DECLINE OF THE U.S. EMPIRE: Due To The Worst Oil Productivity In The World

The U.S. Empire continues to disintegrate from within due to the worst oil productivity in the world.  This collapse is due to a falling EROIEnergy Returned On Invested.  While this has been a long and ongoing process, the rate of decline is speeding up as the U.S. Shale Oil Industry is in deep trouble.

Unfortunately, most investors are clueless to the falling EROI and its impact on the U.S. and Global economies.  The (EROI) Energy Returned On Invested is the fundamental driving force behind the world’s financial and economic system.  However, you won’t find one word about it from any economist, analyst or MSM talking head on CNBC, Bloomberg or Fox Business.

The basics of the EROI are easy to understand.  It takes energy to produce energy.  If the energy cost to produce energy is very low, then we have a HIGH EROI.  This was true in the United States during the early 1930’s.  The U.S. oil and gas industry had an EROI of 100/1.  Thus, 100 barrels of oil were produced for market from the cost of only one barrel of energy.

Then by 1970, the U.S. oil and gas EROI fell to 30/1, and at last study was about 10/1.  Now, some readers may think this huge fall in the U.S. Energy EROI was due to the collapse in value of the Dollar.  While this seems like a valid assumption at face value, the collapse in the Dollar’s value did not cause the huge decline in the U.S. energy EROI.

It just takes more energy today to produce energy… especially in the United States.  It took a barrel worth of energy to produce 100 U.S. oil barrels in the 1930’s and today we only get 10 barrels of oil.  And it’s even worse than that.  The typical Shale Oil Well has an EROI of 5/1.  No one in their right mind would produce North Dakota (ND) Bakken shale oil in the 1930’s….even if the technology was available.  Why would a company produce 5 barrels of oil for the cost of one barrel of energy in the ND Bakken when they could produce 100 barrels in such states such as Texas, Oklahoma and California?

Lakeview GusherFor example, the Lakeview Gusher in 1910, had an estimated EROI of 35,000 to 1.  The Kern County, California Lakeview Gusher produced 18,000 barrels per day initially with a peak of 100,000 barrels per day.  Unfortunately 9 million barrels of oil escaped on the ground before the well was brought under control  Only half of that oil was saved for market (Wikipedia).  According to Adam Brandt, Professor at the Department of Energy Resources at Standford, he said the following in a comment at the TheOilDrum:

Early oilfields had EROIs in the 100s to 1000s. For example, the Lakeview Gusher had an EROI of at least 35,000 (calculation I did with Charlie Hall for the Discovery Channel but did not publish yet).

With the easy to get oil now gone forever, the world has gone on a drilling frenzy to continue producing oil.  Ron Patterson, who has the website, discussed this in his recent article, Worldwide Drilling Productivity Report.  I highly recommend taking a look at the article as the evidence is clear that the EROI of the world’s oil production continues to decline.

Ron, was nice enough to email me his excel data and charts in which I made some changes.  I have included some of his charts below.

The United States Has The Worst Oil Productivity In The World

This is the chart that should wake up the LIVING DEAD.  As we can see, the U.S. has the lowest oil production to drilling rig ratio on the planet.  Using Ron’s data taken from the EIA – U.S. Energy Information Agency website, the U.S. produced an average of 4,577 barrels a day (bd) per drilling rig compared to nearly 60,000 bd for the Middle East:

Oil Production Per Drilling Rig 2014

(Note:  Oil production quoted as Crude & Condensate production)

The United States oil industry is 13 times LESS EFFICIENT in producing oil than the Middle East (59,945 bd vs 4,577 bd), 4.5 times less efficient than Europe (20,418 bd), 5 times less efficient than Latin America (23,179 bd) and 6.5 times worse than the Asia-Pacific region (29,994 bd).

Amazingly, the entire Middle East had an average of 406 drilling rigs in 2014, while producing an average of 24. 5 million barrels per day (mbd) of oil.   Compare this to the United States that had an average of 1,862 drilling rigs producing an average of 8.5 mbd of oil in 2014.  The U.S. had nearly 5 times the number of drilling rigs than the Middle East, but produced a third of Middle East oil production.

Now, these drilling rig figures are “Total Drilling Rig Counts”, which includes those that are drilling for natural gas as well as oil.  Even though the U.S. has a percentage of its rigs drilling for natural gas, this is also true for other regions in the world.  If I was to remove the number of gas drilling rigs, it wouldn’t change the lousy oil productivity of the United States all that much.

