Major Oil Companies Debt Explode Since The GFC

15 10 2017

WORLD’S LARGEST OIL COMPANIES: Deep Trouble As Profits Vaporize While Debts Skyrocket

The world’s largest oil companies are in serious trouble as their balance sheets deteriorate from higher costs, falling profits and skyrocketing debt.  The glory days of the highly profitable global oil companies have come to an end.  All that remains now is a mere shadow of the once mighty oil industry that will be forced to continue cannibalizing itself to produce the last bit of valuable oil.

I realize my extremely unfavorable opinion of the world’s oil industry runs counter to many mainstream energy analysts, however, their belief that business as usual, will continue for decades, is entirely unfounded.  Why?  Because, they do not understand the ramifications of the Falling EROI – Energy Returned On Invested, and its impact on the global economy.

For example, Chevron was able to make considerable profits in 1997 when the oil price was $19 a barrel.  However, the company suffered a loss in 2016 when the price was more than double at $44 last year.  And, it’s even worse than that if we compare the company’s profit to total revenues.  Chevron enjoyed a $3.2 billion net income profit on revenues of $42 billion in 1997 versus a $497 million loss on total sales of $114 billion in 2016.  Even though Chevron’s revenues nearly tripled in twenty years, its profit was decimated by the falling EROI.

Unfortunately, energy analysts, who are clueless to the amount of destruction taking place in the U.S. and global oil industry by the falling EROI, continue to mislead a public that is totally unprepared for what is coming.  To provide a more realistic view of the disintegrating energy industry, I will provide data from seven of the largest oil companies in the world.

The World’s Major Oil Companies Debt Explode Since The 2008 Financial Crisis

To save the world from falling into total collapse during the 2008 financial crisis, the Fed and Central Banks embarked on the most massive money printing scheme in history.  One side-effect of the massive money printing (and the purchasing of assets) by the central banks pushed the price of oil to a record $100+ a barrel for more than three years.  While the large oil companies reported handsome profits due to the high oil price, many of them spent a great deal of capital to produce this oil.

For instance, the seven top global oil companies that I focused on made a combined $213 billion in cash from operations in 2013. However, they also forked out $230 billion in capital expenditures.  Thus, the net free cash flow from these major oil companies was a negative $17 billion… and that doesn’t include the $44 billion they paid in dividends to their shareholders in 2013.  Even though the price of oil was $109 in 2013; these seven oil companies added $45 billion to their long-term debt:

As we can see, the total amount of long-term debt in the group (Petrobras, Shell, BP, Total, Chevron, Exxon & Statoil) increased from $227 billion in 2012 to $272 billion in 2013.  Isn’t that ironic that the debt ($45 billion) rose nearly the same amount as the group’s dividend payouts ($44 billion)?  Of course, we can’t forget about the negative $17 billion in free cash flow in 2013, but here we see evidence that the top seven global oil companies were borrowing money even in 2013, at $109 a barrel oil, to pay their dividends.

Since the 2008 global economic and financial crisis, the top seven oil companies have seen their total combined debt explode four times, from $96 billion to $379 billion currently.  You would think with these energy companies enjoying a $100+ oil price for more than three years; they would be lowering their debt, not increasing it.  Regrettably, the cost for companies to replace reserves, produce oil and share profits with shareholders was more than the $110 oil price.

There lies the rub….

One of the disadvantages of skyrocketing debt is the rising amount of interest the company has to pay to service that debt.  If we look at the chart above, Brazil’s Petrobras is the clear winner in the group by adding the most debt.  Petrobras’s debt surged from $21 billion in 2008 to $109 billion last year.  As Petrobras added debt, it also had to pay out more to service that debt.  In just eight years, the annual interest amount Petrobras paid to service its debt increased from $793 million in 2008 to $6 billion last year.  Sadly, Petrobras’s rising interest payment has caused another nasty side-effect which cut dividend payouts to its shareholders to ZERO for the past two years.

Petrobras Annual Dividend Payments:

2008 = $4.7 billion

2009 = $7.7 billion

2010 = $5.4 billion

2011 = $6.4 billion

2012 = $3.3 billion

2013 = $2.6 billion

2014 = $3.9 billion

2015 = ZERO

2016 = ZERO

You see, this is a perfect example of how the Falling EROI guts an oil company from the inside out.  The sad irony of the situation at Petrobras is this:

If you are a shareholder, you’re screwed, and if you invested funds (in company bonds, etc.) to receive a higher interest payment, you’re also screwed because you will never get back your initial investment.  So, investors are screwed either way.  This is what happens during the final stage of collapsing oil industry.

Another negative consequence of the Falling EROI on these major oil companies’ financial statements is the decline in profits as the cost to produce oil rises more than the economic price the market can afford.

Major Oil Companies’ Profits Vaporize… Even At Higher Oil Prices

To be able to understand just how bad the financial situation has become at the world’s largest oil companies, we need to go back in time and compare the industry’s profitability versus the oil price.  To find a year when the oil price was about the same as it was in 2016, we have to return to 2004, when the average oil price was $38.26 versus $43.67 last year.  Yes, the oil price was lower in 2004 than in 2016, but I can assure you, these oil companies weren’t complaining.

In 2004, the combined net income of these seven oil companies was almost $100 billion….. $99.2 billion to be exact.  Every oil company in the group made a nice profit in 2004 on a $38 oil price.  However, last year, the net profits in the group plunged to only $10.5 billion, even at a higher $43 oil price:

Even with a $5 increase in the price of oil last year compared to 2004, these oil companies combined net income profit fell nearly 90%.  How about them apples.  Of the seven companies listed in the chart above, only four made profits last year, while three lost money.  Exxon and Total enjoyed the highest profits in the group, while Petrobras and Statoil suffered the largest losses:

Again, the financial situation is in much worse shape because “net income” accounting does not factor in the companies’ capital expenditures or dividend payouts.  Regardless, the world’s top oil companies’ profitability has vaporized even at a higher oil price.

Now, another metric that provides us with more disturbing evidence of the Falling EROI in the oil industry is the collapse of  the “Return On Capital Employed.”  Basically, the Return On Capital Employed is just dividing the company’s earnings (before taxes and interest) by its total assets minus current liabilities.  In 2004, the seven companies listed above posted between 20-40% Return On Capital Employed.  However, this fell precipitously over the next decade and are now registering in the low single digits:

In 2004, we can see that BP had the lowest Return On Capital Employed of 19.68% in the group, while Statoil had the highest at 46.20%.  If we throw out the highest and lowest figures, the average for the group was 29%.  Now, compare that to the average of 2.4% for the group in 2016, and that does not including BP and Chevron’s negative returns (shown in Dark Blue & Orange).

NOTE:  I failed to include the Statoil graph line (Magenta)  when I made the chart, but I added the figures afterward.  For Statoil to experience a Return On Capital Employed decline from 46.2% in 2004 to less than 1% in 2016, suggests something is seriously wrong.

We must remember, the high Return On Capital Employed by the group in 2004, was based on a $38 price of oil, while the low single-digit returns by the oil companies in 2016 were derived from a higher price of $43.  Unfortunately, the world’s largest oil companies are no longer able to enjoy high returns on a low oil price.  This is bad news because the market can’t afford a high oil price unless the Fed and Central Banks come back in with an even larger amount of QE (Quantitative Easing) money printing.

I have one more chart that shows just how bad the Falling EROI is destroying the world’s top oil companies.  In 2004, these seven oil companies enjoyed a net Free Cash Flow minus dividends of a positive $34 billion versus a negative $39.1 billion in 2016:

Let me explain these figures.  So, after these oil companies paid their capital expenditures and dividends to shareholders, they had a net $34 billion left over.  However, last year these companies were in the HOLE for $39.1 billion after paying capital expenditures and dividends.  Thus, many of them had to borrow money just to pay dividends.

To understand how big of a change has taken place at the oil companies since 2004, here are the figures below:

Top 7 Major Oil Companies Free Cash Flow Figures

2004 Cash From Operations = …………$139.6 billion

2004 Capital Expenditures = ……………..$67.7 billion

2004 Free Cash Flow = ………………………$71.9 billion

2004 Shareholder Dividends = …………..$37.9 billion

2004 Free Cash Flow – Dividends = $34 billion

2016 Cash From Operations = ……………..$118.5 billion

2016 Capital Expenditures = ………………..$117.5 billion

2016 Free Cash Flow = …………………………..$1.0 billion

2016 Shareholder Dividends = ……………….$40.1 billion

2016 Free Cash Flow – Dividends = -$39.1 billion

Here we can see that the top seven global oil companies made more in cash from operations in 2004 ($139.6 billion) compared to 2016 ($118.5 billion).   That extra $21 billion in operating cash in 2004 versus 2016 was realized even at a lower oil price.  However, what has really hurt the group’s Free Cash Flow, is the much higher capital expenditures of $117.5 billion in 2016 compared to the $67.7 billion in 2004.  You will notice that the net combined dividends didn’t increase that much in the two periods… only by $3 billion.

So, the lower cash from operations and the higher capital expenditures have taken a BIG HIT on the balance sheets of these oil companies.  This is precisely why the long-term debt is skyrocketing, especially over the past three years as the oil price fell below $100 in 2014.  To continue making their shareholders happy, many of these companies are borrowing money to pay dividends.  Unfortunately, going further into debt to pay shareholders is not a prudent long-term business model.

