Podcast
by
Chris Martenson
Executive Summary
- In short, we've been lied to about the production potential of America's shale wells
- Huge decisions have been made based on the (faulty) assumptions we've swallowed
- When it's finally clear than much less is going to be available (and at a higher price) all hell will break loose
- The choices we make right now will determine how bad the reckoning will be
If you have not yet read Part 1: The Shale Oil 'Revolution' Actually Reflects a Nation in Decline, available free to all readers, please click here to read it first.
The reason I keep bringing us all back around to the energy situation is because it’s so critical to, well… Everything.
To make good decisions, you have to be armed with good information. That’s not easy to find these days, especially in the US where we are saddled with a massive propaganda campaign when it comes to energy.
It’s aim seems to be to convince everyone that there’s nothing to worry about. It's a near-constant barrage of these sorts of talking points and ideas:
- The US is the new Saudi Arabia
- The US is hitting new production records each month
- The US is now a net exporter of oil for the first time in 75 years
- Technology has improved so much that shale wells can now break even at $40/bbl oil prices.
And so on.
The problem with this sort of messaging is that the statements all need a couple of giant asterisks next to them, with some heavy explaining attached to add critical missing context. They're misleading, at best. And collectively inaccurate.
If you buy into these stories, you'll probably make the wrong choices. When, not if, but when the US enters the next phase of the oil story, it will all be over. There aren’t any new source rocks to go after.
I think we’re just a few years away from that decline phase, which means we don’t have a lot of time to prepare for what is certain to be an ugly period of adjustment.
As I wrote in Part I, the WSJ has finally managed to run some basic numbers and discover that the shale story has been over-hyped by the operators. It’s quite a fascinating tale, one that we are quite familiar with at Peak Prosperity.
These companies committed quite a few frauds along the way, each of which contributed to over-estimating how much oil (referred to in the industry as the “EUR”) that would come out of an average well, which include:
- Claiming much lower than observed rates of decline (5% vs ~15%)
- Using a tiny cluster of highly prolific wells to represent the entire play
- Excluding really crappy wells entirely from the calculations for the “average”
- Using ridiculously long estimates of well life (50 years when there are already wells tapped out after 10 years in some cases)
These are way beyond simple analytical differences and amount to overt fraud. Okay, fine, caveat emptor to the investors, right?
Well, the problem here is that the US generally, and major corporations as well as individuals specifically, have bought the story hook-line and sinker and made big, long-term decisions based on these frauds. Ford dropped selling sedans in North America to focus on selling trucks and SUVs, the US government rolled back plans on fuel standards, and individuals bought pickup trucks and/or SUVs under the theory that gasoline would always be cheap.
At a minimum, you should not be invested in….
A Bust For The Ages
PREVIEW by Chris MartensonExecutive Summary
- In short, we've been lied to about the production potential of America's shale wells
- Huge decisions have been made based on the (faulty) assumptions we've swallowed
- When it's finally clear than much less is going to be available (and at a higher price) all hell will break loose
- The choices we make right now will determine how bad the reckoning will be
If you have not yet read Part 1: The Shale Oil 'Revolution' Actually Reflects a Nation in Decline, available free to all readers, please click here to read it first.
The reason I keep bringing us all back around to the energy situation is because it’s so critical to, well… Everything.
To make good decisions, you have to be armed with good information. That’s not easy to find these days, especially in the US where we are saddled with a massive propaganda campaign when it comes to energy.
It’s aim seems to be to convince everyone that there’s nothing to worry about. It's a near-constant barrage of these sorts of talking points and ideas:
- The US is the new Saudi Arabia
- The US is hitting new production records each month
- The US is now a net exporter of oil for the first time in 75 years
- Technology has improved so much that shale wells can now break even at $40/bbl oil prices.
And so on.
The problem with this sort of messaging is that the statements all need a couple of giant asterisks next to them, with some heavy explaining attached to add critical missing context. They're misleading, at best. And collectively inaccurate.
If you buy into these stories, you'll probably make the wrong choices. When, not if, but when the US enters the next phase of the oil story, it will all be over. There aren’t any new source rocks to go after.
I think we’re just a few years away from that decline phase, which means we don’t have a lot of time to prepare for what is certain to be an ugly period of adjustment.
As I wrote in Part I, the WSJ has finally managed to run some basic numbers and discover that the shale story has been over-hyped by the operators. It’s quite a fascinating tale, one that we are quite familiar with at Peak Prosperity.
These companies committed quite a few frauds along the way, each of which contributed to over-estimating how much oil (referred to in the industry as the “EUR”) that would come out of an average well, which include:
- Claiming much lower than observed rates of decline (5% vs ~15%)
- Using a tiny cluster of highly prolific wells to represent the entire play
- Excluding really crappy wells entirely from the calculations for the “average”
- Using ridiculously long estimates of well life (50 years when there are already wells tapped out after 10 years in some cases)
These are way beyond simple analytical differences and amount to overt fraud. Okay, fine, caveat emptor to the investors, right?
Well, the problem here is that the US generally, and major corporations as well as individuals specifically, have bought the story hook-line and sinker and made big, long-term decisions based on these frauds. Ford dropped selling sedans in North America to focus on selling trucks and SUVs, the US government rolled back plans on fuel standards, and individuals bought pickup trucks and/or SUVs under the theory that gasoline would always be cheap.
