END OF THE U.S. MAJOR OIL INDUSTRY ERA: Big Trouble At ExxonMobil

The era of the mighty U.S. major oil industry is coming to an end as the country’s largest petroleum company is in big trouble.  While ExxonMobil has been the most profitable U.S. oil company in the past, it suffered its worst year on record.

For example, just four years ago, ExxonMobil enjoyed a $45 billion net income profit in 2012.  Now compare that to a total $5 billion net income gain for the first three-quarters of 2016.  If Exxon continues to report disappointing results for the remainder of the year, its net income will have declined a stunning 85% since 2012.

Actually, the situation at Exxon is much worse if we dig a little deeper.

Profitability Is Much Less When We Factor in Capital Expenditures

To understand the real profitability of a company we have to look at its cash flow, or what is known as free cash flow.  Free cash flow is calculated by deducting capital expenditures (CAPEX) from the company’s cash from operations.  ExxonMobil’s free cash flow declined from $24.4 billion in 2011 to $1 billion for the first nine months of 2016:

exxonmobil-free-cash-flow-2011-2016

So, here we can see that Exxon’s free cash flow of $1 billion (2016 YTD) is down 95% from $24.4 billion in 2011.  The reason for the rapidly falling free cash flow is due to skyrocketing capital expenditures and falling oil prices.  But, this is only part of the picture.

If we include dividend payouts, Exxon’s financial situation drops down another notch.  While free cash flow does not include dividend payouts, the money Exxon pays its shareholders must come from its available cash.  By including dividend payouts, the company was $8.3 billion in the hole in 2015:

exxonmobil-free-cash-flow-minus-dividends

Now, even though Exxon stated a $45 billion net income for 2012, its free cash flow minus dividends was only $11.5 billion.  Moreover, the company didn’t make any money in 2013 or 2014 after dividends were paid to their shareholders.  Thus, deducting dividends from the equation provides a more realistic picture, especially since Exxon has been forking out serious sums of money to its shareholders.

That being said, there seems to be something seriously wrong going on at Exxon when we look at the long-term chart below:

exxonmobil-free-cash-flow-vs-oil-price

Let me start off by saying, this chart is an extension of the chart above it.  Even though the title doesn’t include dividend payouts, the legend in the chart displays it.  The white line represents the average annual oil price.  There are several important factors shown in this chart.

  1. As the price of oil increased from $20 in 2002 to $97 in 2008, Exxon’s free cash flow minus dividends surged to $32 billion from $3.4 billion.  Thus, the higher oil price led to larger free cash flow profits.  Well, that was the good news.
  2. The bad news is, Exxon’s surplus cash declined significantly when the oil price was over $100 from 2011 to 2013.  Even though the oil price in 2011 and 2012 was higher than it was in 2008, the company’s free cash flow including dividends was less than half.  Furthermore, Exxon made no surplus cash in 2013 when the oil price was above $100.
  3. While Exxon enjoyed surplus cash over $20 billion from 2004 to 2007 when the price of oil was between $38 and $72, how is it that the company made no surplus cash in 2013 when the oil price was north of $100??  We will get into that in a minute.
  4. Even though Exxon suffered negative free cash flow (including dividend payouts) in 1998 (-$2.5 billion) and 1999 (-$1.9 billion), the oil price was at a low of $13 and $18 respectively.  Compare that to a cash deficit of $8.3 billion in 2015 at an average oil price of $52…. triple of what is was during the 1998 and 1999.
  5. The reason for the huge decline in ExxonMobil’s surplus cash, even at much higher oil prices, was due to two factors;  1) higher capital expenditures and, 2) higher dividend payouts.

While higher dividend payouts put more stress on the company’s financial situation, the real problem is the massive increase in capital expenditures

The Massive Increase Of Capital Expenditures Is Causing Havoc At ExxonMobil

Very few investors realize the devastating impact of rising capital expenditures on Exxon’s financial bottom line.  This chart shows annual capital expenditures versus the company’s oil (total liquid) production:

exxonmobil-oil-production-vs-captial-expenditures

For example, in 1997, Exxon spent $11.8 billion on capital expenditures while producing 2.5 million barrels per day (mbd) of oil.  However, their capital expenditures nearly tripled to $34 billion in 2012 as total liquid production fell to 2.2 mbd.  Basically, Exxon spent three times more money in 2012 to produce 300,000 barrels per day less than it did in 1997.

When the company realized towards the end of 2013 that the market would not afford to pay $120 a barrel (the cost for new oil projects), Exxon started cutting back on exploration and capital expenditures.   Even though total liquid production increased to 2.34 mbd in 2015, capital expenditures declined to $26.5 billion.

Unfortunately, the situation continued to deteriorate in 2016.  According to Exxon’s Q3 report, capital expenditures in the first nine months of the year declined another 40% compared to the same period in 2015.  Without increased capex spending, it is going to be quite difficult for the company to sustain production and to remain profitable.

So, when we consider that Exxon had to triple its capex spending to maintain production as well as increase dividend payouts to keep shareholders happy, the falling oil price is totally gutting the company from within.

While the evidence shown here is bad enough, I hate to be a broken record, but the situation is even far worse for Exxon when include two more negative factors.

Exxon Spent The Majority Its Surplus Cash To Buy Back Shares Rather Than Fund New Oil Projects

It seems as if Exxon realized early on that peak oil had finally arrived (privately, of course), so it decided to not waste too much money on future oil projects.  Instead, the company spent a massive amount of money on stock repurchases over the past two decades… especially since 2005.

While Exxon had been repurchasing their stock for several years, I had no idea of the total amount.  You see, the net total free cash flow, including dividends, for Exxon was $190 billion from 1997-2015.   Looking over company’s balance sheet, I had no idea where all that money had gone.  I was talking to financial expert Vic Patane a few days ago, and he said, “You should check out their stock repurchases.  So, I did… and what a surprise.

According to ExxonMobil’s Annual Reports, the company spent a staggering $260 billion on stock repurchases since 1997:

exxonmobil-share-repurchases-260-billion

The loin’s share of their stock buybacks were between 2005 and 2014.  In that ten-year period, Exxon purchased a staggering $220 billion of its own shares.  Now compare that to the company’s total capex spending of $245 billion during the same time period:

exxonmobil-oil-production-vs-captial-expenditures-new

Amazingly, Exxon only spent 11% more on it total capital expenditures than it did on stock buybacks.  Which means, the largest oil company in the United States decided to repurchase roughly a third of its outstanding shares (2005 to 2014), than use its surplus cash to fund new oil projects.  Exxon’s outstanding shares declined from 6.1 billion in 2005 to 4.2 billion in 2014.

This is certainly an interesting way for the leading U.S. oil company to use its surplus cash.  For those who continue to be skeptics of the peak oil theory, YOU NEED TO WAKE UP AND LOOK AT THE DATA.

Okay, now that we know the lower oil price is gutting the entire U.S. oil industry, what is it doing specifically to Exxon?  Good question.

Exxon’s Long Term Debt Surges In The Last Three Years

Before I present Exxon’s chart on its rising long-term debt, we need to look at the impact of the company’s share buybacks on its bottom line.  When factoring in Exxon’s share repurchases on top of its increasing capital expenditures and dividend payouts, the company’s financial situation started to deteriorate in 2011… when the oil price shot up to $110… GO FIGURE:

exxonmobil-free-cash-flow-minus-dividends-share-repurchases

So, if we include share buybacks, capex spending and dividend payouts, Exxon basically broke even in 2010 and actually had to start tapping into cash reserves or borrow money to fund their deficits.  In just five years (2011-2015), the company spent $58 billion more than they received from operating cash.

This has had a profound impact on Exxon’s long-term debt, shown below:

exxonmobil-long-term-debt-2006-2016

As we can see, Exxon’s long-term debt has exploded from $6.9 billion in 2013 to $29.5 billion in the first half of 2016.  Basically, the company is now borrowing money to repurchase shares or pay dividends.  This is not a viable long-term business model.

And, we are already seeing the negative ramifications of low oil prices as Exxon only repurchased $4 billion of its shares in 2015 versus $35.7 billion back in 2008.

Investors need to realize the situation in the U.S. major oil industry is in BIG TROUBLE.  If the largest oil company in the country is already suffering, what does it say for the rest of the industry??  Well, let me give you just one example.

Chevron is the second largest oil company in the United States.  In 2015, Chevron spent a stunning $18.2 billion more on capital expenditures and dividend payouts than the company’s operating cash.  Thus, Chevron spent $10 billion more than ExxonMobil did last year ($8.3 billion after capex and dividends).

This paints a very gloomy picture for the sustainability of the one great U.S. major oil industry, especially when oil prices continue to decline.  As was mentioned in previous articles, the Hills Group and Louis Arnoux forecast that within ten years, 75% of U.S. gas stations will be closed, and the oil industry as we know it, will have disintegrated.

