type of reporting provides oil traders with wrong data and was called "Great condensate con" :

Lease condensate consists of very light hydrocarbons which condense from gaseous into liquid form when they leave the high pressure of oil reservoirs and exit through the top of an oil well. This condensate is less dense than oil and can interfere with optimal refining if too much is mixed with actual crude oil. The oil industry's own engineers classify oil as hydrocarbons having an API gravity of less than 45--the higher the number, the lower the density and the "lighter" the substance. Lease condensate is defined as hydrocarbons having an API gravity between 45 and 70. (For a good discussion about condensates and their place in the marketplace, read "Neither Fish nor Fowl – Condensates Muscle in on NGL and Crude Markets.")

Refiners are already complaining that so-called "blended crudes" contain too much lease condensate, and they are seeking out better crudes straight from the wellhead. Brown has dubbed all of this the great condensate con.

Brown points out that U.S. net crude oil imports for December 2015 grew from the previous December, according to the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy. U.S. statistics for crude oil imports include condensate, but don't break out condensate separately. Brown believes that with America already awash in condensate, almost all of those imports must have been crude oil proper.

Brown asks, "Why would refiners continue to import large--and increasing--volumes of actual crude oil, if they didn’t have to--even as we saw a huge build in [U.S.] C+C [crude oil plus condensate] inventories?"

Part of the answer is that U.S. production of crude oil has been declining since mid-2015. But another part of the answer is that what the EIA calls crude oil is actually crude plus lease condensate. With huge new amounts of lease condensate coming from America's condensate-rich tight oil fields -- the ones tapped by hydraulic fracturing or fracking -- the United States isn't producing quite as much actual crude oil as the raw numbers would lead us to believe. This EIA chart breaking down the API gravity of U.S. crude production supports this view.

Exactly how much of America's and the world's presumed crude oil production is actually condensate remains a mystery. The data just aren't sufficient to separate condensate production from crude oil in most instances.

Brown explains: "My premise is that U.S. (and probably global) refiners hit in late 2014 the upper limit of the volume of condensate that they could process" and still maintain the product mix they want to produce. That would imply that condensate inventories have been building faster than crude inventories and that the condensate is looking for an outlet.

That outlet has been in blended crudes, that is heavier crude oil that is blended with condensates to make it lighter and therefore something that fits the definition of light crude. Light crude is generally easier to refine and thus more valuable.

The trouble is, the blends lack the characteristics of nonblended crudes of comparable density (that is, the same API gravity), and refiners are discovering to their chagrin that the mix of products they can get out of blended crudes isn't what they expect.

So, now we can try to answer our questions. Brown believes that worldwide production of condensate "accounts for virtually all of the post-2005 increase in C+C [crude plus condensate] production." What this implies is that almost all of the 4 million-barrel-per-day increase in world "oil" production from 2005 through 2014 may actually be lease condensate. And that would mean crude oil production proper has been nearly flat during this period -- a conjecture supported by record and near record average daily prices for crude oil from 2011 through 2014. Only when demand softened in late 2014 did prices begin to drop.

Here it is worth mentioning that when oil companies talk about the price of oil, they are referring to the price quoted on popular futures exchanges -- prices which reflect only the price of crude oil itself. The exchanges do not allow other products such as condensates to be mixed with the oil that is delivered to holders of exchange contracts.

But when oil companies (and governments) talk about oil supply, they include all sorts of things that cannot be sold as oil on the world market including biofuels, refinery gains and natural gas plant liquids as well as lease condensate. Which leads to a simple rule coined by Brown: If what you're selling cannot be sold on the world market as crude oil, then it's not crude oil.

The glut that developed in 2015 may ultimately be tied to some increases in actual, honest-to-god crude oil production. The accepted story from 2005 through 2014 has been that crude oil production has been growing, albeit at a significantly slower rate than the previous nine-year period--15.7 percent from 1996 through 2005 versus 5.4 percent from 2005 through 2014 according to the EIA. If Brown is right, we have all been victims of the great condensate con which has lulled the world into a sense of complacency with regard to actual oil supplies--supplies he believes have been barely growing or stagnant since 2005.

"Oil traders are acting on fundamentally flawed data," Brown told me by phone. Often a contrarian, Brown added: "The time to invest is when there's blood in the streets. And, there's blood in the streets."

He explained: "Who of us in January of 2014 believed that prices would be below $30 in January of 2016? If the conventional wisdom was wrong in 2014, maybe it's similarly wrong in 2016" that prices will remain low for a long time.

Brown points out that it took trillions of dollars of investment from 2005 through today just to maintain what he believes is almost flat production in oil. With oil companies slashing exploration budgets in the face of low oil prices and production declining at an estimated 4.5 and 6.7 percent per year for existing wells worldwide, a recovery in oil demand might push oil prices much higher very quickly.

That possibility is being obscured by the supposed rise in crude oil production in recent years that may just turn out to be an artifact of the great condensate con.

 

But counting such a diverse group of liquids is impossible without substantial errors in each category. That mean that the error margin of and global production figure has margin or error around  +- 0.5% or even 1% or one Mb/d.  for example amount of oil produced and pumped to the surface at wellhead is different and greater that amount of oil that got to refineries (which along with chemical plants are major consumers) because of losses during transportation and evaporation or light fractions in case weather is hot during the period before oil is processed at refinery or chemical plant.  Also there are differences in reporting and errors in measuring oil density by various countries, difficulties of converting weight into volume and vice versa, etc.  There are also large differences in reporting between agencies ( aspofrance.viabloga.com)

Reporting of small producers (and small producer countries) is often very fuzzy and here various games can be and often are played with those report with compete impunity, if you have some agenda.  So any analyst who take published by agencies figures  as precise amount produced accuracy equal to five meaningful digits is iether idiot or crook. Only first three digits  probably can be countered as meaningful. In no way the forth digit is.  If the analyst is talking about "oil glut" based on those figures he/she is definitely a crook ;-). 

Now you understand that all talk about 1Mb/d glut is very suspect.

Que Bono and Wall Street HFT games with oil futures

Low oil prices are essentially a crime against humanity as oil is exhaustible resources and burning it now in oversized SUVs means depriving of fuel and extremely important important for chemical industry commodity future generations. So the question is "que bono"

From this point if view (which is a standard starting point of any crime investigation) the origin of low oil prices lies probably in Wall Street  which capitalized on the US government desire to hurt Russian economy, Saudi machinations (with Saudis as a partner in this crime ;-) related to thier declining market share in oil market.

It is not that difficult on the level of Wall street cguant to play the short game for a long time,  skillfully dropped the market prices by exploiting rumores, and with the help of MSM distorting statistics (just read a typical CNBC article to feel the level of crap they are trying to infuse in readers), exploiting Saudi desire to preserve market share combined with temporary oil overproduction. Temporary overproduction due to the period of oil prices over $100, when everybody and his brother in the USA were trying to discover and drill new shale well and convert junk bonds into flow of oil trying to get rich in such supposlydly lucrative market. 

World production at the same time stagnated. Russia exports are actually in decline for many years. After all Libya production now is off the market, due to destruction of their country and subsequent civil war caused by French intervention in alliance with the USA, Qatar and several other mid-eastern countries. If you analyze the US press the bias toward lower oil prices is  evident. 

 

Production by country and total world production

Estimated average world daily production of 95.71  Mb/d for 2015 ( (Jan 12, 2016 forecast) exceeds EIA’s Annual Energy Outlook 2015 forecast (April 2015) by 2.6 Mb/d! so much for EIA forecasting abilities.

For 2016 IEA predicts 95.93 (Jan 12, 2016 forecast) and for 2017 96.69 (also  Jan 12, 2016 forecast)

OPEC predictions were 94.5 Mb/d for 2015 (December 2015  forecast) with growth in 2020 to 97.6 (it presupposes investment of  around $250 billion each year in non OPEC countries and $40 billions annually by OPEC countries; money that with current oil prices are nowhere to come by):

In the downside supply scenario, 3.3 mb/d from non-OPEC supply is assumed to be lost by 2040 with respect to the Reference Case.

Oil production is highly concentrated.  The top dozen of out of 100 oil-producing countries accounted for over 73% of the world's oil production. The top three (Russia, Saudi Arabian and the USA) account for almost 40%. 

Here is a chart from  Bloomberg Business

Iraq and Iran are also large and important players but currently  they are definitely the second tier players.  That might change in the future.

Now what will (most probably) happen in 2016 with the major players

Now let's discuss Iran and Iraq

All three major oil producers (troika) are severely affected by the oil price slump, but for the USA as one of the largest world oil importers it is a mixed blessing (destruction of shale  industry and connected with it jobs is just a collateral damage for approximately $200 billion stimulus due to lower prices.

For the Russia and Saudis this is a huge negative development which  leads to unbalanced budgets (especially for Saudies who need $100 oil to balance the budget and  lost $100 billions of their foreign reserves in 2015) and depletion  of currency reserves (more for Saudis then Russia, but Saudis had bigger currency reserves and can benefit from being a vassal of the USA by commanding a higher prices for state assets in fire sale). 

All-in-all around 100 countries produce oil with top three producing around 40%,  and the top ten over 63% of the world's oil production.

According to International Energy Agency (EIA), in 2011 the top ten oil-producing countries accounted for over 63% of the world's oil production.[2] As of November 2012, Russia produced 10.9 million barrels of crude per day, while Saudi Arabia produced 9.9 million barrels.[3]

Top oil producers: According to EIA top 10 oil producer countries produced over 64 % of the world oil production in 2012. The top oil producers in 2012 were: Russia 544 Mt (13 %), Saudi Arabia 520 Mt (13 %), United States 387 Mt (9 %), China 206 Mt (5%), Iran 186 Mt (4 %), Canada 182 Mt (4 %), United Arab Emirates 163 Mt (4 %), Venezuela 162 Mt (4 %), Kuwait 152 Mt (4 %) and Iraq 148 Mt (4 %). In 2012 total oil production was 4,142 Mt. [4] In 2011 the world oil production was 4,011 Mt demonstrating an annually rising trend in oil production.[5]

  Country Production (bbl/day) Production (MT) Share of
World %
Date of
Information
 World 84,951,200 10,194 100% 2014 est. Peak Production
1 Russia 10,107,000 1212 14.05% 3/2015.[6] 10,107,000 (3/2015)
2 Saudi Arabia 9,735,200 1168 13.09% 12/2014.[6] 9,900,000 (1/1980)
3 United States 9,373,000 1124 12.23% 4/2015.[6] 9,610,000 (6/2015)
4 China 4,189,000 502 5.15% 5/2015.[6] 4,189,000 (5/2015)
5 Canada 3,603,000   4.54% 12/2014.[6] 3,603,000 (1/2015)
6 Iraq 3,368,000   4.45% 5/2015.[6] 3,368,000 (5/2015)
7 Iran 3,113,000   4.14% 12/2014.[6] 6,060,000 (1/1974)
8 United Arab Emirates 2,820,000   3.32% 12/2014.[6] 2,820,000 (1/2013)
9 Kuwait 2,619,000   2.96% 12/2014.[6] 2,650,000 (1/2013)
10 Mexico 2,562,000   3.56% 12/2014.[6] 3,476,000 (1/2004)
11 Venezuela 2,501,000   3.56% 12/2014.[6] 3,280,000 (1/1997)
12 Nigeria 2,423,000   2.62% 12/2014.[6] 2,627,000 (1/2005)
13 Brazil 2,255,000   3.05% 12/2014.[6] 2,255,000 (1/2015)
14 Angola 1,831,000   2.31% 12/2014.[6] 1,946,000 (1/2008)
15 Kazakhstan 1,573,000   1.83% 12/2014.[6]
16 Qatar 1,553,000   1.44% 12/2014.[6]
17 Norway 1,539,000   2.79% 12/2014.[6]
18 Algeria 1,462,000   2.52% 12/2014.[6]
19 Colombia 1,003,000   1.19% 12/2014.[6]
20 Oman 940,000   0.95% 12/2014.[6]
21 Azerbaijan 871,000   1.20% 12/2014.[6]
22 Indonesia 828,000   1.66% 12/2014.[6]
23 United Kingdom 801,000   1.78% 12/2014.[6]
24 India 772,000   1.04% 12/2014.[6]
25 Malaysia 570,000   0.82% 12/2014.[6]
26 Argentina 540,000   0.93% 12/2014.[6]
27 Ecuador 526,000   0.58% 12/2014.[6]
28 Egypt 514,000   0.80% 12/2014.[6]
29 Libya 470,000   0.85% 5/2015.[6]
30 Australia 338,000   0.70% 12/2014.[6]
31 Vietnam 337,000   0.36% 12/2014.[6]
32 Equatorial Guinea 270,000   0.41% 12/2014.[6]
33 Congo, Republic of the 265,000   0.33% 12/2014.[6]
34 Sudan 259,000   0.13% 12/2014.[6]
35 Thailand 241,000   0.45% 12/2014.[6]
36 Gabon 239,000   0.29% 12/2014.[6]
37 Turkmenistan 229,000   0.22% 12/2014.[6]
38 Denmark 175,000   0.31% 12/2014.[6]
39 Yemen 131,000   0.34% 12/2014.[6]
40 Brunei 112,000   0.17% 12/2014.[6]
41 Italy 106,000   0.17% 12/2014.[6]
42 Ghana 105,000   0.01% 12/2014.[6]
43 Chad 98,000   0.13% 12/2014.[6]
44 Romania 85,000   0.14% 12/2014.[6]
45 Trinidad and Tobago 81,000   0.18% 12/2014.[6]
46 Pakistan 81,000   0.16% 12/2014.[6]
47 Cameroon 81,000   0.09% 12/2014.[6]
48 Timor-Leste 79,000   0.11% 12/2014.[6]
49 Peru 69,000   0.17% 12/2014.[6]
50 Uzbekistan 65,000   0.08% 12/2014.[6]
51 Tunisia 55,000   0.11% 12/2014.[6]
52 Germany 52,000   0.19% 12/2014.[6]
53 Bolivia 51,000   0.06% 12/2014.[6]
54 Bahrain 50,000   0.06% 12/2014.[6]
55 Cuba 50,000   0.06% 12/2014.[6]
56 Turkey 48,000   0.06% 12/2014.[6]
57 Ukraine 41,000   0.12% 12/2014.[6]
58 New Zealand 40,000   0.07% 12/2014.[6]
59 Ivory Coast 36,000   0.07% 12/2014.[6]
60 Papua New Guinea 34,000   0.04% 12/2014.[6]
61 Belarus 30,000   0.04% 12/2014.[6]
62 Netherlands 28,000   0.07% 12/2014.[6]
63 Syria 23,000   0.48% 12/2014.[6]
64 Philippines 21,000   0.02% 12/2014.[6]
65 Albania 21,000   0.01% 12/2014.[6]
66 Mongolia 21,000   0.01% 12/2014.[6]
67 Burma 20,000   0.02% 12/2014.[6]
68 Congo, Democratic Republic of the 20,000   0.02% 12/2014.[6]
69 Poland 19,000   0.04% 12/2014.[6]
70 Austria 17,000   0.03% 12/2014.[6]
71 France 15,000   0.08% 12/2014.[6]
72 Suriname 15,000   0.07% 12/2014.[6]
73 Serbia 12,000   0.01% 12/2014.[6]
74 Hungary 11,000   0.03% 12/2014.[6]
75 Guatemala 10,000   0.02% 12/2014.[6]
76 Croatia 10,000   0.03% 12/2014.[6]
77 Chile 7,000   0.01% 12/2014.[6]
78 Mauritania 7,000   0.02% 12/2014.[6]
79 Spain 6,000   0.03% 12/2014.[6]
80 Japan 5,000   0.16% 12/2014.[6]
81 South Africa 4,000   0.22% 12/2014.[6]
82 Bangladesh 4,000   0.01% 12/2014.[6]
83 Czech Republic 3,000   0.01% 12/2014.[6]
84 Lithuania 2,000   0.01% 12/2014.[6]
85 Belize 2,000   0.00% 12/2014.[6]
86 Bulgaria 1,000   0.00% 12/2014.[6]
87 Georgia 1,000   0.00% 12/2014.[6]
88 Kyrgyzstan 1,000   0.00% 12/2014.[6]
89 Barbados 1,000   0.00% 12/2014.[6]
90 Greece 1,000   0.00% 12/2014.[6]

Global oil production has been split into three geo-political categories: 1) USA and Canada, 2) OPEC and 3) the Rest of the World (RoW). RoW production bears the hallmarks of having peaked in the period 2005 to 2010 and this has consequences for oil prices, demand and prosperity in parts of the world, especially the OECD. Most of the growth in oil supply has been in the USA and Canada where the market has been flooded with expensive oil.

Here are the data for crude oil + condensate + natural gas liquids (C+C+NGL) and exclude biofuels and refinery gains that are included by the EIA in their total liquids number.

The 1.1 million bpd gain in US oil production was the largest year over year gain for any country in 2013, and the largest gain in US history. Mostly due to shale oil. The US remained the world’s third-largest oil producer at 10 million bpd in 2013, trailing Saudi Arabia’s 11.5 million bpd and Russia’s 10.8 million bpd. Rounding out the top five were China (4.2 million bpd) and Canada (3.9 million bpd).

Just to put the current US oil boom into further perspective, over the past five years global oil production has increased by 3.85 million bpd. During that same time span, US production increased by 3.22 million bpd — 83.6 percent of the total global increase.

If the current “low oil price crisis”  does indeed destroy high cost production capacity then this will raise the question if the high cost sources can  be brought back? And at what cost?  Especially interesting is the question: "Can the shale industry can come back from the near death experience?"

What MSM do not discuss: depletion rates

Low oil prices are suicidal for mankind in a long run. Oil is too valuable and irreplaceable resource  for chemical industry to be burned in excessive qualities in transport due to low prices, especially when hybrid and all electrical cars is a reality and price differential with ordinary cars for small card is not that great (less then twice). Electricity unlike oil can be produced from renewable resources such as nuclear (breeder reactors are a reality), wind and solar (solar panels improved dramatically in the last ten years).  At the same time in the USA (and probably elsewhere) sales of SUVs and light trucks are again booming.  That say something about level of intelligence of the USA government. 

With producers in the US and across the world pumping as much as they can, they are doing it at a cost of running into diminishing production rates (depletion) on those existing wells sooner. The 2008 IEA survey of ~800 major fields (including all giants and supergiants) which produced over 60% of that year crude showed an average annual decline rate of 5.1%.

Most countries in the world now face depletion of their reserves. Some face acute depletion (Indonesia, Mexico, etc), some still manage to maintain plato (Russia, Saudi Arabia) or even increase production (the USA, Canada, Iraq, Iran, in the future probably Libya and Syria),  But generally around 4% of total world capacity is depleted per year and without adequate investment can't be replaced. in 2008 IHS estimated global oil field decline rates to be around 4.5%. EIA did a study estimated the worldwide decline rates to be around 6.7%.

When peak oil has been discussed decades ago it was considered a 3% decline rate in production was manageable -- 5% would considered extremely difficult to deal with  (The Guardian)

Now depletion rates are higher (source: IHS, Deloitte & Touche and USGS databases; other industry sources; EIA estimates and analysis)

Outside a couple of countries such as Iran, Iraq and Venezuela offshore production grows faster the onshore production. Shale production growth in the past was the fastest, especially in the USA.  That means a switch to more expensive sources of oil.

Given the increasing decline rates, the oil industry needs considerable capex investments. In the absence of them it slide into irreversible decline.  New technologies greatly help but there are natural limits of what you can achieve with them. they are not substitute to finding new fields which is a very expensive activity.

US oil production and forecast for 2016

Among three major oil producing nations (USA, Russia and Saudi Arabia) the USA is the most dynamic nation, and the most difficult to predict due to large share of shale oil in the USA output. Gradual destruction of the US shale industry ability to pump oil  due to low prices is now established fact. That only discussable item is how quick it will proceed. The first 12 months were cushioned by hedges, but at the and of 2015 most companies are now  "swimming naked". 

Still there are signs that the US oil production peaked in 2015. Decimation of shale can't be compensated by offshore drilling. The sinking shale that could easily lose 1 Mb/d in 2016

At the same time in 2015 total US oil production remained remarkably stable, bank loans were extended or refinanced and bankruptcies were few and does not look like an epidemic. So forecaster of "doom and gloom" were wrong by at least one year. There are no signs of panic in view of drop of oil prices below the level of sustainable production. After all oil is the strategic industry and to leave to market forces is extremely unwise. Wall Street probably has other opinion. As John Kenneth Galbraith said “The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil.” (The Great Crash of 1929). They live by the next quarter results.

Dec 8, 2015 EIA data  can be found http://www.eia.gov/forecasts/steo/tables/?tableNumber=29#

EIA estimates that total U.S. crude oil production declined by about 60,000 b/d in November 2015 compared with October. That decline will accelerate in December. Crude oil production will probably gradually decrease through the third quarter of 2016 before growth resumes late in 2016, it higher oil prices (at least above $50) materialize. 

Projections of the U.S. crude oil production

Saudi Arabia oil production and forecast for 2016

Oil production

There are signs that Saudi Arabia oil production peaked or close to a peak. A terror attack in 2016 Saudi Arabia is not very likely. Shiite organizations have not resorted to terrorism in many years and they seem now focused on fighting ISIS. which although sponsored by Saudis is a distinct organization.

Saudi Arabia produced 10.28 million barrels a day in October, 2015,  up from 9.69Mb/done year ago.   Chances that production will reach 11 Mb/d are slim. There are strong signs that they have huge difficulties in increasing oil extraction volume.  All their efforts to increase production led to increase of less then 1Mb/d  increase in 2015 (7% increase in production). Which is partially offset by  increase in internal consumption (In 2015 Saudi Arabia oil demand rose by a notable 0.21 mb/d, which equates to a nearly 8% rise y-o-y, )  Here is relevant quote (OilPrice.com, Dec 21, 2015)

Crude exports from Saudi Arabia rose from an average of 7.111 million barrels per day in September to 7.364 million per day in October, according to the latest data from the Joint Organizations Data Initiative (JODI), which monitors the oil industry. The report said this quantity was the most oil exported from Saudi Arabia since June and 7 percent higher than in October 2014.

And those doubts about Saudis ability to increase production exist for some time. When U.S. president George W. Bush asked the Saudis to raise production on a visit to Saudi Arabia in January 2008 they declined. After that Bush questioned whether they had the ability to raise production any more.

But they did managed to achieve temporary production peak: in April 2015, the Saudi oil minister Ali Al-Naimi said that Saudi Arabia produced 10.3 million barrels per day in March that year, which was the highest figure based on records since the early 1980s.  The previous peak in production was in August 2013 at 10.2 million barrels per day.

Theoretically as its own population and internal consumption is growing and depletion of its wells reached critical level, they should concentrate of providing the standard of living for future generations, not dump the oil at the lowest price.  In three decades if the current annual increase in internal consumption continues at, say, 5% and production stays flat Saudi Arabia paradoxically may became oil importing county.

Still Saudi are known to use the most advanced (and most expensive) technologies of boosting the extraction rate to counter the natural decline curve.   They now are exploring shale technology and reportedly are trying to hire workers from the USA who became unemployed during the downturn of shale industry started in mid 2014.

Exports

Contrary to MSM coverage about Saudis flooding world with their oil, year over year increase in exports is slim. Basically they are flat (due to rapidly increasing population and domestic consumption): 

Net exports were around 7.111 Mb/d (September, 2015). But with current low prices this is an economic suicide, even if this is an economic war against Iran -- attempt to hurt its major competitor when  sanctions are lifted.

The net revenue dropped more then a half and the country is burining its currency reserves (which are substantial and at current burn rate will last for more then three years)  So there is something fishy in this propagated by Western MSM idea of Saudis defending their market share. The cost of defending their market share proved to be in hundred billions of lost revenue, which far exceeds their losses from rise of the US shale oil production (if the prices remained above $100 per barrel).  Also the question arise, why now. Shale was a long story in the USA and reached present size around decade ago (2005).

This is definitely a declation of war. But if the target is not the USA (and it can't be the target as Saudis are the USA vassal state), then war of whom ?  The USA is actually a beneficially of this  war (like most wars in this region) and  got a half trillion subsidy due to lower price of oil.  And  "corrupt and atheistic" Western Europe also got similar subsidy.

Business Insider

A report by Citigroup has warned that Saudi Arabia could run out of oil to export by 2030, raising fears that oil prices may rise significantly in coming years.

... ... ...

Its export capacity could steadily reduce and, “if nothing changes, Saudi may have no available oil for export by 2030”, Citi analyst Heidy Rehman wrote.

Saudi Arabia consumes 25pc of its oil output and oil accounts for about 50pc of its electricity production. With peak power demand rising by about 8pc per year, the nation is aiming to more than double its power capacity by 2032 through new nuclear and solar instalations.

Internal consumption

Saudi Arabia produced 10.28 million barrels a day in October 2015 and exported  7.364 million barrels a day. the difference  is less then 3 Mb/d

In September figure were 10.28 and 7.111. The difference is above 3 Mb/d.

So we can assume that 2015 internal consumption is approximately 3 million barrel a day.  In 2015 Saudi Arabia oil demand rose by a notable 0.21 mb/d, which equates to a nearly 8% rise y-o-y, driven by transportation fuels such as jet/kerosene, gasoline and diesel oil, which grew at high rates. The higher consumption of jet fuel reflects the increase in travel activity towards the end of the summer vacation, which coincided with the Hajj season.

Internal consumptions rapidly growing year over year with some years (2009) close to 10% growth (Saudi Arabia Crude Oil Consumption by Year (Thousand Barrels per Day)):

2005 1,963.64 4.20 %
2006 2,020.02 2.87 %
2007 2,094.33 3.68 %
2008 2,236.99 6.81 %
2009 2,436.12 8.90 %
2010 2,579.73 5.90 %
2011 2,760.91 7.02 %
2012 2,861.00 3.63 %
2013 2,925.00 2.24 %

Russia oil production and forecast for 2016

Russian oil production considered to be at "over peak" stage with increases mainly due to offshore drilling. In 2014 total petroleum and other liquids production in 2014 were 10.8 Mb/d  (EIA). Russia crude oil production in late 2015 was around 10.20M, up from  10.08Mb/done year ago. That's was an unanticipated, even by Russian Ministry of Energy result of activities of small companies. which managed to increase of  production by  1.12% from one year ago, when most analysts expected a slight decline (Russia Crude Oil Production (Monthly, Barrels per Day).

Despite severe depreciation of ruble and sanctions, in 2015 Russia managed to reach the level of production that exceed the level of former USSR period. At the same time most of Russia's fields are mature fields and the production from them is declining for long time,  offset only by new more expensive projects with less total volume. Unless Arctic oil and other expensive oil are economical to produce (which requires over $100 bbl price) the national path for Russian production is iether long plato or down. 

Russian oil extraction (red) and oil exports (green) in metric tons

 

In 2015 Russia managed to increase exports the first time in six years, but that does not change general situation: internal consumption is growing pretty robustly with growth of car fleet and decline of production due to national depletion of oil conventional wells became more and more difficult to compensate with new discoveries. And new fields, even if such exist, can't be now tapped because capital expenditures by most Russian oil companies now are slashed to the bone (russia is more like the USA in this respect with over dozen of major oil companies producing   oil).

At current oil prices Arctic oil now is out of reach and only existing platforms will remain in production. All of them are losing money. conventional wells are still profitable with same remaining profitable up to $20 per barrel. Still for the next several years Russia probably will be able to keep the current level of production due to huge previous investments dome in 2010-2014 in a few new fields (Bloomberg Business, December 20, 2015):

The other big boosts to Russian production this year have come from a few mid-sized new fields like those of Severenergia in the Arctic Yamal region. Co-owners Novatek OJSC and Gazpromneft PJSC invested in the $9.2 billion project back when oil prices were high. With most of the capital already committed, operating costs now are relatively low and output of gas condensate, a light and especially valuable form of crude, is up five-fold this year.

One side effect of falling oil prices -- the 52 percent plunge in the ruble over the last two years -- has helped Russian oil producers, chopping their costs in dollar terms since between 80 and 90 percent of their spending comes in rubles.

... ... ...

To be sure, few in the industry expect Russia to be able to sustain the current performance for more than a few years. Tax hikes and lack of financing have cut deeply into exploration drilling, which is down 21 percent this year, and handicap the larger new projects that are needed to replace the country’s older fields as they run dry.

... ... ...

In some parts of the Russian oil patch, low prices are already causing pain. At $40 a barrel, “half of our fields could be stopped. Heavy oil, low horizons, mature horizons are all unprofitable at a price of $40-45. We are waiting for better times,” Russneft OJSC Board Chairman Mikhail Gutseriev said in an interview on state television early this month.

Unfortunately just before the oil prices crush Russia was engaged in several high cost drilling projects in Arctic and was caught naked when oil price dropped. ( see Petroleum industry in Russia - Wikipedia).  Timing can't be more bad as this is a really expensive oil, probably around $60 per barrel or higher at wellhead.  Which are now sold at a huge discount.  Igor Sechin proved to be a weak leader of the Russia major state owned oil company Rosneft.  Government refused to bail out the company which faces large external debt and it was saved by some "white knife" billionaire.

Moscow Exile, December 19, 2015 at 11:19 am

Undeterred by OPEC’s decision to keep pumping and drive out U.S. shale rivals, Russian oil output continued to grow, in October setting a new monthly record for the post-Soviet era. Explorers have remained profitable under a friendly tax system and low production costs.

Mystery Benefactor

Rosneft assuaged concerns over the sustainability of Russia’s biggest corporate debt load after the company received a $15 billion advance payment for oil supplies from a source the company didn’t identify, according to quarterly reports published Nov. 13. The inflow of cash will help Rosneft meet $2.5 billion in debt due in the fourth quarter, $13.7 billion in 2016 and $11.3 billion in 2017, according to a presentation on its website.

See: One Year Into New OPEC Era, You Made 12% Buying These Oil Bonds

It looks like the board is in denial of the blunder with overinvest they made:

18 December 2015
Rosneft Holds Board of Directors Meeting

On December 18, Rosneft Board of Directors considered in Vladivostok interim results of its 2015 operations, the business-plan for 2016-2017, the Long-term development program and the energy efficiency program of the Company.

The following decisions were taken:

1. The Board of Directors considered and acknowledged 2015 Rosneft interim results and the intermediate results of the implementation of the long-term development program of the Company. The Board of Directors welcomed the results of the implementation of programs aimed at raising efficiency in challenging economic environment: the Company maintained low levels of OPEX and eased its debt burden.

2. The Board of Directors considered and acknowledged the business-plan for 2016-2017, structured in accordance with a conservative macroeconomic scenario and focused on the implementation of the Long-term development program of the Company, approved by the Government of the Russian Federation.

Within the ambit of delivering strategic goals of boosting production, securing deliveries of oil and oil products, maintaining a market share (both in Russia and abroad), the Company plans to increase capital expenditures by a third (compared to 2015 levels). The investment development program envisages the achievement of strategic goals of hydrocarbon production growth by means of accelerated commencement of oil and gas greenfields whilst exercising a balanced external financing program. After the completion of transition to Euro-5 motor fuels production in December 2015, refineries’ modernization program will be focused on increasing processing depth. Also, the program of cutting operating costs and enhancing operating and financial efficiency will be continued. Hence the leadership in the industry by the operating costs and capital costs will be guaranteed.

... .... ...

Commenting on the results of the Board meeting, Rosneft Chairman of the Management Board Igor Sechin said: “Measures taken by the Company for strengthening its oilfield services business dimension in 2015 enabled Rosneft to increase production in order to guarantee supplies to its traditional markets while keeping operating and capital expenditures at the record-low levels. The Company consistently generates free cash flow, providing funding sources for its investment decisions in accordance with 2015-2016 business plan approved by the Board of Directors and the Long-term Development Program”.

In August 2014, it was announced that preparations by the Russian government to sell a 19.5 percent stake in the company were underway and would most likely be sold in two tranches. So far this chunk of the company was not sold, probably because of low oil prices. 

Russia oil internal consumption is generally more or less stable and growling at a very slow page outside several 'abnormal" years. In 2016 it will not probably grow much as the economy remain is conditions close to recession. Lukoil chairman has said that he  expects Russia to produce less oil  in 2016 than in 2015

Russia internal oil consumption is currently around 3.3 Mb/d, up from 3.2 Mb/d one year ago. This is a change of 3.15% from one year ago.

2005 2,785.14 1.25 %
2006 2,803.47 0.66 %
2007 2,885.10 2.91 %
2008 2,981.92 3.36 %
2009 2,888.53 -3.13 %
2010 3,081.82 6.69 %
2011 3,352.11 8.77 %
2012 3,395.11 1.28 %
2013 3,320.00 -2.21 %

It is expected that it will continue to grow by around 0.1 Mb/d per year as car fleet is rapidly growing.. Also Russia will process more raw oil in 2016 then in 2015 which also negatively influence export of raw oil

Oil producing countries with civil wars/sanctions/military conflicts  

This is a very complex topic that is beyond the scope of this analyses. But paradoxically such countries are the "last hurrah" for increasing the oil production, as they do have reserve that can't be tapped at reasonable costs now but at the same time represent the last spot of "cheap oil" deposits. Some facts:

Oil consumption

Mankind dependency on oil is hardwired into fabric of our civilization.  It is an irreplaceable product. But as much as  2/3 of this extremely valuable chemical industry resource is burned in transportation. That actually means that sales of cars and trucks are instrumental to predicting future demand at least one year ahead.  And they are growing especially fast in China and India. They also accelerated in the USA.

World oil consumption is often given in millions barrels per day (mbpd or Mb/d). BP stated that in 2014 global oil demand increased by 1.4 Mb/d over 2012 to 91.3 Mb/d.  Assuming on average $60 per barrel this is 5.5 trillion dollars a year of additional expenses on energy.   Here are actual figures of world consumption for the last decade ( World Crude Oil Consumption by Year (Thousand Barrels per Day))

2005 84,668.04 1.79 %
2006 85,586.39 1.08 %
2007 86,700.09 1.30 %
2008 86,027.86 -0.78 %
2009 84,953.36 -1.25 %
2010 87,839.10 3.40 %
2011 88,657.70 0.93 %
2012 89,668.91 1.14 %
2013 90,354.27 0.76 %

As BP noted in February 2015 "Global demand for energy is expected to rise by 37% from 2013 to 2035, or by an average of 1.4% a year".  So it is reasonable to assume that oil demand will rise approximately the same rate, which taking into account the current rate of consumption is above 1Mb/d.

The oil consumption proved to be extremely resilient  to economic conditions (that only drop in the last decade happened in 2009) and is growing globally each year by rate about 1 Mb/d due to increase of population and cars and trucks on the road. ( Peak oil - Wikipedia )

The table above does not contain data for 2014 and 205. Here they are:

As for the forecast of 2015, the growth of consumption is predicted in the range of 1.2-1.4 MB/d:

According to IEA "an annual $630 billion in worldwide upstream oil and gas investment – the total amount the industry spent on average each year for the past five years – is required just to compensate for declining production at existing fields and to keep future output flat at today’s levels" (iea.org). It is easy to see that such amount is difficult to come by when prices of oil are in $30-$40 range,  do the decline of world oil output might happen faster then growth of consumption.

OPEC forecast is usually more reliable then EIA but generally very similar, despite having different set of biases (G7 bias in case of IEA and Saudi Arabia bias for OPEC forecast) They predict higher growth of demand in 2015 and lower growth in 2016:

World oil demand is expected to grow by 1.50 mb/d in 2015 to average 92.86 mb/d, ...  In 2016, world oil demand growth is seen reaching 1.25 mb/d ...  to average 94.14 mb/d.

India is set to become the world’s third largest oil importer after the US and China before 2025, according to the International Energy Agency (IEA). India’s energy needs would overtake Japan as the third largest net importer of oil before 2025. EIA predict stable consumption level until 2040 only 1.1% growth on average (EIA)

The bulk of that demand growth is expected to come from developing countries in Asia. With U.S. supply falling, where are the new oil supplies coming from ? There simply isn’t enough to go around.

Double-digit percentage increases in oil consumption were recorded by Pakistan, Venezuela, and Azerbaijan from 2012 to 2013, and over the past five years double-digit percentage consumption increases were recorded by Central and South America (15.2 percent), the Middle East (18.3 percent), Africa (12 percent), Asia Pacific (17.4 percent), and the former Soviet Union (12.8 percent). World Sets New Oil Production and Consumption Records

Per country picture: not all countries are created equal

The most significant factor affecting petroleum demand has been human population growth. Large countries that previously were dirt poor and consumed minuscule amount of oil now now rapidly growing (India and China) are primary drivers of consumption. Arab countries also experience rapid population growth (Saudi Arabia is one example). The United States Census Bureau predicts that world population in 2030 will be almost double that of 1980. Oil production per capita peaked in 1979 at 5.5 Giga barrels/year but then declined to fluctuate around 4.5 Giga barrels/year since. In this regard, the decreasing population growth rate since the 1970s has somewhat ameliorated the per capita decline.

Not all consumers of oil are created equal.

Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of January 1, 2014

See also: Oil consumption per capita bar chart

Country Name Oil consumption per capita
 (bbl/day per 1000 people)
Year of Estimate
Singapore 202 2012
Nauru 139 2012
Kuwait 134 2012
Luxembourg 119 2012
Bahamas, The 111 2012
United Arab Emirates 103 2012
Saudi Arabia 100 2012
Falkland Islands (Islas Malvinas) 96 2008
Seychelles 89 2012
Qatar 85 2012
Greenland 69 2012
Canada 64 2012
United States 61 2012
Netherlands 60 2012
Belgium 60 2012
Cayman Islands 57 2012
Antigua and Barbuda 56 2012
Iceland 56 2012
New Caledonia 54 2012
Libya 51 2012
Norway 47 2012
Malta 46 2012
Oman 46 2012
Korea, South 45 2012
Australia 44 2012
Taiwan 43 2012
Hong Kong 42 2012
Brunei 42 2012
Finland 41 2012
Puerto Rico 41 2012
Saint Kitts and Nevis 39 2012
Sweden 39 2012
Bahrain 38 2012
Japan 35 2012
New Zealand 35 2012
Greece 34 2012
Austria 34 2012
Trinidad and Tobago 33 2012
Slovenia 32 2012
Israel 31 2010
Barbados 31 2012
Germany 31 2012
Spain 31 2012
Switzerland 31 2012
Ireland 30 2012
Macau 29 2012
France 28 2012
Panama 28 2012
Grenada 28 2012
Suriname 27 2012
Venezuela 27 2012
Portugal 26 2012
United Kingdom 26 2012
Lebanon 26 2012
Denmark 25 2012
Italy 25 2012
Turkmenistan 25 2012
Estonia 24 2012
Iran 23 2012
Iraq 22 2012
Jamaica 22 2012
Belize 21 2012
Saint Vincent and the Grenadines 19 2012
Czech Republic 19 2012
Malaysia 19 2012
Lithuania 19 2012
Saint Lucia 18 2012
Mexico 18 2012
Chile 18 2012
Mauritius 18 2012
Armenia 18 2012
Belarus 17 2012
Fiji 17 2012
Cuba 16 2012
Djibouti 15 2012
Russia 15 2012
Brazil 10 2012
Turkey 8 2012
China 7 2012
India 3 2012
Pakistan 2 2012
Bangladesh 1 2012

Consumption in net oil exporting countries is limited to the volume of production and price while consumption in net oil importing countries by the price of oil and the oil that is left for export after internal consumer got their share (which depends on price of oil).  In other words, to paraphrase “Animal Farm,”  all pigs are equal but some pigs are more equal then others.

Of course pigs with strong military (read G7) are also more equal then others and can change this equation in their favor by force and already started doing this (USA in Iraq, France in Libya).

While demand for oil continues to increase globally, oil producing countries also increase their internal consumption rapidly. For example increase in internal consumption of Saudi Arabia led to a situation when since 2005 their exports are essentially flat despite increase of production.

Having noted Steven Kopits’ continuing track record of being remarkably prescient regarding global oil supply and demand analysis, I do have one issue with global supply & demand analysis -– consumption in net oil exporting countries versus consumption in net oil importing countries, to -- wit, to paraphrase “Animal Farm,” in my opinion some consumers are more equal than others.

Let’s assume a scenario where all oil production and refining operations are in oil exporting countries and let’s ignore things like refinery gains. Total petroleum liquids production is 80 mbpd and consumption in the oil exporting countries is 40 mbpd, and they therefore net export 40 mbpd to oil importing countries.

Production rises by 2.5 mbpd in the oil exporting countries, so total supply increases from 80 mbpd to 82.5 mbpd. However, consumption in the oil exporting countries rose by 5 mbpd. So, Net Exports = Production – Consumption = 82.5 mbpd – 45 mbpd = 37.5 mbpd.

My point is that a global supply and demand analysis would not accurately represent the situation in the net oil importing countries, i.e., a 6.25% decline in the supply available to net importers (40 mbpd to 37.5 mbpd), although global supply is up by 3.125%, 80 mbpd to 82.5 mbpd.

Of course, the crux of what I call “Export Land Model” or ELM, is that for a number of reasons (subsidies, proximity to production, legal restrictions, etc.), consumption in oil exporting countries tends to be satisfied before oil is exported.

Interesting enough, the case histories tend to show that regardless of how oil exporters treat internal consumption, given an ongoing production decline, the net export decline rate tends to exceed the production decline rate and the net export decline rate tends to accelerate with time.

For example, Indonesia subsidizes petroleum consumption and the UK heavily taxes petroleum consumption, but both former net oil exporters showed accelerating rates of decline in their net exports (in excess of their respective production decline rates).

Here are the ELM Mathematical Facts of Life:

Given an ongoing production decline in a net oil exporting country, unless they cut their domestic oil consumption at the same rate as the rate of decline in production or at a faster rate, the resulting net export decline rate will exceed the production decline rate and the net export decline rate will accelerate with time. Furthermore, a net oil exporter can become a net oil importer, even with rising production, if the rate of increase in consumption exceeds the rate of increase in production, e.g., the US and China.

The (2005) Top 33 net exporters showed a slight increase in production from 2005 to 2013, from about 62 mbpd to 63 mbpd (total petroleum liquids + other liquids, EIA), but their rate of increase in consumption exceed their rate of increase in production and their combined net exports (what I call Global Net Exports, or GNE) fell from 46 mbpd in 2005 to 43 mbpd in 2013.

