PEMEX: Mexico’s State Oil Company On The Verge Of Bankruptcy & Collapse

Mexico’s state oil company, Pemex, is a perfect example of the ongoing collapse in the global oil industry.  Falling oil prices and declining production are putting severe pressure on the company’s financial balance sheet.  It has been four long years since Pemex posted a small profit.  However, since 2012, Pemex has suffered huge annual losses while its long term debt has exploded.

The result is… Pemex is technically bankrupt.  Now, I am not the only one saying this.  There have been several articles written about horrible financial situation at Pemex.  According to the following article, Mexico’s Largest Company Is Broke:

March 3, 2016:

Mexico’s largest company is broke. The country’s state oil company, Pemex, which is one of the federal government’s main sources of revenue, is losing money and is one of the world’s most indebted oil firms.

The company’s production has dropped for 11 straight years now, while gross income plummeted more than 80 percent last year.

One of the biggest causes of the financial problems at Pemex is due to its falling oil production.  Crude oil production at Pemex has fallen 35% since 2005, from 3.3 million barrels per day (mbd) to 2.1 mbd in 2016:

As oil prices and production declined, Pemex lost $30.3 billion in 2015 and $14.3 billion in 2016.  The reason Pemex cut its losses in 2016, even as oil prices fell lower, was due to hefty budget cuts and the layoff of thousands of workers.  According to the article, Pemex Will Layoff 50,000 Employees:

April 15, 2016:

Petroleos Mexicanos (Pemex) will cut up to 50 thousand workers gradually, according to Alexis Milo, chief economist at Deutsche Bank.  “Pemex has approximately three times the number of employees should.  Therefore, we anticipate that it will unveil a program of mass layoffs, but gradual, approximately 50 thousand workers, “explained the expert analysis.

Even with budget cuts and worker layoffs, the financial situation as Pemex continues to disintegrate.  Pemex’s long term debt jumped nearly $12 billion last year to $87.4 billion.  Since 2005, Pemex’s long term debt has more than doubled from $36.6 billion to the $87.4 billion at the end of 2016:

Energy analysts have stated that many of Pemex’s financial problems also stem from mismanagement and possible corruption issues.  While this may be true, the world’s top public oil companies have also seen their long term debt skyrocket over the past several years.  For example, Royal Dutch Shell’s long term debt has ballooned from $38 billion in 2014 to $83 billion in 2016.

Another interesting negative side effect of lower oil prices on Mexico’s economy, is the falling value of its currency, the Peso.  This chart shows value of the Mexican Peso to the U.S. Dollar over the past 20 years:

The Mexican Peso-U.S. Dollar is shown in orange, while the Brent Crude oil price is in black.  As we can see the largest drop in the Mexican Peso’s value took place when the Brent Crude oil price declined significantly.  Since the Brent Crude price fell below $100 in August 2014, the value of the Mexican Peso’s has fallen 32% versus the U.S. Dollar.

A falling value of the Mexican Peso means that its outstanding debts based in U.S. Dollars increases.  This can be plainly seen by the huge rise of Mexico’s net public external debt.  Again, since the price of Brent Crude fell below $100 in August 2014, Mexico’s net public external debt has nearly doubled:

Mexico’s net external public debt increased from approximately $1.8 trillion Pesos in mid 2014 to 3.5 trillion Pesos currently ($184 billion in U.S. Dollars).  With falling oil revenues on top of rapidly increasing debt at Pemex, the company is finding it extremely difficult to finance or rollover its debt.  That being said, For Mexico’s Troubled Pemex, Deeper Debt Seems The Only Option:

July 18, 2016:

Unable to generate revenue, Pemex has decided to deepen its debt, a decision that has troubled the international markets and rating agencies. Borrowing provides short-term relief, they warn, but it also increases fiscal pressure. Falling output and lower oil prices reduce expectations of generating cash, which in turn reduces the company’s ability to invest in exploration and production: a vicious circle that is hard to break.