According to Baker Hughes data, the U.S. had 1422 rigs drilling for oil in January 2014, compared to 358 for gas.  If we take the 1422 oil drilling rigs and divide by the 8.0 mbd of oil production in January, we get a 5,626 barrels per day for each drilling rig.  This isn’t much of an improvement  over the 4,577 bd average in 2014 using the total average rig count of 1862 in 2014.

When I say it wasn’t much of an improvement, it was a gain of 1,000+ barrels per drilling rig when we only use oil rig data.  However, comparing this to other regions in the world, it didn’t change the overall percentage difference all that much.

Entire World Suffering From Falling EROI:  Oil Productivity Declines Across The Globe

Even though the United States has the worst oil productivity on the planet, all regions in the world are suffering from a falling EROI – Energy Returned On Invested.  This is shown in the next several charts (courtesy of Ron Patterson).  The Middle East may still be the most efficient oil producer in the world, but as we can see from the chart below, it’s oil production per rig is down considerably since 2000:

Total World Oil Productivity 2000 vs 2014

In 2000, the Middle East produced a staggering 140,144 barrels per day (bd) of oil for each drilling rig, compared to 59,945 bd in 2014.  This is a 57% decline in oil productivity per drilling rig in 14 years.  While it appears that the Middle East has the biggest decline in overall oil production per well, Europe has the worst percentage decline.  Europe oil productivity declined 73%, from 77,564 bd of oil per rig in 2000 to 20,418 in 2014.

Furthermore, if we look at the world’s oil production per drilling rig (last bar on the right of the graph), it declined 40%, from 36,148 bd in 2000 to 21,698 in 2014.  Here are two more charts showing the increased number of drilling rigs compared to total oil production:

Europe Production vs Rig Count

Middle East Production vs Rig Count

You will notice in the first chart, the number of European drilling rigs (BLUE) increases as oil production (RED) declines.  On the other hand, in the second chart, Middle East oil production does continue to increase (20%), however, its total rig count jumps from 104 in 2000, to 406 in 2014… a 290% increase.

Folks, it just takes more energy shown by an increased number of drilling rigs to produce oil today than it did in 2000.  Moreover, as oil productivity continues to decline going forward, so will the EROI.  As the EROI falls below a certain level, our modern societies based on massive infrastructure (designed for high EROI) will come under severe stress… resulting in an epic collapse.

The U.S. Empire Will Collapse Due To Its Falling EROI

I have not written many articles on the EROI – Energy Returned On Invested, because it is not well received by the precious metal community at large.  Of course there are few enlightened folks in the bunch, but for some strange reason, the gold and silver bugs continue to be ignorant to the destructive forces of a falling EROI.

You see, it doesn’t matter how many economists or precious metal analysts state that returning to a Gold Standard will save us from a total economic collapse.  While I admire and respect Peter Schiff warning of the housing and banking collapse on the top financial networks prior to 2007 as well as the continued financial disintegration today, Mr. Schiff fails to understand the falling EROI and its impact on the U.S. and Global Economies.

Backing the U.S. Dollar or other world fiat currencies with Gold will not solve the falling EROI as shown in the charts above.  Matter-a-fact, I believe if the world was on a true Gold Standard, then Shale Oil and Tar Sands oil would not be affordable.  The only way we have been able to bring this low quality high-cost oil to market is due to the massive monetary printing and stimulus by the Fed and Central Banks.

Once we have the collapse of the highly leveraged global financial paper system, we will also witness the collapse of the world oil industry… especially the marginal producers such as Shale and Tar Sands.

The United States has been fortunate to survive on low oil productivity per drilling rig due to the Dollar being the world’s reserve currency.  By flooding the world with an increasing amount U.S. Treasury debt, the U.S. imports a great deal of high EROI oil from the Middle East and other oil-producing countries.

If it wasn’t for the United States Triple “A” Credit Card Rating, its economy would have collapsed years ago.  Why?  It’s low 4,577 barrels per day of oil per drilling rig is not a sustainable EROI model.  Basically, the U.S. economy could not sustain itself on its own energy production without exploiting the world by exchanging PAPER GARBAGE TREASURIES for real goods and services.

The day is approaching when the producers of the world such as the BRICS countries will no longer take paper IOU’s for goods and services.  The falling EROI is the key fundamental factor that shows the U.S. Empire is indeed in serious trouble.

