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Mark Twain once said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” And, there are many, many things that the public and policymakers know for sure about energy that just ain’t so.
That list is very long indeed and getting longer as the fossil fuel industry (which has little interest in intellectual honesty) continues its skillful manipulation of a gullible and sometimes careless media.
Below I’ve listed seven whoppers that it would be charitable to call misleading. Longtime readers will recognize that I’ve addressed them before in various pieces. But I thought that it would be useful to review the worst of the worst of 2013 as the year ends.
Here are seven things everyone knows about energy that just ain’t so:
1. Worldwide oil production has been growing by leaps and bounds in the last several years. Oil companies (with governments following suit) have cleverly redefined oil to include something called natural gas plant liquids (NGPLs) that you might surmise actually come from natural gas wells. These include propane, butane, ethane, and pentanes. The new definition also includes biofuels such as ethanol and biodiesel.
This mishmash is sometimes referred to as “total liquids,” but more often “total oil supply.” This redefinition, however, depends on something that just ain’t so, namely, that NGPLs and biofuels are 100 percent interchangeable with oil. There is some interchangeability, but the volume is relatively small. NGPLs make up just 10 percent of total liquids. I’ve seen investment research that asserts that probably less than one-fifth of that (equivalent to about 2 percent of total liquids) can be directly substituted for oil, primarily in petrochemical refineries. That portion could grow, but only with extensive and costly retooling of the refinery industry, a move that seems risky with U.S. natural gas production stalled (see below).
Now, the central problem with including NGPLs as part of the oil supply remains that they have only a very limited ability to be used as transportation fuel which is the main driver for oil consumption.
Moreover, the energy content of NGPLs is around 65 percent of oil per unit of volume. Ethanol has about 66 percent of oil’s energy, and biodiesel has slightly more than crude oil, but somewhat less than the diesel it is meant to replace. We must also consider all the energy including oil that goes into growing, harvesting, transporting and processing the crops that are feedstocks for biofuel refineries. Some studies show that more energy goes into making ethanol than ethanol produces when burned in an engine.
Despite these well-known facts, the industry and government continue to count NGPLs and biofuels in barrels right alongside oil as if they were all equivalent.
Ethanol and biodiesel do directly substitute for some motor fuels. But there are upper limits on what we can produce and use. We are near those limits with ethanol unless engines change to tolerate higher concentrations of ethanol. Moreover, neither ethanol nor biodiesel can be used for the wide variety of purposes that crude oil can.
It turns out that 2005 was an inflection point after which supply growth for both total liquids and oil proper slowed considerably. With all this in mind, let’s look at the actual numbers which come from the U.S. Energy Information Administration (EIA).
Growth from 1998 to 2005: 11.7 percent
Growth from 2005 to 2012: 5.7 percent
Oil Proper (Crude Oil Plus Lease Condensate):
Growth from 1998 to 2005: 9.9 percent
Growth from 2005 to 2012: 2.7 percent
You can see that the real oil supply (crude oil plus lease condensate) has been growing at just over one-quarter the pace it did in the previous seven years–even with record prices, record investment and the wide deployment of new extraction technologies. Slowing growth coupled with skyrocketing demand in places such as China and India has put a lot of upward pressure on oil prices. It’s one reason oil prices remain near record highs based on the average daily price of Brent Crude, the world benchmark.
In 2011 the average daily Brent Crude price was a record $111.26—which was followed by another record in 2012 of $111.63. The price in 2013 through December 26 has averaged $108.52.
2. U.S. natural gas production continues to grow by leaps and bounds.This claim is even more misleading than the first one. It’s true that natural gas production has grown in the United States in recent years due to the exploitation of gas trapped in deep shale deposits, deposits that new technology called hydraulic fracturing is now making accessible.
But, it turns out that the rate of production of these wells declines rapidly, and the numbers suggest that raising the overall U.S. rate of production is going to be very difficult and expensive. In fact, since January 2012, monthly U.S. marketed natural gas volumes have been nearly flat despite a more than doubling of natural gas prices from their April 2012 lows. The average monthly volume in 2012 was 2.11 trillion cubic feet (tcf). For 2013 the data are only available through September, but the average through that month was 2.12 tcf. It’s doubtful that the average will change that much when the final three months of the year are included.
The easy shale gas has been extracted. Now comes the hard stuff. We may already be on the shale gas treadmill.
3. There is enough natural gas under the United States to last the country for 100 years. This claim requires that you first do bad math on the numbers even the perpetrators of this falsehood provide. The number turns out to be 90 years using their figures and 2010 U.S. natural gas consumption (while assuming, improbably so, no growth in U.S. natural gas use for the next 90 years).
