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Peak Cheap Energy

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 drop in oil prices in 2014-2017 might have been a curse, not the blessing as it slowed down or stopped the adaptation processes to the "end of cheap oil". The process that was already in place with $4 per gallon ($1 per liter) gas in the USA, when sales of large SUV dropped considerably and used large SUV could be  bought for a half of its usual price.  The reality is a harsh mistress: the situation in 2018 with depletion of existing oil deposits and new discoveries is now worse than in, say, 2000.  Technology an and will prolong the agony so so far there is no viable solution to "hydrocarbon age".

As of 2018 in the USA consumer still continue to do the same things as before 2008. 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 )which is a noted chaierleader of position "do not worry, be happy" as for the end of chep oil) 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 (started in Sept 2018)  and defy all expectations. That means that any person who tried to predict commodities price in the current environment is suspect ;-).  In a "very long run" the supply/demand dynamic is at work, but market for the period less then a year prices can be pretty arbitrary and completely disconnected with the cost of producing oil and supply and remand ration. This is a side effect of financialization when the volume of "paper oil" traded is the order of magnitude larger then the volume of actual oil expected for any given period.  That is another proof that 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.

in this sense MSM cries about getting close to self-sufficency look strange. Yes some tipes of oil-like products produced by shale wells are not very desirable (condensate) and they are stored distorting the whole picture but with rising imports thee can be not "oil glut". 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 and that means that at prices below, say, $70-$80 per barrel production of shale oil leaves the trail of junk bonds production as well. One is impossible without the other. 

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 $60-$70 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 pay the debt.  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 "non-conventional" oil projects do require prices in $80-$100 range to continue pump oil at the same rate (Red Queen's race - Wikipedia) and this implies continued drilling of new wells.

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

All-in-all it looks that "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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[Apr 14, 2021] After The Bear Showed Its Teeth The Ukraine Filed For Peace

Now it looks more and more like a deliberate provocation. With Ukraine striving to get attention and the USA striving to stop NS2.
Notable quotes:
"... The new 2020/2024 Russia/Ukraine transit gas contract is 'pump or pay' in that Russia pays $7B over 5 years regardless of whether gas is shipped or not. So it doesn't matter if the volume drops. I am actually surprised that it has given the still harsh weather in Europe. ..."
"... Meanwhile more figures are out on NS2 and it looks, given good weather, that both Fortuna and AC could finish pipe laying in both Danish and German waters by the end of May. So operational by the end as of year as stated by Gazprom looks on the cards, if not earlier. ..."
"... I suspect that the US and its NATO lapdogs are playing a distraction game. And I think that the Russian government knows this; but also realizes that the Western nations are cirrently in the grips of madcap rulers. Thus Russia is not taking any chance. One can bet that, as the whole empire crashes, it would like to bring down as much of humanity down with it as it can. The future of the earth is not bright. ..."
"... The Oil Shock only added to the 1973-75 recession. The Oil Shock was political in nature, and somewhat coordinated with the USG itself. The deeper causes of the early 70s economic crisis, and of the end of Bretton Woods, was declining profitability across all advanced capitalist states. See Robert Brenner's book, The Economics of Global Turbulence. ..."
"... Nuland et al may be trying to show themselves loyal agents of Israel, testing whether Russia can be distracted from Syria, or pretending to raise the cost of NS2. Russia and China could make balanced moves in the Caribbean to tame the bullies, but may see no advantage in counterthreats. ..."
"... This will be followed by an attack on the two Republics, dead bodies everywhere, un indisputable reason to convince the Germans with to scrap Nord-2. ..."
"... I am wondering if this might be an advantage for Russia and other countries in the mid to long term, that their companies are forced to master all the complex technologies involved as fast as possible? Maybe they will even become competitors to their western equivalents? ..."
Apr 14, 2021 | www.moonofalabama.org
Jamesp , Apr 10 2021 14:58 utc | 1

First the Ukraine said it would use force to recover the renegade Donbass region as well as Crimea. It then moved heavy troops towards the contact lines. The ceasefire at the contact line was broken multiple times per day. Several Ukrainian soldiers died while attempting to remove a minefield in preparation of an attack.

It became clear that a war in Ukraine's east was likely to soon braek out. A successful war would help Ukraine's president Zelensky with the ever increasing domestic crises. A war would also give the U.S. more influence in Europe . The U.S. and NATO promised "unwavering support for Ukraine's sovereignty".

Russia gave several verbal warnings that any Ukrainian attack on the renegade provinces of Luhansk and Donetsk or Crimea would cause a serious Russian intervention. There was never a chance that the U.S. or NATO would intervene in such a war. But it was only after Russia started to move some of its troops around that sanity set in. It dawned on the Ukrainian leadership that the idea of waging war against a nuclear armed superpower was not a good one.

Late yesterday it suddenly decided to file for peace (machine translation):

The Armed Forces ruled out the use of force to "liberate" Donbass

KIEV, April 9 - RIA Novosti. "Liberation" of Donbass by force will lead to mass deaths of civilians and servicemen, and this is unacceptable for Kiev, said Commander-in-Chief of the Armed Forces of Ukraine Ruslan Khomchak.

"Being devoted to universal human values ​​and norms of international humanitarian law, our state puts the lives of its citizens in the first place," the General Staff's press center quoted him as saying.

According to Khomchak, the Ukrainian authorities consider the political and diplomatic way to resolve the situation in Donbass a priority. At the same time, he added that the Armed Forces of Ukraine are ready for an adequate response both to the escalation of the conflict and to "the complication of the military-political and military-strategic situation around the country."

Zelensky himself chipped in (machine translated):

Zelensky spoke for a truce in Donbass

MOSCOW, April 9 - RIA Novosti. President of Ukraine Volodymyr Zelenskyy announced the need for a new truce in Donbass after visiting the contact line.

The head of state wrote on Facebook that shooting at the front lines had become "a dangerous routine." "After several months of observing a complete and general ceasefire, we returned to the need to establish a truce," Zelensky said.

As the commander-in-chief of the Armed Forces of Ukraine Ruslan Khomchak emphasized earlier, the use of force to "liberate" Donbass is unacceptable for Kiev, as it is fraught with casualties among the civilian population and military personnel. At the same time, last week he said that the Armed Forces of Ukraine will strengthen the grouping of troops in the Donbass and in the Crimean direction - in response to the "build-up" of Russian forces on the border with Ukraine.

It seems that order has come from Washington to stand down - at least for now. U.S. reconnaissance flights near Russia's border continue . One should therefore consider that the sudden call for a renewed ceasefire might be a ruse.

But if it is not why was all of this allowed to happen in the first place?

Posted by b on April 10, 2021 at 14:44 UTC | Permalink

It would be so beneficial to Russia in so many ways to fix the Ukraine problem once and for all, that America is now backpedalling fast and hoping the Russians do not get their fix. They want this to continue to be a set of problems for Russia. Avoiding a war would be great for all, but if the West thinks they can resume this contentious scenario, they will find they are wrong. I am willing to bet that most common citizens of ukraine are sick of all this vitriol and tension, crashing economy, and other hardships. Maybe the majority will finally speak up and get their say.

JohninMK , Apr 12 2021 22:42 utc | 160

Stonebird @ 155

The new 2020/2024 Russia/Ukraine transit gas contract is 'pump or pay' in that Russia pays $7B over 5 years regardless of whether gas is shipped or not. So it doesn't matter if the volume drops. I am actually surprised that it has given the still harsh weather in Europe.

