Decline of U.S. Shale Energy & The End Of Precious Metal Manipulation

The U.S. Shale Energy Industry is heading for big trouble and very few Americans realize it.  Not only will the peak and decline of U.S. shale oil and gas production spell disaster for the U.S. economy, it will also be one of the factors responsible for ending precious metals manipulation.

The only way the Fed and Central Banks can continue propping up their fiat currencies is with massive monetary printing and bond purchases.  While this tactic keeps the system together, it does so by adding debt on top of more debt.  This debt can only be settled by a growing economy.

Unfortunately, the world is currently experiencing a plateau in global oil production.  Without continued growth of the world’s oil supply, the massive government debt (which backs the global fiat currencies) becomes a real nightmare.

Furthermore, when the world’s oil supply finally starts to decline, global GDP growth will turn south right along with it.  Which means, the Fed and Central Banks will lose the ability to control the huge debt-based fiat currency system.

Thus, precious metal manipulation ends by default.

The Increase In U.S. Shale Energy Decline Rates Spells Big Trouble Ahead

As the MSM continues to call for U.S. Energy Independence (even though the IEA recently released a new report now forecasting a decline of North American Oil Supply), the situation in the country’s shale energy industry takes a step for the worse as decline rates increase in a big way.

Since I wrote my article, The Coming Bust Of The Great Bakken Oil Field, the decline rates at the Bakken, Eagle Ford and Marcellus increased substantially.

When the EIA – U.S. Energy Information Agency released their November, 2013 Productivity Report, the forecasted decline rate for the Bakken field in the month of December was 63,000 barrels per day (bd).  Each month, the EIA puts out a new report showing how much new production and the legacy decline rate from each shale oil and gas field.

Well…. let’s say, they report most of the fields.  The EIA omits the Barnett shale gas field data because its peak and decline doesn’t paint a pretty picture for the rest of the bunch.

The Bakken’s decline rate increased from a 63,000 bd in December, 2013 to an estimated 72,000 bd in July:

Bakken DEC 2013 to JUL 2014 change

Basically, the term “legacy oil production change”, means the decline of oil production from existing wells.  This is estimated on a monthly basis and shown in “barrels per day.”  So, the Bakken is now forecasted to lose 72,000 barrels per day from its existing oil wells in July, up from 63,000 in December, 2013.

This is a 14% increase in the decline rate in just seven months.  If you think that’s high, take a look at how bad the situation is at the Eagle Ford shale oil field in Texas.

Eagle Ford DEC 2013 to JUL 2014 change

While the Bakken’s decline rate increased 9,000 bd in seven months, the Eagle Ford jumped up a staggering 31,000 bd (83,000 bd to 114,000 bd).  Thus, the Eagle Ford decline rate increased nearly three times as much as the Bakken at 37% during the same time period.

So how do these decline rates impact new monthly production?  If we take a look at the next chart, we can see that the Bakken’s legacy decline rate increased from 71% of new production in Dec, 2013 to an estimated 78% in July.

Bakken Decline Rate Change

When the Bakken produced 89,000 bd of new production in Dec, 2013, the 63,000 bd decline rate was 71% of this total.  The EIA estimates the decline rate in July at 72,000 bd, which is now 78% of the 92,000 bd of new production.

We must remember, as the decline rate continues to increase each month, the companies drilling in the Bakken have to ramp up production even more, or the field will peak and decline.

This is the trouble the energy companies are faced with drilling in the Eagle Ford.  In just seven months, the legacy decline rate at the Eagle Ford increased from 71% in Dec, 2013 to a forecasted 83% in July.

Eagle Ford Decline Rate Change

What a difference… aye?  In Dec, 2013 the Eagle Ford only had to add 83,000 bd of new production to remain flat, however they now need to add 114,000 bd to keep production from declining.

At some point, the decline rate will edge closer to that 100% mark, which means the field will peak and decline shortly after.

The Decline Rate At The Mighty Marcellus Shale Gas Field Nearly Doubles

If it wasn’t for the Mighty Marcellus shale gas field, overall natural gas production in the United States would be declining.  Looking at the data during the same time period (Dec 2013- Jul 2014), the Marcellus decline rate shot up from 31% to 58%… in just a mere seven months.