Pemex has few options. It is fast running out of places to borrow money, while reducing its outgoings through mass redundancies would be political suicide for the government: the company employs some 150,000 people, with a further 100,000 former employees on its payroll.

Pemex faces one of the most difficult situations in its history, but there is no question of it being allowed to go bankrupt, despite the increasing burden it represents to the state. That said, if the government cannot turn its fortunes round, Pemex could end up dragging the Mexican economy down with it.

The last sentence in the quote above is the likely outcome for Mexico’s state run oil company.  That is, Pemex will likely drag the Mexican economy down with it.  I believe it’s just a matter of time.

Now, I am not singling out Pemex as what is wrong with the global oil industry,  Even though Pemex may have been guilty of employing more workers than it needed, I am happy to see some of its profits going to its workers or the Mexican economy rather than to a multi-national corporate conglomerate that enriches a few at the top.

Another negative factor facing Pemex’s future is its falling oil reserves.  Pemex’s proven hydrocarbon reserves have fallen from 20 billion barrels of oil equivalent (boe) in 2003 to 13 billion boe in 2015:

While oil companies list their oil and gas reserves as “proved, probable and possible categories”, as the oil price continues to decline, it will most likely be the proven reserves that will remain commercially viable.  And even some of the so-called “Proven” reserves may not be profitable to extract if oil prices fall back to $30 or even lower.

If you have been reading my articles on the Thermodynamic oil decline, the model suggests that the global oil price will continue to decline because the rapidly falling net energy won’t be worth that much to the world economy.  This has to be one of the most misunderstood factors by my readers and the public.

For some strange reason, people just can’t get the head around a continued falling price of oil.  They still cling to the economic principle of “Supply & Demand.”  I used to believe market prices were based on supply and demand forces, but now I realize it has always been the principle of thermodynamics that is the leading factor.  While supply and demand forces add volatility to the market price of a commodity, metal, energy or a good, the cost of production has always been the overriding factor in determining price.

As the global oil industry and its massive support system continues to devour more and more energy each year to supply oil to the market, the value of the oil supplied to the market will also decline.  Again, you have to think about a barrel of oil like the value of a brand new car versus one that is 15 years old.  A brand new car is worth say, $25,000 versus a 15 year old car valued at $5-$6,000.  The reason is the embedded energy in all the parts have been worn out and are now depreciated.  Thus, in even more time, the value of the car will be based on its scrap value.

For example, the paper titled, EROI of different fuels and the implications for society provided the following figures for U.S. and global oil and gas EROI’s:

The EROI for the production of oil and gas globally by publicly traded companies has declined from 30:1 in 1995 to about 18:1 in 2006 (Gagnon et al., 2009). The EROI for discovering oil and gas in the US has decreased from more than 1000:1 in 1919 to 5:1 in the 2010s, and for production from about 25:1 in the 1970s to approximately 10:1 in 2007 (Guilford et al., 2011). Alternatives to traditional fossil fuels such as tar sands and oil shale (Lambert et al., 2012) deliver a lower EROI, having a mean EROI of 4:1.

Not only has the EROI for the production of oil and gas by the globally traded companies fallen from 30:1 in 1995 to 18:1 in 2006, the EROI of U.S. oil discoveries fell from a staggering 1000:1 in 1919 to 5:1 in the 2010’s.  I have not seen current EROI oil and gas production data for the United States or global oil industry, but I can assure you they have continued to decline considerably since the last data reported in 2006.

The falling EROI is gutting the entire global oil industry.  While some state run or publicly traded oil companies may be performing better than others, or enjoy a higher EROI, they will all continue to head lower over the following years.

As I mentioned in the beginning of the article, Mexico’s Pemex state oil company is technically bankrupt.  Their total liabilities are greater than their total assets:

Pemex’s total assets are valued at 2.2 trillion Mexican Pesos versus 3.5 trillion in total liabilities.  Converting this to U.S. Dollars (shown on the right hand side of the table), Pemex’s total assets are $107.4 billion compared to $171.9 billion in total liabilities.

