By Chris Nelder
Posting in Cities
Bring back the good old days of U.S. oil production? Think again. Columnist Chris Nelder skewers recent proposals for energy independence with cold, hard data.
Gasoline is back over $4 a gallon here in California and U.S. crude is holding firm over $100 a barrel, even though domestic demand is off more than 8 percent from the 2005 peak on an annual basis, and a whopping 16 percent on a monthly peak-to-trough basis. And that can only mean one thing: We're entering the silly season in oil punditry.
A deluge of recent articles have asserted that the U.S. is on its way to energy independence thanks to the miracle of shale oil, or "tight oil." (Shale oil is actual crude oil produced from tight shale formations like the Bakken. Tight oil is a broader term including shale oil and natural gas liquids produced from shale gas plays. Horizontal drilling and "fracking" are used in both kinds of shale production.) None of them, however, have demonstrated how we would get there.
An amateurish report from Citigroup last week entitled "Resurging North American Oil Production and the Death of the Peak Oil Hypothesis," garnered the most attention, perhaps because it claimed that the U.S. could achieve energy independence this decade. Here's what they called their "back-of-the-envelope" calculation:
U.S. crude and product imports are now about 11 million barrels a day, with about 3 million barrels a day of product exports. This leaves import reliance at 8 million barrels a day. If shale oil grows by 2 million barrels a day, which we think is conservative, and California adds its 1 million barrels a day to the Gulf of Mexico's 2 million barrels a day, we reduce import reliance to 3 million barrels a day. Canadian production is expected to rise by 1.6 million barrels a day by 2020, and much of this will effectively be stranded in North America, and there is the potential to cut demand both through conservation and a shift in transportation demand to natural gas by at least 1 million barrels a day and by some calculations by 2 million barrels a day.
Naturally, most of the subsequent coverage of the report just repeated and amplified these extremely dubious claims under headlines blaring the dawn of our new energy independence, but a few energy journalists offered more balanced and skeptical views, notably Steve LeVine in Foreign Policy, Brad Plumer in the Washington Post, and James Herron in the Wall Street Journal.
But as ever, the task of digging up the hard data and examining these claims closely fell to yours truly.
The tight oil treadmill
The poster child for the tight oil 'miracle' is the Bakken play centered in North Dakota. Its production has gone from almost nothing a few years ago to over half a million barrels per day. We're getting another 0.083* mbpd from the Eagle Ford Shale according to the Texas Railroad Commission, the state's official oil-reporting agency. But that's where the data trail runs dry. As I have reported previously, data from state agencies outside Texas is spotty at best, and the EIA does not offer detailed production data for tight oil at all. The EIA estimates overall U.S. tight oil production in 2011 at 0.54 mbpd, but I have seen other estimates (without the data to prove it) as high as 0.9 mbpd.
When the data runs dry, my go-to guy is French petroleum engineer Jean Laherrère, who maintains a detailed database from both public and private sources. He offered this chart of Bakken production in North Dakota:
It tells the real story of tight oil production beautifully. Each well produces a mere 150 barrels or so per day on average, and like shale gas wells, their output declines rapidly after initial production. As LeVine learned from a Bakken executive, the decline rate can be over 90 percent in the first year, then gradually tapers off. After seven or eight years, wells will have produced over 60 percent of their recoverable reserves. Therefore, you have to keep drilling like hell just to maintain production, and drill even more to increase it. Per LeVine's source, "if the rate of drilling stays constant for a long time, the growth rate of field production will decrease, then plateau, then begin to drop." But at around $7 million per well, these wells are not cheap.
As Laherrère's chart shows, it takes about 1,200 wells to increase production by 150 thousand barrels a day on the Bakken tight oil treadmill. Compare that to the deepwater Gulf of Mexico, where a single gusher can produce 250 thousand barrels per day. By this metric it would take another 16,000 Bakken wells to achieve Citigroup's projection of an additional 2 mbpd from shale oil, or five times the existing 3,200 Bakken wells.
Initial production rates from the next-biggest shale oil producer, the Eagle Ford play, appear to be substantially higher at around 350 barrels per day (including both oil and gas) over the first month, but then they decline to less than 100 barrels per day over the first year. The costs in the Eagle Ford are also substantially higher: as much as $10 million per well. Fracking the Eagle Ford is also challenged by the enormous requirements for water, an increasingly scarce resource in drought-ravaged Texas.