While I don’t rejoice in this understanding, all we can do is plan and protect ourselves when the inevitable happens.  The best way I know how to survive this coming EROI collapse is by investing in gold and silver.  Of course there is no guarantee of the value of these physical precious metal assets after the collapse, but I don’t see much else worth investing in.

This will be discussed in more detail in future articles and reports.

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54 Comments on "DECLINE OF THE U.S. EMPIRE: Due To The Worst Oil Productivity In The World"

  1. I too have had a hard time convincing others that these diminishing returns on our most important resource are worth getting concerned about. As for the precious metals community, we are an eclectic bunch,sometimes with very little in common. One of best short version accounts of our current predicament that I’ve read. Thanks

    • Ryan,

      I feel your pain. The problem with with the world today is that it’s TOO SPECIALIZED.


      I find it nearly impossible for the precious metal investors to understand the impact of the falling EROI on the world going forward, as it is for those who understand Peak Oil to grasp the importance of owning precious metals.

      So, when I publish an energy article, the precious metal folks for the most part don’t read it…LOL. Quite frustrating to say the least.


      • I guess it doesn’t matter Steve. They will either have or not have PM’s as the buying power of fiat currencies diminish. If they do it may be for other reasons than thoughts about our energy future.

      • GermanReader | February 5, 2015 at 5:52 pm |

        This is one of your best articles you ever published. Thanks for this great illustration of the unpleasant facts. To the folks (Gold bugs) who don’t want to read it i have to say:
        Deal with the reality or the reality will deal with You !!!

      • I read everything i come across written by you. And I always learn from it, thanks.

  2. Steve, this is the best article you have ever written in my estimation. Not because it’s any more inclusive of relevant data or more analytically substantiated than other articles, but because you are one of only a handful of commentators that truly understand the capital/energy nexus. Our current and ongoing intractable dilemma as a civilization, is the unsustainable energy costs associated with running our modern industrial society. WE CANNOT MAINTAIN OUR WASTE BASED MODERN INDUSTRIAL SOCIETY WITH HIGH COST ENERGY–FULL STOP! The party’s over.
    This article needs to be circulated to as many people and outlets as possible. Yes, there are other intelligent commentators out in the blogosphere nipping around the edges and for the most part, mistaking the symptoms for the problems. I follow some of their work, because it tracks where we are in the collapse timeline, as opposed to how and why we got there. What you have just addressed in this latest article, is the crux of the matter. You’ve nailed it Steve!
    What an outstanding, succinctly formulated and impassioned argument you have presented. I consider you to be one of the most articulate and informed analysts in the alternative media.


    Bill Sodomsky.

    • Bill
      I agree with everything you say except, perhaps, this:

      This article needs to be circulated to as many people and outlets as possible

      If, which I don’t believe, the message that BAU is basically finished, got through to the people in charge of serious private capital, the inevitable decline of our system would turn into a rapid collapse.
      Do we want this ?
      The current urban civilization of the western world is so sensitive to supply disruptions of any kind, I can envisage death, plague and destruction of the same on a scale never seen in human history, were there to be some kind of phase transition.
      As an optimist, I am basing my own plans (i.e. organic farm) on a relatively slow continued decline during which there is a gradual realization, one person at a time, that their interests are best served by detaching themselves from The System.
      Anything more rapid, and we would all get sucked into the maelstrom, and good preparation / lots of bullion wouldn’t be much of an advantage.

  3. I read them and look forward to each new article. My only problem is I don’t have enough of those worthless paper bills to trade for the precious metals I would like to have. In the mean time I have taken to a really good book:

  4. I think this whole peak oil theory is nothing but a fear producing tactic by the powers that be. It’s proven that oil is made abiotically and the oil fields refill. All these figures are nonsense. Anything can and will be manipulated by the U.S. government.

    The author here is just trying to scare people into believing the United States is in trouble. The U.S. will lead the world into a new technological era. Technology will solve all our energy problems.

    • LOL!

    • It is NOT proven oil “manifests” abiotically, in fact there is zero proof.

      You have no science background obviously, but believe what you want to.

      But your additional statements, if you yourself actually believe them [and you are not a troll], are also ludicrous.

      Please feel free to save in dollars and dollar-denominated investments.

      • Well it’s certainly not produced by decaying dinosaurs!
        The strongest evidence is that it’s created by algae and/or micro-organisms.

    • GermanReader | February 5, 2015 at 6:05 pm |

      My son he is 5 years old he thinks things my wallet refill automatically so he beg al time to get some more toy. This abotic taking is very childish i must admit.

