Thanks for this article, and for your appearance on substack. I was a fan on telegram shame you didn't take off there!
Inertia wheels (big ones!) seem to be the way that solar/wind grids compensate their issues. Spain's added problems are around an assortment of irregularities: maintenance, non-standard private solar hook-ups, planned shut down (lack of) due process...take your pick
Physics became a classified science after the atomic bomb. The Atomic Energy Commission holds the highest security clearance. Soviet Union had secret and closed Star Cities.
The head of the physics department in Russia claimed that Russia has secured its future energy needs. He didn't say how, but Rosatom has closed the nuclear fuel cycle by recycling nuclear waste into MOX fuel.
The sun is made of atoms, that are made of protons, neutrons and electrons. So why is the sun emitting photons?
> Eric Chaisson, a physicist who has researched this issue, says that there is a tendency for ever more complex, energy-dense systems to evolve over time. This would suggest that an even more advanced economy may be possible in the future.
Pardon me if you've already addressed this, but was Chaisson aware of ecological overshoot? I am left to wonder, how is it possible that an energy system can become _more_ energy-dense if the overall complexity of society (in terms of education, scientific research, and biodiversity) is going to contract? I thought the idea was that our ecological overshoot is an unprecedented moment in human history, and that both the population and the carrying capacity are about to decrease... so, will this energy system be used by only a small number of people or something? How will they get their fuel in a cost-effective manner? I cannot help but find it dubious.
Anyway, good job on the article. I have only recently found your blog, but over the last 2-3 years, the implications of overshoot are finally starting to "sink in."
Based on this analysis, here are the key findings regarding the weighted average cost of global oil production since 1970:
1. **Overall Cost Trend**:
- The weighted average cost has actually decreased by 12.7% from 1970 to 2023
- Starting index in 1970: 109.00
- Ending index in 2023: 95.19
2. **Major Factors Affecting Costs**:
a) **Technological Improvements**:
- Annual efficiency gains of approximately 1.5%
- More pronounced in shale oil (1.5x the improvement rate)
- Automation and improved drilling techniques
- Better reservoir management
- Enhanced recovery methods
b) **Increasing Complexity**:
- Annual increase of about 1% due to:
- Deeper wells
- More challenging reservoirs
- Offshore and remote locations
- More complex extraction methods
c) **Historical Events Impact**:
- 1973-74 Oil Crisis: 30% cost increase
- 1979-80 Second Oil Crisis: 25% cost increase
- 2004-08 Pre-financial crisis: 20% cost increase
- 2014-16 Oil price crash: 20% cost reduction
- 2020 COVID-19: 30% temporary cost reduction
3. **Production Mix Evolution**:
- 1970: Dominated by conventional light oil (~85%)
- 2023: More diversified mix
- Light oil: ~65%
- Heavy oil: ~20%
- Shale oil: ~15%
4. **EROI Implications**:
- The declining weighted average cost suggests an improving EROI when considering technological efficiencies
- However, this doesn't tell the full story because:
- Environmental costs are not fully captured
- Quality of resources has declined
- Energy intensity of extraction has increased
- Supporting infrastructure costs have grown
5. **Key Observations**:
- Technology has largely offset the natural tendency for costs to rise as easy-to-access oil is depleted
- The shift to more expensive sources (shale, heavy oil) has been partially compensated by efficiency gains
- The industry has shown remarkable ability to reduce costs through innovation
- The real cost of production has become more volatile since 2000
This analysis suggests that while the oil industry has managed to keep production costs relatively stable or even declining in real terms, this has required increasingly complex and energy-intensive extraction methods. The declining weighted average cost masks the fact that we're using more sophisticated and energy-intensive methods to extract oil from more challenging reservoirs.
It's important to note that this is a simplified model and actual EROI calculations would need to consider many additional factors, including:
I do not have great confidence in EROI calculations. I do know that oil from shale has a much better EROI than heavy oil, and perhaps even the remaining conventional oil. But these amounts are always changing. These calculations were set up to give researchers and grad students something to write papers about, but they leave a whole lot to be desired. It is really delivered EROI that matters, and not extracted EROI. How the economy functions depends on a whole lot of things other than EROI.
I think of surplus energy as what allows oil production to provide taxable income. It is this tax benefit that distributes what surplus energy is available. If oil producers are running into problems, they will start buying back their own stock, rather than investing in new wells. Returns may look better than they are. But declining new investment shows that the return is too low. We have been in this period since 2018. We are past peak crude oil. On a per capita basis, the situation is even worse.
It depends on who is putting the estimate together and what they consider "break even." A wide range of estimates can be considered break even. Oil companies need a price a whole lot higher than break even. They need to invest in drilling new wells to offset depletion. They need to repay debt with interest; they need to pay dividends to shareholders. They need to pay taxes, for all the governmental services they use.
I am not even sure if overhead is always in the break even price.
Sure but I'm of the impression that there's a structural reason why shale oil is universally acknowledged to have higher breakevens in general than the major conventional light crude producers so I'm surprised that you would say that shale maybe has a much better energy return than the biggest of the conventional light crude plays. There's a reason why OPEC is said to be attacking shale (again) right now instead of the other way around.
If you look back up at this comment thread, I started by saying I didn't have much faith in EROI calculations. EROI only measures a narrow band of costs. I would not use EROI for much of any purpose. We know that producers of oil from shale are now finding current prices too low to continue reinvestment. This is a huge problem.
Even if an EROI calculation was "correct" at one time, it won't necessarily be helpful a year or two later.
Yep, noted, and I hear that. I just thought we were all in general agreement with the FEASTA findings from back in the day and whatnot. That shale and tarsands were flirting with the lower limits of adequate returns, thus them being last in first out.
"But declining new investment shows that the return is too low. We have been in this period since 2018. We are past peak crude oil. On a per capita basis, the situation is even worse.".