Meanwhile more figures are out on NS2 and it looks, given good weather, that both Fortuna and AC could finish pipe laying in both Danish and German waters by the end of May. So operational by the end as of year as stated by Gazprom looks on the cards, if not earlier.

andreweed , Apr 10 2021 15:04 utc | 2

"why was all of this allowed to happen in the first place?"

because this is what bullies do. and when they sense they are about to lose in a fight, they ask for peace.

Mao Cheng Ji , Apr 10 2021 15:25 utc | 5

Once again, the World is saved. Pure West-emitted Goodness stopped The Dark Lord Putin in his tracks.

Jackrabbit , Apr 10 2021 15:38 utc | 7

At the same time, last week he said that the Armed Forces of Ukraine will strengthen the grouping of troops in the Donbass and in the Crimean direction - in response to the "build-up" of Russian forces on the border with Ukraine.

If war is really unacceptable to Ukraine why aren't they pulling back their forces?

1) Because the "Russian aggression' propaganda must continue until Nord Stream 2 is terminated.

2) Because the threat of a war with NATO-supported Ukraine must be sustained to deter Russia in Idlib and elsewhere.

!!

Don , Apr 10 2021 15:42 utc | 8

@MapleLeaf

The only deterrent US ships provide is the type that Russia wants to avoid engaging the US directly for fear of an eventual nuclear exchange. Otherwise, those ships provide no challenge to their military capabilities.

I submit the ships are there to encourage Zelensky to take a risk thinking the US has his back. But it appears even he isn't this dumb and this whole thing is going to blow over as I predicted a week or two ago.

imo , Apr 10 2021 15:44 utc | 9

So, was it always about bluff, theater and optics? ... Or did they simply lose their will to die young? I guess Zelensky is a bad-joke comedian after all. He gets the local nazis off his neck (for a while) by being a bold bad-ass boy and passing ideological laws (far from reality); and then goes listen to the frontline generals as they explain the suicidal meaning of his comic bluster. Being an actor, it's all just a stage for a gig, it seems. So, now he tells his pet nazi thugs that Ruslan Khomchak has their phone numbers. Perhaps now that Phil-the-(UK)Greek has died the Nato biolabs will be working on the next 'Plan B' reincarnation-virus pandemic mix. Sputnik-V 2.0 better be ready soon.

bevin , Apr 10 2021 16:25 utc | 13

Maybe I missed it but there were elections in Ukraine last Sunday and
"The new Verkhovna Rada (parliament) of the Ukraine, elected on Sunday, will have an overwhelming national mandate to negotiate peace terms to end the five-year civil war.

"Sluha Narodu ("Servant of the People"), the party of President Volodymyr Zelensky, having won more than 43% of the votes countrywide, will now command majorities of both the party-list and the single-constituency seats in the new parliament; 253 seats altogether out of 422, or a "mono-coalition" as the party is calling the result, or as the hostile Ukrainian media term it, "a landslide [which] has never occurred in the contemporary history of Ukraine and it is more typical for post-Soviet Asian dictatorships..."

"...This beats earlier pollster predictions that Zelensky would be forced into a coalition with Holos ("The Voice"), a US-invented spoiler organization of Lvov region (Galicia) led by pop singer, Svyatoslav Vakarchuk. He ended up with less than 6% of the national votes, fewer than forecast. Holos has proved to be neither the voice of youth, nor an organization without oligarch support (it was backed by Victor Pinchuk), nor a political party at all.

"Polling better than predicted was the Donbass (Donetsk, Lugansk regions) party, Opposition Platform led by Victor Medvedchuk, which ended up with 13% nationally; 48% in Lugansk; 42% in Donetsk; 24% in Odessa; and 19% in Nikolaev. If the additional votes of the eastern Opposition Bloc of Boris Kolesnikov and Vadim Novinsky are counted with Medvedchuk's aggregate, together they have drawn majorities of 53% to 54%, putting Zelensky's party in the east in a minority.

"This is the first time democracy has defeated a US Government-installed putsch and junta in Europe since the election of Andreas Papandreou's Pan-Hellenic Socialist Movement (PASOK) in 1982."

According to John Helmer "President Volodomyr Zelensky (right) is suffering from memory failure, mood swings, and other neurological disorders after his hospitalisation for Covid-19 five months ago..." The obvious theory is that Zelensky was playing for time while giving the ultra fascists and their Canadian sponsors free rein until the elections gave the Ukrainian people- powerless political flotsam and jetsam, tossed around by Ottawa Nazis, Anglo imperialism and a corrupt oligarchy which has been robbing everyone in sight, blind since time immemorial a chance to indicate that it would be an extremely dumb move to attack Russia. Amongst other reasons, because the average Ukrainian would very likely side with the Russians against their ancient persecutors the Poles and Balts.

For Helmer:
http://johnhelmer.net/reminder-of-july-21-2019-for-democrats-suffering-acute-memory-failure/#more-46171

psychohistorian , Apr 10 2021 16:25 utc | 14

b wrote
"
It seems that order has come from Washington to stand down - at least for now. U.S. reconnaissance flights near Russia's border continue. One should therefore consider that the sudden call for a renewed ceasefire might be a ruse.

But if it is not why was all of this allowed to happen in the first place?
"

Good question. It fits with the characterization of late empire flailing at trying to exert/maintain control over global narratives. Empire keeps hoping that Russia and China back down because they have no other options than bullying. This is just the latest example of the bully being faced up to.....thank you Mr. Putin!....we just hope the bully goes down without taking all the rest of us with it.

Steve , Apr 10 2021 16:44 utc | 16

I suspect that the US and its NATO lapdogs are playing a distraction game. And I think that the Russian government knows this; but also realizes that the Western nations are cirrently in the grips of madcap rulers. Thus Russia is not taking any chance. One can bet that, as the whole empire crashes, it would like to bring down as much of humanity down with it as it can. The future of the earth is not bright.

AriusArmenian , Apr 10 2021 16:58 utc | 19
If Ukraine doesn't start their self-destruction by launching war before end of June then I will believe the danger has passed this year and only because the crazies in the US are hesitating to push the final button.
JohnH , Apr 10 2021 16:59 utc | 20
Meanwhile the New York Times, which always claims to know everything about Russian intentions, is left clueless!
https://www.nytimes.com/2021/04/09/world/europe/russia-ukraine-war-troops-intervention.html
vk , Apr 10 2021 17:05 utc | 22
But if it is not why was all of this allowed to happen in the first place?

The only plausible explanation is that time isn't in favor of the Ukraine (and maybe the USA). Time is running up.

We should stop seeing capitalism as this unmovable, eternal and indestructible system, and the USA as this eternal and indestructible empire with endless resources. Both presuppositions are entirely false: capitalism and the USA are historically specific phenomena, and they will - 100% certainty - collapse and disappear eventually.

In politics, time is always relative. You know you won't last forever, but you know you don't need to: you just need to last longer than your political enemy. The fact that USA outlived the USSR gave it almost 17 years of incontestable supremacy, even though, analyzing the numbers, we know that the economic apex of the American Empire (its "golden age") was between Eisenhower and Lyndon B. Johnson. The absence of its geopolitical rival resulted in the fact that the American Empire reached its pinnacle during Bill Clinton and George W. Bush, not at the time its people was the most happy, during 1945-1969.

But geopolitical apex doesn't always translate automatically to economic apex. The USA also suffered a lot with the Oil Crisis of 1974, after which it quickly started to financialize and deindustrialize, in a process that was best symbolized by the Nixon Reforms (the creation of the Petrodollar in 1971 with the secret talks with the Saudi royal family and the deal with China in 1972). This crisis was masked solely by the fact that the USSR suffered even more with the Oil Crisis than the USA, resulting into a relative ascension. This relative ascension can be verified by the fact that Ronald Reagan was the most popular POTUS of the post-war USA: his reign was, by all economic metrics, a monumental failure, but it was during his watch that the USSR started to collapse.