Well, it seems as if their forecast is playing out just as they forecasted as Exxon recently announced some extremely bad news.

Exxon To Write Off 20% Of Its Petroleum Reserves

I don’t know how many American’s caught this little tidbit released last week when Exxon stated its Q3 report, but it was a whopper.  According to the article, Exxon Warns On Reserves As It Posts Lower Profit:

Exxon Mobil Corp. warned that it may be forced to eliminate almost 20% of its future oil and gas prospects, yielding to the sharp decline in global energy prices.

Under investigation by the U.S. Securities and Exchange Commission and New York state over its accounting practices—and the impact of future climate change regulations on its business—Exxon on Friday disclosed that some 4.6 billion barrels of oil in its reserves, primarily in Canada, may be too expensive to tap.

From what I have read, the 4.6 billion barrel reserve write-off is mostly from its oil sand projects in Canada and its onshore shale deposits in the United States.  However, this amounts to more than 20% of ExxonMobil’s oil or liquid petroleum reserves.

At the end of 2015, the company reported a total of 24.7 billion barrels of oil equivalent.  That figure includes oil, liquids and natural gas.  However, if we just consider their oil and liquid reserves of only 14.7 billion barrels, a 4.6 billion barrel write down would amount to nearly one-third of their oil reserves.  This is much greater than the 20% stated in the article.

When Exxon reduces its oil and liquid reserves by 4.6 billion barrels, it will only have 12 years worth of reserves remaining, at current production levels.  But, what if the price of oil continues to decline toward the $12 maximum price suggested in The Hills Group Report by 2020?  What would that do to Exxon or other U.S. oil companies’ reserves and future oil production??

The 100+ year era of the U.S. major oil industry is coming to an end… and fast.  Unfortunately, Americans have no clue just how dire the situation has become as many probably still believe in the delusion of “U.S. Energy Independence.”

I would imagine by 2020, the U.S. will be a much different place.  Regrettably, most Americans are not prepared.

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122 Comments on "END OF THE U.S. MAJOR OIL INDUSTRY ERA: Big Trouble At ExxonMobil"

  1. Who will buy their upcoming perpetual bonds? Well, the central banks of course. Squeezing out the last drops by diluting the currency. Saudi’s and Venezuela are in big trouble already, the fiat currencies of the west can delay, but not avoid.

  2. Great incisive analysis again. Please keep it going. Most sites tend to be far too ideological, on either side, to be trusted. I’m skeptical of the forecasted result, as always (still think the powers that be will keep their cronies going far longer than we can imagine), but it’s hard to argue with the numbers. I do wonder though: why wouldn’t the stock be nosediving already (buybacks are a small percentage of overall volume), as hedge/pension funds, retail, etc have access to all this info ?

    • Because money managers, priests and imams all promise the same thing when you blow yourself up.

    • Another reason the stock price is being supported is the div yield of 3.5%. Investors are starving for income in a zero int rate environment. The FED policy is forcing money into stocks; most money managers continue to invest in a diversified stock portfolio.

      • glenn,

        Agreed. But, what happens when the oil price continues to fall and Exxon has to finally cut dividends. ConocoPhillips is the first of the top three to cut their quarterly dividends from $0.74 to $0.25.

        steve

    • Emil,

      It doesn’t seem as if the market looks at this information in a detailed “Connect the Dots” sort of way. They see that Exxon is still posting some profits and paying huge dividends. Thus, everything looks fine on the surface.

      steve

  3. “I don’t know how many American’s caught this little tidbit released last week when Exxon stated its Q3 report, but it was a whopper.”

    Where the hell was the main stream media, all of the pundits and talking heads? I totally missed it and all I do is watch Fox Business and Bloomberg and read, read, read the net.

    If Exxon is doing it, so the others must follow and the implications are a solid confirmation of Arnoux’s & Hill’s predictions.

    Thanks for another great one.

    SteveW

    • SteveW,

      Analysts don’t look at this material in the same way I do. While many probably understand certain aspects, they don’t look at the data over a longer period of time or how certain aspects relate to others.

      To tell you the truth, I had no idea just how bad the financial situation was for ExxonMobil until I did the research. As I mentioned, I was stunned that Exxon spent $260 billion on share buybacks.

      Anyhow, I will continue to write articles on what will turn out to be the deterioration of the U.S. Oil Industry.

      steve

    • Same with BP, another one hemorraging to pay its dividend, so UK pensioners dont get upset…Good business model!!!!!!!!!!!!!!!!

  4. Great analysis Steve. How can we apply the EROI concept to an individual company? Or doesn’t it work that way? It looks like XOM’s eroi is less than 1 to 1 if you include all of their expenses.

    • glenn,

      I don’t know what the EROI is, but I would be surprised if Exxon doesn’t really cut back on CAPEX and EXPLORATION from here on out. According to the Hills Group work, the oil industry will have to survive on much lower prices. Thus, production will continue to fall as expensive production is no longer viable.

      steve

  5. “The loin’s share of their stock buybacks”

    heh. love it.

    “It seems as if Exxon realized early on that peak oil had finally arrived”

    oh they’ve known it since the 1990’s at least. these people pour huge amounts of money into research, both physical and financial, and they know exactly precisely where they stand at every minute of the day and night.

    “This is not a viable long-term business model.”

    it’s not about viability. it never was. it never is. it’s about wealth transfer. exxon is a model company, it’s doing a slam-bang-up job for its investors. when it folds, it will leave a perfectly-hollowed-out shell of its former self and everyone it can reach – investor, pension fund, u.s. taxpayer – holding the bag for tens of billions of debt, all legal and by design.

  6. So what’s going on Steve?

    I had a look on the ExxonMobil website; had a quick look through their reports and found a PDF; 2016 Outlook for energy: A view to 2040. At the bottom of page 56 is says “Oil, natural gas and coal are expected to provide about 80% of global energy through2040”.

    Your report and their report are, could we say opposites !!!!

    I would imagine your report should throw the cat among the pigeons; ANY COMMENT?

    http://cdn.exxonmobil.com/~/media/global/files/outlook-for-energy/2016/2016-outlook-for-energy.pdf

    • GrahamB,

      I would imagine my analysis is likely incorrect, because large corporations always tell the truth… LOL. Exxon must continue to put out a GOOD WORD or their stock price would come under serious stress.

      steve

    • GrahamB,

      Oil, natural gas and coal WILL provide 80% of global energy through 2040. What is so hard to believe about that? There is no contradiction in that statement. The question is 80% of WHAT?

      This estimate will still be generally valid, because there is really no such thing as “alternative” energy. The so-called forms of alternative energy- wind, solar, hydro and nuclear are all heavily dependent upon fossil fuels. They all need massive amounts of fossil fuel in fabrication, construction and maintenance. But most of all, they all need to be financed or subsidized by the economic system created by high EROI fossil fuels.

      As the easy oil, gas and coal disappear, so will all the “alternative” forms of energy. And they will disappear at least in direct proportion, but more than likely in geometric proportion to fossil fuels. That is, as fossil fuel production goes down, the production of so called “alternative” forms of energy will fall much more rapidly.

      Why? Alternative forms of energy are much more expensive. It’s sort of like this: If your pay is reduced 25%, your spending on luxuries doesn’t also go down 25%, it goes down 90-100%. Because now you have trouble paying for necessities. It will be the same for peak fossil fuel production.

      • Thanks Rob 🙂 I do understand what you have just said and I do understand what Steve’s report is about. I am just bewildered, it really is the bare bones truth isn’t it?

        The ramifications of what Steve has just written are enormous. I am just sitting here looking at my monitor in disbelief!!! I am not blind to what is happening in the markets BUT seeing it exposed (if I can use that word) in a high profile company such as ExxonMobil is just mindboggling. What else can I say.

      • I completely agree with you Exxon shell bp etc.. will all be around in 50 yrs from now and I’m sure they’ll be mergers.. it’ll just be different perhaps a two tier society

        • Is that an “Objective” view or a “Personal” view Adam?

          • It’s more personal than objective. You’ll have the haves and the have-nots and most people will fall in the have-nots. Like I said a two tier society closely resembling feudalism. No one here can predict the future but when resources/energy become more scarce what’s left always tends to end up in the hands of the top upper crust of society. Just look at North Korea everyone lives in perpetual poverty with a military police getting more than the average peasant to protect the tiny ruling class from revolution.

          • Remember what rob said 80% of energy will come from oil coal but 80% of what? 80% of 50 trillion btu’s and 80% of 1 trillion btu’s are totally different worlds we would be living in! Those numbers I pulled out of my ass I don’t know the global btu consumption but I think you should understand my point. The west which makes up 1/3 of global population lives in an energy rich environment compared to other 2/3 of the world where it’s shanty towns and few palaces. Eventually the west will succumb to net energy decline which is currently happening and before you know you’ll have a two tier society like a 3rd world country.. I understand this is over simplification of the situation but hopefully you’ll understand my perspective.

