Why Shale Oil Boosters Are Charlatans In Disguise

by James Gruber on January 25, 2014

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{ 20 comments… read them below or add one }

RJ February 3, 2014 at 3:36 pm

Jim,
Energy use efficiency is certainly a factor mitigating the energy dilemma Morgan refers to. We have all seen figures documenting growth in global energy demand from emerging and developing countries. It is probable and plausible the growth in demand is a factor supporting the cost of energy and will offset the benefit of use efficiency.
RJ

James Gruber February 3, 2014 at 8:39 am

Jim,

I don’t have this on me but will check for you.

Jim Goodwin February 3, 2014 at 4:25 am

Does anyone have a source of data on gross & marginal GDP per unit of energy, over time and by country. Conventional wisdom is that the US is the most efficient energy-user per dollar of GDP in the world and getting more so, but I don’t have a source or any numbers. Arguably, improving energy use-efficiency more than offsets deteriorating extraction-efficiency.
/jg

DaShui January 30, 2014 at 11:01 pm

It seems if we r twice as efficient but price is still the same it means oil price has doubled actually.

James Gruber January 30, 2014 at 5:11 am

Thanks for this RJ, appreciated.

RJ January 30, 2014 at 4:05 am

James,
This supports Morgan’s article:
Big Oil’s Costs Soar

Chevron, Exxon and Shell spent more than $120 billion in 2013 to boost their oil and gas output. But the three oil giants have little to show for all their big spending.

Oil and gas production are down despite combined capital expenses of a half-trillion dollars in the past five years. (…)

Plans under way to pump oil using man-made islands in the Caspian Sea could cost a consortium that includes Exxon and Shell $40 billion, up from the original budget of $10 billion. The price tag for a natural-gas project in Australia, called Gorgon and jointly owned by the three companies, has ballooned 45% to $54 billion. Shell is spending at least $10 billion on untested technology to build a natural-gas plant on a large boat so the company can tap a remote field, according to people who have worked on the project.

(…) Chevron, Exxon and Shell are digging even deeper into their pockets, putting their usually reliable profit margins in jeopardy. Exxon is borrowing more, dipping into its cash pile and buying back fewer shares to help the Irving, Texas, company cover capital costs.

Exxon has said such costs would hit about $41 billion last year, up 51% from $27.1 billion in 2009. (…)

Costly Quest

Oil-industry experts say it will be difficult for the oil giants to spend less because they need to replenish the oil and gas they are pumping—and must keep up with rivals in the world-wide exploration race.

“If you don’t spend, you’re going to shrink,” says Dan Pickering, co-president of Tudor, Pickering Holt & Co., an investment bank in Houston that specializes in the energy industry. Unfortunately for the oil giants, though, “I don’t think there’s any way these projects are more profitable than their legacy production,” he adds. (…)

SB January 29, 2014 at 7:59 am

Why is China consuming so much? A: Planned economy. Their house of cards is about to crumble and demand from China (across the board for commodities) is at risk. Rememer JFK having the vision to send a man to the moon? Well, with energy becoming more costly in terms of energy (or whatever economic unit you choose to measure with, for that is all energy is), why wouldn’t George Bush or Barrack Obama have a similar vision for Nuclear Fusion? With a large commitment to this program, we might be able to have commercially viable energy from this source in less than 20 years. Then the cost of energy would go down unbelievably.

WW January 29, 2014 at 5:47 am

James,
Enjoyed the article. I have been following “Peak Oil” for over a decade. EOEIR has always been integral to that discussion.
I suggest the following link to a lecture by Dr.Albert Bartlett on the exponential function and growth.
https://www.youtube.com/watch?v=e_VpyoAXpA8

BAU January 29, 2014 at 3:58 am

RobT, efficiency and price don’t matter here in the ‘energy cost’ of energy. Price is a relative measure, and efficiency as well. Price and affordability are a different thing. And although more efficient, we use more oil in absolute terms than in the past. Energy is costing us -more- energy. One barrel of oil in the present will allow you to extract less oil than that barrel would allow you to 100+ years ago.

Robt January 28, 2014 at 2:18 pm

In real terms, the price of a barrel of oil is roughly the same as it was 100 years ago, plus we use the oil much more efficiently – at least twice as efficiently in the past.
So the cost of energy has gone down, not up.

James Gruber January 28, 2014 at 6:12 am

Hi, I am familiar with Noland’s work and believe, though I could be wrong, that his argument is primarily a peak oil thesis. Morgan’s theory is different and is in fact critical of peak oil. The distinction is critical and shouldn’t be confused.

Yes, the book does draw on many sources but it’s not from those advocating peak oil.

James Gruber January 28, 2014 at 6:06 am

Mike,

Thanks for your thoughts. Though what the article suggests isn’t a peak oil argument. The distinction is important.

James Gruber January 27, 2014 at 6:04 am

Matt/RJ,

Thanks for the comments. Yes, there’s lots of work going on with regards to unconventional sources. There are several questions: Will this work yield the results that Gates and Co. believe? Will governments think long-term and invest money accordingly? Do we have 30 years to get it right? I don’t have all of the answers but it’s a discussion worth having.

China is doing an immense amount of work, more than most countries. For instance, it has serious water issues which it’s spending hundreds of billions to try to address. Not to mention why it’s buying up foreign commodity assets to meet its own domestic needs.

Mike January 27, 2014 at 5:56 am

Congrats! You just discovered peak oil. Peak oil is exactly as you describe. It isn’t oil goes away, we hit the peak easy extraction and are on the downslope.

rapier January 27, 2014 at 5:49 am

Mr Morgan’s Life After Growth and his thesis were preceded by Nicole Foss of the Automatic Earth and Doug Nolands Credit Bubble Bulletin by several years.

http://www.theautomaticearth.com/category/primers/

http://www.prudentbear.com/search/label/Credit%20Bubble%20Bulletin

There is no sin in coming to similar conclusions and not having read the book I have no way to know if he says he is aware of similar work or is otherwise not claiming the ideas as his own.

None of which matters in the big picture.

RJ January 26, 2014 at 3:20 pm

Matt,
The Bill Gates chaired nuclear company, TerraPower, is pushing innovation in nuclear and other low cost sources of energy. Russia and China are also working in this field.
RJ

Matt Healy January 26, 2014 at 1:37 pm

Somewhere in the past year or so I saw an interview with Bill Gates. One question asked was, “what single technological breakthrough would have the greatest benefit to humanity in the next 30 years?”

Gates replied, “a clean energy source that is cheaper than coal.”

James Gruber January 26, 2014 at 8:05 am

RJ,

Thanks for this. On nuclear, this may be helpful: http://resourceinsights.blogspot.com.au/2008/09/net-energy-cliff.html

I must confess to not having an in-depth knowledge of SMRs but will look into it some more and get back soon.

RJ January 26, 2014 at 3:52 am

James,
Reference for SMRs: http://www.world-nuclear.org SMR update 17/12/2013.
RJ

RJ January 26, 2014 at 1:34 am

James,
Great thoughts. Morgan’s research is interesting and should be considered a compelling factor in economic growth. Energy certainly is the core of our economy. To dispel any doubt talk to small business owners in areas without electrical power for 10-14 days following a storm. I wonder what is the EROEI of nuclear? Will oil become the dirty source of energy as technology changes the sentiment toward nuclear energy? I am referring to technology of Small Modular Nuclear Reactors [SMR] which are in late stage development.
RJ

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