But even that number vastly overstates what we are likely to get out of the ground for it includes estimates of probable, possible and speculative technically recoverable resources. Now, just because something is judged to be technically recoverable does not mean it will be economically recoverable. And, if it is further labelled possible or speculative, it seems foolish to base our public policy on such resources as if they were proven to exist and were ready to extract.
Shale gas expert Art Berman suggests we focus on the probable resources category and assume generously that 50 percent of those resources will actually get turned into reserves. (Keep in mind that no resource is ever exploited to 100 percent and usually only to a fraction of that. Also, resources are what are thought to be in the ground based on sketchy evidence, while reserves are what the drill bit proves are actually there and, more importantly, amenable to extraction.) Based on these assumptions, the United States has about 550 tcf feet of probable and proven reserves which means that the country has a likely supply of about 23 years (again, assuming, improbably so, no increase in the rate of consumption during the entire period).
Since Berman made those calculations, some of the probable resources have moved into the reserves category. But, the outlook has not really changed because this was expected.
4. The United States is about to become the world’s largest oil producer. This claim depends on the same sleight-of-hand being used to inflate worldwide oil production numbers as noted above: the inclusion of NGPLs and biofuels in the production numbers. The United States has been furiously drilling natural gas wells in the last few years and has increased its supply of NGPLs greatly. The production of crude oil proper has also been growing for essentially the same reason natural gas production grew: the deployment of hydraulic fracturing techniques and horizontal drilling to extract previously inaccessible deposits of so-called tight oil.
The results have been impressive, lifting U.S. production of crude oil proper (crude oil plus lease condensate) from 5.2 million barrels per day (mbpd) in 2005 to 6.5 mbpd in 2012. The latest available monthly production results are for September 2013 and put U.S. crude oil production at 7.8 mbpd.
But, it seems unlikely given the very steep production declines that existing tight oil wells experience–about 40 percent per year–that production will be able to scale that of the world’s number one and number two oil producers.
Russia currently produces 9.9 mbpd of crude oil proper. Saudi Arabia produces 9.8 mbpd. Both numbers come from the EIA.
Could the United States produce more crude oil proper than these countries in the near future? Since we cannot know the future, anything is possible. But, consider that the United States has gotten most of the easy tight oil. Now, it must begin to rely on extraction of the hard-to-get oil. That oil will come out at a slower rate.
Meanwhile, the tight oil wells already drilled will continue to decline at colossal rates and their output will have to be replaced before any increase in production is possible. Trying to increase oil production under these circumstances can be likened to running up a down escalator since the declining production of existing wells cancels out much of the production from newly drilled wells.
If the United States were to attain the number one spot some day, it would be hard to maintain given the high production decline rates cited above.
5. The United States is on the verge of energy independence. This canard takes advantage of the lack of public awareness about U.S. energy resources. The country has long been self-sufficient in coal. This has never been an issue. It has also been nearly self-sufficient in natural gas, importing a little over 15 percent of its needs (almost all of it from Canada) from 1991 through 2011 according to the EIA. That percentage has trended down recently as U.S. production has increased. But the U.S. supply of imported natural gas was never in danger due to political disruptions or wars in faraway unfriendly countries.
So, it turns out that energy independence really means oil independence. On this count the country is still very far away from independence despite recent gains in domestic oil production. For the most recent week ending December 20, the United States’ net crude oil imports were 7.5 mbpd. The country would have to nearly double its rate of domestic crude oil production to meet its current consumption needs. That seems very unlikely given the production dynamics discussed above for tight oil which is where nearly all the growth in production is currently taking place.
6. The United States has 250 years of coal left. This claim keeps getting recycled even though a 2007 National Academy of Sciences study concluded that there was no basis for making such a claim. It suggested that the United States might have 100 years of coal left (assuming, improbably so, there would be absolutely no increase in the rate of consumption over that period). But, the report concluded that no comprehensive study of U.S. coal resources was currently available. The truth is nobody knows how much coal is left in the United States, nor how much of that might actually be accessible.
7. Peak oil is a myth. Peak oil is the idea that oil production inevitably reaches a maximum rate and thereafter begins an irreversible decline. It does NOT mean running out, but rather that production declines over time. It turns out that peak oil is actually an empirically demonstrated reality for every oil well, every mature oil field, and now for the majority of oil producing countries in the world. Those who tell us that peak oil is a myth can only be engaged in propaganda rather than a search for the truth. Ironically, many of them cite the upturn in U.S. production as “proof” that peak oil is a myth, forgetting that U.S. production peaked more than 40 years ago.
Oil is a finite resource and so, the real debate is over the timing of peak oil production for the world as a whole. Some say the peak is nearby. Others say it is two or three decades away. But no credible expert says that there will never be a peak.
