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Page added on August 17, 2015
Kunstler: True Believers
There is a special species of idiot at large in the financial media space who believe absolutely in the desperate and tragic public relations bullshit that this society churns out to convince itself that the techno-industrial high life can continue indefinitely, despite the mandates of reality — in particular, the fairy tales about oil: we’re cruising to energy independence… the shale oil “miracle” will keep us driving to WalMart forever… our wells doth overflow as if this were Saudi America… don’t worry, be happy…!
Such a true believer is John Mauldin, the investment hustler and writer of the newsletter Thoughts From the Frontline, who called me out for obloquy in his latest edition. After dissing me, he said:
“I have written for years that Peak Oil is nonsense. Longtime readers know that I’m a believer in ever-accelerating technological transformation, but I have to admit I did not see the exponential transformation of the drilling business as it is currently unfolding. The changes are truly breathtaking and have gone largely unnoticed.”
Mauldin is going to be very disappointed when he discovers that the vaunted efficiencies in shale drilling and fracking he’s hyping will only accelerate the depletion of wells which, at best, produce a few hundred barrels of oil a day, and only for the first year, after which they deplete by at least half that rate, and after four years are little better than “stripper” wells. The PR shills at Cambridge Energy Research (Dan Yergin’s propaganda mill for the oil industry) must have pumped a five-gallon jug of Kool-Aid down poor John’s craw. He believes every whopper they spin out — e.g. that “Right now, some US shale operators can break even at $10/barrel.”
The truth is the shale oil industry couldn’t make a profit at $100/barrel. The drilling and fracking boom that began around 2005 was paid for with high-risk, high-yield junk bond financing and other sketchy, poorly collateralized financing. Most of the earnings in the early years of shale oil came from flipping land leases to greater fools. Now that the price of oil has fallen by more than 50 percent in the past year, the prospect dims for that junk financing to be repaid. Since that was “bottom-of-the-barrel” financing, the odds are that the shale producers will have a very hard time finding more borrowed money to keep up the relentless pace of drilling needed to stay ahead of the short depletion rates. They are also running out “sweet spots” that are worth drilling.
We will look back on the shale oil frenzy of 2005 to 2015 as a very interesting industrial stunt borne of desperation. It gave a floundering industry something to do with all its equipment and its trained personnel, and it gave wishful hucksters something to wish for, but it never penciled-out economically. Shale oil production turned down in 2015 and the money will not be there to get the production back to where it was before the price crash. Ever.
Some additional uncomfortable truths should temper the manic fantasies of hypsters like Mauldin. One is that we are no longer in the cheap oil age. All the new oil available now is expensive oil — whether it’s Bakken shale or deep water or arctic oil — and it costs too much for our techno-industrial society to run on. That is why the world financial system is imploding: we can’t borrow enough money from the future to keep this game going, and we can’t pay back the money we’ve already borrowed. We have to get another game going, one consistent with contraction and with much lower energy use. But that is not an acceptable option to the people running things. They are determined to keep the current matrix of rackets going at all costs, and the certain result will be very messy collapse of economies and governments.
Industrial economies face a fatal predicament: Oil above $75/barrel crushes economies; under $75/barrel it crushes oil companies. We’ve oscillated back and forth between those conditions since 2005. The net effect in the USA is that the middle class is rapidly going broke. All the financial shenanigans aimed at propping up Wall Street and Potemkin stock markets was carried out at the expense of the middle class, now deprived of jobs, incomes, vocations, stability, and prospects. They may already be at the point where they can’t afford oil at any price. That “energy deflation” dynamic, in the words of Steve Ludlum at the Economic Undertow blog, is a self-reinforcing feedback loop that beats a path straight to epochal paradigm shift: get smaller, get local, get real, or get out.
The hypsters and hucksters won’t believe this until it jumps up and bites them on the lips. These are the same idiots who believe we are going to continue Happy Motoring by other means — self-driving, all-electric cars — and who think there is some reason for human beings to travel to other planets when we haven’t even demonstrated that we can plausibly continue life on this one.
As I averred last week, America is at the bottom of a self-knowledge low cycle in which we are incapable of constructing a coherent story about what is happening to us. The techno-industrial fiesta was such a special experience that we can’t believe it might be coming to an end. So, one option is to believe stories that have no basis in reality. As Tom McGuane wrote some forty years ago: “Life in the old USA gizzard had changed and only a clown could fail to notice. So being a clown was a possibility.”
