CRACKS NOW APPEARING IN THE WORLD’S MAJOR OIL INDUSTRY

As the sell-off in the broader stock markets intensifies, it will be bad news for the world’s largest oil companies.  Why?  Because cracks are already beginning to appear in the biggest and most profitable global oil companies.  While rising costs and higher debt levels have been plaguing the U.S. shale oil industry, these negative factors are now impacting the major oil companies as well.

When the oil price fell below $100 in 2014, it spelled doom for the U.S. and global oil industry.  As oil prices continued to decline, energy companies were forced to increase their debt and reduce their capital expenditures (CAPEX).  Cutting CAPEX spending while adding debt aren’t a good recipe for positive financial earning in the future.

According to several energy analysts, they believe 2018 will be a turnaround year for the major oil companies.  Unfortunately, the fate of the price of petroleum and the oil companies are tied to the broader markets.  When the markets rise, it’s good for the oil price and energy companies, and when the markets fall, then the opposite is true.  However, the next major market selloff will likely cause irreversible damage to the global oil industry.

Investors need to realize that the global oil industry required $120+ oil in 2013 to replace reserves and bring on more oil production.  When that price level was not obtained that year, oil companies began to cut CAPEX spending even before the price fell below $100 a barrel in 2014.  Today, with the price of oil trading at $64, it is approximately half of what the global oil industry requires to fund new production growth.

So, there lies the rub.  Even though oil companies are more profitable currently, it was achieved by destroying future production.  As we can see in the chart below, CAPEX spending in eight of the largest global oil companies fell 56% from $245 billion in 2013 to $109 billion in 2017:

Yes, it’s true that a lower oil price forces oil companies to cut CAPEX spending to remain profitable, but it will also negatively impact their earnings in the future.  While all the major oil companies cut their CAPEX spending significantly over the past four years, Brazil’s Petrobras and ConocoPhillips both reduced it the most by 70%.

Now, to offset the falling oil price, many of the oil companies resorted to adding more debt to pay shareholder dividends or to fund CAPEX spending (or both).  For example, Shell’s long-term debt increased from $36 billion in 2013 to $74 billion in 2017 while ExxonMobil, one of the most profitable major oil companies in the world, saw its debt increase significantly from $7 billion to $24 billion during the same period:

These eight major oil companies have increased their debt right at the very time the stock markets are beginning rolling over.  As I have mentioned, when the stock market suffers a big correction-crash, so will the oil price.  A falling oil price will force oil companies to cut their CAPEX spending, once again, to provide positive cash flow for their shareholders.  Furthermore, rising debt levels and interest rates have severely cut into these energy companies’ profits.

In 2013, these eight oil companies paid $5.7 billion to service the interest on their debt.  However, that nearly tripled to $15.4 billion in 2017.  Thus, $10 billion in profits were vaporized just so these major oil companies could service their debt.  We must remember, during major market corrections, ASSET VALUES DECLINE, while DEBTS & LIABILITIES stay the same.  Which means, a much lower oil price will make it increasingly difficult for these oil majors to remain profitable as a large portion of their profits is now being used to pay their interest expense:

These three charts represent the CRACKS that are now beginning to appear in world’s largest oil companies.  Even though the oil majors have been somewhat immune to much of the negative issues plaguing the U.S. shale energy industry, it seems like the disease is finally spreading to them.  It’s just a matter of time before the Falling EROI – Energy Returned On Investment and Thermodynamics starts bankrupting oil companies that have been around for more than half of a century.

While this may seem like I am overly pessimistic, the data and the facts speak for themselves.

Lastly, the public has no clue just how critical the oil supply is to our Just-In-Time-Inventory-Economy.  Even though the housing market is still booming, what would our Suburban Economy look like with 50+% less of petroleum liquid fuels??  Please don’t belch out that Electric Cars (EV’s) are the answer… they are not.  Also, the current electric battery technology used to power a semi-tractor trailer would only have enough energy to also transport a fraction (2,000 lbs) of the freight compared to a typical diesel engine (48,000-50,000 lbs).

Unfortunately, technology has not solved our problems…. it has just created even bigger ones.  When you understand this simple principle, then it’s easy to see how the world unfolds in the future.

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70 Comments on "CRACKS NOW APPEARING IN THE WORLD’S MAJOR OIL INDUSTRY"

  1. That was an excellent read, thank you Steve for sharing your thoughts and analyses.

    • Steve is basically right but he provides wrong timing. The problems that oil companies face can be temporarily remedied by nationalizing them or foregoing their debts. The system will not fall apart within several years. We need to take a longer perspewctive which does not mean that PMs will not break up this year.

      • ^This.

        In times of crisis powerful nationalist totalitarian governments rise and nationalize whatever is deemed essential.

      • No, actually, Steve is right. Even if the government nationalizes oil companies at some point (which is likely), the world is still consuming more oil faster than it can find and produce. This is all that is needed to case a massive economic slowdown and then collapse and oil to be rationed. It will then likely spill over into mass civil unrest and global conflict. It’s like metabolism. If you keep eating less food than your metabolism needs by lowering your caloric intake 10 calories per day, your metabolism will adjust by going into starvation mode by lowering metabolic rate so it can live off of fewer calories. However, that only works until you drop your calories so low that it doesn’t sustain basic functions. Your body is now burning more calories than it consumes. Even worse, your are also exercises more each day so while your body is already in a caloric deficit, it’s decline is hastened or worsened by the extra calories being burned from exercise. Each year population increases so even if global demand for oil slows in isolated areas of the globe for small periods of time (which it won’t over the long-term), human oil consumption per capita continues to increase due to population increase.