        • Thanks to SRS Rocco for another great article, and to Rob for a good post (above).

          @ Adam: Did you not read the article? These companies are dying! Take a look at the 30-year chart of XOM.

          Junior oil and gas operators hold back dividends UNTIL THEY MAKE ENOUGH MONEY TO AFFORD THEM. The big-caps are deliberately stripping seed corn to fill shareholder pockets. It ain’t rocket science, but you have to be a real scumbag to cross the line. The executives and board members must be such a bunch of lowlifes.

          The greater tragedy is the fact that such corruption seems widespread in American corporate and government culture. The entire god forsaken system seems to be one grand, multi-layered ponzi, dominated by unprincipled, conscience-less psychopaths, destroying capital and hollowing out wealth from the future in order to feed greedy maws in the present.

          • “I am opposed to corruption” is the spoken part, “unless I can participate or otherwise benefit” is the unspoken part,

          • @ Roy: Are you misconstruing deliberately for purpose of argumentation, or do you have a particular situation in mind, or are you even addressing me? If you’re speaking in the general sense that we’re all taking part, well, that doesn’t seem particularly helpful..?

  7. Anyone want to buy a good saddle horse?
    He has 2 stockin’ legs on one end and 2 on one side.

    • I’m heading for the coast when things really start to heat up or cool down, depending on how you look at it. Plan on selling 20 ft. + sailboats and wood burning stoves.

  8. I read F. William Engdahl’s book Myths Lies and Oil
    wars earlier this year. According to him the problem is not that we are running out of oil, but that the powers that be are challenged to keep the price high. My suspicion is that Engdahl is correct and this apparent crisis is concocted to prove the theory of peak oil and use the situation in furtherance of Govt. control over the populace. If you haven’t read the book, you might like to take a peak. Find out what earthly process actually creates petroleum products. Hint: it has nothing to do with decaying dinosaurs and plants.

    Cheers,
    JB

    • I have read F. William Engdahl’s books John Bergeson. And I read Thomas Gold’s book “The Deep Hot Biosphere” and Mathew Simmons’s “Twilight in the Desert”. and many more…..

      It makes no difference what they say if you are using 2 Barrels of oil to get 1 out of the ground. The stuff might as well be on Mars!!!!!

      I think the important lesson in Steve’s report is; regardless of what you believe the numbers say ExxonMobil is going BROKE!!!!! I think that is BIG news!!!!!

    • DisappearingCulture | November 4, 2016 at 7:19 am | Reply

      “Find out what earthly process actually creates petroleum products. Hint: it has nothing to do with decaying dinosaurs and plants.”

      it doesn’t matter whether it is fossil source or not; the large, shallow, easer to get, high EROI oil fileds, on land [not in deep ocean or under ice] is disappearing.

  9. CFO point of view | November 3, 2016 at 10:24 pm | Reply

    Who cares about dividends after collapse?
    Who cares about stock buybacks?
    These are financial machinations, not real bussines! And 70% of all of this post relates not to peak oil, but financial machinations, which are really not important. After Exxon is in trouble, there will be some money which will be invested in this company and will not look for big dividends and buybacks!

    If they have positive operational cash flow after CAPEX with oil price close to $40, then there is no problem at all. After they would go to more problematic resources, price will have to adjust to $100 – still I see no problem – they will most probably have positive operational CF.

    • CFO,

      I see we will have to agree to disagree on this one.

      So, you say they have NO PROBLEM with positive operational cash flow after CAPEX close to $40. I see.

      So, writing off one-third of Exxon’s oil reserves is NO PROBLEM. I see.

      So, spending three times the CAPEX to produce less oil is NO PROBLEM… I see.

      So, the U.S. Energy Industry spending 50% of their operating cash to pay interest on their debt is NO PROBLEM… I see.

      So, you think the oil industry will go to more problematic resources and the price will have to adjust to $100. I see.

      I gather you did not understand the Thermodynamic Oil Collapse video. I am not surprised as you use a CFO screen name. The price of oil is not going to $100 at a sustainable basis. If you understood the thermodynamic oil decline, the net energy remaining would not dictate a high oil price… never again.

      steve

      • CFO point of view | November 4, 2016 at 5:05 pm | Reply

        Dear Steve,
        1. “So, you say they have NO PROBLEM with positive operational cash flow after CAPEX close to $40. I see.”

        What I see on 1st graph is that they have positive CF after CAPEX with oil price at ca. $40. So I see no problem here.

        2. Writing off a third of reserves is no big deal as they are obliged to do so if these are not economically viable to use. This is a must in International Accounting Standards. But if price goes to $120 again, they will use these resources if it is possible. Writing off is just accounting issue. More important is low EROI of these resources. These are not good resources, which will sustain our global economy, but these may be good resources for replenishing other good resources (like these from UEA) in case humanity has no other in transition time.

        3. Spending more CAPEX and extracting less oil is for sure not good direction, but it’s Peek Cheap Oil that we fully agree, so it’s natural. That’s why I see no major problem here. It’s obvious Exxon will need higher oil price in the future to keep pomping oil.

        4. Yes spending 50% of operational cash flow on interests on debt is not an issue for us – it’s just idiotic way of conducting a business and clear agency conflict IMO. Current owners of Exxon are being robbed by management of Exxon to receive bonuses. After Exxon has problems with liquidity and shares will tumble to low numbers, there will be new capital that will invest in Exxon shares and conduct changes – there will be much less dividends if any and no such stupidity as shares buybacks.

        5. It’s true I do not trust Hills Group way of thinking. I see rising price of oil untill we are not able to find oil of EROI>2. Then we have a problem as humanity if we don’t find good way of using other sources of power as energy from Sun for example or energy from Earth – like from magma. But for now I am rather optimistic in this matter – I think until 2035 or 2040 we will find a way to deal with this. Until then I see rising price of oil in few years perspective and end of globalism as price of oil goes > $200.

        6. Thank you for what you do!

      • Steve,

        “If you understood the thermodynamic oil decline, the net energy remaining would not dictate a high oil price… never again.”

        Let me understand this. Essentially you are claiming the price of barrel of oil is correlated to the net energy available per barrel of oil. If true, do you have a chart to prove that? I mean this is very simple hypothesis to prove, it doesn’t need differential equations or thermodynamic theory to prove it. A simple regression line will prove it.

        I doubt this claim of correlation has any merit. An expert in a topic is someone who can state a complex problem in one simple statement.

        But what I believe is happening here is that oil will become obsolete as its NET Energy gain tends to zero. This doesn’t make oil price predictable, or is it?

        The more I think about it, the only way oil can become obsolete is if its price goes into unsustainable levels (like $300 a barrel) and at that point the world economy will make it obsolete. Maybe then the price doesn’t matter anymore…

        • CFO point of view | November 5, 2016 at 12:00 am | Reply

          I agree with you Joe, except one – if people have no other choice, they will change they behavior to adjust. For example if we as the people have no other alternitive, we will stop travelling through the world by planes like mad – we will simply live more locally, also business will go to local mode – no more transporting materials and products for tens of thousands of kilometers…
          In such society there is a place for $300 oil IMO. People will adjust if they have no alternative.

          • Steve,

            Thanks for the chart, now I understand. Though I don’t think you are articulating the correlation properly which is leading to the disconnect. First of all, price is not correlated to the cost of production, but to the maximum affordable price.

            The maximum affordable price is a function of cost of production and gains in energy efficiency for economic activity.

            Let’s denote the variables

            Z is maximum affordable price
            X is cost to produce a barrel of oil
            Y is gains in energy efficiency

            Now z = y – x

            We know x is always increasing, y is increasing too only up to a certain limit.

            Now as long as efficiency is increasing more than cost, affordable price will go higher. But as efficiency tends into its upper limit, and cost continues rising, the affordable price z will reach a plateau and start declining and thus real price of oil barrel too.

            To understand the process just plot z = y-x in excel using data points similar to what I described above, and you will get a chart that correlates with affordable price and actual price of barrel of oil. I am going to try it myself

        • Joe,

          Thanks for your comment. Yes, the price of oil is based on its COST OF PRODUCTION rather than any supply and demand forces. As I mentioned in another comment, the Hills Group calculated the global industry cost to produce oil. You can check out their ETP Oil Model chart here: http://thehillsgroup.org/depletion2_022.htm

          The rising black line is a thermodynamic equation using lots of data and 10,000 man hours of inputting to calculate the cost of producing a barrel of oil. The dots on the graph are the annual price of a barrel of oil. As you can see, the production cost line and the dots go up in a similar trend.

          This is also true for the price of gold. The Cost to mine gold in the top two gold miners increased 470% from 2000-2012. The gold price increased 498% from 2000-2012. It is no coincidence that the cost and price of gold moved up in nearly the same percentage. Thus, SUPPLY, DEMAND and Traders had nothing to do with the price of gold, THE COST DID.