At a minimum, you should not be invested in….
by
Adam Taggart
Three years ago, I interviewed Paul and Elizabeth Kaiser about the remarkably effective model being pioneered at their farm, Singing Frogs Farm, a small micro-farm in northern California. It quickly became one of Peak Prosperity's most popular podcasts of all-time.
Developed over years of combining bio-intensive land/forestry management theory with empirical trial & error, the farming practices at Singing Frogs have produced astounding results.
This week, I sit back down with Paul and Elizabeth to discuss the science behind their latest farming practices & techiniques, the importance of biology over chemistry when it comes to gardening, and the hands-on workshops they offer, and what they think it takes to make a 'resilient farmer'.
Singing Frogs Farm: The Science Of Healthy Soil
by Adam TaggartThree years ago, I interviewed Paul and Elizabeth Kaiser about the remarkably effective model being pioneered at their farm, Singing Frogs Farm, a small micro-farm in northern California. It quickly became one of Peak Prosperity's most popular podcasts of all-time.
Developed over years of combining bio-intensive land/forestry management theory with empirical trial & error, the farming practices at Singing Frogs have produced astounding results.
This week, I sit back down with Paul and Elizabeth to discuss the science behind their latest farming practices & techiniques, the importance of biology over chemistry when it comes to gardening, and the hands-on workshops they offer, and what they think it takes to make a 'resilient farmer'.
by
charleshughsmith
Executive Summary
- The 8 Systemic Failure Points Of The Global Economy
- Why The US May Weather The Next Collapse Better Than The Rest Of The World
- The Fed’s Long Game
- Why Allowing Recession Now May Be A Policy Goal
If you have not yet read Part 1: Is This Downturn a Repeat of 2008?, available free to all readers, please click here to read it first.
In Part 1, we concluded the current global downturn isn’t a repeat of the 2008 global crisis; rather, it has characteristics of three types of recession: liquidity/currency mismatches, the popping of credit-asset bubbles and a business-cycle exhaustion of credit impulse, what I call a credit-demand exhaustion.
Let’s add a potential fourth recessionary impulse: energy. Right now the world’s oil importers are feasting on a 40% decline in the cost of oil, but as Chris and other analysts (Gail Tverberg, Richard Heinberg, and Nate Hagens) have explained, we’re approaching a point where the cost of extracting, processing and distributing oil is rising as the cheap oil has been consumed. Producers need high prices or they will stop producing. But consumers, the vast majority of whom have stagnant incomes, can’t afford high energy costs. Beyond a rather low price point, higher energy costs trigger a recession.
This may not be driving the current downturn, but it looms large in the background. I see the current collapse in oil prices as a head-fake: the sharp drop makes it appear oil is abundant, but this abundance is temporary, not permanent.
Moreover, we aren’t privy to the opinions and machinations within the world’s major central banks, but it’s clear that the U.S. Federal Reserve is diverging from other central banks, which remain accommodative while the Fed raises rates and reduces its balance sheet by $30 billion a month.
Of the four primary central banks—the European Central Bank, the Bank of Japan, the Bank of China and the Fed—why is the Fed the one bank diverging from the other three, despite the appeals of the ECB to remain accommodative?
I see several reasons, and the first is…
The 8 Systemic Failure Points Of The Global Economy
PREVIEW by charleshughsmithExecutive Summary
- The 8 Systemic Failure Points Of The Global Economy
- Why The US May Weather The Next Collapse Better Than The Rest Of The World
- The Fed’s Long Game
- Why Allowing Recession Now May Be A Policy Goal
If you have not yet read Part 1: Is This Downturn a Repeat of 2008?, available free to all readers, please click here to read it first.
In Part 1, we concluded the current global downturn isn’t a repeat of the 2008 global crisis; rather, it has characteristics of three types of recession: liquidity/currency mismatches, the popping of credit-asset bubbles and a business-cycle exhaustion of credit impulse, what I call a credit-demand exhaustion.
Let’s add a potential fourth recessionary impulse: energy. Right now the world’s oil importers are feasting on a 40% decline in the cost of oil, but as Chris and other analysts (Gail Tverberg, Richard Heinberg, and Nate Hagens) have explained, we’re approaching a point where the cost of extracting, processing and distributing oil is rising as the cheap oil has been consumed. Producers need high prices or they will stop producing. But consumers, the vast majority of whom have stagnant incomes, can’t afford high energy costs. Beyond a rather low price point, higher energy costs trigger a recession.
This may not be driving the current downturn, but it looms large in the background. I see the current collapse in oil prices as a head-fake: the sharp drop makes it appear oil is abundant, but this abundance is temporary, not permanent.
Moreover, we aren’t privy to the opinions and machinations within the world’s major central banks, but it’s clear that the U.S. Federal Reserve is diverging from other central banks, which remain accommodative while the Fed raises rates and reduces its balance sheet by $30 billion a month.
Of the four primary central banks—the European Central Bank, the Bank of Japan, the Bank of China and the Fed—why is the Fed the one bank diverging from the other three, despite the appeals of the ECB to remain accommodative?
I see several reasons, and the first is…
by
David Collum
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