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Page added on September 15, 2015
Decline Rates Will Ensure Oil Output Falls in 2016
“It takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast,” the Red Queen told Alice in Lewis Carroll’s novel “Through the Looking-Glass”.
Oil companies have to invest heavily simply to offset the impact of natural decline rates on their existing fields, and even more if they want actually to increase production.
The need for continued investment and drilling to maintain output as a result of the rapid decline rates on shale wells has been widely discussed.
Decline rates on conventional fields will play a critical part rebalancing the oil market and determining where oil prices settle in the longer term.
Decline rates will cut output by several million barrels per day each year in 2016 and 2017 unless oil producers invest to maintain production levels from existing fields and develop replacement fields.
But with oil prices below $50 per barrel, almost all companies, from the super-majors to national oil companies and independents, are slashing exploration and production budgets hard to conserve cash.
Cuts will hit sustaining expenditure on existing fields as well as frontier exploration. In a typical example, Iraq’s oil ministry wrote to contractors on September 6 warning it will cut exploration and field development spending next year (“Iraq warns oil companies of spending cuts” Sep 14).
“Because of the drop in oil-sales revenues, the Iraqi government has sharply reduced the funds available to the Ministry of Oil,” the ministry told operators. “This will reduce the funds available for the reimbursement of petroleum costs to our contractors.”
Some of the cuts in spending reflect a successful efficiency drive and efforts to squeeze the costs of supplies and oilfield services. But there are also real cuts in exploration and development programmes which will have a direct impact on the replacement of declining output.
“Spending curbs are accelerating decline rates,” the International Energy Agency (IEA) cautioned in a recent editorial (“Oil Market Report” Sep 2015).
The agency predicts non-OPEC oil supply could decline as much as 500,000 barrels per day (bpd) in 2016 because of the capital strike, which would be the biggest annual fall in 24 years.
Field Profile
Production from a conventional field follows a well-defined pattern, ramping up quickly, then stabilising near the peak for a few years, before entering a long slow decline.
Output rises initially as the field is developed from a single well to a full array of producing holes deployed to drain the reservoir efficiently.
But as the oil, gas and water contained in the producing formations is depleted, pressure falls and the reservoir’s natural energy declines.
Eventually, production starts to fall as the wells flow more slowly and produce a higher proportion of water rather than oil.
Field operators employ a variety of strategies to prolong production as long as possible and delay the onset of natural decline or at least reduce the decline rate.
Associated gas brought to the surface with the oil can be re-injected to help maintain field pressure or gas can be pumped in from other sources.
Fields can be placed on artificial lift with the installation of surface beam pumps (the famous nodding donkeys) or more commonly these days the installation of downhole electric submersible pumps (ESPs).
And water, natural gas, carbon dioxide or special polymers can be injected into the fringes of the field to drive the remaining oil towards the producing wells (“Enhanced oil recovery: field case studies” 2013).
Field management plans can increase the ultimate amount of oil recovered significantly, but eventually the fate of all wells and fields is the same: they produce mostly water and are eventually shut down.
The operating costs of running the pumps and injecting water, gas or other materials eventually become greater than the value of the oil and the field becomes marginal and is abandoned.
Decline Rates
Based on an analysis of the production history of more than 1,600 conventional fields between 1950 and 2012, the IEA has estimated decline rates for a range of fields.
For fields which have passed their peak, observed output declined on average by 6.2 percent per year, according to the IEA (“World Energy Outlook 2013”).
Decline rates for offshore wells, especially in deepwater, are faster than for onshore fields because the greater upfront cost of drilling them encourages operators to develop them more aggressively to earn their money back.
Decline rates on smaller fields tend to be faster than those for larger ones, where different sections of the field can be developed over time.
And decline rates on non-OPEC fields tend to be faster than for OPEC fields, mostly because of the different mix of fields.
OPEC members in the Middle East and North Africa produce mostly from very large onshore fields which they have developed slowly to maximise and long-term revenues.