You will notice a large portion of Pemex’s total liabilities are due to obligations for its “Reserve for employee benefits” of $59 billion.  Even if Pemex decided to discontinue paying all its employee benefits, it would still have total liabilities of $113 billion, higher than its current assets of $107 billion.

The Mexican government will do all in its power to keep Pemex from going bankrupt.  However, propping up a company that will continue to lose money is not sustainable for long.  Furthermore, Pemex is finding it increasing difficult to finance his mounting long term debt which surpassed $87 billion in 2016.

The global oil industry is in serious trouble.  Surging debt levels while profits turn into losses will only make a bad situation worse in the future.  While many energy analysts are pointing to the recent increase in U.S. oil production as positive sign for energy independence in the next few years, I see it much differently.

The majority of the increase in U.S. oil production since the lows last year has come from one field… the Permian.  According to the U.S. Energy Information Agency Drilling Productivity Reports, combined production from Bakken and Eagle Ford has only increased 40,000 barrels per day since they bottomed several months ago.  However, nearly half of the increase in total U.S. oil production came from the Permian Field.

As the U.S. and global economies continue to weaken this year, demand for oil will decline.  This will put more pressure on the short-term oil price by pushing it lower, thus negatively impacting the global oil industry even more.  At some point, the U.S. and global oil industry will likely suffer a heart-attack.

Lastly, I would like to remind everyone that oil is the lifeblood of our advanced economies.  Without oil, the production and transportation of other energy sources such as coal, natural gas and bio-fuels would be seriously hampered.  Where I live, there is a constant movement of coal trucks up and down the interstate transporting coal to electric generation plants or to railroad coal terminals.

With the advent of modern truck transportation, a lot of the nations railroad lines were removed or neglected.  We are in serious trouble, and it is mostly due to oil… not fiat money or politics.

IMPORTANT NOTE:  I will be doing a live radio interview on the Hagmann Report this Thursday at 8 pm EST.  You can read more about it here:  March 20th – March 24th, 2017: This Week on the Hagmann and Hagmann Report.

Also, I will be publishing some very interesting articles over the next few weeks on energy and precious metals.  One article will be on “HOW UGLY WILL COLLAPSE LOOK LIKE” in the United States.

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31 Comments on "PEMEX: Mexico’s State Oil Company On The Verge Of Bankruptcy & Collapse"

  1. Steve,
    Having followed your analysis of the declining EROEI, I get a different take on articles like this:

    //www.zerohedge.com/news/2017-03-21/how-opec-lost-war-against-shale-one-chart

    Very short term horizon for this ZH “analysis”.It seems that the rapid depletion of shale oil wells is totally ignored, and attention focused solely on financial gimmickry.

    • Hubbs,

      Yes, the entire Mainstream Media and most of the Alternative Internet Media have no CLUE just how bad the energy situation has become. Unfortunately, they tend to focus on at a lot of superficial data that overlooks the ROOT CAUSE.

      My list of precious metals and alternative media analysts I follow has decreased significantly over the past few years. Most of the precious metals analysts focus on Debt, Manipulation or Fiat Money, but fail to look at what is going on in the ENERGY INDUSTRY.

      For example, I used to watch Peter Schiff on CNBC and Fox Business back in the mid 2000’s before the 2008 Housing Collapse. Peter was spot on. And the U.S. Housing Market did collapse… and nearly took the entire global economy down with it.

      However, Peter has no clue about the energy as he believes if we just allow the Banks to go bankrupt, and start all over, we could make America Great Again. This will never happen and I am surprised that Peter doesn’t pay more attention to the energy. I call it HORSE BLINDERS. Most analysts continue to focus on one or a few areas. Thus, they fail to understand how everything relates… ESPECIALLY ENERGY.

      steve

  2. Thanks Steve,
    Sure wish Charles Hall, EROI, and similar studies were part of a wider discussion. Regardless, if Assets = Liabilities + Owner Equity, then Pemex had NEGATIVE owner equity for 2016 (i.e. 2,218,955 – 3,552,746 = 1,333,791 MXN), I think. Does anyone know how to use cash flow or some other metric to estimate when this apparent insolvency can be expected to turn to bankruptcy?
    Nice dig!

