THE GREAT U.S. ENERGY DEBT WALL: It’s Going To Get Very Ugly….

While the U.S. oil and gas industry struggles to stay alive as it produces energy at low prices, there’s another huge problem just waiting around the corner.  Yes, it’s true… the worst is yet to come for an industry that was supposed to make the United States, energy independent.  So, grab your popcorn and watch as the U.S. oil and gas industry gets ready to hit the GREAT ENERGY DEBT WALL.

So, what is this “Debt Wall?”  It’s the ever-increasing amount of debt that the U.S. oil and gas industry will need to pay back each year.  Unfortunately, many misguided Americans thought these energy companies were making money hand over fist when the price of oil was above $100 from 2011 to the middle of 2014.  They weren’t.  Instead, they racked up a great deal of debt as they spent more money drilling for oil than the cash they received from operations.

As they continued to borrow more money than they made, the oil and gas companies pushed back the day of reckoning as far as they could.  However, that day is approaching… and fast.

According to the data by Bloomberg, the amount of bonds below investment grade the U.S. energy companies need to pay back each year will surge to approximately $70 billion in 2017, up from $30 billion in 2016.  That’s just the beginning…. it gets even worse each passing year:

As we can see, the outstanding debt (in bonds) will jump to $110 billion in 2018, $155 billion in 2019, and then skyrocket to $230 billion in 2020.  This is extremely bad news because it takes oil profits to pay down debt.  Right now, very few oil and gas companies are making decent profits or free cash flow.  Those that are, have been cutting their capital expenditures substantially in order to turn negative free cash flow into positive.

Unfortunately, it still won’t be enough… not by a long-shot.  If we use some simple math, we can plainly see the U.S. oil industry will never be able to pay back the majority of its debt:

Shale Oil Production, Cost & Profit Estimates For 2018

REVENUE = 5 million barrels per day shale oil production x 365 days x $50 a barrel = $91 billion.

EST. PROFIT = 5 million barrels per day shale oil production x 365 days x $10 a barrel = $18 billion.

If these shale oil companies do actually produce 5 million barrels of oil per day in 2018, and were able to make a $10 profit (not likely), that would net them $18 billion.  However, according to the Bloomberg data, these companies would need to pay back $110 billion in debt (bonds) in 2018.  If they would use all their free cash flow profits to pay back this debt, they would still owe $92 billion.

Yes, it is true, I am not including all U.S. oil and gas production, but I am just trying to make a point here.  We must remember, this debt is below investment grade and is likely more of the shale oil and gas producers.  Furthermore, these shale oil and gas producers are using most of their free cash flow to drill more wells to produce more oil.  So, in all reality, they would not take most all of their profits or free cash flow to pay down debt.  They just wouldn’t have the funds to continue drilling.

The Bloomberg data on the U.S. oil and gas companies outstanding debt (bonds) came from the following chart:

I made my own chart (shown at the top of the article) by estimating Bloomberg’s debt figures (they did not provide actual figures) as it seemed more fitting to show U.S. energy debt in a BRIGHT RED color.  Their chart seemed a tad boring, so I thought it would be nifty to jazz it up a bit.  While I have reproduced their data in my own chart, I give them full credit for the figures.

That being said…. there is no way in hell the U.S. oil and gas companies are going to be able to pay back this debt.  NO WAY…. NO HOW.  So, we could either see a lot more bankruptcies, companies rolling over the debt to a later date, or Uncle Sam could come in and buy the debt.  However, all these options won’t change the dire situation the U.S. energy sector will face as it becomes more difficult and less profitable to produce oil and gas in the future.

I would kindly like to remind all the precious metals investors as well as those who follow the alternative media…. ENERGY IS THE KEY PROBLEM…. not the debt.  The debt is a symptom of the Falling EROI of energy.  For some strange reason, a lot of people still don’t get that.  We must remember the following:

DEBTS = UNBURNED ENERGY OBLIGATIONS

For example, a home mortgage is a debt owed by the homeowner.  Energy must be burned every day, week, month and year(s) to create the economic activity that pays the homeowner a salary to pay off the home mortgage over the 20-30 year period.  Thus…..

HOME MORTGAGE = UNBURNED ENERGY OBLIGATION

Now, I can go on and on by using other examples such as car loans, boat loans, RV loans, credit cards, second mortgages, company and public debt.  All of these debts are “Unburned Energy Obligations.”  When you can finally look at the market in the terms of “ENERGY”, and not “FIAT MONEY”, “ASSETS” or “DEBTS”,  then you will finally understand why the debt is not the real problem.

