Peak Oil is You
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Page added on July 5, 2016
Demand Destruction and Peak Oil
We are fully under the influence of petroleum demand destruction. The global oil market can’t function without real oil production price discovery, which doesn’t exist in the currently deflationary global economy, which forces indebted producers to sell far below cost.
Both supply and demand seem to cyclic in nature and we are not finished with the supply destruction phase, which can only be revived through a globally realistic oil trading price, which nobody knows. This is an unknown until demand destruction also runs its course. The global demand in the oil supply-demand balance that sets the global oil price cannot be known until we can understand where the global economy is headed. The global material economy seems to be contracting as the Baltic dry index, trucking, and railroad profitability seem to affirm, even ignoring oil prices and Chinese economy.
The reality is probably that a falling EROEI and the end to cheap oil after ~2005 made our finance capital investment growth less profitable. But this fundamental shift has been hidden through easy central bank credit and fiat currency generated on demand to pay interest on a growing mountain of unpayable debt, with a shift of debt from private hands to public, such as away from Wall Street toward Fed and US Treasury obligations. Now we see the world’s major central banks each independently creating their own fiat currencies to preserve a trading advantage, led by the dollar as the world’s standard reserve currency. (if it were up to me, things would work out a lot better if each dollar would be exchangeable on demand for a quart of conventional oil)
Under current conditions, nobody can predict a meaningful exchange rate for the major currencies trading on the key foreign exchange market; the trade exchange rates and pegs are established through national politics and are thus arbitrary, which leads to Triffin’s paradox. National sovereign bank policies tend toward easy money, more debt, and business as usual. Global trade generates its own pressures that necessarily, for the sake of stability of global trade, have to be soundly based on how much energy, labor, and investment capital really went into the production of the goods being exchanged. Here the trends don’t look so good.
<http://www.oftwominds.com/blogapr16/triffins-paradox4-16.html>
It looks like a system that tends to resist change and internal pressure for reform until things break down into a sort of a global version of a “Minsky moment” where financial guarantees behind finance break down like a domino effect, think late 2008 before the emergency bailouts. Trying to predict how far an out-of-balance system can be pushed before it breaks down or stalls out is impossible.
When this happens, there is no reason to expect an orderly contraction toward the lower energy supply and demand balance needed to encourage new oil investment. It may look more like a chaotic price increase in a world full of angry oil junkies fighting over the existing production. Or maybe it already is that way more than we would like to admit.
Back to oil economics. Following is a nice analysis of when we might expect the next oil price spike, considering the current trends. Perhaps in early 2018 as this estimates? I have seen others guess maybe 2017 for a slow return to a tight global oil market. At any rate, this analysis gives appropriate credit to the many things that can go wrong in the meantime. This has a useful geopolitical account of the various global oil production regions, including Art Berman’s rather discouraging Permian shale oil profitability map.
<http://attheedgeoftime.blogspot.co.uk/2016/05/this-is-peak-oil.html>
Jeffrey Brown makes the very important point that special attention should be focused on the higher boiling fractions of petroleum known as distillate. You can crack big hydrocarbon (distillate) molecules into little ones during refining, but you can’t (affordably) go back the other way to make the little ones into big ones.
The problem here is that what we might call the raw mobile muscle power for our civilization and its trade rests critically on the availability of these bigger distillate molecules that mostly come from conventional oil. Trucks, planes, airplanes, ships and heavy equipment mining won’t work using the smaller hydrocarbon molecules that predominate in gasoline. These lighter fractions tend to be favored in tight oil due to the geology and physics involved.
For this reason, whenever we do see oil production price discovery again due to the return of a tight global oil market, if operating under orderly market conditions, we should expect to see it expressed as a global fuel price shift. One where distillate price rises stubbornly, relative to the price of lighter fuel fractions like gasoline.
39 Comments on "Demand Destruction and Peak Oil"
Davy on Tue, 5th Jul 2016 8:52 am
I don’t see the economy stabilizing so there is no reason to see the oil markets stabilize. We may see short periods of pseudo stability that will give us a feeling of normal but the reality seems to be the normal we all have been habituated to is over.
