MUST READ: The Bursting of the Shale Gas Bubble

Cold Hungry and In the Dark FIMAGE

The United States is heading straight into a disaster and it doesn’t even know it.  Except for a few analysts and a fraction of individuals who read alternative financial media, the rest of the public and majority of investors are completely in the dark.

The U.S. and world have been bamboozled by MSM and the Oil & Gas Industry to believe that Shale Energy is our new savior — a new energy revolution that will allow economic growth and prosperity to continue for another 100 years.

Unfortunately, data is finally coming out to reveal that the supposed Great Shale Gas Miracle is about to end.

I had a great conversation on the phone with energy analyst Bill Powers this week about his book, “Cold, Hungry and in the Dark” and his take on the shale gas industry.  Bill Powers and Art Berman are two of the few voices who have been outspoken and quite skeptical of the overly optimistic forecasts by the shale industry.

Powers had an interview with The Energy Report called “Give Up the Shale Gas Fantasy & Profit When the Bubble Bursts.”  In the interview he stated the following:

Bill Powers: More data points have come in supporting my views and making it very clear that the Fayetteville and Haynesville shales are now in decline and the Barnett had a very steep, 17% decline in H1/13 on a year-over-year (YOY) basis. It is now producing about 4.6 billion cubic feet a day (Bcf/day), which is substantially down from its peak of near 6 Bcf/day. The facts are starting to show that declines for the older shale plays such as the Barnett, Haynesville, Fayetteville and Woodford are very serious. More important, once production growth from the Marcellus slows down, it will no longer be able to offset declining production from shale plays as well as conventional, offshore, CBM and tight sands production, which are all in terminal decline.

The Energy Report: What other economic consequences do you see if and when your views become reality?

BP: I think it will be similar to the housing crisis, where a handful of people saw it coming and profited from it. There was significant evidence that housing prices were unsustainable, but most people were surprised when the housing bubble popped. People from Alan Greenspan to Ben Bernanke and others had a lot of information about the economy and how unsustainable house prices were, but did not want to talk about it publicly. There’s a saying that “the impossible can become the inevitable in the blink of an eye.” I think this will happen with natural gas. For example, in the first week of December 2000, gas prices went from around $4/Mcf to over $10/Mcf in only a few trading sessions. This was due to falling production, lower storage levels and a cold spell that set in across much of the United States. This price spike was the first of numerous spikes during the last decade.

(FULL INTERVIEW HERE)

I first came across Bill Powers work from his articles and interviews on Financial Sense Newshour.  Furthermore, Jim Willie thinks Bill is one of the best energy analysts out there.

During our conversation, Bill explained just how bad the situation will become with the future shale gas supply.  As he stated in his interview above, several of the shale gas fields are already in decline and there are only a few that are still growing.  This has kept overall natural gas production in the United States from declining — so far.

Here are two charts of the four shale gas fields in decline that Powers spoke about in his interview:

WoodFord Shale Gas Chart

Barnett Shale Gas Peak2

The WoodFord Shale peaked in 2012, and the Barnett Shale at the end of 2011.  The problem with shale gas wells is their high annual decline rates that can range from 40-60% per year.  The only way to grow production is by massive drilling.  However, at some point in time, the sweet spots are exploited and the field peaks and declines.

The Barnett Field located in Texas was the first shale gas field to be produced in a major way.  The Barnett peaked in shale gas production in Nov 2011 at 6,330 MMcf/day or also stated as 6.33 billion cubic feet a day and at last count (per Powers interview) has declined to about 4.6 billion cubic feet a day.

Another huge problem for the shale gas companies is the price they have been receiving for natural gas has been below their break-even costs.  Natural gas has been trading below $3-.3.5 mmbtu for several years, and the break-even for most of these companies is $6-7 mmbtu.  This has put severe strain on these companies balance sheets as many are loaded with debt.

Bill told me that Chesapeake Energy has over $20 billion of debt ($23 billion according to YahooFinance) and the value of their reserves at current market prices is less than their debt.  This will spell disaster for Chesapeake going forward.  No wonder Chesapeake announced that it was laying off upwards of 2,000 people a few months ago.