The question is why is the choice being made to prioritise more expensive sources ( Something the Saudis complained about as long ago as 1948. Peak oil as a political choice is a whole different question to Peak oil due to resource constraints.
Thank you for your kind answer,
My Own considered views on why the choices are made may be found on my won substack.
The Economic consequences of President Trump.
Is the Dollar being devalued by stealth. That old trilemma.
Evaluate a devaluation of the petro Doallr by 30% and calculate the value of US Tarrifs as a proprtionate increase in Import Prices to offset the value of the dollar devaluation. Consider then a US dollar reserve currency based on Bitcoin Prices and Gold to reset the dollar at a BTC /Gold standard and calculate the dominance of the US Dollar based upon a Gold Backed dollar as reserve currency?
Conclusion
Impact of Devaluation: A 30% devaluation of the petro-dollar necessitates a proportional increase in tariffs of about 30% to maintain import price levels.
Value Reset via Gold and Bitcoin: Establishing a new dollar standard based on Bitcoin and gold requires a careful calculation of current asset values and total dollar circulation.
It's a huge question gail, I think your post is right about the Debt and wrong about the energy. Debt is again a Political Choice or should I say a Choice in political economy?
Best Wishes,
Roger
Future of the Dollar: Transitioning to a gold-backed dollar could stabilize the currency but may also restrict monetary policy flexibility, echoing Keynes' concerns about the rigidity of the gold standard.
Bitcoin has negative value. Treasury purchase of cryptocurrency is but a transfer of wealth from elsewhere to the people behind the crypto. I don't mind people invest personal wealth into crypto, but USD collaterals cannot have bitcoin or any other crypto currency.
Bitcoin payments (when it is created) act to provide additional revenue to fossil fuel companies as a way of paying for burning otherwise stranded (too far away from users) resources. If they can be burned in place, and the resulting electricity used to generate bitcoin, they are to some extent providing a service to these companies. Excess electricity in Iceland can also be used in this way.
In a sense, bitcoin is a marker for a service that has already been provided, but will never be provided again. I see it as adding to buying power, for what seems likely to be an ever-declining quantity of goods and services. Thus, it will tend to add to inflationary pressures, to the extent that it is really honored.
I don't have a lot of confidence in bitcoin because there is no guarantee of future services with it. If electricity becomes intermittent, its use would seem to go down. I wouldn't recommend buying it.
Grub your thesis, then, is that the Rockefellers are currently and unnecessarily crashing industrial civilization -- and putting their own lives in danger in the process -- because about 60 or 70 years ago they feared that their Anglo-American monopoly of the oil market might not persist and therefore they hatched a 60 or 70 year plan to crash civilization on that hypothetical fear, yet during those 60 or 70 years the Anglo-American financial system, with which the Rockefellers were partnered, privatized the banking system of just about every oil producing nation on Earth, rendering their fears unfounded... yet according to you the plan continues to be enacted.
How does your thesis now sound to you as I sound it out for you?
If you read Walter Buriens letter The rock thrown in the pond , and then trouble yourself with The Control of Oil and then myths lies and oil wars you will find a better understanding of my Analysis.
Evaluate a devaluation of the petro Doallr by 30% and calculate the value of US Tarrifs as a proprtionate increase in Import Prices to offset the value of the dollar devaluation. Consider then a US dollar reserve currency based on Bitcoin Prices and Gold to reset the dollar at a BTC /Gold standard and calculate the dominance of the US Dollar based upon a Gold Backed dollar as reserve currency
MonicaSonnet
I'll help you analyze this complex monetary scenario step by step.
Petro Dollar Devaluation Analysis
Let's calculate the effects of a 30% devaluation:
Original value: 1.00 USD
After 30% devaluation: 0.70 USD
Tariff Calculation to Offset Devaluation
To offset a 30% currency devaluation, the tariff rate would need to be approximately 42.86% to restore the original purchasing power:
TariffRate=10.70−1=0.4286 or 42.86%TariffRate=0.701−1=0.4286 or 42.86%
Is there an ongoing de valuation of the dollar by stealth?
Peak Oil the non evidence, Whose shoes in Donald Shining? #PetroDollar #PeakOil #money #Tarrifs #GoingDirect #Bondcrisis #BestEvidence
Regarding the effects of the strategies I have analysed the end game is to control society not to crash it, the fear of a crash is designed to get compliance by ordinary people to policies against their best interests.
I would say that at this mature point in the history of mass media domination, the Hidden Hand and only the Hidden Hand ever forces necessary changes. The manufacturing of consent for the MAGAMAHA ballot box 'counterrevolution' was approximately documented in real-time by myself these last four years. And it included the manufacturing of consent for the democratic party's self-immolation in a clown suit.
Why is it that we all know that historically the fully-hedged Elites play both sides of all 'revolutions' yet when we live through one, almost all of us still more or less pick one side or the other and act like that chosen side isn't manufactured because 'democracy?'
I would agree that "the Hidden Hand and only the Hidden Hand ever forces necessary changes." We live in a self-organizing economy. Some of us might say that there is a Higher Power behind this self-organizing economy.
When things are going badly, citizens see how badly things are going. They demand changes. They elect fairly radical leaders. If someone gets rid of a given leader, they either elect another one, or they take down the government completely. We are dealing with Limits to Growth, not peak oil. Governments tend to collapse.
"Anything that accelerates collapse reduces the steepness of the exit curve."
"Reduces the steepness of the exit curve" means slowing collapse, and directly contradicts the acceleration of collapse. Can't have it both ways.
You can say that Trump is accelerating the collapse of globalization in order to decelerate the collapse of industrial civilization, but only if intentionally collapsing globalization is followed up with a plan B that is capable of better weathering industrial collapse for whatever period of time (enter the non-public Degrowth Agenda).
Still, framing it in terms of Trump is just silly at the end of the day. He is obviously not driving the bus containing 8B humans. That's just corporatist public relations in a corporatist world.