Non-OPEC production contains a much larger share of small and offshore fields which are depleted relatively quickly for commercial reasons.
Most of the fields within the IEA database have received some investment to offset the impact of natural decline rates.
The agency estimates this sustaining capital investment has typically reduced the decline rate by around 2.5 percent per year.
Without investment, the production from a mature oil field would decline by around 9 percent per year on average according to the IEA.
Red Queen’s Race
The precise impact of decline rates on the 90 million barrels per day global oil industry is hard to calculate because some fields are still ramping up, while others are declining at different rates depending on age and type and the amount of sustaining investment.
In its 2013 World Energy Outlook, the IEA assumed an actual decline rate of 2 percent per year across all current conventional fields, rising to 4 percent per year in the 2020s.
But that projection was produced when oil prices were averaging well above $100 per barrel and expected to remain at that level throughout the second half of the current decade and into the 2020s.
In a world where oil prices are expected to average just $50-$70 per barrel over the next few years, actual decline rates could easily reach 3 percent or even 4 percent per year.
Under a range of plausible assumptions, decline rates could easily cut between 1.4 million and 3.6 million bpd from the output of existing fields in 2016 and again in 2017.
Some of that will be replaced by new fields discovered and given the go-ahead for development during the years of high prices and are scheduled to come into production in 2016 and 2017.
Beyond 2017, however, the pipeline of new fields scheduled to come onstream will remain very thin unless oil prices rise substantially.
In the meantime, oil companies must be induced to invest enough in existing fields to stem the impact of the remorseless decline from current wells.
But with oil prices stuck at less than $50 per barrel, and almost all companies cutting capital expenditure plans for 2016, it looks like decline rates will take over in 2016.
Unless prices recover, non-OPEC output is set to fall in 2016, and the IEA’s forecast 500,000 bpd cut could end up looking conservative.
34 Comments on "Decline Rates Will Ensure Oil Output Falls in 2016"
Plantagenet on Tue, 15th Sep 2015 7:27 pm
Yup. 2016 could be the year the oil glut ends.
Of course, If Iran starts exporting in a big way it could extend the life of the oil glut for a bit longer.
CHEERS!
sugarseam on Tue, 15th Sep 2015 7:54 pm
and of course, if the world’s purchasing power continues to dawdle like it has, our situation can be spun as a “glut” for even longer than that.
but then, that only underscores the long-asserted ramifications of peak … it does not trump them.
peak demand/peak supply… same coin.
Truth Has A Liberal Bias on Tue, 15th Sep 2015 11:22 pm
I would personally like to thank Plant for once again pointing out the painfully obvious. Good job Planty.
shortonoil on Wed, 16th Sep 2015 9:05 am
60% of the world’s production is produced by less than 1% of its fields – the Giants. Those fields are now more than 60 years old. They have been on a plateau for more than a decade, and when they come off their plateau world production will decline catastrophically. That is projected to occur this decade.
The Etp Model informs us that we have crossed the Rubicon of petroleum production; the energy half way point of 2012. We have begun the cannibalization process of converting assets into production, and producer debt to gross sales is at its highest level in history; and it is growing. The richest oil state in the world, Saudi Arabia, now has to borrow money to pay its bills. HY energy debt has now become the bane of the bond market:
http://www.zerohedge.com/news/2015-09-14/theres-just-no-cash-oil-price-increase-will-not-come-fast-enough-save-alberta
http://www.zerohedge.com/news/2015-09-08/biggest-red-herring-us-shale
When the credit market for petroleum producers burst, production will decline at a dramatic rate! Shale, bitumen, the North Sea, and in field drilling for conventional fields will come to a stop. Production will crash!
http://www.thehillsgroup.org/
BobInget on Wed, 16th Sep 2015 9:35 am
Summary of Weekly Petroleum Data for the Week Ending September 11, 2015
U.S. crude oil refinery inputs averaged over 16.5 million barrels per day during the week
ending September 11, 2015, 403,000 barrels per day more than the previous week’s
average. Refineries operated at 93.1% of their operable capacity last week. Gasoline
production decreased last week, averaging over 9.2 million barrels per day. Distillate fuel
production increased last week, averaging about 5.1 million barrels per day.
