WORLD ECONOMIES IN TROUBLE: Middle East Oil Exports Lower Than 40 Years Ago

Yes, it’s true.  Middle East net oil exports are less than they were 40 years ago.  How could this be?  Just yesterday, Zerohedge released a news story stating that OPEC oil production reached a new record high of 34.19 million barrels per day.  To the typical working-class stiff, driving a huge four-wheel drive truck pulling a RV and a trailer behind it with three ATV’s on it, this sounds like great news.

Unfortunately for the Middle East, this isn’t something to celebrate.  Why?  Well, let’s just say, there’s more to the story than record oil production.

While the Middle East oil companies were busy working hard (spending money hand over fist) to produce this record oil production, their wonderful citizens were working even harder to consume as much oil as they could get their hands on.

In the past 40 years, Middle East domestic oil consumption surged more than six times from 1.5 million barrels per day (mbd) in 1976, to 9.6 mbd in 2015.  This had a seriously negative impact on rising Middle East oil production:

middle-east-oil-production-vs-net-exports

According to the 2016 BP Statistical Review, the Middle East produced 30.10 mbd of oil in 2015 compared to 22.35 mbd in 1976.  This was a growth of 7.75 mbd.  However, Middle East domestic oil consumption increased from 1.51 mbd in 1976 to 9.57 mbd in 2015.   Thus, the Middle Eastern economies devoured an additional 8.06 mbd of oil during that 40 year time-period.

NOTE:  The production data shown in the chart above only represents Middle East oil production.  OPEC members not included are Algeria, Angola, Ecuador, Gabon, Libya, Nigeria and Venezuela.  I only listed the production data for the Middle East as the data was readily available.

Regardless, if we look at the two bars on the right side of the chart, we can see that Middle East net oil exports were higher in 1976 at 20.84 mbd versus 20.44 mbd in 2015.  Basically, all the hard work the Middle East oil companies spent on increasing production over the past 40 years went to supplying their own insatiable domestic consumption.

Here is a breakdown of the some of the Middle Eastern countries oil consumption:

middle-east-consumption-of-domestic-oil-production

In 1976, Kuwait only consumed 84,000 barrels per day (bd) of its own oil, but this jumped nearly ten times to 818,000 bd in 2015.  While Iran’s oil consumption increased nearly four times from 1976 to 2015, Saudi Arabia wins the award as its economy is now consuming a staggering eight times as much oil than it did during the same time period.

If we look at it another way, Middle East domestic oil consumption now represents 32% of its overall production compared to only 7% in 1976:

middle-east-oil-production-vs-consumption

This is defiantly bad news for the Middle Eastern National Oil Companies.  If these oil companies are spending a lot of their oil profits just to increase production to feed their growing domestic economies, what happens when production finally starts to decline?  This is what Jeffery Brown wrote about when he developed his Export Land Model:

It models the decline in oil exports that result when an exporting nation experiences both a peak in oil production and an increase in domestic oil consumption. In such cases, exports decline at a far faster rate than the decline in oil production alone.

The Export Land Model is important to petroleum importing nations because when the rate of global petroleum production peaks and begins to decline, the petroleum available on the world market will decline much more steeply than the decline in total production.

A perfect example of this is Indonesia.  Indonesia has been a apart of OPEC for decades.  However, it is now consuming more oil than it produces:

indonesian-oil-production-domestic-consumption

This is an older chart from a 2012 Silverseek presentation, but we can clearly see that Indonesia’s net oil exports declined significantly since 1980.  In 1980, Indonesia’s net oil exports were 1.18 mbd versus net imports of 489,000 bd in 2011.  And according to the 2016 BP Statistical Review, Indonesia’s oil production has fallen to 825,000 bd compared to domestic consumption of 1.63 mbd.

Thus, Indonesia had to import 805,000 bd of oil in 2015 just to meet its domestic oil consumption.  Which is why I found this article on Zerohedge completely hilarious, Vienna Shocker: Indonesia Suspended From OPEC:

But the most shocking announcement is that Indonesia appears to have been suspended from OPEC, and that its oil output, which according to the latest OPEC monthly report was 722kpd, will be distributed among other OPEC nations, in what may amount to a production “shuffle” not a cut.