Signs of cracks in the USA were already evident when George H. W. Bush wasn't re-elected because of a tax revolt by the electorate. During Bill Clinton, the American Empire gained a lot of breathing space thanks to the absorption of the vital space left by the ex-USSR countries, which were ransacked by the American and, to a lesser extent, German, capitalists (Victoria Nuland's husband, for example, got extremely rich with the privatization of the communications services in ex-Yugoslavia, hence her particular interest in Eastern Europe affairs). But even during Bill Clinton we could already see some dark clouds, e.g. the infamous "twin deficits" increase. Bill Clinton also governed long enough to see the crisis of the Asian Tigers (1997) and the Dotcom Crisis (2000). The dark clouds that would result in the storm of September 2008 were already there, gathering.

Analyzing the economic data, we can clearly see that the USSR wasn't the only one in an age of stagnation: since 1990, only China and SE Asia genuinely grew. If the 21st Century is to be consolidated as the "Asian Century", then a historian of the 22nd Century will have to go back to that year (or even earlier, to the mid-1980s) to try to understand the Asian rise. Growth elsewhere (when it happened) was either vegetative or fruit of a relocation (i.e. rise in inequality, bankruptcy of some sectors in favor of others) of wealth. During the 2000s, almost all the economic growth can be exclusively traced back to China (Russia's and Brazil's commodity booms, SE Asia's continued dynamism due to China's outsourcing or financing of American debt).

The 2008 crisis ended Neoliberalism as a hegemonic ideology. Today's world is still very much neoliberal, but only because the global elites don't know what to do and, either way, it's being implemented in a very distorted way, very far from its ideological purity of the 1990s. No one takes neoliberalism seriously anymore, even among the high echelons of the economics priesthood. Some remnants of neoliberal thought are still alive in the form of some living fossils in Latin America, but its end if fait accompli.

It is in this world that the Ukraine chose to align with the American Empire. To put it simply, it chose the wrong side at the wrong time: it chose the West in an era that's shifting to the East. The euphoria of the fall of socialism masked the degeneration of capitalism that was started at the same time and it particularly impacted the Warsaw Pact (Comecon) and the Western ex-USSR nations.

The Ukraine debacle has two aspects. First of all: the Maidan color revolutionaries clearly envisioned a neonazi, pro-Western Ukraine in its territorial integrity, i.e. with Crimea, Luhansk and Donbas. They didn't see the pro-Russians being well-organized enough to be able to quickly fall back to Russia (Crimea being the most spectacular case, rapidly organizing a referendum and fully integrating with Russia). Those losses are big: without Crimea, Ukraine essentially lost any significant Black Sea influence, and without Donbas + Luhansk, it practically lost all its industry and economy. Donbas specifically was a huge blow to the Ukrainians: since the Tsarist era, it was the most industrialized and advanced region of the Russian Empire (even more than Moscow and St. Petersburg) and it continued to be so during the Soviet Era - three of the main Soviet General-Secretaries of the post-war era came from the region (Krushchev, Brezhnev and Gorbachev).

Secondly, Ukraine, by choosing capitalism, has put itself withing the capitalist metabolic clock. The era of the Marshall Plan is gone. The USA needs wealth and it needs now. It will have to pay tributes to its new metropolis, and the price is high. The USA will settle for nothing less than the entire Ukraine - including the rich regions of the Donbas basin, plus the Crimea (over which its powerful Navy will be able to project into Russian territory). It also won't settle for anything less than a fully NATO-integrated, IMF-controlled Ukraine. That's the price for a full accession to the capitalist club post-2008.

In this sense, Ukraine's time is very short, as it is sucking the IMF dry (financial black hole) and it will collapse soon. The patience of the Empire is short and is getting shorter. As is common with capitalist societies, the Ukraine is also starting to devour itself as it collapses with the lack of vital space: the liberal elites governing it are having to ask themselves how can they get out of this mess without being murdered by the neonazi base that sustains it; at this point, they're more worried about avoiding another Night of the Long Knives than in reconquering the Donbas and Crimea.

The only good aspect I see in the dissolution and extinction of the Ukraine is that it can finally put to rest the myth that Nazism is a brutal, but highly efficient, "system": there's not such a thing - and never was - as a "Nazi system". Germany already was the second industrial superpower by the time Hitler rose to power; he never elaborated any kind of economic theory or even policy, instead delegating it to the already existing (Weimarian) industrial elite. Hitler was just a very powerful cheerleader who dreamed in being an epic movie. There was never such a thing called "national socialism" - it was just the name of the Bavarian party that already existed when Hitler crossed the border; it was by mere chance of destiny that he came from Austria (Southern border) and not Denmark (Northern border), France/Alsace-Lorraine (Western border) or Poland-Sudentenland (Eastern border). Nazism is not a system, it is just crazy liberalism, and I hope the white supremacists and traditionalists in the West take note of that - if they don't want to be crushed.

MarkU , Apr 10 2021 17:28 utc | 27 Prof , Apr 10 2021 17:33 utc | 28
VK
The Oil Shock only added to the 1973-75 recession. The Oil Shock was political in nature, and somewhat coordinated with the USG itself. The deeper causes of the early 70s economic crisis, and of the end of Bretton Woods, was declining profitability across all advanced capitalist states. See Robert Brenner's book, The Economics of Global Turbulence.
oldhippie , Apr 10 2021 17:35 utc | 29

It is more than 24 hours since the initial announcement of a stand down and it would be nice to see some confirmation. Troops withdrawing would be confirmation. If it is happening in is not reported. What we get tends to be like the NYT item cited by John H @ 20. Nothing in that article but fantasy and delusion. The ongoing narrative crowds out facts until nothing is left. No one is as bad as NYT, still it is hard to trust anything we read.

Keeping an army in the field indefinitely is difficult. At minimum the troops must be fed and must be kept busy. Does Ukraine have the wherewithal to do that? I tend to doubt that, and yes, I am speculating. We will find out much later how bad desertion has been. We will find out much later how the hodgepodge of conscripts, mercs, Special Forces, and NATO got along. Reporting from 2014 had it that 600 NATO of every flavor were captured in the Debaltsevo cauldron. If you believe that. I can't see how Ukraine musters and fields another army after this if it is in fact over. More likely future armies will resemble what US manipulates in Syria -- Turks, Uighurs, jihadis from whole planet, mercs.

Domestic politics in Uke have to be crazy. No one can possibly know what is happening except the US Embassy. And they have their brains fogged by a lifetime of NYT fiction. No good locals for them to work with. If there was anyone good we would have seen them by now.

El Cid , Apr 10 2021 17:49 utc | 32

One must be awestruck with the talent the neo cons have for nation destruction. What they created in Ukraine is a virtual post nuclear war. Neither the EU or Russia want this basket-case-failed-Nazi state. Like the Israeli invasion of Lebanon, it has fortified its enemy whom it intended to weaken. Now, Putin has a Hezbollah type ally in the Donetsk and Lugansk region, and it has Russian Crimean back to the Motherland.

jayc , Apr 10 2021 18:02 utc | 34

Rick Rozoff, writing for the Antiwar website, has taken note of other activity - not least next week's scheduled appearances at NATO hdq of both the US Sec State and US Defence sec with Ukraine discussions on agenda.
https://www.bloomberg.com/news/articles/2021-04-09/blinken-is-set-to-return-to-brussels-for-more-nato-meetings

Rozoff also notes that the CC of Ukraine armed forces continues with bluster about Ukraine's "territorial integrity" and invoking NATo Article 5.
https://news.antiwar.com/2021/04/09/ukraines-top-commander-invokes-natos-article-5-military-assistance-clause-as-west-continues-to-oversee-ukraines-war-in-the-donbass/

Sam F , Apr 10 2021 18:10 utc | 35

Nuland et al may be trying to show themselves loyal agents of Israel, testing whether Russia can be distracted from Syria, or pretending to raise the cost of NS2. Russia and China could make balanced moves in the Caribbean to tame the bullies, but may see no advantage in counterthreats.