U.S. crude oil imports averaged 7.2 million barrels per day last week, down by 270,000
barrels per day from the previous week. Over the last four weeks, crude oil imports
averaged over 7.4 million barrels per day, 4.3% below the same four-week period last
year. Total motor gasoline imports (including both finished gasoline and gasoline
blending components) last week averaged 722,000 barrels per day. Distillate fuel imports
averaged 66,000 barrels per day last week.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum
Reserve) decreased by 2.1 million barrels from the previous week. At 455.9 million
barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at
least the last 80 years.
Total motor gasoline inventories increased by 2.8 million barrels last week, and are in the upper half of the average range. Finished gasoline inventories decreased while blending components inventories increased last week.
Distillate fuel
inventories increased by 3.1 million barrels last week but are in the middle of the average
range for this time of year. Propane/propylene inventories rose 1.1 million barrels last
week and are well above the upper limit of the average range. Total commercial
petroleum inventories increased by 8.5 million barrels last week.
Total products supplied over the last four-week period averaged 19.5 million barrels per
day, up by 0.7% from the same period last year.
Over the last four weeks, motor gasoline
product supplied averaged about 9.2 million barrels per day, up by 2.0% from the same
period last year. Distillate fuel product supplied averaged 3.6 million barrels per day over
the last four weeks, down by 2.8% from the same period last year. Jet fuel product
supplied is up 5.6% compared to the same four-week period last year.
BobInget on Wed, 16th Sep 2015 11:06 am
Ease up on the schadenfreude Ole Shortonoil.
Timing is everything on the internet machine,
I do agree with all you say about aging oil fields and deep-sea exploration fails.
I just can’t get my head around how there will be no cash for Canadian drillers in an actual shortage situation. Canada, Norway, Argentina,
the US. Are these the last major oil suppliers in democratic, war free environments?
The North Sea not only plateaued but plummeted. Did Norway simply throw in the towel and tell oil workers to train for work as tile setters? Bet your bibi they didn’t.
I’ll bet Norway and the UK find oil and gas again.
It’s just gonna cost.
Will all the ‘Majors’ simply change over to electric
charging stations for electric vehicles or methanol or ethanol or natural gas? Maybe all four. It took years to get diesel everywhere, now a person can. I recall when ‘biodiesel’ was a thing. CNG works to charge fuel cell batteries.
Hydrogen, yet another battery might someday be
solar generated.
Here’s hoping someday you get an electric car
and soon. I’m too old to drive anything faster then a lap-top. But shortonoil sounds like he has years remaining in his fuel tanks.
BobInget on Wed, 16th Sep 2015 11:30 am
When Germany’s oil went away during WW/2,
Nazis put slave labor to work building plants to turn coal into liquid fuels. They did all this while being bombed, in record time.
When sanctions came down on South Africa denying them oil, white guys copied the Germans and to this day make diesel from coal.
Shell was on the verge of building a US plant converting natural gas into diesel. This was years ago when oil was $100. and movie tickets were $2.50. Ya know, ‘the good old days’.
It looks like the US has plenty of natural gas in the lower 48, Alaska and Canada.
Just like Shortonoil says, “gas became so popular, too cheap, drillers clean went out of business”
Plantagenet on Wed, 16th Sep 2015 12:28 pm
Hi Bias
I’m glad you finally got that we are in oil glut, but there are still deluded posters like apeman and sugarseam who don’t get it.
Thats OK—I’m sure everyone—even the dullest— will figure it out eventually
CHEERS!
shortonoil on Wed, 16th Sep 2015 1:22 pm
“I’m glad you finally got that we are in oil glut, but there are still deluded posters like apeman and sugarseam who don’t get it.”