The world’s major oil companies will continue to struggle with the oil price in the $50 range.  While some analysts forecast that higher oil prices are on the horizon, I disagree.  Yes, it’s true that oil prices may spike higher for a while, but the trend will be lower as the U.S. and global economies start to contract.  As oil prices fall to the $40 and below, oil companies will begin to cut capital expenditures even further.  Thus, the cycle of lower prices and the continued gutting of the global oil industry will move into high gear.

There is one option that might provide these oil companies with a buffer… and that is massive Fed and Central Bank money printing resulting in severe inflation and possibly hyperinflation.  But, that won’t be a long-term solution, instead just another lousy band-aid in a series of band-aids that have only postponed the inevitable.

The coming bankruptcy of the once mighty global oil industry will be the death-knell of the world economy.  Without oil, the global economy grinds to a halt.  Of course, this will not occur overnight.  It will take time.  However, the evidence shows that a considerable wound has already taken place in an industry that has provided the world with much-needed oil for more than a century.

Lastly, without trying to be a broken record, the peak and decline of global oil production will destroy the value of most STOCKS, BONDS and REAL ESTATE.  If you have placed most of your bests in one of these assets, you have my sympathies.

IMPORTANT UPDATE: TO MY FOLLOWERS:

I want to thank the new and existing supporters of the SRSrocco Report site.  In just the past week, I have received 11 new Patrons and several new members on the SRSrocco Report site.  Your support allows me to continue posting articles for the entire public.  I have noticed over the past few years, more analysts have decided to put their articles and content behind a subscriber paywall.  Unfortunately, that shuts off the information to many followers who do not have the funds to support that paid content.

I believe the economic and financial situation in the U.S. and world will continue to deteriorate over the next two years and will only get increasing worse going forward.  Those who understand the root cause of it all, ENERGY, will be better prepared or less shocked (or both) when the collapse picks up speed.

I want to thank everyone who participates in the comment section of the site… even those I disagree with… LOL.  We like to keep the debate open for everyone.  So, if you have been a follower of the SRSroccoReport site for a while, but haven’t participated in the comment section, please let us know what you are thinking.

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Puerto Rico. Advanced showing of what collapse looks like.

30 09 2017

Puerto Rico now seems to be the first nation state, such as it is, to be destroyed by climate change……

maria_goe_2017263.0Now of course I am not saying that Hurrican Maria was caused by climate change, but the likelihood of it being hit twice in a week by two such powerful storms can only be put down to the unusually hot waters of the Atlantic Ocean. That it was totally destroyed can only be put down to bad management, and a history of US laisser faire with regards to its economy. Puerto Rico is a colony of the USA, not a state. It’s been treated by rich US citizens (including Donald Trump) as somewhere to go for idyllic tropical holidays, and not much else. For these things to happen, Puerto Rico was made to borrow well beyond its capacity to repay, it was bankrupt before the hurricane, there are no words to describe its position today. Except perhaps as a failed state, except it was never really a state in charge of its own destiny. And it now seems to be abondoned by the US, tossed into the garbage like an old unwanted disused toy.PR1

The one resource that stands out as lacking is diesel…..

This from the Organic Prepper…:

Hospitals are struggling to keep people alive.

And speaking of hospitals, 59 of the 69 on the island were, according to the Department of Defense, “operating on unknown status.”

Only 11 of 69 hospitals on Puerto Rico have power or are running on generators, FEMA reports. That means there’s limited access to X-ray machines and other diagnostic and life-saving equipment. Few operating rooms are open, which is scary, considering an influx of patients with storm-related injuries. (source)

A hospital in San Juan reported that two people in intensive care died when the diesel fueling the generator ran out. The children’s hospital has 12 little ones who depend on ventilators to survive, and once they ran out of fuel, they have gotten by on donations. FEMA has delivered diesel fuel to 19 hospitals.

But many darkened hospitals are unable to help patients who need it most.

Without sufficient power, X-ray machines, CT scans, and machines for cardiac catheterization do not function, and generators are not powerful enough to make them work. Only one in five operating rooms is functioning. Diesel is hard to find. And with a shortage of fresh water, another concern looms: a possible public health crisis because of unsanitary conditions…

The hospitals have been crippled by floods, damage and shortages of diesel. The governor said that 20 of the island’s hospitals are in working order. The rest are not operational, and health officials are now trying to determine whether it is because they lack generators, fuel or have suffered structural damage. All five of the hospitals in Arecibo, Puerto Rico’s largest city in terms of size, not population, are closed. (source)

PR2Now who would have thought that diesel keeps people alive………? On an island running on 100% renewables? The latest reports say the island may not get its electricity back for 12 months…..

There is of course also no food and water, and it’s a week now since Maria lashed those poor people. FEMA apparently dropped 4.4 million meals there, for 3.5 million people. You do the maths. Yet it appears that earlier in the 20th Century, Puerto Rico produced 70% of its food; but thanks to American management and love affair with debt, this slowly made all that disappear making the island fat and lazy and reliant on ever more debt to survive instead of concentrating on self sufficiency. After all, money is more important than food, right…….?

There is hardly any potable water.

Nearly half the people in Puerto Rico are without potable drinking water. The tap water that is restored has to be boiled and filtered, and others are finding water where they can. You can expect a health crisis soon due to waterborne illnesses. When I researched my book about water preparedness, I learned that waterborne illness is one of the deadliest threats post-disaster. Although FEMA has delivered 6.5 million liters of water, on an island with 3.4 million people, it isn’t enough.

Isabel Rullán is the co-founder and managing director of a non-profit group called ConPRmetidos. She is very concerned about the water situation. She said that even if people were able to acquire water “they may not have the power or means to boil or purify it.”

She added that the problem went beyond access to drinking water — it was becoming a real public health concern.

Compounding that issue was hospitals lacking diesel and being unable to take new patients, she said.

“There’s so much contamination right now, there’s so many areas that are flooded and have oil, garbage in the water, there’s debris everywhere,” she said by phone.

“We’re going to have a lot of people that are potentially and unfortunately going to get sick and may die,” she said. (source)

According to the Department of Defense, 56% of the island has potable water, but in one town, Arecibo, the only fresh water comes froma single fire hydrant. (source)

70,000 people were evacuated (to God knows where….) because a 90 year old dam could fail any day. As there’s no money – I can only surmise – the dam was not inspected for four years, when such an old piece of infrastructure should have yearly assessments. As we know here, crumbling infrastructure is the first sign of collapse.hurricane-maria-puerto-rico-dam

I could not help, however, thinking that this might be an opportunity. Puerto Rico could tell the USA to go to hell, and take its debts along for the ride. After all, its chances of paying it back now really are zero..! Not everyone will make it of course. The injured, elderly, diabetics, those in blacked out hospitals, not to mention those with no idea of how to deal in a post technology world, will almost certainly die. As I often say, nobody gets out alive. It’s how you check out that matters.

In all that destruction, there are many resources left. No shortage of building materials, perhaps even enough left over solar panels and peripherals to generate a modicum of electricity to run tools…. I can’t tell, not many people are thinking straight yet, and the media is so fickle that most bulletins are about what some clown rapper is going to sing at a footy grand final, Houston and Florida are already off the media screens. Why would anyone be interested in the beginning of global collapse…?

Richard HeinbergRichard Heinberg is thinking straight…. this article has just hit my newsfeed as I type:

A shrinking economy, a government unable to make debt payments, and a land vulnerable to rising seas and extreme weather: for those who are paying attention, this sounds like a premonition of global events in coming years. World debt levels have soared over the past decade as central banks have struggled to recover from the 2008 global financial crisis. Climate change is quickly moving from abstract scenarios to grim reality. World economic growth is slowing (economists obtusely call this “secular stagnation”), and is likely set to go into reverse as we hit the limits to growth that were first discussed almost a half-century ago. Could Puerto Rico’s present presage our own future?

If so, then we should all care a great deal about how the United States responds to the crisis in Puerto Rico. This could be an opportunity to prepare for metaphoric (and occasionally real) storms bearing down on everyone.

It’s relatively easy to give advice from the sidelines, but I do so having visited Puerto Rico in 2013, where I gave a presentation in the Puerto Rican Senate at the invitation of the Center for Sustainable Development Studies of the Universidad Metropolitana. There I warned of the inevitable end of world economic growth and recommended that Puerto Rico pave the way in preparing for it. The advice I gave then seems even more relevant now:

  • Invest in resilience. More shocks are on the way, so build redundancy in critical systems and promote pro-social behavior so that people’s first reflex is to share and to help one another.
  • Promote local food. Taking advantage of the island’s climate, follow the Cuban model for incentivizing careers in farming and increase domestic food production using permaculture methods.
  • Treat population decline as an opportunity. Lots of people will no doubt leave Puerto Rico as a result of the storm. This represents a cultural and human loss, but it also opens the way to making the size of the population of the island more congruent with its carrying capacity in terms of land area and natural resources.
  • Rethink transportation. The island’s current highway-automobile dominance needs to give way to increased use of bicycles, and to the provision of streetcars and and light rail. An interim program of ride- and car-sharing could help with the transition.
  • Repudiate debt. Use aid money to build a sharing economy, not to pay off creditors. Take a page from the European “degrowth” movement. An island currency and a Commonwealth bank could help stabilize the economy.
  • Build a different energy system. Patching up the old PREPA electricity generating and distribution system would be a waste of money. That system is both corrupt and unsustainable. Instead, invest reconstruction funds in distributed local renewables and low-power infrastructure.