        So while we are finding less and less oil, we are burning more oil and not replenishing the “energy bank account'(by finding and drilling new reserves of cheap energy) fast enough to keep production up over the long-term. And to add fuel to the fire, per capita human energy consumption continues to increase, speeding up the decline. As Shale peaks, and since we drilled the best Shale wells first, we are left with low quality plays that deplete quickly, after the first couple years or less. Just as a body in a caloric energy deficit begins to cannibalize itself past the thermodynamic point of diminishing returns/energy, so to will the oil industry.

        We will get to the point where all the money thrown at the system cannot solve the thermodynamic depletion occurring. And that is likely within the next few years.

        • Excellent use of logic! You are one smart little cookie! Thanks for sharing!

        • Robert Happek | March 23, 2018 at 4:48 pm | Reply

          Energy consumption per capita can go down by a factor of at least ten without affecting our comfort much. I sold my car and bought a bicycle for $200 which I now use to get to work. I feel better and healthier. We need trucks, but we do not need personal cars. We do not even need kitchens as individual cooking is not really needed. Walking and bicycling is cheaper and much healthier for the overall economy. Let us not forget that humanity survived and thrived without using any fossil fuels for many thousands of years. The future will be very much the same as the past.

          • Robert Happek,

            I would imagine the POOR SLOBS living in Ancient Rome before it collapsed from 1 million citizens down to 10,000 said the very same thing as you… “THE FUTURE WILL BE VERY MUCH THE SAME AS THE PAST.”

            People who believe the future will be like the past I would advise doing the same thing as Dorothy in the Wizard of Oz. And that is CLICK YOUR SHOES TOGETHER THREE TIMES and hope for the best.

            steve

          • Did all of these Romans die or did they just move to better places?

          • Don Paladin | March 24, 2018 at 2:12 am |

            But the US and in fact capitalist conountries in general are based on consumption. They need to create demand/desire for consumption which is one reason we have such high emotional impact commercials. If everyone took a path similar to the one you have taken to get back to basics the ripple effect through the economy would be a very deep recession. I think we are actually already in recession or never left but abundant credit creates the veneer of prosperity.

          • lastmanstanding | March 24, 2018 at 8:36 am |

            The kitchen is the most used room in our house. We prepare the best quality, least expensive food on the planet. I could get what I need on a bike if necessary…or walk.

            For Saint Patties day, we fed 11 people, at our home one of the best meals imaginable for $100. It included local organic cheeses, bread and home canned, sun cured pickles, beans, carrots and peppers for an appetizer. Organic grass fed brisket (local). I went to the root cellar and pulled out potatoes, onions, carrots and cabbage along with vegetable broth made from saving our own vege scraps to add to the corned beef. Our dessert was a cherry/raspberry crumble from our trees and the neighbors bushes…and significant leftovers when home with 3 of the older folks.

            Wake up a bit more and perhaps you will be healthier as well.

          • @ Robert – You’re regurgitating “green” propaganda and not thinking about what you’re saying. Negative EROI means the death of millions upon millions of people whose lives are rendered economically unsupportable. This is why the population forecasts in the CIA Factbook (look it up) fall precipitously in the years ahead: they know what’s coming. (Any forecast document still talking about growth can safely be thrown in the trash bin, because the authors are clueless.)

            SRS Rocco has responded directly to you. Read and re-read that note carefully, because there are ripple effects and dots to be connected that are going to elude indoctrinated “greens,” whose thesis of CAGW (Catastrophic Anthropogenic Global Warming) is by implication a moot point. All the urban-hippie fuss over bike lanes and “renewables” needs to be understood as trivial in context: there won’t be as many bikes or anything else, since these things all require affordable petroleum for manufacture. Strive to look more deeply than the mainstream and it will benefit you as an investor.

        • “the world is still consuming more oil faster than it can find and produce”.
          If this was the case prices would be higher and they would be making profits, right.

          • Except that oil is an input to everything that is produced, not just a product by itself. The supply demand curve doesn’t work in this case as rising oil price causes a decrease in demand for it (end everything else), thus causing oversupply leading back to low price.

      • Partly agreed, i think…

        Ed, they WILL monetize the kitchen sink, so, we’ll have a currency crisis in the end. Higher echelons manage their currencies together, aka ‘race to the bottom’. Major currencies stay rangebound because they depend on eachother.

        Don’t bet on timing. We will all be wrong on that one. When the fat lady sings, the emergency exits will be like black friday on steroids.

      • Yah I bet they do get bailed out and nationalized then the cancer of Venezuela goes global.

  2. CFO point of view | March 23, 2018 at 2:19 am | Reply

    Technology is the fruit of human thinking and solving problems. We as human race are trying to do things better, quicker, cheaper. That’s why we think about solutions, invent and in this way we make progress. If not technology, you would be using a stick to put some pictures, so that your other tribe members would know what happened – that there were some bears circling your cave and finally they attacked – and because you didn’t want to improve your weapon, you had to fight with them using your fists.
    Sorry but this is your mantra – technology is bad. Wrong – you are so wrong in this point!