Elm Coulee: A cautionary tale
To see what happens to a shale oil play over time, we can look at one of the older portions of the Bakken. The Elm Coulee field in Montana, one of the Bakken "sweet spots" and the first commercially successful Bakken field in the entire Williston Basin, was discovered in 2000 and quickly ramped up to become the highest-producing onshore field in the Lower 48 by 2006. But after about five years of drilling, it was pretty well tapped out and the rigs moved on. It gave Montana a quick bump, then production fell off rapidly. Laherrère finds that Montana production is now falling by 1 percent per month.
The Saskatchewan portion of the Bakken likewise peaked in 2008. And although the North Dakota portion of the Bakken is far larger, it will eventually follow suit. A ten-fold increase in rigs since 2001 made North Dakota the envy of the country, but that can't go on forever.
It takes an enormous leap of faith to see shale oil production rising another 2 mbpd from here, along with several leaps of logic, which the Citigroup report had in abundance. The EIA projects that all onshore tight oil production will only rise a little, to a total 1.3 mbpd by 2030, or about one-third the growth that Citigroup forecasts by 2020.
The narrow ledge of tight oil
In short, increasing our already-frenetic rate of drilling for tight oil requires sustained high oil prices. At today's $105 a barrel for West Texas Intermediate, that's no problem. But if prices were to fall to $70 a barrel, LeVine's source says, drilling in the Bakken would become unprofitable and would cease, causing production to fall rapidly.
At the same time, the last few years have shown us that $100 oil translates to roughly $4 gasoline, and that's the pain tolerance limit for most of America. Gasoline demand in the U.S. tends to fall off beyond $4, as does economic activity in general.
This is what analyst Steven Kopits of Douglas-Westwood call the "narrow ledge" of oil prices, as I detailed in 2009. Given the extremely volatile global marketplace for oil, influenced by everything from geopolitical aggression, to climate change, to the headline risk of Greece defaulting and being forced out of the Eurozone, it will be very difficult for the oil industry to cling to that ledge for a sustained decade or more as the Citi analysts breezily project. They simply wave away cost inflation, and don't acknowledge a price ceiling at all.
The narrow ledge isn't a problem for the surging developing economies of the world, however. China alone has replaced all of the oil demand lost in the U.S., and more, and it's still growing fast with an 8.2 percent growth rate projected for this year by the IMF.
Want your blankey?
This point was highlighted in a fascinating debate last week, which I highly encourage you to watch, between former Shell Oil president John Hofmeister and Tad Patzek, professor and chairman of the Department of Petroleum and Geosystems Engineering at the University of Texas at Austin. China, Hofmeister noted, is "on a journey, ladies and gentlemen, to go from 9 mbpd consumption today—a year ago it was 8, now it's 9—to 15 mbpd by 2015. India from 4 to 7 mbpd in the same time frame. There's not enough oil out there to meet that demand."
These nations use oil far more efficiently than we do, and derive far more economic value from it. As I like to say, picture three guys and a chicken burning one gallon of gas on a scooter to go to the market each day in India, versus a soccer mom in the American suburbs burning three gallons a day to run errands without generating any economic gain. Asia can outbid the West for the declining available net exports for a long, long time, and that demand will continue to pull prices above our pain threshold.
Hofmeister waxed apoplectic in frustration over U.S. policymakers' failure, for four decades straight, to do something about our oil dependency. "We are in an oil shock, and we are facing impending shortages," he warned, and went on to recall what those shortages were like here in 1973-4. His solution? To create a federal board that would assume control of the nation's energy strategy—a proposal that seems not altogether crazy to me, but also not likely to succeed in America's dysfunctional politics—and command greater domestic production of oil and gas in the short term, while plotting a transition to renewables.
Patzek's prescription was far more pragmatic, and aligns closely with my own: "Don't wait on government programs; don't wait on people to tell you what to do; start to insulate yourself from these shocks." As I wrote last month, the revolution will be bottom-up. "Try to think about simple things, simple steps that you can do…to insulate yourself as much as you can from the upcoming shocks. They're coming! So take it for granted, so no matter what Daniel Yergin and others will tell you."