          Again, this is holds true for oil and most other commodities.

          steve

  10. Steve thank you for this great analysis. I must admit that i am surprised that things are that bad.
    I intend to go on with small donations to support your great work steve. I hope other readers of your work are doing this as well.

  11. It shows all the comments about the massive ‘oil glut’ are pure propaganda. If companies like Exxon and there are loads of them in the US, keep pumping oil at $49 that costs over $65 to produce, then of course it looks like a glut….at the same time the U.S. imported a record amount of oil last week.

    Its not an oil glut, its a wrapped up manipulated oil shortage.

    The world has thrived on cheap oil, when it was cheap to produce. Those days are gone, but instead of the world realising it, we have this stupid stupid campaign to pretend there is so much of it, even though all the Super Giant fields are in terminal decline as are the shales from the minute they start producing their loss making oil.

  12. Steve
    Excellent work. The panic that is coming to the world will be profound.
    Any chance you could you do a parallel analysis of Schlumbeger? I would expect the drillers to have similar financial issues, yet their stock price has plateaued as of late.
    Here’s to prepping

  13. This is what fiancalization does to to whole economy. The asset owners and execs and Wall Street steal the profits, and trilions of USD of debt is created.
    I’ve been watching Venezuela for a while, and it’s important in this context because of its potential to bring a lot more oil to the market. That country needs a new govt very badly, and will probably get it soon. That should mean a lot more oil being produced, not good for the price.
    Looking for what may trigger the next worldwide megacrash, Vzla is a potential “black swan” that can set off the daisy chain dominoes reaction, the oil industry unable to service its debt hurting the banks, etc etc etc. However, reading this, it looks like US oil can do it all by itself.
    I have a suspicion about what really happened with Vzla, but that’s another story for another day.

    • Re: financialization

      “Deflation in the casino: central banks play their last chips to no avail”

      March 2016

      rev’d 10-31-16

      1. This is not your grandfather´s capitalism

      2. A global $US short squeeze

      3. Negative Interest Rate Policy (NIRP): a perverse incentive to hold non-productive yield free cash

      4. Central banks approach end-game while fighting the last monetary war

      Deflation today is a consequence of debt piled on more debt accompanied by failure to generate sufficient wealth, growth and employment resulting in an inability to service the debt. The dollar has risen against other currencies, not because it is strong, but because the lack of global economic growth has exposed the weakness of a petrodollar money-as-debt monetary system. The gaming of the monetary system by all the controlling players is the essence of 21st century capitalism. The failure of this capitalism will mark the end of the American century.

      http://breskin.com/Inquiramus/2016/06/15/deflation-in-the-casino-central-banks-play-their-last-chips-to-no-avail/

  14. Peak demand in 2021, according to RDS.

    “Shell sees “oil and gas as being part of the energy mix for many decades to come,” it said in a statement Wednesday.”

    https://www.energyvoice.com/oilandgas/123291/shell-thinks-demand-oil-peak-five-years/

    They meant ‘peak affordability’ i suspect.

  15. Why energy prices are ultimately headed lower; what the IMF missed
    Posted on October 11, 2016 by Gail Tverberg

    We have been hearing a great deal about IMF concerns recently, after the release of its October 2016 World Economic Outlook and its Annual Meeting October 7-9. The concerns mentioned include the following:

    Too much growth in debt, with China particularly mentioned as a problem

    World economic growth seems to have slowed on a long-term basis

    Central bank intervention required to produce artificially low interest rates, to produce even this low growth

    Global international trade is no longer growing rapidly

    Economic stagnation could lead to protectionist calls

    These issues are very much related to issues that I have been writing about:

    It takes energy to make goods and services.

    It takes an increasing amount of energy consumption to create a growing amount of goods and services–in other words, growing GDP.

    This energy must be inexpensive, if it is to operate in the historical way: the economy produces good productivity growth; this productivity growth translates to wage growth; and debt levels can stay within reasonable bounds as growth occurs.

    We can’t keep producing cheap energy because what “runs out” is cheap-to-extract energy. We extract this cheap-to-extract energy first, forcing us to move on to expensive-to-extract energy.
    Eventually, we run into the problem of energy prices falling below the cost of production because of affordability issues. The wages of non-elite workers don’t keep up with the rising cost of extraction.

    Governments can try to cover up the problem with more debt at ever-lower interest rates, but eventually this doesn’t work either.

    Instead of producing higher commodity prices, the system tends to produce asset bubbles.
    Eventually, the system must collapse due to growing inefficiencies of the system. The result is likely to look much like a “Minsky Moment,” with a collapse in asset prices.

    The collapse in assets prices will lead to debt defaults, bank failures, and a lack of new loans. With fewer new loans, there will be a further decrease in demand. As a result, energy and other commodity prices can be expected to fall to new lows.

    Let me explain a few of these issues:

    https://ourfiniteworld.com/2016/10/11/why-energy-prices-are-ultimately-headed-lower-what-the-imf-missed/

    • Thomas,

      Yeah… Gail does some excellent work. However, she criticized the Thermodynamic Oil Collapse model as rubbish because she doesn’t understand the dynamics. I believe she posted some charts showing that overall U.S. Industrial energy usage did not increase along with Shale Oil production in the states, so she figured that the energy cost to produce that oil was not really rising.

      Unfortunately, Gail is not looking at the entire energy matrix. there’s been a lot of pipe produced to do the massive amount of drilling that takes energy that does not show up in the equation. I could go on and on.

      steve

  16. That is not correct. You can review her articles and you will see that is not her position at all.

    As I understand it she believes that the end will come as a result of a financial collapse.

    Essentially we revisit 2008 but with the central banks being out of bullets.

    It would be interesting to have you post this on Finite World as it would only be fair to allow Gail to defend/explain her position.

    • Thomas,

      You misunderstood what I was saying. I am not going to get into a debate with Gail. It’s pointless. And I am not going to continue here either. While Gail understands the entire energy system, she doesn’t understand the thermodynamic collapse. She even called it silly.

      This is where she and I are in disagreement. Of course the collapse will happen in the financial system. However, the energy has always been the cause, not finance. Finance has just propped it up longer.

      steve

  17. Ah I see – you are from the Hills Group — or at least you are a acolyte.

    Gail has already steam rolled their position.

    She recently dedicated an entire article explaining how the Hill Group model is incomplete

    Agree – no need to continue with this discussion.

    • Thomas,

      Ah… I see. She says the Hills Group work is incomplete. It is actually the other way around. Anyhow, I agree, you have your mind made up. This ENDS NOW.

      steve

  18. Well. You could pop over to FW and explain to Gail how she is wrong. If you feel so strongly that you are right.

    • Thomas,

      No need to haggle on minor points, seriously. I have been following Gail’s work for years. The system will collapse and it will never come back like it did after 2008. So, I see no need bickering over details of which way the Massive Heart Attack victim fell to the floor.

      steve

      • Steve, luv your work. What does the average guy do to protect himself and family from the storm in 5 years?

        • Boyblue,

          That is a hard question to answer. It is different for everyone. I left the big city years ago. I got out of the markets years ago. It’s best to be able to know how to grow and obtain your own food. If you don’t live in the country, then when times get rough, see what friends or family members will allow you to move with them and help.

          There is no guarantee of wealth in the future, but gold and silver will likely offer more options that most paper assets. Bulk food is a good thing to have in storage.

          Educate yourself on survival and learning how to do more yourself. When the supply chain becomes disrupted, people will have to count on themselves, family and neighbors to make it.

          steve

  19. I’d go a fair bit further and call what is coming an extinction event.

    See Korowicz for what happens when 2008 hits and the central banks can do nothing:

    http://www.feasta.org/2012/06/17/trade-off-financial-system-supply-chain-cross-contagion-a-study-in-global-systemic-collapse/

    Two key problems that result from the collapse of BAU:

    1. Well over 99% of all agricultural land is farmed using petro chemicals — this land is dead without them i.e. it cannot support a crop without years of intensive organic inputs – including animal manure. When BAU goes what will people eat while they try to fix the soil?

    2. Spent Fuel ponds – these are high tech facilities that MUST have BAU in play for them to continue to be managed.

    Let’s see what Harvard says happens when a single pond is compromised:

    Assuming a 50-100% Cs137 release during a spent fuel fire, [8] the consequence of the Cs-137 exceed those of the Chernobyl accident 8-17 times (2MCi release from Chernobyl). Based on the wedge model, the contaminated land areas can be estimated. [9] For example, for a scenario of a 50% Cs-137 release from a 400 t SNF pool, about 95,000 km² (as far as 1,350 km) would be contaminated above 15 Ci/km² (as compared to 10,000 km² contaminated area above 15 Ci/km² at Chernobyl).