Supply and demand destruction in physical decay and financial deflation is the new trend. These are macro trends that will be underlying all other trends. There is no controlling this macro trend so any effort to fight it will just be dysfunctional. Great article that is short and to the point.
penury on Tue, 5th Jul 2016 9:35 am
I think that I have heard this before. Perhaps it is time you accept that unless the economy grows (ha ha)financial deflation is definitely going to continue.
brough on Tue, 5th Jul 2016 10:07 am
Re points made by Jeffery Brown. As a lubricant manufacturer I’ve been wresling with shortage/potential shortage of long chain hydrocarbons for about 10 years. There is plenty of natural gas (ie methane) in the world, it’s just not in right place. God was laughing the day he put the largest methane deposits on the planet on the edge of the Arabian desert. The Fishcher Tropsch process converts methane to any hydrocarbon chain length you care to call, even those suitable for lubricant manufacture. In Qatar there is a massive plant ready to supply almost any quantity you want. However the energy required is large, but with methane at almost cost who cares. The carbon footprint of the plant must be considerable. Also, in an emergency situation any engineer worth his salt can make a diesel engine work on gasoline, although there will be safety concerns for shipping.
I do agree with the rest of this excellent article. In order to maintain BAU the world needs cheap oil and needs it now. The oil industry is definitely in a demand destruction cycle which is spilling over into various financial sectors, I see it everyday. I want product, but not at these prices, I hope it will be cheaper next month is a sentiment I feel with many customers at the moment.
shortonoil on Tue, 5th Jul 2016 10:08 am
“We are fully under the influence of petroleum demand destruction. The global oil market can’t function without real oil production price discovery, which doesn’t exist in the currently deflationary global economy, which forces indebted producers to sell far below cost.”
The petroleum production process has far more costs involved than what are presented by the petroleum producers themselves. It requires a wide range of services, from the society in which those producers operate, to enable them to function. The roads, harbors, military protection, and over 100 items fall into that category. The result of using petroleum must be one which is able to pay for all the costs involved; otherwise the producers, and the society that supports them will go broke.
The cost of producing petroleum is like pouring water into a sieve, there are a thousand little holes for it to run out of. For that reason an economic analysis is almost impossible, there would be an almost infinite number of line items to identify, and add up. Identifying most of them would be mostly a matter of guess work. How much did it cost last year to maintain the roads, and harbors used all over the world by the industry? No one could possibly know!
To address the issue of determining total cost we use an energy analysis. It eliminates the need to add up the flow through all those thousands of little holes in the petroleum production cost money sieve. The world is now spending $2.3 trillion per year more to produce oil than what is received when it is sold. The world is now losing a great deal of money to maintain its dependance on oil. It is hardly any wonder that the world is now in a never ending deflationary spiral. It is one that will consume it if oil is not soon removed from the economic cycle!
Refusing to identify the risk is not an acceptable solution!
http://www.thehillsgroup.org/
marmico on Tue, 5th Jul 2016 11:59 am
Jeffrey Brown aka westexas is a fucking moron ranking up there with the ETP fuctard shortonoil.
Bring it on innumerates.
ghung on Tue, 5th Jul 2016 12:18 pm
“Bring it on innumerates.”
OK, Marm. Both of these men have infinitely more character than you do, considering you clearly have none.
Northwest Resident on Tue, 5th Jul 2016 12:23 pm
marmico — Why are shortonoil’s posts always informative, well thought out, full of logic and thought provoking, but your posts are always nothing more than staccato bursts of insults and irrelevant factoids? Are you trying to convince people that you’re an obnoxious idiot?
JuanP on Tue, 5th Jul 2016 12:46 pm
Marmi, I learnt a lot from Jeff back in TOD days. If you had a small fraction of my capacity for learning you could learn a lot from him, too. Unfortunately, you have already proven beyond a doubt that you are irredeemably stupid and ignorant. Any dog can learn more than you. You are a very low lifeform.