    • Kevin Ward,

      Yes, if we apply typical accounting principles, PEMEX is certainly bankrupt. However, Pemex is state run oil company, so Mexico can print Pesos and backstop the company, while a typical public company would be bankrupt. If you notice the Mexican Peso Chart, you will see that its value has really declined since August 2014.

      This was due to the collapse in the oil price. So, the Mexican Govt is creating more public debt to prop up PEMEX. How long this can go on is anyone’s guess, but if the oil price really heads south, WE ARE IN SERIOUS TROUBLE.

      And, according to the Thermodynamic Oil Decline model, the oil price WILL CONTINUE TO DECLINE. So, it is just a matter of time before the FAN HITS THE COW EXCREMENT.

      steve

  3. …whoops, if possible Steve, please change my name to something different.

    • Bob,

      Excellent sense of humor. We are going to need a lot more of that going forward as things start to get real UGLY. The more I dig into the detail, the more it confirms the dire situation going forward.

      steve

  4. I appreciate your articles very much Steve and think you are onto something regarding EROI.
    But I want to point out that one cannot only have EROI as an explanation model by itself.
    It is only part of the equation.
    What is crucial is how much net energy per capita per unit of time you can get.
    For example: A large pump that pumps up oil from a giant oil well. The pump is almost fully automated and driven by the oil it pumps up.
    It needs a gallon for pumping up two gallons, then EROI = 2, which is bad.
    But it is automatic, requiring only a few staff and pumps billions of liters per day.
    Thus, the net energy per capita per unit of time is huge, and if it is large enough, it can supply the whole of humanity with nearly unlimited energy.

    This is of course just a thought experiment, but it shows that EROI is only part of the equation and that low EROI not need to be so big drawback, if you have a smart way and low number of staff when extracting the oil.

    • Markus,

      I’ll be the first to admit that I am still wrestling with this EROEI/Hills group theory, but the point is that it doesn’t matter how few people you need to pull a barrel of oil out of the ground. It doesn’t matter how much it “costs”, whether you are talking real money like gold or silver, or fiat. It doesn’t matter if you can get financing/loans to set up your rig. It doesn’t matter whether you employ 2 people or 2,000 people per rig. It doesn’t matter if you can pump it out in one day or ten days. I think you are confusing “efficiency” with EROEI.

      It’s a new game as far as economic theory and the sacred mantra of “never ending economic growth.” You now need a barrel of oil to allow you to get another barrel out of the ground. Nothing else can substitute no matter how effcient whether in labor or technology, even the so called alternative energies like solar, nuclear, wind. It still takes energy to get oil out of the ground, and the energy density of a gallon of gas for use on a widespread basis whether for “economic growth” or extracting oil out of the ground simply can not be beat.

      Now if some wizard comes up with a breakthrough on a new energy source like fusion, then indeed that would be a game changer. But all I have seen are false promises and dead ends on this.

      • Well, the Hills Groups report is debunked all over the globe by peak-oil experts that also understands the implications of EROI, so you shouldn´t be so sure about your conclusions.
        If you have some math skills you realize fairly quickly that you just can`t regard EROI only by itself. Of course an EROI of 1 wont work but it is more complicated with higher numbers.

        • Markus ,
          Of course the thermodynamics of EROEI isn’t the complete story, and I am NOT sure of my conclusions. I am trying to get further criticisms of my explanations to see if I have got the gist of what the Hills group is saying. There are many experts who debunk theories, and yet it is those experts may stil be proven wrong. I don’t know for sure who is right, so I just keep posting, hoping to by osmosis to better understand this scenario.

        • Fair enough, let us keep on learning more about this important topic!

