PRECIOUS METALS INVESTOR: Must See Important Charts & Data

The U.S. and world economies are in serious trouble.  Unfortunately, the majority of analysts continue to put out increasingly worthless forecasts as they fail to understand the true nature of the problem… or rather, the predicament we are facing.

We must remember, problems have solutions while a predicament may be too difficult to solve.  According to the Cambridge definition of Predicament:

Predicament: noun[c] /prɪˈdɪk·ə·mənt/: an unpleasant or confusing situation that is difficult to get out of or solve.

With no money and no job, he found himself in a real predicament.

Mankind enjoys slapping itself on the back when it comes up with new technologies to solve problems.  However, solving problems with technology in the short run creates even larger problems in the longer run.  For example, how does the U.S. Federal Government maintain the massive infrastructure that technology help to create if there aren’t available funds to do so???

You see this is very similar to the example given above in the predicament definition.  With no money and no job, he found himself in a real predicamentSome individuals would just scoff at the unemployed person and tell him to get a job at McDonalds or some other high-class establishment.  But, what if there were no jobs to be found as was true during the Great Depression?

Furthermore, the employment situation in the United States is much worse than the official estimates put out by the Bureau Of Labor Statistics.  If we go by the unemployment measures we used a few decades ago, true U.S. unemployment is closer to 25%.  It is just impossible to get all of the 25% of unemployed Americans a job today.  So, this is a serious chronic unemployment predicament with no real solution.

Why?  Because it all has to do with ENERGY.  The following charts and data will provide the precious metals investor the critical reason to own gold and silver.

NOTE:  If you haven’t checked out our new PRECIOUS METALS INVESTING PAGE, please do.

The United States Is In Serious Trouble… And Most Americans Don’t Realize It

EROI-Square-IconIf you look at the SRSrocco Report Icon on the top left corner of the site, you will see this EROI Red Square with a silhouette of the United States in it.  There is a very good reason I designed that graphic to be included in my icon.  According to my analysis of the top minds who study the EROI – Energy Returned On Invested, this is the most important factor that controls life as we know it.

The collapse of the Ancient Roman Empire was attributed to many factors, but the overriding reason was due to the Falling EROI.  The Roman Empire grew by acquiring lands and their resources.  Some of these resources were stolen wealth from the rich families in the lands the Romans had conquered.  However, as the years went by, the Romans conquered less lands, but spent an increasing amount of wealth (energy) to defend what they had.

The collapse of the Roman Empire came as the wealth (energy) needed to keep foreign invaders out as well as the masses happy, exceeded the wealth (energy) the empire could acquire.  Thus, the Falling EROI of the Roman Empire (as well as most empires in the past) was the number one cause of its demise.

This will also be true for the U.S. Empire.  I am not proud to say that, but this is no secret if you read those who research and study the EROI.   The following chart was taken from the 8020vision.com website based on a white paper, A New Long Term Assessment of Energy Return on Investment (EROI) for U.S. Oil and Gas Discovery and Production, from scientists Megan Guilford, Charles Hall, Pete O’ Conner, and Cutler Cleveland:

EROI-U.S-Oil-Discoveries-1910-2007

This chart shows the falling EROI – Energy Returned On Invested of U.S. oil and gas discoveries.  In 1910, the U.S oil industry was finding more than 1,200 barrels of oil for each barrel of oil (energy equivalent) consumed in the process.  The small EROI insert chart shows the huge decline since the 1950’s.  At last count in 2007, the U.S. oil and gas industry was discovering five barrels of oil for the cost of one barrel (5/1 EROI) versus the 60+/1 EROI during the 1950’s.

This next chart shows the Falling EROI of U.S. oil and gas production.  It peaked in 1950 at an EROI of 23/1 and trended downward to the 5/1 EROI for Shale Oil production today:

EROI-U.S.-Oil-&-Gas-Production

The data for the chart ended in 2007.  I added the dashed line showing the EROI of U.S. shale oil production.  The reason the EROI declined so much in the 1980’s was due to huge increase in drilling activity as the price of oil surged during the 1970’s.  Regardless, the EROI of U.S. oil and gas production has experienced a downward trend since the peak in 1950.

Simply put, as the EROI falls, there are less profitable barrels to run the U.S. economy.  Charles Hall recently stated that a modern society needed at least a 12/1 EROI of energy to sustain itself.  The Shale Oil Industry has provided a much needed liquid energy supply, but the 5/1 EROI of shale oil does not meet the minimum requirements of a modern society.

If we look at these two charts, we can see that EROI of U.S. oil discovery and production fell significantly since the 1950’s.  This had a profound impact on the U.S. economy and outstanding debt.  Ever since the 1970’s, top paying U.S. manufacturing jobs have been exported overseas.  It’s no coincidence that this occurred right at the same time as the U.S. oil discovery and production EROI rapidly declined.  Again, please check the small EROI insert chart in the U.S. oil and gas discoveries graph.  You can see the collapse of the EROI more readily.

