CONDITION RED: Fracking Shale Is Destroying Oil & Gas Companies Balance Sheets

There is this huge myth propagated by the MSM as well as several of the well-known names in the alternative analyst community about the wonders of SHALE ENERGY.  I can’t tell you how many readers send me articles from some of these analysts stating how the United States will become energy independent while pumping some of these shale energy stocks.

Nothing has changed in America….. there’s always another sucker born every minute. 

I am not going to mention the names of the two top alternative analyst organizations, but one rhymes with Lansberry and the other is headed by a gentlemen who doesn’t believe in gold and silver manipulation.  You fill in the blanks.

It is extremely frustrating to see the continued GARBAGE called analysis on the SHALE ENERGY INDUSTRY.  I have written several articles listing the energy analysts that I believe truly understand what is taking place in U.S. energy industry.  They are, Art Berman, Bill Powers, David Hughes, Jeffrey Brown and Rune Likvern.

Art Berman did a great presentation last year in front of the Houston Geological Society, stating THE U.S. SHALE GAS INDUSTRY IS A COMMERCIAL FAILURE.  Art provides some excellent data to back up that accusation.  So, I recommend watching that presentation at the link above.

Now… if Art was wrong, why would we have this article written by Wolf Richter, Where Money Goes To Die:  How Fracking Is Blowing Up The Balance Sheets Of Oil & Gas Companies:

Based on data compiled from quarterly reports, for the year ending March 31, 2014, cash from operations for 127 major oil and natural gas companies totaled $568 billion, and major uses of cash totaled $677 billion, a difference of almost $110 billion.

To fill this $110 billion hole that they’d dug in just one year, these 127 oil and gas companies went out and increased their net debt by $106 billion. But that wasn’t enough. To raise more cash, they also sold $73 billion in assets. It left them with more cash (borrowed cash, that is) on the balance sheet than before, which pleased analysts, and it left them with a pile of additional debt and fewer assets to generate revenues with in order to service this debt.

It has been going on for years. In 2010, the hole left behind by fracking was only $18 billion. During each of the last three years, the gap was over $100 billion. This is the chart of an industry with apparently steep and permanent negative free cash-flows:

US-oil-gas-drillers-cashflows_2010-2014

This is the huge problem with Fracking shale oil and gas.  Due to the extremely high annual decline rates of the typical shale oil or gas well, companies must continue to spend a great deal of capital expenditures to replace what was lost.  It’s known as the DRILLING TREADMILL…. once you start, you can’t get off.

As the article states, in one year the top 127 oil and gas companies spent $110 billion more on capital expenditures than they received from operations.  So, they acquired $106 billion in additional debt (a large percentage through the Junk Bond Market) and sold assets to make up the difference.

Note:  I did use part of Wolf Ricter’s title in my article because it was one of the best titles I have seen on this industry in a long term.  He gets the credit.

This is not a sustainable business model, just like the same nonsense taking place in the broader stock markets as corporations buy back massive amounts of their stock to give the ILLUSION that everything is fine and BAU- Business As Usual will continue.

Not only are many of these oil and gas companies hiding the fact that their balance sheets are hemorrhaging debt, they also have a cozy situation with the Federal Government.  Basically, the Fed’s allowed them to defer more than half of their tax bill… and its a lot of money.

According to these recently released report, Effective Tax Rates of Oil & Gas Companies:  Cashing In On Special Treatment:

According to their financial statements, 20 of the largest oil and gas companies reported a total of $133.3 billion in U.S. pre-tax income from 2009 through 2013. These companies reported total federal income taxes during this period of $32.1 billion, giving them a federal effective tax rate (ETR) of 24.0 percent. Special provisions in the U.S. tax code allowed these companies to defer payment of more than half of this tax bill. This group of companies actually paid $15.6 billion in income taxes to the federal government during the last five years, equal to 11.7 percent of their U.S. pre-tax income.

Occidental Petroleum reported a total federal income tax bill of $5.4 billion from 2009 to 2013, of which it deferred payment of $4.5 billion, or 83 percent. Continental Resources deferred $1.1 billion of its $1.2 billion in total federal income taxes.As a result, most of the companies accumulated large amounts of deferred tax liabilities during this period.

In a nutshell, the top 20 oil and gas companies still owe $16.5 billion (more than 50%) to Uncle Sam in tax revenue.

Because many of these companies are busy BLOWING THRU CAPEX to continue the drilling treadmill, they do not have the surplus cash to pay their required taxes.  Which means, if they were forced by the Govt to pay their taxes, they would have to borrow EVEN MORE MONEY to do so.

Now… you won’t see this information included in the analysts’ reports put forth by the organizations pushing these energy stocks.  Do these analysts actually believe the U.S. will become energy independent on the back of these energy companies that are saddled with debt and do not have the ample cash to pay their taxes?

Evidence Of Peak Shale Gas Is Already Here

As the propaganda of U.S. energy independence continues, there is already evidence showing a peak in shale gas production.  Early on, the Haynesville and Barnett shale gas fields ramped up production considerably.  If we look at the chart below, we can see this just how rapidly production increased.

Haynesville & Barnett 2001-2011 new

The Barnett shale gas field in Texas increased production steadily until 2009, then it fell off a bit and recovered higher by the end of 2011.  The Haynesville came online in 2008, and went gang-busters by increasing its production substantially until the end of 2011.

However, with the average cost of production much higher than the spot price of natural gas, production at the Haynesville peaked and declined rapidly in the next few years.  Art Berman stated in his presentation linked above, that only 6% of the Haynesville is commercial at a $6 natural gas price.  Hell, most of the shale gas at the Haynesville was extracted at prices between $2-$4.

Haynesville & Barnett 2000-2014

At the end of 2011, beginning of 2012… these two shale gas fields were producing 12 billion cubic feet of natural gas per day (Bcf/d).  Now, their combined total is a little more than 8 Bcf/day — a staggering 33% drop in just 2 years.

So, how is the U.S. able to continue increasing its total natural gas production?  Well, that’s mostly due to the MIGHTY MARCELLUS.  If you thought the Barnett and Haynesville had a rapid increase in shale gas production, take a look at the Marcellus chart below:

Marcellus Shale Gas Production

The Marcellus didn’t really start serious production until 2010.  In the beginning of 2010, the Marcellus produced 0.5 Bcf/d of shale gas and from the latest data released by the EIA – U.S. Energy Information Agency, hit a new record of 13.7 Bcf/d in June.

Just look at that chart…. it’s nearly an exponential increase.  Anyone with a little understanding of math will realize the production increase shown in chart is not sustainable.  At some point the Marcellus will peak and decline in the same fashion as did the Haynesville.

While it is true that the decline could be slowed down by continued drilling… it may only be possible at much higher prices.

In my previous article, THE UNKNOWN FACTOR:  How The Global Financial System Will Collapse, it explained how Energy and the Global Financial System are co-dependent and are now in a very fragile state.  I included an excellent video presentation by Roger Boyd who made this very easy to understand.