Why in the living hell is OPEC getting so worked up about Indonesia.  Not only should Indonesia be suspended from OPEC, it should be kicked out.  I have nothing against Indonesia, but why is Indonesia still apart of OPEC if it is now importing 805,000 bd more oil than it is producing… who cares???

Why isn’t that mentioned in the Zerohedge article?

Now, what happened to Indonesia is also taking place in the Kingdom of Saudi Arabia.  The chart below shows the damaging impact of rising domestic oil consumption on rising production:

saudi-arabia-oil-production-consumption-net-exports

The olive-green color in the chart represents Saudi Arabia oil production, while the orange denotes net oil exports and the red is their domestic consumption.  In 2005, Saudi Arabia’s net oil exports were higher at 8.72 mbd versus 8.12 mbd in 2015.  This was due to Saudi’s domestic oil consumption increasing 1.5 mbd in the past ten years.

Even though Saudi Arabia’s total oil production reached a new high of 12 mbd in 2015 compared to 10.9 mbd in 2005, its domestic economy consumed all of that extra increase, and more.

What happens when Saudi Arabia’s oil production finally declines and heads south as its domestic oil consumption increases?  Well, we can look above at Indonesia as a perfect example.  This is the double whammy most folks in the Mainstream or Alternative media fail to understand.

Unfortunately, most precious metals investors do not read my energy articles.  I have had this discussion with several websites that I do interviews with.  For some strange or silly reason, most people put “Energy” into a category such as “Health Care”, “Transportation”, “Housing” and “Technology Stocks” for an example.  They just look at Energy as a separate industry that they don’t have to pay any attention to.

This is the most frustrating and at the same time “ABSURD & INSANE” thing I have to deal with on an ongoing basis.  I plan on writing more articles in the future on why ENERGY IS THE KEY to everything, especially the precious metals.

The World economies are in big trouble and they don’t even know it.  While oil depletion is by far the number one NAIL IN THE COFFIN, falling Middle East (and other OPEC members) net oil exports will be number two.

Time to wake up and smell the coffee.

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54 Comments on "WORLD ECONOMIES IN TROUBLE: Middle East Oil Exports Lower Than 40 Years Ago"

  1. “Middle East net oil exports are less than they were 40 years ago. How could this be?”

    other oil production elsewhere?

    • gman,

      For once, why don’t you read the article… LOL.

      steve

      • Benito Camela | December 6, 2016 at 5:47 pm |

        Steve,

        I’m eager to know.

        What does SRSrocco mean?

        Thanks

        • Benito Camela,

          You are probably going to laugh. Nothing clever about it.

          My initials are “SRS” and my middle name is “ROCCO”.

          I stated blogging on several precious metals websites nearly a decade ago and used my screen name of “SRSrocco”. So, because many folks in the precious metals community knew me as SRSrocco, I started the SRSrocco Report site.

          steve

          • Now that’s funny Lol Hahahaha!!!! I mean the “ROCCO” bit

            We have a radio announcer over here and his middle name is “Belford”. I thought that was bad enough. lol

          • Thanks for sharing. I wondered if it might be a nickname-ish variant of your initials. It’s distinctive and easy to remember; I hope you stick to it.

            Thanks for another great article. Your energy pieces are a particular highlight.

          • Benito Camela | December 8, 2016 at 1:36 pm |

            Cool!

      • Weird, when i go to the SRS website, i cannot see this article. I followed a link from ourfiniteworld.com and now i can see and read it. Went to SRS through Goog, nothing.

    • Easy gman,

      The term “Middle East” is not synonymous with the acronym “OPEC”. Several OPEC members are geographically located outside the Middle East, i.e. Libya, Nigeria, Angola and Venezuela. The African nations generally have lower per capita consumption of oil, so they can export a higher percentage of their production. Steve didn’t mention this point, but it adds weight to his argument if one considers it.

      Also, the African nations are relative new comers to the oil export game. Their contributions have enabled OPEC to kick the can down the proverbial road so to speak. This gives us more reason to be mindful of the situation.