Furthermore, China and India (“Chindia”) consumed an increasing share of a post-2005 declining volume of GNE. What I call Available Net Exports (ANE, or GNE less Chinidia’s Net Imports, CNI) fell from 41 mbpd in 2005 to 34 mbpd in 2013.

Here’s the Available Net Exports problem:

Given an ongoing decline in GNE–and it’s when, not if–then unless the Chindia region cuts their oil consumption at the same rate as the rate of decline in GNE, or at a faster rate, the resulting rate of decline in ANE will exceed the GNE decline rate and the ANE decline rate will accelerate with time.

From 2005 to 2013, GNE fell at 0.8%year. From 2005 to 2013, ANE -- the supply of Global Net Exports of oil available to importers other than China & India -- fell at 2.3%/year.

The USA consumption

The United States remains the world's largest consumer of petroleum. The United States uses most of oil per capita in the world.  Between 1995 and 2005, US consumption grew from 17.7 Mb/d (2,810,000 m3/d) to 20.7 Mb/d (3,290,000 m3/d), a 3,000,000 barrels per day (480,000 m3/d) increase. According to EIA Jan 12, 2016 report (eia.gov):

In other words the USA consumption is approximately equal to total Saudi export capacity. 

The U.S. Energy Information Administration (EIA) includes volumes of biofuels in data on total petroleum consumption. Per capita consumption of oil in the USA is one of the highest in the worlds and exceeds, for example, Russian per capita consumption four times.

Looking forward, both the EIA and the EIA project that U.S. oil demand will oscillate around 20 Mb/d mark. That might change if oil price stays low for several years.

The USA consumption is highly concentrated on transportation sector and in private cars sector is quite wasteful. The same population in Germany, Great Britain, France, Poland, the low countries and Scandinavia use 10 Mb/d.

Peter, 12/21/2015 at 4:33 pm
Watcher

1)US consumption is besides a couple of small countries the highest in the world.

http://www.indexmundi.com/map/?v=91000

compared to other western industrial countries it’s consumption is totally unjustifiable.

2) Driving a Ford F150 or an ampera to work has nothing to do with GDP and everything to do with needless oil consumption. So stop saying things which even an 8 year old would find obvious

US consumers will not cut consumption out of the goodness of their hearts, they will be forced to do so when prices make cuts necessary.

China consumption

China, by comparison, increased consumption from 3,400,000 barrels per day (540,000 m3/d) to 7,000,000 barrels per day (1,100,000 m3/d), an increase of 3,600,000 barrels per day (570,000 m3/d), in the same time frame.

China surpassed the United States as the world’s largest crude oil importer in 2015. As China’s economic growth is predicted to decrease from the high rates of the early part of the 21st Century that level might grow more slowly, but still China is so far behind the USA in consumption of gasoline per capita the trend toward more equal consumption clearly will increase china figures dramatically. Much depends how quickly china will grow middle class, which owns individual cars.

India consumption

India is burning over 4 mbpd now. India's oil imports are expected to more than triple from 2005 levels by 2020, rising to 5 million barrels per day.  Look at Energy Export Databrowser to see the consumption line for each country. 45 degree slope for India, just a few degrees less than China’s slope. KSA’s slope looks early exponential. No reason why it shouldn’t be. It’s their oil.

Russian consumption

Russian internal consumption grows rapidly and that means that in the future Russia will export less oils. Russian leadership have found itself unprepared to the dramatic drop of oil prices and now will take moves to refine more oil at home, and selling less raw oil. The fact that Russia sells mostly unprocessed oil was a blunder that costs Russia billions and Putin had shown ability to learn from mistakes. 

Russia's Key Energy Statistics world rank
Total Primary Energy Production
2012
55.296
Quadrillion Btu
3
Total Primary Energy Consumption
2012
31.522
Quadrillion Btu
3
Dry Natural Gas Production
2011
22,213
Billion Cubic Feet
2
Total Petroleum and Other Liquids Production
2014
10,853
Thousand Barrels Per Day
3
Total Primary Coal Production
2013
388,013
Thousand Short Tons
6

Compare that with the USA

United States' Key Energy Statistics world rank
Total Primary Energy Production
2012
79.212
Quadrillion Btu
2
Total Primary Energy Consumption
2012
95.058
Quadrillion Btu
2
Dry Natural Gas Production
2011
22,902
Billion Cubic Feet
1
Total Petroleum and Other Liquids Production
2014
13,973
Thousand Barrels Per Day
1
Total Primary Coal Production
2013
984,842
Thousand Short Tons
2

India

India's existing domestic production of about 0.86 Mb/d is only about 25% of its current consumption of 3,47 Mb/d.  According to the EIA, its production peaked at 996,000 barrels per day in 2011. Energy consumption in India is likely double by 2031.   The CAGR (compound annual growth rate) for the ten years ending in March 2014 is above 3.5%.

Domestic production of  oil is relatively stable. The EIA (US Energy Information Administration) estimates that India had close to 5.7 billion barrels of proven oil reserves at the beginning of 2014. About 44% of the reserves are onshore resource.

 Imports is likely to rise  from current 75 percent to 80 percent by the end of the 12th five year plan (2016-17). According to the Directorate General of Commercial Intelligence and Statistics, crude oil and refined products made up over 28 percent and 30 percent of India's import of principal commodities in 2010-11 and first half of 2011-12 respectively.

India is a major crude oil refiner. India petroleum refining capacity has outstripped demand consistently. Since 2002, the country's export of petroleum products has risen from 10 million tones to around 60 million tones in 2011-12, an average annual growth of over 20%.

Analyzing India’s oil consumption

According to IES (International Energy Statistics) presented by the EIA (US Energy Information Administration), the CAGR for total petroleum consumption for the world was 0.8% from 2005 to 2013. This consumption has been measured in thousand barrels per day. In the same period, China saw its consumption increase by 5.1%. In CAGR terms, India’s consumption increased by 4.1%. In contrast, the US saw its consumption decrease by 1.2%.

Per sector consumption

Oil consumption is distributed amongst four broad sectors: transportation, residential, commercial, and industrial. In terms of oil consumption, transportation is the largest sector and the one that has seen the largest growth in demand in recent decades. This growth has largely come from new demand for personal cars. In the USA it accounts for approximately 68.9% of all the oil used. Globally it is close to 55%

There are also "shadow" consumers of oil. For example military is important but often underreported or unreported consumer. So in no way published figured of consumption can be taken at face value. 
 

Consumption by transportation sector

Approximately two-thirds of U.S. oil consumption is due to the transportation sector. Slightly less for the world. 

In the USA consumption is depicted on the following picture

Private transportation is gradually became more efficient in miles per gallon metric (so energy consumption is shifted to the production of battery and electrical motors).  Most of the efficiently is already obtained on cars such as Toyota Prius which averages probably 40 miles per gallon and can run on electrical engine at low speeds/city traffic which is killing regular car efficiency.  Further substantial improvement is unlikely as traffic jams are the most important feature of morning commute in the USA. Traffic congestion, especially at rush hour, is a problem in most of the USA large cities. A 2009 study found that traffic congestion costs the United States almost $87.2 billion. The economic costs of traffic congestion have increased 63% over the past decade, and despite the declining traffic volumes caused by the economic downturn, Americans still waste more than 2.8 billion US gallons (11,000,000 m3) of fuel each year as a result of traffic congestion. Motorists also waste 4.2 billion hours annually, or one full workweek per traveler.

Private transportation sector oil consultation with gradually rise with the growth of population.

It's not only car and trucks burn fuel on the roads. Maintaining road surface is pretty fuel-intensive activity as well. With the development of the  Eisenhower Interstate Highway System in the 1950s, the road system in the USA, as of 2010, has a total length of 47,182 miles (75,932 km), making it the world's second longest after China's, and the largest public works project in US history. A large number of multilane roads while improving peak hours traffic is considerably more expensive to maintain. A Federal Highway Administration report saying the number of roads in good condition each year is going up.  As the same time roads and surface transportation will only get about half their projected $1.7 trillion need for capital projects.  The high cost of America's bad roads and bridges - Feb. 12, 2013

Industrial transportation use efficient diesel engines and improving efficiently on such engines is a very difficult task. So it will approximately consume the same amount of fuel per ton per mile of transported goods as now. Some improvement are possible by increasing of usage of railways. for maritime transportation saving are possible by lowing the speed of vessels, which was already done when price of oil was high.

In air transportation larger planes, more efficient engines can improve fuel efficiency. Between 1960 and 2000 there was a 55% overall fuel efficiency gain. Optimal amount of passengers/cargo  and fuel are also important factors. As over 80% of the fully laden take-off weight of a modern aircraft such as the Airbus A380 is craft and fuel (Fuel economy in aircraft - Wikipedia )

Pilots of turbine airplanes actually have less control over the fuel efficiency of their flights because there are so many variables, first among them being air traffic control. Turbine engines are at their least efficient down low where the air is dense. As the airplane climbs up and the air thins, the turbine produces less power and thus consumes less fuel, but the drag of the thinning air on the airplane decreases faster than the power from the engine drops, so the airplane speeds up and the fuel flow goes down. Takeoff delays really cut into fuel efficiency in a jet compared to a piston engine.

Military aviation also consumes large amount of fuel and is known for very low fuel efficiency.

Chemical industry consumption

Chemical industry consumes approximately 30% of oil.

Residual Fuel Oil Consumption By Chemical Industry - By Country - Data from Quandl

Military consumption

Also we should not forget that one of the largest consumer of oil is military which will get oil at any price. And we have the recent trend in re-armament. So the consumption of oil by military grows again. Here are some 2007 data (US military energy consumption- facts and figures)

As the saying goes, facts are many but the truth is one. The truth is that the U.S. military is the single largest consumer of energy in the world. But as a wise man once said, don't confuse facts with reality. The reality is that even U.S. Department of Defense (DoD) does not know precisely where and how much energy it consumes. This is my Fact Zero.

Below I give some facts and figures on U.S. military oil consumption based mostly on official statistics.[1] If you want to reproduce them make sure you read every footnote even if you need to put on your glasses. Also read the footnotes in this article.

According to the DoD's Federal Energy Management Report for FY2006, the DoD spent approximately $3.5 billion on facility energy and $16.5 billion on energy for tactical vehicles. To this we should add 238 million spent on non-tactical vehicles.[6] Overall, total actual cost[7] for DoD energy consumption is over $20 billion. By the way, remember that a billion has nine zeros.

According to Pentagon spokesman Chris Isleib a $10 increase per barrel of oil increases Defense Department costs by $1.3 billion per year.

Hurting Russian economy

Oil is a strategic resource using which countries pursue geostrategic interest. So manipulation on oil price is a war by other means. As Patrick J. Buchanan  noted in his article America Regains the Oil Weapon The American Conservative in American Conservative (Nov 14, 2014)  "...price, Adam Smith notwithstanding, is something we can control and manipulate"  although strangely enough he consider Saudis to be an independent player, as if they are not a vassal state dependent on Washington:

In July of 1941, after Japan occupied French Indochina, the Roosevelt administration froze Japan’s assets in the United States. Denied hard cash, Japan could not buy the U.S. oil upon which the empire depended for survival. Seeing the Dutch East Indies as her only other source, Japan prepared to invade.

But first she had to eliminate the sole strategic threat to her occupation of the East Indies—the U.S. battle fleet at Pearl Harbor. FDR’s cutoff of oil to Japan was thus a primary cause of WWII in the Pacific, which led to hundreds of thousands of U.S. war dead, the destruction of Japan, Mao’s triumph in China and a U.S. war in Korea.

A second stunning use of the oil weapon came in 1973. Arab members of OPEC imposed an embargo in retaliation for Nixon’s rescue of Israel with an airlift in the Yom Kippur war. Long gas lines helped to bring Nixon down.

Now the oil weapon appears to be back in America’s hand.

Due to the substitution of natural gas for oil in heating homes and buildings, horizontal drilling, and hydraulic fracking, which enables us to bring oil and gas out of shale rock in places like North Dakota, U.S. production has exploded. We now produce more oil than Saudi Arabia and the benefits are not only economic, but geostrategic.

... ... ...

What is Riyadh’s game?

Is the Saudi strategy to let prices fall to where it is no longer profitable for Americans to begin new fracking? Are the Saudis thinking of doing to the new oil-producing champion, USA, what we are doing to Venezuela, Russia, and Iran? Riyadh may want to let the price of oil sink below where it makes sense for energy companies to prospect for new sources of oil or invest more billions in expanding production.

Are the Saudis out to cripple us with an oil glut?

Today, not only are Iran and Iraq producing below potential, so, too, is Libya. And we have been bombing ISIS’ oil facilities in Syria.

A contrarian’s question: Would we not be better off if these countries not only restored oil production, but also expanded production and put more oil on the market than they do today? Demand creates supply, and a world oil market where there is more supply than demand would seem to be to America’s benefit. For we remain the world’s largest consumer of petroleum products. And surely it is to our benefit to enlarge both the reserves and production of oil and gas in North America.

Price pays a huge role in creating, and shrinking, supply. And price, Adam Smith notwithstanding, is something we can control and manipulate, even as China manipulates its currency.

In “America’s New Oil Weapon” in National Review, Arthur Herman of the Hudson Institute urges the United States to take bold steps to increase our supplies of oil and gas.

We should relax the rules on drilling in Alaska’s Arctic National Wildlife Refuge, which has 10 billion barrels of oil locked up. We should use as an economic weapon against OPEC the 700 million barrels in the Strategic Petroleum Reserve. We should allow the export of oil from the United States to enable us to cope with OPEC cutbacks. We should build the Keystone XL pipeline, and the other oil and gas pipelines between us and Canada now sitting in limbo.

What Herman is urging upon us is a new nationalism, a new way of thinking about international economics that puts the U.S. and its allies first, and uses our economic leverage to advance national rather than global interests.

High oil prices pressured the US economy and its perennially-undercapitalized banking system. US economy health depends on low oil prices.   But there is geopolitical dimension of the current drop of oil prices. In is not unconceivable to think that Washington reused Reagan plan of hurting Russian economy (which catalyzed dissolution of the USSR) by pushing down oil prices.

Among the many threats facing Russia’s economy, cheap oil could be the biggest of all. Low crude are depressing the ruble (at some point in early 2015 ruble  dropped to 69 per dollar from 30-35 or so; in August 24, 2015 it reached 69.96) and knocking export on which Russia depends due to its integration in the global economy: the direction Russian neoliberal pushed for since 1991. And Russian elite was taking high oil prices for granted. For example,  Russia’s draft budget for 2015 was based on $100-a-barrel oil (Oil Prices Are Hurting Russia's Economy - Businessweek, October 13, 2014)

Because of Russia’s outsize dependence on oil and gas, which account for more than two-thirds of its exports, lower energy prices can easily tip its $2 trillion economy into recession. “Growth is likely to remain positive only with oil prices above $92 to $93 a barrel,” says economist Charles Robertson of Renaissance Capital. At $90 a barrel, the economy would contract 0.4 percent next year, and at $80 a barrel it would shrink 1.7 percent, he predicts.

Do the US tried to subdue Russia the second time via decimating oil prices and thus cutting dramatically the stream of revenue from oil exports?  It is difficult to say.   But now this strategy is better understood by Russians, which created certain difficulties in its implementation despite the huge power of the US financial sector. The sector which can allow itself to play with oil futures the way it wants due to unlimited supply of the US dollars -- the world reserve currency.  The Fed remains a monetary superpower controlling the world's main reserve currency and xUSSR  and emerging countries currencies are formally or informally pegged to dollar. Therefore, its monetary policy is exported across the globe. The Fed was exporting its easy monetary policy to the rest of the world in the early-to-mid 2000s. Now  the attempt of normalization of monetary policy creating huge tightening of monetary conditions for the rest of the world.  It also dramatically devalue large export oriented Russian companies:

How Russian energy giant Gazprom lost $300bn  Justin Burke for  the New East network

Aug 07, 2015  |  The Guardian

annamarinja airman23 8 Aug 2015 09:09

Poor airman23. Have you ever heard about Dick Cheney? Have you ever looked at the Wolfowitz Doctrine? If not, then you are very much behind the nowadays understanding of fascism and fascists. On the other hand, you are such a concrete success of Mrs. Nuland-Kagan' (and likes) travails.

yemrajesh  -> psygone 8 Aug 2015 07:36

Difficult to say. If the costs are true'ly low it would have reflected at the Pump. But it hasn't. Another flaw is how can oil pumped from deeper well ( Fracked Oil) is cheaper than conventional oil. It looks more like US flexing its muscles to subdue Russia. Besides its not Just Gazprom , shell, BP, Exxon , Gulf, Mobil etc also many of US vassal states are affected. It would be interesting to see how long this artificial price drop continue with zero benefit to the customers.

Kaiama 8 Aug 2015 06:07

Since the Russians haven't rolled over the first time, the US is trying again. These days, the price of oil is determined by activity in the futures market impacting the spot price. Likewise, I expect for shares and wouldn't be surprised if someone is shorting the stock. Any oil and gas not pumped today is available to be pumped tomorrow - possibly at higher prices. Gazprom isn't going bankrupt. Neither are any of the other major oil companies.

AlbertEU  -> alpamysh 7 Aug 2015 17:09

The crisis of one industry necessarily will hurt other sectors. Hard-hit banking sector, which is credited US shale industry. The effect can be like an avalanche. Especially if it is strengthened by additional steps. I think for anybody is not a secret the existence of a huge number of empty weight of the dollar, which is produced by running the printing press. Oil trade is in the dollar, which in turn keeps the volume of the empty weight of the dollar. Now imagine a situation where part of the oil market has not traded more in dollars. It is equally affected, the USA and Russia.

But there is one important detail. Russia has never in its history, was a rich country (if you count all the inhabitants of Russia, not individuals). In the country there is no cult of consumption. The traditional religions of Russia, that is, those that have always existed in Russia (Orthodox Christianity, Islam and Buddhism) did not contribute to the emergence of such a cult.

Orthodoxy says plainly that material wealth is not important for a man. Wealth is only supplied in addition to achieve the main goal in the life of an Orthodox Christian. Therefore, to be poor in Russia is not a problem. This is a normal way of life. Hence the stoic resistance to any hardship, challenges, wars and so on. Expectations of great social upheaval in Russia, caused by the lowering of the standard of living is a little naive. Russia used to run in the marathon. Who would have more strength, intelligence and endurance is a big question. Geopolitics is a very strange science...

If this is a deliberate maneuver, an economic war on Russia, it can became very costly and might have made sense only on a short or medium-term basis (three-five years), to shock Russian elite into submission and depose Putin and his faction of "resource nationalists" which are like a bone in the throat of US multinationals.  This time Washington managed to catch  Putin's government completely  unprepared to such development of event, which increased the chances of success.

And they really took Russian elite by surprise. That's why the USA oil Blitzkrieg initially enjoyed such a huge success and immediately crashed the ruble (100% devaluation happened) as well as put Russian economy in recession. But Russians quickly realized what's going on and the game in the second part of  2015 became more complicated as those futures and shale industry junk bonds now also weight on the USA financial sector.  It this was a deliberate maneuver, it does has unanticipated side effects.

Those who sell futures for 2017 for $58 can be hit with $30 loss per barrel, if the game turn bad.  So the current low oil price movements should be viewed as  yet another neoliberal financial casino gambling session, in which stakes are really high.  It is completely counter productive from the point of view of future of mankind, but the last thing the USA elite care about is the future of mankind. They are preoccupied with the desire to preserve and enhance their global neoliberal empire and that requires crashing all potential competitors, including Russia and China. The paradox is that while they weaken Russia they really strengthen China (although they try to compensate this with playing Chinese stock market to their advantage). But Putin severely underestimated the damage West can inflict to Russian economy:

Opportunities for the West to hurt the Russian economy are limited, President Vladimir Putin said Thursday. Europe cannot stop buying Russian gas without inflicting pain on itself, and if the US tries to lower oil prices, the dollar will suffer.

If the West tries to damage Russia’s influence in the world energy market, efforts will likely backfire, the Russian President said during his twelfth annual televised question and answer session.

To really influence the world oil market a country would need to increase production and cut prices, which currently only Saudi Arabia could afford, Putin said.

The president added he didn’t expect Saudi Arabia, which has “very kind relations” with Russia, will choose to cut prices, that could also damage its own economy.

If world oil production increases, the price could go down to about $85 per barrel. “For us the price fall from $90 to $85 per barrel isn’t critical,” Putin said, adding that for Saudi Arabia it would be more sensitive.

Also the President said that being an OPEC member, Saudi Arabia would need to coordinate its action with the organization, which “is very complicated.”

Meanwhile, Russia supplies about a third of Europe's energy needs, said Putin. Finland, for example, is close to Russia economically, as it receives 70 percent of its gas from Russia.

“Can Europe stop buying Russian gas? I think it's impossible…Will they make themselves bleed? That's hard to imagine,” the Russian president said.

Since oil is sold internationally on global markets cutting the price would mean lower dollar circulation, diminishing its value in the global currency market.

"If prices decrease in the global market, the emerging shale industry will die,” Putin said.

The US shale industry has boosted domestic production, but President said that the so-called "shale revolution" was expensive and not quick to come.

Russia’s economy largely relies on energy. In 2013 more than 50 percent of the national budget was funded by gas and oil revenues. The main revenue comes from oil, as last year, oil revenues reached $191 billion, and gas $28 billion.

“Oil and gas revenues are a big contribution to the Russian budget, a big part for us when we decide on our government programs, and of course, meeting our social obligations,” the president said.

As Reuters reported:

“The Obama administration has opened a new front in the global battle for oil market share, effectively clearing the way for the shipment of as much as a million barrels per day of ultra-light U.S. crude to the rest of the world…

The Department of Commerce on Tuesday ended a year-long silence on a contentious, four-decade ban on oil exports, saying it had begun approving a backlog of requests to sell processed light oil abroad.

The action comes at a critical juncture for the global oil market. World prices have halved to less than $60 a barrel since the summer as top exporter Saudi Arabia, once a staunch defender of $100 oil, refused to cut production in the face of surging U.S. shale output and tempered global demand…

With global oil markets in flux, it is far from clear how much U.S. condensate will find a market overseas.”
(Analysis – U.S. opening of oil export tap widens battle for global market, Reuters)

Why would the oil producers, who have over the years raised the price of oil  suddenly agree to drop the price from roughly $120 a barrel to lower then $60  a barrel (Want To Hurt Russia Lower The Price Of Oil OilPrice.com?).

Let us look first at who the major oil producers are today: Saudi Arabia, Qatar, the United Arab Emirates and the United States, as well as Russia, Iran and the Islamic State.

Of those, we can make a clear distinction between the first four countries who have solid economies and ample amounts of cash reserves and who can sustain a sharp drop in revenue when oil is sold at a lower price...

The big losers in this case will clearly be the last three countries on that list: Russia, Iran and the Islamic State.

Coincidentally, these countries are currently engaged in highly controversial conflicts and are facing opposition from the United States and the West.

Russia is involved in Ukraine’s civil war, supporting the separatists in a highly criticized move condemned by the United States and its Western allies. In response, the allies began to impose sanctions as punishment and, given the ruble’s recent downturn, Russia’s credit rating being slashed and desperate gas deals in the Asian markets, it seems that the sanctions have, thus far, been highly successful.

CNN reported that Russian is Russia losing $140 billions from sanctions and low oil price according to estimates from Russia's finance minister Anton Siluanov. For every $10 drop in the per-barrel price of oil, Russia loses up to $14.6 billion a year in revenues, according to Alfa Bank. This is a real economic war (Russia has just lost the economic war with the west Business The Guardian)

The phrase “perfect storm” is over-used, but the combination of a collapsing currency, a collapsing economy and punitive interest rates make it apposite. The question now is how Putin responds. If he softens his line over Ukraine, the west’s gamble will have paid off and it will be mission accomplished. But there are hardliners in Moscow who will argue that the response to the crisis should be a siege economy and the ratcheting up of military pressure on Ukraine. If economic agony makes a wounded Russian bear more belligerent, it will prove a hollow victory.

Here’s a clip from an NPR interview with the president just last week. About halfway through the interview, NPR’s Steve Inskeep asks Obama: “Are you just lucky that the price of oil went down and therefore their currency collapsed or …is it something that you did?

“Are you just lucky that the price of oil went down and therefore their currency collapsed or …is it something that you did?

Barack Obama:

If you’ll recall, their (Russia) economy was already contracting and capital was fleeing even before oil collapsed. And part of our rationale in this process was that the only thing keeping that economy afloat was the price of oil. And if, in fact, we were steady in applying sanction pressure, which we have been, that over time it would make the economy of Russia sufficiently vulnerable that if and when there were disruptions with respect to the price of oil — which, inevitably, there are going to be sometime, if not this year then next year or the year after — that they’d have enormous difficulty managing it.” (Transcript: President Obama’s Full NPR Interview)

Obama just admit that he wanted “disruptions” in the “price of oil” because he figured Putin would have “enormous difficulty managing it”?

Isn’t that the same as saying that it was all part of Washington’s plan; that plunging prices were just the icing on the cake for their asymmetrical attack on the Russian economy? It sure sounds like it. And that would also explain why Obama decided to allow domestic producers to dump more oil on the market even though it’s going to send prices lower. Apparently, none of that matters as long as the policy hurts Russia.

So maybe the US-Saudi oil collusion theory isn’t so far fetched after all. Maybe Salon’s Patrick L. Smith was right when he said:

“Less than a week after the Minsk Protocol was signed, Kerry made a little-noted trip to Jeddah to see King Abdullah at his summer residence. When it was reported at all, this was put across as part of Kerry’s campaign to secure Arab support in the fight against the Islamic State.

Stop right there. That is not all there was to the visit, my trustworthy sources tell me. The other half of the visit had to do with Washington’s unabated desire to ruin the Russian economy. To do this, Kerry told the Saudis 1) to raise production and 2) to cut its crude price. Keep in mind these pertinent numbers: The Saudis produce a barrel of oil for less than $30 as break-even in the national budget; the Russians need $105.

Shortly after Kerry’s visit, the Saudis began increasing production, sure enough — by more than 100,000 barrels daily during the rest of September, more apparently to come…

Think about this. Winter is coming, there are serious production outages now in Iraq, Nigeria, Venezuela and Libya, other OPEC members are screaming for relief, and the Saudis make back-to-back moves certain to push falling prices still lower?

You do the math, with Kerry’s unreported itinerary in mind, and to help you along I offer this from an extremely well-positioned source in the commodities markets: “There are very big hands pushing oil into global supply now,” this source wrote in an e-mail note the other day.” (“What Really Happened in Beijing: Putin, Obama, Xi And The Back Story The Media Won’t Tell You”, Patrick L. Smith, Salon)

As New York Post tabloid, a mousepiece of Rupert Murdock,   gleefully reported

The price collapse could not have come at a worse time for Bad Vlad Putin. The Russian president needs an oil price around $100 a barrel to prop up what’s become a wartime economy. Oil and gas provide up to a third of budget revenue and compose two-thirds of exports.

Sanctions imposed over Putin’s aggression have gnawed at Russia’s economy, but this price drop bites deep: The ruble has crashed, Russian bonds are pathetic, and foreign reserves are bleeding.

While Russians will put up with harder times than Westerners will, Putin’s made extravagant commitments (bet he’d like to have back the $50 billion he squandered on corrupt Olympic construction). The world’s fave bare-chested bully had embarked on a massive arms buildup, with a hi-tech $5 billion command center just unveiled. But Putin’s visions of military resurgence are becoming unaffordable. He also made election promises to improve Russia’s wretched health-care system. Instead, he’s firing health-care workers and shuttering hospitals.

He promised higher living standards, but now the average Ivan’s feeling squeezed. And Putin faces enormous costs in Crimea and eastern Ukraine, two booby-prize welfare states, with the latter shot to ruins. Putin’s popularity remains high. For now. The gravest worry is that, with his back to the wall, he’ll play the Mother Russia card and attack again.
 

Iraq war was a war for oil

Oil, the U.S.-Middle East Free Trade Area and the Bush Agenda By Antonia Juhasz,

 Antonia Juhasz, a visiting scholar at the Institute for Policy Studies, is the author of The Bush Agenda: Invading the World, One Economy at a Time, on which part of this article is based. She is working on a new book that will make the case for the break-up of the largest American oil companies. Learn more at www.TheBushAgenda.net

Remember oil? That thing we didn’t go to war in Iraq for? Now with his war under attack, even President George W. Bush has gone public, telling reporters last August, “[a] failed Iraq … would give the terrorists and extremists an additional tool besides safe haven, and that is revenues from oil sales.” Of course, Bush not only wants to keep oil out of his enemies’ hands, he also wants to put it into the hands of his friends. 

The President’s concern over Iraq’s oil is shared by the Iraq Study Group, which on December 6 released its much-anticipated report. While the mainstream press focused on the report’s criticism of Bush’s handling of the war and the report’s call for (potential) removal of (most) U.S. troops (maybe) by 2008, ignored was the report’s focus on Iraq’s oil. Page 1, chapter 1 laid out in no uncertain terms Iraq’s importance to the Middle East, the United States and the world with this reminder: “It has the world’s second-largest known oil reserves.” The group then proceeds to give very specific and radical recommendations as to what should be done to secure those reserves. 

Guaranteeing access to Iraq’s oil, however isn’t the whole story. Despite the lives lost and the utter ruin that the war has brought, the overarching economic agenda that the administration is successfully pursuing in the Middle East might be the most enduring legacy of the war—and the most ignored.  Just two months after declaring “mission accomplished” in Iraq, Bush announced his plans for a U.S.-Middle East Free Trade Area to spread the economic invasion well-underway in Iraq to the rest of the region by 2013. Negotiations have progressed rapidly as countries seek to prove that they are with the United States, not against it.

The Bush Agenda

Within days of the 9/11 terrorist attacks, then-U.S. Trade Representative Robert Zoellick announced that the Bush administration would be “countering terror with trade.” Bush reiterated that pledge four years later when he told the United Nations, “By expanding trade, we spread hope and opportunity to the corners of the world, and we strike a blow against the terrorists. Our agenda for freer trade is part of our agenda for a freer world.” In the case of the March 2003 invasion and ongoing occupation of Iraq, these “free trade”—or corporate globalization—policies have been applied in tandem with America’s military forces.

The Bush administration used the military invasion of Iraq to oust its leader, replace its government, implement new economic and political laws, and write a new constitution. The new economic laws have transformed Iraq’s economy, applying some of the most radical—and sought-after—corporate globalization policies in the world and locking in sweeping advantages to U.S. corporations. Through the ongoing occupation, the Bush administration seeks to ensure that both Iraq’s new government and this new economic structure stay firmly in place. The ultimate goal—opening Iraq to U.S. oil companies—is reaching fruition.

In 2004, Michael Scheuer—the CIA’s senior expert on al-Qaeda until he quit in disgust with the Bush administration—wrote, “The U.S. invasion of Iraq was not preemption; it was … an avaricious, premeditated, unprovoked war against a foe who posed no immediate threat but whose defeat did offer economic advantages.”  How right he was. For it is an absolute fallacy that the Bush administration had no post-invasion plan for Iraq. The administration had a very clear economic plan that has contributed significantly to the disastrous results of the war. The plan was prepared at least two months prior to the war by the U.S. consultancy firm, Bearing Point, Inc., which then received a $250 million contract to remake Iraq’s economic infrastructure.

L. Paul Bremer III—the head of the U.S. occupation government of Iraq, the Coalition Provisional Authority (CPA)—followed Bearing Point’s plan to the letter. From May 6, 2003 until June 28, 2004, Bremer implemented his “100 Orders” with the force of law, all but a handful of which remain in place today. As the preamble to many of the orders state, they are intended to “transition [Iraq] from a … centrally planned economy to a market economy” virtually overnight and by U.S. fiat.  Bremer’s orders included firing the entire Iraqi military—some half a million men—in the first weeks of the occupation. Suddenly jobless, many of these men took their guns with them and joined the violent insurgency. Bremer also fired 120,000 of Iraq’s senior bureaucrats from every government ministry, hospital and school. {By removing the Sumi bureaucracy, they removed opposition to globalization.  The U.S. could now shop for support from what would soon be a newly elected factionalized parliament—jk.}  His laws allowed for the privatization of Iraq’s state-owned enterprises (excluding oil) and for American companies to receive preferential treatment over Iraqis in the awarding of reconstruction contracts. The laws reduced taxes on all corporations by 25 percent and opened every sector of the Iraqi economy to private foreign investment. The laws allowed foreign firms to own 100 percent of Iraqi businesses (as opposed to partnering with Iraqi firms) and to send their profits home without having to invest a cent in the struggling Iraqi economy. Iraqi laws governing banking, foreign investment, patents, copyrights, business ownership, taxes, the media, agriculture and trade were all changed to conform to U.S. goals. 

After the U.S. corporate invasion of Iraq

More than 150 U.S. companies were awarded contracts for post-war work totaling more than $50 billion.  The American companies were hired, even though Iraqi companies had successfully rebuilt the country after the previous U.S. invasion. And, because the American companies did not have to hire Iraqis, many imported foreign workers instead. The Iraqis were, of course, well aware that American firms had received billions of dollars for reconstruction, that Iraqi companies and workers had been rejected and that the country was still without basic services. The result: increasing hostility, acts of sabotage targeted directly at foreign contractors and their work, and a rising insurgency.

Halliburton received the largest contract, worth more than $12 billion, while 13 other U.S. companies received contracts worth more than $1.5 billion each. The seven largest reconstruction contracts went to the Parsons Corporation of Pasadena, Calif. ($5.3 billion); Fluor Corporation of Aliso Viejo, Calif. ($3.75 billion); Washington Group International of Boise, Idaho ($3.1 billion); Shaw Group of Baton Rouge, La. ($3 billion); Bechtel Corporation of San Francisco ($2.8 billion); Perini Corporation of Framingham, Mass. ($2.5 billion); and Contrack International, Inc. of Arlington, Va. ($2.3 billion). These companies are responsible for virtually all reconstruction in Iraq, including water, bridges, roads, hospitals, and sewers and, most significantly, electricity.

U.S. Air Force Colonel Sam Gardiner, author of a 2002 U.S. government study on the likely effect that U.S. bombardment would have on Iraq’s power system, said, “frankly, if we had just given the Iraqis some baling wire and a little bit of space to keep things running, it would have been better. But instead we’ve let big U.S. companies go in with plans for major overhauls.”

Many companies had their sights set on years-long privatization in Iraq, which helps explain their interest in “major overhauls” rather than getting the systems up and running. Cliff Mumm, head of Bechtel’s Iraq operation, put it this way: “[Iraq] has two rivers, it’s fertile, it’s sitting on an ocean of oil. Iraq ought to be a major player in the world. And we want to be working for them long term.”

And, since many U.S. contracts guaranteed that all of the companies’ costs would be covered, plus a set rate of profit (known as cost-plus contracts), they took their time, building expensive new facilities that showcased their skills and would serve their own needs should they be runing the systems one day.

Mismanagement, waste, abuse and criminality have also characterized U.S. corporations in Iraq—leading to a series of U.S. contract cancellations. For example, a $243 million contract held by the Parsons Corporation for the construction of 150 health care centers was cancelled after more than two years of work and $186 million yielded just six centers, only two of which are serving patients. Parsons was also dropped from two different contracts to build prisons, one in Mosul and the other in Nasiriyah. The Bechtel Corporation was dropped from a $50 million contract for the construction of a children’s hospital in Basra after it went $90 million over budget and a year-and-a-half behind schedule. These contracts have since been turned over to Iraqi companies.

Halliburton’s subsidiary KBR is currently being investigated by government agencies and facing dozens of charges for waste, fraud and abuse. Most significantly, in 2006, the U.S. Army cancelled Halliburton’s largest government contract, the Logistics Civil Augmentation Program (LOGCAP), which was for worldwide logistical support to U.S. troops. Halliburton will continue its current Iraq contract, but this year the LOGCAP will be broken into smaller parts and competitively bid out to other companies.

The Special Inspector General for Iraq Reconstruction (SIGIR), a congressionally-mandated independent auditing and oversight body, has opened 256 investigations into criminal fraud, four of which have resulted in convictions. SIGIR has provided critical oversight of the U.S. reconstruction, but this fall it nearly fell prey to a GOP attempt to shut down its activities well ahead of schedule. Fortunately, it survived.

SIGIR’s October 2006 report to Congress reveals the failure of U.S. corporations in Iraq. In the electricity sector, less than half of all planned projects in Iraq have been completed, while 21 percent have yet to even begin. Even the term “complete” can be misleading as, for example, SIGIR has found that contractors have failed to build transmission and distribution lines to connect new generators to homes and businesses. Thus, nationally, Iraqis have on average just 11 hours of electricity a day, and in Baghdad, the heart of instability in Iraq, there are between four and eight hours on average per day. Before the war, Baghdad averaged 24 hours per day of electricity.

While there has been greater success in finishing water and sewage projects, the fact that 80 percent of potable water projects are reported complete does little good if there is no electricity to pump the water into homes, hospitals or businesses. Meanwhile, the health care sector is truly a tragedy. Just 36 percent of planned projects are reported as complete. Of 20 planned hospitals, 12 are finished and only six of 150 planned public health centers are serving patients today.

Overall, the economy is languishing, with high inflation, low growth, and unemployment rates estimated at 30 to 50 percent {being part of a militia is providing employment} for the nation and as high as 70 percent in some areas. The International Monetary Fund has enforced a structural adjustment program on Iraq that mirrors much of Bush’s corporate globalization agenda, and the administration continues to push for Iraq’s admission into the World Trade Organization.

Iraq has not, therefore, emerged as the wealthy free market haven that Bush & Co. had hoped for. Several U.S. companies are now preparing to pack up, head home and take their billions of dollars with them, their work in Iraq left undone.  The Bush administration is likely to follow a dual strategy: continuing to pursue a corporate free-trade haven in Iraq, while helping U.S. corporations extricate themselves without consequence. The administration will also focus on the big prize: Iraq’s oil.

Winning Iraq’s oil prize: 

The Bush Agenda does have supporters, especially those corporate allies that have both shaped and benefited from the administration’s economic and military policies.  In the 2000 election cycle, the oil and gas industry donated 13 times more money to Bush’s campaign than to Al Gore’s. The Bush administration is the first in history in which the president, vice president and secretary of state are all former energy company officials. In fact, the only other U.S. president to come from the oil and gas industry was Bush’s father. Moreover, both George W. Bush and Condoleezza Rice have more experience running oil companies than they do working for the government.

Planning to secure Iraq’s oil for U.S. companies began on the tenth day of the Bush presidency, when Vice President Dick Cheney established the National Energy Policy Development Group—widely referred to as “Cheney’s Energy Task Force.” It produced two lists, titled “Foreign Suitors for Iraqi Oilfield Contracts as of 5 March 2001,” which named more than 60 companies from some 30 countries with contracts for oil and gas projects across Iraq—none of which were with American firms. However, because sanctions were imposed on Iraq at this time, none of the contracts could come into force. If the sanctions were removed—which was becoming increasingly likely as public opinion turned against the sanctions and Hussein remained in power—the contracts would go to all of those foreign oil companies and the U.S. oil industry would be shut out.

As the Bush administration stepped up its war planning, the State Department began preparations for post-invasion Iraq. Meeting four times between December 2002 and April 2003, members of the State Department’s Oil and Energy Working Group mapped out Iraq’s oil future. They agreed that Iraq “should be opened to international oil companies as quickly as possible after the war” and that the best method for doing so was through Production Sharing Agreements (PSAs).

PSAs are considered “privatization lite” in the oil business and, as such, are the favorite of international oil companies and the worst-case scenario for oil-rich states. With PSAs, oil ownership ultimately rests with the government, but the most profitable aspects of the industry—exploration and production—are contracted to the private companies under highly favorable terms. None of the top oil producers in the Middle East use PSAs, because they favor private companies at the expense of the exporting governments. In fact, PSAs are only used in respect to about 12 percent of world oil reserves {such as Nigeria}. 

 

Weakness of the propagated by MSM hypothesis about Saudi Arabia fighting for its market share

In 2013 before oil prices slump started Saudies shipped 7.54 million barrels a day on average up from 7.41 million barrels a day in 2012 (JODI website ). Saudi Arabia exported 5.49 million barrels a day in 2002, when the group began collecting oil data. Saudi monthly exports in 2013 peaked at 7.84 million barrels a day in August, the most since April and May of 2003. North Sea Brent, the benchmark for more than half of the world’s oil, averaged $110.82 a barrel during the 2010-2013.

Saudi Arabia produced 10.28 million barrels a day in October, 2015,  up from 9.69Mb/done year ago.   Chances that production will reach 11 Mb/d are slim. There are strong signs that they have huge difficulties in increasing oil extraction volume.  All their efforts to increase production led to increase of less then 1Mb/d  increase in 2015. Which is partially offset by  increase in internal consumption (In 2015 Saudi Arabia oil demand rose by a notable 0.21 mb/d, a nearly 8% annual rise)  Here is relevant quote (OilPrice.com, Dec 21, 2015). All they can achieve is 7% increase of exports.

Crude exports from Saudi Arabia rose from an average of 7.111 million barrels per day in September to 7.364 million per day in October, according to the latest data from the Joint Organizations Data Initiative (JODI), which monitors the oil industry. The report said this quantity was the most oil exported from Saudi Arabia since June and 7 percent higher than in October 2014.

The key question about propagated by MSM hypothesis about Saudi Arabia fighting for its market share is "Why piss yourself without any need?". 

That means that if Saudis withdraw one Mb/s from the market in 2015 and exported the same 7 Mb/d (instead of 7.5 Mb/d, saving around 0.5 Mb/d of their oil reserves, not counting rise in internal consumption)  their revenue would be  125 billions.  While after increasing oil production to maximum (no spare capacities) they got oil revenue $118 billions.  Less money for more effort.  Their proven oil reserves are only 268 billion barrels (EIA)  which at current rate of production (which is around 3.6 billion barrels per year) get them less then a hundred years.

Moreover they need approximately $100 oil to balance budget, so low oil prices mean depletion of their currency reserves, which if prices say on the current level will last less then 10 years.  Saudi Arabia’s record deficit of  $98 billion in 2015 At the end of October, its reserves fell to $644 billion from $732 billion at the end of last year.  The finance ministry has issued bonds worth $20 billion for the domestic market. projected means that dumping oil on the market was a self-destructive action.