Richard took the words right out of my mouth….. but what will the authorities do? Obviously nothing since Richard’s vist four years ago. Maybe this disaster will put a fire in ther bellies. Will it do the same elsewhere? i doubt it….. but I’m an old cynic! I have little doubt that Puerto Rico will be offered more debt money to ‘rebuild’ stuff that will be destroyed in the next storm.

Richard finishes with……

Obviously, the Puerto Rican people have immediate needs for food, water, fuel, and medical care. We mainland Americans should be doing all we can to make sure that help reaches those in the throes of crisis. But Puerto Ricans—all Americans, indeed all humans—should be thinking longer-term about what kind of society is sustainable and resilient in this time of increasing vulnerability to disasters of all kinds.

How could you disagree……?

 

 





No Soil & Water Before 100% Renewable Energy

7 09 2017

Hot on the heels of my last post from someone else who has given up campaigning for renewable energy, comes this amazing article that defines why it’s all a futile effort…. I am beginning to think it is all starting to catch on…..

After all, excessive energy use got us into this mess, more energy will not get us out. As Susan Krumdieck says, the problem is not a lack of renewable energy, it’s too much fossil fuel consumption…….

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Many say we can have 100% renewable energy by 2050. This is factually incorrect.

We can have 100% renewable electricity production by 2050.

But electricity production is only 18% of total world energy demand.

82% of total world energy demand is NOT electricity production.

The other 82% of the world’s energy is used to extract minerals to make roads, cement, bricks, glass, steel and grow food so we can eat and sleep. Solar panels and wind turbines will not be making cement or steel anytime soon. Why? Do you really want to know? Here we go.

TWED = Total World Energy Demand

18% of TWED is electrical grid generation.

82% of TWED is not electrical grid generation.

In 20 years, solar & wind energy is up from 1% to 3% of TWED.

Solar & wind power are projected to provide 6% of TWED by 2030.

When you hear stories about solar & wind generating
50% of all humanity’s electrical power by 2050,
that’s really only 9% of TWED because
100% of electrical production is 18% of TWED.

But, it takes 10X as much solar & wind energy to close 1 fossil fuel power plant simply because they don’t produce energy all the time.

Reference Link: http://www.nature.com/nclimate/journal/v2/n6/full/nclimate1451.html?WT.ec_id=NCLIMATE-201206

Reference Link:
https://citizenactionmonitor.wordpress.com/2015/12/27/renewable-energy-hope-or-hype/

That means it will take 10 X 18% of TWED to close all fossil power plants with intermittent power.

Research says it will take 4 X 82% of TWED for a 100% renewable energy transition. But then again, whoever trusts research?

10 X 18% + 4 X 82% = 100% Renewable TWED.

CONCLUSION:
We require 10X the fossil electrical grid energy we use now just to solve 18% of the emissions problem with solar & wind power. This also means that even if we use 100% efficient Carbon Capture and Storage (CCS) for all the world’s electricity generation, we would still only prevent 18% of our emissions. 100% efficient CCS is very unlikely. Switching to electric vehicles would only double electrical demand while most of our roads are made out of distilled oil sludge.

These figures do not include massive electrical storage and grid infrastructure solar & wind require. Such infrastructure is hundreds of millions of tons of materials taking decades to construct, demanding even more energy and many trillions of dollars. With that kind of money in the offing, you can see why some wax over-enthused.

Solar & wind systems last 30 years meaning we will always have to replace them all over the world again 50% sooner than fossil power plants.

Solar and wind power are an energy trap.

It takes 1 ton of coal to make 6-12 solar panels.

Business As Usual = BAU

In 15 years 40% of humanity will be short of water with BAU.

In 15 years 20% of humanity will be severely short of water.

Right now, 1 billion people walk a mile every day for water.

In 60 years humanity will not have enough soil to grow food says Scientific American. They call it, “The End of Human Agriculture.” Humanity’s soil is eroding and degrading away at 24 million acres per year.  And, when they say 60 years they don’t mean everything is wonderful until the last day of the 59th year. We will feel the heat of those words in much less than 30 years. Soil loss rates will only increase with severe droughts, storms and low-land floods. Here’s what BAU really looks like.

50% of humanity’s soil will be gone in 30 years.

50% of humanity will lack water in 30 years.

50% of humanity will go hungry in 30 years.

100% TWED transition takes 50 years minimum. It is a vastly more difficult and complex goal than you are told.

Reference Link:
http://www.theguardian.com/environment/2016/feb/12/four-billion-people-face-severe-water-scarcity-new-research-finds

Reference Link:
http://www.scientificamerican.com/article/only-60-years-of-farming-left-if-soil-degradation-continues/

We are losing earth’s soil and fresh water faster than we can effect 100% renewable TWED.

In 25 years civilization will end says Lloyds of London and the British Foreign Office.

In my opinion, in 30 years we won’t have enough fossil fuel for a 100% renewable TWED transition.

This is the most important fact I’ve learned:

Renewable Energy is Unsustainable
without massive energy demand destruction

Humanity will destroy its soil and water faster than we can switch to renewable energy with BAU. We cannot sustain economic growth with renewable energy. Without massive political-economic change, civilization will collapse with 100% certainty. But, don’t worry, I like to fix things.

Animal Agriculture = AA

Humans + Livestock = 97% of the weight of all land vertebrate biomass

Humans + Livestock = 80% of the cause of all land-air extinctions

Humans + Livestock = 50% of the use of all land surface area

Humans + Livestock = 40% consumption of all land plant growth *
* Net Primary Production.

50% of the soy grown in South America is shipped over to China to feed their pigs. Rainforests and deep-rooted scrub are cleared to grow animals & feed so that their required fresh water is in reality a sky river exported in boats to China and Europe leaving little moisture in the air to reach São Paulo. Since rainforest roots are so thick they don’t require very much, or even good, soil;  this leaves rainforest soil so poor and thin that it degrades and erodes faster when exposed to the elements.

The Himalayan mountains are heating 2X faster than the planet and many fear that China will run out of water in 15 years by 2030.

50% of China’s rivers have vanished since 1980.

60% of China’s groundwater is too poisoned to touch.

50% of China’s cropland is too poisoned to safely grow food.

Animal Agriculture will destroy our soil and water long before we can effect 100% intermittent TWED transition with BAU.

BAU means 7 billion people will not stop eating meat and wasting food without major $$$ incentive. Meaning a steadily rising carbon tax on meat. Just saying that can get you killed in some places.

Without using James Hansen’s 100% private tax dividends to carbon tax meat consumption out of the market earth will die. 100% private tax dividends means 100% for you, 0% for government.

100% for you, 
    0% for gov.

The funny thing is that meat and fire saved our ancestors from extinction and now meat and fire will cause mass extinction of all the life we love on earth. Survival is not an optional menu item as is eating meat. We have to act now, not 5 years from now, or forever be not remembered as the least greatest generation because there’ll be no one left to remember us.

Michael Mann says we will lock-in a 2 degree temperature rise in 3 years for 2036 with BAU. Ocean fish will be gone in less than 25 years simply because of the BAU of meat consumption. The BAU of fishing kills everything in its path producing lots of waste kill. We are stealing all the Antarctic Ocean’s krill just to sell as a health supplement. You can learn a lot about fishing by watching “Cowspiracy” on Netflix.

We cannot let governments get control of carbon markets like how Sanders, Klein and McKibben want government to get 40% of your carbon tax dividend money. Naomi Klein and Bill McKibben are funded by the Rockefellers. Klein’s latest video about herself was funded by the oil-invested Ford Foundation. This is 100% in direct opposition to James Hansen’s tax dividend plan and immoral. Hansen said that governments should get 0% of that money, not 40%.  I strongly believe your carbon dividends should be in a new open-source world e-currency directly deposited to your phone to be phased in over 10 years. But, I’m kinda simple that way.

Google: Rockefellers fund Bill McKibben. Believe me, the Rockefellers don’t fund 350.org out of the kindness of their hearts. To learn why they would do such a thing, you can watch the educational video at the bottom of this page.

Reference Link:
Rockefellers behind ‘scruffy little outfit’

Reference Link:
http://www.nybooks.com/articles/2014/12/04/can-climate-change-cure-capitalism/

James Hansen repeated at COP21 that his 100% private carbon tax dividends would unite Democrats and Republicans because government would be 100% excluded. Socialists like Sanders, Klein and McKibben want government to control 40% of that money. They are divisive and Republicans will never accept their revolutionary rhetoric. We don’t have time for this endless fighting. Forget the Socialist vs. Capitalistmentality. We barely even have time to unite, and nothing unites like money. Environmentalism in the 21st century is about a revolving door of money and power for elite socialists and capitalists. Let’s give everyone a chance to put some skin in the game.

Reference Link: http://grist.org/climate-energy/sanders-and-boxer-introduce-fee-and-dividend-climate-bill-greens-tickled-pink/

What humans & livestock have done so far:

We are eating up our home.