Interestingly, Chesapeake’s stock was up 78% since the beginning of the year until this past week when it saw its share price decline 12% in three days on a negative press release.

Bill believes only a few energy stocks will benefit when the “Shale Gas Bubble Finally Bursts” as he puts it.  He also believes prices of natural gas will rise considerably when U.S. natural gas production goes into a decline.  However, higher gas prices will not bring on more supply — the same problem the United States suffered during the 2000-2008 time period as production declined during rising prices.

I highly recommend people to read Bill’s book, “Cold, Hungry in the Dark.”  He original intentions for the book (with over 400 footnotes)  was to have a public debate with the CEO of Chesapeake Energy, Aubrey McClendon.  Unfortunately, McClendon stepped down before the book was released.

One of the interesting things about Powers, is that he firmly believes in the precious metals as an investment and store of value when things get rough in the future.

I plan on putting more of Bill’s work on this site as I believe a lot of investors who are invested in the energy sector, may indeed be holding onto energy stocks that are extremely over-valued.

YOU CAN FOLLOW BILL POWERS:  AT TWITTER HERE

EMAIL ADDRESS:  bill@bill-powers.com

Lastly, the peaking of Shale Gas & Oil will cause serious ramifications for the U.S. and rest of the world.  I am putting together an article titled, “COLLAPSE ECONOMICS:  Protect Your Wealth With Gold & Silver” explaining this in detail.

Most people including many of the gold and silver investors, are not prepared for this up coming economic collapse.

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33 Comments on "MUST READ: The Bursting of the Shale Gas Bubble"

  1. Everyone is pushing this shale boom 24/7 and its beyond me that no one questions it i thought after the last 2 bubbles people would be less trusting of the msm and financial pundits but nothing has changed.. Porter stansberry for example constantly pushes this and I can’t tell if he’s lying or plain stupid when analyzing the data it be one thing if he pushed as a short term play and cautioned investors in this sector but according to him there is absolutely no downside risk to any of this.. Any idea Steve when those reports are coming?? Once again thanks for taking your time to post vital info

    • Adam,

      During my conversation with Bill, he told me that Porter Stansberry was fined $1.5 million by the SEC for securities fraud. You can read all about that here: http://briandeer.com/vaxgen/stansberry-fraud.htm

      I don’t place much weight on Stansberry & Associates analysis… especially their energy analysis.

      steve

      • lastmanstanding | November 10, 2013 at 9:03 am | Reply

        a $1.5 million dollar fine is chump change in these circles.

        I could do wonderful things for my family and friends with this kind of money.

        I am weary of the printing money thing…it is sooooo dishonest.

        Keep up the good work Steve.

  2. Steve,

    As we have discussed separately, it certainly appears that the “renewable” energy boom (mainly solar & wind) is also a bunch of hype, and does not present a viable energy strategy solution either.

    My view has been that, at least, we know natural gas CAN provide energy in the concentration/density and with the reliability and dispatchability that we need; and therefore can be used to support our energy needs for at least a short period of time (30-50 years) while other alternatives such as nuclear power are improved and expanded. The discussion here regarding dwindling natural gas production is disconcerting.

    I understand what you are saying that the drillers are unable to get a break-even price for the gas; but what is the actual supply situation? Is the reason production is dropping-off primarily the result of the price, or is it also the result of dwindling reserves; reserves that are not as extensive as predicted/advertised? If price rises above the break-even price ($7+ per mmbtu) what would this mean to the production situation?

    • Jerry,

      Thanks for your comment and it’s great to have you stop by the site. Before I reply, I just want the readers to know that I have been conversing with Jerry over the past several weeks on Whether or not Solar & Wind is a Commercially Viable Energy Source” for the future.

      Jerry has done some excellent cash flow studies showing how most of the Solar & Wind Projects in his state and in other parts of the country do not return the initial investment over the functional lifespan of the project(s). This is very bad news for those who thought that Solar & Wind would be another energy saviour. This will be explained in more detail in future articles and reports.

      However, Jerry you bring up a good question which I asked Bill. Would higher natural gas prices provide more gas production? The problem with Shale Gas (and Oil) is that the Field only has a few SWEET SPOTS and the rest are not that productive.