Why?  Because, even if we could wipe away all the debt, that would still not solve the Falling EROI – Energy Returned On Investment of our oil and gas sources or the declining net energy that is available to the market.  The massive increase in debt has just postponed the inevitable a while longer.

Lastly, precious metals investors who “wrongly assume” that falling oil and natural gas production is bad for gold and silver investments or stores of wealth, you are sadly mistaken.  Gold and silver have been providing a store of wealth for 2,000+ years before oil and natural gas came onto the world market.  Precious metals were storing mostly economic energy of human and animal labor (as well as capital created from human and animal labor).

So, when oil and natural gas production really starts to decline, the value of most STOCKS, BONDS & REAL ESTATE (where 99% of investors have their money tied up) will implode.  Thus, only a 1% movement of that wealth into gold and silver will push them to values never seen before in history.

I will be publishing some very interesting articles over the next few weeks and I am doing preliminary work on a new PAID REPORT on Bitcoin, Gold & Silver.  There is a lot about these assets-investments that most people do not understand.

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71 Comments on "THE GREAT U.S. ENERGY DEBT WALL: It’s Going To Get Very Ugly…."

  1. Northwest Resident | May 28, 2017 at 12:46 am | Reply

    Ongoing and rapidly increasing energy deficiency is THE story of our time. But it is a story that has been kept under wraps by expert propaganda and massive debt. Buying time is all our political, financial and industrial leaders can do, and all they HAVE been doing for the last 10 years or so. Maybe “they” have a plan. Whether they do or not, it seems obvious that we’re reaching the end of pretend time and will soon have to face a full reckoning with reality. One of these days the illusion of “all is well” is going to shatter and that is when things will get very ugly.

    • They have been doing that since the Hirsch report (2005). If fact, everyone has been doing that until very recently, and most still keep doing that. It is easier. 2020 will be a blast.

  2. So what you’re saying Steve is that money borrowing has allowed energy companies worldwide to offset the rising cost of oil extraction (as they have to dig deeper and use ever more expensive and complicated technologies to get at the oil).

    Do you think when these massive “too-big-to-fail” oil companies start bleeding that the US government won’t nationalize them?

    • Eric Bauer,

      Its actually more complex than your statement here: “is that money borrowing has allowed energy companies worldwide to offset the rising cost of oil extraction (as they have to dig deeper and use ever more expensive and complicated technologies to get at the oil).”

      The massive increase in debt has allowed us to pay for things in the entire market on a much smaller annual basis as the EROI of Oil has fallen. Think about it as CASH FLOW. The falling EROI has provided less NET FREE CASH FLOW to the global market each passing year. So, to extend life, we add more LONG TERM DEBT along with FALLING INTEREST RATES to continue paying for all this stuff.

      Thus, we can pay for much more costly stuff, it we finance more of it over a longer period of time.

      Even if the U.S. or other Central Banks nationalized their oil companies, it would still not change the ramifications of the FALLING EROI.

      Think about it this way…. if some billionaire decided to help a person who was getting older and in bad health… the funds could help provide a better quality of life for a bit longer… BUT DEATH STILL COMES TO US ALL. Money, or propping up a system can not stop DEATH.

      The DEATH of the market is coming because the FALLING EROI is forever.

      steve

      • EROI falling is forever only true if we set oil as the only energy source. According to Annunaki there are two other energy sources that as efficient as oil. I do not think that EROI will fall forever in the production of those sources. It can fall now and then but not forever.

        • Bukharin,

          You say… According to Annunaki there are two other energy sources that as efficient as oil. I do not think that EROI will fall forever in the production of those sources. It can fall now and then but not forever.

          What are these two energy sources, and how will they forgo the forces of nature, entropy and thermodynamics?

          steve

          • One of them is undeground hydrogen produced every second by Earth’s core. I can not tell you the other one without putting the entire solar system in a horrific danger. That is all I can say. Now, if you excuse me, I will go back to my Romulan starship.

          • Bukharin,

            I appreciate your sharing of such classified energy information before heading back on your Romulan Star Cruiser. Unfortunately, any new energy source that would SAVE THE DAY, the Aliens from deep space must approve. And from what I have heard from TOP MEN, is that they (them thar Aliens) would rather see us figure it out for ourselves than watch us use their technology to make a BUCK on some poor unworthy slobs.