99% of Rhinos gone since 1914.

97% of Tigers gone since 1914.

90% of Lions gone since 1993.

90% of Sea Turtles gone since 1980.

90% of Monarch Butterflies gone since 1995.

90% of Big Ocean Fish gone since 1950.

80% of Antarctic Krill gone since 1975.

80% of Western Gorillas gone since 1955.

60% of Forest Elephants gone since 1970.

50% of Great Barrier Reef gone since 1985.

40% of Giraffes gone since 2000.

30% of Marine Birds gone since 1995.

70% of Marine Birds gone since 1950.

28% of Land Animals gone since 1970.

28% of All Marine Animals gone since 1970.

97% – Humans & Livestock are 97% of land-air vertebrate biomass.

10,000 years ago we were 0.01% of land-air vertebrate biomass.

Humans and livestock caused 80% of land-air vertebrate species extinctions and occupy half the land on earth. Do you think the new 2-child policy in China favours growth over sustainability? The Zika virus could be a covert 1% population control measure for all I know. Could the 1% be immune? I don’t know, but I know this…

1 million humans, net, added to earth every 4½ days.

http://www.vox.com/2016/1/30/10872878/world-population-map





Peak ERoEI…?

22 08 2017

Inside the new economic science of capitalism’s slow-burn energy collapse

nafeezAnd why the struggle for a new economic paradigm is about to get real

Another MUST READ article by Nafeez Ahmed……….

 

Originally published by INSURGE INTELLIGENCE, a crowdfunded investigative journalism project for people and planet. Support us to keep digging where others fear to tread.

New scientific research is quietly rewriting the fundamentals of economics. The new economic science shows decisively that the age of endlessly growing industrial capitalism, premised on abundant fossil fuel supplies, is over.

The long-decline of capitalism-as-we-know-it, the new science shows, began some decades ago, and is on track to accelerate well before the end of the 21st century.

With capitalism-as-we-know it in inexorable decline, the urgent task ahead is to rewrite economics to fit the real-world: and, accordingly, to redesign our concepts of value and prosperity, precisely to rebuild our societies with a view of adapting to this extraordinary age of transition.


A groundbreaking study in Elsevier’s Ecological Economics journal by two French economists, for the first time proves the world has passed a point-of-no-return in its capacity to extract fossil fuel energy: with massive implications for the long-term future of global economic growth.

The study, ‘Long-Term Estimates of the Energy-Return-on-Investment (EROI) of Coal, Oil, and Gas Global Productions’, homes in on the concept of EROI, which measures the amount of energy supplied by an energy resource, compared to the quantity of energy consumed to gather that resource. In simple terms, if a single barrel of oil is used up to extract energy equivalent to 50 barrels of oil, that’s pretty good. But the less energy we’re able to extract using that single barrel, then the less efficient, and more expensive (in terms of energy and money), the whole process.

Recent studies suggest that the EROI of fossil fuels has steadily declined since the early 20th century, meaning that as we’re depleting our higher quality resources, we’re using more and more energy just to get new energy out. This means that the costs of energy production are increasing while the quality of the energy we’re producing is declining.

But unlike previous studies, the authors of the new paper — Victor Court, a macroeconomist at Paris Nanterre University, and Florian Fizaine of the University of Burgundy’s Dijon Laboratory of Economics (LEDi)—have removed any uncertainty that might have remained about the matter.

Point of no return

Court and Fizaine find that the EROI values of global oil and gas production reached their maximum peaks in the 1930s and 40s. Global oil production hit peak EROI at 50:1; while global gas production hit peak EROI at 150:1. Since then, the EROI values of oil and gas — the overall energy we’re able to extract from these resources for every unit of energy we put in — is inexorably declining.

Source: Court and Fizaine (2017)

Even coal, the only fossil fuel resource whose EROI has not yet maxed out, is forecast to undergo an EROI peak sometime between 2020 and 2045. This means that while coal might still have signficant production potential in some parts of the world, rising costs of production are making it increasingly uneconomical.

Axiom: Aggregating this data together reveals that the world’s fossil fuels overall experienced their maximum cumulative EROI of approximately 44:1 in the early 1960s.

Since then, the total value of energy we’re able to extract from the world’s fossil fuel resource base has undergone a protracted, continuous and irreversible decline.

Insight: At this rate of decline, by 2100, we are projected to extract the same value of EROI from fossil fuels as we were in the 1800s.

Several other studies suggest that this ongoing decline in the overall value of the energy extracted from global fossil fuels has played a fundamental role in the slowdown of global economic growth in recent years.

In this sense, the 2008 financial crash did not represent a singular event, but rather one key event in an unfolding process.

The economy-energy nexus

This is because economic growth remains ultimately dependent on “growth in material and energy use,” as a study in the journal PLOS One found last October. That study, lead authored by James D. Ward of the School of Natural and Built Environments, University of South Australia, challenged the idea that GDP growth can be “decoupled” from environmental impacts.

The “illusion of decoupling”, Ward and his colleagues argued, has been maintained through the following misleading techniques:

  1. substituting one resource for another;
  2. financialization of GDP, such as through increasing “monetary flows” through creation of new debt, without however increasing material or energy throughput (think quantitative easing);
  3. exporting environmental impacts to other nations or regions, so that the realities of increasing material throughput can be suppressed from data calculations.
  4. growing inequality of income and wealth, which allows GDP to grow for the benefit of a few, while the majority of workers see decreases in real income —in other words, a wealthy minority monopolises the largest fraction of GDP growth, but does not increase their level of consumption with as much demand for energy and materials.

Ward and his co-authors sought to test these factors by creating a new economic model to see how well it stacks up against the data.

Insight: They found that continued economic growth in GDP “cannot plausibly be decoupled from growth in material and energy use, demonstrating categorically that GDP growth cannot be sustained indefinitely.”

Other recent scientific research has further fine-tuned this relationship between energy and prosperity.

The prosperity-resource nexus

Adam Brandt, a leading EROI expert at Stanford University’s Department of Energy Resources Engineering, in the March edition of BioPhysical Economics and Resource Quality proves that the decline of EROI directly impacts on economic prosperity.

Earlier studies on this issue, Brandt points out, have highlighted the risk of a “net energy cliff”, which refers to how “declining EROI results in rapid increases in the fraction of energy dedicated to simply supporting the energy system.”

Axiom: So the more EROI declines, a greater proportion of the energy being produced must be used simply to extract more energy. This means that EROI decline leads to less real-world economic growth.

It also creates a complicated situation for oil prices. While at first, declining EROI can be expected to lead to higher prices reflecting higher production costs, the relationship between EROI and prices begins to breakdown as EROI becomes smaller.

This could be because, under a significantly reduced EROI, consumers in a less prosperous economy can no longer afford, energetically or economically, the cost of producing more energy — thus triggering a dramatic drop in market prices, despite higher costs of production. At this point, in the new era of shrinking EROI, swinging oil prices become less and less indicative of ‘scarcity’ in supply and demand.

Brandt’s new economic model looks at how EROI impacts four key sectors — food, energy, materials and labor. Exploring what a decline in net energy would therefore mean for these sectors, he concludes:

“The reduction in the fraction of a resource free and the energy system productivity extends from the energy system to all aspects of the economy, which gives an indication of the mechanisms by which energy productivity declines would affect general prosperity.

A clear implication of this work is that decreases in energy resource productivity, modeled here as the requirement for more materials, labor, and energy, can have a significant effect on the flows required to support all sectors of the economy. Such declines can reduce the effective discretionary output from the economy by consuming a larger and larger fraction of gross output for the meeting of inter-industry requirements.”

Brandt’s model is theoretical, but it has direct implications for the real world.

Insight: Given that the EROI of global fossil fuels has declined steadily since the 1960s, Brandt’s work suggests that a major underlying driver of the long-term process of economic stagnation we’re experiencing is resource depletion.

The new age of economic stagnation

Exactly how big the impact of resource depletion on the economy might be, can be gauged from a separate study by Professor Mauro Bonauiti of the Department of Economics and Statistics at the University of Turn.

His new paper published in February in the Journal of Cleaner Production assesses data on technological innovations and productivity growth. He concludes that:

“… advanced capitalist societies have entered a phase of declining marginal returns — or involuntary degrowth — with possible major effects on the system’s capacity to maintain its present institutional framework.”

Bonauiti draws on anthropologist Joseph Tainter’s work on the growth and collapse of civilizations. Tainter’s seminal work, The Collapse of Complex Societies, showed that the very growth in complexity driving a civilization’s expansion, generates complex new problems requiring further complexity to solve them.

 

Axiom: Complex civilizations tend to accelerate the use of resources, while diminishing the quantity of resources available for the civilization’s continued expansion — because they are continually being invested in solving the new problems generated by increasing complexity.

The result is that complex societies tend to reach a threshold of growth, after which returns diminish to such an extent that the complexification of the society can no longer be sustained, leading to its collapse or regression.

Bonauiti builds on Tainter’s framework and applies it to new data on ‘Total Factor Productivity’ to assess correlations between the growth and weakening in productivity, industrial revolutions, and the implications for continued economic growth.

