Debt Rattle Feb 25 2014: (Bomb)Shell


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    Arnold Genthe “Diamond antique store, Royal Street, New Orleans” 1920 An interesting government commissioned report came out yesterday in Britain, pre
    [See the full post at: Debt Rattle Feb 25 2014: (Bomb)Shell]


    How ironic that yesterday you highlight the issue of climate change and today you berate the UK politicians for not ensuring capital investment and therefore further exploitation of fossil fuels by big oil during the twilight years of the North Sea oilfields.

    Surely our political elite got that (inadevertently) right? Through their shortsightedness and cowtowing to the corporates the last vestiges of North Sea oil and gas might remain in the ground. Totally consistent with your stance on climate change? Why berate them for it?

    Yes I am sure we’ll suffer financially for it. But what does that matter when large wads of tax revenue goes straight to the bankers, the £ is verging on monopoly money with a currency crisis just round the corner?


    … today you berate the UK politicians for not ensuring capital investment and therefore further exploitation of fossil fuels by big oil

    Excuse me? That looks like left field and a half.


    More context on Shell and other majors; Demand vs. Supply-driven forecasting. Yikes!

    CGEP: Global Oil Market Forecasting –


    World oil production has responded favorably to sustained, high oil prices in the last decade. The fact that North Sea production hasn’t tells you that it just isn’t economic at $110/bbl Brent. Maybe if oil prices double to $220/bbl oil(Brent), but costs only go up 50% to $160/bbl they will be able to go back in and extract some economically.

    You have a couple of links to Jay Hanson on your front page. You should know that oil can be produced below its economic limit, if part of the extraction process is mispriced. e.g. if a well with an electric driven pump jack has subsidized electricity powering it. But why would you do that? Kind of like a drill Sargent telling someone to dig a hole and then fill it back up, lol.

    The bottom line is the same as it has been for a decade–we are well past peak cheap oil. The best strategy is probably to wait and see if oil prices rise faster than costs. If they do, you can always go back in and extract the newly economic oil.

    This is the thing that is stunting the world’s economy. Oil is the key commodity, and it is going to cost more and more to extract it going forward.


    “There is, however, a prior question that few if any bother to ask: Do capitalists want a
    recovery in the first place? Can they afford it?

    On the face of it, the question sounds silly: of course capitalists want a recovery; how else
    can they prosper? According to the textbooks, both mainstream and heterodox, capital
    accumulation and economic growth are two sides of the same process. Accumulation
    generates growth and growth fuels accumulation, so it seems bootless to ask whether
    capitalists want growth. Growth is their lifeline, and the more of it, the better it is.

    Or is it? […]

    The economic consensus is that the capitalist income share in the advanced countries is procyclical (see for example, Giammarioli et al. 2002; Schneider 2011).
    Expressed in simple words, this belief means that capitalists should see their share of income rise in the boom when unemployment falls and decline in the bust when unemployment rises.

    But that is not what has happened in the United States. According to Figures 1 and 2, during the post-war era, the U.S. capitalist income share has moved countercyclically, rising in downturns and falling in booms. […] …..we find that for every 1 per cent increase in unemployment, there is 0.8 per cent increase in the capitalist share of domestic income three years later. […]

    The evidence in this research note serves to explain this nonchalant attitude: Simply put, U.S. capitalists are not worried about the crisis; they love it. ”


    I took someone into the clinic and had to wait for them a while. Good thing I downloaded the text of the article onto a stick. I read it through moonreader. This was long but much easier on a tablet this way.

    I wounder if people get it yet? Oil in the ground is a countries savings and extracting it is taking money out of the account. Further any country that states its energy indepence is based on faster extraction ix flawed and lieing. Faster extraction is faster bankruptcy.

    When Shell says it is leaving a project due to the cost of extraction and the government is talking about throughing money towards this project again its deeply flawed. There is a dollar cost but that is not what Shell is talking about. Suppose it takes 1 barrel of oil to extract 10 barrels of oil you have a net gain of 9. Suppose the net gain is less than 2. At a certain point Shell can not continue and allow a margin for error.

    The name of the game is depleted resources. It means we have consumed half the resources we can within the earths crust. It is complete folly to talk about oil coming from deeper in the crust. We drill as deep as we can. So deep infact that the rocks no longer maintain their strength and become plyable. That is all folks.