How did the Falling EROI impact the outstanding debt of the United States?  Please look at the following chart:

Total-U.S.-Debt

You will notice that the total U.S. debt started to increase in the 1970’s and picked up considerably in the following decades.  I labeled the FRED chart as “ENERGY DEBT” because this is exactly what all financial debt should be called.  Energy has to be burned to create economic activity to pay back debt.  So, all financial debt is actually “ENERGY DEBT.”

Why did U.S. ENERGY DEBT increase so much since the 1970’s??  This was due to the falling EROI of U.S. oil discoveries and production.  Basically, the United States economy and system could no longer sustain itself as a commercially viable enterprise with the Falling EROI and declining domestic oil production, so it increased the amount of outstanding debt.  Thus, the increased debt is an inverse relationship to the Falling EROI and production of U.S. energy.

It’s that simple folks.  However, most analysts don’t understand this as they create all sorts of complicated models and charts showing how the U.S. will continue to grow well into the 22nd Century (2100).

Precious Metals Investors Are Mislead By Faulty Superficial Analysis

One of my readers forwarded the link to a recent article, Getting It Wrong On Silver by Keith Weiner.  Mr. Weiner is famous for his gold-silver basis charts which describes the inherent tightness or abundance of metal in the market.  While this is a valuable tool for traders who have a half a dozen monitors in front of them looking to scalp profits on short-term movements in the precious metals, it will be worthless for Americans who will be trying to survive as the U.S. oil supply contracts by 70-75% over the next decade.

Here is a chart of the largest shale oil field in the United States, the Eagle Ford by Tad Patzek.  You can read more about it in my previous article, THE REAL REASON TO INVEST IN PRECIOUS METALS… It’s The Fundamentals.

Eagle-Ford-Tad-Patzek

As you can see, Mr. Patzek forecasts Eagle Ford oil production to collapse back to very little by 2020.  This is only four years away.  Again, if you check out the link above you can read his vast experience and background in Petroleum Geology.

Unfortunately, Mr. Weiner’s gold-silver basis charting analysis wont put food on the table when the complex supply chain system disintegrates due to the collapse of U.S. energy production.  However, owning physical gold and silver at this time could help considerably.

Mr. Weiner brings up several NO-NO’s written about silver in a Bloomberg article that is no longer available at the link he provided.   One of the items Mr. Weiner tries to debunk in his article is the subject of “STOCK to FLOWS.”  Here is his commentary:

Mankind has been accumulating silver for many thousands of years. Unlike gold, some of it is consumed. Unlike any ordinary commodity, most of it is not. Economists call this the ratio of stocks to flows — inventories divided by annual production.

In gold and silver, stocks to flows is measured in decades. In ordinary commodities, it’s months. In wheat, crude oil, or lithium if inventories build up too much, that is called a glut. The price crashes until the glut is worked off.

There is no such thing as a glut in gold or silver, nor a shortage. This is part of what makes them money.

Mr. Weiner is making the point that there is no real shortage of silver or gold.  He states that the analysis showing a decline in global silver production is meaningless because there is so much above-ground available silver.  As he states, “Mankind has been accumulating silver for many thousands of years.”

While Mr. Weiner is correct that Mankind has been accumulating a lot of silver for thousands of years, it has also been accumulating a massive amount of debt over the past 40 years.  When the Roman Empire collapsed, it may have debased its currency to continue business as usual as best it could, but it didn’t have much debt.

This is much different scenario for the U.S. and world today.  Here is a chart of total World debt:

Total-World-Debt-1950-2014

Unfortunately, Keith Weiner doesn’t factor in this debt when he produces his gold-silver basis charts.  I imagine Mr. Weiner believes this debt will continue to head exponentially until it reaches Mars or Pluto.

Think about this for a minute.  Gold and silver are real stores of wealth, while paper assets and debt’s are ENERGY IOU’s.  Moreover, most assets are really debts to be paid in the future.  Think about all the Pension Plans we are now hearing about that are underfunded.  How about the viability of Social Security in 5-10-20 years??  Or how about all the 401K’s that Americans believe are going to be fully funded when they retire in say five or ten years??

How on earth do Americans think they will receive their monthly payment from a 401k, Pension plan, IRA or etc if U.S. energy production declines by 70- 75% in the next decade.  And don’t forget about the falling EROI.

Okay, let’s get back to silver.  Here is a chart I just made to show how much silver came on the market each year due to scrap supply and net Govt sales:

Global-Silver-Scrap-Supply-&-Net-Govt-SalesNEW

You will notice a few interesting trends in the chart above.  First, total supply from these two sources peaked in 2003 at 285 million oz (Moz) and has been trending lower.  The majority of Government Silver sales came from China, Russia and India since 2000 (ironic aye, the very same countries acquring the most gold today).  However, Official Govt silver sales were ZIP in 2014 and 2015.

