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Peak Cheap Energy and Temporary Oil Price Slump

Fighting MSM disinformation and oversimplifications about cost of shale oil and other energy related topics:
as Arthur Berman noted "Shale oil is not a revolution, it is a retirement party"

News Casino Capitalism Recommended Links Secular Stagnation Gas wars Oil glut fallacy Subprime oil: Deflation of the USA shale oil bubble
Paper oil, Minsky financial instability hypothesis and casino capitalism Slightly skeptical view of oil price forecasts Paper oil and record oil futures trading volumes MSM propagated myth about Saudis defending this market share Russia oil production Iran return to western oil markets fear mongering Oil Burden: amount on money spend on energy vs. global GDP
Energy returned on energy invested (ERoEI) Energy Geopolitics Great condensate con A note of ERoEI decline Cushing is filling up hysteria Plato Oil as Hubert Peak in condition of rising oil prices Media disinformation about Plato oil and Hubert peak
Energy disinformation agency and friends Big Fukushima Debate Oil consumption growth The fiasco of suburbia US military energy consumption Media-Military-Industrial Complex Neoconservatism
Neocolonialism as Financial Imperialism  All wars are bankers wars Predator state Bakken Reality Check Junk bond bubble Debt enslavement Neoliberalism as a New Form of Corporatism
IMF as the key institution for neoliberal debt enslavement Media disinformation about Plato oil and Hubert peak Fiat money, gold and petrodollar Energy Bookshelf Financial Quotes Financial Humor Etc
80 years ago the Nobel Prize winning chemist explained where oil DOES come into the picture:

Though it was not understood a century ago, and though as yet the applications of the knowledge to the economics of life are not generally realized, life in its physical aspect is fundamentally a struggle for energy, …

Soddy, Frederick M.A., F.R.S.. Wealth, Virtual Wealth and Debt (Kindle Locations 1089-1091). Distributed Proofreaders Canada.

The ‘backing’ for the petrodollar now includes the monetized value of Chinese and third world labor and natural resources as well as OPEC oil. But controlling the outcome of life’s “struggle for energy” is still the crumbling cornerstone of both US foreign and domestic economic policies:

  • control the world’s access to energy and it has no choice but submitting to the hegemon’s will
  • the U.S. political system is now owned lock, stock and barrel by a financial / military industrial / fossil fuels complex (am I forgetting anybody?). The powers that be are trying to preserve the existing status quo by insuring that life remains a “struggle for energy”.

The denizens of Wall Street and Washington can perhaps be forgiven for believing they were the “masters of the universe” at the conclusion of WWII. What they can NOT be forgiven is their belief – then or now – is that “the end of history” had arrived (unless they cause it).

Steven comment on Michael Klare Delusional Thinking in Washington, The Desperate Plight of a Declining Superpower


Introduction

Nemesis eventually catches hubris.

"Shale oil is not a revolution, it is a retirement party"
Arthur Berman

When oil is traded too cheaply, the victim of such trades is always the future generations. The current drop in oil prices might have been a curse, not the blessing as it slowed down or stopped the adaptation processes that were already in place with $4 per gallon ($1 per liter) gas in the USA.  The reality is a harsh mistress: the situation with depletion of existing oil deposits and new discoveries is now worse than in, say, 2000. But we still continue to do the same things. Such as buying large SUVs. Which fits Albert Einstein definition of insanity ("doing the same thing over and over again and expecting different results"). As one NYT commenter noted (Moscow on the Brazos):

I don't get it. We're supposed to be running out of oil, right? Or has that changed? $2 gas and we've gone past the Bell Curve of supply and use? And now we're all drunk on cheap gas. I'm happy to see new innovative efficient technology, new electric and hybrid cars but now they're selling boatloads of SUVs and pickup trucks. They are back in big style. They are better now, instead of 11 mpg they're 15 mpg.

As IEA noted in iea.org

In a Low Oil Price Scenario, longer payback periods mean that the world misses out on almost 15% of the energy savings seen in our central scenario, foregoing around $800 billion-worth of efficiency improvements in cars, trucks, aircraft and other end-use equipment, holding back the much-needed energy transition.

At the same time, the current slump in oil prices proved to be pretty long and any person who tried to predict commodities price in the current environment is suspect ;-). At the end of the day the supply/demand dynamic is at work, but market under neoliberalism is an unstable system with a built-in positive feedback loop. As such neoliberalism is quite capable of dragging us through shortages, depressions, environmental disasters, and even wars on the way from one equilibrium to another. So all those general considerations that are provided below are nothing but an educated guess. As John Kenneth Galbraith aptly said: "The only function of economic forecasting is to make astrology look respectable." Readers beware...

This is a skeptical page that was created due to strong doubts about MSM coverage of the current oil prices slump. especially the idea of oil glut (which in the USA for some strange reason coincide with rising imports of oil and the deflation of shale bubble) and Saudis supposed decision to defend their share of the market" (aka predatory pricing used by Saudis since mid 2014 to slam the oil prices). There are strong indications that that was the political decision make by Saudi elite to hurt Iran after the decision to lift sanctions was made by the USA and allies in mid 2014. Approximately since this very moment they started to dump their oil on the market at artificially low prices (which is called predatory pricing). It might be a coincidence, but it might be a reaction of Saudis to the deal reached with Iran.

Also, MSM cries about glut on oil look strange as the USA from month to month imports more and more oil. Oil glut and rising oil imports are two incompatible trends. But not for the US MSMs. This looks like a phenomenon which came directly from  Geroge Orwell's novel 1984  where it was called "doublespeak". 

The first thing to understand is that at a given stage of developing of drilling and other related technologies there is a minimal price of oil below which production can be continued only at a loss. This price point is different for different types of oil, and slightly varies between different regions but it does exist. For example, a shale/tight oil well often costs around $6-8 million, which needs to be amortized over the life of a well which in the case of shale/tight oil is approximately five-six years. To make things worse unlike conventional wells that can produce approximately at the same rate for a decade, those wells experience a steep decline after two first years, with more half of oil extracted in the first two years. The cost is much higher for non-conventional oil producers than for conventional producers. Canadian tar sand production is even more expensive. Deep water drilling is somewhere in between conventional and non-conventional oil, pricewise.

There are different estimates, but most analysts agree that the US shale/tight oil producers need around $70-$80 per barrel to be able to pay their debts and around $50-$60 to break even. Those numbers are slightly less for deep water oil ($40-$50) and slightly higher for Canadian tar sands. The picture below illustrated difference prices to produce different types of oil ( see below) is reproduced from What Me Worry About Peak Oil  by Art Berman (December 27, 2015 ):

This means that production of light oil from tight zones need the price of $70-80 per barrel to break even.  The same applies to extra heavy, deep water, and EOR projects. Offshore arctic and ultra deep water are extremely expensive and with their own special environmental risks as BP recently discovered. The implication seems to be that most industry investments do require prices in $80-$100 range to continue pump oil at the same rate (Red Queen's race - Wikipedia). In this sense 2010-2013 were gold age for oil production worldwide, as prices were close or above $100 and billions were invested in high cost oil resources ( "Shale oil is not a revolution, it is a retirement party" as aptly observed Arthur Berman).

Now prices dropped below $33 (as of Jan 6, 2015) and at this level of prices all tight oil producers  are losing money  on each barrel of oil they produce. Debt fueled boom in the shale space will most likely never return. Most shale players managed to survive 2015 (some due to hedges; some due to junk bond dent they accumulate and still did not put into capex). But to survive in 2016 will be more difficult and they are in danger of defaulting on their bonds. Mass extinction might well be in the cards, if low prices persist for the whole year.

 when the almighty money almagamations like the Carlyle Group swoop in and buy up all the distressed assets, we just might see oil prices rebound. The vultures won’t have the motive to short the heck out of oil, like they are now.

Junk bonds has duration around five-seven years, so bonds taken in 2010 will be due soon and refinancing them now is very difficult. That means weaker non-conventional oil producers will probably be bankrupt if not in 2016, then in 2017, if prices stay low. This process already stated with something like a dozen bankruptcies in 2015. According to OilPrice.com more expected in 2016:

At the same time world demand for oil will continues to grow and will grow in 2016 probably by 1.3 Mb/d or more.  In 2015 it rose from 92.45 to 93.82 Mb/d. The only country that has additional capacities now is Iran but how quickly it can expand production in low price regime and whether it will be willing to sell additional oil at such low prices to get currency is difficult to predict. Some think that Iran will be able to add another 0.5 Mb/d in 2016 which can only compensate for the drop of US production and nothing else. Production in all other countries will be iether stable or slightly declining due to natural decline of wells with age and lack of capital investments in new drilling. Typical estimate is 1% decline or around 1MB/d of lost supply. Natural rate of decline of most conventional wells is around 6% and non-conventional around 20 (not evenly distributed; the first year production can even rise).  It it doubtful that remaining capital investments will be able to offset everything but 1% of decline. Real decline from non-OPEC members in 2016 can be more.

Actually even Saudis managed only marginally increase their exports in 2015; they just exported slightly more oil  (around  +0.3Mb/d more) at very low prices which supports the current low oil price regime, but not their economy which ended 2015 with a record deficit around $100 billions by Saudis estimates ($150 by IMF estimates). What is Saudis motivation of doing this (and depleting both their coffers and oil reserves) is a difficult question to answer but probably this is an economic war with Iran. The second important source of support of low prices is Wall Street games with futures.

The key problem here is that shale and tight oil producers were not that profitable at above $100 per barrel oil price range that existed in 2010-2013 and accumulated large amount of debt (several hundreds of billions, mostly in junk bonds) during those "good times" . The debt that now needs to be serviced so they have an albatross around their necks.

The destruction of oil supply while very gradual already started albeit slowly, as decline of wells is still compensated by hedging, new drilling and projects that have been started in the "good old days" are still coming online. This decline might well accelerate toward the middle of 2016, if prices do not recover. In any case hedges will expire somewhere in 2016 and after that it will be clear who is swimming naked.

In other words the current oil prices are IMHO not sustainable (too low) even in one-two year timeframe. When most hedges expire and the number of bankruptcies start to increase, Wall Street might be unable to press oil futures down anymore so push back in prices can be pretty violent. .

BTW Saudis lost around $100 billions this year and their foreign reserves shrunk to around $600 billions. Projected loss for 2016 is around $85 billions. So they need around one decade to deplete their foreign currency reserves.

Some suspicious consistency in the US MSM stories about oil price slump

“Where ideas are concerned, America can be counted on to do one of two things: take a good idea and run it completely into the ground, or take a bad idea and run it completely into the ground.”

—George Carlin

Oh what a tangled web we weave, When first we practice to deceive!"

Walter Scott, Marmion, Canto vi, Stanza 17

 

To make the story short current MSM behaviour is highly irresponsible and suggests that all of them are in the pockets of Wall Street or worse. After all oil is a irreplaceable commodity that will eventually run out. Low oil prices from this point of view are the last thing we need. It's like drinking party on the deck of Titanic. What should be done is creating the infrastructure for living with much less oil available. Which is possible only with high prices for this commodity. also the destruction of oil patch that now is happening should be get so much cheerleading. It is a tragedy for many people. The ability to fill gas tank for less then 2 dollars is not everything in this life. 

Economist Herbert Stein (1916-1999) wrote in 1986: "if it can’t go on forever it will stop." Despite this self-evident truth there is interesting, highly correlated bias, in coverage of oil prices slump for most of the US MSM: all predict essentially that current low oil prices will stay if nor forever, then for a very long time. And that what happened in 2015 is not anomaly, despite clear indicators that at this price most US producers sell their barrels at loss.  They salivate that this situation will continue in the first half of 2016 and well into 2017. They also completely discard negative externalities of this event.  As oil has crashed to $33 levels there is  a lot of MSM talk that the current price is really the long term historical average price, that 2005-2014 was an anomaly (bubble) and that we will stay in this range (say, $20-$40) for years to come.  Actually you can bet that at any price point MSM will claim that the cost of extraction is 20% lower, no matter what the price level is.

You can bet that at any price point MSM will claim that the cost of extraction is 20% lower, no matter what the price level is.

Yes, there are few places in the Middle East and Russia from which oil can be profitably extracted at this price range. But those countries depend on oil for revenue to balance the budget so even in those places this situation is unsustainable.  More then 80% sources of oil are unprofitable at those prices. That includes all shale/tight oil and all deep offshore anywhere in the world.

Still for some unknown to me reason in MSM low oil prices (below the cost of production) and depletion of valuable natural resource are now considered to be a universal good. While at best this is nothing more then initiated by Saudis "Hail Mary pass" to save Western civilization from secular stagnation. Externalities be damned, full speed ahead. Shale oil industry and destruction of its workforce, junk bond market troubles are just collateral damage. Does not matter one bit. Give us cheap oil brother and all will be fine.
 

For some unknown to me reason in MSM low oil prices (below the cost of production) and depletion of valuable natural resource are now considered to be a universal good. While at best this is nothing more then initiated by Saudis "Hail Mary pass" to save Western civilization from secular stagnation. Externalities be damned, full speed ahead. Shale oil industry and destruction of its workforce, junk bond market troubles are just collateral damage. Does not matter one bit. Give us cheap oil brother and all will be fine.

But at the same time never try to catch falling oil barrel ;-). Market can stay irrational longer than you can stay solvent.

Also strange and suspicious is that most MSM peruse suspiciously similar and questionable, or outright false, if we look at the facts, stories:

  1. Quicker depletion of a valuable and irreplaceable national resource due to low prices does not matter.  Existing wells deplete 5-8% per year (tight oil more that that) so you need to discover, drill and put on line at least the same amount in order to maintains the same volume of oil production. That costs money, and if money are not here nobody will drill. So natural tendency of production at low oil price (which now man below $70-$80 per barrel) is down, not up. 
     
  2. Saudis are fighting for their market share and flooding the world with oil.  This hypothesis is advanced despite the fact that their exports are stagnant and had grown in 2015 only by around 0.2-0.3 Mb/d (see Saudi Arabia oil production and forecast for 2016). Which is a miserable amount. What fight for market share: they can sell all theoil they produce.  In 2014 they exported around 7.1 Mb/d and in 2015 around 7.3 Mb/d. Plus/minus 0.1 Mb/d. So nothing essentially changed as for the level of their exports taking into account that the growth of world consumption for 2015 is over 1 Mb/d.   Their real strategy is dumping their exports at low price undercutting other producers to bring the price down.  In other words they are using what is called "predatory pricing" and to achieve that they tapped into their currency reserves to the tune of $100 billion a year. They are burning their currency reserves at the speed at which they can exhaust them from six years to decade, losing the investment grade in three.  Also most of their fields are old and semi-exhausted, so maintaining high production might even damage them, cutting short their useful life and the total amount of oil Saudis can recover from them. 

    Saudi shipments rose to 7.364 million barrels a day in October, 2015, according to the latest figures from the Joint Organizations Data Initiative (JODI).  Shipments averaged 7.11 million barrels a day in 2014, down from an 11-year high of 7.54 million barrels a day in 2013 and the lowest in three previous years. So Saudis failed even match their 2013 exports in 2015.

  3. Iran is able and willing to throw on the market another 0.5-0.7 Mb/d in 2016 further depressing prices. This hypothesis is advanced despite explicit statements from the Iran leadership that they will not give any future customer additional discounts above those that exist today.  while Iran leadership is definitely irrational, blocking the temporary freeze agreement, and willing to hurt the county future by increasing oil production as much as they can in low oil price environment (hurting their ally Russia in the process), they are not completely stupid and they do not have much money to drill anyway.  As they now have access to their previously frozen foreign reserves they definitely can wait a year or two before coming to the market with the new supply.  also increase of supply is not instant, it requires time and money, even taking into account that Iran has some underdeveloped fields that can be profitably put into production even at low prices that exist to today. This is a better strategy then coming with new supply at the point of ridiculously low prices. Although everything can happen. Middle Eastern nations are unpredictable.
     
  4. A very conservative estimate of the decline of non-OPEC production for the next year. Most assume that it will be limited to roughly 0.5 Mb/d. But the rate of natural decline of existing conventional oil wells is 3-6% and reduced capital expenses mean less new production is coming online in 2016 and 2017. Assuming 1% depletion that's around 1MB/d that should disappear in 2016. Add to this hard crash that is possible for the US shale producers and the estimate 1.5 Mb/d drop does not look outrageously high. But those consideration somehow disappeared from all considerations from MSM and they operate under assumption that supply from existing wells is indefinite and decline is a rounding error.  Only increase in supply is material and eminent (again Iran supply story get the most prominence). 
     
  5. The US MSM propagate the following bogus narrative: "there is an oil glut in the USA market in particular despite the fact that the USA increasing their import of oil. To cry about glut on oil in the country which imports each month in 2015 more and more oil is something new to me.  This is something from Orwell novel Nineteen Eighty-Four and is called doublespeak. If you are an oil producer, you don’t pump oil unless you have orders for it.  If you pump oil without orders, then you need your own storage to store it. In no way you ship it to Cushing, Oklahoma with their 80 Mb storage capacity as your customers can be in completely different part of the USA and it's you who need to pay for storage. That's the privilege used by refineries to regulate their input in case of maintenance, seasonal peaks, etc.  You don’t ship any oil without getting paid for it. So oil glut theory claim that they are producers which have oil shipped to customers and customers did not use it. Putting it in storage instead. And this bogus "theory" is propagated by MSM for more then 18 month now. It' time for MSM to stop to propagate this nonsense. 
     
  6. Cheap oil is here to stay and current situation will last to 2017 in worst case or to 2020-2040 in the best. IEA forecasts are viewed as facts, despite clear interest in lower oil prices.  In reality just cutting capital investment along with depletion of  existing fields (almost 6% for conventional wells, around 20% per year but very unevenly spread for shale/tight oil wells) guarantee diminishing supply. To compensate for 5% depletion the world now needs to find and put into production approximately 5 Mb/d of oil. In other words the world is losing approximately 1 Mb/s of supply per quarter. This loss a very difficult to stop, although it was possible for the last several years because huge capital investments in oil industry caused by high oil prices. 2010-2014 has shown that with high oil prices the decline can be stopped and reversed.  The problem is that adequate capital investments are thing in the past and now most oil companies need to adapt to starvation mode as for capital investment in the oil industry. That spells huge trouble for Norway, Russia, GB,  and other nations with mostly conventional wells.  It will be a miracle if they can maintain they level of production at prices below $40 for more then one-two years (there is some inertia here and new projects are continuing to come online for around 18 months since the start of the price drop; that means till mid, or last quarter of 2016, depending were you put the start of oil price drop). 
     
  7. MSM instantly forgot about previous concerns and the reversal of efficiency of the US car fleet. In 2015 SUVs again became the most popular category of personal car with sales of large SUVs booming. This deterioration of the US fleet efficiency happens along with slow down of sales of hybrids and, especially, electrical cars.
     
  8. Growth of demand during the current period of below $2 per gallon gas for some, unexplained reason will be slower then the explosive growth of demand in 2015. for some reason is is expected to be  limited to around 1% or 1.3-1.4 Mb/d worldwide.
     
  9. China slowed down and her oil consumption will be stagnant or down despite boom in car sales, as if the number of cars of the road is disconnected with oil use. In reality transportation is around 60% of country oil use. Right, but China oil consumption is still growing and will continue to grow in 2016. Those trends can co-exist for a while. So electrical consumption decline does not mean that the oil consumption decline is eminent.

    The same situation can exist in other countries such as the USA - slowing of the economy along with growth of oil consumption. All those new SUVs on the road need fuel to run.
     
  10. The assumption that the destruction of shale/tight oil companies with excessive debt loads in the USA  will be gradual and slow. Despite the fact that they currently produce at a loss  each barrel of oil they sell.  Also it will be orderly without major disruption of production -- just a gradual decline despite dramatically lower capital expenses. The assumption of most US MSM is that US production will stay close to current levels due to Gulf production or due to by waiving some magic wand by Obama administration.
     
  11. Junk bond problem does not exist or is of minor importance despite the fact that there are over 100 billions of shale oil book related junk bonds on the market. Similarly losses of financial sector from hedges in 2015 are non-existent as well (only Mexicans got several billions or additional revenue due to hedges).

The question is from where all those MSM deceptive and false  "talking points" originate.

The end of cheap oil hypothesis

The "end of cheap oil" hypothesis can be simplified to several postulates:

  1. Mankind demand for oil will continues to grow, although the pace of growth slows down with the increase of the price of oil as well as due to stagnation of world economy caused by high oil prices. That does not exclude temporary (often multiyear) oil price slumps or highs: instability is the nature of financial system under neoliberalism. 
  2. The supply of oil profitably extractable at any given price point below $100 (such $40, $50, $60 per barrel) will continue to shrink. Total extractable supply of oil can grow only by adding more and more expensive source of oil, sources with lower EROEI. New technology of extraction (especially horizontal drilling) can somewhat offset decline of EROEI but can't reverse it.  Simple calculation by dividing "proven world reserves" by annual consumption suggest that at prices below $100 in 2014 dollars they will be exhausted in approximately half a century (assuming $50 a barrel price point) peakoilbarrel.com, comment 12/11/2015 at 7:34 am)
    Proved oil reserves at 1700.1 billion barrels, 52.5 years of supply.

    Reference:

    http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/oil-review-by-energy-type/oil-reserves.html

    At 50 USD per barrel, the value is 50×1,700,100,000,000=85,005,000,000,000 usd

    Not enough, 100 USD per barrel will be better. 85 trillion dollars to spend so 1700.1 billion barrels of oil can be extracted and burned in 52.5 years. An absolute bargain. Current consumption at 32.85 billion per year, 365×90,000,000, 1700.1/32.85=51.75 years.

  3. The search for new sources of hydrocarbons by G7 countries will intensify over time and will likely generate resources wars. At least two resource wars already happened: Iraq and Libya. Wars are fought over access to and control of oil resources with high EROEI as well as other vital natural resources. With rising human population, competition for these resources might increase triggering conflicts, large and small. Industrialized nations already started to invade weaker countries to secure access to oil which is essential to the survival of modern industrial civilization (Iraq and Libya, and if we think about pipelines to Europe, Syria). 
  4. Very high price of oil (let's say above $100 per barrel)  leads to stagnation in all major industrialized countries and first of all the USA as well as eventual debt collapse of neoliberal economies and slow down or reverse of neoliberal globalization.
  5. The current "Race to burn what's left" is irrational.  Low oil prices destroy and delay investment in new supplies, slow down efficiency gains, encourage consumption and sow the seeds of the next big boom in prices.  If we assume that at each price point only a finite amount of oil can be profitably extracted from Earth (which is a planet, that is now well researched for oil), the current year and a half slump in oil prices looks extremely suspicious. It means robbing future generations, as conservation efforts are now derailed. Sales of SUVs and small trucks in the USA are up.  Trillions in equity and bond losses, hundred thousands of ruined retirement accounts and there is a severe recession knocking on the door for the US economy. The US are selling their last drops of oil at prices below production cost. In my opinion it would be wiser to save the oil that is currently  produce in strategic reserves and sell it when prices are much higher.

Please note that the US government patiently observes the current situation and does not try to influence the price by buying oil for their strategic oil reserve, although in the past it used to do such things. MSM coverage of oil also suggests strong establishment bias toward lower prices. As if this is the last "Heil Mary" pass in geostrategic game for the USA dominance.  So there are higher priorities in play here then the destiny of the US shale industry and more rapid exhaustion of national oil reserves. At the same time oil price slum is equivalent to a huge stimulus  to the USA economy, but it does have some significant side affects. If we assume $93.17-49.08=44.09 price drop for 2015 and the daily consumption of around  19.58 Mb/s that comes to 222 billions a year.

The current drop of oil prices also represent huge stimulus to EU,  China, Japan and other all other industrialized countries without or with little own oil reserves. If this were organized as a part of Russian sanctions package, this was a brilliant strategy. All industrialized countries in which own consumption far exceeds own production, are essentially isolated from negative affect of countersanctions   by the low price of oil.  In other worlds this is a huge global economic stimulus to the "masters of the universe" and at the same time stern warning to one of the last "resource nationalists" which try to pursue independence from Washington foreign policy.

The key question here: was it engineered by neoliberal strategists in Washington, DC and their masters in major Wall Street banks (in this case this was a really brilliant move)? Or is this ugly side effect of unhinged capitalism known as neoliberalism where oil companies overinvested in new projects due to greed and many new projects are coming simultaneously  online, while demand for oil grows more slowly then they expected. In any case at one point Saudi Arabia decided to dump its oil on the market and fun started. Was it the order from Washington or thier own initiave is unclear.

In recent years oil consumption was growing at slower pace dur to high oil prices. Per Michael Klare 2005 projection of oil consumption in 2015 was 105 Mb/d (millions of barrels per day); actual in 2015 was around 93 Mb/d as high price of oil stimulated investment in energy saving technologies. That includes not only small and hybrid cars (which actually did not improve much from, say, 1990 level, as the size of small car in the USA had grown considerably, but also cars and trucks working on natural gas, blending gas with alcohol (up to 10%), tax breaks for electrical cars ($7500 currently on many "pure electrical" models of small passenger cars, half of that on hybrids). Now this positive trend is partially reversed.  

But there were other signs of introduction of energy saving technologies which indirectly cut oil consumption, especially in chemical industry which will stay:     

For example the energy cost to major chemicals of running their plants is significant in the united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy intensity by 22 percent through a structured program targeting process improvements. This has saved 1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion.

Note on the term "conspiracy theories"

Conspiracy theory was the term invented by CIA to whitewash their participation in JFK assassination, which got a wider use and became a common term in English language.  Here is how the term is defined in Wikipedia:

A conspiracy theory is an explanatory hypothesis that suggests that two or more persons, a group, or an organization of having caused or covered up, through secret planning and deliberate action, an event or situation which is typically taken to be illegal or harmful. Although the existence of a proven conspiracy involving United States President Richard Nixon and his aides in the Watergate scandal of the 1970s has been claimed as validation of conspiracy theories in general,[1] the term "conspiracy theory" has acquired a derogatory meaning and is often used to dismiss or ridicule beliefs in conspiracies.[2]

Such things as the current oil slump probably could never happen purely due to market forces (and notion of "free market" is another neoliberal lie; neoliberal markets are neither free nor fair). Oil is not a regular commodity. Oil is a strategic resource. So I think it is naïve to analyze it strictly in supply-demand terms.  Geopolitics plays very important role in oil prices and always was. Remember how the USSR was brought to its knees by dropping the oil prices in late 80th.

Remember Iraq war with one million of Iraqis dead. Was not this a blatant attempt to secure oil resources for the USA majors? Remember Libyan color revolution and Hillary reaction to the horrible death of poor colonel. Is not this about collision of French desire to secure oil supplies and Washington desire to get rid on a dictator who was an obstacle to neoliberal agenda?

And Syria war unleashed to achieve what ? It all about remapping Middle East by toppling "not friendly enough" to Washington regimes. It took longer then "seven countries in five years"  as Rumsfeld promised (https://www.youtube.com/watch?v=9RC1Mepk_Sw) but it looks like the plan itself is still current: 

“We’re going to take out seven countries in 5 years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran”

General Wesley Clark. Retired 4-star U.S. Army general,
Supreme Allied Commander of NATO during the 1999 War on Yugoslavia .

It is clear that recent "petro wars" in the Middle East were about execution of a  US strategy which was not only about globalism and the USA world dominance, but also about oil.

The oil market has always been driven by geopolitics, and it was a factor that contributed to unleashing both WWI and WWII. Or, if you want, geopolitics has been very strongly influenced by the supply and distribution of crude oil for at least a century. To talk in pure supply/demand terms about such a strategic, vital for human civilization commodity is absurd.
and the whole idea the Kingdom of  Saudi Arabia, a vassal state completely dependent in its survival on the USA unleashes a price war against the USA shale production looks very suspect. nevertheless it is propagated by major MSM like 100% true.

In other words oil was and is a major weapon of economic war. And dumping oil prices is especially potent weapon against countries with significant oil exports such as Russia, Venezuela, Iran, Iraq, etc.  You can kill several birds with one stone.

The key question here is classic cue bono ? Which country is the major beneficiary of the current oil prices crash. The answer is -- the USA (despite some troubles of shale producers which started in late 2015 when most hedges expired). So  it is plausible to suggest that the USA elite including Wall Street banks played an important role in slamming oil prices to reach some important geopolitical goal, significance of which supersede the value of destruction of the USA shale industry.  After all the US financial industry can for a short time distort price of any commodity to any desired level.  HFT is a perfect tool for that and that was explicitly mentioned on Aleynikov trial  by Goldman officials.

It might well be that the current low price is playing double role: to stimulate Western economies and simultaneously serve as the most important part of package of sanctions against Russia. Obama actually hinted that this is true. And Saudi Arabia did play similar role in the past -- crash of oil prices did  facilitated the dissolution of the USSR, which lost the major part of its export revenue).

I would like to stress it again that the idea that Saudi Arabia is engaged in price war against the USA to defend its market share is extremely questionable. By all measures KSA is a satellite state, vassal of the USA if you like. How vassal state can act in such a way without the USA blessing ?  Economic conditions are now not equal to 2008 so the current drop of oil prices can't be explained by panic.  And without using the power of US-controlled financial markets it id doubful that it is possible to accomplish such a quick and sustained drop. 

The USA has long history of using oil as a geopolitical tool. Not only to crash the USSR but also to lure Japan into WWII. Oil embargo against imperial Japan served essentially as a declaration of war and it was read by Imperial Japan leadership exactly this way  (the leadership, which actually has little or no illusions that Japan will lose, but decided not to surrender without armed struggle). There is some evidence that Perl Harbor was not defended specifically to make entrance into the war with Japan more dramatic and more acceptable to the population of the USA, as a reaction on the clear act of aggression by Japan (although air carriers were sent to sea to save them).

And population of Earth still grow, as well as the number of cars and, especially tracks on the road. Similarly the number of airplanes and ships.  Until that trend stops the "long term"  trend for oil price should be up as chances of finding large deposit of "cheap oil" are not close to zero.  Of course "In a long run we all are dead" maxim applies.

But as of 2015 the planet is pretty well explored for this vital commodity. That means that the cost of oil extraction rises with time because the cheapest to extract oil is removed first. Actually this is now true for most commodities, including metals.

To get oil now deeper wells are needed, or fracking equipment and fracking sand and liquids, or you get oil that is too heavy or oil which contains too much sulfur. That means that  special refineries need to be build. In any case more resources are need to produce the same amount of petrol and diesel for transportation and other purposes. It is natural to think that price will gradually rise due to diminishing returns on capital used for extraction.  According to Barclays Capital (cited by  Steven Kopits),  the costs of extracting oil began increasing by 10.9% per year, since 1999 from $5 to almost $25 per barrel.  Add to this transportation cost to refineries, interest on debt, etc and we are probably talking about "magic" figure of $60 per barrel.  So in 2015 any price below it is strongly suspect and probably is temporary. Although the4 rule is "never to say never" and for investors in oil ETNs (such USO, OIL, etc) Keyes saying that market can be irrational longer the you can stay solvent fully applies.  The same saying is now looming over the heads of shale companies executives. As of December 2015 bloodbath has began.

So the question is really about how long the current low oil prices (oil slump) will last. One year is definitely enough to eliminate hedges. And in December of 2015 they are mostly gone (two year hedges do exist but are a rarety)  Capital expenses are now slashed to the bones, but project that take several years to complete will still come into production and that will support the level of oil production at least for one year till Jan 2017. We also can probably see some consolidation of the oil industry. Weak players start being eliminated.

Three years are enough to eliminate most new capital investment and to finish projects which started before slump. Capital investment goes to a screeching halt. After that much depends on the speed of decline of existing wells and pace on increasing of global consumption. that actually includes growth of internal consumption in three major oil producing nations such as USA, Russia and Saudi Arabia. Of those three Saudi Arabia experiences especially quick rise in internal oil demand.

In any case since mid 2015 the price of oil on spot market dropped almost to one third of max price previously achieved. As of Aug 8, 2015 the spot price for October, 2015 delivery was around $44 per barrel. This is a dramatic drop from over $100 per barrel price peak achieved earlier. 

"Cheap oil" is the cornerstone of the current neoliberal world order; it's end means end of US dominated world

We need to understand that "cheap oil" is the cornerstone of the current neoliberal social system including the level of neoliberal globalization that is underway since late 80th. So for the USA elite a lot is in stake if price of oil consistently stays, say, over $100. The USA world domination which is so cherished by neocons and for which they are ready to fight endless wars is in stake.  Also countries that "do not deserve it in view of neoliberal elite (and are only partially controlled by the USA), such as Iran and Russia, can became fabulously rich. And they understand that "the end of cheap oil" might bring great socio-economic changes within the USA itself as neolibel fairy tale about "tricke down" prosperity will be exposed as a fraud. and American people can became rightfully angry, despite all efforts to brainwash them and to fond external target for their anger. In this sense we can view the current oil slump as a brave attempt, "The Last Hurrah" attack of the old neoliberal guard  which came to power in 1980th to postpone inevitable social changes (and first of all demise of neoliberalism and by extension the USA role as a global hegemon). the important of oil for the US as the center or global neoliberal empire was well described in 2002 article by Bill Christison (Oil and the Middle East)

April 5, 2002

Back in March CounterPunch published Christison's devastating critique of the strategies and conduct of the US war of terrorism. (See our archive by scrolling down to "Search CounterPunch.)) These new remarks, which he has made available to CounterPunch were delivered to various peace groups in Santa Fe, New Mexico on early April.Bill Christison joined the CIA in 1950, and served on the analysis side of the Agency for 28 years. From the early 1970s he served as National Intelligence Officer (principal adviser to the Director of Central Intelligence on certain areas) for, at various times, Southeast Asia, South Asia and Africa. Before he retired in 1979 he was Director of the CIA's Office of Regional and Political Analysis, a 250-person unit His wife Kathy also worked in the CIA, retiring in 1979.Since then she has been mainly preoccupied by the issue of Palestine.

I've been asked to talk today about the topic, "U.S. Oil Policy as a Juggernaut in U.S. Foreign Policy." That's a great title. When you hear the word "juggernaut," what you think of--at least what I think of--is a monster machine of some sort, maybe the heaviest heavy tank you can imagine, rumbling down a city street, unstoppable, crushing everything in its way, and even destroying the paving of the street as it goes. Well, that comes pretty close to describing what I believe about the long-term effects of our oil, and other, foreign policies in the Middle East. But if we look ahead, rather than at the past or the present, my hope is that, by changing some of our own foreign policies, U.S. oil policy will in the future no longer be a destructive juggernaut.

It's worth spending a minute to talk about why oil is so important to the United States. The world's total use of energy from all sources--from petroleum, natural gas, coal, wood, hydropower, nuclear, geothermal, solar, and wind power--has increased in recent years roughly as the global population has also increased. Petroleum contributes the greatest single amount -- about two-fifths of the world's total energy output, and natural gas (which is in some ways related to oil) more than another one-fifth. The United States alone uses about one-quarter of the world's total energy output, but has less than five percent of the world's population. The U.S. itself does not produce anywhere near the amount of energy that it consumes. According to statistics of the U.S. Department of Energy, the United States used in the year 2000 almost 100 quadrillion Btu's--or British Thermal Units--of energy. But of those 100 quadrillion Btu's, the U.S. had to import close to 30 percent. The United States is, hands down, the most profligate user of energy, by far, on this whole globe.

With respect to oil alone, the U.S. imported in the year 2000 almost two-thirds of the oil that it used. The importance of Saudi Arabia as a supplier of the U.S., needs to be emphasized, but not just because the Saudis hold the largest known but still untapped oil reserves in the world. What is even more important to the U.S. at the moment is that Saudi Arabia has the largest installed but unused rapid production capacity--that is, oil wells, pumping equipment and so forth already there but not used to meet current, or "normal," production needs. In any emergency that cut off oil supplies from anywhere else in the world, Saudi Arabia would one of very few, and maybe the only, nation that could easily and quickly increase its oil production without a waiting period measured in months rather than a few days. This obviously adds to what any general or admiral would call the strategic value of Saudi Arabia to the United States.

There is another characteristic of the global oil industry that we should all understand. It is an industry dominated by a half-dozen extremely large, global corporations--including ExxonMobil (these two firms merged in 1999), British Petroleum, Shell, Texaco, Gulf and Socal. Fifty to 75 years ago these companies might have been swashbuckling, unregulated corporations seeking to maximize profits and avoid the controls of any governments by all means fair or foul. Today, however, these companies by no means have the same personalities that they had years ago. In the Middle East, at least, the governments of the area have nationalized practically all oil production, and the companies or their subsidiaries have gradually worked out mutually supportive relationships with the local governments, under which the companies continue to manage most of the oil production and global oil trade, while the governments, and OPEC, make the basic decisions on how much oil to produce. The companies continue to make large profits, which keep them happy enough.

In their relations with the U.S. and other advanced nations, the companies no longer shun government regulation, because most of the regulations imposed on them are supportive of, and increase the profits of, the companies themselves. The regulations fall more into the area of corporate welfare than into the area of inducing the corporations to become better citizens. In the U.S., the ties of the oil companies with both of the major political parties are close and mutually profitable. Up to a few months ago, these same comments would have applied to Enron, which was clearly one of the world's largest energy companies, even though it was not one of the largest global oil companies.

I started out by comparing the long-term effects of U.S. oil policies to a juggernaut. To show you why, I want to go back almost 60 years, to February 1945. In that month, President Franklin D. Roosevelt, while returning from the Yalta Conference, met with King Ibn Saud of Saudi Arabia on a U.S. warship in the middle of the Suez Canal. Two months later, Roosevelt was dead, but this meeting was probably one of his most important acts as a world leader The actual records of the conversations between these two men have never been released by either of their governments, but it is quite clear that an agreement was reached under which the United States guaranteed for the indefinite future the security and stability of the Saudi monarchy. In return, the Saudi King guaranteed U.S. access to, and joint development of, the massive Saudi oil reserves, also for the indefinite future. These mutual guarantees were later, implicitly at least, extended to apply to the other, and smaller, Gulf state monarchies, from the Arab Emirates to Bahrain and Kuwait. All of these guarantees were reinforced by the U.S. war against Iraq in 1990-1991, and these guarantees still today form the basis of U.S. oil policies in the Middle East.