The only reasonable explanation for such suicidal actions is that they launched "all-out" economic war against their arch-enemy Iran depriving it of oil revenue after lifting sanctions, hitting simultaneously Russia, Venezuela and couple of other countries they do not like.  In any case such an action should be approved by Washington as Saudis are a vassal state completely dependent on Washington for survival of their monarchic regime.

And it is easy to see huge benefits for Washington from such Saudis-Iran oil war.  Moreover may be lifting sanction itself was a gentle push for Saudis to unleash this war.

Not everybody buy MSM propagated version of Saudis behaviour. For example here is a comment from Yahoo (Saudi to diversify economy away from oil King Salman)

brian  Dec 30, 2015

This oil collapse is engineered by Saudi with the Western media. As the analysts are saying the daily over production is 1.5 million barrels. 1.5 out of 100 million daily production is ONLY 1.5% percent. Why did Saudi keep on over producing and with the media bombarding over production, the future's market is easily manipulated as oil collapsed to $36 per barrel.

This just does not make sense and not fair to the commodity producing nations. If you look at the U.S., Euro, Japan, China all they are doing is QE, printing money to supercharge their economy. On the other hand, the commodity nations are contracting.

Si

Saudi Arabia is in a conundrum, it has propped up its Clergy and kept majority of its population illiterate. This was done to keep the Kingdom under full control of its population, their women folk are even further worst off. The country is run by expatriates from around the world, mostly from Egypt, Pakistan, India, Bangladesh and Malaysia. According to Saudi rules these expatriates can not ever become citizens, even after many generations. Unlike Iran whose population is highly educated (Men and Women), Saudi administrators are afraid if Saudi gets educated there will be a revolution and that will affect how Saudi Arabia is ruled. My bet is Saudi Arabia can not progress beyond oil based economy.

 

And in another Yahoo thread Oil down 3 percent; Brent near 11-year low as oversupply worries return
Old Midwest Geezer
Saudi Arabia is fighting a financial war against Iran, its mortal enemy. Iran's main source of income is oil and SA is putting the screws to them and their Russian buddies. They picked up a perk by squeezing the US shale oil producers.

Hedging and junk debt: shale oil as subprime oil


"There are too many ugly balance sheets," warns one energy industry analyst, adding simply that "the group is not positioned for this downturn." While the mainstream media continues to chant the happy-clappy side of lower oil prices, spewing various 'statistics' about how the down-side of low oil prices is 'contained' and the huge colossal massive tax cut means 'everything is awesome' for America, the data - and now actions - do not bear this out.

Zero Hedge

Shale oil companies were not making as bandits when prices were $100. They operated in a very risky and rather unstable environment and mot of them took substantial amoount of debt.  Many used hedges regularly to make the environment more stable which is double edge sword -- it helps if price drop but deprive you of profits if price surge. Those who did were in better shape in 2015 when oil prices dropped to $35 per barrel (WTI).  Here is a good explanation of hedging from a post in peakoilbarrel.com blog:

shallow sand, 12/20/2015 at 8:56 am
Donn. Companies hedge with counter parties. Those are usually large banks. The there are 3 basic types of hedges.
  1. SWAP. The producer and counter party agree to a fixed price, say $70 per barrel. If the price goes above $70, the producer pays the counterparty the difference. If it goes below $70, the counterparty pays the producer.
  2. Cost less collars. These are like SWAPS, but in a range. Say the parties agree to a collar of $60-80. No money changes hands unless the price goes outside the range.
  3. The third is a floor, or put. The producer pays a premium to the counterparty. Say the producer buys $60 puts. If the price falls below $60, the counterparty pays the producer.

There are various hybrids and modifications of the above.

The price levels and cost of puts are based on the futures market. It is now impossible to hedge anything remotely profitable for the shale industry and a good portion of US conventional.

Furthermore, it is difficult to hedge production past 24 months. This is especially true for shale, with the high declines.

One concern with SWAPS or collars is in the event of a price spike, the producer produces less barrels than that hedged. That can wind of costing the producer a lot of $$. Also, theses types of hedges can result in very large margin requirements of the producers, but they commonly avoid those by allowing a first lien on production.

Another problem with hedges is giving up upside. If it were possible, someone who hedged in 2003 for the next ten years at $30 a barrel would be BK, as the price rocketed up, which caused OPEX to also skyrocket.

Most companies do not hedge past 24 months. Also, they do it in layers so that not as many barrels are hedged n the later years.

Many companies had significant hedge gains in 2015. There will be much less in 2016 and almost none in 2017.

Shale companies debt was typically rated as junk which means that chances for repayment of the load are low.  Just due to this fact the current talk about profitability of certain parts of shale at below then $50 prices looks a little bit suspicious even with some technology advances which were sped up by the price slum as well as lower service companies costs.   To many observers $60-$75 per barrel looks like a more reasonable minimal price for shale oil sustainable extraction, if the amount of junk bond debt is counted.

The current talk about profitability of certain parts of shale at below then $50 prices looks a little bit suspicious.   To many observers $60-$75 per barrel looks like more a reasonable minimal price for shale oil sustainable extraction, if the amount of junk bond debt is counted. 

Some technological improvements can cut costs. Neglecting ecological concerns can cut costs. The strong dollar and crash of other commodities can cut some costs (as steel and some equipment, can be bought at much lower prices). But whether all three factors mentioned can cut 50% of costs is a big multibillion question.   Gail Tverberg, a well known commentator on "end of cheap oil" problem,  thinks that the current drop of prices looks more like a harbinger of the collapse of financial system then oversupply problem on world markets (Deflationary Collapse Ahead?  Aug 28, 2015  Our Finite World )

The entire shale oil industry in America is complex mix of new technological methods and new schemes of creation of  junk bonds by Wall Street (200 billion of this debt might also be securitized like subprime mortgages). There also might be some complex derivative bets  (including but not limited to related to hedging of oil prices by shale producers, airlines, etc).

Shale oil is impossible to understand without  proper context which is the existence of  sophisticated financial system and complex financial products under neoliberalism. Wall Street can be trusted as for its ability to produce exotic financial instrument tailored for particular purpose, which can blow in your face in case of any Black Swan event.  In this case this might be securitization of debt of shale oil companies that could play a role somewhat similar to subprime mortgages but on much smaller scale as the amount of dent is miniscular in comparison with subprime mortgages.  Still, in this sense, we can call shale oil subprime oil (Broken Energy Markets and the Downside of Hubbert’s Peak Energy Matters): 

The second example of a broken energy market I want to explore is the US shale industry.  This shares certain characteristics with the wind industry in that it is a high cost but potentially very large resource. But the mechanism for integration of this resource into the market is rather different. The problem with shale gas is that over-supply has resulted in the US gas price being dumped below the level where many shale operators can make a profit. Consumers in this case benefit through getting both secure and low priced gas. But the shale operators have reportedly racked up large losses that have been covered by expanding debt. These losses may yet come home to roost with the consumer if debt defaults result in a new credit crunch where the debts are socialised via government bailouts of the banking sector.

If it were possible to produce shale gas at $1 / million btus then everyone would be happy. Consumers would be getting secure and cheap energy and producers would be making handsome profits to distribute to shareholders. That is how capitalism is supposed to work. The system as it has operated seems broken.

US Light tight oil (LTO) production appears now to have created the same problem for the liquids plays where the entrance of expensive liquids in the market have contributed to the crash in the oil price. This has created risks for the LTO operators. It remains to be seen if the LTO sector sees mass insolvencies and default on loans that may socialise these losses. The introduction of high cost LTO has also undermined the whole of the higher cost component of the conventional oil sector. If LTO could be produced in large quantities for $20 / bbl then there would be no problem since this source would  go on to substitute for the higher cost conventional sources of supply. But with costs closer to $60-$80 this is not going to happen. The conundrum for capitalism is the introduction of large quantities of higher cost energy to the system.

At this point I have to admit that nuclear power may be subject to similar limitations. It is difficult to view the Hinkley Point new nuclear build in the UK as a triumph for the consumer or the country. A better way to manage such enormous capital expenditure on vital infrastructure is via the state. The costs may eventually be socialised to the tax payer, but at least the energy is reliable and amongst the safest forms of power generation ever developed and the taxation system distributes costs in an equitable way.

A form of society could undoubtedly exist powered by nuclear, wind and shale gas. But it would be a society supported by the state with far larger numbers working in the energy industries than now, producing lower surpluses, the energy production part perhaps running at a perennial loss. Those losses have to be covered by either higher price or via the taxation system. Either way, the brave new world that awaits us will be characterized as the time of less that will be in stark contrast to the time of plenty many of us enjoyed during the 20th Century.

The so-called “shale revolution” in the U.S. was partially powered by innovation in horizontal drilling but  its cornerstone is the junk bond market. Which questions boom’s the long-term sustainability.  As The Wall Street Journal  reported total debt is   almost $200 billion. At 7% that's 14 billion of interest a year. Or at $40 per barrel 350 million barrels per year are needed just to service the debt. That's almost million barrels per day or almost total production of Bakken field (dmr.nd.gov )

And now,  the bankruptcies have begun as financing costs are not just prohibitive, there is no liquidity available at any price for many...

American oil and gas companies have gone heavily into debt during the energy boom, increasing their borrowings by 55% since 2010, to almost $200 billion.

Their need to service that debt helps explain why U.S. producers plan to continue pumping oil even as crude trades for less than $50 a barrel, down 55% since last June.

But signs of strain are building in the oil patch, where revenue growth hasn’t kept pace with borrowing. On Sunday, a private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money and citing debt of between $10 million and $50 million. Neither the Austin-based company nor its lawyers responded to requests for comment.

Energy analysts warn defaults could be coming. “The group is not positioned for this downturn,” said Daniel Katzenberg, an analyst at Robert W. Baird & Co. “There are too many ugly balance sheets.”

...

In 2010, U.S. companies focused on producing oil and gas had $128 billion in combined total debt, according to financial data collected by S&P Capital IQ.

As of their latest quarter, such companies had $199 billion of combined total debt.

Even is "good times", before the start of current oil price slump,  the whole shale industry was financed only via junk bond market:  75 of the 97 energy E&P companies were rated by S&P below investment grade (Shale Boom Built on ‘Junk’ - GE Reports Ideas, May 19, 2014)

Although share prices for most U.S. exploration and production (E&P) companies are at all-time highs, the elephant in the room is an industry financed by the high-yield debt market, better known as “junk bonds.” The S&P says that 75 of the 97 energy E&P companies it rates are below investment grade.

The report cites a recent analysis by Energy Aspects, a commodity research consultancy, of 35 independent companies that shows a steadily worsening financial picture across the last six years. The analysis showed the companies spent as much as they brought in and “net cash flow is becoming negative while debt keeps rising.”
 

Many of the oil-drilling newcomers set up shop in order to take advantage of the low rates and easy money available in the bond market. Now that oil prices have crashed, investors are avoiding energy-related junk bonds. Moreover the whole US bond market started to turn south (in correlation with stocks) in anticipation of rate hikes. Which is making it impossible for the smaller companies to roll over their debt or attract fresh capital. The most indebted companies from Here Are America's Most Levered Energy Companies Zero Hedge are:

Source: CapIQ

When these companies need to refinance their bond they are forced to default or, if they have valuable properties, be acquired by larger companies. The whole situation with junk bonds from shale companies has some analogy with subprime loads and while lesser in scale still can serve as a catalyst for another financial meltdown (WSJ.com)

Energy companies, the fastest-growing segment of the high-yield bond market in recent years, account for nearly 18% of all outstanding high-yield bonds, up from 9% in 2009, according to J.P. Morgan.

Mr. Hamid says that the 40% possible default rate is the upper limit over the next few years, and that energy companies will take steps to avoid falling into bankruptcy, including cutting spending and selling assets.

Still even if companies make smart moves to cut costs, with oil at $65 per barrel or below for the next three years, he estimates that default rates high-yield bonds from the energy sector could still hover around 20% to 25%. “It would become a very dire scenario,” Mr. Hamid said.

After a steep plunge in oil prices last week, WTI crude, the U.S. benchmark, was recently up 3% to $68.14 a barrel in Monday morning trading.

He predicts that not that many companies will default in 2015 because many companies have hedged their exposure. But he expects that energy companies will run into trouble in 2016 as even the most conservative energy companies will see most of their hedges run off.

Energy companies are the largest sector in the high-yield universe by a wide margin. The next largest sector, J.P. Morgan estimates, is the healthcare sector, which accounts for 7.1%.
 

The total size of shale companies junk bond debt is estimated at 200 billions out of which at least 20 billions are not recoverable.

The additional huge problem is that the banks again have bundled a lot of shale companies debt into financially-engineered products like Collateralized Loan Obligations (CLOs) and Collateralized Debt Obligations (CDOs), which much like subprime CLO and CDO are overrated and might fail when borrowers are no longer able to service the loans. The rot can be concealed for a while (may be two-three years -- as long as existing well produce oil in quantity to pay the debt), but eventually, if oil prices don’t recover, a significant number of these companies are going to go under

Vultures start circling shale companies

If low prices persist for all 2016 many shale oil companies are doomed. And vultures already started circling them:

Clueless, 12/19/2015 at 10:40 pm
I would guess that by now, most can see what is happening and therefore, what is going to happen in the future since the model has been established. The banks are not going to take serious hits. Re: Magnum Hunter and New Gulf Resources.

I remember seeing some vulture investor discussions back in 2009. They were stating that they would never buy equity in failing companies: they would take control thru the debt. Much more upside possible. So, a company with $1 billion in debt has its bonds trading at say 70 cents on the $ and it is rated junk. The bond funds that hold the debt [their covenants prohibit them from holding “bankrupt” rated debt] sells to novice speculators. Then the debt plunges to 10- 30 cents on the dollar. The investment/hedge funds step in. They can buy $1 billion of debt for $300 million or less, and the are praying that the company does go belly up. If it does, they get 100% of the equity, and agree to put in another $200 million to ride out the storm. A totally non-contested, prearranged bankruptcy. If things come back [even partially], they might own a company worth $2 billion for their $500 million investment. 

shallow sand, 12/19/2015 at 11:20 pm
Clueless. You are correct. I might add that the vultures do not appear to be just purchasing the debt. They are trading unsecured debt for second lien debt. I am not sure how this works, but from what I have read, the unsecured bonds have very weak covenants. The vultures give the unsecured bond holders the option of taking pennies on the dollar or becoming subordinate the vultures on all the debt the vultures are able to trade out.

The vultures better be pretty sharp, however. 1st, they better have a good handle on the assets they are trying to acquire. Second, they better have a good team put together to operate the assets. Third, they better have a better handle on future oil and gas prices than schmucks like me.

I saw something similar to this up close in the aftermath if the 1998-99 crash. An investor group bought the bad debt from a bank for pennies on the dollar, took assignment of the liens and foreclosed.

The investor group found out in a hurry that they didn’t quite know what they had bought, and that it wasn’t easy to manage from 1000+ miles away. They had a hell of a field superintendent, but of course they thought they were smarter than him, despite him having grown up in the middle of the field.

In any event, after burning several million dollars, the sold the assets and I am sure took a big loss. They also screwed up on timing the sale. Had they held on for about 3 more years they could have at least quintupled the sale proceeds. But they knew about as much as I, or really any of us, know about where oil prices are headed.

I am sure these distressed buyers are real sharks. But sharks can die too.

What is the sustainable minimal oil price with the current oil reserves depletion

As oil is important geopolitical resource there can be no definite answer to it. Still there is a probability that the peak "cheap oil" has already occurred, but we won’t know that until several years after the fact.  There is a large discrepancy in estimates ;-).  Much depends of the type of oil in question with shale, oil sands, as deep water oil as the most expensive.

Shale oil has a break even price around $70-75 / barrel for most shale producers and at below $50, every single well is losing money. There are also pretty expensive oil extracted from  deepwater (around 7 Mb/d). Which at current oil prices will shrink approximately 10% per year.  And there are around 20 MB/d in shallow water with higher staying power but also declining 10% due to lack of investments in current price situation.  Half of oil production from future developments is uneconomic at US$60/bbl (post of AlexS 01/29/2016 at 7:06 pm )

EIA projects that in 2030 the average real price of crude oil is projected to be $72 per barrel in 2006 dollars or about $113 per barrel in nominal dollars. Projected U.S. crude oil production averages 9.3 Mb/d in 2015 and 8.8 Mb/d in 2016.  Decline is 0.5 Mb/d.  EIA is always on optimists side (they were major cheerleaders of shale bubble, which makes them more of propaganda agency then statistical outlet)  so you can probably assume that 2020 prices of oil will be above, especially if low prices will last the whole 2016.  

Pricewise EIA projections are dropping all 2015 (Short-Term Energy Outlook)

EIA short term predictions as of December 3, 2015 suggest that low oil prices might continue to dominate the first quarter of 2016:

Previously common wisdom was around that price will return to $100 per barrel on average in 2016, which the following post from Zerohedge illustrates:

6344498 Magooo

HOW HIGH OIL PRICES WILL PERMANENTLY CAP ECONOMIC GROWTH For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil production has quadrupled, and that shift will permanently shackle the growth potential of the world’s economies.  http://www.bloomberg.com/news/articles/2012-09-23/how-high-oil-prices-will-permanently-cap-economic-growth

HIGH PRICED OIL DESTROYS GROWTH According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices.  http://www.EIA.org/textbase/npsum/high_oil04sum.pdf

BUT WE NEED HIGH OIL PRICES:  Marginal oil production costs are heading towards $100/barrel http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth.  http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html

Sanford C. Bernstein, the Wall Street research company, calls the rapid increase in production costs “the dark side of the golden age of shale”. In a recent analysis, it estimates that non-Opec marginal cost of production rose last year to $104.5 a barrel, up more than 13 per cent from $92.3 a barrel in 2011.   http://www.ft.com/intl/cms/s/0/ec3bb622-c794-11e2-9c52-00144feab7de.html#axzz3T4sTXDB5

Now all those consideration looks far less plausible in a short term (one year) period. Here are some "post oil price slump" considerations (in 2013 dollars):

Wikipedia article gives a more wide range of prices at wellhead (without cost of servicing the debt and transportation costs) from $35 to $95 for shale oil (Oil shale economics - Wikipedia)

The United States Department of Energy estimates that the ex-situ processing would be economic at sustained average world oil prices above US $54 per barrel and in-situ processing would be economic at prices above $35 per barrel. These estimates assume a return rate of 15%.[6] The International Energy Agency estimates, based on the various pilot projects, that investment and operating costs would be similar to those of Canadian oil sands, that means would be economic at prices above $60 per barrel at current costs. This figure does not account carbon pricing, which will add additional cost.[4] According to the New Policies Scenario introduced in its World Energy Outlook 2010, a price of $50 per tonne of emitted CO2, expected by 2035, will add additional $7.50 per barrel cost of shale oil.[4]

According to a survey conducted by the RAND Corporation, the cost of producing a barrel of oil at a surface retorting complex in the United States (comprising a mine, retorting plant, upgrading plant, supporting utilities, and spent shale reclamation), would range between $70–95 ($440–600/m3, adjusted to 2005 values). This estimate considers varying levels of kerogen quality and extraction efficiency. In order for the operation to be profitable, the price of crude oil would need to remain above these levels. The analysis also discusses the expectation that processing costs would drop after the complex was established. The hypothetical unit would see a cost reduction of 35–70% after its first 500 million barrels (79×10^6 m3) were produced. Assuming an increase in output of 25 thousand barrels per day (4.0×10^3 m3/d) during each year after the start of commercial production, the costs would then be expected to decline to $35–48 per barrel ($220–300/m3) within 12 years. After achieving the milestone of 1 billion barrels (160×10^6 m3), its costs would decline further to $30–40 per barrel ($190–250/m3).[7]

 

Floor for oil prices for 2016

The only function of economic forecasting is to make astrology look respectable.
 ~John Kenneth Galbraith

The most common view is that most US shale producers are highly vulnerable if price falls below $60 and are losing money on each barrel of oil they produce  at prices below $50. With difficulties of junk bond re-financing this figure should be higher. Some Russian sources cite $75 per bbl as a breakeven price for US shale oil.  This estimate is supported by the following detailed report BAKKEN - Single Well Economics  (Jan 4, 2016).

Here is a pretty telling graph from  Scotiabank (they have way too optimistic price for Bakken I think: adding $10 to $47 we get $57 for Bakken, which is probably 10 to 20 dollars low):

 

Source Why oil prices keep falling — and throwing the world into turmoil - Vox

As you can see plausible minimum for shale oil wellhead costs is around $55( $45+$10) per barrel ( and that  does not include the cost of servicing of junk bond debt).  If prices in 2016 remain under $50/bbl (as many forecaster expect), shale oil production in the United States will likely see a substantial decline in output and many shale companies will face merger or pushed into bankruptcy. But as for total US output, this decline will be partially offset by Gulf oil coming into production so for the first six months of 2015 total decline probably will be around 0.5Mb/d or lower. 

In any case, as 2015 has shown low prices became sticky and self reinforcing via Wall Street financial mechanisms. So chances for quick reversal in 2016 are close to zero. That spells real trouble for the US shale oil industry as well as Canada oil sands production  (QE At Work Pouring Cheap Debt Into The Shale Ponzi David Stockman's Contra Corner) as well as speculators in oil futures who will be wiped out via EFN  (outside major banks and those who shorted oil):

There are two pieces of the economic puzzle when it comes to shale. First is that most shale oil deposits are not profitable to extract except at current high prices. This drilling/extraction method is not cheap. Breakeven prices vary by region but it is safe to say that no shale oil deposits are profitable below $50/barrel and most areas require much higher prices. An average might be in the range of $65 and there are plenty of areas where the price needs to be above $80 before anyone makes a nickel.

I would just note that oil traded, albeit briefly, at $34 in the last recession. Second is the production profile of shale wells; production drops off rather precipitously after the first year (in contrast with traditional wells which deplete over much longer time frames). Combine high extraction costs with rapid depletion and the economics of shale become not only dubious but frankly insane.

Usually forecasts of oil prices are not work the paper or electrons. but there are some exceptions to this rule. For example  Bill Connoly in his Oil Price Forecast 2015-2016 - Forbes was one of the few forecasters who proved to be right as for 2015; remains to be seen for 2016.

My price forecast is that today’s $60 price is likely to be the high end for the coming two years. There may be temporary market volatility higher, but don’t expect a higher price to be sustained. At the low end, $50 seems like a floor absent a global recession.

OilPrice.com analysts think that the bankruptcy of shale companies and drastic reduction of the number of new projects and capital expenditures will eventually move the oil price up to $70+ range. And that the production of shell oil in the USA will drop 1 Mb/d in 2016 or even more, while consumption rises as record number of cars was sold in 2015.  But this process in not immediate and can take more then one year as in 2015 oil production defied gloomy forecasts and remains relatively stable (Oil Price Scenarios For 2015 And 2016 OilPrice.com_

The spare capacity data suggests that demand/supply imbalance may last three years, requiring 18 months to work through to the mid-cycle point where over-supply turns to under-supply. It is by no means certain that the market will respond to the same time dynamic when we are now dependent upon natural production capacity wastage to occur as opposed to OPEC simply closing the spigot. But this is all I have to go on.

The downturn in the current price cycle began last July and we are therefore just 6 months in. Another year of pain to go for the producers, that is unless OPEC decides to intervene.

In we count start of mid cycle from December of 2014 then we can see some upward pressure in July of 2016 or so.

Low prices also might mean that only selected shale projects ("sweet spots") with continue to be explored, diminishing of flow of oil from this source to the market ( Oil under US$60 beyond 2016 suggests market rethinking shale - Channel NewsAsia). Those places will be exhausted in two-three years making extraction more expensive on average.

If U.S. shale drillers - the world's new 'swing' producers - can still turn a profit at below US$60 a barrel, then the fall in long-dated oil prices may be rational. If not, as some bullish market analysts worry, then lower prices could be choking off new supplies the world may need as soon as next year.

"If you take the curve at face value, it appears to be saying that U.S. shale can grow ... if WTI stays below US$60 for three years. That doesn’t seem very likely," Paul Horsnell, global head of commodities research at Standard Chartered, said, referring to West Texas Intermediate crude.

"One would guess that all those companies that had been holding back from cutting projects and jobs over the past few months are not going to hold on much longer, and another shakeout will start. And it probably won’t be long before U.S. rig counts start to dive again."

Link to chart: http://link.reuters.com/tef25w 

... ... ...

U.S. oil futures for December 2017 delivery have dropped by as much as US$5 a barrel, or 8 percent, in the past two days, an even deeper retreat than last November when OPEC's surprise decision to maintain oil output despite a global glut sent markets into a deepening tailspin.

CLZ17 Commodity Futures Price Chart for Crude Oil WTI December 2017

[Note that they are close to $58 as of July 24, 2015 -- NNB]

EIA forecasts change with market prices

Short-Term Energy Outlook - U.S. Energy Information Administration (EIA)

In December 2015 EIA predicted average price of oil in 2016 much lower, around $51 a barrel, so EIA forecasts change really fast with future prices and as such are just educated guesses.

  2013 2014 2015 2016
WTI Crude Oila
(dollars per barrel)
97.98 93.17 49.08 50.89
Brent Crude Oil
(dollars per barrel)
108.56 98.89 52.93 55.78

Sustained low oil price will cut capital investment in oil dramatically

An extended period of lower oil prices would benefit consumers but would trigger energy-security concerns by heightening reliance on a small number of low-cost producers, or risk a sharp rebound in price if investment falls short, says the International Energy Agency (EIA) in the 2015 edition of its  World Energy Outlook publication (WEO-2015).We need to distinguish between oil as a chemical substance, a source used by chemical companies to produce all kind of useful things and oil as a source of motor fuel.  Oil is irreplaceable resource and burning it now deprive of oil future generations. As simple as that.

The US government policy of allowing (or, most probably, facilitating/engineering) very low oil prices is extremely unwise (I would use a stronger word) because at least for one segment of transportation (which is around 70% of total oil consumption in the USA) alternative does already exist. Small hybrid and electrical cars with prices of oil over $100 (and gasoline above $4 per gallon) are absolutely viable.

Instead now we have a huge jump in SUVs sales which became No.1 personal car category. To say nothing about light trucks. Which is the last thing we need.

Switch to natural gas in large vehicles such as buses (and small delivery trucks) also experiences a dramatic slow down (transit buses in Europe already are using this fuel on mass scale).

Again I think that it is the US government which is the culprit of destruction of the US shale industry which was build with such great effort and expense and is now on the verge of extinction. By really great people working in very difficult, challenging conditions.

The US government could buy excessive oil into strategic reserve or do something similar to keep prices at least above $70 dollars level. They could also prohibit short oil ETNs and other Wall Street machinations and for good effort jail couple of too aggressive traders for violation of some New Deal era laws(after all this is gambling, plain and simple) which are still on books after all this deregulation efforts by Clinton and Bush II administrations.

My point is that wind and solar might well be not the best choices. Other alternatives of renewable fuels exists. Meanwhile we need to save oil and the best way to do it is to ramp up oil price to above $100 level, which ensure the survival of frackers, which unfortunately became a collateral damage in some larger, possibly geopolitical play.

Actually EIA recognizes the danger of oil price spikes caused by sustained low oil prices and low capex investments Sustained low oil prices could reduce exploration and production investment - Today in Energy - U.S. Energy Information Adminis

Low oil prices, if sustained, could mark the beginning of a long-term drop in upstream oil and natural gas investment. Oil prices reflect supply and demand balances, with increasing prices often suggesting a need for greater supply. Greater supply, in turn, typically requires increased investment in exploration and production (E&P) activities. Lower prices reduce investment activity.

Overlaying annual averages of the domestic first purchase price (adjusted for inflation) on oil and natural gas investment reveals that upstream investment is highly sensitive to changes in oil prices. Given the fall in oil prices that began in mid-2014 and the relationship between oil prices and upstream investment, it is possible that investment levels over the next several years will be significantly lower than the previous 10-year annual average.

Oil production is a capital-intensive industry that requires management of existing production assets and evaluation of prospective projects often requiring years of upfront investment spending on exploration, appraisal, and development before reserves are developed and produced.

Previous investment cycles provide insights into how investment responds to crude oil price changes. In 1981 and 1982, after crude oil prices significantly increased, investment topped out at more than $100 billion (in 2014 dollars) and then averaged $30 billion to $40 billion per year into the early 2000s as crude oil prices fell and remained in the $20-$30 per barrel (b) range. From 2003 to 2014, investment spending increased from $56 billion to a high of $158 billion as crude oil prices increased from $34.53/b to $87.39/b, including several months of prices reaching more than $100/b. EIA's 2015 Annual Energy Outlook Reference case projects real domestic first purchase prices to average about $70/b in 2020. This price level could result in substantially lower annual oil and natural gas investment over the 2015-20 period than the annual average of $122 billion spent during the 2005-14 investment cycle crest period

 

Additional "end of cheap energy" readings

See also my introduction to the topic of "End of cheap energy":


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[Jul 24, 2021] American Empire still exists. US gov't can always sell LNG to Poland

Jul 24, 2021 | www.zerohedge.com

XJ033858JH 11 hours ago remove link

Don't worry, US gov't...you can always sell your LNG to Poland...hahahah!

LA_Goldbug 11 hours ago

I wonder what the price is for this LNG from all the way across the Atlantic.

rosalinda 10 hours ago

I read it is triple the price of the Russian gas. The Russians have all the advantages here. Putin probably would not weaponize the gas, but who is to say some Russian leader in the future might not take the opportunity? Europe is more dependant on Russian gas then Russia is dependant on European money

XJ033858JH 10 hours ago

It's more like 3.3 times...10% for the big guy

BannedCamp 8 hours ago

Likewise, Russia could nuke the whole world, but they never used a nuke on any country before, but the US has. Saying that Russia might do something that the accusing party (The U.S) is actually doing right now (to Germany) is blatant hypocrisy.

[Jul 24, 2021] Nord Stream 2 'Deal' Is Not An American Concession, It's Admission Of Defeat - ZeroHedge

Jul 24, 2021 | www.zerohedge.com

After much arm-twisting, bullying and foghorn diplomacy towards its European allies, the United States appears to have finally given up on trying to block the giant Nord Stream 2 project with Russia. What an epic saga it has been, revealing much about American relations with Europe and Washington's geopolitical objectives, as well as, ultimately, the historic decline in U.S. global power.

In the end, sanity and natural justice seem to have prevailed. The Nord Stream 2 pipeline under the Baltic Sea will double the existing flow of Russia's prodigious natural gas to Germany and the rest of Europe. The fuel is economical and environmentally clean compared with coal, oil and the shale gas that the Americans were vying with Russia to export.

Russia's vast energy resources will ensure Europe's economies and households are reliably and efficiently fueled for the future. Germany, the economic engine of the European Union, has a particular vital interest in securing the Nord Stream 2 project which augments an existing Nord Stream 1 pipeline. Both follow the same Baltic Sea route of approximately 1,222 kilometers – the longest pipeline in the world – taking Russian natural gas from its arctic region to the northern shores of Germany. For Germany's export-led economy, Russian fuel is essential for future growth, and hence benefiting the rest of Europe.

It was always a natural fit between Russia and the European Union. Geographically and economically, the two parties are compatible traders and Nord Stream 2 is merely the culmination of decades of efficient energy relations.

Enter the Americans. Washington has been seething over the strategic energy trade between Russia and Europe. The opposition escalated under the Trump administration (so much for Trump being an alleged Russian stooge!) when his ambassador to Germany, Richard Grenell, fired off threatening letters to German and other European companies arrogantly warning that they would be hit with sanctions if they dared proceed with Nord Stream 2. Pipe-laying work was indeed interrupted last year by U.S. sanctions. (So much for European sovereignty and alleged meddling in internal affairs by Russia!)

The ostensible American rationale was always absurd. Washington claimed that Russia would exploit its strategic role as gas supplier by extracting malicious concessions from Europe. It was also claimed that Russia would "weaponize" energy trade to enable alleged aggression towards Ukraine and other Eastern European states. The rationale reflects the twisted Machiavellian mentality of the Americans and their supporters in Europe – Poland and the Baltic states, as well as the Kiev regime in Ukraine. Such mentality is shot-through with irrational Russophobia.

The ridiculous paranoid claims against Russia are of course an inversion of reality. It is the Americans and their European surrogates who are weaponizing a mundane matter of commercial trade that in reality offers a win-win relationship. Part of the real objective is to distort market economics by demonizing Russia in order for the United States to export their own vastly more expensive and environmentally dirty liquefied natural gas to Europe. (So much for American free-market capitalism!)

Another vital objective for Washington is to thwart any normal relations developing between Russia and the rest of Europe. American hegemony and its hyper-militaristic economy depend on dividing and ruling other nations as so-called "allies" and "adversaries". This has been a long-time necessity ever since the Second World War and during the subsequent Cold War decades, the latter constantly revived by Washington against Russia. (So much for American claims that Russia is a "revisionist power"!)

However, there is a fundamental objective problem for the Americans. The empirical decline of U.S. global power means that Washington can no longer bully other nations in the way it has been accustomed to doing for decades. The old Cold War caricatures of demonizing others have lost their allure and potency because the objective world we live in today simply does not make them plausible or credible. The Russian gas trade with the European Union is a consummate case in point. In short, Germany and the EU are not going to shoot themselves in the foot, economically speaking, simply on the orders of Uncle Sam.

President Joe Biden had enough common sense – unlike the egotistical Trump – to realize that American opposition to Nord Stream 2 was futile. Biden is more in tune with the Washington establishment than his maverick predecessor. Hence Biden began waiving sanctions imposed under Trump. Finally this week, the White House announced that it had come to an agreement with Germany to permit Nord Stream 2 to go ahead. The Financial Times called it a "truce" while the Wall Street Journal referred to a "deal" between Washington and Berlin. (Ironically, American non-interference is presented as a "deal"!)

The implication is that the United States was magnanimously giving a "concession" to Europe. The reality is the Americans were tacitly admitting they can't stop the strategic convergence between Russia and the rest of Europe on a vital matter of energy supply.

In spinning the eventuality, Washington has continued to accuse Russia of "weaponizing" trade. It warns that if Russia is perceived to be abusing relations with Ukraine and Europe then the United States will slap more sanctions on Moscow. This amounts to the defeated bully hyperventilating.

Another geopolitical factor is China. The Biden administration has prioritized confrontation with China as the main long-term concern for repairing U.S. decline. Again, Biden is more in tune with the imperial planners in Washington than Trump was. They know that in order for the United States to have a chance of undermining China as a geopolitical rival the Europeans must be aligned with U.S. policy. Trump's boorish browbeating of Europeans and Germany in particular over NATO budgets and other petty issues resulted in an unprecedented rift in the "transatlantic alliance" – the euphemism for American dominance over Europe. By appearing to concede to Germany over Nord Stream 2, Washington is really aiming to shore up its anti-China policy. This too is an admission of defeat whereby American power is unable to confront China alone. The bully needs European lackeys to align, and so is obliged to offer a "deal" over Russia's energy trade.

All in all, Washington's virtue-signaling is one helluva gas!


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Peter Pan 12 hours ago

What the USA accuses Russia of planning to do down the track is actually what the USA is doing now. In other words it is the USA that is weaponusing the gas issue with threats and sanctions.

_ConanTheLibertarian_ 12 hours ago remove link

The US had no business interfering. Bye.

buzzsaw99 12 hours ago

the usa should ask russia to teach them how to keep natural gas flowing when it gets cold outside. lol

RedSeaPedestrian 11 hours ago

How to keep a windmill spinning comes first.

two hoots 11 hours ago

Well we did interfere and the results exposed our decline in multifarious ways, mainly power in all things that matter in the international arena: diplomacy, defense, economic, trust. We yet have great influence with our scientific and industrial capabilities but even there others are reaching parity. Internally our unsupportable debt will hinder even that. Basically it is the US Government (domestic/foreign affairs) that has led the charge of our decline. "Government is dead" .... (we need a new and improved one to worship)

Max21c 11 hours ago

The Washingtonians & Londoners are just upset because now their buddies and puppets in the Ukraine aren't going to be able to use control over the transit of Russian gas through the Ukraine to hold Europe hostage and get their way. So everything that they're accusing the Russians of doing in the future is what Washingtonians, Londoners, and the Ukraine were doing in the past. They're just upset since their Ukrainian vassals can no longer do their bidding's against Moscow and Eastern Europe.

MR166 9 hours ago

I am a USA loving conservative but I really never understood the objections to the pipeline. Since energy = standard of living the pipeline does nothing but help mankind. The US has no problem becoming totally dependent on China for drugs, medical supplies, chips and manufacturing but is afraid of Russia shipping gas to Europe. How does that make any sense at all???!!!

ar8 9 hours ago (Edited) remove link

I will explain it for you:

US companies wanted to sell their gas to Europe.

The US companies attempted to use the US to bully European countries, companies, projects and people through sanctions and threatening fines.

It worked, a bit: numerous companies ceased working on it.

But the US, as usual, with its bullyboy tactics had been less effective and created more self-damage than it expected. It has created many enemies as a result, which will hasten the demise of the US government.

Despite its age, the following is still relevant to Nord Stream II: "War Is a Racket" is a speech and a 1935 short book, by Smedley D. Butler, a retired United States Marine Corps Major General and two-time Medal of Honor recipient.

Rudolph 2 hours ago

One more reason. We control Ukraine, Ukraine control gas to Germany. = We control Germany.

Vivekwhu 9 hours ago

What is the point of having a financial/military/market empire if you don't have a finger in every pie enriching your elite?

Chief Joesph 11 hours ago

It was simply a war of hate about anything Russian. The U.S. really had nothing to offer Germany anyway. From the German perspective, they had to protect their own interests, and since Russia was offering to sell them natural gas and the U.S. wasn't, the choice was rather simple. Perhaps it might make better relationships between eastern block countries and the west too.

The U.S. spends a great amount of time and resources "hating" other countries for no reason at all. It's bigotry by any other definition. The U.S. practices a systematic and especially politically exploited expression of hatred and hostilities. Not only do they practice this against other countries, but among their own kind too. The U.S. ranks as one of the more hateful countries in the world, only surpassed by the Middle East. Add that to the reasons why Germany doesn't want to go along with U.S. temper tantrums.

LA_Goldbug 10 hours ago

Not "hating" but "bombing" is the right description of the US foreign policy practice.

porco rosso 11 hours ago

Mr Putin is way too clever for these yankster clowns and makes them look like the fools they are time and time again. That is why they hate him so much.

Max21c 11 hours ago remove link

Putin didn't have to outsmart them. The Europeans need the gas. Water does not usually flow uphill.

porco rosso 11 hours ago

True. But in Germany there are a lot of treacherous transatlantic elements that wanted to sabotage the pipeline at any cost.

These elements are Germans but they dont give a **** about Germany. Treacherous scumbags.

wootendw PREMIUM 11 hours ago (Edited)

" The ostensible American rationale was always absurd. Washington claimed that Russia would exploit its strategic role as gas supplier by extracting malicious concessions from Europe. It was also claimed that Russia would "weaponize" energy trade to enable alleged aggression towards Ukraine and other Eastern European states. "

The absurdity lies with the existence of NATO or the US being in NATO. It no more makes sense for US to commit ourselves to Europe's defense against Russia than it does for Europe to buy American NG for three times the price it can get Russia's for.

williambanzai7 PREMIUM 10 hours ago (Edited)

Well apparently some tard thinks it makes perfect sense for other readily imagined strategic reasons none of which have anything to do with accountable governance.

Someone thinks NATO is a dog leash. An expensive dog leash.

yerfej 11 hours ago

The washington idiot cabal needs something to focus on to justify their existence so they wander the globe telling everyone how to live and who they can trade with when they're not busy starting or expanding wars. The reality is the US federal government is a completely useless parasite who's ONLY function is to domestically terrorize its own citizens and the other nations of the world.

known unknown 10 hours ago remove link

Nordstream II was built to a stop Ukraine from blocking gas to Europe which they already did once, stealing gas which they have always done. Germany asked Russia to build it. The dummy Bulgarians stopped a similar pipeline yielding to the US. Then they cried about it when they realized they lost billions. No matter what's promised Ukraine will be cut out in 5 years if they continue hostilities towards Russians.

LA_Goldbug 10 hours ago (Edited) remove link

Most people conveniently forget or don't know about Ukraine's siphoning of the gas while in transit to European countries.

Germany is as bad as the US. Thanks to Germany Yugoslavia was decapitated with help from US and UK.

Greed is King 11 hours ago

Nordstream 2 is a trade deal between the EU (primarily Germany) and Russia.

Russia sells gas to the EU; and the EU buys gas from Russia.

So, can anybody answer these questions.

1.WTF has it got to do with America ?.

2. Who the feck does America think it is that it thinks it can interfere with and make demands of free and sovereign nations ?.

When the bully is beaten, nobody ever feels sympathy for him; America would do well to think about that.

Samual Vimes 11 hours ago (Edited) remove link

Surroguts /proxies, what ever.

Unelected policy makers in all their purple clad glory.

Max21c 12 hours ago (Edited)

After much arm-twisting, bullying and foghorn diplomacy towards its European allies, the United States appears to have finally given up on trying to block the giant Nord Stream 2 project with Russia. What an epic saga it has been, revealing much about American relations with Europe and Washington's geopolitical objectives, as well as, ultimately, the historic decline in U.S. global power.

It may show a decline in US global power or it may just show a rise in Washingtonian amateurishness, arrogance, obnoxiousness, naivete and stupidity...

all it does is show out in the open that certain people are quacks, flakes, and screwballs. Why would anyone in their right mind waste time & efforts or political capital or diplomatic capital/bonnafides on trying to do something so silly as block Nord Stream 2... It just makes Washingtonians look ridiculous, silly, and absurd...

It's almost as crazy as making a horse into a Roman Senator or declaring a war on the Neptune or attacking the sea... It appears as if right after the Berlin Wall came down American elites and Washingtonians all joined the Mad King Ludwig cult and became worshipers of everything crazy...