    • Diogenes Shrugged | March 22, 2017 at 5:24 pm | Reply

      Markus: You appear to be new to this stuff. I’m unaware of any pump engines that operate on crude. Crude contains the full range of hydrocarbons, from methane to asphalt, and I expect the asphalt portion would foul your spark plugs.

      It isn’t as simple as “requiring only a few staff.” Oil companies have sizable infrastructures to support, salaries, royalties and dividends to pay. Never mind all the legal stuff with land patents, environmental regulations, safety considerations, and eventual reclamation. And lawsuits. And research. And lobbying of politicians. And cracking of the crude to produce a suitable fuel for your pumps. And pipeline construction, transportation, and the costs of drill rigs and drilling. I’m still forgetting a lot here.

      You’re right, though. EROI is only “part of the equation.” A return of one gallon for each gallon consumed by the oil pump is nowhere near enough to support a company, nor is it enough to support additional exploration and development. (Remember that typically a lot of dry holes are drilled for every productive one.)

      And by the way, where is this “giant oil well” you speak of, that “can supply the whole of humanity with nearly unlimited energy?” Maybe for a few years, but after that, we’re all going to be riding bicycles and walking to work. The notion that the planet is filled with oil (if we just drill deep enough) is just another silly thought experiment.

      • You’re right about all the expenses. In addition, those pump jacks run tens of thousands dollars, strings of tubing and sucker rods, downhole pumps, it all wears out and typically, has to be replaced rather than repaired. Then you have to hire a workover rig (pulling unit) to do the work. They’re not cheap, either. There are no perpetual oil wells.

      • I wrote that it was just a thought experiment for easier understanding, but you maybe missed that?
        Again, the Hills Groups report is debunked all over the globe by peak-oil experts that also understands the implications of EROI, so you shouldn´t be so sure about your conclusions.
        If you have some math skills you realize fairly quickly that you just can`t regard EROI only by itself. Of course an EROI of 1 wont work but it is more complicated with higher numbers.

        • Diogenes Shrugged | March 23, 2017 at 1:28 pm | Reply

          I’ll admit, I probably misinterpreted the point you were making. We both needed to show a lot of math and numbers that neither of us has access to. Chalk it up to limitations in our ability to change the world by posting to comment sections.

  5. While some what hidden the Chinese are very active in Mexico, to the disdain of most Mexicans, however the two governments are working together on several large projects and it wouldn’t suprise me to see Chinese gov corp take a large position in Pemex

  6. What a great article. I think similar articles could be written about PDVSA (Venezuela), Petrobras (Brasil), and Aramco (Saudi Arabia). Incidentally, Fitch issued a downgrade to Saudi Arabia’s debt rating. http://www.zerohedge.com/news/2017-03-22/saudi-arabia-downgraded-fitch-soaring-fiscal-deficit-deteriorating-balance-sheet

    I went back to the article from Nov “THE HILL’S GROUP: Gold Mines vs Oil Depletion” The petroleum price curve is looking like a crystal ball. A damn scary future is upon us. Thanks for all you do. As I was looking for that article I was perusing some of the Steve’s older material. As I looked upon the body of articles as a whole, the trauma of what is occurring and where it will end really hit me. Based on what I see in retail, real estate, compounding consumer / public debt, age demographics, the markets, the collapse is picking up speed and this might be the last year where everything appears normal. I always thought we’d make it to 2020. Now I’m not so sure.

  7. Steve,

    Still can’t agree with the thermodynamic price collapse. I’ve studied it, but I do not believe you or the Hill Group have made it clear. Their analysis correctly shows declining EROI and Peak Oil, etc. However, the only way I can understand TC (Thermocollapse) is by the demise of the economy through a lack of available oil. That is NOT the case. The supply has remained, essentially, steady, due to the fracking industry. The demand has fallen due to ??? many factors – this theromdynamic idea is not the reason. NOr is it valid to blame your readers for being unable to understand the principle. People can understand and disagree. You have made a false argument, imo.

    The data, to my eye, show that oil companies are trading equity for cash flow. They are into heavy oils and shale plays with quick playouts that keep the flow of product on the market. Supply is maintained, for now.