Such an utter humiliation of the US to pursue such foolish and racist FP, admitting its complete control by money power in all federal branches and mass media.

dadooronron , Apr 10 2021 18:21 utc | 36

As others here suggest, it's possible to read this as a success for the neocons. Ukrainian gov't troop movements set off Russian troop movements, which are then portrayed as aggressive, justifying whatever. It is very hard to believe that they seriously contemplated an attack on Russia's doorstep, or in its antechamber. But the question remains as to how far Zelensky's can has been kicked down the road.

Baron , Apr 11 2021 9:00 utc | 108

It's a trap, the calls for peace, new negotiations and stuff, it's to create the impression that the West and Ukraine are the good boys.

The next stage will be a heap of accusations that Russia is breaking the peace, makes threatening moves, is poised to take over rUkraine.

This will be followed by an attack on the two Republics, dead bodies everywhere, un indisputable reason to convince the Germans with to scrap Nord-2.

Martin , Apr 11 2021 11:07 utc | 114

After foreign pressure, several western companies abandoned building the Nord Stream 2 pipeline. For example, the pipes are now laid by the Russian ship Fortuna instead of a Swiss one ( https://www.unz.com/pescobar/ukraine-redux-war-russophobia-and-pipelineistan/).

I am wondering if this might be an advantage for Russia and other countries in the mid to long term, that their companies are forced to master all the complex technologies involved as fast as possible? Maybe they will even become competitors to their western equivalents?

Usually, when governments decide about big industry projects, they demand that their national companies get some orders to profit from the project. Now, it seems reversed. The German government is still not openly against Nord Stream 2, but it has to be finished without some of the companies originally involved.

[Apr 12, 2021] Many Drilled U.S. Wells Will Never Be Completed by Julianne Geiger

Apr 12, 2021 | oilprice.com

...Raymond James analyst John Freeman, who claimed this year in a note to clients that the United States' true DUC count is much lower, given that many of the wells included in the EIA's DUC count are dead in the water and many years old, likely never to be completed. According to Freeman, this figure is as much as 22% too high.

A 2019 Federal Reserve of Dallas survey of oil and gas company executives suggests that half of the respondents agree that the EIA is overestimating the number of DUCs. Related: Investors Rush To Oil Stocks Despite ESG Push

In a low oil price environment, oil and gas companies may spend money on finishing off an already drilled well, rather than on drilling a new well. But companies will continue to strive to keep that DUC inventory in their back pocket should the market call for it. But when oil prices have been low for a long time -- and demand for crude or gas remains low, those low oil prices may never justify completing a well, resulting in another dead DUC.

Still, those DUCs are counted.

... ... ...

By Julianne Geiger for Oilprice.com

[Apr 12, 2021] The U.S. Shale Ponzi Scheme will continue a bit longer until the day the highly-leveraged over-inflated broader stock markets finally crash

The essence of shale operation is generation of the stream of junk bonds along with the stream of oil and gas. In other words profitability is low or nagative. Junk bond need buyers do this is a confidence gate -- as sson as confidence drops buyers will evaporate. At this point there will be writing on the wall. We do not need necessary a stock crash for that. But as just bond moves in parallel with stock that will also be the Minsky moment for shale oil production.
Apr 12, 2021 | peakoilbarrel.com
SRSROCCO IGNORED 04/10/2021 at 8:56 am

George,

Nice charts and summary of U.S. Oil & Gas Reserves.

However, it seems to me that a large percentage of these "supposed" unconventional reserves will never be extracted. Thus, the U.S. Shale Industry will have permanent DUCs that will never be completed and proved undeveloped reserves that will evaporate into thin air.

Why? Well, if we look at some of the top shale players, total long-term debt from just five companies increased from $17 billion in 2006 to $133 billion in 2020 (XOM, CVX, EOG, OXY & CLR).

With Equinor selling its Bakken assets (liabilities), writing down $11.5 billion from the company's original price-tag, and saying it was a big mistake to get into shale . why would it be any different for ExxonMobil or OXY?

Indeed, the U.S. Shale Ponzi Scheme will continue a bit longer until the day the highly-leveraged over-inflated broader stock markets finally crash. At that point there will not be a SHALE 3.0. I see U.S. shale oil production falling 75% by 2030. WATCHER IGNORED 04/09/2021 at 11:05 pm

Feb this year Exxon erased oil sands from its reserves.

Article talked pandemic so doubt they sold anything. Probably just a price determinant. JEAN-FRANÇOIS FLEURY IGNORED 04/11/2021 at 2:51 pm

This one is also laughable : "That gives plenty of incentive for giants like Total or Royal Dutch Shell Plc, plus the hundreds of smaller explorers that remain in business, to keep searching the world's frontiers for the next place to sink their drill bits." Royal Dutch Shell stated that their production did peak in 2019 and that their production will decrease by 1 or 2 % per year. That means that they decided to cease exploration and implementation of new oilfields or gasfields, if I am not wrong.Therefore, why there are still people who decide that oil companies should look for new oilfields ? They want to make real their dreams despite the crude reality ?

[Apr 11, 2021] Reject Nord Stream 2 Once and for All

Apr 11, 2021 | www.wsj.com

William Wahl SUBSCRIBER 2 days ago

Just put Hunter on it. He'll fix this right up.
RODNEY SMITH SUBSCRIBER 2 days ago
Where does Burisma stand on the issue? Will be Biden's brief.