Apneaman on Tue, 5th Jul 2016 12:54 pm
marmi, number don’t mean shit unless they have the right context and they have been used to lie and deceive as much as words since they were invented – you attempt it all the time. Unlike you, who claims to know it all, yet remain anonymous, the Jeffery Browns, Art Bermans et el do not. Why is that marmi? They are right out front with their identities and credentials and websites and will respond to any reasonable inquiry from anyone on the planet with an internet connection and they do Q&A after presentations. If you’re so fucking brilliant why not step into the limelight and do the same? Or do you find your troll tirades at a nickle a pop more fulfilling?
marmico on Tue, 5th Jul 2016 1:08 pm
OK, Marm. Both of these men have infinitely more character than you do, considering you clearly have none.
Wowser, a response from the innumerate rutabaga cum artist. Westexas was bragging about replacing his and hers Bimmers not too long ago. Now he is unemployed just like you ghung.
Innumeracy continues to reign supreme.
Northwest Resident on Tue, 5th Jul 2016 1:17 pm
in-nu-mer-ate
unfamiliar with mathematical concepts and methods; unable to use mathematics; not numerate.
1 + 1 = 2
Did I just prove that at least in my case, innumeracy does not reign supreme?
Somebody needs to stop throwing the big words around and stick to simple idiot terms and phrases — like “fuctard”.
marmico on Tue, 5th Jul 2016 1:32 pm
Wow, the northwest coder can add. Can you multiply? Westexas is a fucking moron.
Quoting the moron: “As I said last year, I expect that by the end of 2006 we will be in the teeth of a ferocious net oil export crisis.”
Source
Seven years later innumerate bull shit and unemployment for the author reigns supreme.
Westexas’ ass got ripped to shreds 3 years ago. The ETP fuctard’s ass got ripped to shreds 18 months ago.
Apneaman on Tue, 5th Jul 2016 2:06 pm
marmi’s ass got ripped to shreds in elementary school. Let’s pass the hat and and send him to Dr Phil.
marmi you need to get creative, a decade of fuctard has lost all effect. Let me give you an example to work with.
“marmi, you’re so low, you’d stick your cock up your pregnant mother’s ass and fuck your unborn sister”
See what I mean? Now you try.
shortonoil on Tue, 5th Jul 2016 2:31 pm
Now that NumNuts has done what he intended to do; that is, shut down, and derail intelligent, and perhaps beneficial conversation, let’s return to the article.
“The reality is probably that a falling EROEI and the end to cheap oil after ~2005 made our finance capital investment growth less profitable.”
We use a simple, and straight forward method to determine the cost of production. It has had a 56 year correlation coefficient to the price of oil of 0.995. Almost perfect. ERoEI is one of the variables used in the calcuation. Falling ERoEI is without a doubt one of the most significant indicators for the affordability of oil for the general economy. Not only has it made financial investment growth less profitable, it is now making it impossible!
At present it would require an increase in energy inputs from other sources equal to 2.3% of the entire world’s energy consumption to compensate for the additional energy now required to produce oil. That is very unlikely to occur unless there is a major breakthrough in energy generation. Without such a breakthrough we have now entered the era of capital destruction. We have the option of either changing our entire energy intensive life style, or gradually consuming every single piece of our civilization.
Since the great majority of this civilization is owned by a very small percentage of the population, it would behoove them to start paying attention!
http://www.thehillsgroup.org/
Apneaman on Tue, 5th Jul 2016 2:44 pm
short, please explain how MORE talking is going to be beneficial. Oh I can’t wait to hear this.
ghung on Tue, 5th Jul 2016 3:11 pm
As Marm continues to demonstrate, there are worse things than un-employment (or self-employment in my case); being stuck with one’s self when said self is utterly lacking in any character traits that makes one at least tolerable to others. It’s the sort of person that no one even shows up to claim the ashes.