And you, Good Sir, have the analytical skills of a parrot!
Plantagenet on Wed, 16th Sep 2015 1:27 pm
Hi Short:
Do you really rely on parrots for your analysis?
Perhaps that explains why your past predictions of oil prices and oil production have proven to be spectacularly incorrect and inaccurate.
CHEERS!
apneaman on Wed, 16th Sep 2015 1:41 pm
planty and the corny crew are getting more scared everyday as the bad news just keeps coming and the pace of the unraveling quickens. The muslim and other refugees have really kicked them into panic overdrive. All the Limits to Growth, AGW and peak oil predictions are unfolding. Lots of pressure to maintain the “No big Deal”, “Just a glut” “Market correction” “it’s just el nino” attitude. Down playing, far out alternative explanations and lashing out are the order of the day. It won’t be long now until all their fear, anxieties and frustration manifest in outright calls for violence….on some weaker group.
Plantagenet on Wed, 16th Sep 2015 1:50 pm
Hi Apeman
Your reading comprehension skills are incredibly low.
CHEERS!
shortonoil on Wed, 16th Sep 2015 6:50 pm
“I just can’t get my head around how there will be no cash for Canadian drillers in an actual shortage situation. Canada, Norway, Argentina, the US. Are these the last major oil suppliers in democratic, war free environments?”
It is called a massive deflationary contraction. One that we are likely to see begin over the next year! Oil is already leading the way. One that would break the back of the financial system that would be bailing out those failing producers. When the financial system comes down, no one, including the government will have money for more than day to day operations – if that! The money that is now coming out of thin air will be returning to the same place that it came from. It is the point were the velocity of money falls to 1, and every nickel is horded like there is no tomorrow.
apneaman on Wed, 16th Sep 2015 7:01 pm
planty, so is your ability for originality. You have said that a 1000 times to everyone you spar with. Maybe work on some new material.
apneaman on Wed, 16th Sep 2015 7:05 pm
“There’s Just No Cash”: Oil Bust in Canada Hits Creditors
http://wolfstreet.com/2015/09/14/theres-just-no-cash-oil-bust-in-canada-hits-creditors/
apneaman on Wed, 16th Sep 2015 7:50 pm
Here is some more for you to comprehend planty.
Peak Oil Ass-Backwards (part 2): Crashing Oil
Prices Aren’t Due to an Oil Glut But to Demand
Destruction and Peaking Credit
“First off, global coal consumption is growing at its slowest rate since the Asian crisis of 1998. On top of that, earlier this year the Baltic Dry Index (an index which measures the price of shipping freight rates) hit a 28-year low. Meanwhile, export orders from Chinese factories just fell for an eleventh straight month, with August’s activity shrinking at its fastest rate in three years, and which in turn has led to an increased rate of layoffs.
Those kinds of things don’t occur because there’s too much oil — the supposed glut — they happen because people are buying less. It is those and other factors then that have some people thinking that perhaps the problem isn’t so much an oil glut as much as a lack of demand — otherwise known as demand destruction.”
http://fromfilmerstofarmers.com/blog/2015/september/peak-oil-ass-backwards-part-2/
Fat Lady on Wed, 16th Sep 2015 11:55 pm
Most posting on this site know that conventional oil production has peaked. The only place there is an oil glut is from light tight crude liquids that we here in the US are fracking for and do not have the capacity to refine. There is no “glut” of light sweet crude (conventional oil).
makati1 on Thu, 17th Sep 2015 6:22 am
BobInget, if you are unlucky, you will live to see the crash and the return to the Dark Ages. We appear to be near that event from what I see in the world. If you are not prepared for the day the Social Security/retirement stops and your other investments are worthless, all of your denial will mean nothing.