    • Actually CFO you’re wrong on this point. Technology is dependent on energy not the other way around. Let me demonstrate. At one time we had supersonic passenger flight. Why don’t we now??? We forgot how?? Has the technology disappeared??

      At one time we had regular maned space missions. Why don’t we have them now? Did we forget how?

      The most innovative products of the last 20 years all have something to do with information like computers and cell phones and big screen TVs. Isn’t it interesting they are all electric dependent not liquid fuel dependent.

      It used to be young people growing up rode dirt bikes snowmobiles go carts and were motor heads with tuned V8s. Now they sit in a dark room starring at an electrified screen watching other people do those things or merely pretending to themselves.

      The development of the industrial world is built on cheap energy that was easy to find and exploit. Technology followed it. Technology has staved off dramatic production declines but it never has produced cheap energy and never will because technology is a product of cheap energy not a producer.

      As net energy has declined since the 70s so have our choices and actions. And it will only get worse that’s the principle of depletion.

      Something interesting to contemplate is the fact that the Roman Empire grew to regional dominance because of conquest not technology. It was only by their captor of other people’s labor or energy that the grew powerful and wealthy. And it was only after that time that they began embracing higher education of the Greeks who had also developed the centers of higher learning late in their development. Just like technology higher education are symptoms of decline.

      If you had any understanding of complexity you would understand that. Civilization collapses at its zenith when the God of Technology finally fails because of lack of energy.

      • CFO point of view | March 24, 2018 at 3:00 am | Reply

        1. There are technologies which are usefull and there are some which are useless. Concord plane was most probably useless thats why we dont use it anymore (price paid for traveling from US to Europe in a little bit quicker time was to big).
        2. As for Roman Empire – their military technology was better than other countries, thats why they were able to conquer them. Soo shortly – these other countries technology was not efficient.
        3. Technology not always require more energy. If you will try to use your fist to drive a nail into the wall, you will use so much energy without any miningful result (harming yourself in the process), but when you use hammer to do it – it will take few seconds and only small energy – so yes technology requiers energy to be usefull, but many times it saves even more energy comparing to the situation of not using technology. Other example is heating your home – if you have low technology home (let’s say only cave) and there is 0 degrees you have to use lots of energy to keep yourself alive, while if you have nicely isolated house, you would be able to survive just heating your house a little or even just covering yourself enough. It means technology saved lots of energy, even though you had to use energy to build your house in the first place. Last example concerns oil – if we would not develop technology to use oil – it would just sit there in the ground and there would be much less energy consumed during all these over 100 years, but also we wouldn’t be so well as we are now. So also in this case technology combined with energy was positive for humanity and energy stored in the ground as oil deposits would mean nothing for humanity without technology.
        4. I don’t want to go into discussion if we are doomed or not as energy is considered. In my opinion we are not, as I think in few years we will invent such way of getting energy from the sun and maybe also from tides that we as humanity will have good life for next decades. Although we have to come through some pain concerning deleveraging.

        In my opinion you just repeat some statements of some peakoil people which you don’t fully understand and so is Steve. And these peakoil people don’t judge the world and humanity objectively because they lack vision how we can as humanity come into brilliant ideas/inventions.

        • CFO

          You missed the point and shoot right by it.

          The Concord stop flying because it used too much fuel. Technology never over came that physical limit and never will. The friction in the air demands a precise level of energy for a given speed. So energy was the limiting factor do try to tell me no one wants to fly above the speed of sound. They can’t afford the fuel.

          So if it was technology that built the Roman Empire then what happened? Did they all take stupid pills and forgot how to fight? They were defeated by Barbarian tribes not a pack of intellectuals. You will find that the army became too expensive because of lack of conquest. They had to keep growing by stealing energy from surrounding civilizations. There was no value in the remaining civilizations in that region. They died based on the law of diminishing returns.

          Read more carefully technology can improve efficiency and can allow a system to extend itself. But technology is a product of energy not a producer. Something you likely also fail to understand is efficiency increases utility and that increases demand. So for example CCGT are far more efficient then standard gas or coal. The effect is a massive increase in NG consumption. However that leads to a faster depletion of resources. You may not know but current reserves in NG in the US are 12 years. So your warm house illustration is full of holes efficiency doesn’t save fuel it increases consumption which is the basis of Jevon’s paradox.

          If you think energy won’t peak then turn around it already did. 2005 was the year conventional oil peaked globally. The garbage being produced in the shale plays that we call oil has only half the energy as heavy crude. Oil is just oil. Even though 5% of global production is shale things have changed dramatically for oil companies since 2005. In 2012 the oil industry in total from exploration to pension consumed over 50% of the net energy the produced. Meaning they lost pricing power. Any increase in price does as much damage to their operations as it benefits their profits. They are economically shut in and are presently in liquidation.

          Now you can pray to the God of Technology to come and save the world. You can visit his shrine in Disneyworld called the Carousel of Technology. But just keep in mind it’s a children’s ride designed by GE.