Apneaman on Tue, 5th Jul 2016 3:21 pm
short, you ever wonder why you don’t see too many women on these sites? Go ahead and tell yourself it’s all because of assholes like me and not because they find going over the same shit over and over over and over over and over over and over over and over over and over over and over over and over over and over over and over over and over over and over over and over over and over over and over over and over over and over, meaningless and boring. Trust me, it’s not because they are not aware or don’t understand, I have read their comments on many sites and they know enough even if not OBSESSED with the minute by minute minutia (except for that nice lady, Alice Freidman – energyskeptic). Perhaps, I’m wrong and am just too thick too see all the benefits of these high minded and intelligent conversations. Albeit unintentionally, marmi has done you great service as your #1 foil. Without him it would be even more boring (is that even possible?). Look, I appreciate your work and meaningful input by some others, but the humans have gone too far. I like to think of the humans as a team in their final soccer match that is down by 5 goals and playing on injury time. Only the great referee in the sky knows how many minutes are left, but it’s not much and unlike Hollywood sports movies there will be no miraculous come back.
claman on Tue, 5th Jul 2016 4:16 pm
Apne : “short, please explain how MORE talking is going to be beneficial. Oh I can’t wait to hear this.”
Because the world situation changes by the day, and we have to be ever alert all of the time, and if we wern’t alert we wouldn’t be on peakoil at all.
I like you gyues for beeing there and for maybe beeing the most … now I lost my thread.. but OK you might be just the finest analysts, or at least I think you attempt to be analysts of the world situation, or maybe you just don’t know.
Oh fuck, Plant is rigth when she says cheers
claman on Tue, 5th Jul 2016 4:37 pm
When thinking back there are some events in recent world history that I didn’t see coming:
1 The peacefull breaking down of the sovjet empire .
2 The 9-11 attack and it’s consequensies
3 The stupid 2003 attack on Iraq
4 The 2008 financial breakdown
5 The 2014 low oilprices
6 The Chinese “seagrap”
7 The brittish Breaxit
We got to keep talking about thinghs that might happen.
shortonoil on Tue, 5th Jul 2016 5:08 pm
“The 2014 low oilprices “
We were telling people about the coming collapse in prices in 2013, and put up this page in September of 2014. The date is on the second graph. If you were trading oil you could have come out a hell of a lot better than you may have if you had done a little more talking.
Of course we do this for our clients. Its a freebee here, so take it anyway you want?
http://www.thehillsgroup.org/depletion2_022.htm
As far as Chinese “seagrap”, that way out of our line of specialty. Try a Fortune Teller!!
http://www.thehillsgroup.org/
marmico on Tue, 5th Jul 2016 5:11 pm
It has had a 56 year correlation coefficient to the price of oil of 0.995.
You are fucking retarded, short form, fuctard.
Tell us merlin the fuctard, what is the 2015 BTU proof of your magic fuctardedness model?
Which of your many proofs are you using?
All of your proofs failed in 2015 and historically failed in 1979-1985. You are just another fucking moron picking spinach by hand in the indigestible word salad garden known as doom porn.
claman on Tue, 5th Jul 2016 5:34 pm
Short, there is no date on these papers.
http://www.thehillsgroup.org/depletion2_022.htm
claman on Tue, 5th Jul 2016 5:47 pm
short, “The date is on the second graph.”
Sorry about that , I was a little to fast.
Apneaman on Tue, 5th Jul 2016 5:50 pm
claman, no one predicted Trump, but guys like him – authoritarians – show up in times like these with plenty of support. Speaking of talk, what the humans say they want does not always match their actions, because the humans are not actually in control – it only appears that way.
You Can’t Be Sure What You Think
http://www.declineoftheempire.com/2016/06/you-cant-be-sure-what-you-think.html
How can a creature that has so many cognitive biases be in control?
List of cognitive biases
https://en.wikipedia.org/wiki/List_of_cognitive_biases
This one always make me think of you buddy.
“IKEA effect – The tendency for people to place a disproportionately high value on objects that they partially assembled themselves, such as furniture from IKEA, regardless of the quality of the end result.”
claman on Tue, 5th Jul 2016 5:56 pm
But honestly short, how could you know that the saudies would keep up production?
marmico on Tue, 5th Jul 2016 6:07 pm
I sucked so much cock last night I think I’m pregnant.
claman on Tue, 5th Jul 2016 6:10 pm
apne : consciousness in the individual is basicly the univers watching it self. That should make it a lot simpler to understand. Of course it presumes that the universe in it self is consciousnes. I do presume that. Call it it God, Allah , Buddha, what ever .