RedSeaPedestrian 11 hours ago remove link

Or even as crazy as making a Dementia patient a Roman Emperor. (Or is that a United States President? I forget sometimes.)

hugin-o-munin 12 hours ago remove link

Whatever political games are being played there is no getting around the fact that Europe and Russia will eventually start to get along and expand trade and industrial cooperation. Most people know that both the US and UK want to prevent this because it will diminish their current top dog positions wrt global trade and financial control. Few things compare to trade and mutual beneficial cooperation when it comes to lowering the risk for conflict.

Just like Europe should promote development and trade with northern Africa so should the US with central and southern America. This would also put an end to the endless migrant caravans that are putting a huge strain on both the EU and US today. It's actually a non brainer and says more about these satanic globalists' true motive than anything else.

ReichstagFireDept. 9 hours ago remove link

Nord Stream 2 is your best indicator that Governments are realizing that Renewable Energy is NOT the replacement for Conventional Energy.

Nat. Gas IS the clean Energy source that everyone was screaming for...now it's finally worldwide and they don't want it?!

Sorry, your Green Marxist dream is ending.

geno-econ 9 hours ago remove link

U.S. should be grateful Russia is sharing its natural resources with West rather than aligning with China. There is much more than natural gas---ferro manganese, ferro chrome, uranium, enrichment, titanium, aluminum, fertilizer, wheat, timber products, etc. U.S. trade with China essentially imports only two major resources---cheap labor and synthetic opioids !

williambanzai7 PREMIUM 9 hours ago

Well, there's some plastic junk and red refugees in there as well.

geno-econ 9 hours ago

only wealthy red capitalists disguised as refugees from China

ar8 9 hours ago

You are assuming the US government thinks rationally.

It doesn't.

[Jul 24, 2021] The "deal" was merely an attempt by the US to save face

Jul 24, 2021 | www.zerohedge.com


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Shemp 4 Victory 6 hours ago

The "deal" was merely an attempt by the US to save face.

https://theduran.com/merkel-makes-germany-look-weak-sets-up-ukraine-slush-fund-in-nord-stream-2-deal-with-u-s/

[Jul 23, 2021] Russia rejects aspects of Germany-U.S. accord on Nord Stream 2 pipeline

Jul 23, 2021 | www.msn.com

The Kremlin said on Thursday it disagreed with some statements in an agreement between the United States and Germany on the Nord Stream 2 gas pipeline, insisting that Russia had never used energy as a tool of political pressure.

The pact aims to mitigate what critics see as the strategic dangers of the $11 billion Nord Stream 2 pipeline, now 98% complete, being built under the Baltic Sea to carry gas from Russia's Arctic region to Germany.

"Russia has always been and remains a responsible guarantor of energy security on the European continent, or I would even say on a wider, global scale," Kremlin spokesman Dmitry Peskov told reporters.

[Jul 21, 2021] Germany commits to action if Russia uses energy as weapon -Nuland

Jul 21, 2021 | www.msn.com

Arby's Just Quietly Discontinued These 6 Menu Items See Dolly Parton Recreate Her Iconic "Playboy" Cover 43 Years Later

WASHINGTON, July 21 (Reuters) - Germany has committed to take action on its own and back action at the European Union level should Russia seek to use energy as a weapon or take aggressive action against Ukraine, U.S. Undersecretary of State Victoria Nuland said on Wednesday.

"Should Russia attempt to use energy as a weapon or commit further aggressive actions against Ukraine, Germany will take actions at the national level and press for effective measures at the European level, including sanctions, to limit Russian export capabilities in the energy sector," Nuland told lawmakers, adding that Germany would support an extension of the Russia-Ukraine transit agreement that expires in 2024. (Reporting By Arshad Mohammed and Jonathan Landay)

[Jul 21, 2021] Russia And Germany Win War Over Nord Stream 2

Notable quotes:
"... Two world wars were fought to keep Germany down. The stated purpose of NATO is to keep the Russians out, the Americans in and the Germans down. ..."
"... IMO US didn't cause NS2 friction because it thinks it benefits Russia, but exactly because it benefits Germany too much. ..."
"... You know, NATO, "Keep the Germans down..." and all that. US must not permit it's vassals to become too economically stronger than their master. They want to drag everyone they can down with them (and in shitter US goes) so they can still be king of the hill (or ad least shitter bottom). ..."
"... The most important point to know is that US hegemony in Europe is predicated on fear and hostility between Germany and Russia. ..."
"... There are many limitations to European strategic autonomy -- and the EU embodies those limits in many ways -- but the case of NS2 demonstrates an independent streak in German strategy. It amounts to a zero sum loss for Washington. ..."
"... Lebanon does illustrate the incredible reach of the Empire. A leverage so long that every door leads to self immolation. Your mention of the current spyware scandal is right on point. These are instruments of absolute power. ..."
"... While Trump is certainly no representative of humanity, it just as certainly doesn't look like his rise was in the playbook of the dominant faction of the oligarchy. Trump really seems to fit the mould of a Bonapartist, though recast in the context of contemporary America. This would indicate that the imperial oligarchy is in crisis, which itself could lead to fractures in the empire, and among the empire's vassals in particular. ..."
Jul 21, 2021 | www.moonofalabama.org

Russia And Germany Win War Over Nord Stream 2

The sanctions war the U.S. waged against Germany and Russia over the Nord Stream 2 pipeline has ended with a total U.S. defeat.

The U.S. attempts to block the pipeline were part of the massive anti-Russia campaign waged over the last five years. But it was always based on a misunderstanding. The pipeline is not to Russia's advantage but important for Germany. As I described Nord Stream 2 in a previous piece :

It is not Russia which needs the pipeline. It can sell its gas to China for just as much as it makes by selling gas to Europe.
...
It is Germany, the EU's economic powerhouse, that needs the pipeline and the gas flowing through it. Thanks to Chancellor Merkel's misguided energy policy - she put an end to nuclear power in German after a tsunami in Japan destroyed three badly placed reactors - Germany urgently needs the gas to keep its already high electricity prices from rising further.

That the new pipeline will bypass old ones which run through the Ukraine is likewise to the benefit of Germany, not Russia. The pipeline infrastructure in the Ukraine is old and near to disrepair. The Ukraine has no money to renew it. Politically it is under U.S. influence. It could use its control over the energy flow to the EU for blackmail. (It already tried once.) The new pipeline, laid at the bottom of the Baltic sea, requires no payment for crossing Ukrainian land and is safe from potential malign influence.

Maybe Chancellor Merkel on her recent visit to Washington DC finally managed to explain that to the Biden administration. More likely though she simply told the U.S. to f*** off. Whatever - the result is in. As the Wall Street Journal reports today:

The U.S. and Germany have reached an agreement allowing completion of the Nord Stream 2 natural gas pipeline, officials from both countries say.

Under the four-point agreement, Germany and the U.S. would invest $50 million in Ukrainian green-tech infrastructure, encompassing renewable energy and related industries. Germany also would support energy talks in the Three Seas Initiative, a Central European diplomatic forum.

Berlin and Washington as well would try to ensure that Ukraine continues to receive roughly $3 billion in annual transit fees that Russia pays under its current agreement with Kyiv, which runs through 2024. Officials didn't explain how to ensure that Russia continues to make the payments.

The U.S. also would retain the prerogative of levying future pipeline sanctions in the case of actions deemed to represent Russian energy coercion, officials in Washington said.

So Germany will spend some chump change to buy up, together with the U.S, a few Ukrainian companies that are involved in solar or wind mill stuff. It will 'support' some irrelevant talks by maybe paying for the coffee. It also promises to try something that it has no way to succeed in.

That's all just a fig leave. The U.S. really gave up without receiving anything for itself or for its client regime in the Ukraine.

The Ukraine lobby in Congress will be very unhappy with that deal. The Biden administration hopes to avoid an uproar over it. Yesterday Politico reported that the Biden administration preemptively had told the Ukraine to stop talking about the issue :

In the midst of tense negotiations with Berlin over a controversial Russia-to-Germany pipeline, the Biden administration is asking a friendly country to stay quiet about its vociferous opposition. And Ukraine is not happy.

U.S. officials have signaled that they've given up on stopping the project, known as the Nord Stream 2 pipeline, and are now scrambling to contain the damage by striking a grand bargain with Germany.

At the same time, administration officials have quietly urged their Ukrainian counterparts to withhold criticism of a forthcoming agreement with Germany involving the pipeline, according to four people with knowledge of the conversations.

The U.S. officials have indicated that going public with opposition to the forthcoming agreement could damage the Washington-Kyiv bilateral relationship , those sources said. The officials have also urged the Ukrainians not to discuss the U.S. and Germany's potential plans with Congress.

If Trump had done the above Speaker of the House Nancy Pelosi would have called for another impeachment.

The Ukrainian President Zelensky is furious over the deal and about being told to shut up. But there is little he can do but to accept the booby price the Biden administration offered him:

U.S. officials' pressure on Ukrainian officials to withhold criticism of whatever final deal the Americans and the Germans reach will face significant resistance.

A source close to Ukrainian President Volodymyr Zelensky said that Kyiv's position is that U.S. sanctions could still stop completion of the project, if only the Biden administration had the will to use them at the construction and certification stages. That person said Kyiv remains staunchly opposed to the project.

Meanwhile, the Biden administration gave Zelensky a date for a meeting at the White House with the president later this summer , according to a senior administration official.

Nord Stream 2 is to 96% ready. Its testing will start in August or September and by the years end it will hopefully deliver gas to western Europe.

Talks about building Nord Stream 3 are likely to start soon.

Posted by b on July 21, 2021 at 17:13 UTC | Permalink


corvo , Jul 21 2021 17:23 utc | 1

Did Merkel also get Biden to promise that neither he nor any of his clients (AQ, ISIS, etc. etc. etc.) would perpetrate any "unfortunate incidents" or "disruptions" on NS 2?

And would any such promises be worth the breath that uttered them?

Down South , Jul 21 2021 17:42 utc | 2
But it was always based on a misunderstanding. The pipeline is not to Russia's advantage but important for Germany

I'm afraid it is you who doesn't understand. Two world wars were fought to keep Germany down. The stated purpose of NATO is to keep the Russians out, the Americans in and the Germans down.

They weren't trying to block NS2 to keep Russia out but to keep Germany down,

Abe , Jul 21 2021 17:44 utc | 3
I beg to differ. IMO US didn't cause NS2 friction because it thinks it benefits Russia, but exactly because it benefits Germany too much.

You know, NATO, "Keep the Germans down..." and all that. US must not permit it's vassals to become too economically stronger than their master. They want to drag everyone they can down with them (and in shitter US goes) so they can still be king of the hill (or ad least shitter bottom).

That is why there is also pressure for all western countries to adopt insane immigration, LGBT, austerity policies and what not. What a better way to destroy all these countries, both economically and culturally, or adleast make them far more worse than US, it is only way US can again become "powerhouse", like after WW2.

psychohistorian , Jul 21 2021 17:46 utc | 5
Does this represent a fracturing of the EU? or maybe a change in direction?

What b is pointing out about how if it were Trump....only means that the bullying approach by empire didn't work and now we are seeing face saving bullying and backpedaling like crazy in some areas.

I roll my eyes at this ongoing belief that Trump represented humanity instead of all or some faction of the elite....as a demigod it seems.

Hoyeru , Jul 21 2021 17:54 utc | 6
the "facts" as you state them are not quite right.

1. China is ruthless. They waited until the last possible second to sign a deal with Iran, thus ensuring they are getting the best possible price for Iran's oil, basically robbing Iran blind. The poor Iran didn't have a choice but to agree. Even today, Putin will NOT say how much China is paying for gas on Siberia pipeline and a lot of people think China is robbing Russia blind on the deal. A second Siberia line without a NS2 will put Russia is very bad negotiation position and China in very good one, giving them the advantage to ask for any price of Russia and get it.

2. Merkel is leaving anyway in September and thw Green party that will be taking over HATES RUssia with passion. The NS2 is far from done deal, it needs to be insured. Plus it will fall under the EU 3rd energy package making sure Germany doesn't use it 100% . The NS2 will never be 100 usable, the Green party will see to that. AT best it will be only 50% usage.

And so on and so on. Funny how in today's world, we all have different facts. My facts are different than YOUR facts. My facts are just as relevant as your facts.

librul , Jul 21 2021 17:55 utc | 7
A most worthwhile read:
What is more, the most dangerous potential alliance, from the perspective of the United States, was considered to be an alliance between Russia and Germany. This would be an alliance of German technology and capital with Russian natural and human resources.

The article explains a lot, more than just Germany or Russia.

https://newcoldwar.org/stratfor-chiefs-most-blatant-coup-in-history-interview-from-dec-2014/

Interview was from done a few months after the US coup in Ukraine.

Arch Bungle , Jul 21 2021 17:56 utc | 8
Posted by: Down South | Jul 21 2021 17:42 utc | 2

They weren't trying to block NS2 to keep Russia out but to keep Germany down...

Germany would be 'down' no matter how much financial power it accumulates - i.e regardless of NS2. The imperial garrison at Rammstein AFB will make sure of that. What the Americans fear is the symbolic meaning of NS2 in terms of geopolitical influence for Russia. The loss of maneuverability against Russia that results from a key vassal not being able to move in complete obedience to Uncle Sam's wishes.

Max , Jul 21 2021 17:58 utc | 9
The pipeline construction battle has been won, not the energy flow war.

The Financial Empire is most likely resorting to some CHARADE to find an excuse to later stop the gas flow through Nord Stream 2. Empire's bullying was clearly exposed through sanctions and it LOST the battle of stopping the pipeline construction. So it moves to the next battle to find an excuse to stop the gas flow. Empire's evil intent is visible in these words, "the U.S. also would retain the prerogative of levying future pipeline sanctions in the case of actions deemed to represent Russian energy coercion, officials in Washington said."

The Financial Empire has worked hard over the last century to prevent Germany from allying herself with Russia. It wants to control energy flowing in Eurasia and its pricing. The war will be only won when the Financial Empire is defeated and its global pillars of power DISMANTLED.

"The 'heartland' was an area centered in Eurasia, which would be so situated and catered to by resources and manpower as to render it an unconquerable fortress and a fearsome power; and the 'crescent' was a virtual semi-arc encompassing an array of islands – America, Britain, Australia, New Zealand and Japan – which, as 'Sea Powers,' watched over the Eurasian landmass to detect and eventually thwart any tendency towards a consolidation of power on the heartland."

Has the Financial Empire stopped interfering in other regions?

karlof1 , Jul 21 2021 18:15 utc | 10
Curious. Late yesterday Sputnik published this article with a decidedly different message:

"US, Germany Threaten Retaliatory Action Against Russia in Draft Nord Stream 2 Accord - Report...."

"As the US and Germany have reportedly reached a deal on the Nord Stream 2 project, Bloomberg reported on Tuesday, citing the obtained draft text of the agreement, that it would threaten sanctions and other measures if Russia tried to use energy as a 'weapon' against Ukraine , though it did not specify what actions could provoke the countermeasures.

"According to the report, in such a case, Germany will take unspecified national action , a decision that may represent a concession from Chancellor Angela Merkel, who had previously refused to take independent action against Moscow over the gas pipeline that will run from Russia to Germany." [My Emphasis]

The article continues:

"On Tuesday, Ned Price, a spokesman for the US State Department, told reporters that he did not have final details of an agreement to announce, but that 'the Germans have put forward useful proposals, and we have been able to make progress on steps to achieve that shared goal, that shared goal being to ensure that Russia cannot weaponize energy ."

" The US was hoping for explicit language that would commit Germany to shut down gas delivery through Nord Stream 2 if Russia attempted to exert undue influence on Ukraine . Germany, on the other hand, has long rejected such a move, stating that such a threat would only serve to politicize a project that Merkel stresses is solely commercial in nature." [My Emphasis]

The overall motive appears to be this:

"The accord would also commit Germany to use its influence to prolong Ukraine's gas transit arrangement with Russia beyond 2024, possibly for up to ten years . Those talks would begin no later than September 1, according to the news outlet." [My Emphasis]

So, here we have the Outlaw US Empire meddling in the internal affairs of three nations--Germany, Russia and Ukraine. Ukraine cannot afford Russian gas as it has no rubles to pay for it. Thus if Ukraine has no money to buy, then why should Gazprom be obliged to give it away freely? What about other European customers who rely on gas piped through Ukraine; are they going to see what they pay for get stolen by Ukraine? And what happens when the pipelines breakdown from lack of maintenance since Ukraine's broke thanks to the Outlaw Us Empire's coup that razed its economy? Shouldn't the Empire and its NATO vassals who invaded Ukraine via their coup be forced to pay for such maintenance? And just who "weaponized" this entire situation in the first place?

Mar man , Jul 21 2021 18:21 utc | 11
From my understanding, NS 2 was mutually beneficial for Germany and Russia. As noted, Germany desperately needs energy and relying on the outrageously priced and unreliable US LNG was not a viable option.

Russia benefits also.
1.No more high transit fees Russia pays Ukraine. I imagine some of that was finding its way into US pockets after 2014.
2.Ukraine supposedly helped itself to plenty of stolen gas from the pipeline. That will stop.
3.Ukraine was occasionally shutting down the pipeline for political reasons until Russia paid the ransom. Not anymore.

So, Russia and Germany were both highly motivated to finish the pipeline ASAP.

Down South , Jul 21 2021 18:31 utc | 12
Arch Bungle @ 8
Germany would be 'down' no matter how much financial power it accumulates - i.e regardless of NS2.

The imperial garrison at Rammstein AFB will make sure of that.

Putin not too long ago (can't find the article now) said he was prepared to help Europe gain its independence should they wish to do so, Rammstein or no Rammstein.

What the Americans fear is the symbolic meaning of NS2 in terms of geopolitical influence for Russia. The loss of maneuverability against Russia that results from a key vassal not being able to move in complete obedience to Uncle Sam's wishes.
What they fear should this deal go ahead is a Germany/Russia/China Axis that would control the world island and thus the world.
Hoarsewhisperer , Jul 21 2021 18:33 utc | 13
I was convinced that the US of Assholery had lost its infantile anti-NS2 'battle' in September 2020, after watching an episode of DW Conflict Zone in which Sarah Kelly interviewed Niels Annen, Germany's Deputy FM. Annen came to the interview armed to the teeth with embarrassing facts about US hypocrisy including, but not limited to, the fact that USA, itself, buys vast quantities of petroleum products from Russia each year.

The interview is Google-able and, apart from pure entertainment value, Sarah is much easier on the eye than Tim Sebastian...

A.L. , Jul 21 2021 18:34 utc | 14
@Hoyeru | Jul 21 2021 17:54 utc | 6

1. China is ruthless. They waited until the last possible second to sign a deal with Iran, thus ensuring they are getting the best possible price for Iran's oil, basically robbing Iran blind.

Hmmm... I seem to remember Iran shafting China on the south Pars gas field when it looked like the JCPOA was looking likely...

If this memory of mine was correct (it may not be) then you really can't blame China for a little commercial payback.

In any case it was shown as soon as JCPOA Mk.1 was passed Iran RAN, not walked, to smooch up to the west for business, not China, not Russia. So if its just business for Iran then its just business for China.

There's no loyalty discount without loyalty.

robin , Jul 21 2021 18:38 utc | 16
I agree with Down South 2 and Abe 3.

In our eagerness to expose the empire's shortcomings in a quick 'gotcha!' moment we shouldn't rush head first into false premises. To suggest Dear Uncle Sam is concerned with anything other than his own navel is naive. He's the man with the plan. He knows that down the road, Oceania's eastern border won't run along the Dnieper but right off the shore of Airstrip One.

Stonebird , Jul 21 2021 18:59 utc | 17
As has been mentioned before, the NN2 pipeline gives Germany leverage over Russia , not the other way around.

US => Germany => Russia.
Which is now plan b for the US. If then they can use their leverage over Germany to steer it in any direction it wants to vs. Russia.

This will probably be followed by "targeted" sanctions on specific Politicians, Bankers and Heads of industry. They only need to propose such sanctions individually for them to have an effect. Using Pegasus for inside information to Blackmail those it wants to.
*****

Example of a sanctions racket :

Similar to the potential sanctions on any Lebanese Politian or Group Leaders if they get Oil from Iran, Russia or China. The Lebanese population be damned.

"Apparently US Treasury has informed the government of Lebanon, that if any Oil products from Iran make it into Lebanon, in any way; the government of Lebanon and all its members will be sanctioned. This includes the Central Bankers"

Just in case you didn't understand how the crisis in the country is manufactured.

Pegasus again:

"leaks on the targets of Israeli spy program Pegasus, show hundreds in Lebanon including the elected leadership of every party, every media outlet, & every security agency, have been targeted by clients in 10 countries; all belonging to the Imperialist camp.

But it is very easy to guess by looking at who are the external imperialist forces active in Lebanon. USA/UK/France/Turkey/Germany/Canada/Israel/Qatar; that's eight. Plus Saudi Arabia."
*******

PS. Lebanon; This comes as a response to Sayyed Nasrallah stating in his last speech that if the State in Lebanon is not able to provide fuel, he will bring it at the expense of Hizbullah from Iran, dock it in the port of Beirut, and dared anyone to stop it from reaching the people.
*****

Germany will only be the latest victim as the Mafia-US "protection" racket is ramped up.

Lysander , Jul 21 2021 18:59 utc | 18
Both b and the many commenters raise excellent points. Yes, the US wants to hurt both Russia and Germany. And yes the US *definitely* fears close cooperation between Moscow and Berlin. But the main take home lesson is that the US failed despite enormous efforts to block NS2. Russo-German cooperation is inevitable and the world will be better for it.
Passer , Jul 21 2021 19:02 utc | 19
Posted by: Hoyeru | Jul 21 2021 17:54 utc | 6

>>a lot of people think China is robbing Russia blind on the deal

Why would be Russia building Power of Siberia 2 and 3 to China then? Or selling LNG too? You don't have much knowledge on the topic, the way it looks. A giant gas plant was built near the border with China, the second biggest gas plant in the world, because the gas for China is rich in rare elements, thus turning Russia in of the the biggest producers of strategic helium, not to mention extracting many other rare elements. China gets gas that has been cleaned of anything valuable from it, with the exception of the gas itself.

>>merkel is leaving anyway in September and thw Green party that will be taking over

The latest polls show clear lead for CDU/CSU. And it looks like its too late.

>>the NS2 will never be 100 usable, tthe Green party will see to that. AT best it will be only 50% usage.

Do you even follow what has been going on? Germany is free not to buy russian gas, that is, to be left without gas if this is what it wants.

Do you see how nat gas prices exploded in Europe recently? Do you know why is that? Because Russia refuses to sell additional volumes via Ukraine's network. It is a message to finish the issues with NS 2 pipeline faster and then everything will be fine, there will be plenty of space for new gas volumes, and the gas price will drop.

robin , Jul 21 2021 19:12 utc | 21
@ A.L. 14

It is the UNSC resolutions of 2006, 2007 and 2010 which have laid the backbone for the incremental diplomatic, economic and material warfare against Iran. Without them, there would be no narrative framing Iran as an outlaw nor justification for crippling sanctions. That Iran should even be subjected to the JCPOA is in itself an objective injustice.

Each of these resolutions could easily have been blocked by the two permanent members of the UNSC we go to much lengths on this forum to depict as selfless adversaries of the Empire. All they had to do was raise a finger and say niet. In other words, by their actions, these two members placed Iran in a very disadvantageous trading position.

So, did they profit from this position of strength?

karlof1 , Jul 21 2021 19:24 utc | 23
It seems few care, but Sputnik followed its article from yesterday I linked to @10 with another that features an interview with Glenn Diesen . It reiterates:

"According to the draft deal, obtained by Bloomberg, Washington and Berlin would threaten sanctions and other retaliation if Russia 'tries to use energy as a weapon against Ukraine', with Germany being obligated to take unspecified actions in the event of Russian 'misbehaviour' . [My Emphasis]

The article then turns to the interview:

"Professor Glenn Diesen of the University of South-Eastern Norway has explained what is behind the US-Germany row is." [That last "is" appears to be a typo]

I suggest barflies pay close attention to Dr. Diesen who's the author of an outstanding book on the geoeconomics of Russia and China, Russia's Geoeconomic Strategy for a Greater Eurasia . I judge the following Q&A to be most relevant:

"Sputnik: The Biden administration waived sanctions on the firm behind the gas project, Nord Stream 2 AG, and its chief executive, Matthias Warnig. At the same time, Secretary of State Antony Blinken stated in June that the pipeline project was a Russian tool for the coercion of Europe and signaled that the US has leverage against it. What's behind Washington's mixed signals with regard to the project? How could they throw sand in Nord Stream 2's gears, in your opinion - or are Blinken's threats empty?

"Glenn Diesen: The mixed signals demonstrate that the completion of Nord Stream 2 was a defeat for the US. Biden confirmed that he waived sanctions because the project was near complete. Sanctions could not stop the project [link at original], rather they would merely continue to worsen relations with Berlin and Moscow. The best approach for Washington at this point is to recognise that Nord Stream 2 is a done deal, and instead Washington will direct its focus towards limiting the geo-economics consequences of the pipeline by obtaining commitments from Berlin such as preserving Ukraine's role as a transit state [Link at original].

"The US therefore waives sanctions against Nord Stream 2, yet threatens new sanctions if Berlin fails to accept US conditions and limitations on Nord Stream 2. Blinken's threats are loaded with 'strategic ambiguity', which could be aimed to conceal that they are merely empty threats . However, strategic ambiguity is also conducive to prevent Berlin from calculating the "costs" and possible remedies to US threats. Furthermore, ambiguity can be ideal in terms of how to respond as it is not a good look to continuously threaten allies." [Emphasis original]

The professor's closing remarks are also very important regarding Merkel's successor. Where I disagree is with the notion that the Outlaw US Empire has geoeconomic leverage over the EU--military yes, but the Empire is just as uncompetitive versus the EU as it is versus China.

A.L. , Jul 21 2021 19:25 utc | 24
@robin | Jul 21 2021 19:12 utc | 21

So, did they profit from this position of strength?

Of course they did, let's be real. China and Russia are not going to be the all benevolent saviors of the world, they never were, never will.

They will always serve their interests first and foremost. Sometimes, they do get suckered into UNSC resolutions like those you spoke of. Sometimes, there're backroom horse trading that we're not privy to and little countries are just chips on the table...

The best we can hope for is that they can behave with more integrity than currently shown by the incumbent anglospheric bloc in their re-ascendancy.

Either we ditch the UNSC system or everybody get nukes, because i can't see the current UNSC members willing ditch their own, ever.

Prof , Jul 21 2021 19:30 utc | 26
Lysander is correct. The most important point to know is that US hegemony in Europe is predicated on fear and hostility between Germany and Russia.

Types of interdependence between Germany and Russia, eg. NRG security, are a direct threat to US dominance over Europe as a whole.

There are many limitations to European strategic autonomy -- and the EU embodies those limits in many ways -- but the case of NS2 demonstrates an independent streak in German strategy. It amounts to a zero sum loss for Washington.

c1ue , Jul 21 2021 19:47 utc | 28
Way too much confusion over what Nord Stream 2 really means.

1) Russian gas transiting Ukraine had already fallen from 150 bcm to the high 90s/low 100s before Nord Stream 2 goes online. Even after NS2 goes online, a significant amount of Russian gas will still transit via Ukraine.

2) Energy demand generally increases over time, not decreases. Russian gas exports aren't increasing in a straight line, but keep in mind that there are significant new competitors now and in the process coming online. These include Azerbaijan as well as the ongoing pipeline struggle through the Black Sea/Turkey/Eastern Med.

I never believed there was any chance of NS2 not completing; the only question was when.

robin , Jul 21 2021 20:00 utc | 30
@ Stonebird | Jul 21 2021 18:59 utc | 17

Lebanon does illustrate the incredible reach of the Empire. A leverage so long that every door leads to self immolation. Your mention of the current spyware scandal is right on point. These are instruments of absolute power.

What we need now is a worldwide Me Too movement to denounce this leverage. Taking that first step would require a lot of courage for any blackmailed individual, but the one little breach could lead to a flood of world citizens just about fed up with the Empire's shit.

William Gruff , Jul 21 2021 20:12 utc | 32
psychohistorian @5

It pains me that I do not remember exactly who it was, but one of the more erudite posters here mentioned some time ago that Trump seemed more like a Bonapartist figure than a fascist or a typical and simple representative of a faction in the oligarchy. While Trump is certainly no representative of humanity, it just as certainly doesn't look like his rise was in the playbook of the dominant faction of the oligarchy. Trump really seems to fit the mould of a Bonapartist, though recast in the context of contemporary America. This would indicate that the imperial oligarchy is in crisis, which itself could lead to fractures in the empire, and among the empire's vassals in particular.

It is unwise to downplay the significance of Trump coming to power in 2016, regardless of what feelings one may have about the individual himself. The conditions that led to the rise of Trump not only persist, but have intensified. Those conditions cannot be resolved by mass media gaslighting and social media censorship, which actually seems to be having an effect more like holding the emergency relief valve on a boiler closed; it quiets an annoying sound, but causes the underlying issue to grow more severe.

Basically, further splits in the EU are inevitable. It is the timing of those splits that is difficult to predict, but the accuracy of that prediction hinges upon the accuracy of our assessment of events occurring now. Interestingly, Trump is still part of these unfolding events.

Christian J. Chuba , Jul 21 2021 20:33 utc | 34
Fracturing NATO and the West hmmm ... If Germany gains any independence from U.S. coercion they are 'fracturing Europe'. Bad Germany.

Germany must forever remain a vassal state of the U.S. by allowing the U.S. to use another vassal state to control their energy supply. And who says we don't believe in freedom. Neocons are such vile creatures. Always twisting words but remember, whenever they say something, the exact opposite is true.

schmoe , Jul 21 2021 21:00 utc | 37
One issue underlying this fiasco is I believe that the neocons / Atlantic Council were 100% certain that Russia did not have the expertise to lay pipelines at the required depths, and once Allseas was facing sanctions, the project would never be completed.

**********************************************************

Re: China/Russia deal

I believe that the exact pricing formula for Power of Siberia is confidential, but this much is known:

"The price of Russian gas supplies to China increased in the second quarter of 2021 for the first time since deliveries started via the Power of Siberia pipeline in 2019, but daily delivery volumes fell in April, Interfax reported on Sunday.

Russian gas giant Gazprom GAZP.MM has said it supplied China with 3.84 billion cubic metres of gas via the Power of Siberia pipeline in its first year of operation.

Citing Chinese customs data, Interfax said the price of gas increased to $148 per thousand cubic metres, rising from $121 in the first quarter, and reversing a downward trend."

**********************************************************************************

Also, Victoria Nuland informed the Senate Foreign Relations Committee today about Biden's cave to Russia. That must have been brutal for her. Regardless, nice to see a rare display of sanity from s US administration.

Baron , Jul 21 2021 21:16 utc | 39
@librul | Jul 21 2021 17:55 utc | 7

The primary and only objective of the US Foreign policy vis-a-vis Europe since WW2 has been to prevent Russia and Germany (now read the German run EU project) coupling up, that's it, nothing else matters on Europe.

The completion of N-2 presents a serious blow tho this aim, the new pipeline is a must for Germany, it must get finished, without it Germany's supply of energy would have been almost fully controlled by the Americans who have either direct or indirect authority over every major source of hydrocarbons except for Venezuela and Russia, the latter only partly, the Ukrainian pipeline is fully in their sphere of influence.

Energy fuels everything from private dwellings to major corporations, it's together with labour and technology the most important ingredient in every economy. To lose control of it would have been a catastrophe for Germany, in particular if one takes into account the secret treaty between Germany and the Allies (read the US) from 1949.

"On 23 May 1949, the Western Allies ratified a new German constitution, known as the "Basic Law" or Grundgesetz. However, two days prior, a secret state treaty - Geheimer Staatsvertrag - was also signed to grant complete Allied control over education and all licensed media, press, radio, television and publishing houses until the year 2099. This was confirmed by Major-General Gerd-Helmut Komossa, former head of German Military Intelligence in his book, "Die Deutsche Karte" or The German Card".

Has anyone read the Komossa's book in full?

karlof1 , Jul 21 2021 21:18 utc | 40
schmoe @37--

What's interesting about Power of Siberia-1 is that the gas is being stripped -- refined at the newly completed Amur Gas Plant -- of its components prior to being piped into China. I don't know if Germany's petrochemical industry will be deprived in similar manner with NS2.

CD Waller @36--

Nothing in the energy production realm is carbon neutral. ROSATOM has mastered the fuel cycle which means most if not all toxic waste will now be burned for energy. New reactors do NOT use water as coolant. Clearly you need to update what you know about nuclear power.

Jackrabbit , Jul 21 2021 21:31 utc | 41
The Russian 'victory' is very narrow and mostly consists of the patience and determination to follow-thru while consistently being derided/attacked by Western media, pundits, and politicians:
  1. Since Russia/Gasprom owns NS2 100% (paying for half the construction cost outright and financing the rest), there was never much need to stop construction, only to stop/limit consumption. The 'trick' was to find a way to accomplish US/NATO goals that would not make German leaders look like puppets.
  2. Biden's approach looks good compared to Trump's heavy-handed approach. As they are BOTH spokesman of the Empire's Deep State, we can surmise that this is merely good cop / bad cop theatrics.
  3. This USA-GERMAN agreement makes Germany appear to voluntarily support EU/NATO - a good thing(tm) that most Germans will accept without question. But behind the scenes, it's unlikely that there was ever any real choice, just a mutual desire to fashion a 'smart' policy that didn't undermine German political leaders.
  4. Germany can now be pressured to support USA-Ukraine belligerence - if they don't they will be portrayed as not living up to their obligations to US/NATO/EU/Ukraine as enshrined in this agreement.
  5. If Russia retaliates against German purchase reductions in any way they will be labeled as a politically-driven, unreliable supplier. That will 'invite' sanctions and spark efforts to force EU/Germany to eliminate all Russia goods from their markets.
  6. Russia and China are likely to be increasingly linked in Western media/propaganda. Deficiencies of one or the other will apply to BOTH.
The next few winters in EU will be very interesting.

!!

karlof1 , Jul 21 2021 21:44 utc | 43
Baron @39--

Thanks very much for mentioning Komossa's book!! Here's a very short but illuminating article about book and author . There appear to be copies available for downloading, but I've yet to find one.

karlof1 , Jul 21 2021 22:40 utc | 48
Jackrabbit @41 incorrectly says Russia owns NS2 100% It's owned by Nord Stream 2 AG, and here's its website listing its financial investors, while its shareholders/owners are global. The company is located in Zug, Switzerland. Here we are told who the financial companies are :

"In April 2017, Nord Stream 2 AG signed the financing agreements for the Nord Stream 2 gas pipeline project with ENGIE, OMV, Royal Dutch Shell, Uniper, and Wintershall. These five European energy companies will provide long-term financing for 50 per cent of the total cost of the project."

As with the first string, Russia doesn't own it 100% nor did it finance it completely; rather, its stake was @50% It appears both Nord Streams will be managed from the same location in Zug. I hope the company produces a similar sort of book to record its accomplishment as it did for the first string pair, which can be found and downloaded here .

Jackrabbit , Jul 21 2021 22:55 utc | 50
karlof1 @Jul21 22:40 #48

This Deutsche Welle (DW) explainer details NS2 ownership and financing :

Who is paying for it: Russia's energy giant Gazprom is the sole shareholder of the Nord Stream 2 AG , the company in charge of implementing the €9.5 billion ($11.1 billion) project. Gazprom is also covering half of the cost. The rest, however, is being financed by five western companies: ENGIE, OMV, Royal Dutch Shell, Uniper and Wintershall.
Emphasis is mine.

<> <> <> <> <>

Nord Stream 2 AG is a German company that is a wholly-owned subsidiary of Russia's Gazprom. The German subsidiary has borrowed half of the construction cost but is 100% owner of the NS2 project.

!!

Jackrabbit , Jul 21 2021 23:07 utc | 53
From karlof1's link to Nord Stream 2 AG's Shareholder and Financial Investors page makes it clear that NordStream 2 AG is a subsidiary of Gazprom international projects LLC, which is, in turn, a subsidiary of Gazprom. Under "Shareholder" there is only one company listed: Gasprom.

PS I was mistaken: Nord Stream 2 AG is a Swiss company, not a German one.

!!

schmoe , Jul 21 2021 23:20 utc | 56
Jackrabbit @ 41

I am no sure if this is that plausible:

"4. Germany can now be pressured to support USA-Ukraine belligerence - if they don't they will be portrayed as not living up to their obligations to US/NATO/EU/Ukraine as enshrined in this agreement.

If Russia retaliates against German purchase reductions in any way they will be labeled as a politically-driven, unreliable supplier. That will 'invite' sanctions and spark efforts to force EU/Germany to eliminate all Russia goods from their markets."

Germany has been portrayed as not living up to its NATO obligations one way or another since about 1985, and with respect to NS 2, since 2018. They do not seem fazed - maybe a Green win would change that. If the USA-Ukraine get (more) belligerent, Germany might be less likely to insist on Ukraine gas transit after 2024.

Jackrabbit , Jul 21 2021 23:20 utc | 57
The Russian government owns a majority of Gazprom. As majority owner they can be said to control the company and with that control comes an inescapable political dimension.

For the purposes of this discussion: the Russian government has biggest stake in the financial success of Nord Stream 2. That "success" depends on gas sold, not simply the completion of NS2 construction.

!!

[Jul 21, 2021] The Oil Industry Is Borrowing Again, But This Time It's Different

A lot of shale companies hedge their output at levels that they have no upside from the current prices...
Jul 18, 2021 | oilprice.com

Two years ago, Wall Street banks were on their way out of a long-term relationship with the oil industry. Now, with oil prices over $70 for the first time in three years, big bond buyers are snapping up oil bonds once again.

Only there is a condition this time.

The Wall Street Journal's Joe Wallace and Collin Eaton wrote this week that Wall Street was buying bonds from non-investment-grade U.S. energy companies, which took advantage of record low interest rates to raise some $34 billion in fresh debt in the first half of the year.

That's twice as much as the industry raised over the same period last year. But investors don't want borrowers to use the cash to drill new wells. They want them to use it to pay off older debt and shore up balance sheets.

It makes sense, really, although it is a marked departure from how banks normally react to oil industry crises. The 2014 oil price collapse, in hindsight, may have been the last "normal" crisis. Oil prices fell, funding dried up, supply tightened, prices went up, banks were willing to lend again, and producers poured the money into boosting production.

Since then, however, the energy transition push has really gathered pace and banks have more than one reason to not be so willing to lend to the oil industry. With the world's biggest asset managers setting up net-zero groups to effectively force their institutional clients to reduce their carbon footprint and with the Biden administration throwing its weight behind the push for lower emissions, banks really have little choice but to follow the current. Their own shareholders are increasingly concerned about the environment, too.

https://www.youtube.com/embed/aQXqMVeoOPs

Yet business is business, and nowhere is this clearer than in banks' dealings with the oil industry. Bank shareholders may be concerned about the environment, but they certainly would be more concerned about their dividend""and part of that comes from income made from lending to oil. And the higher oil prices go, the more willing banks will be to lend to those that produce it.

When they were unwilling to lend to the oil industry, other lenders stepped in . Last year, alternative investment firms scooped up hundreds of millions in oil industry debt from banks that were cutting their exposure to the politically incorrect industry. Hedge funds and other so-called shadow lenders don't seem to have banks' misgivings about profiting from oil and gas.

Now banks have mellowed towards oil somewhat, but it is an interesting twist that the current loans come with the condition of not boosting output. Again, it makes sense. For years, the shareholders of U.S. shale oil companies have been complaining about poor returns as the companies put everything into output growth. Now it's payback time, and shareholders want their returns.

So do lenders, apparently.

Per the WSJ article, this year, bond buyers "want to see companies repairing their balance sheets and delivering to creditors and shareholders rather than plowing money into new wells."

[Jul 20, 2021] Problems with labor in oil sector are real

Jul 20, 2021 | peakoilbarrel.com

SHALLOW SAND IGNORED 07/19/2021 at 10:33 pm

Rasputin.

We have owned rigs. We could never keep an operator around long enough to make it worthwhile. We had a double drum and a single drum. Mud pump. Power swivel. Power tongs on both. Testing truck. The whole enchilada.

We sold them all to a man who had worked for someone else and then went out on his own. We gave him a good deal, and he did a lot of work for us. He still does work for us, but he can't find help that will stay.

We also owned a tank truck. Sold it also. It is currently parked, the man we sold it to cannot find a driver. He is a one horse tank truck driver. He turns down work all the time. We had to shut down a lease we haul water on for a few days when he got COVID. Thankfully he recovered.

All of us around here just cannot quite believe what is going on with the oilfield labor force. It is a perfect storm.

Meanwhile, most recently we paid $5.63 per foot for 2 3/8" steel tubing, which was under $3 a year ago. We priced a 115 fiberglass tank for $6,800, would have been $3,900 a year ago.

We had a couple wells down for a few weeks because we could neither get new nor rewound motors for them.

The man who owns the backhoes, trackhoes and cranes that does contract work for us is in his 70's and has great grandkids. He works in the field daily beside his son and grandson.

One of the last rig hands we had broke into our shop last winter. He got out of jail after a few weeks and immediately got a job in a local factory. Hope he stays clean. He was a good hand when he was, and had learned to operate a single drum also.

The prosecutor in our county announced the first six months of 2021 that 162 felony cases had been filed in our small county, that in 2019 the total for the year was 204 felonies, and that 33 of the 34 jail inmates were addicted to meth.

We do have one pumper now under 50. The rest are from 51 to 63. REPLY INGRAHAMMARK7 IGNORED 07/20/2021 at 1:34 am

How much land do you have left? At one well per section how many can you drill and how long it takes? That's when your business wraps up. REPLY RASPUTIN IGNORED 07/20/2021 at 2:40 am

Holy Moly SS

I guess the days of vertical doing things in house are gone. That labor mess is unreal. However, here in nowhere USA it is hard to find good help but you can usually find help. I was so surprised at some of the job turnover even during peak covid when some businesses were restricted and some essential. How are people living that have no jobs? Over the years I hired relatives that never got it, didn't stay sober and didn't see the long term upside. Maybe it's all about today for the younger generation.

Over the past year and a half I've been following your posts including labor issues. Were they so dreadful before covid and helicopter money? It might appear to the uninformed that training rig help. pumpers and the like is easy, but it's not. One small oops for man is one huge oops for you.

Perhaps, as we move away from the false narrative that you must have a college degree to get a good or high paying job, things will improve in the trades and the oilfield.