    • lastmanstanding | February 6, 2015 at 7:27 am |

      wow…Don’t feel bad Fred, at least another 150+ million people that live in the US think just like you. I will not call them Americans by any means.

      Better figure it out soon.

  5. NotApplicable | February 5, 2015 at 3:58 pm |

    While not trying to refute your thesis, I do wonder how much of the collapse of EROI is due to the drilling of wells that would not be economical without the support of financialization. Or to put another way, what would the average EROI be at $30 oil, sans credit?

    • How are we going to get $30 oil without the high drilling/production rate?
      I don’t see this happening unless there is much greater demand destruction.

    • NotApplicable,

      Spot On. I have mentioned this many times. Without the Fed & Central Banks propping up the market with massive monetary printing and liquidity, Shale Oil & Tar sands would not be affordable.

      Furthermore, the EROI of $30 Tar Sands is the same at $100. The EROI does not change with price, only the ability to make it available for market.

      REPEAT: The EROI is just the ratio of getting energy for energy. It has nothing to do with the cost. For example, OIL SHALE, not to be confused with SHALE OIL, is actual shale that has to be heated and crushed to extract the oil. The EROI of OIL SHALE is less than 2/1. It doesn’t matter if the price of oil is $10 or $150… the EROI of Oil Shale doesn’t change.

      The only thing that changes at the higher price is if it can be extracted profitably and brought to market.


  6. “I have not written many articles on the EROI – Energy Returned On Invested, because it is not well received by the precious metal community at large.”

    I think that an understatement, and in fact the topic of this article won’t be received well by the majority of Americans [I’d estimate well over 90%]. They’ve heard from the left [Obama] and the right [Sean Hannity] how the U.S. has many decades, and in fact I’ve heard on radio, hundreds of years of oil.

    Dr. Paul Craig Roberts recently wrote [paraphrase] that if people only got their information from mainstream media they had no chance of knowing the truth about what is going on in the world. He cautioned there is BS on the internet as well, but with careful study that was the only chance of getting the truth.

    I knew oil was finite as a geology major in 1975. Sure we made new discoveries since then, but at increasing depths or increasingly remote locations. That was an established trend before 1975.

    Possession of gold or silver may not be the future store of value some think it is. One can’t eat or drink metal. But gold and silver have been “the gold and silver standards” of what money was for thousands of years until the era of ersatz funny money. In a bleak future I still think there will be money, and outside of barter I suspect those two PM’s will be the best money. In a worse case scenario gold has few industrial uses, while silver has essential-to-life uses like sanitation. It is already to the point antibiotic resistant pathogens can’t be controlled in many hospitals without silver disinfecting solutions. That is from a retired surgeon I know who is on faculty at a large medical school in north Florida. He has colleagues who practice there.

    Chris Martenson says the next 20 years will be very different than the last 20 years. That’s a gentle way to say big changes are coming.

    • lastmanstanding | February 6, 2015 at 7:45 am |

      Nicely said David. Few really understand the value of items that come from/begin “under foot”.

      Without the earth, there would be no where to stand…lms.

  7. Philip Backus | February 5, 2015 at 5:40 pm |

    Great article Steve! I, like your one above commenter applaud you for showing energy depletion as a cause of economic distress rather than a symptom. I have read a number of your articles and find them enlightening.

    • Philip,

      Thanks for the reply and I appreciate you commenting here. I know you follow and leave comments at Ron’s blog. Yeah, I believe ENERGY IS THE KEY for the economy and financial system. It seems to get lost in all the Paper, but the soon peak of U.S. & Global Oil production is not something the Media will be able to overlook.


  8. There will always be a monetary cost to getting oil. I would like to see how many BTU’s of energy is needed to produce a certain amount of BTU’s. So say it costs a million BTU’s will produce 30 million BTU’s in new energy. That data would be interesting to know because at the point when the ratio is low ( say 1 :2 ) the world is in trouble.

    • Joe,

      You bring up an EXCELLENT POINT. Charles Hall, who recently retired from Academia, stated that the minimum requirement of an EROI for a modern society of ours is something north of 10/1… maybe even 12/1+. Thus, Shale oil and Tar sands EROI of 4-5/1, does not meet the minimum energy EROI requirements to sustain our complex society.

      Which is precisely the reason the Fed & Central Banks have been on a massive monetary printing and liquidity scheme since 2008. We can’t afford Tar Sands and Shale Oil without massive debt creation.

      This will end badly, and I believe we will see a collapse of the HIGH COST OIL INDUSTRY.