Marcellus Decline Rate Change

Back in Dec 2013, the Marcellus added 593 (mcf) million cubic feet per day of new natural gas production and suffered a decline rate from existing wells of 182 mcf with a net change of 411 mcf per day.  This was a large amount of net new production at a 31% monthly decline rate.

However, in just a little more than half a year, the Marcellus legacy change  (decline rate) is forecasted to increase to 383 mcf or 58% of new production (663 mcf), providing a net addition of 280 mcf per day for the month of July.  Actually the decline rate more than doubled if we just consider the change from 182 mcf to 383 mcf.

While there’s a lot of natural gas in the Marcellus, it will peak and decline at some point.  Furthermore, very few energy companies are making money producing shale gas at the current market price of $4.50.

And then we have this article by the Guardian, U.S. Shale Boom Is Over, Energy Revolution Needed To Avert Blackouts:

Global energy watchdog confirms ‘the party’s over’ – lowers US production projections, demands urgent investment

But the IEA’s latest assessment has proved the detractors right all along. The agency’s World Energy Investment Outlook released this week says that US tight oil production – which draws largely from the Bakken in North Dakota and the Eagle Ford in Texas – will peak around 2020 before declining.

The new analysis puts an end to the ‘100 year supply‘ myth widely promulgated by industry, and moves closer to the more sceptical assessment of a US tight oil peak within this decade.

Now IEA chief economist Fatih Birol says:

“In Europe we are facing the risk of the lights going off. This is not a joke.”

We need $48 trillion of new investment to keep the lights on – and it’s far from clear that investing in increasingly expensive unconventional oil and gas is going to cut it, without serious impacts on the global economy.

Several of the energy analysts that I pay attention to (Bill Powers, David Hughes & Art Berman) believe the peak of the Bakken and Eagle Ford may occur sooner than 2020…. possibly within the next year or two.  It really depends on the price of a barrel of oil.

If the U.S. and global economies fall into a bad recession-depression in the next few years, the price of oil will more than likely decline significantly.  This will destroy the ability for the shale oil and gas companies (as well as the other high cost unconventional oil sources) to continue drilling.  Once drilling stops, production falls off a cliff.

In addition, the major oil companies are already cutting back on CAPEX spending as well as selling assets to remain profitable.  The major oil companies now realize that increasing production is impossible as the oil price is not high enough to justify the added expense.

Basically, the world cannot afford expensive oil… which means the major oil companies cannot increase investment.  Without the needed investment, peak oil comes sooner than later

Peak Oil Will Destroy Precious Metal Manipulation By Default

The precious metal community receives a lot of heat from analysts on the subject of gold and silver manipulation.  For example, Trader Dan Norcini doesn’t believe the gold and silver market is manipulated… especially over a long period of time.

While Trader Dan and many of his fellow bloggers on his site poke fun at the precious metal bugs who believe in gold and silver manipulation, the truth is…. it doesn’t really matter at all.

You see the biggest flaw in Trader Dan as well as many other analysts who believe that the markets ARE NOT RIGGED, is that they fail to understand the global energy situation.  As I have stated many times, the value of most STOCKS, BONDS and PAPER ASSETS are derived from a growing economy, which is based on a growing energy supply.

As the global oil supply peaks and declines, the value of most paper assets will decline.  The only way to protect wealth at this time will be in physical assets such as GOLD & SILVER.  It was the SIPHONING of investor funds into paper assets such as derivatives, options, stocks  and bonds that caused the REAL MANIPULATION of the precious metals market.

Peak Oil will destroy gold and silver manipulation by DEFAULT.

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26 Comments on "Decline of U.S. Shale Energy & The End Of Precious Metal Manipulation"

  1. Silver Curious | June 23, 2014 at 12:09 pm | Reply

    Anybody who hasn’t seen the new “Accelerated Crash Course” video by Chris Martenson really needs to set aside the 56 minutes to watch it …. Chris does a really good job of presenting the “VISUALS” for people to quickly/easily grasp the 3E’s … by watching the ACC video you’ll quickly gain an even better understanding about the EROI concept … there’s some good comparisons in the video that use actual mining scenario’s ….

    http://www.youtube.com/watch?v=pYyugz5wcrI

    • I second this recommendation from Silver Curious.

