Peak Oil is You
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Page added on February 8, 2014
One of the world’s great investment thinkers is convinced fracking is causing earthquakes
“To me at least the connection is clear and statistically certain… far more certain than anything I ever see in the stock market or the economy.”
That’s Jeremy Grantham, the highly-regarded co-founder of the $117 billion investment fund GMO, who predicted both the dot com crash of the late 1990s and the subprime meltdown a few years later. Above is an accompanying chart included in his latest investment letter.
Rather than pushing an investment idea here, he’s convinced there’s a causal link between a surge in earthquakes measuring above 3 on the richter scale in the US and the boom in hydraulic fracturing (“fracking”), the controversial drilling technique used to extract oil and gas from shale rock.
His overall skepticism about fracking informs Grantham’s broader, bearish thesis about oil prices. In the investment letter he questions whether “this year’s $650 billion spent looking for new oil will ever get a decent return.” He argues that slowing global economic growth, more fuel efficient vehicles, hybrids and electric cars mean that “it is certain that oil demand from developed countries will decline, probably faster than expected.”
A few more choice words from Grantham: “The idea of ‘peak oil demand’ as opposed to peak oil supply has gone, in my opinion, from being a joke to an idea worth beginning to think about in a single year. Some changes seem to be always around the corner and then at long last they move faster than you expected and you are caught flat-footed.”
22 Comments on "One of the world’s great investment thinkers is convinced fracking is causing earthquakes"
Davy, Hermann, MO on Sat, 8th Feb 2014 2:13 pm
peak oil demand yea if China and India crash land
Northwest Resident on Sat, 8th Feb 2014 4:02 pm
It seems likely to me that fracking contributes to some earthquakes, but not major or dangerous earthquakes, just the little shakers with barely enough movement to be felt. No big deal. However, if they start fracking in California along the San Andreas fault line — or along any fault lines — that might result in contributing to a much larger and more damaging earthquake.
Another point: “…an idea worth beginning to think about .” This is how a person that knows something that you don’t know and that you don’t want to hear introduces the information to you. Like, you don’t walk up and tell your alcoholic brother-in-law “hey dude, you’re a stinking alcoholic”. Instead, you say something along the lines of “the amount of booze you’ve been drinking is something you might find worth thinking about.” It just illustrates that people in prominent positions are adverse to talking about peak oil and the implications, but at least some of them are trying to let us know that it is “an idea worth beginning to think about.”
Davy, Hermann, MO on Sat, 8th Feb 2014 4:03 pm
amen NR!
ghung on Sat, 8th Feb 2014 4:05 pm
…or perhaps the New Madrid Seismic Zone is becoming more active. As for ‘peak demand’, better late than never, I guess. “…Some changes seem to be always around the corner and then at long last they move faster than you expected and you are caught flat-footed.” Ya think? Our society is going to be caught flat-footed in a lot of ways.
“…this year’s $650 billion spent looking for new oil…” Jeez.
eugene on Sat, 8th Feb 2014 4:24 pm
Something I learned long ago, if someone with some kind of pedigree says something, it’s has a whole lot more “truth” than one made by me an old man sitting in the woods. I don’t know what fracking does or does not do but I have the opinion that pouring a lot of crap into the ground is, probably, not a good idea and in some cases will not work out well at all. As far as peak demand, just another frightened person making a prediction to quell his fears.
Davy, Hermann, MO on Sat, 8th Feb 2014 4:34 pm
Ghung, like water changing state. The process takes time and energy but when it changes it is very quick. Last I heard we are made up of lots of water..Ha
Eugene, one old man in the woods to another!
meld on Sat, 8th Feb 2014 4:44 pm
Eugene,usually hunches like yours turn out to be right when dealing with the natural world,the world of balance. It’s not that doing something will necessarily cause a “bad” thing but rather doing it will have some kind of effect to counter balance it, earthquakes would seem be one of these counter effects for fracking.
When dealing with nature it tends to be a good idea to tread lightly and keep everything as close to balance as possible.
rockman on Sat, 8th Feb 2014 4:45 pm
A number of questions. What exactly is peak oil demand? Is it the consumer demand regardless of price? IOW is it how much oil the world would burn if cost weren’t considered? If so wouldn’t that be the max amount of production capable? Then doesn’t that define PO supply? Maybe it means the max amount of oil the world can afford to consume based on the then current price. So isn’t that simply demand? So wouldn’t the current consumption put us at peak oil demand today? Even at the highest yearly average oil price the world is “demanding” more oil then ever before. And the producers are meeting that demand. So what do you call it when the producers can’t supply enough oil to satisfy demand? Isn’t that the definition of PO? So when is peak oil demand not going to be peak oil supply? IOW when will the world demand more oil then the producers can provide?