  9. It seems you are being too pessimistic and cynical when we all just have to ‘believe’ in our democratically elected leaders. They have very able handlers and will work for the good of all mankind (and a few womankind too). We must realize they know what’s best.

  10. “its total rig count jumps from 104 in 2000, to 406 in 2014… a 290% increase.”

    So do you see this becoming “logarithmic” –I guess I’d call it — over the next several years? That is, will the next 7 years or so show a 6 fold increase in the number of wells drilled to remain pumping the same amount of middle east oil, and the next 3.5 years or so yet even more with less output?

    • Tim,

      It’s hard to say how the drilling rig numbers will increase going forward, but I can tell you this… it will continue to increase until we have a collapse of the global oil industry.

      The Saudi’s are in serious trouble even though they continue to produce near record oil production. When their large oil fields peaked some years ago, Saudi Aramco decided to inject water into their fields to push the oil to the center of the field. They have been doing this for many years now, probably several decades now.

      What they do is take 5-6 million barrels a day of salt water and inject it into the oil fields, they now have to add more wells similar to Horizontal Bakken wells, but instead they don’t drill so low. What is happening in their fields is the oil is moving to the top of the field due to salt water being heavier than oil.

      So, they drill these horizontal wells that tap into this oil. Once the water cut gets so high as the water moves above the well laterals, they shut in the well and drill more wells higher to get to the oil. How long before the water reaches the top of the field? Who knows, but they have been doing this for probably 2 decades.

      At some point, Saudi Arabia oil production will crash. The world has no idea what’s coming.


      • Maybe the coming ending of Saudi oil production explains the desperate attempts by Saudi Arabia and Qatar with US help to overthrow the Assad Government so that a gas pipeline can be built through Syria and Turkey into Europe.

  11. Great article, as usual, Steve. Thanks for your hard work, that you offer to many people virtually free of charge.

    In response to David’s comment above: (not cutting you down, David, but just for discussions’ sake:)

    Yes, you CAN “eat” silver and gold. Can you eat stocks and bonds? Can you eat credit cards? Can you eat Federal Reserve Notes? Can you eat clad coins?

    Why does the general public believe that they can eat all of the above mentioned financial instruments, but can’t eat silver and gold?

    The fact that so many people on blogs make this ridiculous comment is proof of the absolutely demented state of the contemporary Western mind. I’m not picking on David; We are all subject to our own little illusions.

    To be honest, silver and gold are probably alone on the above list of things which could, in all probability, be literally eaten.

    Of course, I jest.

    The fact is, when we enter the coming bad times, the person who has wisely stacked may unfortunately be one of the few who will have something which is universally accepted as payment for food and other necessities needed for their families. Believe me, people will always exchange silver and gold for food, even if the don’t have enough to feed their own families. This is just how it works.

    In the greatest famines known to mankind, the people with silver and gold could always get enough food. It may be hard to understand, but most people in modern times have not starved because of lack of food, but lack of (real) money. I think the folks on this blog can understand my argument.

    At the end of WWII European women traded sex for cigarettes and chocolate. Why? because they could get all the food they needed, and other things, with the cigarettes and chocolate. Not trying to be unpleasant here, just trying to show that if you can use chocolate and cigarettes to get everything you need, including food, I’m sure you’ll be able to do the same with silver and gold.

    The great thing about silver and gold, and even other metals, is that they are a compact storage of wealth. One which has no “buy before date” , i.e. no expiration date. But even more “beautiful” is that they are a compact and eternal storage of labor and most importantly – ENERGY.

    Silver and gold have basically NEVER in human history, been cheaper than they are today, due to the vast application of labor, technology and most importantly -cheap ENERGY to the mining and refining process.

    The days will return when the cost / pay of one long day of hard human labor is one dime’s worth of silver.

    Folks, get it while you can today, at one-hundredth the future cost.

    • I like 5-10 pound .999 copper bars too, but would have to have the space for storage. It is highly suppressed compared to what a free market price would be.

      • David,

        This is precisely the problem with using Copper as a store of value. However, I can see a time when even holding copper might be wise to some extent. However, I still focus on Gold and Silver. You know, why try to buy and hold copper at such a larger volume, when Gold and Silver have proved to be money over the past 2,000+ years?


        • lastmanstanding | February 7, 2015 at 3:18 pm |

          It is my opinion that with all of these crashes, real value will return to all things.

          It will not be overnight. Americans who remember the simple things will survive…those who are simple will not.