The benefits that a certain society obtains from its own investments in complexity “do not increase indefinitely”, he writes. “Once a certain threshold has been reached (T0), the social organisation as a whole will enter a phase of declining marginal returns, that is to say, a critical phase, which, if ignored, may lead to the collapse of the whole system.”

This threshold appears to have been reached by Europe, Japan and the US before the early 1970s, he argues.

Insight: The US economy, he shows, appears to have reached “the peak in productivity in the 1930s, the same period in which the EROI of fossil fuels reached an extraordinary value of about 100.”

Of course, Court and Fizaine quantify the exact value of this peak EROI differently using a new methodology, but they agree that the peak occurred roughly around this period.

The US and other advanced economies are currently tapering off the end of what Bonauiti calls the ‘third industrial revolution’ (IR3), in information communications technologies (ICT). This was, however, the shortest and weakest industrial revolution from a productivity standpoint, with its productivity “evaporating” after just eight years.

In the US, the first industrial revolution utilized coal to power steam engine and telegraph technology, stimulating a rapid increase in productivity that peaked between between 1869 and 1892, at almost 2%.

The second industrial revolution was powered by the electric engine and internal combustion engine, which transformed manufacturing and domestic consumption. This led productivity to peak at 2.78%, remaining at around 2% for at least another 25 years.

After the 1930s, however, productivity continually declined, reaching 0.34% in the period 1973–95. Since then, the third industrial revolution driven by computing technology led to a revival of productivity which, however, has already tapered out in a way that is quite tepid compared to the previous industrial revolutions.

Axiom: The highest level of productivity was reached around the 1930s, and since then with each industrial revolution has declined.

The decline period also roughly corresponds to the post-peak EROI era for total fossil fuels identified by Court and Fizaine.

Thus, Bonauiti concludes, “the empirical evidence and theoretical reasons lead one to conclude that the innovations introduced by IR3 are not powerful enough to compensate for the declining returns of IR2.”

Insight: The implication is that the 21st century represents the tail-end of the era of industrial economic expansion, originally ushered in by technological innovations enabled by abundant fossil fuel energy sources.

The latest stage is illustrated with the following graph which demonstrates the rapid rise and decline in productivity of the last major revolution in technological innovation (IR3):

The productivity of the third industrial revolution thus peaked around 2004 and since then has declined back to near 1980s levels.

Bonauiti thus concludes that “advanced capitalist societies (the US, Europe and Japan) have entered a phase of declining marginal returns or involuntary degrowth in many key sectors, with possible major detrimental effects on the system’s capacity to maintain its present institutional framework.”

In other words, the global economic system has entered a fundamentally new era, representing a biophysical phase-shift into an energetically constrained landscape.

Going back to the new EROI analysis by French economists, Victor Court and Florian Fizaine, the EROI of oil is forecast to reduce to 15:1 by 2018. It will continue to decline to around 10:1 by 2035.

They broadly forecast the same pattern for gas and coal: Overall, their data suggests that the EROI of all fossil fuels will hit 15:1 by 2060, and decline further to 10:1 by 2080.

If these projections come to pass, this means that over the next few decades, the overall costs of fossil fuel energy production will increase, even while the market value of fossil fuel energy remains low. The total net energy yield available to fuel continued economic growth will inexorably decline. This will, in turn, squeeze the extent to which the economy can afford to buy fossil fuel energy that is increasingly expensive to produce.

We cannot be sure what this unprecedented state of affairs will herald for the market prices of oil, gas and coal, which are unlikely to follow the conventional supply and demand dynamics we were used to in the 20th century.

But what we can know for sure from the new science is that the era of unlimited economic growth — the defining feature of neoliberal finance capitalism as we know it — is well and truly over.

UK ‘end of growth’ test-case

The real-world workings of this insight have been set out by a team of economists at the University of Leeds’ Centre for Climate Change Economics and Policy, whose research was partly funded by giant engineering firm Arup, along with the main UK government-funded research councils — the UK Energy Research Centre, the Economics and Social Research Council and the Engineering and Physical Sciences Research Council.

In their paper published by the university’s Sustainability Research Institute this January, Lina Brand-Correa, Paul Brockway, Claire Carter, Tim Foxon, Anne Owen, and Peter Taylor develop a national-level EROI measure for the UK.

Studying data for the period 1997-2012, they find that “the country’s EROI has been declining since the beginning of the 21st Century”.

Energy Returned (Eout) and Energy Invested (Ein) in the UK (1997–2012) Source: Brand-Correa (2017)

The UK’s net EROI peaked in 2000 at a maximum value of 9.6, “before gradually falling back to a value of 6.2 in 2012.” What this means is that on average, “12% of the UK’s extracted/captured energy does not go into the economy or into society for productive or well-being purposes, but rather needs to be reinvested by the energy sectors to produce more energy.”

The paper draws on previous work by economists Court and Fizaine suggesting that continuous economic growth requires a minimal societal EROI of 11, based on the current energy intensity of the UK economy. By implication, the UK is dropping increasingly below this benchmark since the start of the 21st century:

“These initial results show that more and more energy is having to be used in the extraction of energy itself rather than by the UK’s economy or society.”

This also implies that the UK has had to sustain continued economic growth through other mechanisms outside of its own domestic energy context: in particular, as we know, the expansion of debt.

It is no coincidence, then, that debt-to-GDP ratios have continued to grow worldwide. As EROI is in decline, an unsustainable debt-bubble premised on exploitation of working and middle classes is the primary method to keep growth growing — an endeavour that at some point will inevitably come undone under its own weight.

We need a new economics

According to MIT and Harvard trained economist Dr. June Sekera — who leads the Public Economy Project at Tufts University’s Global Development And Environment Institute (GDAE) — net energy decline proves that neoclassical economic theory is simply not fit for purpose.

In Working Paper №17–02 published by the GDAE, Sekera argues that: “One of the most important contributions of biophysical economics is its critique that mainstream economics disregards the biophysical basis of production, and energy in particular.”

Policymakers, she says, “need to understand the biophysical imperative: that societal net energy yield is falling. Hence the need for a biophysical economics, and for policymakers to comprehend its central messages.”

Yet a key problem is that mainstream economics is held back from being able to even comprehend the existence of net energy decline due to an ideological obsession with the market. The result is that production that occurs outside the market is seen as an aberration, a form of government, state or ‘political’ interference in the ‘natural’ dynamics of the market.

And this is why the market alone is incapable of generating solutions to the net energy crisis driving global economic stagnation. The modern market paradigm is fatally self-limited by the following dynamics: “short time horizons, growth as a requisite, gratuitous waste baked-in, profits as life-blood.” This renders it “incapable of producing solutions that demand long-view investment without profits.”

Thus, Sekera calls for a new “public economics” commensurate with what is needed for a successful energy transition. The new public economics will spur on breakthrough scientific and technological innovations that solve “common-need problems” based on “distributed decision-making and collective action.”

The resulting solutions will require “long time-horizon investment: investments with no immediate payoff in terms of saleable products, no visible ROI (return on investment), no profit-making in the near-term. Such investment can be generated only in a non-market environment, in which payment is collective and financial profit is not the point.”

The only problem is that, as Sekera herself recognizes, the main incubator and agent of the non-market public economy is government — but government itself is playing a key role in dismantling, hollowing-out and privatizing the non-market public economy.

There is only one solution to this conundrum, however difficult it might seem:

Citizens themselves at all scales have an opportunity to work together to salvage and regenerate new public economies based on pooling their human, financial and physical assets and resources, to facilitate the emergence of more viable and sustainable economic structures. Part of this will include adapting to post-carbon energy sources.

Far from representing the end of prosperity, this transition represents an opportunity to redefine prosperity beyond the idea of endlessly increasing material accumulation; and realigning society with the goal of meeting real-world human physical, psychological and spiritual needs.

What will emerge from efforts to do so has not yet been written. But those efforts will define the contours of the new post-carbon economy, as the unsustainable juggernaut of the old grinds slowly and painfully to a protracted, chaotic halt.

In coming years and decades, the reality of the need for a new economic science that reflects the dynamics of the economy’s fundamental embeddedness in the biophysical environment will become evermore obvious.

So say goodbye to endless growth neoliberalism.


This INSURGE story was enabled by crowdfunding: Please support independent journalism for the global commons for as little as a $1/month via www.patreon.com/nafeez


Dr. Nafeez Ahmed is an award-winning 16-year investigative journalist and creator of INSURGE intelligence, a crowdfunded public interest investigative journalism project. He is ‘System Shift’ columnist at VICE’s Motherboard.

His work has been published in The Guardian, VICE, Independent on Sunday, The Independent, The Scotsman, Sydney Morning Herald, The Age, Foreign Policy, The Atlantic, Quartz, New York Observer, The New Statesman, Prospect, Le Monde diplomatique, Raw Story, New Internationalist, Huffington Post UK, Al-Arabiya English, AlterNet, The Ecologist, and Asia Times, among other places.

Nafeez has twice been featured in the Evening Standard’s ‘Top 1,000’ list of most influential people in London.

His latest book, Failing States, Collapsing Systems: BioPhysical Triggers of Political Violence (Springer, 2017) is a scientific study of how climate, energy, food and economic crises are driving state failures around the world.