So for close to 60 years now, the U.S. has continued to prop up and support these authoritarian governments. I'd like to give you an example of how this has worked in the case of Saudi Arabia. This is from an article that appeared in The Nation magazine last November, written by a British expert on world security affairs. Here are a few lines from this article. "To protect the Saudi regime against its external enemies, the United States has steadily expanded its military presence in the region. [T]o protect the royal family against its internal enemies, US personnel have become deeply involved in the regime's internal security apparatus. At the same time, the vast and highly conspicuous accumulation of wealth by the royal family has alienated it from the larger Saudi population and led to charges of systemic corruption. In response, the regime has outlawed all forms of political debate in the kingdom (there is no parliament, no free speech, no political party, no right of assembly) and used its US-trained security forces to quash overt expressions of dissent. All these effects have generated covert opposition to the regime and occasional acts of violence"

The United States pursued policies like these not only in Saudi Arabia and the smaller Gulf States, but elsewhere in the Middle East as well. When the U.S. overthrew Mossadegh in Iran in 1953, and reinstalled the Shah in power, Washington began carrying out precisely the same policies in Iran as it employed in Saudi Arabia. The Shah's secret police, known as SAVAK, and the Iranian military forces both grew markedly stronger. For 26 years the Shah's repressive regime succeeded in smothering internal dissent. In 1979, however, major internal dissent did erupt, supported by radical Islamic clerics who wanted all U.S. influence out of their land. The Shah was quickly overthrown. U.S. experiences in Iran since that date should have suggested to people in Washington that just perhaps the strong U.S. support for repressive regimes in the Middle East was not the ideal long-term policy for us to pursue. No reexamination of U.S. foreign policy ever got started, however, because the United States was immediately consumed by the horrible insult Iranians imposed on us when they held over 50 Americans from the U.S. Embassy hostage for more than a year.

Then, in the 1980s, the U.S. spent the decade quietly cozying up to Saddam Hussein, the dictatorial ruler of Iraq, which was and is another big oil producer of the Middle East. Since Iran was now a U.S. enemy, the U.S. supported Iraq in its war against Iran. The U.S. did not criticize Saddam Hussein even when he employed chemical warfare to gas sizable numbers of Kurdish people in his own country. The United States only abandoned him in 1990, when he crossed the U.S. over Kuwait. Even here, the diplomatic signals Saddam received from the U.S. until shortly before he invaded Kuwait were very unclear. Once again, when the break finally came, the U.S. administration gave no thought to reappraising its own policies throughout the region. A decision was made in favor of going to war to end this threat to U.S. hegemony and U.S. access to oil, and that was that.

Now, in the year 2002, this almost-60-year-old Middle East oil policy of the United States is showing signs of even more fraying at the edges. Beyond any question in my opinion, one of the root causes behind the terrorism of September 11 was this very U.S. policy of supporting for the past half-century and more these authoritarian and often corrupt Arab and Muslim governments. There exists a high degree of anger among many Muslims with their own governments, which have for so long been supported by the U.S.

Osama bin Laden is a good example of this particular root cause behind the September 11 terrorism. His wrath was directed as much against the Saudi government, for example, as it was against the United States. His opposition to what used to be his own government was probably the main reason why he had the support of a majority of the young men under 25 in Saudi Arabia. He received similar support from many young men in other Arab and Muslim states as well. Right now these groups of angry young men obviously no longer have a viable leader in Osama bin Laden, but other extremist leaders are almost sure to arise. In addition, the next generation of leaders in at least some of these states may well emerge from among these young men. If any of them do come into power, their future governments will likely be more anti-American than the present governments, which Washington likes to call "moderate," but which are really nothing of the sort. If we have not reduced our energy dependence on oil in the meantime, we may face serious trouble.

The U.S. should therefore adopt quite draconian measures immediately to reduce its overall energy usage, including its dependence on Mideast oil. It is unlikely, for the near future at least, that the U.S. will solve a future energy crunch through alternative power sources or by "clean" coal, nuclear power, or Alaskan oil usage. The U.S. also should not count on oil supplies from Central Asia as a way to ignore the need for conservation.

The U.S. should also, over time and gradually, reduce its ties with the present governments in many Muslim states, and try to develop improved relations with opposition elements there, actively seeking out democratically inclined groups. Such steps will be necessary if there is to be any hope of reducing support for future Osama bin Ladens that arises from the anger of Arabs and Muslims with their own governments.

I want to turn now to another foreign policy problem that the U.S. faces in the Middle East, one that has become more tightly intertwined with U.S. oil policies since September 11. Ever since shortly after World War II, the U.S. has had not one but two fundamental foreign policies in the Middle East. The first policy, which I've already talked about, has been to support authoritarian and undemocratic governments in the oil nations in an effort to guarantee the long-term easy access to Middle East oil at "reasonable" prices. The other policy, equally important, has been to provide strong support to Israel and to guarantee the security of Israel as a Jewish state, also for the long term.

Over the last fifty-plus years, there has been a fair amount of tension and conflict between these two policies. The United States under President Harry Truman was, as I'm sure you all know, instrumental in helping to establish the state of Israel in 1948. But even then, one of the reasons for the opposition to Truman's desires by many other U.S. officials, including the Secretary of State, General George Marshall, was that it might endanger the west's access to oil from the Arab nations.

As it has turned out, for most of the period since World War II, the U.S. has managed to keep its two basic policies in the Middle East pretty much apart from each other--in separate boxes so to speak--and to keep the tensions between them in check. The very existence of the Cold War, which provided the bogey-man of a common enemy, helped in this regard. The one obvious time when the U.S. proved unable to keep the tensions between its two policies under control was the OPEC oil embargo against the west in late 1973 and early 1974. The Arab-Israeli war of 1973, and specifically the U.S. response of resupplying Israel with large amounts of new military equipment, precipitated the embargo, and many of us here can remember the gas lines that resulted in this country. But the gas lines only lasted a few months, and then we all went back to normal. But we should remember those months as a perfect example of the fact that there are indeed real conflicting interests involved in the two basic U.S. foreign policies in the Middle East.

Overall, though, because the United States has been able to hold these conflicting interests in check for most of the past half century, I think that Washington has allowed the tensions to grow, more or less ignored by U.S. policymakers, to a point where they are going to be exceedingly difficult to deal with in the future. Since September 11, a number of things have happened that make it more impossible than ever to separate the effects of the Israel-Palestine problem from the effects of the continuing U.S. support for most authoritarian governments of the oil nations in the area.

In Saudi Arabia and most of the small Gulf States, the position of the monarchies has become more precarious, as these monarchies have been subjected to more criticism since September 11 from public opinion in the United States than has been the case for years. In normal circumstances, when these monarchies are confident that the U.S. guarantee of their security is strong and unbreakable, most of them will not worry too much about other issues that might further weaken their domestic position. The George W. Bush administration is undoubtedly reassuring them that the U.S. security guarantee is still in effect, but they cannot help but be worried about its permanence when they see public opinion in this country changing. This puts pressure on the monarchies to pay more attention to the opinion of their own Arab "street." And the opinion of this Arab "street" is today more intensely critical than ever of Israel's policies on Palestine and the continued occupation of the West Bank and Gaza.

The U.S. government, from September 11 right up to the present, has made it clearer than ever to the world at large that it will unilaterally decide what actions around the world constitute "terrorism," and what actions do not. Specifically, in the minds of Arabs and Muslims everywhere, the U.S. seems to have accepted all actions by Palestinians against Israelis, including acts against Israeli soldiers as well as those against innocent civilians, as being terrorism. At the same time, however, the U.S. appears to believe that no acts by Israelis against Palestinians constitute terrorism. Arabs see this as a double standard. When, also at the same time, Arabs see their own rulers expressing support for the "war on terrorism" as it is defined by the U.S., their antagonism toward their own rulers intensifies. And the rulers themselves, recognizing this antagonism, feel greater concern for their own positions.

I'd like to express a note of caution here. I certainly do not know for sure whether any, or some, or all of the governments in Arab oil nations--the dictatorial governments whose stability and security the U.S. has guaranteed for almost 60 years--will collapse in the near future. Of course change can happen rapidly and without warning. The best minds in the U.S. government had no inkling that the Shah of Iran was going to be ousted a week before it happened in 1979. But even governments that seem to be falling apart can sometimes last for years, until some totally unforeseen shove comes along that pushes them over the edge.

What I am more sure of is that these Arab oil governments are now under greater pressure to change than they have been for years, because of developments since September 11. Therefore the U.S. should be actively encouraging--though never using military force to do so--a gradual movement toward greater political democracy in these nations. And in order to reduce the importance of one major factor leading to greater instability in the region, the U.S. should immediately begin to play a far more active role than it has recently in pressing for a solution to the Israel-Palestine problem based on two truly sovereign nations, with strong treaty guarantees from the United States of the future security of both of these nations.

Simultaneously,  wars for access to cheap oil (Iraq, Libya) can  be viewed as desperate attempts to find a way out of "secular stagnation", in which advanced economies found themselves after 2008 (or, more correctly, after 2000). And history proves that war is not always necessary. Sometimes other mechanisms work as well. So lowering of oil price for a considerable perios can also be viewed as a  clever "Hail Mary" pass to save Western economies which suffer from stagnation (aka "new normal") characterized by low economic growth, high level of debt,  and high unemployment rate --  along with deflationary tendencies at the end of debt expansion super cycle. 

And this precious product then is by-and-large wasted. In most Western countries population uses a lot more energy than they absolutely have to use, burning lion share of it in personal transportation.  Industries produce a lot of unnecessary or outright harmful crap, which sell only by the power of marketing.  Some industries produce crap exclusively and can be eliminated ;-). Most people in the USA could probably cut their private gas consumption by 50% or more with little or no harful effects (less car trips, sharing of cars, use of hybrid and electrical cars for commute, telecommuting, etc).

But this is not true of major industries, air and sea transport.  Those are areas where the limits set by "end of cheap oil" strike hard. At $4 per gallon and higher some (heavy/bulky) goods produced in China are already uneconomic to ship to the USA. That already started to affect  furniture industry. And we need get serious about planning, and the subsequent modifications in our energy usage pattern. Transition to the world with less "cheap oil" takes a lot of time and money to implement.

It might well be possible to replace around 20% of today’s oil consumption with renewable. Hybrid and electrical cars don't save much energy (lithium battery production consumes a lot of energy and rare metals which are very expensive to mine and refine) but they allow to substitute burning of oil to burning coal to produce electricity. 

Just the fact that oil industry now resorted to two  ecologically dangerous methods of extraction of shale oil and tar sands oil indirectly proves "top cheap oil" hypothesis. Why bother if cheap oil is plentiful? It's simply stupid to invest money in such extraction schemes unless you really believe in the "end of cheap oil".  If you object to this that means that you can't think clearly an dispassionately.

In both cases the size of ecological damage will be certain only decades later. it might be something like destroying America to save it. IMHO in no way the US shale production could be the decisive factor in spot prices drop of this magnitude (to closer $30 in 2015 dollars which so 30/2.4 in 1983 dollars ). And in 2014-2015 economic contraction did not reached 2008 levels to justify it from this point of view. EROEI of shale oil is way too low for shale oil to be competitive at current prices:  it is a complex and not very efficient process of conversion of energy and junk bonds into oil. It is far from just drilling a hole  and collecting oil which  flows under internal pressure  like in old good times.  Horizontal drilling greatly helps (and is the essence of most new methods of oil extraction with one (upper) well used to inject stream or chemicals and the other below it to collect oil) , but does not change the whole picture or lower EROEI of those methods. According to Wikipedia:

A 1984 study estimated the EROEI of the various known oil-shale deposits as varying between 0.7–13.3[75] although known oil-shale extraction development projects assert an EROEI between 3 to 10. According to the World Energy Outlook 2010, the EROEI of ex-situ processing is typically 4 to 5 while of in-situ processing it may be even as low as 2. However, according to the EIA most of used energy can be provided by burning the spent shale or oil-shale gas.[76]

Same problem of low EROEI is true about tar sands. Simplifying you can think about extraction of oil from tar sands as the industrial process of converting energy of  natural gas and junk bonds into oil. Approximately  280–350 kWh of energy is needed to extract a barrel of bitumen and upgrade it to synthetic crude. Most of this energy is produced by burning natural gas. Assuming $.1 per kilowatt we will get energy cost alone around 28-$35 a barrel. You probably should double this number to account for capital expenses and other costs.  

Is oil commodity or under neoliberalism this is another currency subject to standard currency attacks

A commodity currency is a name given to currencies of countries which depend heavily on the export of certain raw materials for income. These countries are typically developing countries, e.g. countries like Burundi, Tanzania, Papua New Guinea; but also include developed countries like Canada and Australia.

Befor assendance of neoliberalism in 1980th world oil prices were determined largely by real daily supply and demand. It was the province of oil buyers and oil sellers. Then Goldman Sachs decided to buy the small Wall Street commodity brokerage, J. Aron in the 1980th They had their eye set on transforming how oil is traded in world markets.

It was the advent of “paper oil,” oil traded in futures, contracts independent of delivery of physical crude, easier for the large banks to manipulate based on rumors and derivative market skullduggery, as a handful of Wall Street banks dominated oil futures trades and knew just who held what positions, a convenient insider role that is rarely mentioned inn polite company. It was the beginning of transforming oil trading into a casino where Goldman Sachs, Morgan Stanley, JP MorganChase and a few other giant Wall Street banks ran the crap tables. Essentially they invented another commodity currency. In the foreign exchange market, commodity currencies generally refer to the Australian dollar, Canadian dollar, New Zealand dollar, Norwegian krone, South African rand, Brazilian real, Russian ruble and the Chilean peso.

It looks like oil also became not pure commodity, but a new commodity currency. New York really trades overwhelmingly on a non-physical oil basis these days. Nobody checks if sellers of the futures have actual oil to settle. All settmenta are in dollar. In other words oil was virtualized.

In addtionan there are multiple oil ETFs (which are prefect way to rob lemmings -- naive investors who decided that oil is more reliable store of value then stocks)

Symbol  Name  Assets*  Avg Vol  YTD  1 Year  3 Year  5 Year  Inception  ER  ETF Home Page  Liquidity  Expenses 
USO United States Oil Fund $2,578,400.00 25,967,785 -28.05% -57.77% -59.14% -56.62% 2006-04-10 0.45% View A+ A+
OIL S&P GSCI Crude Oil Tot Ret Idx ETN $866,760.90 4,389,938 -33.41% -63.17% -64.50% -62.10% 2006-08-15 0.75% View A B
DBO DB Oil Fund $513,040.00 331,095 -27.39% -58.67% -58.24% -53.53% 2007-01-05 0.78% View A B-
BNO United States Brent Oil Fund $91,324.50 128,165 -26.08% -57.43% -59.34% -35.66% 2010-06-02 0.90% View A- C+
USL United States 12 Month Oil $70,752.00 84,619 -22.71%

As with futures, several questions arise about OIL ETFs. In any case as dollar finance is unlimited (via printing press) that creates completely new environment for commodities, when the price can be completely detached from reality.  In a way, oil ETFs are not that different then gold EFT which became pure "virtual currency" called "gold"  -- yet another financial speculation vehicle (Something Just Snapped At The Comex Zero Hedge):

As of Friday the comex gold "coverage" or amount of paper claims on every ounce of physical, was literally off the chart, soaring to a mindblowing 207 ounces of paper gold claims for every ounce of deliverable gold. This also means that the dilution ratio between physical gold and paper gold has hit a new all-time low of just 0.48%!

Similarly to games with gold we see "naked" shorting of oil:

United States Oil Fund LP (ETF) Short Interest Down 6.7% in July (USO) by Max Byerly

Aug 18th, 2015 | Ticker Report

Shares of United States Oil Fund LP (ETF) (NYSE:USO) were the target of a significant decline in short interest in the month of July. As of July 31st, there was short interest totalling 45,855,306 shares, a decline of 6.7% from the July 15th total of 49,139,106 shares, AnalystRatings.NET reports. Based on an average trading volume of 23,230,679 shares, the short-interest ratio is currently 2.0 days.

United States Oil Fund LP (NYSE:USO) opened at 13.89 on Tuesday. United States Oil Fund LP has a 52 week low of $13.86 and a 52 week high of $35.83. The company’s 50-day moving average is $16.41 and its 200 day moving average is $18.44.

United States Oil Fund, LP (NYSE:USO) is a commodity pool that issues limited partnership interests (shares) traded on the NYSE Arca, Inc. The investment objective of USO is for changes in percentage terms of its shares’ per share net asset value (NAV) to reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract for light, sweet crude oil traded on the New York Mercantile Exchange (the NYMEX). The Company’s general partner is United States Commodity Funds LLC. The net assets of USO consist primarily of investments in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other the United States and foreign exchanges.

Here is an interesting graph of money manager positions on NYMEX WTI (only NYMEX and only WTI):

The key question here is: "To what extent oil is still a commodity, and to what extent it is now yet another "virtual currency" subject to standard currency attacks ?" Naked selling of oil futures via shorting of OIL ETFs is not only possible, but highly profitable path for such attacks (4 Ways to Short Oil with ETFs - May 16, 2013 - Zacks.com).  All those tricks are possible due to free convertibility to US dollars, which unlike oil do not have any Earth-based limitations as for quantity and, what is more important, quality (gas liquids and shale oil are not equivalent to "classic' oil and refining of them produce mainly gasoline, instead of full spectrum of products; they should be considered "oil substitutes" and counted separately). And small amount injected in ETF can move spot oil market vary efficiently. So tail can wag the dog.

Who finance such attacks as losses can be substantial is an interesting question the answer on which I do not know, but recent behaviour of oil prices is typical for a currency attack as data about real oil extraction does not produce any optimism as for elimination of "peal cheap oil" phenomenon. But for speculators and gulling retail investors this does not matter. Casino is a casino. What is interesting the US MSM produce highly deceptive and well coordinated picture suggesting that there is government involvement in the whole scheme ( see below Russia sanctions section).

All those talks about crisis of overproduction are suspect. To a certain extent this might be a factor  due to slowing down of China economy and perma recession in the USA along with better small cars efficiency. But it is impossible to hide the fact that it was Saudi Arabia that decided to lower the oil prices and started to move in this direction ( An Oil Price 'Cold War' With Saudi Arabia Experts Disagree - US News) much like that did to economically crash the USSR in late 80th, early 90th.  I think that talk about attack on the USA shale industry does not make much sense, as Saudi Arabia is a vassal state and such move is punishable for a vassal:

Some experts declared it the start of a “cold war” with Saudi Arabia, as described by two University of Texas professors in an op-ed in the Dallas Morning News. Other analysts, however, contend that the Saudis are merely trying to defend against other exporters to the U.S.

“There’s another conflict brewing in the Middle East — the intensifying oil battle between Saudi Arabia and Texas,” Isaac Barchas and Michael Webber, who teach at the University of Texas at Austin, wrote in the op-ed.

As Webber, deputy director of the university's Energy Institute, describes to U.S. News, "Ford versus GM, Dell versus Apple: these are big companies duking it out for market share. Why would it be any different for oil. Is it a military war? No. But it's a market share war."

There are three main parts to his and Barchas' argument:

  1. Hydraulic fracturing, or fracking, has unleashed an energy boom here in the U.S., reducing net crude oil and petroleum product imports to their lowest levels since 1987.
  2. With more oil now available on the market, combined with a sluggish global economy that’s reduced demand in Europe and China, benchmark Brent crude oil prices have fallen by roughly 27 percent since June – their lowest point in four years.
  3. Saudi Arabia, the U.S's.second-largest source of imported oil behind Canada, is trying to retain its market share by undercutting American producers. The goal: drive down prices far enough to scare away Wall Street investors or simply make fracking unprofitable, forcing U.S. companies to take their drill rigs offline to reduce supply and clearing the way for more Saudi oil imports.

As Chip Register, managing director of consulting firm Sapient Global Markets asserted in a blog post on Forbes, “The Saudis have put a bull’s-eye on the U.S. shale industry.”

Other experts, however, expressed strong skepticism with this view.

“It’s not a personalized attack,” Steven Kopits, managing director of the consulting firm Princeton Energy Advisors, says of the Saudi discount. “Saudi Arabia is looking out for its own interests, not trying to undermine other people’s interests.” 

Jan Kalicki, public policy scholar and energy lead at The Wilson Center, a nonpartisan think tank, agrees.

“Any real impact on shale in the U.S. is going to require more than a price adjustment of this kind," he says.

U.S. shale fields can start and stop production relatively quickly. Technological advances, meanwhile, have sharply lowered the break-even point – no longer does fracking rank as one of the most expensive forms of oil production. It can still turn a profit at current prices of $80 a barrel, but depending on the type of well, fracking operations might even be able make money at prices as low as $55 a barrel.

Hence, “trying to apply predatory pricing in the oil business will only work in the very short run, if at all,” says Paul Sullivan, economics professor at National Defense University.

I think here the target is probably Russia. Telegraph reported  that Saudis offer Russia secret oil deal if it drops Syria - Telegraph

The revelations come amid high tension in the Middle East, with US, British, and French warship poised for missile strikes in Syria. Iran has threatened to retaliate.

The strategic jitters pushed Brent crude prices to a five-month high of $112 a barrel. “We are only one incident away from a serious oil spike. The market is a lot tighter than people think,” said Chris Skrebowski, editor of Petroleum Review.

Leaked transcripts of a closed-door meeting between Russia’s Vladimir Putin and Saudi Prince Bandar bin Sultan shed an extraordinary light on the hard-nosed Realpolitik of the two sides.

Prince Bandar, head of Saudi intelligence, allegedly confronted the Kremlin with a mix of inducements and threats in a bid to break the deadlock over Syria. “Let us examine how to put together a unified Russian-Saudi strategy on the subject of oil. The aim is to agree on the price of oil and production quantities that keep the price stable in global oil markets,” he said at the four-hour meeting with Mr Putin. They met at Mr Putin’s dacha outside Moscow three weeks ago.

“We understand Russia’s great interest in the oil and gas in the Mediterranean from Israel to Cyprus. And we understand the importance of the Russian gas pipeline to Europe. We are not interested in competing with that. We can cooperate in this area,” he said, purporting to speak with the full backing of the US.

Oil futures

Oil ETNs such USO or OIL does not have any intrinsic value. They are based on oil futures. Like is that case with currency future contracts, empirical studies suggest, not only is the oil futures price a biased estimate of the future spot price, but more often  it even gets the direction wrong. If the futures price suggests the oil will depreciate, it can well appreciate instead. In addition you can buy or sell options on oil making this commodity a real paradise for speculators.

Speculators definitely have expectations about the future oil spot price.  But often they demonstrate herd behavior driving the price to extremes as trading futures is trading "virtual oil" (futures are settled in dollars, never in actual commodity). This is especially true about short selling which can drive oil to really unprofitable for all major producers price. Recently they manage to drive it to less then $40 a barrel, the price at which only selected low cost producers can get the oil form the ground (to say nothing to invest in additional exploration or pay the cost of infrastructure and such). You ability to see oil short via specialized ETF or other means is limited only by your dollar reserves and the availability of counter party (and you can play certain games with this counterparty issue). 

Here is example of prices on Aug 31, 2015 (which also is a nice demonstration of dramatic dynamics that is possible in a single day) :

Chart Current Session Prior Day Opt's
Open Time Set Chg Vol Set Op Int
Oct'15 45.00 19:28
Aug 31
49.20
3.98 719704 45.22 440212 Call Put
Nov'15 45.69 19:28
Aug 31
49.93
3.95 137067 45.98 215025 Call Put
Dec'15 46.57 19:29
Aug 31
50.77
3.91 162736 46.86 243840 Call Put
Jan'16 47.50 19:28
Aug 31
51.63
3.91 57430 47.72 102471 Call Put
Feb'16 47.50 19:28
Aug 31
52.38
3.93 38475 48.45 50167 Call Put
Mar'16 48.25 19:29
Aug 31
52.98
3.92 38170 49.06 73615 Call Put
Apr'16 48.75 19:29
Aug 31
53.47
3.86 14106 49.61 25925 Call Put
May'16 48.99 19:28
Aug 31
53.85
3.76 7934 50.09 23357 Call Put
Jun'16 49.86 19:28
Aug 31
54.16
3.64 44230 50.52 103798 Call Put
Jul'16 50.29 19:28
Aug 31
54.38
3.53 3938 50.85 21832 Call Put
Aug'16 50.03 19:28
Aug 31
54.61
3.42 2511 51.19 16337 Call Put
Sep'16 50.72 19:28
Aug 31
54.87
3.31 8091 51.56 42572 Call Put
Oct'16
-
19:28
Aug 31
55.16
3.20 1164 51.96 17226 Call Put
Nov'16
-
19:28
Aug 31
55.48
3.11 1038 52.37 17809 Call Put
Dec'16 52.59 19:28
Aug 31
55.81
3.02 56618 52.79 133005 Call Put
Jan'17
-
19:28
Aug 31
56.05
2.94 598 53.11 14894 Call Put
Feb'17
-
19:29
Aug 31
56.31
2.87 277 53.44 8034 Call Put
Mar'17 55.45 19:29
Aug 31
56.59
2.81 988 53.78 9195 Call Put
Apr'17
-
19:28
Aug 31
56.85
2.75 465 54.10 3543 Call Put
May'17
-
19:29
Aug 31
57.08
2.69 435 54.39 2930 Call Put
Jun'17 53.69 19:29
Aug 31
57.34
2.64 5669 54.70 21475 Call Put
Jul'17 56.32 19:28
Aug 31
57.55
2.60 143 54.95 3120 Call Put
Aug'17
-
19:29
Aug 31
57.81
2.57 48 55.24 1760 Call Put
Sep'17
-
19:28
Aug 31
58.11
2.56 71 55.55 3982 Call Put
Oct'17
-
19:28
Aug 31
58.41
2.54 15 55.87 1184 Call Put
Nov'17
-
19:28
Aug 31
58.73
2.53 15 56.20 1270 Call Put
Dec'17 55.75 19:28
Aug 31
59.05
2.51 9588 56.54 44135 Call Put
Jan'18
-
19:28
Aug 31
59.21
2.49
-
56.72 1532 Call Put
Feb'18
-
19:28
Aug 31
59.38
2.46
-
56.92 312 Call Put
Mar'18
-
19:28
Aug 31
59.57
2.43
-
57.14 2688 Call Put
Apr'18
-
19:29
Aug 31
59.77
2.40
-
57.37 63 Call Put
May'18
-
19:28
Aug 31
59.98
2.37
-
57.61 516 Call Put
Jun'18
-
19:29
Aug 31
60.21
2.34 226 57.87 3700 Call Put
Jul'18
-
19:28
Aug 31
60.35
2.30
-
58.05 296 Call Put
Aug'18
-
19:28
Aug 31
60.52
2.27
-
58.25 61 Call Put
Sep'18
-
19:28
Aug 31
60.69
2.23
-
58.46 461 Call Put
Oct'18
-
19:28
Aug 31
60.87
2.20
-
58.67 61 Call Put
Nov'18
-
19:28
Aug 31
61.05
2.16
-
58.89 311 Call Put
Dec'18 58.54 19:28
Aug 31
61.24
2.12 2002 59.12 19416 Call Put
Jan'19
-
19:28
Aug 31
61.35
2.10
-
59.25 204 Call Put
Feb'19
-
19:28
Aug 31
61.48
2.08
-
59.40 4 Call Put
Mar'19
-
19:28
Aug 31
61.62
2.06
-
59.56 454 Call Put
Apr'19
-
19:28
Aug 31
61.78
2.04
-
59.74 4 Call Put
May'19
-
19:28
Aug 31
61.96
2.02
-
59.94 4 Call Put
Jun'19
-
19:28
Aug 31
62.15
2.00
-
60.15 1185 Call Put
Jul'19
-
19:28
Aug 31
62.20
1.98
-
60.22 5 Call Put
Aug'19
-
19:28
Aug 31
62.29
1.96
-
60.33 4 Call Put
Sep'19
-
19:28
Aug 31
62.41
1.94
-
60.47 4 Call Put
Oct'19
-
19:28
Aug 31
62.55
1.92
-
60.63 4 Call Put
Nov'19
-
19:28
Aug 31
62.72
1.90
-
60.82 104 Call Put
Dec'19
-
19:28
Aug 31
62.93
1.88 158 61.05 6628 Call Put
Jan'20
-
19:29
Aug 31
63.00
1.86
-
61.14
-
Call Put
Feb'20
-
19:29
Aug 31
63.08
1.84
-
61.24
-
Call Put
Mar'20
-
19:28
Aug 31
63.17
1.82
-
61.35
-
Call Put
Apr'20
-
19:28
Aug 31
63.28
1.80
-
61.48
-
Call Put
May'20
-
19:28
Aug 31
63.41
1.78
-
61.63
-
Call Put
Jun'20
-
19:28
Aug 31
63.56
1.76
-
61.80
-
Call Put
Jul'20
-
19:28
Aug 31
63.57
1.74
-
61.83
-
Call Put
Aug'20
-
19:28
Aug 31
63.62
1.72
-
61.90
-
Call Put
Sep'20
-
19:29
Aug 31
63.70
1.70
-
62.00
-
Call Put
Oct'20
-
19:29
Aug 31
63.83
1.68
-
62.15
-
Call Put
Nov'20
-
19:28
Aug 31
63.97
1.66
-
62.31
-
Call Put
Dec'20 64.00 19:28
Aug 31
64.14
1.64 14 62.50 1935 Call Put
Jun'21
-
19:28
Aug 31
64.59
1.57
-
63.02
-
Call Put
Dec'21
-
19:28
Aug 31
65.04
1.50 1 63.54 440 Call Put
Jun'22
-
19:28
Aug 31
65.34
1.50
-
63.84
-
Call Put
Dec'22
-
19:28
Aug 31
65.64
1.50
-
64.14 180 Call Put
Jun'23
-
19:29
Aug 31
65.64
1.50
-
64.14
-
Call Put

Is this  the mixture of overproduction crisis and intelligence operation with unforeseen side effects (blowback)

If we assume that the current event are a complex mixture of overproduction crisis, secular stagnation and intelligence operation with the goal to squeeze Russia (and as a side effect hurt Iran revenues)  that we should expect it lasting for several years, enough to destroy the opponents economically. So changes of recovering of oil prices in 2016 from this point of view are slip. For Russia this is a double blow as oil prices also affect natural gas prices. And it is true that Russian leadership were completely unprepared to this course of events, so the damage is great and real. As noted "Obama’s foreign policy goals get a boost from plunging oil prices" (Washingtonpost, Dec 23, 2015):

Plunging crude oil prices are diverting hundreds of billions of dollars away from the treasure chests of oil-exporting nations, putting some of the United States’ adversaries under greater stress.

After two years of falling prices, the effects have reverberated across the globe, fueling economic discontent in Venezuela, changing Russia’s economic and political calculations, and dampening Iranian leaders’ hopes of a financial windfall when sanctions linked to its nuclear program will be lifted next year.

At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration’s foreign policy goals: pressuring Russian President Vladi­mir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States.

https://www.washingtonpost.com/business/economy/as-crude-oil-prices-plunge-so-do-oil-exporters-revenue-hopes/2015/12/23/ed552372-a900-11e5-8058-480b572b4aae_story.html?hpid=hp_hp-top-table-main_oil-910pm%3Ahomepage%2Fstory

But there are some visible side effect, with some probably not well anticipated:

All that means that dramatic drop in oil prices is a mixed blessing. Mike Whitney lists several other factors( Oil Price Blowback , Jan 6, 2015, Counterpunch)

Up to now, of course, Russia, Iran and Venezuela have taken the biggest hit, but that will probably change as time goes on. What the Obama administration should be worried about is the second-order effects that will eventually show up in terms of higher unemployment, market volatility, and wobbly bank balance sheets. That’s where the real damage is going to crop up because that’s where red ink and bad loans can metastasize into a full-blown financial crisis. Check out this blurb from Nick Cunningham at Oilprice.com and you’ll see what I mean:

“According to an assessment from the Federal Reserve Bank of Dallas, an estimated 250,000 jobs across eight U.S. states could be lost in 2015 if oil prices don’t rise. More than 50 percent of those job losses would occur in Texas, which leads the nation in oil production.

There are some early signs that a slowdown in drilling could spread to the manufacturing sector in Texas… One executive at a metal manufacturing company said in the survey, “the drop in crude oil prices is going to make things ugly… quickly.” Another company that manufactures machinery told the Dallas Fed, “Low oil prices will drive reductions in U.S. drilling rigs, which will in turn reduce the market for our products.”

The sentiment was similar for a chemical manufacturer, who said “lower oil prices will adversely impact margins. Energy volatility will cause our customers to keep inventories tight.”

States like Texas, North Dakota, Oklahoma, and Louisiana have seen their economies boom over the last few years as oil production surged. But the sector is now deflating, leaving gashes in employment rolls and state budgets.” (Low Prices Lead To Layoffs In The Oil Patch, Nick Cunningham, Oilprice.com)

Of course industries lay-off workers all the time and it doesn’t always lead to a financial crisis. But unemployment is just one part of the picture, lower personal consumption is another. Take a look:

“Falling oil prices are a bigger drag on economic growth than the incremental “savings” received by the consumer…..Another way to show this graphically is to look at the annual changes in Personal Consumption Expenditures (PCE) in aggregate as compared to the subsection of PCE spent on energy and related products. This is shown in the chart below.

Lower Energy Prices To Lower PCE (Personal Consumption Expenditures):

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(The Gasoline Price Myth, Lance Roberts, oilprice.com)

See? So despite what you might have read in the MSM, lower gas prices do not translate into greater personal consumption or more robust growth. Quiet the contrary, they tend to intensify deflationary pressures and reduce activity which is a damper on growth.

Then there’s the knock-on effects that crashing prices and layoffs have on other industries like mining, manufacturing and chemical production. Here’s more from Oil Price:

“Oil and gas production makeup a hefty chunk of the “mining and manufacturing” component of the employment rolls. Since 2000, when the oil price boom gained traction, Texas has comprised more than 40% of all jobs in the country according to first quarter data from the Dallas Federal Reserve…

The majority of the jobs “created” since the financial crisis have been lower wage paying jobs in retail, healthcare and other service sectors of the economy. Conversely, the jobs created within the energy space are some of the highest wage paying opportunities available in engineering, technology, accounting, legal, etc. In fact, each job created in energy related areas has had a “ripple effect” of creating 2.8 jobs elsewhere in the economy from piping to coatings, trucking and transportation, restaurants and retail….

The obvious ramification of the plunge in oil prices is that eventually the loss of revenue will lead to cuts in production, declines in capital expenditure plans (which comprise almost 1/4th of all capex expenditures in the S&P 500), freezes and/or reductions in employment, and declines in revenue and profitability…

Simply put, lower oil and gasoline prices may have a bigger detraction on the economy than the “savings” provided to consumers.” (The Gasoline Price Myth, Lance Roberts, oilprice.com)

None of this sounds very reassuring, does it? And yet, all we hear from the media is how the economy is going to reach “escape velocity” on the back of cheap oil. Nonsense. This is just more “green shoots” baloney wrapped in public relations hype. The fact is, the economy needs the good-paying jobs more than it needs low-priced energy. But now that prices are tumbling, those jobs are going to disappear which is going to be a drag on growth.

Now check out these headlines I picked up on Google News that help to show what’s going on off the radar:

Measuring oil production and consumption: BBL,  MMbbl and Mb/d

In a way the USA (along with Canada) is an exceptional (read backward) country which still was unable (or more correctly unwilling) to switch to metric system.  In the USA oil production and  consumption by volume is usually measured in  barrels (BBL). One BBL equals 42 US gallons  or approximately 159 liters; 6.29 barrels equal one cubic meter and (on average) 7.33 barrels weigh one metric ton (1000 kilograms). Energy-wise one barrel of crude approximately equals 5604 cubic-feet of natural gas, 1.45 barrels of liquefied natural gas (LNG), or about one barrel of gas condensate.

When converting volume measures into weight measures a coefficient based on so called API gravity  is used. The latter is a measure of how heavy or light a petroleum liquid is compared to water: if its API gravity is greater than 10, it is lighter and floats on water; if less than 10, it is heavier and sinks. In other words this is a measure that is inverse of density. Although mathematically, API gravity is a dimensionless value,  for historical reasons it is measures in 'degrees' like angles. In this case this is degrees on a hydrometer instrument. API gravity values of most petroleum liquids fall between 10 and 70 degrees. From Wikipedia:

Crude oil is classified as light, medium, or heavy according to its measured API gravity.

Crude oil with API gravity less than 10° is referred to as extra heavy oil or bitumen. Bitumen derived from oil sands deposits in Alberta, Canada, has an API gravity of around 8°. It can be diluted with lighter hydrocarbons to produce diluted bitumen, which has an API gravity of less than 22.3°, or further "upgraded" to an API gravity of 31 to 33° as synthetic crude.[7]

Oil companies that are listed on American stock exchanges typically report their production in thousand or million barrels. Abbreviations like Mbbl (one thousand barrels), or MMbbl (one million barrels) are used. Often Mb/d is used instead of MMbbl per day.  This actually preferable notation that is used in this page.

As density of the oil varies it is not that easy to convert one metric into another for example volume into weight  as the following quote illustrates (Open Thread, Oil and Gas - Peak Oil Barrel ):

One problem is the estimate of Russian average barrels per metric ton, often it is assumed that this is 7.3 or 7.33 barrels per metric ton. If 7.33 barrels per ton is correct the average API gravity would be 33.4 degrees.

The Urals blend is about 31.7 degrees API or 7.25 barrels per metric ton.

On political motives for reporting less Russian output, possibly the US government wants the sanctions to affect Russian oil output and has some influence on what is reported by the EIA. Likewise the Russian government wants to show that sanctions are not affecting them and might influence the Russian oil ministry to report higher output.

Possibly this could happen or the average API gravity of Russian output may be different than we think, if API gravity is 31.7 degrees (Urals blend) then output in April would have been 10.55 Mb/d, JODI had about 10.1 Mb/d in April.

AlexS showed that the NGL numbers reported by the EIA and Jodi may be about 350 kb/d too high (perhaps some condensate is being included in NGL that should be part of C+C output). If we added 350 kb/d to JODI’s April 2015 estimate of C+C output we get about 10.45 Mb/d for Russia, now the difference is only 100 kb/d, take the average and call it 10.5 Mb/d+/- 50 kb/d. That is a better explanation than “politics” in my opinion.