            So… it looks like we are up the creek without a paddle.

            steve

          • Curious TAP | June 3, 2017 at 7:06 pm |

            EROEI has been falling since the first barrel of oil gushed to the surface. We have already picked the low hanging fruit and we will reach a point in time when the cost of obtaining energy exceeds the usefulness of having obtained it EROEI. We will never pump the last barrel of oil, the last bucket of coal, or the last cubic foot of NG because we will not choose to afford the cost of retrieving any of them, it would not make any economic sense. I imagine Bukharin is referring to solar or geothermal, perhaps tidal.

        • ROFL….

  3. All the various words, all the different charts, graphs, financial records are screaming the same thing.
    America’s wealth and all of humanity for that matter has been based on one thing.
    An abundant supply of easily harvestable natural resources which are nearring depletion.
    Only thing left is what humanity started with, it’s own physical labor because the way of man is to live for the present without sacrifice for the future.

    • Bingo.

      And Gold and Silver won’t help. And forget about crypto.

      Energy is currency.

      • JT Roberts,

        At first glance, your comment makes some sense. However, you forget that GOLD & SILVER have been stores of ECONOMIC ENERGY for 2,000+ years when it stored human and animal labor. Gold & Silver will continue to be HIGH QUALITY STORES OF VALUE even as energy production from Oil, Natural Gas and Coal decline. Actually, declining energy production will make the value of Gold & Silver rise even more.

        steve

  4. The year 2020 is shaping up to be a blast in so many ways now. The end of the US shale story; the peak of Russian oil production (between 2019 and 2020 to be exact), and I will say nothing on the financial side of things. That means two out of three primary oil producers will be past the peak for good. The Saudis are a mystery, but that shipload of weapons they are buying now will play out somehow, and however that goes, that will not increase their output. The best part of all this is how close that year is: only three years from now it will be history, and there must be some ceremony of events leading to that all the way.

  5. Good article, Steve.
    Looks like we’ll need we’ll need QE4 starting maybe later this year or next to buy up all these unpayable energy company bonds to keep the system going for a little while longer.

    • Tagio,

      I agree. They will likely have to do QE4 or some other expansionary monetary policy. They will never RAISE RATES much. Just look at the Energy Industry. If they roll over their debt and the interest rates go up significantly, they won’t be even able to pay their INTEREST PAYMENT… LOL.

      steve

  6. Thanks from Italy

    • Stefano B,

      Thanks for the kudos. Just to let you know, one side of my family is from Italy and Sicily. My middle name is ROCCO. That is where the SRSrocco comes from….. LOL.

      steve

      • ROCCO? I thought your middle name was Noah 😉
        One way to look at this stored energy thing:
        I’m hungry, I can either spade up the back yard, haul buckets of water from the creek, plant some beans, pick em, cook em,,,or I can save my human energy and go buy some beans with some silver.
        I cannot get more silver by simply “printing” it,,, I must expend some human energy to get more either by mining it or producing “through human energy” something someone else needs. If I produce more than I consume then I can store my extra production for latter consumption.
        PMs are better to store than beans.

        • Olegig,

          Yes.. very true. Especially, if you grow a lot of beans. People who say that they rather have BULK FOOD, GUNS & AMMO instead of gold or silver, forget that… what happens if one runs out of AMMO.. or FOOD??? Hell, a gold coin could buy one hell of a lot of AMMO if needed in the future.

          This is what most folks who object to owning precious metals say all the time. However, they do not realize that maybe when it is time to trade, maybe they won’t have anything the other person needs, so no trade is done. But, gold and silver will always retain value. So, it is a good medium of exchange and store of value to hold onto, because you never know what one will need and what the other person would trade in the future.

          steve

          • I forget if it was on here or on zerohedge that right now, in Venezuela where people are starving, 1 ounce of silver (currently at 15.6 USD per ounce) will buy you six months of food for one person.

            Do you have any information like that Steve?

            Guns and ammo are fine for protecting your gold and silver. If things get so bad that the entire planet erupts into anarchy and billions starve and die over the next decade then, fine, whatever.

            Back in the real world, chances are it won’t go down that way.

          • Eric Bauer,

            Actually, that information came from the precious metal dealer I sponsor on this site. Tom Cloud has a client, whose brother was a missionary in Venezuela. He came back from Venezuela last year and provided that news from what he had witnessed in the county. Now, when I say “country”, I mean in the countryside in Venezuela.

            From what the missionary said, Venezuelans who gave a farmer 1 oz silver coin, could take vegetables off the farm for six months. Also, a 1 oz gold coin could get someone a modest home in the countryside in Venezuela. I am not talking about a home in the bigger cities… rather in the countryside.