About 20 years ago I was visiting with a substantial independent stimulation company that was having labor issues. The head honcho lamented that they had already poached all of the young guys that grew up on farms and knew machinery, getting up early and how to work. Having known a few guys and what they earned they most likely didn't point their kids at basket weaving degrees.

Sure wish I had an answer for you. Personally, I'm shrinking down to a few wells close to the house/shop/yard, one of which I could walk to for daily exercise. However, I'll run my equipment myself as long as possible.

The best to you. REPLY SHALLOW SAND IGNORED 07/20/2021 at 5:53 am

Rasputin.

The number of basically "homeless" people living here in my part of very rural USA is startling. People aren't generally sleeping in the parks. They have duffle bags and backpacks and crash place to place.

We have the tremendous labor shortage, yet the public defender and conflicts public defender have over 400 clients combined. This in a county of a little less than 20K people. That right there is the labor force for a decent sized factory around here.

To qualify for the PD you must have income below 125% of federal poverty guidelines, which is very low. During the height of COVID, nothing got done with their cases because the PD's couldn't get ahold of them. Few have cell phones that are permanent (track phones) and few have permanent addresses. The jail is full so there aren't a lot of warrants being issued for the lower level crimes. So people haven't been showing up for their court cases for months/ over a year. Our county is going to send close to 100 people to prison this year, almost all for meth delivery. This is the situation all over rural USA. People who live here and aren't in the court system are oblivious to it until they get broken into or robbed (or have an addicted relative, which many do).

The primary reason for the labor shortage here is a combination of young people moving to larger towns/cities, a very large percentage of the working age population being addicted to meth (which is now being cut with heroin, fentanyl, etc) and the significant benefits that have been paid to not work. I hate to think of how many billions of borrowed money stimulus our future generations are now indebted with that went directly into the pockets of the foreign drug cartels.

As for the oilfield, add to that the hard work, not the greatest pay in the world at the bottom end (rig hands) the need to find people who can work unsupervised outdoors, and the young people being told the industry is dead and a job in that field will soon be gone. Finally, a ton of "old timers" simply retired during COVID.

Our country has no idea how dependent we are on labor from Mexico and Central America that keeps us alive. The only farm workers are Hispanic. However, most don't want to work in the oilfield either, it seems. We just harvested green beans, and all the crew were Hispanic. The same will be the case here shortly as we harvest watermelons and cabbage. If Trump were successful and closed the borders and sent everyone back, we would starve.

The largest oil company here shut in everything it owned when oil went negative. Unfortunately for them they laid off a lot of people. Many of their wells are still idle.

Maybe we are an outlier. But I doubt it. A decent amount people at the lower end of the labor force seem to have decided they aren't going to work, and offering a lot more $$ won't bring them back. Maybe they will come back when the government benefits end.

Even the prisons can't find employees. They pay $70K+ plus great benefits. Mentally difficult work though. Also, can't have a criminal record and cannot use drugs, even pot.

Keep in mind a large percentage of the USA population now smokes or ingests pot. That doesn't work well in a lot of industries where sobriety is mandatory.

The gas station I fill up at is offering a $300 signing bonus which is paid after 30 days of no unexcused absences. $13 and hour to start at the cash register. They can't find people to take that.

I'm rambling now, and I'll stop.

Surely there are some shale basin people reading this. Could any of you comment about whether there is a labor shortage in your shale basin? If there isn't, maybe we could persuade a few of them to come to our neck of the woods and work on the simple, shallow wells. Not a lot of traveling, no weekends unless you pump, and work is daytime only. KANSAS OIL IGNORED 07/20/2021 at 9:10 am

Shallow Sand –

I echo all of your sentiments. We are a small operator in Kansas, producing about 300 bbl/day in 13 various counties. We have approximately 50-60 bbl/day offline pushing 3 weeks. We're talking 8/8ths approximately $75,000 in revenue. Pre-Covid you could count on getting a pulling unit sometimes next day if you had a mechanical failure. Now it's 3-4 weeks. $20/hour for green rig hands evidently isn't enough to move the needle, whether it's because the work is too difficult, or it's easier to keep cashing the government checks. And by my count we are in a similar situation with oil field pumpers. We have 13 of them. 2 are 50s, and the rest are all over 60. I'm in my early 40s and my field superintendent is 56. He loves to work and will probably do so until he's 70-75. When he checks out will probably be when I check out. REPLY SHALLOW SAND IGNORED 07/20/2021 at 9:55 am

Kansas Oil.

Great to hear from you.

Thanks for confirming what we are experiencing.

The big question is whether this is also going on in the shale basins, primarily Permian. If it is, don't see how USA production grows much.

I drive across Kansas on both I 70 and the South Route through Wichita to the OK panhandle quite a bit. Always keep my eyes open for whether pumping units are moving or not.

I worry about whether the huge feed lots, hog facilities and packing plants out there can find enough help. People have no clue how much of the USA is fed from the TX, OK panhandles on up through Western KS and NE.

Hang in there!

[Jul 20, 2021] The Oil Industry Is Borrowing Again, But This Time It's Different

A lot of shale companies hedge their output at levels that they have no upside from the current prices...
Jul 18, 2021 | oilprice.com

Two years ago, Wall Street banks were on their way out of a long-term relationship with the oil industry. Now, with oil prices over $70 for the first time in three years, big bond buyers are snapping up oil bonds once again.

Only there is a condition this time.

The Wall Street Journal's Joe Wallace and Collin Eaton wrote this week that Wall Street was buying bonds from non-investment-grade U.S. energy companies, which took advantage of record low interest rates to raise some $34 billion in fresh debt in the first half of the year.

That's twice as much as the industry raised over the same period last year. But investors don't want borrowers to use the cash to drill new wells. They want them to use it to pay off older debt and shore up balance sheets.

It makes sense, really, although it is a marked departure from how banks normally react to oil industry crises. The 2014 oil price collapse, in hindsight, may have been the last "normal" crisis. Oil prices fell, funding dried up, supply tightened, prices went up, banks were willing to lend again, and producers poured the money into boosting production.

Since then, however, the energy transition push has really gathered pace and banks have more than one reason to not be so willing to lend to the oil industry. With the world's biggest asset managers setting up net-zero groups to effectively force their institutional clients to reduce their carbon footprint and with the Biden administration throwing its weight behind the push for lower emissions, banks really have little choice but to follow the current. Their own shareholders are increasingly concerned about the environment, too.

https://www.youtube.com/embed/aQXqMVeoOPs

Yet business is business, and nowhere is this clearer than in banks' dealings with the oil industry. Bank shareholders may be concerned about the environment, but they certainly would be more concerned about their dividend""and part of that comes from income made from lending to oil. And the higher oil prices go, the more willing banks will be to lend to those that produce it.

When they were unwilling to lend to the oil industry, other lenders stepped in . Last year, alternative investment firms scooped up hundreds of millions in oil industry debt from banks that were cutting their exposure to the politically incorrect industry. Hedge funds and other so-called shadow lenders don't seem to have banks' misgivings about profiting from oil and gas.

Now banks have mellowed towards oil somewhat, but it is an interesting twist that the current loans come with the condition of not boosting output. Again, it makes sense. For years, the shareholders of U.S. shale oil companies have been complaining about poor returns as the companies put everything into output growth. Now it's payback time, and shareholders want their returns.

So do lenders, apparently.

Per the WSJ article, this year, bond buyers "want to see companies repairing their balance sheets and delivering to creditors and shareholders rather than plowing money into new wells."

[Jul 14, 2021] The US shale oil model does not work without credit.

Jul 05, 2021 | peakoilbarrel.com

MIKE IGNORED 07/05/2021 at 9:29 am

No. Not true and badly misleading. Remaining EIA PDP from the Permian will not generate sufficient net cash flow to self fund 123,000 wells (your estimate) costing nearly $1T, much less do that AND pay down over $100 B of existing debt in the Permian. That's using EIA PDP estimates; whack those by 30%. It is not possible to drill $9MM wells for a 135% ROI over 15 years and be financially self-sufficient, service and pay down debt, provide returns to investors and maintain a 100% RRR. The US shale oil model does not work without credit. $70 "assumptions" do NOT solve the issue of where the money is going to come from for your miracle of abundance to actually occur. ANCIENTARCHER IGNORED 07/05/2021 at 6:01 am

EIA is expecting excess supply in 2022.

Are they smoking some really good stuff to come up with this? I'd like to smoke that too 😉

As I see it, demand will slowly go back up to previous level of 100mmbpd and then resume its slow march upwards. Where is it that EIA are seeing that extra production from that will lead to oversupply 6-7 months down the line? All I see is that various regions of the world are slowly declining in production due to a combination of worsening asset quality and a paucity of capex over the last several years, especially in 2020/21. US Shale, Russia, Offshore, conventional onshore, small members of OPEC and even Saudi"¦ all are experiencing pressure on production.

OPEC seems to be concerned about the possibility of excess supply next year, probably due to this report by EIA. The Saudis are especially concerned and therefore are pushing to extend the supply cut to the end of 2022 which UAE is opposing.

So, am I missing a crucial element or are the EIA on to something here?

[Jul 14, 2021] Cryptos are a collectors item just like fine art.

Jul 13, 2021 | www.moonofalabama.org

jsanprox , Jul 12 2021 1:59 utc | 103

Cryptos are a collectors item just like fine art. While money has value based on the military jack boot of empire which insures its value only with its domination of most countries and the violent destruction of any attempt to set up a transparent real money system exchangable for gold (Libya). A painting by a hot painter is worth 900k because there are a handful of people who will pay that for it, they're interest in it keeps the value at a certain level. Same with Bitcoin, but that interest is spread out to millions of people. If they all decide its worthless than it is, but why would they? I think a lot of these evidence free claims of hacking and ransom wear are made to devalue the currency that the ransom is paid in, it could have easily been paid in dollars via the internet, as cryptos is basiclly just that: a stand in for the dollar being moved to an account that is a number. Cryptos in this way provide a window to real capitalism. This to me is natural human evolution toward anarchism and a system of exchange that is transparent and based on people working together instead of militaristic violence. You can exchange cryptos for gold, rubles and yaun, so saying that it exist only based on the dollars supremacy is wrong.


Hoarsewhisperer , Jul 12 2021 3:36 utc | 104

What I know about computers and Bitcoin would get lost in a thimble. However, what I've learnt about the US Govt over the years tells me that this problem wouldn't be happening if the USG hadn't dedicated itself to micro-managing, and dominating the www - for Top Secret (i.e. bullshit) reasons.

I was appalled when I learnt that the USG had made strong encryption ILLEGAL, and dumbfounded when I first heard about the PRISM 'co-operative' USG-mandated www surveillance program. Edward Snowden's NSA revellations confirmed that the USG has KILLED computer security for crappy, feeble-minded reasons.

It's more or less par for the course that the USG blames other entities for its own prying and mischief-making. Were it not for the USG placing LOW limits on computer security, we would all have access to Pretty Good Privacy and pro-active, timely means of detecting and defending and/or evading malware.

Stonebird , Jul 12 2021 8:31 utc | 107

Jörgen Hassler | Jul 12 2021 5:32 utc | 105

"They mostly never see the piece, it's kept in climate controlled storage."

This is standard practice. Using "Ports Franches" as in several Swiss towns including Geneva. Perfectly legal as they are not IN the country (for Tax purposes).

However, this is not really for "drug" cartels but just a way of transferring assets from one rich person to another. Many ownership deals are made inside the Port Franche itself, without the need to transport the work outside. There is a limitation on the time a work can be left inside the building, but I believe all that they have to do is drive more or less "round the block" and re-enter it. I'm a bit hazy about that detail, as I do not have a spare Rembrandt to verify this personally.

****

jsanprox | Jul 12 2021 1:59 utc | 103

A painting by a hot painter is worth 900k because there are a handful of people who will pay that for it, they're interest in it keeps the value at a certain level.

The primary dealers agree on a common price level for a stated painter. These paintings can even be used as collateral when borrowing money.
Other painters do not have a "guaranteed" price level but one based on auction values (ie. What the customer is willing to pay.)
The Primary dealers are a very small group who control all the big art fairs and which other dealers are allowed to sell or deal there -.
There are "rules" about "participation" (not sure about the terminology here), that various dealers will have made between themseves. ie. There is a split-up of profits following certain agreed parts. Woe unto a dealer that doesn't pay his part. (OK; personal note here, I once accidently fell foul of the "cartel" because a gallery owner with my works, had not paid "out" on a large sum that he had made on another artist he was representing. They decided to "get" him.)

****

Ransomware ; Why are people getting all hot and bothered about Corporations paying money in Bitcoin? Happens all the time.

Another Personal anecdote ; About five years ago I started recieving emails from unknown "people", Real first names, with an attachement. As normal, these go into trash without being opened (or into a folder I have, called "dodgy spam?) About 20 + of them. Next I recieved one email saying (in French) " I know your little secret, and if you don't want everyone else to know, pay (about €30) a "Small" sum into the following bitcoin account xxxxx."

In France you can " porter plainte" , ie, denounce and start a legal process against an "unknown person, or persons". This is to protect yourself, and is run by the Government/police. In my case, never having opened any of the "attachments", I don't know what they were, probably porn of some sort. IF they had been opened there would have been a suspicion that I was a "willling" victim. (The first question asked by the Gov. Site was "Have you paid them/it, and by how much". in my case - none)

******

Haven't heard anything since. BUT, Bitcoin was already being used for criminal purposes.

Nobody had to find a super-secret backdoor into my computer. Just buy a data base with working emails - Corporations use them all the time to send publicity. By looking at the address, and other more or less freely available information, they can target people, by location, age, etc.


vk , Jul 12 2021 15:47 utc | 113

@ Posted by: jsanprox | Jul 12 2021 1:59 utc | 103

But you only know a Picasso is worth a lot because you can calculate it in USD terms (ultimately: you can also calculate in any other fiat currency, but, since we live in the USD Standard, we only know a certain amount of fiat currency is worth if we can convert it to USDs). The USD is still the unit of accountancy and the means of payment even in the art market.

You can never pay your taxes or fill the tank of your car with a Picasso - you would have to sell it for USDs, and use these USDs to pay for everything you need. Sure, two megarich persons could exchange art between them as some kind of permute, but that doesn't constitute a societal unity (because billionares don't exist in a vacuum). It is a particularity of society, not society itself.

The same is true with crypto. And with gold. And with platinum. And with whatever else you want. It is a myth crypto is "fake" just because it is purely digital: the material specification of the thing doesn't matter for its status of money. Being digital is the lesser of crypto's problems. Crypto's main problem is the very economic foundations of its existence, which ensure it will never be money.

And no: subdividing crypto wouldn't solve it - they tried it with gold when capitalism lived through the Gold Standard (when it was on its death throes) and there's a limit to this. Even if the digital era allowed it, you would then simply have fiat money system with extra steps and double the brutality, because then the power to issue money would rest with few private individual hoarders of the crypto with no legal accountability and responsibility; it would be a dystopian "Pirates of the Caribbean" meets "Mad Max" scenario.

[Jul 12, 2021] Angela Merkel Doesn't Think U.S., Germany Will Come to Quick Agreement on Disputed Pipeline

Jul 12, 2021 | www.msn.com

Merkel is meeting with President Joe Biden on Thursday this week, and said while she will discuss the issue at the White House, she does not believe the matter will be resolved at that time.

"I don't know whether the papers will be fully finalized, so to speak. I believe rather not," Merkel said. "But these will be important talks for developing a common position."

Sanctions imposed against German companies involved in the project by the U.S. were recently waived, which raised hopes in Berlin that the two countries may soon be able to find an acceptable agreement on the matter.

For more reporting from the Associated Press, see below.

Washington has long argued that the Nord Stream 2 pipeline carrying natural gas from Russia to Germany endangers Europe's energy security and harms allies such as Ukraine, which currently profits from transit fees for Russian gas.

Germany is keen to increase its use of natural gas as it completes the shutdown of its nuclear power plants next year and phases out the use of heavily polluting coal by 2038.

Merkel's comments to reporters in Berlin came ahead of a meeting with Ukrainian President Volodymyr Zelenskyy, who has warned that Nord Stream 2 poses a threat to his country's energy security. Should Russia route all of its gas around Ukraine in the future, the country might be cut off from the supplies it needs, putting it at further risk of being pressured by Moscow.

Russia annexed Crimea from Ukraine in 2014 and supports separatists in Ukraine's eastern industrial heartland of Donbas.

Zelenskyy said he was looking for guarantees that Ukraine will remain a transit country for Russian gas beyond 2024. He also suggested that the gas issue should become part of four-way talks between his country, Russia, Germany and France on solving the conflict in eastern Ukraine and that the United States could join those negotiations.

Merkel said she took Ukraine's concerns seriously and that Germany and the European Union would use their weight in negotiations with Russia to ensure the agreements are extended.

"We have promised this to Ukraine and we will stick to that. I keep my promises and I believe that is true also for any future German chancellor," she said.

Merkel isn't running for a fifth term in Germany's national election on Sept. 26.

Ukrainian President Volodymyr Zelensky and German Chancellor Angela Merkel, not pictured, give statements ahead of talks at the Chancellery in Berlin, Monday, July 12, 2021. Stefanie Loos/Pool Photo via AP

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[Jul 09, 2021] Shale companies are paying off debt and sharing with investors rather than drilling more

The U.S. is producing roughly 2 million barrels a day less than it was before the pandemic.
In the USA shale patch many "sweet spots" are now gone and what remains is less proficableto drill and thus requres higher prices. In this sense the currentoil price might be not enough to spur additional activity.
Jul 09, 2021 | www.wsj.com

Frackers have been forced to rein in spending and live within their means after many investors lost faith in the companies following years of poor returns, lenders reduced their credit lines and capital markets showed little interest in funding expansive new drilling campaigns.

The result is that shale drillers, which in the past have played the role of the oil world's swing producer by quickly increasing output to meet demand, are largely standing pat for now, as the reopening of Western economies leads to a resurgence of global oil and gas prices .

The companies are raking in more cash than ever. Public shale companies that drill primarily for oil collectively generated a record $4.1 billion in free cash flow in the first quarter of 2021 and are poised to take in almost $15 billion for the year if prices remain higher, according to consulting firm Rystad Energy.

U.S. shale producers generated more free cash flow in the first quarter than any time in the industry's history, analysts said. Free cash flow Source: Rystad Energy billion 2014 '15 '16 '17 '18 '19 '20 '21 -12.5 -10.0 -7.5 -5.0 -2.5 0 .0 2.5 $5.0

But instead of pumping that money back into drilling as they have historically done, large producers such as Occidental Petroleum Corp. OXY +2.09% and Ovintiv Inc., the company formerly known as Encana Corp., have said they plan to focus on reducing debt , keeping U.S. output flat. Other sizable shale drillers such as Pioneer Natural Resources Co. PXD +0.66% and Devon Energy Corp. DVN +3.40% are socking away money to return to investors in the form of variable dividends, one of the enticements they want to use to lure more investors back.

"We're producing all this free cash flow, but it's not going out to investors yet," said Scott Sheffield, chief executive of Pioneer, noting that many companies are focusing on debt before they return cash to investors. "There's no reason for them to buy into this sector at this point in time."

... ... ...

In the heyday of the shale boom, publicly traded oil producers typically reinvested more than 100% of the cash flow they made from operations back into drilling campaigns. Now they are using about half of the income they generate on new drilling and are only growing output slightly, if at all.

... ... ...

Shale companies had about $148.6 billion in debt coming into the year, according to energy consulting firm Wood Mackenzie, and much of the cash they are collecting is going toward that debt pile. Securing new capital is increasingly difficult for many.

Many large U.S. banks have cut their energy lending, and some European ones such as Deutsche Bank AG and Société Générale SA SCGLY 5.48% have exited fossil fuel financing altogether...

Laredo Petroleum Inc., LPI +6.49% Centennial Resource Development Inc. and Callon Petroleum Co. CPE +4.88% saw the amount of money banks would lend to them on their revolving lines of credit cut about 24%, 42% and 36% respectively, during the pandemic. Lenders didn't increase their borrowing bases this year, despite higher energy prices.

Callon said it would cut its 2021 capital expenditures to $430 million, a 12% reduction from its 2020 budget. In 2019, it spent $515 million. As a result, the company said it would produce about 90,000 barrels of oil and gas a day in 2021, down from more than 101,000 barrels a day in 2020. Callon said it is focused on reducing its roughly $3 billion in debt. The company declined to comment.

M

Michael Hickey

Many frackers made bad bets early this year, hedging their production with oil in the forties and low fifties - especially Pioneer and Devon. This article, for some reason, fails to mention that fact and it's impact on their current production.
PAUL HUNT
After 38years in O&G E&P I filtered out of the industry due to changing industry. The loss of expertise and technology in the energy industry over the last 5 years has been huge. USA has given the energy industry to China. Look for overall energy prices to triple in less than 10 years.
DAVID LAWRENCE
What is left out in this article are the returns of the 600lb gorilla of frackers in the room.
XOM alone generated almost $7 billion in free cash flow last quarter. With oil prices where they are that figure is likely to rise to $10 billion next quarter. The company has only $53 billion in debt outstanding having already pared down $6 billion during the pandemic.

They are going to gobble up even more weaker little guys shortly.

Peter Sullivan
I don't see XOM significantly increasing production in US shale anytime soon. They are focusing CAPEX on deepwater assets that present a better ROI than shale. Who would of thought we have reached a time where it is less risky for a US based company to drill in a small South American country than within our own borders?
DAVID LAWRENCE
XOM CAPEX is greatly reduced (1/2) in 2021 across the board. This is because they spent nearly $20 billion in 2020 using piles of borrowed money that so many junior analysts obsessed over.. The plan is to pay that pile down with the windfall those investments are generating.

XOM is far from a pure play fracker and have always developed the largest offshore assets of any company and Guyana is a hot prospect!

Edward Cotterell
The oil market has always been boom and bust. When the pandemic hit people stopped driving and the oil market went bust. Prices fell and drillers went bankrupt. Now the economy is reviving, people are driving again and oil is booming. To those who think otherwise, get a grip. The price of gasoline today is about where it was in 2018 and 2019 pre-pandemic. You know, when Trump was president.

This article points out a longer term change in the market. The hype over fracking is over. The lenders want their principal back plus interest and they are not taking exaggerations from drillers any more. So oil prices may have to go a bit higher until the lenders are satisfied that they will get their money. Then they will lend to drillers and fracking will crank up.

Trash that 12 mpg pickup. Get a vehicle that gets better mileage. Some hybrids get over 50 miles a gallon. Electrics get the energy equivalent of 100 miles a gallon.

Ben Griffith
How is the electricity produced ? Coal, oil, natural gas produced by fracking, nuclear, hydroelectric dam, harnessing the hot air of Climate Change speech ?
ROBERT STUPP
Many don't realize how many older, experienced energy professionals took retirement over the last few years. Similar to the 1980's energy bloodbath, it will take a while to establish teams able to stabilize the companies, let alone grow them from survival mode. You can't turn on production like your kitchen faucet.
Jerome Abernathy
Fracking wells deplete so fast that the capex expenditures needed to maintain and grow production result in a low ROI for the industry. Worse yet, given the volatility of oil prices and the precarious state of their balance sheets, frackers are unattractive borrowers. The industry needs a new, creative financing model.
Matthew Oatway
An interesting article, but the authors should have acknowledged (a) the impact of consolidation in the sector on production discipline and (b) the fact that many shale producers have a large portion of their production hedged at lower crude prices. Both factors point to a more restrained return to production growth that we have seen in the past.

[Jul 08, 2021] New Jobless Claims Hold Near Pandemic Low, as Number on Benefits Falls

Jul 08, 2021 | www.wsj.com

What recovery ? What booming economy if they layoff people? Look like stagnation of the US economy continues unabated...

Initial unemployment claims, a proxy for layoffs, rose by 2,000 the week ended July 3, from a pandemic low the prior week, to a seasonally adjusted 373,000 , the Labor Department said Thursday.

... ... ...

...some unemployed workers say they are still struggling to find jobs. Marcellus Rowe of Dunwoody, Ga., said he has been unable to find a job that pays a salary near the roughly $50,000 he made working for the Metropolitan Atlanta Rapid Transit Authority. Mr. Rowe, 29 years old, lost that job in November 2019, before the pandemic, but was able to stay on unemployment benefits because of the federal extensions. Georgia cut off those benefits late last month.

Mr. Rowe said he has applied for more than 100 jobs, including security-guard and customer-service roles. He said the few employers who have responded to him said he doesn't have the experience needed for the positions. Mr. Rowe, a Black man, added that he thinks his race is a reason he has been passed over for some jobs.

me title=

He said he is reluctant to take a minimum-wage job because $7.25 an hour wouldn't be enough to pay his rent and other bills. He sought housing assistance from his county when benefits expired.

"The job market isn't looking so great," he said. "I'm looking for suitable jobs, but it's not happening here in Georgia."

[Jul 08, 2021] The Real Reason OPEC Talks Broke Down - ZeroHedge

Jul 08, 2021 | www.zerohedge.com

While much of the analysis of the recent OPEC+ disagreement has focused on why the UAE refused to commit to the new export plan, there are other factors that have been largely overlooked. A closer look at the ongoing investments by the UAE in its upstream and downstream industry is one such example. Abu Dhabi's national oil company ADNOC has put in place a production capacity increase that calls for a total reassessment of the underlying OPEC production baselines, which were agreed in 2018. At present Abu Dhabi is allowed to produce around 3.2 million bpd, based on the 2018 baseline, but has a capacity now of more than 3.8-4 million bpd. Looking at ongoing new projects and planned investments, production of more than 4 million bpd is possible in the coming years.

The aggressive investment strategy of ADNOC means that the UAE is plenty of incentives to increase production. An extended and controlled OPEC+ export quota system would not only impact the UAE's revenue streams but could even turn some of its multi-billion dollar investments into stranded assets in the long term.

Recently, Crown Prince Mohammed bin Zayed has been pushing an independent geopolitical and economic strategy for the UAE. After years of cooperating with Saudi Arabia on everything from OPEC policy to regional geopolitical crises, the two powers are now beginning to diverge. Former cooperation on issues such as the Yemen war and the Qatar blockade has weakened drastically.

At the same time, Mohammed bin Salman has been aggressively pushing Saudi Arabia's regional power. Saudi Arabia's Vision 2030, the Kingdom's economic diversification plan, has driven the crown prince to take aim on other GCC countries as he attempts to force international investors and companies to set up shop in Saudi Arabia rather than Dubai or Doha. This transformation in the relationship between Saudi Arabia and the UAE certainly played a part in the recent OPEC+ conflict.

Riyadh is also targeting the logistics industry, an industry that the UAE has long dominated, establishing itself as a regional hub for logistics and connecting EU-Asian commodity and trade flows. In the last couple of months, Saudi Arabia has become increasingly aggressive in this space. While there has no been a direct conflict in this area, it is generally assumed that there is not enough space in the region for two supra-regional maritime logistic hubs. MBZ and Dubai are clearly unimpressed with Saudi Arabia's attempts to muscle in on the industry.

Another area of discord between the two nations is the UAE's increased cooperation with Israel. UAE-Israel cooperation in logistics, technology, defense, and agriculture, is a possible threat to Saudi Arabia's Vision 2030 projects. By bringing Israeli tech and know-how to Abu Dhabi and Dubai, the UAE projects will compete with the Saudi Giga-Projects, such as NEOM, for international investment. In response to these moves by the UEA, Riyadh has blocked technology and products exports by the UAE that are linked to Israel.

This economic and geopolitical confrontation is normal in the Arab world and is unlikely to cause a major rift between the two nations. The current cracks will likely be mended when one of the two parties is calling for a Majlis in the Desert. MBS and MBZ have more to win from cooperation than confrontation. A breakthrough in the OPEC discussions is certainly a possibility, but first, some saber-rattling must be done. Ultimately, MBS understands that both Aramco's and ADNOC's future revenues are important. Both NOCs will be able to gain a lot of market share in the coming years if they play their cards right. By being flexible while not losing face, both the nations could go on to cooperate in other fields. Emirati SWFs are still a viable source of financing for major projects in Saudi Arabia, while energy-transition projects in the Emirates thrive on Saudi cooperation and cash.

By showing a strong position in international and regional media, both Crown Princes aim to boost their own positions. MBS's strong approach towards regional economic issues is clear and will inevitably come into conflict with others. MBZ's more aggressive regional and supra-regional power aspirations are also set out for all to see. OPEC's infighting is a natural place for these tensions to play out. Both parties know that their long-term alliance will be key in the future. A full confrontation between the two nations would only serve as an advantage to the long list of regional adversaries for these two nations. By threatening non-compliance, Abu Dhabi is showing its willingness to confront market developments head-on. Saudi Arabia and Russia now need to understand that a Riyadh-Moscow agreement is not going to be enough to placate the other members. ADNOC is unlikely to destabilize the market by opening up its taps, but the symbolism of its resistance is important. Statements about the UAE's willingness to leave OPEC are based purely on rumors, not on facts. Stability is key in oil and gas, being part of the discussion inside of OPEC is more valuable to the UAE than being independent. There is plenty of complexity to unpick behind the scenes, but this particular disagreement is unlikely to cause any real problems for OPEC+

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slokhmet 1 hour ago

I have another hypothesis: with covid lockdowns and restricted travel, UAE's income from prostitution and laundering crashed. They needed to make it up somewhere else.

Simple, really.

jimmy12345 1 hour ago

An oil glut is coming. As electric vehicles get cheaper and better year by year, there will a rapid adoption of EV's creating a glut in the oil market. In 2022, 10% of china's vehicles sales will be electric and the auto industry has announce over 100 billion dollars in investments in electric vehicles. The Russian cucks on here are screwed.

GregT 1 hour ago

Wrong. Ev's have been around for over a decade & still don't have 1% of the automobile market. They're a novelty. Not a viable path to move billions of people around in the world. Look at a previous article from today on ZH. China produced 225k this yr. If you live to be a million they might catch up to combustion engine cars & trucks.

Ron_Paul_Was_Right 1 hour ago

I don't know about it taking a million years to get there, but to your point yes - EVs just aren't competitive with fuel burning vehicles at this time. It just doesn't work to drive 400 miles and have to wait an hour plus for a "fill up" to drive another 400 miles. Not when it takes 5 minutes to fill a gas tank, it just isn't competitive.

Delusion Spotter 45 minutes ago

More Correct Analysis:

" Statements about the UAE's willingness to leave OPEC are based purely on rumors, not on facts. Stability is key in oil and gas, being part of the discussion inside of OPEC is more valuable to the UAE than being independent. "

UAE's going to stay in OPEC, and the latest OPEC sideshow will result in higher Oil Prices, not lower.

radical-extremist 1 hour ago

How are world leaders allowing OPEC to produce or even exist at all...while Climate Change threatens our very existence on earth? They seem to be sending mixed messages.

GregT 1 hour ago

Because world leaders know climate change is a hoax to scare people into paying governments more taxes. They need & want oil as bad as everyone else.

bustdriver 1 hour ago

I am guessing there is money angle in the mix.

[Jul 03, 2021] Shadow Lenders Take Over In The U.S. Shale Patch

Jul 03, 2021 | peakoilbarrel.com

RON PATTERSON IGNORED 07/03/2021 at 1:51 pm

Shadow Lenders Take Over In The U.S. Shale Patch

Banks have started to cut their exposure to the U.S. shale patch, seeing more than 100 producers and oilfield services firms go bust last year and feeling the environmental, social, and governance (ESG) pressure to reduce credits to fossil fuels. While traditional lenders are cutting their losses and de-risking energy loan portfolios, alternative capital providers are stepping up to scoop up U.S. energy debt at a discount and take part in debt or equity transactions that could give them returns sooner than a loan would for a bank.

Since the oil price crash in 2020 and the downturn in the U.S. shale industry, banks have been wary of their exposure to the sector. The commodity price slump last year dramatically cut the value of the assets of oil and gas firms, against which they have traditionally obtained loans from banks.

Running for the Exit

Lenders slashed the amounts of reserve-based loans to the U.S. shale firms in the middle of last year.

But it is not only purely financial considerations that are driving reduced bank exposure to the oil and gas industry. ESG lending and aligning loan portfolios to the Paris Agreement goals are now more prominent than ever.

For example, asset manager Schroders, which holds many bonds in the banking sector, is engaging with banks to understand their fossil fuel exposure.

"Banks that are highly exposed to the fossil fuel industry face significant financial, regulatory and reputational risks as a result of the transition to a low-carbon economy," Schroders said, explaining its rationale to identify the exposure of the banks to oil, gas, and coal.

Increased pressure from the ESG universe, coupled with years of poor returns of U.S. shale firms, have prompted several major transactions in which banks have sold energy debt to hedge funds and private equity firms.

Hancock Whitney, for example, agreed last year to sell $497 million worth of energy loans to certain funds and accounts managed by alternative investment provider Oaktree Capital Management. Hancock Whitney expected to receive $257.5 million from the sale of the reserve-based loans (RBL), midstream, and non-drilling service credits.

Hancock Whitney's main reason to sell the energy loans was to minimize the risks to its loan portfolio.

"The primary objective of this sale is to continue de-risking our loan portfolio by accelerating the disposition of assets that have been impacted by ongoing issues within the energy industry, and have now been further complicated by COVID-19," Hancock Whitney's President and CEO John M. Hairston said.

At the end of 2020, Bank of Montreal decided it would wind down its non-Canadian investment and corporate banking energy business.

Most recently, ABN AMRO announced last week it would sell a $1.5 billion portfolio of energy loans to funds managed by Oaktree Capital Management and affiliates of Sixth Street Partners. The portfolio consists of loans to around 75 companies active in the North American energy markets.

With this sale, ABN AMRO is withdrawing from oil and gas related lending in North America as part of a process to wind down its non-core activities and significantly reducing the non-core loan book.

[Jul 03, 2021] We should know sometime between January and December 2022 if Russia is in decline

Jul 03, 2021 | peakoilbarrel.com

RON PATTERSON IGNORED 07/03/2021 at 1:44 pm

We should know for sure sometime between January and December 2022. We will know when it is confirmed that Russia is in decline. That will be the tipping point. Many producers are already in decline but Russia is now the largest. Of course, the US being in decline, the two largest producers in the world, would leave no doubt about it. LIGHTSOUT IGNORED 07/03/2021 at 11:47 am

Thanks Ovi. KSA,Russia and US are starting to look like a line of domino's.

[Jul 03, 2021] Iraqi minister says BP mulls quitting Iraq, Lukoil wants to sell up

Jul 03, 2021 | peakoilbarrel.com

POLLUX IGNORED 07/03/2021 at 2:27 pm

Some news about Iraq:

Iraqi minister says BP mulls quitting Iraq, Lukoil wants to sell up

Iraqi Oil Minister Ihsan Abdul Jabbar said in a video posted on Saturday on the ministry's Facebook page that BP (BP.L) was considering withdrawing from Iraq, and that Russia's Lukoil (LKOH.MM) had sent a formal notification saying it wanted to sell its stake in the West Qurna-2 field to Chinese companies.

Iraqi tax commission cracks down on international energy companies

Iraq's top tax authority has ordered government departments to stop issuing visas and halt imports for nearly two dozen international energy companies whom it accuses of late tax payments.

If enforced, the orders, dated June 27, 2021, could prevent some of the biggest players in Iraq's oil, gas, and electricity sectors from bringing staff and equipment into Iraq, effectively depriving the country of work that is needed to meet its own production targets at a time when insufficient gas feedstock is causing nationwide electricity failures.

Iraq power cuts stir protests as summer temperatures scorch country

The power cuts have hit the south of Iraq especially hard. In Basra, where Iraq's oil wells are situated, people have started taking to the streets in protest and main roads had to be shut down. POLLUX IGNORED 07/03/2021 at 2:59 pm

Gasoline Shortages In Iran As Tanker Drivers Shun Fuel Shipments

An official of Iranian Truck and Fuel Tanker Drivers' Union said Thursday that drivers were refusing to transport fuel due to low or late payments from the government. There has been a shortage of supply in gasoline stations in recent days in various parts of the country.

In a statement published on social media Thursday, the National Association of Drivers' Unions expressed solidarity with striking contract oil and petrochemical workers and said drivers would join their strike if the oil workers' demands were ignored.

[Jul 03, 2021] Plato oil: Russia edition

Jun 30, 2021 | peakoilbarrel.com

POLLUX IGNORED 06/28/2021 at 5:46 am

Russia plans to cut oil exports from its Western ports by 22% in July vs June – schedule

"On a daily basis, loadings will decline by 22% in July compared to the current month, Reuters calculations showed." REPLY POLLUX IGNORED 06/28/2021 at 1:37 pm

Russia struggles to raise oil output despite price rally -sources

"Russian oil production has declined so far in June from average levels in May despite a price rally in oil market and OPEC+ output cuts easing, two sources familiar with the data told Reuters on Monday.

Russia's compliance with the OPEC+ oil output deal was at close to 100% in May, which means the state is about to exceed its target in June.

Two industry sources said that lower output levels may be due to technical issues some Russian oil producers are experiencing with output at older oilfields." RON PATTERSON IGNORED 06/28/2021 at 2:38 pm

Yes, they are definitely experiencing issues with their older oilfields, it's called depletion. But that decline is only 33,000 bpd or .3%. But your post above that one says exports in the third quarter will decline by 22%. What gives there?

Their decline in May was 23,000 bpd. OVI IGNORED 06/28/2021 at 3:25 pm

Ron

I just checked the Russia site and they have revised up their original May estimate. It is one week later than the original. Production is now down 9,000 b/d. RON PATTERSON IGNORED 06/28/2021 at 4:50 pm

Yeah, they revised it up by 14,000 pbd. A pittance. Now they are down only 9,000 bpd instead of 23,000. Nothing to get excited about. Basically, they were flat in May. JEAN-FRANÇOIS FLEURY IGNORED 06/28/2021 at 4:09 pm

"Russia plans to decrease oil loadings from its Western ports to 6.22 million tonnes for July compared to 7.75 million tonnes planned for loading in June, the preliminary schedule showed." 7,75 x 10^6 – 6,62 x 10^6 = 1130000 t. 1130000×7,3/30 = 274966 b/d. Therefore, these decrease of oil export suggests a decrease of production of 274966 b/d. Precedently, it was announced that oil exports of Russia would decrease of 7,2 % for the period July-September or a decrease of 308222 b/d. Therefore, it's coherent. https://www.zawya.com/mena/en/markets/story/Russias_quarterly_crude_oil_exports_to_drop_72_schedule-TR20210617nL5N2NY2IQX8/?fbclid=IwAR0ZjvwzjVS427CbUAzTL1vJfqog7R8CDwaJAvI3uUdaw_0z5S5l_57SGFY I notice that it concerns the "Western ports", therefore the exports toward EU and USA. Well, EU is also the main customer of Russia with 59% of the oil exports of Russia. RON PATTERSON IGNORED 06/28/2021 at 4:59 pm

Western Syberia is where all the very old supergiant fields are. They produce 60% of Russian crude oil. Or at least they used to. LIGHTSOUT IGNORED 06/29/2021 at 2:11 am

Ron
If one of the West Siberian giants is rolling over in the same way as Daquing did, things could get very interesting very quickly. RON PATTERSON IGNORED 06/29/2021 at 7:24 am

Four of Russia's five giant fields are in Western Siberia. The fifth is in the Urals, on the European side. All five have been creamed with infill horizontal drilling for almost 20 years. All five are on the verge of a steep decline. Obviously, one and possibly more have already hit that point.

This linked article below is 18 months old but there is a chart here that shows where Russia's oil is coming from. Notice only a tiny part is coming from Eastern Siberia, the hope for Russia's oil future. Those hopes are fading fast.

The Worrying Truth About Russia's Oil Industry EULENSPIEGEL IGNORED 06/29/2021 at 6:32 am

As I have written a few months ago: When you reduce output voluntarily for a longer time, all the nickel nursers from accounting and controlling will cut you any investing in over capacity you can't use at the moment. That works like this in any industry.

So you have to drill these additional infills and extensions after the cut is liftet. And this will take time, while fighting against the ever lasting decline.

[Jul 03, 2021] Another important aspect of the collapse of neoliberalism -- reaching the natural resources limits, especially fossil energy extraction limits by George Kaplan

Notable quotes:
"... The US seems to be especially vulnerable to issues caused by lack of precarity as it has such a poor welfare system, previously relying on infinite growth to smooth things over or a, now failing, religious faith to keep things in order; prolonged economic and political success that has led to a sense of entitlement and self-belief in the American way, a history of putting personal liberty above all else, which embraces competition rather than co-operation; and a world beating phobia of death well beyond when reproductive age has passed. ..."
"... The gig economy, middle class collapse, MAGA, BLM (and the police actions that prompted its rise), cancel culture, (un)reality TV's attraction, FOMO, the increase in low level strife, self-harming, on-line pornography addiction, the Oxycodone/Fentanyl epidemic etc. are all manifestations and/or causes of that precarity. Civil wars and major revolts (and almost any that succeed in their aims) tend to happen only when there is intra elite infighting rather than uprisings from below. The most likely catalyst for that at the moment is Trump, which may be a good sign given his ineffectualness, ineptitude and general repulsive lack of charisma; anyone even a bit more like a real human being could cause serious ructions. ..."
Jun 26, 2021 | peakoilbarrel.com
Off Topic Finish: Waiting for the Great Leap Forward

I have been reading "˜A More Contested World: Global Trends 2040' by The National Intelligence Council; slowly as there's a lot in it but also a lot missing. No mention of specific resource limits, no discussion of GM just general "˜technology' concerns concentrating on AI and of course, god forbid any mention of overpopulation. It is very US-centric "" in the good scenarios the world gets to a better place only through US leadership "" and humanist focused with no consideration of the rights of the earth in general, only the perpetuation of our civilisation and to that end all future scenarios are some variant of technology led, growth obsessed, centralised BAU (maybe not with full globalism but still based around hegemonic power structures at some level). It's a view from mainstream economists and politicians carrying all the normal drawbacks that those words imply: i.e. bad things happen when the world doesn't do as it's told to do by us, and if you don't agree with us about what constitutes "˜bad' then you're wrong about that too.