The problem that most investors and analysts fail to realize is that Americans and most of the world cannot afford expensive energy.  The only reason we are able to purchase this expensive energy is due to the Fed’s Low Interest Rate Monetary Stimulus Policy.

SO HERE LIES THE RUB:

The Global Financial System needs continued monetary stimulus so that the public can afford to pay high energy prices while the Shale Energy Industry needs continued borrowing at low rates to finance its massive debt enabling it to supply oil and gas to the market.  Both of these conditions ARE NOT SUSTAINABLE.

When one of the LEGS of this fragile system is pulled, the whole thing comes crashing down…. instigating several Self-Reinforcing Feedback Loops. 

What investors need to understand is that during bad recessions or depressions in the past, the EROI – Energy Returned On Invested in the oil and gas industry was very high… which means it cost a hell of a lot less to produce each new barrel of oil than it does today.

As I stated in many articles, the EROI of U.S. oil and gas in the 1930’s was 100/1, in 1970 it fell to 30/1 and is now approximately 10/1.  This data is provided by David Murphy here at TheOilDrum.

US EROI david murphy

(Plot of three estimations of EROI for U.S. oil and gas)

So, after the Great Depression, the U.S. energy industry could produce 100 barrels of oil for each barrel of oil consumed in the process.  Which meant, we had the lots of CHEAP OIL to pull us out of the depression.  On the other hand, Shale oil comes in at a WHOPPING 5/1 EROI.  You can read more about Shale Oil EROI HERE.

Today, we don’t have cheap oil to pull us out of the huge mess we are facing as the Global Financial System is loaded with Debt, Derivatives and Fraud as far as they eye can see.

When the highly leveraged Global Financial System finally crashes, it will pull down the energy industry with it.  Thus, a great deal of the supposed forecasted growth of oil and gas will no longer be commercially viable.

This will also destroy a great deal of the PAPER CLAIMS such as futures, options, derivatives and etc, leaving a mad dash for physical assets.  Some think we will see Deflation… we may.  However, I believe it will be DEFLATION in the value of paper claims with a huge RISE in the value of the physical asset.

It will be the disintegration of the 100 paper claims on gold and silver that will implode to zero, while the actual physical bullion will hit levels thought unimaginable.

When this occurs… remember my favorite line:

GOD HATH A SENSE OF HUMOR.

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81 Comments on "CONDITION RED: Fracking Shale Is Destroying Oil & Gas Companies Balance Sheets"

  1. Richard Heinberg has been on top of this, too, and certainly James Kunstler has provided lots of colorful commentary on the subject.

    • tj & the bear,

      Yes, you are correct. I’ve been following Heinberg and Kunstler for years. What I am trying to do is to get this important energy information in the HEADS of the precious metal community.

      Gosh, talk about blinders…LOL.

      stve

      • Both Heinberg and Kunstler are Global Warming pushing Fraudsters. Anybody that pushes that Fraud can’t be relied on in anything!

        • Steve,

          LOL… well, then you are going to have to ADD me to that list because I also believe in Climate Change. Part of the reason why my Reports Page is late is due to spending several months looking at new Climate Change data that in all honesty… scares the living hell out of me.

          And it takes a lot to scare me.

          steve

          • Please! I thought you were an intellectual! Climate Change is an oxymoron. The higher you go up in the atmosphere the colder it gets. That is why there is snow on top of mountains. CO2 is not holding in heat! No where on earth is this happening. Heat travels by convection, it is not beamed up and down. The earth is not a greenhouse and so the entire idea of greenhouse gases is nonsense. There is no glass ceiling in our atmosphere to hold the heat in. Every second of every minute of every hour of every day heat is escaping into the outer atmosphere. The more heat that enters, the more heat that exits.

            CO2 has been multiple times higher than it is right now (20 times), and there was no tipping point. The earth is in a Carbon Dioxide drought right now. Many physicists have written papers explaining in great detail how the Global Warming Fraud violates basic laws of Physics, namely the second law of Thermodynamics. A cold reservoir cannot heat up a warmer reservoir without external work being applied.

            The sun and the ocean currents determine climate not CO2. There is a reason that the ambient air drops tens of degrees every time the sun sets. There is a reason the hottest year on record was an El Nino year. There is no science behind the Global Warming Fraud! It is a failed hypothesis. All the scare stories are fraudulent and all the data is fraudulently manipulated. As long as the land mass known as Antarctica is directly above the south pole, we are destined to go from one ice age to another. Over 90% of all ice in the world is on top of Antarctica.

            Even the Fraudsters say that water vapor is the most potent supposed “greenhouse gas” comprising of over 98% of the greenhouse effect. The problem with this lie is if you compress the atmosphere down on average you only get 22 millimeters of water floating around in the earth’s air. That is less than an inch of water. And supposedly that has more effect than the average of 14,000 feet of water floating around in our oceans? 1 inch carries more weight than 168,000? Of course the oceans only cover 2/3 of the earth but still you get my point. The ambient air is not an accurate measure as to whether the earth is heating or cooling. The ocean is the thermal storage of the earth. But ocean data is a lot harder to manipulate and doesn’t support the Fraud!

            The Global Warming Fraud was invented by The Club of Rome for the Banksters to get more power to control and then exterminate us. That is the reality behind The Global Warming Fraud!

          • Steve,

            You are welcome to your opinion and you are free to continue commenting on what you see as a GLOBAL WARMING FRAUD. However, I don’t see it that way, and I have been told to be more logical than most. I am not going to try and persuade you or anyone esle, but from the new data coming out of the Arctic and etc and I can tell you, we have past the point of no return.

            Conditions are now ripe for… A RAPID NONLINEAR WARMING EVENT.

            Over 20 positive self-reinforcing feedback loops have already been triggered in the Arctic. So, all we can do now is wait around for the impact to kick in.

            So, debating it in all reality is pointless.

            steve

          • It is not my opinion, it is a statement of fact that Michael Mann, Phil Jones, Al Gore, James Hansen have all committed Fraud. It is a fact that The Global Warming Fraud violates basic laws of physics namely the Second Law of Thermodynamics which states that a cold bodied reservoir cannot heat up a warmer bodied reservoir. The higher up in the atmosphere you go, the colder it gets. It does not get warmer. Cold air cannot heat up warmer air. That is impossible!

            There is no where on earth that Carbon Dioxide is holding in heat like a Greenhouse. A greenhouse has a glass ceiling that holds in the heat.

          • Steve,

            Again, I am not going to debate this issue at length. However, if 97% of climate scientists agree in human caused global warming, its good enough in my book. As for the gentlemen you stated above, I don’t pay much attention to their individual opinions. I go by the most recent data coming from field scientists in the Northern Siberian Arctic Shelf, Greenland and the Arctic.

