Are we there yet..? revisited

30 04 2015

Four years ago, I wrote a post with exactly the same title as this one, regarding whether we were at Peak Oil or not……  Then I wrote another two years later, about Peak Debt.  Well this one is about Peak Everything….. and the reason I’m writing this one is that….  well everything is going nuts out there in the Matrix.

First, this turns up on ZeroHedge:

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The entire economic and political structure is now dependent in one way or another on the continued expansion of financial markets.

The financial markets don’t just dominate the economy–they now control everything. In 1999, the BBC broadcast a 4-part documentary by Adam Curtis, The Mayfair Set ( Episode 1: “Who Pays Wins” 58 minutes), that explored the way financial markets have come to dominate not just the economy but the political process and society.
In effect, politicians now look to the markets for policy guidance, and any market turbulence now causes governments to quickly amend their policies to “rescue” the all-important markets from instability.
This is a global trend that has gathered momentum since the program was broadcast in 1999, as The Global Financial Meltdown of 2008-09 greatly reinforced the dominance of markets.
It’s not just banks that have become too big to fail; the markets themselves are now too influential and big to fail.
Curtis focuses considerable attention on the way in which seemingly “good” financial entities such as pension funds actively enabled the “bad” corporate raiders of the 1980s by purchasing the high-yield junk bonds the raiders used to finance their asset-stripping ventures.
Charles Hugh-Smith then says “This spells the end of the electoral-political control of the economy, as politicians of all stripes quickly abandon all their ideologies and policies and rush to “save” the markets from any turmoil, because that turmoil could destabilize not just the financial markets but the economy, pensions and ultimately the government’s ability to finance its own profligate borrowing and spending.”
Scared yet?  Read on……
A study, published in the journal Nature Climate Change, found that 75 percent of the planet’s “moderate daily hot extremes” can be tied to climate change. That figure means that heat events which, in a world without climate change, would occur in one out of every 1,000 days (or about once every three years) now occur in about four or five out of every 1,000 days, the study’s lead study author, Erich Fischer, told the Washington Post. Basically, climate change has upped the odds that these types of heat events will occur.
But wait, there’s more…..

a new Financial Tsunami is beginning, this one, of all places, in the Texas, North Dakota and other USA shale oil regions. Like the so-called US sub-prime real estate crisis, the oil shale junk bond default crisis is but the cutting front of the first wave of what promises to be a far more dangerous series of financial Tsunami long waves.

Banking system vulnerability greater

I say more dangerous because of what governments in the USA, EU and elsewhere did after 2007 to make sure no repeat of that bubble-cum-collapse-of bubble cycle could repeat.

In a word, they did nothing. What they did do—explode US Federal debt and bloat the credit of the central bank to historic highs leave the USA in far worse shape to deal with the unfolding crisis.
First appeared:

And there’s more still…..

U.S. oil production decline has begun.

It is not because of decreased rig count. It is because cash flow at current oil prices is too low to complete most wells being drilled.

The implications are profound. Production will decline by several hundred thousand of barrels per day before the effect of reduced rig count is fully seen. Unless oil prices rebound above $75 or $85 per barrel, the rig count won’t matter because there will not be enough money to complete more wells than are being completed today.

Tight oil production in the Eagle Ford, Bakken and Permian basin plays declined approximately 111,000 barrels of oil per day in January. These declines are part of a systematic decrease in the number of new producing wells added since oil prices fell below $90 per barrel in October 2014 (Figure 1).

Chart_ALL New Prod Wells
Figure 1. Eagle Ford, Bakken and Permian basin new producing wells by month and WTI oil price. Source: Drilling Info and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

Deferred completions (drilled uncompleted wells) are not discretionary for most companies. Producers entered into long-term rig contracts assuming at least $90 oil prices. Lower prices result in substantially reduced cash flows. Capital is only available to fulfill contractual drilling commitments, basic costs of doing business, and to complete the best wells that come closest to breaking even at present oil prices.

Much of the new capital from junk bonds and share offerings is being used to pay overhead and interest expense, and to pay down debt to avoid triggering loan covenant thresholds. Hedges help soften the blow of low oil prices for some companies but not enough to carry on business as usual when it comes to well completions.