  2. YEAH…With each new discovery (20 billion barrels domestic in Texas) reaps your condescending demeaning comments on production…Just amazes me how you see the future…while us little no bodies are limited in far sight that you are sooooo gifted with…We still have common sense Hoss…As stated before I do not see in your computations or astounding conclusions in your stats our standing reserves or those yet to be discovered…Yes in time it “WILL” come to an end as all finite recourses do…But not for the fore seeable future in this reality…But guys like you are GODS that see the future in finality…Yeah …gifted. A soothsayer for sure….LOL…LOL…Problem with the economy is the IDIOTS that allowed the debt to reach 20.5 TRILLION DOLLARS with 65 TRILLION in unfunded liabilities…That Hoss is what is going to blow the FIAT currency out of the water….A depression is a real reality …It is just a matter of time..And the right trigger….Ever wonder why The United States ALLOWED the transfer of so much wealth to the Middle EAST for energy? LOL…That is because they held their energy (OIL) RESOURCES IN RESERVE….Filling the SALT DOMES with oil as strategic reserves…But the real PROVEN reserves are still in the ground and UNPUBLISHED….ALASKA FOR EXAMPLE..NO REAL STATS ON HOW BIG THAT RESERVE IS, ALL THE WELLS WERE CAPED EARLY ON AND THE OIL COMPANIES HAVE NOT AND ARE NOT TALKING ABOUT IT….VERY CLOSE TO THE ARTIC LAND MASS that RUSSIA JUST STAKED UNDERWATER CLAIMS TO FOR OIL…In spite of the UN treaties….SO..THIS PRODUCTION thing as far as it goes is true…Just left the afore mentioned factors out…Have a great day….

    • JEAN,

      For some strange reason, it seems as if you aren’t reading my energy articles IN DETAIL. I gather you are just coming in here and making comments without in depth reading of my past articles.

      Thus, I am going to give you the line I say to others.

      You are more than welcome to continue BELLY ACHING about information that doesn’t change the overall dire energy situation. That being said, maybe you should spend some time reading the Hills Group work. Because all the items you are bringing up are totally meaningless if you understand the Hill’s Group Report.

      steve

  3. Jean,
    I’ll say it coz Steve is busy doing productive things – just what is your point ?
    Duh.
    R

    • DisappearingCulture | December 7, 2016 at 6:48 am |

      ” just what is your point ?” You ask Jean.

      His point is: I’m angry, Steve is wrong, and I am right.

  4. I couldn’t post this caption as an image Steve, I think it is appropriate.

    “What you believe to be true, is it true”?

    “Or do you just believe that it’s true
    because you were taught that it’s true
    and never looked any further”?

    I think it says a lot about the information we are given (or not given) today.

    Who was it? or what movie was it? I heard someone say “YOU CAN’T HANDLE THE TRUTH”

    Good article, I love reading this stuff… Lol

    • Graham,

      I couldn’t have said it better myself. “YOU CAN’T HANDLE THE TRUTH” needs to be my motto… LOL.

      steve

    • “YOU CAN’T HANDLE THE TRUTH”

      …that the economy is on code red, maybe?

      Some day “IT WILL BE A RED DAWN”

  5. Fascinating article.

    This massive in-country use is undoubtedly because the average price of a gallon of gas in OPEC countries is less than US$1.00. Saudis recently increase their gas price 50% from $0.16/ltr to $0.24/ltr or $0.91/gallon.

    What is even more interesting is that the Saudis have finally, officially at least, agreed to cut production and effectively give up market share which all of the tight oil producers are celebrating.

    Things are getting crazy, so what is really going on? Which side will win, Domestic consumption or Exports? And how will this effect world supply?
    At $50-$60/bbl can the tight oil companies make any money or just make enough to borrow more?

    Thanks,

    SteveW

    • SteveW,

      Yes, Saudi Arabia plans on cutting back a WHOPPING 500 kbd. I find this also hilarious as Saudi cut back a lot more in previous years.

      Saudi Arabia Oil Production Cuts

      1981 = 10.2 mbd
      1982 = 6.9 mbd
      1983 = 4.9 mbd

      2008 = 10.7 mbd
      2009 = 9.7 mbd

      2015 = 12 mbd
      2016 = 11.5 mbd???