            There is an expedition taking place right now with some of the best minds taking part in many studies. If you had an open mind to look at the data showing the amount of methane BLOWING out of these areas, you just might see things a bit differently.

            In 2010, these Russian scientists found 1 meter diameter methane vents in the Northern Siberian Arctic Shelf. The next year, they found hundreds of them 1 kilometer across.

            Last year, NASA’s CARVE project took measurements over the Arctic Ocean recording a 100 kilometer long methane plume. Basically, part of the Arctic was behaving like champagne…bubbling up with methane.

            You don’t think this is serious? I would imagine within the next 5-10 years, there will no longer be any doubt in people’s minds.

            The arctic is warming 4-6 times the rate of the planet. This is where the REAL TROUBLE is.

            steve

          • (97% of climate scientist) The term climate scientist didn’t exist 10 years ago. This is a term invented by the Fraudster to counter the real scientists who were coming out saying this is a bunch of Fraud! The Fraudsters would say you don’t have a degree in Climate Science. You couldn’t get a degree in Climate Science 10 years ago. The text books that these idiots are studying from promote the Nonsensical Fraud of The Global Warming Fraud. If you ask somebody who got a degree in Keynesian Economics what we should do when the economy goes into a recession, they will say the government should spend money to restart the economy. Anybody that has studied Austrian Economics knows that this will hurt the economy not help it because the government is the greatest misallocator of resources.

            If you pay a bunch of scientist to go look for a problem they will find one. They will come up with some bullshit sensational story to keep their funding coming in. The Global Warming Fraud originated at the Club of Rome to come up with an idea of how to implement a Global Government. The purpose of the Global Warming Fraud is to claim that we are destroying the earth so they can control us and make us pay taxes to a Rothschild controlled UN bank. They will then take this money and loan it out to developing countries, basically funding nonsensical projects that they skim money from, use the money to get their puppet governments installed, load the developing countries with debt, bankrupt them, and then steal their resources. This is the agenda behind The Global Warming Fraud.

            The earth is not a closed system. The more heat that comes into the earth from the sun, the more heat that radiates out into the outer atmosphere. This is a statement of fact. Their is no heat accumulating in the upper atmosphere. The higher up you go in the atmosphere, the colder it gets. Heat rises, it does not descend. Their are several reasons for this. The gravity of the earth causes compression of the air. As the air rises it expands. When air expands the amount of heat stays the same but now is being dispersed because the air occupies a greater volume of space. This causes the temperature to drop as the air rises. There is a reason that snow accumulates on the top of mountains. The Global Warming Fraudsters would have us believe that somehow heat is accumulating in the Troposphere and radiating back down to us. This Fraud violates basic laws of Physics. There is no glass ceiling above the earth. The earth is not a Greenhouse. Carbon Dioxide cannot act like a glass ceiling and does not hold in or radiate heat!

            As far as methane being released, how do you know that this is not part of a cycle that has been going on for millions of years? I don’t believe anything The Global Warming Fraudsters promote because their whole premise is based on Fraud! NASA, like any other government organization, is just interested in keeping their funding coming in. And if possible getting even more money so why not invent a bunch of Fraudulent nonsense to get an increased amount of funding.

            Do yourself a big favor and don’t talk about this subject. You are on the wrong side of this debate and intelligent people will question your research if you tell them you believe in this nonsense. These Fraudsters have been coming up with nonsensical reasons why the Fraud is about to be exposed as fact in the next 5 to 10 years for the last 20 years. Your methane story is going to be just another example of another Fraudulent claim and they will come up with something different in another 10 years when that doesn’t come to fruition. NASA employs the Fraudster James Hansen who has been Fraudulently manipulating the temperature data for decades. It is a standing joke that his temperature graphs keep changing every 5 years. The 1930’s and 1940’s seem to slowly get colder and the 1990’s+ seem to keep getting hotter on his graphs. I don’t trust anything from NASA.

          • Steve,

            You made your point. With the logic you displayed in your reply, there’s no use continuing the debate.

            steve

          • I hope I have awakened you and you are not humoring me. The main point I want to make is the earth is not a greenhouse. There is no glass ceiling. So the Fraud falls apart right there. And Carbon Dioxide does not hold in heat like a glass ceiling. And now the new villian, methane, will not hold in heat like a glass ceiling either.

            You are a numbers guy. The Fraudster claim that if we breach 400 parts per million, we pass the tipping point. (forget for a moment that in earth’s history CO2 has been measured over 8000 ppm) That means that our atmosphere contains 4 molecules of CO2 per 10,000. And if we increase that to 5 out of 10,000 we could see temperature rises of as much as 6 degrees celcius according to the Fraudsters. Well the average temperature of the earth is only 15 degrees celcius. So 1 molecule change out of 10,000 is going to cause a 40% rise in temperature? Doesn’t that seem a little out of whack to you? Do you think that these models might be programmed to promote a Fraud?

            Then they say that Carbon Dioxide supercharges the water vapor making it hold in much more heat. Yet as I wrote before there is only an average of 22 millimeters of water (less than an inch) floating around in our atmosphere when it is compressed down. The average depth of the ocean is 14,000 feet. That is 168,000 inches. So what do you think is the thermal storage of the earth? 168,000 inches of ocean water or 1 inch of water floating around in our atmosphere? The ambient air is fickle and changes 10’s of degrees every time the sun sets. The ocean is what we should be measuring if we wanted to know if the earth is getting hotter. But even if the earth was getting hotter, what could we do about it because the heat is coming from the sun not CO2 or Methane. To think that CO2 or Methane can beam down heat from air that is colder than the surface temperature requires a lapse in brain function and a complete disregard to the laws of physics

            The physicists want to know how these Fraudsters get the average temperature of the earth because there is no known formula on how to get the average temperature of a spinning globe. And every time someone does get their data, (Jim Hansen, Michael Mann, Jim Salinger, Phil Jones, etc.) we find that they have Fraudulently manipulated it.

            The Global Warming Fraud is a Club of Rome concoction to control and exterminate us. And you will never get the truth from the Rothschild controlled media.

          • Steve,

            Sorry, you have not awakened me. You can’t do that with the sort of logic you are using. Let’s agree to disagree and wait around for 5-10 years. Then we can see who’s logic was better.

            Deal?

            steve

          • Yes, because the world is getting COLDER!

      • Matt/Steve, I’m 100% with our host here. Most people tend to mix up weather and climate. Clearly the latter always has, and always will change, so climate change is a no-brainer for starters. The question is, is there human-induced warming, and if so how much. In middle Europe 97% of the glaciers have DRASTICALLY receded in the last few decades. That is as good as a long-term proxy you’ll get that is independent on local urban (local) warming “noise”. The same is true for the Greenland ice shield. If this one was to melt down further, we’ll get runaway melting and you can wave ALL LANDS lower ~10 feet above current sea level goodbye (that might be realistic on a 50year – 2 century time frame). The arctic ice extension (and thickness) in the north polar sea, similar story (major positive albedo feed-back looming there too, and with artic warming majore methane realeses in the the atmosphere… but you guys don’t see some trace elements C02 or methane as any threat so I won’t presue this in parenthesis discourse). So, please explain these patterns/ facts with global cooling , I’m all ears.