The decrease in well completions provides additional evidence that the true break-even price for tight oil plays is between $75 and $85 per barrel. The Eagle Ford Shale is the most attractive play with a break-even price of about $75 per barrel. Well completions averaged 312 per month from January through September 2014 when WTI averaged $100 per barrel (Figure 2). When oil prices dropped below $90 per barrel in October, November well completions fell to 214. As prices fell further, 169 new producing wells were added in December and only 118 in January.

Chart_Eagle Ford Break-Even

Figure 2. Eagle Ford new producing wells (2 month moving average) and WTI oil prices. Source: Drilling Info, EIA and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

Junk bonds

Since the shale oil boom took flight in 2011 Wells Fargo and JP Morgan have both issued shale oil company loans of $100 billion.There has been a huge rise in high risk high return bonds, so called “junk bonds.” They earned the appropriate name because in event of a company’s going bankrupt, they become just that—junk. The bonds have been issued by Wall Street banks to shale oil and gas companies since the bubble started in 2011. The US oil and gas industry share of junk bonds has been the fastest growing portion of the overall US junk bond sector of the bond market.

Now as oil prices hover around $49 a barrel, the shale oil companies that indebted themselves with junk bonds to finance more drilling are themselves facing bankruptcy or default more and more every additional day the US crude oil price remains this low. Their shale projects were calculated when oil was $100 a barrel, less than a year ago. Their minimum price of oil to avoid bankruptcy in most cases was $65 a barrel to $80 a barrel. Shale oil extraction is unconventional and more costly than conventional oil. Douglas-Westwood, an energy advisory firm, estimates that nearly half of the US oil projects under development need oil prices greater than $120 per barrel in order to achieve positive cash flow. 
First appeared:

And today, global share markets went down.  US quarterly growth was a mere 0.2% and the Fed still has not raised interest rates as promised.  They know we’re nearly there, I’m sure.  Not that it particularly fills me with glee now my ute and all our precious goodies we need to get on with the rest of our lives are parked almost 3000km away awaiting our house sale….  We sure live in interesting times.

IEA Says the Party’s Over

7 06 2014

Posted Jun 5, 2014 by Richard Heinbergheinberg

Originally published at Post Carbon Institute

The International Energy Agency has just released a new special report called “World Energy Investment Outlook” that should send policy makers screaming and running for the exits—if they are willing to read between the lines and view the report in the context of current financial and geopolitical trends. This is how the press agency UPI begins its summary:

It will require $48 trillion in investments through 2035 to meet the world’s growing energy needs, the International Energy Agency said Tuesday from Paris. IEA Executive Director Maria van der Hoeven said in a statement the reliability and sustainability of future energy supplies depends on a high level of investment. “But this won’t materialize unless there are credible policy frameworks in place as well as stable access to long-term sources of finance,” she said. “Neither of these conditions should be taken for granted.”