17 Comments on "Kunstler: True Believers"
BobInget on Mon, 17th Aug 2015 7:15 pm
First of all, shale Can Be Profitable at $100.
Which means Kunstler is only mistaken around the edges. It’s not shale (tight gas/oil) that got us to this state of affairs.
http://www.livecharts.co.uk/MarketCharts/crude.php
I’m not sure who or what Mr K blames for perpetrating a myth that an extra million barrels a day in a 96 to 97 Million barrels a day oil markets is somehow unusual. If your fuel tanks showed
1.1% extra fuel remaining at flight or voyage completion, would you be completely at ease?
Consumption, depending who you ask, is rising
1.8 Million B p/d worldwide. Due to the cheap oil Mr K says will no longer be available, Americans and about every other nationality are exceeding expectations every week.
K is right about many things, one of them is not Market Predictions. An alarmist by trade, he should be shouting from roof-tops how we are headed for a disastrous shortages and/or $100 plus oil.
Everyone, even K miss a few salient facts;
1) Saudi Arabia and Iran are at war.
2) Number two Venezuela is on the verge of collapse only $125 oil can mitigate.
3) Russia is at war in Ukraine.
4) Libya has two fathers.
5) Yemen will, after Syria, become part of the so called ‘Islamic State’. (not a fact as yet)
Once al Qaeda and IS take charge, KSA is next.
6) The Iraq War persisted one decade. Two more to go?
7) Is the West at war with Islam or not?
This will be decided when oil stops flowing West.
coffeeguyzz on Mon, 17th Aug 2015 7:41 pm
I fully realize that a great many of the folks who visit this site are anti-fossil fuel to varying degrees of intensity, and for various reasons.
To read Mr. Kunstler’s above piece may fuel additional reinforcement to pessimistic scenarios, especially in regards to shale production.
It not only will continue to be shown as inaccurate, the emerging data and field performance hold promise that shale output will rise significantly in the coming decades.
For any who wish to verify/disprove that statement, one need only to view the June production results from EOG’s Riverview well 102-32H that, with an ultra-short 4,300′ lateral, has produced more oil in one month than any other well ever in North Dakota – over 80,000 barrels its first full month.
At the recent company conference call, the CEO described how the Frac geometry can now be precisely contained (they are actually sandblasting the micro fissures with tiny #100 mesh sand, and propping the created voids with larger sized sand).
Some of the many ramifications of this is the ability to much more closely space laterals as well as developing acreage previously considered uneconomic.
Other operators have begun employing this technique.
In a few days, Cimarex is due to publicly release the results of their test well drilled in eastern Kentucky a few months back in the Rogersville shale.
The viewable property records show over 4,000 leases signed in the adjacent three counties these past few months.
This stuff has just begun.
Apneaman on Mon, 17th Aug 2015 8:11 pm
A CEO described some production results that his ass and bonus depends on as awesome? You should consider changing your handle to Koolaideguyzz.
Davy on Mon, 17th Aug 2015 8:15 pm
Well, maybe Coffee if they can stay solvent. I doubt you can verify that will be the case. Coffee this is not your daddy’s economy. We have some bad shit going down whether it is the breaking point is yet to be seen. No industry is immune especially the energy industry.
coffeeguyzz on Mon, 17th Aug 2015 8:19 pm
Apneaman
As a great deal of money is tied into production figures, money going to various parties, these numbers are highly accurate and verifiable at many levels … regardless of one’s position and what one drinks.
Apneaman on Mon, 17th Aug 2015 9:16 pm
How much they owe? Is it not time for another round of check up’s soon? How many are gone since the last one one? Maybe another round of sucker investors will bite again. Stranger things have happened and it’s not like there is anywhere else to try and invest.
BobInget on Mon, 17th Aug 2015 9:20 pm
Mideast ‘production figures’ are misleading:
It has been a summer of heatwaves, with records being set across the world, most recently in Iraq and Iran over the weekend. But while they might not top temperatures here in the UAE, some countries have struggled to cope.
Middle East
In the past few days, residents in the Iranian city of Bandar Mahshahr battled 46°C temperatures as an unprecedented heatwave enveloped the region. With the added humidity it felt like 73°C, according to AccuWeather.
