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Japan: QE As Morphine For A Terminal Patient

Oct 312014

October 31, 2014 Posted by Raúl Ilargi Meijer at 10:56 pm Finance Tagged with: Abe, credit, Halloween, Japan, morphine, QE, spending 8 Responses »

Marion Post Wolcott Works Progress Administration worker’s children, South Charleston, West Virginia Sep 1938

You can jot down Halloween 2014 in your calendar, and it’s unfortunately too tragic to make proper use of the irony involved, as the day Japan committed suicide. The sun is no longer rising. Not that the vital signs weren’t bad before, indeed it might not have survived regardless, but this lethal blow announced today is still quite the statement.

That financial markets interpret it as a reason to cheer and party and make lots of dough is yet one more proof of how shallow and single-minded the people operating in these markets are, lacking all insight in historical context, longer term consequences, wars and politics, and the human mind.

Because the ‘QE as morphine’ concept introduced today by the megalomaniac Shinzo Abe and his central bank raving mad puppets will change the world in ways that make financial gain less than even an afterthought, except perhaps for those of us who cannot see beyond today, or beyond the one single lonely dimension money is of any use in.

If and when a country resorts to having it central bank buy up – the equivalent of – all sovereign bonds it issues, the snake truly eats its tail, and not in a metaphorical sense. Japan eats it children, most of them as yet unborn, to keep its rapidly ageing population contented and in relative wealth, because the alternative would cost Tokyo’s financial-political power cabal their jobs and heads.

Japan’s problem is, and has been for many years, twofold: first, the Japanese people lost the spending power to keep the domestic real economy growing some 20 years ago and never got it back, and second, a whole slew of successive governments refused to restructure the debts in the financial sector, and instead put those debts on the public tally.

The negative growth announced today in US consumer spending should be a warning sign, as should similar numbers that have come from across Europe for a while now, a sign that we need to think about how to run our societies and economies without everlasting growth, and without the ever more failing and ever more costly policies aimed at constructing and maintaining that growth.

However, the worse the policies are for the real economy and the people who depend on it for survival, the more money the financial markets, and the banks, make. It truly is QE as morphine, and Japan has shown us today that morphine can alleviate pain, but it is also in the end the ultimate killer.

It may already be too late, but we can still make the effort to not fall into the same trap Japan has fallen in. Which in essence is simply trying to recreate a past world that is long gone, by applying measures that ‘wise men’ say are sure to bring back the past, and then more.

We must look at ourselves and wonder why we want more. And realize that if we don’t take that look, and we continue on our present path, we will all end up like Japan, guaranteeing that our quest for more will leave us with less, much less. We cannot build our world with credit, we need to work in order to build it. And we cannot borrow our way into growth, nor do we need to grow.

Halloween 2014. A day we could have learned something.

Does Oil Have A Future?

Oct 052014

October 5, 2014 Posted by Raúl Ilargi Meijer at 8:56 pm Finance Tagged with: credit, debt, oil, OPEC, price, Russia, Saudi, Shale 13 Responses »

DPC Gotham Grows Up 1913

Of course I’ve been following oil prices too, on top of all the other topics. The economics of oil has become amusing, in that it raises a lot of questions. First of all, obviously, why are prices falling as much as they are? In the financial world, people are prone to thinking that the price of everything moves up or down due to what goes on in the markets. That traders decide what shines and what doesn’t, be it stocks, bonds or commodities. Me, I haven’t thought that for a long time.

If central banks, the Fed first and foremost, buy bonds and stocks in order to manipulate their prices, and they ‘set’ interest rates as well, I just don’t see any reason to presume they would leave gold and silver and oil alone. That still leaves plenty of questions though. Apparently, someone up there wants low oil prices the same way they want low interest rates. But why, and why now?

The Saudis first announced they would cut production, but recently they’ve said they’d cut prices instead. Saudis also reported a budget deficit a few weeks ago (imagine that, they spend more than they earn!). And it wouldn’t be the first time the US and Saudi Arabia have struck a deal on oil production numbers and prices with political goals in mind.

Stemming the flow of income for IS would seem to be an option. But they sell their oil at a huge discount (50-70%?!) to world prices already, so they wouldn’t be hit terribly hard. On a side note, going after the middle men who buy and sell IS oil would be much more effective than the more or less random bombing we see today. We might want to wonder why this doesn’t happen a lot more, and a lot more out in the open. The CIA doesn’t make enough from the poppy trade yet?