Gail, thank you for your latest post and for trying Substack. I hope it brings you the even wider audience that you deserve. I look forward to your monthly articles. You are one of about 5 writers whose work I find consoling in a perverse kind of way, simply because, like the other writers, you tell it like it is. Articles like yours help me plan, as far as one can, for dealing with the inevitable.
Great article, as usual. I tend to believe that the drop in college admissions will be steeper and actually happen faster than you describe. I'd say five years even. The functional illiteracy among a growing (and alarming) percentage of young people coupled with the fact that technology is rapidly eating away at entry level roles that used to lead to moderate-to-high paying and allegedly prestigious careers (roles like Customer Success at SaaS companies and so forth) will help drive this faster than most can imagine. It is already far more sensible for the average young person to go into a trade or a so-called "middle skill" career path rather than take on enormous debt to enter a world that functionally no longer exists.
It also seems to me that a lot of what is "going on" in the world at the moment is tied to all of these underlying factors. Tariffs and trade deals and regional conflicts all stem from these issues. Many make the point that the energy pie is still growing in total, but as you have pointed out on many occasions, it is not growing as fast as per capita demand. This is what leads to conflict of all stripes as well as various green agendas that artificially push down demand (or at least try to.)
People sometimes look at me like I have two heads when I say this, but based on his actions, it seems like Trump is one of the only world leaders who truly sees the total picture.
As they say, the stone age didn't end for lack of stones! (Have you noticed how expensive stones are these days? :-)
There are points past which the price cannot go; at that point, it creates "demand destruction". People stop or reduce driving vacations, or non-necessary side trips. Or they switch to electric vehicles, which trades operating cost for sunken cost. This causes the price to drop, but not very significantly.
The other side of demand destruction is profitability. Yea, Ghawar is still churning out crude for pennies a litre, but the *marginal* cost of new oil production is probably at least $60 a barrel. So new production is not happening very quickly, which would only drive the price down, in light of demand destruction. And conventional producers (such as the Saudis) are keeping more of it for their own use, which drives up the average cost.
So oil prices are caught in a gap, below which, producers cannot produce at a profit, and above which, consumers cannot afford.
In fact, the price is not low at all, in historical measure. The price has been consistently above (barely) the cost of new marginal production long enough that the "area under the curve" is indeed higher than it was at the 2008 price spike. These insidiously high prices have worked through the system, causing inflation in essentials, like food.
So, we're all paying more for oil than the spot price might lead you to believe.
Thank you for taking the time to explain this another way to help people like me get it better. It's sobering the way you all are putting it about causing inflation...
It's counterintuitive because what Justin said is counterfactual because the per capita demand economic metric on which Justin based his argument is not the most relevant dynamic to barrel pricing. Marginal demand is what is most relevant to barrel pricing. The proof of this is that per capita demand can rise at the same time that marginal demand is falling, resulting in a falling barrel price.
Also, per Justin's comment, the overall energy pie is not still growing in total. Not a chance.
When I refer to per capita demand, I am largely referring to the fact that several non-western nations (such as Russia and China) want to increase the living standards of their people significantly to match the living standards of western nations (such as the US and France.) Higher living standards equate to higher energy use per capita. There is not enough new energy supply growth to actually meet this desire, so this drives conflicts of various stripes between western and non-western nations. We would apparently need to discover multiple Ghawar-sized oil fields in order to make living standard parity possible (and that is obviously not in the cards.)
Simon Michaux's work on this is an excellent read. His "Oil from a Critical Raw Material Perspective" is something I highly recommend for anyone interested in these topics: https://tupa.gtk.fi/raportti/arkisto/70_2019.pdf -- see the chart on page 5, for instance.
The price of a barrel of oil is driven by a number of supply and demand factors, but my comment was focused more on the bigger picture, not the spot price of oil day-to-day.
As for the idea that the energy pie is still growing, I'd refer you to the work of Doomberg here on Substack.
EROI doesn't need to fall to societal threatening levels. It is only a small part of the whole picture. It takes more and more oil to extract all kinds of other minerals. Population is growing, so we need more roads and things. And EROI does not count how quickly a resource pays back. Even with high EROI, an energy resource with slow payback can collapse the debt structure. EROI is a side street, in the whole story. It, unfortunately, doesn't tell us much.
The Debt structure is indeed the problem and that is actually very good news.
Money is a creature of human laws and for most of human history the answer to the usury end game was debt Jubilee.
“EROI does not count how quickly a resource pays back.”,
This is a classic time cost of money argument, with the use of many “ capital infrastructures” the value in use is an opportunity cost not a time cost. These distinctions are very important in re designing a monetary system fit for purpose, by known historical standards let alone the sort of system possible with 21st century technology.
Helmuth Kreutz did a great Job on these questions in his book The Money Syndrome .
Henry Carey wrote in the late 19th century criticising free traders, promoting what is known as the American System in opposition to it. Pierro Saffra proved the Chicago School wrong about competition and Monopolies based upon the false mathematics of equilibria.Known as the Cambrige controversy.
Edmund Burke in his speech against the East India company charter pointed out that the name Charter for a coercive monopoly was a misnomer.
At its heart this is a problem of accounting. The accounting system needs to be changed. There are many alternatives but all are offensive to powerfull vested interests.
As the logical flaws in the present system are indefensible , those vested interests will provaricate and dissemble, this is their only strategy as the Coming debate as in previous episodes of the very same problem ends in new arrangements with debt restructuring etc.
Burkes pamphlet on these present discontents points out that when the citizenry are annoyed it is usually for good reason and in such circumstances it is easier to reform the mode and means of governance than it is to reform the people.
Gk Chesterton equipped that the poor only object to being governed badly, the Rich object to being governed at all.
Artificial scarcity of the monetary unit is a choice of those who issue debt/credit instruments this is a destructive choice which leads to the impoverishment of economies to the gain of the issuesrs. This is an abuse of a public commons delegated to public/private partnerships.