Great Condensate Con: What liquids are counted as oil in statistical reports such as EIA

There are several different liquids that are usually counted as oil.  Three major are crude, condensate and Natural Gas Liquids. The total all three is often counted as would oil production which now is over 90 Mb/d. But by how much nobody knows. The EIA reports crude plus condensate  as "oil".  EIA has total world production of Crude Oil, NGPL, and Other Liquids at 93,770,000 barrels per day in June 2015.  This type of reporting provides oil traders with wrong data and was called "Great condensate con" :

Lease condensate consists of very light hydrocarbons which condense from gaseous into liquid form when they leave the high pressure of oil reservoirs and exit through the top of an oil well. This condensate is less dense than oil and can interfere with optimal refining if too much is mixed with actual crude oil. The oil industry's own engineers classify oil as hydrocarbons having an API gravity of less than 45--the higher the number, the lower the density and the "lighter" the substance. Lease condensate is defined as hydrocarbons having an API gravity between 45 and 70. (For a good discussion about condensates and their place in the marketplace, read "Neither Fish nor Fowl – Condensates Muscle in on NGL and Crude Markets.")

Refiners are already complaining that so-called "blended crudes" contain too much lease condensate, and they are seeking out better crudes straight from the wellhead. Brown has dubbed all of this the great condensate con.

Brown points out that U.S. net crude oil imports for December 2015 grew from the previous December, according to the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy. U.S. statistics for crude oil imports include condensate, but don't break out condensate separately. Brown believes that with America already awash in condensate, almost all of those imports must have been crude oil proper.

Brown asks, "Why would refiners continue to import large--and increasing--volumes of actual crude oil, if they didn’t have to--even as we saw a huge build in [U.S.] C+C [crude oil plus condensate] inventories?"

Part of the answer is that U.S. production of crude oil has been declining since mid-2015. But another part of the answer is that what the EIA calls crude oil is actually crude plus lease condensate. With huge new amounts of lease condensate coming from America's condensate-rich tight oil fields -- the ones tapped by hydraulic fracturing or fracking -- the United States isn't producing quite as much actual crude oil as the raw numbers would lead us to believe. This EIA chart breaking down the API gravity of U.S. crude production supports this view.

Exactly how much of America's and the world's presumed crude oil production is actually condensate remains a mystery. The data just aren't sufficient to separate condensate production from crude oil in most instances.

Brown explains: "My premise is that U.S. (and probably global) refiners hit in late 2014 the upper limit of the volume of condensate that they could process" and still maintain the product mix they want to produce. That would imply that condensate inventories have been building faster than crude inventories and that the condensate is looking for an outlet.

That outlet has been in blended crudes, that is heavier crude oil that is blended with condensates to make it lighter and therefore something that fits the definition of light crude. Light crude is generally easier to refine and thus more valuable.

The trouble is, the blends lack the characteristics of nonblended crudes of comparable density (that is, the same API gravity), and refiners are discovering to their chagrin that the mix of products they can get out of blended crudes isn't what they expect.

So, now we can try to answer our questions. Brown believes that worldwide production of condensate "accounts for virtually all of the post-2005 increase in C+C [crude plus condensate] production." What this implies is that almost all of the 4 million-barrel-per-day increase in world "oil" production from 2005 through 2014 may actually be lease condensate. And that would mean crude oil production proper has been nearly flat during this period -- a conjecture supported by record and near record average daily prices for crude oil from 2011 through 2014. Only when demand softened in late 2014 did prices begin to drop.

Here it is worth mentioning that when oil companies talk about the price of oil, they are referring to the price quoted on popular futures exchanges -- prices which reflect only the price of crude oil itself. The exchanges do not allow other products such as condensates to be mixed with the oil that is delivered to holders of exchange contracts.

But when oil companies (and governments) talk about oil supply, they include all sorts of things that cannot be sold as oil on the world market including biofuels, refinery gains and natural gas plant liquids as well as lease condensate. Which leads to a simple rule coined by Brown: If what you're selling cannot be sold on the world market as crude oil, then it's not crude oil.

The glut that developed in 2015 may ultimately be tied to some increases in actual, honest-to-god crude oil production. The accepted story from 2005 through 2014 has been that crude oil production has been growing, albeit at a significantly slower rate than the previous nine-year period--15.7 percent from 1996 through 2005 versus 5.4 percent from 2005 through 2014 according to the EIA. If Brown is right, we have all been victims of the great condensate con which has lulled the world into a sense of complacency with regard to actual oil supplies--supplies he believes have been barely growing or stagnant since 2005.

"Oil traders are acting on fundamentally flawed data," Brown told me by phone. Often a contrarian, Brown added: "The time to invest is when there's blood in the streets. And, there's blood in the streets."

He explained: "Who of us in January of 2014 believed that prices would be below $30 in January of 2016? If the conventional wisdom was wrong in 2014, maybe it's similarly wrong in 2016" that prices will remain low for a long time.

Brown points out that it took trillions of dollars of investment from 2005 through today just to maintain what he believes is almost flat production in oil. With oil companies slashing exploration budgets in the face of low oil prices and production declining at an estimated 4.5 and 6.7 percent per year for existing wells worldwide, a recovery in oil demand might push oil prices much higher very quickly.

That possibility is being obscured by the supposed rise in crude oil production in recent years that may just turn out to be an artifact of the great condensate con.

 

But counting such a diverse group of liquids is impossible without substantial errors in each category. That mean that the error margin of and global production figure has margin or error around  +- 0.5% or even 1% or one Mb/d.  for example amount of oil produced and pumped to the surface at wellhead is different and greater that amount of oil that got to refineries (which along with chemical plants are major consumers) because of losses during transportation and evaporation or light fractions in case weather is hot during the period before oil is processed at refinery or chemical plant.  Also there are differences in reporting and errors in measuring oil density by various countries, difficulties of converting weight into volume and vice versa, etc.  There are also large differences in reporting between agencies ( aspofrance.viabloga.com)

Reporting of small producers (and small producer countries) is often very fuzzy and here various games can be and often are played with those report with compete impunity, if you have some agenda.  So any analyst who take published by agencies figures  as precise amount produced accuracy equal to five meaningful digits is iether idiot or crook. Only first three digits  probably can be countered as meaningful. In no way the forth digit is.  If the analyst is talking about "oil glut" based on those figures he/she is definitely a crook ;-). 

Now you understand that all talk about 1Mb/d glut is very suspect.

Que Bono and Wall Street HFT games with oil futures

Low oil prices are essentially a crime against humanity as oil is exhaustible resources and burning it now in oversized SUVs means depriving of fuel and extremely important important for chemical industry commodity future generations. So the question is "que bono"

From this point if view (which is a standard starting point of any crime investigation) the origin of low oil prices lies probably in Wall Street  which capitalized on the US government desire to hurt Russian economy, Saudi machinations (with Saudis as a partner in this crime ;-) related to thier declining market share in oil market.

It is not that difficult on the level of Wall street cguant to play the short game for a long time,  skillfully dropped the market prices by exploiting rumores, and with the help of MSM distorting statistics (just read a typical CNBC article to feel the level of crap they are trying to infuse in readers), exploiting Saudi desire to preserve market share combined with temporary oil overproduction. Temporary overproduction due to the period of oil prices over $100, when everybody and his brother in the USA were trying to discover and drill new shale well and convert junk bonds into flow of oil trying to get rich in such supposlydly lucrative market. 

World production at the same time stagnated. Russia exports are actually in decline for many years. After all Libya production now is off the market, due to destruction of their country and subsequent civil war caused by French intervention in alliance with the USA, Qatar and several other mid-eastern countries. If you analyze the US press the bias toward lower oil prices is  evident. 

 

Production by country and total world production

Estimated average world daily production of 95.71  Mb/d for 2015 ( (Jan 12, 2016 forecast) exceeds EIA’s Annual Energy Outlook 2015 forecast (April 2015) by 2.6 Mb/d! so much for EIA forecasting abilities.

For 2016 IEA predicts 95.93 (Jan 12, 2016 forecast) and for 2017 96.69 (also  Jan 12, 2016 forecast)

OPEC predictions were 94.5 Mb/d for 2015 (December 2015  forecast) with growth in 2020 to 97.6 (it presupposes investment of  around $250 billion each year in non OPEC countries and $40 billions annually by OPEC countries; money that with current oil prices are nowhere to come by):

In the downside supply scenario, 3.3 mb/d from non-OPEC supply is assumed to be lost by 2040 with respect to the Reference Case.

Oil production is highly concentrated.  The top dozen of out of 100 oil-producing countries accounted for over 73% of the world's oil production. The top three (Russia, Saudi Arabian and the USA) account for almost 40%. 

Here is a chart from  Bloomberg Business

Iraq and Iran are also large and important players but currently  they are definitely the second tier players.  That might change in the future.

Now what will (most probably) happen in 2016 with the major players

Now let's discuss Iran and Iraq

All three major oil producers (troika) are severely affected by the oil price slump, but for the USA as one of the largest world oil importers it is a mixed blessing (destruction of shale  industry and connected with it jobs is just a collateral damage for approximately $200 billion stimulus due to lower prices.

For the Russia and Saudis this is a huge negative development which  leads to unbalanced budgets (especially for Saudies who need $100 oil to balance the budget and  lost $100 billions of their foreign reserves in 2015) and depletion  of currency reserves (more for Saudis then Russia, but Saudis had bigger currency reserves and can benefit from being a vassal of the USA by commanding a higher prices for state assets in fire sale). 

All-in-all around 100 countries produce oil with top three producing around 40%,  and the top ten over 63% of the world's oil production.

According to International Energy Agency (EIA), in 2011 the top ten oil-producing countries accounted for over 63% of the world's oil production.[2] As of November 2012, Russia produced 10.9 million barrels of crude per day, while Saudi Arabia produced 9.9 million barrels.[3]

Top oil producers: According to EIA top 10 oil producer countries produced over 64 % of the world oil production in 2012. The top oil producers in 2012 were: Russia 544 Mt (13 %), Saudi Arabia 520 Mt (13 %), United States 387 Mt (9 %), China 206 Mt (5%), Iran 186 Mt (4 %), Canada 182 Mt (4 %), United Arab Emirates 163 Mt (4 %), Venezuela 162 Mt (4 %), Kuwait 152 Mt (4 %) and Iraq 148 Mt (4 %). In 2012 total oil production was 4,142 Mt. [4] In 2011 the world oil production was 4,011 Mt demonstrating an annually rising trend in oil production.[5]

  Country Production (bbl/day) Production (MT) Share of
World %
Date of
Information
 World 84,951,200 10,194 100% 2014 est. Peak Production
1 Russia 10,107,000 1212 14.05% 3/2015.[6] 10,107,000 (3/2015)
2 Saudi Arabia 9,735,200 1168 13.09% 12/2014.[6] 9,900,000 (1/1980)
3 United States 9,373,000 1124 12.23% 4/2015.[6] 9,610,000 (6/2015)
4 China 4,189,000 502 5.15% 5/2015.[6] 4,189,000 (5/2015)
5 Canada 3,603,000   4.54% 12/2014.[6] 3,603,000 (1/2015)
6 Iraq 3,368,000   4.45% 5/2015.[6] 3,368,000 (5/2015)
7 Iran 3,113,000   4.14% 12/2014.[6] 6,060,000 (1/1974)
8 United Arab Emirates 2,820,000   3.32% 12/2014.[6] 2,820,000 (1/2013)
9 Kuwait 2,619,000   2.96% 12/2014.[6] 2,650,000 (1/2013)
10 Mexico 2,562,000   3.56% 12/2014.[6] 3,476,000 (1/2004)
11 Venezuela 2,501,000   3.56% 12/2014.[6] 3,280,000 (1/1997)
12 Nigeria 2,423,000   2.62% 12/2014.[6] 2,627,000 (1/2005)
13 Brazil 2,255,000   3.05% 12/2014.[6] 2,255,000 (1/2015)
14 Angola 1,831,000   2.31% 12/2014.[6] 1,946,000 (1/2008)
15 Kazakhstan 1,573,000   1.83% 12/2014.[6]
16 Qatar 1,553,000   1.44% 12/2014.[6]
17 Norway 1,539,000   2.79% 12/2014.[6]
18 Algeria 1,462,000   2.52% 12/2014.[6]
19 Colombia 1,003,000   1.19% 12/2014.[6]
20 Oman 940,000   0.95% 12/2014.[6]
21 Azerbaijan 871,000   1.20% 12/2014.[6]
22 Indonesia 828,000   1.66% 12/2014.[6]
23 United Kingdom 801,000   1.78% 12/2014.[6]
24 India 772,000   1.04% 12/2014.[6]
25 Malaysia 570,000   0.82% 12/2014.[6]
26 Argentina 540,000   0.93% 12/2014.[6]
27 Ecuador 526,000   0.58% 12/2014.[6]
28 Egypt 514,000   0.80% 12/2014.[6]
29 Libya 470,000   0.85% 5/2015.[6]
30 Australia 338,000   0.70% 12/2014.[6]
31 Vietnam 337,000   0.36% 12/2014.[6]
32 Equatorial Guinea 270,000   0.41% 12/2014.[6]
33 Congo, Republic of the 265,000   0.33% 12/2014.[6]
34 Sudan 259,000   0.13% 12/2014.[6]
35 Thailand 241,000   0.45% 12/2014.[6]
36 Gabon 239,000   0.29% 12/2014.[6]
37 Turkmenistan 229,000   0.22% 12/2014.[6]
38 Denmark 175,000   0.31% 12/2014.[6]
39 Yemen 131,000   0.34% 12/2014.[6]
40 Brunei 112,000   0.17% 12/2014.[6]
41 Italy 106,000   0.17% 12/2014.[6]
42 Ghana 105,000   0.01% 12/2014.[6]
43 Chad 98,000   0.13% 12/2014.[6]
44 Romania 85,000   0.14% 12/2014.[6]
45 Trinidad and Tobago 81,000   0.18% 12/2014.[6]
46 Pakistan 81,000   0.16% 12/2014.[6]
47 Cameroon 81,000   0.09% 12/2014.[6]
48 Timor-Leste 79,000   0.11% 12/2014.[6]
49 Peru 69,000   0.17% 12/2014.[6]
50 Uzbekistan 65,000   0.08% 12/2014.[6]
51 Tunisia 55,000   0.11% 12/2014.[6]
52 Germany 52,000   0.19% 12/2014.[6]
53 Bolivia 51,000   0.06% 12/2014.[6]
54 Bahrain 50,000   0.06% 12/2014.[6]
55 Cuba 50,000   0.06% 12/2014.[6]
56 Turkey 48,000   0.06% 12/2014.[6]
57 Ukraine 41,000   0.12% 12/2014.[6]
58 New Zealand 40,000   0.07% 12/2014.[6]
59 Ivory Coast 36,000   0.07% 12/2014.[6]
60 Papua New Guinea 34,000   0.04% 12/2014.[6]
61 Belarus 30,000   0.04% 12/2014.[6]
62 Netherlands 28,000   0.07% 12/2014.[6]
63 Syria 23,000   0.48% 12/2014.[6]
64 Philippines 21,000   0.02% 12/2014.[6]
65 Albania 21,000   0.01% 12/2014.[6]
66 Mongolia 21,000   0.01% 12/2014.[6]
67 Burma 20,000   0.02% 12/2014.[6]
68 Congo, Democratic Republic of the 20,000   0.02% 12/2014.[6]
69 Poland 19,000   0.04% 12/2014.[6]
70 Austria 17,000   0.03% 12/2014.[6]
71 France 15,000   0.08% 12/2014.[6]
72 Suriname 15,000   0.07% 12/2014.[6]
73 Serbia 12,000   0.01% 12/2014.[6]
74 Hungary 11,000   0.03% 12/2014.[6]
75 Guatemala 10,000   0.02% 12/2014.[6]
76 Croatia 10,000   0.03% 12/2014.[6]
77 Chile 7,000   0.01% 12/2014.[6]
78 Mauritania 7,000   0.02% 12/2014.[6]
79 Spain 6,000   0.03% 12/2014.[6]
80 Japan 5,000   0.16% 12/2014.[6]
81 South Africa 4,000   0.22% 12/2014.[6]
82 Bangladesh 4,000   0.01% 12/2014.[6]
83 Czech Republic 3,000   0.01% 12/2014.[6]
84 Lithuania 2,000   0.01% 12/2014.[6]
85 Belize 2,000   0.00% 12/2014.[6]
86 Bulgaria 1,000   0.00% 12/2014.[6]
87 Georgia 1,000   0.00% 12/2014.[6]
88 Kyrgyzstan 1,000   0.00% 12/2014.[6]
89 Barbados 1,000   0.00% 12/2014.[6]
90 Greece 1,000   0.00% 12/2014.[6]

Global oil production has been split into three geo-political categories: 1) USA and Canada, 2) OPEC and 3) the Rest of the World (RoW). RoW production bears the hallmarks of having peaked in the period 2005 to 2010 and this has consequences for oil prices, demand and prosperity in parts of the world, especially the OECD. Most of the growth in oil supply has been in the USA and Canada where the market has been flooded with expensive oil.

Here are the data for crude oil + condensate + natural gas liquids (C+C+NGL) and exclude biofuels and refinery gains that are included by the EIA in their total liquids number.

The 1.1 million bpd gain in US oil production was the largest year over year gain for any country in 2013, and the largest gain in US history. Mostly due to shale oil. The US remained the world’s third-largest oil producer at 10 million bpd in 2013, trailing Saudi Arabia’s 11.5 million bpd and Russia’s 10.8 million bpd. Rounding out the top five were China (4.2 million bpd) and Canada (3.9 million bpd).

Just to put the current US oil boom into further perspective, over the past five years global oil production has increased by 3.85 million bpd. During that same time span, US production increased by 3.22 million bpd — 83.6 percent of the total global increase.

If the current “low oil price crisis”  does indeed destroy high cost production capacity then this will raise the question if the high cost sources can  be brought back? And at what cost?  Especially interesting is the question: "Can the shale industry can come back from the near death experience?"

What MSM do not discuss: depletion rates

Low oil prices are suicidal for mankind in a long run. Oil is too valuable and irreplaceable resource  for chemical industry to be burned in excessive qualities in transport due to low prices, especially when hybrid and all electrical cars is a reality and price differential with ordinary cars for small card is not that great (less then twice). Electricity unlike oil can be produced from renewable resources such as nuclear (breeder reactors are a reality), wind and solar (solar panels improved dramatically in the last ten years).  At the same time in the USA (and probably elsewhere) sales of SUVs and light trucks are again booming.  That say something about level of intelligence of the USA government. 

With producers in the US and across the world pumping as much as they can, they are doing it at a cost of running into diminishing production rates (depletion) on those existing wells sooner. The 2008 IEA survey of ~800 major fields (including all giants and supergiants) which produced over 60% of that year crude showed an average annual decline rate of 5.1%.

Most countries in the world now face depletion of their reserves. Some face acute depletion (Indonesia, Mexico, etc), some still manage to maintain plato (Russia, Saudi Arabia) or even increase production (the USA, Canada, Iraq, Iran, in the future probably Libya and Syria),  But generally around 4% of total world capacity is depleted per year and without adequate investment can't be replaced. in 2008 IHS estimated global oil field decline rates to be around 4.5%. EIA did a study estimated the worldwide decline rates to be around 6.7%.

When peak oil has been discussed decades ago it was considered a 3% decline rate in production was manageable -- 5% would considered extremely difficult to deal with  (The Guardian)

Now depletion rates are higher (source: IHS, Deloitte & Touche and USGS databases; other industry sources; EIA estimates and analysis)

Outside a couple of countries such as Iran, Iraq and Venezuela offshore production grows faster the onshore production. Shale production growth in the past was the fastest, especially in the USA.  That means a switch to more expensive sources of oil.

Given the increasing decline rates, the oil industry needs considerable capex investments. In the absence of them it slide into irreversible decline.  New technologies greatly help but there are natural limits of what you can achieve with them. they are not substitute to finding new fields which is a very expensive activity.

US oil production and forecast for 2016

Among three major oil producing nations (USA, Russia and Saudi Arabia) the USA is the most dynamic nation, and the most difficult to predict due to large share of shale oil in the USA output. Gradual destruction of the US shale industry ability to pump oil  due to low prices is now established fact. That only discussable item is how quick it will proceed. The first 12 months were cushioned by hedges, but at the and of 2015 most companies are now  "swimming naked". 

Still there are signs that the US oil production peaked in 2015. Decimation of shale can't be compensated by offshore drilling. The sinking shale that could easily lose 1 Mb/d in 2016

At the same time in 2015 total US oil production remained remarkably stable, bank loans were extended or refinanced and bankruptcies were few and does not look like an epidemic. So forecaster of "doom and gloom" were wrong by at least one year. There are no signs of panic in view of drop of oil prices below the level of sustainable production. After all oil is the strategic industry and to leave to market forces is extremely unwise. Wall Street probably has other opinion. As John Kenneth Galbraith said “The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil.” (The Great Crash of 1929). They live by the next quarter results.

Dec 8, 2015 EIA data  can be found http://www.eia.gov/forecasts/steo/tables/?tableNumber=29#

EIA estimates that total U.S. crude oil production declined by about 60,000 b/d in November 2015 compared with October. That decline will accelerate in December. Crude oil production will probably gradually decrease through the third quarter of 2016 before growth resumes late in 2016, it higher oil prices (at least above $50) materialize. 

Projections of the U.S. crude oil production

Saudi Arabia oil production and forecast for 2016

Oil production

There are signs that Saudi Arabia oil production peaked or close to a peak. A terror attack in 2016 Saudi Arabia is not very likely. Shiite organizations have not resorted to terrorism in many years and they seem now focused on fighting ISIS. which although sponsored by Saudis is a distinct organization.

Saudi Arabia produced 10.28 million barrels a day in October, 2015,  up from 9.69Mb/done year ago.   Chances that production will reach 11 Mb/d are slim. There are strong signs that they have huge difficulties in increasing oil extraction volume.  All their efforts to increase production led to increase of less then 1Mb/d  increase in 2015 (7% increase in production). Which is partially offset by  increase in internal consumption (In 2015 Saudi Arabia oil demand rose by a notable 0.21 mb/d, which equates to a nearly 8% rise y-o-y, )  Here is relevant quote (OilPrice.com, Dec 21, 2015)

Crude exports from Saudi Arabia rose from an average of 7.111 million barrels per day in September to 7.364 million per day in October, according to the latest data from the Joint Organizations Data Initiative (JODI), which monitors the oil industry. The report said this quantity was the most oil exported from Saudi Arabia since June and 7 percent higher than in October 2014.

And those doubts about Saudis ability to increase production exist for some time. When U.S. president George W. Bush asked the Saudis to raise production on a visit to Saudi Arabia in January 2008 they declined. After that Bush questioned whether they had the ability to raise production any more.

But they did managed to achieve temporary production peak: in April 2015, the Saudi oil minister Ali Al-Naimi said that Saudi Arabia produced 10.3 million barrels per day in March that year, which was the highest figure based on records since the early 1980s.  The previous peak in production was in August 2013 at 10.2 million barrels per day.

Theoretically as its own population and internal consumption is growing and depletion of its wells reached critical level, they should concentrate of providing the standard of living for future generations, not dump the oil at the lowest price.  In three decades if the current annual increase in internal consumption continues at, say, 5% and production stays flat Saudi Arabia paradoxically may became oil importing county.

Still Saudi are known to use the most advanced (and most expensive) technologies of boosting the extraction rate to counter the natural decline curve.   They now are exploring shale technology and reportedly are trying to hire workers from the USA who became unemployed during the downturn of shale industry started in mid 2014.

Exports

Contrary to MSM coverage about Saudis flooding world with their oil, year over year increase in exports is slim. Basically they are flat (due to rapidly increasing population and domestic consumption): 

Net exports were around 7.111 Mb/d (September, 2015). But with current low prices this is an economic suicide, even if this is an economic war against Iran -- attempt to hurt its major competitor when  sanctions are lifted.

The net revenue dropped more then a half and the country is burining its currency reserves (which are substantial and at current burn rate will last for more then three years)  So there is something fishy in this propagated by Western MSM idea of Saudis defending their market share. The cost of defending their market share proved to be in hundred billions of lost revenue, which far exceeds their losses from rise of the US shale oil production (if the prices remained above $100 per barrel).  Also the question arise, why now. Shale was a long story in the USA and reached present size around decade ago (2005).

This is definitely a declation of war. But if the target is not the USA (and it can't be the target as Saudis are the USA vassal state), then war of whom ?  The USA is actually a beneficially of this  war (like most wars in this region) and  got a half trillion subsidy due to lower price of oil.  And  "corrupt and atheistic" Western Europe also got similar subsidy.

Business Insider

A report by Citigroup has warned that Saudi Arabia could run out of oil to export by 2030, raising fears that oil prices may rise significantly in coming years.

... ... ...

Its export capacity could steadily reduce and, “if nothing changes, Saudi may have no available oil for export by 2030”, Citi analyst Heidy Rehman wrote.

Saudi Arabia consumes 25pc of its oil output and oil accounts for about 50pc of its electricity production. With peak power demand rising by about 8pc per year, the nation is aiming to more than double its power capacity by 2032 through new nuclear and solar instalations.

Internal consumption

Saudi Arabia produced 10.28 million barrels a day in October 2015 and exported  7.364 million barrels a day. the difference  is less then 3 Mb/d

In September figure were 10.28 and 7.111. The difference is above 3 Mb/d.

So we can assume that 2015 internal consumption is approximately 3 million barrel a day.  In 2015 Saudi Arabia oil demand rose by a notable 0.21 mb/d, which equates to a nearly 8% rise y-o-y, driven by transportation fuels such as jet/kerosene, gasoline and diesel oil, which grew at high rates. The higher consumption of jet fuel reflects the increase in travel activity towards the end of the summer vacation, which coincided with the Hajj season.

Internal consumptions rapidly growing year over year with some years (2009) close to 10% growth (Saudi Arabia Crude Oil Consumption by Year (Thousand Barrels per Day)):

2005 1,963.64 4.20 %
2006 2,020.02 2.87 %
2007 2,094.33 3.68 %
2008 2,236.99 6.81 %
2009 2,436.12 8.90 %
2010 2,579.73 5.90 %
2011 2,760.91 7.02 %
2012 2,861.00 3.63 %
2013 2,925.00 2.24 %

Russia oil production and forecast for 2016

Russian oil production considered to be at "over peak" stage with increases mainly due to offshore drilling. In 2014 total petroleum and other liquids production in 2014 were 10.8 Mb/d  (EIA). Russia crude oil production in late 2015 was around 10.20M, up from  10.08Mb/done year ago. That's was an unanticipated, even by Russian Ministry of Energy result of activities of small companies. which managed to increase of  production by  1.12% from one year ago, when most analysts expected a slight decline (Russia Crude Oil Production (Monthly, Barrels per Day).

Despite severe depreciation of ruble and sanctions, in 2015 Russia managed to reach the level of production that exceed the level of former USSR period. At the same time most of Russia's fields are mature fields and the production from them is declining for long time,  offset only by new more expensive projects with less total volume. Unless Arctic oil and other expensive oil are economical to produce (which requires over $100 bbl price) the national path for Russian production is iether long plato or down. 

Russian oil extraction (red) and oil exports (green) in metric tons

 

In 2015 Russia managed to increase exports the first time in six years, but that does not change general situation: internal consumption is growing pretty robustly with growth of car fleet and decline of production due to national depletion of oil conventional wells became more and more difficult to compensate with new discoveries. And new fields, even if such exist, can't be now tapped because capital expenditures by most Russian oil companies now are slashed to the bone (russia is more like the USA in this respect with over dozen of major oil companies producing   oil).

At current oil prices Arctic oil now is out of reach and only existing platforms will remain in production. All of them are losing money. conventional wells are still profitable with same remaining profitable up to $20 per barrel. Still for the next several years Russia probably will be able to keep the current level of production due to huge previous investments dome in 2010-2014 in a few new fields (Bloomberg Business, December 20, 2015):

The other big boosts to Russian production this year have come from a few mid-sized new fields like those of Severenergia in the Arctic Yamal region. Co-owners Novatek OJSC and Gazpromneft PJSC invested in the $9.2 billion project back when oil prices were high. With most of the capital already committed, operating costs now are relatively low and output of gas condensate, a light and especially valuable form of crude, is up five-fold this year.

One side effect of falling oil prices -- the 52 percent plunge in the ruble over the last two years -- has helped Russian oil producers, chopping their costs in dollar terms since between 80 and 90 percent of their spending comes in rubles.

... ... ...

To be sure, few in the industry expect Russia to be able to sustain the current performance for more than a few years. Tax hikes and lack of financing have cut deeply into exploration drilling, which is down 21 percent this year, and handicap the larger new projects that are needed to replace the country’s older fields as they run dry.

... ... ...

In some parts of the Russian oil patch, low prices are already causing pain. At $40 a barrel, “half of our fields could be stopped. Heavy oil, low horizons, mature horizons are all unprofitable at a price of $40-45. We are waiting for better times,” Russneft OJSC Board Chairman Mikhail Gutseriev said in an interview on state television early this month.

Unfortunately just before the oil prices crush Russia was engaged in several high cost drilling projects in Arctic and was caught naked when oil price dropped. ( see Petroleum industry in Russia - Wikipedia).  Timing can't be more bad as this is a really expensive oil, probably around $60 per barrel or higher at wellhead.  Which are now sold at a huge discount.  Igor Sechin proved to be a weak leader of the Russia major state owned oil company Rosneft.  Government refused to bail out the company which faces large external debt and it was saved by some "white knife" billionaire.

Moscow Exile, December 19, 2015 at 11:19 am

Undeterred by OPEC’s decision to keep pumping and drive out U.S. shale rivals, Russian oil output continued to grow, in October setting a new monthly record for the post-Soviet era. Explorers have remained profitable under a friendly tax system and low production costs.

Mystery Benefactor

Rosneft assuaged concerns over the sustainability of Russia’s biggest corporate debt load after the company received a $15 billion advance payment for oil supplies from a source the company didn’t identify, according to quarterly reports published Nov. 13. The inflow of cash will help Rosneft meet $2.5 billion in debt due in the fourth quarter, $13.7 billion in 2016 and $11.3 billion in 2017, according to a presentation on its website.

See: One Year Into New OPEC Era, You Made 12% Buying These Oil Bonds

It looks like the board is in denial of the blunder with overinvest they made:

18 December 2015
Rosneft Holds Board of Directors Meeting

On December 18, Rosneft Board of Directors considered in Vladivostok interim results of its 2015 operations, the business-plan for 2016-2017, the Long-term development program and the energy efficiency program of the Company.

The following decisions were taken:

1. The Board of Directors considered and acknowledged 2015 Rosneft interim results and the intermediate results of the implementation of the long-term development program of the Company. The Board of Directors welcomed the results of the implementation of programs aimed at raising efficiency in challenging economic environment: the Company maintained low levels of OPEX and eased its debt burden.

2. The Board of Directors considered and acknowledged the business-plan for 2016-2017, structured in accordance with a conservative macroeconomic scenario and focused on the implementation of the Long-term development program of the Company, approved by the Government of the Russian Federation.

Within the ambit of delivering strategic goals of boosting production, securing deliveries of oil and oil products, maintaining a market share (both in Russia and abroad), the Company plans to increase capital expenditures by a third (compared to 2015 levels). The investment development program envisages the achievement of strategic goals of hydrocarbon production growth by means of accelerated commencement of oil and gas greenfields whilst exercising a balanced external financing program. After the completion of transition to Euro-5 motor fuels production in December 2015, refineries’ modernization program will be focused on increasing processing depth. Also, the program of cutting operating costs and enhancing operating and financial efficiency will be continued. Hence the leadership in the industry by the operating costs and capital costs will be guaranteed.

... .... ...

Commenting on the results of the Board meeting, Rosneft Chairman of the Management Board Igor Sechin said: “Measures taken by the Company for strengthening its oilfield services business dimension in 2015 enabled Rosneft to increase production in order to guarantee supplies to its traditional markets while keeping operating and capital expenditures at the record-low levels. The Company consistently generates free cash flow, providing funding sources for its investment decisions in accordance with 2015-2016 business plan approved by the Board of Directors and the Long-term Development Program”.

In August 2014, it was announced that preparations by the Russian government to sell a 19.5 percent stake in the company were underway and would most likely be sold in two tranches. So far this chunk of the company was not sold, probably because of low oil prices. 

Russia oil internal consumption is generally more or less stable and growling at a very slow page outside several 'abnormal" years. In 2016 it will not probably grow much as the economy remain is conditions close to recession. Lukoil chairman has said that he  expects Russia to produce less oil  in 2016 than in 2015

Russia internal oil consumption is currently around 3.3 Mb/d, up from 3.2 Mb/d one year ago. This is a change of 3.15% from one year ago.

2005 2,785.14 1.25 %
2006 2,803.47 0.66 %
2007 2,885.10 2.91 %
2008 2,981.92 3.36 %
2009 2,888.53 -3.13 %
2010 3,081.82 6.69 %
2011 3,352.11 8.77 %
2012 3,395.11 1.28 %
2013 3,320.00 -2.21 %

It is expected that it will continue to grow by around 0.1 Mb/d per year as car fleet is rapidly growing.. Also Russia will process more raw oil in 2016 then in 2015 which also negatively influence export of raw oil

Oil producing countries with civil wars/sanctions/military conflicts  

This is a very complex topic that is beyond the scope of this analyses. But paradoxically such countries are the "last hurrah" for increasing the oil production, as they do have reserve that can't be tapped at reasonable costs now but at the same time represent the last spot of "cheap oil" deposits. Some facts:

Oil consumption

Mankind dependency on oil is hardwired into fabric of our civilization.  It is an irreplaceable product. But as much as  2/3 of this extremely valuable chemical industry resource is burned in transportation. That actually means that sales of cars and trucks are instrumental to predicting future demand at least one year ahead.  And they are growing especially fast in China and India. They also accelerated in the USA.

World oil consumption is often given in millions barrels per day (mbpd or Mb/d). BP stated that in 2014 global oil demand increased by 1.4 Mb/d over 2012 to 91.3 Mb/d.  Assuming on average $60 per barrel this is 5.5 trillion dollars a year of additional expenses on energy.   Here are actual figures of world consumption for the last decade ( World Crude Oil Consumption by Year (Thousand Barrels per Day))

2005 84,668.04 1.79 %
2006 85,586.39 1.08 %
2007 86,700.09 1.30 %
2008 86,027.86 -0.78 %
2009 84,953.36 -1.25 %
2010 87,839.10 3.40 %
2011 88,657.70 0.93 %
2012 89,668.91 1.14 %
2013 90,354.27 0.76 %

As BP noted in February 2015 "Global demand for energy is expected to rise by 37% from 2013 to 2035, or by an average of 1.4% a year".  So it is reasonable to assume that oil demand will rise approximately the same rate, which taking into account the current rate of consumption is above 1Mb/d.

The oil consumption proved to be extremely resilient  to economic conditions (that only drop in the last decade happened in 2009) and is growing globally each year by rate about 1 Mb/d due to increase of population and cars and trucks on the road. ( Peak oil - Wikipedia )

The table above does not contain data for 2014 and 205. Here they are:

As for the forecast of 2015, the growth of consumption is predicted in the range of 1.2-1.4 MB/d:

According to IEA "an annual $630 billion in worldwide upstream oil and gas investment – the total amount the industry spent on average each year for the past five years – is required just to compensate for declining production at existing fields and to keep future output flat at today’s levels" (iea.org). It is easy to see that such amount is difficult to come by when prices of oil are in $30-$40 range,  do the decline of world oil output might happen faster then growth of consumption.

OPEC forecast is usually more reliable then EIA but generally very similar, despite having different set of biases (G7 bias in case of IEA and Saudi Arabia bias for OPEC forecast) They predict higher growth of demand in 2015 and lower growth in 2016:

World oil demand is expected to grow by 1.50 mb/d in 2015 to average 92.86 mb/d, ...  In 2016, world oil demand growth is seen reaching 1.25 mb/d ...  to average 94.14 mb/d.

India is set to become the world’s third largest oil importer after the US and China before 2025, according to the International Energy Agency (IEA). India’s energy needs would overtake Japan as the third largest net importer of oil before 2025. EIA predict stable consumption level until 2040 only 1.1% growth on average (EIA)

The bulk of that demand growth is expected to come from developing countries in Asia. With U.S. supply falling, where are the new oil supplies coming from ? There simply isn’t enough to go around.

Double-digit percentage increases in oil consumption were recorded by Pakistan, Venezuela, and Azerbaijan from 2012 to 2013, and over the past five years double-digit percentage consumption increases were recorded by Central and South America (15.2 percent), the Middle East (18.3 percent), Africa (12 percent), Asia Pacific (17.4 percent), and the former Soviet Union (12.8 percent). World Sets New Oil Production and Consumption Records

Per country picture: not all countries are created equal

The most significant factor affecting petroleum demand has been human population growth. Large countries that previously were dirt poor and consumed minuscule amount of oil now now rapidly growing (India and China) are primary drivers of consumption. Arab countries also experience rapid population growth (Saudi Arabia is one example). The United States Census Bureau predicts that world population in 2030 will be almost double that of 1980. Oil production per capita peaked in 1979 at 5.5 Giga barrels/year but then declined to fluctuate around 4.5 Giga barrels/year since. In this regard, the decreasing population growth rate since the 1970s has somewhat ameliorated the per capita decline.

Not all consumers of oil are created equal.

Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of January 1, 2014

See also: Oil consumption per capita bar chart

Country Name Oil consumption per capita
 (bbl/day per 1000 people)
Year of Estimate
Singapore 202 2012
Nauru 139 2012
Kuwait 134 2012
Luxembourg 119 2012
Bahamas, The 111 2012
United Arab Emirates 103 2012
Saudi Arabia 100 2012
Falkland Islands (Islas Malvinas) 96 2008
Seychelles 89 2012
Qatar 85 2012
Greenland 69 2012
Canada 64 2012
United States 61 2012
Netherlands 60 2012
Belgium 60 2012
Cayman Islands 57 2012
Antigua and Barbuda 56 2012
Iceland 56 2012
New Caledonia 54 2012
Libya 51 2012
Norway 47 2012
Malta 46 2012
Oman 46 2012
Korea, South 45 2012
Australia 44 2012
Taiwan 43 2012
Hong Kong 42 2012
Brunei 42 2012
Finland 41 2012
Puerto Rico 41 2012
Saint Kitts and Nevis 39 2012
Sweden 39 2012
Bahrain 38 2012
Japan 35 2012
New Zealand 35 2012
Greece 34 2012
Austria 34 2012
Trinidad and Tobago 33 2012
Slovenia 32 2012
Israel 31 2010
Barbados 31 2012
Germany 31 2012
Spain 31 2012
Switzerland 31 2012
Ireland 30 2012
Macau 29 2012
France 28 2012
Panama 28 2012
Grenada 28 2012
Suriname 27 2012
Venezuela 27 2012
Portugal 26 2012
United Kingdom 26 2012
Lebanon 26 2012
Denmark 25 2012
Italy 25 2012
Turkmenistan 25 2012
Estonia 24 2012
Iran 23 2012
Iraq 22 2012
Jamaica 22 2012
Belize 21 2012
Saint Vincent and the Grenadines 19 2012
Czech Republic 19 2012
Malaysia 19 2012
Lithuania 19 2012
Saint Lucia 18 2012
Mexico 18 2012
Chile 18 2012
Mauritius 18 2012
Armenia 18 2012
Belarus 17 2012
Fiji 17 2012
Cuba 16 2012
Djibouti 15 2012
Russia 15 2012
Brazil 10 2012
Turkey 8 2012
China 7 2012
India 3 2012
Pakistan 2 2012
Bangladesh 1 2012

Consumption in net oil exporting countries is limited to the volume of production and price while consumption in net oil importing countries by the price of oil and the oil that is left for export after internal consumer got their share (which depends on price of oil).  In other words, to paraphrase “Animal Farm,”  all pigs are equal but some pigs are more equal then others.