        As for Steve Rocco, great job, love to read your work, huge fan! 🙂 DrX

  2. Long John Silver | August 13, 2014 at 8:00 pm | Reply

    I tend to agree, and we are slowly destroyed our planet with this shale nonsense. What are your thoughts on stories telling us of huge deposits found of the coast of Gaza, and is likely the reason the people are being pushed off their land?

    How many years of Oil and Natural Gas does Russia seem to have.. I seen a recent comment that the US has an abundance of Oil, but are deciding to use other peoples oil first.. It is really difficult to know for certain. I mean these oil Companies are tied to the elite, they will not tell us the truth, regardless..

    All I could do is go with my gut, and stack metals.. You need Energy to mine these metals, so if we go into an energy crisis, and the system collapses, I’ll have my insurance..

    • Long John Silver,

      The notion that the U.S. has capped wells and using up foreign oil supplies is nothing more than an OLD WIVES TALE. The U.S. energy industry is extracting shale oil and gas because that’s all that’s left. We have run through most of the cheap oil and only have the high-cost oil remaining.

      Unfortunately, Americans really can’t afford expensive oil. So, at some point in time… things will get very ugly.

      steve

      • If there are capped wells, it is because it isn’t economically feasible to extract what is estimated to be retrievable. The set-up/start up, which takes a lot of time for several reasons, and a lot of capital, is cost-prohibitive.

        • Inability to extract what is estimated to be retrievable reserves is of course is the effect of importing huge amounts of ‘cheap’ oil. Should the world oil price rise to a price that makes domestic oil economically viable, domestic production will rise. Also, should supply become a real problem, huge areas not now available for development would become available. It can be truly amazing how quickly laws can be passed when situations become critical.
          One must remember that in real terms the price of a barrel of oil today is the same as it was 100 years ago, and despite heavy taxes on gasoline and other petroleum products that weren’t imposed then, the price of gasoline in real terms is about half what it was 100 years ago, not even considering the effect of better fuel efficiency. The decline in prices was even more dramatic from the early 20th century until the 1970s, when due to overseas events, petroleum prices began their steep rise in nominal terms. Even in the late 1960s early 1970s, before the rise in nominal prices, the real price of oil had fallen by 90% and the price of gasoline about the same.

          • Robt,

            I appreciate your input, however I believe you are making some incorrect assumptions. If you read some of my comments in this thread, you would have found out that the world cannot afford expensive oil.

            Steve Koptis made a presentation this year on his SUPPLY CONSTRAINED MODEL. Basically, the market cannot afford high priced oil so the Oil Majors are now cutting back on projects, selling assets and exiting shale. Please feel free to read some of my comments for more details.

            Furthermore, you cannot confuse the decline in EROI with a rise of inflation. It took the energy of a barrel of oil to produce 100 barrels in 1930, compared to only 5 barrels of shale oil today. Again, this has nothing to do with inflation, rather its a measurement of how much energy it takes to produce energy…ENERGY BARREL PROFITS, regardless of the price.

            steve

  3. What is the difference between shale oil and oil shale?

    • Michael,

      Shale oil is really known as TIGHT OIL. Basically, shale oil is locked up in tight formations which is extracted by horizontal drilling and fracking. This is the oil they are producing in the Bakken and Eagle Ford. Oil shale is not even oil, its actually shale. Oil Shale has to be crushed and heated like oil sands to remove the low quality oil. Both Chevron and Shell abandoned their Oil Shale projects in the Western United States.

      Kind of tells you something there…

      steve

  4. Thanks for the great article! You are the Rush Libaugh of the mining and drilling world, as you take a complicated issue and make it easy to understand. As I read this article, a light bulb went off in my head, as I quickly realized what you are saying. Wow this is truly scary stuff we are facing as a nation very deep in debt and running on fumes! I gave up watching mainstream news many years ago, as they are nothing but govt. proganda machines. I really enjoy your website. Keep up the ggod work and articles.

  5. Can u tell Us how the conditions is for shale oil as well?
    All this is very interesting.

    • Tore,

      I am not sure what you mean by your question. Could you rephrase it?

      steve

      • Tore Johansson | August 14, 2014 at 9:07 am | Reply

        If the shale oil producers is earning or losing money at present oilprices is what I mean.

        • Tore,

          It means the SHALE ENERGY INDUSTRY is not sustainable and it will turn into a Lehman Brothers event. The shale energy companies are basically bankrupt. So, when the market finally realizes this, we are going to see a collapse in stock prices as well as industry wide bankruptcies.

          steve

  6. Your article explains perfectly why they are never going to let the leveraged bets in everything come crashing down (see meltdown of 2008). They will keep interest rates at zero forever. They will continue to print money; QE ending will be but another mere pause.

    We are going to go straight to inflation and deflation will never be allowed. Yellen has said she’d rather fight inflation than another economic meltdown. Well, it is inflation that will cause the next economic meltdown.

    I’m a buyer of oil between 90-94.

    • Jack,

      While I agree with you that the FED and Central Banks will continue to prop up the markets, the damage finally comes when peak oil hits in a big way. Looks like the U.S. Peaks 2015-2016, with a rapid decline of 50-70% by 2023. Russia’s oil production is now declining and it’s all downhill from there.

      PHYSICAL OIL CONSTRAINTS will destroy the ability for the FED and CENTRAL BANKS to rig the market.

      steve

      • “PHYSICAL OIL CONSTRAINTS will destroy the ability for the FED and CENTRAL BANKS to rig the market.”

        But natural gas at 8 is profitable and oil at 130 will close the free cash flow gaps in a hurry which will keep all these companies on a “drilling treadmill.” And as these prices rise, you’ll start to see massive wage increases across the board to compensate. Never underestimate how long this game can go on.

        • Jack,

          You may be correct.. however, the public can’t afford that price. This is according to new research by Steve Kopits on his SUPPLY CONSTRAINED MODEL. The U.S. can’t afford those high energy prices at a sustained period. Maybe for a brief peak.

          THERE LIES THE RUB…

          By the end of this decade, the WORLD WILL LOOK LIKE A MUCH DIFFERENT PLACE.

          steve

          • What you mean by the U.S. “can’t afford” those prices I assume you mean the U.S. consumer, no?

            At those prices, minimum wage will increase to $15 dollars an hour. Any way you look at it, the U.S. NEEDS a lot of inflation.

          • lastmanstanding | August 16, 2014 at 7:07 am |

            The oil corps/bankers/gub already know where the oil/gas price “point of no return: is…a day will come when they will blow it right open.

            …or it will happen on its own.

        • Jack, it’s impossible to ‘inflate away’ or ‘print’ physical shortages. You’re entering the laws of physics by then.