            So… that information was released during our PRECIOUS METALS WEBINAR with Tom Cloud last year.

            steve

          • The Ammo owner will shoot the gold seller without selling but taking the gold for one bullet.

          • MM,

            Yeah… that might happen. However, people have held gold for thousands of years. So, if you think 100% of EVERYONE on the planet is going to be shot so they can steal their gold, we might as well put our HEADS IN THE SAND & GIVE UP RIGHT NOW… AH??? LOLOL. I gather they could also shoot us for our vegetables and food grown in the garden. Furthermore, those with bigger guns could shot us and take our smaller guns. So, what is the use of doing anything… LOL.

            Thus… we could do this exercise all day long.

            While owning physical metals comes with risk, I don’t believe every single person on the planet that holds gold and silver will be SHOT for it.

            That being said, I don’t know what else to invest SURPLUS FUNDS.

            steve

  7. Diogenes Shrugged | May 28, 2017 at 1:56 pm | Reply

    Quoting here: “So, we could either see a lot more bankruptcies, companies rolling over the debt to a later date, or Uncle Sam could come in and buy the debt.”

    Gonna be tricky rolling over their debt if interest rates continue to rise.

    The third option would probably mean blanket nationalization of energy production. I wonder how many $trillions that would add to the national debt.

    I’ll take door #1 for the biggest deflationary collapse ever, Alex.

    So, if we survive starvation and nuclear holocaust, we’ll freeze in the dark. I’m told that two gold coins, one placed on each eye before burial, will buy you portage across the River Styx. Bon voyage.

    • Joseph Johansen | May 28, 2017 at 8:02 pm | Reply

      Actually, Greek mythology has it that one gold coin placed under the tongue, not over the eyes, will gain one passage over the river Styx. Yes, its absolutely a fairytale, nevertheless I personally do try to get the details right. Personally speaking, of all the belief systems, I find Christianity to be by far the most compelling. And if one subscribes to this particular belief, then forget being buried with any gold coins, as for sure they won’t help in the next life.

  8. Hi Steve.

    Good post, as always. I´d like to point out something on this. Oil from shale is roughly half LTO and half high API gravity crude. This means that it sells at a huge discount to the futures market benchmark (WTI in the USA) So, if the price averages 50$ a barrel during a given year, Shale production goes for 30$ or so. Well, this really adds to your points and I´m sure you knew this better than me, including the real discounts. Hey! At least, in the USA, there´s got to be something left of the real benchmark. Here in Europe, oil is priced using a virtually non-existent crude (Brent is an almost completely exhausted reservoir in the North Sea) Weird, isn´t it?

    Always great to read you, best wishes.

    • Jorge,

      Thank you for bringing that up. Yes, I knew that Shale Oil as well as Canadian Oil sands sell at a discount to WTI Crude. Here are the current prices of the different crude selects:

      BRENT Crude = $52.41
      WTI Crude = $49.68
      ND Sweet Crude = $39.50
      ND Sour Crude = $36.62
      TX Eagle Ford Crude = $47.70
      Canadian Crude Index = $37.72

      So… yes, the North Dakota Sweet and Sour crudes are selling for $10-$13 less than WTI Crude. That being said, my figures in the articles were really DUMBED DOWN. But, you are correct. I doubt the shale oil companies will hardly make any profits if WTI Crude stays at $50 or less in the next 12-18 months.

      Unfortunately, I think the price of oil will head lower as the global economy continues to weaken. This will make a BAD situation even WORSE for the U.S. Shale Oil & Gas Industry

      steve

  9. Steve

    A fan, read all your articles, playing devils advocate here. Your say: “Gold and silver have been providing a store of wealth for 2,000+ years before oil and natural gas came onto the world market. Precious metals were storing mostly economic energy of human and animal labor (as well as capital created from human and animal labor).”

    I get a little confused by this. I don’t think you are implying any storage of physical, usable, energy. Neither gold or silver can provide usable energy on any practical basis. Of course, it takes energy to mine and process the metals, but that energy is “lost” out into the system. There is no embedded energy in the sense that we might use fossil fuel resources to build an energy generating wind turbine or solar panel. There is only the recognition of the energy that went into the mining and refining the existing above ground gold and silver, and the energy it would take to bring more gold and silver above ground. This is part of what gives gold (and silver to a lesser extent) its perception of rarity and precious value as money. But we are not really storing any energy of any kind?