Patzek acknowledges that this message is a tough sell in America. Forecasts like Citigroup's aren't based in reality, but in politics. As another perspicacious friend of mine, who has been looking at such rosy forecasts for decades, remarked to me this week, "the masses (and the cheerleaders) love this story because it is one of Abundance and Manifest Destiny in this Exceptional Country of ours." We like supply-side solutions. We don't like anybody telling us that we need to cut our consumption.
Patzek muses: "If I think about the United States, this great, magnificent country of ours, I think about a grown-up baby, who now is very large, and on a cold night wants to cover herself with a baby blankey. And no matter what she tries, there is always a part of her body that is uncovered and exposed to the cold weather. That's where we are."
That's what the Citigroup report was: a blankey. It was obfuscation by oblation, the offering of a cargo cult that desperately wants to bring back the good ol' days of US production. They discussed the decline rate of mature fields—about 3.7 mbpd of lost production each year—at some length, then failed to do the simple addition to balance that against their production outlook, instead wandering off into a long musing about capital efficiency. Several of their charts were clearly wrong, like the production levels of the Bakken and Eagle Ford shown in Figure 2, and 80,000 barrels per day per Bakken well in Figure 26 instead of 150. They plotted production separately from well or rig count, obscuring their intimate relationship. I could go on for several thousand words, but I'll spare you.
If the Citigroup forecast were serious, it would have shown how many rigs, and where, it would take to generate another 2 mbpd from shale oil, and discussed a price scenario that would foster continued drilling for another eight years. Instead, they buried the reader in 18 pages of mostly irrelevant data about reserves and formation characteristics, and tossed off an optimistic production forecast based on little more than hand-waving, along with the obligatory jab about Thomas Malthus. It was an excellent piece of political posturing, but I wouldn't give a plugged nickel for their forecast.
Now look at the chart I posted at the top. All the talk of incipient U.S. energy independence is based on a mere 15 percent production increase in 2011 over 2008, which required thousands of wells and great expense. Retaking our 1970 production peak of 9.6 mbpd with such expensive and low-output wells, as Citigroup suggests, is a fantasy. Production from the Canadian tar sands will probably grow a bit over the next decade, but doubling its production is unlikely. Let's remember that tar sands production was projected to grow from 1 mbpd in 2006 to 2.8 mbpd in 2012, but actual production is currently just 1.6 mbpd; this is a direct consequence of the narrow ledge getting narrower. California's Monterey Shale will not be exploited any time soon. Another 2 mbpd from the Gulf of Mexico would take a truly Herculean effort, at great expense, with the risk of a complete ban on drilling there if another blowout happened.
Meanwhile, the treadmill continues to speed up. As Patzek notes, incremental new oil production per rig in the U.S. was about 1,000 to 1,500 barrels per day in 2005. In 2011, it was one-tenth that, at 100 barrels. The story of energy independence is just that: a story. The data tells us that we are losing the race against depletion, oil shortages are in our near future, and we had better plan as individuals to confront the impending oil shocks.
Credit: Top chart from EIA, marked up by Chris Nelder
* Correction, March 13, 2012. I slipped a decimal point in the original version of this article, citing Eagle Ford production at 0.66 mbpd; it should have been 0.066 mbpd, based on the January-November 2011 data the TRRC had available at press time. They have now updated their data to reflect full 2011 production, which works out to 0.083 mbpd.
Feb 21, 2012
There are unbelievable reserves of oil in many forms in the U.S. and North America. DOE and API statistics document those truths. What is deteriorating is the will to use those natural resources mostly due to political dogma. We can get to a ton of 'good' oil that has nothing to do with shale oils of all stripes and we can do it in an environmentally safe manner. The technology we possess today is such that the old footprint model is no longer relevant and is a strawman argument. But as some political movements eliminate one source of energy after the other we find ourselves digging a deeper hole. Of course we should use more environmentally friendly energy sources...when they are developed and cost efficient. Today they are neither. They only exist because of government subsidy and not because they are a reliable, stable source to power our country. We need an 'all of the options' plan. One that uses all currently available mature technologies. The 'throw a lot of money at the problem and some of it will stick' is wasteful. Put that money into R&D projects that will get us there from here.