Hurting Russia might be a valid reason. No doubt, lots of pretend smart folks in Washington have come up with the notion. Only, is it really all that smart? Far as I can see, if you want to lower prices to a level where Moscow starts to hurt, you laos risk making large swaths of the domestic US shale industry unprofitable. And that industry is already bleeding – borrowed to boot – money left right and center.

Moreover, the pressure to lift the ban on US exports keeps growing. Exports into a world market that operates on price levels potential US exporters can hardly make a living with. Sure, the conventional producers feel crowded out by shale, but how can that be a reason to start selling at a – potential – loss elsewhere?

Talking about conventional producers, aka Big Oil, they’ve already been hit by plummeting stock values. Based to a large extent on dwindling reserves. And huge capital investments in ever riskier, more expensive and in essence simply highly questionable projects.

Which they engage in anyway because it’s all they have left. Against which backdrop, I’ll repeat myself here, shale enthusiasts should ask themselves why Big Oil has sold off, or simply closed down, so many shale plays recently. Another repeat: shale is a money play, not an energy one. There’s simply not nearly enough there there.

But let’s get back to the drop in oil prices, and the reason why. Not that it’s disconnected from shale, not at all, but there are other forces at work as well. Let’s run through a bunch of quotes from a Telegraph piece today, to see how the main press views the situation:

World On The Brink Of Oil War As OPEC Bickers Over Price

A sudden slump in the price of crude has exposed deep divisions within the Organisation of Petroleum Exporting Countries (Opec) ahead of its final scheduled meeting of the year next month to decide on how much oil to pump. Some members, led by Iran, have called for immediate action to stem the drop in oil prices [..] Brent has tumbled 20% in the last three months after touching $115 per barrel in June. [..] Shale oil [..] can cost up to $80 per barrel to produce [..] However, at current price levels many of these new so called “tight oil” wells are approaching the point when they will soon become unprofitable.

In a declining global economy, and like it or not, that’s what we’re in, organizations such as OPEC, but also the EU, cannot but break apart. There is not enough reason to stick together, and there are lots of reasons not to. I wrote eons ago that down the line, the only thing to do for many OPEC members would be to produce and sell all they can. And even then.

The Export Land Model developed by Jeffrey Brown, old friend from our Oil Drum days, and Sam Foucher, former co-Montrealer, states that oil producing nations will – tend to – require an ever larger portion of their production for domestic use. Their populations grow very fast, and so does the lifestyle of all these extra people. There’s a reason Saudi Arabia reported that deficit.

Besides, every nation in this shrinking global economy will have trouble to make ends meet. That goes for OPEC members even more than for others, because oil is often the only profitable industry they have. The only possible option is cats in a sack: compete till death. And I’m sorry for using that metaphor, some of my best friends are cats. This will happen in the EU too down the line: from cooperation to competition, driven by sheer necessity and desperation.

By the way, the article says “Shale oil [..] can cost up to $80 per barrel to produce”, but I have zero doubt that the vast majority of shale oil costs far more per barrel. Just depends what you include in your accounting. So the next line, … at current price levels many of these new so called “tight oil” wells are approaching the point when they will soon become unprofitable, is I think complete bogus. There’s no way they’re not already bleeding money faster than the greater fish in the casino.

[..] falling oil prices are also a double-edged sword for Britain’s economy and investors [..] prices are approaching the point when many of the developments planned offshore west of Shetland by international oil companies could be placed on ice. A sharp drop-off in domestic oil production and associated tax receipts from the North Sea would give Mr Osborne an unwelcome hole to fill in the government’s public finances [..] However, falling oil prices will help to keep inflation low.

This is pure fun: every economy in the world is trying, in vain, to boost inflation, but Britain wants it lowered. It does touch on a major point, though: all the investments and projects, whether new or existing, that will be cancelled due to lower prices. AN industry that defeats itself, you got to love it.

All eyes are now firmly focused on the next move by Opec, which controls 60% of the world’s oil reserves and about a third of daily physical supply. [..] Opec states have largely managed to maintain cohesion over the last decade as prices over $100 per barrel have enriched their economies and encouraged adherence to quotas. This consensus is now starting to break down [..]