      Do we see a TREND HERE?? Saudi Arabia cut oil production more than half in 1983 versus 1981. Then they dropped oil production in 2009 by 1 mbd. Now, they are getting all worked up over a 500 kbd cut??

      The problem is this, Saudi Arabia needs all the revenue they can get. This wasn’t a problem in 1983 when the price of oil was much less. Why? Because, domestic consumption was far less and profits were much higher.

      Saudi Arabia is in BIG TROUBLE and most don’t have a clue.

      steve

    • Part of an article in an Australian newspaper 1964, 50+ years ago:

      Progressive Falls in Motor Spirit Prices Against a background of rising prices for almost all commodities, Australian oil companies have progressively reduced the prices of motor spirit in all States in the last seven years.

      The Petroleum Information Bureau (Australia) says that in that period the prices of standard grade fuels have been reduced eight times and the prices of super grades nine times.

      The present retail prices of 3 shillings and 4 pence ($0.34c) per/gal. for standard grade fuels and 3 shillings and 7 pence ($0.37c) per/gal. for super grades in Sydney represent a reduction of 6 pence ($0.06c) per/gal. in both instances since.

      IMHO we have been subsidising the low cost of fuel in the Middle East and the US for far to long!!!

    • I do not think they will actually cut. They head faked so many times and the market responded that they had to do something different this time.

      They have kited oil prices at levels higher than they should be due to oversupply with all these reports of meetings to freeze or cut. Any cut would be after everyone ramps up to absolute maximum output in the first place so if there is a real deal it means little, if no one cheats.

      Also think there are many countries not included in the deal and about every economy is hurting so they will pump. Oil moves much above $50 and some U.S. shale will come online, check BHI weekly rig counts last few months.

    • Yes exactly a point i was going to make. The Middle East has been heavily discounting their domestic prices so they have pissed away massive profits over the last 50 years. Why? So they can create 90 story oasis’s all over ….. which will be outrageously expensive to maintain going forward. Combined with the massive debts we ALL face globally its anybody’s guess how it will all turn out (i’m thinking, not good).

      Personally, i believe peak oil is here, or close, and even at the reduced present consumption levels we may burn thru in a decade or so. Then you will see $200+ barrels ….. oil producing nations are best protected to LEAVE it in the ground right now. That will not happen.

  6. Bhavesh Modi | December 6, 2016 at 6:42 pm |

    Thanks Steve for a number of things;

    1) good info in the article above, as always.
    2) throwing light on “SRSrocco” ….very good…no suspense no rocket science…and last but not least,
    3) I greatly appreciate your passion about your work as you bother to reply your readers not only those agree to you but also those disagree (no matter for what reason) with your research….good man.

    Thank you again.
    regards

    • Bhaveshi Modi,

      Thanks for your comment and input. Glad you find some of the information on the site interesting.

      steve

  7. I wish I had bought solar panels already

    • Solar panels are cheaper and better than they have ever been. The brackets and racks have not come down in price much. Charge controllers and inverter/chargers are very reasonable and more capable than ever. Batteries are not cheap, and never will be.

      The single most important thing about solar power is to reduce your current on-grid consumption by 90%+. You will still get lighting (LED’s), you will still have refrigeration (just 4 cubic feet refer, and 10 cubic feet deep freeze, with no automatic defrost). You will not have electric running hot water and you will not have an electric oven or range. You might have a microwave oven and toaster for summer use when there is extra power, or winter if you are running the genset for some other reason.

      Off-grid solar is economically reasonable. Compare cost of pulling a high voltage line 2 miles from the last pole and see why. On-grid solar is the most expensive way to make a KW/Hr. Without batteries, you are dark when the grid goes down. With batteries, you have to replace the batteries on the usual 5-10 year schedule, maybe without having ever used them (power insurance). Without the grid, your grid-tied battery-powered house is greatly restricted on power use (LED lights, phone charging, laptops) and can’t use the normal things.