Has a geologist who has worked both conventional & unconventional oil and gas plays in Canada for 37 years, I found Chris Nelder's article both factual & interesting. The pushback from the greenies WRT fracking & pipelines is getting to be a big concern/pain. Watch the market to see how quickly investors punish the unconventional tight hydrocarbon players who fail to keep up the pace on their "treadmill operations". In reading all the comments I was surprised that there was no mention of the future (how long?) potential/impact for gas hydrates in the energy equation.
No one is figuring the material required to drill these TOS wells into the equation. I am in the daily drilling side of the industry. I sit the well while drilled. We are short on weight material to maintain proper weight while drilling, location making material (a boom is on just pulling up old locations to use it on new pads) and water to frack with. In the Eagle Ford field, the water sands had a 400' column in most areas. It is down by half in most of the field now. It also requires larger pumps to pull the water to the surface (farmers and ranchers are not happy). We are hearing grumblings in the industry that the price of natural gas is not high enough to support the drilling and production cost. One operating company in the North East (Marcellus Shale) is cutting cost by dumping all services on site (all but surveys with MWD, Mud Logging, Mud Engineers that are sitting the wells). If the service is not required to drill the well safely, dump it. This is a pretty drastic change from just last week. Keeping up the pace will become more difficult as the months turn to years.
As usual just loved this piece of juicy skepticism. As I noted in my talk at IBM "facts are a dangerous thing; they can really screw up some beautiful theories???" What I find a bit unusual (even with Chris) is that no one is mentioning the demographic limitations: i.e. the median age of the oil industry work force (well over 50) and the current shortage of skilled oil industry workers (well over 30%) as well as the 'cultural revolution' that is causing young people not to study petroleum science or engineering. Let us say that for some crazy reason the oil powers that be decide to drill an additional 16,000 wells (over and above the 37,000 they are drilling every year in the USA at present) WHO THE HELL IS GOING TO DRILL THEM? "Drill baby drill; the mantra of morons"!
someone called you astute, but I find your thesis full of holes. You have jumped off into a subject that apparently you are unprepared to write about. I have studied the oil industry for months, particularly the exploration segment, and it is obvious that you have no idea as to the depth (pun intended) of the subject. Even with all the time I have invested, I am constantly breaking new ground almost every day. Let me give an example of where you understate the facts like in the case of the Bakken of North Dakota or Canada. It is true that in these fields, on AVERAGE, production drops fairly quickly before plateauing several months after initial production. But what you fail to point out is that there are several ways to enhance production and get more oil out of the ground after this happens. One example would be waterflooding. Some techniques are capable of increasing yields significantly. Another energy aspect you left out completely is the mushrooming domestic production of natural gas. This can be used to diminish the need for crude used in the trucking industry, and even passenger cars. Yes, this will probably be a very long term change, but with enough government emphasis, it could happen fairly quickly. Thailand is an example of such an effort. Additionally, by as early as 2015, we will start to export our abundance of natural gas, This will be an additional offset to what petroleum we import. While much of what your write has some merit, it is discouraging that you have painted such an incomplete picture of the facts.
I don't know why Chris is unable to make a coherent argument. I guess if he did so, it wouldn't reconcile with his preconceptions. At any rate, here are some of his dumber observations. " By this metric it would take another 16,000 Bakken wells to achieve Citigroups projection of an additional 2 mbpd from shale oil, or five times the existing 3,200 Bakken wells." Well, the shale oil analysis isn't based on the idea that Bakken is some unusual shale formation that doesn't exist anywhere else in the country. It's based on the idea that Bakken isn't even halfway tapped, and there are at least 3 more Bakken sized plays to be tapped in other geographies (Eagle Ford is still early, Utica and Niobarra are untapped, etc.). Hence, a 5-fold increase in shale oil wells is probably conservative. "But if prices were to fall to $70 a barrel, LeVines source says, drilling in the Bakken would become unprofitable and would cease, causing production to fall rapidly." OK - so if oil drops 25% in value, than drilling will decline. But, but, in that case, gas is priced far below this "pain point". So, either oil is going to be a lot cheaper than it is now, or N. America will be basically energy independent. That seems pretty reasonable. What make Chris clueless is he somehow thinks neither of these two options will transpire. Somehow oil will remain expensive, ***and*** shale oil will plateau and decline. Nope! That's your "amateurish" opinion right there. Brought to you by .... **an amateur** Chris Nelder. I'm going with the pros on this one. Citi is right. Either the price of oil, or US oil imports are going way down. In fact, my bet is better technology drives the break-even price of shale down to below $50, and both the price of oil and US oil imports decline. Let's check back in a year and see who's right!