    Is it not better to say that gold and silver will hold their value as money, relative to the value of fiat monies and other tokens and assets, and be exchangeable for more of the new currencies, whatever those may be, when there is an economic reset? Those exchanges will be based on the perception of value of those precious metals (including now industrial uses), that include an understanding of the energy required to mine and refine them. Those exchanges will occur as the work (economic activity) performed by fossil fuels in the global economic system decreases, the relative cost of obtaining resources increases, the value of digital claims on future economic output deflate, and net income to consumer’s decreases. ( And those are just part of the algorithm.  )

    Shawn

    • Shawn,

      You bring up some excellent points… and yes you are correct that Gold & Silver do not store any energy in them. They are not batteries per say. However, they store ECONOMIC ENERGY, a term coined by Mike Maloney. This is different that storing energy.

      We must remember, gold became money because it doesn’t rot, rust, tarnish or wear that easy. Sure, if a coin was used a lot, part of the coin’s image would be worn off, but the majority of gold would still be there. So, gold was used as a STORE OF WEALTH because it had these capabilities while most other metals, goods or commodities did not.

      The same for silver… even though silver tarnishes. They have been finding gold and silver coins in the oceans lost 1-2,000 years ago… still in excellent condition.

      Lastly, I will be writing more about how GOLD & SILVER will store wealth even though energy production declines.

      steve

  10. Jean Langford M | May 28, 2017 at 6:46 pm | Reply

    LOL…Nothing you have enumerated has happened .. Not in the last 6 months…They are finding, producing, and selling more oil than ever…OPEC,Iran and Africa are doing their best to keep the market glutted with oil while talking out of the other side of their mouth to the contrary.They don’t want higher prices because the U.S. Can pay down its enormous debt with petro dollars..They know what will happen if the U.S. Can do that…The Saudi’s bought Trillions of our debt…They see that as leverage against us..In contrast..Iran has them scared $hitless..”Trump” knows all of this too…LOL… The senarios change daily…The Arctic has proven reserves of oil..The Russians just moved their old weather troops in support of their territorial claims in the Artic…They are planting their flags on the Artics continental shelf “UNDER WATER” they know where the oil will be coming from next…Reality is a real bitch. Just keep watching…China has built man madeislands in the South China Sea Stocking them with military hardware claiming sovereignty over them in international waters in the hope of claiming territory and oil rights that within those claimed territories..Going head to head with Vietnam, Indonesia, Japan, and the Philippines …China knows if war breaks out andIran gets clobbered they must have a pipeline to feed its monster industry and military…The OIL STRAW strategic pipeline is way to long from the Middle East…They know it …Hence they’re “STRING of PEARLS Strategy (ISLANDS)”…A series of ports,Islands and agreements, Treaties with Nations to secure that pipeline…Not much different than the Japanese used in World War II to secure their oil pipeline…History repeats itself with a TWIST….Stay tuned….

    • Jean Langford,

      Let me ask you this question. How long do humans live?? 6-12 months or maybe a tad bit longer. If you are focusing on this short time frame, there isn’t much I can say. Furthermore, your comment suggests you are not reading my work in detail.

      Why? Because, you would know that my FALLING EROI analysis is based on a ongoing TREND that continues to get worse over time. So, no… six months is peanuts and should not be viewed as what will take place over the next 5-10 years.

      steve

      • Gee, kind of nasty there, aren’t you? Steve works hard on his reports. Do you have to be so rude with your opinion?

    • You are obviously relaxing in a HOTTUB Jean, sipping a glass of wine and enjoying the moment! When does Boiling Frogs comes to mind? ….. Lol

      • Graham B,

        I saw your comment on Facebook and totally agree that most people are consumed on the lousy POLITICS. This is quite unfortunate as the politicians will not provide any solutions, rather they will take up ones time wasting it when they could have been doing something more constructive.

        steve

    • Troll

      Too many LOL and dot dot dot

    • Jean. Politely, bullshit.

      “Global oil discoveries fell to a record low in 2016 as companies continued to cut spending and conventional oil projects sanctioned were at the lowest level in more than 70 years, according to the International Energy Agency, which warned that both trends could continue this year.”
      http://bit.ly/2pmks20

  11. Well, Saudi Arabia is working to steal the energy resources of Yemen and the US just made a weapons deal for $350B with them.

    Gee, I wonder which civilian population will be on the receiving end of all that?

  12. Man! Awesome article..! Scary as hell!!! And right before I go to bed…! How much do you think you’ll be charging for your report on Bitcoin, Gold and Silver?