JuanP on Tue, 5th Jul 2016 6:12 pm
Ap, I like coming here and talking about the same shit over and over again. I learn something new here every day. Of course I don’t expect to save humanity by doing this, and I wouldn’t do it if I thought that would be the result because I want humanity to go extinct as soon as possible. I just hope that my constructive comments (not my rants) will help someone on the forum. I have been helped by the comments here myself.
Mostly, I regard my participation on this forum as a form of mental masturbation and release. I get stressed everyday dealing with all the assholes that sorround me here in Miami and I also lack intelligent conversation partners in my life. This site provides me with the only community in the world I can relate to at an intellectual level. We are a bunch of wonderful freaks here and I am glad this forum exists.
I think women don’t come here much because we suffer from high testosterone levels in what is an unmoderated forum and we use a lot of very foul language, something I myself enjoy doing because I think foul language has its place in life.
claman on Tue, 5th Jul 2016 6:16 pm
Marm, your not pregnant, you’re just coming up with your new personality. Try to read some Freud or Jung
claman on Tue, 5th Jul 2016 6:32 pm
Juan, about a year ago I ended up in a dispute with a woman on peakoil about some swedish problems.’
She had this own swedish site with, what I called wrong informations, and she deleted my comments. We did have a talk about it , but no sir, negative comments were not allowed.
I guess that amongst men you don’t delete comments without an extremely very good reason.
JuanP on Tue, 5th Jul 2016 6:53 pm
Claman, I even used the C word three times today when I was talking about Hillary Clinton. It gave me much pleasure that my comment was allowed and I wasn’t blocked! I simply couldn’t think of a better word to define that bitch! LOL! 😉
claman on Tue, 5th Jul 2016 7:10 pm
Juan : “I even used the C word three times today when I was talking about Hillary Clinton”
You should have cunted to three before using that word,, that would calmed you down. That’s old knowledge among men.
Oil guy on Tue, 5th Jul 2016 7:58 pm
Short- keep posting- many of us are learning a lot from you. I save almost every one of your tidbits onto my personal notebook. Thanks a bunch.
marmico on Tue, 5th Jul 2016 9:53 pm
Everybody who’s not a fuctard knows oil will last forever. Net oil exports will never go down, the world will never peak and there’s no end in sight. Even if we have a shortage the global economy can afford any price needed. And all that EROEI bullshit is a non-starter. It’s irrelevant.
JuanP on Tue, 5th Jul 2016 11:11 pm
Marmi, Have you completely lost it? You sound insane!
Apneaman on Wed, 6th Jul 2016 12:07 am
FOREVER! That’s right marmi! When the one true god, Yahweh, created the earth 4000 years ago he installed a Abiogenic oil processing plant (run by dinosaurs) on the underside of the earth disk. I know this because he told me so in his other form as my (white folk only) lord and savior, Geebus. He is simply waiting for us to eliminate the heretics (everyone not like you) before turning on the pumps again.
Econ 101 & oil forever and ever amen.
JuanP on Wed, 6th Jul 2016 5:56 am
Ap, Maybe someone stole Marmi’s identity? Some of his comments are just too much. I hope that was someone else fucking with him or sarcasm. If that shit wa for real then he is completely hopeless!
roccman on Wed, 6th Jul 2016 2:04 pm
Yeah short – keep posting. For the amount of time i actually spend on this site – every post from you is like walking out of the cave for the first time.
Kenz300 on Thu, 7th Jul 2016 9:57 am
Electric cars, trucks, bicycles and mass transit are the future…..fossil fuel ICE cars are the past…………..
Think teen agers vs your grand father…………………. cell phones vs land lines…….
NO EMISSIONS……..climate change is real………
Save money……no stopping at gas stations…..no oil changes……..less overall maintenance……
Electric bus maker Proterra follows Tesla’s lead and open-sources its Fast-Charging patents | Electrek
http://electrek.co/2016/06/28/electric-bus-maker-proterra-tesla-lead-open-sources-fast-charging-patents/