    A typical 1 GWe PWR core contains about 80 t fuels. Each year about one third of the core fuel is discharged into the pool. A pool with 15 year storage capacity will hold about 400 t spent fuel. To estimate the Cs-137 inventory in the pool, for example, we assume the Cs137 inventory at shutdown is about 0.1 MCi/tU with a burn-up of 50,000 MWt-day/tU, thus the pool with 400 t of ten year old SNF would hold about 33 MCi Cs-137. [7]

    http://belfercenter.hks.harvard.edu/publication/364/radiological_terrorism.html

    Also

    The problem is if the spent fuel gets too close, they will produce a fission reaction and explode with a force much larger than any fission bomb given the total amount of fuel on the site. All the fuel in all the reactors and all the storage pools at this site (1760 tons of Uranium per slide #4) would be consumed in such a mega-explosion. In comparison, Fat Man and Little Boy weapons dropped on Hiroshima and Nagasaki contained less than a hundred pounds each of fissile material – See more at: http://www.dcbureau.org/20110314781/natural-resources-news-service/fission-criticality-in-cooling-ponds-threaten-explosion-at-fukushima.html

    Extinction is baked in.

    Hence my decision a few years ago to semi-retire, move to New Zealand … I am aggressively trying to empty my bucket list traveling the world seeking new adventures and experiences.

    • Like the guy said: degrowth or barbarism.

      Sorry for the intervention.

    • The Central Banks can do nothing? Please, they’ll do the same thing they did the last time and “print” copious amounts of frn’s. They forked out over $80 billion to a single firm (AIG) in 08′. Plus they own all the media and politicians in the west so only around a hundred wacky gold bugs will have figured it out. Oh, and interest rates will be headed down. Do nothing. bwahahaha.

    • Why New Zealand

  20. Steve,

    Before I came across your work, I came across Chris Cook’s. His general view is that oil prices are driven up by inflation hedging, whereby traders push up oil in order to synthetically create an inflation hedge. When the legs are cut off this thing, it will unwind massive amounts of oil trades that only exist on paper. But he mentioned nothing of the EROI. My question is this- is it possible that inflation hedging is a kind of technique to bypass or prevent serious losses to the large oil companies out there who could already be experiencing a declining EROI and they need the synthetic prop?

    Thanks, Eric

    • Eric Paradis,

      While it seems as if traders or inflation hedging are the factors that determine the price of oil, it isn’t The Hills Group ETP Model shown at this link: http://thehillsgroup.org/depletion2_022.htm, calculated the industry cost to produce oil. The solid black line is the Hills Group’s oil production cost line. The dots on the chart represent the annual market oil price. You will see the the market price corresponds to the cost of production.

      Thus, the price of oil increased not because of supply, demand or inflation hedging, rather it increased because the cost increased. This is the exact same thing I proved in my article on the COST OF GOLD = THE PRICE OF GOLD.

      The cost to produce gold from the top two gold miners, Barrick & Newmont, increased 470% from 2000-2012. The market price of gold increased 498% from 2000-2012. So, all the supply, demand and traders didn’t really impact the price as much as the COST OF PRODUCING GOLD.

      This is the same for oil and most commodities.

      steve

  21. I’m not Steve, but I’d like a stab at this one: When the rubber hits the road and reality kicks in, when deliveries can’t be made and production stops etc etc etc, then the ugly truth can’t be “papered over” any more.
    Oh yes, the central banksters will keep on trying to extend and pretend, but many smart people see a mega crisis coming very soon, because the distortions have been growing for too long, and they’ll all implode.Oil will be an important part of it.
    Then we can keep on discussing how and when EROI will end this energy era, and what comes after it.

  22. There’s one factor missing here, income, cash flow or revenue stream. That,’s needed to both service the debt and do everything else. When the business gets reduced, that ain’t happenin’. Then, at one point, the banks ca’t help any more, and the house of cards collapses.

  23. What’s that supposed to mean? Humans have existed for a long, long time without oil, and even built great civilizations without it. Nonody knows exactly what will happen when EROI kills oil, but knowledge is a bell that can’t be unrung. Maybe Big Oil one day will “suddenly” discover working cold fusion or magma heat utilization or both?
    Someone mentioned that energy, oil, may become extremely expensive in a transition period. That would cause a mega economic reset, but not the end of humankind.

  24. No no no everybody, we can’t put on our rose-coloured glasses and look at how great before-2008 was, because it wasn’t. Greatness is always IN FRONT OF US, after the next speed bump.
    Oh yes, the world is murky and complicated, but we humans have always improved.

  25. Pogohere, I think we’re both trying to say the say the same thing. In 2007-8 not so many were warning, and even fewer listened. Now, many more are warning and a few more are listening. Even mega banks are offering negative outlooks.

  26. Have you followed Grant Williams – Singapore based hedge fund manager re: gold…

    The market is completely fixed — it has nothing to do with supply and demand

    The central banks do not want people pouring into gold – for obvious reasons — so every once in awhile they just pound it lower by diluting the market with more derivatives

    http://www.zerohedge.com/news/2015-08-03/comex-edge-deliverable-gold-drops-record-low-124-ounces-paper-every-ounce-physical

    Funny thing … when the price of gold tanked a couple of years back a good mate who is a senior manager at Goldman Sachs – he knows I have a heavy position on physical gold – suggested a couple of weeks before the priced tanked – that I sell…

    He was spot on

    The gold market is a joke — the central banks play it like a puppet on a string…. if you are looking to make money trading gold you would be better off getting the proverbial monkey to throw darts at a board with stock IDs…

    I do hold gold as an inflation hedge — and as something that might come in handy as BAU enters the terminal phase

    But when BAU goes – there will be no energy – there will be no food — gold will be 100% worthless

  27. “Gold and the Global Monetary Reset:”

    . . .
    The world monetary system needs a governor on the creation of money-as-debt because excessive money-as debt creation has debauched currencies. Gold, the traditional governor on the global monetary system, has been deemed to be an anachronism largely because it has been more than a generation since any currency was redeemable in gold. The major decision makers have been schooled in a fiat system and have no experience with any other system and no incentives to curb monetary excesses. It´s the only system they know. In hindsight, those countries that increase their physical gold reserves will be deemed to have made obvious choices in an environment ripe for a reset, but now look anachronistic.

    When will the reset occur and when will gold be reintegrated into the global monetary system? Not before nations begin steadily reducing the US dollar component of their national monetary reserves–now approximately 60%– well below 60% and not before the proportion of world trade conducted in the US dollar–now approximately 43%– falls significantly below 40% of the total amount of currencies used in trade. When these trends are irreversible, economic confidence in the current fiat system will erode because capital flows to where its owners deem it is safest. Loss of that confidence will trigger the reset.

    http://www.marketslant.com/articles/gold-and-global-monetary-reset

  28. I am a bit late with this comment, regardless here it is.

    Caltex Petroleum Australia Pty. Ltd. (ASX: CTX) until March 2015, Caltex was owned 50 percent by Chevron, and 50 percent by Australian shareholders. In March 2015, Chevron sold down its 50% holding to Australian shareholders. Julian Segal has been the CEO of Caltex Australia since July 2009.

    Caltex – Wikipedia
    https://en.wikipedia.org/wiki/Caltex

    I understand Caltex is a retail Company BUT would like to make this point!!!

    In September of 2001 the share price for this company was $0.90 AUD today $30.70 AUD, that is a 3000+% increase in 15 years, 200% per year. NOT BAD eh?

    The point I am making here is, Chevron no longer holds any stock in this company. It is now by the look of it 100% shareholder owned. IMHO Chevron have sold out at the top of the market. My chart on Caltex coupled with Steve’s information on ExxonMobil tell me there is only one direction for this stock and that is down. Which means the shareholders will be stuck with the loss.

    For Chevron to have sold out at the top of the market in 2015; could this imply they know what is ahead?

  29. Excellent reasoning Steve. Another essay of historical importance. This information dovetails so tight with the reality of thermodynamic collapse that it becomes yet another point of confirmation. By the way, the video was helpful, the report is tough to work through. The Hill’s Group report is of monumental significance. Your work is helping to make it known and certainly helping to make it understandable.

  30. No.

    They will do everything they possibly can trying to fend off another 2008 moment — they will print and stimulate and bail and loan…. they will use every bullet in the box … they will throw the empty gun at this — then their will rip off the kitchen sink and throw it too.

    I guarantee you they will do ‘whatever it takes’ to hold this moment off for as long as possible.

    But the moment will arrive — that is guaranteed.

    And when it does there will be nothing left to throw — the shops will be looted and emptied — the electricity will go off… the violence and disease and suffering and starvation will follow.

    And you will be dead – I will be dead – and the central bankers will be dead

    • I agree with almost everything you said and pretty much in the order you said them but at the very end you speak for yourself but definitely don’t speak for the rest of us.