          The end of cheap fossiles means the end of world trade and the end of paper iou’s. There’s simply no way to compensate through derivatives. Period.

          • houtskool,

            Of course you cannot print oil. But the Oil price can increase to make the industry really profitable again…..and make them run even faster toward more pull.

          • Jack,

            I am going to try some logic with you and see if it works. Do you mind? 10 of the last 11 recessions were due to ENERGY PRICE SPIKES. High oil prices KILLS THE ECONOMY. So, common sense and logic would leave a person to believe that…. THE PUBLIC CAN’T AFFORD HIGH ENERGY PRICES.

            The major oil companies finally realize this… and as I mentioned in a prior comment that you must have overlooked, Steve Kopits made a great presentation called the SUPPLY CONSTRAINED MODEL which shows that the oil companies cannot continue as they have in the past because the public can’t pay a higher price.

            And… it doesn’t matter if everyone gets $15 an hour. Its the falling EROI – Energy Returned On Invested. If wages went up, so would the cost of everything… which means the oil companies would need an even higher oil price to cover costs.

            JACK… the JIG is up. Just accept it…..LOL.

            steve

  7. just read your other article and you said this:

    “What happens when the world finally realizes that it cannot continue to grow its global oil supply? The realization that economic growth is no longer possible will destroy investors PERCEPTIONS in the supposed paper assets they hold. Thus, the dumping of these assets will instigate a “Chain Reaction” collapse of these paper assets, which will destroy enormous amounts of capital responsible for funding investment in future energy supply growth.”

    Well, this is also exactly why Yellen Risk Management Capital INC. will blink the second deflation starts to kick in with no QE. This is also why there is no way in hell that Yellen will start to unwind the excess liquidity held at the banks by their credit creation. This is also why you will NEVER see Yellen really raise interest rates–ever.

    This is why they crack down on gold and silver every single second of the day now. They need investment going into oil stocks, common stocks to keep the game going. You will NEVER see gold and silver materially rise as I have been telling you for two years. They will outlaw ownship like they did in 1933 long before you EVER see price discovery.

    Good luck.

    • Jack,

      You make some interesting assumptions that are just as good as throwing a DART at a wall. There is really no need to confiscate gold today. Sure, in 1933, Gold was money. That’s where the wealth was. Not so today.

      The one WILD CARD you fail to incorporate in your assumptions is the BRIC countries totally pulling out of the Dollar instigating more countries to follow. At that point in time, it won’t matter what YELLEN and the FED does.

      steve

      • Really? You admit the price is rigged. And any fool can see TPTB will do anything to cap the prices of gold and silver as they do every single day. Anything means they would most definitely put a ban on gold and silver ownership, no?

        Sure, a run on the dollar is what you are talking about. But I’m still waiting for that overarching theme to play out. Tap tap tap. Think about it. Putin and Obama are probably best friends, seriously. I mean if Putin really wanted to go after the dollar and the U.S. he could create a supply shortage in silver in a nano-second. Why hasn’t he? Because it’s all part of one big NWO plan. That is why.

        I mean a failure and constant failure to deilver silver could create a dollar run fairly quickly. Yet, where is Russia? The whole Ukraine/Russia BRICS thing is just a side show to distract you from what is REALLY happening. Trust me, the logic you are following is linear. But it is really wrong.

        • Jack,

          The total value of all gold and silver owned by all Americans is so tiny compared to the nations debt, or the digital or fiat paper that has been created just since QE started, and there is a lot more currency creation than just the QE programs. No one even knows how much has been physically printed since 2008.

          Private ownership of precious metals in the U.S. may be a fraction of one trillion dollars. What would be accomplished by trying to “outlaw” ownership”? Even if that happened a black market would open up. The government can’t stop illegal drugs. think they can stop people from owning or trading PM’s?

          Putin and Obama are not friends.

          • Jack,

            Even if they were friends to put up a “true” NWO, both would want to be the leader and they will fight over !

      • Hey Steve – I’ve been doing some contemplations on exactly that scenario. You are welcome to read my article just posted on Biderman’s Blog…glad to hear your feedback.

        http://charlesbiderman.com/2014/08/14/how-a-reserve-currency-such-as-the-us-dollar-diesslowly-at-first-then-all-at-once/

        • How the “hot money” flows are being so cleanly directed into stocks, bonds, RE/CRE since ’12 and avoiding nearly all commodities is the great unknown…but the ramifications of centrally directed policies are visible everywhere…some commodities with dwindling inventories while others in significant oversupply, inadequate cap-ex for some and far in excess (assuming a profit motive was the incentive) for others…and none in-line with market driven supply / demand curves – the tipping point is either in the rear view mirror or it’s got to coming right up!?!

          Thanks again for your great work!

        • Chris,

          I believe the forecast you wrote below is a likely outcome:

          CHRIS WRITES — “But let’s say in 2015 the pace of BRICS non-dollar trade continues expanding and international settlement in non-dollars grows by 10% to 20%…and 10% to 20% of dollars are no longer needed as reserves to buy oil, wheat, finance trade, etc. etc. This is about $1.2 trillion to $2.4 trillion formerly held reserves cleared to go looking for their home…the US. $1.2 trillion to $2.4 trillion levered again very conservatively @ 5x’s (or 20% cash down) is $6 trillion to $12 trillion in “hot” money looking for assets. With just a fraction of all the inflation the US exported over the ’71-present period coming home…this creates what amounts to a hyper-monetary dollar overdose in America. Foreign holders of US money chasing assets in America where dollars are readily accepted. And of course, once these things start, they create a momentum of their own and eventually a likely counter by the administration to freeze out these dollars and the likely panic this ensues both domestically and internationally.”
          ——————

          Things will get progressively worse, than all of a sudden collapse overnight. And the FACTOR that most do not realize is that collapse of the DOLLAR will kill probably 20-30% of U.S. oil production…LOL.

          When collapse finally comes, its not slow.

          steve

  8. Steve thank you for your reports. I agree with 99.9% of what you say, but own no precious metals.

    I want to ask a question that I have not seen asked or answered, but really strikes me as important. Actually it seems to be an unstated premise to your entire line of argument (dare I say philosophy?). Perhaps one or more of your readers have supportable opinions as well.

    The Romans and other early empires used gold coinage as currency as we all know. During the fall of the Roman empire they debased (by adding base metals) their silver and gold coins until at the end the “silver” coin in Rome consisted almost completely of other metals (see Tainter, 1988 and many others). The Roman silver coin had value at that point only because the empire declared that vendors must accept them at the stated value. (sound familiar?) Prior to the use of silver and gold for trade, people simply bartered.

    Now the questions:
    When TSHTF will not barter be the only means of trade? If I go to the local Amish dairyman and ask for a gallon of milk why will he accept a silver coin? Why would he accept a silver coin from me when his neighbor has HAY (alfalfa) to trade? Or beans? Or wheat? Or (ahem) hemp?