Chris, The debate that you pointed out was a very good one: http://www.youtube.com/watch?v=dO9GxdMEGME&feature=youtu.be The amazing thing about it to me is that petroleum geologist was way more reasonable about the financial end of things than the oil executive. We're already in nosebleed country with gas prices. What will those prices be like when all of the $10/barrel production cost oil is gone and all that's left is $100/barrel production cost oil, not to mention supply that doesn't come close to meeting demand. How foolish does he think we are? He does talk a good game though.
Chris Nelder is one of the most astute/and straight talking energy/commodity experts that I know and this article is typical of the detailed and in depth research that he does. I think his last paragraph is probably the most enlightening regarding oil depletion. Unfortunately, Chris stops short of detailing what happens to all the other commodities including our food supplies that depend upon cheap oil for their production and processing - not to mention a modern economy that is absolutely dependent on cheap free flowing energy. While lots of theorist project all sorts of technically possible solutions - even they don't explain where the energy and capital will come from to make them happen. What we see around us - our industrial civilization was built out of transforming cheap oil into structural realities. To reinvent a similar society based on a non-petroleum energy source in the midst of other declining critical commodities like cheap phosphates is improbable at best. One thing is certain, what ever future we have - is going to look and work very differently than our current one. Our society in the last hundred years has become expectant on unlimited amounts of everything - not understanding the finite nature of the resources of this planet. It produces an expectation of uninterrupted abundance forever - and worse than our finite resources it is this blind spot that will be our demise. Sadly 95-99% of the people that read this article won't understand it's far reaching implications, or the degree to which oil depletion is going to change their futures, or for about 2/3s of them their lack thereof. Unfortunately, our entire infrastructure is designed around a cheap liquid petroleum economy - one that we can't t change without an equal amount of cheap energy/capital equivalent to our last hundred years worth of oil spent on developing the current infrastructure. That's what the average person doesn't get - the difference between what is technically or theoretically possible concept wise - and the reality of a the new energy/capital necessary to make it happen. Currently, we don't have such a source of petroleum equivalent cheap energy/capital source to re-invent a new industrial infrastructure.
I really don't know what Mr. Neider's fuss is all about. He's basically describing a market ruled by supply and demand, and he's basically advocating that people make their own decisions in how to deal with it. It's called capitalism. Mr. Neider is absolutely correct. We can't expect oil to last forever. There may be a few diehards in the oil industry who might make that case, but the general public knows otherwise. We see that reality every day at the pump. But what is Mr. Neider really saying? Stop drilling? As of today, and for the next decade or so at least, there's just no reasonable alternative for most people. At some point oil will become so expensive and electric car technology cheap and good enough that people will make the switch. It won't happen overnight, and electric utilities will have plenty of time to increase capacity, probably by building more natural gas power plants (using shale gas). We've tried pushing electric and renewable technology with massive subsidies, but so far all we've wound up with after decades of effort is Solyndra and other failures. Rather than forcing the creation of a market that isn't there, why not let it develop naturally? While gas in California is over $4, right here in Denver and most of the Rocky Mountain region it's $3 because of a local glut caused by oil from Canada and North Dakota. That situation won't last forever (it's caused by lack of cheap transport out of the region), but I am supposed to give up my car and buy a Volt today when gas is so cheap? As Mr. Neider says, I'm making my own decisions.
As I looked at the price of gasoline recently, I've noticed that it's more-or-less plateaued over the past few years. According to economic theory, as demand for a limited resource increases, the price should go up. At some point, prices reach the pain threshold which then lowers demand. So I think, what we're seeing is a kind of price stability because, as China and India demand more, domestic prices would rise, causing people domestically to alter their behaviour and domestic demand to fall, thus stabilising prices. Looking at the EIA data, domestic demand is more or less stable or declining. For those who remember their high school physics, it's like melting ice. It rises to 32F (0C) and stays there while it transitions state. Once all of the ice has turned to water, its temperature then starts rising again. Using this model, it appears we may be in a transition state where people domestically are weaning themselves off of oil. If the price rises a few cents, more people find alternatives and the loss of demand brings the price back down. If the model is remotely correct, we can expect that once oil becomes a minor source of energy domestically, the prices will rise dramatically due to demand from China and India. Assuming the model is correct, we can ask ourselves, "How long will this last?" The longer it lasts, the more time industry has to find alternatives.