Chris Martenson on insanity

5 08 2017

Published on 4 Aug 2017

Read the latest articles at Peak Prosperity: https://www.peakprosperity.com/

Our Brave New ”’Markets”’
https://www.peakprosperity.com/blog/1…

The Inevitability Of DeGrowth
https://www.peakprosperity.com/blog/1…

Suicide By Pesticide
https://www.peakprosperity.com/inside…

View the “Accelerated” Crash Course Here: https://www.youtube.com/watch?v=pYyugz5wcrI





The Dynamics of Depletion

27 06 2017

Originally published on the Automatic Earth, this further article on ERoEI and resource depletion ties all the things you need to understand about Limits to Growth in one neat package. 

Over the years, I have written many articles on the topic of EROEI (Energy Return on Energy Invested); there’s a whole chapter on it in the Automatic Earth Primer Guide 2017 that Nicole Foss assembled recently, which contains 17 well worth reading articles.

Since EROEI is still the most important energy issue there is, and not the price of oil or some new gas find or a set of windmills or solar panels or thorium as the media will lead you to believe, it can’t hurt to repeat it once again. Brian Davey wrote this item on his site CredoEconomics, it is part of his book “Credo”.

The reason I believe it can’t hurt to repeat this is because not nearly enough people understand that in the end, everything, the survival of our world, our way of life, is all about the ‘quality’ of energy, and about what we get in return when we drill and pump and build infrastructure; what remains when we subtract all the energy used to ‘generate’ energy, from (or at) the bottom line is all that’s left…….

nicolefoss

Nicole Foss

Nicole Foss: Energy is the master resource – the capacity to do work. Our modern society is the result of the enormous energy subsidy we have enjoyed in the form of fossil fuels, specifically fossil fuels with a very high energy profit ratio (EROEI). Energy surplus drove expansion, intensification, and the development of socioeconomic complexity, but now we stand on the edge of the net energy cliff. The surplus energy, beyond that which has to be reinvested in future energy production, is rapidly diminishing.

We would have to greatly increase gross production to make up for reduced energy profit ratio, but production is flat to falling so this is no longer an option. As both gross production and the energy profit ratio fall, the net energy available for all society’s other purposes will fall even more quickly than gross production declines would suggest. Every society rests on a minimum energy profit ratio. The implication of falling below that minimum for industrial society, as we are now poised to do, is that society will be forced to simplify.

A plethora of energy fantasies is making the rounds at the moment. Whether based on unconventional oil and gas or renewables (that are not actually renewable), these are stories we tell ourselves in order to deny that we are facing any kind of future energy scarcity, or that supply could be in any way a concern. They are an attempt to maintain the fiction that our society can continue in its current form, or even increase in complexity. This is a vain attempt to deny the existence of non-negotiable limits to growth. The touted alternatives are not energy sources for our current society, because low EROEI energy sources cannot sustain a society complex enough to produce them.

 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 

Using Energy to Extract Energy – The Dynamics of Depletion

 

brian-selfie

Brian Davey

Brian Davey: The “Limits to Growth Study” of 1972 was deeply controversial and criticised by many economists. Over 40 years later, it seems remarkably prophetic and on track in its predictions. The crucial concept of Energy Return on Energy Invested is explained and the flaws in neoclassical reasoning which EROI highlights.

The continued functioning of the energy system is a “hub interdependency” that has become essential to the management of the increasing complexity of our society. The energy input into the UK economy is about 50 to 70 times as great as what the labour force could generate if working full time only with the power of their muscles, fuelled up with food. It is fossil fuels, refined to be used in vehicles and motors or converted into electricity that have created power inputs that makes possible the multiple round- about arrangements in a high complex economy. The other “hub interdependency” is a money and transaction system for exchange which has to continue to function to make vast production and trade networks viable. Without payment systems nothing functions.

Yet, as I will show, both types of hub interdependencies could conceivably fail. The smooth running of the energy system is dependent on ample supplies of cheaply available fossil fuels. However, there has been a rising cost of extracting and refining oil, gas and coal. Quite soon there is likely to be an absolute decline in their availability. To this should be added the climatic consequences of burning more carbon based fuels. To make the situation even worse, if the economy gets into difficulty because of rising energy costs then so too will the financial system – which can then have a knock-on consequence for the money system. The two hub interdependencies could break down together.

“Solutions” put forward by the techno optimists almost always assume growing complexity and new uses for energy with an increased energy cost. But this begs the question- because the problem is the growing cost of energy and its polluting and climate changing consequences.

 

The “Limits to Growth” study of 1972 – and its 40 year after evaluation

It was a view similar to this that underpinned the methodology of a famous study from the early 1970s. A group called the Club of Rome decided to commission a group of system scientists at the Massachusetts Institute of Technology to explore how far economic growth would continue to be possible. Their research used a series of computer model runs based on various scenarios of the future. It was published in 1972 and produced an instant storm. Most economists were up in arms that their shibboleth, economic growth, had been challenged. (Meadows, Meadows, Randers, & BehrensIII, 1972)

This was because its message was that growth could continue for some time by running down “natural capital” (depletion) and degrading “ecological system services” (pollution) but that it could not go on forever. An analogy would be spending more than one earns. This is possible as long as one has savings to run down, or by running up debts payable in the future. However, a day of reckoning inevitably occurs. The MIT scientists ran a number of computer generated scenarios of the future including a “business as usual” projection, called the “standard run” which hit a global crisis in 2030.

It is now over 40 years since the original Limits to Growth study was published so it is legitimate to compare what was predicted in 1972 against what actually happened. This has now been done twice by Graham Turner who works at the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO). Turner did this with data for the rst 30 years and then for 40 years of data. His conclusion is as follows:

The Limits to Growth standard run scenario produced 40 years ago continues to align well with historical data that has been updated in this paper following a 30-year comparison by the author. The scenario results in collapse of the global economy and environment and subsequently, the population. Although the modelled fall in population occurs after about 2030 – with death rates reversing contemporary trends and rising from 2020 onward – the general onset of collapse first appears at about 2015 when per capita industrial output begins a sharp decline. (Turner, 2012)

So what brings about the collapse? In the Limits to Growth model there are essentially two kinds of limiting restraints. On the one hand, limitations on resource inputs (materials and energy). On the other hand, waste/pollution restraints which degrade the ecological system and human society (particularly climate change).

Turner finds that, so far it, is the former rather than the latter that is the more important. What happens is that, as resources like fossil fuels deplete, they become more expensive to extract. More industrial output has to be set aside for the extraction process and less industrial output is available for other purposes.

With signficant capital subsequently going into resource extraction, there is insufficient available to fully replace degrading capital within the industrial sector itself. Consequently, despite heightened industrial activity attempting to satisfy multiple demands from all sectors and the population, actual industrial output per capita begins to fall precipitously, from about 2015, while pollution from the industrial activity continues to grow. The reduction of inputs produced per capita. Similarly, services (e.g., health and education) are not maintained due to insufficient capital and inputs.

Diminishing per capita supply of services and food cause a rise in the death rate from about 2020 (and somewhat lower rise in the birth rate, due to reduced birth control options). The global population therefore falls, at about half a billion per decade, starting at about 2030. Following the collapse, the output of the World3 model for the standard run (figure 1 to figure 3) shows that average living standards for the aggregate population (material wealth, food and services per capita) resemble those of the early 20th century. (Turner, 2012, p. 121)

 

Energy Return on Energy Invested

A similar analysis has been made by Hall and Klitgaard. They argue that to run a modern society it is necessary that the energy return on energy invested must be at least 15 to 1. To understand why this should be so consider the following diagram from a lecture by Hall. (Hall, 2012)

eroei

The diagram illustrates the idea of the energy return on energy invested. For every 100 Mega Joules of energy tapped in an oil flow from a well, 10 MJ are needed to tap the well, leaving 90 MJ. A narrow measure of energy returned on energy invested at the wellhead in this example would therefore be 100 to 10 or 10 to 1.

However, to get a fuller picture we have to extend this kind of analysis. Of the net energy at the wellhead, 90 MJ, some energy has to be used to refine the oil and produce the by-products, leaving only 63 MJ.

Then, to transport the refined product to its point of use takes another 5 MJ leaving 58MJ. But of course, the infrastructure of roads and transport also requires energy for construction and maintenance before any of the refined oil can be used to power a vehicle to go from A to B. By this final stage there is only 20.5 MJ of the original 100MJ left.

We now have to take into account that depletion means that, at well heads around the world, the energy to produce energy is increasing. It takes energy to prospect for oil and gas and if the wells are smaller and more difficult to tap because, for example, they are out at sea under a huge amount of rock. Then it will take more energy to get the oil out in the first place.

So, instead of requiring 10MJ to produce the 100 MJ, let us imagine that it now takes 20 MJ. At the other end of the chain there would thus, only be 10.5MJ – a dramatic reduction in petroleum available to society.