    Wouldn’t it be wiser to buy tangible assets? Consider the lowly tire. How will you get tires when Yokahama is out of business, or can’t ship to your neck of the woods? Shouldn’t one spend all ones money on spare parts and other tangible assets?

    If someone is so rich that they have two ( or better three) of everything on their homestead isn’t that the only time that they would dabble in silver or gold?

    • I’ve argued taht for years too, pintada. It is MUCH better to buy real wealth: water storage and water storage systems; food, whiskey and drink, arable land; and any other goods that are great for mankind and oneself.

      Silver will be renderered worthless if it really hits the fan. Imagine using it as a medium of exchange. I mean what a joke. Seriously.

    • pintada,

      interesting you bring up this subject. For some strange reason, most people think in two outcomes.

      FIRST — BAU- Business as usual continues so why own precious metals.
      SECOND — When the collapse occurs, and we head into MAD MAX or Barter, why would you need gold and silver.

      I actually believe both scenarios aren’t the inevitable outcome. There will still be some sort of economy, even though it might not look anything like it is today. So how do you trade MILK for HAY if you don’t need any HAY??

      Furthermore, people who take the second argument do so while their investments remain in the PAPER PONZI. So, my reply to that is… why don’t you at least trade it in for a real asset such as gold and silver so it will OFFER SOME SORT OF WEALTH than the paper garbage you own now.

      There are no guarantees how things unfold, but I’d rather own the 2,000+ year proven store of wealth than 98% of the paper garbage floating around giving the illusion of wealth.

      It’s really that simple.

      steve

      • Even if we had a Nuclear War, PM’s would become important eventually. At first Food and Water would be way more important for the survivors and no amount of gold would get my last loaf of bread, but one day it would make a comeback. Money is more efficient for commerce. The analogy of having something to barter is correct up to a point. Let say I have eggs and I need new shoes. Guy has shoes, but he too has plenty of eggs, but needs a hammer. I need to find someone to trade me my eggs for their extra hammer and go back and trade the hammer for shoes. Inefficient. Something that has a universal or pretty universal value to everyone is needed. It may end up being .22 shells instead of silver or gold coins, but PM’s would find their way into the mix.

        • Robert,

          I agree with you up to a point if NUKE destruction is relatively small. However, if society collapsed suddenly and along with it, the electric grid… we would have 200 Nuke plants in the U.S. melting down all at once — just like Fukushima. If this happened on a global scale, then after a short period of time, nothing would matter.

          steve

      • lastmanstanding | August 16, 2014 at 7:11 am | Reply

        It really is that simple.

    • my two cents – There are things that are stores of value and things that are utilitarian (food, weapons, tools, etc.). I think in general folks believe that this situation will likely have a chaotic end before a new system is determined. In that period of chaos or lawlessness or perhaps overbearing law it is very important to have the capability to be less dependent on others and more self reliant…one should have the utilitarian things at hand for whatever period seems reasonable to you (3 months, 3 years, whatever). But these periods of chaos have always passed and will likely do so again…and both during the chaos and in the new phase, stores or value have generally served their holders well…allowing them to re-establish themselves in the new reality. And technology will still likely march on sending many of todays utilities to the graveyard of futility while base PM’s have always been reliable savings vessels. Nothing saying this time it couldn’t be different and we enter a new dark ages for a thousand years…each of us has to go with his/her gut to prepare for today and the likely outcomes of tomorrow.

    • Thanks everyone for interesting thoughts. As Steve says, I need to get rid of what little paper (greenbacks & equities) I have, ASAP.

      Given that my crystal ball leads to a decidedly unpleasant time ahead, I will stick to my plan and get more spare parts. A windmill in case all my power fails, another set of inverters and battery controllers for my power plant, better perimeter security, etc.. Competent friends seem very important too, but that is another subject.

      Barter is terribly inefficient of course, but – given my age – I doubt that I will live past the bad times to a point when efficiency of the economy is an issue. My grandkids, if they survive, may want to trade for gold or silver in their old age.

      The fiat money I have must go!!

      • @ Pintada – chaos or breakdown is possible but I’d give much higher odds to some sort of authoritarianism than a prolonged period of chaos…American’s gladly give up their rights to have order.

      • Pintada, don’t spend it all, or at once. Diversify, be patient, and keep thinking.

  9. First thank you very much Steve for puting public all these materials on energy and so on.

    I was asking something about the medium term as your analysis namely shale oil are coming due by several years. In the meantime, it would be very “interesting” for the anglo cartel to depress the oil prices let’s say by 50% in order to put huge damage to Russia financial health.

    Do you think with the current world slowdown and given the oil and other petroleum products a 50% oil could last several months or even quarters ?

    Thanks for your inputs !

    RD

    • DUPONT,

      You bring up an excellent question. Even though the U.S. and Saudi Arabia conspired together to depress the price of oil throwing the Soviet Union into collapse in the late 1980’s.. it was a much different market back then. If the Feds and U.S. Govt were to somehow manipulate the price of oil to $50 for a sustained period, it would destroy the SHALE OIL INDUSTRY in the United States.

      Break-even for Shale is $60-$80… and new production needs something like $80-$100.

      The U.S. Shale Gas & Oil Industry is in bad enough shape at current prices. If the price of oil heads to $50 and Natgas to $2 for an extended period… I believe we could see a total UNRAVEL of the industry. Think of Bear Stearns and Lehman Brothers throughout the energy sector.

      I don’t like to give out short-mid term forecasts because it is impossible to predict. However, I believe most of the small-mid energy companies are already bankrupt. Bill Powers (energy analyst) told me that Chesapeake holds more debt on their balance sheet than the value of their remaining gas reserves at current market prices of natgas…LOL. What happens when the price of natgas goes down to $2…LOL.

      Gosh…. I don’t think there is much time left before wheels fall off the whole system. Look for the end of this year for events to get out of control. It’s not set in stone, but it’s looking like it.

      steve

  10. I don’t comment here anymore, but as this is just about the only website where cash cost vs all in cost is discussed – what do you make of this chart?

    http://d1w116sruyx1mf.cloudfront.net/ee-assets/channels/article_default/SilverPriceDeclinedSharplyRelativetoProductionCosts.png

    It shows silver being produced around 2001 at only slightly above cash cost. In 2013 it was being produced at 150% above cash cost (right now about 100%).

    Steve often goes into detail how cash costs do not represent real production costs, and that it’s all in cost that matters. All in costs for primary miners are supposed to be about double of cash cost. This means that the current market price of silver equals the current average production cost of the primary miners.

    Now the million oz question is: when cash costs were 4$ in 2001, and all in costs correspondingly about 8$, how could silver be produced at a market price of 5$ back then? Especially considering that prices had been this low for years, and also considering that there was even quite a good amount of exploration going on back then. Miners certainly didn’t seem to be cutting back, when according to Steve’s calculations, they should have been suffering heavy losses.