Secondly, even though the high silver price in 2011 and 2012 brought about a larger scrap supply, the total for those years didn’t surpass 273 Moz.  In regards to total global above ground silver stocks, I have seen the following estimates by the CPM Group:

3 billion oz Silver bullion & coins

24 billion oz Jewelry, Decorative & Religious

27 billion oz Total

So, if we assume the 27 billion oz figure is correct of all the public and private held silver in the world, then in 2011 only 273 Moz of silver came into the market when the price nearly touched $50.  Thus, only 1% of total world STOCKS came into the market when the price of silver reached $50.  That is not an impressive figure at all if we are discussing silver stock to flows.

Of course there are likely other silver stocks we don’t know about that have been supplementing the one billion oz cumulative global supply deficit since 2004.

Global-Annual-Silver-Net-Balance-2004-2015

However, those stocks are likely declining as Central Banks are no longer dumping silver on the market.  This is also true for gold as well.

Truth be told, the STOCKS to FLOWS factor will become totally meaningless when investors start moving out of increasing worthless paper assets and into physical gold and silver to protect wealth due to the decline of U.S. and world energy production.

As I explained above, the Falling EROI has been creating havoc on the U.S. economy since the 1970’s.  Americans have enjoyed a 40 year reprieve due to the U.S. Petro-Dollar arrangement and the exporting of high-paying manufacturing jobs overseas.  Unfortunately, this is not a sustainable business model.  Either is the $19+ trillion in debt.

Precious metals investors need to understand the difference between short-term superficial analysis that provides traders with scalping profits versus the mid to longer term fundamentals that suggest owning physical precious metals in the troubling times ahead.

As more investors wake up to the upcoming economic and financial collapse, the need to analyze the gold-silver basis will no longer be necessary or relevant.  Shortages of the precious metals will occur in the future (even though Mr. Weiner may disagree) as investors move into physical gold and silver to protect wealth.

Lastly, the days of earning interest, dividends or scalping profits are growing short.  Keep an eye on the Falling EROI and world energy production for the key going forward.

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40 Comments on "PRECIOUS METALS INVESTOR: Must See Important Charts & Data"

  1. I seriously doubt that there is anywhere near 27 billion ounces of above ground silver out there. Where is the evidence for this claim? What a ridiculous claim. The rapid decline in recycled physical silver and anecdotal evidence of tightness of supply in London suggest otherwise. Paper or digital silver doesn’t count.

    • Michael May,

      That 27 billion oz figure is total estimated silver in all forms. There are billions of ounces of silver in Religious artifacts that will never come back on the market. This is also true for silver artforms. Furthermore, the majority of silver jewelry will never come back to market unless the price of silver shoots up to $300-$500. And even at that price, we may not see a massive amount of silver jewelry return into the market.

      That 27 billion oz figure includes all the silverware, jewelry, art and religious items in the world. Total silver production is estimated to be about 50 billion oz. Half of all silver was lost to industry and etc.

      Again, only a small amount of that silver, 3 billion oz in bullion-coin form is known as marketable above-ground stocks.

      steve

  2. We’re reaching peak shill.

    Silver Institute says 1.8 billion oz. above ground “available”.

    https://www.silverinstitute.org/site/supply-demand/silver-supply/

    I’m not buying that number. They want you to believe they know how much silver is held in
    “custodial vaults” worldwide. Not possible, and I’m guessing quite a bit less than their 922.8
    million oz swag. That’s exclusive of etf’s and exchanges, so it’s just stackers reporting to the institute exactly what their stashes are. Don’t make me laugh.

    • i1,

      You don’t have to believe that number, but in just the past eight years (2008-2015) a total of 1.4 billion oz was invested in physical Silver Bar & Coin demand.
      Sure, some of that silver in bar form may have been sold back into the market, but we can see there has been a lot of physical silver investment in just the past decade.

      Furthermore, this does not include the 2.5 billion oz of silver that went into Jewelry and Silverware demand since 2006. While some silverware will be recycled, very little if any silver jewelry is recycled.

      steve

  3. Robert Happek | April 27, 2016 at 9:55 pm | Reply

    Congratulations to a very good article, Steve! The predictions of Tad Patzek are really scary. Let’s hope that things do not turn out that badly. Regarding debt, one should keep in mind, that debt is rarely paid. Whenever a currency collapses or hyper inflates, the result is always a destruction of debts. That is perhaps the deepest reason for the collapse and replacement of currencies: Debt is very difficult to repay. It is easier to issue a new currency and simultaneously devalue the old currency. A truly sustainable financial system should have a limit for the maximum amount of total debt, say the sum of all debts can not exceed more than 60% of GDP. The benefit of such a system would be lower economic growth and, as a consequence, less pollution and less depletion of natural resources. Unfortunately, in a democracy, it would be a political suicide for any politician to advocate such ideas.