We have a missallocation and mispricing of credit problem not a resource problem. The price of the chicken most certainly does not come before the egg.
Deep patterning is not an 'empirical' cookie cutter pursuit, Grub. It's an art and a discipline. Your request is a logical fallacy. You're free to *actually* try and see what we see just as you're free to oppose it - and presumably for your own ulterior motives. But you're not free to do both at the same time.
"The price of a barrel of oil is driven by a number of supply and demand factors, but my comment was focused more on the bigger picture, not the spot price of oil day-to-day."
Yet the bigger picture regarding per capita demand for oil, is negative. Negative demand since the p(l)andemic started, averaging something like minus-three percent Demand since 2020. Demand is still not back to where it was before the (engineered) crash in demand.
The energy pie is not still growing. We are past peak oil, coal, and nuclear. Coal's tonnage may still be slowly rising but it is certainly not in BTUs. Chinese bituminous coal peaked in 2020 and they've been replacing it with low-grade lignite. And natural gas volumetric production gains are not offsetting the above resource declines given that tight gas is a low-grade gas. Feel free to counter with your own argument or with a link or a copy and pasted argument of someone else's.
Demand is not really high (in the sense economists use the term), unless the price is high.
People may want products made with oil, but they cannot afford products made with oil.
People are poor. Young people would really like to buy homes (instead of living in small apartments). They would like to own a car, and maybe a boat. Many people would like to go on international vacations. But they cannot afford these things.
Food prices depend a great deal on the price of oil. Imported food is imported using oil. Meat production, especially beef, is expensive partly because of the oil used in the process. Even growing grain uses oil, with today's machinery and transport system. Going to a restaurant uses oil, if a person drives there. People object strongly, or cut back on high priced beef and going to restaurants to eat, if the cost of living is high, indirectly because of energy prices (and interest rates on debt).
"Trümp is one of the only world leaders who truly sees the total picture."
I don't think that Trump cares about any picture beyond his own nose.
He's stumbled on something useful, just because it was self-serving.
He wants to intimidate other countries and shove his weight around, and sees tariffs as a way of addressing the budget deficit without raising taxes, which, I emphasize, is only because it would make him look bad.
Meanwhile, it seems that world leaders know how to manipulate him. Expect advantages of his self-centred policies to melt away as world leaders suck up to his vanity.
I don't think that personal motives matter. The system, as felt by the many voters, force necessary changes. Also, I don't think that it matters that there is pushback to the original plans. That is way the system operates.
personally I graduated from one of the top 20 Universities in US News and World Report, but I do agree that most universities are just waste of money and resources. Only the top 20 universities, and one state university for each states (a few more for larger states) , seem to be enough.
I agree that what you describe is the direction that enrollments seem to be going in. The lesser universities and colleges lower their standards to get enough students to keep their doors open.
On the other hand, I went to St. Olaf College in Northfield, Minnesota. My parents met there. There is a building named after one of my long-ago relatives. It was started as a Lutheran College for children of Norwegian immigrants. When I started, my freshman dorm had a House Mother, corridor counselors, and a 10:00pm curfew. The education I received was plenty adequate for going to graduate school (and later studying to become an actuary).
But, especially since I graduated, St. Olaf has changed into a WOKE college that tries for a very diverse student body, builds high-cost dorms and labs to keep up with universities, and now has faculty with more impressive credentials. Their tuition, room and board are now terribly high. We live at quite a distance. I didn't send my children there.
The latest gimmick to attract new students is additional sports playing fields, especially women's field hockey. Why do universities so badly want to attract female hockey players? Gotta be motivated by the declining enrollment problem.
Liberal Arts Colleges are different species. I was talking about those who attend Universities without a clear goal and attend it because they 'had to'. Liberal Arts Colleges are needed and they are unlikely to be the first choice for those who just want diplomas.
I think you are quite possibly right. People seem to think that the world will go forward as it is, indefinitely. Those of us who think differently are considered very strange--perhaps having two heads. My husband is a semi-retired professor of computer science. I would not be shocked if his job goes away in the next few years.
A very good interview with Brian Berletic about the American war against Iran
https://open.substack.com/pub/filezip/p/irans-missiles-crush-iron-dome-israel?r=5snknl&utm_campaign=post&utm_medium=web
Thanks for this article, and for your appearance on substack. I was a fan on telegram shame you didn't take off there!
Inertia wheels (big ones!) seem to be the way that solar/wind grids compensate their issues. Spain's added problems are around an assortment of irregularities: maintenance, non-standard private solar hook-ups, planned shut down (lack of) due process...take your pick
Thx Gail!
Physics became a classified science after the atomic bomb. The Atomic Energy Commission holds the highest security clearance. Soviet Union had secret and closed Star Cities.
The head of the physics department in Russia claimed that Russia has secured its future energy needs. He didn't say how, but Rosatom has closed the nuclear fuel cycle by recycling nuclear waste into MOX fuel.
The sun is made of atoms, that are made of protons, neutrons and electrons. So why is the sun emitting photons?
...because nuclear reactions are not like typical chemical reactions. They do not conserve mass of the reactants.
The official atomic model doesn't contain photons
The sun is made of atoms and is still constantly emitting trillions of photons
The official atomic model is incompetent...wrong...distorted
Physics became a classified science after the atomic bomb
> Eric Chaisson, a physicist who has researched this issue, says that there is a tendency for ever more complex, energy-dense systems to evolve over time. This would suggest that an even more advanced economy may be possible in the future.
Pardon me if you've already addressed this, but was Chaisson aware of ecological overshoot? I am left to wonder, how is it possible that an energy system can become _more_ energy-dense if the overall complexity of society (in terms of education, scientific research, and biodiversity) is going to contract? I thought the idea was that our ecological overshoot is an unprecedented moment in human history, and that both the population and the carrying capacity are about to decrease... so, will this energy system be used by only a small number of people or something? How will they get their fuel in a cost-effective manner? I cannot help but find it dubious.