          A days work for a days pay. No work, no eat, no shelter, no nothing. Do unto others as you would have them do unto you…the golden rule, only a few get it these days.

          A few pennies will buy a loaf of bread, etc. Barter, pm’s, labor trade…those kind of things will be all that there is.

          The Arabs are about to ride a camel…again. the rest of us, something like that.

          I am hoping for a better day where no one hides innovation and truth.

  12. So much and so little time.I have collected PMs for five years.No benefit to that metal.I have not sold any ,’cept one ounce to test the market in 2012.I stopped collecting in 2013,as I was,and am, chocker full of PMs,and little else.I am now classed as ‘strong hand’.So what? The fact that credit agencies AAA America while junking Russia is indicative of the heavy manipulation guided by the hand of Death,aka,Amerika.I can’t wait for the fall of this tyrant,living off the backs of six billion ‘slaves’,’coloured’ people,and the folks at home watching their flat screen TVs couldn’t give a toss about the rag-eds,chi*ks,limeys,spics,you name it,they call it.Ha bloody ha world,we ‘own ‘you.
    Steve, if you are going to go into EROI of the states and NOT give EROI for the other oil producing countries at the same time,what’s the effing point?Your country has destroyed the world,or is very likely to do so within a brief historical moment. you say collecting PMs is about the best etc,but you fail to even mention the prepper list ,the opinions of Martenson.These have better plans,at least they include PMs ,but there is much more to be done if you want to save your ass/arse.
    You/usa, could start by sorting out your politicians .all,but a very few,on the take and swapping jobs with the revolving door money brigade.You make our case in congress,an we’ll grease your behind forever,pal.
    As far as eating silver,not talking ’bout gold,then colloidal silver is probably amongst the very best investments you can make to protect your family.As the US authorities continue to ban it for use against different things,so it’s meaning and nature become clearer.It is GOOD,and THEY don’t want it getting out to the masses.It is literally a life saver.Learn to make it,now.If i can do it,you can toucan.Rant off.

    • lastmanstanding | February 6, 2015 at 7:57 am |

      Brother, as an American, I cannot disagree with one thing you have said.

      A good rant is appreciated by all.

      “don’t go down without one helluva fight”

    • yuan abet,

      Actually Saudi Arabia EROI was something like 80-100/1 not to long ago. It’s dropping due to the fact they are really running through their reserves. Anyhow, I don’t see how the global oil industry will continue for much longer without some serious HEART-ATTACKS.

      How things unfold, I don’t know, but I believe we will get a collapse first of the high cost marginal Shale and Tar Sands industries.


  13. Steve, I am a PMs stacker and I enjoy your energy articles greatly.

    A guy is about 50/50 invested in conventional Texan oilwells and PMs.
    Once the shale boom is dead will energy be a good sector to be in, or will it kill the world economy along with energy demand?

    Any opinions greatly appreciated


    • lastmanstanding | February 6, 2015 at 8:01 am |

      I go to various blogs to hear what real people are saying. After spending years at the same places, you get to realize who is a bs’er and who has valuable info.

      There are many out there who are investing in low value oil stuff. They are in cautiously, and have all other tangible bases covered.

      I do not invest in anything that I cannot hold.

    • Dball,

      I have spoken to some people in the Conventional Oil Industry, in the southern states such as Texas, Oklahoma and etc. Even though these folks can still make money at much lower prices than Shale Oil, it still tough when the price is sub $50.

      However, if we do see a collapse of the U.S. Shale Oil Industry, we will also see a great deal of small public energy companies going bankrupt… and with it their leases on a great deal of land that these Conventional Players would like to drill.

      I assume it would be a better situation for the REAL WILDCATTERS who produce the profitable oil in the country. So, I do believe conventional oil plays will be sought after once the Great Shale Bubble bursts. How to profit and which ones to invest is another story which I don’t have much insight.


  14. tbh, I suspect the whole ‘fracking’ thing is a hoax.
    1. I haven’t seen any reasonable evidence that it’s possible to drill sideways (as opposed to a slight slant). I’ve watched extended footage of fracking drilling rigs and I do not believe, given the extremely rigid piping used (including joints), that there is sufficient play or flexibility in the pipes to do anything other than drill straight down. It certainly defies common sense.
    2. There’s no evidence I’ve seen of any gas being stored in the type of rock concerned. If you’ve ever seen any of the cores they pull up – they’re as dense as a concrete paving slab. It’s not the sort of medium conducive to sponge like storage of gas (or any other substance).
    3. What would be interesting to find out about is the gas and oil collection system that supposedly must exist between all the different wells.