Of course pigs with strong military (read G7) are also more equal then others and can change this equation in their favor by force and already started doing this (USA in Iraq, France in Libya).

While demand for oil continues to increase globally, oil producing countries also increase their internal consumption rapidly. For example increase in internal consumption of Saudi Arabia led to a situation when since 2005 their exports are essentially flat despite increase of production.

Having noted Steven Kopits’ continuing track record of being remarkably prescient regarding global oil supply and demand analysis, I do have one issue with global supply & demand analysis -– consumption in net oil exporting countries versus consumption in net oil importing countries, to -- wit, to paraphrase “Animal Farm,” in my opinion some consumers are more equal than others.

Let’s assume a scenario where all oil production and refining operations are in oil exporting countries and let’s ignore things like refinery gains. Total petroleum liquids production is 80 mbpd and consumption in the oil exporting countries is 40 mbpd, and they therefore net export 40 mbpd to oil importing countries.

Production rises by 2.5 mbpd in the oil exporting countries, so total supply increases from 80 mbpd to 82.5 mbpd. However, consumption in the oil exporting countries rose by 5 mbpd. So, Net Exports = Production – Consumption = 82.5 mbpd – 45 mbpd = 37.5 mbpd.

My point is that a global supply and demand analysis would not accurately represent the situation in the net oil importing countries, i.e., a 6.25% decline in the supply available to net importers (40 mbpd to 37.5 mbpd), although global supply is up by 3.125%, 80 mbpd to 82.5 mbpd.

Of course, the crux of what I call “Export Land Model” or ELM, is that for a number of reasons (subsidies, proximity to production, legal restrictions, etc.), consumption in oil exporting countries tends to be satisfied before oil is exported.

Interesting enough, the case histories tend to show that regardless of how oil exporters treat internal consumption, given an ongoing production decline, the net export decline rate tends to exceed the production decline rate and the net export decline rate tends to accelerate with time.

For example, Indonesia subsidizes petroleum consumption and the UK heavily taxes petroleum consumption, but both former net oil exporters showed accelerating rates of decline in their net exports (in excess of their respective production decline rates).

Here are the ELM Mathematical Facts of Life:

Given an ongoing production decline in a net oil exporting country, unless they cut their domestic oil consumption at the same rate as the rate of decline in production or at a faster rate, the resulting net export decline rate will exceed the production decline rate and the net export decline rate will accelerate with time. Furthermore, a net oil exporter can become a net oil importer, even with rising production, if the rate of increase in consumption exceeds the rate of increase in production, e.g., the US and China.

The (2005) Top 33 net exporters showed a slight increase in production from 2005 to 2013, from about 62 mbpd to 63 mbpd (total petroleum liquids + other liquids, EIA), but their rate of increase in consumption exceed their rate of increase in production and their combined net exports (what I call Global Net Exports, or GNE) fell from 46 mbpd in 2005 to 43 mbpd in 2013.

Furthermore, China and India (“Chindia”) consumed an increasing share of a post-2005 declining volume of GNE. What I call Available Net Exports (ANE, or GNE less Chinidia’s Net Imports, CNI) fell from 41 mbpd in 2005 to 34 mbpd in 2013.

Here’s the Available Net Exports problem:

Given an ongoing decline in GNE–and it’s when, not if–then unless the Chindia region cuts their oil consumption at the same rate as the rate of decline in GNE, or at a faster rate, the resulting rate of decline in ANE will exceed the GNE decline rate and the ANE decline rate will accelerate with time.

From 2005 to 2013, GNE fell at 0.8%year. From 2005 to 2013, ANE -- the supply of Global Net Exports of oil available to importers other than China & India -- fell at 2.3%/year.

The USA consumption

The United States remains the world's largest consumer of petroleum. The United States uses most of oil per capita in the world.  Between 1995 and 2005, US consumption grew from 17.7 Mb/d (2,810,000 m3/d) to 20.7 Mb/d (3,290,000 m3/d), a 3,000,000 barrels per day (480,000 m3/d) increase. According to EIA Jan 12, 2016 report (eia.gov):

In other words the USA consumption is approximately equal to total Saudi export capacity. 

The U.S. Energy Information Administration (EIA) includes volumes of biofuels in data on total petroleum consumption. Per capita consumption of oil in the USA is one of the highest in the worlds and exceeds, for example, Russian per capita consumption four times.

Looking forward, both the EIA and the EIA project that U.S. oil demand will oscillate around 20 Mb/d mark. That might change if oil price stays low for several years.

The USA consumption is highly concentrated on transportation sector and in private cars sector is quite wasteful. The same population in Germany, Great Britain, France, Poland, the low countries and Scandinavia use 10 Mb/d.

Peter, 12/21/2015 at 4:33 pm
Watcher

1)US consumption is besides a couple of small countries the highest in the world.

http://www.indexmundi.com/map/?v=91000

compared to other western industrial countries it’s consumption is totally unjustifiable.

2) Driving a Ford F150 or an ampera to work has nothing to do with GDP and everything to do with needless oil consumption. So stop saying things which even an 8 year old would find obvious

US consumers will not cut consumption out of the goodness of their hearts, they will be forced to do so when prices make cuts necessary.

China consumption

China, by comparison, increased consumption from 3,400,000 barrels per day (540,000 m3/d) to 7,000,000 barrels per day (1,100,000 m3/d), an increase of 3,600,000 barrels per day (570,000 m3/d), in the same time frame.

China surpassed the United States as the world’s largest crude oil importer in 2015. As China’s economic growth is predicted to decrease from the high rates of the early part of the 21st Century that level might grow more slowly, but still China is so far behind the USA in consumption of gasoline per capita the trend toward more equal consumption clearly will increase china figures dramatically. Much depends how quickly china will grow middle class, which owns individual cars.

India consumption

India is burning over 4 mbpd now. India's oil imports are expected to more than triple from 2005 levels by 2020, rising to 5 million barrels per day.  Look at Energy Export Databrowser to see the consumption line for each country. 45 degree slope for India, just a few degrees less than China’s slope. KSA’s slope looks early exponential. No reason why it shouldn’t be. It’s their oil.

Russian consumption

Russian internal consumption grows rapidly and that means that in the future Russia will export less oils. Russian leadership have found itself unprepared to the dramatic drop of oil prices and now will take moves to refine more oil at home, and selling less raw oil. The fact that Russia sells mostly unprocessed oil was a blunder that costs Russia billions and Putin had shown ability to learn from mistakes. 

Russia's Key Energy Statistics world rank
Total Primary Energy Production
2012
55.296
Quadrillion Btu
3
Total Primary Energy Consumption
2012
31.522
Quadrillion Btu
3
Dry Natural Gas Production
2011
22,213
Billion Cubic Feet
2
Total Petroleum and Other Liquids Production
2014
10,853
Thousand Barrels Per Day
3
Total Primary Coal Production
2013
388,013
Thousand Short Tons
6

Compare that with the USA

United States' Key Energy Statistics world rank
Total Primary Energy Production
2012
79.212
Quadrillion Btu
2
Total Primary Energy Consumption
2012
95.058
Quadrillion Btu
2
Dry Natural Gas Production
2011
22,902
Billion Cubic Feet
1
Total Petroleum and Other Liquids Production
2014
13,973
Thousand Barrels Per Day
1
Total Primary Coal Production
2013
984,842
Thousand Short Tons
2

India

India's existing domestic production of about 0.86 Mb/d is only about 25% of its current consumption of 3,47 Mb/d.  According to the EIA, its production peaked at 996,000 barrels per day in 2011. Energy consumption in India is likely double by 2031.   The CAGR (compound annual growth rate) for the ten years ending in March 2014 is above 3.5%.

Domestic production of  oil is relatively stable. The EIA (US Energy Information Administration) estimates that India had close to 5.7 billion barrels of proven oil reserves at the beginning of 2014. About 44% of the reserves are onshore resource.

 Imports is likely to rise  from current 75 percent to 80 percent by the end of the 12th five year plan (2016-17). According to the Directorate General of Commercial Intelligence and Statistics, crude oil and refined products made up over 28 percent and 30 percent of India's import of principal commodities in 2010-11 and first half of 2011-12 respectively.

India is a major crude oil refiner. India petroleum refining capacity has outstripped demand consistently. Since 2002, the country's export of petroleum products has risen from 10 million tones to around 60 million tones in 2011-12, an average annual growth of over 20%.

Analyzing India’s oil consumption

According to IES (International Energy Statistics) presented by the EIA (US Energy Information Administration), the CAGR for total petroleum consumption for the world was 0.8% from 2005 to 2013. This consumption has been measured in thousand barrels per day. In the same period, China saw its consumption increase by 5.1%. In CAGR terms, India’s consumption increased by 4.1%. In contrast, the US saw its consumption decrease by 1.2%.

Per sector consumption

Oil consumption is distributed amongst four broad sectors: transportation, residential, commercial, and industrial. In terms of oil consumption, transportation is the largest sector and the one that has seen the largest growth in demand in recent decades. This growth has largely come from new demand for personal cars. In the USA it accounts for approximately 68.9% of all the oil used. Globally it is close to 55%

There are also "shadow" consumers of oil. For example military is important but often underreported or unreported consumer. So in no way published figured of consumption can be taken at face value. 
 

Consumption by transportation sector

Approximately two-thirds of U.S. oil consumption is due to the transportation sector. Slightly less for the world. 

In the USA consumption is depicted on the following picture

Private transportation is gradually became more efficient in miles per gallon metric (so energy consumption is shifted to the production of battery and electrical motors).  Most of the efficiently is already obtained on cars such as Toyota Prius which averages probably 40 miles per gallon and can run on electrical engine at low speeds/city traffic which is killing regular car efficiency.  Further substantial improvement is unlikely as traffic jams are the most important feature of morning commute in the USA. Traffic congestion, especially at rush hour, is a problem in most of the USA large cities. A 2009 study found that traffic congestion costs the United States almost $87.2 billion. The economic costs of traffic congestion have increased 63% over the past decade, and despite the declining traffic volumes caused by the economic downturn, Americans still waste more than 2.8 billion US gallons (11,000,000 m3) of fuel each year as a result of traffic congestion. Motorists also waste 4.2 billion hours annually, or one full workweek per traveler.

Private transportation sector oil consultation with gradually rise with the growth of population.

It's not only car and trucks burn fuel on the roads. Maintaining road surface is pretty fuel-intensive activity as well. With the development of the  Eisenhower Interstate Highway System in the 1950s, the road system in the USA, as of 2010, has a total length of 47,182 miles (75,932 km), making it the world's second longest after China's, and the largest public works project in US history. A large number of multilane roads while improving peak hours traffic is considerably more expensive to maintain. A Federal Highway Administration report saying the number of roads in good condition each year is going up.  As the same time roads and surface transportation will only get about half their projected $1.7 trillion need for capital projects.  The high cost of America's bad roads and bridges - Feb. 12, 2013

Industrial transportation use efficient diesel engines and improving efficiently on such engines is a very difficult task. So it will approximately consume the same amount of fuel per ton per mile of transported goods as now. Some improvement are possible by increasing of usage of railways. for maritime transportation saving are possible by lowing the speed of vessels, which was already done when price of oil was high.

In air transportation larger planes, more efficient engines can improve fuel efficiency. Between 1960 and 2000 there was a 55% overall fuel efficiency gain. Optimal amount of passengers/cargo  and fuel are also important factors. As over 80% of the fully laden take-off weight of a modern aircraft such as the Airbus A380 is craft and fuel (Fuel economy in aircraft - Wikipedia )

Pilots of turbine airplanes actually have less control over the fuel efficiency of their flights because there are so many variables, first among them being air traffic control. Turbine engines are at their least efficient down low where the air is dense. As the airplane climbs up and the air thins, the turbine produces less power and thus consumes less fuel, but the drag of the thinning air on the airplane decreases faster than the power from the engine drops, so the airplane speeds up and the fuel flow goes down. Takeoff delays really cut into fuel efficiency in a jet compared to a piston engine.

Military aviation also consumes large amount of fuel and is known for very low fuel efficiency.

Chemical industry consumption

Chemical industry consumes approximately 30% of oil.

Residual Fuel Oil Consumption By Chemical Industry - By Country - Data from Quandl

Military consumption

Also we should not forget that one of the largest consumer of oil is military which will get oil at any price. And we have the recent trend in re-armament. So the consumption of oil by military grows again. Here are some 2007 data (US military energy consumption- facts and figures)

As the saying goes, facts are many but the truth is one. The truth is that the U.S. military is the single largest consumer of energy in the world. But as a wise man once said, don't confuse facts with reality. The reality is that even U.S. Department of Defense (DoD) does not know precisely where and how much energy it consumes. This is my Fact Zero.

Below I give some facts and figures on U.S. military oil consumption based mostly on official statistics.[1] If you want to reproduce them make sure you read every footnote even if you need to put on your glasses. Also read the footnotes in this article.

According to the DoD's Federal Energy Management Report for FY2006, the DoD spent approximately $3.5 billion on facility energy and $16.5 billion on energy for tactical vehicles. To this we should add 238 million spent on non-tactical vehicles.[6] Overall, total actual cost[7] for DoD energy consumption is over $20 billion. By the way, remember that a billion has nine zeros.

According to Pentagon spokesman Chris Isleib a $10 increase per barrel of oil increases Defense Department costs by $1.3 billion per year.

Hurting Russian economy

Oil is a strategic resource using which countries pursue geostrategic interest. So manipulation on oil price is a war by other means. As Patrick J. Buchanan  noted in his article America Regains the Oil Weapon The American Conservative in American Conservative (Nov 14, 2014)  "...price, Adam Smith notwithstanding, is something we can control and manipulate"  although strangely enough he consider Saudis to be an independent player, as if they are not a vassal state dependent on Washington:

In July of 1941, after Japan occupied French Indochina, the Roosevelt administration froze Japan’s assets in the United States. Denied hard cash, Japan could not buy the U.S. oil upon which the empire depended for survival. Seeing the Dutch East Indies as her only other source, Japan prepared to invade.

But first she had to eliminate the sole strategic threat to her occupation of the East Indies—the U.S. battle fleet at Pearl Harbor. FDR’s cutoff of oil to Japan was thus a primary cause of WWII in the Pacific, which led to hundreds of thousands of U.S. war dead, the destruction of Japan, Mao’s triumph in China and a U.S. war in Korea.

A second stunning use of the oil weapon came in 1973. Arab members of OPEC imposed an embargo in retaliation for Nixon’s rescue of Israel with an airlift in the Yom Kippur war. Long gas lines helped to bring Nixon down.

Now the oil weapon appears to be back in America’s hand.

Due to the substitution of natural gas for oil in heating homes and buildings, horizontal drilling, and hydraulic fracking, which enables us to bring oil and gas out of shale rock in places like North Dakota, U.S. production has exploded. We now produce more oil than Saudi Arabia and the benefits are not only economic, but geostrategic.

... ... ...

What is Riyadh’s game?

Is the Saudi strategy to let prices fall to where it is no longer profitable for Americans to begin new fracking? Are the Saudis thinking of doing to the new oil-producing champion, USA, what we are doing to Venezuela, Russia, and Iran? Riyadh may want to let the price of oil sink below where it makes sense for energy companies to prospect for new sources of oil or invest more billions in expanding production.

Are the Saudis out to cripple us with an oil glut?

Today, not only are Iran and Iraq producing below potential, so, too, is Libya. And we have been bombing ISIS’ oil facilities in Syria.

A contrarian’s question: Would we not be better off if these countries not only restored oil production, but also expanded production and put more oil on the market than they do today? Demand creates supply, and a world oil market where there is more supply than demand would seem to be to America’s benefit. For we remain the world’s largest consumer of petroleum products. And surely it is to our benefit to enlarge both the reserves and production of oil and gas in North America.

Price pays a huge role in creating, and shrinking, supply. And price, Adam Smith notwithstanding, is something we can control and manipulate, even as China manipulates its currency.

In “America’s New Oil Weapon” in National Review, Arthur Herman of the Hudson Institute urges the United States to take bold steps to increase our supplies of oil and gas.

We should relax the rules on drilling in Alaska’s Arctic National Wildlife Refuge, which has 10 billion barrels of oil locked up. We should use as an economic weapon against OPEC the 700 million barrels in the Strategic Petroleum Reserve. We should allow the export of oil from the United States to enable us to cope with OPEC cutbacks. We should build the Keystone XL pipeline, and the other oil and gas pipelines between us and Canada now sitting in limbo.

What Herman is urging upon us is a new nationalism, a new way of thinking about international economics that puts the U.S. and its allies first, and uses our economic leverage to advance national rather than global interests.

High oil prices pressured the US economy and its perennially-undercapitalized banking system. US economy health depends on low oil prices.   But there is geopolitical dimension of the current drop of oil prices. In is not unconceivable to think that Washington reused Reagan plan of hurting Russian economy (which catalyzed dissolution of the USSR) by pushing down oil prices.

Among the many threats facing Russia’s economy, cheap oil could be the biggest of all. Low crude are depressing the ruble (at some point in early 2015 ruble  dropped to 69 per dollar from 30-35 or so; in August 24, 2015 it reached 69.96) and knocking export on which Russia depends due to its integration in the global economy: the direction Russian neoliberal pushed for since 1991. And Russian elite was taking high oil prices for granted. For example,  Russia’s draft budget for 2015 was based on $100-a-barrel oil (Oil Prices Are Hurting Russia's Economy - Businessweek, October 13, 2014)

Because of Russia’s outsize dependence on oil and gas, which account for more than two-thirds of its exports, lower energy prices can easily tip its $2 trillion economy into recession. “Growth is likely to remain positive only with oil prices above $92 to $93 a barrel,” says economist Charles Robertson of Renaissance Capital. At $90 a barrel, the economy would contract 0.4 percent next year, and at $80 a barrel it would shrink 1.7 percent, he predicts.

Do the US tried to subdue Russia the second time via decimating oil prices and thus cutting dramatically the stream of revenue from oil exports?  It is difficult to say.   But now this strategy is better understood by Russians, which created certain difficulties in its implementation despite the huge power of the US financial sector. The sector which can allow itself to play with oil futures the way it wants due to unlimited supply of the US dollars -- the world reserve currency.  The Fed remains a monetary superpower controlling the world's main reserve currency and xUSSR  and emerging countries currencies are formally or informally pegged to dollar. Therefore, its monetary policy is exported across the globe. The Fed was exporting its easy monetary policy to the rest of the world in the early-to-mid 2000s. Now  the attempt of normalization of monetary policy creating huge tightening of monetary conditions for the rest of the world.  It also dramatically devalue large export oriented Russian companies:

How Russian energy giant Gazprom lost $300bn  Justin Burke for  the New East network

Aug 07, 2015  |  The Guardian

annamarinja airman23 8 Aug 2015 09:09

Poor airman23. Have you ever heard about Dick Cheney? Have you ever looked at the Wolfowitz Doctrine? If not, then you are very much behind the nowadays understanding of fascism and fascists. On the other hand, you are such a concrete success of Mrs. Nuland-Kagan' (and likes) travails.

yemrajesh  -> psygone 8 Aug 2015 07:36

Difficult to say. If the costs are true'ly low it would have reflected at the Pump. But it hasn't. Another flaw is how can oil pumped from deeper well ( Fracked Oil) is cheaper than conventional oil. It looks more like US flexing its muscles to subdue Russia. Besides its not Just Gazprom , shell, BP, Exxon , Gulf, Mobil etc also many of US vassal states are affected. It would be interesting to see how long this artificial price drop continue with zero benefit to the customers.

Kaiama 8 Aug 2015 06:07

Since the Russians haven't rolled over the first time, the US is trying again. These days, the price of oil is determined by activity in the futures market impacting the spot price. Likewise, I expect for shares and wouldn't be surprised if someone is shorting the stock. Any oil and gas not pumped today is available to be pumped tomorrow - possibly at higher prices. Gazprom isn't going bankrupt. Neither are any of the other major oil companies.

AlbertEU  -> alpamysh 7 Aug 2015 17:09

The crisis of one industry necessarily will hurt other sectors. Hard-hit banking sector, which is credited US shale industry. The effect can be like an avalanche. Especially if it is strengthened by additional steps. I think for anybody is not a secret the existence of a huge number of empty weight of the dollar, which is produced by running the printing press. Oil trade is in the dollar, which in turn keeps the volume of the empty weight of the dollar. Now imagine a situation where part of the oil market has not traded more in dollars. It is equally affected, the USA and Russia.

But there is one important detail. Russia has never in its history, was a rich country (if you count all the inhabitants of Russia, not individuals). In the country there is no cult of consumption. The traditional religions of Russia, that is, those that have always existed in Russia (Orthodox Christianity, Islam and Buddhism) did not contribute to the emergence of such a cult.

Orthodoxy says plainly that material wealth is not important for a man. Wealth is only supplied in addition to achieve the main goal in the life of an Orthodox Christian. Therefore, to be poor in Russia is not a problem. This is a normal way of life. Hence the stoic resistance to any hardship, challenges, wars and so on. Expectations of great social upheaval in Russia, caused by the lowering of the standard of living is a little naive. Russia used to run in the marathon. Who would have more strength, intelligence and endurance is a big question. Geopolitics is a very strange science...

If this is a deliberate maneuver, an economic war on Russia, it can became very costly and might have made sense only on a short or medium-term basis (three-five years), to shock Russian elite into submission and depose Putin and his faction of "resource nationalists" which are like a bone in the throat of US multinationals.  This time Washington managed to catch  Putin's government completely  unprepared to such development of event, which increased the chances of success.

And they really took Russian elite by surprise. That's why the USA oil Blitzkrieg initially enjoyed such a huge success and immediately crashed the ruble (100% devaluation happened) as well as put Russian economy in recession. But Russians quickly realized what's going on and the game in the second part of  2015 became more complicated as those futures and shale industry junk bonds now also weight on the USA financial sector.  It this was a deliberate maneuver, it does has unanticipated side effects.

Those who sell futures for 2017 for $58 can be hit with $30 loss per barrel, if the game turn bad.  So the current low oil price movements should be viewed as  yet another neoliberal financial casino gambling session, in which stakes are really high.  It is completely counter productive from the point of view of future of mankind, but the last thing the USA elite care about is the future of mankind. They are preoccupied with the desire to preserve and enhance their global neoliberal empire and that requires crashing all potential competitors, including Russia and China. The paradox is that while they weaken Russia they really strengthen China (although they try to compensate this with playing Chinese stock market to their advantage). But Putin severely underestimated the damage West can inflict to Russian economy:

Opportunities for the West to hurt the Russian economy are limited, President Vladimir Putin said Thursday. Europe cannot stop buying Russian gas without inflicting pain on itself, and if the US tries to lower oil prices, the dollar will suffer.

If the West tries to damage Russia’s influence in the world energy market, efforts will likely backfire, the Russian President said during his twelfth annual televised question and answer session.

To really influence the world oil market a country would need to increase production and cut prices, which currently only Saudi Arabia could afford, Putin said.

The president added he didn’t expect Saudi Arabia, which has “very kind relations” with Russia, will choose to cut prices, that could also damage its own economy.

If world oil production increases, the price could go down to about $85 per barrel. “For us the price fall from $90 to $85 per barrel isn’t critical,” Putin said, adding that for Saudi Arabia it would be more sensitive.

Also the President said that being an OPEC member, Saudi Arabia would need to coordinate its action with the organization, which “is very complicated.”

Meanwhile, Russia supplies about a third of Europe's energy needs, said Putin. Finland, for example, is close to Russia economically, as it receives 70 percent of its gas from Russia.

“Can Europe stop buying Russian gas? I think it's impossible…Will they make themselves bleed? That's hard to imagine,” the Russian president said.

Since oil is sold internationally on global markets cutting the price would mean lower dollar circulation, diminishing its value in the global currency market.

"If prices decrease in the global market, the emerging shale industry will die,” Putin said.

The US shale industry has boosted domestic production, but President said that the so-called "shale revolution" was expensive and not quick to come.

Russia’s economy largely relies on energy. In 2013 more than 50 percent of the national budget was funded by gas and oil revenues. The main revenue comes from oil, as last year, oil revenues reached $191 billion, and gas $28 billion.

“Oil and gas revenues are a big contribution to the Russian budget, a big part for us when we decide on our government programs, and of course, meeting our social obligations,” the president said.

As Reuters reported:

“The Obama administration has opened a new front in the global battle for oil market share, effectively clearing the way for the shipment of as much as a million barrels per day of ultra-light U.S. crude to the rest of the world…

The Department of Commerce on Tuesday ended a year-long silence on a contentious, four-decade ban on oil exports, saying it had begun approving a backlog of requests to sell processed light oil abroad.

The action comes at a critical juncture for the global oil market. World prices have halved to less than $60 a barrel since the summer as top exporter Saudi Arabia, once a staunch defender of $100 oil, refused to cut production in the face of surging U.S. shale output and tempered global demand…

With global oil markets in flux, it is far from clear how much U.S. condensate will find a market overseas.”
(Analysis – U.S. opening of oil export tap widens battle for global market, Reuters)

Why would the oil producers, who have over the years raised the price of oil  suddenly agree to drop the price from roughly $120 a barrel to lower then $60  a barrel (Want To Hurt Russia Lower The Price Of Oil OilPrice.com?).

Let us look first at who the major oil producers are today: Saudi Arabia, Qatar, the United Arab Emirates and the United States, as well as Russia, Iran and the Islamic State.

Of those, we can make a clear distinction between the first four countries who have solid economies and ample amounts of cash reserves and who can sustain a sharp drop in revenue when oil is sold at a lower price...

The big losers in this case will clearly be the last three countries on that list: Russia, Iran and the Islamic State.

Coincidentally, these countries are currently engaged in highly controversial conflicts and are facing opposition from the United States and the West.

Russia is involved in Ukraine’s civil war, supporting the separatists in a highly criticized move condemned by the United States and its Western allies. In response, the allies began to impose sanctions as punishment and, given the ruble’s recent downturn, Russia’s credit rating being slashed and desperate gas deals in the Asian markets, it seems that the sanctions have, thus far, been highly successful.

CNN reported that Russian is Russia losing $140 billions from sanctions and low oil price according to estimates from Russia's finance minister Anton Siluanov. For every $10 drop in the per-barrel price of oil, Russia loses up to $14.6 billion a year in revenues, according to Alfa Bank. This is a real economic war (Russia has just lost the economic war with the west Business The Guardian)

The phrase “perfect storm” is over-used, but the combination of a collapsing currency, a collapsing economy and punitive interest rates make it apposite. The question now is how Putin responds. If he softens his line over Ukraine, the west’s gamble will have paid off and it will be mission accomplished. But there are hardliners in Moscow who will argue that the response to the crisis should be a siege economy and the ratcheting up of military pressure on Ukraine. If economic agony makes a wounded Russian bear more belligerent, it will prove a hollow victory.

Here’s a clip from an NPR interview with the president just last week. About halfway through the interview, NPR’s Steve Inskeep asks Obama: “Are you just lucky that the price of oil went down and therefore their currency collapsed or …is it something that you did?

“Are you just lucky that the price of oil went down and therefore their currency collapsed or …is it something that you did?

Barack Obama:

If you’ll recall, their (Russia) economy was already contracting and capital was fleeing even before oil collapsed. And part of our rationale in this process was that the only thing keeping that economy afloat was the price of oil. And if, in fact, we were steady in applying sanction pressure, which we have been, that over time it would make the economy of Russia sufficiently vulnerable that if and when there were disruptions with respect to the price of oil — which, inevitably, there are going to be sometime, if not this year then next year or the year after — that they’d have enormous difficulty managing it.” (Transcript: President Obama’s Full NPR Interview)

Obama just admit that he wanted “disruptions” in the “price of oil” because he figured Putin would have “enormous difficulty managing it”?

Isn’t that the same as saying that it was all part of Washington’s plan; that plunging prices were just the icing on the cake for their asymmetrical attack on the Russian economy? It sure sounds like it. And that would also explain why Obama decided to allow domestic producers to dump more oil on the market even though it’s going to send prices lower. Apparently, none of that matters as long as the policy hurts Russia.

So maybe the US-Saudi oil collusion theory isn’t so far fetched after all. Maybe Salon’s Patrick L. Smith was right when he said:

“Less than a week after the Minsk Protocol was signed, Kerry made a little-noted trip to Jeddah to see King Abdullah at his summer residence. When it was reported at all, this was put across as part of Kerry’s campaign to secure Arab support in the fight against the Islamic State.

Stop right there. That is not all there was to the visit, my trustworthy sources tell me. The other half of the visit had to do with Washington’s unabated desire to ruin the Russian economy. To do this, Kerry told the Saudis 1) to raise production and 2) to cut its crude price. Keep in mind these pertinent numbers: The Saudis produce a barrel of oil for less than $30 as break-even in the national budget; the Russians need $105.

Shortly after Kerry’s visit, the Saudis began increasing production, sure enough — by more than 100,000 barrels daily during the rest of September, more apparently to come…

Think about this. Winter is coming, there are serious production outages now in Iraq, Nigeria, Venezuela and Libya, other OPEC members are screaming for relief, and the Saudis make back-to-back moves certain to push falling prices still lower?

You do the math, with Kerry’s unreported itinerary in mind, and to help you along I offer this from an extremely well-positioned source in the commodities markets: “There are very big hands pushing oil into global supply now,” this source wrote in an e-mail note the other day.” (“What Really Happened in Beijing: Putin, Obama, Xi And The Back Story The Media Won’t Tell You”, Patrick L. Smith, Salon)

As New York Post tabloid, a mousepiece of Rupert Murdock,   gleefully reported

The price collapse could not have come at a worse time for Bad Vlad Putin. The Russian president needs an oil price around $100 a barrel to prop up what’s become a wartime economy. Oil and gas provide up to a third of budget revenue and compose two-thirds of exports.

Sanctions imposed over Putin’s aggression have gnawed at Russia’s economy, but this price drop bites deep: The ruble has crashed, Russian bonds are pathetic, and foreign reserves are bleeding.

While Russians will put up with harder times than Westerners will, Putin’s made extravagant commitments (bet he’d like to have back the $50 billion he squandered on corrupt Olympic construction). The world’s fave bare-chested bully had embarked on a massive arms buildup, with a hi-tech $5 billion command center just unveiled. But Putin’s visions of military resurgence are becoming unaffordable. He also made election promises to improve Russia’s wretched health-care system. Instead, he’s firing health-care workers and shuttering hospitals.

He promised higher living standards, but now the average Ivan’s feeling squeezed. And Putin faces enormous costs in Crimea and eastern Ukraine, two booby-prize welfare states, with the latter shot to ruins. Putin’s popularity remains high. For now. The gravest worry is that, with his back to the wall, he’ll play the Mother Russia card and attack again.
 

Iraq war was a war for oil

Oil, the U.S.-Middle East Free Trade Area and the Bush Agenda By Antonia Juhasz,

 Antonia Juhasz, a visiting scholar at the Institute for Policy Studies, is the author of The Bush Agenda: Invading the World, One Economy at a Time, on which part of this article is based. She is working on a new book that will make the case for the break-up of the largest American oil companies. Learn more at www.TheBushAgenda.net

Remember oil? That thing we didn’t go to war in Iraq for? Now with his war under attack, even President George W. Bush has gone public, telling reporters last August, “[a] failed Iraq … would give the terrorists and extremists an additional tool besides safe haven, and that is revenues from oil sales.” Of course, Bush not only wants to keep oil out of his enemies’ hands, he also wants to put it into the hands of his friends. 

The President’s concern over Iraq’s oil is shared by the Iraq Study Group, which on December 6 released its much-anticipated report. While the mainstream press focused on the report’s criticism of Bush’s handling of the war and the report’s call for (potential) removal of (most) U.S. troops (maybe) by 2008, ignored was the report’s focus on Iraq’s oil. Page 1, chapter 1 laid out in no uncertain terms Iraq’s importance to the Middle East, the United States and the world with this reminder: “It has the world’s second-largest known oil reserves.” The group then proceeds to give very specific and radical recommendations as to what should be done to secure those reserves. 

Guaranteeing access to Iraq’s oil, however isn’t the whole story. Despite the lives lost and the utter ruin that the war has brought, the overarching economic agenda that the administration is successfully pursuing in the Middle East might be the most enduring legacy of the war—and the most ignored.  Just two months after declaring “mission accomplished” in Iraq, Bush announced his plans for a U.S.-Middle East Free Trade Area to spread the economic invasion well-underway in Iraq to the rest of the region by 2013. Negotiations have progressed rapidly as countries seek to prove that they are with the United States, not against it.

The Bush Agenda

Within days of the 9/11 terrorist attacks, then-U.S. Trade Representative Robert Zoellick announced that the Bush administration would be “countering terror with trade.” Bush reiterated that pledge four years later when he told the United Nations, “By expanding trade, we spread hope and opportunity to the corners of the world, and we strike a blow against the terrorists. Our agenda for freer trade is part of our agenda for a freer world.” In the case of the March 2003 invasion and ongoing occupation of Iraq, these “free trade”—or corporate globalization—policies have been applied in tandem with America’s military forces.

The Bush administration used the military invasion of Iraq to oust its leader, replace its government, implement new economic and political laws, and write a new constitution. The new economic laws have transformed Iraq’s economy, applying some of the most radical—and sought-after—corporate globalization policies in the world and locking in sweeping advantages to U.S. corporations. Through the ongoing occupation, the Bush administration seeks to ensure that both Iraq’s new government and this new economic structure stay firmly in place. The ultimate goal—opening Iraq to U.S. oil companies—is reaching fruition.

In 2004, Michael Scheuer—the CIA’s senior expert on al-Qaeda until he quit in disgust with the Bush administration—wrote, “The U.S. invasion of Iraq was not preemption; it was … an avaricious, premeditated, unprovoked war against a foe who posed no immediate threat but whose defeat did offer economic advantages.”  How right he was. For it is an absolute fallacy that the Bush administration had no post-invasion plan for Iraq. The administration had a very clear economic plan that has contributed significantly to the disastrous results of the war. The plan was prepared at least two months prior to the war by the U.S. consultancy firm, Bearing Point, Inc., which then received a $250 million contract to remake Iraq’s economic infrastructure.

L. Paul Bremer III—the head of the U.S. occupation government of Iraq, the Coalition Provisional Authority (CPA)—followed Bearing Point’s plan to the letter. From May 6, 2003 until June 28, 2004, Bremer implemented his “100 Orders” with the force of law, all but a handful of which remain in place today. As the preamble to many of the orders state, they are intended to “transition [Iraq] from a … centrally planned economy to a market economy” virtually overnight and by U.S. fiat.  Bremer’s orders included firing the entire Iraqi military—some half a million men—in the first weeks of the occupation. Suddenly jobless, many of these men took their guns with them and joined the violent insurgency. Bremer also fired 120,000 of Iraq’s senior bureaucrats from every government ministry, hospital and school. {By removing the Sumi bureaucracy, they removed opposition to globalization.  The U.S. could now shop for support from what would soon be a newly elected factionalized parliament—jk.}  His laws allowed for the privatization of Iraq’s state-owned enterprises (excluding oil) and for American companies to receive preferential treatment over Iraqis in the awarding of reconstruction contracts. The laws reduced taxes on all corporations by 25 percent and opened every sector of the Iraqi economy to private foreign investment. The laws allowed foreign firms to own 100 percent of Iraqi businesses (as opposed to partnering with Iraqi firms) and to send their profits home without having to invest a cent in the struggling Iraqi economy. Iraqi laws governing banking, foreign investment, patents, copyrights, business ownership, taxes, the media, agriculture and trade were all changed to conform to U.S. goals. 

After the U.S. corporate invasion of Iraq

More than 150 U.S. companies were awarded contracts for post-war work totaling more than $50 billion.  The American companies were hired, even though Iraqi companies had successfully rebuilt the country after the previous U.S. invasion. And, because the American companies did not have to hire Iraqis, many imported foreign workers instead. The Iraqis were, of course, well aware that American firms had received billions of dollars for reconstruction, that Iraqi companies and workers had been rejected and that the country was still without basic services. The result: increasing hostility, acts of sabotage targeted directly at foreign contractors and their work, and a rising insurgency.

Halliburton received the largest contract, worth more than $12 billion, while 13 other U.S. companies received contracts worth more than $1.5 billion each. The seven largest reconstruction contracts went to the Parsons Corporation of Pasadena, Calif. ($5.3 billion); Fluor Corporation of Aliso Viejo, Calif. ($3.75 billion); Washington Group International of Boise, Idaho ($3.1 billion); Shaw Group of Baton Rouge, La. ($3 billion); Bechtel Corporation of San Francisco ($2.8 billion); Perini Corporation of Framingham, Mass. ($2.5 billion); and Contrack International, Inc. of Arlington, Va. ($2.3 billion). These companies are responsible for virtually all reconstruction in Iraq, including water, bridges, roads, hospitals, and sewers and, most significantly, electricity.

U.S. Air Force Colonel Sam Gardiner, author of a 2002 U.S. government study on the likely effect that U.S. bombardment would have on Iraq’s power system, said, “frankly, if we had just given the Iraqis some baling wire and a little bit of space to keep things running, it would have been better. But instead we’ve let big U.S. companies go in with plans for major overhauls.”

Many companies had their sights set on years-long privatization in Iraq, which helps explain their interest in “major overhauls” rather than getting the systems up and running. Cliff Mumm, head of Bechtel’s Iraq operation, put it this way: “[Iraq] has two rivers, it’s fertile, it’s sitting on an ocean of oil. Iraq ought to be a major player in the world. And we want to be working for them long term.”