The concept of Energy Return on Energy Invested is a ratio in physical quantities and it helps us to understand the flaw in neoclassical economic reasoning that draws on the idea of “the invisible hand” and the price mechanism. In simplistic economic thinking, markets should have no problems coping with depletion because a depleting resource will become more expensive. As its price rises, so the argument goes, the search for new sources of energy and substitutes will be incentivised while people and companies will adapt their purchases to rising prices. For example, if it is the price of energy that is rising then this will incentivise greater energy efficiency. Basta! Problem solved…

Except the problem is not solved… there are two flaws in the reasoning. Firstly, if the price of energy rises then so too does the cost of extracting energy – because energy is needed to extract energy. There will be gas and oil wells in favourable locations which are relatively cheap to tap, and the rising energy price will mean that the companies that own these wells will make a lot of money. This is what economists call “rent”. However, there will be some wells that are “marginal” because the underlying geology and location are not so favourable. If energy prices rise at these locations then rising energy prices will also put up the energy costs of production. Indeed, when the energy returned on energy invested falls as low as 1 to 1, the increase in the costs of energy inputs will cancel out any gains in revenues from higher priced energy outputs. As is clear when the EROI is less than one, energy extraction will not be profitable at any price.

Secondly, energy prices cannot in any case rise beyond a certain point without crashing the economy. The market for energy is not like the market for cans of baked beans. Energy is necessary for virtually every activity in the economy, for all production and all services. The price of energy is a big deal – energy prices going up and down have a similar significance to interest rates going up or down. There are “macro-economic” consequences for the level of activity in the economy. Thus, in the words of one analyst, Chris Skrebowski, there is a rise in the price of oil, gas and coal at which:

the cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time.(Skrebowski, 2011)

This kind of analysis has been further developed by Steven Kopits of the Douglas-Westwood consultancy. In a lecture to the Columbia University Center on Global Energy Policy in February of 2014, he explained how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in “conventional oil” production but has merely served to slow what would otherwise have been a faster decline.

More specifically, the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that amount, $3.5 trillion was spent on the “legacy” oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production, it fell by 1 million barrels a day. By way of comparison, investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.

Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.

The situation can be understood by reference to the nursery story of Goldilocks and the Three Bears. Goldilocks tries three kinds of porridge – some that is too hot, some that is too cold and some where the temperature is somewhere in the middle and therefore just right. The working assumption of mainstream economists is that there is an oil price that is not too high to undermine economic growth but also not too low so that the oil companies cannot cover their extraction costs – a price that is just right. The problem is that the Goldilocks situation no longer describes what is happening. Another story provides a better metaphor – that story is “Catch 22”. According to Kopits, the vast majority of the publically quoted oil majors require oil prices of over $100 a barrel to achieve positive cash flow and nearly a half need more than $120 a barrel.

But it is these oil prices that drag down the economies of the OECD economies. For several years, however, there have been some countries that have been able to afford the higher prices. The countries that have coped with the high energy prices best are the so called “emerging non OECD countries” and above all China. China has been bidding away an increasing part of the oil production and continuing to grow while higher energy prices have led to stagnation in the OECD economies. (Kopits, 2014)

Since the oil price is never “just right” it follows that it must oscillate between a price that is too high for macro-economic stability or too low to make it a paying proposition for high cost producers of oil (or gas) to invest in expanding production. In late 2014 we can see this drama at work. The faltering global economy has a lower demand for oil but OPEC, under the leadership of Saudi Arabia, have decided not to reduce oil production in order to keep oil prices from falling. On the contrary they want prices to fall. This is because they want to drive US shale oil and gas producers out of business.

The shale industry is described elsewhere in this book – suffice it here to refer to the claim of many commentators that the shale oil and gas boom in the United States is a bubble. A lot of money borrowed from Wall Street has been invested in the industry in anticipation of high profits but given the speed at which wells deplete it is doubtful whether many of the companies will be able to cover their debts. What has been possible so far has been largely because quantitative easing means capital for this industry has been made available with very low interest rates. There is a range of extraction production costs for different oil and gas wells and fields depending on the differing geology in different places. In some “sweet spots” the yield compared to cost is high but in a large number of cases the costs of production have been high and it is being said that it will be impossible to make money at the price to which oil has fallen ($65 in late 2014). This in turn could mean that companies funding their operations with junk bonds could find it difficult to service their debt. If interest rates rise the difficulty would become greater. Because the shale oil and gas sector has been so crucial to expansion in the USA then a large number of bankruptcies could have wider repercussions throughout the wider US and world economy.

 

Renewable Energy systems to the rescue?

Although it seems obvious that the depletion of fossil fuels can and should lead to the expansion of renewable energy systems like wind and solar power, we should beware of believing that renewable energy systems are a panacea that can rescue consumer society and its continued growth path. A very similar net energy analysis can, and ought to be done for the potential of renewable energy to match that already done for fossil fuels.

eroei-renewables

Before we get over-enthusiastic about the potential for renewable energy, we have to be aware of the need to subtract the energy costs particular to renewable energy systems from the gross energy that renewable energy systems generate. Not only must energy be used to manufacture and install the wind turbines, the solar panels and so on, but for a renewable based economy to be able to function, it must also devote energy to the creation of energy storage. This would allow for the fact that, when the wind and the sun are generating energy, is not necessarily the time when it is wanted.

Furthermore, the places where, for example, solar and wind potential are at this best – offshore for wind or in deserts without dust storms near the equator for solar – are usually a long distance from centres of use. Once again, a great deal of energy, materials and money must be spent getting the energy from where it is generated to where it will be used. For example, the “Energie Wende” (Energy Transformation) in Germany is involving huge effort, financial and energy costs, creating a transmission corridor to carry electricity from North Sea wind turbines down to Bavaria where the demand is greatest. Similarly, plans to develop concentrated solar power in North Africa for use in northern Europe which, if they ever come to anything, will require major investments in energy transmission. A further issue, connected to the requirement for energy storage, is the need for energy carriers which are not based on electricity. As before, conversions to put a current energy flux into a stored form, involve an energy cost.

Just as with fossil fuels, sources of renewable energy are of variable yield depending on local conditions: offshore wind is better than onshore for wind speed and wind reliability; there is more solar energy nearer the equator; some areas have less cloud cover; wave energy on the Atlantic coasts of the UK are much better than on other coastlines like those of the Irish Sea or North Sea. If we make a Ricardian assumption that best net yielding resources are developed first, then subsequent yields will be progressively inferior. In more conventional jargon – just as there are diminishing returns for fossil energy as fossil energy resources deplete, so there will eventually be diminishing returns for renewable energy systems. No doubt new technologies will partly buck this trend but the trend is there nonetheless. It is for reasons such as these that some energy experts are sceptical about the global potential of renewable energy to meet the energy demand of a growing economy. For example, two Australian academics at Monash University argue that world energy demand would grow to 1,000 EJ (EJ = 10 18 J) or more by 2050 if growth continued on the course of recent decades. Their analysis then looks at each renewable energy resource in turn, bearing in mind the energy costs of developing wind, solar, hydropower, biomass etc., taking into account diminishing returns, and bearing in mind too that climate change may limit the potential of renewable energy. (For example, river flow rates may change affecting hydropower). Their conclusion: “We nd that when the energy costs of energy are considered, it is unlikely that renewable energy can provide anywhere near a 1000 EJ by 2050.” (Moriarty & Honnery, 2012)

Now let’s put these insights back into a bigger picture of the future of the economy. In a presentation to the All Party Parliamentary Group on Peak Oil and Gas, Charles Hall showed a number of diagrams to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff. Some of the production is consumer goods, either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production i.e. investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems, more and more production must go into energy acquisition, infrastructure and maintenance. Less and less is available for consumption, and particularly for discretionary consumption.

hall

Whether the economy would evolve in this way can be questioned. As we have seen, the increasing needs of the oil and gas sector implies a transfer of resources from elsewhere through rising prices. However, the rest of the economy cannot actually pay this extra without crashing. That is what the above diagrams show – a transfer of resources from discretionary consumption to investment in energy infrastructure. But such a transfer would be crushing for the other sectors and their decline would likely drag down the whole economy.

Over the last few years, central banks have had a policy of quantitative easing to try to keep interest rates low. The economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth, it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis and it will get a lot worse when oil production starts to fall more rapidly as a result of investment cut backs. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability, this is still a dead end and, at some point, people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why degrowth is needed.

Further ideas can be extrapolated from Hall’s way of presenting the end of the road for the growth economy. The only real option as a source for extra resources to be ploughed into changing the energy sector is from what Hall calls “discretionary consumption” aka luxury consumption. It would not be possible to take from “staples” without undermining the ability of ordinary people to survive day to day. Implicit here is a social justice agenda for the post growth – post carbon economy. Transferring resources out of the luxury consumption of the rich is a necessary part of the process of finding the wherewithal for energy conservation work and for developing renewable energy resources. These will be expensive and the resources cannot come from anywhere else than out of the consumption of the rich. It should be remembered too that the problems of depletion do not just apply to fossil energy extraction coal, oil and gas) but apply across all forms of mineral extraction. All minerals are depleted by use and that means the grade or ore declines over time. Projecting the consequences into the future ought to frighten the growth enthusiasts. To take in how industrial production can hit a brick wall of steeply rising costs, consider the following graph which shows the declining quality of ore grades mined in Australia.

mining-australia

As ores deplete there is a deterioration of ore grades. That means that more rock has to be shifted and processed to refine and extract the desired raw material, requiring more energy and leaving more wastes. This is occurring in parallel to the depletion in energy sources which means that more energy has to be used to extract a given quantity of energy and therefore, in turn, to extract from a given quantity of ore. Thus, the energy requirements to extract energy are rising at the very same time as the amount of energy required to extract given quantities of minerals are rising. More energy is needed just at the time that energy is itself becoming more expensive.