      If I was building a new house, I would wire the whole house with 3 power systems: Grid-AC power (normal power- as much as you want all the time!), inverter power (limited total Wattage, high-quality battery/solar sourced AC power- the ultimate UPS), and low voltage DC (LED lighting, security cameras, low-current electronics). This would be 3 isolated sets of wiring around the whole house.

      Best wishes.

  8. Great article SRS. I believe what you are saying and it is terrifying to me.

  9. Who’s charged for all that oil used for military adventures in the Middle East? http://www.resilience.org/stories/2006-02-26/us-military-oil-consumption

  10. Juergen Heil | December 6, 2016 at 7:27 pm |

    I love your site Steve, whenever TPTB manipulate the the market and frustrate us PM investors your articles remind me of the fundamentals are with us. The Fundamentals of the PM market are not only strong the are growing each day unstoppable until they finally overrun all manipulation someday. When will that be? Who knows but it will come .
    Steve keep going your energy articles that’s what I like to read most from you.

  11. I did not look into Indonesian oil industry, but their continued membership in OPEC might be explained by a lack of domestic refining capacity. In that case, they would export crude oil and import refined products. As OPEC cares about control of crude oil market only, it makes sense for a crude oil exporting country to be a member, even if they import more refined products based on oil equivalent.

    • Reader,

      Actually, Indonesia was suspending from OPEC back in 2009. They were scheduled to rejoin OPEC in December 2015. According to the U.S. Energy Information Agency:

      Indonesia is scheduled to rejoin OPEC in December 2015, after suspending its membership in January 2009. Indonesia originally joined OPEC in 1962. The 2009 exit was prompted by growing internal demand for energy, declining production (most notably in mature fields), and limited investment to increase capacity. Indonesia had become a net oil importer by 2004 after domestic demand outstripped production, which has been on a general decline since 1991 (Figure 2). Indonesia claims that rejoining OPEC will strengthen its cooperation with oil-producing countries, provide greater access to crude oil supplies, and allow the country to be a link between energy producers and consumers. Indonesia currently buys crude oil and oil products through third-parties or traders and wants direct access to long-term crude oil supply contracts through negotiations made between national oil companies.

      So, the importance for Indonesia to rejoin OPEC was not due to its 825 kbd of production, but rather setting up long term contracts to get more crude oil and petroleum product supplies in the future.

      Basically, Indonesia needs OPEC to acquire more oil resources economically, OPEC doesn’t need Indonesia.

      steve

  12. Steve,

    I am a retired Realtor who was in the oil business for a few years in the nineteen eighties. I pretty much get what you have been saying about energy returned on energy invested. I am also a gold and silver investor.

    I am asking if I understand what you are saying about precious metals. If I understand your thinking, the gold and silver already mined and the metal mined in the near future will become super valuable. This is because at some point in the future there will be no more liquid fuels left to power the giant earth moving machines that get the tonage out of the ground and to the mill. At that point all but token gold and silver production from mining will cease.

    There will be no more liquid fuels because it will no longer be economically viable to produce them due to a negative energy return on energy invested.

    Have I got that about right?

    Thanks for all your work.

    • John,

      You got the main point. However, the reason the value of gold and silver will skyrocket in the future is due to the collapse of most other paper assets and real estate. Oil powers the economy that gives value to STOCKS, BONDS and REAL ESTATE. When the oil price and production plummets in the future, it will destroy the value of most STOCKS, BONDS & REAL ESTATE. Thus, many of these assets will have NO BID or will be a CAPITAL SINK.

      An example of a capital sink is a $5 million Commercial Real Estate ten-story building that no longer has no use when automobile traffic has fallen by more than 75%. Thus, the building has SUNK CAPITAL with no bid.

      However, Gold and Silver will be highly liquid assets that will be able to purchase things at pennies on the dollar.

      steve

  13. Hey Folks,
    With Steve’s permission I’d like to add a little of my own insight to the discussion.
    I’ve spent a lot of time in the Middle East and I’d like to mention a few things that are generally never brought up in the media. I definitely agree with what Steve is saying in this article and I want to help him drive the message home.

    The countries of the Middle East and especially those located on the Arabian Peninsula have seen a dramatic increase in population since the 1950s. That is, in the years since the oil production boom first started. Most have seen population increases of 500% to 1000%. The population of Saudi Arabia was 3,121,000 in 1950 and has risen to 31,541,000 as of 2015 (Wikipedia). Basically a 1000% increase.