Anyway, good job on the article. I have only recently found your blog, but over the last 2-3 years, the implications of overshoot are finally starting to "sink in."
Hi Gail,
Could you please link to the best sources you have for empirical evidence for EROI's of Oil Production over the past 30, 50 and 100 years.
https://open.substack.com/pub/grubstreetinexile/p/tim-morgans-seeds-falsified-peak?r=l1oox&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false
Based on this analysis, here are the key findings regarding the weighted average cost of global oil production since 1970:
1. **Overall Cost Trend**:
- The weighted average cost has actually decreased by 12.7% from 1970 to 2023
- Starting index in 1970: 109.00
- Ending index in 2023: 95.19
2. **Major Factors Affecting Costs**:
a) **Technological Improvements**:
- Annual efficiency gains of approximately 1.5%
- More pronounced in shale oil (1.5x the improvement rate)
- Automation and improved drilling techniques
- Better reservoir management
- Enhanced recovery methods
b) **Increasing Complexity**:
- Annual increase of about 1% due to:
- Deeper wells
- More challenging reservoirs
- Offshore and remote locations
- More complex extraction methods
c) **Historical Events Impact**:
- 1973-74 Oil Crisis: 30% cost increase
- 1979-80 Second Oil Crisis: 25% cost increase
- 2004-08 Pre-financial crisis: 20% cost increase
- 2014-16 Oil price crash: 20% cost reduction
- 2020 COVID-19: 30% temporary cost reduction
3. **Production Mix Evolution**:
- 1970: Dominated by conventional light oil (~85%)
- 2023: More diversified mix
- Light oil: ~65%
- Heavy oil: ~20%
- Shale oil: ~15%
4. **EROI Implications**:
- The declining weighted average cost suggests an improving EROI when considering technological efficiencies
- However, this doesn't tell the full story because:
- Environmental costs are not fully captured
- Quality of resources has declined
- Energy intensity of extraction has increased
- Supporting infrastructure costs have grown
5. **Key Observations**:
- Technology has largely offset the natural tendency for costs to rise as easy-to-access oil is depleted
- The shift to more expensive sources (shale, heavy oil) has been partially compensated by efficiency gains
- The industry has shown remarkable ability to reduce costs through innovation
- The real cost of production has become more volatile since 2000
This analysis suggests that while the oil industry has managed to keep production costs relatively stable or even declining in real terms, this has required increasingly complex and energy-intensive extraction methods. The declining weighted average cost masks the fact that we're using more sophisticated and energy-intensive methods to extract oil from more challenging reservoirs.
It's important to note that this is a simplified model and actual EROI calculations would need to consider many additional factors, including:
- Full lifecycle energy costs
- Environmental remediation costs
- Infrastructure requirements
- Quality differentials between oil types
- Regional variations in production efficiency
https://open.substack.com/pub/grubstreetinexile/p/peak-oil-the-non-evidence?r=l1oox&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false
I do not have great confidence in EROI calculations. I do know that oil from shale has a much better EROI than heavy oil, and perhaps even the remaining conventional oil. But these amounts are always changing. These calculations were set up to give researchers and grad students something to write papers about, but they leave a whole lot to be desired. It is really delivered EROI that matters, and not extracted EROI. How the economy functions depends on a whole lot of things other than EROI.
I think of surplus energy as what allows oil production to provide taxable income. It is this tax benefit that distributes what surplus energy is available. If oil producers are running into problems, they will start buying back their own stock, rather than investing in new wells. Returns may look better than they are. But declining new investment shows that the return is too low. We have been in this period since 2018. We are past peak crude oil. On a per capita basis, the situation is even worse.
Then why does shale oil have a higher break even price?
It depends on who is putting the estimate together and what they consider "break even." A wide range of estimates can be considered break even. Oil companies need a price a whole lot higher than break even. They need to invest in drilling new wells to offset depletion. They need to repay debt with interest; they need to pay dividends to shareholders. They need to pay taxes, for all the governmental services they use.
I am not even sure if overhead is always in the break even price.
Sure but I'm of the impression that there's a structural reason why shale oil is universally acknowledged to have higher breakevens in general than the major conventional light crude producers so I'm surprised that you would say that shale maybe has a much better energy return than the biggest of the conventional light crude plays. There's a reason why OPEC is said to be attacking shale (again) right now instead of the other way around.
If you look back up at this comment thread, I started by saying I didn't have much faith in EROI calculations. EROI only measures a narrow band of costs. I would not use EROI for much of any purpose. We know that producers of oil from shale are now finding current prices too low to continue reinvestment. This is a huge problem.
Even if an EROI calculation was "correct" at one time, it won't necessarily be helpful a year or two later.
Yep, noted, and I hear that. I just thought we were all in general agreement with the FEASTA findings from back in the day and whatnot. That shale and tarsands were flirting with the lower limits of adequate returns, thus them being last in first out.
"But declining new investment shows that the return is too low. We have been in this period since 2018. We are past peak crude oil. On a per capita basis, the situation is even worse.".
The question is why is the choice being made to prioritise more expensive sources ( Something the Saudis complained about as long ago as 1948. Peak oil as a political choice is a whole different question to Peak oil due to resource constraints.
Thank you for your kind answer,
My Own considered views on why the choices are made may be found on my won substack.
The Economic consequences of President Trump.
Is the Dollar being devalued by stealth. That old trilemma.
https://open.substack.com/pub/grubstreetinexile/p/the-economic-consequences-of-president?r=l1oox&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false
Evaluate a devaluation of the petro Doallr by 30% and calculate the value of US Tarrifs as a proprtionate increase in Import Prices to offset the value of the dollar devaluation. Consider then a US dollar reserve currency based on Bitcoin Prices and Gold to reset the dollar at a BTC /Gold standard and calculate the dominance of the US Dollar based upon a Gold Backed dollar as reserve currency?