Yes, there will be oil and natural gas still in the ground, and there it will stay until some natural event in the far far future releases it or draws it down into the earth’s mantel and destroys it along with every trace of humanity. Nothing will remain to tell that we ever existed, except, maybe some fossils.
Take some time this weekend to watch what has happened to the earth in it’s first 4.5 billion years and then think about just how important we are in the scheme of things. The dinosaurs ruled for over 150 million years. Humans for about 15 thousand. An eye blink.
https://www.youtube.com/watch?v=RQm6N60bneo
“The History of the Earth” NatgeoTV.
charmcitysking on Thu, 17th Sep 2015 7:41 am
“When Germany’s oil went away during WW/2, Nazis put slave labor to work building plants to turn coal into liquid fuels. They did all this while being bombed, in record time”
—-
They had begun converting coal to liquid before the war even started.
Kenz300 on Thu, 17th Sep 2015 10:02 am
Depletion continues…. the world should use this time of temporary over supply to reduce subsidies that encourage wasteful use of resources.
It is time to speed up the transition away from fossil fuels.
Electric vehicles and bicycles are the future.
shortonoil on Thu, 17th Sep 2015 12:11 pm
Guess we were wrong? Projections based on the Model put the decline in total world liquids in early 2016. We believed that total NGL production would compensate for the decline in crude, and LTO production until then:
http://oilprice.com/Latest-Energy-News/World-News/Cargo-Trends-Affirm-Falling-Oil-Production.html
Since no one knows how much energy it takes to produce NGLs, and there is no nice easy thermodynamic equations to help, we guessed. It looks like we missed by about 20 to 30%.
Peak all liquids has arrived!
http://www.thehillsgroup.org/
BC on Thu, 17th Sep 2015 12:14 pm
short: “When the credit market for petroleum producers burst, production will decline at a dramatic rate! Shale, bitumen, the North Sea, and in field drilling for conventional fields will come to a stop. Production will crash!”
My forecast over the next 2-3 to 5 years is US production falling to 5-6Mbd and consumption falling 2-3Mbd or more at the 3- and 5-year average price of WTI in the $30s.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1RQF
As for velocity, short, private GDP to M2+ plunged below 1.0 at the onset of the Great Recession (“slow-motion depression).
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1RQJ
The acceleration has been negative again since 2013.
https://app.box.com/s/rvlhbckx959xahjysa30zwyallimx0qb
And this is occurring with the monetary base nearing contraction again as when the Fed previously commenced QE, “Operation Twist”, and “All In”.
The M1 multiplier is below 1.0 and M2+ is below 4.0.
Under these conditions, it’s silly to conclude that the Fed is going to raise rates and constrain or reduce bank reserves. In fact, during similar conditions in the past, the Fed was cutting rates and expanding reserves.
The Fed and TBTE banks are desperate to discourage a deflationary mindset taking hold among businesses, households, and creditors; but it is inevitable given Boomer demographics and the unprecedented debt to wages and GDP.
BC on Thu, 17th Sep 2015 12:50 pm
Kenz: “Electric vehicles and bicycles are the future.”
https://app.box.com/s/jemdqkdd23257oummtpjwl6348wigdlx
https://app.box.com/s/pfdk6c7a9g9n5i0e3s5txnej16q7biav
I doubt it; more like a future of increasing immobility for a growing share of the bottom 80-90%.
The population is aging too much for bicycles to be practical, especially during rainy weather and winter. People in CA and elsewhere in the Sunbelt who advocate solar, EVs, and bikes are projecting too much of their local experience on the rest of the country.
EV sales have peaked and growth has decelerated since 2013 to 5%/year and negative YoY to date. I suspect that we will see a crash in EV sales as the global deflationary recession becomes apparent and deepens.
farmlad on Thu, 17th Sep 2015 2:14 pm
BC Yesterday I happened to be where an EV show was taking place, and since I don’t hope to ever have that chance again, I took the opportunity to ride in a TESLA. Was funny how the guy who got to drive was happy that gas had gone up by 30 cents or so and then the owner of the machine mentioned that he made the decision to buy it, with $5 gas figured in. Was a great ride, just glad that most of the costs wasn’t coming from my pocket.