There is no cohesion when everybody does the cats in a sack thing. Not in OPEC, not in the EU, not in any of these organizations founded in times of plenty. You name them: World Bank, IMF, UN, they’ll all start breaking down. Which in most cases is not a bad thing. They all acquire power they should never have been allowed to. Question of democracy.

Then, using data from Reuters, IEA, Deutsche and Bloomberg, the Telegraph produces this graph, which is very interesting even if it leaves a few questions. Like: how reliable are the data, especially knowing some are from the IEA? And: what does the Nov 14 in the middle of the graph stand for? Contracts for future delivery? We’ll have to assume so. Let’s just say it’s about the trends, more than the precise numbers. For comparison, Brent is at $92.31 right now, having lost another 1.19% on Friday. The American WTI standard is at $89.74, a loss of 1.4%.

Would you look at that: Iran and Bahrain need $135 per barrel, Ecuador, Venezuela, Algeria, Nigeria, Iraq, Libya need between $110 and $120 and Russia needs $100. Angola and Saudi Arabia are just about – but only just – scraping by, and only Oman, Kuwait, Qatar and UAE are sitting pretty.

And the Saudis volunteer to lower prices rather than cut production? Politics. Just imagine the amount of money Iran is losing at these levels. I’m less sure about Russia, given that these are western made data, but Putin’s not in a comfy spot, certainly not as the biggest producer of them all. Again, I can’t verify the numbers, I treat them merely as trends, but that should be enough to provide an idea of what is happening in oil.

Yes, there is less demand, China has been overstating its numbers for a long time now, and it’s not buying what those false numbers would seem to imply. But what’s more important, I think, is the amounts of money borrowed to produce, and keep producing, based on the overly positive numbers from not just China, but also Europe, Japan and the US. Everything’s been built on lofty growth ‘expectations’, and there is no growth.

Iran has the highest fiscal break-even price for its budget at over $130 per barrel of Brent, compared with the UAE at around $70 per barrel and Saudi Arabia at about $90. However, the Gulf’s Arab states are all sitting on huge cash piles that are held overseas through sovereign wealth funds and foreign currency assets that can be drawn upon to help them weather any short-term drop in oil export revenues.

But are we talking short-term drops? Ironically, the current prices (and remember, oil was at $40 in 2008) are set to cause such mayhem in production and investment that prices must go up again no matter what the economy does.

Iran, possibly supported by Iraq, will push hard for a change in Opec’s production targets at the meeting and a cut to its overall output by 500,000 barrels per day (bpd) from the 30m bpd limit that it currently sets for members. [..] Saudi Arabia’s influential oil minister, Ali Naimi, who has so far dismissed calls for an emergency meeting to be held ahead of November. Nevertheless, the kingdom has taken the precaution of trimming its own output and reducing the price of crude it offers to customers in Asia in an apparent move to defend its market share.

It’s easy to see, from the graph, why Iran would be up in arms – so to speak, for now -. Why the Saudis cut their prices is less obvious. Trying to finish off a handful fellow OPEC members who are already drowning? Aiding Washington vs Moscow? Revenge on North Dakota?

According to Opec figures, Saudi Arabia cut its output over the summer by more than 400,000 bpd to 9.6m bpd.

How reliable are OPEC numbers? Are those just the ones members themselves report? Saudi Arabia has a deficit, AND they cut prices, AND they cut production? I can’t say I’ve figured out either the real actions, or the reasons behind them, but that doesn’t make any sense as a stand-alone set of facts. So why do they do it, if they do, if these things are accurate? We’ve yet to find out.

Saudi enjoys some of the lowest production costs, excluding capital expenditure on new projects, in the region of $2 per barrel, giving it a large margin to soak up a sudden drop-off in price. This compares with estimated production costs in the North Sea which are in the region of $50 per barrel, according to Oil & Gas UK figures.

The graph puts Saudi production costs at $90 per barrel, and the Telegraph, which published the graph, puts it at $2? Please explain, guys. Is that $88 per barrel in “capital expenditure on new projects”?

An end to Tehran’s economic isolation could trigger the opening up of its oil industry to foreign investment, a move that would bring more crude onto an already flooded market. Iran is currently producing around 3m bpd of crude but it is thought with access to Western technology this figure could be easily doubled.

Wouldn’t that be lovely in the current market? Might as well shut down shale altogether?!

