Unconventional Oil is NOT a Game Changer


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    Nicole Foss

      National Photo Co. Fossil Fuel 1920 Washington, D.C. "Penn Oil and truck." Oil prices have been falling.   This is no surprise t
    [See the full post at: Unconventional Oil is NOT a Game Changer]


    It’s great to have you contributing more often Nicole. When researching information about these important topics, it’s rare and refreshing to have find the writings of such a brilliant mind without the hyperbole.

    Nicole Foss

    Westexas (Jeffrey Brown) over at TOD has a good data set on oil prices in the Great Depression:

    “The Thirties Analogue:

    Annual nominal US crude oil prices* 1929 to 1939

    1929: $3.67
    1930: 2.38
    1931: 1.79
    1932: 1.82
    1933: 1.78
    1934: 2.39
    1935: 2.13
    1936: 2.43
    1937: 2.69
    1938: 1.90
    1939: 2.06

    *Data Source: Global Financial Data

    It appears that global crude oil consumption declined in 1930, 1931 and 1932, and then started increasing in 1933:


    I obtained the Global Financial Data from Mark Perry, who had the following blog post, which shows 1930’s (inflation/deflation adjusted) monthly oil prices in constant 2008 dollars:


    Note that both adjusted prices and nominal oil prices rose after 1933, with the 1938 decline still being above the 1933 price level.”

    This is my response:

    I am expecting oil to bottom relatively early in this depression, as it did in the last one. My guess would be a bottom within the next 5 years at the most, and quite possibly sooner. Economic contraction and collapsing purchasing power should push prices down a long way (a temporary $20/barrel would not surprise me), but military demand will probably start to pick up as countries chase after their share of the liquid hegemonic power. I am expecting resource wars and internal conflict within resource rich countries to take supply off the market. I am also expecting production and distribution infrastructure decay and deliberate damage. In addition, trade collapses in depressions, meaning that we would see oil cease to be fungible. Price could vary substantially both in time and between places. The overall picture is likely to be a very complex blend of technology, finance, geopolitics and many other factors.

    Even if prices are low in nominal terms, that does not equate to greater affordablity. Purchasing power for most people will have fallen much further than the oil price, making oil considerably more expensive in real terms, even as prices are bottoming. As the next price cycle begins, and prices rise substantially, affordability will get drastically worse. We could see a new high in nominal terms, but real terms matter more anyway.

    Nicole Foss

    I agree that in the short term markets today seem to be just a measure of where liquidity is running – there’s a lot of it out there, and it appears to slosh from bonds to stocks, from one country to another, with big distorting effects as it does so.

    To understand what our effective constant oil supply might be from all the shale wells we’ve drilled, if we just were to eliminate the first few (deceptively rich) years of production, it would seem to be a simple matter of multiplying some lower average rate (50 bbl/day?) times the number of wells drilled to get a sense as to the steady state production without the distorting effect of the first few years.

    20k wells x 50 bbl/day = 1 mbpd. So can we say, for each 20k wells, we get 1 mbpd steady state (more or less) for perhaps 10 years? At a cost of perhaps $6M per well, that’s $120B per 1 mbpd or about $30/bbl.

    A 10B barrel resource produced @ 1 mbpd will last about 27 years, and require about 50k total wells drilled. So, we need about 180B barrels of resource to provide for US oil needs for the next 27 years. To produce such a resource, we’d need to drill 900k wells, costing $5.4 Trillion dollars, or $200B per year. Say 100k wells per year drilled at maximum – 20 days per well, so that would require 5k rigs I think we have 2k rigs right now, and some of them are working on gas.

    My questions are – are the average numbers I used even close to being correct, and does that resource even exist?

    If you have different numbers, I’d like to hear what they are.

    I do realize you anticipate a crash that will likely prevent any of this investment from happening, but I’m curious just from an engineering standpoint to see what it might cost if we could actually execute on it, and where it might have problems in execution.


    Absent from this article is the increasing amount of energy coming online from renewables all over the world. This surely is putting some burrs under fossil fuel pig saddles.

    I know for a fact that wind power in Texas is now at 3 cents per kwh. I will post the stats in the US after I dig them up at the US Energy Department web site but I know that renewables are forcing fossil fuel prices down and the world recession and more natural gas from fracking are not the only factors.
    I also question any math that excludes the cost of dealing with poisoned aquifers from fracking or ignores the massive subsidies these crooks get.
    I don’t DO excluding “externalites” to make the numbers look good!