And, since many U.S. contracts guaranteed that all of the companies’ costs would be covered, plus a set rate of profit (known as cost-plus contracts), they took their time, building expensive new facilities that showcased their skills and would serve their own needs should they be runing the systems one day.

Mismanagement, waste, abuse and criminality have also characterized U.S. corporations in Iraq—leading to a series of U.S. contract cancellations. For example, a $243 million contract held by the Parsons Corporation for the construction of 150 health care centers was cancelled after more than two years of work and $186 million yielded just six centers, only two of which are serving patients. Parsons was also dropped from two different contracts to build prisons, one in Mosul and the other in Nasiriyah. The Bechtel Corporation was dropped from a $50 million contract for the construction of a children’s hospital in Basra after it went $90 million over budget and a year-and-a-half behind schedule. These contracts have since been turned over to Iraqi companies.

Halliburton’s subsidiary KBR is currently being investigated by government agencies and facing dozens of charges for waste, fraud and abuse. Most significantly, in 2006, the U.S. Army cancelled Halliburton’s largest government contract, the Logistics Civil Augmentation Program (LOGCAP), which was for worldwide logistical support to U.S. troops. Halliburton will continue its current Iraq contract, but this year the LOGCAP will be broken into smaller parts and competitively bid out to other companies.

The Special Inspector General for Iraq Reconstruction (SIGIR), a congressionally-mandated independent auditing and oversight body, has opened 256 investigations into criminal fraud, four of which have resulted in convictions. SIGIR has provided critical oversight of the U.S. reconstruction, but this fall it nearly fell prey to a GOP attempt to shut down its activities well ahead of schedule. Fortunately, it survived.

SIGIR’s October 2006 report to Congress reveals the failure of U.S. corporations in Iraq. In the electricity sector, less than half of all planned projects in Iraq have been completed, while 21 percent have yet to even begin. Even the term “complete” can be misleading as, for example, SIGIR has found that contractors have failed to build transmission and distribution lines to connect new generators to homes and businesses. Thus, nationally, Iraqis have on average just 11 hours of electricity a day, and in Baghdad, the heart of instability in Iraq, there are between four and eight hours on average per day. Before the war, Baghdad averaged 24 hours per day of electricity.

While there has been greater success in finishing water and sewage projects, the fact that 80 percent of potable water projects are reported complete does little good if there is no electricity to pump the water into homes, hospitals or businesses. Meanwhile, the health care sector is truly a tragedy. Just 36 percent of planned projects are reported as complete. Of 20 planned hospitals, 12 are finished and only six of 150 planned public health centers are serving patients today.

Overall, the economy is languishing, with high inflation, low growth, and unemployment rates estimated at 30 to 50 percent {being part of a militia is providing employment} for the nation and as high as 70 percent in some areas. The International Monetary Fund has enforced a structural adjustment program on Iraq that mirrors much of Bush’s corporate globalization agenda, and the administration continues to push for Iraq’s admission into the World Trade Organization.

Iraq has not, therefore, emerged as the wealthy free market haven that Bush & Co. had hoped for. Several U.S. companies are now preparing to pack up, head home and take their billions of dollars with them, their work in Iraq left undone.  The Bush administration is likely to follow a dual strategy: continuing to pursue a corporate free-trade haven in Iraq, while helping U.S. corporations extricate themselves without consequence. The administration will also focus on the big prize: Iraq’s oil.

Winning Iraq’s oil prize: 

The Bush Agenda does have supporters, especially those corporate allies that have both shaped and benefited from the administration’s economic and military policies.  In the 2000 election cycle, the oil and gas industry donated 13 times more money to Bush’s campaign than to Al Gore’s. The Bush administration is the first in history in which the president, vice president and secretary of state are all former energy company officials. In fact, the only other U.S. president to come from the oil and gas industry was Bush’s father. Moreover, both George W. Bush and Condoleezza Rice have more experience running oil companies than they do working for the government.

Planning to secure Iraq’s oil for U.S. companies began on the tenth day of the Bush presidency, when Vice President Dick Cheney established the National Energy Policy Development Group—widely referred to as “Cheney’s Energy Task Force.” It produced two lists, titled “Foreign Suitors for Iraqi Oilfield Contracts as of 5 March 2001,” which named more than 60 companies from some 30 countries with contracts for oil and gas projects across Iraq—none of which were with American firms. However, because sanctions were imposed on Iraq at this time, none of the contracts could come into force. If the sanctions were removed—which was becoming increasingly likely as public opinion turned against the sanctions and Hussein remained in power—the contracts would go to all of those foreign oil companies and the U.S. oil industry would be shut out.

As the Bush administration stepped up its war planning, the State Department began preparations for post-invasion Iraq. Meeting four times between December 2002 and April 2003, members of the State Department’s Oil and Energy Working Group mapped out Iraq’s oil future. They agreed that Iraq “should be opened to international oil companies as quickly as possible after the war” and that the best method for doing so was through Production Sharing Agreements (PSAs).

PSAs are considered “privatization lite” in the oil business and, as such, are the favorite of international oil companies and the worst-case scenario for oil-rich states. With PSAs, oil ownership ultimately rests with the government, but the most profitable aspects of the industry—exploration and production—are contracted to the private companies under highly favorable terms. None of the top oil producers in the Middle East use PSAs, because they favor private companies at the expense of the exporting governments. In fact, PSAs are only used in respect to about 12 percent of world oil reserves {such as Nigeria}. 

 

Weakness of the propagated by MSM hypothesis about Saudi Arabia fighting for its market share

In 2013 before oil prices slump started Saudies shipped 7.54 million barrels a day on average up from 7.41 million barrels a day in 2012 (JODI website ). Saudi Arabia exported 5.49 million barrels a day in 2002, when the group began collecting oil data. Saudi monthly exports in 2013 peaked at 7.84 million barrels a day in August, the most since April and May of 2003. North Sea Brent, the benchmark for more than half of the world’s oil, averaged $110.82 a barrel during the 2010-2013.

Saudi Arabia produced 10.28 million barrels a day in October, 2015,  up from 9.69Mb/done year ago.   Chances that production will reach 11 Mb/d are slim. There are strong signs that they have huge difficulties in increasing oil extraction volume.  All their efforts to increase production led to increase of less then 1Mb/d  increase in 2015. Which is partially offset by  increase in internal consumption (In 2015 Saudi Arabia oil demand rose by a notable 0.21 mb/d, a nearly 8% annual rise)  Here is relevant quote (OilPrice.com, Dec 21, 2015). All they can achieve is 7% increase of exports.

Crude exports from Saudi Arabia rose from an average of 7.111 million barrels per day in September to 7.364 million per day in October, according to the latest data from the Joint Organizations Data Initiative (JODI), which monitors the oil industry. The report said this quantity was the most oil exported from Saudi Arabia since June and 7 percent higher than in October 2014.

The key question about propagated by MSM hypothesis about Saudi Arabia fighting for its market share is "Why piss yourself without any need?". 

That means that if Saudis withdraw one Mb/s from the market in 2015 and exported the same 7 Mb/d (instead of 7.5 Mb/d, saving around 0.5 Mb/d of their oil reserves, not counting rise in internal consumption)  their revenue would be  125 billions.  While after increasing oil production to maximum (no spare capacities) they got oil revenue $118 billions.  Less money for more effort.  Their proven oil reserves are only 268 billion barrels (EIA)  which at current rate of production (which is around 3.6 billion barrels per year) get them less then a hundred years.

Moreover they need approximately $100 oil to balance budget, so low oil prices mean depletion of their currency reserves, which if prices say on the current level will last less then 10 years.  Saudi Arabia’s record deficit of  $98 billion in 2015 At the end of October, its reserves fell to $644 billion from $732 billion at the end of last year.  The finance ministry has issued bonds worth $20 billion for the domestic market. projected means that dumping oil on the market was a self-destructive action.

The only reasonable explanation for such suicidal actions is that they launched "all-out" economic war against their arch-enemy Iran depriving it of oil revenue after lifting sanctions, hitting simultaneously Russia, Venezuela and couple of other countries they do not like.  In any case such an action should be approved by Washington as Saudis are a vassal state completely dependent on Washington for survival of their monarchic regime.

And it is easy to see huge benefits for Washington from such Saudis-Iran oil war.  Moreover may be lifting sanction itself was a gentle push for Saudis to unleash this war.

Not everybody buy MSM propagated version of Saudis behaviour. For example here is a comment from Yahoo (Saudi to diversify economy away from oil King Salman)

brian  Dec 30, 2015

This oil collapse is engineered by Saudi with the Western media. As the analysts are saying the daily over production is 1.5 million barrels. 1.5 out of 100 million daily production is ONLY 1.5% percent. Why did Saudi keep on over producing and with the media bombarding over production, the future's market is easily manipulated as oil collapsed to $36 per barrel.

This just does not make sense and not fair to the commodity producing nations. If you look at the U.S., Euro, Japan, China all they are doing is QE, printing money to supercharge their economy. On the other hand, the commodity nations are contracting.

Si

Saudi Arabia is in a conundrum, it has propped up its Clergy and kept majority of its population illiterate. This was done to keep the Kingdom under full control of its population, their women folk are even further worst off. The country is run by expatriates from around the world, mostly from Egypt, Pakistan, India, Bangladesh and Malaysia. According to Saudi rules these expatriates can not ever become citizens, even after many generations. Unlike Iran whose population is highly educated (Men and Women), Saudi administrators are afraid if Saudi gets educated there will be a revolution and that will affect how Saudi Arabia is ruled. My bet is Saudi Arabia can not progress beyond oil based economy.

 

And in another Yahoo thread Oil down 3 percent; Brent near 11-year low as oversupply worries return
Old Midwest Geezer
Saudi Arabia is fighting a financial war against Iran, its mortal enemy. Iran's main source of income is oil and SA is putting the screws to them and their Russian buddies. They picked up a perk by squeezing the US shale oil producers.

Hedging and junk debt: shale oil as subprime oil


"There are too many ugly balance sheets," warns one energy industry analyst, adding simply that "the group is not positioned for this downturn." While the mainstream media continues to chant the happy-clappy side of lower oil prices, spewing various 'statistics' about how the down-side of low oil prices is 'contained' and the huge colossal massive tax cut means 'everything is awesome' for America, the data - and now actions - do not bear this out.

Zero Hedge

Shale oil companies were not making as bandits when prices were $100. They operated in a very risky and rather unstable environment and mot of them took substantial amoount of debt.  Many used hedges regularly to make the environment more stable which is double edge sword -- it helps if price drop but deprive you of profits if price surge. Those who did were in better shape in 2015 when oil prices dropped to $35 per barrel (WTI).  Here is a good explanation of hedging from a post in peakoilbarrel.com blog:

shallow sand, 12/20/2015 at 8:56 am
Donn. Companies hedge with counter parties. Those are usually large banks. The there are 3 basic types of hedges.
  1. SWAP. The producer and counter party agree to a fixed price, say $70 per barrel. If the price goes above $70, the producer pays the counterparty the difference. If it goes below $70, the counterparty pays the producer.
  2. Cost less collars. These are like SWAPS, but in a range. Say the parties agree to a collar of $60-80. No money changes hands unless the price goes outside the range.
  3. The third is a floor, or put. The producer pays a premium to the counterparty. Say the producer buys $60 puts. If the price falls below $60, the counterparty pays the producer.

There are various hybrids and modifications of the above.

The price levels and cost of puts are based on the futures market. It is now impossible to hedge anything remotely profitable for the shale industry and a good portion of US conventional.

Furthermore, it is difficult to hedge production past 24 months. This is especially true for shale, with the high declines.

One concern with SWAPS or collars is in the event of a price spike, the producer produces less barrels than that hedged. That can wind of costing the producer a lot of $$. Also, theses types of hedges can result in very large margin requirements of the producers, but they commonly avoid those by allowing a first lien on production.

Another problem with hedges is giving up upside. If it were possible, someone who hedged in 2003 for the next ten years at $30 a barrel would be BK, as the price rocketed up, which caused OPEX to also skyrocket.

Most companies do not hedge past 24 months. Also, they do it in layers so that not as many barrels are hedged n the later years.

Many companies had significant hedge gains in 2015. There will be much less in 2016 and almost none in 2017.

Shale companies debt was typically rated as junk which means that chances for repayment of the load are low.  Just due to this fact the current talk about profitability of certain parts of shale at below then $50 prices looks a little bit suspicious even with some technology advances which were sped up by the price slum as well as lower service companies costs.   To many observers $60-$75 per barrel looks like a more reasonable minimal price for shale oil sustainable extraction, if the amount of junk bond debt is counted.

The current talk about profitability of certain parts of shale at below then $50 prices looks a little bit suspicious.   To many observers $60-$75 per barrel looks like more a reasonable minimal price for shale oil sustainable extraction, if the amount of junk bond debt is counted. 

Some technological improvements can cut costs. Neglecting ecological concerns can cut costs. The strong dollar and crash of other commodities can cut some costs (as steel and some equipment, can be bought at much lower prices). But whether all three factors mentioned can cut 50% of costs is a big multibillion question.   Gail Tverberg, a well known commentator on "end of cheap oil" problem,  thinks that the current drop of prices looks more like a harbinger of the collapse of financial system then oversupply problem on world markets (Deflationary Collapse Ahead?  Aug 28, 2015  Our Finite World )

The entire shale oil industry in America is complex mix of new technological methods and new schemes of creation of  junk bonds by Wall Street (200 billion of this debt might also be securitized like subprime mortgages). There also might be some complex derivative bets  (including but not limited to related to hedging of oil prices by shale producers, airlines, etc).

Shale oil is impossible to understand without  proper context which is the existence of  sophisticated financial system and complex financial products under neoliberalism. Wall Street can be trusted as for its ability to produce exotic financial instrument tailored for particular purpose, which can blow in your face in case of any Black Swan event.  In this case this might be securitization of debt of shale oil companies that could play a role somewhat similar to subprime mortgages but on much smaller scale as the amount of dent is miniscular in comparison with subprime mortgages.  Still, in this sense, we can call shale oil subprime oil (Broken Energy Markets and the Downside of Hubbert’s Peak Energy Matters): 

The second example of a broken energy market I want to explore is the US shale industry.  This shares certain characteristics with the wind industry in that it is a high cost but potentially very large resource. But the mechanism for integration of this resource into the market is rather different. The problem with shale gas is that over-supply has resulted in the US gas price being dumped below the level where many shale operators can make a profit. Consumers in this case benefit through getting both secure and low priced gas. But the shale operators have reportedly racked up large losses that have been covered by expanding debt. These losses may yet come home to roost with the consumer if debt defaults result in a new credit crunch where the debts are socialised via government bailouts of the banking sector.

If it were possible to produce shale gas at $1 / million btus then everyone would be happy. Consumers would be getting secure and cheap energy and producers would be making handsome profits to distribute to shareholders. That is how capitalism is supposed to work. The system as it has operated seems broken.

US Light tight oil (LTO) production appears now to have created the same problem for the liquids plays where the entrance of expensive liquids in the market have contributed to the crash in the oil price. This has created risks for the LTO operators. It remains to be seen if the LTO sector sees mass insolvencies and default on loans that may socialise these losses. The introduction of high cost LTO has also undermined the whole of the higher cost component of the conventional oil sector. If LTO could be produced in large quantities for $20 / bbl then there would be no problem since this source would  go on to substitute for the higher cost conventional sources of supply. But with costs closer to $60-$80 this is not going to happen. The conundrum for capitalism is the introduction of large quantities of higher cost energy to the system.

At this point I have to admit that nuclear power may be subject to similar limitations. It is difficult to view the Hinkley Point new nuclear build in the UK as a triumph for the consumer or the country. A better way to manage such enormous capital expenditure on vital infrastructure is via the state. The costs may eventually be socialised to the tax payer, but at least the energy is reliable and amongst the safest forms of power generation ever developed and the taxation system distributes costs in an equitable way.

A form of society could undoubtedly exist powered by nuclear, wind and shale gas. But it would be a society supported by the state with far larger numbers working in the energy industries than now, producing lower surpluses, the energy production part perhaps running at a perennial loss. Those losses have to be covered by either higher price or via the taxation system. Either way, the brave new world that awaits us will be characterized as the time of less that will be in stark contrast to the time of plenty many of us enjoyed during the 20th Century.

The so-called “shale revolution” in the U.S. was partially powered by innovation in horizontal drilling but  its cornerstone is the junk bond market. Which questions boom’s the long-term sustainability.  As The Wall Street Journal  reported total debt is   almost $200 billion. At 7% that's 14 billion of interest a year. Or at $40 per barrel 350 million barrels per year are needed just to service the debt. That's almost million barrels per day or almost total production of Bakken field (dmr.nd.gov )

And now,  the bankruptcies have begun as financing costs are not just prohibitive, there is no liquidity available at any price for many...

American oil and gas companies have gone heavily into debt during the energy boom, increasing their borrowings by 55% since 2010, to almost $200 billion.

Their need to service that debt helps explain why U.S. producers plan to continue pumping oil even as crude trades for less than $50 a barrel, down 55% since last June.

But signs of strain are building in the oil patch, where revenue growth hasn’t kept pace with borrowing. On Sunday, a private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money and citing debt of between $10 million and $50 million. Neither the Austin-based company nor its lawyers responded to requests for comment.

Energy analysts warn defaults could be coming. “The group is not positioned for this downturn,” said Daniel Katzenberg, an analyst at Robert W. Baird & Co. “There are too many ugly balance sheets.”

...

In 2010, U.S. companies focused on producing oil and gas had $128 billion in combined total debt, according to financial data collected by S&P Capital IQ.

As of their latest quarter, such companies had $199 billion of combined total debt.

Even is "good times", before the start of current oil price slump,  the whole shale industry was financed only via junk bond market:  75 of the 97 energy E&P companies were rated by S&P below investment grade (Shale Boom Built on ‘Junk’ - GE Reports Ideas, May 19, 2014)

Although share prices for most U.S. exploration and production (E&P) companies are at all-time highs, the elephant in the room is an industry financed by the high-yield debt market, better known as “junk bonds.” The S&P says that 75 of the 97 energy E&P companies it rates are below investment grade.

The report cites a recent analysis by Energy Aspects, a commodity research consultancy, of 35 independent companies that shows a steadily worsening financial picture across the last six years. The analysis showed the companies spent as much as they brought in and “net cash flow is becoming negative while debt keeps rising.”
 

Many of the oil-drilling newcomers set up shop in order to take advantage of the low rates and easy money available in the bond market. Now that oil prices have crashed, investors are avoiding energy-related junk bonds. Moreover the whole US bond market started to turn south (in correlation with stocks) in anticipation of rate hikes. Which is making it impossible for the smaller companies to roll over their debt or attract fresh capital. The most indebted companies from Here Are America's Most Levered Energy Companies Zero Hedge are:

Source: CapIQ

When these companies need to refinance their bond they are forced to default or, if they have valuable properties, be acquired by larger companies. The whole situation with junk bonds from shale companies has some analogy with subprime loads and while lesser in scale still can serve as a catalyst for another financial meltdown (WSJ.com)

Energy companies, the fastest-growing segment of the high-yield bond market in recent years, account for nearly 18% of all outstanding high-yield bonds, up from 9% in 2009, according to J.P. Morgan.

Mr. Hamid says that the 40% possible default rate is the upper limit over the next few years, and that energy companies will take steps to avoid falling into bankruptcy, including cutting spending and selling assets.

Still even if companies make smart moves to cut costs, with oil at $65 per barrel or below for the next three years, he estimates that default rates high-yield bonds from the energy sector could still hover around 20% to 25%. “It would become a very dire scenario,” Mr. Hamid said.

After a steep plunge in oil prices last week, WTI crude, the U.S. benchmark, was recently up 3% to $68.14 a barrel in Monday morning trading.

He predicts that not that many companies will default in 2015 because many companies have hedged their exposure. But he expects that energy companies will run into trouble in 2016 as even the most conservative energy companies will see most of their hedges run off.

Energy companies are the largest sector in the high-yield universe by a wide margin. The next largest sector, J.P. Morgan estimates, is the healthcare sector, which accounts for 7.1%.
 

The total size of shale companies junk bond debt is estimated at 200 billions out of which at least 20 billions are not recoverable.

The additional huge problem is that the banks again have bundled a lot of shale companies debt into financially-engineered products like Collateralized Loan Obligations (CLOs) and Collateralized Debt Obligations (CDOs), which much like subprime CLO and CDO are overrated and might fail when borrowers are no longer able to service the loans. The rot can be concealed for a while (may be two-three years -- as long as existing well produce oil in quantity to pay the debt), but eventually, if oil prices don’t recover, a significant number of these companies are going to go under

Vultures start circling shale companies

If low prices persist for all 2016 many shale oil companies are doomed. And vultures already started circling them:

Clueless, 12/19/2015 at 10:40 pm
I would guess that by now, most can see what is happening and therefore, what is going to happen in the future since the model has been established. The banks are not going to take serious hits. Re: Magnum Hunter and New Gulf Resources.

I remember seeing some vulture investor discussions back in 2009. They were stating that they would never buy equity in failing companies: they would take control thru the debt. Much more upside possible. So, a company with $1 billion in debt has its bonds trading at say 70 cents on the $ and it is rated junk. The bond funds that hold the debt [their covenants prohibit them from holding “bankrupt” rated debt] sells to novice speculators. Then the debt plunges to 10- 30 cents on the dollar. The investment/hedge funds step in. They can buy $1 billion of debt for $300 million or less, and the are praying that the company does go belly up. If it does, they get 100% of the equity, and agree to put in another $200 million to ride out the storm. A totally non-contested, prearranged bankruptcy. If things come back [even partially], they might own a company worth $2 billion for their $500 million investment. 

shallow sand, 12/19/2015 at 11:20 pm
Clueless. You are correct. I might add that the vultures do not appear to be just purchasing the debt. They are trading unsecured debt for second lien debt. I am not sure how this works, but from what I have read, the unsecured bonds have very weak covenants. The vultures give the unsecured bond holders the option of taking pennies on the dollar or becoming subordinate the vultures on all the debt the vultures are able to trade out.

The vultures better be pretty sharp, however. 1st, they better have a good handle on the assets they are trying to acquire. Second, they better have a good team put together to operate the assets. Third, they better have a better handle on future oil and gas prices than schmucks like me.

I saw something similar to this up close in the aftermath if the 1998-99 crash. An investor group bought the bad debt from a bank for pennies on the dollar, took assignment of the liens and foreclosed.

The investor group found out in a hurry that they didn’t quite know what they had bought, and that it wasn’t easy to manage from 1000+ miles away. They had a hell of a field superintendent, but of course they thought they were smarter than him, despite him having grown up in the middle of the field.

In any event, after burning several million dollars, the sold the assets and I am sure took a big loss. They also screwed up on timing the sale. Had they held on for about 3 more years they could have at least quintupled the sale proceeds. But they knew about as much as I, or really any of us, know about where oil prices are headed.

I am sure these distressed buyers are real sharks. But sharks can die too.

What is the sustainable minimal oil price with the current oil reserves depletion

As oil is important geopolitical resource there can be no definite answer to it. Still there is a probability that the peak "cheap oil" has already occurred, but we won’t know that until several years after the fact.  There is a large discrepancy in estimates ;-).  Much depends of the type of oil in question with shale, oil sands, as deep water oil as the most expensive.

Shale oil has a break even price around $70-75 / barrel for most shale producers and at below $50, every single well is losing money. There are also pretty expensive oil extracted from  deepwater (around 7 Mb/d). Which at current oil prices will shrink approximately 10% per year.  And there are around 20 MB/d in shallow water with higher staying power but also declining 10% due to lack of investments in current price situation.  Half of oil production from future developments is uneconomic at US$60/bbl (post of AlexS 01/29/2016 at 7:06 pm )

EIA projects that in 2030 the average real price of crude oil is projected to be $72 per barrel in 2006 dollars or about $113 per barrel in nominal dollars. Projected U.S. crude oil production averages 9.3 Mb/d in 2015 and 8.8 Mb/d in 2016.  Decline is 0.5 Mb/d.  EIA is always on optimists side (they were major cheerleaders of shale bubble, which makes them more of propaganda agency then statistical outlet)  so you can probably assume that 2020 prices of oil will be above, especially if low prices will last the whole 2016.  

Pricewise EIA projections are dropping all 2015 (Short-Term Energy Outlook)

EIA short term predictions as of December 3, 2015 suggest that low oil prices might continue to dominate the first quarter of 2016:

Previously common wisdom was around that price will return to $100 per barrel on average in 2016, which the following post from Zerohedge illustrates:

6344498 Magooo

HOW HIGH OIL PRICES WILL PERMANENTLY CAP ECONOMIC GROWTH For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil production has quadrupled, and that shift will permanently shackle the growth potential of the world’s economies.  http://www.bloomberg.com/news/articles/2012-09-23/how-high-oil-prices-will-permanently-cap-economic-growth

HIGH PRICED OIL DESTROYS GROWTH According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices.  http://www.EIA.org/textbase/npsum/high_oil04sum.pdf

BUT WE NEED HIGH OIL PRICES:  Marginal oil production costs are heading towards $100/barrel http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth.  http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html

Sanford C. Bernstein, the Wall Street research company, calls the rapid increase in production costs “the dark side of the golden age of shale”. In a recent analysis, it estimates that non-Opec marginal cost of production rose last year to $104.5 a barrel, up more than 13 per cent from $92.3 a barrel in 2011.   http://www.ft.com/intl/cms/s/0/ec3bb622-c794-11e2-9c52-00144feab7de.html#axzz3T4sTXDB5

Now all those consideration looks far less plausible in a short term (one year) period. Here are some "post oil price slump" considerations (in 2013 dollars):

Wikipedia article gives a more wide range of prices at wellhead (without cost of servicing the debt and transportation costs) from $35 to $95 for shale oil (Oil shale economics - Wikipedia)

The United States Department of Energy estimates that the ex-situ processing would be economic at sustained average world oil prices above US $54 per barrel and in-situ processing would be economic at prices above $35 per barrel. These estimates assume a return rate of 15%.[6] The International Energy Agency estimates, based on the various pilot projects, that investment and operating costs would be similar to those of Canadian oil sands, that means would be economic at prices above $60 per barrel at current costs. This figure does not account carbon pricing, which will add additional cost.[4] According to the New Policies Scenario introduced in its World Energy Outlook 2010, a price of $50 per tonne of emitted CO2, expected by 2035, will add additional $7.50 per barrel cost of shale oil.[4]

According to a survey conducted by the RAND Corporation, the cost of producing a barrel of oil at a surface retorting complex in the United States (comprising a mine, retorting plant, upgrading plant, supporting utilities, and spent shale reclamation), would range between $70–95 ($440–600/m3, adjusted to 2005 values). This estimate considers varying levels of kerogen quality and extraction efficiency. In order for the operation to be profitable, the price of crude oil would need to remain above these levels. The analysis also discusses the expectation that processing costs would drop after the complex was established. The hypothetical unit would see a cost reduction of 35–70% after its first 500 million barrels (79×10^6 m3) were produced. Assuming an increase in output of 25 thousand barrels per day (4.0×10^3 m3/d) during each year after the start of commercial production, the costs would then be expected to decline to $35–48 per barrel ($220–300/m3) within 12 years. After achieving the milestone of 1 billion barrels (160×10^6 m3), its costs would decline further to $30–40 per barrel ($190–250/m3).[7]

 

Floor for oil prices for 2016

The only function of economic forecasting is to make astrology look respectable.
 ~John Kenneth Galbraith

The most common view is that most US shale producers are highly vulnerable if price falls below $60 and are losing money on each barrel of oil they produce  at prices below $50. With difficulties of junk bond re-financing this figure should be higher. Some Russian sources cite $75 per bbl as a breakeven price for US shale oil.  This estimate is supported by the following detailed report BAKKEN - Single Well Economics  (Jan 4, 2016).

Here is a pretty telling graph from  Scotiabank (they have way too optimistic price for Bakken I think: adding $10 to $47 we get $57 for Bakken, which is probably 10 to 20 dollars low):

 

Source Why oil prices keep falling — and throwing the world into turmoil - Vox

As you can see plausible minimum for shale oil wellhead costs is around $55( $45+$10) per barrel ( and that  does not include the cost of servicing of junk bond debt).  If prices in 2016 remain under $50/bbl (as many forecaster expect), shale oil production in the United States will likely see a substantial decline in output and many shale companies will face merger or pushed into bankruptcy. But as for total US output, this decline will be partially offset by Gulf oil coming into production so for the first six months of 2015 total decline probably will be around 0.5Mb/d or lower. 

In any case, as 2015 has shown low prices became sticky and self reinforcing via Wall Street financial mechanisms. So chances for quick reversal in 2016 are close to zero. That spells real trouble for the US shale oil industry as well as Canada oil sands production  (QE At Work Pouring Cheap Debt Into The Shale Ponzi David Stockman's Contra Corner) as well as speculators in oil futures who will be wiped out via EFN  (outside major banks and those who shorted oil):

There are two pieces of the economic puzzle when it comes to shale. First is that most shale oil deposits are not profitable to extract except at current high prices. This drilling/extraction method is not cheap. Breakeven prices vary by region but it is safe to say that no shale oil deposits are profitable below $50/barrel and most areas require much higher prices. An average might be in the range of $65 and there are plenty of areas where the price needs to be above $80 before anyone makes a nickel.

I would just note that oil traded, albeit briefly, at $34 in the last recession. Second is the production profile of shale wells; production drops off rather precipitously after the first year (in contrast with traditional wells which deplete over much longer time frames). Combine high extraction costs with rapid depletion and the economics of shale become not only dubious but frankly insane.

Usually forecasts of oil prices are not work the paper or electrons. but there are some exceptions to this rule. For example  Bill Connoly in his Oil Price Forecast 2015-2016 - Forbes was one of the few forecasters who proved to be right as for 2015; remains to be seen for 2016.

My price forecast is that today’s $60 price is likely to be the high end for the coming two years. There may be temporary market volatility higher, but don’t expect a higher price to be sustained. At the low end, $50 seems like a floor absent a global recession.

OilPrice.com analysts think that the bankruptcy of shale companies and drastic reduction of the number of new projects and capital expenditures will eventually move the oil price up to $70+ range. And that the production of shell oil in the USA will drop 1 Mb/d in 2016 or even more, while consumption rises as record number of cars was sold in 2015.  But this process in not immediate and can take more then one year as in 2015 oil production defied gloomy forecasts and remains relatively stable (Oil Price Scenarios For 2015 And 2016 OilPrice.com_

The spare capacity data suggests that demand/supply imbalance may last three years, requiring 18 months to work through to the mid-cycle point where over-supply turns to under-supply. It is by no means certain that the market will respond to the same time dynamic when we are now dependent upon natural production capacity wastage to occur as opposed to OPEC simply closing the spigot. But this is all I have to go on.

The downturn in the current price cycle began last July and we are therefore just 6 months in. Another year of pain to go for the producers, that is unless OPEC decides to intervene.

In we count start of mid cycle from December of 2014 then we can see some upward pressure in July of 2016 or so.

Low prices also might mean that only selected shale projects ("sweet spots") with continue to be explored, diminishing of flow of oil from this source to the market ( Oil under US$60 beyond 2016 suggests market rethinking shale - Channel NewsAsia). Those places will be exhausted in two-three years making extraction more expensive on average.

If U.S. shale drillers - the world's new 'swing' producers - can still turn a profit at below US$60 a barrel, then the fall in long-dated oil prices may be rational. If not, as some bullish market analysts worry, then lower prices could be choking off new supplies the world may need as soon as next year.

"If you take the curve at face value, it appears to be saying that U.S. shale can grow ... if WTI stays below US$60 for three years. That doesn’t seem very likely," Paul Horsnell, global head of commodities research at Standard Chartered, said, referring to West Texas Intermediate crude.

"One would guess that all those companies that had been holding back from cutting projects and jobs over the past few months are not going to hold on much longer, and another shakeout will start. And it probably won’t be long before U.S. rig counts start to dive again."

Link to chart: http://link.reuters.com/tef25w 

... ... ...

U.S. oil futures for December 2017 delivery have dropped by as much as US$5 a barrel, or 8 percent, in the past two days, an even deeper retreat than last November when OPEC's surprise decision to maintain oil output despite a global glut sent markets into a deepening tailspin.

CLZ17 Commodity Futures Price Chart for Crude Oil WTI December 2017

[Note that they are close to $58 as of July 24, 2015 -- NNB]

EIA forecasts change with market prices

Short-Term Energy Outlook - U.S. Energy Information Administration (EIA)

In December 2015 EIA predicted average price of oil in 2016 much lower, around $51 a barrel, so EIA forecasts change really fast with future prices and as such are just educated guesses.

  2013 2014 2015 2016
WTI Crude Oila
(dollars per barrel)
97.98 93.17 49.08 50.89
Brent Crude Oil
(dollars per barrel)
108.56 98.89 52.93 55.78

Sustained low oil price will cut capital investment in oil dramatically

An extended period of lower oil prices would benefit consumers but would trigger energy-security concerns by heightening reliance on a small number of low-cost producers, or risk a sharp rebound in price if investment falls short, says the International Energy Agency (EIA) in the 2015 edition of its  World Energy Outlook publication (WEO-2015).We need to distinguish between oil as a chemical substance, a source used by chemical companies to produce all kind of useful things and oil as a source of motor fuel.  Oil is irreplaceable resource and burning it now deprive of oil future generations. As simple as that.

The US government policy of allowing (or, most probably, facilitating/engineering) very low oil prices is extremely unwise (I would use a stronger word) because at least for one segment of transportation (which is around 70% of total oil consumption in the USA) alternative does already exist. Small hybrid and electrical cars with prices of oil over $100 (and gasoline above $4 per gallon) are absolutely viable.

Instead now we have a huge jump in SUVs sales which became No.1 personal car category. To say nothing about light trucks. Which is the last thing we need.

Switch to natural gas in large vehicles such as buses (and small delivery trucks) also experiences a dramatic slow down (transit buses in Europe already are using this fuel on mass scale).

Again I think that it is the US government which is the culprit of destruction of the US shale industry which was build with such great effort and expense and is now on the verge of extinction. By really great people working in very difficult, challenging conditions.

The US government could buy excessive oil into strategic reserve or do something similar to keep prices at least above $70 dollars level. They could also prohibit short oil ETNs and other Wall Street machinations and for good effort jail couple of too aggressive traders for violation of some New Deal era laws(after all this is gambling, plain and simple) which are still on books after all this deregulation efforts by Clinton and Bush II administrations.

My point is that wind and solar might well be not the best choices. Other alternatives of renewable fuels exists. Meanwhile we need to save oil and the best way to do it is to ramp up oil price to above $100 level, which ensure the survival of frackers, which unfortunately became a collateral damage in some larger, possibly geopolitical play.

Actually EIA recognizes the danger of oil price spikes caused by sustained low oil prices and low capex investments Sustained low oil prices could reduce exploration and production investment - Today in Energy - U.S. Energy Information Adminis

Low oil prices, if sustained, could mark the beginning of a long-term drop in upstream oil and natural gas investment. Oil prices reflect supply and demand balances, with increasing prices often suggesting a need for greater supply. Greater supply, in turn, typically requires increased investment in exploration and production (E&P) activities. Lower prices reduce investment activity.

Overlaying annual averages of the domestic first purchase price (adjusted for inflation) on oil and natural gas investment reveals that upstream investment is highly sensitive to changes in oil prices. Given the fall in oil prices that began in mid-2014 and the relationship between oil prices and upstream investment, it is possible that investment levels over the next several years will be significantly lower than the previous 10-year annual average.

Oil production is a capital-intensive industry that requires management of existing production assets and evaluation of prospective projects often requiring years of upfront investment spending on exploration, appraisal, and development before reserves are developed and produced.

Previous investment cycles provide insights into how investment responds to crude oil price changes. In 1981 and 1982, after crude oil prices significantly increased, investment topped out at more than $100 billion (in 2014 dollars) and then averaged $30 billion to $40 billion per year into the early 2000s as crude oil prices fell and remained in the $20-$30 per barrel (b) range. From 2003 to 2014, investment spending increased from $56 billion to a high of $158 billion as crude oil prices increased from $34.53/b to $87.39/b, including several months of prices reaching more than $100/b. EIA's 2015 Annual Energy Outlook Reference case projects real domestic first purchase prices to average about $70/b in 2020. This price level could result in substantially lower annual oil and natural gas investment over the 2015-20 period than the annual average of $122 billion spent during the 2005-14 investment cycle crest period

 

Additional "end of cheap energy" readings

See also my introduction to the topic of "End of cheap energy":


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[Jun 21, 2017] Fisticuffs Over the Route to a Clean-Energy Future by Eduardo Porter

Notable quotes:
"... They are relying on what looks like a watertight scholarly analysis to support their call: the work of a prominent energy systems engineer from Stanford University, Mark Z. Jacobson. With three co-authors, he published a widely heralded article two years ago asserting that it would be eminently feasible to power the American economy by midcentury almost entirely with energy from the wind, the sun and water. What's more, it would be cheaper than running it on fossil fuels. And yet the proposition is hardly as solid as Professor Jacobson asserts. ..."
"... "I had largely ignored the papers arguing that doing all with renewables was possible at negative costs because they struck me as obviously incorrect," said David Victor of the University of California, San Diego, a co-author of the new critique of Professor Jacobson's work. "But when policy makers started using this paper for scientific support, I thought, 'this paper is dangerous.'" ..."
"... The conclusion of the critique is damning: Professor Jacobson relied on "invalid modeling tools," committed "modeling errors" and made "implausible and inadequately supported assumptions," the scholars wrote. "Our paper is pretty devastating," said Varun Sivaram from the Council on Foreign Relations, a co-author of the new critique. ..."
Jun 21, 2017 | www.nytimes.com

This may seem like an irrelevant question, given that both the White House and Congress are controlled by a party that rejects the scientific consensus about human-driven climate change . But the proposition that it could, long a dream of an environmental movement as wary of nuclear energy as it is of fossil fuels, has been gaining ground among policy makers committed to reducing the nation's carbon footprint. Democrats in both the United States Senate and in the California Assembly have proposed legislation this year calling for a full transition to renewable energy sources.

They are relying on what looks like a watertight scholarly analysis to support their call: the work of a prominent energy systems engineer from Stanford University, Mark Z. Jacobson. With three co-authors, he published a widely heralded article two years ago asserting that it would be eminently feasible to power the American economy by midcentury almost entirely with energy from the wind, the sun and water. What's more, it would be cheaper than running it on fossil fuels. And yet the proposition is hardly as solid as Professor Jacobson asserts.