      This is a “must see & listen” for anyone that wants a calm, “PG rated” view of what the next 20 years will look like. Chris wisely stays away from exactly what or when, as no one can predict it. But the macro of what is coming he covers well.

      He also stays away from discussing the highly unpleasant form[s] of social disruption that will occur at some times and in some places.

      And it isn’t a doom & gloom look at the future. He calls himself an optimist. He would have to be to put such a calm presentation together; leaving out “the ugly”

  2. Good article. I’ m tired of all pm articles on other websites, as soon as the real decline in cheap energy rears its ugly head, central banks will try to prop up paper more and more. As we speak, imo, they are already pushing paper higher, 29 trillion in equities….!! The world needs an astonishing rise in gdp to serve the debts, peak cheap energy will sturr the pot beyond imagination.

  3. Jeu,set et match Monsieur Steve, merci bien.

  4. Sprinkle fair dust and weapons in the middle east, stir with mischief and nonsense with anger and you have a makings for a civil regional war in the middle east, couple with annoying the Sadi and Israel and “Wa’LA!! Oil prices go up and the shell oil in the USA for frack-ing suddenly becomes cost effective to drill and its something for the USA to produce!

    • Silver Curious | June 23, 2014 at 9:11 pm | Reply

      A little destabilization here, and a little destabilization there, and the next thing you know oil prices are high enough for North America to have a viable domestic energy sector – Oil Sands & Fracking.

      • No viable North American energy sector if EROI is rapidly decreasing for each operation or well drill, which is the case with shale. Or if the price of natural gas is artificially low due to price controls or subsidies.

  5. Hey Steve,

    you do a great job illustrating the synergy of the collapse of cheap energy and implications throughout PM’s, among other things.

    I wrote an article posted on Charles Biderman’s Trim Tabs site…I’d be glad to know your thoughts how we tie all this together.

    http://charlesbiderman.com/2014/06/23/global-rates-collapse-whos-is-behind-this-2/

    • Steve,

      what you and I and many others are now unequivocally proving is the scope of this accident or conspiracy or whatever sort of fraud this is…infinite cheap energy in a finite world for an infinitely rising global population wanting a US style middle class lifestyle. CB’s buying trillions and trillions of bonds, stocks, and who knows what else. PM’s in short supply and collapsing in price all at once…we truly don’t know what is real, what is only façade and how far it all goes. But this phase is pretty much played out…so here comes the transition to what’s next…whatever that is. Pretty damn sure the time of cheap PM’s is over.

    • Chris,

      Great article. I agree with your points. Yes, many of the past recessions were due to oil price spikes. As I stated several times, the Fed is trying to offset expensive oil by monetary printing and zero interest rates. The huge amount of debt will never be repaid.

      Which is the reason I believe GOLD & SILVER are the GO TO ASSETS. When Americans and the rest of the world realizes they are invested in the biggest Ponzi scheme in history, money will stampede into alternative assets such as gold and silver.

      steve

  6. ” For example, Trader Dan Norcini doesn’t believe the gold and silver market is manipulated… especially over a long period of time”…

    Since I was not aware that Dan Norcini had suggested that g/s markets were not subject to manipulation, I had to go back a ways into his blog to find out if I had missed something. As it turns out, I had not…

    the basic debate in the community is not whether or not g/s markets are manipulated… suggesting they are not would be akin to joining the Flat Earth Society.. but rather, who is doing the manipulation, and for what purpose. Dan’s own words “hedge funds or other assorted large traders moving prices around … is a form of manipulation” lays out clearly his take on the matter.

    He does not subscribe to the ‘governments and central banks are behind it all” theory, for sure. That gets up the nose of those who depend upon that thesis to explain to themselves why g/s are flat or low. Their ad homs and invective directed towards the non-believers in turn poisons the well for reasoned debate of the matter by pissing off that faction. Now we have zero middle ground -i.e…the sweet spot where truth hangs around – and a lot of angry and confused people… just as the real manipulators would have it!