Conclusion
Impact of Devaluation: A 30% devaluation of the petro-dollar necessitates a proportional increase in tariffs of about 30% to maintain import price levels.
Value Reset via Gold and Bitcoin: Establishing a new dollar standard based on Bitcoin and gold requires a careful calculation of current asset values and total dollar circulation.
It's a huge question gail, I think your post is right about the Debt and wrong about the energy. Debt is again a Political Choice or should I say a Choice in political economy?
Best Wishes,
Roger
Future of the Dollar: Transitioning to a gold-backed dollar could stabilize the currency but may also restrict monetary policy flexibility, echoing Keynes' concerns about the rigidity of the gold standard.
Bitcoin has negative value. Treasury purchase of cryptocurrency is but a transfer of wealth from elsewhere to the people behind the crypto. I don't mind people invest personal wealth into crypto, but USD collaterals cannot have bitcoin or any other crypto currency.
Bitcoin payments (when it is created) act to provide additional revenue to fossil fuel companies as a way of paying for burning otherwise stranded (too far away from users) resources. If they can be burned in place, and the resulting electricity used to generate bitcoin, they are to some extent providing a service to these companies. Excess electricity in Iceland can also be used in this way.
In a sense, bitcoin is a marker for a service that has already been provided, but will never be provided again. I see it as adding to buying power, for what seems likely to be an ever-declining quantity of goods and services. Thus, it will tend to add to inflationary pressures, to the extent that it is really honored.
I don't have a lot of confidence in bitcoin because there is no guarantee of future services with it. If electricity becomes intermittent, its use would seem to go down. I wouldn't recommend buying it.
https://grubstreetinexile.substack.com/p/myths-lies-and-oil-wars?r=l1oox
Catastrophic peak oil cultists should read some William Engdahl, before downing that James town cool aid
Grub your thesis, then, is that the Rockefellers are currently and unnecessarily crashing industrial civilization -- and putting their own lives in danger in the process -- because about 60 or 70 years ago they feared that their Anglo-American monopoly of the oil market might not persist and therefore they hatched a 60 or 70 year plan to crash civilization on that hypothetical fear, yet during those 60 or 70 years the Anglo-American financial system, with which the Rockefellers were partnered, privatized the banking system of just about every oil producing nation on Earth, rendering their fears unfounded... yet according to you the plan continues to be enacted.
How does your thesis now sound to you as I sound it out for you?
You're welcome for the reality check.
If you read Walter Buriens letter The rock thrown in the pond , and then trouble yourself with The Control of Oil and then myths lies and oil wars you will find a better understanding of my Analysis.
https://grubstreetinexile.substack.com/p/the-rock-thrown-in-the-pond?r=l1oox
Evaluate a devaluation of the petro Doallr by 30% and calculate the value of US Tarrifs as a proprtionate increase in Import Prices to offset the value of the dollar devaluation. Consider then a US dollar reserve currency based on Bitcoin Prices and Gold to reset the dollar at a BTC /Gold standard and calculate the dominance of the US Dollar based upon a Gold Backed dollar as reserve currency
MonicaSonnet
I'll help you analyze this complex monetary scenario step by step.
Petro Dollar Devaluation Analysis
Let's calculate the effects of a 30% devaluation:
Original value: 1.00 USD
After 30% devaluation: 0.70 USD
Tariff Calculation to Offset Devaluation
To offset a 30% currency devaluation, the tariff rate would need to be approximately 42.86% to restore the original purchasing power:
TariffRate=10.70−1=0.4286 or 42.86%TariffRate=0.701−1=0.4286 or 42.86%
Is there an ongoing de valuation of the dollar by stealth?
Peak Oil the non evidence, Whose shoes in Donald Shining? #PetroDollar #PeakOil #money #Tarrifs #GoingDirect #Bondcrisis #BestEvidence
https://grubstreetinexile.substack.com/p/peak-oil-the-non-evidence
Regarding the effects of the strategies I have analysed the end game is to control society not to crash it, the fear of a crash is designed to get compliance by ordinary people to policies against their best interests.
I hope that helps.
I would say that at this mature point in the history of mass media domination, the Hidden Hand and only the Hidden Hand ever forces necessary changes. The manufacturing of consent for the MAGAMAHA ballot box 'counterrevolution' was approximately documented in real-time by myself these last four years. And it included the manufacturing of consent for the democratic party's self-immolation in a clown suit.
Why is it that we all know that historically the fully-hedged Elites play both sides of all 'revolutions' yet when we live through one, almost all of us still more or less pick one side or the other and act like that chosen side isn't manufactured because 'democracy?'
There's more than one way to steal an election.
I would agree that "the Hidden Hand and only the Hidden Hand ever forces necessary changes." We live in a self-organizing economy. Some of us might say that there is a Higher Power behind this self-organizing economy.
When things are going badly, citizens see how badly things are going. They demand changes. They elect fairly radical leaders. If someone gets rid of a given leader, they either elect another one, or they take down the government completely. We are dealing with Limits to Growth, not peak oil. Governments tend to collapse.
Makes sense. And it leaves room for us to collapse back into bioregionalism while possibly having some resources left to build new societies with.
"Anything that accelerates collapse reduces the steepness of the exit curve."
"Reduces the steepness of the exit curve" means slowing collapse, and directly contradicts the acceleration of collapse. Can't have it both ways.
You can say that Trump is accelerating the collapse of globalization in order to decelerate the collapse of industrial civilization, but only if intentionally collapsing globalization is followed up with a plan B that is capable of better weathering industrial collapse for whatever period of time (enter the non-public Degrowth Agenda).
Still, framing it in terms of Trump is just silly at the end of the day. He is obviously not driving the bus containing 8B humans. That's just corporatist public relations in a corporatist world.
Gail, thank you for your latest post and for trying Substack. I hope it brings you the even wider audience that you deserve. I look forward to your monthly articles. You are one of about 5 writers whose work I find consoling in a perverse kind of way, simply because, like the other writers, you tell it like it is. Articles like yours help me plan, as far as one can, for dealing with the inevitable.