    Nothing against Saudi Arabia, but as we all know the nation is mostly desert. It has its own special beauty, but very little food can be grown there. Not only has the population risen ten-fold in Saudi Arabia, but the food supply has seen an unprecedented increase in quantity and quality. So in reality, the nation is not consuming ten times as much food because of the ten-fold increase in population, but probably 30 times more due to increases in general calories and higher quality and more expensive foods (such as more dairy, meat and seafood).

    Another very important aspect which is never mentioned is the presence of MILLIONS of guest workers and employees of international corporations in the Middle East. I mean MILLIONS. These millions are hardly ever included in population/energy use analysis reports. To get an idea of the magnitude of the numbers of guest workers: Kuwait has a native population of about 800,000. The number of guest workers is GREATER than the native population, at about 1 Million. Unbelievable.

    The economies of these nations are extremely UN-economical and inefficient, especially from an energy standpoint. Why? Everything has to be imported: Food, raw materials, manufactured goods, labor and expertise. Much of the water has to be produced industrially in desalinization plants. Abnormally high amounts of power are required for air conditioning. The climate is very damaging to infrastructure, etc. The “uneconomical” economies survive only by massive EXTRA inputs of relatively cheap domestically produced energy.

    And here lies the dilemma. Not only is domestic energy use of the Middle Eastern / OPEC nations rising because of natural, organic reasons such as population growth. All increases in population and rises in the standard of living vacuum up energy in a very disproportionally high manner because of the nature of the local economies.

    It appears to the casual observer of the MSM that there is a huge surplus of oil in the world. Well, there is not. The nations of the Middle East and OPEC are suffering from the above mentioned problems and they are doing everything in their power to fund the above mentioned problems. The market is greatly distorted because these nations are running on the proverbial treadmill or squirrel cage. They are pulling out all the stops to maximize production to keep the money coming in and keep their heads above water.

    That’s the point that we are at: THEY ARE BARELY KEEPING THEIR HEADS ABOVE WATER ! Not only are domestic consumption and liabilities surging, but the wells are running dry!
    Someday soon they shall stumble and the scenario that SRSRocco envisions will come true.

    • Great comment, thanks. Time to build some serious fences and borders before the millions of refugees start heading north. They will keep pumping while thousands die in the streets. That sounds aweful. And it is.

    • Good stuff Rob.

      I have heard it said that 60% of the population in the middle east is under 30 years of age, would that be correct? Of-course we all know 60% of the wests population is over 60 years of age. We have killed all our young people off in the last 100 years fighting useless wars bought on by useless politicians grab for power and money. If I was under 30 years of age and living in the middle east I would want to leave rather than live under the rule of the despots running the joint and the conniving west.

      Oil won’t be the only problem in coming years…..

      • GrahamB,

        Yes, I’d say that 50-60% of their population is under 30. However, I don’t think 60% of our is over 60. Maybe 60% age 50, but getting worse, as you can imagine. Wikipedia has some very good articles on population trends, if you’d like to check those out. They are a very good source.

  14. Robert Happek | December 6, 2016 at 10:59 pm |

    Great article as usual. However, the question remains as to whether the numbers representing middle east production are correct or whether they are pure fantasy. OPEC and many other middle eastern oil producing countries have a history of hiding the truth in fake numbers.

    However, if the numbers are correct, then this is good news for the climate. Less oil production means less oil burned, hence less carbon dioxide pumped into the atmosphere. The end of the oil production is not the end of the world. It just means that other sources of energy will be mobilized, preferably renewable energy in form of wind and solar. The overall consumption of energy must fall because renewable energy can not replace the energy provided by fossil fuels. But this is not a problem because more than 70% of the energy contained in fossil fuels is wasted anyway. So increasing efficiency and lowering overall energy consumption by perhaps 80% is the way forward avoiding the widely feared die off scenario. .