      So, the sweet spots have already been drilled and exploited. Furthermore, according to Art Berman, the Marcellus Shale Gas Field only has 6% of is area that is commercial at over $6 mmbtu. That is still $2.50 more than the current price of natural gas today.

      First, I would assume if natural gas prices did increase substantially, we would see more aggressive drilling, but I don’t believe the industry would be able to produce more gas than they are today.

      Second, I don’t believe the public can afford high prices of natural gas. As I have stated before, the huge increase in debts over the past 5-8 years has allowed the U.S & world to purchase a portion of its energy (oil & gas) that it cannot afford.

      Third, This supposed shale energy revolution cannot be duplicated around the world as the U.S. has certain advantages that most of the world do not. Most of the land that the shale companies have leased in the U.S. has been public land. This is not true in most other countries.

      In addition, the United States has half of all the drilling rigs in the world at something like 1,780 of the total 3,550 globally. The expense to acquire this sort of drilling equipment would make shale drilling very expensive in other countries.

      Lastly, if natural gas prices did double or head to double-digits, there would be more production, but again, the majority of sweet spots have been already drilled and once a field declines, its very hard to bring it out of that downward phase.

      I will get into the details of how this will impact the overall economy in future articles.

      steve

      • lastmanstanding | November 10, 2013 at 9:58 am | Reply

        My father sends me an outdoor publication from the Marcellus area.

        They are destroying huge tracts of forest with the usual fracking bs…they are hauling millions of gallons of fresh water for this process…using who knows how many gallons of diesel…

        I am a very simple man…you want to frack…got to clear as site, build pumping stations, ponds, haul water or drill a well, move equipment, CAT, John Deere, Komatsu may have to build it, maybe you have to build a road to it…you get it, I get it, readers here get it…way more don’t get it.

        Lots of fuel to get fuel (or less fuel)…water abuse…technology with no bounds…destruction of our planet.

        We own 2 biz’s. We work long hours. We are conservative folks and provide for ourselves and try to take damn good care of our family, friends, community and environment. We seldom ask other for anything unless we can give it back with “interest.”

        No way this can go on with a lack of diminishing returns of people who produce and care.

        Thanks again Steve for all of your honesty and hard work.

        Lms, standing fast for freedom in the United States of America. God bless us all.

    • “solar and wind is a bunch of hype”…

      There is no longer any energy source that can continue the status quo. So if you want that kind of harsh definition, then EVERY energy source is a bunch of hype right now.

      “what is the actual supply situation”

      its not about supply, its about affordability. You have to educate youself about EROI and you came to the right site.

      • lastmanstanding,

        Thanks for the personal insight and comments. Yeah, fracking is becoming more of a FOUR LETTER WORD to the American people. We aren’t “FRACKING”,for energy we are “F*CKING” ourselves for energy.

        I live around producers and I have to say, they work very hard for the little money they make. I hate to say it, the city folk (which I used to be) are going to be in a world of hurt when the PEAK OIL PHAT LADY SINGS.

        Rojelio,

        I couldn’t agree more. The EROI is the key. Energy Returned on invested is the MOTHER of all BAD NEWS… even though 99.9% don’t realize it.

        I will be writing more about the EROI in the future. I have not done much because again, anytime I write about ENERGY, the readership falls off a cliff. People want to hear that their precious metals will make them rich. They don’t want to know about any ENERGY MUMBO-JUMBO.

        steve

        • lastmanstanding | November 10, 2013 at 9:30 pm | Reply

          Steve I run heavy equipment in my biz…your assessment of the value in manual labor hrs. (18000) per barrel of oil was sobering. I have been doing what I do for over 30 years and am with your stat.

          EROI will control peoples lives whether they like it or not…rejecting it imo is a death sentence. I could never in a million years do what I’ve done with equip. technology and diesel fuel.

          I am using fuel availability to my advantage right now. In my neck of the woods, reg. gas is just above $3…and red diesel about 30 cents more. That is dirt cheap for what it produces for me. I am currently moving backward in time to increase my families chance for survival. However, I am also embracing solar tech to soften the blow of a grid down/no energy situation.