@oilpatch02, thanks for adding your perspective. I always like to hear from people with boots on the ground. I'm frankly surprised to hear that drilling mud is short, although not so much with the concrete & steel aspect. Like your Marcellus report, I guess it's all about cost control. Safe to assume that the water sands column has fallen because withdrawals are far above additions in the drought? I do expect drilling activity to fall off until we're back over $4 or more.
People of good faith can disagree without resorting to name calling or derogatory labelling. There are plenty of people out of work that would 'love' a job drilling for oil or related services. 'All of the options' should be our mantra...it was for Obama on the campaign trail.
halfsmart, It's amusing that you can call someone with a dozen years of intense study "unprepared" on the basis of your months of study. Chris's mentors have been the fossil fuel geologists and analyst of the Association for the Study of Peak Oil, who respect his opinions and knowledge enough to commission him to write elements of their knowledge base. These are the same analysts who over the last decade plus have been pretty much on the money in their output predictions, while the cornucopians of industry have been so off the mark that they might has well have been living in a dream. You might want to say what and who you have been studying. Perhaps Chris can help. We wouldn't want to waste that study time.
pjcpjcpjc, Anyone who thinks that a relatively recent fossil fuel extraction innovation can be defined in a year, or indicate anything very significant for the next decades, considering the precipitous decline of conventional technology output isn't just clueless, but remarkably deluded. Enjoy the denial drugs.
The massive subsidies that renewables have recieved are miniscule compared to that of fossil fuel generators! If your buying a new car, buy electric. you will find that its significantly cheaper to run that GAS! The main issue with your view point is its wrong.
Zackers, What Mr. Nelder is fussing about is a straightforward look at the data and numbers. If we ignore them, stick our heads in the sand and play Pollyanna there is no way that we can make informed decisions as individuals or as a social system. Mr. Nelder is saying in all his writings that oil output will be falling soon enough, natural gas output will be falling soon enough, coal output will be falling soon enough, or if we are incredibly stupid we can can keep all these up for a few more years and devastate our environment. If we ignore reality, like CitiBank, we insure that what could be a relatively orderly descent to a steady state economy will be collapse. CitiBank is painting a rosy picture that will enable their principle people to continue to line their nests a few more years until CitiBank collapses. Capitalism works, supply and demand works, in an easy, energy rich environment of growth. No one in their right mind, including politicians, believes that this is what we still have. The energy is depleting at least 4 times faster, and rising, than it is being replaced. As amazing as is our science, there's no energy source on the horizon to replace the current sources for at least the bulk of this century, unless you believe in water engines. How does the interest on the capitalist loans get repaid, let alone the principal? We might as well admit that default is the other word for descent. So, you can either smoke a doobie and dream, or listen to what Mr. Nelder's analysis portends for your own decisions. BTW, you're probably right to sneer at the Volt. In another two or three decades, if you don't want to walk, pedal or own a horse, the only thing left from most of our energy budgets for personal transport will be electric bikes, fed by the solar panels that feed your house. Those panels won't feed both the house and Volt unless your house is the size of your bathroom, which won't hold the panels. What to do, what to do? Very hard decisions coming up, Mr. Zackers. For all of us!
Nelder doesn???t suggest a halt to drilling anywhere in the piece. The point is that drilling won???t prevent a shortage because productivity is limited & demand will increase due to Asian consumption. Natural gas is a separate issue, especially for those people whose water supply is being contaminated by fracking. The private sector won???t invest in new technology without predictable near-term returns. It???s up to the public sector to push development so that alternatives will be available when they???re needed. Current investment to avoid future shocks to the economy. If an individual decides that they want to commute a long distance in an oversized vehicle from a home that???s costly to heat & cool, of course that???s there choice. They just need to be aware that energy costs are going up in the long term.defense budget. The private sector doesn't invest without predictable, near-term returns. So it's up to the public sector to push development of new technology along alternatives can't be developed & constructed instantly when they become necessary. Current investment to avoid future shocks to the economy.