          • CFO point of view | March 25, 2018 at 12:43 am |

            I understand the whole issue of peak energy predicament. I have no problem understanding that to isolate your house you have to use lots of energy and producers of materials use lots of energy and producers of tools use lots of energy and in the process we use fuel all the time and producers of trucks that transported all materials used lots of energy… I GET IT. But after 30 years if you calculate whole energy used to warm your house which is lightly isolated comparing to well isolated, you will find how wrong you were not isolating your house in the first place. Of course if temperatures are falling below 0 Celsjus degrees in winters. And this is just common knowledge where I live.
            Where we are in disagreement is that you cannot overcome assumption that humanity is able to invent excelent things and push whole world to the higher level in standard of living. I assume – basing on at least 3000 years of history that we as humanity will find the way of “producing” energy which in first place will fill the gap of lack of oil and with improvements will make oil finally (lets say in 30 years) useless. But even if I’m wrong – in space of my life (and I’m 40) there is no problem with energy from oil, as we as humanity will start to use it more efficiently as its price will start rising towards $200-$300 per barrel. We have huge possibilities of saving lots of energy by changing our habbits.

      • JT – Outstanding. You might get through, but probably not.

        • I also want to add that oil was discovered decades prior to its widespread use. Oil wasn’t discovered as coal was becoming too expensive to mine for economy. Technology developed afterward to use an energy source we had but didn’t necessarily need right away. Today, we have no game changing energy source waiting to be needed. All we have are hopes and dreams.

    • CFO point of view,

      While JT Roberts did an excellent job responding to your comment, I thought I might say a few words.

      I am not surprised that someone who labels themselves as a “CFO” is totally uninformed about the FALLING EROI & THERMODYNAMICS. The Market has become blinded by FINANCE when SCIENCE is the overriding economic principle. However, it’s pointless to try and WAKE UP the FINANCIAL DEAD-HEADS.

      So… we are just going to fall off the SENECA CLIFF with most people totally unaware.

      steve

      • Steve
        Sorry to expose idiots who comment here but if people don’t understand thermodynamics they should crawl into a cave. They should also light a few candles and do a few rosaries.

    • Technology requires energy. Complexities require energy. Solving problems require energy. The religion of technology will soon die as this realization is established once again by the law of thermodynamics.

  3. Thank you mr. St. Angelo! You are very brave in saying things that can annoy very powerful people.
    I wonder what Daniel Yergin will say when this disaster becomes public and the oil companies have to be bailed out by the taxpayers. After all mr. Yergin has been a faithful squire of the oil industry and has always denied peak oil. Is he going to hide in a cave ?
    The leit motiv of all this is the falling EROI of oil, something Dennis Meadows already considered in THE LIMITS TO GROWTH (1972). Is humanity going to pay more attention to the wisdom of Charles Hall or Dennis Meadows ? I doubt it. We live in a world where foolishness is very well rewarded.

    • Vitruvius –
      You are mislead if you think peak energy is not public yet, whether oil companies go down or up or even disappear entirely!

      Today, Iraq uses barely what keeps its massive oil exports running, not any more, Syria, Yemen, Libya, Venezuela, Nigeria, big part of Mexico – are practically living energy-less. Big part of Russia and China are hardly using any fossil fuels for any private cars. The majority in Pakistan, Bangladesh, Afghanistan, 270 million in India don’t have electricity. Africa don’t use fossil fuels, largely.

      When peak energy severely worsens, don’t expect global aviation will stop or the production of millions of new cars will be slowed down or wars stop (like many videos on the Internet depict). But, instead, expect more nations are forced to go off of fossil fuels and live energy-less, one after another, quietly.

      You may call it The Peak Oil Musical Chairs reality. If this assumption true, seeing it already happening in Iraq, Syria, then we may see more oil-exporting nations in the Middle East become energy-less, no matter how major oil exporters they are (Saudi? Kuwait?). Even Russia or part of China may go this way after, or at the same time as, the ME.

      If software simulations have any value when projecting future scenarios, then parts of the US may go this way, too, according to probability algorithims and calculations.

      In short, we may tackle the predicament of peak energy by splitting the world in two: one part continues awash with energy abundance, the other is forced to live severely cut-off from fossil fuels. A Two-Tier World, if you like!

      This possible configuration may cover-up peak energy for decades and decades to come, but that doesn’t mean peak energy is just a false assumption, one may think?

  4. Diminishing marginal returns red flag Steve! Interest cost as a percentage of long term debt in 2013 was 1.95%. It more than doubled to 4.1% in 2017. The delta for debt was $80 Billion, the delta increase in interest payments was $9.7 Bn. That means the majors paid a rate of 12.125% for the additional debt that they raised. A major warning on falling EROEI.

  5. When the last “wolf” is yelled would someone let me know so I can go console all my fact ignoring buddies?

  6. Is it not possible, that the main reason for the decline in Capex, is because there is not much oil left to be discovered, rather than a too low oil price?

    • Price doesn’t matter. If price went up 100x drilling costs would go up 100x.
      No one will pump a barrel when it takes 1.1 barrels of energy to run the pump.

  7. Steve,

    are you sure, that interest expense nearly tripled and if so, why on earth did it? Longterm debt only grew by 30% or so, so why did interest expense explode?

    In part they might have rolled over old debt, but was this old debt really cheaper than the credit of 2016/2017? Also completely new credit must have been cheap in 2016, I don’t understand.

  8. The US cannot compete in the global economy. It’s a fake economy.

    https://imgur.com/a/OB1w6

  9. So how long is the US going to raise their production? The US is now an exportor, potentially becoming largest oil producer in the world. One year? Two? Five? Eventually the fat lady will sing, but I see plenty of production for years. How long before enough of the little companies go broke to make a difference?