          The arab guy that said he rode a camel, his son drove a car and his son flew in a plane…and his son rode a camel. Viscious cycle.

          The camel is nearly here again, along with many other real earth issues that I won’t get into.

          As far as metals go, talk is cheap…time has always been on the side of real things. Like the Gold Rush show on the tube. All that fuel, labor, human determination against all odds for the GOLD…only to sell it for fiat. Why can’t people realize that they are being used and thrown away.

          Real items for paper to survive…how f$%%@d is that…pray for people to wake up.

    • ““renewable” energy boom (mainly solar & wind) is also a bunch of hype”

      that is of course untrue.

      The wind parks that are going online in 2015 sighne PPA for under 6 cents/kWh. Google: Xcel wind solar

      Also installation cost of roof PV is going down very fast. At the moment for 15% of the US it is cheaper to use electricity from the roof than to buy from the grid.

      Renewables are not nuclear or coal or gas.

      • Dimitar,

        According to a lot of the work done by Jerry Graf at his site, just about all of the solar and wind projects do not pay for themselves over the lifespan, unless there is government subsidies. Now, I am will look into Xcel Wind Solar, but again, most of the current solar and wind projects are not commercially viable over their lifespan in a free market.

        You can look up Jerry Graf’s site at the link below:

        http://jerrygraf.wordpress.com/

        steve

      • I certainly have not evaluated every wind turbine installation. Can you name a specific wind park project by Xcel, and provide the particulars:

        How much did the wind turbines cost?
        Who paid for them? How were they paid for?
        What do they cost to operate and maintain each year?
        How much useful electricity do they produce each year?

        If you can identify a specific project and what it cost, I can probably fill in the rest of the performance and operating details.

        With regard to the PPA, what are the specifics?
        How many years is the $0.06/KWh guaranteed for?
        Can this price increase for any reason?
        Who are the customers buying the electricity (I assume they are individual electric companies)?
        Are there renewable energy mandates driving this?
        How much electricity must the wind turbines guarantee to produce on a daily and annual basis?
        Where does the electricity come from (and how much does it cost) when the wind turbines are NOT producing?
        What happens when the wind turbines produce more than is needed by the customers?

  3. The “Great Canadian Oil Sands Left Turn.”

    The two western most provinces in Canada, Alberta and British Columbia, have come to an agreement concerning energy resource production and transportation. This agreement will see the Northern Gateway oil pipeline eventually be constructed, from the tar sands of northern Alberta to the west coast of British Columbia at Kitimat. Where a deep sea port for the trans-shipment of oil via VLC tankers to the eastern market will take place.

    On top of the Canadian provincial agreement, British Columbia this past week became the first government entity to float a sizeable bond offering in the “Dim Sum” Hong Kong bond market. It was very well recieved and over subscribed. This is evidence of the western Canadian drive to seek closer ties with eastern markets, in particular China.

    When you tie in the massive purchase of oil giant NEXEN by China, which provides access to not only the Canadian tar sands, but also to Gulf of Mexico drilling blocks, China is positioned to soak up any energy production in the future to provide for its ever increasing energy needs.

    Now, compare the above to the US flip-flopping, concerning the Keystone pipeline project? Canada is anxious to move forward with its economic resource plans, so as to maintain momentum and increase the employment tax base. The US will be the ultimate losers, as future energy supplies outside its borders will be already spoken for.

    • OutlookingIn,

      Thanks for the Info. Yeah, the Chinese have been acquiring CHUNKS OF FUTURE OIL SUPPLY from many countries at long-term price contracts. They have done so because they come into a country and build roads, hospitals and infrastructure while setting up trade agreements. On the other hand, the United States has used its FISTS by sending in the military to achieve its results.

      The Chinese are taking the long-term HIGH EROI friendly trade approach, while the USA is still stuck in the LOW EROI method of using an expensive military to protect its control of valuable resources. Another Empire did this for quite a long time before it collapsed — ROME.