    When that supply declines and hits the demand curve, we will see if your theory is correct. I doubt it in the medium/long-term. Of course, in the longer term, when EROI goes below 1:1, it is tautological – supply cannot overcome a net energy loss. However, we are still are a good way from that. If that’s what you mean, then yes, thermodynamic collapse, but the notion that there will be no price fluctuations, but only a steady decline in price seems highly flawed. Oil will spike very, very high when the crisis hits. It will also be pushed by a speculative frenzy. There it will go until the EROI problem destroys civilization (and oil price will mean nothing) or different alternatives save it.

  8. Hi Steve, I am one of your dunce readers, who cannot get my head aroud a falling oil price. We have spoken before, I just cannot see why the price of a SINGLE barrell of oil would go down, when the EROI is also going down. I can see that the net energy value return of a barrell of oil would eventually approach zero as the EROI continues to fall. But this is not the same thing as the fiat cost price to purchase a Barrell of oil. Which I would expect to spiral out of control as producers scramble to stay in business,

  9. Another great article, thank you Steve ! Love the new site too. On the EROI, it’s still a very superficial way of looking at it. I work in a bank, in Alberta – by far the most expensive place on land to get oil out. We are routinely financing companies who pay $2M for rigs that get an avg of 1400 bp/d out of the ground (aka over $20 million/year). The royalties are a pittance, the province builds the infrastructure, after a miriad of incentives, taxes are in the low single digits, and companies aren’t on the hook for reclamation (There are over 60000 orphaned wells in the province). We have to sell our oil at a discount, because the US is our only customer, and it’s refined there. Yet, these companies keep making a profit. We are the priciest place to extract, therefore will be the first to stop. If the oil sands here (where production keeps growing, good times or bad, look it up) are producing, the oil industry elsewhere will be fine. EROI is a nice idea but I’ll eat this iPhone if oil is in the 20s by 2020.

  10. Thanks Steve, as always very useful and insightful work…please carry on. regards

  11. Good article Steve you’re documenting the complex disintegration of a complex society. Most will not understand it and there’s nothing you can do about it.

  12. I understand eroi. Like other readers I don’t understand how the price would go down. I figured it would go up since it costs more to get out of the ground and process it due to dropping eroi.I want to understand why the price has dropped? I feel that I need to understand this so that I can explain it to others the whole situation and not look like a fool. If there is another way of explaining it I would appreciate it.

    • EXACTLY RIGHT

      • Diogenes Shrugged | March 23, 2017 at 1:00 pm | Reply

        I’d like to take a stab at that, but I might be at odds with the thesis of this blog. First, consider the dilemma most energy PRODUCERS are currently faced with. Falling EROI, growing extraction costs (largely due to unconventional production technologies like deep sea, fracking, etc.), ballooning debt, falling prices per barrel. Your margins on each barrel of oil get thinner and thinner as time goes on. But you still have to service your debts and pay dividends to your shareholders. You have no choice but to produce as much oil as you can (a penny profit on each of a million barrels is more than a penny profit on each of a thousand barrels). The result is a glut of oil because every producer in the world is having to do the same just to stay afloat. Gluts drive prices down.

        In tandem with this, energy CONSUMERS are approaching, or have reached, peak debt. Whether we’re talking about people driving to work or the giant freighter ships counted in the falling Baltic Dry Index, most consumers are consuming less of everything, including oil. The rising stock market and other rising prices have made it appear that inflation was occurring, but all the other economic metrics have been indicating growing defaults, bankruptcies, hardships, unemployment — all deflationary. The amount of money sloshing around in commerce is shrinking, not growing. Less money chasing more goods, but making matters worse, the velocity of money also slowing down. Less money in circulation drives prices down.