    Thanks for all your hard work…..!

    • Terri,

      I am not quite sure what the cost will be yet, but I can tell you this… my report on GOLD, SILVER, BITCOIN & CRYPTO-CURRENCIES will be explained in a way that 99% of other analysts fail to do.

      There is a GREAT DEAL OF MISINFORMATION that I am going to cover. Actually, I am very excited about this report. I will discuss more about it in a few weeks, but I don’t want to say too much more.

      steve

  13. Thanks Steve, regards

  14. Excellent report as usual. Thanks Steve

  15. Lets say the shale producers are not really able to produce oil at the 40$ barrel claim like they made last year. Do you think we could see the collapse of the shale industry before 2020?

    • Cliffhanger,

      Excellent question that I don’t have a good answer as there are too many variables. However, the lousy fundamentals in the shale oil and gas industry points to serous problems ahead. I will be posting an article on the Permian basin in Texas where most of the growth in LTO-Shale oil has taken place over the past 6-12 months. Jean Laherrere has sent me some excellent charts on the Permian basin and its peak and decline profile.

      Whether the Shale oil and gas industry really starts to fall apart in 2 years, 5 years or most certainly within 10 years… it won’t seem like a long time because, it has already been 9 years since the 2008 U.S. Housing and Banking Market collapse.

      steve

  16. Steve,

    you state, that when oil and natural gas production really starts to decline, the value of most STOCKS, BONDS & REAL ESTATE (where 99% of investors have their money tied up) will implode. Since its more complex, could you indicate more precise your expectation of the decline?
    I mean, I assume the worst decline might come on the bond side (90%+ decline), than certain stocks , which will be hit hardest if the standard of living declines (80%+ decline), than real estate (50-70% decline) and finally some better stocks …. thanks,

    andy

    • Andy,

      I have been writing about this in many articles and discussing it during many interviews. Unfortunately, a lot of followers are not reading all my work or are new to the site. Either way, I need to put together some pages and then post a LINK. I believe that would save me time as replying in detail on an individual basis is a horrible EROI.

      That being said, in a nutshell…. most STOCKS, BONDS & REAL ESTATE values are backed by debt. Most homes have a 30 year mortgage, which means, most Real Estate is owned via Debt instruments. Bonds are nothing more than Debt instruments to be paid off at a FUTURE DATE (months, 5,10,20 & 30 years). Then, there are stocks. Stock valuations are based on the financial principle of NET PRESENT VALUE. Which is, determining a stock price today based on FUTURE EARNINGS.

      So… all of these asset classes are based upon a FUTURE ECONOMY functioning as it has today and in the past. However, when oil production really starts to head south, the LEVERAGE-DEBT implodes… thus taking down STOCKS, BONDS & REAL ESTATE with it.

      Please look out for upcoming articles on this.

      steve

  17. What you dont know makes you happy.

  18. Thanks Steve, great work!! Did you here Chris Martenson’s interview with Art Berman? I was shocked about what Mr Berman told about the water production that comes along with shale, Permian 80-85%, just cant believe this. Do I get this right, do they produce almost just as much water as they produce oil? 32-35 min into the interview.
    https://www.peakprosperity.com/podcast/108749/art-berman-dont-get-used-todays-low-oil-prices

    • Jon t,

      Thanks for posting that. I will listen to the interview. Yes, the water cut is really increasing in many of the Shale oil fields. The Bakken is also experiencing a very high water cut ratio now. This is bad news as I still hold to my forecast that U.S. oil production will be down 50-75% within 10 years.

      steve

  19. Andrew Hopkins | May 29, 2017 at 4:11 am | Reply

    Thanks Steve,
    The shale sweet spots have just about been taken. It is a ponzi in any case as you have rightly pointed out. The debt is crippling, huge and unsustainable. BHP are out of it. Looking forward to your report on the Permian.

    • Andrew Hopkins,

      Yes… the sweet spots have been mostly drilled out since 2008 in the Bakken and Eagle Ford. While production in these two fields could rise a bit as the drilling rig count continues to increase, I highly doubt that they will surpass their previous peak in production set in 2015.

      Wait until you see Jean’s charts…. LOL. What a mess we are in.

      steve

  20. Hello Mr Angelo,
    I drive an 1989 Chevrolet Caprice Classic & although it runs well it looks pretty shoddy according to my wife. So I considered upgrading to a 1987 Rolls Royce. The Rolls Royce does only get about 5-8 MPG. But after reading your article I am considering a Toyota Prius!
    All right already. Enough of the introduction. Your article is very disturbing. I am considering the ramifications of your articles(s) and the effect EROI will have on the human race.
    I would think it is logical for the population of 7.2= billion with all the diminishing resources will become quite a hostile planet for us humans to live on.