I think similar studies from more global or European NGOs and governmental departments (both from individual countries or the EU) tend to be more objective and those from the militaries (from anywhere in the west) tend to be more honestly subjective. See for example: The Adaptation Committee's Independent Assessment of UK Climate Risk , Decoupling debunked "" Evidence and arguments against green growth as a sole strategy for sustainability ; Reinforcing Environmental Dimensions of European Foreign and Security Policy ; Arctic Climate Change Update 2021: Key Trends And Impacts ; Our Future on Earth ; and The State of the Global Climate 2020 or, for military sources: Implications of Climate Change for the U.S. Army ; NATO is responding to new challenges posed by climate change ; Ministry of Defence Climate Change and Sustainability Strategic Approach ; and Armed Forces, Capabilities and Technologies in the 21st Century Environmental Dimensions of Security .

The rising wealth gap and other inequality issues are a common theme in these global risk studies. However, theories in some recent studies have proposed that it is not inequality itself that is the problem so much as a prolonged sense of precarity (a new word to me and, apparently, to MS spellchecker, but it is essentially identical to precariousness) of the non-elites that accompanies it.

This makes sense from an evolutionary standpoint, as parents desire a stable and resource abundant household in which their children can be expected to reach a reproductive age. This might be expected to come more from the female side, as they are tied to their offspring more than males, who are free to spread their sperm and move on. I have read reorts, possibly anecdotal only, that it will invariably be the woman that will be the party insisting on buying the largest house that can be attained, whether affordable or not. I'm all for gender equality and women's rights but some things are innate and equal-rights do not mean equal hormones, ambitions, impulses and behaviors.

From this viewpoint therefore, solving the wealth inequality issue is actually anathema to population reduction. For example the already low birth rate in Italy had a further step down caused by the increased precarity due to the economic impact of Covid-19, the government has responded by offering direct incentives for having children. The apparent short term aims are in direct opposition to the what is best long term, this is called a dilemma rather than a problem.

The US seems to be especially vulnerable to issues caused by lack of precarity as it has such a poor welfare system, previously relying on infinite growth to smooth things over or a, now failing, religious faith to keep things in order; prolonged economic and political success that has led to a sense of entitlement and self-belief in the American way, a history of putting personal liberty above all else, which embraces competition rather than co-operation; and a world beating phobia of death well beyond when reproductive age has passed.

The neologism for the growing proportion of people affected by precarity is the precariat. The always readable Tim Watkins has a new post that touches on some of theses issues, with a particular eye on the possibility (or not) of significant inflationary issues ( The Everything Death Spiral ).

The gig economy, middle class collapse, MAGA, BLM (and the police actions that prompted its rise), cancel culture, (un)reality TV's attraction, FOMO, the increase in low level strife, self-harming, on-line pornography addiction, the Oxycodone/Fentanyl epidemic etc. are all manifestations and/or causes of that precarity. Civil wars and major revolts (and almost any that succeed in their aims) tend to happen only when there is intra elite infighting rather than uprisings from below. The most likely catalyst for that at the moment is Trump, which may be a good sign given his ineffectualness, ineptitude and general repulsive lack of charisma; anyone even a bit more like a real human being could cause serious ructions.

IRON MIKE IGNORED 06/26/2021 at 4:54 pm

Great post George thank you. It is quite evident for the astute observer that western democracy has over the years turned more and more into an amalgam of kleptocracy, oligarchy and plutocracy.

How many countries have colonial Europe and U.S foreign policy destroyed in the name of "democracy" and "freedom" ?
I've lost count.

Plato famously is said to have said:
"If you do not take an interest in the affairs of your government, then you are doomed to live under the rule of fools."

In Platos book the republic, Socrates despises democracy as one of the worst forms of government. His criticism those many years ago still resonates till this day (in my opinion).

WIthout invoking logic, I feel the world is in uncharted waters and heading towards a precipice which no one will see coming.

You have a typo, I believe you mean oxycontin (oxycodone) epidemic. HICKORY IGNORED HOLE IN HEAD IGNORED 06/27/2021 at 1:12 pm

Hicks , not being based in USA ,my view maybe incorrect . The US is undergoing an identity crisis . Where in the world did we have this gender crisis , male "" female heck can't people see between their thighs ? Red-Blue . White Supremacy vs BLM . North vs South . Growing up in the 70's US entrepreneurship was my inspiration . My hero's were Ford, Sloan , Edison etc and what do we have today, Musk ? What changed that a society where work was an ethic has transformed into a system where everyone is looking for an opportunity to suck at the teat of the government . Amazing transformation for someone who has a reference point . Now I am going into the stupid zone . What changed was the net surplus energy available per capita to the US citizen . Once that flipped it was downhill all the way . I reserve the right to be incorrect in my assessment .

06/27/2021 at 10:45 am

Regarding the off-topic finish, I don't think most people realize how fragile is the glue holding the US together.
Fragmentation along tribal lines is the biggest theme in American culture.
If a minority collection of tribes succeeds in the attempts to reverse election results, even more than the Electoral College already does, the country will undergo a major restructuring (polite description) with no guarantees on a recognizable outcome.

[Jul 03, 2021] Annual Reserve Revisions Part IV- Shale Producers "" Peak Oil Barrel

Jul 03, 2021 | peakoilbarrel.com

SHALLOW SAND IGNORED 06/26/2021 at 8:19 pm

I haven't paid attention for awhile, but I think OXY was the number one producer of CO2 flood oil in the lower 48.

Anadarko also owned a lot of lower 48 secondary and tertiary production, as I recall.

These big, public US operators have a lot more in common with us stripper well folks than they care to admit.

Old freakin fields discovered over a century ago is where they operate. REPLY LIGHTSOUT IGNORED 06/27/2021 at 3:15 am

Don't worry shallow the Paradox basin will save the day. (Sarc)

https://www.zephyrplc.com/ REPLY HOLE IN HEAD IGNORED 06/27/2021 at 1:17 pm

🙂 REPLY JOHN S IGNORED 06/28/2021 at 1:21 pm

Shallow Sand,

You are damned right about that! REPLY D COYNE IGNORED 06/27/2021 at 8:46 am

On Fri the July futures contact for WTI closed at 74/bo and on June 21, 2021 (last data points at EIA) the spot price for WTI was $73.64/bo and Brent spot price was $74.49/bo, so a spread of under a dollar, quite unusual in the past 5 years or so when typical spread has been roughly $5/bo between WTI and Brent (Brent usually has been higher). FRUGAL IGNORED POLLUX IGNORED 06/28/2021 at 5:42 am

Adnoc imposes deeper cuts to September crude exports

"Abu Dhabi's state-owned Adnoc has informed customers that it will implement cuts of around 15pc to client nominations of all its crude exports loading in September, even as the Opec+ coalition considers further relaxing production quotas.

It was unclear why Adnoc is deepening reductions for its September-loading term crude exports, with the decision coming ahead of the next meeting of Opec+ ministers scheduled for 1 July when the group is expected to decide on its production strategy for at least one month"

06/27/2021 at 6:41 pm

World Oil Situation 2021

https://www.youtube.com/watch?v=EaXoAfa1tAw

This is an in-depth video of World production and consumption.

[Jul 03, 2021] Plato oil, Abu Dabi edition

Jul 03, 2021 | peakoilbarrel.com

POLLUX IGNORED 06/28/2021 at 5:42 am

Adnoc imposes deeper cuts to September crude exports

"Abu Dhabi's state-owned Adnoc has informed customers that it will implement cuts of around 15pc to client nominations of all its crude exports loading in September, even as the Opec+ coalition considers further relaxing production quotas.

It was unclear why Adnoc is deepening reductions for its September-loading term crude exports, with the decision coming ahead of the next meeting of Opec+ ministers scheduled for 1 July when the group is expected to decide on its production strategy for at least one month"

[Jul 03, 2021] The Fed Faces The Greatest Risk In Its History- An Economic Crisis Accompanied By Inflation - ZeroHedge

Jul 03, 2021 | www.zerohedge.com

The Fed Faces The Greatest Risk In Its History: An Economic Crisis Accompanied By Inflation BY TYLER DURDEN SUNDAY, JUN 27, 2021 - 11:58 AM

From Eric Peters, CIO of One River Asset Management

The fed funds rate was 9.75% when I arrived in the pit, Chicago 1989. US GDP that year was 3.7%, unemployment 5.4%, and inflation 4.6%. But the S&L crisis was widening, as they do. So the Fed cut rates 75bps. Back then, the Fed certainly didn't signal its intentions. In fact, the Fed neither confirmed nor denied what changes it made to interest rates even after it made them. Unimaginable, right? So we had to guess Fed policy changes by observing what happened in money markets. I obviously didn't understand any of it, after all, I was an economics major.

The S&P 500 loved that 75bp rate cut more than it feared the S&L crisis, so stocks took out the 1987 peak, making new highs in the autumn of '89. There was still tons of brain damage from '87, and traders are notorious for being superstitious, so the pit was nervy that October. When the S&P plunged -6% out of the blue on October 13th, the trading pit went utterly berserk. I was so happy in that market mayhem. Soon enough, the Fed cut rates another 75bps. The S&P 500 grinded back up through the end of my first year, but never made new highs.

me title=

Pause Unmute Duration 0:33 / Current Time 0:06 Loaded : 40.09% Fullscreen Up Next

https://imasdk.googleapis.com/js/core/bridge3.469.0_en.html#goog_756093940 Wall Street Bounces, After Selloff Fed Boosts Liquidity NOW PLAYING SoftBank Said to Plan $14 Billion Sale of Alibaba Shares China's Companies Have Worst Quarter on Record, Beige Book Says U.S.-Saudi Oil Alliance Under Consideration, Brouillette Says ETF Volumes Surge in Current Market Environment Investors Have Given Up on a V-Shaped Recovery, BNY's Young Cautions

Despite the 150bps of rate cuts in 1989, and the record S&P highs, the economy soon entered a recession. The Fed kept cutting rates for a couple years, ending at an impossibly low rate of 3.00% in Feb 1992. US GDP was 3.5%, unemployment 7.4% and inflation was 2.9%. I had made my way to London that year as a prop trader, just in time for the Exchange Rate Mechanism collapse. The Europeans had created a system to ensure stability, certainty. And this naturally encouraged traders and investors to build massive leveraged investment positions.

When systems designed to ensure stability fail, which they inevitably do when applied to things as unstable as economies, the consequences are profound. As Europe worked through its ERM collapse, Greenspan held fed funds at 3.00% for what seemed an eternity. No one could understand anything he ever said, so you can't blame him for promising certainty, stability. But people see what they want to see, hear what they want to hear, believe what they want to believe. And soon, folks discovered how to make money by betting rates would never change, much as they had bet on stability and certainty ahead of the ERM collapse.

US GDP in 1994 was 4.0%, unemployment was 5.5% and inflation 2.7%. Greenspan hiked rates 25bps to 3.25% in Feb 1994. Employment gains had been on a tear, and yet, somehow no one expected that rate hike. Naturally, he hadn't pre-signaled a change. The bond market collapsed . Most people don't think bond markets can crash, but that's only because they haven't traded long enough to live through one. Like all crashes, that one happened for all sorts of complex reasons, but the biggest was that the system was highly leveraged to a certain future.

Each interest rate cycle has been different of course. Over the decades, the Fed became increasingly transparent. That transformation was surely well-intended, seeking to reduce the risk of creating crises like that '94 crash. But it is impossible to create certainty without also increasing fragility - that's how markets work . As the system became more fragile, it required increasingly aggressive Fed intervention with each downturn. The process has been reflexive. Now markets move based on what policy changes the Fed says it may make in 18-30 months.

* * *

Anecdote :

Congress mandated that the Federal Reserve promote maximum employment, stable prices, and moderate long-term interest rates. That was in 1978. Unsurprisingly, the nation was reeling from years of high unemployment, rapidly inflating prices, and soaring long-term interest rates. In the decades since, the Fed has done a remarkably good job at meeting their specific mandate. But like all systems built to create certainty, stability, it has simultaneously produced profound fragility. This is most clearly seen in the need for ever more dramatic monetary interventions with each cyclical downturn.

Less obvious is the rising political fragility which is increasingly destabilizing the nation . Having tasked the Fed with producing economic prosperity by any monetary means necessary, our politicians then stepped away. They stopped governing effectively, fanned the flames of animosity, shielded from the adverse economic consequences of their dereliction of duty.

In each economic crisis, it was the Fed that provided leadership, forestalling collapse, but at a compounding cost. Now the nation approaches a point of peak economic and political fragility . And while it is easy to condemn the Fed for having enabled the decades of dysfunction, it is the political system that must bear the blame. But no matter, the Fed must soldier on, like a magnificent machine, attempting the impossible, delivering certainty without fragility, spinning ever faster to stand still.

And the greatest risk it now faces in meeting its mandate is an economic crisis accompanied by inflation. Such a crisis would force it to choose between a return to orthodox policy and the consequent defaults that would devastate asset prices, or a currency collapse and runaway inflation that rebalances the value of our assets and liabilities. Without a determined improvement in our politics, it is increasingly likely that we must endure the latter, followed by the former. And this drama will surely play out in the decade ahead.

[Jun 26, 2021] Oil Prices Set To Head Even Higher As Market Tightens by Tsvetana Paraskova

Jun 23, 2021 | oilprice.com

By Tsvetana Paraskova

In the paper market, Brent Crude prices already hit $75 a barrel this week, for the first time in over two years.

WTI Crude was above $73 early on Wednesday as demand strengthened and as U.S. crude oil inventories were estimated by the American Petroleum Institute (API) to have shrunk by 7.199 million barrels for the week ending June 18.

Backwardation in the WTI futures continues to tighten "a sign of a tighter market.

For example, the September-October spread is at a seven-year high at $1.09 per barrel on expectations that storage levels at the WTI futures delivery hub at Cushing will continue to decline amid strong Midwest refinery demand, Saxo Bank said on Tuesday.

[Jun 26, 2021] Here comes $100 oil prices- BofA strategist

Jun 22, 2021 | finance.yahoo.com

The growing consensus on Wall Street is that the rally in oil prices has more room to the upside

At more than $74.63 a barrel currently , brent crude oil prices are trading at levels not seen since fall 2018. The price of brent crude is up about 88% over the past year .

... ... ...

Similar to BofA, Goldman Sachs is expecting firmer oil prices moving forward. Strategists at the investment bank don't rule out prices nearing $100 a barrel before year end.

"Near term our highest conviction long is oil where we still see brent [crude oil] averaging $80/bbl this third quarter with potential spikes well above $80/bbl. Global demand likely rose to 97.0 million barrels a day in recent days from 95.0 million barrels a day just a few weeks ago as the U.S. passes the baton to Europe and emerging markets, where even India is beginning to show improvements," Goldman Sachs global head of commodities research Jeffrey Currie contends .

Adds Currie, "With such robust demand growth against an almost inelastic supply curve outside of core OPEC+ (GCC + Russia), the global oil market is facing its deepest deficits since last summer at nearly 3.0 million barrels a day. With refiners quickly responding to small improvements in margins, petroleum product supplies have broadly matched this jump in end-use demand, leaving this deficit almost entirely in crude."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance . Follow Sozzi on Twitter @BrianSozzi and on LinkedIn . ->

[Jun 26, 2021] The peak in shale was (is) the peak of oil production in USA . I have commented earlier that " all liquids " is BS . The 6mbpd of NGPL, CTL , GTL etc. are just "fill in the blanks"

Jun 22, 2021 | peakoilbarrel.com

TED WILSON IGNORED 06/20/2021 at 11:56 am

As oil price stays above $70/barrel, most shale will come back. However the max reached by USA was 13,100 million b/d. So whether World will hit 75 million b/d is doubtful. But NGL keeps increasing because of increase in natgas output. Besides nearly 6 million b/d that comes from CTL, GTL and bio-fuels will keep overall oil consumption above 100 million b/d.

Despite rapid increase in electric vehicles, oil will hold above 100 minion b/d mark. REPLY HOLE IN HEAD IGNORED 06/20/2021 at 1:34 pm

Ted , demand is governed by price and availability . Demand of 100 mbpd is immaterial if the supply is only 80mbpd . Shale is not coming back . USA has peaked . Period . The peak in shale was (is) the peak of oil production in USA . I have commented earlier that " all liquids " is BS . The 6mbpd of NGPL ,CTL , GTL etc. are just " fill in the blanks " . These are not transportation fuels and have 65% of the BTU of crude . HICKORY IGNORED 06/20/2021 at 2:30 pm

Hole- Hydrocarbon Gas Liquids are nothing to belittle. It is a lot of energy-
"HGLs accounted for over a quarter of total U.S. petroleum products output in 2018"

https://www.kindermorgan.com/getAttachment/babe6db9-ba7a-4f51-a100-5fd46b944540/White_Natural_Gas_Liquids.pdf D COYNE IGNORED 06/20/2021 at 3:04 pm

Hickory,

NGL has about 70% of the energy content of a barrel of crude. In addition most uses for HGLs are not for transportation which is the the main use for crude plus condensate.

As Ron has said we don't count bottled gas. I would say NGL should be put in a basket with natural gas.

Or we could define liquid petroleum as that which is a liquid at 1 atmosphere pressure and 25C aka STP.

By that standard only pentanes plus would qualify, which makes sense as it is essentially condensate, the proportion of pentanes plus in the US NGL mix is less than 12% by volume, 2020 data (582
kbpd). RON PATTERSON IGNORED 06/21/2021 at 4:01 pm

I am expecting prices a lot higher in 2022. An average of $85 would not shock me at all. They will be higher because oil production will not fully recover to the 2019 level as everyone expects it to.

The EIA Short Term Outlook has production fully recovered by the end of 2022 and total liquids about one million barrels per day higher for non-OPEC.

[Jun 26, 2021] US oil output growth will likely remain limited in 2021 despite rising prices,

Jun 20, 2021 | peakoilbarrel.com

OVI IGNORED 06/19/2021 at 8:37 pm

OPEC officials heard from industry experts that US oil output growth will likely remain limited in 2021 despite rising prices,

While there was general agreement on limited US supply growth this year, an industry source said for 2022 forecasts ranged from growth of 500,000 bpd to 1.3 million bpd

The forecasts for 2021 were for average output to be close to 200 kb/d. The 1.3 Mb/d prediction for 2022 is out to lunch. The 500 kb/d has a chance but I think the average will be closer to 350 kb/d.

https://economictimes.indiatimes.com/markets/commodities/news/opec-told-to-expect-limited-us-oil-output-growth-for-now-sources/articleshow/83639450.cms OVI IGNORED 06/20/2021 at 3:26 pm

Dennis

I think WTI will be $85 plus/minus $5 in mid 2022. This will push the average price of gasoline slightly above $3/gal. As for output, the US will add somewhere close to 300 kb/d average in 2022 over 2021. I am betting on some restraint on the part of the drillers. The Permian is the pivotal basin and I see that the early results for 2021 wells are not as good as 2020.

The big unknown for me is: What is a sustainable price for WTI, $100? At what point does gasoline suck too much money out of the economy. Once the economy starts to slow, oil demand will slow. We can all remember 2008.

If WTI crosses $90, OPEC might start to worry. However will they have the spare capacity to try to control it? Six months from now we can revise our estimates.

[Jun 26, 2021] I think we are heading for the confirmation of peak oil sometime between mid 2022 and late 2023

Jun 23, 2021 | peakoilbarrel.com

OVI IGNORED 06/19/2021 at 8:01 pm

Ron

Enjoy a fourth. I wonder how much production will drop due to Claudette.

I think we are heading for the confirmation of peak oil sometime between mid 2022 and late 2023. REPLY RON PATTERSON IGNORED 06/19/2021 at 8:16 pm

What do you mean by confirmation? Do you mean they will confirm that the peak was 2018-2019? If so, I cannot agree. No, there will be deniers all the way down. There is something about the human psyche that just cannot accept reality... MATT MUSHALIK IGNORED 06/19/2021 at 8:57 pm

Thanks for continuing to monitor crude oil production. As of now, we are back to 2005 levels!

I have been looking at BP

17/6/2021
BP peak oil (UK decline, asset sales and decommissioning part 2)
https://crudeoilpeak.info/bp-peak-oil-uk-decline-asset-sales-and-decommissioning-part-2

30/4/2021
BP peak oil (UK decline, asset sales and decommissioning part 1)
https://crudeoilpeak.info/bp-peak-oil-uk-decline-asset-sales-and-decommissioning-part-1

Many problems we see are now worse than in any peak oil scenario, especially in the airline industry. So I have been looking at the numbers and found:

22/5/2021
China-Australia passenger traffic has peaked 2018-19 before Covid
https://crudeoilpeak.info/china-australia-passenger-traffic-has-peaked-2018-19-before-covid

It is also generally assumed that electric vehicles will take over.

But in Australia power generation is insufficient to support any number of EVs which would be relevant to reduce oil demand:

14/6/2021
NSW power spot price spikes May 2021 become regular (part 2)
https://crudeoilpeak.info/nsw-power-spot-price-spikes-may-2021-become-regular-part-2

7/6/2021
NSW power spot price spikes May 2021 become regular (part 1)
https://crudeoilpeak.info/nsw-power-spot-price-spikes-may-2021-become-regular-part-1

[Jun 26, 2021] Exxon Prepares to Cull U.S. White-Collar Ranks by Up to 10%

Jun 22, 2021 | www.bloomberg.com


By Joe Carroll and Kevin Crowley
June 21, 2021, 3:30 PM EDT Updated on June 21, 2021, 4:00 PM EDT
Performance-improvement program will involve 5%-10% annually
Reviews are separate from sweeping job cuts disclosed in 2020

Exxon Mobil Corp. is preparing to reduce headcount at its U.S. offices by between 5% and 10% annually for the next three to five years by using its performance-evaluation system to suss out low performers, according to people familiar with the matter.

The cuts will target the lowest-rated employees relative to peers, and for that reason will not be characterized as layoffs, the people said, asking not to be identified because the information isn't public. While such workers are typically put on a so-called performance improvement plan, many are expected to eventually leave on their own. This year's evaluation is happening now but affected employees have not yet been notified, the people said.

"Our annual performance assessment process has been occurring over the last several months," Exxon spokesman Casey Norton said in an email. "Where employees are not contributing to their highest ability, they may need to participate in an improvement plan. This is an annual process which has been in place for many years, and it is meant to improve performance. This process is unrelated to workforce reduction plans."

The plan is separate from Exxon's announcement last year that it will cut 14,000 jobs worldwide by 2022, and it would extend reductions well beyond that original time frame. It's a tumultuous time for Exxon, which is still grappling with the fallout from last month's annual meeting, when shareholders rebuffed top management and replaced a quarter of the company's board over climate and financial concerns.

Exxon had 72,000 employees globally at the end of last year, of which 40% worked in the U.S., according to a company filing.

White-Collar Jobs

Several high-profile traders have also left in the last few weeks. While the performance-review process mostly applies to white-collar jobs in areas such as engineering, finance and project management, there's no suggestion the trading departures were related to the review program.

Exxon's other cost-cutting initiatives have included suspending bonuses and halting employee-contribution matches to 401k savings plans as the pandemic crushed demand for crude, saddling the company with a record annual loss.

International crude prices have surged 44% this year to almost $75 a barrel, improving Exxon's financial position markedly. Still, the supermajor has some way to go to pay down debts accumulated during 2020's market collapse. A smaller and more efficient workforce is key to further improvements.

Exxon achieved $3 billion of annual "structural cost reductions" in 2020 and will continue to make savings through 2023, Chief Executive Officer Darren Woods said at the annual meeting in May.

"We've got additional work to continue to take advantage of the new organization and find opportunities to reduce our costs," Woods said.

Exxon's shares rose 3.6% to $62.59 at the close in New York trading amid a broad rally in energy stocks on stronger oil prices.

[Jun 26, 2021] Why fracking is banned in France

Jun 20, 2021 | twitter.com


Frac Sand Baroness @sand_frac · Jun 16 There is currently a @chevron well uncontrollably blowing out on my land that I live and raise cattle on in West Texas. It is injecting super concentrated brine and benzene into my water supply. The casing (metal pipe) is so corroded that Chevron literally cannot re plug it. 5.7K views 0:01 / 0:06 3 60 117 Frac Sand Baroness @sand_frac · Jun 16 More concerningly, this well was plugged and abandoned (P&A) in 1995. For those not in the oil industry, a P&A blowout is extremely rare. A plugged well is exactly that: plugged. It is filled with concrete plugs, and considered to be permanently deactivated and safe. 2 7 67 Frac Sand Baroness @sand_frac · Jun 16 We've had issues with Chevron before. In 2002, we flushed a toilet at the ranch house (approximately 1.5 miles south of the blowout) and crude oil bubbled up. The leak source was never fully identified, and we shut in that water well. 2 6 66 Frac Sand Baroness @sand_frac · Jun 16 Chevron had operations nearby, so drilled water monitoring wells. These monitoring wells identified a crude oil plume in the groundwater, and also found a large salt water plume. See Texas Railroad Commission OCP #08-2423. Again, we never found the source. 1 5 57 Frac Sand Baroness @sand_frac · Jun 16 This required Chevron to provide an annual water test result to the landowners (me). Of course, they didn't comply from 2007 through 2013. We never heard about this, and thought our water was safe again.

[Jun 22, 2021] You Cannot Fight Geology

Jun 22, 2021 | peakoilbarrel.com

STEPHEN HREN

IGNORED 06/16/2021 at 12:44 pm

It looks like Shell is planning on selling all of its Permian holdings, could be a bellwether for the whole LTO business:

https://www.worldoil.com/news/2021/6/14/shell-said-to-consider-sale-of-largest-oil-field-in-the-us-valued-at-up-to-10-billion

RON PATTERSON IGNORED 06/17/2021 at 5:48 am

A very interesting article came out a couple of days ago concerning Shell:

Royal Dutch Shell: You Cannot Fight Geology , The Dutch Court Ruling Doesn't Change Their Future

One of the biggest pieces of news for Royal Dutch Shell recently has been the Dutch court ruling that forces them to make a larger 45% emissions reduction by 2030.

Despite this sounding very transformation, considering the geological and economic reality of their current situation, it actually does not significantly change their underlying future.

Their reserve life is only sitting at just above seven years and thus even if they wished to maintain their fossil fuel production, they already required significant investments before 2030.
SNIP
You Cannot Fight Geology

Upon reviewing their reserves, it may initially sound very impressive to hear that their oil and gas reserves currently stand at slightly over nine billion barrels of oil equivalent. Although in reality this actually sits rather low when compared to their annual production during 2020 of 1.239b barrels of oil equivalent. This effectively only leaves their reserve life at just above seven years, which is not particularly long and thus means that their fossil fuel production would already begin shrinking dramatically by the latter half of this decade. Admittedly they would likely continue replacing a portion of their oil and gas reserves in the future but their current production rate would still see them running very low by 2030 if approximately half were replaced per annum, as the graph included below displays.

There are two charts in this article. The second on titled: Oil Discoveries Lowest Since 1847 is alarming. STEPHEN HREN IGNORED 06/17/2021 at 8:25 am

Hi Ron, any thoughts on why Shell would bag their operations in the Permian while they are also running low on reserves everywhere else? Seems like they would be holding on to every scrap of producing land they could. Unless one of two things: 1) they are making a serious attempt to transition to a low carbon energy company; and/or 2) their holdings in the Permian are worth squat REPLY RON PATTERSON IGNORED 06/17/2021 at 9:22 am

Well, yes. One reason is (in bold) here:

Interest in Shell's Permian assets seen as a bellwether for shale demand

NEW YORK/HOUSTON, June 15 (Reuters) – A cadre of oil companies, seeing continued profits in shale, are mulling Royal Dutch Shell's (RDSa.L) holdings in the largest U.S. oil field as the European giant considers an exit from the Permian Basin, according to market experts.

The potential sale of Shell's Permian holdings, located in Texas, would be a litmus test of whether rivals are willing to bet on shale's profitability through the energy transition to reduce carbon emissions.

Shell would follow in the footsteps of other producers, including Equinor (EQNR.OL) and Occidental Petroleum (OXY.N) that have shed shale assets this year, looking to cut debt and reduce carbon output in the face of investor pressure.

Shell, like a lot of other companies, sees shale assets as a very low profit, or even a losing proposition. They can take the money from the sale, reduce their debt, and reduce carbon emissions of their company in one fell swoop. More from the article:

Against this backdrop, estimates for Shell's acreage run from $7 billion to over $10 billion, the latter implying a valuation of almost $40,000 an acre.

That would be in line with the per-acre price Pioneer Natural Resources (PXD.N) paid for DoublePoint Energy in April, the most costly deal since a 2014-2016 rush by producers to grab positions in the Permian.

Most Permian deals this year have closed between $7,000 and $12,000 per acre, said Andrew Dittmar, senior mergers and acquisitions analyst at data provider Enverus.

If they can get $40,000 per acre they have found a greater fool to offload their acreage on. HICKORY IGNORED 06/17/2021 at 9:44 am

Something about that doesn't make sense. The need or desire to downsize is likely due to an inability to project making profit on the shale assets rather than any concern over a carbon footprint- I don't believe they are in business to win any kind of beauty contest. REPLY ROGER IGNORED 06/17/2021 at 8:17 pm

https://en.wikipedia.org/wiki/Brent_Spar

"Shell's position as a major European enterprise has become untenable. The Spar had gained a symbolic significance out of all proportion to its environmental effect. In consequence, Shell companies were faced with increasingly intense public criticism, mostly in Continental northern Europe. Many politicians and ministers were openly hostile and several called for consumer boycotts. There was violence against Shell service stations, accompanied by threats to Shell staff."

Things are a little different for European companies I recall "Greenpeace sympathizers" fire-bombed a gas station back then; in light of what has transpired in the US recently who is to say it couldn't happen again?

Shell is well aware of peak oil, and can't solve the problem. So, what would you have them do? REPLY KOLBEINIH IGNORED 06/17/2021 at 1:26 pm

"Shell would follow in the footsteps of other producers, including Equinor (EQNR.OL) and Occidental Petroleum (OXY.N) that have shed shale assets this year, looking to cut debt and reduce carbon output in the face of investor pressure."

I don't think it has anything to do with shale oil specifically. For Equinor it has to do with that it can draw on competence in Norway in the harsh offshore environment in the North Sea. Floating offshore wind power is where Equinor is world leading with technology and know how; now about to be utilised in the North Sea, Japan, US East coast and California. It is not more economical than ground based offshore wind mills, but has some advantages when it comes to lifecycle costs. For one, the wind mills can be placed in optimal wind condition areas not in the way of fishing resources. The big size of wind mills will not cause problems (the height and diameter of the blades are necessary to capture enough wind energy). And also the wind mills can be more easily moved to land and recycled, e.g. the steel. Wear and tear offshore is on the minus side.
Usually the blades are made of carbon fiber to make it lighter, but it can also be made of aluminum in the future with lower efficiency.

Shell is just now investing in North Sea South II in Norway for ground based offshore mill farms together with BP. To make the North Sea work with the enormous amount of wind power coming online and connection cables everywhere is very serious business and just a priority. Shale oil is too much of a distraction for Shell and Equinor, not even within their core competence area. REPLY JAY WOODS IGNORED 06/18/2021 at 7:50 am

Shell was ordered by a Dutch court to cut by 45%. Of course, they will cut their "losers" first.

[Jun 22, 2021] Possibility of Seneca cliff are increasing

Jun 22, 2021 | peakoilbarrel.com

OVI IGNORED 06/17/2021 at 10:03 am

Ron

The chart is old and was published in 2016 by Wood Mackenzie and there is no data for 2016. It also leaves out the discovery of Ghawar in 1948, first bar/spike. I have not seen any updates since then. Not sure if Guyana had been discovered in 2016. The original is attached.

REPLY SCHINZY IGNORED 06/18/2021 at 5:57 am

Here is Rystad's discovery graph 2013-2019 including gas. 2019 was better than 2016-2018 in terms of BOE, but it was a bit gassy:

REPLY RON PATTERSON IGNORED 06/17/2021 at 6:00 am

Is the energy transition just a fad??? Irina Slav at Oil Price.com says it is.

Energy Transition Fad Will Send Oil Sky High

Ironically, the wave of ESG investing in global energy markets may lead to much higher oil prices as a serious lack of capital expenditure on new fossil fuels dries up just as demand for crude continues to grow

Pressure from investors, tighter emissions regulation from governments, and public protests against their business have become more or less the new normal for oil companies. What the world -- or at least the most affluent parts of it -- seem to want from the oil industry is to stop being the oil industry.

Many investors are buying into this pressure. ESG investing is all the rage, and sustainable ETFs are popping up like mushrooms after a rain. But some investors are taking a different approach. They are betting on oil. Because what many in the pressure camp seem to underestimate is the fact that the supply of oil is not the only element of the oil equation.

"Imagine Shell decided to stop selling petrol and diesel today," the supermajor's CEO Ben van Beurden wrote in a LinkedIn post earlier this month. "This would certainly cut Shell's carbon emissions. But it would not help the world one bit. Demand for fuel would not change. People would fill up their cars and delivery trucks at other service stations."

Van Beurden was commenting on a Dutch court's ruling that environmentalists hailed as a landmark decision, ordering Shell to reduce its emissions footprint by 45 percent from 2019 levels by 2030.

[Jun 22, 2021] Energy Transition Fad Will Send Oil Sky High

Jun 22, 2021 | peakoilbarrel.com

RON PATTERSON IGNORED 06/17/2021 at 6:00 am

Is the energy transition just a fad??? Irina Slav at Oil Price.com says it is.

Energy Transition Fad Will Send Oil Sky High

Ironically, the wave of ESG investing in global energy markets may lead to much higher oil prices as a serious lack of capital expenditure on new fossil fuels dries up just as demand for crude continues to grow

Pressure from investors, tighter emissions regulation from governments, and public protests against their business have become more or less the new normal for oil companies. What the world -- or at least the most affluent parts of it -- seem to want from the oil industry is to stop being the oil industry.

Many investors are buying into this pressure. ESG investing is all the rage, and sustainable ETFs are popping up like mushrooms after a rain. But some investors are taking a different approach. They are betting on oil. Because what many in the pressure camp seem to underestimate is the fact that the supply of oil is not the only element of the oil equation.

"Imagine Shell decided to stop selling petrol and diesel today," the supermajor's CEO Ben van Beurden wrote in a LinkedIn post earlier this month. "This would certainly cut Shell's carbon emissions. But it would not help the world one bit. Demand for fuel would not change. People would fill up their cars and delivery trucks at other service stations."

Van Beurden was commenting on a Dutch court's ruling that environmentalists hailed as a landmark decision, ordering Shell to reduce its emissions footprint by 45 percent from 2019 levels by 2030. REPLY HICKORY IGNORED 06/18/2021 at 9:37 am

Cute headline.
'Energy Transition Fad'
Wrong terminology.
Its a shift that has barely started.
The global economy isn't going to just sit around while fossil fuel sources go into decline, despite how poorly large human organizations perform in the job of planning.
The effort is very weak to this point.
Poor grasp of the situation.
It will be grasped eventually, and then the effort will be strong.
Fad no. REPLY likbez 06/22/2021 at 4:10 pm There is a possibility of Seneca cliff as major Western countries probably will not be able to adapt to dramatically shirking of oil supply. That raises the question of the size of Earth population which is sustainable without "cheap oil" and several other interesting questions about the destiny of the current civilization and neoliberalism. Which is already in crisis since 2008 and the USA economy is in "secular stagnation" mode since the same date. The USA standard of living is partially based on cheap oil and when cheap oil is gone the crisis of neoliberalism will probably became more acute. It is difficult to predict what forms it will take but Trump in the past and the current woke movement are two examples of mal-adaptation to the crisis of neoliberalism in the USA and loss of legitimacy of neoliberal elite (woke movement=, which is supported by Dems and several major companies, is the attempt to switch the attention from this issue -- "look squirrel") I suspect this that current "irrational exuberance" about EV among the neoliberal elite and upper middle class (especially techno hamsters of Silicon Valley) will play a bad joke with the USA. Prols can't care less about this fashion and will stick to tried and true combustion engine cars, especially with the current exorbitant prices on EV.

[Jun 18, 2021] Total DUCs in shale basins are falling at the rate of about 250 per month

Most of remaining DUC are unprofitable to finish...
Jun 14, 2021 | peakoilbarrel.com

RON PATTERSON IGNORED 06/14/2021 at 3:10 pm

Total DUCs in shale basins are falling at the rate of about 250 per month. I don't know how long this can continue. I have been told by some experts in the field that there are some DUCs that will never be completed because they would not produce enough oil to pay the completion cost. So we just cannot count the DUCs and divide by 250. The decline in DUCs will have to stop sooner or later.

REPLY FRUGAL IGNORED 06/14/2021 at 4:41 pm

What I don't understand is why wells are drilled but not completed right away? REPLY RON PATTERSON IGNORED 06/14/2021 at 5:02 pm

Frugal, I am not an oilman, and an oilman could obviously give a better answer than I. But I will give it a shot, and hopefully, I will be corrected for any mistakes I make.

Drillers are not frackers and frackers are not drillers. That is an entirely different operation requiring different crews, different equipment, and different CAPEX. But the driller leaves behind samples from the well, indicating just how productive the well should be. The best wells will obviously be fracked first. The less promising wells will be left for times when the price is high enough to justify the fracking cost.

But"¦. the total cost of the well is the drilling cost plus the fracking cost. And in a DUC, the drilling cost has already been spent. So when times get hard, and you can get a well, though it might not be the best well, you have already paid the drilling cost, so you can get it for only the fracking cost now. So you pay the fracking cost and recover what you can. And this would be the case especially if the new wells that are coming in are less promising than the poor wells already drilled.

But then, that's just my opinion, for what it's worth.

[Jun 14, 2021] Oil price supression agency (mistakenly called EIA) wants OPEC to increase input.

Jun 14, 2021 | www.zerohedge.com

Authored by Cyril Widdershoven via OilPrice.com,

In its latest Monthly Oil Report, the IEA called on OPEC+ to increase production in order to counter higher demand in 2022.

... ... ...

The current market situation is very clear. OPEC+ is leading the sector, no matter what political strategies or activist shareholders at IOCs are planning. The market is still fully hydrocarbon addicted, and this will not change overnight.

The IEA also needs to reassess its current strategies and press approach, as a continuation of the diffuse ''Lala-land predictions'' will not make their case stronger.

As indicated by the IEA OMR report demand will increase by 5.36 million bpd in 2021, and another 3.07 million bpd in 2022. At the end of 2022, global demand is expected to be at 99.46 million b/d on average.

This optimism in the market is widely shared, looking at price predictions from Goldman Sachs, Bank of America, and Citibank, with some analysts even predicting $100 per barrel in 2022.


cowdiddly 1 hour ago (Edited)

I do not listen to government clowns.

"You want to know what the price of oil is going to do watch the rig count" T. Boone Pickins

Single best piece of energy investment advice I ever had.

gregga777 48 minutes ago (Edited) remove link

The IEA seems to be following this very mature behavioral advice:

"When in trouble,

When in doubt,

Run in circles,

Scream and shout."

Falconsixone 40 minutes ago

Tanks eat a lot of fuel.

GrayManSix 23 minutes ago

Instead of "kill all the lawyers," it should now be "kill all the academics." People in ivory towers who have no inkling of the real world realities....

radical-extremist 39 minutes ago remove link

I highly recommend "Unsettled" by Steven E. Koonin.

He does the best job to date of unpacking what we know and don't know about Climate Change.

Educate yourself on it...and hurry before the book is banned.

19331510 48 minutes ago remove link

There is no climate emergency and absolutely no reason to pursue net-zero emissions.

Co2 is 0.04% of the atmosphere and it is impossible for that small amount of gas to significantly impact the climate.

Co2 is the key driver of photosynthesis and higher levels of atmospheric co2 increase agricultural production necessary to feed an ever growing population.

The UAH temperature data indicates the average global temperature is 0.08 C above the 30 year average. There is no global warming.

The severity of storms and and number of severe storms are not increasing.

The oceans may be rising between 1.8 mm/yr to 3.6 mm/yr if at all. Tide gauges a wrought with issues.

The pursuit of a green economy will destroy our economy. manhattan-institute.org Mark P. Mills

There is no need to end the use hydrocarbons. Please educate yourself.

SonOfSam 48 minutes ago remove link

...The IEA has ALWAYS wanted OPEC+ to keep their pumps running...

[Jun 13, 2021] America's Fuel-Making Corridor Prepares for Hurricane Laura - WSJ

Jun 13, 2021 | www.wsj.com

By Rebecca Elliott and Collin Eaton Updated Aug. 26, 2020 4:11 pm ET

Refineries, petrochemical facilities and ports along the Gulf Coast were closing as Hurricane Laura barreled toward the Texas-Louisiana border.

The hurricane strengthened to a Category 4 storm Wednesday, with sustained winds of 140 miles an hour, according to an afternoon update from the National Hurricane Center. It is projected to unleash a storm surge as high as 20 feet along portions of the Louisiana coast with as much as 15 inches of rainfall.

...

[Jun 13, 2021] Exxon (XOM) Sees US Shale Oil Production Decline Per Well

Jun 13, 2021 | peakoilbarrel.com

RON PATTERSON IGNORED e 06/13/2021 at 3:49 pm

Exxon (XOM) Sees US Shal Oil Production Decline Per Well Bold mine.

Exxon Mobil Corporation XOM has been generating fewer barrels of oil from the prolific shale fields of the United States since 2019, per Reuters.

According to a latest report, the company's oil wells, which are involved in some of the most promising shale fields, produced fewer barrels of oil per well despite an increase in overall expenditure and production.

In 2017, Exxon, which is one of the largest shale oil producers, acquired $6.6 billion of net acres in New Mexico, which doubled the company's assets in the Permian basin that spans west Texas and New Mexico. Notably, the company intends to boost shale output in the New Mexico portion of the Permian basin to 700,000 barrels per day (bpd) by 2025.

Per data released by the Institute for Energy Economics and Financial Analysis ("IEEFA"), Exxon's average liquid output for the first 12 months of a well dropped to 521 bpd in 2019 from an average of 635 bpd in 2018 in its Delaware basin assets of New Mexico.

That's an 18% drop in production per well. And this was before the pandemic

[Jun 13, 2021] Another scenario doe Seneca cliff is that some exporting nations realize they will need this oil as the world stares into a scarcity of oil. They might say: "Shit, why are we selling this stuff when we will desperately need it for ourselves in a few years?"