    Regarding metals, one should perhaps constantly emphasize the importance of getting in early. Once the train starts to move, chances will be that no metals will be available for regular people.

  4. Excellent article just short of calling silver and gold storage of energy and thusrepresenting price of energy (just like Bitcoin represent average cost of calculation power).

    However pressing the donate button the only options are fiat money transfers. What happened to eating your own dog food?

  5. Steve,

    I agree with much of your analysis. As an A&D Landman in the oil industry, there will and has to be a contraction of major proportions because everyone has been drilling the same plays. This was caused (over time) by the reduction in interest rates and the expansion of credit (debt).

    On peak oil/gas. We have so much gas it’s not funny and much of it is shut-in (with no distribution system in place). I assume your charts 5/1 are for initial drilling operations. As fields age, bigger producers sell to smaller producers and those fields can generate a hefty return for years if not decades.

    Additionally, 50% of government lands are not open to exploration but we know there is oil & gas there.

    The bomb that’s about to go off is the oil & gas bankruptcies that are not being allowed (by the Fed) to work their way through the system. These are in everyone’s portfolio’s, 401K’s, IRA’s, Hedge Funds, Annuities… you name it! The bomb is nuclear! As I talk with people about it, they look at me funny. They have no clue. They don’t care… life goes on! But they will care when they lose 50% or more of their retirement account and/or 50% of the equity in their home. This is where silver & gold come in to play.

    Love to read your stuff. When I’m unemployed, everyone starts losing their jobs – and this is what is happening right now. Like a Category 5 hurricane out in the Gulf, you see it coming, but it hasn’t hit land, yet! When it does, there will be devastation – this time – of an untold magnitude.

    • Jon,

      Thanks for the insight. Yes, indeed… the 401k’s, Pension plans and various retirement accounts are loaded with high yielding garbage. The only way fund managers could find a decent yield is by investing in many of the lousy shale plays. This will turn out to be quite the disaster.

      While it’s true that the U.S. holds a great deal more natural gas and oil, most of it has a much lower EROI than what we used to drill and produce just a few decades ago. Furthermore, Tad Patzek’s work linked in the article is quite impressive. Also, I have posted Jean Laherrere’s work as well. Both show U.S. oil production declining significantly by 2025.

      Americans really can’t afford shale oil without the Fed propping the market up with zero interest rates and trillions of Dollars in liquidity. The Falling EROI proves it.

      steve

  6. ” The bomb that’s about to go off is the oil & gas bankruptcies that are not being allowed (by the Fed) to work their way through the system. These are in everyone’s portfolio’s, 401K’s, IRA’s, Hedge Funds, Annuities… you name it! The bomb is nuclear! ”

    The problem is your industries woes like so many others are why we’re in the grossly destructive financial zone that we are right now . The dynamics are taking place in this country and the world for that matter . What make’s you think that by passing along the oil industries deficits alone through the system , anything will actually get better ? “They” should have pulled the plug on the central banking system back when Lehmann went down. We wouldn’t be in this precarious position had “they” done so As well there are so many other reasons for Humpty Dumpty to take the great fall. The one that I like the best is that the elite / Uber’s / 1%’rs , take your pick , have planned for the great dump ion’s ago. It’s baked in the cake , so they say.

  7. I just looked at a chart of crude oil price and it looks like a strong uptrend for the last two months. Don’t we have a current glut of oil, or is the short-term surplus decreasing?

    • David,

      Yes… it just doesn’t make sense, does it. Much of the global glut has been absorbed by China. From the data I have seen, China has added an average of 789,000 barrels per day in the first quarter of 2016 to their strategic oil reserve. What happens when they top off that reserve?

      Furthermore, U.S. oil inventories are still at record highs. Something just isn’t right.

      steve

      • Its important to appreciate that NONE of the price movements in any markets currently are connected in any way to fundamentals. Don’t even go looking for them. Because the QE era liquidity from all central banks is sloshing around from one sector to another – bonds, energy, nasdaq, nikkei, etc. This dirty tub water threatens to overspill to the right, the authorities jerk the tub to prevent the spill, but the water then threatens to overspill to the left.
        This factor overwhelms any fundamentals, and its also important to distinguish that it is fear driven – if there is a surge in oil, its not from genuine optimism about oil, its just mass repositioning out of other sectors the big players feel are more vulnerable. To use a common ZHism, the institutional investors want to wear the ‘least dirty shirt.’

      • The markets will most likely know when peak oil occurs before humans do.

  8. Steve,

    You are absolutely right that “Something just isn’t right”. It isn’t right in the oil markets, equity markets, bond markets, interest rates and I could go on and on. Something has got to give.

    Great article that brings up a number of important questions.