    Thank you for your examination of EROI from a perspective that quite unique.
    Wild Bill

  21. Simple math bail them out let taxpayers pay. No problem

    • tony,

      Yes… simple math, and I wouldn’t put it past them to BAIL OUT the oil companies. However, this does not change the fact that the OIL & GAS INDUSTRY are on a path of certain DEATH. As I mentioned in a previous comment, BAILING OUT the Oil & Gas Industry only keeps the patient alive a bit longer. DEATH STILL COMES.

      So, the SIMPLE MATH is this….. the disintegration of the U.S. and Global Oil Industry is under way. If Central Banks try to prop up the Energy Industry, then they made a few years to its ultimate death. However, there’s lots of other SERIOUS ISSUES going on like massively underfunded Pension Plan system, Retirement Ponzi Scheme that is showing signs of collapsing and a gutting of the higher EROI standards of living.

      When we factor this all together, it doesn’t change the MATH ALL THAT MUCH…. LOL.

      steve

  22. According the International Energy Association,UBS Bank,HSBC Bank,German Army & Saudi Aramco. There is going to be a worldwide oil shortage that occurs by 2020. Due to these reasons there is no possible way the global economy moves forward from this point on. This will cause a massive stock market crash throughout the world. Banks will collapse, atm’s will be out of cash. And worldwide panic and chaos will ensue…Wait and See…

  23. The end of Peak Oil? Why this topic is still relevant despite recent denials

    The conclusions are that, supported by commercial interests, an unsubstantiated belief in market and technical solutions, and a narrow paradigmatic focus, critics of Peak Oil theory have used unreliable reserve data, optimistic assumptions about utilisation of unconventional supplies and unrealistic predictions for alternative energy production to discredit the evidence that the resource-limited peak in the world’s production of conventional oil has arrived, diverting discussion from what should be a serious topic for energy policy: how we respond to decreasing supplies of one of our most important energy sources.

    http://www.ourenergypolicy.org/wp-content/uploads/2015/06/The-End-of-Peak-Oil.pdf

  24. It still perplexing to me that there is a lot people mainly your typical progressive liberal who believes that wind and solar will replace all oil coal and nat gas. It’s you always say Steve they believe in the energy tooth fairy. My company manufactures the coating for the wind turbine blades and I assure you there is nothing “green” about them. They think this stuff falls from the sky and we humans just assemble it and sit back and get free energy and it just amazes me how simple minded most people have become.

  25. Steve As per my example of the triangle regarding physical silver , here is an example of an upcoming energy producing source with the ” usage ” of Ag quite abundantly : http://brilliantlightpower.com/SunCell/

  26. This will result in a bailout – not because of the energy companies themselves, but because of the banks that would go under when a wave of defaults are about to hit them. If they could print up trillions of dollars to bail out walls treat, a few hundred billion dollars for the energy sector is like peanuts. WHICH is why I still believe that oil will trend UP mid-term (due to monetary inflationary policies), even though due to EROEI net energy production will likely only decline from here on out.

  27. Steve, please lend an ear to Kirk Sorensen on TED.com. He informs us of CLEAN, IDIOT-PROOF, PORTABLE nuclear power! I KNOW! It sounds insane, but apparently the guy was a NASA engineer for a decade, so I think he knows his maths / math. Our pal, Nixon (care of; The Ninth Circle of Hell) pulled the funding from Oak Ridge Laboratories, TN, to protect the interests of Big Oil. You’re a smart man, Steve, so I’d be interested to know if you think it’s viable or not. If Big Oil IS destined to collapse, might thorium save us?
    Thanks for all the thought-provoking work.

    • Nick H,

      Thanks for stopping by and being a new commenter on blog. I have read papers on Thorium reactors and yes, they are better than Uranium reactors, but the problem remains… the world is run by liquid oil, not electricity.

      Furthermore, the logistics of changing to a thorium-nuclear energy source is just too damn expensive and too time consuming. This is the issue. The Hirsch Report done for the U.S. Govt back in 2005, warned that the TRANSITION from Oil-Natural Gas should take place at least 20 years before peak. If we waited 10 years, then there would be big problems.