      The U.S. has ZERO long-term contracts with any countries and will have to pay SPOT price for its future oil demand, whatever price that may be.

      steve

    • What Obama fails to realize is that the oil from the tar sands is being put onto millions of rail cars to the gulf regardless of what they do. It’s not going to keep “dirty oil” from going to the gulf which is the whole logic behind procrastinating for five years. It just makes it costs more using rail versus a pipeline to get the oil there.

  4. “Most people including many of the gold and silver investors, are not prepared for this up coming economic collapse.”

    how does one prepare exactly? How does a minimum wage worker prepare?

    • Hi Cedric,

      I have been min. wage worker before so I do want to address this to best of my ability. If one looks at possible outcomes there are 3: (hyper)-inflation, deflation, and a “muddle through” (slow decline). Muddle through is aided by financial repression, keeping interest rates below inflation, thereby reducing real debt for the issuers of currency, at expense of holders.

      The goal of TPTB right now appears to be muddle through, which is trying to thread the needle. This preserves current power structure the best, and buys time. However if they fail, they will know first and position themselves for either hyper or de-flation. What SRSRocco adds to the picture is energy aspects indicate, there will be no “real growth” on the horizon until viable energy alternatives are developed.

      All this to say you have to be prepared for all 3 outcomes. Probably some physical cash, physical silver dimes, and long term food storage (This is also a “store of energy”, as SRSRocco has coined) will allow you to maintain your quality of life. Too many people are focused on getting rich…want silver to go to $500 yesterday. Whereas the goal of surviving the crisis is just that…and hopefully maintain your standard of living pre-crisis.

      • Mike,

        You’re correct. The focus of individuals with a little money and those with a lot of money is to preserve and protect wealth in the future, not to get rich. However, I do believe gold and silver will increase in value much greater than other assets, so those who hold a great deal of these precious metals may indeed become more wealthy in comparitive terms.

        The problem will be, that cost inflation of energy & commodities will eat a portion of these precious metal gains.

        steve

  5. Sorry for straying slightly off-topic, but I just heard an interview with Endevaour’s CEO, and I really have to let off some steam.

    What a rotten liar. Claims costs of 10$ per ounce and projects their long term costs to be 5$. Which is obviously cash costs, and never once mentions that that’s not the real cost of running their business. Acts like everything is great, when their stock is down 3 fold since 2011.

    Jesus, and those guys wonder when nobody wants anything to do with their businesses? I’ll gladly buy the metal they dig out of the ground (most likely at a loss, at these prices), but you won’t find me touching their stock with a 10 ft pole.

    • Markus,

      There’s no off topic comments here. That being said, let’s quickly explore Endeavour’s true costs:

      They had adjusted earnings of $13 million and total revenues of $67.8 million which gives a rough 19% adjusted earnings per ounce of silver. They had a realized price of silver at $22.60, so 19% of that figure would be $4.30 subtracted from $22.60 and we get an adjusted break-even price per ounce at $18.30. This much lower than their previous break-evens.

      The reason for the lower cost structure is due to the ramp of production of several mines plus a great deal more gold production and sales. Just to let you know their breakdown in gold & Silver revenues was as follows:

      Silver = 57%
      Gold = 43%

      Endeavour’s high amount of gold production is what is pushing their cash costs down to $5 dollars. This does not mean that Endeavour can produce silver at $5, but rather it just figures their cash cost when you subtract all the gold by-product credits from the cost of sales.

      Interestingly, Endeavour has brought down its cost dramatically compared to even 2012.

      Here is the difference of their TOTAL & SUSTAINING COSTS YOY:

      Q3 2012 Sustaining Cost per oz = $21.25
      Q3 2012 Total Cost per oz = $26.54

      Q3 2013 Sustaining Cost per oz = $12.14
      Q3 2013 Total Cost per oz = $17.90

      Markus, as you can see they have indeed reduced their costs per ounce considerably since the same period last year. Furthermore, you will notice that their total All In Cost of $17.90 is not too far off my adjusted earnings per oz break-even of $18.30.

      I will be updating my metrics and spreadsheets to show that Endeavour has been able to lower its costs dramatically as it has ramped up production.

