Global Economy Propped Up By U.S. Shale Oil Ponzi Scheme

Few analysts realize that for the past decade, the global economy has been propped up by the U.S. Shale Oil Ponzi Scheme.  Without the huge increase in U.S. shale oil production, the global economy would have peaked and collapsed into a severe depression.  And according to the new data put out in the 2019 BP Statistical Review, of the total global oil production increase in 2018 over 2017, the United States accounted for a stunning 84% of that growth.

I first wrote about this subject in my article, Global Economic Growth In Serious Trouble When U.S. Shale Oil Peaks & Declines.  However, since that article, the new 2019 BP Statistical Review was published on June 11th.  I took the data and updated my charts to show that the United States and Canada accounted for 90% of global oil production growth since 2008:

As total world oil production increased by 11.6 million barrels per day (mbd) since 2008, the United States accounted for 8.5 mbd, Canada 2.0 mbd, and the rest of the world 1.1 mbd.  If we look at the net increase of global oil production versus the U.S. and Canada during the same period, this is the result:

Now compare this updated chart to the data for 2017:

Total U.S. oil production in 2018 increased by 2.2 mbd while Canada added 0.4 mbd, and the rest of the world lost 0.6 mbd.  And if we look at the change in Global oil production minus the U.S. and Canada since 1997, it seems as if the rest of the world is dealing with the ramifications of PEAK OIL.

From 1997 to 2007, global oil production growth minus the United States and Canada was 11.4 mbd.  However, since 2008, the rest of the world has only added a net 1.1 mbd of new oil production growth vs. 10.5 mbd from the United States and Canada. Thus, North American oil production growth, especially from the U.S., has been the leading factor for Global GDP Growth.

For those who don’t believe that oil production (consumption) has anything to do with Global GDP growth, you need to look at the following chart by Gail Tverberg at OurFiniteWorld.com:

Here we can see that oil consumption rates correspond with the change in Real GDP growth.  So, if we consider that the United States accounted for nearly 75% of total world oil production growth since 2008 (check figures below), then it also attributed to approximately 75% of Global GDP growth during the same period.

Breakdown in the oil production growth from the United States, Canada, and rest of world:

Net change 2008 to 2018 Oil Production Growth:

U.S. oil production growth = 8.5 mbd (73%)

Canadian oil production growth = 2.0 mbd (17%)

Rest of world oil production growth = 1.1 mbd (10%)

While the U.S. has added a lot of oil production since 2008, that wasn’t the case in the previous decade:

From 1997 to 2007, U.S. oil production fell by 17%, but surged 125% during the recent decade.  Even though the BP Statistical Review posts 15.3 mbd of oil production for the United States, that also includes Natural Gas Plant Liquids (NGLS). According to the EIA, U.S. Energy Information Agency, total U.S. NGLs production for 2018 was 4.3 mbd, or 28% of total oil production:

Due to the rapid increase in U.S. shale oil and gas production, a great deal more NGLs are produced.  Unfortunately, a barrel of NGLs only contains two-thirds the energy content compared to a barrel of oil and receives a market price that is 60% less than oil.  Thus, the 15.3 mbd of total U.S. oil production quoted in the 2019 BP Statistical Review, is actually 11.0 mbd of crude and condensate plus 4.3 mbd of NGLs.

Regardless, the U.S. Shale Oil Ponzi Scheme has allowed the Global Economy to continue growing this past decade, despite the massive amount of debt added to the system. However, U.S. shale oil production will likely peak much sooner than energy analysts are forecasting, especially during the next economic downturn and recession (depression).

Lastly, I will be posting a new article showing that U.S. shale oil production has DECLINED during the first few months of 2019.  With oil prices now in the low $50’s, shale oil companies are struggling to continue producing oil at a loss.  If oil prices don’t recover back to the high $ 60’s or $ 70’s, watch for growth forecasts in U.S. shale oil to be cut back considerably this year.

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RBM
Guest

Excellent report – Steve – thank you very much!

Rodster
Guest
Rodster

I know this will appear absurd but I can see the US Gov’t bailing out the Shaie business to keep the Ponzi Scheme going for another day. They bailed out the banks so why the hell not do it for Shale?

As the article noted, it’s either keep the hamster running in the cage faster and faster until it dies from exhaustion or pull the plug and let it all collapse like a house of cards. Either way the outcome is the same. It just becomes when you want to slam the plane into the side of the mountain.