    The silver lining is the environment. Imagine something so powerful it can make us reduce our consumption faster than any agreement our leadership can think up. Previous article to this about the climate and how people question whether it is happening will not matter. Like it or not in a depleted resource world means quickly using a lot less.

    We picked the low hanging fruit of oil. Easy fast and in huge volumes. Poke a hole and watch it gush out. Almost no energy used in the extraction. Soon it stops gushing and it must be pumped but still not a problem.

    When the hole gets really dry you need to pump in water or co2. The costs in energy consumed to get energy out goes up. Further and more important the oil is not easy nor is the volume huge.

    Have you ever drank a slurpy? Stick a straw in and suck and you get high volumes of cold sugar based drink. Lets call it depleted when the color slighly changes. Soon after if you don’t slow down it stops giving drink and you get air no problem though because send the straw in somewhere else and you get more drink. Oil is like that. But sending down a new well is very costly so instead you slow down. The well will not collapse if you slow it down and in the end you extract more. Imagine the majority of the wells in the world all needing to do this. That is literally what we can see in the production data.

    Everyone I talk to about peak thinks end of the world and mad max. Think trickle. Everything operates but way to slow. Alright if you get 200 mpg but otherwise a problem – or is it.

    How to we get to 200+ miles to the gallon? Think kindergarden. Cooperation. A car at 30 mpg takes one person to the store or packed full 5 but the full consumed is the same. Suddenly in one step we are at 30*5 = 150 mpg. Pushing the concept further walking and biking for local stuff.

    So in preparation get the bomb shelter stocked up with a higher end bike and extra tires and parts for repairing along with a good bike book, a few good pairs of shoes, some gardening equipment, and some good books that will help you not lose it while the whole thing goes down. It doesn’t cost much. Oil ending means ending consumerism and wild disposible goods. We will also be forced to sift through our “garbage” and get more life out of goods we need.

    I keep telling people the lifestyle of the last 50 years is not maintainable. It completely depends on the extraction of oil steadily increasing. Expect a whole bunch of gloom as we go into crashes and the dumps. But look at it in perspective up till now we have not dealt in reality. We don’t pay the real price of goods. A vehicle manufactured here of outstanding quality is beyond what we want to pay. Clothing manufactured here again beyond what we will pay. Infact almost all consumer goods are shipped in from 3rd world nations paying less per day that a coffee we purchased this morning.

    The perspective is this: If its a fair market and people receive fair value we would be dealt a blow. The equations do not balance. What is good is when the nature of things works. When a knife cuts it is good. When a hammer comes down and drives nail in it is good. That things in nature consistantly work that same way is good. The nature of allied countries sitting pretty with large deficiets and 3rd world nations producing most of the goods for these nations ia a huge inbalance. The economic force that adjusts the constant taker out of the picture and rewards the producer is long overdue.

    We have operated as the consumer of choice for to long. We don’t pay. We are just the black hole of the economy constantly taking never giving and when the shit hits the fan it will be a good thing.

    Its not doom and gloom its proper forces finally working correctly.

    A special warning to investors. According to a number of retired oil exec geologists the equipment for exploring for wells is excellent. What the oil companies do though is over state a find. So lets say you say you have found a field worth 1 million and after extracting .2 million it is dry. What they then do is say they lost .8 million which of course they never had in the first place. They make use of investment vehicles that include uneducated investors to make high risk investments in exploring for fields. These investors take all the risk, In depleted oil new field discouveries will not happen much so the odds are highly against you.


    Good, thought provoking post, William. I worked in the petroleum industry for over 15 years, and based on my experience you are spot on.

    Just to follow up on one of your themes, the 5 people per car idea, let me say that this will be a horrible transition, from a economic infrastructure perspective. Good for the environment, good for health (running shoes), but we’re talking about a huge contraction of many parts of the economy. If we’re burning 1/4 the gas, we need only 1/4 the gas stations. 1/4 the cars, 1/4 the repair shops, 1/4 road repairs (less wear and tear), almost no new roads or added lanes, no new bridges. We’ll need a lot less govt. 1/4 of the motor vehicle offices, hardly any highway dept.

    This is a good outcome for our country, but the transition will be difficult.

    To pick up on another of your points, the staggering price increases for oil and refined products will contribute to the death of the petro dollar system and its twin, the dollar as world’s reserve currency. We just won’t be able to buy near as much stuff. The retail sector is so overbuilt, think how many stores will be empty and how many sales jobs will be lost, plus warehouse, trucking, accounting, and so forth.

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