That sounds like relying on price increases to be slow enough that "industry" will be able to locate alternatives to keep pace. Demand is down in the USA (the #1 economy) & has been down for a long time in Japan (the #3 economy). Even though China is partially dependent on exports to the USA, it's demand is going up rapidly. If the global economy were "normal" prices would be lot more than "cents" higher right now.
The mentors you speak of have blown more predictions than they have gotten right. Sometimes it takes a new set of eyes to see the trees in the forest. Too much time in an industry occasionally has a way of dulling the mind and clouding judgment.
"these are the same analysts who over the last decade plus have been pretty much on the money in their output predictions" Actually, these analysts have completely failed to predict anything like the shale oil explosion and reversal of US oil declines that is, in fact, the point of this article.
It's Nedler that's in denial. He fails to recognize the learning curve the industry has ascended in the past 5 years. So I guess that's it for learning new tricks. Right here, Feb 21 2012, this is the day the oil and gas industry stops innovating. They clearly have shown tremendous breakthroughs in the last 5 years, but they're willingness and ability to develop new technologies is coming to a screeeching halt right now! Clearly, shale energy is still ascending a learning curve. Anyone who thinks extraction technologies for shale will be no better 5 years from now than they are now is in denial. At any rate, the bet is out there - next year, either oil imports to the US are down, or the price of oil is down, or both. The gist of my complaint is that clueless Chris somehow thinks neither end of the logical Horn will come to pass ... when it's a virtual lock that at least one comes to pass, and better than even odds that both happy events occur.
Actually, the oil reserves today are almost exactly where they were back in 2005 -- after 6 years of global consumption! In the last year alone, Venezuela's oil reserves were bumped up to 300 billion barrels, beyond Saudi Arabia's (see http://news.bbc.co.uk/2/hi/8476395.stm ). It's not that we are using oil up, or that there's a finite supply that one day we will exhaust. The question is how fast do we need to transition to the next thing? I don't need to buy a Volt today. I might two decades from now. So what? By then electric technology will be much better, oil will be much more expensive and it will make sense. I've heard this sense of panic from greens for decades. Back in the late '60s the Club of Rome predicted from its computer models that we would run out of iron, copper, food, etc. by 2000 and civilization would collapse. "Club of Rome" was uttered just as often back then as "peak oil" is today. Somehow that collapse just didn't happen; in fact the world has never been more affluent than today. Too many greens treat the end of oil as a holy cause. Really it's no different than any other major transition in the history of civilization, such as the move from hunter-gathering to agriculture. There will be bumps along the way, and people will work hard to effect the transition, but in the end It's just economics.
I've got no problem with the government funding basic R&D. In the overall scheme of things, that's rather cheap. And as you say, most private companies won't touch anything without short-term profit. The problem came when the government started to fund manufacturing, such as at Solyndra. It was putting down serious taxpayer money ($500 million) on a bet that there was a market for Solyndra's technology. There wasn't. Similar bets on other companies have also failed. Each Volt is subsidized by at least $7500 of taxpayer money, yet it still can't sell. Someday we will most certainly have to transition from oil to something else. Nobody knows when that will be, although the huge increases in natural gas reserves and the continual discovery of new oil means that day will be further off. But even if these new reserves didn't exist, the market would still give us plenty of time to make the transition. In the late 19th century, the limits of animal power in hauling goods and people around were beginning to seriously slow the advance of civilization. Food production was reaching its limits. Railroads could only do so much in hauling goods, especially within a large city. The people who developed the internal combustion engine weren't interested in saving the world; they just saw a need and filled it to become rich. Other people developing steam and electric back then failed and went broke. None of it was done with large government subsidies. The people who develop green technology today talk a good game, but if they can't make money they won't be around -- nor should they be.
I wasn't suggesting that the plateau was something we should rely on or gamble on. It's a temporary reprieve. It's a well observed market mechanism, which we can us to assist in transitioning to alternatives. But it's an inherently disruptive state. This means, some industries, and we're not necessarily talking about the oil industry, will be badly hurt by this disruption. Others will use the time effectively to adapt to the changing situation. This last bit is my recommendation. Now is the time. Use it wisely.