      Unfortunately, we haven’t done MUCH OF ANYTHING… and PEAK IS HERE. While we have brought on UNCONVENTIONAL OIL (Deep Water, Shale & Tar Sands) to make up the difference in the peak of CONVENTIONAL, this is has only bought us time. So, in the past eight years since we have ramped up unconventional oil production, we did not take advantage of that oil and use it to TRANSITION to some other energy source.

      Rather, we used it to continue our BUBBLE ECONOMY based on money printing and zero interest rates. Building more shoddy homes, strip malls and consuming more garbage products was not an EFFICIENT or WISE way to use this valuable and expensive resource.

      So… the BOTTOM LINE is that we have RUN OUT THE CLOCK. We do not have the cheap or HIGH EROI OIl & NATURAL GAS to use to transition to a THORIUM BASED NUCLEAR ENERGY SYSTEM…. we just don’t have the energy now.

      This is by far the biggest BRAIN FART that most smart scientists fail to incorporate into their MODEL. They look at the world as if it is run by ENERGY TOOTH FAIRIES. For whatever reason, they are unable to grasp the entire energy system. They look at it through HORSE BLINDERS.

      steve

  28. There will most likely be a bail out of the oil company’s, but that is just the most obvious default. The declining oil production will effect so many other interconnected industries and communities. Consider states and governments dependent on oil revenue, real estate in cities like Houston, Dallas, and in Canada, heavy equipment manufacturing, etc.. Then list would be a long one of industries affected. Then of course just not having cheap locally produced oil. What would that do to the overall economy? The dominos will fall. There is no stopping something that big from ripping apart the social fabric and setting up a domino collapse across the board.

  29. Steve,
    I do not think the fracking companies willbe allowed to increase their debt from $60B to $260B in just a few years. NO banker is that crazy. Suppose the price rises back to $100/bbl and the cash flow rises from $18B to $50B. Would you lend at 5X cash flow? Right now it is 3X cash flow. I suppose it depends on the interest rate, but most of this highier yielding JUNK bonds. Rather than add this much new debt, the banks will be forced to reserve against these loans. If the industry needs this much capital just to stand still, it will likely have to be shut down. Gradually, if possible. This is the aim of OPEC in my opinion.

    Also, forget about a bailout for the oil industry. Just won’t happen. Be lucky to bail out FDIC these days. If they really do lend against these cash flows ($260B), watch out below. Eventually, this is going to be a gusher of losses.

  30. Could it be central banks, long oil, like they keep a lid on upward momentum in gold, and the opposite in oil?

    http://www.zerohedge.com/news/2017-05-30/mystery-massive-long-supporting-oil-market#comments

    Article suggests China.

  31. why would china want to drive up the price of oil? they are a massive importer. If anything it is a producer. Russia? the Saudi’s? FUTURES MARKETS DRIVE THE SPOT AND CONTRACT PRICES. Bid them up and you make more money selling your production. Besides, the price of oil fell by half, why not increase the number of contracts to the same dollar amount?

  32. Christ, His return as forecast in the Bible is the only possible solution to the problem discussed. I suggest one spend some of his free time reading about it and the description of the times written from 6,000 to 2,000 years ago. LOL

  33. We are as one until the very last bit about precious metals. Yes, if only 1% of the “value” of the other assets is dumped into metals, they will achieve a price never before seen in history. However, holders will have to make a fatal choice. Either hang on to their metals which we be insanely “valuable” but worthless because they can’t be exchanged for anything but money, or sell the metals for fiat money with which they will have to quickly get into another market of some kind. It will be catch 22. And protecting that much money will be difficult, in a bank it can be stolen by the state with the click of a mouse. Hard cash, there isn’t enough in circulation to cover it and, again, you are stuck with what to convert it into, quickly. The only possible exits are rural land that you have made productive, preferably way out of any city with plenty of water. Good luck.

  34. Paul Holstein | June 3, 2017 at 7:37 am | Reply

    Obviously, the author doesn’t understand accounting or what “profit” means. “This is extremely bad news because it takes oil profits to pay down debt.” No. False. That simply isn’t true. Why? Because there are non-cash charges to net income “profit” that can be used to pay down debt. Each of these wells is an asset. When a borrower builds an oil rig, they record an asset and they record the debt.

    Each month, they write-down (amortize) the asset and that affects profit. But it isn’t using cash and that cash can be used to pay down the debt on the liability side. So no, you don’t need “profit” from net income to pay down the debt. But you do need gross margins or “Gross Profit” to pay them down and I have to believe that $10.00 per barrel of “Gross Profit” is easily achievable.

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