[Apr 11, 2021] Reject Nord Stream 2 Once and for All - WSJ by Oleksii Reznikov April 8, 2021 6:37 pm ET
A pipe bearing the Nord Stream 2 logo at a plant in Chelyabinsk, Russia, Feb. 26, 2020. PHOTO: MAXIM SHEMETOV/REUTERS
Listen to this article 5 minutes 00:00 / 05:07 1x Ukrainian President Leonid Kuchma found himself in the company of a political titan, France's President François Mitterrand, on a gloomy day in December 1994. "Young man, you will be tricked, one way or another," Mitterrand told Mr. Kuchma, who was then the leader of a newly independent nation. Unsettled as he felt, Mr. Kuchma accepted the security assurances of the U.S., U.K. and Russia and signed the Budapest Memorandum. In exchange, Ukraine gave up its nuclear arsenal, then the third-largest in the world. Little did we know that two decades later one of the signatories -- Russia -- would attack Ukraine and occupy its sovereign territory. Now, after many years of wooing and cajoling, Russia's attitude toward Ukraine is again growing belligerent. The Minsk process to resolve the conflict is stalled, and foreign troops have yet to leave the Donbas, the Ukrainian region where fighting rages on. Despite the supposed cessation of hostilities agreed to in September 2014, when the Minsk protocol was signed, little progress has been made. Ukrainians therefore are bewildered by the continuing construction of the Baltic Sea pipeline, known as Nord Stream 2. Unlike the attack on Crimea, which came as a surprise, the pipeline's completion will have entirely predictable consequences for our national security. Ukraine will be irreparably weakened as soon as Russia has a new direct gas link to Germany. Ukrainian President Leonid Kuchma found himself in the company of a political titan, France's President François Mitterrand, on a gloomy day in December 1994. "Young man, you will be tricked, one way or another," Mitterrand told Mr. Kuchma, who was then the leader of a newly independent nation. Unsettled as he felt, Mr. Kuchma accepted the security assurances of the U.S., U.K. and Russia and signed the Budapest Memorandum. In exchange, Ukraine gave up its nuclear arsenal, then the third-largest in the world. Little did we know that two decades later one of the signatories -- Russia -- would attack Ukraine and occupy its sovereign territory. Now, after many years of wooing and cajoling, Russia's attitude toward Ukraine is again growing belligerent. The Minsk process to resolve the conflict is stalled, and foreign troops have yet to leave the Donbas, the Ukrainian region where fighting rages on. Despite the supposed cessation of hostilities agreed to in September 2014, when the Minsk protocol was signed, little progress has been made. Ukrainians therefore are bewildered by the continuing construction of the Baltic Sea pipeline, known as Nord Stream 2. Unlike the attack on Crimea, which came as a surprise, the pipeline's completion will have entirely predictable consequences for our national security. Ukraine will be irreparably weakened as soon as Russia has a new direct gas link to Germany. Now, after many years of wooing and cajoling, Russia's attitude toward Ukraine is again growing belligerent. The Minsk process to resolve the conflict is stalled, and foreign troops have yet to leave the Donbas, the Ukrainian region where fighting rages on. Despite the supposed cessation of hostilities agreed to in September 2014, when the Minsk protocol was signed, little progress has been made. Ukrainians therefore are bewildered by the continuing construction of the Baltic Sea pipeline, known as Nord Stream 2. Unlike the attack on Crimea, which came as a surprise, the pipeline's completion will have entirely predictable consequences for our national security. Ukraine will be irreparably weakened as soon as Russia has a new direct gas link to Germany. Now, after many years of wooing and cajoling, Russia's attitude toward Ukraine is again growing belligerent. The Minsk process to resolve the conflict is stalled, and foreign troops have yet to leave the Donbas, the Ukrainian region where fighting rages on. Despite the supposed cessation of hostilities agreed to in September 2014, when the Minsk protocol was signed, little progress has been made. Ukrainians therefore are bewildered by the continuing construction of the Baltic Sea pipeline, known as Nord Stream 2. Unlike the attack on Crimea, which came as a surprise, the pipeline's completion will have entirely predictable consequences for our national security. Ukraine will be irreparably weakened as soon as Russia has a new direct gas link to Germany. Ukrainians therefore are bewildered by the continuing construction of the Baltic Sea pipeline, known as Nord Stream 2. Unlike the attack on Crimea, which came as a surprise, the pipeline's completion will have entirely predictable consequences for our national security. Ukraine will be irreparably weakened as soon as Russia has a new direct gas link to Germany. Ukrainians therefore are bewildered by the continuing construction of the Baltic Sea pipeline, known as Nord Stream 2. Unlike the attack on Crimea, which came as a surprise, the pipeline's completion will have entirely predictable consequences for our national security. Ukraine will be irreparably weakened as soon as Russia has a new direct gas link to Germany. With the Nord Stream 1 and Turk Stream pipelines already operational, Nord Stream 2 will complete the encirclement of Ukraine, Poland and the Baltic states, decoupling our energy security from Western Europe. Russia has tried to bully Ukraine by threatening gas cutoffs, most recently in June 2014. But Moscow has always had to be careful -- a large percentage of Russia's gas reaches Europe through Ukraine. If Nord Stream 2 is built, this consideration will be null and void. With the Nord Stream 1 and Turk Stream pipelines already operational, Nord Stream 2 will complete the encirclement of Ukraine, Poland and the Baltic states, decoupling our energy security from Western Europe. Russia has tried to bully Ukraine by threatening gas cutoffs, most recently in June 2014. But Moscow has always had to be careful -- a large percentage of Russia's gas reaches Europe through Ukraine. If Nord Stream 2 is built, this consideration will be null and void. me title=
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Opinion: Morning Editorial Report
Apr 11, 2021 | www.wsj.com

All the day's Opinion headlines. PREVIEW SUBSCRIBE


The Kremlin has demonstrated time and again its willingness to use energy trade to advance its geopolitical ambitions. It would be unwise, if not reckless, for Europe to increase its dependence on Gazprom , Russia's state-owned energy company, and give Moscow direct control over which countries are supplied with gas and which can be cut off.

The current contract between Gazprom and Ukraine's gas-transit operator guarantees the flow of westward exports via Ukraine until the end of 2024. But make no mistake: The day Nord Stream 2 is completed, that promise will be worthless. Even if some transit through Ukraine persists, Ukraine will be subject to the Kremlin's whims.

The fighting in the Donbas, where Russia operates through its proxies, mercenaries and even regular troops, has continued unabated for more than seven years. The gas pipeline has been spared from shelling -- Russia needs uninterrupted gas flows through Ukraine as much as we do. This mutual dependence is a deterrent that Nord Stream 2 will remove.

Ukraine is grateful to the U.S. Congress, which recognized the true nature of this pipeline project, and the European Parliament, which voted 10-to-1 on Jan. 21 to demand a halt to construction with a resolution on the arrest of Russian dissident Alexei Navalny in Moscow.

Germany and Europe already have access to a massive gas-transit network spanning the Black and Baltic seas, Belarus and Ukraine. The existing capacity is more than 50% higher than current consumption of Russian gas in the European Union. Even if the demand increases as Germany is working to phase out nuclear and coal power generation, there is no commercial need for another pipeline.

While Germany has little to gain, Ukraine stands to lose billions of dollars in transit revenue if the second Baltic Sea gas link is built -- a fact that Nord Stream 2 apologists often present as the only basis for Ukrainian opposition. The economic effect will be significant, but the claim is deliberately misleading. Ukrainian soldiers will be putting their lives on the line if Russia decides to escalate the conflict in the Donbas after it no longer needs to consider the effect on gas exports.

Ukraine understands the need to strengthen the trans-Atlantic alliance and the desire to find a solution that works for both Washington and Berlin. It is, however, incumbent on the Kremlin first to demonstrate respect for international law. The ball is in Moscow's court. It can and should end hostilities in the Donbas region, withdraw its troops from the Crimean Peninsula and restore Ukrainian sovereignty.

me title=

President Biden was right to call the pipeline "a bad deal for Europe." As the project inches closer to completion, Ukrainians can't help but recall Mitterrand's words from nearly 30 years ago. Ukraine was tricked, just as the French president predicted. Let us not repeat history but learn from it. We must come together and reject Nord Stream 2 once and for all.

Mr. Reznikov is Ukraine's deputy prime minister for reintegration of the temporarily occupied territories. V


V Lee SUBSCRIBER 1 day ago

The Ukrainian kleptocracy will see their cut shrink or disappear when gas will start flowing via Nord Stream 2. Not "a bad deal for Europe" just for Ukraine.
A Koster SUBSCRIBER 17 hours ago
Did i mention Turkey's role in Syria ?