    If there is only 27 billion ounces of above ground silver (app 765,500 tonnes consensus), of which only 3 billion are available bullion (85,050 tonnes) and there is 183,600 tonnes of gold (World Gold Council in 2015) of which at least 90% is truly available above ground (165,240 tonnes) then the ratio of available silver to gold is about 1/2 – gold twice as plentiful as silver and a far cry from the current market ratio of silver to gold of 72+/1. Even if ALL of the above ground silver were somehow made in to silver bullion, the ratio of silver to gold is still only 4.5/1.

    So the question is; If a barrel of oil costs about 2.5 ounces of silver today, After the SHTF and the worlds basket of six fiat currencies finally collapse, gold and silver skyrocket in fiat dollar prices, Will a barrel of oil still likely cost 2.5 ounces if silver? Or put another way, I can buy about ten gallons of gas for an ounce of silver. After the SHTF, is it likely that will still be true? Or are there other variables in the EROI equation that will fundamentally change their intrinsic value relationship?

    Thanks,

    SteveW

  9. As we have passed peak gold and silver I became interested in other sources that might make it economically feasible to mine as the price increases.
    The Ocean is an option with 20 million tons of Gold the other is the source of the deposits on the earths crust, which is asteroid impacts.
    The ocean mining would have to be like forestry where you lay down the extractors on the sea floor and then harvest after 20 years.
    The other is not to wait for the next asteroid impact but go and get them where they are in space.
    The near earth asteroids are very fascinating especially the M and C type.
    It seems that of the 10,000+ asteroids prospected 4 of the asteroids have contents that are confidential.
    Target for mining production in 4 years but mostly for water ice then later the metals gold, cobalt, iron, manganese, molybdenum, nickel, osmium, palladium, platinum, rhenium, rhodium, ruthenium and tungsten. Planetary resources , a closed corporation, who’s stock holders are the richest corporate leaders in US have really focused their resources on bring this to pass in this decade.
    How is this possible? With robotics, artificial intelligence and 3D printing to make the things needed from the asteroid material rather than send them from earth.
    The EROI is astounding with saturation of solar energy and no gravity or ambient resistance at or between mining sites.
    Life is going to get real exciting.
    Thank you Steve for all the excellent insight you provide, truth today is rare and precious, this site is Gold.

  10. Okay, first things first. Concerning oil. Oil is not a “Fossil Fuel” it is a Hydrocarbon. Anyone that doubts this needs to explain how dinosaurs lived at the depths we are now drilling and finding reserves. Myth one destroyed. BOOOOOOOM!
    Oil,… not being a fossil fuel is now understood by many to be “Abiotic”. Second rip into the Fossil Fuel and Peak Oil theory. Thought by many to have been a concocted idea to leverage fuel prices. (GREED)

    Further propagandized by “Green Energy” Guru’s to further the agenda. Recently run amuck by the likes of Al Gore to introduce a “CARBON TAX”. If one can see through the nonsense and understand that Abiotic in short means naturally occurring. Which has been proven in a laboratory. Then while yes the easy oil may have been drained dry, it doesn’t mean that a massive oil field or fields have not been found. So while Steve is no doubt correct, it’s still possible for a hay day to arrive.

    Not that the United States would see any of it, didn’t work so well in Alaska. Too much sulfur my ass!

    I’m not saying I have anything against green energy, not at all. It’s just that it’s true benefits have not yet been realized, meaning the price to savings ratio has not yet arrived. I do take issue with it being slandered by the likes of Al Gore (A banker puppet minion) to tax people to death in order to pay interest on debt created by bankers. Next lets look at currency.
    What is our real problem with currency?

    The bankers!!!!! Private banks (NOT FEDERAL) with no vested interest but their own selfish greedy ambitions. The destructive cause, a “FRACTIONAL MONETARY SYSTEM”. I have a $1 in reserves and loan $10 (The Expansion of velocity which is then tapered or dried up). The “BOOM & BUST”. Now once one gets their head around that and understands insider trading is against the law for common folk,….is it any wonder these guys are filthy rich? THE GAME IS RIGGED!

    If banking was controlled by real laws and sound monetary policy we would all be singing in the street.

    If the United States controlled it’s own currency by both creating it and controlling it,… we would all be doing so well in 10 years that we would once again be a super power and in time dominate everything. So well could it work that this is exactly why we have a central bank. For fear that we would otherwise destroy all countries with a central bank!

    That means the money masters are no longer in control of the real empire of world domination. These are people whom adore slavery, power, and cruelty. Whom would tax you as you sprang from your dads nut sack. If we created and controlled our own currency and had stiff laws that could not be changed by buying off politicians we would be in a different world, a much different world. We would have very little taxes or debt. We would have very little reason to borrow.

    Yes, a big company might need to borrow money; but the interest would be so low that paying it back in short order would not be a problem. Imagine a loan at 1/4 to 1% interest??? Imagine having to put money down on the loan and that part actually being easy to do! Sounds completely insane right.