  10. U.S. net exporter of oil. Really? Because according to the EIA we’ve been importing roughly the same amount of oil since 2012. I think we’re being spoon fed a Psyop. The big thing is the drop of Saudi oil since July 2017. We’ve had to add additional oil from other nations to make up the difference.

    https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_a.htm

    • PD,

      I think the answer to your question is the weight of the oil. Unlike Canadian tar sands oil which is very heavy, the shale oil is very light, too light (very near gasoline)for many US refineries so they have to export it. They then import heavier oil that matches the profile of the refinery to get the full range of products that it was designed for.

  11. I agree the oil companies as well as most companies these days are up to their eye balls in debt and there is no solution to fixing that problem. Oil markets are being propped up just like equities & bonds. As massive liquidity infusions taper off, selling intensifies, trapped buyers start to panic & the sheep start liquidating. That’s what we’re beginning to see now.

    I don’t believe the dissipation of oil reserves and resultant lack of oil supply is problematic in the near future. I believe there is still a huge glut of reserves on the open market regardless of what any agency or OPEC says. It’s being hidden or stored somewhere in undisclosed locations across the world, probably China. They’re all a bunch of scheming liars just like the FED & the rest of Wall Street. The oil glut will continue well into the future because their is no “real” Global economic growth . There is no demand growth for oil, just the opposite.

  12. Horse manure my fine feathered friend. The oil companies have been rapping the people for decades to pay their stock holders dividends. In other words it is we the gas guzzling public who are essentially paying the dividends to those stock holders. Maybe you can address why the oil companies must pay such high dividends when those profits could be used for more exploration. Don’t blame us, blame the greed of the stock market for ripping us off to support Pension funds !!!

  13. Some really good comments on all sides of this topic. While reading I could not stop thinking why the average price per gallon is so much lower based on the above comments. Example: During April 1997 $1.19 nationally, April 2008 around 4.11 and now around 2.30. Now I fully understand all of these numbers are subject to where did they come from and so on. Only using as reference for my question, high interest, CAPEX problems, why is it so much cheaper? If you look at cost in foreign conrties it is even worse. What am I missing?
    Thank you
    Edward

    • The race to the bottom economy has hurt mainstream America. Many had to choose between gas and breakfast when it was 4.00 a gallon. That will also hurt industries that rely on travel because people would have to cut back 4.00 gallon sustained. One ugly reason the price hit 4.00+ was futures trading. Paper trading markets are messed up for oil and metals like silver and gold. Talking head says we could have 5.00 gas by summer and the traders pile on and make it so until they run out of steam and close their positions then back down it comes. The oil companies made a killing a few quarters. Some were called before Congress to testify.

  14. Despite Newcommon’s 1712 and then James Watt’s 1750s steam engines where usually installed and operated at the door of coal mines in Britain, lifting 40 drainage-water units to 1 coal up from the depth of 300+, feet feeding on the same coal they produce – the coal that has been fed directly back in the process was immense, to the extent no one can today locate the equivalent of 4514-Titanic-ships mass of coal dug in 1915 alone, even if you weigh bridges, tracks and anything made with the heaviest of metals. That was a striking demonstration of how much a 1 energy consumed to less than 0.5 energy extracted is the norm with all fossil fuels, all along.

    Soon after that, it all has ended very badly when coal in Britain peaked in 1913.

    Today, we lift crude, natural gas and coal from somewhere in the world, degas/compress/wash, store, ship, travel, import, inland-transport, refine and then burning them to dig for shale oil and others at depths of thousands of feet deep in the ground using gold-grade diesels for pumps, coal and gas for electricity. The product out of the process will only make ‘poor gasoline’ after being ‘refined’ blending it with other crudes. Not to mention other countless energy and other energy-intensive useless projects (ghost cities in China, an AI sensor in every sport shoes, etc).

    Do humans think a cubic feet of gas or a barrel of crude or a tonne of coal are another Suns that contain limitless energy?

    Energy supplies cannot be treated this foolish way for money, or they vanish like vapor. Money can be printed at ease. Why not printing and distributing them to keep the show going but leaving gold-grade finite, once only, irreplaceable energy supplies alone?

    Wear and tear internal to all matter also eating hard-asset hardware and infrastructure choreograph for this show, and the process is not stoppable. It is physics not marketing.

    Repairs will need more gold-grade energy to sustain the system or the energy mix will, indeed, CRACK [and very soon start clearly ] APPEARING IN THE WORLD….

    https://cdn.shopify.com/s/files/1/2371/3107/files/TheFifthLaw-3-hop-hypothesis-5_1024x1024.png?v=1521879529

    • EnergynEntropy,

      Unfortunately, you make WAY TOO MUCH LOGICAL SENSE. Your analysis takes Thermodynamics to another level entirely. I agree that the situation in our modern high-tech world will start to unravel shortly.

      What a shame that the public is unaware of what is coming.

      steve

  15. Art Berman on his site says “Americans have more faith in technology that hasn’t been developed yet than in God”

    This is absolutely true. But why? Simply put people are not objective they are subjective. They take a position then try to force their reality to fit it.

    For example how could a rational minded person continue to invest in the Tesla Ponzi. No objective person could but an irrational emotional person might. So we might say technology or the hope of technology is the opium of the people.