"Those who fail to study history are doomed to repeat it." "After World War I, the U.S. agricultural sector experienced a recession. That economic downturn was blamed, in part, on speculative excesses occurring in the trading of commodity futures. The Futures Trading Act was the result of a massive investigation of the grain trade by the Federal Trade Commission (FTC) conducted in the wake of the recession. The FTC's massive report found that many abuses were occurring in the industry. Congress confirmed that finding in its own hearings on the Futures Trading Act." http://www.enotes.com/commodity-exchange-act-1936-reference/commodity-exchange-act-1936 The Futures Trading Act was declared unconstitutional and it was replaced by the Commodities Exchange Act. While the CEA was flawed, its primary purpose, much like that of FTA before it, was to attempt to limit speculator influence on the agricultural markets. It was excessive speculation which had led to the recession in agricultural markets following WWI. The same thing happened in 2008. In a strictly capitalist system as described by Adam Smith, there would be no speculators at all, only buyers and sellers. The buyers and sellers would haggle over price and come to an agreement as to what a fair market evaluation is. The seller would then sell at that price, feeling he got a good deal, and the buyer would then buy at that price, also feeling he got a good deal. This is what is called a "free-market". In a market, you only have buyers and sellers. What speculators do is place bets on the outcome of the haggling between buyers and sellers. However, they do this by effectively haggling with both buyers and sellers, thus distorting the price. To give you a hypothetical example, you go to buy that loaf of bread, it has no price, but the seller says, "You can have it for $3". You reply "How about $1". Then someone comes up next to you. "I'll bid $1.50." The two of you bid back and forth, and he finally bids $2.50. You don't want to pay $2.50 for the loaf of bread so you walk away. But so does the other guy, without the loaf of bread. He wasn't trying to buy a loaf of bread, he was betting that if he bid $2.50, you'd walk away. So now you don't have the loaf of bread you wanted and the seller hasn't made the sale he wanted either. For the market place, that speculator was a lose-lose scenario. But this is exactly the effect that speculators can have on the markets. So no, allowing speculators is not actually part of any sane definition of the free-market. Speculators, being neither buyers nor sellers, are not market-driven. They are gamblers who distort the market. And this is exactly why we try to regulate speculation in the markets.
Regulations going back to the Tea Pot Dome scandal kept US gas prices truly market driven for decades. Is it any surprise we are seeing the highest and most volatile prices ever since the speculators were allowed in? In the pre speculator days only major industries, from steel mills to airlines, and distributors were allowed to buy oil product futures to insure steady supplies and predictable prices. A rise in the cost of oil often took 6 weeks to show at the pump as the more expensive oil worked its way through the refining and distribution systems. Now gas prices mirror the rise in oil. A one day spike in oil prices can mean billions in speculators pockets as they jack pump prices. We are also seeing price retreats that do not mirror falls in the price of oil. Oil prices have to remain low for weeks to see even a modest drop in prices at the pump. You want prices to drop slightly, stabilize and the economy to recover? Get the speculators out.
[i]40 years of trying to force grow solar has done little for the technology since Carter started dumping taxpayer money into it. It is still far too expensive to install and operate to make it a viable alternative even though the cost of oil and related products has risen since the 1970s.[/i] Solar PV is not all that expensive any more. In January 2012 some producers were selling it for less then $1 per watt. http://www.renewableenergyworld.com/rea/news/article/2012/02/chinese-tier-2-modules-offered-below-1w?cmpid=SolarNL-Thursday-February23-2012 Isn't just allowing the speculators in part of a free market? Wouldn't it be socialism to not allow them to make a profit from their speculation? [/sarcasm]
40 years of trying to force grow solar has done little for the technology since Carter started dumping taxpayer money into it. It is still far too expensive to install and operate to make it a viable alternative even though the cost of oil and related products has risen since the 1970s. Artificially raising the cost of gas in the US has had only 1 effect, slowing the recovery of the economy. Everyone here avoids the elephant in the room when talking about gas prices. 40 years ago we did not have speculators manipulating market prices for gas. It was illegal to speculate in gas until Clinton opened it up to a few hedge funds. Later Bush expanded the list and Obama has taken off all controls. The markup of these speculators is anywhere from 5 to 25 percent of the pump price. The US economy would recover nicely if the price of gas dropped by 70 cents a gallon over night.