Combined with Iraq, which aims to eventually increase production capacity to as much as 9m bpd by the end of the decade, both countries could challenge the current dominant position of Saudi Arabia and the Arab Gulf states within Opec. The looming issue of global over-capacity has been further complicated by the sudden return to the market of light, sweet Libyan crude.

Yay, more added goodies.

Fracking has helped the US achieve its highest oil production levels since 1986 over the last two months at a rate of 8.5m bpd. The threat of a full lifting of the ban on exports has also helped the US to drive down the price and potentially cripple the Russian economy. Moscow is largely dependent on crude sales for foreign currency earnings and oil trading at around $80 per barrel for a period of months could bring the country to its knees.

Something tells me that Putin is far more aware of the reality of the shale industry than Americans are. Which is that shale oil has a present, but no future.

[..] if Opec fails to cut production in response to the current trend in falling oil prices then around 9% of US “tight oil” output would be immediately rendered uneconomic at a level of $90 per barrel. This figure would rise to 39% should prices slump as low as $80 per barrel.

Again, I don’t belive this for a second. It may be true is you exclude capital costs, but what if you include them, as in normal accounting, and what happens when interest rates rise, in an industry that’s borrowed itself up to its infinity and beyond?

Cute article, nice try, but in the end it leaves far too many questions.

Speaking of which, where do Shell and Exxon stand in all this? What are their breakeven prices across the board? Exxon and Rosneft announced a first Arctic well this week, but at what price can it produce? Does Big Oil have a future? Does OPEC have one? In both cases, I’m in the not-at-all-sure camp. Or maybe there’s no such camp, but then I hereby started it.

Saw a piece of news flash by today about a Dutch report that states their planned offshore wind parks would cost Holland billions of additional dollars every year, not save them. That’s a lot of extra costs for a small economy that’s already broke (they don’t now that yet, but they will, just like all the rest).

So what is the future of oil? There are too many questions out there to answer that question, but what seems clear is that this future, no matter what it will be, is going to be nothing like what we were told it would be.

The same goes for the future of energy in general, and the way our societies utilize it, given that large scale wind power cannot deliver on its promises, in economies which themselves can’t deliver on their promises either.

Number 1: our economic situation is much worse than we care to admit, edged on by politicians and media. Number 2: there isn’t nearly as much oil and gas as we are led to believe. Number 3: wind and solar are things our – soon to be – impoverished economies won’t be able to afford.

That is to say: not on a centralized scale. In smaller units, we may be able to make things happen. It’s a bit of a guess, but given that big, centralized and globalized units are hitting a brick wall all over, it may well be all we have left. That or the deluge.

The oil industry runs on the same fumes as the housing industry: credit. Saudi Arabia has a deficit, and US shale adds a fortune in debt every day as it plays the pig and lipstick. Who needs profits when you can borrow all you need?

Debt Rattle Aug 4 2014: Debt and Energy, Shale and the Arctic

Aug 042014

August 4, 2014 Posted by Raúl Ilargi Meijer at 7:36 pm Energy, Finance Tagged with: arctic, credit, power, Shale, Shell 8 Responses »

Jack Delano Migratory farm worker from Florida in her Sunday clothes July 1940

I know I’ve talked about it more than once lately, but at least for now I don’t think it can be said enough. The world energy situation is much worse than you have been, and are being, led to believe. Even if you do understand the principle that underlies peak oil (by no means a given).

I’ve also repeatedly made the point that the real energy predicament is the real driver behind recent geopolitical events, notably Ukraine. Which is not to say that Libya, Iraq, Gaza or the South China Sea are not, just the Ukraine seems fresher and a more overt play for fossil resources. But let’s stay away from politics today – much as we can -.

The Daily Telegraph gives a podium to Tim Morgan, former global head of research at inter-dealer money broker Tullett Prebon, to present his view of the shale industry. Morgan draws the same conclusion that we at The Automatic Earth drew years ago – only now it’s news … -, and wrote about on numerous occasions.

See for instance Get ready for the North American gas shock , Fracking Our Future , Shale Gas Reality Begins to Dawn , Shale Is A Pipedream Sold To Greater Fools , The Darker Shades Of Shale . And that’s just a sample.