    Yes, it’s true. We are all brain washed. We so misunderstand the issues of gigantic importance “BY DESIGN” that we find ourselves attempting to learn 200+ years of data in months and years! While my shortcoming is expressing knowledge in my head, you get the idea.

    • James,

      Can you send me some of whatever it is your popping or smoking. I sure could use some.

      Keep on keeping on.

      Thanks,

      SteveW

    • James in NY,

      Interesting comment. While I appreciate the insight that “Oil” is not a dinosaur fossil fuel, the FALLING EROI destroys the Abiotic Oil theory myth once and for all.

      I could really care less if oil came from dead dinosaurs, rotting fish-plants or ancient aliens. However, the study of the FALLING EROI proves that mankind has extracted the high quality oil already.

      So, we are left with low quality crap oil such as SHALE OIL, TAR SANDS & HEAVY OIL. If we are stupid enough to attempt extracting OIL SHALE with an EROI of less than 2/1… then maybe we deserve to be slaves.

      steve

    • “Myth one destroyed. BOOOOOOOM!”
      That is like saying the “myth that silver comes from mining copper and lead is destroyed. BOOOOOOOM!”
      There is no question that abiotic processes exist for coal and oil but the quantities are not commercially viable and hardly worth mentioning.
      The funding for researched is similar to the funding for global warming over the past 4 decades depending which party dominated congress, the dominating party funded the theory that best benefited that party.
      It’s like the joke that global warming is so bad that it has infected Mars! (which has had shrinking polar ice cap over the last 20 years!)
      Facts can be arranged multiple ways to support any perception BUT the perception is not what is important. What is important is the truth.

  11. Research it Steve.

    I’m a gold and silver bug, not a troll. I simply stated that while the report is most likely correct, that based on these findings it’s not impossible for another oil boom to occur. Now if you think oil comes from dinosaurs please well, I’m not sure anything I say will change your mind.

    Hit up that bong and research it.

    • James in NY,

      I know you are a precious metal bug and I also know you are NOT A TROLL. I appreciate all sides of the augment. However, most oil geologists don’t believe oil came dinosaurs. They think that is the most stupidest statement ever.

      Regardless, the EROI determines what we can or cannot extract viably. I would say the ZERO INTEREST RATES & TRILLIONS of DOLLARS of liquidity since 2007 allowed expensive SHALE OIL & TAR SANDS to come on the market when most people couldn’t afford it.

      So, we can agree to disagree on this. Because, I highly doubt we will see another OIL BOOM.

      steve

  12. SRSrocco Steve, Last comment wasn’t aimed at you. I don’t disagree with you. I’m just saying that a new understanding of oil exists. And that under this idea of naturally occurring oil it’s possible that much more oil exists on earth than had ever been imagined. Now maybe we can’t get to it currently or what have you. But it’s possible for a us or mankind to actually find a huge reserve based on this new understanding.

    And that while not cost effective the scenario can be replicated in a lab to prove the idea.

    I simply wanted to make it known how propaganda has pulled the proverbial wool over our eyes.
    Isn’t that what we are doing here in the first place?
    Making it known how we have been deceived?

  13. SRSrocco Steve,

    You may be 100% spot on. I’m just stating that the old ideas have made way for new and that based on this model oil may replenish itself within the earth (how long it takes is unknown) and that there may be other big reserves not yet found. I simply wanted people to think outside the box. Don’t eat the soup. Some folks may not know this stuff and based on comments, I gather I’m right.

    • Johnny Dangereaux | April 28, 2016 at 9:33 pm | Reply

      Ad hominum attacks about bongs are ignant at best. weed smokers ARE out of the box…DUH!

    • Other big reserves of oil not yet found? Under deep water oceans or under Antarctic ice cap I can believe.

      Modern geological oil exploration is very sophisticated and they don’t miss much, not when hundreds of millions are spent on exploration and billions would be there to be made with a large find.

  14. Steve – If oil is abiotic and its rate of formation is less than the rate of extraction, does that not still lead to peak oil? Then, my concern, oxidation of all the sequestered carbon in oil using atmospheric oxygen. Oxygen supply probably does not increase fast enough to accommodate this use. When was peak oxygen?

    • GMR,

      We could probably spend all day, night and the rest of our lives debating the nuances of peak oil. That being said, I believe we have surpassed the carrying EROI capacity of our modern society and systems. This is why we have added so much debt in the world. Debt has allowed us to PULL FUTURE ENERGY SUPPLY FORWARD. Thus, there is a good chance we could experience a SHARK FIN decline in oil production, GDP Growth and population.

      As the Ancient Roman philosopher Lucius Seneca stated, “INCREASES ARE OF SLUGGISH GROWTH, BUT THE WAY TO RUIN IS RAPID”.

      steve

  15. I don’t know – I respect the EROI concept and it definitely has merit.

    Yet where I struggle is the fact that it does not take into consideration any innovations in the oil/energy and/or mining sectors.