Here’s a bit of context missing from the IEA report: the oil industry is actually cutting back on upstream investment. Why? Global oil prices—which, at the current $90 to $110 per barrel range, are at historically high levels—are nevertheless too low to justify tackling ever-more challenging geology. The industry needs an oil price of at least $120 per barrel to fund exploration in the Arctic and in some ultra-deepwater plays. And let us not forget: current interest rates are ultra-low (thanks to the Federal Reserve’s quantitative easing), so marshalling investment capital should be about as easy now as it is ever likely to get. If QE ends and if interest rates rise, the ability of industry and governments to dramatically increase investment in future energy production capacity will wane.
Other items from the report should be equally capable of inducing policy maker freak-out:
The shale bubble’s-a-poppin’. In 2012, the IEA forecast that oil extraction rates from US shale formations (primarily the Bakken in North Dakota and the Eagle Ford in Texas) would continue growing for many years, with America overtaking Saudia Arabia in rate of oil production by 2020 and becoming a net oil exporter by 2030. In its new report, the IEA says US tight oil production will start to decline around 2020. One might almost think the IEA folks have been reading Post Carbon Institute’s analysis of tight oil and shale gas prospects! This is a welcome dose of realism, though the IEA is probably still erring on the side of optimism: our own reading of the data suggests the decline will start sooner and will probably be steep.
Help us, OPEC—you’re our only hope! Here’s how the Wall Street Journal frames its story about the report: “A top energy watchdog said the world will need more Middle Eastern oil in the next decade, as the current U.S. boom wanes. But the International Energy Agency warned that Persian Gulf producers may still fail to fill the gap, risking higher oil prices.” Let’s see, how is OPEC doing these days? Iraq, Syria, and Libya are in turmoil. Iran is languishing under US trade sanctions. OPEC’s petroleum reserves are still ludicrously over-stated. And while the Saudis have made up for declines in old oilfields by bringing new ones on line, they’ve run out of new fields to develop. So it looks as if that risk of higher oil prices is quite a strong one.
A “what-me-worry?” price forecast. Despite all these dire developments, the IEA offers no change from its 2013 oil price forecast (that is, a gradual increase in world petroleum prices to $128 per barrel by 2035). The new report says the oil industry will need to increase its upstream investment over the forecast period by $2 trillion above the IEA’s previous investment forecast. From where is the oil industry supposed to derive that $2 trillion if not from significantly higher prices—higher over the short run, perhaps, than the IEA’s long-range 2035 forecast price of $128 per barrel, and ascending higher still? This price forecast is obviously unreliable, but that’s nothing new. The IEA has been issuing wildly inaccurate price forecasts for the past decade. In fact, if the massive increase in energy investment advised by the IEA is to occur, both electricity and oil are about to become significantly less affordable. For a global economy tightly tied to consumer behavior and markets, and one that is already stagnant or contracting, energy constraints mean one thing and one thing only: hard times.
What about renewables? The IEA forecasts that only 15 percent of the needed $48 trillion will go to renewable energy. All the rest is required just to patch up our current oil-coal-gas energy system so that it doesn’t run into the ditch for lack of fuel. But how much investment would be required if climate change were to be seriously addressed? Most estimates look only at electricity (that is, they gloss over the pivotal and problematic transportation sector) and ignore the question of energy returned on energy invested. Even when we artificially simplify the problem this way, $7.2 trillion spread out over twenty years simply doesn’t cut it. One researcher estimates that investments will have to ramp up to $1.5 to $2.5 trillion per year. In effect, the IEA is telling us that we don’t have what it takes to sustain our current energy regime, and we’re not likely to invest enough to switch to a different one.
If you look at the trends cited and ignore misleading explicit price forecasts, the IEA’s implicit message is clear: continued oil price stability looks problematic. And with fossil fuel prices high and volatile, governments will likely find it even more difficult to devote increasingly scarce investment capital toward the development of renewable energy capacity.

As you read this report, imagine yourself in the shoes of a high-level policy maker. Wouldn’t you want to start thinking about early retirement?

Laughing all the way to the cliff……

23 05 2014

Pope Benedict is quoted as having written “The promise was that when the glass was full, it would overflow, benefiting the poor. But what happens instead, is that when the glass is full, it magically gets bigger”.  This prompted in me memories of my youth when we were promised so much technology, none of us would have to ever work, because technology would replace labour, giving us limitless leisure time.

So what happened?

Money got in the way.  Sure, robots can build cars.  Yes, gigantic combine harvesters can cut thousands of acres of wheat (and it’s only a matter of time before they do this without a driver, like the mining industry is introducing driverless Tonka Trucks).  Even ‘checkout chicks’ are being replaced with infuriating self checkout lanes……. Then we have those even more infuriating robotic answering services which Jim Kunstler recently had this to say about:

Robot phone answering systems also allowed corporations to off-load the cost of doing business onto their customers, mostly in the form of wasting vast amounts of their customers’ time. Included in the off-load was the cost of paying receptionists (as telephone answerers used to be quaintly called) and all their medical and retirement benefits — just another manifestation of the vanishing middle class, by the way, since a lot of women used to be employed that way (let’s skip the gender equality side-bar for now). After a while, the added privilege of companies being able to evade responsibility for their actions hugely outweighed the cost-saving advantage of firing some lower level employees.

Trouble is, robots don’t buy cars, harvesters don’t buy bread, and computers don’t buy groceries……  Money buys those things.  So the providers of money had no choice but to keep us all enslaved using ‘Labour Productivity’ to ensure ‘we’ could earn the money to buy the stuff made by the technology that displaced our jobs.