In a long-awaited article published this week in The Proceedings of the National Academy of Sciences - the same journal in which Professor Jacobson's manifesto appeared - a group of 21 prominent scholars, including physicists and engineers, climate scientists and sociologists, took a fine comb to the Jacobson paper and dismantled its conclusions bit by bit.

"I had largely ignored the papers arguing that doing all with renewables was possible at negative costs because they struck me as obviously incorrect," said David Victor of the University of California, San Diego, a co-author of the new critique of Professor Jacobson's work. "But when policy makers started using this paper for scientific support, I thought, 'this paper is dangerous.'"

The conclusion of the critique is damning: Professor Jacobson relied on "invalid modeling tools," committed "modeling errors" and made "implausible and inadequately supported assumptions," the scholars wrote. "Our paper is pretty devastating," said Varun Sivaram from the Council on Foreign Relations, a co-author of the new critique.

The experts are not opposed to aggressive investments in renewable energy. But they argue, as does most of the scientific community represented on the Intergovernmental Panel on Climate Change , that other energy sources - atomic power, say, or natural gas coupled with technologies to remove carbon from the atmosphere - are likely to prove indispensable in the global effort to combat climate change. Ignoring them risks derailing the effort to combat climate change.

But with the stakes so high, the gloves are clearly off.

Professor Jacobson is punching back hard. In an article published in the same issue of the Proceedings and in a related blog post , he argues that his critics' analysis "is riddled with errors and has no impact" on his conclusions.

In a conversation over the weekend, he accused his critics of being shills for the fossil fuel and nuclear industries, without the standing to review his work. "Their paper is really a dangerous paper," he told me.

But on close examination, Professor Jacobson's premise does seem a leap of faith.

Renewable sources provide only about a tenth of the United States' energy consumption. Increasing the penetration of intermittent energy sources from the sun and the wind is already proving a challenge for the electricity grid in many parts of the world.

Professor Jacobson not only claims renewables' share can be ramped up on the cheap to 100 percent within a few decades, but also that it can be done without bioenergy, which today contributes about half of the country's renewable-energy production.

And yet under the microscope of the critics - led by Christopher Clack, chief executive of the grid modeling firm Vibrant Clean Energy and formerly with the National Oceanic and Atmospheric Administration and the University of Colorado, Boulder - his proposed system does not hold together .

The weakness of energy systems powered by the sun and the wind is their intermittency. Where will the energy come from when the sun isn't shining and the wind isn't blowing? Professor Jacobson addresses this in two ways, vastly increasing the nation's peak hydroelectricity capacity and deploying energy storage at a vast scale.

"To repower the world, we need to expand a lot of things to a large scale," Professor Jacobson told me. "But there is no reason we can't scale up."

Actually, there are reasons. The main energy storage technologies he proposes - hydrogen and heat stored in rocks buried underground - have never been put in place at anywhere near the scale required to power a nation, or even a large city.

His system requires storing seven weeks' worth of energy consumption. Today, the 10 biggest storage systems in the United States combined store some 43 minutes. Hydrogen production would have to be scaled up by a factor of 100,000 or more to meet the requirements in Professor Jacobson's analysis, according to his critics.

Professor Jacobson notes that Denmark has deployed a heating system similar to the one he proposes. But Denmark adapted an existing underground pipe infrastructure to transport the heat, whereas a system would have to be built from scratch in American cities.

A common thread to the Jacobson approach is how little regard it shows for the political, social and technical plausibility of what would undoubtedly be wrenching transformations across the economy.

He argues for the viability of hydrogen-fueled aviation by noting the existence of a hydrogen-powered four-seat jet. Jumping from that to assert that hydrogen can economically fuel the nation's fleet within a few decades seems akin to arguing that because the United States sent a few astronauts to the moon we will all be able to move there soon.

He proposes building and deploying energy systems at a scale that has never been achieved and at a speed that nobody has ever tried. He assumes an implausibly low cost of capital. He asserts that most American industry will easily adjust its schedule to the availability of energy - unplugging when the wind and sun are down regardless of the needs of workers, suppliers, customers and other stakeholders.

And even after all this, the system fails unless it can obtain vast amounts of additional power from hydroelectricity as a backup at moments when other sources are weak: no less than 1,300 gigawatts. That is about 25 percent more power than is produced by all sources combined in the United States today, the equivalent of 600 Hoover Dams.

Building dams is hardly uncontroversial. So Professor Jacobson proposes adding this capacity with "zero increase in dam size, no annual increase in the use of water, no new land," simply by adding a lot more turbines to existing dams. It is not obvious that so many of them can be added, however, or at what cost. Especially considering they would be unproductive 90 percent of the time and for use only as a backstop. What's more, adding turbines does not increase the available energy at any given time unless there is more water pushing through them.

Ken Caldeira of the Carnegie Institution for Science, one of the lead authors of the critique, put it this way: The discharge rate needed from the nation's dams to achieve the 1,300 gigawatts would be equivalent to about 100 times the flow of the Mississippi River. Even if this kind of push were available, it is not hard to imagine that people living downstream might object to the release of such vast amounts of water.

"The whole system falls apart because this is the very last thing that is used," Professor Clack noted. "If you remove any of this, the model fails."

It is critically important to bring this debate into the open. For too long, climate advocacy and policy has been inflected by a hope that the energy transformation before us can be achieved cheaply and virtuously - in harmony with nature. But the transformation is likely to be costly. And though sun, wind and water are likely to account for a much larger share of the nation's energy supply, less palatable technologies are also likely to play a part.

Policy makers rushing to unplug existing nuclear reactors and embrace renewables note: Shuttering viable technological paths could send us down a cul-de-sac. And we might not be possible to correct course fast enough.

Correction: June 20, 2017

An earlier version of this column included an outdated affiliation for one scientist, Christopher Clack. He is now chief executive of the grid modeling firm Vibrant Clean Energy; he is no longer with the National Oceanic and Atmospheric Administration and the University of Colorado, Boulder.

[Jun 21, 2017] People are thinking of locating solar panels to provide shade to irrigation canals or to bike lanes. Car roofs are a good spot too. There are so many two-fers out there - why are we missing all these opportunities?

Jun 21, 2017 | economistsview.typepad.com

pgl, June 21, 2017 at 01:36 AM

Re: Fisticuffs Over the Route to a Clean-Energy Future - NYTimes

"It is critically important to bring this debate into the open. For too long, climate advocacy and policy has been inflected by a hope that the energy transformation before us can be achieved cheaply and virtuously - in harmony with nature. But the transformation is likely to be costly. And though sun, wind and water are likely to account for a much larger share of the nation's energy supply, less palatable technologies are also likely to play a part."

Eduardo Porter on the debate as to whether 100% of our energy needs can be met by renewables. OK - it may involve certain costs increasing this from a mere 10% to something closer to 100% even if we do not entirely get to 100%. But not trying would be very costly.

reason, June 21, 2017 at 02:17 AM
One thing that certainly annoys me about this, is that to me the incentives must be wrong.

I see the German railway building solar banks on perfectly good land (which could for instance grow trees), and the railways rolling past large numbers of houses with south-facing roofs and no solar panels.

I see electric cars being built without solar panels on the roof, parked in the sun. I sort of wonder - something is wrong here, why?

I read in the scientific American that people are thinking of locating solar panels to provide shade to irrigation canals. Or we could use solar panels to provide weather protection to bike lanes (shade + rain + snow protection). There are so many two-fers out there - why are we missing all these opportunities?

reason -> reason ... , June 21, 2017 at 02:26 AM
Think of another possibility (a sliding solar on the roof of an electric car - so it could provide windscreen shade when parked and have extra collecting area as well).

Ok, ok it is summer and 34 degrees C here today, so solar energy is everywhere.

libezkova -> reason ... , June 21, 2017 at 08:26 PM
One thing that certainly annoys me about this, is that to me the incentives must be wrong.

I see the german railway building solar banks on perfectly good land (which could for instance grow trees), and the railways rolling past large numbers of houses with south-facing roofs and no solar panels.

I see electric cars being built without solar panels on the roof, parked in the sun. I sort of wonder - something is wrong here, why?

I read in the scientific American that people are thinking of locating solar panels to provide shade to irrigation canals. Or we could use solar panels to provide weather protection to bike lanes (shade + rain + snow protection). There are so many two-fers out there - why are we missing all these opportunities?

That's a great comment !!!

Thank you so much.

[Jun 20, 2017] The US intervention in EU gas market is even more pathetic than it seems

No LNG carriers are currently registered under the US flag, and if the USA plans to be a serious exporter it is going to need about 100 new LNG carriers over the next 30 years, something which is frankly not practically achievable considering it takes about 2 years to build one, at a cost of about $200 Million apiece". Of course, miracles can be made to happen if you pour enough money into them.
Jun 20, 2017 | marknesop.wordpress.com
et Al , June 16, 2017 at 1:30 am
The US's intervention is even more pathetic than it seems.

This is not a stand alone anti-Russia bill which would signal strength from the US, but an adjunct to the anti-I-ran sanctions bill that continues to seek to punish I-ran in the vague hope that it will pull the plug on the cast-iron nuclear deal it has signed with international partners. The irony there is that I-ran Air is recapitalizing with both Airbus & Boeing (also ATR), 100 odd a piece, not to mention other significant investment opportunities for western firms.

They're quite the Gordian Tits!

Not only is there the potential of the Levianthan gas field off Cyprus/Israel/whatever, brutal dictator Azeri gas will also be arriving in (larger, but not gigantic) quantities. Not to mention that significant buyers of LNG, like the UK, have it come straight from Qatar. Is the US prepared to sell LNG at a discount compared to Qatar that has strategic agreements and its own fundamental interests to be protected by the Western (European) states as well?

So if this plan seems to damage not only the USA's allies but the USA itself, then what is its purpose? Stick it to Trump. Mire any plans to re-balance relations with Russia almost at any cost . It's a no brainer for Democrats as they neither hold a majority in the House or the Senate, and there seem to be enough dog whistle Republicans willing to go along with it, including those with mental problems like John 'Insane' McCaine. Ukraine is almost peripheral except as a convenient tool. It think the US accepts they've screwed the pooch on the Ukraine so its only value is to be used as a festering sore on Russia's frontier. Kiev mops up the completely free public political support whilst it is being kicked in the bollox by the same people.

[Jun 17, 2017] We will probably never find out what truly was discussed between Trump, the Saudis and the Israelis, but there is little doubt that the recent Saudi move against Qatar is the direct results of these negotiations by The Saker

Notable quotes:
"... Besides, was there ever a time with the Trump Administration's policies in the Middle-East made any logical sense at all? During the election campaign they were, shall we say, 50/50 (excellent on ISIS, plain stupid about Iran). But ever since the January coup against Flynn and Trump's surrender to the Neocons all we have seen in one form of delusional stupidity after another. ..."
"... I see this latest crisis as yet another desperate attempt by the Three Rogue States to prove that they are still the biggest and baddest guys on the block and, just like the previous ones, I think that it will fail. For example, I just don't see the Qataris shutting down al-Jazeera, one of their most powerful "weapons". ..."
"... The Three Rogue States have the same problem: their military capability to threaten, bully or punish is rapidly eroding and fewer and fewer countries out there fear them. ..."
"... I will end this column by comparing what Presidents Putin and Trump are doing these days as I find this comparison highly symbolic of the new era we are living in: Trump, after bombing a few "technicals" (4×4 trucks with a machine gun) and trucks in Syria, the proceeded to tweet that Comey was a liar and a leaker. As for Putin, he participated the latest meeting of the Shanghai Cooperation Organization (SCO) which welcomed both Pakistan and India as full members. The SCO now represents over half of all the people living on our planet and one quarter of the world's GDP . You can think of it as the "other G8", or the "G8 that matters". ..."
"... the semi-official strategy of the Russian Foreign Ministry which is to "turn enemies into neutrals, neutrals into friends, friends into allies" ..."
"... The West simply has no diplomacy any more, only the airforce and the bombs. Diplomacy has always been a highly rational means of achieving your own goals, where military should only be its extension tool, not a complete substitute. The Western MIC has made the Western countries forget this. ..."
"... I don't think "because Trump said so" can be regarded as credible evidence of anything. Even his own most die-hard supporters rarely bother pretending his word is worth anything (they just claim when he lies that it's a cunning subterfuge based upon some complex strategerising). ..."
"... the jury is still out on whether Trump actively and consciously "greenlit" the Saudi move to its full extent, or whether he just didn't understand what the implications would be of his toadying to Riyadh. ..."
"... This is still just a political crisis, and given the stakes for both sides it must be most likely that it will remain such, and a resolution will ultimately be found that involves the Qataris conceding enough for the Saudis to claim victory. ..."
"... But given that neither side can afford to be seen to lose completely, it only needs one side to be a bit too obdurate or a bit too greedy, and the crisis could move beyond the merely political. In that case we would see perhaps an attempted coup or uprising in Qatar, an occupation by the Saudis with US complicity, or perhaps Turkish or even Iranian troops guaranteeing Qatar against those events, which would mean genuinely significant shifts in Qatar's strategic position. ..."
"... if Turkey formally "guarantees Qatar's independence" I'm going to start getting WW1 flashbacks, and seeing the ME as the new Balkans ..."
"... The analogy is perhaps tenuous, but this affair reminds me slightly of Austria-Hungary's demands on Serbia in 1914. Didn't that end well? ..."
"... How significant is the Shanghai Cooperation Organization? Just joining an organisation doesn't reveal its impact. Pakistan and India will never get along. I acknowledge Russia has good leadership. Though, what happens when Putin retires? China is strong, but much rests on the future leadership of China. ..."
"... You are ever so wrong to call these God-fearing states "Rogue States"! Please, call them The Axis of Kindness. They specialize in dropping beautiful, democratic, humanitarian bombs. ..."
"... In perhaps 2015, when Lavrov was constantly in the Middle East, I remember a report, perhaps in Russian on a meeting in Qatar with Khalid bin Mohammad al-Attiyah. Lavrov had promised Qatar a pipeline to be built through Syria in exchange for a $10 Bn investment in the RDIF, which has indeed happened. (Although, so has a similar KSA deal). At this time, presumably, success in Syria and investment mattered more than Gazprom's commercial interest. It could be that Qatar has cut off support for Syrian ISIS and Hamas. ISIS seems to be fading fast. The pipeline was to be Qatar's not the Iran-Russia-Turkey scheme to which Qatar has also been invited. ..."
"... There have been other discussions about a Qatar, Iranian pipeline operated by Russia which makes more sense for Russia but is less of a bribe. Qatar Investment Authority funded Glencore to buy 19.5% of Rosneft this year. Sechin is pushing Putin to allow Rosneft to build and operate gas pipelines so Russia takes a stake in the Qatari pipeline through Rosneft rather than Gazprom? ..."
"... In a nutshell, the situation of Qatar appears to be a symptom of the struggle between the political Islam and the hereditary/religious Islam, in which Qatar plays a part of the more progressive, and potentially more dangerous in the long run, political Islam . ..."
"... Therefore, the Muslim lands of ME have added yet another schism to an already rich list, to the delight of Israel. Finally, it is simply sad how uninformed and bumbling the American version of Lawrence of Arabia, the saber dancer Donald Trump, is in all this, completely out of his depth. ..."
"... Trump's attack on Syria was either a blunder, or just political show. The last possibility to me seems the most probable. Making Iran the threat to the ME might be meant to give Saudi Arabia the leading position in the ME, just as abandoning NATO by the USA may be meant to deliver the USA from the burden, imagined, to defend Europe against Russia. I still wonder if Trump is far more cunning than his enemies think he is. ..."
"... As Russia had no intention of giving up Sebastopol, the USA will not give up Qatar. There is no business like show business. ..."
"... The Israelis and Saudis have been in a defacto anti-Shiite alliance for years against Lebanon, Iraq, Syria, and Iran. I keep waiting for evidence of discontent among the Muslim masses over this the Custodian of the Two Holy Mosques allied with Israel against other Muslim countries that now includes Qatar. ..."
"... But no evidence of discontent. Perhaps this is due to the Wahhabi fundamentalists concluding that Muslim apostates like the Shiites are worse than Jews and Crusaders. Déjà vu the deadly European Thirty Years' War (1618 to 1648) between Catholics and Protestants all over again. ..."
"... The article is correct when stating Iran is the target. ..."
"... Anyway, the Saud family will last as long as the petrodollar enables them to bribe their own people (and having young, male, single, radicalized potential troublemakers-of whom the numbers are increasing-make trouble outside the borders rather than within the Kingdom) and CENTCOM allows them to keep the Shi'a in the Eastern Provinces in check. Once one or both of those factors go away, hell breaks loose in Riyadh. Unfortunately, contrary to what many Western liberals say, what will likely to replace the Saud family in the event of a revolution is probably going to be far worse than what exists today, if public opinion polls in the Kingdom and zakat donations from private donors in Saudi Arabia to jihadist groups are a barometer. ..."
"... On the Thirty Year's War: very astute analogy, one that I agree with to an extent. However, a big difference is that the Sunni drastically outnumber the Shi'a in a way that the Protestants didn't the Catholics, around 7 to 1. That is what makes Beltway overestimation of Iranian capabilities so ludicrous. ..."
"... Saudi Arabia and Israel spend a *lot* of money to keep the Beltway view of the world akin to what they want. Gulf money permeates our think tanks, both on the Left and the Right: and if Trump had an iota of intelligence last year, he would have hammered home the Clinton Foundation's connection to shady Gulfie donors when she paraded her feminism. ..."
"... I think both the Left and Right give Trump way too much credit. He's neither a Russian controlled, closet white supremacist dictator in the making, nor a new Marius, heroically despised by the Establishment, who actually wants to keep his promises to those who voted him into power. Trump is exactly what he appears to be: the American Berlusconi, a corrupt billionaire mogul who just makes it up as he goes along. No more, no less. ..."
"... The common people of the United States, like the same class of people in every other country, mean well, but they are ill-informed. Floundering about in their ignorance, they are tricked and robbed by those who have the inside information and who therefore know how to take advantage of every turn wheel of fortune. ..."
Jun 11, 2017 | www.unz.com

First, a quick who's who

We will probably never find out what truly was discussed between Trump, the Saudis and the Israelis, but there is little doubt that the recent Saudi move against Qatar is the direct results of these negotiations. How do I know that? Because Trump himself said so ! As I mentioned in a recent column, Trump's catastrophic submission to the Neocons and their policies have left him stuck with the KSA and Israel , another two rogue states whose power and, frankly, mental sanity, are dwindling away by the minute.

While the KSA and Qatar have had their differences and problems in the past, this time around the magnitude of the crisis is much bigger than anything the past. This is a tentative and necessarily rough outline of who is supporting whom:

Supporting the Saudis ( according to Wikipedia ) Supporting Qatar (according to me)
United Arab Emirates , Bahrain , Egypt , Maldives , Yemen (they mean the pro-Saudi regime in exile), Mauritania , Comoros , Libya (Tobruk government), Jordan , Chad , Djibouti , Senegal , United States , Gabon. Turkey , Germany , Iran.

Questions, many questions

The situation is very fluid and all this might change soon, but do you notice something weird in the list above? Turkey and Germany are supporting Qatar even though the US is supporting the KSA. That's two major NATO member states taking a position against the USA.

Next, look at the list supporting the Saudis: except for the USA and Egypt they are all militarily irrelevant (and the Egyptians won't get militarily involved anyway). Not so for those opposing the Saudis, especially not Iran and Turkey. So if money is on the side of the Saudis, firepower is on the side of Qatar here.

Then, Gabon? Senegal? Since when are those two involved in Persian Gulf politics? Why are they taking sides in this faraway conflict? A quick look at the 10 conditions the Saudis demand that the Qataris fullfil does not help us understand their involvement either

... ... ...

More interestingly, why is ISRAEL not listed as a country supporting the KSA?

As always, the Israelis themselves are much more honest about their role in all this. Well, maybe they don't quite say "we done it" but they write articles like " Five reasons why Israel should care about the Qatar crisis " which lists all the reasons why the Israelis are delighted:

That kind of honesty is quite refreshing, even if it is primarily for internal, Israeli, consumption. Quick check with a Palestinian source – yup, the Israelis are backing the KSA. This is hardly surprising, no matter how hard the western corporate media tries to not notice this.

What about the USA? Do they really benefit from this crisis?

The USA has what might possibly the largest USAF base worldwide in Qatar, the Al Udeid Air Base . Furthermore, the forward headquarters of United StatesCENTCOM are also located in Qatar. To say that these are crucial US infrastructures is an understatement – one could argue that these are the most important US military facilities anywhere in the world outside the United States. Thus one would logically conclude that the very last thing the US would want is any type of crisis or even tensions anywhere near such vital facilities yet it quite clear that the Saudis and the Americans are acting in unison against Qatar. This makes no sense, right? Correct. But now that the US has embarked on a futile policy of military escalation in Syria it should come as no surprise that the two main US allies in the region are doing the same thing.

Besides, was there ever a time with the Trump Administration's policies in the Middle-East made any logical sense at all? During the election campaign they were, shall we say, 50/50 (excellent on ISIS, plain stupid about Iran). But ever since the January coup against Flynn and Trump's surrender to the Neocons all we have seen in one form of delusional stupidity after another.

Objectively, the crisis around Qatar is not good at all for the USA.

... ... ...

What about Russia in all that?

The Russians and the Qataris have butted heads many times over, especially over Syria and Libya where Qatar played an extremely toxic role in being the prime financiers of various takfiri terrorist groups. Furthermore, Qatar is Russia's number one competitor in many LNG (liquefied natural gas) markets. There were also other crises between the two countries, including what appears to be a Russian assassination of the Chechen terrorist Leader Zelimkhan Yandarbiyev and the subsequent torture and trial of two Russian Embassy employees accused of being involved in the assassination (they were sentenced to life in prison and eventually sent back to Russia). Still, the Russians and the Qataris are eminently pragmatic peoples and the two countries mostly maintained a cordial, if careful, relationship which even included some joint economic ventures.

It is highly unlikely that Russia will intervene directly in this crisis unless, of course, Iran is directly attacked. The good news is that such a direct attack on Iran is unlikely as none of the Three Rogue States really have any stomach to take on Iran (and Hezbollah). What Russia will do is use her soft power, political and economic , to slowly try to reel Qatar into the Russian orbit according to the semi-official strategy of the Russian Foreign Ministry which is to " turn enemies into neutrals, neutrals into friends, friends into allies ". Just like with Turkey, the Russians will gladly help, especially since they know that this help will buy them some very precious influence in the region.

Iran, the real target of it all

The Iranians are now openly saying that the recent terrorist attack in Tehran was ordered by Saudi Arabia . Technically speaking, that means that Iran is now at war . In reality, of course, as the real local superpower, Iran is acting with calm and restraint : the Iranians fully understand that this latest terrorist attack is a sign of weakness, if not desperation, and that the best reaction to it is to act the same way the Russians reacted to the bombings in Saint Petersburg: stay focused, calm and determined. Just like the Russians, the Iranians have now also offered to send food to Qatar, but it is unlikely that they will intervene militarily unless the Saudis really go crazy. Besides, with Turkish forces soon deployed in Qatar , the Iranians have no real need for any displays of military might. I would argue that the simple fact that neither the USA nor Israel have dared to directly attack Iran since 1988 (since shooting down by the US Navy of the Iran Air Flight 655 Airbus ) is the best proof of the real Iranian military power.

... ... ..

...As for the Qataris, they have already clearly indicated that they are unwilling to surrender and that they will fight . The Saudis have already taken the outrageous decision to impose a blockade of a fellow Muslim country during the holy month of Ramadan. Will they really now further escalate and commit an act of aggression against a fellow Muslim country during that month? They might, but it is hard to believe that even they could be that ignorant of the Muslim public opinion. But if they don't, then their operation will lose a lot of momentum while the Qataris will be given time to prepare politically, economically, socially and militarily. Qatar might be small, and the Qataris themselves not very numerous, but their immense pockets allow them to quickly line up any amount of suppliers and contractors willing to help them out. This is case where the famous "market forces" will act to Qatar's advantage.

The Qatari Foreign Minister is expected in Moscow on Saturday and it is pretty obvious what the talks will be about: while Russia will not put all her political weight to support the Qataris, the Kremlin might accept becoming a mediator between the KSA and Qatar. If that happens, that would be the ultimate irony: the main outcome of the Saudi-Israeli-US operation will make Russia an even more influential player in the region. As for Qatar itself, the outcome of this crisis will probably articulate itself along Nietzschean lines: " That which does not kill us, makes us stronger ."

Conclusion

I see this latest crisis as yet another desperate attempt by the Three Rogue States to prove that they are still the biggest and baddest guys on the block and, just like the previous ones, I think that it will fail. For example, I just don't see the Qataris shutting down al-Jazeera, one of their most powerful "weapons". Nor do I see them breaking all diplomatic relations with Iran as those two states are joined at the hip by the immense South Pars gas condensate field . The immense wealth of the Qataris also means that they have very powerful supporters worldwide who right now, as I write these lines, are probably on the phone making calls to very influential people and indicating to them in no unclear terms that Qatar is not to be messed with.

If anything this crisis will only serve to push Qatar further into the warm embrace of other countries, including Russia and Iran, and it will further weaken the Saudis.

The Three Rogue States have the same problem: their military capability to threaten, bully or punish is rapidly eroding and fewer and fewer countries out there fear them. Their biggest mistake is that instead of trying to adapt their policies to this new reality, they always chose to double-down over and over again even though they fail each time, making them look even weaker and their initial predicament even worse. This is a very dangerous downward spiral and yet the Three Rogue States seem unable to devise any other policy.

I will end this column by comparing what Presidents Putin and Trump are doing these days as I find this comparison highly symbolic of the new era we are living in: Trump, after bombing a few "technicals" (4×4 trucks with a machine gun) and trucks in Syria, the proceeded to tweet that Comey was a liar and a leaker. As for Putin, he participated the latest meeting of the Shanghai Cooperation Organization (SCO) which welcomed both Pakistan and India as full members. The SCO now represents over half of all the people living on our planet and one quarter of the world's GDP . You can think of it as the "other G8", or the "G8 that matters".

I submit that this quick comparison of agenda really says I all.

UPDATE1 : Secretary of State Rex Tillerson is now telling the Saudis to 'cool it' . The Saudi-Israeli plan is beginning to collapse.

Kiza June 10, 2017 at 6:42 am GMT

The real Qatari 'crime' was to refuse, on purely pragmatic reasons, to join into the massive anti-Iranian campaign imposed on the region by Saudi Arabia and Israel.

This is why it is worth reading this good article. I suspected this to be the reason from the start of the crisis: Qatar has been an active supporter of ME terrorism (including ISIS) just like KSA, US, Israel, UAE and Turkey. But they were never as anti-Iranian as the other members of this Coalition of the Lovers of Terrorism.

Also, I liked this sentence on the diplomatic skill forgotten in the West:

the semi-official strategy of the Russian Foreign Ministry which is to "turn enemies into neutrals, neutrals into friends, friends into allies"

The West simply has no diplomacy any more, only the airforce and the bombs. Diplomacy has always been a highly rational means of achieving your own goals, where military should only be its extension tool, not a complete substitute. The Western MIC has made the Western countries forget this.

Randal June 10, 2017 at 11:46 am GMT

there is little doubt that the recent Saudi move against Qatar is the direct results of these negotiations. How do I know that? Because Trump himself said so!

I don't think "because Trump said so" can be regarded as credible evidence of anything. Even his own most die-hard supporters rarely bother pretending his word is worth anything (they just claim when he lies that it's a cunning subterfuge based upon some complex strategerising).

As far as I can see the jury is still out on whether Trump actively and consciously "greenlit" the Saudi move to its full extent, or whether he just didn't understand what the implications would be of his toadying to Riyadh. Perhaps he really is so profoundly ignorant that he really believes what his words imply: that the Qataris sponsor terrorism (they do) but the Saudis (and his own regime) don't, remarkable as that would be in a national leader.

As for the Qataris, they have already clearly indicated that they are unwilling to surrender and that they will fight.

This is still just a political crisis, and given the stakes for both sides it must be most likely that it will remain such, and a resolution will ultimately be found that involves the Qataris conceding enough for the Saudis to claim victory.

But given that neither side can afford to be seen to lose completely, it only needs one side to be a bit too obdurate or a bit too greedy, and the crisis could move beyond the merely political. In that case we would see perhaps an attempted coup or uprising in Qatar, an occupation by the Saudis with US complicity, or perhaps Turkish or even Iranian troops guaranteeing Qatar against those events, which would mean genuinely significant shifts in Qatar's strategic position. The odds are against that, because all parties have too much at stake to lightly go far down those roads, but such crises can spiral out of control. And on the way we could see all kinds of destructive economic warfare, lawfare, and hardball pressurising, together with lots of hanging out of each side's dirty laundry by the other.

Popcorn time. But if Turkey formally "guarantees Qatar's independence" I'm going to start getting WW1 flashbacks, and seeing the ME as the new Balkans

  1. UPDATE1: Secretary of State Rex Tillerson is now telling the Saudis to 'cool it'. The Saudi-Israeli plan is beginning to collapse.
  2. UPDATE2: Trump promptly undermines Tillerson's position ( Tillerson Scrambles to Undo Trump's Qatar Blunder )
dearieme June 10, 2017 at 12:20 pm GMT

The analogy is perhaps tenuous, but this affair reminds me slightly of Austria-Hungary's demands on Serbia in 1914. Didn't that end well?

Weaver June 10, 2017 at 12:41 pm GMT

How significant is the Shanghai Cooperation Organization? Just joining an organisation doesn't reveal its impact. Pakistan and India will never get along. I acknowledge Russia has good leadership. Though, what happens when Putin retires? China is strong, but much rests on the future leadership of China.

The US isn't exactly in competition with China, because the US doesn't want to grow stronger. The US wants to help Israel expand. And the US wants to help enrich defence contractors and expand pork spending. So, the US and China have two very different goals. Also, the US and Europe are dedicated to undermining their European populations.

So, while China and Russia pursue power, the US has very different objectives.

Thales the Milesian June 10, 2017 at 3:08 pm GMT

Saker:

You are ever so wrong to call these God-fearing states "Rogue States"! Please, call them The Axis of Kindness. They specialize in dropping beautiful, democratic, humanitarian bombs.

The Scalpel Website June 10, 2017 at 7:55 pm GMT

@Weaver "The US isn't exactly in competition with China, because the US doesn't want to grow stronger. The US wants to help Israel expand. And the US wants to help enrich defence contractors and expand pork spending."

ROFL!!!! Great writing. Funny, but so much truth there

Philip Owen June 10, 2017 at 11:13 pm GMT

In perhaps 2015, when Lavrov was constantly in the Middle East, I remember a report, perhaps in Russian on a meeting in Qatar with Khalid bin Mohammad al-Attiyah. Lavrov had promised Qatar a pipeline to be built through Syria in exchange for a $10 Bn investment in the RDIF, which has indeed happened. (Although, so has a similar KSA deal). At this time, presumably, success in Syria and investment mattered more than Gazprom's commercial interest. It could be that Qatar has cut off support for Syrian ISIS and Hamas. ISIS seems to be fading fast. The pipeline was to be Qatar's not the Iran-Russia-Turkey scheme to which Qatar has also been invited.

I was monitoring so much Russian media at the time (hundreds of stories a day and this was not relevant to my task) I can't place it exactly but it was very memorable because of the reversals involved and the mass of implications. How did they reconcile interests. There have been other discussions about a Qatar, Iranian pipeline operated by Russia which makes more sense for Russia but is less of a bribe. Qatar Investment Authority funded Glencore to buy 19.5% of Rosneft this year. Sechin is pushing Putin to allow Rosneft to build and operate gas pipelines so Russia takes a stake in the Qatari pipeline through Rosneft rather than Gazprom?

Kiza June 11, 2017 at 4:17 am GMT

If you are interested in another objective view of the Qatari situation here is an article by Oliver Miles in the London Review of Books: https://www.lrb.co.uk/blog/2017/06/08/oliver-miles/whats-behind-the-saudi-blockade-of-qatar/ .

It is very interesting that even Al ash-Shaikh has denounced Qatar because of its insubordination to Saudi commands and interests.

In a nutshell, the situation of Qatar appears to be a symptom of the struggle between the political Islam and the hereditary/religious Islam, in which Qatar plays a part of the more progressive, and potentially more dangerous in the long run, political Islam .

Therefore, the Muslim lands of ME have added yet another schism to an already rich list, to the delight of Israel. Finally, it is simply sad how uninformed and bumbling the American version of Lawrence of Arabia, the saber dancer Donald Trump, is in all this, completely out of his depth.

jilles dykstra June 11, 2017 at 6:57 am GMT

Trump's attack on Syria was either a blunder, or just political show. The last possibility to me seems the most probable. Making Iran the threat to the ME might be meant to give Saudi Arabia the leading position in the ME, just as abandoning NATO by the USA may be meant to deliver the USA from the burden, imagined, to defend Europe against Russia. I still wonder if Trump is far more cunning than his enemies think he is.

jilles dykstra June 11, 2017 at 7:00 am GMT

@Kiza

As Russia had no intention of giving up Sebastopol, the USA will not give up Qatar. There is no business like show business.

Talha June 11, 2017 at 9:56 am GMT

@anon Let's look at the numbers again from an angle that makes more sense:

Israeli expansion (relative to its size): 2500/8522 = 29%
Indonesian expansion (relative to size): 130,000/735,358 = 18%
Moroccan expansion (relative to size – keeping in mind it only occupies 2/3 of Western Sahara):
68,660/274,460 = 25%
Russian expansion (relative to size): 14,000/6,592,800 = <1%

Nice try. Peace.

The Alarmist June 11, 2017 at 10:05 am GMT

"The SCO now represents over half of all the people living on our planet and one quarter of the world's GDP. You can think of it as the "other G8", or the "G8 that matters"."

Very clever! Unfortunately the other G8 will only matter around 2040 or so, when the last of the West as we know it is finally subsumed into the Great Caliphate, at which point it will then turn on the other half of the planet.

TheJester June 11, 2017 at 10:57 am GMT

Nothing new. The Israelis and Saudis have been in a defacto anti-Shiite alliance for years against Lebanon, Iraq, Syria, and Iran. I keep waiting for evidence of discontent among the Muslim masses over this the Custodian of the Two Holy Mosques allied with Israel against other Muslim countries that now includes Qatar.

But no evidence of discontent. Perhaps this is due to the Wahhabi fundamentalists concluding that Muslim apostates like the Shiites are worse than Jews and Crusaders. Déjà vu the deadly European Thirty Years' War (1618 to 1648) between Catholics and Protestants all over again.

mcohen June 11, 2017 at 11:43 am GMT

@Philip Owen Thanks for that .2015.a lot has happened including the opening up of gas reserves on the Mediterranean. both turkey and Qatar have us airbases so that is leverage. regardless it Is one thing building a pipeline and another keeping it secure. Qatar has been trying to build up leverage on Israel via the Palestinians but that has come to and end with trumps push for peace. ideally peace does not suit qatars plans so gaza could explode soon. hence qatars flirtation with iran hoping to stir up trouble in s.lebanon via hezb. Al thani ran from Syria. maybe they can send him to s.lebanon for some character building

Agent76 June 11, 2017 at 1:14 pm GMT

The article is correct when stating Iran is the target.

Sep 11, 2011 General Wesley Clark: Wars Were Planned – Seven Countries In Five Years

"This is a memo that describes how we're going to take out seven countries in five years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran." I said, "Is it classified?" He said, "Yes, sir." I said, "Well, don't show it to me." And I saw him a year or so ago, and I said, "You remember that?" He said, "Sir, I didn't show you that memo! I didn't show it to you!"

nebulafox June 11, 2017 at 1:36 pm GMT

@TheJester

The Saud family has managed to make themselves even more unpopular (if that were even possible) on what we might term "Arab Street" due to their relatively newfound comfort with the Israelis, of course, but nobody can deny that it is smart politics. Saudi Arabia isn't Egypt, they've got plenty of money to ease the unemployment problem. For all its flaws, its nowhere near "pseudo-failed state" status like so many other Arab countries, despite the demographic and social pressures.

Anyway, the Saud family will last as long as the petrodollar enables them to bribe their own people (and having young, male, single, radicalized potential troublemakers-of whom the numbers are increasing-make trouble outside the borders rather than within the Kingdom) and CENTCOM allows them to keep the Shi'a in the Eastern Provinces in check. Once one or both of those factors go away, hell breaks loose in Riyadh. Unfortunately, contrary to what many Western liberals say, what will likely to replace the Saud family in the event of a revolution is probably going to be far worse than what exists today, if public opinion polls in the Kingdom and zakat donations from private donors in Saudi Arabia to jihadist groups are a barometer.

On the Thirty Year's War: very astute analogy, one that I agree with to an extent. However, a big difference is that the Sunni drastically outnumber the Shi'a in a way that the Protestants didn't the Catholics, around 7 to 1. That is what makes Beltway overestimation of Iranian capabilities so ludicrous.

(IMO: the Shi'a have shrines and their own version of saints, both of which are considered heathenish by Wahhabists. They also have an organized structure. To become a mullah in Shi'a Islam, you have to train for decades, rigorous education in philosophy, logic, astronomy, et all, much like a rigorous classical education was required for Catholic orders -- not at all like modern Sunni Islam where any random guy can declare a fatwa. So they are akin to the Catholics in all this, whereas the Sunni are the Protestants. Not a perfect analogy, but makes the most sense for Westerners.)

Seamus Padraig June 11, 2017 at 1:44 pm GMT

The Zionist Entity and the Wahhabist Entity. With friends like these

nebulafox June 11, 2017 at 1:48 pm GMT

@jilles dykstra Saudi Arabia and Israel spend a *lot* of money to keep the Beltway view of the world akin to what they want. Gulf money permeates our think tanks, both on the Left and the Right: and if Trump had an iota of intelligence last year, he would have hammered home the Clinton Foundation's connection to shady Gulfie donors when she paraded her feminism.

>I still wonder if Trump is far more cunning than his enemies think he is.

I think both the Left and Right give Trump way too much credit. He's neither a Russian controlled, closet white supremacist dictator in the making, nor a new Marius, heroically despised by the Establishment, who actually wants to keep his promises to those who voted him into power. Trump is exactly what he appears to be: the American Berlusconi, a corrupt billionaire mogul who just makes it up as he goes along. No more, no less. The secret to Trump is that there is no secret. And right now, unfortunately for his base, he happens to be surrounded by Republican people who haven't learned a thing from the Bush debacle and the last few decades in general, policy-wise. Get ready for pure McConnell fantasies for the next few years.