GregT on Thu, 17th Sep 2015 2:34 pm
With a base price of over $100,000, for a vehicle that will last less than a decade, somehow I don’t think anyone who buys one really cares how much gasoline costs.
Davy on Thu, 17th Sep 2015 2:42 pm
BC, nothing is THE future. Many things will make up a future where there are no silver bullets.
Ignore Kenz he is just a mindless bot that refuses to engage in conversation. He is basically a weirdo spewing his mindless greenie bullshit that gives green a bad name. He is preaching fantasy and is in denial.
Anyway bikes and EV’s are vital for the future as just one more asset to include on our “descent vehicle” to reduce the hard landing. Yet, they have little future post status quo except in salvage efforts. Large factories churning out economies of scale quantities will be over soon. Repairing and cobbling together what is left will be their future until even that is done. Entropy takes no prisoners.
Apneaman on Thu, 17th Sep 2015 3:28 pm
Hey, Miss Janet — Take Pity On The Working Man!
” For Main Street, it’s another No-Win Situation. The fix is in. If that wasn’t clear back in 2008-09 when the Fed and the Congress bailed out various TBTF players, one hopes it is clear now. Epstein’s point is that raising rates or not raising rates will have no significant effect on inequality, which is here to stay. The system is rigged. The damage is done. Damned if you do and damned if you don’t, at least as far as Main Street is concerned.
When various economists or pundits (Vox.com) urge the Fed to keep rates at zero because there is no inflation, and despite the fact that inequality has gone from bad to worse as a result of Fed policy, they have adopted the mentality of economic serfs. If the word “serfs” doesn’t work for you, think of it this way: they are urging the Masters of the Universe—the American financial universe—to throw them a bone.”
“t’s nice that you can make a living fooling yourself, but raising interest rates or not raising them 1/4 of 1% doesn’t change Main Street’s fate in the least. The failure is institutionalized. The economic system is rigged. And now you’re begging the ones rigging it to throw us a bone.
So even as delusional Americans urge the Fed to keep the Fed Funds rate at zero, they are still arguing within a system that has fucked them for over thirty years now.”
“Few journalists will take a serious look at the new Census data because they are entirely co-opted. (Some did.) The problem is that they are too busy asking Janet Yellen and the FOMC to throw them a bone to notice that the “recovery” they want so much never happened and never will because the fix is in.
Powerful elites will always act to protect elite interests. This would seem to be a no-brainer. Why is this simple observation so fucking hard for humans to understand?”
http://www.declineoftheempire.com/2015/09/hey-miss-janet-take-pity-on-the-working-man.html#more
BC on Thu, 17th Sep 2015 4:05 pm
apnea, I agree. Asset bubbles only exacerbate the record low for labor share of GDP, low productivity, net flows to the financial sector and owners of most assets, inequality, and slow or no future real GDP growth per capita.
The obsession with if, when, how much the Fed will raise the reserve rate with dot plots, etc., is so infantile and inane, but that’s become the emerging mass-social normative condition, given social mania, gadgets, pharma-reality, and the stoner movement.
https://www.youtube.com/watch?v=3TQZ-2iMUR0
https://www.youtube.com/watch?v=2WaUkZXKA30
Huxley was right.
apneaman on Thu, 17th Sep 2015 5:43 pm
Huxley was a prophet.
rockman on Thu, 17th Sep 2015 5:50 pm
Lady – A couple of alternative views. First seems picky but follow me: there are no such animals as conventional or unconventional oil. There is oil produced from unconv/conv RESERVOIRS. There is a significant volume of light oil/condensate that is currently being produced from CONVENTIONAL FIELDS. Several years ago I spent $400 million drilling for conventional sandstone reservoirs in S La. with NG/condensate being targeted. Yes: and some light oil/condensate is being produced from unconventional reservoirs such as the shales.