Actually that’s a trick question IMHO. Price will be determined by the dynamic between supply and demand. When demand (the ability to pay for the oil desired) exceeds supply the price of oil will increase destroying an amount of demand. I have difficulty imagining a world where there are more folks capable of buying more then the available oil even when max production is half of what it is today: oil will be priced that day at a level where only those that can afford it will be buying. Thus supply and demand will be in balance.
About the earth quake induced frac’ng. There have been very few documented cases where this has been proved. OTOH the injection of fluids into reservoirs and producing tremors was documented long before the current frac’ng boom. Another common cause of tremors is the production of large pressure depletion reservoirs. Well documented in Denmark in recent years in a region where no frac’ng has ever been done.
The interesting (and very obvious point) about the chart is that there was definitely an increasing trend long before the frac’ng boom. An increase above the trend line for sure but that doesn’t prove frac’ng produced the change. As has been said correlation doesn’t equate to causation. And then there’s the fact that many more wells have been frac’d in the Gulf Coast then the midcontinent. But that could be explained by the significant difference in the geology between the two regions. The midcontinent is more brittle per se.
And then there’s another obvious question: what’s the difference between an earth tremor and earth quake? Another trick question…there is no difference. Except “earth quake” is much more dramatic than “earth tremor”. So how many folks have been killed by this new swarm of “earth quakes”? How many $billions of damage has been caused”? In the last 10 years 700,000+ have been killed globally by earth quakes. The economic losses have exceeded $300 billion. Neither stat includes the recent event in Japan.
Maybe some frac jobs have caused some tremors…maybe not. So far, compared to the damages/deaths caused by serious tremors, it doesn’t appear to be a serious concern. Handy for the anti-frac’ng crowd to hype but otherwise not much news IMHO.
Kenz300 on Sat, 8th Feb 2014 5:24 pm
China and India and their billion plus populations are driving oil demand and oil prices………..
Northwest Resident on Sat, 8th Feb 2014 5:50 pm
rockman — That’s some very deep thought on just what exactly is peak oil and peak demand. I had to read it several times, but it makes total sense to me. And it is very good mental exercise because these days “peak oil” and “peak demand” are terms that get thrown around a lot and they mean different things to different people — it is interpretive, which is part of the problem IMO.
“IOW when will the world demand more oil then the producers can provide?” If that is the true definition of “peak oil”, then peak oil is a moving target — the world may demand more than can be produced today but not more than can be produced tomorrow or a week from now. We could have “blips” of peak oil based on demand and supply available, only to see that blip disappear off the radar. Maybe the true definition of “peak oil” is when that “blip” becomes one long straight line on the oscilloscope — very similar to that straight line we see when the heart has stopped beating (i.e., the “patient” is dead).
Any chance that makes sense?
rollin on Sat, 8th Feb 2014 6:09 pm
In the investment letter he questions whether “this year’s $650 billion spent looking for new oil will ever get a decent return.”
Answer: Yes, if externalities are completely ignored.
Rockman, I love your view of things.
“An increase above the trend line for sure but that doesn’t prove frac’ng produced the change. As has been said correlation doesn’t equate to causation.”
How about if we move the trendline to 2008? And yes correlation often does equate to causation, especially if you understand the system. Having multiple coincidences is even more far-fetched than causation.
Remember, the location and depth of earthquakes can be determined. It also does not matter what part of the process is causing the earthquakes, it’s part of the process.
Let’s hear what the oil and gas media has to say about Oklahoma earthquakes (up from 1 to 3 per year mag 3 or better to 40 per year since 2009)
http://oilprice.com/Energy/Energy-General/Oklahoma-Scientist-to-Test-if-Fracking-Causes-Earthquakes.html
Your right it does not appear to be a serious threat, as long as disturbance and intrusions to the underground aquifers are not involved. One more unknown in the equation.
I remember when my grandfather’s house slipped a foot and half down as mine subsidence occurred. Had to jack the thing up. The basement floor cracked and the coal form the coal bin went back into the ground. He merely said “They took the coal back.”. The whole region is still developing sink holes sixty years or more after the mines were closed.
Reminds me of that song “I feel the earth moves under my feet.”
rollin on Sat, 8th Feb 2014 6:36 pm
Peak oil is not about demand, it’s about physical limits to rates of production and depletion. Sure peak oil can be modified by demand in a price constrained system (going after the tough to get stuff) but the price is being determined by geology. Technology and demand can flatten out the peak into a plateau or shorten the time to peak, but the geology is the overriding factor.
Examples of hard to get (high priced) oil
Tight oil – high priced tech,slow initial rates, fast decline, lower molecular weights; all the geology
Deep water – obvious
Tar sands – local geology allowed interactions with bacteria and oxygen to convert the conventional oil to a thick viscous bitumen, 10 percent in the sand clay mixture. Separation is expensive, upgrading to synthetic fuel is expensive, all due to local geology
Geology sets the base price and rate. The only thing higher prices did was allow the hard to get and pseudo-crudes to be obtained. Conventional crude has been on the decline for a while now and unconventionals are barely filling the gap. ( I don’t count the NGL’s and condensates).