It's interesting that everyone conveniently fails "to mention the role that gas line geopolitics played in the "fallout" between Erdogan and Assad; as soon as Assad vetoed the Qatar-Turkey pipeline that would have brought massive wealth to his family's energy transshipment business (BMZ Ltd), Assad instead signing on to the Iran-Iraq-Syria "Friendship Pipeline", the friendship was ended and the war on Assad commenced"

A Koster SUBSCRIBER 1 day ago
This article is about one thing.. absolutely nothing to do with a risk to Ukraine's national security

'Ukraine stands to lose billions of dollars in transit revenue if the second Baltic Sea gas link is built"

And Turkey is in there like a dirty shirt.. see "Russia Warns of Full-Scale War in Eastern Ukraine, Blames Kyiv".. like it was with Azerbaijan as they slaughtered thousands of Christians in Armenia.. and all for the first find in the Caspian Sea by Azerbaijan since Russia's breakup.. HINT: they wanted.. not needed.. a direct route west for a pipeline from Azerbaijan to Turkey.. which they got in a Russia brokered peace deal

So i guess congratulations are in order to Biden's NATO as they loyally keep working on enlarging the EU and keeping the oil baron families of Erdogan and Alyiev filthy rich

James Schumaker SUBSCRIBER 1 hour ago
I suggest you look up the Budapest Memorandum. The U.S. gave no guarantees. Like Russia, it gave assurances. I also suggest you stop falling for pro-Trump talking points and look at what Trump actually did with regard to Ukraine. He tried to extort its President into digging up dirt on his main political opponent by threatening to withdraw military aid. That's what he was impeached for -- the first time.
RODNEY SMITH SUBSCRIBER 2 days ago
Where does Burisma stand on the issue? Will be Biden's brief.
Jens Praestgaard SUBSCRIBER 2 days ago
Otto von Bismarck's maxim for the newly formed German state was to always keep cordial relations with Russia. NordStream 2 is a step towards normalization of the German/Russian relationship after 120 years of failure.
Jim Mcdonnell SUBSCRIBER 2 days ago
Bismarck's policy made sense in 19th Century Europe, and had Kaiser Wilhelm II not scuttled it we would be living in a very different world. But he did scuttle it, and the world has changed - largely in ways Bismarck sought to prevent - a great deal, as has Europe.
Heiko Muhr SUBSCRIBER 2 days ago
Bismarck's thoughts about Germany's geopolitical situation are still relevant today. He argued that the map that matters for German politicians is the map of Europe [and since 1945 that frame has been enlarged, has included the US and Canada]. That Germany needed to pay particular attention to relationships with its neighbors. That the country was to small to dominate Europe, and should rely on a system of stable alliances to ensure stability, Ukraine and Russia are neighbors, Bismarck would have seen relationships with both countries as relevant. Communication channels need to be kept open, those relationships need to be managed. One neighbor, Russia, is an authoritarian state and since 2014 more openly aggressive. It needs to be contained and challenged. The US has not been a reliable partner in doing that in the last 4 years under Trump. That might change under a Biden, but will he be able to make and lock in the appropriate policy decisions? We'll see.
John Bute SUBSCRIBER 2 days ago
Germany has made a terrible strategic mistake by abandoning nuclear power to become more and more dependent on Russian natural gas. France gets 70% of its electricity from nuclear power and about 10% from fossil fuel. Only moderate increases in hydro power and renewable energy will make it fossil fuel independent.
Heiko Muhr SUBSCRIBER 2 days ago
German voters make their own decisions about climate change and definitely don't look for US advice. Power plants burning coal and producing nuclear energy are coming off the grid. Natural gas will continue to be important in that mix for quite some time. The Green Party's power is growing. It successfully expanded its electoral base in 2 state elections this spring with broad support from middle class voters. After all, environmentalism is a full belly movement. The Greens will challenge the German Conservatives, Merkel's Christian Democrats, in September at the ballot box in national elections and other state elections. And Merkel will not be on the ballot. Her CDU, which has been consistently the most pro-American party in Europe, finds that pro-American stance is now a big liability. 4 years of the Trump regime. which treated Germans as clients, changed the political landscape. Fewer Germans see the US is as a reliable partner, and that is now true even in Merkel's party.
SCOTT CORE SUBSCRIBER 1 day ago
Germany may view the US as an unreliable partner but they still rely on the US for economic and military protection. Perhaps Germans have replaced the US with NATO in their minds and ignored the fact that the US is the majority of NATO. Where Russia to threaten Germany where do you think Germany would turn? France? UK? China?
So Germans are free to trash Trump for asking them to provide a modicum of their own protection but in the end they will look to the US should they be threatened either economically by a cutoff of gas from Russia or a military threat from Russia.
Heiko Muhr SUBSCRIBER 20 hours ago
Look at Gallup polling data or the Pew Research Center's data in its Global attitudes program. In many countries Trump ranked even below Xi or Putin. He was perceived as the bigger threat--unstable, angry, without a strategic vision, just a ventilator of his emotions, a middle schooler craving attention, a clown. Yet he made these huge claims, all lies, that the US was respected and listened to. The polling data tells us otherwise. Trump's lying and the hubris that fell from these lies, that is unprecedented.
And now; THE LOSER. The Mouse-of-Mar-a-Lago. But, the Republican Party still follows him.. The man will be remembered as the worst president the US ever had, ranking even below the corrupt Harding and the imbecile Buchanan. The lowest of the low. And as THE LIAR [-->Trump should register that as a trademark]. History books won't be kind to him and the suckers that still gobble up his lies even now after the putsch or whatever you want to call the Capitol "riot." Barnum was right!
michael ring SUBSCRIBER 2 days ago
England and France have their own nuclear deterrents. Europeans just want cheap steady supply of energy. Russia is in the Middle East because Hillary and Obama destroyed Syria and Libya. Bush put us in Iraq and Afghanistan for 20 years! Trump started the withdrawal. Let's hope sleepy preacher Biden continues it.
Heiko Muhr SUBSCRIBER 2 days ago
A little reality check: At the very moment when Washington supposedly champions energy independence and warns European allies against becoming too dependent on Moscow, American refineries are buying more Russian oil than ever before.
Check out the article by Javier Blas on the Bloomberg News site, published Mar. 24, 2021: "U.S. Thirst for Russian Oil Hits Record High Despite Tough Talk."
David Thomson SUBSCRIBER 2 days ago
Puerto Rico buys Russian LNG because there are no American-built LNG tankers. Thanks to the Jones Act, we can't ship LNG from Texas to PR.
Eugene Boutz SUBSCRIBER 2 days ago (Edited)
Ukraine is composed of three *identities* which have nothing in common and want nothing in common.

There are the Russian speakers in the East and along the Black Sea, the people surrounding Lviv in the West which want to be European and the denizens of Kiev who tend to favor the values and views of the Chancellor of Germany in the '30s.

Ukraine already has a tripartite schism and is most likely headed for a tripartite split once the Russian Federation, having had its absolute fill of Kiev's games, obtains Beijing approbation to bring the matter to a conclusion with weaponry of which Kiev can only dream.

The United States is not going to fight a nuclear war with Russia over the interests of the Kiev faction nor does Germany want it to.

Nor do I.

Nor do you.

Heiko Muhr SUBSCRIBER 2 days ago (Edited)
The Germans are not going to cave. They will finish the pipeline. It is now 96 % built. The West Europeans started importing Russian gas more than 40 years ago. Ronald Reagan failed when he tried to stick it to the Germans with sanctions. And so will Cancun Ted. The old pipeline system that runs through Ukraine has been reverse-engineered with EU funds about a decade ago. Ukraine has already been reliably supplied from the West when the Russians cut supplies. The talking points in this piece are based on Cancun Ted's hallucinations, and not the facts on the ground. For a factual analysis see Eugene Rumer's long piece published today in Defense News "Punishing Germany for Nord Stream 2 does nothing to stop Putin." Rumer is the director of the Russia and Eurasia Program at the Carnegie Endowment for International Peace. He previously worked as a national intelligence officer on Russia and Eurasia for the U.S. National Intelligence Council. He actually knows what he is talking about.
William Wahl SUBSCRIBER 2 days ago
Just put Hunter on it. He'll fix this right up.
michael ring SUBSCRIBER 2 days ago
Biden has been on the wrong side of every foreign policy decision in his entire career in Washington. Mitterrrand was a bureaucrat who started his rise in vischy France. Ukraine is in a tough spot. So is Russia. They have been fighting for 7 years. Body counts go up,citizens do not like it. Russia will not sacrifice one pipeline for another. Ukraine and Russia can agree to no NATO troops on their border and tensions will go down.
bruce miller SUBSCRIBER 2 days ago
And who talked Ukraine into giving up their nukes? Well we did. Or rather, Slick and his pals did. Bet the Ukrainians wish they'd kept a bunch. Just for old time's sake.
michael ring SUBSCRIBER 2 days ago
What bargaining power would they be?No person or government in their right mind would use them. This is about land grabbing.