      One of the reasons this site is so important is because it speaks the truth and is not some dog and pony show.

      Knowledge is power and power is survival. By having the very best estimates of what is happening and whats is going to happen may just be the edge we need to find a way through the shit storm that is coming.

      SteveW

  31. I would expect you to disagree with the conclusion because after all you are selling a version of hopium.

    There are plenty of people doing the same – Chris Martenson, Jim Rickard, etc etc etc.

    The thing is…

    There is no hope.

    And this is coming from a guy who bought a lot of gold at $700 before the subprime hit. That buy was based on the expectation of the crash to end all crashes.

    I also moved from where my businesses are located in Hong Kong and Mainland China to a remote part of the south island of New Zealand. I set up a substantial farming operation.

    But alas all is futile.

    When BAU blows civilization ends – period.

    There will be no sources of energy other than trees — and 7.4 billion people will get rid of the forests rather quickly when they are cold (see Greece … cutting down forests…)

    Nothing will grow because the soil is ruined by petro chemicals:

    https://agenda.weforum.org/wp-content/uploads/2015/08/agriculture3.png (note – most organic land in Australia is rubbish and supports sheep only)

    Everything that moves will be killed and eaten.

    If you have an organic garden (I have a large one) – my animals will be killed so no manure — neighbours will be at the gate asking to be fed — people with guns will be at the gate demanding to be feed — hungry people will be into my gardens at night ripping my crop out — so they can feed their children.

    And then there are the spent fuel ponds – 4000 of them — each one a ticking time bomb. You think Fukushima was bad — well Fukushima was a reactor accident – ponds hold hundreds of times more fuel than a reactor…. and of course Fukushima is controlled – because pumps spew tonnes of water onto the cores 24/7.

    When the oil and coal and gas stop — the ponds will boil – then they will catch fire and they will spew enormous amounts of radioactive toxins into the year…. for decades….

    This is an extinction event.

    Feel free to explain how I am wrong.

    Apologies in advance for ripping into your business model.

    • Thomas Malthus,

      No, I see no error in your thinking that a possible outcome is that everything gets killed, poisoned or butchered.

      If that is your opinion, and it seems that your are most passionate in giving it, then…..

      WHY DON’T YOU SLIT YOUR WRISTS NOW & FORGO ALL THE WASTED TIME IN HERE?????

      However, I still look toward a future and will try to do what I can, even in the face of horrible odds. Life is what we make of it today.

      steve

    • Thomas Malthus

      Haven’t you seen MAD MAX Thomas?

  32. The thing about Finite World…

    Is that that owner of the site has no agenda other than seeking the truth…. she does not run ads on the site — she does not seek to monetize what is a site with huge numbers of followers – in any way.

    She sells nothing – she runs no banners – nothing.

    Her only agenda is providing research and a platform to discuss energy and related issues.

    I am always skeptical when anyone follows an article that explains how the world is going to hell in a hand basket — I will tell you how to survive — for a price.

    That said – this article is outstanding.

    • It is an outstanding article but it is only one of very many. I invite you to go back and read all of the posts from the beginning and challenge you to site a single occasion where Steve St. Angelo offers t6o “tell you how to survive — for a price.”

      Believe me, as one who has read them all and reread many there isn’t one.

      As for Gail, her work is great, if somewhat esoteric, and an adjunct to what she does for a living. This is his living and you and any others that regularly read this site should consider contributing to its continued existence so that he is not forced to make it a paid site.

      As for your prognostications, the bulk of the world’s population will be dead long before they can cut down all the trees and kill all the game. And why should you worry about nuclear melt downs, as I recall there aren’t any nuclear power plants in New Zealand. Your problem, other than being a seriously cynical son of a bitch, is having to live with all the rest of the worlds pretentious assholes that are all moving to NZ.

      Good Riddance!

  33. But Steve — is gold not just another form of money?

    And its money not just a store of energy?

    When BAU goes would you not agree that fossil fuels will not longer be available?

    What use will gold be —- again I have quite a bit of gold stocked away — but I am doubtful it will be of any value post BAU – I keep it mainly as a hedge as we enter the final days of BAU…. it may keep me alive a little longer

    I agree that food will be paramount. But as I have pointed out there will be virtually no food available – the soil is dead.

    The few who grow in soil that is not ruined will be immediate targets for the hungry.

    All those relatives and friends who thought you were nuts will be at your door asking to be fed. As will your neighbours and lots of other people

    I see no role for gold post BAU.

    • Thomas,

      This will be my last reply on this topic. It is not that I don’t enjoy discussing things openly, but it is a bad EROI. I’d rather spend my time writing articles for many to see than replying one on one to comments.

      However, you bring up some valid points, so I will address some now.

      Yes, it is true that Gail does not have ads and has stated that she doesn’t make money on her site. I admire her for putting out articles for the sake of knowledge.

      However, I see no fault in providing information for a small fee. Teachers get paid to teach. Writers get paid to write books, magazines and etc.

      While I do collect Google Ad revenue, most of it goes to pay for the maintenance of the site. What little I receive from my paid reports or from donations, is very appreciated as it helps pay for some of my time.

      That being said, I will conclude on the subject of GOLD AFTER COLLAPSE.

      While your suggestion that gold is energy so after a collapse of energy it will be worthless as BAU will be dead, is an interesting one. This of course, is a valid assumption. However, I would kindly like you to think about it this way.

      If everyone in the world isn’t dead, along with all animal and plant life, then some sort of life will continue. There are many scenarios. For example, as Venezuela continues to disintegrate, we hear that the precious metals are providing a great deal of benefit. An one ounce silver coin will now buy 9 months worth of food from a farmer. An one once gold coin will buy a modest home in the country.

      This is how I see the value of gold and silver going forward. While there could be a scenario where gold and silver’s value skyrocket, I am more content with gold and silver providing options similar to what is taking place in Venezuela.

      Now, what happens in say 10-20 years when 400 Nuke plants go down… who the hell knows. But, all I can do is plan for tomorrow and let the chips fall as they may.

      steve

  34. The move to New Zealand was partially a result of not fully understanding what the end of BAU meant…. at the time I still thought it would be survivable… and the south island of New Zealand being lightly populated, mild in climate (at least in certain areas) and heavy on agriculture …. seemed as good a place as any.

    Other factors were that I was living in Bali at the time and was over that…. and New Zealand is an outstanding place if one is into the outdoors — I ski, fish, play ice hockey and mountain bike…

    However when I moved here I had an commercial organic farmer plan our gardens — he writes research for the NZ government — in short — he knows his stuff… and he was explaining to me how the vast orchards and veg farms in the valley below us are all farmed with petro chemicals — that the soil would support nothing if the chemicals were not available … not without years of organic inputs.

    There are close to 10,000 people within a days walk of me — there are 500k+ within a tank of petrol from me.

    They will be hungry.

    I would struggle to feed the 4 of us from our property…..

    Here’s a suggestion for those who believe this is a survivable event …

    Turn off your power for a week and use no petrol. Take your axes and take down some trees and split them. Wash your clothes by hand. Cook your food over a fire.

    Now imagine that week is going to turn into forever. Now imagine that there will be no police — nobody will save you when hungry people show up — when violent people show up…. rapists… murderers …

    Now imagine there will be no medical care – no medicines… If you break a tool you cannot replace it… there will be no shops. You won’t even be able to buy a toothbrush

    This is not Little House on the Prairie — this is hell on earth. Even if you could survive this you will wish you were dead.

    I gave up on the ‘prepper’ bs well over a year ago — the extent of my prep involved filling a 20 foot container with food and booze and guns and ammo — put a big lock on it —– which I will remove as I start the End of the World party (when the lights go off permanently) —- I must remember to buy the battery powered disco ball!

    And I bought a very fast car —- so that when the suffering begins…. we can go on a family trip …. and pile it into a rock cut …

    My recommendation would be to enjoy the little time we have left. Do not worry about debt. Do not worry about investing in the future – there is no future.

    If you like to travel — then do it. Do not put off what you can do today – because there is no tomorrow.

    Get the most out of this wonderful BAU that you can.

    I’ve been traveling extensively since I saw the writing on the wall — even before I realized this was an extinction event…. I’m off to Switzerland next weekend…. in many ways ‘knowing’ is a positive…. it can be the great motivator….

    That is how certain I am of the outcome.

  35. Steve – why would I do that? After all — I think we all knew a long time ago we were all going to die…

    So why didn’t you slit your wrists when you realized that when you first realized that everyone dies?

    I prefer to put a positive spin on the inevitable…. it is like I went to the doctor — feeling awesome — feeling healthy — and fit… and optimistic….

    And the doc says — sorry mate — good news and bad news….. the bad is you are terminal — can’t tell you how long but likely not more than a couple of years….

    But the good news is you will continue to feel awesome right up until the final days of your illness….