    Nicole Foss

    Renewables represent a drop in the bucket of global supply. They are having no effect whatsoever on fossil fuel prices. They are more expensive than fossil fuels because of their very low EROEI and very large fossil fuel dependency. In fact renewables is a minomer. The sun will continue to shine and the wind to blow, but steel is not renewable and neither are many other essential components.

    The demand and price collapse will kill much of renewable development, especially at a large scale. You cannot run an industrial society on intermittent energy sources with low EROEI. Feed in tariffs are already being cut worldwide, and without them renewable power is not competitive. Since we cannot run this society on renewables, our society will have to change. We will have to learn to live within our means.

    This article was not about poisoned aquifers. I have written about that before though. I cannot cover everything in every article or there would be no focus. Of course fracking is obscene, the environmental risks are huge and a few well connected individuals are making a killing from the ponzi scheme. The price collapse will eventually prevent it, just not right now when there is still money to be made. The numbers are bad even with externalities excluded, and are of course much worse with them. Some of these things are very difficult to quantify, and over-quantification doesn’t really help anyway.

    This is real politik – the way the world really works. It’s about money and power. The expansion phase of the bubble concealed that for a while by floating many boats temporarily. I wish that wasn’t the way it worked, but it does, whether we like it or not. All we can do is to understand our situation and make the best of it.

    Ken Barrows

    The discussion of unconventional gas/oil seems to get more absurd to me. If the claims are right (just for argument’s sake), the carbon dioxide emissions will be the final nails in the coffin for civilization. To be a proponent of developing the unconventional resources fully, you have to believe unlimited CO2 emissions have no consequences. I’d like to hear someone state that view–I can always use a good laugh.


    “Although industry growth in 2010 was slower than the record growth set in 2009, 5,600 MW worth of projects were under construction at the end of the year, laying the foundation for further growth in 2011. In 2010, the U.S. wind industry grew 15%, installing 5,115 MW of generating capacity—enough to power more than 1.2 million homes.

    Wind power represented 25% of all new U.S. electric generation capacity in 2010.
    According to the American Wind Energy Association, 38
    states now have utility scale wind projects. Current wind
    power installations in the United States provide enough
    electricity to avert nearly 62 million tons of greenhouse gas
    emissions, which is equivalent to taking 14 million cars off the road. Fourteen states have installed more than 1,000 MW of wind power.”

    “Enhanced Geothermal Systems
    Naturally occurring geothermal systems,
    known as hydrothermal systems,
    are defined by three key elements:
    heat, fluid, and permeability at depth.
    Enhanced Geothermal Systems (EGS)
    are manmade reservoirs, created where
    there is hot rock but little to no natural
    permeability or fluid saturation.”

    “EGS offers the opportunity to access
    an enormous, domestic, clean energy
    resource estimated to be in the range
    of 100-500 GWe. A Massachusetts
    Institute of Technology (MIT) study
    released in 2007 predicted that in
    the United States alone, 100 GWe of
    cost-competitive capacity could be
    provided by EGS in the next 50 years.1″


    “Oil provided a growing share of energy for electric generation through the 1960s, but its share declined to less than 1% in 2011 since peaking at 18% in 1973.”


    Now look at world electricity production.



    I believe that although supply and demand have a definite bearing on the reduced price of oil and gas caused partially by more renewable energy coming online and a world recession going on, there is something else going on here that I witnessed in the 1980s as well. The price of fossil fuels was flattened to knock the stuffing out of solar power, wind power and any other renewable that threatened price monopoly by the fossil fuel pigs. After all, how can you have sudden increases in prices from wars, the rumors of wars or some other convenient reason for jacking up the prices to the moon when a wind generator in Texas or a geothermal plant or a 100MW solar panel farm in the California desert is pumping out that power day in and day out in a boring, predictable fashion? Wall Street and fossil fuel pigs HATE “boring and predictable”. It’s hard to scam people when things are “boring and predictable”.

    President Carter managed to convince a lot of people that renewables were a good deal. Since big oil could not attack that head on, they conspired to lower prices to bargain basement levels in order to make renewables “non-competitive”. Then they came up with the LIE that nuclear power was clean and green to blur the obvious advantage for the environment of real renewables like wind, solar and geothermal, etc. It was also during that period that big oil came out with the big lie that fossil fuels, rather than increases in proper hygene and antiseptic procedures, had enabled the population explosion.

    It worked. Don’t fall for it again. We need to push for renewables with all our might if we ever hope to control how much we pay for our energy and make sure we generate it in an environmentally sound manner.

    For those who like wading through data, here’s the whole enchillada about energy source breakdown from 1973-2010 and lots of other spreadsheet data as well.