[Apr 09, 2021] Behind the fog of war, though, a clear scenario emerges: the deep state/NATO combo using Kiev to start a war as a Hail Mary pass to ultimately bury NS2, and thus German-Russian relations.

Apr 09, 2021 | www.unz.com

Originally from: Ukraine redux, by Pepe Escobar - The Unz Review

Ukraine and Russia may be on the brink of war – with dire consequences for the whole of Eurasia. Let's cut to the chase, and plunge head-on into the fog of war.

On March 24, Ukrainian President Zelensky, for all practical purposes, signed a declaration of war against Russia, via decree No. 117/2021.

Ukrainian President Volodymyr Zelensky speaks during a joint press conference with European Council President in Kiev on March 3, 2021. Photo: AFP / Sergey Dolzhenko

The decree establishes that retaking Crimea from Russia is now Kiev's official policy. That's exactly what prompted an array of Ukrainian battle tanks to be shipped east on flatbed rail cars, following the saturation of the Ukrainian army by the US with military equipment including unmanned aerial vehicles, electronic warfare systems, anti-tank systems and man-portable air defense systems (MANPADS).

More crucially, the Zelensky decree is the proof any subsequent war will have been prompted by Kiev, debunking the proverbial claims of "Russian aggression." Crimea, since the referendum of March 2014, is part of the Russian Federation.

It was this (italics mine) de facto declaration of war, which Moscow took very seriously, that prompted the deployment of extra Russian forces to Crimea and closer to the Russian border with Donbass. Significantly, these include the crack 76 th Guards Air Assault Brigade, known as the Pskov paratroopers and, according to an intel report quoted to me, capable of taking Ukraine in only six hours.

It certainly does not help that in early April US Secretary of Defense Lloyd Austin, fresh from his former position as a board member of missile manufacturer Raytheon, called Zelensky to promise "unwavering US support for Ukraine's sovereignty." That ties in with Moscow's interpretation that Zelensky would never have signed his decree without a green light from Washington.

On March 8, 2021, US Defense Secretary Lloyd Austin speaks during observance of International Women's Day in the East Room of the White House in Washington, DC. Photo: AFP / Mandel Ngan

Controlling the narrative

Sevastopol, already when I visited in December 2018 , is one of the most heavily defended places on the planet, impervious even to a NATO attack. In his decree, Zelensky specifically identifies Sevastopol as a prime target.

Once again, we're back to 2014 post-Maidan unfinished business.

To contain Russia, the US deep state/NATO combo needs to control the Black Sea – which, for all practical purposes, is now a Russian lake. And to control the Black Sea, they need to "neutralize" Crimea.

If any extra proof was necessary, it was provided by Zelensky himself on Tuesday this week in a phone call with NATO secretary-general and docile puppet Jens Stoltenberg.

NATO Secretary-General Jens Stoltenberg gives a press conference at the end of a NATO Foreign Ministers' meeting at the Alliance's headquarters in Brussels on March 24, 2021. Photo: AFP / Olivier Hoslet

Zelensky uttered the key phrase: "NATO is the only way to end the war in Donbass" – which means, in practice, NATO expanding its "presence" in the Black Sea. "Such a permanent presence should be a powerful deterrent to Russia, which continues the large-scale militarization of the region and hinders merchant shipping."

All of these crucial developments are and will continue to be invisible to global public opinion when it comes to the predominant, hegemon-controlled narrative.

The deep state/NATO combo is imprinting 24/7 that whatever happens next is due to "Russian aggression." Even if the Ukrainian Armed Forces (UAF) launch a blitzkrieg against the Lugansk and Donetsk People's Republics. (To do so against Sevastopol in Crimea would be certified mass suicide).

In the United States, Ron Paul has been one of the very few voices to state the obvious: "According to the media branch of the US military-industrial-congressional-media complex, Russian troop movements are not a response to clear threats from a neighbor, but instead are just more 'Russian aggression.'"

What's implied is that Washington/Brussels don't have a clear tactical, much less strategic game plan: only total narrative control.

And that is fueled by rabid Russophobia – masterfully deconstructed by the indispensable Andrei Martyanov, one of the world's top military analysts.

A possibly hopeful sign is that on March 31, the chief of the General Staff of the Russian Armed Forces, General Valery Gerasimov, and the chairman of the Joint Chiefs of Staff, General Mark Milley, talked on the phone about the proverbial "issues of mutual interest."

Days later, a Franco-German statement came out, calling on "all parties" to de-escalate. Merkel and Macron seem to have gotten the message in their videoconference with Putin – who must have subtly alluded to the effect generated by Kalibrs, Kinzhals and assorted hypersonic weapons if the going gets tough and the Europeans sanction a Kiev blitzkrieg.

French President Emmanuel Macron speaks as German Chancellor Angela Merkel looks on after a German-French Security Council video conference at the Elysee Palace in Paris, on February 5, 2021. Photo: AFP / Thibault Camus

The problem is Merkel and Macron don't control NATO. Yet Merkel and Macron at least are fully aware that if the US/NATO combo attacks Russian forces or Russian passport holders who live in Donbass, the devastating response will target the command centers that coordinated the attacks.

What does the hegemon want?

As part of his current Energizer bunny act, Zelensky made an extra eyebrow-raising move. This past Monday, he visited Qatar with a lofty delegation and clinched a raft of deals , not circumscribed to LNG but also including direct Kiev-Doha flights; Doha leasing or buying a Black Sea port; and strong "defense/military ties" – which could be a lovely euphemism for a possible transfer of jihadis from Libya and Syria to fight Russian infidels in Donbass.

Right on cue, Zelensly meets Turkey's Erdogan next Monday. Erdogan's intel services run the jihadi proxies in Idlib, and dodgy Qatari funds are still part of the picture. Arguably, the Turks are already transferring those "moderate rebels" to Ukraine. Russian intel is meticulously monitoring all this activity.

A series of informed discussions – see, for instance, here and here – is converging on what may be the top three targets for the hegemon amid all this mess, short of war: to provoke an irreparable fissure between Russia and the EU, under NATO auspices; to crash the Nord Steam 2 pipeline; and to boost profits in the weapons business for the military-industral complex.

So the key question then is whether Moscow would be able to apply a Sun Tzu move short of being lured into a hot war in the Donbass.

On the ground, the outlook is grim. Denis Pushilin, one of the top leaders of the Lugansk and Donetsk people's republics, has stated that the chances of avoiding war are "extremely small." Serbian sniper Dejan Beric – whom I met in Donetsk in 2015 and who is a certified expert on the ground – expects a Kiev attack in early May .

The extremely controversial Igor Strelkov, who may be termed an exponent of "orthodox socialism," a sharp critic of the Kremlin's policies who is one of the very few warlords who survived after 2014, has unequivocally stated that the only chance for peace is for the Russian army to control Ukrainian territory at least up to the Dnieper river. He stresses that a war in April is "very likely"; for Russia war "now" is better than war later; and there's a 99% possibility that Washington will not fight for Ukraine.

On this last item at least Strelkov has a point; Washington and NATO want a war fought to the last Ukrainian.