    • Markus,

      I am going to reply to your question, but in return it would be interesting to know why you made the comment: I DONT COMMENT HERE ANYMORE.

      As for the data used in the chart done by CPM GROUP, it’s totally worthless. On top of that, I don’t know why Casey Research made such a stupid chart. It means nothing.

      Back in 2001, many of the miners such a Hecla and Coeur were losing money at $5 silver. However, that is a side issue.

      The reason cash costs are lower in percentage terms has to do with a 5 times increase in the price of OIL since 2001 and its impact on the base metal by-product credits
      . Thus, the spot price of zinc, lead, copper and gold all increased substantially. This had a LEVERAGED IMPACT on the cash costs because the value of the by-product credits went up much higher than just silver.

      We must remember, the company deducts the by-product credits when they figure their cash costs. So, a HIGHER VALUE BY-PRODUCT CREDIT will make this gap even greater. This is the reason, there is a larger percentage change in cash costs. And again.. totally meaningless. I am surprised at the level of analysis today. — PURE RUBBISH.

      That being said, CASH COSTS do not represent that PROFITABILITY of a company. For example.. even though Hecla might state a low CASH COST of $5-$6, it can’t make a profit below $18-$19 silver.

      By deducting a HIGHER VALUE BY-PRODUCT CREDIT today from the cost might increase the cash cost percentage compared to 2001, but what it really means, is that the miners RELY ON THAT BY-PRODUCT REVENUE more than ever to fortify their balance sheets.

      steve

      • Alright. I do not totally get the by-product credit story, but that is my fault, I know you have already explained it here. I will probably re-read the articles where you go into detail on them.

        Actually, if I had just noticed that the chart is produced from CPM Group data, I would have considered it useless myself and never asked the question.

        Thank you Steve. As for “I don’t comment here anymore”, if you don’t remember, all the better. But apart from rare exceptions (like now, because I just thought the issue was important), I will stay away.

  11. It’s all lies. The miners can continue to cut costs and lay people off for a long time. They can “adjust” their all-in cash costs for a lot longer. Look at First Majestic. They keep lowering their all-in cash costs. From 20 to 18 in just a few months. They can lower it to 10 if they want to.

    That is why TPTB are not rattled by the supposed pending “silver shortage.” There simply won’t be a shortage. There is more silver out there than anyone knows what to do with it despite all the alternative media hype about low-above ground inventories (that they don’t tell you they have actually been growing over the last 2-3 years)

    The only way a silver shortage happens is if a Russia or someone huge like that wants it to happen. But the truth is Russia is not prepared for a non-dollar world anymore than John Q public at this point.

    So this game goes on and on and on. Meanwhile, i believe silver will head to 12 an ounce–which will be the around a good time to start buying it if you are truly an investor.

    • “There simply won’t be a shortage. There is more silver out there than anyone knows what to do with it despite all the alternative media hype about low-above ground inventories (that they don’t tell you they have actually been growing over the last 2-3 years)”

      I have a degree in Geology, and I have to tell you you are right about a lot more silver available…but it is under the oceans. On dry land it is a dwindling supply of a non-renewable natural resource.

      • David,

        Do yourself a favor and FOLLOW MY LEAD. Don’t waste time responding to Jack. As I stated, he is free to post comments, but you can’t debate or reason with someone who throws LOGIC out the window.

        steve

    • Jack,

      I just realized something about you. While you are free to post comments as much as you like, I now realize LOGIC doesn’t work with you. And that’s a shame because you will continue believing in UNTRUTHS.

      steve

  12. Ahem……then just answer two simple questions before your write me off. Has silver inventory been growing over the last two years?

    And two, will the oil companies not have the incentives to keep drilling at higher crude prices?

    Frankly, Steve, you make a lot of wild-eye and far out guesses about where you *think* this is all going. But really, how is your silver thesis playing out? Do tell us.

    • Jack,

      Quick Reply. If I had the lifespan of a GNAT, your reasoning makes perfect sense. However, we humans tend to live for 70-80 years, and we also have children that can inherent our wealth.

      Above ground silver stocks always continue to increase, however at a much slower rate now that more silver is consumed in industry. I don’t care that there might be 25 billion oz of silver held in the people of the world. However, when silver hit $49 and averaged $35 for 2011, there was only a small amount sold into the market as RECYCLED SCRAP.

      This tells me that people rather hold onto their silver for whatever reason than exchange it for fiat money at $35. Furthermore, the amount of PAPER ASSETS is something like $100 trillion plus. That is silver’s competition, not the amount of silver above ground. When paper assets implode, above ground silver stocks won’t really matter.

      And for the last time. Oil majors this year sold off assets, cut back severely on exploration and started to remove themselves from shale. Which means.. they finally figured out that the world can’t afford HIGH PRICED OIL. So, instead they are cutting their losses, selling assets, buying back stock and raising cash to make their SHAREHOLDERS HAPPY.

      Margins have been shrinking for some time and Shale is not even commercial on a full cycle basis. Which is why the MAJOR OIL companies are getting out. They have to show profits on a FULL CYCLE basis whereas the small-mid sized energy companies get a way with stating results on a POINT FORWARD BASIS. The oil majors can’t do that.

      So, no.. the majors will not continue to drill HIGHER COST OIL PROJECTS because the market will not pay for it. This is called the SUPPLY CONSTRAINED MODEL.

      steve

  13. Steve,

    Thanks for your response. You always keep it professional despite my rock throwing. You clearly work hard…..and I appreciate your viewpoints believe it or not or I wouldn’t be reading your work. And it is work. Great detail. And you are a real skeptic. I like that.

    In regards to silver of course there is always more total “inventory” every year. I was referring to above ground *available* inventory. It’s actually gone from around a billion to over 2 billion even though silver has been slaughtered. The mining industry is simply adapting to lower prices.

    As for oil, I’ve been hearing peak oil theories for 15 years. Yet, we keep on going, and going, and going. I get the math. Believe me, I get it. But human innovation is the most amazing thing on the planet. Our best days will be ahead of us. That we can count on. Peak oil is a man-made problem. We’ll figure it out. We’ll decentralize, cut out the mega-corp fat, get rid of a mono-agriculture way of life, and get rid of government when the plebs are finally pushed too far. Believe me, they are getting pushed toward a boiling point. Ferguson, MO is a lot more than just people pissed off a a couple rogue cops. The Powers That Be are skating on totally thin ice. It’s going to crack. And we’ll all be better off for it.

    I doubt, however, silver is the answer. If you’re right about everything your saying, you could be way off on the results. The fact of the matter is that no one really knows how all this shit is going to go down. But all the dooms day scenarios aren’t doing anyone good. I guarantee that.

    Have a great one,
    Jack

    • Jack,

      Yes, I was stating total above ground silver in the world. However, REPORTED SILVER STOCKS have declined from 2.8 billion in 1990 to less than 900 million in 2013:

      All that IMPLIED UNREPORTED SILVER STOCKS went to fill the annual silver deficits from the 1990’s to 2004.