      While Endeavour’s CEO bragging about their low $5 cash cost is of course the silly practice of the industry, we have to give them credit for really reducing their cost structure.

      Right now, Endeavour is profitable at $18 an ounce at TOTAL ALL IN COSTS. This is actually lower than First Majestic’s last quarter break-even. I look forward to seeing First Majestic’s results when they come out this week.

      steve

      • the all in cost is much more accurate than cash cost but it may still not be telling a true story of a company. A miner can reduce all in cost by
        1. increase production
        2. shut down the very high cost projects.
        3, reduce or postpone exploration

        #3 is often not talk about because it doesn’t impact short term health of a company so investors don’t feel its impact in the short term.

        • fairguy,

          This is true, but Endeavour has not done 1 or 2, but shows that number 3 falls under their category of Sustainable Costs.

          Their increase of production is due to their scheduled ramp-up.

          steve

      • Thanks for the extensive information. I just got upset at these statements by Endeavour, because when they give out these kind of numbers people are sucked into believing them. Which might end up getting them broke.

        I myself set up a stock account in late 2011 when the spin from the mining shares bulls was that miners are screaming buy right now because they’ve got such low production costs and the potential leverage on the metals price would be tremendous. Who back then mentioned what the true cost of production is, and that productions cost is actually in a long term uptrend? The mining companies would only give you the most shallow infos, and the most favorable to themselves, hiding most of the true facts. I think that’s fraud. Thank god that I only invested a small amount of my total portfolio into miners, because of my mindset back then that maybe I know a little about miners, but way not enough to commit a serious portion of my portfolio to the sector – my cautiousness basically saved my behind.

        Because of those lying cheating scumbags, I can look at your analysis Rocco and appreciate it, but I can’t help but assume that there still are some hidden negative aspects lying burried somewhere that have yet to surface. If they indeed did slash production costs this significantly, it is my gut feeling that this is as far as they can go, and even that probably only for a short period of time. If they’re at 18$ total costs now I bet they’re above 20$ next year.

        Endevaour statement: “We have been a 10$ oz company, and we are slowly moving down to 5$ and will stay there.”

        Sure you will. I’ve recently heard in an interview that it’s pretty much guaranteed there will be a new mining tax in Mexico in the beginning of the next year. It could be reasonable, or it could be substantial. So much for your guaranteed 5oz costs. Also, let’s assume 150$ oil or more, which will be a reality pretty soon – your 5$ pipe dream will go up in a thick cloud of black smoke, the kind of fossil fuel smoke that your haul trucks produce.

        Thank god I’ve stumbled across this blog, it has opened my eyes to the reality of this business, that you will never hear from mining companies themselves, or even their shareholders on KWN etc.

        The metals will continue to do great, but the miners, I wouldn’t touch them with a 10 ft pole – they will be losers not only for months, but for years and decades to come. They can’t make a profit because their costs are too high, and when they make a profit, be sure they get ripped off by unions, governments, and the banks which most of the time mandate hedging as a prerequisite for financing. There are no profits to be had for miners, and if so, it’s by big funds like Sprott & Rule who have the deep pockets to wait for an absolute low on a cycle, then move in big and basically take over whole companies with their financing deals. It’s just another paper game that the big guys always win in, and the small guys always lose.

  6. Hi Steve,

    I just noticed your pieces recently though a quick search shows you never delved into this topic. If I missed your post about it Iam sorry. Some writers, like FOFOA, delved into the theory that some energy providers, like Saudi Arabia, get a bit of gold for their oil every year. This piece is a good example about that ”Unusual Items: US Mint ‘Gold Disks’ Made for Oil Payments to Saudi Arabia”
    http://www.coinweek.com/news/unusual-items-us-mint-gold-disks-made-for-oil-payments-to-saudi-arabia/

    I wonder what your take is or if u can show me a piece where you blogged about it! One way or the other, thanks for the writing about energy and PM’s!