    To date renewable energy supplies 1% of global supply excluding hydro which we’ve had since the 1800s. It would take 400 years at our present rate of growth to replace the system that took only 100uears to develop. And no one has yet explained how you can build renewable PV and Wind without diesel for mining and trucking.

    But we just have to believe right. No math involved.

    Don’t confuse me with the facts man!!!

    Maybe we’ll meet our transportation needs with bicycles. Oh yeah and how many will it take to make the next Walmart delivery? If you average 50 lbs cargo that’s about 800. Of course travel time will increase 6fold but you won’t have to keep a log. How long does it take to change a bicycle tire? Might need to know that.

    Since we’re on the subject of peddle power I wonder how many foot power it takes to keep the lights on at a Walmart.

    I’m sure Musk the visionary would know but I can’t find him anymore since he closed his Facebook page.

    Fred Hoyle said this period of time is a one time pulse event and it is. Bezo Zuck Musk and the like are scavengers eating the remnants of the carcass of industrial development powered by fossil fuels.

    Sorry if that doesn’t compute. Maybe there is a safe place on a campus somewhere with a bubble machine calling your name.

  16. I suppose most corporations are doomed to eventually eat themselves in downturns to pay shareholders, not just oil companies. Since most business is now controlled by corporations, the US could tank quickly with a stock market/ bond (I.O.U. markets) sell-off. Chinese proverb: ‘He who is left with the last I.O.U. is screwed’… who in this case is the general citizen.

  17. I’s much more logical that capex is down for the simple reason global demand is peaking in 5-15 years. If the bottoms going to fall out in 4-7 years, why would you spend on finding more?

  18. “Please don’t belch out that Electric Cars (EV’s) are the answer…”

    Amen to that, what is always missing with the EV argument is the massive energy input required to produce not only the base metals and specialized metals required for battery manufacture but the ongoing and increasing electrical energy needs required to replenish battery power. Don’t get me started on the long term environmental issues in regard to toxic waste and the near zero ability to recycle batteries

    While EV’s may create the illusion of energy efficiency it is only that, an illusion.

    And please don’t talk about solar power or wind or natural gas or ethanol as they all require the same exact inputs for the same negative outputs.

    There is no such thing as a perpetual motion machine or more energy out than in.

    Anyone who states that the First Law of Thermodynamics can be circumvented is either a fraud or a liar.

  19. Click your heel,Dorothy! Hysterical!….. Thanks for another informative article!

  20. OIL FIZZLE DRAGON KING!

    The Ocean floor is moving
    Navire Monste is snoozing,
    The Earth keeps on shaking!
    People be not mistaken

    The Ocean floor is moving,
    Navire Monstre is snoozing,
    The Earth keeps on shaking,
    Come Navire Monstre Come Awaken!

    The Ocean vast as is wide,
    Once united now divided,
    The Oceans void create a great tide,
    Come back, Come Back and Collide!
    Lands and People Collide!

    Of all the beast of the forest,
    from the largest to the smallest;
    Arise and Awake from your sleep,
    Navire Monstre of the deep,
    Come and gorge ye wild beast!
    Ply your scythe and Eat!

    Once alive now asleep,
    Navire Monstre of the deep;
    They once lived but all say died,
    Return and come back,
    Come Back ALIVE!

  21. I remember clarifying a biology lesson for my daughter about the introduction of cane toads in Australia to control insects that were plaguing the crops, but it seems that instead, the toads wound up devouring beneficial birds and other animals. This lesson was taught under the title of “unexpected results.” I corrected her and said No! The correct term is “unintended consequences.” I explained that whenever you are given one “solution” to a problem, you must immediately and automatically start thinking about what can go wrong with that “solution.” “Consequences” implies that the result is not just bad, but is costly and difficult to rectify.

    I think we could now add a new category to unintended consequences: unintended costs.

    • Hubbs-
      Around 126 metres below the sands of Thar, with just 20 more to go, Engro’s diggers can now almost touch their prize. When the coal is reached, as is expected in mid-2018, it will feed a pit-mouth power station constructed by Engro, and, in time, three others owned by partners in the SECMC. These stations will furnish around a fifth of the country’s electricity for the next 50 years. The financial rewards could be vast.“.

      Above is an example on when “[un]intended energy costs”, in the form of embodied energies, destroys the audit; The coal fed into the power station will not be accounted for, as most of the electricity generated will drive the operation of the mine including the electric shovels extracting and loading the coal into giant trucks. 6000 HorsePower excavators are common in the industry. The fleet of trucks traveling 10s of kilometers up from the depth of 100s meters, each weighing 600+ tonne unloaded and has 3000+ Liter fuel tank filled every 10 hours – are not accounted for as embodied energy, and so on…

      The coal consumed by the operation of mining coal is likely to go unreported as a negative energy.

      How much Saudis are burning crude oil in a similar fashion all along, the US, China, Russia, Australia, Iraq and all others? The concept of EROI is seriously challenged; there is no such thing as 1:1, 1 invested energy to 1 extracted energy, it is always 2:<1. How they are doing it? Offsetting the negatively-done extraction by digging and extracting for more fossil fuels with more energy taken from the reserves themselves across the energy mix.