    • Net energy goes down. That can (and probably will) endanger energy hubs, infrastructure hubs, communication hubs etc. May i suggest ‘Tipping Point’ and ‘Trade Off’, both by David Korowicz. Google it. The financial hubs won’t survive, that’s for sure. Renewables are a net energy SINK, how would that save the system, if i may ask?

    • Societies could be pushed into dirty coal and lumber for gasifiers and we might even see steam engines again. I don’t think this will be good for the environment.

  15. Something I wonder about…….

    What is the future for all the economic activity that takes place in our ivory towers when there is no longer enough cheap energy to keep those towers air conditioned?

    I know, sounds a bit elementary; but just think of the impact on population shifts permitted by air conditioning.

    • It is an interesting question but you also have to consider that cooling a space from 98F to 80F uses considerably less energy than heating a space from 20F to 60F.

      In a more systematic breakdown of the grid and logistics you’re screwed either way, because it’s not like there’s enough firewood lying around in the cold places.

      I suppose people routinely dealt with 40F indoor temperatures not so long ago.

      • bobby,

        No, you’ve got that wrong. It is easier to heat than to cool. It takes less energy to heat than cool.

        Also, heating is much less tech reliant than cooling. Cooling has much higher maintenance costs than heating. Cooling is much more complicated than heating. For example, you can heat a house with a simple kitchen stove, but can you cool with one?

        Consider this: many factories have machines that produce huge amounts of heat. In the winter this heat does not go to waste because it offsets heating costs.

        This is one very important, yet often overlooked reason that there were few huge factories in the American South before the advent of large scale air conditioning.

        In the North, summer heat in factories was a factor, but manageable. In the South, it often makes work impossible. In the future we may see a big return of factories to the north for this reason alone (that is if there ARE any factories left).

        • Cooling uses more energy than heating to achieve the same temperature difference, but that’s not usually what’s done. Usually AC is used to maintain a much smaller difference, which on account of newton’s law of heat is a far easier thing to do.

          As for heat being lower tech and less complicated, well sure. But if we’re at the stage where AC systems can’t be maintained and run, then we’re also at the stage that natgas and coal supplies for heating or running industrial machines are unreliable. And it’s not like we can go back to charcoal.

  16. Steve,

    Thanks, I think I have it now. The value of gold and silver will rise dramatically at a certain time because the demand will rise but the supply will decrease. Supply will decreas because the falling energy return on energy invested will make it impossible to maintain production.

    AND the price of gold and silver will rise due to the relative value of other investments such as stocks and real estate falling because of falling oil prices.

    I wonder if gold and silver equities will be an exception to the falling general stock market. I guess time will tell.

    Thanks.

    • John,

      You are getting it, but I believe you are still hooked on the Supply vs Demand issue. Let me put it this way…. 99% of investors have their funds in a PONZI SCHEME that has no backing. So, when it collapses, the little bit of gold and silver out there as REAL STORES OF VALUE will increase in price or value due to the market waking up to what is a TRUE STORE OF WEALTH.

      It has less to do with how much is being mined or the cost of production. Rather it has to do with the fact that there will be very little in the way of LIQUID (easy to buy and sell) ASSETS in the market. Most of the assets today will be liabilities going forward.

      It’s hard to say how the miners will react when this happens. They could really surge in value… but I would not bet more than 5-10% of ones wealth on it.

      steve

  17. Steve,

    Thanks for taking the time to educate us. I am slowly getting it. Fortunately I have a stash of physical metals and I am probably a bit too heavy in the miners. I started buying physical gold in 2004. I paid $425 for my first Gold Eagle and I was scared as to whether I was doing the right thing. Many Gold and Silver Eagles later I am glad I took that first step.

    If anybody out there is on the fence about buying physical I say just take some action and get started with a small purchase and then you can go from there.

    Your work with the Hills Group and Louis Arnoux are very interesting to me

    Thanks.

  18. Congratulations, Steve, for this warning flag to those feeling that Saudi Arabia is a limitless cornucopian horn

  19. Great article as usual Steve.

    As Rob pointed out so sharply, ME nations are mostly artificial entities built on a premise of financial smoke. There´s always more than meets the eye. Maybe you have addressed this issue before, but I´d like to add that the number of active rigs in the region has climbed fourfold since 2002 or so, this means infill drilling. (Not to mention water pumping to increase pressure in Ghawar since the early nineties) They are deep into EOR now.

