peak cheap oil
by
Chris Martenson
Executive Summary
- Why prices under $100 per barrel just aren’t cash flow positive for shale oil producers
- VIDEO: all you need to know about the shale oil industry
- Why the Boom/Bust cycle is swinging to ‘Bust’ for shale companies
- Why a prolonged ‘Bust’ in oil prices will create massive economic shockwaves
If you have not yet read Part 1: About That Shale ‘Miracle’… available free to all readers, please click here to read it first.
The Shale Reality
Now, let me build on the case that not only are shale companies not profitable at $50 per barrel oil, but they are often not profitable at prices nearly 100% higher than that.
I’m not about to make the case that all shale operators are unprofitable or about to go bust on the plays, but I am going to make the case that any sweeping statements like “technology will bring us Shale 2.0” are utterly adrift from the evidence at our disposal.
Let’s go back to September 2014, before any oil price weakness had crept into the picture. At that point in time, according the WSJ author, the shale operators should have been swimming in cash.
Well, that’s just not the case. And some of them were losing their shirts:
Sumitomo’s US shale oil foray turns sour
Sept 29, 2014
Sumitomo Corp of Japan has drawn a line under its disastrous two-year foray into shale oil in the US, with writedowns connected to the project almost completely erasing its full-year earnings.
On Monday, Sumitomo, the fourth biggest of Japan’s trading companies by market capitalisation, said that an impairment loss of Y170bn ($1.6bn) on a “tight oil” project in west Texas would form the bulk of Y240bn of charges for the fiscal year to March 2015.
(Source)
Hmmmm. I guess Sumitomo just failed to use enough smart technology or something, because otherwise how is it possible to lose $1.6 billion at a time when oil was solidly priced in the $100 range?
Sarcasm aside, the truth is that it’s all too easy to lose money in the shale plays, something I believe is already completely indicated by the negative free cash flows of the industry.
In fact, that negative free cash flow evidence tells me that…
The Hard Facts About Shale Oil
PREVIEW by Chris MartensonExecutive Summary
- Why prices under $100 per barrel just aren’t cash flow positive for shale oil producers
- VIDEO: all you need to know about the shale oil industry
- Why the Boom/Bust cycle is swinging to ‘Bust’ for shale companies
- Why a prolonged ‘Bust’ in oil prices will create massive economic shockwaves
If you have not yet read Part 1: About That Shale ‘Miracle’… available free to all readers, please click here to read it first.
The Shale Reality
Now, let me build on the case that not only are shale companies not profitable at $50 per barrel oil, but they are often not profitable at prices nearly 100% higher than that.
I’m not about to make the case that all shale operators are unprofitable or about to go bust on the plays, but I am going to make the case that any sweeping statements like “technology will bring us Shale 2.0” are utterly adrift from the evidence at our disposal.
Let’s go back to September 2014, before any oil price weakness had crept into the picture. At that point in time, according the WSJ author, the shale operators should have been swimming in cash.
Well, that’s just not the case. And some of them were losing their shirts:
Sumitomo’s US shale oil foray turns sour
Sept 29, 2014
Sumitomo Corp of Japan has drawn a line under its disastrous two-year foray into shale oil in the US, with writedowns connected to the project almost completely erasing its full-year earnings.
On Monday, Sumitomo, the fourth biggest of Japan’s trading companies by market capitalisation, said that an impairment loss of Y170bn ($1.6bn) on a “tight oil” project in west Texas would form the bulk of Y240bn of charges for the fiscal year to March 2015.
(Source)
Hmmmm. I guess Sumitomo just failed to use enough smart technology or something, because otherwise how is it possible to lose $1.6 billion at a time when oil was solidly priced in the $100 range?
Sarcasm aside, the truth is that it’s all too easy to lose money in the shale plays, something I believe is already completely indicated by the negative free cash flows of the industry.
In fact, that negative free cash flow evidence tells me that…
by
JHK
Executive Summary
- The 3 fundamental activities society will need to prioritize in order to manage our contracting economy & resources
- How food production will need to evolve if we are to continue to feed ourselves in the future
- How pursuing "growth" is wasting us precious time and energy
- Mandatory transition will be needed across all sectors: transportation, health care, urban planning, manufacturing, trade, etc..
If you have not yet read Part I: Growth is Obsolete, available free to all readers, please click here to read it first.
The problem of growth in its current context is first a problem of language, but do not make the mistake of supposing that this is just a semantic argument. Language is the human animal's primary tool-kit for accomplishing anything in groups, whether it is hunting bison or putting a spacecraft on the moon. If you use the wrong tool you are likely to mismanage the task. Now the primary task facing humans in this moment of history is managing contraction and our goal should be to manage it in a way that minimizes the potential for hardship and suffering. It must be obvious, then, that "growth" in the broad sense that we use the term is not conducive to facilitate "contraction" in the broad sense. The promiscuous use of the word "growth" in our economic debates only confuses us and paralyzes our ability to construct a coherent narrative about what is happening in the world and how we might enter a plausible future which extraordinary events are now shaping.
Three Fundamental Activities
I propose that we substitute the term "activity" for "growth" in our public debates over how our economy can function in the face of the manifold crises of population overshoot, climate change, peak cheap oil, and capital scarcity. There are an endless number of purposeful activities we can undertake to address these large problems that do not connote growth. The three fundamental categories of these activities can be stated with precision, namely:
- re-localizing
- downscaling, and
- de-complexifying.
The quality in common with all of them is indeed the opposite of growth. Yet they all imply a range of positive actions that we can undertake as communities to make new arrangements for the human project to continue in a favorable way.
I will describe the particulars in a moment, but first the point must be made that…
Getting to a Future That Has a Future
PREVIEW by JHKExecutive Summary
- The 3 fundamental activities society will need to prioritize in order to manage our contracting economy & resources
- How food production will need to evolve if we are to continue to feed ourselves in the future
- How pursuing "growth" is wasting us precious time and energy
- Mandatory transition will be needed across all sectors: transportation, health care, urban planning, manufacturing, trade, etc..
If you have not yet read Part I: Growth is Obsolete, available free to all readers, please click here to read it first.
The problem of growth in its current context is first a problem of language, but do not make the mistake of supposing that this is just a semantic argument. Language is the human animal's primary tool-kit for accomplishing anything in groups, whether it is hunting bison or putting a spacecraft on the moon. If you use the wrong tool you are likely to mismanage the task. Now the primary task facing humans in this moment of history is managing contraction and our goal should be to manage it in a way that minimizes the potential for hardship and suffering. It must be obvious, then, that "growth" in the broad sense that we use the term is not conducive to facilitate "contraction" in the broad sense. The promiscuous use of the word "growth" in our economic debates only confuses us and paralyzes our ability to construct a coherent narrative about what is happening in the world and how we might enter a plausible future which extraordinary events are now shaping.
Three Fundamental Activities
I propose that we substitute the term "activity" for "growth" in our public debates over how our economy can function in the face of the manifold crises of population overshoot, climate change, peak cheap oil, and capital scarcity. There are an endless number of purposeful activities we can undertake to address these large problems that do not connote growth. The three fundamental categories of these activities can be stated with precision, namely:
- re-localizing
- downscaling, and
- de-complexifying.
The quality in common with all of them is indeed the opposite of growth. Yet they all imply a range of positive actions that we can undertake as communities to make new arrangements for the human project to continue in a favorable way.
I will describe the particulars in a moment, but first the point must be made that…
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