I may like to think that we have over time demolished shale as a viable energy industry so rigorously that nothing should need to be said it anymore. But no, it needs to be repeated by ever more well-placed individuals before it sinks in. So be it.

That conclusion is, shale is about money, not energy. And as such it is a huge money drain. It’s not an asset, it’s a sinkhole. As I cited only last week, the US shale industry lost over $110 billion per year over the past 5 years. That’s half a trillion dollars down the waste hole. In cheap credit. Who’s going to pick up that tab?

In essence, shale, and hence fracking, is nothing more, or less, than the purest form of land speculation. Location, location, location. The only thing that appears to make it stick out from other forms of land speculation is its utterly destructive character. It smells of desperation no matter what direction the wind comes from.

Money broker Morgan focuses on Britain and its ill-fated shale dreams:

Shale Gas: ‘The Dotcom Bubble Of Our Times’

[..] hardly anyone seems to have asked the one question which is surely fundamental: does shale development make economic sense? My conclusion is that it does not. That Britain needs new energy sources is surely beyond dispute. Between 2003 and 2013, domestic production of oil and gas slumped by 62% and 65% respectively, while coal output decreased by 55%. Despite sharp increases in the output of renewables, overall energy production has fallen by more than half. [..]

Those who claim that Britain faces an energy squeeze are right, then. But those who claim that the answer is using fracking to extract gas from shale formations are guilty of putting hope ahead of reality. The example held up by the pro-fracking lobby is, of course, the US, where fracking has produced so much gas that the market has been oversupplied, forcing gas prices sharply downwards.

The trouble with this parallel is that it is based on a fundamental misunderstanding of the US shale story. We now have more than enough data to know what has really happened in America. Shale has been hyped (“Saudi America”) and investors have poured hundreds of billions of dollars into the shale sector. If you invest this much, you get a lot of wells [..]. If a huge number of wells come on stream in a short time, you get a lot of initial production. This is exactly what has happened in the US.

The key word here, though, is “initial”[..] Compared with “normal” oil and gas wells, where output typically decreases by 7%-10% annually, rates of decline for shale wells are dramatically worse. It is by no means unusual for production from each well to fall by 60% or more in the first 12 months of operations.

All this is old fodder for our readership. If anything, that 60% decline in the first year of a typical well is greatly underestimated.

Faced with such rates of decline, the only way to keep production rates up (and to keep investors on side) is to drill yet more wells. This puts operators on a “drilling treadmill”, which should worry local residents just as much as investors. Net cash flow from US shale has been negative year after year, and some of the industry’s biggest names have already walked away. The seemingly inevitable outcome for the US shale industry is that, once investors wise up, and once the drilling sweet spots have been used, production will slump, probably peaking in 2017-18 and falling precipitously after that. The US is already littered with wells that have been abandoned, often without the site being cleaned up.

2017-18? I doubt the US shale industry’s will make it in one piece that long. My bet would be investors will run for cover before.

Meanwhile, recoverable reserves estimates for the Monterey shale – supposedly the biggest shale liquids play in the US – have been revised downwards by 96%. In Poland, drilling 30-40 wells has so far produced virtually no worthwhile production. In the future, shale will be recognised as this decade’s version of the dotcom bubble. In the shorter term, it’s a counsel of despair as an energy supply squeeze draws ever nearer. [..]

The dotcom bubble may be, or seem to be, a somewhat fitting metaphor for shale, but I’m thinking much more along the lines of Klondike, and any other kind of gold rush. Plus the ghost towns they all left behind.

And it’s by no means just shale where our fossil fuel supplies get squeezed. The problems Big Oil is drowning in are much broader. Take, for instance, the Arctic. It’s starting to look a lot like shale, only in a much harsher climate. That even the billions of Big Oil are no match for. Oilprice.com has this:

More Oil Companies Abandoning Arctic Plans, Letting Leases Expire

After years of mishaps and false starts, some oil companies are giving up on drilling in the Arctic. Many companies have allowed their leases on offshore Arctic acreage to expire, according to an analysis by Oceana that was reviewed by Fuel Fix. Since 2003, the oil industry has allowed the rights to an estimated 584,000 acres in the Beaufort Sea to lapse.

It wasn’t supposed to happen this way. The oil industry was once enormously optimistic about drilling for oil in the Beaufort and Chukchi Seas, off the north coast of Alaska. The U.S. Geological Survey estimated in a 2008 study that offshore Alaska holds almost 30 billion barrels of oil and 221 trillion cubic feet of natural gas.