    Norcini has it in his head that ‘specs make the market’ … and he thinks long spec in gold are a sign of chumps hangin on past the point of any reasonable purpose. He’s as sadly outta touch with the identify of these current ‘long specs’ as the goldbug faction are of that of the ‘short specs’ …

    in a wilderness of mirrors, the only way home is via reflection. Manipulation of the g\s markets.. and every other one for that matter, is a fact of life. Who is doing this manipulation, and for what purpose is a mystery to most… but not because it’s a mystery…. connecting the dots … for fun and profit, is the order of the day!

    • Hello Rogue,

      For fun and profit for sure, but also with the “wink wink, nod nod” of the central banks & their close liaisons with the governments that print or digitally create ever-greater quantities of fiat currency units. Fair market supply/demand prices of PM’s would undermine confidence in these currencies & their related investment vehicles.

      • David,

        Currencies… governments…. and central banks. You have indeed…

        connected all the right dots. FOFOA put together an excellent analysis of the forex trading of XAU as prime driver of the price. I’m working on incorporating that analysis into my BR as we speak, as it supplies the missing links to much of what baffles the bullionists of the blogosphere. And beautifully accords with J Willie’s alternate take on the action in Belgium!

        A triadic… or 3D view of things has decided advantage over the 2D perspective of western commentators. One is well served to remember – the face off between Blondie, Tuco, and Angel Eyes in the boneyard over zee gold. All life in the west now boils down to mimetic stylings of spaghetti westerns!

  7. Indeed, it will happen but contrary to most of commentators il will come in many years away and not by default of the lbma/comex : it will be done by open strategy from central banks of china and russia.

  8. Robert Happek | June 24, 2014 at 10:29 am | Reply

    Steve is right: It does not matter whether the market for metals is manipulated or not. Deception rules the world. Newspapers and the media are not in the business of spreading the truth. Make up your mind whether metals are cheap or expensive and then act. Personally, I am grateful for these relatively low prices and would not mind if they would go even lower. In my opinion they are a gift to those who can think.

    Why complain about low prices? If the price of food goes down due to some hedge funds acting in the commodity markets, does anybody complain? Of course not.

    Regarding trader Dan Norcini, please remember that those who live off the present system, will not support arguments which undermine the system. We all want lower prices.

  9. First, thanks for the great blog on peak hydrocarbon production and the fallacies of shale production picking up the slack. The rapid decline in shale production rates is to be expected from the physical properties of shale reservoirs. Porosity is the open spaces within the matrix of the rock where the hydrocarbons reside. In shale, the porosity is generally high thus the high storage capacity or hydrocarbons in place. Permeability is the measure of the ability for fluid flow between the pore spaces, and in shale, permeability is extremely low. During the initial production, the relative distance to the wellbore is short so the production rate is high, but as the production has to flow through more reservoir distance the restriction to flow is greater and flow rates reduced.

    With a typical 8.5 inch diameter vertical well, there is the further restriction that all the production has to go through a small volume of low permeability rock near the wellbore further restricting flow. Since the early 1950’s, hydraulic fracturing has been available to provide additional flow paths to the wellbore exposing more surface area for flow into the well. More recently horizontal drilling has further expanded the surface area for flow into the well. These two features have allowed early well production to be fairly high, but over time, the production still has to make its way through ever increasing distances of very low permeability formation, and production rate falls rapidly.

    Basically large hydrocarbon volumes are in shale, but the physical properties ensure that they are harvested over very long periods of time and maybe never if the cost to produce is not covered by the production revenue.

    Without commenting on the greenhouse gas issues, the administration policy to reduce or even eliminate coal exacerbates the problem as coal can be used to generate electricity rather than using natural gas. Incrementally, coal to gaseous and liquid fuels technology exists and is implemented economically in South Africa, but the technology emits large amounts of CO2, so its application in the US has not been met with regulatory encouragement.