He's not un-clever in his own way when it comes to manipulating the media and public ratings, but he just clearly does not know a lot about actual policy-making. Trump is at his best when the Establishment wisdom is very clearly in the wrong, yet they can't figure it out due to their own social bubble and worldview. In that case, Trump calls them out, as he regularly did last year. But it isn't because Trump has a plausible alternative to offer, it is more a gut reaction in the instant of the moment that he forgets a few minutes later.

Anonymous June 11, 2017 at 1:57 pm GMT

@jilles dykstra Trump-cunning?

Give me a break. It is obvious that the Syria attack and also the Moab Afganistan bomb was purely a show of force to pressure Xi into taking out N Korea.

This is so sloppy and ham handed it is criminal. Trump is not negotiating with another CEO where that kind of leverage works. He is negotiating with world leaders who aren't going to be pushed off because of a few missle strikes.

This just showed Xi that Trump is an amateur.

And yeah, letting Saudi Arabia have free reign over the Middle East? Nothing could go wrong there right?

Anonymous June 11, 2017 at 2:12 pm GMT

Is it known when the President first learned that there were major US bases in Qatar? Not the #30 Anonymous – just for accuracy not as implied criticism.

Che Guava June 11, 2017 at 2:29 pm GMT

@Carlton Meyer Agree, but would say better before good. and Iran is better than any Arab state, excepting embattled Syria and Lebanon.

It is strange to me how the Qataris are to be in this situation, maybe just because it is a very small polity, essentially just a takeover bid.

jacques sheete June 11, 2017 at 2:33 pm GMT

@Kiza Then there's something called "secret diplomacy."

The common people of the United States, like the same class of people in every other country, mean well, but they are ill-informed. Floundering about in their ignorance, they are tricked and robbed by those who have the inside information and who therefore know how to take advantage of every turn wheel of fortune.

The people voted for Roosevelt be cause he talked of "trust-busting" at the same time that he was sanctioning the purchase of the Tennessee Coal and Iron Company by the Steel Trust. They supported Wilson "because he kept us out of war" at the same time that Wilson was making preparations to enter the war.

The rulers can negotiate "secret treaties" at home and abroad. The people, knowing nothing of either the theory or the practice of secret diplomacy, commit all sorts of follies for which they themselves must later foot the bill.

- R. F. PETTIGREW, TRIUMPHANT PLUTOCRACY, The Story ofAmerican Public Life from 1870 to 1920.

https://archive.org/stream/triumphantpluto00pettrich/triumphantpluto00pettrich_djvu.txt

The wonder is that the* hoi polloi trust the hoi oligoi at all. Perhaps it's because today we are generally misinformed rather than merely uninformed.

*Note to any lurking snarkmeisters. I realize that the words "the" and "hoi" are technically redundant, but I am entering the borrowed phrases in accepted English.

survey-of-disinfo June 11, 2017 at 2:41 pm GMT

@The Alarmist

[Europe becomes a "Khalifate"] at which point it will then turn on the other half of the planet.

It is not clear if the quoted contributer is uneducated, misinformed, or merely channeling historic Western insistence on lording over the rest of planet in guise of an insecure alarmist.

It is not news that Europe and the West (without any ideological basis in a Muslim Khalifate) have for the past few hundred years been treating both halves of the planet as their prey. Keep boo hoo hooing over those gates of Vienna episode but seriously how many HUNDREDS of millions of people have you lot killed in the past few hundred years? Let's get real. Enough of this bullshit.

Talha June 11, 2017 at 2:48 pm GMT

@anon And the fact remains that Israel is proportionally greedier for land than they are.

If a linebacker eats a whole five course meal of pot roast – it's not that amazing. If a five year old does it – it's a thing of astonishment.

You can also explain why Israel sells weapons to nations like Morocco and Indonesia.

Peace.

Ulfberth June 11, 2017 at 3:10 pm GMT

The countries who support Qatar are Iran and Russia only. Turkey has been in a swing state of being the US vassal, getting mad at it, flirting with Russia, etc
Germany is a joke.

jilles dykstra June 11, 2017 at 3:14 pm GMT

@Anonymous If you want to demonstrate that Trump is an amateur you must know what his objectives are, now, then afterwards you may be able to show that he failed.
At present there is doubt about what he really wants.

The analysis of prof Laslo Maracs, UVA, Amsterdam, of the Trump objectives is that Trump, and his rich friends, understand that going on with the Obama way will lead to their ruin, and the USA's.
Obama caused close economic cooperation between China en Russia.

In Khazakstan an enormous installation has been built, they call it a land port, where containers can be transferred from the Chinese railway system to the Russian.
Containers now can be transported from China to St Peterburgh in a few days.

The USA cannot subjugate the world militarily, politically and economically impossible.

Therefore Trump is at war with Deep State, those who still want the USA to militarily subjugate the world.
I still think that Trump's behavior can be explained by the mentioned analysis.

If Maracs is right, then it is greatest change in political course of the USA since Roosevelt in 1933 won the elections.
And of course a decisive change in world history.
Therefore the whole western world, and all countries dependent on the USA, such as Israel and Saudi Arabia, is in deep confusion.

jacques sheete June 11, 2017 at 3:46 pm GMT

@Talha Speaking of imperialist ( aggressive) expansion, "we" were warned against it time and again, but our lovely leadership has routinely ignored it.

I like this quote from the Republican anti-imperialist of a century ago.:

The American flag went up on Hawaii in dishonor; it came down in honor, and if it goes up again now it will go up in infamy and shame and this Government will join the robber nations of the world .

-R. F. Pettigrew, "Pettigrew's Speech". The Herald. Los Angeles. July 3, 1898 . p. 4.

The US would join the robber nations of the world? Ya think?

Ludwig Watzal Website June 11, 2017 at 4:13 pm GMT

"The Saker" is absolutely right about the characterization of the "Axis of Evil" that contains finally the right three rogue states: The US Empire, Israel, and Saudi Arabia. For sure, it's all about Iran but the time is over to attack this country, although the Israelis and the Saudis would love, it the US would do it. But even the Trump administration is not that stupid. To attack Iran would be the "stupidest thing I've ever heart", said the late Israeli Mossad chief Meir Dagen, when the two crazies in Tel Aviv, Netanyahu, and Barack, tried to convince or rather push the US into attacking Iran's nuclear installations, knowing that Iran is light years away from a nuclear device.

It speaks volumes that the US supports Saudi Arabia's open aggression and genocide in Yemen. But the failure shows that the Saudis are incapable of dealing with a bunch or Huthi rebels or just take Syria where they are just capable of financing foreign mercenaries and terrorist to overthrow an elected President. To rely on the Saudis is a lost cause.

That Russia wants to mediate in the created crisis and the Iranians and the Turks want to deliver goods, the later are even ready to send troops, is a good sign that this criminal endeavor of the three terror states, the US, Israel, and Saudi Arabia, is going to fail.

The Trump administration, however, is the first to blame because President Trump gave all the Muslim despots a free hand when he delivered his bizarre speech in Riadah and singled out Iran as the main "sponsor of Terrorism". After this grotesque performance, he visited the main terrorist state in the region, Israel. As long as the US is unconditionally loyal to Israel, they can't pursue their national interests. That such interests are identical or the relations between the two states are "unshakable" is just rhetoric. But that the US can't escape the deadly embrace shows whose interest the US political class is truly serving.

jacques sheete June 11, 2017 at 4:16 pm GMT

@jilles dykstra If you want to demonstrate that Trump is an amateur you must know what his objectives are, now, then afterwards you may be able to show that he failed.
At present there is doubt about what he really wants.

The analysis of prof Laslo Maracs, UVA, Amsterdam, of the Trump objectives is that Trump, and his rich friends, understand that going on with the Obama way will lead to their ruin, and the USA's. Obama caused close economic cooperation between China en Russia.

In Khazakstan an enormous installation has been built, they call it a land port, where containers can be transferred from the Chinese railway system to the Russian.
Containers now can be transported from China to St Peterburgh in a few days.

The USA cannot subjugate the world militarily, politically and economically impossible.

Therefore Trump is at war with Deep State, those who still want the USA to militarily subjugate the world. I still think that Trump's behavior can be explained by the mentioned analysis. If Maracs is right, then it is greatest change in political course of the USA since Roosevelt in 1933 won the elections. And of course a decisive change in world history. Therefore the whole western world, and all countries dependent on the USA, such as Israel and Saudi Arabia, is in deep confusion.

At present there is doubt about what he really wants.

I doubt that he knows beyond the license to strut around in our faces like the big cock of the dung heap.

Paradoxically, Trump's vast holdings make him extremely vulnerable. So, effectively, he's trapped unless he's prepared to lose much, and I highly doubt that he's into martyrdom in any form or degree.

Much about his running for office reminds me of Jesse Ventura's win in Minnesota back in '99.

I'm quite certain that Jesse put his money where his (also rather big) mouth was and ran for office, never expecting to win, but merely to use the bully pulpit to show the other money bags the middle finger. To his, and everyone else's shock, he won. Unfortunately, he was opposed by unopposable forces and though he did manage to push through some good legislation (!), it's all been undone. Jesse was a one term governor.

Anyway, it's: Hail, Humpty Trump! Sterquilinus has risen, again! Isn't he byoo-tiful? Cock-a-doodle- doo-doo!!!!!!

Yes, sumpin sitnks, but Hexen Hillary would've been MUCH worse Yuck!

Full disclosure.: I'm still a Ventura policy fan, though I could do without the pink boa!

[Jun 17, 2017] The draft bill of the new sactions for Russia is surprisingly candid about what is actually at stake, namely selling American liquified natural gas and ending the supply of Russian natural gas to the European markets

Jun 17, 2017 | www.moonofalabama.org

james | Jun 16, 2017 2:47:41 AM | 36

daily us press briefing thursday june 15th..

some interesting info on the sale of jets to qatar worth 12 billion and stuff like that..

and this

"QUESTION: Switching gears, Germany and Austria sharp – have sharply criticized the U.S. Senate today for moves aimed at advancing a new legislation packaging new sanctions against Russia, which tangentially deal with European countries as well. Austrian federal chancellor and German foreign ministry released a joint statement, and I wanted to read one line from it to get your response to this particular line: "The draft bill of the U.S. is surprisingly candid about what is actually at stake, namely selling American liquefied natural gas and ending the supply of Russian natural gas to the European markets."

MS NAUERT: Sorry, back up for a second? What did you say about the liquefied natural gas?

QUESTION: That the bill is trying to basically peddle U.S. LNG to the – to the European markets – markets instead of the Russian natural gas. The bill aims to protect U.S. jobs and the natural gas and petroleum industries. So what's your response to that?

MS NAUERT: Well, first, I'm not going to comment on anything that those nations said and their criticism of anything going on on Capitol Hill. We would see it – and we talked about this last week – we welcome the shipment of liquefied natural gas to Poland, to countries in that region, if that were to come – become available to them, because it helps give them another option, another option to get natural gas from other countries that are perhaps more stable or other countries that can perhaps provide a regular flow of natural gas.

Much of the natural gas in Poland, as I understand it, comes from Russia, and that can be inconsistent. Russia has the ability, as you well know, to turn off that natural gas, and that puts the Polish people in a very difficult situation. So the U.S. provided another option. A regular source of natural gas, especially in the winter months, we see as important for the United States and for our allies."

our allies... lol...

[Jun 17, 2017] Turkey is having its problems, but the Russian pipeline is moving along and managed by Russia; Syria, Iraq and Iranian gas could all become clients of the pipeline, generating significant revenue and jobs for Turkey as its hub

Notable quotes:
"... Although unlikely, it would be amusing if support for Qatar led to an improvement in the Iran/Turkey relationship. ..."
Jun 17, 2017 | www.moonofalabama.org

frances | Jun 17, 2017 7:44:31 PM

Although unlikely, it would be amusing if support for Qatar led to an improvement in the Iran/Turkey relationship.
Posted by: Hoarsewhisperer | Jun 17, 2017 3:00:24 PM | 34

I agree Turkey is having its problems, but the Russian pipeline is moving along and managed by Russia; Syria, Iraq and Iranian gas could all become clients of the pipeline, generating significant revenue and jobs for Turkey as its hub. Far better that Turkey looks to Russia with its sane international policies than to the the US's EU puppet.

virgile | Jun 17, 2017 11:04:12 AM | 32
Turkey has fallen in yet another trap set by the USA to weaken Erdogan. Turkey has no more 'neighbors' friends, no more European friends, little american sympathy, and now it is about to loose his rich Gulf friends.

Erdogan's foreign policy is close to total disaster. The AKP success came from the economical reforms stimulated by the EU promises of adhesion and to the smart and peaceful influence of Gulen in Turkey's institutions and foreign policy.

Now Gulen and his allies are enemies. Turkey has gradually become a rogue state controlled exclusively by a megalomaniac man blinded by religion and money.

After the Syria quagmire, the Qatar-Saudi conflict and its impact on Turkey's economy, may turn to be fatal to Erdogan ruling.

[Jun 16, 2017] New Russia Sanctions Are All About Forcing the EU to Buy Overpriced US Gas

Jun 16, 2017 | marknesop.wordpress.com

Any Darwin Awards fans out there? For those few who have never heard of them, the Darwin Awards celebrate those individuals who have rendered a significant service to mankind by taking themselves out of the global gene pool. In preparing to discuss today's subject, I am reminded of unfortunate 1999 award-winner 'James' from Missouri, who became so fixated upon his love interest that he tried to lop off his own head with a chainsaw to demonstrate his commitment to an outcome on his terms. Although he was ultimately unsuccessful on both counts, he did fatally injure himself, and died in hospital. Ashes to ashes; dust to dust.

My intent today is to demonstrate clear destructive similarities between the above emotional decision and the equally simpleminded decision of the US Senate to impose further economic sanctions on Russia, this time explicitly tying them to penalizing of European companies which do business with Russia – moreover, in a clear attempt to stop the latter from proceeding with the Nord Stream II gas pipeline project. This, in turn, is clearly an attempt by the USA to make Europe a captive market for its own energy products, in the form of shipborne LNG. Significantly, that goal is also finally becoming clear to Europe; or at least to the parts of it that matter, such as Germany (thanks for the tip, James!) Try to put aside, for the moment, the insufferable arrogance of American meddling in Europe's energy market, with a view to restricting its choice while – laughably – pretending it is broadening European energy options.

The readers and commenters of this blog will be well aware, since it has been a topic of discussion for years here, that a critical underpinning of the western plan to seize Ukraine and wrest it into the western orbit was the premise that Russia would be forced by simple momentum to go along with it. As long as events continued to unfold too quickly to get ahead of, Russia would have to help supply the sinews of its own destruction. And a big part of that was the assumption that Russia would help to finance Ukraine's transition to a powerful western fulcrum upon which to apply leverage against it, through continued trade with Ukraine and continued transit of Europe's energy supply through Ukraine's pipeline system. But Russia slapped a trade embargo on most Ukrainian goods, and rescinded its tariff-free status as it became clear Brussels planned to use it to stovepipe European trade goods into the Russian market, through Ukraine – thus crushing domestic industries which would not be able to compete on economically-favourable terms. The armchair strategists nearly shit a brick when construction of the South Stream pipeline commenced, bypassing Ukraine and depriving it of about $2 billion annually in transit fees. But pressure ultimately forced Bulgaria to throw a wrench into the works, and the pipeline plans were shelved, to much victory dancing in the west. There was not quite as much happy-dancing in Bulgaria , but they were only ever a pawn anyway.

Sidebar for a moment, here; while the $2 Billion annually in transit fees is extremely important, Ukraine's pre-crisis GDP was $163 Billion. The funds realized for transit fees are important because (a) Russia has to pay them and (b) the west will have to come up with the equivalent in aid if Ukraine loses out on them. But the real value intrinsic to Ukraine as a transit country is its physical reality as an interface for Russian gas transit to Europe – what is a bridge can be easily turned into a wall.

Any time Washington thinks Russia needs some more shit on its face, Ukraine can be prodded to announce a doubling of its transit fees, or to kick off some other dispute which the popular press will adroitly spin to make Russia appear to be an unreliable supplier. Therefore, it is essential to western strategy that significant amounts of Russian gas continue to transit Ukraine. Sufficiently so that Europe continues to evolve ever-more-desperate contingency plans in order to keep receiving gas through the country which was known to have provoked the previous shutoff of European supplies by siphoning Europe-bound gas for its own use. That's despite the assurances of Germany and western partners of Gazprom in the Nord Stream line that it will mean cheaper gas prices for Europe.

But we knew this was coming, didn't we? Yes, we did, because as recently as last month, Democratic senator Jean Shaheen, who sits on the Senate Foreign Affairs Subcommittee on European Affairs, announced that the United States was considering involving itself in the Nord Stream II pipeline project , with a view to killing it stone dead. The purpose, as already mentioned, is to make way for LNG cargoes to Europe, cutting Russia out of the business, on the assumption that without energy sales the Russian economy will crumble and the country will collapse. Destroying Russia remains Washington's overriding strategic objective.

So the stakes are high; high enough to provide context for Washington's bizarre and aggressive behavior, and for its continued ridiculous insistence that Russia tampered with the 2016 US presidential election. What are the chances Washington will succeed with its latest adventure in global bullying?

Not good, according to multiple sources. Let's take a look at how Platts views the prospects; Platts, a division of S&P Global , is headquartered in London and employs over 1,000 people in more than 15 offices worldwide. These include global business centers such as New York, Shanghai and Sao Paulo, and major energy centers such as Houston, Singapore and London, where Platts is based. Having hopefully established the firm's credentials as someone who knows what they are talking about in the energy business, let's see what Platts has to say about the potential American LNG market in Europe . Mmmm .the review is mixed. At the outset, Platts is admiring of Cheniere Energy's go-to-hell expansion. But a couple of things about that are cause to curb enthusiasm. One, only 8 American LNG cargoes had gone to Europe so far; that was as of April this year, when the report was released. Of those, 4 went to Spain, 3 to Portugal and 1 to Italy. Two, the Iberian Peninsula is acknowledged by Platts as not particularly significant in terms of gauging Europe's welcome of American LNG.

"Indeed, the fact that Portugal and Spain were the first European countries to import LNG from the US is telling The Iberian Peninsula is considered an "island market" with poor interconnection to the rest of Europe, so the delivery of US LNG into the region is not likely to be seen as a sign that it will take hold in the wider European market."

The same passage points out that Russia does not supply the Iberian Peninsula with pipeline gas, and so is unlikely to be very concerned about the impact of US LNG on that market.

Three, Cheniere's rapid expansion has come at a terrifying cost, and the company is currently – as of fall 2016 – overleveraged with approximately $20 Billion in long-term debt . It is unprofitable, with interest payments representing 60% of revenues, the living embodiment of 'bicycle economics'; the second you stop pedaling, you crash.

For what it's worth, few great business breakthroughs have occurred without risk, and while Cheniere is plunging ahead with what seems like recklessness, it could just as easily pay off with complete domination of the North American export market. That's a hell of a debt load, though; not much margin for bad news. That does expose a flaw in the American strategy, as well – wrestling control of the European supply market from Russia would be frighteningly expensive.

a little better than 3 Billion Cubic Feet (BcF) of natural gas, which is mostly methane. That equates to about .85 Billion Cubic Meters (BcM). But Europe uses about 400 BcM per year , assuming LNG could supply the whole European market, which is of course unrealistic. Especially considering the entire global LNG shipping fleet consists of about 410 vessels .

No LNG carriers are currently registered under the US flag, and if the USA plans to be a serious exporter it is going to need about 100 new LNG carriers over the next 30 years , something which is frankly not practically achievable considering it takes about 2 years to build one, at a cost of about $200 Million apiece . Of course, miracles can be made to happen if you pour enough money into them. But we've already somewhat nervously mentioned how much all this is costing – how does the likely return on investment shape up?

Well, what the fuck? Platts comes right out and says that Russia has the option of cutting its prices to ensure it undercuts LNG costs in order to keep its share of the European market!

"Russia clearly does have the option to undercut the US LNG price to ensure it keeps its share of its key European markets and could flood the market with cheap gas, maximizing revenues and cash flow at a time when producers worldwide are suffering from the impact of such low prices."

So, let me get this straight. All the attempts by the west, led as usual by Washington, to force energy prices down and keep them low actually benefit Russia by putting the USA in an unacceptable profit/loss loop so that it cannot afford to sell its LNG to Europe and still make money? That appears to be pretty much how it shakes out.

"Russia, thanks to the bearish oil price environment and an enhanced export strategy from Gazprom, increased its exports to Europe by 15% (through the Nord Stream, Yamal, and Brotherhood pipelines) to 118 Bcm, taking back its place as Europe's largest gas supplier in the process."

Wait! I think I see a solution. All the USA needs to do is apply its global leverage to make energy costs rise!

"But US LNG could face problems of its own – the current low prices are forcing ever growing numbers of US producers into bankruptcy. According to a recent report by Haynes and Boone, 90 gas and oil producers in the US and Canada have filed for bankruptcy between January 2015 and the start of August 2016."

Oh, hey; I just realized – if forcing energy prices back up were an option, how is that going to hamstring an opponent who was already able to undercut you at the lower price, and still turn a profit?

Platts closes out this dismal synopsis with the consolation prize that, while US LNG is less competitive with pipeline gas given narrow Henry Hub-NBP spreads, it is coming to Europe regardless. More of that old American can-do. It will have to be, though, on what is described as a short-run marginal cost basis. Would you feel comfortable with that forecast if you were carrying, say, $20 Billion in debt?

And it's not just Platts who sounds a warning; Forbes has a similar, if slightly more mocking outlook of the situation .

"Most of this is just political posturing and noise. The U.S. is not now and nor will it be in the near future a key resource for Europe's energy needs According to EIAs Annual Energy Outlook, published in April, the United States remains a net importer of fuels through 2040 in a low oil price scenario. In a high oil and gas price scenario, the United States becomes a net exporter of liquid fuels due to increased production by 2021. A lot can happen in seven years. By then, Exxon will likely be back to its deal with Rosneft in Russia's Arctic Circle."

As well, Forbes adds the interesting perspective that foreign sales of American gas will be a tough sell domestically if the pressure remains on the American leadership to achieve greater energy self-sufficiency and reduced dependence on foreign sources. This situation can only be exacerbated by a rise in anti-American sentiment around the world, and is likely to spike if energy prices rise. But if they stay low, American LNG exports won't make any money. If they go up, pipeline gas will undercut LNG prices and make it noncompetitive. Jeez, we just seem to be going around in circles. Say, did you notice that little item in there, in which the author mentions the only possible way the USA could compete with Russia in the natural gas market in Europe would be if it had national rights to substantial supplies of gas abroad? Did that give your memory a little tickle, and make you think of Burisma Holdings, and Hunter Biden ?

The Brookings Institute, for God's sake, warned that US LNG could not compete price-wise before the first LNG cargo ever left the USA. Given its sympathies, it seems probable it was intended as a sobering restraint meant to keep the United States from doing something stupid that might expose it to failure and even ruin; it is much less likely to have been an endorsement of Russia's global business practices.

As so often happens, an unhealthy fixation on taking down a largely imagined enemy results in increased risk-taking and a totally unrealistic appraisal of the likelihood of success – it becomes worth doing simply to be doing something. The costs in this instance have included the alienation and infuriating of Germany, the European Union's anchor economy, and angry murmurs from the Gulf States that Washington negotiated production cuts simply to make its own product more competitive. All for nothing, as it happens, because a nation with surplus swing production can always undercut your price, and the nation with the world's lowest production costs should be last on your list of "People I Want To Start A Price War With".

If you were opposed to official Washington's swaggering, bullying modus operandi , this whole unfolding of events probably seems pretty delicious to you. But I've saved the most delicious for last – Trump dares not make any effort to overrule the Senate vote, or get it reframed, because of the successful media campaign to portray him as Putin's secret agent. Any effort to mollify Germany's fury will be seized upon by the reality-challenged Democrats as an opportunity to further discredit the Trump government, by making it appear to be negotiating in Russia's behalf.

You couldn't make it up. PaulR , June 15, 2017 at 5:29 pm

One should never underestimate peoples` willingness to spend vast sums of money on worthless projects. Witness the Canadian government's recent announcement of its plans to increase defense spending by 70%.

When the dust finally settles, the Chinese will end up on top.

marknesop , June 15, 2017 at 5:47 pm
I think you're probably right about that. And if it turns out to be the case, British Columbia will turn out to be the most progressive province in Canada, with its large numbers of Chinese citizens and its Chines-language television stations. At bottom I am mostly a peaceful guy and I don't really care very much who rules the world so long as it doesn't impact my lifestyle.

Once I would have argued strongly for American global leadership, based on a perception that it offered the best chance for prosperity and enlightenment for everyone, but events since have changed my view. Now I think other countries should be left alone in terms of interference, helped where you can lend a hand, and global leadership is an unrealistic aspiration for any country led by humans, since human nature tends to favour self-interest.

I don't know what the Liberals think they are doing, pushing what is essentially an unachievable Conservative platform where defense is concerned. To what end? So we can interfere more effectively on the USA's behalf? We have a good military. There's nothing wrong with keeping it up to date and well-supplied and trained. But a 70% increase is impractical and is only likely to incur the wrath of the non-military portion of the electorate, since the money has to come from somewhere.

PaulR , June 15, 2017 at 5:38 pm
I hadn't been aware of the connection between the sanctions and LNG, so thanks for pointing that out.

Meanwhile, I read this:

'Germany and Austria on Thursday sharply criticized the U.S. Senate's plan to add sanctions on Russia, describing it as an illegal attempt to boost U.S. gas exports and interfere in Europe's energy market. [ ]

"We cannot accept a threat of extraterritorial sanctions, illegal under international law, against European companies that participate in developing European energy supplies," [German Foreign Minister Sigmar Gabriel and Austrian Chancellor Christian Kern said in a joint statement]. "Europe's energy supply is Europe's business, not that of the United States of America."'

https://www.the-american-interest.com/2017/06/15/the-us-is-exposing-europes-divide-on-nord-stream-2/

marknesop , June 15, 2017 at 5:58 pm
After all, many other European leaders have publicly clamored for U.S. LNG imports as a way to ease their dependence on Gazprom.

Who? The Baltics? Thanks for that. It's mostly a rehash of the other article, but it does include some interesting insights, and it has a little more credibility than ZeroHedge, although there's little in that with which I can find fault and its breaking news is usually accurate.

That the EU's energy policies are completely outside the USA's remit is correct, but it's a surprise to hear someone of Gabriel's stature actually say it. It seems the USA has decided that forcing Germany to abandon its support for the project is worth trying. That will turn out to be a disastrous mistake, because the business community in Germany contains some of America's staunchest supporters, while anti-Americanism among the German population – especially its youth – is a growing problem. This will do nothing to help it, and it most certainly is not going to persuade Germany to order American LNG.

I urge you to digest the Platts Report in detail, at your leisure – it's illuminating, and I'm sure you will note that Russia's LNG export capability is already far, far ahead of the USA's. So even if pipeline gas proved only competitive with LNG, why would anyone depend on supplies which have to cross the ocean rather than supplies that can come from Kaliningrad?

PaulR , June 15, 2017 at 7:12 pm
As if on cue, Evgeniia Chirikova denounces North Stream II in The Guardian: https://www.theguardian.com/world/2017/jun/14/gas-pipeline-nord-stream-2-funnel-billions-putin-bypass-sanctions
ucgsblog , June 15, 2017 at 7:23 pm
She's funny: "How can you shout about the transition to renewable, environmentally safe energy and at the same time make plans to increase gas flows into Europe?"

Uhh, Zhenichka, Russia is part of Europe, you can shout about it if you are increasing your energy dependence on both, and if one pipeline is simply replacing another. That's how. That was easy.

"Five European companies are involved but for some mysterious reason, 100% of the shares belong to Gazprom."

Because GazProm is paying $$$ for it. Zhenichka, in a Capitalist Society, those who pay for the shares, get the shares. Did I solve that mystery for you?

marknesop , June 15, 2017 at 10:23 pm
"Five European companies are involved but for some mysterious reason, 100% of the shares belong to Gazprom."

There is nothing mysterious about it; in fact, it is typical Guardian dishonesty. The Nord Stream II Project originally included minority shareholders as shown here . Then Poland introduced its anti-monopoly action and announced the pipeline could not be built. The partners dropped out, and left Gazprom to take the heat alone. When Poland failed in its bid to stop the project and it became clear the EU was all out of arrows – having never had a defensible legal basis – the partners hopped back on, but as investors only. I daresay they stand to make a good return on their investment even without being shareholders. Meanwhile, American meddling is only likely to make Europeans grateful attempts to stop the pipeline failed. I would not like to see their reaction if it ever became clear their governments had committed them to paying higher gas prices just to spite Russia, particularly in view of the USA's limited ability to provide reliable and constant supply.

The Guardian is just being a good American footsoldier, and trying to throw mud in the works for Uncle Sam.

yalensis , June 16, 2017 at 3:37 am
Chirikova works for the Estonian government now.
ucgsblog , June 15, 2017 at 7:16 pm
Beautiful article, and great timing Mark! I love it. This was one of the dumbest bills ever passed. It aimed at Russia, but it's just a take down of Germany. Reminds me of a recent Russian joke:

Obama: "America is mighty! Because of us, Russia's Economy is in ruins!"
Poroshenko: "not Russia's, sir. Ukraine's."
Obama: "Who gives a shit! It's in ruins!"

Also, here's what I'm wondering – can't Russia deliver it by truck or train? Won't that still be less expensive than delivering it by ship?

Jen , June 15, 2017 at 8:39 pm
Nordstream 2 is primarily a gas pipeline project under the Baltic Sea.

The main attraction of Nordstream 2 is it avoids transit through countries where tolls and transit fees would have to be paid, whether through land-based pipes, truck or train, and all these expenses added to the eventual cost that would be paid by the end consumer (ie the general public). Plus trucks and trains can be held up or subjected to attacks and gas in land-based pipelines can be siphoned off and diverted as was being done when the gas was passing through Ukraine originally. No such problems if the gas were being delivered through underwater pipelines though we can be sure that Swedish naval submarines (how many of those are there – one?) will be watching them very closely for phantom Russian subs.

marknesop , June 15, 2017 at 10:28 pm

I thought you were talking about LNG, from Kaliningrad. And if so, yes; it certainly could be transported by train, and probably would be.
Jen , June 16, 2017 at 5:46 am
Ah, I thought UCGS' original comment referred to your original post, not the one you sent at 5:58 pm yesterday.

Wouldn't transporting LNG by underground pipeline under its own pressure be a less risky and cheaper option than sending it by train? Trains carrying LNG can only carry so much and have to be specially adapted to transporting it. Plus they share rail networks with other trains so there are issues like how saturated the rail networks supporting LNG rail traffic, other cargo traffic and passenger traffic become, and the pressure this puts on drivers and maintenance of railway tracks, and building more rail lines in and through areas where pipelines could be laid down instead.

marknesop , June 16, 2017 at 8:56 am
It's possible; I'm afraid I don't know enough about it. It seems that when they speak of an LNG 'train', it refers to the liquefaction and purification facility , not a transport vehicle. In order to transport LNG it must be liquefied, which implies freezing it to below -161C. Naturally it must be maintained at a temperature which guarantees its stability as a liquid, until it is appropriate to return it to its gaseous form for use in that form. That's the purpose of the huge container vessels on an LNG tanker – you have to get it cold and then keep it cold.

I just don't know how you would do that in a pipeline. And obviously it would be wildly impractical for a train, I don't know what the hell I thought I was talking about. It could be done, but why? You'd need a hundred miles of teeny little flatcar-sized container vessels to equal what you can transport in an LNG carrier.

Your pipeline would have to originate at an LNG 'train' and terminate at another, somewhere else, so that the liquefaction/gasification process could be practically carried out, much as current NG pipelines use pumping stations. But you would also have to keep the LNG below -160C all the time it was in the pipeline. That's probably physically possible, too, if expense is no consideration, but it seems terribly impractical when NG already goes by pipeline safely at a fraction of what it would cost to transport LNG the same way.

Jen , June 16, 2017 at 2:30 pm
Ah, I see now of course you wouldn't need to transport NG in liquid form under 160C through pipelines. To transport it by ship or train though, it must be in liquefied form, presumably because as a liquid NG can be measured and quantified, and then exporters can work out how much they can charge for producing and transporting LNG. Not to mention of course that transporting commodities in gaseous form by train and ship is harder and riskier than transporting them as liquids.
marknesop , June 16, 2017 at 3:38 pm
As well, it needs to be liquefied in order to be compressed, to get the volumes you are looking for . One of those container vessels full of uncompressed NG wouldn't be much more than a good-sized European town would need for its barbecues.

LNG achieves a higher reduction in volume than compressed natural gas (CNG) so that the (volumetric) energy density of LNG is 2.4 times greater than that of CNG or 60 percent that of diesel fuel. This makes LNG cost efficient to transport over long distances where pipelines do not exist. Specially designed cryogenic sea vessels (LNG carriers) or cryogenic road tankers are used for its transport. LNG is principally used for transporting natural gas to markets, where it is regasified and distributed as pipeline natural gas.

That does highlight, as well, that if you can use road tankers there really is no reason you could not use trains. But anywhere it is practical to use trains or road transport, you would be asking yourself, "why can't I use a pipeline here?"

et Al , June 16, 2017 at 1:30 am
The US's intervention is even more pathetic than it seems.

This is not a stand alone anti-Russia bill which would signal strength from the US, but an adjunct to the anti-I-ran sanctions bill that continues to seek to punish I-ran in the vague hope that it will pull the plug on the cast-iron nuclear deal it has signed with international partners. The irony there is that I-ran Air is recapitalizing with both Airbus & Boeing (also ATR), 100 odd a piece, not to mention other significant investment opportunities for western firms.

They're quite the Gordian Tits!

Not only is there the potential of the Levianthan gas field off Cyprus/Israel/whatever, brutal dictator Azeri gas will also be arriving in (larger, but not gigantic) quantities. Not to mention that significant buyers of LNG, like the UK, have it come straight from Qatar. Is the US prepared to sell LNG at a discount compared to Qatar that has strategic agreements and its own fundamental interests to be protected by the Western (European) states as well?

So if this plan seems to damage not only the USA's allies but the USA itself, then what is its purpose? Stick it to Trump. Mire any plans to re-balance relations with Russia almost at any cost . It's a no brainer for Democrats as they neither hold a majority in the House or the Senate, and there seem to be enough dog whistle Republicans willing to go along with it, including those with mental problems like John 'Insane' McCaine. Ukraine is almost peripheral except as a convenient tool. It think the US accepts they've screwed the pooch on the Ukraine so its only value is to be used as a festering sore on Russia's frontier. Kiev mops up the completely free public political support whilst it is being kicked in the bollox by the same people.

Lyttenburgh , June 16, 2017 at 9:03 am
Whoop-whoop! A new article so soon!

"Try to put aside, for the moment, the insufferable arrogance of American meddling in Europe's energy market, with a view to restricting its choice while – laughably – pretending it is broadening European energy options."

"Invisible Hand of the Market" [nod, nod].

"And a big part of that was the assumption that Russia would help to finance Ukraine's transition to a powerful western fulcrum "

At first I read it as "western furuncle". That's what it became in the end.

First Rule of the Ukraine: "Every Peremoga turns into Zrada".Want to hear about yet another zrada ? Russia (okay – Mikhail Friedman) bought a German firm Rheinisch-Westfälisches Elektrizitätswerk (RWE) for $5.72 blns in 2015 . Why it's important? Well, because this firm carries out the reverse gas transition to the Ukraine, thus ensuring its [ha-ha, sorry, sorry!] "Energy Independence" which was officially proclaimed in the same 2015 A.D.

"No LNG carriers are currently registered under the US flag, and if the USA plans to be a serious exporter it is going to need about 100 new LNG carriers over the next 30 years, something which is frankly not practically achievable considering it takes about 2 years to build one, at a cost of about $200 Million apiece". Of course, miracles can be made to happen if you pour enough money into them.

Something-something-something Elon Musk something-something Super-technologies something-something-something Innovations! Progress!

And usual stuff, said by the people who believe that the Free Market will "Get the Things Straight" without governmental meddling. Like, Musk will invent cheap multi-use drone-rackets which will deliver gas to the clients across the Ocean. Why not?! They believe in all kinds of stupid stuff already!

The article is fresh breeze of actual facts and hard data – not your usual hurr-durring opinion pieces, passed as "analytics" by the esteemed think-tankers.

P.S. Mark, do you have the same e-mail address?

marknesop , June 16, 2017 at 1:19 pm
Thanks very much, NS!! I read a book some time ago which used newspaper and wire reports of the various times to thoroughly debunk most of the incidents of ships and aircraft 'disappearing without a trace' in the Bermuda Triangle. In incidents which resulted in total losses of the crew, the author also offered reasonable explanations for what likely happened. I have sailed through it many times myself and observed nothing untoward, although that does not mean much considering the amount of marine traffic which routinely does the same without incident.

Owners of LNG Carriers likewise play up how safe they are, and to the best of my knowledge there has never been a serious accident. However, on the scale of supply the USA is suggesting it wishes to achieve for itself, there could be no days taken off for bad weather, and carriers would have to transit the North Atlantic in winter – which is not generally a fun place to be. Most of my concern with the shipped method is its inherent unreliability compared with pipeline gas.

Northern Star , June 16, 2017 at 12:31 pm
"But Gazprom could block a lot of those cargoes by stepping up export volumes and selling them at prices below what can be achieved by U.S. LNG. Gazprom can export pipeline gas to Europe for $3.50 per million Btu (MMBtu) while American LNG would need prices of $4 to $5/MMbtu. Currently, Gazprom sells gas to Europe at a price of about $5.80/MMBtu on average, but could lower the price to beat U.S. LNG"

I do not see how the USA could begin to economically prevail over the Russians in a
"gas' war..given the above numbers.

"Of course, viewed another way, the growing U.S. export capacity – the mere existence of a competing source of supply – should push down the price that Gazprom is able to charge, a victory for Europe and a blow to Gazprom. Without U.S. LNG, its proponents argue, Russia would not be forced to accept lower prices. "It's the start of the price war between U.S. LNG and pipeline gas," said Thierry Bros, an analyst at Société Générale, according to the WSJ."