    In contrast I think it’s probably about land rights. I heard some legal mutterings which I didn’t have the requisite knowledge to follow – how it fitted given my scepticism about the viability of these wells. It was along the lines of the counties land right registries not having been updated for many years and therefore when the drilling companies ‘scout’ the land, and enter certain paperwork – they gain some very important, particular advantage over it.

    Plus of course, the companies concerned have probably raised huge amounts of capital in the markets for their ventures.

  15. Hi Steve,

    I’d like to make three points about your article:

    1. EROI. I prefer EROEI to make sure that it is understood that both the investment and return being talked about is energy and that money doesn’t come into it. I have seen EROI referred to as Energy Return on Investment.

    2. EROEI is fundamental to all life on the planet and the activities of that life. It underpins all biological processes. It is therefore inextricable to human life on earth.

    3. I’ve read lots of the material by Charles Hall but (and it may be me being dense here) I cannot see that there can be an energy return on any commodity, including precious metals, unless there is an exploitable energy element in that commodity. There is a monetary return and as long as the commodity can be sold for more than it costs to buy the energy to produce it, the commodity will be produced. This can occur with non-energy bearing commodities but cannot occur with energy bearing ones such as oil, gas, coal etc.

    I don’t claim to know it all (and a have my fair share of gold and silver irrespective of EROEI considerations) but would appreciate your explanation of how EROEI can apply to a non-energy bearing commodity where no energy is returned.


    • Brian,

      Yes, I realize some people rather use the more detailed abbreviation such as EROEI. However, Charles Hall who is the leading mind on the study (as you are aware) of the EROI tends to use “EROI” instead of “EROEI.” But in all reality, the latter is more correct.

      You bring up a good question as it pertains to ENERGY & COMMODITIES in the EROI-EROEI. I do think it’s possible to get EROI ratios for base metals and etc, but I like to focus on the precious metals such as Gold and Silver. Why? Because they are a store of Economic Energy.

      The current cost ratio of Gold to Silver is about 60-1… which is why the current market price is close to that ratio. However, Gold and Silver are not just commodities (actually gold is mostly a currency, whereas silver is more a commodity currently) but are STORES OF VALUE based on historic usage.

      The reason I believe the value of Gold and Silver will rise exponentially going forward is due to the inverse exponential collapse of paper assets in the future. These paper assets only have value in a growing energy environment.

      Now, food can be used as an EROI with energy. And as you know, this has been studied greatly by several EROI scientists.


  16. Very nice article Steve! I am a PM bug and I do get your point!
    Thanks for sharing this information.

  17. “As the EROI falls below a certain level, our modern societies based on massive infrastructure (designed for high EROI) will come under severe stress… resulting in an epic collapse.”

    We do not know what is the critical level : it could be 50% below nowadays level.

    These EROI issues may be a problem in the next decade and so debt/Financial problems are more probable first that energy problems IMO.

    • RD,

      I mentioned in a prior comment that the minimum EROI requirement to run our modern society is 10-12/1. This is according to Charles Hall who is one of the top minds on the study of the EROI. Tar Sands and Shale oil at an EROI of 4-5/1 have given us additional oil supply, but cannot sustain us.


  18. Besides, it was very premature to celebrate strong january gold and silver performance : only was week was enough to destroy it and another one is much than enough to make new lows.

  19. FRED Get your head out of the dark place pal!!

  20. A little off subject but one that I’ve noticed and I’m sure you’ve noticed as well Steve how politicized pm’s.. Only right wing nut jobs buy pm’s and liberals laugh at the idea and buy Facebook shares.. It’s really amazing to me how they did this and if you think of it you could consider this another form manipulation by keeping half of population that falls into this fake left/right paradigm out of physical wealth

  21. Certainly one of the best ones you have written Steve! I agree about Peter Schiff. While I have a great deal of respect for him and the way he stands up to the MSM pindits, I have noticed that even he doesn’t get it. He and many others always say, “the Government and the Fed should________” (fill in the blank), “And once they do whatever we will be in recovery”. While we all know the MSM certainly doesn’t get it I have also noticed the alternative media has no clue either. They focus too much on cycles. They figured we had a gold and silver bull run in the 70’s and felt that was due to massive inflation. They saw the Dow/gold ratio in 1980 1/1 and thought the cycle had changed and most of these guys think that’s going to happen again. They don’t realize the US had all the problems in the 70’s due to peak oil and the petrodollar as well as the N. Sea and Alaska bought us some time. Now the world is where the US was in the 70’s and there’s no rescue this time around. The only cycle I follow is Hubbert’s curve. We are at the top and soon heading down that giant “roller coaster”. It’s not going to be good for most Americans.