In July 2012, Shell temporarily lost control of its Noble Discoverer rig, which almost ran aground. Shell’s oil spill response ship also failed inspections, which delayed drilling. Shell ultimately had to throw in the towel for the year as the summer season drew to a close. Finally, on December 31, Shell’s Kulluk ship ran aground as the company was towing it out of Alaskan waters. The events forced Shell to take a step back, and the company announced in February 2013 that it would suspend its drilling campaign for the year. It hasn’t returned.

[..] … earlier this year, a court issued a critical setback to the oil company, ruling that the Interior Dept. didn’t follow the law in an earlier Arctic auction. In response to the ruling, Shell’s new CEO Ben van Beurden cancelled drilling for yet another year. “This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” he said.

Van Beurden has also embarked upon a $15 billion two-year divestment program, with the intention of shedding higher cost assets around the world in an effort to improve Shell’s financial position, which had deteriorated in recent quarters due to high-cost “elephant projects.” That would suggest that the Arctic program could get the axe.

Big Oil, Shell, Exxon, Total, BP and others, are desperate for additional reserves. Exxon’s output fell 5.7% last year. If these companies let options expire that they paid millions for, something’s wrong. In simple terms: they can’t get to the resources at a price that’s economically viable.

The Oilprice article is based on this from FuelFix. And while we’re at it, let’s delve a bit deeper, so at the end of the day we understand what is happening as best we can.

Oil Companies Forfeit Arctic Drilling Rights

Oil companies that locked up more than 1.3 million acres of the Beaufort Sea for drilling in 2007 have since relinquished nearly half that territory. The industry’s appetite for tapping those Arctic waters may be waning even as the Obama administration plans to auction off more of the area. Oil companies have ceded rights to drill on roughly 584,000 acres[..]

… all but seven of the 141 still-active oil and gas leases in the Beaufort Sea along Alaska’s northeast coast are partly or completely held by a single firm, Shell [..] “Nearly half of the leases purchased in the 2003 to 2007 lease sales have been allowed to expire as company after company decides to forgo or delay activities in the U.S. Arctic Ocean …

Still on Tuesday, the Obama administration took the first formal steps to do precisely that, inviting oil companies, environmentalists, Alaska residents and other stakeholders to weigh in on what parts of the U.S. Beaufort Sea should be open for leasing during a 2017 auction. The Interior Department’s Bureau of Ocean Energy Management also has asked for public input on what coastal waters – from California and Alaska to the Gulf of Mexico – should be available for leasing from 2017 to 2022. [..]

Interior Department officials have stressed they want to balance any future oil development in the Arctic with preservation of the area’s unique ecosystem and subsistence fishing in the region. So far, the ocean energy bureau is continuing to work on the Chukchi Sea sale, even without a single specific industry nomination for territory that should be sold off. The agency was flooded with maps and other data suggesting areas that should be off limits from local communities and conservation groups.

Administration officials have suggested they are looking for ways to get more input from oil companies as they decide whether to hold the Chukchi Sea auction or cancel it. [..]

But oil companies have struggled to tap the potential lurking under those remote and icy waters — vividly illustrated by the series of mishaps that befell Shell as it drilled exploratory wells in the Chukchi and Beaufort seas two years ago. A specialized, first-of-its-kind oil spill containment system was not ready on time, engines discharged more air pollution than authorities had permitted to be released and the company’s Kulluk drilling unit ended up beached on a rocky Alaskan island’s shore on Dec. 31, 2012. [..]

Many of the forfeited Beaufort Sea oil leases documented by Oceana may have simply been allowed to expire — the likely fate for 39 blocks sold for $9 million in a 2003 auction. Others may have been relinquished early. Industry representatives say the decline in active Beaufort Sea oil leases represents a natural release of acreage based on individual company’s decisions about what they believe to be the most promising prospects.

Arctic oil exploration is also an expensive proposition that may be tough for even well-capitalized companies to justify amid an onshore drilling boom.

Shell has 100% ownership of 406,283 leased Beaufort Sea acres and 40% ownership in an additional 310,573 acres where leases are jointly held with ENI and Repsol. Outside of Shell and BP’s close-to-shore operations, ENI and Repsol are the only other companies holding active Beaufort Sea leases, about 23,861 acres’ worth. That’s a big contrast from 2007, when seven companies held active leases in the Beaufort Sea, including France’s Total, Canada’s EnCana Corp., Armstrong Oil and Gas, and Conoco.