    My point is: can they really “cut” production at will? I don´t think so. Maybe in the eighties and nineties, not now. They stage a charade to manipulate prices and perception, but that´s pretty much it.

    Regards

  20. A container full with manual / bike powered heavy machinery weapons and ammo and seeds is the TRUE STORE OF WEALTH.
    PM store wealth only if all people believe that they store wealth.
    There is not much diffenence in believing that silver stores wealth as a share of Daimler Benz or a 10 Dollar bill
    There is a confusion with wealth and value. as always….
    But as there exists a lot of “wealth” now, people will try to convince themselves of the “value” of PM for a possibly longer time than the 10 Dollar bill 🙂

    • silverfreaky | December 8, 2016 at 2:42 am |

      MM there is a little different.Regarding gold i agree with you.But silver is a high valuable product for the industry.

      His money function is indeed in the moment far away from middle age times.In general you can ask great parts of the folk, nobody uses silver as a money storage.
      This is in germany the same as in the USA.

      The low interest rate phase will continue and silver is in compedition with other asset classes.
      When real inflation will occur silver will shine or when physical silver is not available anymore.

      Otherwise nobody make investment in silver when central banks guarantee for riskless bonds and stocks.

      When will this stop?Ask the central banks.

      • It is a signal to buy when a critical commodity is ignored and underpriced. When it’s priced below the cost of production, below the value as money, and much below the value in most industrial uses, it’s a very nice looking speculation.

  21. non OPEC nations will reduce output by 600 000 barrels a day.
    Oil will rise, not decrease as stated many times on this website.

  22. There are several conflicting things happening in the oil production world.
    Several years ago Obama built about as small a marine base as possible in northern Australia.
    I was way confused, like we’ve been shutting bases for many years now,
    why build one in the very under populated desert…
    Then years later it comes out that Australia has a shale oilfield that could produce
    SIX YEARS OF WORLD SUPPLY.
    Usually after they start production, they realize they can get more out of it.
    Then there is Mexico which I read they might become net importers in like 5 years.
    Estimated oil demand to grow 1 mbd in 2017, so even a small cut will have some effect
    (again with opec cheating who knows).
    Prices likely won’t go too high as someone pointed out in the comments the Baker/Hughes rig count is going up in the US and Canada.
    Then there is environmental concerns in the west but also in China/India.
    India mentioned (yes fantasy I know) going all electric vehicles by 2030,
    but it shows their thinking.
    China is ramping up BEV (battery electric vehicles) production for it’s own consumption (for now)
    Tesla and a host of wannabe companies (most will fail but who knows) are going to be producing many BEVs.
    Some aren’t going to fail, Chevy, VW, Mercedes, audi, Nissan, Toyota is finally admitting that it will go with full BEV, doesn’t look like Hydrogen is going anywhere.
    Cities are banning diesel.
    Norway is talking about banning ANY FF vehicle. (about 5 million people)
    But then there is the automakers plans to sell sh!tty little ICE (internal combustion engine) vehicles
    to the 3rd world for as little as $3000
    So, barring any black swan event that takes down the world economy,
    (yes I’m stacking silver like mad, but now also been picking up some gold have like 10 ounces now,
    because if paper money gets a reboot into gold backed new world money, there is probably a world
    wide recession/depression and production of all things silver (computers phones etc) will slow way down.)

    So my point? There is a LOT of reasons we may be at PEAKish OIL PRODUCTION, reduced demand, increased demand elsewhere economic slowdowns, there will still be oil available, but the EROI
    may be too high.
    It may have been this site that talked about 1 barrel energy equivalent to get 100 barrels out of the ground years ago, now that number has dropped to in some places as low as 1 to 5 ratio.
    It’s not just the price of oil but the energy required to get the harder to reach oil will end up leaving the oil in the ground as we look to other solutions.

    If I could afford it, I would have the house covered in solar, a tesla in the garage, and several powerwalls (battery backup systems from Tesla/Solar City) and of course gold/silver/guns/25 year shelf life food.

    Best of luck to you all whatever happens.

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