Jun 13, 2021 | peakoilbarrel.com

RON PATTERSON IGNORED 06/13/2021 at 2:44 pm

Another scenario is that some exporting nations realize they will need this oil as the world stares into a scarcity of oil. They might say: "Shit, why are we selling this stuff when we will desperately need it for ourselves in a few years?" And as they cut back, or stop exporting altogether, the problem gets a lot worse, and prices spike even higher. REPLY DOUG LEIGHTON IGNORED 06/13/2021 at 3:34 pm

L.O.L. The decision concerning the proportion of a domestic resource that should be preserved for domestic needs, and how much to export, is interesting. China's REE deposits come to mind. Also, the impact of the immediate use of a resource versus a lower level of exploitation over time might come into play in some (perhaps unrealistic) scenarios as well. Not many examples of countries that have exhaustible natural resources saving some for future generations I'm aware of; probably would result in an unwelcome war or another ugly result!

[Jun 13, 2021] WTI at $70 is probably still bearable. Higher numbers dramatically increase chances of the recession (actually the USA is in secular stagnation since 2008).

Jun 13, 2021 | peakoilbarrel.com

LIKBEZ IGNORED 06/07/2021 at 6:40 pm

WTI at $70 is probably still bearable. Higher numbers dramatically increase chances of the recession (actually the USA is in secular stagnation since 2008).

Today I read the EROEI of solar is around 0.8 outside of deserts. A recent paper by Ferroni and Hopkirk estimated an EROI=0.8 for PV in Switzerland. https://www.sciencedirect.com/science/article/pii/S0301421516307066

You need EROEI around 7 for the source of energy to be economically viable. Wind barely makes it, but solar, outside of deserts does not.

Another interesting figure is that the energy density ( KW/kg ) of lithium batteries is approximately 100 times less then energy density of diesel (gas has slightly lower energy density; kerosene approximately the same).

A subcompact car with a 10-gallon gas tank can store the energy equivalent of 7 Teslas, 15 Nissan Leafs or 23 Chevy Volts, according to industry sources. REPLY PHIL S IGNORED 06/07/2021 at 7:50 pm

" interesting figure is that the energy density ( KW/kg ) of lithium batteries is approximately 100 times less then energy density of diesel "
but don't forget the energy in the diesel is about 30% efficient converting into work while the battery is over 90% efficent doing work – so comparing energy "stored" in compact cars and teslas etc is either pretty useless or pretty misleading REPLY MIKE SUTHERLAND IGNORED HOLE IN HEAD IGNORED 06/12/2021 at 6:35 am

Likbez , I will make an effort to answer your 3 questions .
1. Peak oil was /is 2018 . Plateau will be 5 years . Why ? The parameter is exportable oil production and not total oil production . ELM is a bitch .
2 . Nuclear fusion . Not going to happen . It is like the horizon . We can see it but we can't reach it .
3 . USA situation . I am least qualified to comment as I am in Europe , but still the safest is that the current political system cannot continue for long especially when I look at it with the lenses of resource availability . There are no volunteers for starvation . What will replace this ? I don't know .
P.S :Your sentence "Like in war this is the question of strategy. Wrong strategy usually leads to defeat. " I am going to be using this . Hope you don't have a copyright on this . 🙂

06/09/2021 at 9:11 am

But your post is also misleading and leaves the reader with the impression that you're little more than an EV propagandist. Even at 30% efficiency for diesel, there is still 100/3 = 33.3x more energy available than a comparably sized lithium battery. That huge difference is far and anyway superior to anything a battery will ever do, ever. It will never be matched by any electrochemical storage scheme. So there is that. REPLY KLEIBER IGNORED 06/09/2021 at 1:42 pm

Indeed. The advantages EVs have come from efficiency in weight reduction (aside from the battery pack) and aerodynamics, along with electric motors being super simple and efficient. But in terms of raw energy density, you cannot beat chemical fuels, and there really isn't anything that threatens this by virtue of the chemistry.

Batteries, for all their advantages in simplicity, are never going to be lighter and more energy dense. Lithium is just about the best there is in terms of weight to energy ratio, something quite key for a moving vehicle. REPLY LIKBEZ IGNORED 06/09/2021 at 7:10 pm

Mike,

Electrical engines proved to be viable for small cars and delivery trucks with short ranges. No question about it. But that does not mean they are optimal. This is just a fashion partially fueled by people who missed their STEM classes 😉

I think natural gas is currently a viable competitor to EV and is IMHO a much better feat.

First of all charging efficiency of lithium battery is only 80%.
That's true that electrical motor is more efficient, but when you have a transmission using multiple gears most of this difference is lost.

Also you overestimated the efficiency of the tandem lithium battery -- electrical motor, as it includes converter with efficiency less then 90% and a lithium battery has its own internal resistance which increases with age and also lead to losses. 0.8*0.8*0.9=0.57. BTW modern diesel engines efficiency is about 43%-44%, based on 2013-2014 certified engines.

Moreover the efficiency of lithium battery in winter is dismal. And not only because at low temperatures is simply does not work well and its capacity is less. A lot of energy is consumed by the cabin heater. IMHO driving EV in severe winter is dangerous not withstanding short trips to nearby sky resort that some make on their Tesla 3 🙂 REPLY JOHN NORRIS IGNORED 06/10/2021 at 7:06 am

The average US car goes 0.74 miles on a kWh of gasoline. Many Teslas and the Hyundai Kona (among others) go 4.0 miles per kWh.

Cost per mile is $0.12 for gasoline, $0.06 for California EV, $0.03 for average EV. HICKORY IGNORED 06/07/2021 at 10:35 pm

Likbez.
Switzerland has poorer solar input than any place in the lower 48, even pacific northwest coastal, so its a lame site to use as a yardstick.
I know people who do 100% of their driving miles with solar from the roof, at lower cost than your miles.
And they didn't check the EROEI figures before or after the purchase of equipment.
The solar is already paid off for them, and they've got 2 to 4 more decades of electricity coming from that system.
And I know people who have driven across the entire country with no liquid fuel tank-nothing for energy storage in their EV but lithium. And the acceleration of their car will pin you deep in your seat if they aren't careful with the pedal.

Hey- look on the bright side- every mile that solar/electric vehicles travel is just another mile of gasoline left for you. REPLY MIKE SUTHERLAND IGNORED 06/09/2021 at 9:22 am

Hickory, how many of those solar panels were subsidized by government? A lot of them. And what's more, even though early adopters charged their Teslas from those subsidized panels, did that somehow change the EREOI from 0.8? How is the rest of society going to benefit if all the early opportunists managed to get cheap cells at an artificially low price, that actually were fantastically expensive in real terms regarding the cheap energy (at the time) that was used to make them?

And so what if they drove across the country in electric power??? WTF? What does that prove? Was there actually anything productive generated by this hugely energy intensive self-interested activity? No, there was not. It was nothing more than a display of self indulgence, and an excessive one at that. REPLY HICKORY IGNORED 06/09/2021 at 10:11 am

MikeS.
"The Energy Payback Time of PV systems is dependent on the geographical location: PV systems in Northern Europe need around 1.5 years to balance the input energy, while PV systems in the South equal their energy input after 1 year and less,"
https://www.ise.fraunhofer.de/content/dam/ise/de/documents/publications/studies/Photovoltaics-Report.pdf
After 25 years modern panels still have between 82-93% peak capacity output.

In regard to the feasibility of lithium batteries- I was pointing out that they work well enough (are dense enough) to get the job done. Its not a complicated idea. Likebz referenced diesel energy density. Thats very good, but in case you haven't been keeping up- peak crude oil is upon us, so time to adapt. Past time actually.

Bottomline- both solar energy and electric vehicles are viable systems for transportation. And that is nice considering the world faces peak oil supply.

Some people would prefer to witness the countries economy crash and burn as peak oil becomes a reality. I guess they think they would make more money for the short term. Others would like to see the country gradually deploy other ways to get around. REPLY KLEIBER IGNORED 06/09/2021 at 1:57 pm

If nothing else, this scenario will lead to a radical reshaping of how we as a species go about doing logistics. If the pandemic hasn't called into question the application of JIT logistics for all industries, then the loss of cheap diesel certainly will. Even if long haul electric trucks become a thing, it will require a different approach to matters.

Cars are otherwise a solved issue with EVs. There's nothing that an ICE can really offer over an EV. Trucking and heavy industry is another matter, and that's where problems will be. Frankly, I welcome this uprooting of a paradigm that has no resilience built in whatsoever. LIKBEZ IGNORED 06/10/2021 at 3:26 pm

You are both funny and superficial.

There is no question that "electric vehicles are viable systems for transportation. " that's true since 1940th I think. Just think about electric trains and diesel-electric trains :-). Also as compact cars they are viable in temperate climate (Leaf, Tesla, etc) and possibly in big cities and corresponding metropolitan areas.

Some people would prefer to witness the countries economy crash and burn as peak oil becomes a reality. I guess they think they would make more money for the short term. Others would like to see the country gradually deploy other ways to get around.

Like in war this is the question of strategy. Wrong strategy usually leads to defeat. I think the current EV fashion driven by people who missed their STEM classes is counterproductive and probably harmful.
It might well lead to problems in the near future. You should never put all eggs into one basket. Lightweight and emotion-driven arguments like your above just does not make the cut, if we are taking about the strategy.

Some interesting questions are

1. If we reached "plato oil" stage (I think so), then how long it will last before Seneca cliff? 10 year, 50 years, 100 years ? That's a big difference.

2. Will we get fusion energy driven energy generation or not.

3. Will neoliberalism be replaced in the USA by some other social system, because neoliberalism (and connected with it imperial tendencies ("Full Spectrum Domination" doctrine), and the corresponding level of military expenses -- money that should be allocated toward the energy transition are simply waited on maintaining and expanding of the empire) can't reform itself and probably will drive this country off the economic cliff, or to the WWIII (with even worse results).

[Jun 13, 2021] Chronic underinvestment in oil and gas supply while operational oilfields mature would lead to a supply crunch and a spike in oil prices down the road, analysts and Big Oil top executives such as TotalEnergies

Notable quotes:
"... "Ideology will obviously always trump common sense." So true ;). ..."
Jun 13, 2021 | peakoilbarrel.com

FRUGAL IGNORED ROGER IGNORED 06/11/2021 at 9:35 am

"Ideology will obviously always trump common sense." So true ;).

06/10/2021 at 6:22 pm

Saudi Arabia And Russia Warn Of Major Oil Supply Crunch

Environmentalists and activist shareholders intensified pressure on large public oil firms to align their businesses with a net-zero scenario, while some of the international majors acknowledged they have a part to play in the energy transition.

But the leaders of the OPEC+ group, Saudi Arabia and Russia, will continue to invest in oil and gas because, they say, the world will still need those resources for decades, despite the growing push against fossil fuels and investment in new supply.

Chronic underinvestment in oil and gas supply while operational oilfields mature would lead to a supply crunch and a spike in oil prices down the road, analysts and Big Oil top executives such as TotalEnergies' Patrick Pouyanné say.

Apologies if this has already been posted. REPLY RON PATTERSON IGNORED 06/10/2021 at 6:57 pm

From your link: BP's chief executive Bernard Looney wrote that forecasts of much lower investments in oil and gas were "in many ways consistent with our approach – to reduce our oil and gas production by 40% in the next decade.
Snip.
In Russia, the chief executive of the largest Russian oil producer, state-controlled Rosneft, warned that underinvestment in oil is setting the stage for a severe deficit in supply.

Yes, oil production will be falling and oil prices will be rising. Anyone with half a brain can see that. But it will have to happen before the world will be able to see what is right now as plain as the nose on their face. Their worldview keeps them from seeing the very blatantly obvious. Ideology will obviously alwayse trump common sense. REPLY FRUGAL IGNORED 06/10/2021 at 8:17 pm

It's looking more and more like peak oil is here right now. REPLY RON PATTERSON IGNORED 06/10/2021 at 8:56 pm

Nah, peak oil was in 2018.

[Jun 13, 2021] EV cars and alternative energy future

Jun 13, 2021 | peakoilbarrel.com

NIKO IGNORED 06/06/2021 at 1:22 pm

Wasn't sure which thread to put this in, but since it deals with much more than just oil scarcity, I thought I'd put it here.

After some on this board recommended Christopher Clugston's "Blip" I bought myself a copy. I just finished reading it and I'm pretty impressed. If I have a criticism, it's that Clugston tends to go over the same points ad nauseum. He could have made a much more streamlined work with some more editing.

However, despite some flaws, "Blip" is a tour de force. Clugston breaks the history of industrialism into a series of eras, which he calls Industrialism1, Industrialism2, and Industrialism3. Between the periods of industrialism are periods of scarcity, in which sub-global areas face non-renewable resource shortages in their domestic economies. These periods of scarcity cause significant pain before they are (somewhat) ameliorated through the use of imports (whether through trade or colonialism). Clugston demonstrates that, just as each local area hits a period of scarcity, eventually that scarcity must become global in reach, and there will be no where else to go to find the necessary materials to fix that scarcity.

It's refreshing to read a work in the "doomer" space that is not entirely focused on energy. Clugston demonstrates (using hard numbers) that we are rapidly running into limits in a variety of resources, not just oil, gas, and coal. He effectively shows the rates at which regions tend to experience scarcity issues after industrialism begins. He also connects the dots – instead of only showing how it is getting more and more difficult to supply industrial society with material inputs, he connects those observations to culture, politics, and finance, taking a historical perspective which clearly shows the likely path forward for humanity.

What I liked most about the book is the absolute dependence on data. Every chapter is full of charts, graphs, and tables, from reliable sources, which illustrate the point Clugston is making: that we are running out of mineral inputs to our society, and we are running out quickly.

This book really drove home the point for me (though I have thought it for a long time) that a successful transition to renewables simply will not happen. We do not have enough material runway to both sustain our current civilization and make the necessary transition. Industrial society will fall apart (in fact, as Clugston convincingly shows, is already doing so) long before we manage to successfully transition to a clean, bright, renewable future.

Well worth a read, although I recommend skimming quickly over the numerous parts where Clugston is repeating himself. REPLY HICKORY IGNORED 06/06/2021 at 9:42 pm

Hi Niko,
"a successful transition to renewables simply will not happen. We do not have enough material runway to both sustain our current civilization and make the necessary transition"
I suspect some places will get some of the energy transition job done, and others not so much. Its not an all or none scenario.
Is that what you think? REPLY NIKO IGNORED 06/06/2021 at 11:32 pm

Of course some areas will "make it" more or less than others, at least initially. Indeed, some already have thanks to abundant hydro reaources.

But without current global supply chains, it's really hard to see how an isolated successful implementation of certain renewable technologies will give them a significant advantage over anything but the short term.

Clugston makes clear that it is truly an all materials problem we are facing, not only an energy problem. Suppose some country, say Norway (since they are rather far along on renewables, or so I've heard) is able to sustain energy production after they no longer have access to fossil fuels. If the rest of the global supply network has fallen apart due to material scarcity, how long does this energy supply benefit them? Without material (shipped from all over the world) can they make anything with their energy? Can they keep in working order what they already have? Can they replace components that age out of service?

Whether or not you have energy, sustaining anything like our current way of life absolutely demands access to materials, materials which at this point must be shipped (not to mention mined, processed, and turned into goods) from all over the world. Few areas can get them locally anymore due to depletion.

So yes, some areas will transition, but only in the context of the global supply chains and materials resources that make transition possible. Once they can no longer get the industrial inputs they need from either local or far-away sources, their grid will be fated to fail at around the 30-50 year mark, since they will have no ability to maintain, repair, or expand it.

In the long run, the transition appears unlikely to be successful anywhere. And, in the areas where it is "successful", through some combination of build out during the present, and scavenging activities in the future to maintain the grid, you will still have a society with vastly reduced wealth, resources, and opportunities compared to the one we have now. REPLY HIGHTREKKER IGNORED 06/07/2021 at 9:47 am

The EU has 5,400 functioning offshore wind turbines, the USA has 7. REPLY HICKORY IGNORED 06/07/2021 at 9:59 am

Hightrekker- the EU has an extra incentive to develop wind faster than the USA. The solar potential of Europe north of the alps is generally poorer than any place in the 48 states.
good tool for seeing it (and it has a wind tab too)-
https://globalsolaratlas.info/map?c=48.57479,-46.669922,3 REPLY HIGHTREKKER IGNORED 06/07/2021 at 10:39 am

Thanks HICKORY IGNORED 06/07/2021 at 9:55 am

I agree with all that Niko.
An example of the global supply constraints is being seen in a minor form currently with semiconductors. Many automakers have curtailed production due to the shortage.
With the eventual global trade curtailment in particular materials and energy, it would be wise for many places to get going on a brisk pace of renewable deployment now, I think.
Longer term, it will be a challenge to downsize a country without being overrun, or drifting into severe poverty.
I have seen newer population projections showing that global population will peak by 2060, rather than around 2100.
It will happen even faster (and more painfully) if global material and energy shortage becomes significant in the shorter term. And it likely will. REPLY NIKO IGNORED 06/08/2021 at 3:50 am

Seems as though we pretty much agree on all points. Cheers! REPLY HICKORY IGNORED 06/08/2021 at 9:54 am

There is scenario that isn't addressed very much, and I see some version of it as very likely.
Many countries will have trouble maintaining stability within, as this century progresses. The gap between haves and have nots will be growing. especially once oil becomes scarce (and particularly in places that do not have well developed replacement energy sources and local food production).
Failed state status is a huge risk. and the list of countries failing into that category will be long, I lament. It is no picnic to be a human being in a failed state.

In the USA, I see the fight for country control in various facets. One big aspect is that people are trying to choose which political party is less likely to lead the country to failed state status (even if the analysis is not a conscious one). For the republican party, failed state status appears to mean loss of white priveledge/white supremacy, and loss of the supreme priveledge for the super wealthy. Thus the desperation from them that we see. Their desperation brings us dangerously close to loss of democracy here, and a replacement with a form of fascism. We are very close to generalized civil unrest here, depending on how things go. KOLBEINIH IGNORED 06/08/2021 at 12:14 pm

There are no easy answers to this. Energy questions are complex for sure. A lot have to do with energy security. One input is that there is some hope specifically when it comes to how electricity can be utilised. If the energy transition means getting rid of coal, oil and natural gas to solar, wind and hydro. Then it is actually possible to use heat pumps with 50-100% efficiency gain in average (in optimal solutions a lot more) to replace natural gas, and also use EV with just 1/3 energy use compared to gas/diesel due to heat generation in the combustion process or maybe 1/2 when accounting heat pump in the car or AC as often is the case. So in optimal conditions increase in renewable energy measured in exajoules (as measured by BP statistical review of world energy) can replace 2 folds of the energy content of fossil fuels lost for some years going forward (oil/gas in this case). That is why many scientists advocate the "green transformation" and it is something to rally behind. The policy prolongs the oil age for sure, but also makes it much easier for future generations. (a large drop in fossil fuel supplies without an alternative is a nightmare.) REPLY STEPHEN HREN IGNORED 06/08/2021 at 1:34 pm

This peak oil/resource book also looks good, has anyone read this one?

https://www.resilience.org/stories/2021-06-08/life-after-fossil-fuels-a-reality-check-on-alternative-energy/ REPLY HICKORY IGNORED 06/08/2021 at 2:40 pm

That looks like an excellent author (but the book is priced like a high end college textbook- perhaps it is). The intro is well worth the quick read.
Here is another work by that author- https://energyskeptic.com/2017/peaksoil/ NIKO IGNORED 06/08/2021 at 3:19 pm

For an incredibly excellent peak oil/resource textbook that is 100% free check out "Energy and Human Ambitions on a Finite Planet" by Tom Murphy.

Download link: https://escholarship.org/uc/energy_ambitions OFM IGNORED 06/07/2021 at 7:53 am

Somebody here can do a better job evaluating this than I can, but it looks promising, at least in terms of being worthy of research money.
https://newatlas.com/materials/kaust-lithium-phosphate-llto-hydrogen-desalination/

If it works at scale it could be a real game changer. REPLY KLEIBER IGNORED 06/11/2021 at 11:50 am

Not seeing too many details in that article, but if we're talking 70 kWh for 20 litres of water, that's pitiful. Average desal plants get a fraction of that for thousands of litres, so for helping in the area, it's a no go. Especially as it took a day to even do that paltry amount.

We're also not running out of affordable lithium on the land any time soon, so this is up there with mining seawater for gold in terms of practicality. Especially as it also relies on rare earths that ain't exactly cheap to scale up to anything like industrial output levels. REPLY DOUG LEIGHTON IGNORED 06/07/2021 at 1:24 pm

Not encouraging, or surprising!

WE ARE RUNNING OUT OF TIME TO REACH DEAL TO SAVE NATURAL WORLD

"Resource extraction, agricultural production and pollution are driving what some scientists believe is the sixth mass extinction of life on Earth, with one million species at risk of disappearing largely as the result of human activity. The world has never met a single UN target to prevent the destruction of nature."

https://www.theguardian.com/environment/2021/jun/07/age-of-extinction-running-out-of-time-to-reach-deal-to-save-natural-world-says-un-talks-chair REPLY DOUG LEIGHTON IGNORED 06/07/2021 at 3:37 pm

Meanwhile,

CARBON DIOXIDE LEVELS HIT 50% HIGHER THAN PREINDUSTRIAL TIME

The annual peak of global heat-trapping carbon dioxide in the air has reached another dangerous milestone: 50% higher than when the industrial age began. And the average rate of increase is faster than ever. The 10-year average rate of increase also set a record, now up to 2.4 parts per million per year.

"The world is approaching the point where exceeding the Paris targets and entering a climate danger zone becomes almost inevitable," said Princeton University climate scientist Michael Oppenheimer, who wasn't part of the research.

https://phys.org/news/2021-06-carbon-dioxide-higher-preindustrial.html REPLY STEVEN HANER IGNORED 06/07/2021 at 6:43 pm

For reference, these are all the UN globalist doomsday ecobullshit catastrophic narratives they've crafted in chronological order beginning in the 1970's
1. "Global Cooling"
2. "Acid Rain"
3. "Peak Oil"
4. "Global Warming"
5. "Sea Level Rise"
6. "Climate Change"
7. "Human Caused Hurricanes"
8. "Sixth Mass Extinction"
9. "Climate Emergency" REPLY MIKE B IGNORED 06/07/2021 at 7:05 pm

Sounds like a winning list to me, all except "Global Cooling." The others are on the mark. REPLY RON PATTERSON IGNORED 06/07/2021 at 8:27 pm

No Mike, this guy Steven Haner is obviously a blooming idiot. You should not encourage him. He is calling Acid Rain, Peak Oil, Global warming, Sea Level Change, and the Sixth Mass Extinction echobullshit. This guy is obviously a right-wing dumb and dumber dumbass. An idiot of the worst kind. No, he is nowhere near the mark. And you are not either if you believe him. REPLY MIKE B IGNORED 06/08/2021 at 4:58 am

Ron, you misinterpreted my remark. What he calls "bullshit" I call a "winning list," meaning the list is right on: these things are real and happening, "on the mark." REPLY MIKE B IGNORED 06/08/2021 at 5:00 am

(Which is why I leave off "global cooling" as it's the only one that ain't happening.) REPLY SURVIVALIST IGNORED 06/09/2021 at 12:51 am

Steven Haner is a Qtard.

"The best argument against Democracy is a five-minute conversation with the average voter." REPLY PETEREV IGNORED 06/12/2021 at 8:19 pm

I know the guys who were doing the study down in the SE USA. They were actually measuring very low PH mositure events. The set up was interesting in that that had a fan and cube with plastic mesh where the high RH's events would cause the moisture to condense and then fall into the cube. They would measure the PH and it was actually quite low. So the phenomena is not BS.

[Jun 12, 2021] Jet Fuel Demand Poised For A 30% Surge During Summer

Jun 12, 2021 | oilprice.com

John Kilduff of Again Capital has predicted Brent to hit $80 a barrel and WTI to trade between $75 and $80 in the summer, thanks to robust gasoline demand. Brent is currently trading at $71.63 per barrel, while WTI is changing hands at $69.13.

[Jun 12, 2021] Annual Reserve Revisions Part III- Larger Independents Peak Oil Barrel

Jun 11, 2021 | peakoilbarrel.com

HHH IGNORED 06/11/2021 at 4:57 am

On 05/07/21 the US 10year chart formed a hammer candlestick on daily chart within a consolidation pattern. Which suggested higher yields coming. Well little over a month later price broke below the bottom of that candlestick which suggest that the bond market doesn't believe the inflation we have seen is here to stay. Yield headed lower.

The inflation we have had seems to be supply side due to covid. If inflation is at peak which bond market is suggesting. Oil price might not have much more room to run higher. And I'd take it a step further and say price inflation due to a weaker dollar is starting to real hurt places like China and they are going to act by tightening monetary policy. You think this would be positive for the yuan and push the dollar even lower. But when you tightening monetary policy credit contracts and economic activity contracts.

I do expect oil price to rollover and head back to $50-$55 might happen from a slightly higher price from here because of lag time between when bond market signals rollover in inflation back into deflation and when prices start reacting to this. REPLY EULENSPIEGEL IGNORED 06/11/2021 at 10:07 am

This isn't your history bond market.

Inflation doesn't really matters, what only matters is the one big question: "How much bonds does the one market member with unlimited funds buy?".

And the time the FED was able to rise more than .25% is in the rear mirror "" when they hike now, inflation or not, all these zombie companies and zombie banks will fail and no lawyer in the world will be able to clean up the chaos after all these insolvency filings.

They have to talk the way out of this inflation. They have to talk until it stops, or longer. They can't hike. They can perhaps hike again when most of the debt is inflated away "" a period with 10+% inflation and 1% bond interrest.

And yes, they can buy litterally any bond dumped onto the market "" shown this in March last year when they stopped the corona crash in an action of one week.

I think most non-investment-banks are zombies at the moment, and more than 20% of all companies. They all will fail in less than 1 year when we would have realistic interrest rates. On the dirty end, this would mean 10%+ for all this junk out there "" even mighty EXXON will be downgraded to B fast.

In old times the FED rates would be more than 5% now with these inflation numbers. Nobody can pay this these days.

And now in the USA "" look for how much social justice and social security laws you'll get. The FED has to provide cover for all of them.

We in Europe will do this, too. New green deal, new CO2 taxes, better social security "" the ECB already has said they will swallow everything dumped on the market.

So, oil 100$ the next years "" but some kind of strange dollars buying less then they used to.

Just my 2 cents. REPLY D COYNE IGNORED 06/11/2021 at 7:58 am

From

https://longforecast.com/oil-price-today-forecast-2017-2018-2019-2020-2021-brent-wti

better resolution at link above, a very different oil price forecast from HHH. Over $100/bo for Brent by the end of 2021.

REPLY RON PATTERSON IGNORED 06/11/2021 at 8:28 am

This is nonsense. They have Brent crude oil prices peaking, so far, in March 2025 at $164.11. And they have WTI peaking the same month at $132.55, $32.56 lower. There is no way the spread could be that large. Also, they have natural gas prices dropping over the same period. Just who the hell are these "Longforcast.com" people?

REPLY KLEIBER IGNORED 06/11/2021 at 11:35 am

Disregard anything with "forecast" in the title. They don't have a time machine, and extrapolation is a horrible metric with dynamic markets as complex as the energy ones.

Might as well show me the tea leaves or goat entrails and tell me the price on 11 June 2027. REPLY SHALLOW SAND IGNORED 06/11/2021 at 3:58 pm

Dennis Gartman is still considered a commodities expert.

He infamously said in 2016 that WTI would never be above $44 again in his lifetime. He is still alive last I knew.

Since I have owned working interests in oil wells (1997) I have sold oil for a low of $8 and a high of $140 per barrel. 6/14 oil sold for $99.25 per barrel. 4/20 oil sold for $15.40 per barrel.

Predicting oil prices is impossible.

About the only oil price prediction I have had right so far is that if Biden won, oil prices would rebound. Of course, we can argue about why that is, and if there is even any connection.

There are still no drilling rigs running in the field we operate in. There are still hundreds of production wells shut in. There are still less than 10 workover rigs running in our field. The largest operator still has a help wanted sign up in front of its office. We finally found one summer worker, he is still in high school, but thankfully covered by our workers comp. He cannot drive our trucks, and is limited to painting, mowing, weed control, digging with a shovel, cleaning the shops and pump houses and other tasks like those. That's ok, because we need that, but not being able to drive is a pain. But auto ins won't allow anyone under 21 to be covered. REPLY IRON MIKE IGNORED 06/11/2021 at 11:53 am

Yea Ron i agree with Kleiber, I wouldn't take anything on that site too seriously. REPLY OVI IGNORED 06/11/2021 at 1:34 pm

The IEA is now starting to sound warnings about supply. Last week they were telling the oil companies to stop exploring and to move toward a renewable energy future.

IEA: OPEC needs to increase supply to keep global oil markets adequately supplied

In its monthly oil report, the International Energy Agency (IEA) has said that global oil demand is set to return to pre-pandemic levels by the end of 2022, rising by 5.4 million bpd in 2021 and by a further 3.1 million bpd next year. The OECD accounts for 1.3 million bpd of 2022 growth while non-OECD countries contribute 1.8 million bpd. Jet and kerosene demand will see the largest increase ( 1.5 million bpd year-on-year), followed by gasoline ( 660 000 bpd year-on-year) and gasoil/diesel ( 520 000 bpd year-on-year).

World oil supply is expected to grow at a faster rate in 2022, with the US driving gains of 1.6 million bpd from producers outside the OPEC alliance. That leaves room for OPEC to boost crude oil production by 1.4 million bpd above its July 2021-March 2022 target to meet demand growth. In 2021, oil output from non-OPEC is set to rise 710 000 bpd, while total oil supply from OPEC could increase by 800 000 bpd if the bloc sticks with its existing policy.

https://www.iea.org/reports/oil-market-report-june-2021

https://www.oilfieldtechnology.com/special-reports/11062021/iea-opec-needs-to-increase-supply-to-keep-global-oil-markets-adequately-supplied/ REPLY RON PATTERSON IGNORED 06/11/2021 at 2:09 pm

(IEA) has said that global oil demand is set to return to pre-pandemic levels by the end of 2022, rising by 5.4 million bpd in 2021 and by a further 3.1 million bpd next year.

That comes to about 500,000 barrels per day monthly increase, every month until the end of 2022. I really don't believe that is going to happen. No doubt most nations can increase production somewhat, but returning to pre-pandemic levels will be a herculean task for most of them.

[Jun 12, 2021] Energy Density of Natural Gas - The Physics Factbook by Jessica Yan

Jun 07, 2004 | hypertextbook.com

Energy Density of Natural Gas

An educational, fair use website

Bibliographic Entry Result
(w/surrounding text)
Standardized
Result
"Fuel." Encyclopedia Encarta . CD-ROM. Microsoft, 2003. "Gaseous fuels (Btu per cu ft): acetylene 1480; blast-furnace gas 93; carbon monoxide 317; coke-oven gas or coal gas about 600; hydrogen 319; natural gas 1050 to 2220; oil gas 516; producer gas 136." 39.1""82.7 MJ/m 3
Brennard, Timothy P. Natural Gas, A Fuel of Choice for China . Norwich: University of East Anglia, 2001: 81. "In calorific value it competes extremely well with other traditional commercial gasses: 37-41 MJ/m 3 i.e., twice coal gas, and eight times producer gas [Tiratsoo, 1976]." 37.0""41.0 MJ/m 3
E.N., Tiratsoo. Oilfields of the World . Scientific Press, 1973: 15. Reference in Understanding Natural Gas . "Calorific values: 900""1100 Btu/ft. 3 (33.4""40.9 MJ/m 3 )" 33.4""40.9 MJ/m 3
Bioenergy Conversion Factors . Bioenergy Information Network. "Natural gas: HHV = 1027 Btu/ft3 = 38.3 MJ/m 3 ; LHV = 930 Btu/ft3 = 34.6 MJ/m 3 [HHV""Higher Heating Level; LHV""Lower Heating Level]" 38.3 MJ/m 3
34.6 MJ/m 3

Natural gas, a combustible mixture of hydrocarbons, is a very important source of energy since it is clean, cheap and efficient. The major component is methane, but it may also contain small amounts of other hydrocarbon compounds such as ethane or butane. A natural gas is described as sweet (with low sulfur contents) or sour (with high sulfur contents). It may also be wet or dry, depending on the presence of natural gas liquids and other energy gases. When more than 90% of a natural gas is composed of methane, it is referred to as dry.

Source: Background of Natural Gas
Typical Composition of Natural Gas
Methane CH 4 70-90%
Ethane C 2 H 6 0-20%
Propane C 3 H 8
Butane C 4 H 10
Carbon Dioxide CO 2 0-8%
Oxygen O 2 0-0.2%
Nitrogen N 2 0-5%
Hydrogen sulphide H 2 S 0-5%
Rare gases A, He, Ne, Xe trace

There are three theories that explain the formation of natural gas. The first is that natural gas is formed when organic matter, such as the remains of a plant or animal, is compressed beneath the earth at high pressures for a long period of time. This is referred to as thermogenic methane.

Another theory suggests that natural gas is formed by the decomposition of organic matters by a microorganism. These microorganisms chemically break down the organic matters into pure methane, which is referred to as biogenic methane.

The third states that methane is formed by the reaction of hydrogen rich gases and carbon molecules deep inside the earth. In the absence of oxygen, they may combine to form hydrocarbon gases. Under high pressure, these gases may rise to the surface of the earth and form methane deposits.

Energy density is measured by the amount of energy stored in a given unit of matter or system. For natural gases, the energy density is the either the amount of energy stored per unit volume or per unit mass of the gas. The energy stored per unit volume is usually measured in British Thermal Units per cubic feet, or, the amount of natural gas that will produce enough energy to heat one pound of water one degree at normal pressure. The standard unit is megajoules per cubic meter. The energy density of a natural gas lies in the range of 900-2200 Btu/ft 3 or 33.4""82.7 MJ/m 3 .

Jessica Yan -- 2004

[Jun 12, 2021] Forget Activism- Chronic Underperformance Is Big Oil's Biggest Problem

Jun 06, 2021 | finance.yahoo.com

Whereas climate change issues are the presumptive reasons behind the latest wave of investor revolts at the oil and gas giants, lurking beneath the surface is a growing sense of apprehension about Big Oil's strategy and failure to generate adequate returns for shareholders in recent decades.

The naked truth is that Exxon and its cohorts have severely underperformed the broader market over the last two decades in terms of total returns to shareholders, implying the sector's woes are long-term and strategic rather than short-term and cyclical.

Chronic underperformance

XOM

Source: CNN Money

Big Oil's underperformance relative to the market is clearly evident whether you are looking at 2-year, 5-year, 10-year, or even 20-year timespans.

For instance, since 2015, Exxon shares have returned a -2.5% compound annual loss based on share prices and dividends, a far cry from the average annual gain of +14.4% by the S&P 500 over the timeframe.

Over the past two decades, Exxon's compound annual return has clocked in at +4.2%, still considerably lower than the broad market benchmark's return of +7.1%.

... ... ...

Exxon is hardly alone, with none of its peers, including Chevron, Royal Dutch Shell (NYSE:RDS.A), BP Inc. (NYSE:BP), and Total (NYSE:TOT) coming close to matching the returns by the broader share market over the past decade.

In fact, on an inflation-adjusted U.S. dollar basis, returns by Exxon, Shell, and BP have been negative over the past five years, a period which coincided with the biggest bull market in the history of the stock market.

The renewable energy conundrum

You cannot blame the oil majors for continuing to engage in a lot of hand-wringing at a time when investors are demanding they pump less oil and transition to cleaner energy.

For the oil majors, successfully transitioning to green energy companies is not going to be a walk in the park because these companies have to ride two horses.

That's the case because the majority are already battling dwindling cash flows which means they cannot afford to gamble with whatever little is left. Oil prices have been on a downtrend since 2014, a situation that has only worsened during the pandemic.

Oil and gas firms are still grappling with the best way to presently use dwindling cash flows; in effect, they are still weighing whether it's worthwhile to at least partially reinvent themselves as renewables businesses while also determining which low-carbon energy markets offer the most attractive future returns.

Most renewable ventures, like solar and wind projects, tend to churn out cash flows akin to annuities for several decades after initial up-front capital expenditure with generally low price risk as opposed to their current models with faster payback but high oil price risk. With the need to generate quick shareholder returns, some fossil fuel companies have actually been scaling back their clean energy investments.

Energy companies are also faced with another conundrum: Diminishing returns from their clean energy investments.

Related: ''We'll See $200 Oil": Russia & OPEC Ministers Blast IEA's Net Zero Plan

A paper published in Science Direct last August says that dramatic reductions in the cost of wind and solar have been leading to an even bigger reduction in revenue inflows leading to falling profits. This is particularly true for wind energy as later deployments of wind usually have lower market value than earlier ones due to wind energy revenue declining more rapidly than cost reductions. Solar is more resilient, with technological progress approximately balancing out the revenue degradation, which perhaps explains why solar stocks have gone ballistic.

Adding wind and solar to our grid tends to reduce electricity prices during peak generation times: Indeed, electricity prices in California can come down to zero during long sunny durations. This was not a problem for early deployments but is becoming a major concern as renewables increasingly play a bigger part in our electricity generation mix.

But, ultimately, Big Oil will have to take the plunge and engage in drastic internal restructuring and product cycle transitions even as activists like Engine No.1 promise to continue turning the screw. As Charlie Penner of Engine No.1 has told FT , the energy transition is happening faster than expected and has undermined Big Oil's assumptions about long-term demand for its oil.

By Alex Kimani for Oilprice.com

->


[Jun 09, 2021] If the pandemic hasn't called into question the application of JIT logistics for all industries, then the loss of cheap diesel certainly will.

Jun 09, 2021 | peakoilbarrel.com

KLEIBER IGNORED 06/09/2021 at 1:57 pm

If nothing else, this scenario will lead to a radical reshaping of how we as a species go about doing logistics. If the pandemic hasn't called into question the application of JIT logistics for all industries, then the loss of cheap diesel certainly will. Even if long haul electric trucks become a thing, it will require a different approach to matters.

Cars are otherwise a solved issue with EVs. There's nothing that an ICE can really offer over an EV. Trucking and heavy industry is another matter, and that's where problems will be. Frankly, I welcome this uprooting of a paradigm that has no resilience built in whatsoever.

[Jun 09, 2021] Saudi Aramco announced a mega preliminary agreement on Wednesday to buy 5 million tons of liquefied natural gas per year from the USA

Jun 09, 2021 | peakoilbarrel.com

RON PATTERSON IGNORED 06/08/2021 at 5:27 pm

There are a lot of things that can be done to mitigate problems due to declining oil production. When it comes to SA, they can start using natural gas from Ghawar or Qatar to replace fuel oil for power generation during especially summer.

Okay, first point: Qatar has plenty of natural gas. The problem is they are in a feud with Saudi and they do not trade with each other:

Saudi Arabia, Bahrain, the United Arab Emirates and Egypt severed diplomatic ties with Qatar in mid-2017 after accusing the country of supporting terrorism. Qatar has repeatedly denied the accusations. The boycotting countries, known as the Arab quartet, also cited political differences with Qatar over Iran and the Muslim Brotherhood.

Second point: Saudi does not have nearly enough natural gas to power their own power plants and desalination plants:

Saudi Arabia wants to buy tons of American natural gas

New York CNN Business --
Saudi Arabia has placed a huge bet on American natural gas.

In a sign of shifting energy fortunes, Saudi Aramco announced a mega preliminary agreement on Wednesday to buy 5 million tons of liquefied natural gas per year from a Port Arthur, Texas export project that's under development.

If completed, the purchase from San Diego-based Sempra Energy (SRE) would be one of the largest LNG deals ever signed, according to consulting firm Wood Mackenzie.

But this may change. Saudi is desperate for natural gas and this has led them to try to make amends with Qatar:

Arab countries agree to end years-long feud with Qatar that divided Gulf

Updated 4:08 PM ET, Tue January 5, 2021

(CNN)Saudi Arabia and its Arab allies agreed on Tuesday to restore diplomatic relations with Qatar and restart flights to and from the country, ending a three-year boycott of the tiny gas-rich nation.

Saudi Arabia, Bahrain, the United Arab Emirates and Egypt severed diplomatic ties with Qatar in mid-2017 after accusing the country of supporting terrorism. Qatar has repeatedly denied the accusations.

The boycotting countries, known as the Arab quartet, also cited political differences with Qatar over Iran and the Muslim Brotherhood. Doha, unlike its Gulf neighbors, has friendly relations with Tehran, supported the Muslim Brotherhood in Egypt and has hosted groups affiliated with the Islamist group.

Qatar's only land border -- which it shares with Saudi Arabia -- was sealed shut. Boycotting countries closed their airspace to Qatar, and nearby Bahrain and the UAE closed their maritime borders to ships carrying the Qatari flag. REPLY RATIONALLUDDITE IGNORED 06/08/2021 at 8:29 pm

Fantastic Ron. Too many people practising truth by assertion and liar's bluff / wishful thinking. They won't change, but you persuade others whom are genuinely seeking the truth and can distinguish between evidence supported logic and security blanket speculation.

As was previously linked to on POB, ( https://www.sciencedirect.com/journal/petroleum-exploration-and-development/vol/44/issue/6 , p. 1024) south Ghwar was pumping 60% water seemingly c 2008.

SA is going to end badly, as too will fever dreams that don't realise that their electric transition is a mirage – largely it's all fossil fuels in disguise and totally parasitic on upon the peak energy infrastructure of previous and current fossil fuel excess calories.

We may have an Electric Middle Ages (Ugo Bardi), but unless a new energy source AT LEAST as energy dense and net positive as FF is discovered like yesterday then this lovely wealth Blip we all enjoyed is going away.

[Jun 07, 2021] heard on Bloomberg radio yesterday that the Reddit investors are beginning to pour into oil and grains. So, worried about volatility.

Jun 07, 2021 | peakoilbarrel.com

SHALLOW SAND IGNORED 06/05/2021 at 9:49 am

Biden Admin proposing elimination of IDC expensing and percentage depletion, among other tax preferences.

Elimination of IDC expensing will affect US shale.