The cases for and against a near-term peak would be difficult to relate in detail here. But, it’s worth noting that the optimists have been consistently wrong about prices and supplies in the last decade, and those predicting a near-term peak have been much closer to the mark.
That doesn’t mean that the peak must be nearby. But it suggests that the models and assumptions of the optimists are badly flawed.
There are so many other misconceptions about energy which remain that it would take a dozen seven-item lists just to begin to address them. But, I offer these seven as a starting point for a clearer and more honest discussion of our energy future in the coming year.
An inevitable economic collapse has been warned about since this website began over four years ago. This forecast never pretended to be able to predict its timing.
Over its existence, the website has dealt with many topics non-economic. Let me remind readers of the three key economic points that have been consistent since its beginning:
- There is no recovery nor can there be a recovery without a massive economic reset, a collapse.
- Government interventions over the last several decades have put us into this position.
- Government is now trapped and, like a wounded animal, will do anything to survive including harming the economy and those dependent on it.
The bias that we all carry is that assuming people who agree with us are smart. That is an indirect form of reinforcement and self-aggrandizement that can be dangerous. It is a cousin of Mark Twain’s warning that it is what you know that ain’t true that is most damaging. At the risk of committing this error, I recommend an article by Captain Hook who expresses sentiments in line with my own. Here are some excerpts which are perilously close to what I have expressed:
We are getting close to the day of reckoning this fiat currency economy suicide mission the Fed(s) has engineered for us. So you better get ready, because they will not ring a bell at the top of the stock market to warn the party is over
… the end of the line in QE debt monetization related economic growth is almost here with diminishing returns in money printing and central bank balance sheet growth re-accelerating. And while its true central authorities can still increase QE to offset diminishing returns, and in fact have stated they intend to do just that in Europe and Japan early next year … the effects of all this money printing will be negligible. And before its all over dont be surprised to see QE in the States moving from $1 Trillion per year (where we are now) to $1 Trillion per month, and to infinity essentially. [ I think a collapse will occur before they get close to Captain Hook’s monthly projection.]
… it will never stop until the system blows-up…
Add to this picture a new and naive Fed chair, with visions of sugar cookies in her head, and one does need wonder how US Treasury yields remain sanguine in coming years. Because once confidence is lost a negative spiral can grip macro-conditions quickly given the hollow nature of the much talked about economic recovery…
… its not just the bubble in Treasuries one should be worried about, which up until this point has been no trouble at all with the QE backstop. There are also stocks and real estate to worry about as well, where you know a problem exists when the speculators are speculating on the degree of speculation. Because theres no free lunch despite what lying bureaucrats would like you to believe, given
… this lunacy can obviously continue for longer than anybody with a whisper of common sense could conceive. The sad part of this entire mess is the crazier it gets, the more anxiety is created, the more people will hold back, the more the Fed will have to print money, the more stocks will go up until we reach the point of heart attack for the over-drugged junkie. Then, the bond market is going to blow up, and its all over.
We are caught in a liquidity trap that demands the Fed monetize some 70% of all net bond supply; meaning rates would be considerably higher if they were not doing so. So, dont fall for any of the BS taper talk. This is just Kabuki Theater for fools because key debt markets are becoming increasingly stressed.
… the Fed(s) have no choice but to keep accelerating the craziness, which will become a problem for the bond market once rigging efforts on the part of the bureaucracys price managers begin to fail noticeably. You will know this is the case when they cant keep credit markets supported anymore, which will tip diminishing returns into freefall. (i.e. and in turn re-accelerate the need for more money printing as things spiral out of control.)
… dont be fooled by taper talk, which has the effect of catching offside short sellers when weak data points come out, causing a short squeeze. (i.e. thats what happened last week post the Fed minutes release.) What market participants dont realize yet is such talk is just expectation management on the part of the Fed so that people are not surprised when it happens…
Who needs gold when the traditional stock market is going up right especially when Da Boyz are making copious amounts of fiat currency underwriting the tech fads of the day. And with stocks still under-owned on some measures, QE set to spread to Europe (and increase in Japan), and the average hedge fund managerstruggling to play catch up, which means stocks are likely going much higher, gold could remain in the doghouse for some time yet, well into next year.
Gold will of course be the place to be in the end, when all the Ponzi finance has collapsed… Better buy some gold so you can eat when inflation goes through the roof bailing out this ship of fools.
I disagree somewhat on the margins with a few of the comments presented above, but this disagreement is minor and could be seen as nitpicking. In general, the statements presented are very much in line with my thinking.
As always, the critical question is how long the economic fraud can continue.