    So I am going to die — no surprise there —- ideally I’d have another 30 years …. but hey — if it’s two then it’s two….

    Fortunately I won’t be in pain … I won’t be in the hospital — so I can do all the things I have always wanted to do and might have put off till I was too old to do many of them…

    What a wonderful gift ‘knowing’ is….. no need to worry about anything…. just live to the fullest in the time that remains….

  36. But Steve – what is this all about then?

    https://srsroccoreport.com/precious-metals-investing/

    https://srsroccoreport.com/lowest-cost-precious-metals-storage/

    Are you saying you don’t make money when you get people to sign up for those services?

    I have a library of extensive research on the spent fuel ponds issue — if you’d like me to post it so you can get up to speed just say so…..

    New Zealand has no ponds — but the thing is:

    Containing radiation equivalent to 14,000 times the amount released in the atomic bomb attack on Hiroshima 68 years ago, more than 1,300 used fuel rod assemblies packed tightly together need to be removed from a building that is vulnerable to collapse, should another large earthquake hit the area.

    http://www.reuters.com/article/2013/08/14/us-japan-fukushima-insight-idUSBRE97D00M20130814

    4000 spent fuel ponds x 14,000 = 56,000,000 Hiroshima bombs.

    Extinction Event. Even way down here in New Zealand. No?

    Again sorry to sink your business model.

  37. Am I not providing a useful service to people who are considering spending money on your end of the world survival services by providing insights into how this is not a survivable event?

    I have explained in great detail why there will be no food post BAU — feel free to explain how I am wrong.

    I have explained how there will be no way to manage spent fuel ponds when BAU goes down – and that they will release 56M Hiroshimas of radiation when that happens – feel free to explain how I am wrong.

    Feel free to invite whomever you want to debate me on these matters — I guarantee you — they will lose the debate.

  38. Oh one other thing… the fact that Gail does not make money from her research adds to her credibility.

    When you take money selling something that assumes a certain outcome — you will no doubt be biased towards that outcome.

    As we are seeing here I have explained how that outcome is not possible — and you are suggesting I leave the site.

    Surely the credible approach would be to defend your position — to explain how I am wrong.

  39. For those wondering about the spent fuel pond issue…. this information will prove useful:

    The Fukushima nuclear catastrophe could have been far worse, it turns out, and experts say neither the nuclear industry nor its regulators are doing enough to prevent a calamitous nuclear fuel fire in America https://www.publicintegrity.org/2016/05/20/19712/scientists-say-nuclear-fuel-pools-around-country-pose-safety-and-health-risks

    Japan’s chief cabinet secretary called it “the devil’s scenario.” Two weeks after the 11 March 2011 earthquake and tsunami devastated the Fukushima Daiichi Nuclear Power Plant, causing three nuclear reactors to melt down and release radioactive plumes, officials were bracing for even worse. They feared that spent fuel stored in the reactor halls would catch fire and send radioactive smoke across a much wider swath of eastern Japan, including Tokyo. http://www.sciencemag.org/news/2016/05/burning-reactor-fuel-could-have-worsened-fukushima-disaster

    Assuming a 50-100% Cs137 release during a spent fuel fire, [8] the consequence of the Cs-137 exceed those of the Chernobyl accident 8-17 times (2MCi release from Chernobyl). Based on the wedge model, the contaminated land areas can be estimated. [9] For example, for a scenario of a 50% Cs-137 release from a 400 t SNF pool, about 95,000 km² (as far as 1,350 km) would be contaminated above 15 Ci/km² (as compared to 10,000 km² contaminated area above 15 Ci/km² at Chernobyl).

    A typical 1 GWe PWR core contains about 80 t fuels. Each year about one third of the core fuel is discharged into the pool. A pool with 15 year storage capacity will hold about 400 t spent fuel. To estimate the Cs-137 inventory in the pool, for example, we assume the Cs137 inventory at shutdown is about 0.1 MCi/tU with a burn-up of 50,000 MWt-day/tU, thus the pool with 400 t of ten year old SNF would hold about 33 MCi Cs-137. [7]
    http://belfercenter.hks.harvard.edu/publication/364/radiological_terrorism.html

    Containing radiation equivalent to 14,000 times the amount released in the atomic bomb attack on Hiroshima 68 years ago, more than 1,300 used fuel rod assemblies packed tightly together need to be removed from a building that is vulnerable to collapse, should another large earthquake hit the area. http://www.reuters.com/article/2013/08/14/us-japan-fukushima-insight-idUSBRE97D00M20130814

    The problem is if the spent fuel gets too close, they will produce a fission reaction and explode with a force much larger than any fission bomb given the total amount of fuel on the site. All the fuel in all the reactors and all the storage pools at this site (1760 tons of Uranium per slide #4) would be consumed in such a mega-explosion. In comparison, Fat Man and Little Boy weapons dropped on Hiroshima and Nagasaki contained less than a hundred pounds each of fissile material – See more at: http://www.dcbureau.org/20110314781/natural-resources-news-service/fission-criticality-in-cooling-ponds-threaten-explosion-at-fukushima.html

    Once the fuel is uncovered, it could become hot enough to cause the metal cladding encasing the uranium fuel to rupture and catch fire, which in turn could further heat up the fuel until it suffers damage. Such an event could release large amounts of radioactive substances, such as cesium-137, into the environment. This would start in more recently discharged spent fuel, which is hotter than fuel that has been in the pool for a longer time. A typical spent fuel pool in the United States holds several hundred tons of fuel, so if a fire were to propagate from the hotter to the colder fuel a radioactive release could be very large.

    http://www.ucsusa.org/nuclear_power/making-nuclear-power-safer/handling-nuclear-waste/safer-storage-of-spent-fuel.html#.VUp3n5Om2J8

    According to Dr. Kevin Crowley of the Nuclear and Radiation Studies Board, “successful terrorist attacks on spent fuel pools, though difficult, are possible. If an attack leads to a propagating zirconium cladding fire, it could result in the release of large amounts of radioactive material.”[12] The Nuclear Regulatory Commission after the September 11, 2001 attacks required American nuclear plants “to protect with high assurance” against specific threats involving certain numbers and capabilities of assailants. Plants were also required to “enhance the number of security officers” and to improve “access controls to the facilities”.

    The committee judges that successful terrorist attacks on spent fuel pools, though difficult, are possible. If an attack leads to a propagating zirconium cladding fire, it could result in the release of large amounts of radioactive material. The committee concluded that attacks by knowledgeable terrorists with access to appropriate technical means are possible. The committee identified several terrorist attack scenarios that it believed could partially or completely drain a spent fuel pool and lead to zirconium cladding fires. Details are provided in the committee’s classified report.
    I cannot discuss the details here.
    http://www.cfr.org/weapons-of-mass-destruction/nuclear-spent-fuel-pools-secure/p8967

    If any of the spent fuel rods in the pools do indeed catch fire, nuclear experts say, the high heat would loft the radiation in clouds that would spread the radioactivity.

    “It’s worse than a meltdown,” said David A. Lochbaum, a nuclear engineer at the Union of Concerned Scientists who worked as an instructor on the kinds of General Electric reactors used in Japan. “The reactor is inside thick walls, and the spent fuel of Reactors 1 and 3 is out in the open.”
    http://www.nytimes.com/2011/03/16/world/asia/16fuel.html

    If you don’t cool the spent fuel, the temperature will rise and there may be a swift chain reaction that leads to spontaneous combustion–an explosion and fire of the spent fuel assemblies. Such a scenario would emit radioactive particles into the atmosphere.

    Pick your poison. Fresh fuel is hotter and more radioactive, but is only one fuel assembly. A pool of spent fuel will have dozens of assemblies. One report from Sankei News said that there are over 700 fuel assemblies stored in one pool at Fukushima. If they all caught fire, radioactive particles—including those lasting for as long as a decade—would be released into the air and eventually contaminate the land or, worse, be inhaled by people. “To me, the spent fuel is scarier. All those spent fuel assemblies are still extremely radioactive,” Dalnoki-Veress says.
    It has been known for more than two decades that, in case of a loss of water in the pool, convective air cooling would be relatively ineffective in such a “dense-packed” pool. Spent fuel recently discharged from a reactor could heat up relatively rapidly to temperatures at which the zircaloy fuel cladding could catch fire and the fuel’s volatile fission product, including 30-year half-life Cs, would be released. The fire could well spread to older spent fuel. The long-term land-contamination consequences of such an event could be significantly worse than those from Chernobyl.

    http://science.time.com/2011/03/15/a-new-threat-in-japan-radioactive-spent-fuel/

    Today there are 103 active nuclear power reactors in the U.S. They generate 2,000 metric tons of spent nuclear waste per year and to date have accumulated 71,862 tons of spent fuel, according to industry data.[vi] Of that total, 54,696 tons are stored in cooling pools and only 17,166 tons in the relatively safer dry cask storage.

    http://www.psr.org/environment-and-health/environmental-health-policy-institute/responses/the-growing-problem-of-spent-nuclear-fuel.html

  40. My Grandfather always told me “Wrestle not with pigs, for you get dirty and the pigs enjoy it”.

  41. Some pigs are really clever and really big ….. which are even better reasons for not getting into the ring with the wrong pig….