While there seems to be a subtle way to blame the greens for the giant mishaps in there, the overall message is clear: it just can’t be done. It’s not viable at present prices. And before you dream away about the industry benefits of $200 oil, don’t forget that if prices were to go up substantially, a lot less people would be able to afford them. Catch 22.

Someone may still try at some point in the – increasingly desperate – future, but by then oil and gas won’t be anywhere near the industry it is today, and has been for 50-100 years. The money won’t be there, not on the supply side, and not on the demand side.

Obviously, the issue with that is fossil fuels give nations and societies, as well as corporations and individuals, power. Energy=power.

We presently, each of us in the west, have 200+ energy slaves at our disposal night and day, provided by coal, oil and gas. As a group, we maintain our domination over the rest of the world by applying the energy provided by oil fossil fuels to our defense against ‘others’, and to attacking them where we see fit.

If we stop doing that, if we run out, we risk being overrun. To prevent that from happening, we will attempt to grab, and hold on to, to as much as we can from what is left. But so do the ‘others’.

Arctic and shale are about the only ‘new’ sources of oil and gas we have, or had, and the Saudi’s won’t be able to make up for the difference. Not even close.

What is happening at this very moment in the shale industry and in the Arctic is like a big angry bull waving a bright red flag and waiting to have a go at the torero (that would be us).

The only possible way to go from here is to lower your energy demand, and your reliance on the energy demand of your society, as much as you can. 90% is a good and viable number to go for. If you don’t, you will be swept up in the biggest and deadliest battle ever.

The westworld will be hit hard and bloody by a financial collapse well before the energy war comes, and it’s therefore not much use right now to focus on energy, but in the end it’s really the same battle. It’s a very primitive fight for power. That’s what we do when push comes to shove. You too.

• Shale Gas: ‘The Dotcom Bubble Of Our Times’ (Telegraph)

Public opinion has been divided very starkly indeed by the government’s invitation to energy companies to apply for licences to develop shale gas across a broad swathe of the United Kingdom. On the one hand, many environmental and conservation groups are bitterly opposed to shale development. Ranged against them are those within and beyond the energy industry who believe that the exploitation of shale gas can prove not only vital but hugely positive for the British economy. Rather oddly, hardly anyone seems to have asked the one question which is surely fundamental: does shale development make economic sense? My conclusion is that it does not. That Britain needs new energy sources is surely beyond dispute. Between 2003 and 2013, domestic production of oil and gas slumped by 62pc and 65pc respectively, while coal output decreased by 55pc.

Despite sharp increases in the output of renewables, overall energy production has fallen by more than half. A net exporter of energy as recently as 2003, Britain now buys almost half of its energy from abroad, and this gap seems certain to widen. The policies of successive governments have worsened this situation. The “dash for gas” in the Nineties accelerated depletion of our gas reserves. Labour’s dithering over nuclear power put replacement of our ageing reactors at least a decade behind schedule, and a premature abandonment of coal has taken place alongside an inconsistent, scattergun approach to renewables. Those who claim that Britain faces an energy squeeze are right, then. But those who claim that the answer is using fracking to extract gas from shale formations are guilty of putting hope ahead of reality. The example held up by the pro-fracking lobby is, of course, the United States, where fracking has produced so much gas that the market has been oversupplied, forcing gas prices sharply downwards.

The trouble with this parallel is that it is based on a fundamental misunderstanding of the US shale story. We now have more than enough data to know what has really happened in America. Shale has been hyped (“Saudi America”) and investors have poured hundreds of billions of dollars into the shale sector. If you invest this much, you get a lot of wells, even though shale wells cost about twice as much as ordinary ones. If a huge number of wells come on stream in a short time, you get a lot of initial production. This is exactly what has happened in the US. The key word here, though, is “initial”. The big snag with shale wells is that output falls away very quickly indeed after production begins. Compared with “normal” oil and gas wells, where output typically decreases by 7pc-10pc annually, rates of decline for shale wells are dramatically worse. It is by no means unusual for production from each well to fall by 60pc or more in the first 12 months of operations alone.