- Detroitification — It’s The Government, Stupid
- Momentum-Volatility System — Philosophy and Results
- The Interest Rate Canary
- Another Step Closer To Economic Armageddon
- Economic Prosperity Ahead or A Train A Comin’
- Billy Jack: Metaphor For The Economy
- Obama Doesn’t Belong At Gettysburg
- Not On My Watch
Slowly at first, then all at once. (source)
How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
The dialogue above is from Ernest Hemingway’s 1926 novel, The Sun Also Rises.
It’s often attributed to Mark Twain or F. Scott Fitzgerald, or misquoted as something like “At first you go bankrupt slowly, then all at once.” But the theme is the same.
Nations go bankrupt in the same way. Banking collapses occur in the same way. Currency crises strike in the same way. They all happen gradually… and then suddenly. Sometimes overnight.
History is generous with examples of entire nations that have suffered this fate, from the collapse of the Soviet Union in 1991 to Argentina’s millennial financial crisis in 2001.
The warning signs are always there, even at the beginning. Over a period of years, sometimes decades, a tiny trickle of warning signs turns into a steady stream… and eventually a great flood.
The United States is clearly within this model, somewhere between a steady stream and a great flood. It shows.
Last night, after more than two weeks of utterly embarrassing theater, the government in the Land of the Free inked a deal to kick the can down the road a few more months. And in doing so, they set a very dangerous precedent.
As part of the bargain codified in HR 2775 (which President Obama signed into law), the Treasury Department is authorized to SUSPEND the debt ceiling. In other words, for all intents and purposes, there is now NO LIMIT government borrowing.
This limitless borrowing authority will expire on February 7, 2014. But it sets the precedent that dismissing the debt ceiling is a perfectly viable course of action.
Congress has effectively removed their handcuffs… so you can almost assuredly bet down the road that this provision will be extended, and ultimately become permanent.
No one in the Land of the Free seems to care. But foreigners do. The lead commentary out of China’s state media the other day was very clear in its position:
“It is perhaps a good time for the befuddled world to start considering building a de-Americanized world.”
America’s dominance is coming to an end. Nearly every piece of objective evidence points to this conclusion– from the US government’s absurdly unsustainable finances to the worldwide backlash against their desperate spying tactics.
For several years now, this decline has been happening gradually. But we are quickly reaching the bifurcation point where the steady stream of warning signs will turn into an epic flood of consequences.
As these events unfold, this will become the biggest story of our time. The end of the US dollar hegemony will affect nearly every human being on the planet. And if history is any guide, what follows will be incredibly tumultuous.
The answer depends on what kind of person you are: would you rather be a year early or a day late?
If you agree with this premise and can see the obvious writing on the wall, one thing that’s absolutely critical is to have the right information about the solutions. And there are solutions.
For example, moving a portion of your savings to a safe, stable bank overseas gets your money out of a dying currency and declining country, away from the thieving bureaucrats in your home country.
And this is something that makes sense, no matter what. Even if nothing ‘bad’ ever happens, you won’t be worse off for having some savings in a strong bank overseas.
This is an incredibly sensible, simple step to take. But it’s imperative to have the right intelligence on how to begin. Where to go? Which bank? Who to contact?
Sovereign Man’s Offshore Insider: Starter Edition contains the most critical information and contacts you need to know to start taking action today, distilling years of my own personal experience and contacts into one low-cost action kit.
A small effort right now can make the difference between prosperity and despair down the road.
These are rational steps that prudent people that have seen the writing on the wall have been taking for centuries. I encourage you to take action now and be on the right side of history.
- Greed destroyed us all: George W. Bush and the real story of the Great Recession (salon.com)
- Europe Is Burning, Slowly (blogs.the-american-interest.com)
Neither American political party is worth supporting. Each has interests inconsistent with those of the American public. The claimed political differences are mostly cosmetic, designed for marketing advantage. Both parties act in their self interest which does not coincide with that of the citizens or the well-being of the country.
Each party behaves like a self-serving criminal gang. The quaint concept of serving the public exists no longer. Routinely they exempt themselves from the rules and laws they impose on the rest of the country. Their policies enrich the political class while the rest of the country becomes poorer.
Mark Twain described Congress as our ”distinctly native American criminal class.”Albert J. Nock went further, generalizing Twain’s somewhat parochial observation:
Taking the State wherever found, striking into its history at any point, one sees no way to differentiate the activities of its founders, administrators and beneficiaries from those of a professional-criminal class
Lest the reader think these two individuals confused or biased, a more complete collection of quotes on government is available here: Do Only Dumb People Believe in Government?
How The Game Changed…
- Fed Credibility Is No More (financialsurvivalnetwork.com)
- The “Not On My Watch” Syndrome In American Politics (conservativesonfire.wordpress.com)
- My Government Shutdown Rant (paulbrodie.net)
- “Free Flow of Information Act” Targets Independent Journalism (activistpost.com)