    Wind Power Projects

    EDF Energies Nouvelles and Mitsui of Japan have
    announced a 150-MW wind power project in northern
    Morocco. Morocco intends to have 2 GW of wind power and 2 GW of solar power up by 2020.

    Iberdrola has commissioned the 178-MW Messina-Agrigento wind power complex on the island of Sicily in Italy. “This project, developed jointly (50/50) with Italy’s API Nova Energía, part of the API business group, encompasses four wind farms: Nebrodi (64.6 MW), Alcántara (47.6 MW), Lago Arancio (44 MW) and Rocca Ficuzza (22.1 MW).”

    Polish utility Enea has bought a 50-MW wind farm in northwestern Poland from leading wind power company Vestas. The capacity of the wind farm is supposed to expand to 60 MW.

    First Wind “has obtained $76 million in construction financing for its 34 megawatt (MW) Bull Hill Wind project in Hancock County, Maine.”

    Chinese subsidiary Jade Werke is “outsourcing wind production to Germany” — it will begin production of steel fundaments for offshore wind farms at a €50-million production plant in Germany as early as 2013. Construction of the new plant is expected to begin this summer. ”Germany’s decision to abandon nuclear power is having profound effects on the wind energy industry. Growth rates in the onshore segment were strong last year, the policy framework has been improved, and the offshore market ready to take off,” said Anne Braeutigam, wind energy expert at Berlin-based Germany Trade & Invest.
    The largest wind farm in the US, the Alta Wind Energy Center (“AWEC”) located in Tehachapi, CA, is projected to reach a capacity of 1,320 MW (wow, that’s big) with $650 million of financing now secured for the 168-MW Alta Wind VII and 132-MW Alta Wind IX projects. Other news related to the project is that “Terra-Gen recently sold the Alta Wind VIII (150 MW) phase to Brookfield and has entered into an agreement to sell the Alta Wind VI phase (150 MW) to Everpower.”

    Wind Power Market Trends
    Asia is expected to drive the global wind market forward in coming years, yet another report finds. “Danish consulting firms BTM and Make have published analyses on global wind power market trends. In 2011, nearly 42 gigawatts – some 23,640 turbines in 50 countries – was installed, bringing the global total up to around 241 gigawatts. Vestas managed to defend its market leadership…. Asia now makes up 52.1 percent of the global wind power pie, growing by 34.1 percent from 63.6 gigawatts in 2010 to 85.3 gigawatts last year.”

    Scottish people love or like wind power, well 7 out of 10 of them do. A recent YouGov survey commissioned by the trade group Scottish Renewables “found that 39 per cent of respondents ‘strongly agreed’ with the statement ‘I support the continuing development of wind power as part of a mix of renewables and conventional forms of electricity generation’, while a further 33 per cent ‘tended to agree’.”
    In the UK as a whole, approximately 66% of people support wind energy and only 8% are against it when asked ”to what extent are you in favour of or opposed to the use of wind power in the UK?” according to a recent Ipsos Mori poll, commissioned by wind trade body RenewableUK.

    The UK’s Guardian has a new, short video on Denmark’s wonderful wind leadership. “[Over] 28% of the country’s energy is now provided by wind, with an aim of 50% by 2020 – and 100% renewable energy provision by 2050.”
    In Ontario, a couple claiming that their home’s value has been devalued from nearby wind turbines has had the claim rejected by MPAC, the Municipal Property Assessment Corp.

    Wind News


    Hi Agelbert,

    Do you live off grid? What systems do you use?




    Without going into an analysis about the growing use of wind and solar…it might be handy to recall the Hirsch report…..”we don’t have an energy crisis, we have a liquid fuels crisis.”

    At last look, 95% of all transport worldwide was still via fossil fuels….
    going on 1 billion vehicles……

    glad I can walk to the beach and don’t have to heat my home….


    Wind power becomes a lot more useful if we can develop cheap hydrogen electrolyzers. Hasn’t happened yet.


    Here in the UK, where Nicole is at the moment, I notice that George Monbiot has been completely taken in by Maugeri’s report. See https://www.monbiot.com/2012/07/02/false-summit/. It’s a pity that GM has waived his usual demand that claims of the sort that Maugeri makes should be based on peer-reviewed work. In particular he happily accepts, as “compelling evidence” of the game-changing nature of shale oil, the following passage from Maugeri :

    “In 2011, Continental has estimated the Bakken OOP alone at 500 billion barrels. In terms of oil in place (not all of which is recoverable), both the Price and the Continental estimates would put the Bakken formation ahead of the largest oil basins in the world”.