      Coal cannot work without crude, crude cannot work without coal, natural gas cannot work without both oil and coal, Shale oil cannot work without any of those, and so on… . All fossil fuels are massively bleeding reserves but less and less net energy can be seen materialising as we are going forward…

      This is the protocol since James Watt’s days when his steam engine was fed directly from the coal it has helped extracting from the mine, itself…

      Knowing there is 23000 man/hour in a barrel of crude, and we are consuming 100m barrel a day; That is: 2,300,000,000,000 man/hour a day at our service just from crude (two and a half trillion man/hour a day). That is 328 man/hour per capita of 7 billion population. Add Coal and N. Gas and you understand that no matter how fossil fuels are dense in energy, we burn most of the energy stored in them in the process of extracting and converting fossil fuels into useful energy.

      Where all these fossil fuels are going? If you and I get 328 man/hour a day of useful work added to our efforts in life, even just 5 a day, our mortgages would have been paid off before we were born! Yet, people working all their life like-a-dog to make ends meet.

      One wishes analysts and commentators pay attention from now on to what they are doing making it as-clear-as-mud when they say ‘cost’.

      https://www.economist.com/news/business/21736185-just-1-vast-reserve-discovered-1992-could-supply-fifth-countrys-current

  22. There is a solution to all this which is phenomenal. Up to now there have been 6 methods for attempting depolymerization of the worlds abundant cellulose supply. They are all expensive and time consuming in terms of energy, chemicals or enzymes. A new method, based on the ball mill, which is a 150 year old tech that brings us talcum powder, cement and a host of chemical and mining products, also happens to be able to reduce cellulose to 5 nanometer particle sizes, at which point it has a surface area trending to almost infinite. At this level of surface any interaction with the traditional hydrolysis factors, acids, alkalis, even enzymes, is very efficient. There is a common, and very basic, non-sacrificial catalyst which contains just a bit of sulfuric acid, which can be added inside the ball mill with the cellulose. After minutes the mix is reduced to its constituent parts, monomer sugars, principally glucose and lignin. The sugars can be fermented into alcohol which in turn can be reacted to gasoline, jet fuel or diesel. All this can be done for a cost in the range of $1.00 per gallon. 40% of the US corn harvest is currently used for the ethanol that makes up the 10% of the US liquid transportation fuel blend. That’s using the food part of the corn which contains beta glucan, the version of glucose found in plants which is easy to convert to energy by fermentation. alpha glucan, the version found in the traditionally “recalcitrant” cellulose molecule, can now be accessed and used instead. Interestingly a corn plant has 5 times as much alpha glucan is it does beta. This means that the 40% of the corn harvest currently used can provide half of the US transportation fuels. If you throw in the plant material from the 60% of the corn harvest that we are not using you get over 100%. Ethanol has only 70% of the energy content of a gallon of gasoline and there might be challenges in collecting all the corn plants, but if you imagine that there are oats, barley, wheat, soy, canola, citrus, forestry, you can see that the supply of cellulose is nothing but abundant and matches the task. This path has been followed by many who have lost a lot of money on it because they embraced one of the expensive inefficient methodologies. This new one is proven and just going commercial as we speak. There is no need to drill in the Arctic or deep ocean sites at great cost. The renewal of annual crop plant material provides an essentially infinite future for liquid transportation fuels. Talk to BP or Exxon about this and they’ll say “yes, we know all about that industry”, but they have no idea that this new version of it is now around the corner.

    • Mark –
      This is really amazing:
      This means that the 40% of the US corn harvest currently used can provide half of the US transportation fuels…

      So 50% of transportation in the US will be set moving using fuels that nature worked on with massive solar and planetary forces cooked together for millions of years nothing shorter, and the other 50% will be fueled by energies that have been just captured in corn in the last planting season?!

      Time is always in the essence when it comes to Energy;

      Many PV solar panel advocates genuinely believe that a 100 million barrel of fossil fuels put into making solar panels will be doubled in returned energy from the panels every year for 50+ years! They usually unable to say how many suns will be needed to shine together on Earth to achieve that assumed energy return, every year.

      It is very puzzling how humans have mistreated all the finite and irreplaceable fossil fuels since the steam engine, unaware of this Time constraint – all along (actually, Javon has clearly touched on it in his book, The Coal Question, except considering Time as a dimension. I feel Rutherford has deeply felt that relation, too)!

      Sadly, it is now circulating in the public domain that, after all, owing to this strong bond between Energy and Time, Earth might not be an Energy paradise but an Energy prison!

  23. When I look at Exxon’s financial statements I reach the conclusion that it is a liquidating trust.

    • Arnold Ziffel-
      When I look at Exxon’s financial statements I reach the conclusion that it is a liquidating trust.

      Big oil companies may go down anytime, this is the nature of commerce, even life.

      However, crude oil itself will only be increasing in value, to that extent, the last producing field of crude oil in the world will be valued higher than the sum of all oil supplies sold since the Rockefellers!

      • If your theory holds the last barrel of oil will have infinite value. The problem is affordability. Henry Ford sold cars because they were cheaper than horses. Markets are built by affordability not demand. So pricing is limited by utility. Oil has already peaked in price now it’s just going to run out.

        • JT Roberts –
          “Markets are built by affordability not demand”.

          Energy is a product like no other; Demand destruction can be forced through conventional war (see Iraq, Syria, others) or non-conventional wars, but without it, all nations will do the impossible to do even better than China’s growth;

          If war leaves Iraq alone, for example, Iraq (a resourceful as California) will not only stop exporting any of its oil, to consume it domestically, rebuilding the ruins of 50 years contentious wars, but it will also go on the market to import as much as it was exporting – taking 11 million bbl/d off of other nations.