The result is that today’s largest sector of the economy is the financial one.  For at least twenty years, we have been encouraged – dare I say browbeaten? – to borrow ever more money to buy stuff we don’t need and which won’t last, to impress people we don’t know or care about, creating mountains of waste and oceans of plastic……

Remember those..?

Speaking of plastic, I reckon it all started with credit cards.  I remember getting my first Bankcard in the late seventies.  What an innovation that was.  How primitive they were compared to the current ‘paywave’ technology!  The card had to be put in a machine that used the raised characters on the card to make carbon copies of your details, then you had to sign the form, all in triplicate…  can you imagine the fuss such a thing would cause in a modern supermarket queue?

I can’t remember what my credit limit was back then, but it wasn’t thousands of dollars, I’m sure of that.  And you wouldn’t pull it out for any old transaction, because you were still paid in cash back then……!  Yes dear reader, cash…  The paymaster would come to your desk with a tray full of brown envelopes with real money in them and a pay statement.  One of those envelopes had your name on it, and you had to sign a form saying you’d received it, and you counted your cash (including the coins!) to make sure no one had made an error.  But when computers came along, all those people lost their jobs, nobody was needed to count your money anymore.

I know I’m showing my age now.  And feeling all nostalgic about the good old days when petrol cost fifty cents a gallon, when the Club of Rome had only just published its Limits to Growth Report, and everyone just decided to ignore it, because 2020 was so far into the future, it would be someone else’s problem.

We all thought we were laughing all the way to the bank back then……  but little did we know we were in fact laughing all the way to the cliff.

Everything, and I mean everything today is about money.  Nobody ever does anything anymore unless there’s money to be made.  They’ll even do useless things, unsustainable things, unethical things, immoral things, unbelievably stupid things….. just for the money.  Even the government’s onto it.  If there’s money to be made, they’ll throw the poor, the sick, the elderly, anybody who can’t grow the money pile, onto the shit heap we call the economy.  What are they thinking?  How can greed take over like this?  How on Earth did the Australian people get sucked in by the lies this current government were proliferating before the election?  And then elect the worst government in all of human history?  Well, alright, Hitler was worse…….  but just give these bastards a chance to catch up.

Yes, you’ve worked it out……  I despair.  See you on the edge of the cliff.

PS.  Did anyone else see this momentous piece of news about tight oil in California?  I haven’t laughed so hard in a very long time…..

In 2011, the Energy Information Administration (EIA) of the US Department of Energy commissioned INTEK Inc., a Virginia-based consulting firm, to estimate how much oil might be recoverable from California’s vast Monterey Shale formation. Production of tight oil was soaring in North Dakota and Texas, and small, risk-friendly drilling companies were making salivating noises (within earshot of potential investors) about the potential for an even bigger bonanza in the Golden State.

INTEK obliged with a somewhat opaque report (apparently based on oil company investor presentations) suggesting that the Monterey might yield 15.4 billion barrels—64 percent of the total estimated tight oil reserves of the lower 48 states. The EIA published this number as its own, and the University of Southern California then went on to use the 15.4 billion barrel figure as the basis for an economic study, claiming that California could look forward to 2.8 million additional jobs by 2020 and $24.6 billion per year in additional tax revenues if the Monterey reserves were “developed” (i.e., liquidated as quickly as possible).
We at Post Carbon Institute took a skeptical view of both the EIA/INTEK and USC reports. In 2013, PCI Fellow David Hughes produced an in-depth study (and a report co-published by PCI and Physicians Scientists & Engineers for Healthy Energy) that examined the geology of the Monterey Shale and the status of current oil production projects there. Hughes found that the Monterey differs in several key respects from tight oil deposits in North Dakota and Texas, and that currently producing hydrofractured wells in the formation show much lower productivity than assumed in the EIA/INTEK report. Hughes concluded that “Californians would be well advised to avoid thinking of the Monterey Shale as a panacea for the State’s economic and energy concerns.”
On May 21 the Los Angeles Times reported that “Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California’s vast Monterey Shale deposits, deflating its potential as a national ‘black gold mine’ of petroleum.” The EIA had already downgraded its technically recoverable reserves estimate for the Monterey from 15.4 to 13.7 billion barrels; now it was reducing the number to a paltry 0.6 billion barrels.