Northwest Resident
Guest
Northwest Resident

In a sense, the US Government (aka: FED) have been “bailing out” the shale developers all along via repressed interest rates and massive liquidity injections, without which the shale industry would have collapsed long ago. All of that “bailing out” equates to astronomical debt for which the U.S. taxpayer is theoretically on the hook for, epic wealth transfer and financial system distortion so severe that we end up with a deformed invalid where we used to have a “market”. There isn’t much left for the shale industry to accomplish except the final act of dying and I suspect we’ll be… Read more »

Vitruvius
Guest
Vitruvius

I think the US government is clearly going to try to bail out the oil industry. It’s simply a too strategic industry to leave it at the mercy of capitalists greed. If it succeeds in it it’s another matter. For thermodynamics doesn’t understand about dollars or euros and the energy required to keep the oil flowing will have to come from somewhere else. Are they going to dismount the military ? Are they going to soak the rich ? Or are they going to let the healthcare sector in ruins ? When a ship starts to take water a common… Read more »

Robert Happek
Guest
Robert Happek

Bailing out energy companies will be a must when the cost of production far exceeds the market price of energy. There is a limit to the price of energy which the economy can afford. So if the cost of production exceeds that price level, there is only one solution: subsidize energy production by printing more money. Who would deny a dying patient a relatively short extension of his life even if the cost of that extension is very high ? Only an insurance company.

Eric Bauer
Guest
Eric Bauer

We are quickly heading towards a future where the entitlement benefits are cut and funds are re-routed to subsidize oil companies and consumer energy prices. Anyone planning on their retirement benefits being there for them is an idiot.

Buy gold and silver.

There will be plenty of energy left for those who have real assets, but there won’t be any more for “indefinite growth”. That’s over. We are entering a century long periuod of contraction and resource wars.

Pieter
Guest
Pieter

Hi Steve, The largest mostly untapped shale fields are in Russia. There is no shortage in oil it is just that the Usa is running out themselfs. That is why they look at Venezuela, Iraq, Lybia, Iran etc to lay their hands on these oil/gas reserves. Produktion in these countries is still very cost effective compared to the zombie shale companies in the usa fueled by 0% zombie credit. This game will last longer as we can imagine as it is not only the shale industrie but whole sectors in the west which are hooked on cheap credit. Another reason… Read more »

Hammy
Guest
Hammy

Shale production in a sub $100/barrel environment doesn’t work in countries without reserve currency status.

Something about Oil
Guest
Something about Oil

I wouldn’t come to these same conclusions at all considering that most of OPEC and Russia have been heavily holding back production for the last few years. The US shale simply shifted all the balances in the oil market. Shale won’t peak until 2025 – at least most shale companies have growth plans in place until then. Huge amount of infrastructure is being built around most shale basins and export capacity is ramping up. That will help drive cost down for shale and keep going for many years. By 2025, the balances will shift back to OPEC… that’s if we… Read more »

Peter Starr
Guest
Peter Starr

Tnx for the original work, brilliant analysis.

It wasn’t that long ago (the 1970’s I believe?) that 4.3 mbpd of NGL’s, 28% of our today’s production was merely propane camp gas, butane lighter fluid, ethane plastic bag feedstock. Not even considered ‘oil’.

dale
Guest
dale

Excellent, dead on. “Few analysts realize that for the past decade, the global economy has been propped up by the U.S. Shale Oil Ponzi Scheme.” “We must remember, that the $300+ billion of debt racked up by the Shale Industry means, MORE ENERGY WAS USED TO PRODUCE SHALE THAN WE GOT FROM IT.” “In a sense, the US Government (aka: FED) have been ‘bailing out’ the shale developers all along via repressed interest rates and massive liquidity injections, without which the shale industry would have collapsed long ago.” “The amount of debt now being used to prop up the system… Read more »

Craig Moodie
Guest
Craig Moodie

Steve,
Great report. I, however have 2 questions.
Firstly, the fact that LTO is very light and cannot produce diesel there have been no signs of shortages yet. Surely, there must at some stage be an imbalance in downstream production between petrol and diesel.
Secondly, with restrictions being placed on the shipping industry in 2020 regarding the use of bunker fuel, meaning their only alternative is low sulphur diesel. Surely this is a catastrophe in the making, and why is there very little reporting about this?

Not So Free
Guest
Not So Free

Global Economy Propped Up By U.S. Shale Oil Ponzi Scheme
.
This will end well.
.
(Sarcasm off)

Brant Lee
Guest
Brant Lee

In the U.S. it’s all about election cycles no matter the cost (dollars or soldiers). Starting a war with Iran is good for the oil price but not popular with voting folks. What to do?

Oil Bull
Guest
Oil Bull

You erroneously keep referring to shale oil development as a Ponzi scheme. It is not as shale oil wells typically payout in from less than a year in the Delaware Basin, for example, to maybe a couple of years in less prolific areas. What I think you mean is the highly leveraged financing model of shale oil development that leads to problems for those companies to repay the debt. The US shale revolution is just that considering we have much more doubled oil production from the lows less than 10 years ago to current levels.

Vitruvius
Guest
Vitruvius

Excellent post mr. St. Angelo. Thank you ! The funny thing about all this is that the USA are depleting their oil reserves in order to keep the current world system running a little bit longer. In fact the waste and overconsumption in Europe are being helped by greedy american companies which are polluting large areas of the USA. I suppose it’s all due to the shortermism and greed of the american establishment. Of course when problems come the USA will regret having wasted their natural resources so recklessly and here in Europe we won’t be able to appeal to… Read more »