  10. Hello Steve,

    This recent Bloomberg article reports that Obama is lifting the ban on U.S. domestic oil exports. This article implies that the U.S. has excess oil and is becoming a net exporter. Why do you think Obama and the domestic oil producers want to export crude? It seems like an odd direction assuming shale oil is a declining resource and is needed to support the U.S. domestic market..

    http://www.bloomberg.com/news/2014-06-25/obama-administration-widens-export-potential-for-u-s-oil.html

    • petedivine,

      Obama is just playing politics. The U.S. will never become a NET EXPORTER of oil. This was just posted on Zerohedge today:

      Why The US Will Never Become A Net Oil Exporter

      The U.S. government isn’t about to open the floodgates, however. According to the U.S. Energy Information Administration’s reference scenario, domestic oil production is going to peak at 14.6 million barrels a day in 2019 and then drop to 12.7 million barrels a day in 2040. Given the 2013 consumption level of 18.9 million barrels of crude a day, the U.S. will never be a net oil exporter under this scenario, or even under the EIA’s most optimistic one, which puts 2036 output at 13.3 million barrels per day. Closing that gap would require a drastic reduction in the country’s appetite for hydrocarbons.

      http://www.zerohedge.com/news/2014-06-25/why-us-will-never-become-net-oil-exporter

      I doubt the U.S. oil supply will ever get to 14.6 mbd by 2019. Also, that figure probably includes NGL’s which are not oil, rather they are Natural Gas Liquids that contain less energy.

      The FED and EIA share the same past… their forecasts continue to fail in flying colors. We must remember, the EIA just downgraded the Monterey Shale 96%, what else have they over-estimated?

      steve

  11. Nice writeup on the “Red Queen” effect.

    However, I would caution against predicting the collapse of the US economy TOO soon. Before that happens you will most likely see demand destruction in third tier countries that rely on imported hydrocarbons to run their economies. The US MOE (Military Oil Empire) will see to that by ensuring the flow goes to the core countries first. This is the whole point of the MOE in Ukraine, Iraq, Libya, etc. Keep the oil flowing and out of the hands of the National Oil Companies and into the hands of the International Oil Companies and the West. Order out of Chaos.

    We will see demand destruction in the States, too. Maybe elderly freezing when the gas bill can’t be paid. More 4 door pickups sitting at the end of the driveway out of gas. Less product selection on store shelves. Layoffs and bankruptcies. But the wealthy will barely blink. They will ensure the spice flows to them. The financialized economy will continue barely chugging along, of course, until it no longer can.

    • jrs,

      I didn’t say when the U.S. was going to collapse, however the end of the Dollar will be the other NAIL IN THE COFFIN for the U.S. Empire. At least third world countries can exchange real things for oil, the U.S. will in deep trouble when the Dollar becomes less important in the world.

      steve

  12. Dan Norcini is an asswipe anyways. Not worth mentioning that crackhead.

  13. Steve some of you best work IMO. Will pass along to those I care for but whom seem to claim Cognitive Dissonance as their 5th Amendment Rights…..

    How Eloquent Dressguard….Traitor Dan is the Poster Boy for Cognitive Dissonance. At least he is now covering his ass with the the markets are maybe, uh really never manipulated unless uh uh their is maybe a rogue hedgie or something. Can’t believe the markets he makes his living in are manipulated….ok Dano. LMAO he is either a fool or worse complicit with the scam. That he wraps his being in the Flag, Motherhood and Apple pie is just disgusting. I think the Nazi’s called them stooges……..

  14. My brother in law works for one of the big swiss banks and he looks after the investment from big individual clients. I had a debate with him on current economic climate. Basically, he believes

    Gold is junk metal, no one wants it.
    China has very little gold reserve.
    Shale gas will make US net exporter of oil for a LONG time.
    The trend is forever trading leverage, i.e. US keeps printing dollar, the rest of the world keeps sucking more dollar. Never enough.

    Well, I gave up arguing with him. Lets the time be the judge.

    • Joe,

      I know plenty of the same types. Funny, how they are so sure of their assumptions. I don’t put a lot of faith in the forecasts by the top energy agencies such as the EIA and IEA, however, when the IEA – International Energy Agency puts out a new report stating that the United States shale oil industry will peak sooner than expected…. one can’t sugar-coat that one.

      Furthermore, the report goes on to say the U.S. will once again be at the mercy of the Middle East. Unfortunately, when U.S. Shale oil peaks, the Middle East will not be in much better shape.

      Yes… let’s just wait for the chips to fall as they may.

      steve

  15. Excellent article and observations. I share your belief that the system of paper securities will implode when the relative cost of energy to everything else increases. As cheap energy goes into decline we’ll see a contraction, which the current financial system cannot survive.

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