The half truth many have accepted from the MSM: US refineries aren’t optimized to crack light oil/condensate. The rest of the truth: they aren’t optimized to crack heavy crude either. For decades US refiners cracked BLENDED OIL with a very narrow range of gravity: 30 to 32 API. They’ll take a 23 API crude and blend with a 46 API condensate to get a 31 API blend they’ll then process. There are companies where their entire business is buying various oils, blend them and then sell to the refiners. BTW there’s more to the blending process then just the API factor.
Also think about the 3 million bbls per day of the very heavy Alberta oil sands production that’s exported to the US. Much of it refined by Texas refineries. Roughly 25% of that exported volume is made of light oil/condensate that’s blended with the oil sands production before it’s piped out of Canada. It’s required because the production is too viscous to flow by itself. And once it reaches the Texas refineries it’s further blended to meet the required specs.
In fact before the Eagle Ford Shale boom US refiners had to import light oil for blending. Just as the eastern Canadian refiners have imported millions of bbls EFS light oil production to blend with their heavier imports. In fact this is one reason Nigerian Bonny Light has taken a hit: cheaper source from the EFS. They’ve reversed two pipelines in the San Antonio area to ship EFS production to Corpus Christie for export via tankers. And about 6 months ago Venezuela imported a couple of tanker loads of Libyan (?) light to blend with their heavy oil.
Bottom line: light oil/condensate sources are critical to the refinery industry.
Also think about what you said: if there was a shortage of “convention oil” why would it be selling for such a low price? It can’t be because of all the light oil/condensate production because in your world it doesn’t play a equal part in the refining business.
Can’t have it both ways. LOL.
BC on Thu, 17th Sep 2015 10:48 pm
There is a growing realization (conditioned by the signs of incipient price and debt deflation) that “negative interest rates” are imminent in the US, or “required”, i.e., Larry Summers.
http://www.businessinsider.com/larry-summers-imf-speech-on-the-zero-lower-bound-2013-11
http://steadystate.org/what-is-wrong-with-a-zero-interest-rate/
http://steadystate.org/the-negative-natural-interest-rate-and-uneconomic-growth/
But few have pondered what is implied by negative interest rates. That is, what does it mean for NPV, FV, discounting rates for capital investment, depreciation, forward interest rates, money supply, nominal GDP, wages, and asset returns.
A zero interest rate implies that banks don’t want liabilities in the form of deposits, as they are receiving interest on the flush reserves from the central bank (a net discounting swap, actually) and they are not confident that the net margin they receive from lending (now below 3% for the first time since Japan in the early 2000s and during the Great Depression) will result in a sufficient growth of deposits/money supply to service the existing outstanding debt, let alone allow for servicing of new debt.
This is an aspect of the textbook debt-deflationary liquidity trap, which the Fed and TBTE banks are desperately attempting to discourage taking hold but have little actual power to prevent given the unprecedented debt to wages and GDP.
Therefore, unless it’s not obvious, we are again on the verge of another deflationary global recession as in 2008, Japan after 1998, and the US after 1929-30. This will constrain revenues, profits, investment, employment, wages, incomes, gov’t receipts, spending, demand for commodities, and real GDP per capita globally indefinitely hereafter.
Nony on Thu, 17th Sep 2015 10:50 pm
Good post, Rock.
Davy on Fri, 18th Sep 2015 3:26 am
BC, your post is profound in its implications especially today with the global world in the condition it is in. The previous recessions were different. This recession is global within clear limits of growth and a tipping point of population pressures.
Kenz300 on Fri, 18th Sep 2015 8:24 am
Adoption of bicycles as a primary transportation option can be done. It is a safe, clean and inexpensive way to travel. Cities needs to become more bicycle friendly. It can be done.
Groningen: The World’s Cycling City – YouTube
https://www.youtube.com/watch?v=cWf5fbSUNAg