Now, on top of that, add to the picture the growing demand for minerals and materials if the economy is to grow.

At least there has been a recognition and acknowledgement in recent years that environmental problems exist. The problem is now somewhat different – the problem is the incredibly naive faith that markets and technology can solve all problems and keep on going. The main criticism of the limits to growth study was the claim that problems would be anticipated in forward markets and would then be made the subject of high tech innovation. In the next chapter, the destructive effects of these innovations are examined in more depth.





More Peak Oil bad news…..

15 06 2017

There have been no end of new articles on the demise of the oil industry lately. I’ve been so busy building that it’s only now I can catch up with some blogging, so here’s your lot for the time being.

From the srsroccoreport.com website comes this unbelievable analysis…:

While the Mainstream media continues to put out hype that technology will bring on abundant energy supplies for the foreseeable future, the global oil and gas industry is actually cannibalizing itself just to stay alive.   Increased finance costs, falling capital expenditures and the downgrade of oil reserves are the factors, like flesh-eating bacteria, that are decimating the once great oil and gas industry.

This is all due to the falling EROI – Energy Returned On Investment in oil and gas industry.  Unfortunately, most of the public and energy analysts still don’t understand how the Falling EROI is gutting the entire system.  They don’t see it because the world has become so complex, they are unable to connect-the-dots.  However, if we look past all the over-specialized data and analysis, we can see how bad things are getting in the global oil and gas industry.

Let me start by republishing this chart from my article, Future World Economic Growth In Big Trouble As Oil Discoveries Fall To Historic Lows:

The global oil industry only found 2.4 billion barrels of conventional oil in 2016, less than 10% of what it consumed (25.1 billion barrels).  Conventional oil is the highly profitable, high EROI oil that should not be confused with low quality “unconventional” oil sources such as OIL SANDS or SHALE OIL.  There is a good reason why we have just recently tapped in to oil sands and shale oil…. it wasn’t profitable for the past 100 years to extract it.  Basically, it’s all we have left…. the bottom of the barrel, so to speak.

Now, to put the above chart into perspective, here are the annual global conventional oil discoveries since 1947:

You will notice the amount of new oil discoveries (2.4 billion barrels) for 2016 is just a mere smudge when we compare it to the precious years.  Furthermore, the world has been consuming about an average of 70 million barrels per day of conventional oil production since 2000 (the total liquid production is higher, but includes oil sands, deep water, shale oil, natural gas liquids, biofuels and etc).  Conventional oil production has averaged about 25 billion barrels per year.

As we can see in the chart above… we haven’t been replacing what we have been consuming for quite a long time.  Except for the large orange bar in 2000 of approximately 35 billion barrels, all the years after were lower than 25 billion barrels.  Thus, the global oil industry has been surviving on its past discoveries.

That being said, if we include ALL liquid oil reserves, the situation is even more alarming.

Global Oil Liquid Reserves Fall In 2015 & 2016

According to the newest data put out by the U.S. EIA, Energy Information Agency, total global oil liquid reserves fell for the past two years.  The majority of negative oil reserve revisions came from the Canadian oil sands sector:

Of the 68 public traded energy companies used in this graph, total liquid oil reserves fell from 116 billion barrels in 2014 to 100 billion barrels in 2016.  That’s a 14% decline in liquid oil reserves in just two years.  So, not only are conventional oil discoveries falling the lowest since 1947, companies are now forced to downgrade their total liquid oil reserves due to lower oil prices.

This can be seen more clearly in the EIA chart below:

The “net proved reserves change” is shown as the black line in the chart.  It takes the difference between the additions-revisions, (BLUE) and the production (BROWN).  These 68 public companies have been producing between 8-9 billion barrels of oil per year.

Because of the downward revisions in 2015 and 2016, net oil reserves have fallen approximately 16 billion barrels, or nearly two years worth of these 68 companies total liquid oil production.  If these oil companies don’t suffer anymore reserve downgrades, they have approximately 12 years worth of oil reserves remaining.

But… what happens if the oil price continues to decline as the global economy starts to really contract from the massive amount of debt over-hanging the system?  Thus, the oil industry could likely cut more reserves, which means… the 12 years worth of reserves will fall below 10, or even lower.  My intuition tells me that global liquid oil reserves will fall even lower due to the next two charts in the following section.

The Coming Energy Debt Wall & Surging Finance Cost In The Energy Industry

Over the next several years, the amount of debt that comes due in the U.S. oil industry literally skyrockets higher.  In my article, THE GREAT U.S. ENERGY DEBT WALL: It’s Going To Get Very Ugly…., I posted the following chart:

The amount of debt (as outstanding bonds) that comes due in the U.S. energy industry jumps from $27 billion in 2016 to $110 billion in 2018.  Furthermore, this continues higher to $260 billion in 2022.  The reason the amount of debt has increased so much in the U.S. oil and gas industry is due to the HIGH COST of producing Shale oil and gas.  While many companies are bragging that they can produce oil in the new Permian Region for $30-$40 a barrel, they forget to include the massive amount of debt they now have on their balance sheets.

This is quite hilarious because a lot of this debt was added when the price of oil was over $100 from 2011 to mid 2014.  So, these companies actually believe they can be sustainable at $30 or $40 a barrel?  This is pure nonsense.  Again… most energy analysts are just looking at how a company could producing a barrel of oil that year, without regard of all other external costs and debts.

Moreover, to give the ILLUSION that shale oil and gas production is a commercially viable enterprise, these energy companies have to pay its bond (debt) holders dearly.  How much?  I will show you all that in a minute, however, this is called their DEBT FINANCING.  Some of us may be familiar with this concept when we have maxed out our credit cards and are paying a minimum interest payment just to keep the bankers happy.  And happy they are as they are making a monthly income on money that we created out of thin air… LOL.

According to the EIA, these 68 public energy companies are now spending 75% of their operating cash flow to service their debt compared to 25% just a few years ago:

We must remember, debt financing does not mean PAYING DOWN DEBT, it just means the companies are now spending 75% of their operating cash flow (as of Q3 2016) just to pay the interest on the debt.  I would imagine as the oil price increased in the fourth quarter of 2016 and first quarter of 2017, this 75% debt servicing ratio has declined a bit.  However, people who believe the Fed will raise interest rates, do not realize that this would totally destroy the economic and financial system that NEEDS SUPER-LOW INTEREST RATES just to service the massive amount of debt they have on the balance sheets.

As an example of rising debt service, here is a table showing Continental Resources Interest expense:

Continental Resources is one of the larger energy players in the Bakken oil shale field in North Dakota.  Before tapping into that supposed “high-quality” Bakken shale oil, Continental Resources was only paying $13 million a year to finance its debt, which was only $165 million.  However, we can plainly see that producing this shale oil came at a big cost.  As of December 2016, Continental Resources paid $321 million that year to finance its debt…. which ballooned to $6.5 billion.  In relative terms, that is one hell of a huge credit card interest payment.

The folks that are receiving a nice 4.8% interest payment (again… just a simple average) for providing Continental Resources with funds to produce this oil at a very small profit or loss… would like to receive their initial investment back at some point.  However….. THERE LIES THE RUB.

With that ENERGY DEBT WALL to reach $260 billion by 2022, I highly doubt many of these energy companies will be able to repay that majority of that debt.  Thus, interest rates CANNOT RISE, and will likely continue to fall or the entire financial system would collapse.

Lastly…. the global oil and gas industry is now cannibalizing itself just to stay alive.  It has added a massive amount of debt to produce very low-quality Shale Oil-Gas and Oil Sands just to keep the world economies from collapsing.  The falling oil price, due to a consumer unable to afford higher energy costs, is gutting the liquid oil reserves of many of the publicly trading energy companies.

At some point… the massive amount of debt will take down this system, and with it, the global oil industry.  This will have an extremely negative impact on the values of most STOCKS, BONDS & REAL ESTATE.  If you have well balanced portfolio in these three asset classes, then you are in serious financial trouble in the future.

Then…….  on ABC TV’s lateline (I’m rarely up late enough to watch it, so this was an omen…) this interview came up. I have to say, I found the whole Qatar thing rather bizarre, but this commentator thinks that Saudi Arabia is already in trouble

http://www.abc.net.au/lateline/content/2016/s4682983.htm

And now Zero Hedge has this to say as well….

Oil Prices Suffer First ‘Death Cross’ Since 2014 Collapse

For the first time since September 2014, after which oil prices collapsed almost 75%, Brent and WTI Crude futures both just flashed a ‘death cross’ signal as the 50-day moving-average crossed below the 200-day moving-average.

The crossover is typically seen a loss of short-term momentum and last occurred in the second half of 2014, when prices collapsed due to oversupply amid surging U.S. shale oil production.

 

As Bloomberg notes, OPEC and its partners will be hoping their efforts to curb output will be enough to support prices and counteract any fears of growing downside risk.

 

However, this morning’s news of “real” OPEC production may raise more doubts about the cartel’s commitment (and going forward, the Qatar debacle won’t help).