Thanks for your kind words.
Thank you for the new post.
Great article, as usual. I tend to believe that the drop in college admissions will be steeper and actually happen faster than you describe. I'd say five years even. The functional illiteracy among a growing (and alarming) percentage of young people coupled with the fact that technology is rapidly eating away at entry level roles that used to lead to moderate-to-high paying and allegedly prestigious careers (roles like Customer Success at SaaS companies and so forth) will help drive this faster than most can imagine. It is already far more sensible for the average young person to go into a trade or a so-called "middle skill" career path rather than take on enormous debt to enter a world that functionally no longer exists.
It also seems to me that a lot of what is "going on" in the world at the moment is tied to all of these underlying factors. Tariffs and trade deals and regional conflicts all stem from these issues. Many make the point that the energy pie is still growing in total, but as you have pointed out on many occasions, it is not growing as fast as per capita demand. This is what leads to conflict of all stripes as well as various green agendas that artificially push down demand (or at least try to.)
People sometimes look at me like I have two heads when I say this, but based on his actions, it seems like Trump is one of the only world leaders who truly sees the total picture.
Here is another perspective on Convicted Felon Cat Meat that I just ran across that makes a lot of sense!
https://chrishedges.substack.com/p/the-rule-of-idiots
It's still hard for me to get my head around why oil prices are low while you are saying energy demand is high, that is so counterintuitive.
As they say, the stone age didn't end for lack of stones! (Have you noticed how expensive stones are these days? :-)
There are points past which the price cannot go; at that point, it creates "demand destruction". People stop or reduce driving vacations, or non-necessary side trips. Or they switch to electric vehicles, which trades operating cost for sunken cost. This causes the price to drop, but not very significantly.
The other side of demand destruction is profitability. Yea, Ghawar is still churning out crude for pennies a litre, but the *marginal* cost of new oil production is probably at least $60 a barrel. So new production is not happening very quickly, which would only drive the price down, in light of demand destruction. And conventional producers (such as the Saudis) are keeping more of it for their own use, which drives up the average cost.
So oil prices are caught in a gap, below which, producers cannot produce at a profit, and above which, consumers cannot afford.
In fact, the price is not low at all, in historical measure. The price has been consistently above (barely) the cost of new marginal production long enough that the "area under the curve" is indeed higher than it was at the 2008 price spike. These insidiously high prices have worked through the system, causing inflation in essentials, like food.
So, we're all paying more for oil than the spot price might lead you to believe.
Thank you for taking the time to explain this another way to help people like me get it better. It's sobering the way you all are putting it about causing inflation...
It's counterintuitive because what Justin said is counterfactual because the per capita demand economic metric on which Justin based his argument is not the most relevant dynamic to barrel pricing. Marginal demand is what is most relevant to barrel pricing. The proof of this is that per capita demand can rise at the same time that marginal demand is falling, resulting in a falling barrel price.
Also, per Justin's comment, the overall energy pie is not still growing in total. Not a chance.
When I refer to per capita demand, I am largely referring to the fact that several non-western nations (such as Russia and China) want to increase the living standards of their people significantly to match the living standards of western nations (such as the US and France.) Higher living standards equate to higher energy use per capita. There is not enough new energy supply growth to actually meet this desire, so this drives conflicts of various stripes between western and non-western nations. We would apparently need to discover multiple Ghawar-sized oil fields in order to make living standard parity possible (and that is obviously not in the cards.)
Simon Michaux's work on this is an excellent read. His "Oil from a Critical Raw Material Perspective" is something I highly recommend for anyone interested in these topics: https://tupa.gtk.fi/raportti/arkisto/70_2019.pdf -- see the chart on page 5, for instance.
The price of a barrel of oil is driven by a number of supply and demand factors, but my comment was focused more on the bigger picture, not the spot price of oil day-to-day.
As for the idea that the energy pie is still growing, I'd refer you to the work of Doomberg here on Substack.
Oil from a Critical Raw Material Perspective" is something I highly recommend for anyone interested in these topics: https://tupa.gtk.fi/raportti/arkisto/70_2019.pdf -
Peak oil literacy?
see page
231/497
Why would you say Saudi and Iraq are not designalted Peak Oil Literate?
Could you cite empirical sources that show EROI on oil has fallen to a societal threatening level. I have looked and there are none I can find?
https://grubstreetinexile.substack.com/p/tim-morgans-seeds-falsified-peak?r=l1oox
EROI doesn't need to fall to societal threatening levels. It is only a small part of the whole picture. It takes more and more oil to extract all kinds of other minerals. Population is growing, so we need more roads and things. And EROI does not count how quickly a resource pays back. Even with high EROI, an energy resource with slow payback can collapse the debt structure. EROI is a side street, in the whole story. It, unfortunately, doesn't tell us much.
Good morning Gail,
The Debt structure is indeed the problem and that is actually very good news.
Money is a creature of human laws and for most of human history the answer to the usury end game was debt Jubilee.
“EROI does not count how quickly a resource pays back.”,
This is a classic time cost of money argument, with the use of many “ capital infrastructures” the value in use is an opportunity cost not a time cost. These distinctions are very important in re designing a monetary system fit for purpose, by known historical standards let alone the sort of system possible with 21st century technology.
Helmuth Kreutz did a great Job on these questions in his book The Money Syndrome .
Henry Carey wrote in the late 19th century criticising free traders, promoting what is known as the American System in opposition to it. Pierro Saffra proved the Chicago School wrong about competition and Monopolies based upon the false mathematics of equilibria.Known as the Cambrige controversy.
Edmund Burke in his speech against the East India company charter pointed out that the name Charter for a coercive monopoly was a misnomer.
At its heart this is a problem of accounting. The accounting system needs to be changed. There are many alternatives but all are offensive to powerfull vested interests.