    For example, 20 years ago, EROI would be based only on traditional oil supply and reserves, and today EROI is discussed in the context of traditional oil supply and reserves AND shale oil.

    I don’t have a crystal ball, but years from now, cars, factories, and everything else may be powered by forms of energy that are not fossil fuels and renewable in some way.

    If this is the case, the price of oil will drop and will be irrelevant. I may be totally wrong, but would EROI be relevant if the energy required to mine it was infinite? In such a scenario, I would think EROI would be simply equivalent to silver demand, since silver would still be finite (until chemical engineers figure out how to create it from periodic elements, etc…)

    So if energy was infinite, would EROI matter in terms of precious metals? Full disclosure, I just may be completely confused on the theory (luckily, I am familiar with market manipulation and the role PMs have always played throughout history as to recognize the need to own it…)

    • EROI-Confused,

      You bring up a good point to discuss. The problem with advanced technology or innovations is that they cost energy. For example, if I were to grab a few hand tools and go in my organic garden, my labor would provide a 5/1 EROI. I get 5 calories of food for each calorie of energy consumed in the process of simple human gardening.

      However, the modern agricultural, processing & distribution food system we have devours 10 calories of energy on average for each 1 calorie of food that it delivers on the dinner table. This is a 1/10 EROI… a huge net energy LOSER. So, all the technology that we threw into that system didn’t help to increase the EROI, it devoured it.

      This is the FOLLY of mankind. We must remember, the lands that the Roman Empire held had a lot of oil beneath the ground. It just didn’t know how to extract it on a large scale and use it to maintain their Empire. So, even though the energy was there… the Roman Empire collapsed regardless.

      Which means… there could be new energy breakthroughs that we don’t really know about yet that could save the system. However, I doubt we will tap into them before the system goes down the toilet. I am not a pessimist, just pragmatic.

      steve

  16. Very good points, especially the ‘energy debt’. However, the language used to describe this situation is not descriptive enough. For example, that energy debt is in fact ‘energy loss’ for the creditors, and ‘energy loot’ for the debtors, as that debt cannot be paid off. At some point the very possibility for making such loss/loot will cease, which will be the inescapable end for the model and every single one reliant on it. As for the ‘predicament’, physically it is a problem, not a predicament; it transforms (or rather transformed) into a predicament by the unwillingness or inability to change the basic social and economic principles, which makes the logical end of it a matter of choice, not doom. And speaking of doom, though the USA is doomed, the East is not. China is doing everything to accelerate their nuclear power plant construction program; Russia has almost closed the fuel cycle, with fast reactors and reprocessing facilities being built amazingly quickly. Many other countries that can be broadly described as ‘East’, are suddenly investing in nuclear power. Even tiny UAE have a huge power plant under construction, to be fully operational by 2020, with the first reactor (of four total) online by 2017. It looks as nuclear rush, and the opposite of the situation in USA and Europe, where for their own reasons the nuclear industry is almost dead (legacy plants notwithstanding). And that brings up the point of EROI. For nuclear power done right, EROI is in 50~60 range — Russia is a leader in that, with the best energy efficiency of enrichment plants and the closing of nuclear fuel cycle. China is not far behind, even if that is not their technological achievment, but it is the result that matters. Even if that level of EROI is halved to account for a large-scale liquid fuel production for transport, that is still a lofty lifestyle economically. So life will go on, perhaps even better than before, as most of the looted economic capacity has been wasted by the USA on war and nonsense. Also that is relevant for metals: current estimates for silver and gold depletion is well below 20 years, but that implies current energy cost of producing them. With more energy input, depletion may be postponed for a multiple of that time. So the future belongs to the economy with greater EROI, and the list of names can be compiled based on that.

    • Robert Happek | April 29, 2016 at 9:38 am | Reply

      The EROEI quote of 50-60 for nuclear power plants looks to optimistic to be true. The former Soviet Union built the crappy reactor in Chernobyl, yet the stupid EU must pay billions of Dollars in order to encase the molten reactor for the next 50 years. In fact, the cost of maintaining Chernobyl over the coming centuries is most certainly not included in the EROEI ratio of 50-60, right? The cost of containing Fukushima could be even greater. Does anybody remember the nuclear lobby proclaiming in the 1960’s that the cost electrical power generated by nuclear power plants would be “to cheap to meter it” ?

      Seriously, the problem of disposing spent nuclear fuel is theoretically unsolved. In addition, the supply of nuclear material on Earth is equally limited as fossil fuels. Going for wind and solar is safer and cheaper. Everything else is an insanity based on fraudulent economic accounting.

