“Shale is a retirement party for the oil industry” - Oil analyst Art Berman
Everybody likes to conflate “Laws” of economics with Laws (note the lack of quote marks) of Nature.
Economics is not natural. It’s one context of human psychology. Nothing more, nothing less.
So to define the Energy industry in terms of economics and finance only makes sense in terms of human psychology and current customs.
The real currency of modern society is Joules. Energy. Money is fungible, they say, meaning that since it’s a human abstraction we can make whatever we want to be money into money, and we can make that money be worth whatever we decide.
Not so with Joules.
It’s an indictment of our screwed-up system of Finance that we can’t do things we absolutely have to do because we can’t afford it financially. That means our system of evaluating cost and benefits has malfunctioned and is giving false readings and false incentives.
However, that doesn’t make any difference once it costs 1 Joule of energy to extract 1 Joule of energy. Once that happens, none of our shared hallucination of Finance makes any difference. Fracking is very energy-intensive, if you look at all the inputs. Petroleum production everywhere has a collapsing EROEI (Energy Returned On Energy Invested). That’s the real issue.
At some point we’ll pull our heads out of our asses, force our Oligarchs to be inconvenienced and give up some of their accumulated advantages and fix our system of Finance. But that won’t change the fact that we’re getting closer to the point when on balance we expend more energy than we get from extraction.
Oil is a geopolitical weapon so information is completely distorted. If shale is such a good play why is Trump opening up then deep sea drilling everywhere and in reservations ? Sounds not very convincing. Horror would be if US is running out of oil, Saudi Aramco IPO is a sign that Saudis want to leave a sinking ship. So who will provide the oil ? Russia, Iran ? Is that why we see war in the Middle East? It is better not to be naive regarding oil and energy.
The fracking companies racked up 200 billion of negative cash-flow in the last years. The FED created a multitude of silly businesses, from fracking to TESLA / UBER, which make people believe everything is awesome. A look into the balance sheets shows you that this is not correct. Even in the current interest environment these money-burning machines shall collapse under their debt.
“The US oil shale reserves has over 2 trillion barrels of recoverable hydrocarbons.”
That means, how much chemicals are to be put into the ground (water)?
NOT ONE SHALE OIL COMPANY HAS POSTED ONE PENNY OF PROFIT FROM SHALE OPERATIONS IN 12 YEARS!
NOT ONE! The entire industry is living on debt. ExxonMobil, Shell, BP, ConocoPhillips, etc. have doubled, tripled, and quadrupled their debt levels in the last twelve years. $52 a barrel won’t service their debt.
Another point, the public can’t afford higher energy prices. So the industry is stuck. 14 million barrels a day? LMAO! We can’t even use what they are pumping now. Demand is down so that we are stacking the stuff at these levels.
We are reaching a one for one cost per barrel pumped. When we get closer than 3:1 it is pretty much over…..for the average consumer. Statoil CEO just got through stating that 70% of the current known oil/gas will never see the light of day…..it will cost too much to get it out.
Here are now 1.7 million active shale wells operating in the US. To keep production constant 89.8% of them will need to be replaced over the next five years. At an average price of $4.4 million per well that will be $7.3 trillion.
1.7 M wells at 7.3 T, each well would have to achieve a profit of $4.4 M to reach break even. Taxes, licenses, operational expenses not included. 7.3 T spread over the 5 years would be 1.5 T or 7.9% of GDP.
Gasoline is still cheaper than orange juice not to mention healthcare.