Percentage depletion only affects small producers. We can make it without percentage depletion. Will just result in us paying more income tax. But lower 48 onshore conventional production in US is below 2 million barrels per day and slowly falling. Hopefully we will be permitted to continue to produce oil for the many uses of it besides light transport.

As long as Biden doesn't try to sell these as "Big Oil Tax breaks" I'm not going to complain.

I think elimination of these tax preference items will lower US production, which will increase oil prices. US is historically the only major producer that has desired low oil prices. That is because we are still a net importer of crude oil.

Now that Trump is gone, it appears US also is not too concerned about oil prices.

What a turnaround from this time, last year. We had just reactivated our wells at the end of May, 2020, after oil had went negative on April 20.

Yesterday WTI closed around $69.50.

President Biden could turn out to be very good for small conventional lower 48 onshore producers. He just needs to recognize that our oil is still needed, and will still be needed for decades.

I will keep beating my drum. Stripper well oil is small footprint. Existing source. Very low methane emissions from upstream operations. Employs the highest number of persons per BO. Employs largely rural populace. Owned by small business. Family owned. Pays a lot in local taxes. Is very low decline. Predictable. Uses the smallest amount of materials, such as plastics and steel. I can go on, but won't.

Stripper well doesn't need "tax breaks" either, if it is afforded a strong, stable oil price. In my view, $60-70 WTI won't kill the consumer.

But, I heard on Bloomberg radio yesterday that the Reddit investors are beginning to pour into oil and grains. So, worried about volatility.

Only about 1/5-1/6 of voters in the very rural counties (25K or less in population) votes for Biden. Yet his policies appear to be a boon for those populations.

Here's to $5+ corn, $14+ soybeans, $6+ wheat, $6+ milo and $65+ WTI! Keeping prices there would really solidify a part of the US that is really struggling.

I suspect I might be the only person still posting here that lives in an oil and grain producing region. There just aren't many of us left.

Labor will be our huge problem. Maybe strong and stable commodity prices could bring some people back, or keep some of our young people here?

Thank goodness for the people from Mexico and Central America. Without them, rural USA would be in really big trouble. SHALLOW SAND IGNORED 06/05/2021 at 10:48 am

Dennis.

I will add, if rural is in big trouble, I believe the entire USA is in big trouble.

I have never seen the labor shortages that I am seeing today in my community.

I know there are many efforts to radically change how our country's food supply is produced. But, like energy transition, those will take decades.

It is not attractive to most to live in rural locations. Very, very difficult psychological and emotional transition for those that try to move from urban/suburban to rural. I have seen it first hand. We cannot keep doctors for that reason, for example. There are almost no attorneys here under the age of 60. Management of our factories has mostly been moved, because it can be due to technology, and because management doesn't want to live here.

Most in the factories here are being hired in at $16-19 per hour, and will be over $20 soon after. Most work at least 10 hours of overtime a week.

But we have a very high percentage of young adults in the rural areas struggling with hard drug dependency. Meth is the big one, and it is easier for a 20 year old to get meth than to get a beer in most rural areas.

Our country needs to do so much better across the board on hard drug dependency. One of the many reasons being to fill all of these job openings. Of course, there are more important ones than that.

I bet if hard drug dependency was completely eliminated, over 90% of child abuse and neglect court cases would also be wiped out. That is the most important reason we need to do better.

[Jun 07, 2021] Saudi Arabia Says It is energy producting country, not An Oil Producing Country pointing to diversification of enery sources produced

Essentially it's an admission that they've peaked. Looks like Saudis themselves can see the end of high production in their oil fields.
Jun 07, 2021 | peakoilbarrel.com
RON PATTERSON IGNORED 06/06/2021 at 5:21 pm

Saudi Arabia Says It is No Longer An Oil Producing Country

When Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman announced that Saudi Arabia was no longer an oil-producing country, he likely didn't mean literally.

"Saudi Arabia is no longer an oil country, it's an energy-producing country," the Energy Minister told S&P Global Platts this week.

Saudi Arabia has high green ambitions that include gas production, renewables, and hydrogen.

"I urge the world to accept this as a reality. We are going to be winners of all these activities.

Saudi Arabia will surely benefit from the green transition. While the Exxons, Chevrons, and Shells of the world are busy doing climate activists' bidding in the boardroom and courtroom, NOCs–particularly in various OPEC nations–are all-too-eager to take advantage of what will surely be increased oil prices.

Already Saudi Arabia has raised its official selling price for the month of July to Asia.

But that doesn't stop Saudi Arabia from pursuing its green ambitions–the Saudi Green Initiative–while funding those green ambitions through oil sales. Saudi Arabia plans to generate 50% of its energy from renewables by 2030, in part to reduce its dependence on oil. In 2017, renewables made up just 0.02% of the overall energy share in Saudi Arabia.

Saudi sees the handwriting on the wall. They know damn well that their high production numbers are limited, even if the rest of the world does not. I think they are actually hoping for a green transition and they hope to be a part of it. After all, what choice do they have? ANCIENTARCHER IGNORED 06/07/2021 at 5:51 am

Ron,
I have been following your posts for a while now. Thank you for sharing your knowledge.
You seem to be certain that the Saudis themselves can see the end of high production in their oil fields. I understand that all the super-giants in Saudi are very, very old and that Aramco is doing all sorts of things to keep production up and that is expected for old fields, even these super giants. However, we also haven't seen Cantarell type field declines from the Saudi super giants yet, or rather we don't know of any.

I can't understand why you believe Saudis are near their maxiumum production capacity and from here on their production is going to decline (rather sharply?). Nothing that I read in Aramco's annual report gave me that feeling. But I also understand that they will not divulge bad numbers.

In short, please can you share your views on Saudi future production and the reasons?

Many thanks REPLY RON PATTERSON IGNORED 06/07/2021 at 9:52 am

However, we also haven't seen Cantarell type field declines from the Saudi super giants yet, or rather we don't know of any.

Saudi announced in 2006, 15 years ago, that Abqaiq, (pronounced Abb -kay) was 74% depleted and Ghawar was almost 50% depleted; Saudi Arabia's Strategic Energy Initiative

They claimed, in 2006, that all Saudi was only 29% depleted. But that was a blatant falsehood. Ghawar, at that time, was about 60 to 70% depleted and all Saudi was well past the 50% mark. Around 2000, Their decline rate was about 8% per year but they, around that time, initiated an enormous infill drilling program that got their decline rate down to almost 2%:

• Without "maintain potential" drilling to make up for production,
Saudi oil fields would have a natural decline rate of a hypothetical
8%. As Saudi Aramco has an extensive drilling program with a
budget running in the billions of dollars, this decline is mitigated to
a number close to 2%.

The Saudi author of this piece then confuses decline rates with depletion rates:

• These depletion rates are well below industry averages, due
primarily to enhanced recovery technologies and successful
"maintain potential" drilling operations.

What anyone should realize is that when you decrease decline rates, by pumping the oil out faster, you increase the depletion rates. They began creaming the top of their fields, staying above the rising water, about 20 years ago. Really, what the hell would one expect to be happening by now?

Saudi, in their IPO a few years ago, said production from Ghawar was 3.8 million barrels per day. For the world's largest field, that is a Cantrell-style decline rate. Remember, the smaller the field, the faster the natural decline rate. And they have admitted that they brought old mothballed fields of Khoreis, Shaybah, and Munifa online, at massive expense, to make up for the decline in their older fields. However, they have no more mothballed fields.

I spent 5 years in Saudi and my son just retired from ARAMCO a couple of years ago after spending about 23 years there. You must understand that exaggeration is part of their way of life. They do it and they expect everyone else to do it. They will never admit that their total production is in steep decline. No, Khoreis, Shaybah, and Munifa are not in decline but their combined output is only around 2.5 million barrels per day. ANCIENTARCHER IGNORED 06/07/2021 at 1:25 pm

Very many thanks Ron.This is super.

Saudi has also been claiming that their proven reserves of oil are about 267bn bbl for the last, what 20-30 years now, notwithstanding the 3bn bbl they take out every year! Must be magic!

Cantarell is now at a bit more than 100kbpd down from 2.2mmbpd in the early 2000s. If any of the Saudi super-giants, especially Ghawar, are following that trend, it's going to make an impact. And it's a question of 'when' rather than 'if'.

There is also a rumour that their war in Yemen was because they wanted to get their hands on the oil in the rub al-khali because they don't have much left within their territories. Apparently, there's a lot of oil in the empty quarter and they don't want to share that with Yemen.

I agree with your judgment – exaggeration is a part of their culture in much the same way that every shopkeeper there expects you to bargain because prices are also exaggerated. You can barely trust the financials of Western companies, so can't take the Saudis at their word.

Very many thanks again for your comments. Your opinion informed by your experience is worth its weight in gold (or should I say bitcoin! :-)! REPLY RON PATTERSON IGNORED ROGER IGNORED 06/07/2021 at 8:53 am

" Saudi sees the handwriting on the wall. They know damn well that their high production numbers are limited, even if the rest of the world does not. "

Yep. Think about it every barrel they displace from (what I assume is) highly subsidized domestic consumption, is a "new " barrel for export -- a new revenue stream. That is, since they don't have the reserves to meet the anticipated future OPEC call, these additional export barrels are essentially "free money" (after pay-out on the so-called renewable energy investments) i.e., they do no defer any otherwise producible oil. Hence, expect SA to be a "world leader" in so called renewable energy of course, done in the name of a greener world for us all. 😉

06/07/2021 at 2:20 pm

Since 2005 they have averaged producing 3.43 billion barrels per year, crude only. That comes to about 55 billion since the beginning of 2005. If you count total liquids it would be well over 60 billion.

But as you say, they have "magic oil". For every barrel they pump out of the ground, another barrel magically appears to replace it.

[Jun 07, 2021] Rossneft CEO Sechin said that the world was facing an acute oil shortage in the long-term due to underinvestment amid a drive for alternative energy, while demand for oil continued to rise

Jun 07, 2021 | peakoilbarrel.com

OVI IGNORED 06/06/2021 at 8:40 pm

WTI Punched a $70 ticket sometime after 6:00 PM EST, June 6, 2021. The last time this happened was Oct 16, 2018, $71.92 before falling below $70 the next day.

HICKORY IGNORED 06/06/2021 at 10:59 pm

"Igor Sechin, the head of Russian oil major Rosneft (ROSN.MM), said on Saturday the world was facing an acute oil shortage in the long-term due to underinvestment amid a drive for alternative energy, while demand for oil continued to rise."

Indeed.

[Jun 07, 2021] Exxon Exits Oil Exploration Prospect in Ghana After Seismic Work - Bloomberg

Jun 07, 2021 | www.bloomberg.com

Exxon Mobil Corp. is pulling out of a deep-water oil prospect in Ghana just two years after the west African nation ratified an exploration and production agreement with the U.S. oil titan.

The company relinquished the entirety of its stake in the Deepwater Cape Three Points block and resigned as its operator after fulfilling its contractual obligations during the initial exploration period, according to a letter to Ghana's government seen by Bloomberg and people familiar with the matter, who asked not to be named because the information isn't public.

[Jun 07, 2021] BP Sees Global Crude Oil Demand to Last, CEO Bernard Looney Says - Bloomberg

Jun 07, 2021 | www.bloomberg.com

Energy giant BP Plc sees a strong recovery in global crude demand and expects it to last for some time, with U.S. shale production being kept in check, according to Chief Executive Officer Bernard Looney.

"There is a lot of evidence that suggests that demand will be strong, and the shale seems to be remaining disciplined," Looney told Bloomberg News in St. Petersburg, Russia. "I think that the situation we're in at the moment could last like this for a while."

[Jun 07, 2021] Energy Density of Natural Gas - The Physics Factbook

Jun 07, 2021 | hypertextbook.com

Energy Density of Natural Gas

An educational, fair use website

Bibliographic Entry Result
(w/surrounding text)
Standardized
Result
"Fuel." Encyclopedia Encarta . CD-ROM. Microsoft, 2003. "Gaseous fuels (Btu per cu ft): acetylene 1480; blast-furnace gas 93; carbon monoxide 317; coke-oven gas or coal gas about 600; hydrogen 319; natural gas 1050 to 2220; oil gas 516; producer gas 136." 39.1""82.7 MJ/m 3
Brennard, Timothy P. Natural Gas, A Fuel of Choice for China . Norwich: University of East Anglia, 2001: 81. "In calorific value it competes extremely well with other traditional commercial gasses: 37-41 MJ/m 3 i.e., twice coal gas, and eight times producer gas [Tiratsoo, 1976]." 37.0""41.0 MJ/m 3
E.N., Tiratsoo. Oilfields of the World . Scientific Press, 1973: 15. Reference in Understanding Natural Gas . "Calorific values: 900""1100 Btu/ft. 3 (33.4""40.9 MJ/m 3 )" 33.4""40.9 MJ/m 3
Bioenergy Conversion Factors . Bioenergy Information Network. "Natural gas: HHV = 1027 Btu/ft3 = 38.3 MJ/m 3 ; LHV = 930 Btu/ft3 = 34.6 MJ/m 3 [HHV""Higher Heating Level; LHV""Lower Heating Level]" 38.3 MJ/m 3
34.6 MJ/m 3

Natural gas, a combustible mixture of hydrocarbons, is a very important source of energy since it is clean, cheap and efficient. The major component is methane, but it may also contain small amounts of other hydrocarbon compounds such as ethane or butane. A natural gas is described as sweet (with low sulfur contents) or sour (with high sulfur contents). It may also be wet or dry, depending on the presence of natural gas liquids and other energy gases. When more than 90% of a natural gas is composed of methane, it is referred to as dry.

Source: Background of Natural Gas
Typical Composition of Natural Gas
Methane CH 4 70-90%
Ethane C 2 H 6 0-20%
Propane C 3 H 8
Butane C 4 H 10
Carbon Dioxide CO 2 0-8%
Oxygen O 2 0-0.2%
Nitrogen N 2 0-5%
Hydrogen sulphide H 2 S 0-5%
Rare gases A, He, Ne, Xe trace

There are three theories that explain the formation of natural gas. The first is that natural gas is formed when organic matter, such as the remains of a plant or animal, is compressed beneath the earth at high pressures for a long period of time. This is referred to as thermogenic methane.

Another theory suggests that natural gas is formed by the decomposition of organic matters by a microorganism. These microorganisms chemically break down the organic matters into pure methane, which is referred to as biogenic methane.

The third states that methane is formed by the reaction of hydrogen rich gases and carbon molecules deep inside the earth. In the absence of oxygen, they may combine to form hydrocarbon gases. Under high pressure, these gases may rise to the surface of the earth and form methane deposits.

Energy density is measured by the amount of energy stored in a given unit of matter or system. For natural gases, the energy density is the either the amount of energy stored per unit volume or per unit mass of the gas. The energy stored per unit volume is usually measured in British Thermal Units per cubic feet, or, the amount of natural gas that will produce enough energy to heat one pound of water one degree at normal pressure. The standard unit is megajoules per cubic meter. The energy density of a natural gas lies in the range of 900-2200 Btu/ft 3 or 33.4""82.7 MJ/m 3 .

Jessica Yan -- 2004

[Jun 07, 2021] Forget Activism- Chronic Underperformance Is Big Oil's Biggest Problem

Jun 06, 2021 | finance.yahoo.com

Whereas climate change issues are the presumptive reasons behind the latest wave of investor revolts at the oil and gas giants, lurking beneath the surface is a growing sense of apprehension about Big Oil's strategy and failure to generate adequate returns for shareholders in recent decades.

The naked truth is that Exxon and its cohorts have severely underperformed the broader market over the last two decades in terms of total returns to shareholders, implying the sector's woes are long-term and strategic rather than short-term and cyclical.

Chronic underperformance

XOM

Source: CNN Money

Big Oil's underperformance relative to the market is clearly evident whether you are looking at 2-year, 5-year, 10-year, or even 20-year timespans.

For instance, since 2015, Exxon shares have returned a -2.5% compound annual loss based on share prices and dividends, a far cry from the average annual gain of +14.4% by the S&P 500 over the timeframe.

Over the past two decades, Exxon's compound annual return has clocked in at +4.2%, still considerably lower than the broad market benchmark's return of +7.1%.

... ... ...

Exxon is hardly alone, with none of its peers, including Chevron, Royal Dutch Shell (NYSE:RDS.A), BP Inc. (NYSE:BP), and Total (NYSE:TOT) coming close to matching the returns by the broader share market over the past decade.

In fact, on an inflation-adjusted U.S. dollar basis, returns by Exxon, Shell, and BP have been negative over the past five years, a period which coincided with the biggest bull market in the history of the stock market.

The renewable energy conundrum

You cannot blame the oil majors for continuing to engage in a lot of hand-wringing at a time when investors are demanding they pump less oil and transition to cleaner energy.

For the oil majors, successfully transitioning to green energy companies is not going to be a walk in the park because these companies have to ride two horses.

That's the case because the majority are already battling dwindling cash flows which means they cannot afford to gamble with whatever little is left. Oil prices have been on a downtrend since 2014, a situation that has only worsened during the pandemic.

Oil and gas firms are still grappling with the best way to presently use dwindling cash flows; in effect, they are still weighing whether it's worthwhile to at least partially reinvent themselves as renewables businesses while also determining which low-carbon energy markets offer the most attractive future returns.

Most renewable ventures, like solar and wind projects, tend to churn out cash flows akin to annuities for several decades after initial up-front capital expenditure with generally low price risk as opposed to their current models with faster payback but high oil price risk. With the need to generate quick shareholder returns, some fossil fuel companies have actually been scaling back their clean energy investments.

Energy companies are also faced with another conundrum: Diminishing returns from their clean energy investments.

Related: ''We'll See $200 Oil": Russia & OPEC Ministers Blast IEA's Net Zero Plan

A paper published in Science Direct last August says that dramatic reductions in the cost of wind and solar have been leading to an even bigger reduction in revenue inflows leading to falling profits. This is particularly true for wind energy as later deployments of wind usually have lower market value than earlier ones due to wind energy revenue declining more rapidly than cost reductions. Solar is more resilient, with technological progress approximately balancing out the revenue degradation, which perhaps explains why solar stocks have gone ballistic.

Adding wind and solar to our grid tends to reduce electricity prices during peak generation times: Indeed, electricity prices in California can come down to zero during long sunny durations. This was not a problem for early deployments but is becoming a major concern as renewables increasingly play a bigger part in our electricity generation mix.

But, ultimately, Big Oil will have to take the plunge and engage in drastic internal restructuring and product cycle transitions even as activists like Engine No.1 promise to continue turning the screw. As Charlie Penner of Engine No.1 has told FT , the energy transition is happening faster than expected and has undermined Big Oil's assumptions about long-term demand for its oil.

By Alex Kimani for Oilprice.com

->


[Jun 06, 2021] I think it's worthwhile to note that this new low in relations is something that is not in Russia's interest as NordStream2 is still under attack.

Jun 06, 2021 | www.moonofalabama.org

Jackrabbit , Jun 5 2021 14:56 utc | 115

Who caused the flight to be diverted is still uncertain to me. It's clear that Roman was the target though. And that relations between the West and Russia are suffering.

With that said, I think it's worthwhile to note that this new low in relations is something that is not in Russia's interest as NordStream2 is still under attack.

Some say that Nordstream 2 is unstoppable. Well, the completion of the pipeline is near but whether Germany buys gas from Russia and/or how much gas is still a question. The Empire opposition to NS2 has been relentless but they may accept a pipeline that guarantees German energy security yet demand that it restrict purchases of Russian gas to only what is absolutely necessary.

!!


schmoe , Jun 5 2021 15:36 utc | 117

Barring a mistranslation, Putin said that continued gas transit through Ukraine depends on Ukraine's behaviour. Based on a quick impression, that contracts pretty much every previous Russian / Gazprom statement that Garprom intends to retain same flows through Ukraine. No one expects Russia to keep flows in the event of hostilities, but to give opponents of the pipeline a soundbyte to say "see, we told you they would do that" is a shocking blunder.

Skiffer , Jun 5 2021 16:22 utc | 124

In response to schmoe@116,

Actually, he kept repeating that the current transit contract will be maintained, but that if Ukraine wants to increase the volume of gas that goes through their territory, and subsequently earn more money from transit contracts, they have to make that option more lucrative for customers and suppliers. Primarily, by breaking up the gas monopoly on that territory -- harking back to the consortium suggestion by Shroeder in 2008-2009(?).

That said, he was fairly blunt about the advantages of supplying gas directly to Germany and the lack of any strictly economical reason to use Ukrainian gas transit, and that's a fairly obvious aspect of this entire project -- provided that the capacity of these auxiliary pipelines isn't exceeded, there's no good economic reason to use the Ukrainian infrastructure.

When asked about Ukrainian financial woes, in the comical context of Zelensky complaining that the gas transit income is essential for financing the Ukrainian army, he replied sardonically that it's not the responsibility of the Russian state to keep the Ukrainian state fed. There's a sort of Russian gag, where a guy asks his neighbor for something to eat, so that he has the strength to take a dump on his doorstep, which neatly fits the situation.

[Jun 06, 2021] GOM is the major factor in the USA oil prodcution comeback , not "shale plays " that are supposedly should be the last hurrah of oil production in the USA

Notable quotes:
"... LTO drilling locations are diminishing faster and faster. Look for massive consolidation as E&P companies can only grow through M&A. ..."
"... The energy transition will be painful and longer than anticipated. Criminalization of an industry that embodies national security and that gives the "haves" a competitive advantage in favor of hopes and prayers is folly and irresponsible. ..."
"... A few years ago I heard Chinese venture capitalist speak at the Aspen Institute. He claimed that democracy is not a form of government but instead a religion. He gave the example that in Nigeria, the US is concerned about human rights while the Chinese could care less who dies in Nigeria as long as they can get the oil. He also stated that the Chinese only care about how they can feed, shelter, move, and run their economy and human rights are not remotely introduced into their paradigm. Something to think about. ..."
Jun 01, 2021 | peakoilbarrel.com

HOLE IN HEAD IGNORED 05/30/2021 at 1:40 pm

Ovi, great work as usual .My POV is that it is GOM that is the major factor in the comeback , not "shale plays " that are supposedly going to be the saviors of Industrial civilisation . Confirms my argument ( and of many others )that shale is all juiced out . Better to lower expectations from LTO for the future . REPLY OVI IGNORED HOLE IN HEAD IGNORED 05/30/2021 at 1:40 pm

Ovi, great work as usual .My POV is that it is GOM that is the major factor in the comeback , not "shale plays " that are supposedly going to be the saviors of Industrial civilisation . Confirms my argument ( and of many others )that shale is all juiced out . Better to lower expectations from LTO for the future . REPLY OVI IGNORED 05/30/2021 at 5:00 pm

Thanks HH

I know the general opinion seems to be that the shale plays are finished. Looking at the data that is in the post doesn't confirm, at this time, that shale is overblown. Let's look at the two states at the top of the post, Texas and NM and the onshore L48 first chart.

Looking at the Texas increase from January to March one gets 4,745 – 4,661 = 84 kb/d or 42 kb/d/mth.
Looking at NM from November to March, one gets 1,155 – 1,112 = 43 or 11 kb/d/mth.
The total being 53 kb/d/mth.

Looking at the total onshore L48 increase from January to March, one gets 8,861 – 8,814 = 47 or a net of 23.5 kb/d/mth. So within the onshore lower 48 there is 30 kb/d/mth of decline.

I would not bet much on my two month or four month analysis, but I think we will need to monitor what is happening in Texas and NM for another six months to get a better idea of what is happening in the Permian. The price of oil will be the determining/critical factor.

05/30/2021 at 5:00 pm

Thanks HH

I know the general opinion seems to be that the shale plays are finished. Looking at the data that is in the post doesn't confirm, at this time, that shale is overblown. Let's look at the two states at the top of the post, Texas and NM and the onshore L48 first chart.

The total being 53 kb/d/mth.

Looking at the total onshore L48 increase from January to March, one gets 8,861 – 8,814 = 47 or a net of 23.5 kb/d/mth. So within the onshore lower 48 there is 30 kb/d/mth of decline.

I would not bet much on my two month or four month analysis, but I think we will need to monitor what is happening in Texas and NM for another six months to get a better idea of what is happening in the Permian. The price of oil will be the determining/critical factor.

LTO SURVIVOR IGNORED 05/31/2021 at 12:39 am

LTO drilling locations are diminishing faster and faster. Look for massive consolidation as E&P companies can only grow through M&A. Many companies have drilling inventories of less than four years. The LTO revolution is over as we knew it and the number of E&P companies will shrink dramatically. There will be minimal growth and much less than 75kbd per month.

The energy transition will be painful and longer than anticipated. Criminalization of an industry that embodies national security and that gives the "haves" a competitive advantage in favor of hopes and prayers is folly and irresponsible.

China will bury us as they try to capture as much of the hydrocarbon as they can knowing that energy equals power.

A few years ago I heard Chinese venture capitalist speak at the Aspen Institute. He claimed that democracy is not a form of government but instead a religion. He gave the example that in Nigeria, the US is concerned about human rights while the Chinese could care less who dies in Nigeria as long as they can get the oil. He also stated that the Chinese only care about how they can feed, shelter, move, and run their economy and human rights are not remotely introduced into their paradigm. Something to think about.

[Jun 03, 2021] Climate activists scored a major victory with a Dutch court ruling requiring Shell to drastically cut emissions, which in effect means cutting oil and gas output

Jun 03, 2021 | www.reuters.com

Defeats in the courtroom and boardroom mean Royal Dutch Shell (RDSa.L) , ExxonMobil (XOM.N) and Chevron (CVX.N) are all under pressure to cut carbon emissions faster. That's good news for the likes of Saudi Arabia's national oil company Saudi Aramco (2222.SE) , Abu Dhabi National Oil Co, and Russia's Gazprom (GAZP.MM) and Rosneft (ROSN.MM) .

It means more business for them and the Saudi-led Organization of the Petroleum Exporting Countries (OPEC).

"Oil and gas demand is far from peaking and supplies will be needed, but international oil companies will not be allowed to invest in this environment, meaning national oil companies have to step in," said Amrita Sen from consultancy Energy Aspects.

... ... ...

Climate activists scored a major victory with a Dutch court ruling requiring Shell to drastically cut emissions, which in effect means cutting oil and gas output. The company will appeal.

The same day, the top two U.S. oil companies, Exxon Mobil and Chevron, both lost battles with shareholders who accused them of dragging their feet on climate change.

...Western oil majors control around 15% of global output, while OPEC and Russia have a share of around 40 percent. That share has been relatively stable in recent decades as rising demand was met with new producers like smaller private U.S. shale firms, which face similar climate-related pressures.

...Despite pressure from activists, investors and banks to cut emissions, Western oil majors are also tasked with maintaining high dividends amid heavy debts. Dividends from oil companies represent significant contributions to pension funds.

[Jun 03, 2021] US March Oil Production Rebounds Strongly From Winter Storm Low

Jun 03, 2021 | peakoilbarrel.com

RON PATTERSON IGNORED 06/03/2021 at 7:34 am

Dennis,

If all sanctions on Iran are lifted, very soon, they may reach 3.5 million barrels per day by Q1 2022, but no way before then. I doubt they will ever reach 3.8 million again.

At any rate, to get to 29.54 million bpd by Q4 OPEC would need to increase production by 4.5 million bpd from April's production level. Dennis, we both know that is not going to happen.

[Jun 01, 2021] Oil Price Hits Two-Year High as OPEC Sees More Demand

Usual WSL take -- partially false reasoning mostly along EIA talking points. The real problem is that there is no cheap way to increase oil output Iran or no Iran. It would be funny to read WSJ coverage in February -May of 2020 in view of current events and the price level. They completely discredited themselves.
Jun 01, 2021 | www.wsj.com

Brent crude rose 93 cents, or 1.3%, to $70.25 a barrel, the highest close since May 2019. West Texas Intermediate futures gained $1.40, or 2.1%, to $67.72 a barrel. The U.S. gauge settled at its highest level since October 2018.

... ... ...

The OPEC cartel and its allies agreed Tuesday to press ahead with earlier plans to increase output by 450,000 barrels a day starting in July. Meanwhile, Saudi Arabia will continue to unwind its unilateral cuts of one million barrels a day that it put in place earlier this year.

"Demand growth is outpacing supply gains even with the agreed month-by-month OPEC+ production increases taken into account," said Ann-Louise Hittle, vice president of Macro Oils at consulting firm Wood Mackenzie. "Sticking to increases planned at the April meeting is what the market needs," she added.

... ... ...

Both oil prices and future OPEC+ policy could be affected if as much as 1.5 million barrels a day of Iranian oil, currently restricted by U.S. sanctions, return to the market, according to Robert McNally, a former adviser in the George W. Bush administration and president of consulting firm Rapidan Energy Group.

[May 31, 2021] Oil is the strategic resource and all dirty tricks with "paper oil" and the power of Wall Street financial behemoths will be used to keep price low

May 31, 2021 | peakoilbarrel.com

DENNIS COYNE IGNORED 05/30/2021 at 10:05 am

Ron,

If non-OPEC+ output grows slowly or not at all, oil prices are likely to rise. Eventually the price may rise to a level that entices non-OPEC+ producers to invest in new oil production. My guess is that a $75 or $80/bo Brent oil price might change things, we may know by November 2021 whether my guess is correct. REPLY LIKBEZ 05/30/2021 at 5:53 pm

Dennis,

You assume that oil price is independent of the general condition of the USA economy and is determined by supply and demand. I think this is a fallacy.

Oil is the strategic resource and all dirty tricks with "paper oil" and the power of Wall Street financial behemoths will be used to keep price low. Rise of oil prices is an invitation to the recession which Biden administration is determined to avoid.

The only established fact now that the rise of oil output probably will never happen and the countries need to adapt. The USA put all eggs into EV backets and is toying with wind and solar; which means that it probably will be burned because the increase of the number of EV on the roads above single digits will destroy the stability of the USA electrical network.

In 2020, there were 286.9 million cars in the US. Of them the plug-in are less then 1.4 million. Forty-five models were sold in 2019 (the last "normal" year), but the all-electric Tesla Model 3 was the most popular by far, with over 154,000 vehicles sold -- or 47% of total plug-in electric sales in 2019.

So currently EV are less then 0.5% of the total car fleet despite all the noise.

Consequences of reaching 10% are tremendous both for electrical grid and for consumers (lion share of those cars are luxury personal cars, exemplified by Tesla and are badly suited (even dangerous; somebody here proposed Norway as a counterexample, but that's plainly stupid as they have their share of problems (dead Tesla in airports car lots after a week or less, strangled vehicles on country roads, etc) and is a tiny country with climate determined by Golfstream ).

EV in northern states (think not only border with Canada like Chicago and Alaska but even NY, PA and NJ ) or a state with very hot summer (think Texas, Florida) and generally outside California (or any similar region without harsh winter and/or very hot summer) are very problematic.

Building of new nuclear stations is politically incorrect and that will have consequences of EV deployments. Burning natural gas to produce electrical energy, while gas can be used as a car fuel directly is plain vanilla stupid. But this is the path the USA had taken.

As neoliberal elite lost legitimacy political stability in the USA is also an interesting question to ponder. The rise of gas price might serve as a yet another tipping point.

[May 30, 2021] US March Oil Production Rebounds Strongly From Winter Storm Low

May 30, 2021 | peakoilbarrel.com

RON PATTERSON IGNORED OVI IGNORED 05/30/2021 at 9:16 am

Ron

Great find.

For me that article was behind a paywall. Yahoo has it here.

https://ca.finance.yahoo.com/news/time-different-outside-opec-oil-040000053.html

05/30/2021 at 7:49 am

Well, I'm not one to say "I told you so", but I did, didn't I. 🙂 Bold mine.

This Time Is Different: Outside OPEC+, Oil Growth Stalls

"This time is different" may be the most dangerous words in business: billions of dollars have been lost betting that history won't repeat itself. And yet now, in the oil world, it looks like this time really will be.

For the first time in decades, oil companies aren't rushing to increase production to chase rising oil prices as Brent crude approaches $70. Even in the Permian, the prolific shale basin at the center of the U.S. energy boom, drillers are resisting their traditional boom-and-bust cycle of spending.

The oil industry is on the ropes, constrained by Wall Street investors demanding that companies spend less on drilling and instead return more money to shareholders, and climate change activists pushing against fossil fuels. Exxon Mobil Corp. is paradigmatic of the trend, after its humiliating defeat at the hands of a tiny activist elbowing itself onto the board.

And what they don't realize is that the two largest producers in OPEC+, Russia and Saudi Arabia, are on the ropes also. Russia has admitted it but Saudi is still trying to deny the fact.

[May 30, 2021] This Time Is Different- Outside OPEC+, Oil Growth Stalls by Javier Blas

May 30, 2021 | finance.yahoo.com

"This time is different" may be the most dangerous words in business: billions of dollars have been lost betting that history won't repeat itself. And yet now, in the oil world, it looks like this time really will be.

For the first time in decades, oil companies aren't rushing to increase production to chase rising oil prices as Brent crude approaches $70. Even in the Permian, the prolific shale basin at the center of the U.S. energy boom, drillers are resisting their traditional boom-and-bust cycle of spending.

The oil industry is on the ropes, constrained by Wall Street investors demanding that companies spend less on drilling and instead return more money to shareholders, and climate change activists pushing against fossil fuels. Exxon Mobil Corp. is paradigmatic of the trend, after its humiliating defeat at the hands of a tiny activist elbowing itself onto the board.

The dramatic events in the industry last week only add to what is emerging as an opportunity for the producers of OPEC+, giving the coalition led by Saudi Arabia and Russia more room for maneuver to bring back their own production. As non-OPEC output fails to rebound as fast as many expected -- or feared based on past experience -- the cartel is likely to continue adding more supply when it meets on June 1.

'Criminalization'

Shareholders are asking Exxon to drill less and focus on returning money to investors. "They have been throwing money down the drill hole like crazy," Christopher Ailman, chief investment officer for CalSTRS. "We really saw that company just heading down the hole, not surviving into the future, unless they change and adapt. And now they have to."

Exxon is unlikely to be alone. Royal Dutch Shell Plc lost a landmark legal battle last week when a Dutch court told it to cut emissions significantly by 2030 -- something that would require less oil production. Many in the industry fear a wave of lawsuits elsewhere, with western oil majors more immediate targets than the state-owned oil companies that make up much of OPEC production.

"We see a shift from stigmatization toward criminalization of investing in higher oil production," said Bob McNally, president of consultant Rapidan Energy Group and a former White House official.

While it's true that non-OPEC+ output is creeping back from the crash of 2020 -- and the ultra-depressed levels of April and May last year -- it's far from a full recovery. Overall, non-OPEC+ output will grow this year by 620,000 barrels a day, less than half the 1.3 million barrels a day it fell in 2020. The supply growth forecast through the rest of this year "comes nowhere close to matching" the expected increase in demand, according to the International Energy Agency.

Beyond 2021, oil output is likely to rise in a handful of nations, including the U.S., Brazil, Canada and new oil-producer Guyana. But production will decline elsewhere, from the U.K. to Colombia, Malaysia and Argentina.

As non-OPEC+ production increases less than global oil demand, the cartel will be in control of the market, executives and traders said. It's a major break with the past, when oil companies responded to higher prices by rushing to invest again, boosting non-OPEC output and leaving the ministers led by Saudi Arabia's Abdulaziz bin Salman with a much more difficult balancing act.

Drilling Down

So far, the lack of non-OPEC+ oil production growth isn't registering much in the market. After all, the coronavirus pandemic continues to constrain global oil demand. It may be more noticeable later this year and into 2022 . By then, vaccination campaigns against Covid-19 are likely to be bearing fruit, and the world will need more oil. The expected return of Iran into the market will provide some of that, but there will likely be a need for more.

When that happens, it will be largely up to OPEC to plug the gap. One signal of how the recovery will be different this time is the U.S. drilling count: It is gradually increasing, but the recovery is slower than it was after the last big oil price crash in 2008-09. Shale companies are sticking to their commitment to return more money to shareholders via dividends. While before the pandemic shale companies re-used 70-90% of their cash flow into further drilling, they are now keeping that metric at around 50%.

The result is that U.S. crude production has flat-lined at around 11 million barrels a day since July 2020. Outside the U.S. and Canada, the outlook is even more somber: at the end of April, the ex-North America oil rig count stood at 523, lower than it was a year ago, and nearly 40% below the same month two years earlier, according to data from Baker Hughes Co.

When Saudi Energy Minister Prince Abdulaziz predicted earlier this year that "'drill, baby, drill' is gone for ever," it sounded like a bold call. As ministers meet this week, they may dare to hope he's right.

More stories like this are available on bloomberg.com

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©2021 Bloomberg L.P.

[May 30, 2021] A Critical Shift In The War For Oil by Tom Luongo

May 30, 2021 | www.zerohedge.com

Authored by Tom Luongo via Gold, Goats. 'n Guns blog,

Biden backed down on Nordstream 2 and, at The Davos Crowd's insistence, he will back down on the JCPOA.

Davos needs cheap energy into Europe. That's ultimately what the JCPOA was all about. The basic framework for the deal is still there. While the U.S. will kick and scream a bit about sanctions relief, Iran will be back into the oil market and make it possible for Europe to once again invest in oil/gas projects in Iran.

Now that Benjamin Netanyahu is no longer going to be leading Israel, the probability of breakthrough is much much higher than last week. The Likudniks in Congress and the Senate just lost their raison d'etre. The loss of face for Israel in Bibi's latest attempt to bludgeon Gaza to retain power backfired completely.

U.S. policy towards Israel is shifting rapidly as the younger generations, Gen-X and Millennials, simply don't have the same allegiance to Israel that the Baby Boomers and Silent generations did. It is part of a geopolitical ethos which is outdated.

So, with some deal over Iran's nuclear capability in the near future, Europe will then get gas pipelines from Iran through Turkey as well as gain better access to the North South Transport Corridor which is now unofficially part of China's Belt and Road Initiative.

Russia, now that Nordstream 2 is nearly done, will not balk at this. In fact, they'll welcome it. It forms the basis for a broader, sustainable peace arrangement in the Middle East. What's lost is the Zionist program for Greater Israel and continued sowing dissent between exhausted participants.

But the big geopolitical win for Davos, they think, is that by returning Iran to the oil markets it will cut down on Russia's dominance there. That the only reason Russia is the price setter in oil today, as the producer of the marginal barrel, is because of Trump taking Iranian and Venezuelan oil off the market.

With these negotiations ongoing and likely to conclude soon I'm sure the thinking is that this will help save Iranian moderates in the upcoming elections. But with Iran's Guardian Council paving the way for Ebrahim Raeisi to win the election that is also very unlikely( H/T to Pepe Escobar's latest on this ) :

So Raeisi now seems to be nearly a done deal: a relatively faceless bureaucrat without the profile of an IRGC hardliner, well known for his anti-corruption fight and care about the poor and downtrodden. On foreign policy, the crucial fact is that he will arguably follow crucial IRGC dictates.

Raeisi is already spinning that he "negotiated quietly" to secure the qualification of more candidates, "to make the election scene more competitive and participatory". The problem is no candidate has the power to sway the opaque decisions of the 12-member Guardian Council, composed exclusively by clerics: only Ayatollah Khamenei.

I have no doubt that Iran is, as Escobar suggests, in post-JCPOA mode now and will walk away from Geneva without a deal if need be, but Davos will cut the deal it needs to bring the oil and gas into Europe while still blaming the U.S. for Iran's nuclear ambitions because they've gotten what they actually wanted, Netanyahu out of power.

Trump's assault on Iran did what Neocon belligerence always does, increase domestic sympathies for hardliners within the existing government. I told you his assassinating Gen. Qassem Soleimani was not only a mistake but a turning point in history , it sealed the alliance between Russia/China/Iran into a cohesive one which no amount of Euro-schmoozing will undo.

Seeing the tenor of these negotiations and the return of Obama to the White House, the Saudis saw the writing on the wall immediately and began peace talks with Iran in Baghdad put off for a year because of Trump's killing Soleimani.

The Saudis are fighting for their lives now as the Shia Crescent forms and China holds the House of Saud's future in its hands.

Syria will be restored to the Arab League and all that 'peace' work by Trump will be undone quickly. Because none of it was actually peaceful in its implementation. Netanyahu is gone, Israel just got defeated by Hamas and now the rest of the story can unfold, put on hold by four years of Jared Kushner's idiocy and U.S. neoconservatives feeding Trump bad information about the situation.

The Saker put together two lists in his latest article (linked above) which puts the entire situation into perspective:

The Goals:
  1. Bring down a strong secular Arab state along with its political structure, armed forces, and security services.

  2. Create total chaos and horror in Syria justifying the creation of a "security zone" by Israel not only in the Golan but further north.

  3. Trigger a civil war in Lebanon by unleashing the Takfiri crazies against Hezbollah.

  4. Let the Takfiris and Hezbollah bleed each other to death, then create a "security zone," but this time in Lebanon.

  5. Prevent the creation of a Shia axis Iran-Iraq-Syria-Lebanon.

  6. Break up Syria along ethnic and religious lines.

  7. Create a Kurdistan which could then be used against Turkey, Syria, Iraq, and Iran.

  8. Make it possible for Israel to become the uncontested power broker in the Middle-East and force the KSA, Qatar, Oman, Kuwait, and all others to have to go to Israel for any gas or oil pipeline project.

  9. Gradually isolate, threaten, subvert, and eventually attack Iran with a broad regional coalition of forces.

  10. Eliminate all centers of Shia power in the Middle-East.

The Outcomes:
  1. The Syrian state has survived, and its armed and security forces are now far more capable than they were before the war started (remember how they almost lost the war initially? The Syrians bounced back while learning some very hard lessons. By all reports, they improved tremendously, while at critical moments Iran and Hezbollah were literally "plugging holes" in the Syrian frontlines and "extinguishing fires" on local flashpoints. Now the Syrians are doing a very good job of liberating large chunks of their country, including every single city in Syria).

  2. Not only is Syria stronger, but the Iranians and Hezbollah are all over the country now, which is driving the Israelis into a state of panic and rage.

  3. Lebanon is rock solid; even the latest Saudi attempt to kidnap Hariri is backfiring. (2021 update: in spite of the explosion in Beirut, Hezbollah is still in charge)

  4. Syria will remain unitary, and Kurdistan is not happening. Millions of displaced refugees are returning home.

  5. Israel and the US look like total idiots and, even worse, as losers with no credibility left.