    Of course the parenthesis is absolutely crucial here, and authoritative estimates of what is “recoverable” are available to Monbiot with a few mouse clicks’ effort: for instance the USGS estimate of 3 – 4.3 billion barrels. Too bad he didn’t expend that effort. At least Monbiot is prepared to admit past mistakes.


    “boom and bust”…Chinese glut in cement mixers (& other):

    From “The Looting of China by the Kleptokapitalist Bourgeoisie Roaders”

    Elsewhere , Zoomlion the concrete and industrial machine giant is seeking Rmb140bn ($22bn) in fresh credit, fuelling fears the company is at the centre of a growing debt bubble. Zoomlion only has a market capitalization of $12.5B and is one of the most shorted stocks on the Hong Kong market with over 30% on loan at any one time to short-sellers. This company certainly lives up to its name, we know we have a bubble when a company with a business model like this one can raise just less than twice as much as the Facebook who raised $12.B by selling 12.3% of the company.

    Zoomlion has an interesting business model, it is similar in many of ways to Caterpillar, except whereas Caterpillar report falling sales, Zoomlion reports astounding sales growth with a fivefold increase in revenue since 2007. Zoomlion customers sometimes buy ten concrete mixers when they planned to initially by one or two. They have a perverse incentive to buy more than they need because these concrete trucks are purchased via finance packages supplied by Zoomlion.

    Then the machines can be garaged and used as collateral to borrow further funds from other lenders. Zoomlion continues to grow while cement sales have plunged. In May, cement output increased 4.3 per cent YoY, down from 19.2 per cent recorded last year. Zoomlion’s new debt of $22.5B buys roughly 900,000 trucks which could produce enough concrete (at six loads a day) to build over thirty Great Pyramids of Giza a day .

    Every sector is infected with these kinds of perverse business practices, steel traders used loans meant for steel projects to speculate in property and stocks , it has been common (apparently) for steel traders to secure loans to buy steel then use this same steel as collateral to borrow funds to invest in property development and the stock market. In many ways this is the steel version of the Zoomlion model. A fundamental foundation of any lending market is the ability of the lender to ensure title and guarantee ownership of collateral.

    complete article here


    Don’t bother reading the whole article, it’s really awful, but the Zoomlion bit is illustrative; it’s part of my next China piece. Today and tomorrow is travel time, so it may take a few days.


    Hi Candace,
    Nope. I live on grid in Vermont on rented land (can’t control what I put on the house for solar power) but I support Green Mountain Power’s (local utility) move to renewables from wind farms to replace the Vermont Yankee nuclear power plant contracts they are doing away with. My house is small (less than 1,00 sq. ft.) and we keep our carbon footprint tiny with a push mower and less than 2,000 miles driving per year.


    Correction: My house is less than 1,000 square feet. Sorry for the typo.


    One good thing,and the only “good”thing I see about “unconventional” oil,is that it is kicking the can a few more months/years down the road…yes,I know there will be a terrible price to pay with the destroyed aquifers,and other “prices”that are not yet known…but I understand the logic they used….when it breaks bad,all hell breaks loose,and even TPTB will be hurt…

    Bee good,or
    Bee careful



    Renewable energy, higher efficiency and LENR energy generation will likely save us in the long run (10 to 20 years) as these things ramp up. The question is if they can do so fast enough to prevent global warming disaster.

    Lucas Durand

    I agree with you that the pursuit of renewable energy systems should be of paramount importance.

    However, I am not convinced that renewables will ever amount to anything more than a drop in the bucket.

    As much capacity as is being added, it is nothing compared to demand and there are many large technical hurdles to overcome – grid scale storage not the least.

    Check out this article from “The Economist”:

    Apparently Texas should have had plenty of electricity over the summer of 2011 based on a 2010 estimate of 84400 MW of total capacity (9500 MW from wind alone) but they only barely avoided rolling blackouts… Part of the problem was that the 9500 MW from wind wasn’t really 9500 MW. Wind is intermittent and doesn’t always produce when you need it. The article goes on to hype future-tech grid scale storage systems…

    If you’ve never seen it, you should check out Tom Murphy’s “Do The Math”. There are, I think, some very practical estimates there on what can be expected of all manner of renewable energy technologies (among other things).

    All the technical difficulties aside, I think the biggest problem with a transition to renewables is not even with the technology but in people’s expectations for how much energy they “need” to consume.

    I think it was Nate Hagens who said something like:
    “We’re not facing a shortage of energy, but a longage of expectations.”

    I’m not sure I entirely agree with the statement… but the “longage of expectations” is definately a component of the equation worthy of serious consideration.

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