As the logical flaws in the present system are indefensible , those vested interests will provaricate and dissemble, this is their only strategy as the Coming debate as in previous episodes of the very same problem ends in new arrangements with debt restructuring etc.
Burkes pamphlet on these present discontents points out that when the citizenry are annoyed it is usually for good reason and in such circumstances it is easier to reform the mode and means of governance than it is to reform the people.
Gk Chesterton equipped that the poor only object to being governed badly, the Rich object to being governed at all.
Artificial scarcity of the monetary unit is a choice of those who issue debt/credit instruments this is a destructive choice which leads to the impoverishment of economies to the gain of the issuesrs. This is an abuse of a public commons delegated to public/private partnerships.
We have a missallocation and mispricing of credit problem not a resource problem. The price of the chicken most certainly does not come before the egg.
Deep patterning is not an 'empirical' cookie cutter pursuit, Grub. It's an art and a discipline. Your request is a logical fallacy. You're free to *actually* try and see what we see just as you're free to oppose it - and presumably for your own ulterior motives. But you're not free to do both at the same time.
https://open.substack.com/pub/grubstreetinexile/p/the-economic-consequences-of-president?r=l1oox&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false
I will please myself thank you very much, your rule book such as you describe it is of no interest to me .
Read Wisty’s Lament-
Thanks Justin.
"The price of a barrel of oil is driven by a number of supply and demand factors, but my comment was focused more on the bigger picture, not the spot price of oil day-to-day."
Yet the bigger picture regarding per capita demand for oil, is negative. Negative demand since the p(l)andemic started, averaging something like minus-three percent Demand since 2020. Demand is still not back to where it was before the (engineered) crash in demand.
The energy pie is not still growing. We are past peak oil, coal, and nuclear. Coal's tonnage may still be slowly rising but it is certainly not in BTUs. Chinese bituminous coal peaked in 2020 and they've been replacing it with low-grade lignite. And natural gas volumetric production gains are not offsetting the above resource declines given that tight gas is a low-grade gas. Feel free to counter with your own argument or with a link or a copy and pasted argument of someone else's.
Demand is not really high (in the sense economists use the term), unless the price is high.
People may want products made with oil, but they cannot afford products made with oil.
People are poor. Young people would really like to buy homes (instead of living in small apartments). They would like to own a car, and maybe a boat. Many people would like to go on international vacations. But they cannot afford these things.
Food prices depend a great deal on the price of oil. Imported food is imported using oil. Meat production, especially beef, is expensive partly because of the oil used in the process. Even growing grain uses oil, with today's machinery and transport system. Going to a restaurant uses oil, if a person drives there. People object strongly, or cut back on high priced beef and going to restaurants to eat, if the cost of living is high, indirectly because of energy prices (and interest rates on debt).
"Trümp is one of the only world leaders who truly sees the total picture."
I don't think that Trump cares about any picture beyond his own nose.
He's stumbled on something useful, just because it was self-serving.
He wants to intimidate other countries and shove his weight around, and sees tariffs as a way of addressing the budget deficit without raising taxes, which, I emphasize, is only because it would make him look bad.
Meanwhile, it seems that world leaders know how to manipulate him. Expect advantages of his self-centred policies to melt away as world leaders suck up to his vanity.
Correlation is not causation.
I don't think that personal motives matter. The system, as felt by the many voters, force necessary changes. Also, I don't think that it matters that there is pushback to the original plans. That is way the system operates.
I agree that personal motives don't really matter.
What I was uncomfortable with was the phrase "one of the only world leaders who truly sees the total picture."
Anything that accelerates collapse reduces the steepness of the exit curve. Even if it's just conceit and narcissism!
Completely agree with your perspective on this, Gail.
This guy does not think so
https://greyenlightenment.com/2024/05/04/in-an-era-of-overabundance-elite-colleges-matter-more-than-ever/
personally I graduated from one of the top 20 Universities in US News and World Report, but I do agree that most universities are just waste of money and resources. Only the top 20 universities, and one state university for each states (a few more for larger states) , seem to be enough.
I agree that what you describe is the direction that enrollments seem to be going in. The lesser universities and colleges lower their standards to get enough students to keep their doors open.
On the other hand, I went to St. Olaf College in Northfield, Minnesota. My parents met there. There is a building named after one of my long-ago relatives. It was started as a Lutheran College for children of Norwegian immigrants. When I started, my freshman dorm had a House Mother, corridor counselors, and a 10:00pm curfew. The education I received was plenty adequate for going to graduate school (and later studying to become an actuary).
But, especially since I graduated, St. Olaf has changed into a WOKE college that tries for a very diverse student body, builds high-cost dorms and labs to keep up with universities, and now has faculty with more impressive credentials. Their tuition, room and board are now terribly high. We live at quite a distance. I didn't send my children there.
The latest gimmick to attract new students is additional sports playing fields, especially women's field hockey. Why do universities so badly want to attract female hockey players? Gotta be motivated by the declining enrollment problem.
Liberal Arts Colleges are different species. I was talking about those who attend Universities without a clear goal and attend it because they 'had to'. Liberal Arts Colleges are needed and they are unlikely to be the first choice for those who just want diplomas.
I think you are quite possibly right. People seem to think that the world will go forward as it is, indefinitely. Those of us who think differently are considered very strange--perhaps having two heads. My husband is a semi-retired professor of computer science. I would not be shocked if his job goes away in the next few years.
"And you know two heads are better than one."
https://www.youtube.com/watch?v=iisYw0epV_Q
Welcome to Substack, Gail-the-Actuary.
;-)
Thanks!
I thank you, Gail, for all of your clear information and insight, which I started to see in early 2008.
I have excerpted and linked to this post today on my substack post: https://drjohnsblog.substack.com/p/death-by-partial-truth
It is something I have long done with your work, when it comes out (and Ellen Brown's, too).
Been following you for several years, but I think this format is also good. I will double dip for the time being. Cheers
Thanks for your vote of confidence.