  42. ‘Mad Max’ is what happens just as BAU dies — and the power goes off — and the extreme violence begins … like this … but permanent…

    July 13, 1977: Massive Blackout Plunges New York Into Rioting
    http://time.com/3949986/1977-blackout-new-york-history/

    The violence will quickly engulf the country side as the cities are looted and these same people head to where they know food is to be found. The only crops available will be on organic farms — and even then most farms require pumped water …. so most organic farms will produce no food.

    Of course this all assumes that collapse hits at the end of summer – when the crops are ready… Imagine what would happen if BAU ended in the winter… or spring…

    What comes next is more akin to ‘Apocalypse Now’ metts ‘The Road’— epic starvation — Ethiopia on steroids — global — violence — disease — suffering — death…

    Then in will roll the cancer — as the spent fuel ponds release their massive amounts of radioactivity.

  43. That’s right Thomas. Just telling someone that they’re stupid doesn’t mean or explain anyting.

  44. However Thomas, there’s too much pessimism on this and all other sites on all types of subjects. We humans have not only survived, but improved immensely. History shows us that.
    Also, too many people are too sure about future outcomes. About the furure we can question, but not conclude.

  45. History is no guide.

    The fact of the matter is that we are out of energy. Without energy civilization cannot exist.

    Food cannot be grown.

    Spent fuel ponds will explode and poison the planet.

    Feel free to explain how I am wrong — singing Koombaya will not fix this

    • 80 years of physics is about to get turned upside down. All fossil fuels, nuclear, wind, solar will be eliminated and the transition starts by the end of 2017. Mankind will have millions of years of energy to support 100 billion + people. It appears to be just in the nick of time. I have followed this for over 20 years and mankind is about to welcome the new electron.

  46. Rtght again Thomas, we need to use the energy – that’s what this site is about, right? – we do have left to make the best out of a difficult situation. Future generations may achieve what we and our ancestors couldn’t. Notice I use the word may, because our record is kinda mixed.

  47. No, we’re not out of energy. When it gets too expensive, we’ll have to adjust condumption, and the human population will have to decrease probably, but not disappear completely. The good news is that knowlege is a great antidote to energy decay because we learn to use energy more efficiently, and the Sun ain’ goin’ nowhere for a long, long time.

  48. PMs are expected to become very good to have indeed in the soon-coming crisis when financial energy will be the issue, but they won’t become money or the basis for it again. Too much water has flown under too many bridges since 1971. Blockchain sounds good.

  49. SteveW, my problem is that too many people are bombastically sure about uncertain outcomes. All we can do actually, is to contemplate various scenarios and wait.

  50. @thomas Malthas
    First of all…we are not out of energy yet…

    Let’s hope wiser leaders decide to bury the fuel rods in a storage facility beneath a suitable mountain. That Should reduce the threat of catastrophic failure of the fuel ponds. There has been a lot of discussion on this very topic. It’s not a topic that has been completely ignored.

    In my opinion you are correct. We are approaching an extinction level event. I can’t deny the evidence. However, I believe the human race will continue, just not with 7 billion inhabitants. It will get bad. Energy will still be with us. The lights will still work. Just not all the lights. Fuel for large farming operations, mining operations, and land based shipping will be the most impacted. Yes, the impact to food production will bring about chaos and death beyond imaginings.

    If we’ve figured this out so have the major governments. I’d be on the lookout for a government remedy…perhaps planned depopulation. Think disease, war, genocide, etc.. They will try to get ahead of the problem at some point.

  51. We will never run out of energy. We have run out of cheap energy – see the article above.

    Oil companies are not replacing reserves – they are shutting down exploration — because the market will not accept 120 oil…. it collapses the economy.

    So what is going to happen is that the financial system is at some point going to collapse. It is the operating system of the global economy and civilization.

    Then chaos will reign.

    Global trade will completely stop — factories will close — spare parts to run the system will not be available — all energy sources will cease to operate — refineries will shut down — oil rigs will go offline — everything – and I mean everything will stop on a dime

    Have a look at page 56 of this research paper — it details what happens when a key pillar of BAU is interrupted:

    http://www.feasta.org/wp-content/uploads/2012/10/Trade_Off_Korowicz.pdf

    BTW – I used to think much as you do — then I read that….

  52. As for disposing of nuclear fuel rods ‘under a mountain’ I fail to see how that solves anything.

    The problem is not an explosion — it is the release of massive amounts of radiation —- burying the rods solves nothing …. the radiation will escape and spread around the world.

    Japan considered evacuating all of Tokyo because a couple of cores in a single reactor melted…

    A fuel pond is a FAR more dangerous animal than a reactor core — it involves far more fuel.

    If just one fuel pond were to burn up …. that would caused massive amounts of radiation to escape — a SINGLE pond — and it would continue to pollute the world for many decades.

    There are 4000 spent fuel ponds.

    Extinction event.

  53. If you hold an egg shoulder height — and let it drop to a cement surface – it will break.

    If the cost to extract oil is 120+ — but the economy cannot function with oil priced anywhere near that price — the economy will collapse.

    It will not reset — because collapse does not fix the 120 extraction cost.

    Therefore when collapse hits — that is all she wrote for fossil fuels.

    We go back to relying on trees — as you may be aware much of the world was facing deforestation in the 1800’s — with a fraction of today’s population.

    What are you not certain of?

  54. There will be no food.

    So what good will PM be?

    PM is a store of wealth — if you distill this right down to its essence it would be akin to a certain unit of grain.

    There will be no grain. So PM will be of no value. Nobody will want it. There will be no surpluses.

  55. Wrong.

    If demand for oil were to drop off — that would cause the price of oil to collapse even further.

    Oil producers are already losing money with out at $50.

    If it dropped to $20 that would just hasten the demise of the industry.

  56. The heavy hitters are all over at Finite World. I am here for a little amusement only….

  57. $20 oli can happen very soon and be the catalyst for the greatest economic crisis evvver. Cheap energy will help the economy recover before the next challenges come along.

  58. Did you not read the very fine article above?

    Note the part where it says that break even on oil is $120. That pretty much all new oil requires at least that price — so Exxon is not bothering looking.

    You do understand that $20 oil will end the oil industry?

    Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said

    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html

    Hello? Are we reading the same article?

  59. Exxon is preparing for war. Don’t get too focused on financials and dividends.

  60. Given that this is perhaps the biggest story since… um… I dunno …. the beginning of the industrial revolution?

    You’d think it would get more play. (or not given the sheeple might actually connect the dots)

    I sent this to Zero Hedge tips twice now – they have done nothing nor have they replied

  61. Slithereen Guard | November 9, 2016 at 1:00 am | Reply

    what i want to say is, there is still few years left for economy to function on cheap oil.

  62. I’ve seen some comments from well placed individuals mentioning 2020… so you might be right

    Enjoy the final years — because when BAU goes – there is only starvation and spent fuel ponds

  63. The Suncell will provide unlimited energy for mankind at 1/10 the cost of current technology. Get ready for the greatest technological revolution in history.

    http://brilliantlightpower.com/

  64. I am ready. Let me know when it rolls out….

  65. So we are saved right?

  66. Yes. The end of fire for our energy has arrived. Hydrogen to dark matter generators will power the future and we get a unified quantum theory that includes the gravitational force which was conveniently left out of the 80 year old quantum theory. It is hard to believe but the name Randell Mills will be above Einstein and Tesla on the list of great scientists.

  67. Wonderful. Funny I am not seeing anything about this amazing breakthrough anywhere.

    You’d think it would be front page headlines across the world.

    Funny…. strange…

    Or maybe I need to pick up a newspaper from DelusiSTAN to find more?

  68. This discovery pulls the corner stone from the scientific castle that oversees hundreds of millions/billions of research/development money. The scientific church will not allow such heresy to infringe on their status quo. However with $110 million invested and worldwide patents secured, and months away from a commercial product, the walls will come tumbling down. Good news is you only have to wait a few months. Check out http://brilliantlightpower.com/press/ for the latest press. Brett Holverstott recently published a book “Randell Mills and the Search for Hydrino Energy” that nicely covers the 20 year quest.

  69. Did you ever think that the all powerful entities that you claim are suppressing innovations…. would not simply use the power to steal the innovation — or force the inventor to sell it to them?

    Did you ever think that the same people would be aware of the Big Oil problem — and that they might not want their grandkids to starve and die?

    This is a joke. This is Delusional.

  70. Snake Oil. This is a joke – right?

    Where is the part where you ask for people to invest money in this?

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