Moreover doesn't keeping a lid (cap) on what the Russians can charge for Gazprom gas ipso facto prevent the Americans from competitively pricing their LNG product..particularly in view of the first quote????
Either I'm a little dense today,or the American strategy here makes no sense whasoever.!!!!

http://oilprice.com/Energy/Energy-General/US-To-Undermine-Russias-Gas-Monopoly-In-Europe.html

marknesop , June 16, 2017 at 1:51 pm
The latter – the American strategy makes no sense, and its proponents are so high on can-do that you might have to shoot them to get them down. The USA cannot supply either the volume or the consistency of supply to snatch the gas market from Russia, and that must be evident to all but the crazy. As usual, Washington just hopes to get itself into the mix so it will have a seat at the table, because it cannot bear being left out of things and has long been of the opinion that America makes its own reality. Once again, if America owned or controlled substantial gas reserves on the continent and it were practical for the USA to run its own pipeline to Europe, it might be in with a chance if it had sufficient supply, and it is attempts to do that that we should be watching out for. There was speculation much earlier that control of substantial gas holdings was exactly what Burisma Holdings and Hunter Biden were up to in Ukraine, but gas extraction is not practical there right now and id assay results had been positive you can bet there would be a lot more American pressure to bring the war to a close.

On that note, I noticed over at Sputnik yesterday that Turchynov was pressuring Poroshenko to bag the ATO and turn it into a full-press military operation, which is just what recent reports said they did not dare to do in case the Ukrainian Army loses. The same report said Poroshenko is about to sign legislation which orders by decree that Donbas resume its place as part of Ukraine. If they say "Pound sand up your ass" as we know they will, Poroshenko may have little alternative to throwing everything he has at them. Of course, I can't find it now; I knew I should have drawn attention to it when I saw it.

I'm sure Russia is watching carefully.

Northern Star , June 16, 2017 at 12:49 pm
I assume the (shipped) American LNG would have to be regasified at a european import terminal. Consulting page six at the link, is it not problematic to then transport the regasified lng product to its (receiving) nation destination. The whole scheme smacks of going around the well to get an expensive cup of water!!!!!
http://documents.jdsupra.com/c6c4403f-ad9f-4740-b184-9fc1f88550ab.pdf
marknesop , June 16, 2017 at 1:53 pm
The liquid LNG can only be unloaded at an LNG terminal, and so far as I am aware a feature of them is that they are connected to a gas hub, so that they can regasify the product directly into the system.
likbez says: June 16, 2017 at 9:05 pm
What I do not understand is why Russians can't increase natural gas consumption dramatically and need to export that much: is it so difficult to build several large chemical plants, increase usage in city transport as less polluting fuel to 100%, promote dual fuel private cars, etc.

In this case they can export saved oil instead using regular tankers which is much simpler then LNG.

I think the current suppression of oil prices by Wall Street (and the new US method of production using along with production of shale oil a parallel production stream of junk bonds which will never be repaid) can't last forever. "Break even" oil price for most shale wells is probably over $60 per barrel. If not $80.

Also without capital investment the annual decline of conventional fields is around 5% a year (most of those fields are really old). Which means approximately 5 million barrels per day are taken off the market automatically each year (no OPEC action is needed), if zero capital investment are done.

Of course Sechin is IMHO a corrupt player here, who cares mostly about his own pocketbook (and stupidly increased investment just before the crash, which later required bailout of the company by the government), but still Russian government has the means to enforce its will even on rogue players.

[Jun 15, 2017] Just 35 percent of the fleet – mostly large bulkers, tankers and container ships – is responsible for 80 percent of shipping's fuel consumption

Jun 14, 2017 | economistsview.typepad.com

im1dc, June 14, 2017 at 03:54 PM

The Reducing Ocean Shipping CO2 Paradox

Hey, maybe they should go back to sails...

http://maritime-executive.com/article/big-ships-account-for-most-of-shippings-co2

"Big Ships Account for 80 Percent of Shipping's CO2"

By Paul Benecki...2017-06-13...20:16:44

"At Nor-Shipping 2017, researchers with DNV GL released a study that points to the difficulty of reducing the industry's CO2 output below current levels. The problem is structural: big cargo vessels emit 80 percent of shipping's greenhouse gases, but they're also the industry's most efficient ships, and squeezing out additional improvements may be a challenge.

Just 35 percent of the fleet – mostly large bulkers, tankers and container ships – is responsible for 80 percent of shipping's fuel consumption, according to Christos Chryssakis, DNV GL's group leader for greener shipping. Unfortunately, these are already the fleet's most efficient vessels per ton-mile. "This is a paradox, but if we want to reduce our greenhouse gas emissions, we actually have to improve the best performers," Chryssakis says."...

libezkova - , June 14, 2017 at 05:58 PM
That's a valid observation.

Similar situation with trucking, but in the USA around one half of gas consumption goes into private cars. So by improving efficiency of private fleet by 100% you can cut total consumption only by 25%. All this talk about electrical cars like Tesla Model 3 right now is mostly cheap talk. They by-and-large belong to the luxury segment.

[Jun 14, 2017] The Saudi War Against Qatar by Justin Raimondo

Notable quotes:
"... Which leads us to a larger question: who benefits? Clearly both the Saudis and the Israelis – whose semi-clandestine alliance has been documented in this space – had everything to gain from this intra-Arab spat. United by fear and hatred of Iran, Riyadh and Tel Aviv have been quietly cooperating to unite the Sunni Arabs against Iran – and draw the United States into open conflict with Tehran. Both abhorred and denounced the Iran deal, and are seeking to actively undermine it: that's another item at the top of the FDD/UAE meet up. ..."
"... Another factor is the relationship between Mr. Al-Taiba and Jared Kushner, Trump's son-in-law and a powerful figure in the administration: the ambassador has been described as Kushner's " mentor " when it comes to schooling him on all matters Middle Eastern. Kushner, for his part, is a strong advocate for Israel. ..."
"... There are no innocents, no "good guys" in this part of the world: the reality is that all of these Middle Eastern actors have been subsidizing terrorist outfits, in Syria and elsewhere. The Saudis are perhaps the worst offenders : their worldwide network of radical Wahabist mosques and "educational" outfits has been pushing a terrorist agenda for decades. ..."
"... The UAE has also been a lucrative source of funding for radical Islamic terrorism, notably in Afghanistan and Pakistan . And while Qatar has not been stingy in this regard, its stance has been notably non-sectarian: while they've given support to the Muslim Brotherhood – perhaps the least radical Sunni organization – they are also capable of sending official congratulations to recently re-elected Iranian President Hassan Rouhani. ..."
"... This is their great "sin" in the eyes of the Saudi-led Sunni Axis: they have tried to mediate the Sunni-Shi'ite religious war, which threatens the entire region with the kind of bloody turmoil that occasioned Europe's Thirty Years' War between Catholics and Protestants. ..."
"... The crazy notion that Iran is the world's leading exporter of terrorism is a page right out of the Israeli-Saudi playbook ..."
"... The Saudi-Qatari conflict has all the hallmarks of a joint Saudi-Israeli operation, complete with cyber-hacking, a full-scale propaganda war, and a clueless Uncle Sam stupidly falling for a brazen deception. What's amazing is that, despite the plethora of evidence that the whole thing is a pretty transparent put up job, the usual suspects continue to get away with it. ..."
www.moonofalabama.org

Despite the Qataris' claim – since verified by the FBI, according to Qatar's foreign minister – that the Qatar News Agency site had been hacked, and that the Emir had given no such speech, both the Saudis and the UAkE, through their official media outlets, launched a campaign targeting Qatar. Overflight rights were revoked: diplomatic contacts ended: Qatar citizens were forbidden to enter Saudi/UAE territory even to change planes. And in a public statement delivered in the rose garden of the White House President Trump clearly sided with the Saudi/UAE consortium, complementing a series of remarkably stupid tweets that basically said the same thing.

The US news media managed to get a Russian angle on all this, claiming that "Russian hackers" were behind the targeting of the Qatar News Agency: as usual they offered no evidence for this assertion. Yet just who was behind this hacking incident seems crucial to understanding the real genesis of – and motive behind – the Qatar controversy, which could augur a new regional crisis possibly dragging in Iran.

So let's look at the timeline in the context of yet another hacking incident, this one involving the hotmail account of Yousef Al-Otaiba, the UAE's well-connected ambassador to the US. The Saudi-Qatari conflict has all the hallmarks of a joint Saudi-Israeli operation, complete with cyber-hacking, a full-scale propaganda war, and a clueless Uncle Sam stupidly falling for a brazen deception. What's amazing is that, despite the plethora of evidence that the whole thing is a pretty transparent put up job, the usual suspects continue to get away with it. he hackers, who call themselves "GlobalLeaks," released a tranche of emails between Al-Taiba and individuals connected to the Foundation for the Defense of Democracies (FDD). The Foundation is a pro-Israel thinktank originally called "Emet: An Educational Initiative, Inc.," founded in 2001 by a group of pro-Israel billionaires and designed to blunt growing American sympathy for the Palestinians. FDD has since expanded its mission, under chief honcho Clifford May, to encompass a full-scale projection of Israeli propaganda in the US. The Otaiba-FDD emails reveal extensive cooperation between the ostensibly ultra-Islamic UAE – which, like its Saudi allies and much of the Arab world, has never recognized the state of Israel - and the staunchly Zionist FDD. (See some of the emails here, here, here, and here.) A great deal of the back and forth is between FDD general counsel and former Bush era National Security Advisor John Hannah and Mr. Al-Otaiba.

The emails detail FDD's efforts to show Al-Otaiba that UAE companies doing business with Iran need to be sanctioned: a "target list" is included. The correspondence also details plans for a June 11-14 meeting with FDD personnel and UAE political and military officials, including the ambassador, FDD CEO Mark Dubowitz, and former US defense secretary Robert Gates. And most significantly, on the agenda was "discussion of possible U.S./UAE policies to positively impact Iranian internal situation" including "political, economic, military, intelligence, and cyber tools" designed to "contain and defeat Iranian aggression."

Hmmmm "cyber tools," eh?

Now add to the timeline this reporting by the New York Times:

"[T]hree days after the Trump meeting in Riyadh, the Foundation for the Defense of Democracies held a conference in Washington dedicated to criticism of Qatar, titled 'Qatar and the Muslim Brotherhood's Global Affiliates.'

"Robert M. Gates, the former defense secretary and a friend of Mr. Otaiba, gave the keynote. Attendees included many of the authors of the critical op-ed articles and senior Obama administration officials. Organizers encouraged Mr. Otaiba to attend, and his staff sent Abu Dhabi, the Emirati capital, a detailed report.

"No representative of Qatar was invited. The hack of the Qatari news agency took place after midnight that night."

What a coincidence!

As this piece in the Washington Post puts it, the speculation that "Russian hackers" under Russian state control are behind the Qatar hack is "unlikely." Emails from the hackers bearing Russian "(.ru) addresses seem designed to put detectives off the trail. The Post piece avers that hackers-for-hire were the responsible parties, but the question is: who were they working for?

Which leads us to a larger question: who benefits? Clearly both the Saudis and the Israelis – whose semi-clandestine alliance has been documented in this space – had everything to gain from this intra-Arab spat. United by fear and hatred of Iran, Riyadh and Tel Aviv have been quietly cooperating to unite the Sunni Arabs against Iran – and draw the United States into open conflict with Tehran. Both abhorred and denounced the Iran deal, and are seeking to actively undermine it: that's another item at the top of the FDD/UAE meet up.

Another factor is the relationship between Mr. Al-Taiba and Jared Kushner, Trump's son-in-law and a powerful figure in the administration: the ambassador has been described as Kushner's "mentor" when it comes to schooling him on all matters Middle Eastern. Kushner, for his part, is a strong advocate for Israel.

There are no innocents, no "good guys" in this part of the world: the reality is that all of these Middle Eastern actors have been subsidizing terrorist outfits, in Syria and elsewhere. The Saudis are perhaps the worst offenders: their worldwide network of radical Wahabist mosques and "educational" outfits has been pushing a terrorist agenda for decades.

The UAE has also been a lucrative source of funding for radical Islamic terrorism, notably in Afghanistan and Pakistan. And while Qatar has not been stingy in this regard, its stance has been notably non-sectarian: while they've given support to the Muslim Brotherhood – perhaps the least radical Sunni organization – they are also capable of sending official congratulations to recently re-elected Iranian President Hassan Rouhani.

This is their great "sin" in the eyes of the Saudi-led Sunni Axis: they have tried to mediate the Sunni-Shi'ite religious war, which threatens the entire region with the kind of bloody turmoil that occasioned Europe's Thirty Years' War between Catholics and Protestants.

The idea that Qatar is solely responsible for the growth and development of Middle Eastern terrorism is laughable on its face: that narrative simply won't stand even the most careless scrutiny. And the proposition that Saudi Arabia is any kind of anti-terrorist bulwark is a cruel joke. That the Trump administration is taking this line is absolutely criminal: it amounts to appeasing and succoring the epicenter of radical Islamic terrorism.

The crazy notion that Iran is the world's leading exporter of terrorism is a page right out of the Israeli-Saudi playbook: for the Trump administration to echo this nonsense contradicts the facts and contravenes American interests in the region. For it is the Saudis who have been funding and arming ISIS, and al-Qaeda, in Syria. And the Israelis have openly proclaimed their preference for ISIS over Syrian strongman Bashar al-Assad. It is radical Sunni fundamentalists, not pro-Iranian Shi'ites, who have been conducting a global jihad against American and European targets. Iran is fighting ISIS in Syria – while the US in bombing Syrian government troops, the main obstacle to the ISIS/al-Qaeda forces.

The Saudi-Qatari conflict has all the hallmarks of a joint Saudi-Israeli operation, complete with cyber-hacking, a full-scale propaganda war, and a clueless Uncle Sam stupidly falling for a brazen deception. What's amazing is that, despite the plethora of evidence that the whole thing is a pretty transparent put up job, the usual suspects continue to get away with it.

... ... ...

[Jun 11, 2017] Estimates vary, but some believe 90% of all gold mined in 5000 years is still held by humans as property.

Jun 11, 2017 | economistsview.typepad.com

djb , June 09, 2017 at 02:09 PM

"Bitcoin and the conditions for a takeover of fiat money - longandvariable"

conditions are:

"hell freezing over"

DrDick - , June 09, 2017 at 04:27 PM
Pretty much. Bitcoin really is the quintessential "fiat money" (a redundancy, since all money is fiat currency, even gold and silver).
cm - , June 09, 2017 at 10:07 PM
I would say precious metals are subject to tighter physical constraints (first of all, availability) than most of what have been considered "fiat" currencies.

E.g. emergency "fiat" coin has been produced from cheaper metals, e.g. iron, aluminum, or brass. Forgery-resistant paper currency is not cheap, but probably still cheaper than precious metals.

All that is beside the point - today's currencies are only virtual accounting entries (though with a not so cheap supervision and auditing infrastructure attached to enforce scarcity, or rather limit issuance to approved parties).

mulp - , June 10, 2017 at 03:00 PM
Money is proxy for labor.

Gold and silver prices are determined by labor costs of production.

Cartels act to limit global supply to push prices above labor costs, but even the Cartels have trouble resisting selling into the market when the price far exceeds labor cost of the marginal unit of production.

In today's political economy, the barrier to entry is rule of law which requires paying workers to produce without causing harm to others. The lowest cost new gold production is all criminal, involving theft of gold from land the miners have no property rights, done by causing harm and death to bystanders, with protection of the criminal operations coming from criminals who capture most of the profit from the workers.

Estimates vary, but some believe 90% of all gold mined in 5000 years is still held by humans as property. If a method of extracting gold from sea water at a labor cost of $300 an ounce, the "destruction of wealth" would be many trillions of dollars.

All that's needed is a method of processing sea water that could be built for $300 per ounce of lifetime asset life. A $300 million in labor cost processing ship that kept working for 30 years producing over that 30 years a million ounces of gold would quickly drive the price of gold to $350-400. If it doesn't, a thousand ships would be quickly built that would add a billion ounces to the global supply in 30 years representing 1/6th global supply after 5000 years.

Unless gold suddenly gained new uses, say dresses that every upper middle class women had to have, and that cost more than $300 an ounce to return to industrial gold, such production would force the price of gold to or below labor cost.

However, a dollar coin plated one atom thick in 3 cents of gold will always have a value of a dollar's worth of labor. The number of minutes of labor or the skills required for each second of labor can change, but as long as the dollar buys labor, it will have a dollar of value.

If robots do all the work, then a dollar becomes meaningless. A theoretical economy of robots doing all the work means a car can be priced at a dollar or a gigadollars, but the customers must be given that dollar or that gigadollars, or the robots will produce absolutely nothing. Robots producing a million cars a month which no one has the money to buy means the cars cost zero. To simply produce cars that are never sold means the marginal cost is zero.

cm - , June 11, 2017 at 10:26 AM
Money is a rationing mechanism to control the use and distribution of scarce economic resources. Labor (of various specializations) is a scarce resource, or the scarcest resource commanding the highest price, only if other resources are more plentiful.

There are many cases where labor, even specialized labor, is not the critical bottleneck, and is not the majority part of the price. E.g. in the case of patents where the owner can charge what the market will bear due to intellectual property enforcement. Or any other part of actual or figurative "toll collection" with ownership or control of critical economic means or infrastructure. That's pure rent extraction.

Some things cost a lot *not* because of the labor involved - a lot of labor (not spent on producing the actual good) can be involved because the obtainable price can pay for it.

DrDick - , June 11, 2017 at 11:57 AM
The value of precious metals or gems is also entirely arbitrary. They only have value because someone says they do, as they have little utilitarian value.
cm - , June 09, 2017 at 10:14 PM
The initial allure of bitcoin has been "anonymity", until people figured out that all transactions are publicly recorded with a certain amount of metadata. This can be partially defeated by "mixing services", i.e. systematic laundering. There have also been alleged frauds (complete with arrests) that got a lot of press in the scene, where bitcoin "safekeeping services" (I don't quite want to say "banks") "lost" currency or in any case couldn't return deposits to depositors. No deposit insurance, not much in the way of contract enforcement, etc.

Then there were stories about computer viruses and malware targeted at stealing account credentials or "wallet files".

DrDick - , June 11, 2017 at 12:00 PM
FWIW, I regard bitcoin as a colossal folly intended to appeal to crazed libertarian idiots, goldbug nutters, and criminals and has little utility or real value. Investing in bubble gum cards makes more sense.
DrDick - , June 11, 2017 at 12:01 PM
It is also the ultimate pyramid scheme.

[Jun 03, 2017] The Greenland ice sheet melting will raise sea-level 6 meters the West Antarctica ice sheet melting will raise sea-level 8 meters the East Antarctica ice sheet melting will raise sea-level 64 meter

www.aplaceformom.com

Slack Jack - DingleBarryObummer , Jun 2, 2017 4:00 PM

Jun 03, 2017 | www.zerohedge.com

So, why is the rise in temperatures so worrisome?

For one thing, as temperatures rise good farmland will become desert (e.g., dust-bowl conditions will probably return to the American Midwest).

Another major problem is sea-level rise.

Have a look at http://pubs.usgs.gov/fs/fs2-00/

The U.S. Geological Survey people claim that;

The Greenland ice sheet melting will raise sea-level 6.55 meters (21.5 feet), the West Antarctica ice sheet melting will raise sea-level 8.06 meters (26.4 feet), the East Antarctica ice sheet melting will raise sea-level 64.8 meters (212.6 feet), and all other ice melting will raise sea-level 0.91 meters (3 feet).

For a grand total of 80.32 meters (263.5 feet).

So, what does an 80 meter (263 feet) rise in sea-level mean. Have a look at the following map of the world after an 80 meter rise. It means that over one billion people will have to be resettled to higher ground and that much of the most productive agricultural land will be under water. Fortunately, at current rates, the Greenland ice sheet will take over a thousand years to melt and the Antarctica ice sheet, much longer. However, the greater the temperature rise the faster the ice sheets will melt, bringing the problem much closer. Remember, the huge ice sheet that recently covered much of North America, almost completely melted in only 15,000 years (today, only the Greenland ice sheet, and some other small patches of it, remain). Since then (15,000 years ago), sea-levels have risen about 125 meters (410 feet), only 80 meters to go.

For HUGE detailed maps of the "World after the Melt" go to:

http://www.preearth.net/phpBB3/viewtopic.php?f=16&t=23

Croesus - Slack Jack , Jun 2, 2017 4:16 PM

The Earth doesn't need to be saved...it was around, long before we were, and will still be around, long after we're gone.

What needs to be saved, is people. Smart people. Saved. From all the dumb people.

Like I said to Pods yesterday:

"I hate these "sustainability" assholes with a burning passion. As an example of their hypocrisy:

Comcast has "sustainability initiatives"; between both houses, they send me junk mail constantly...trying to get me to upgrade services, and trying to get service installed at the other place. It amounts to about 10-15 lbs. of needless paper, every year. We'll split the difference and say 12.5 total, for both places, or 6.25 lbs. each.

One day, I figured out (using really loose numbers) that they're probably marketing to about 30M people like me...and using those numbers, you're talking over 90,000+ TONS of unnecessary junk mail that they're sending out...and that's just 1 company.

Paper mills creating carbon, delivery vehicles creating carbon, paper not always getting recycled (est. 30% gets recycled), JUST so they can pimp their "special offers"?

And then these hypocritical, lying motherfuckers have the GALL to lecture us about "let's not be wasteful", "let's save the planet"...

You gotta be fucking kidding me.

I'm not an 'environmental whacko', but I do make an effort to not be wasteful, and clearly folks like us are doing a better job of it than the "Sustainability" wankers are."

If you AGW assholes want to do something useful with your lives, you might consider suicide, so you stop creating carbon with all the bullshit hot air you blow around.

cbxer55 - Croesus , Jun 2, 2017 8:28 PM

I agree with you on the mail thing. I go to my mailbox once a week, take out what;s in there and take it immediately to the round-open-top file. Told the mail carrier, if it wasn't for junkmail, you'd be unemployed. I get not one piece of useful or wanted mail, every friggin week. All trash.

californiagirl - cbxer55 , Jun 2, 2017 10:40 PM

Trump should have had a large copy of this chart displayed behind him when he announced the withdrawal from the Paris Climate agreement. The top chart shows 5 million years. https://www.giss.nasa.gov/research/briefs/hansen_15/fig1.pdf

"The past million years has been essentially a continuing ice-age, broken occasionally by short-lived interglacials. It is also why those who have engaged in lurid talk over an enhanced greenhouse effect raising the Earth's temperature by a degree or two should be seen as both demented and dangerous. The problem for the present swollen human species is of a drift back into an ice-age, not away from an ice-age." Frederick Hoyle Then there is our planet's pesky, ~100,000-year, orbital Eccentricity cycle that probably isn't going to stop doing what it does just because we pay a bunch of carbon taxes that Wall Street can then fleece as rights-to-polluted are traded on Blood and Gore's Chicago Climate Exchange. Earth's orbit of the sun becomes more and less eliptical and off-centered (Eccentric) over the 100k cycle. When we are in a more centered, less elliptical phase (which is where we are heading now), the North Pole just doesn't get as close to the sun during the summer (as during a more elliptical phase) so less snow melts during the summer, and it doesn't get as far away from the sun during the winter so there is a little warmer with more moisture in the atmosphere, and more snowfall. Overall, we receive less solar irradiance the higher the eccentricity. This will keep driving the ice ages. http://www.indiana.edu/~geol105/images/gaia_chapter_4/milankovitch.htm http://www.leif.org/research/M-Cycles-2.png

luky luke - californiagirl , Jun 2, 2017 10:47 PM

MILLIONS of Years????????????????

Scientists love to throw them MILLIONS OF YEARS around when they have no clue.

http://biblicisminstitute.wordpress.com/2014/07/17/puzzled-scientists/

moimeme - luky luke , Jun 2, 2017 10:53 PM

Really!

Who was around then?

Where's the proof?

All conjectures!

californiagirl - moimeme , Jun 2, 2017 11:57 PM

The data was obtained from sediment core samples. "The new technique works by analyzing variations in the ratio of magnesium to calcium contained in the fossilized shells of tiny microorganisms called foraminifera trapped in successive layers of sediment on the seabed. As the foraminifera were growing, they absorbed calcium and magnesium in proportions that depended on the temperature of the water around them." You can read more about it at: https://phys.org/news/2012-10-deep-ocean-sediment-ancient-temperature.ht...

For the more recent 800,000 years they were able to collect ice cores from Greenland and Antartica, and use the uranium decay data found in the dust and ash layers. They then compared the data with the sediment core samples. Other ice core studies have found that CO2 lags temperature during the onset of glaciations by several thousand years, not the other way around, as the IPCC would have everyone believe. http://www.powerlineblog.com/archives/2014/12/vostok-ice-cores-and-the-8...

And since we are going to develop more reflective clouds as the magnetosphere and solar activity (heliosphere) weaken, allowing more cosmic radiation to penetrate further into the atmosphere and creating more condensation nuclei, we can expect increased albedo and further cooling. https://www.youtube.com/watch?v=bh-m7PKXMRs&list=PLHSoxioQtwZcqdt3LK6d66...

Read more at: https://phys.org/news/2012-10-deep-ocean-sediment-ancient-temperature.html#jCp The new technique works by analysing variations in the ratio of magnesium to calcium contained in the fossilised shells of tiny microorganisms called foraminifera trapped in successive layers of sediment on the seabed . As the foraminifera were growing, they absorbed calcium and magnesium in proportions that depended on the temperature of the water around them.

Read more at: https://phys.org/news/2012-10-deep-ocean-sediment-ancient-temperature.html#jCp The new technique works by analysing variations in the ratio of magnesium to calcium contained in the fossilised shells of tiny microorganisms called foraminifera trapped in successive layers of sediment on the seabed . As the foraminifera were growing, they absorbed calcium and magnesium in proportions that depended on the temperature of the water around them.

Read more at: https://phys.org/news/2012-10-deep-ocean-sediment-ancient-temperature.html#jC https://phys.org/news/2012-10-deep-ocean-sediment-ancient-temperature.ht...

Kayman - moimeme , Jun 3, 2017 9:09 AM

There is plenty of geological evidence for the ice ages. And the mini ice ages.

And the strongest linear regression correlation to carbon increase is the growth of China. A country that could have developed along with modern environmental standards but chose the route of the Stone Age.

JRobby - cbxer55 , Jun 3, 2017 5:39 AM

And your postal carrier went into a rage and started shooting at you?

GeezerGeek - Croesus , Jun 2, 2017 5:46 PM

"What needs to be saved, is people. Smart people."

Yes. All three of them.

Did you know that they started the SETI program because they couldn't find any intelligent life here on Earth? They never looked on ZH, which does host the three to whom I referred.

As for AGW, if all the people who claim to believe that crap would simply off themselves and their families then, with approximately 50% fewer people the environment would be saved for quite a long while.

Demologos - GeezerGeek , Jun 2, 2017 8:51 PM

Do you include yourself as one of the three? If not, good for you! I see most of the solutions to our problems stated on ZH. Cheaper than government can solve them, which is clearly not their purpose anyway.

I agree, the assholes who say people are a cancer on the planet should walk the talk and remove themselves from the landscape.

Demologos - GeezerGeek , Jun 2, 2017 9:08 PM

Dupe.

Demologos - GeezerGeek , Jun 2, 2017 9:09 PM

Dupe. How does that happen?

Chief Wonder Bread - Demologos , Jun 2, 2017 9:13 PM

How does that happen?

It's 'heapened'

haus stark - Croesus , Jun 2, 2017 6:29 PM

you can make an extra 1200/USD a week in your income just working on the internet for a couple of hours per day.. go to this link... http://bit.ly/2jdTzrM

Scanderbeg - Croesus , Jun 2, 2017 7:07 PM

Nobody is stopping them from putting chinese solar panels on their mansions or bistros.

You believe in the cult. YOU pay for the cult. The working class has had enough energy taxes.

Akzed - Croesus , Jun 2, 2017 8:15 PM

Dood, I hope your avatar is a real picture of you. If it's not, it oughta be.

JuliaS - Croesus , Jun 2, 2017 11:02 PM

Like Steve Hughes said, they're doing nuke and ICBM tests, shelling the Middle East with depleted uranium, Fukushima contaminates 300 tons of water per day, and they expect the consumers to save the planet with reusable IKEA bags and energy efficient light bulbs.

SoDamnMad - Croesus , Jun 3, 2017 4:59 AM

You didn't raise the issue of the USPS sending out this junk mail AT A LOSS and requiring extra money to make up the loss and thus provide bonuses for the bumb fucks in their high places. Calculate what all that waste back to MOTHER EARTH will do for the planet. AND add-in what it costs for me (us) to throw that trash away (unrecycled in many cases) that we don't read and shouldn't have been sent to us in the first place. Plus the wasted fuel by the USPS. Now we are talking some BUCKS plus helping our planet.

beemasters - Slack Jack , Jun 2, 2017 4:19 PM

Hey, Putin...This reminds me of the anti-Semitism crap. The Jews in charge/in power are not to be blamed?? Everything they do is to blame on anti-semitism when they are the ones who give Jews a bad name.

Please watch the documentary "Defamation" on youtube. https://www.youtube.com/watch?v=XNWF9CeoZdE

unsafe-space-time - beemasters , Jun 2, 2017 9:15 PM

Putin was playing the jew card. He know who allows him to sit in his throne.

PT - beemasters , Jun 2, 2017 10:56 PM

I believe he was being sly. This is a message to Putin-haters. This is a message to those who believe "Putin said it so it can't be true." He put Global Warming and Jewish Conspiracy on the same page. Who knows where that could lead? Sure, it proves he is muzzled but remember that he did not have to mention the Jewish Conspiracy AT ALL. At the moment it is just a minor blemish in the snowflakes' belief systems. A little bit of Cog-Dis to irritate them like a small stone in their shoe.

Shit! Now I'm starting to sound like Scott Adams.

Yeah, I give me low odds but I do think he's trying to pry a small crack into snowflake's belief systems. At this stage it is all he can do and get away with it.

Kayman - PT , Jun 3, 2017 9:15 AM

Funny how NBC sent PeeWee Herman to do the interview.

kochevnik - Slack Jack , Jun 2, 2017 4:36 PM

Good news for you Earth entering little ice age until 2053!

Whalley World - kochevnik , Jun 2, 2017 5:11 PM

Not so fast, with record volcanoes, earthquakes, sink holes, solar flares and incoming cosmic debris, could it be that our Sun's binary twin has once again approached our inner solar system?

https://www.youtube.com/watch?v=KBbcB94INMw

Science says yes, it's here, it's now, the global warming oh excuse me, climate change is just a way for JPM to force carbon credits on humanity for profit.

gladih8r - Slack Jack , Jun 2, 2017 4:38 PM
shovelhead - gladih8r , Jun 2, 2017 4:57 PM

It's high tide on the Texas Panhandle.

Hipower - Slack Jack , Jun 2, 2017 5:06 PM

Tell your bot that it raises suspicions when you send this comment EVERYWHERE!

Lyman54 - Slack Jack , Jun 2, 2017 5:42 PM

Global warming is far better than global cooling. Where I am sitting right now was under 5 kilometers of ice 11,000 years ago. The idiots can't answer what caused the glaciers to melt yet they claim to know what the future holds.

flapdoodle - Lyman54 , Jun 2, 2017 8:07 PM

As for what happened 11,000 years ago, check out Graham Hancock's excellent and compelling article on www.sott.net about the "Younger Dryas" period.

The "Nibiru" bit may not be far off base!!

IndyPat - Slack Jack , Jun 2, 2017 6:19 PM

LIVE BREAKING REPORT

From the heart of the Midwest.

Corn and soy is a foot tall. Doing just fine, here, ya pussy.

SubjectivObject - IndyPat , Jun 2, 2017 10:19 PM

It's all that GMO schitt.

the roots go deep for that fraked water.

SoDamnMad - IndyPat , Jun 3, 2017 5:07 AM

So your the guy feeding all the dipshits and the starving people all over the world. OK, now we got someone to blame. (I lived in IN, both N and S and loved those basketball size pale green inside melons each summer. Now I know why Hoosier basketball was on top all the time. THANKS for the chow.

Dimwit - Slack Jack , Jun 2, 2017 6:41 PM

FFS grow up and learn something about 'Sea Level' in 3 minutes. No they can't measure to the Millimetre it's impossible.

https://www.youtube.com/watch?v=q65O3qA0-n4

If you like 'Worrying' I can offer you an Insurance policy, If you or any of your offspring suffer any loss whatsoever after a period of 100 years due to 'Climate Change' I will give you $1000,000 dollars for a low premium of a mere $100 one-off payment now.

Grow up and read "Watts Up With That" where real Scientists blow the 'Global Warming scam' into the dust.

unsafe-space-time - Slack Jack , Jun 2, 2017 9:11 PM

Don't worry, be happy. Global warming will allow hordes of islamics to satisfy your festering rectum. You syphilitic mind is not worth talking to, but i'm sure 10 degree rise in globball temperatures will make sahara, australia and greenland green. Even africa might be able feed itself.

secretargentman - Slack Jack , Jun 2, 2017 11:21 PM

Pfffft.

CEOoftheSOFA - Slack Jack , Jun 3, 2017 12:42 AM

There is no physical evidence for the AGW Theory : (Anthropogenic Global Warming), the theory that the Earth is warming due to human caused increases in greenhouse gasses, primarily, carbon dioxide (CO2). There are only climate models that purport to prove the theory. The climate models have many inaccuracies which completely invalidate the models. Among the inaccuracies are the following:

1.

The climate models have no way of accurately estimating the temperature effect due to changes in cloud cover. Changes in cloud cover have been shown to have much more effect on global temperature than changes in CO2 levels.

2.

It has been proven that past periods of increasing temperature preceded increases in CO2 by as much as 800 years. The models assume that the C02 increases precede the temperature increases.

3.

Water vapor feedback: The AGW theory models assume that the Earth's temperature goes up 1.1 degree C for each doubling of CO2 just based on the effect of the increases in water vapor which are caused by increases in CO2. This has never been proven. The models do not take into consideration the cooling effect of cloud cover which also results from increases in water vapor.

4.

Aerosols: The AGW models use changes in atmospheric aerosol levels as a fudge factor to make the models agree with actual temperature changes, even though there is no data to support this claim.

5.

The climate models have no way of modeling vertical heat vents. Vertical heat vents can form when the ocean surface temperature is over 28 degrees C. Heat is transported to the upper atmosphere which cools the earth. Heat vents transport so much heat that their effect on global average temperatures is more than the increases caused by CO2. The Pacific Vertical Heat Vent in the western Pacific alone vents enough heat to completely cancel out the effects of CO2 increases.

6.

The climate models have no way of modeling changes in the Sun's level of radiation. It has been shown that changes in the Sun's radiance accounts for at least 50% of the global temperature increase since 1850, the end of the Little Ice Age. Proponents of the AGW Theory say that the Sun's total irradiance only varies by 0.1%, so has little effect on global average temperatures. This is true, however there are large variations in several components of the Suns total irradiance, which have been shown to have large effects on the Earth's temperature. The UV wave component of the Sun's total irradiance can fluctuate by as much as 70% which can change the Earth's global average temperature by several degrees C. The Sun's magnetic field also fluctuates. The magnetic field shields the Earth from cosmic rays. Cosmic rays can fluctuate by 10%-20%. Increases in cosmic rays have been shown to cause increases in cloud cover. This has been shown to have a greater effect on global temperatures than changes in CO2.

7.

The Hockey Stick : The climate models do not take natural, global temperature cycles into effect. In the late 1990's the Hockey Stick Theory was developed by Michael Mann which disregarded, and drew a straight line through, all the past temperature cycles except the warming trend from 1970-2000. A straight line was drawn through all past cycles to 1970 and then showed the increase in temperatures to 2000 to form the hockey stick. This theory denies the existence of all the Earth's cycles which are well documented to have a greater effect on global average temperatures than changing CO2. The proponents of the AGW theory have stated many times that the cycles like the Eddy Cycle are regional and not global. In the past 15 years, the Eddy Cycle has been proven to be global by many people around the world. Among the most important cycles are the following:

a.

Milankovitch Cycle : Caused by changes in the eccentricity, axial tilt, and orientation of the Earth's orbit. The major components are on a 400,000 year cycle. Most of the components are on a 110,000 year cycle, which cause the ice ages. On average, the Earth is in an ice age for 100,000 years with a warm, interglacial period of 10,000 years. The Earth is currently nearing the end of the Holocene Interglacial period. These cycles cause differences in solar radiation of up to 6.8%.

b.

Eddy cycle: 1000 year cycle: Has been documented to have changed phases globally 25 times since the last ice age. It is caused by changes in solar radiation and a combination of the 206 year solar cycle and the Pacific and Atlantic oceanic cycles. This cycle is responsible for: the Modern Warm Period (1850 - present), Little Ice Age (1300-1850), Medieval Warm Period (900-1300), Dark Ages Cold Period (400 - 900), Roman Warm Period (250 BC-400 AD), etc. The Medieval and Roman warm periods were warmer than the Modern Warm Period. Logs from Icelandic fishing boats indicate that the Arctic Ice Edge was much further north during the Medieval Warm Period than today. Diaries from vineyards in the UK indicate that grapes were grown for winemaking in Central England until the early 1300's. This was 500 km further north than where grapes can be grown today. Farms also flourished in Greenland where farms cannot exist today.

The coldest point of the Little Ice Age was the year 1700. The Earth has been warming at a rate of 1 degree C per century since then. The warming rate is the same both before and after the Industrial Revolution .

c.

Suess / deVries Solar Cycle: 206 years. Caused by variations in the number of sun spots which causes fluctuations in the sun's total radiance. The Sun has been in hibernation, or a sun spot minimum, since 2009. The previous minimum was the Dalton Minimum (1790 – 1830). Dalton minimum caused total crop failures for several years in New England and Upstate New York. The current minimum should cause a cold period extending to the late 2030's. This causes a 1 degree C difference in global average temperatures. The 20 th century had a higher number of sun spots than any century for 10,000 years. The Dalton minimum occurred during a cold phase of the Eddy Cycle. The current solar minimum is occurring during a warm phase of the Eddy Cycle, so the temperature variances should not be as extreme as during the Dalton minimum.

d.

Pacific Decadal Oscillation (PDO): 60 years. Caused by the alignment of the Earth with Jupiter and Saturn, the two planets with the highest forces of gravity. The alignment causes the Earth to be pulled closer to or further from the Sun by a distance of three Sun diameters. Also causes extreme changes in tides causing reversals in warm and cold water masses in the Pacific. The PDO has been shown to change the Earth's average temperature by several tenths of a degree C. The PDO has been in a cold phase since 2000 and has deposited abnormally cold water off the coast of California, c