Chris Martenson
Executive Summary
- How bad will "bad" get?
- What will happen to world supply and prices?
- Who is most vulnerable?
- How quickly could this occur?
If you have not yet read Part 1: Why The Shale "Miracle" Is Becoming A "Debacle" available free to all readers, please click here to read it first.
How to Position Yourself
Okay, here’s the summary so far. The shale companies are burning cash and they’ve done so every year. At every oil price point. And there’s nothing in the data to suggest that will change this year, or next.
So the first question to ask is: When will investors wake up and stop funding these companies?
This should be immediately followed by: How much financial and economic damage will then result? And how soon afterwards?
Well, if the companies stop drilling because their funding dries up, the decline rates of the various shale basins would translate into the immediate and sudden loss of a huge amount of oil production.
How much?
According to the EIA the decline rates each month for the three biggest shale fields would be between 53,000 and 158,000 barrels per month.
Taken together, one month of not bringing any new wells online for these three fields would result in a drop in oil output of -314,000 barrels. And a similar (but slightly smaller) drop the next month. And the month after that, the same thing. And so on.
After just 3 months the US would be down more than -1,000,000 barrels per day when all the other shale fields are taken into account.
Now that’s extreme, and it’s very unlikely that drilling would just suddenly stop one day. But the point here is that…
The Coming Shale Debacle
PREVIEWExecutive Summary
- How bad will "bad" get?
- What will happen to world supply and prices?
- Who is most vulnerable?
- How quickly could this occur?
If you have not yet read Part 1: Why The Shale "Miracle" Is Becoming A "Debacle" available free to all readers, please click here to read it first.
How to Position Yourself
Okay, here’s the summary so far. The shale companies are burning cash and they’ve done so every year. At every oil price point. And there’s nothing in the data to suggest that will change this year, or next.
So the first question to ask is: When will investors wake up and stop funding these companies?
This should be immediately followed by: How much financial and economic damage will then result? And how soon afterwards?
Well, if the companies stop drilling because their funding dries up, the decline rates of the various shale basins would translate into the immediate and sudden loss of a huge amount of oil production.
How much?
According to the EIA the decline rates each month for the three biggest shale fields would be between 53,000 and 158,000 barrels per month.
Taken together, one month of not bringing any new wells online for these three fields would result in a drop in oil output of -314,000 barrels. And a similar (but slightly smaller) drop the next month. And the month after that, the same thing. And so on.
After just 3 months the US would be down more than -1,000,000 barrels per day when all the other shale fields are taken into account.
Now that’s extreme, and it’s very unlikely that drilling would just suddenly stop one day. But the point here is that…
One of the most perplexing mysteries to us is that right as the Federal Reserve embarked on QE3 — which was a huge, enormous, $85 billion a month experiment — commodities began a multiyear decline within two weeks of that announcement. Concurrently, the world’s central banks plunged the world into steeply negative real interest rates, a condition that has almost always resulted in booming commodity prices — but not this time. Today, the ratio between commodity prices and equities is at one of, if not the most, extreme points in history.
To explain that gap, we talk this week with Brien Lundin, publisher of Gold Newsletter and producer of the New Orleans Investment Conference (where Chris and Adam are speaking on Oct 25-28):
Brien Lundin: If They Don’t Want You To Own It, You Probably Should
One of the most perplexing mysteries to us is that right as the Federal Reserve embarked on QE3 — which was a huge, enormous, $85 billion a month experiment — commodities began a multiyear decline within two weeks of that announcement. Concurrently, the world’s central banks plunged the world into steeply negative real interest rates, a condition that has almost always resulted in booming commodity prices — but not this time. Today, the ratio between commodity prices and equities is at one of, if not the most, extreme points in history.
To explain that gap, we talk this week with Brien Lundin, publisher of Gold Newsletter and producer of the New Orleans Investment Conference (where Chris and Adam are speaking on Oct 25-28):
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