It’s OK to use expensive extreme technologies for moonshots and space ventures. They are a small percentage of activity on the earth. It is not OK to use expensive extreme technologies to obtain throw away commodities that are more convenience than necessary. The scale is so large it will distort world society that became dependent upon the convenience.
John baldwin on Sat, 8th Feb 2014 6:49 pm
If you drop an iPhone you get a magnitude 3 on the Richter scale. You can’t call that an earthquake, more like a bus going past your house. An earthquake is > magnitude 6
rollin on Sat, 8th Feb 2014 8:16 pm
John, your right, my teenager dropped her ipod and the resulting actions and sound from her were about magnitude 3 on the Richter scale and IV on the Mercalli scale. Duration was quite long, secondary tremors up to the point of having it fixed.
Actually earthquakes go down to magnitude 2. 3 and above are felt by people and make things shake.
Energy wise 3.2 is similar to setting off a ton of TNT. A 6 is about equivalent to the Little Boy dropped on Hiroshima. A 7.2 is about like setting off a 1 megaton fusion bomb.
Harquebus on Sun, 9th Feb 2014 1:15 am
Peak oil demand is peak oil. Energy makes money, money does not make energy. EROEI mates, EROEI.
Joe Clarkson on Sun, 9th Feb 2014 5:52 am
Rockman and others-You’re over thinking this. Peak X is the point at which he rate of production of X is at maximum. For oil, just define “oil” and then look to see when the maximum production is reached. That’s peak oil.
If you want to argue about causes and effects, that’s great, but please don’t argue about the definition of “peak oil”.
Joe Clarkson on Sun, 9th Feb 2014 6:57 am
Rockman- A minor point about your comment that “there was definitely an increasing trend long before the frac’ng boom”. Please note that the graph is of cumulative earthquakes. A straight line thus means a constant frequency of quakes before the fracking boom, not an “increasing trend”.
Davy, Hermann, MO on Sun, 9th Feb 2014 12:54 pm
Joe, while I agree you can over think PO I think for the most part in the wider world the significant central point is missed. PO is about flows not resources. If we over analysis it here it is because there is a deep understanding of it from years of study of an evolving concept by many here. I believe Rock has a firm grasp of the issues bringing his years of work in the industry to our discussions. We are interested in any and all intricacies of this profound message.
I think more should be said about the concept of peak demand and peak supply because here is where the wider world gets loss also. I see them hand in hand influencing each other. I see them as just another variant of the above ground below ground discussion. If you have peak demand then you will see an effect on peak supply by destroying price then capex. Peak supply destroys the economy which destroys demand. So am I over analyzing again.
Northwest Resident on Sun, 9th Feb 2014 7:13 pm
Maybe the true definition of peak oil is when the amount of energy required to get the oil out of the ground is equal to or greater than the amount of energy that the extracted oil provides. As shortonoil pointed out in one of his posts — and on his website — based on current and past consumption trends, that moment is rapidly approaching — in a few years if I remember correctly (don’t have the link saved on this computer).
Joe Clarkson on Mon, 10th Feb 2014 12:02 am
Northwest Resident- You could easily talk about Peak Oil EROEI, whether per capita or not. That is probably long past (depending on the definition of “oil”).
What you are talking about is oil EROEI exhaustion. That’s near the very end of the Hubbert curve, not at the maximum.
Even in the case you describe, people might still extract oil at an energy deficit if the use for the oil had a much higher value than the sources of the energy used in extraction.
Davy, Hermann, MO on Mon, 10th Feb 2014 1:42 am
Let us remember the Hubert Curve is a theory. This curve best applies to field or country. It really does not represent properly the full picture of all fields. When one combines the bellow ground with the above ground reality the curve will go from being a stable up slope to a highly irregular down slope. When we include a systematic risk component in the analysis we find the curve changes characteristics on the down slope as opposed to the up slope. The real danger is the instability on the down slope. The down slope for a regional field would generally be genital and drawn out. The down slope for the world with a systematic risk component included is jagged and sharp. On the down slope the economics dominates. One the up slope it is dominated by the geologic influences in an environment of economic growth. So I am saying the above ground dominated on the down slope. The below ground dominates the up slope if economic growth is present. It is really all about economics in the end because oil is economic. Its growth or decline is ultimately economic related.
Tom on Mon, 10th Feb 2014 1:24 pm
I do not ignore the possibility that fracking could cause earthquakes. But, I need a bit more proof. I’m not a fracking supporter for other reasons. But, determining an earthquake cause and effect relationship would require more evidence for me. Not claiming that the recent ice melts have anything to do with an increase in earthquakes,but, I do wonder what effect the redistribution of water weight around the world would have on the earths crust. Surely, the melting of heavy ice covering Greenland would have some effect, and perhaps in locations other than Greenland.