To the west, temperatures also reached above 50°C last week in Iraq, with a recording of 52°C in Baghdad.
The heat prompted the Iraqi government to implement a mandatory four-day holiday and residents were urged to stay out of the sun and to drink plenty of water.
Unlike many countries in the Middle East, Iraq lacks beaches, and travel restrictions make it hard for people to escape from the heat.
Reports suggest that chronic electricity and water cuts in Iraq and other conflict-ridden countries make heatwaves even more unbearable.(snip)
. It’s what gets exported, that brings in revenue.
ghung on Mon, 17th Aug 2015 9:47 pm
From the article: “…we are incapable of constructing a coherent story about what is happening to us….”
… as coffeeguyzz so aptly demonstrates. He extracts (compartmentalizes) one aspect of the message, as if it fucking matters. Easy to stick to what one thinks one knows and ignore how that fits into a systemic meltdown of indusrialism.
Shale hydrocarbon extraction is merely a self-important aspect of peak-everything-that-matters. Some matter less than others. Who gives a shit about world oil production when so many can’t afford (or even find) sufficient fresh water? Where will the shale producers be when the global debt bubble implodes? There’s a change coming, and folks like coffeeguyzz will be lost at sea with no safe ports.
Makati1 on Mon, 17th Aug 2015 10:49 pm
“There is a special species of idiot at large in the financial media space who believe absolutely in the desperate and tragic public relations bullshit that this society churns out to convince itself that the techno-industrial high life can continue indefinitely, despite the mandates of reality”
Some on here fit this description perfectly, even if they cannot see it or refuse to acknowledge it. But the rest of us know who they are. LOL
James Tipper on Tue, 18th Aug 2015 12:17 am
I swear are you guys retired? How do you have time to comment on every single thread?
dubya on Tue, 18th Aug 2015 12:41 am
“EOG’s Riverview well 102-32H that, with an ultra-short 4,300′ lateral, has produced more oil in one month than any other well ever in North Dakota – over 80,000 barrels its first full month.”
Holy shit, that is awesome!
With that, and once we have Fusion electricity up and running we will be set for life.
This should solve the other issues like losing half the world’s land & sea animal populations, the largest extinction event ever, loss of fossil groundwater aquifers, drought, floods, half of humanity in food crisis leading to a European + Australian refugee crisis, an unemployed American middle class, 1000 people dying daily in China; did I mention Arctic Methane releases and Climate Change? All this oil should be fabulous for Climate Change. Woo Hoo!
Makati1 on Tue, 18th Aug 2015 2:38 am
James, some of are retired, but it doesn’t take much time to comment if you don’t waste your time watching TV, or looking at porn. It can sharpen your mind and cause you to use those brain cells that are still working. And, you can learn from like minded debaters and those who appear clueless. If you stop learning, you start dying. It beats sitting in a bar listening to someone brag about their last date or their new pickup. And cheaper, without a hangover.
Davy on Tue, 18th Aug 2015 4:21 am
Mak, you should be on your farm working the land and not in your 2 room on the 10th floor of some cheap apartment in Manila a city of 12MIL preaching the evils of collapse when you are the closest to it. What a joke.
GregT on Tue, 18th Aug 2015 12:53 pm
“I swear are you guys retired? How do you have time to comment on every single thread?”
Shoot the messengers Jimmy, if it makes you feel more comfortable.
apneaman on Tue, 18th Aug 2015 2:06 pm
Very High Quality Bullshit
http://www.declineoftheempire.com/2015/08/very-high-quality-bullshit-.html#more
Apneaman on Thu, 20th Aug 2015 12:42 am
Drought Causing $2.7 Billion Economic Hit In California
http://www.capradio.org/articles/2015/08/18/drought-causing-$27-billion-economic-hit-in-california/?utm_content=bufferbdbd8&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
Amvet on Wed, 26th Aug 2015 10:15 am
What impresses me the most about oil and gas production is the quality of data.
Media comments imply exact knowledge of an oil supply glut happening now.
The EIA 2015 report has some data from 2013 and some from 2012.
The latest BP Statistical Review of World Energy shows global oil production in 2014 to be 88.673 million bbls a day and consumption to be 92.086 million bbls a day. Did 4 million bbls of production fall from the sky ??