      • Everyone built crappy reactors in the early days of nuclear power, the current generation relevant to EROI is 3 or 3+, and fast reactors are generation 4. That is always the price of technological development. Chernobyl and Fukushima are both generation 1, which are both irrelevant to EROI now. The cause of Chernobyl was human factor, with specific names and actions identified, not some reactor design flaw — 17 such reactors were built, including 2 more powerful units, none of which had such troubles. USA sent plenty of its crappy reactors to Japan, four of them blew up on camera, then melted into ground waters, which now turned into the first unending radiological catastrophe memorial to crappy reactor design in history, flushing the fission products into Pacific since 2011 without any date or hope of containment. USSR contained and cleaned up its mess in exactly 206 days, with 20 years design life for the first containment. It did its job for more than 20 years. What EU and Ukraine are doing now is their own game, irrelevant to EROI of generation 3+ and 4.
        The dominant component of EROI calculation is the price of fuel, not the reactor. The dominant component of the price of fuel is energy cost of enrichment, and reuse (or the lack of it) of irradiated fuel. Russia has the best centrifuge design in existence (operational generation 9, generation 10 in development), and a huge operational enrichment capacity — that is how they get EROI over 50 with generation 3 type VVER-1000 reactors. And now they are adding a pyrochemical (waterless=clean) fuel reprocessing tech and actinide reuse for the generation 4 (fast reactors). That is the basis for high EROI in the future — two orders of magnitude less waste, 100% of uranium fuel used, not the usual few percent in one-through cycle or the dirty PUREX. The generation 4 will also burn the irradiated fuel from generation 3, including the accumulated stock. That is effectively a solved “problem of nuclear waste” (=irradiated fuel, which is 98% uranium, not “waste”) that no one bothered to notice.
        Now is essentially a Darwinian moment. The survivors in the East will go nuclear, and are going nuclear now as fast as they can, and the rest will go extinct — first economically, then politically, then literally. And good riddance, as per Hubbert’s work. Have a look:
        https://mkinghubbert.files.wordpress.com/2009/03/curve.png

  17. We are approaching the first battle ground. $18.47. This is the resistance of the sideways rounding motion that silver is in. The wedge from $50 is broken. If $18.47 becomes support look out $26. This is going on with a terrible COT. Silver is floating against the current. The banks will pull out everything at this resistance and if they fail silver could have a massive short squeeze and hit $26 quickly. If the COT proves correct, as it does 99% of the time, we could bounce heavily off resistance and crash to the 13s very quickly.
    If we see $19+ silver a new bull market is in. If not the range from $13.50 to $18.47 could go on for quite a while.
    Either way there is a good opportunity for futures traders coming. Long or short.

  18. Today COT will be very important, I expect a huge attack in commercial shorts in order to defend at any cost the 1300/18 levels.
    I also expect ZERO reaction and absolutely no pricing at all by everything outside lbma and especially comex.

    • “I expect a huge attack in commercial shorts in order to defend at any cost the 1300/18 levels.”

      I do too. How well it works remains to be seen. I thought there would have been an attack today.

      But COT shorts and attacks by the commercials don’t seem to be very effective lately.

      Here are a couple quotes, and I’m not going to identify the source, because then someone might say this isn’t true based on not liking the person who wrote this:

      “Without a doubt in my mind, the move up in the precious metals sector since January 20th is the market story of the year so far. What makes this even more remarkable is the relentlessness of the move despite the obvious repetitious attempts by the Federal Reserve/bullion banks to push the price of gold/silver lower with fraudulent Comex paper derivatives, as evidenced by the rapidly escalating amount of paper gold/silver contracts printed and sold into the “market.”

      And written a day earlier:

      The 60 minute bar chart of silver shows silver oscillating between $16.80 and $17.30 since last Tues, with a move up that was slammed with a paper hit on Thursday. But silver refuses to go lower at the direction of the Fed/bullion banks. At this point silver could break either way. They are very desperate to keep it from breaking up, but they seem incapable, at least for now, of forcing it lower.

  19. Excellent article and fantastic work I used your reports in some blog posts of mine at http://actualrealmoney.com/.Nobody gives the perspective of energy return on investment. Love you work keep it up

  20. Our declining EROI could be stood on its head if the quest for the lost chalice (Fusion) could be solved. Even thorium would be step in the right direction, but, BUT, the entrenched multinational oil and energy companies, through their political corruption/influence, will never let it happen.

  21. Yes, utterly important. From the invention of fire, then later, windmills, after that steam engines etc. :
    energy was and is the 2nd thing that matters – do not forget hydrocarbonic energy etc. to eat.
    First thing not to forget : clean water and clean air – most of which can be substituted using
    lots of energy. But you need sheer energy to accomplish all that.
    Rule of thumb : provide ca. 10 barrels of oil/ per capita and month (! ) , or the equivalent, and all your neighbors will be quite happy. Worry, or not, about CO2 – levels. Calculate, or don’t, the ROI of
    photovoltaics in tropical or desert regions in different places of this world, and switch accordingly, if possible at all.

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