      Actually, total global oil production is only up 1.5 million barrels per day since 2005.. and that was due to the United States shale oil. If you take out the U.S., total global production is down. Looks like the U.S. peaks in 2015-2016.

      steve

      • Steve,

        I’ve heard the 900 million ounce number, and I’ve heard its even lower than that if you accounted for the commercial shorts that need to cover and deliver. I’ve also seen it is up to 2 billion. In any case, if TPTB need to get ahold of immediate silver all they need to do is slam silver to oblivion to get the plebs to panic sell. That is why I think silver will head to around 12 ultimately. I also think because of such a small “fiat* number associated with silver inventory (whether it is 2 billion or 900 million its really just peanuts) that is why the whole Russia escalation will turn out to be nothing. If Russia really wanted to fuck with the U.S. they could simply buy a few billion in futures and then ask for delivery. The gig would be up. But they don’t. Why?

        Jack

        • Because nobody with a sanity mind wants to be responsible for such a financial explosion.

          They maybe just want make their own system to try to escape ours and let the west go down in flames if we do not change but they do not want to be directly accountable of such meltdown.

        • Jack,

          But it does not mean thet silver will not go to 12 or even single digit for a long period of time as you just said they just have to dump 1 billion silver ounces in the futures markets (in fact I think the odds are more than 50% for such a scenario).

        • Jack, Russia isn’t interested in ‘sudden death’, they would collapse also overnight. The paper system, more than 1 quadrillion in derivatives etc etc, is going down. It’s overleveraged and dependent on cheap fossiles.

          Many trillions in iou’s will vaporate, only a small part will flow to hard assets before that too will stop.

          That goes for the miners too.

  14. I doubt that the precious metals will move very much in the next 6 to 8 months. China is buying much less gold. Global Boloney climate change is all about a carbon tax, The coastline was supposed to be underwater as of 2012 according to Al the Climate changer Gore from his notorious 2005 “environmental speech”, more fear porn. Fracking is an environmental disaster that is just coming into it’s own in to the consciousness of the general population but it will be to late for many especially the foolish land owners that will lose everything in litigation with sickened neighbors and EPA law suits. The drilling companies will take no responsibilities for the pollution and most leases state this, the landowner will go bankrupt footing the bill. Karma strikes again

  15. Hi Steve love your work….i am well acquainted with the oil and gas biz. I was speaking to one of my Geologist friends about the shale revolution and he basically said we are “scrapping the barrel” for the last significant oil/gas by targeting the source rock. Then i asked him who is gonna plug all these 10’s if not 100’s of thousands of wells being drilled when then eventually reach the end of their economic life. He just answered me, “that is a good question. I wanted to get your perspective on who is going to be able to afford to plug and abandon these expensive unconventional holes? The costs will be overwhelming to companies already hemorrhaging money.
    M.

    • M,

      Glad you enjoy the work and I appreciate you stopping by and leaving a comment. So, your Geologist friend sees the writing on the wall…. good for him. He’s a rare breed.

      You bring up an excellent question on WHO DEALS WITH THE WELLS once the party is over. Well, we already have one state dealing with this problem already.

      Wyoming To Begin Work On Abandoned Wells

      Wyoming regulators are prepared to begin plugging some of the 1,200 abandoned coal-bed methane wells on state and private land in the Powder River Basin.

      The effort to close the abandoned wells comes several years after the collapse of the CBM industry and amid increasing pressure from landowners, who want the wells reclaimed or converted to water production. Gov. Matt Mead announced a plan in December to spend $3 million to close about 300 wells in each of the next four years.

      “I think if the state keeps their foot on the accelerator we can do 300 in a year,” said Robert King, an independent contractor hired by the Wyoming Oil and Gas Conservation Commission to spearhead the effort.

      Still, challenges remain. Luca Technologies Inc., a Colorado gas firm, filed for bankruptcy last year. The company’s 900 wells could be added to the list of those Wyoming needs to close, raising the scope and cost of the state’s plugging program.

      http://trib.com/business/energy/wyoming-to-begin-work-on-orphaned-wells/article_54dbe6cd-8f2e-52c5-86d3-1e2d56402b83.html
      —————–

      Not only does Wyoming have to deal with 1,200 abandoned wells, they may also have to take care of 900 more now that Luca Technologies went bankrupt.

      This will get very ugly in the coming years. I am surprised at the amount of IGNORANCE & HUBRIS when it comes to growth without any consideration of what we are going to do when the financial system collapses.

      I would imagine the majority of shale gas wells will not be dealt with if the United States heads into a severe financial and economic collapse. A great deal of Paper wealth will be destroyed and along with it, a huge amount of the TAX BASE.

      So, I don’t believe we will be able to deal with the hundreds of thousands of wells dotting the countryside.

      steve

      • Reminds me of the costs the the human race is faced with with getting rid of all the planned, running, soon-to-be retired, and blown-up nuclear power plants around the globe. Should be fun. NOT.

    • lastmanstanding | August 16, 2014 at 7:19 am | Reply

      M. The last thing that those who drilled these well are worried about is repairing the damage…especially with the cost of energy to do it.

  16. Has anyone done an EROI study on shale gas?

    • Dale,

      Yes, Charles Hall et al did a study on shale gas. Unfortunately, I don’t have it at my fingertips. Its quite high. Something like 50-60/1. However, that is the EROI right from the well-head. Once its transported-compressed and by the time it makes it to the consumer, its considerably lower.

      “Keep in mind that shale gas EROEI at the wellhead, though impaired by the nonstop drilling and rapid declines, can still be quite high. But the EROEI of all gas production plummets once we factor in the energy costs of compressing and distributing gas to end users.”

      I would imagine by the huge amount of increased debt on shale companies balance sheets means the EROI must be very low.

      steve

      • I wonder if that too would take into consideration mining of sand in Wisconsin, pumping and transportation of water to the wells, transportation of waste to recycling or to injection wells in Ohio, etc., etc. This is an energy and resource intensive means of extracting energy.

  17. My parents bought an 80 acre property in Appalachia in the mid 70’s for $10k. In the late 70’s they sold the deep mine coal rights to a corporation for $25k. It will never be mined by them, because many years ago they gave up and didn’t buy a large enough block of land.

    Two years ago they sold the deep natural gas rights (Marcellus) for $300k. Now it appears that the wells in the general area are coming in light, so I don’t know if it will ever be drilled. Perhaps at much higher gas prices.

    But if oil and ng prices go a lot higher, what happens to interest rates and the economy? And if the economy tanks, they will not be drilling deep wells, or at least not as many as during boom times.

    So I guess my point is that just because some schmuck buys up a bunch of mineral rights and then quickly resells them to a greater fool doesn’t mean that those hydro carbons will ever be extracted.

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