        Until credit starts expanding again, commerce will continue grinding slower. But credit can’t expand until after the deflationary collapse has run its course. Banks can’t lend into an environment where people can’t even repay their existing debts. Personally, I agree with several commenters here that the debt system is the cause of peak energy usage. The factors described above will utterly destroy much of the energy industry. Then, when it comes time to reconstruct, the glut will vanish with surprising rapidity and we’ll be faced with an energy crisis of ruinous proportions. The price of a barrel of oil will skyrocket, energy-intensive mining will come to a halt, and already-produced precious metals prices will come to better reflect the enormous value of the energy used to mine, extract and refine them.

        The price of oil was goosed well above its cost of production when credit was exponentially expanding. Now that credit has reached its peak, the price has reverted back to the cost of production. But that reversion will overshoot in the coming years ($20/bbl is indeed possible), and the diminished EROI will relegate a lot of hydrocarbon production extinct.

        Overall, economic activity is directly proportional to energy consumption. To me, “thermodynamic price collapse” references the tandem fall in both.

        • Thanks for posting Diogenes. I am still trying to sort out this dilemma in my mind.
          The fact that oil companies have to pump even faster to service their debts means that we approach the theoretical brick wall of oil depletion and the cross over of EROEI more quickly. By Hills Group theory, there eventually will be less oil at any price, no matter how much we borrow or innovate because extraction is so difficult and energy intensive. Neither technology nor financial stimulus will be enough to overcome energy costs of pumping oil from mile deep wells. You need oil to pump that oil out.

          Less oil will be more detrimental to the economy than higher prices alone based on traditional supply/demand economics…..I think.

          With no oil extractable, the economy shuts down and demand destruction goes into hyperdrive, thus creating a low price that stays low because the economy decelerates faster than the rate of decline of oil production.

          Easy money has distorted the whole oil extraction process, accelerating it and artificially increasing demand followed by artificially goosing shale oil drilling to further enable “growth.” A sound money system would moderated the “spike” in economic activity and the over expansion of the shale play, kept oil prices a little higher and made the oil reserves last longer.

          Given the government’s insatiable need for more money, I would not be surprised if states/ FED government pounce on any drop in oil prices by opportunistically slapping on additional gasoline taxes.

          Also picked up on this which rebuts the Zero Hedge article cited above.
          http://oilprice.com/Energy/Energy-General/Tech-Miracle-In-US-Shale-Is-A-Media-Myth.html

  13. If EROI goes down= extraction costs goes up. You said the price is based on cost of production. Then please explain how prices will go down?

  14. Information brought forth by this article is great, however last line in it (Biggest problem facing the world right now is not “Fiat Currencies”) ruins it.

    It’s the cancer of global fiat currencies, which has brought about today’s current energy crisis in the first place. In fact, 3 very wise men named Jim Dines, Ron Paul & Bill Bonner understood this on the very fateful night of August 15, 1971, especially as the “World Reserve” currency was being reduced to fiat. The fiat currency cancer caused the global populations (both numerical numbers, as well as demographic distributions) to evolve the way they did, which obviously impacts energy needs. Fiat currency cancer has caused the price discovery mechanisms for everything of value, including energy to become utterly meaningless. Fiat currency cancer allowed propagation of endless warfare, corrupt industrial agriculture, massive refugee explosions. Each & every one of these tragedies has immense impacts on energy demands.

    Going cold-turkey from fiat currencies to sensible currencies overnight will in NO WAY fix the energy imbalance situation. However, to not acknowledge that the biggest problem of fiat currencies has caused the energy crisis would be disingenuous.

    • Agree to 100%.
      The Roman empire and all other empires through history didn´t go under for lack of good EROI, it is compouding debt and fiat in the first place that causes all other imbalances in the end.

  15. Thomas Malthus | March 23, 2017 at 6:36 pm | Reply

    However, Steve has no clue about the energy as he believes if we just all buy gold and silver everything will be fine. This will never happen and I am surprised that Steve doesn’t pay more attention to the real implications of the end of oil. I call it HORSE BLINDERS. Most analysts continue to focus on one or a few areas. Thus, they fail to understand how everything relates… ESPECIALLY ENERGY.

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