  22. Great stuff Steve you do such a great job of fleshing this out. Totally agree with the majority of us PM Bugs don’t get the energy dynamics. I learned Peak Oil and concepts before I really grasped the whole metals/fiat universe. That said as you know by my past posts I side with Brian on the use of EROEI versus EROI. For the same reasons Joe 6pack is already struggling to understand ROI and not spelling out it energy is confusing. Investment usually means $$$ to most and not telling them its ENERGY is muddying up the discussion. Charles Hall is one smart cookie doesn’t mean he is perfect though. This is IMO a case where he needs to change his nomenclature.

  23. And the difference between energy and fuel shortage
    The problem will be of fuel shortage and NOT energy (one can use nuclear power, coal, wind etc. for energy production). Over seven hundred million vehicles on the world’s roads plus between twenty and thirty thousand airplanes need energy in the form of fuel which will eventually be in very short supply. That is a problem.
    The world’s yearly crude oil usage is around one and a half cubic kilometers. (35 billion barrels). So all these alternative fuels are just a big joke. The amounts of fuel needed for all vehicles and airplanes are enormous.
    I believe we are too late for any alternative energy to be developed in time. We have waited far too long.
    We have been dependant on oil as if it will never end. We were lazy all of these years. We did not innovate hard enough because oil was plenty and easy to get. So our craving for crude stayed insatiable.
    We believed the scientist of the 50’s and 60’s who said that “there is so much of the stuff that it will last forever”.
    If we found a replacement for oil 10 years ago it will still be too late today because the magnitude of converting and/or building new engines to accept a new type of fuel is mind blowing. There is not enough time.
    Car industries should develop vehicle bodies made from solar cells that will drive a large sterling engine and will also charge batteries for night usage. Won’t be good for driving fast but will take you from A to B for almost free. Water driven engines. Air driven engines. All these should be developed.
    People don’t understand how precious the little oil there is left. It should be taken up in small amounts and for the most important usages, like pharmaceuticals, greases, and special oils. And a large amount of it is wasted by our cars?
    What a waste of this so precious a liquid to use it in that way.

    Here is why I think oil prices have fallen.
    Could it be that the reason for the low oil prices has to do with oil extraction being harder and so more expensive?
    Could it be that the easy oil (to extract) is now nearing its end – its “peak”?
    Maybe. I believe that oil will go to $160 or $180 and maybe even higher due to difficulty (and obviously the costs) in extracting the hard to get crude.
    Or could it be going the food market way?
    Whenever I am abroad I like to go to markets just to see the produce maybe even buy some. What I have come to realize is that at the end of the day’s business whatever produce they (the sellers) have left, they choose one of two things to get rid of their leftover supply of say 5 to 15 boxes of whatever but let’s say tomatoes. Or they try selling it at an extremely low price per box and not per kg anymore like they did during the day.
    Or they will throw the left over into a container near by so as to get rid of it because they know there is not much left not as if they have a truck full of the leftover produce that they can use on the next business day.
    I have seen these procedures over and over again in every country I have visited.
    Now you say what does food markets got to do with oil right?
    Lately I began to compare the price drop of oil to food markets.
    Is it maybe we have passed peak oil for quite some time and we are now seeing the end of oil? Has price of oil dropped because of:
    World recession equals drop in oil demand.
    (we heard that many times before)
    Is it because of shale sand/oil/gas competition?
    (yeh sure as if it is cheap to extract…invest $2 to get $1)
    Maybe to make the Russian economy suffers?
    (no I don’t think so)
    Or maybe keeping what little oil is left for the so called elite folk or globalists that conspiracy theorists talk about?
    (maybe……….who knows what they’re cooking)
    Or maybe just maybe its going the food markets way as I explained above.
    (could be we past peak oil way way back.).

  24. Dear Sir,

    I am curious to know you are still keeping an eye on North American natural gas supply and production. Is it moving in a fashion that is consistent with expectations? I’m trying to do some amateur digging myself, but don’t see much current reporting. If / when your time permits, I for one would be most interested in your observations. A lot of Canadians are hurting career-wise and otherwise.

    Thank you so much for your fascinating work. Your updates are always a treat.

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