          Coal in 19th and 20th was not for miners who dug it out and their rates regularly decreased the more they dug.

          See the absolute majority of Iraqis today, they are well below the poverty line, diving more and more in it the more the oil exported from their country increases.

          What affordability?

          If while oil is abundant, nations are living energy-less and below the poverty line, do you really think supplies from the last producing oil field in the world will be for sale to people like you and me?

  24. Cracks appearing now? Cracks were appearing in summer 2014 when oil prices started their downwards trend.

    That was almost 4 years ago.

    The majors have fixed their status, and are now turning profit.

  25. Shale producers have pushed break even prices below $50 in 2015 and below $40 in 2016.

    https://www.forbes.com/sites/arthurberman/2017/04/09/low-break-even-prices-are-for-everyone-not-just-shale/#27dc2b217803

    WTI is ranging between $60-$70 for some time now. Things aren’t getting better in the Middle East either in terms of war and oil exports. OPEC decided to maintain production controls.

    Trump dropped their tax rate from 34% to 21%, and, lifted 95% of previously banned drilling areas. This is a once in a lifetime opportunity for oil and gas, rigs globally are returning to USA.

    Energy is the main asset class in the snp 500 that hasn’t ramped up over the last many years.

    Buy low sell high, the oil and gas majors active in USA are the place to be.

    Silver? Lol. Lol. Lol.

    • Jim,

      While I appreciate your STAB at providing relevant information on the U.S. Shale Oil Industry, you are, UNFORTUNATELY, REGURGITATING RUBBISH from investor presentations that are then published in the Mainstream media.

      If the breakeven was $40 in 2016… why in the living HADES are two-thirds of the Shale Oil Companies still losing money at the present $60 price???

      Lastly, the supposed 5-10 billion barrels of oil in Alaska’s ANWAR region, would account for about 4 months worth of Global Oil Supply of 30 billion barrels a year. Let’s get real, CAN WE?

      Jim… best to stop believing in the HOPIUM TREE… LOL.

      steve

      • Read my post again, I said the oil and gas majors active in the USA are the place to be. Nowhere is it mentioned specifically that shale companies are the place to be.

        It’s 2018; the year that the eroi theory was supposed to drive the price of oil into the ground and here wti is kissing $70.

        What happened?

        Lol

        • Jim,

          You are a funny guy. I wasn’t responding to your comment in regards to the Oil Majors, rather I was responding to the nonsense you were regurgitating about Shale Oil.

          However, if you want to talk about the Majors, then you had better understand that the MAJORS are also in trouble. While they have more time than their Shale Oil counterparts, they are not replacing reserves. So, to say the Majors are the place to be when the COT REPORT shows a massive 740,000 Commercial Net Short Positions against oil… suggests that you are most certainly misinformed.

          But… don’t follow my analysis. Just wait around over the next 1-2 years and we can COMPARE NOTES.

          steve

  26. Ok, let’s look at your analysis, You said back in 2016:

    “The Death of the Great Bakken Oil Field has begun and very few Americans understand the significance.  Just a few years ago, the U.S. Energy Industry and Mainstream media were gloating that the United States was on its way to “Energy Independence.”

    http://www.ottawabullion.com/srsrocco-the-death-of-the-bakken-oil-field-has-begun-means-big-trouble-for-the-u-s/

    But actually since then production ramped back up to the previous high.

    https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?f=M&n=PET&s=MCRFPND2

    Today, USA has increased oil and gas exports since then.

    https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCREXUS1&f=M

    What happened?

    Shall I investigate and report on numerous others of your analysis?

    LolOk, let’s look at your analysis, You said back in 2016:

    “The Death of the Great Bakken Oil Field has begun and very few Americans understand the significance.  Just a few years ago, the U.S. Energy Industry and Mainstream media were gloating that the United States was on its way to “Energy Independence.”

    http://www.ottawabullion.com/srsrocco-the-death-of-the-bakken-oil-field-has-begun-means-big-trouble-for-the-u-s/

    But actually since then production ramped back up to the previous high.

    https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?f=M&n=PET&s=MCRFPND2

    Today, USA has increased oil and gas exports since then.

    https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCREXUS1&f=M

    What happened?

    Shall I investigate and report on numerous others of your analysis?

    Lol

    • Jim,

      I see you have been busy. However, the data being put out for the Bakken is overstated. I can’t share that information yet… but it will be coming out within the next year. Watch for the next BIG ENRON EVENT in the Shale Oil Industry… most likely coming out of the North Dakota Region.

      LOL,

      steve

  27. You didn’t answer the eroi question, which you have been selling for many many years.

    So then you change the subject to compare notes in 1-2 years, and with one easy example that didn’t work out because the official data is wrong and you need another 1-2 years?

    Maybe instead, just maybe, it’s actually the eroi theory that is killing your silver rocket price predictions over how many years?

    Lol

    • Jim,

      Let me put it this way… your assumption that the EROI isn’t destroying everything in its path, to put it bluntly, is completely FOS.

      FOS = FULL OF SHYTE.

      How bout dem apples… ah?

      steve

      • You continue to prove you cannot read, nowhere did I state my assumptions, I’m just asking valid questions to your statements or claims.

        Why?

        You make claims but have they worked out and where is your supporting data?

        Speaking of apples, ya got none…

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