    • Hugo,

      There is a lot I know, and more I don’t. I have to say, I read that article and found it fascinating. No, I did not know about the Saudi Gold Discs and have not written about it before. This is more proof that when the DOLLAR DIES, the value of gold and silver are going to head towards the moon.

      steve

      • Hi Steve,

        Thank you for the answer and I second your thoughts. I tend to say the more I know, the more I know I know nothing. I would like to suggest you read this book ”The Prize: The Epic Quest for Oil, Money & Power”. It talks about the relation between ”big oil” and gold quite a bit. From the back of my mind, it states that 50k some gold souvereigns were needed in the 1920 era to pay the king of Saudi Arabia for exploration privileges and lots more.

        About silver, I still wonder where that idea comes from. It seems to me that TPTB globally dropped that PM for way over a century. Remember the ”cross of gold speech”. Silver was the easy money back then just as fiat is now but even more easy (smile)!

        Ofcourse, most real things will appreciate in price (not always value) towards paper. Considering that all the PTB now seem to move to gold more then ever and not silver at all… Iam biased a bit towards the yellow stuff.

        To me it is mostly the yellow stuff…. The big guys know the current system is broke and needs to be recapitalised. Repricing gold to huge numbers can do the trick since central banks own it. SIlver does not have that standing in the global financial system.

        Just my 2 cents.

    • that kinda explain why Kissinger concocted the petro dollar Ponzi scheme. If Saudi, and france, and whole much of other countries keep redeeming dollar for gold, US gov’t know they will run out of gold for oil.

  7. I am stunt some analysts and critics think that shale boom will recover US economy. It sounds like they read too many fairy tale stories to their kids. Even with the benefit of the doubt that there is shale boom, it won’t bring back the US economy because

    1. US will have to export most of it to repay their debts or nationalised by the government to redistribute the wealth.
    2. Another fact is that a lot of the export industries have long gone, skills lost and won’t come back.
    3. China is mega hungry of energy. Do you think the creditor is happy sitting on worthless liabilities via seeing US burning off excess energy? I doubt it.

  8. Hi Steve,

    I think you will like this piece as well, it touches on payment for oil with gold. Back from the 1970 era. The highlight;

    ”The recent oil price increases have added a new dimension to the gold issue, and in the view of some European officials, relegated the intra-EC problem to a secondary position. Although mobilization of gold for intra-EC settlement would help in the financing of imbalances among EC countries, it would not, of itself, provide resources for the financing of the anticipated deficit with the oil producers. For this purpose, it would be useful if the oil producers would invest some of their excess revenues in gold purchases from deficit EC countries at close to a market price. This would be an attractive proposal for European countries, and for the U.S., in that it would not involve future interest burdens and would avoid immediate problems arising from increased Arab ownership of European and American industry. (The Arabs could both sell the gold and use the proceeds for direct investment, so that the industry ownership problem would not be completely solved.) From the Arab point of view such an asset would have the advantages of being protected from exchange-rate changes and inflation, and subject to absolute national control. Some European officials are thinking in terms of clearing the way for such transactions (which would now be forbidden by IMF rules). It has been argued that Arabs would only be interested in buying gold at near the market price if they could obtain assurances of some sort of floor price . ”

    http://koosjansen.blogspot.nl/2013/11/gold-and-monetary-system-potential-useu.html?spref=tw

  9. One thing you fail to mention is that a lot of companies shifted away from natural gas production due to the low prices. They moved towards oil and NGL due to a significantly higher selling price. Carrizo is a great example of this. There isn’t a shortage of natural gas. There are several decades worth of untapped natural gas underground. For example, Quicksilver alone has a property in the Horn River Basin which has about 10-14 TCF. There are a lot of places with plenty of natural gas. However, due to the production costs and low selling prices, they won’t be accelerating natural gas recovery until that changes. Also, note that in the Bakken, they have started to recover a bunch of the natural gas which they were previously flaring it all off due to lack of storage and pipelines. In some cases, they are actually using the recovered gas to run machinery and pumps used in the recovery versus using typical diesel equipment. When natural gas plummeted, there were a lot of companies which bought way too much land. They had to sell off assets which they used to pay down a crippling debt load.

  10. So as we view the future re: shale-grade oil and gas, what’s the point of constructing the XL pipeline? By the time they complete it, all that’ll be left to ship is methane gas from cows.

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