Rostislav Ischenko, the top Russian analyst of Ukraine whom I had the pleasure of meeting in Moscow in late 2018, persuasively argues that, "the overall diplomatic, military, political, financial and economic situation powerfully requires the Kiev authorities to intensify combat operations in Donbass.

"By the way," Ischenko added, "the Americans do not give a damn whether Ukraine will hold out for any time or whether it will be blown to pieces in an instant. They believe they stand to gain from either outcome."

Gotta defend Europe

Let's assume the worst in Donbass. Kiev launches its blitzkrieg. Russian intel documents everything. Moscow instantly announces it is using the full authority conferred by the UNSC to enforce the Minsk 2 ceasefire.

In what would be a matter of 8 hours or a maximum 48 hours, Russian forces smash the whole blitzkrieg apparatus to smithereens and send the Ukrainians back to their sandbox, which is approximately 75km north of the established contact zone.

In the Black Sea, incidentally, there's no contact zone. This means Russia may send out all its advanced subs plus the surface fleet anywhere around the "Russian lake": They are already deployed anyway.

Russian President Vladimir Putin looks on as Novator Design Bureau director-general Farid Abdrakhmanov and Deputy Defense Minister Alexei Krivoruchko shake hands during a signing ceremony for government contracts in Alabino, Moscow region, Russia. on June 27, 2019. Photo: AFP / Alexei Druzhinin / Sputnik

Once again Martyanov lays down the law when he predicts, referring to a group of Russian missiles developed by the Novator Design Bureau: "Crushing Ukies' command and control system is a matter of few hours, be that near border or in the operational and strategic Uki depth. Basically speaking, the whole of the Ukrainian 'navy' is worth less than the salvo of 3M54 or 3M14 which will be required to sink it. I think couple of Tarantuls will be enough to finish it off in or near Odessa and then give Kiev, especially its government district, a taste of modern stand-off weapons."

The absolutely key issue, which cannot be emphasized enough, is that Russia will not (italics mine) "invade" Ukraine. It doesn't need to, and it doesn't want to. What Moscow will do for sure is to support the Novorossiya people's republics with equipment, intel, electronic warfare, control of airspace and special forces. Even a no-fly zone will not be necessary; the "message" will be clear that were a NATO fighter jet to show up near the frontline, it would be summarily shot down.

And that brings us to the open "secret" whispered only in informal dinners in Brussels, and chancelleries across Eurasia: NATO puppets do not have the balls to get into an open conflict with Russia.

One thing is to have yapping dogs like Poland, Romania, the Baltic gang and Ukraine amplified by corporate media on their "Russian aggression" script. Factually, NATO had its collective behind unceremoniously kicked in Afghanistan. It shivered when it had to fight the Serbs in the late 1990s. And in the 2010s, it did not dare fight the Damascus and Axis of Resistance forces.

When all fails, myth prevails. Enter the US Army occupying parts of Europe to "defend" it against – who else? – those pesky Russians.

That's the rationale behind the annual US Army DEFENDER-Europe 21 , now on till the end of June, mobilizing 28,000 soldiers from the US and 25 NATO allies and "partners."

This month, men and heavy equipment pre-positioned in three US Army depots in Italy, Germany and the Netherlands will be transferred to multiple "training areas" in 12 countries. Oh, the joys of travel, no lockdown in an open air exercise since everyone has been fully vaccinated against Covid-19.

Pipelineistan uber alles

Nord Stream 2 is not a big deal for Moscow; it's a Pipelineistan inconvenience at best. After all the Russian economy did not make a single ruble out of the not yet existent pipeline during the 2010s – and still it did fine. If NS2 is canceled, there are plans on the table to redirect the bulk of Russian gas shipments towards Eurasia, especially China.

Connecting German infrastructure for Nord Stream 2 is in place. In this handout photo released February 4, 2020, by the press service of Eugal, a view shows the Eugal pipeline, in Germany. The Eugal pipeline, which will receive gas from Nord Stream 2 in the future, has reached full pumping capacity, and the second line of the pipeline has been introduced. Photo: AFP / Press-service of Eugal / Sputnik

In parallel, Berlin knows very well that canceling NS2 will be an extremely serious breach of contract – involving hundreds of billions of euros; it was Germany that requested the pipeline to be built in the first place.

Germany's energiewende ("energy transition" policy) has been a disaster. German industrialists know very well that natural gas is the only alternative to nuclear energy. They are not exactly fond of Berlin becoming a mere hostage, condemned to buy ridiculously expensive shale gas from the hegemon – even assuming the egemon will be able to deliver, as its fracking industry is in shambles. Merkel explaining to German public opinion why they must revert to using coal or buy shale from the US will be a sight to see.

As it stands, NATO provocations against NS2 proceed unabated – via warships and helicopters. NS2 needed a permit to work in Danish waters, and it was granted only a month ago. Even as Russian ships are not as fast in laying pipes as the previous ships from Swiss-based Allseas , which backed down, intimidated by US sanctions, the Russian Fortuna is making steady progress, as noted by analyst Petri Krohn: one kilometer a day on its best days, at least 800 meters a day. With 35 km left, that should not take more than 50 days.

Conversations with German analysts reveal a fascinating shadowplay on the energy front between Berlin and Moscow – not to mention Beijing. Compare it with Washington: EU diplomats complain there's absolutely no one to negotiate with regarding NS2. And even assuming there would be some sort of deal, Berlin is inclined to admit Putin's judgment is correct: the Americans are "not agreement-capable." One just needs to look at the record.

Behind the fog of war, though, a clear scenario emerges: the deep state/NATO combo using Kiev to start a war as a Hail Mary pass to ultimately bury NS2, and thus German-Russian relations.

At the same time, the situation is evolving towards a possible new alignment in the heart of the "West": US/UK pitted against Germany/France. Some Anglosphere exceptionals are certainly more Russophobic than others.

The toxic encounter between Russophobia and Pipelineistan will not be over even if NS2 is completed. There will be more sanctions. There will be an attempt to exclude Russia from SWIFT. The proxy war in Syria will intensify. The hegemon will go no holds barred to keep creating all sorts of geopolitical harassment against Russia.

What a nice wag-the-dog op to distract domestic public opinion from massive money printing masking a looming economic collapse. As the empire crumbles, the narrative is set in stone: it's all the fault of "Russian aggression."


Alfa158 , says: April 8, 2021 at 12:05 am GMT • 1.9 days ago

Well, I'm hoping the Ukrainians will finally remember Bernard Lewis's warning about the U.S. and realize they are being used like a Kleenex: "America is harmless as an enemy but treacherous as a friend."
Americans have had it and will never tolerate sending combat troops into a Russia/Ukraine conflict no matter how much rah-rah let's you and him fight we'll hold your coat for you, faux patriotism the lugenpresse throw at them. Those of us who volunteered for the US military in the past have learned our lesson.

Agent76 , says: April 8, 2021 at 8:09 pm GMT • 1.1 days ago

Aug 10, 2020 Nord Stream 2 final stretch & Russia-Cyprus try to mend fences

https://www.youtube.com/embed/s4S_wOvCQAU?feature=oembed

Apr 4, 2019 NATO EXIT: Prof. Michel Chossudovsky

NATO is a criminal entity, an instrument of the Pentagon. There is no "Alliance". There is military Occupation.

https://www.youtube.com/embed/649_HXyJPAg?feature=oembed

Petermx , says: April 8, 2021 at 12:46 am GMT • 1.9 days ago

"The problem is Merkel and Macron don't control NATO." I don't know how a decision is made whether NATO will go to war or not but if Germany and France have no say in whether their soldiers will be sent to war or not, that must by a very scary thought for them.

I found the following analysis interesting and I think it makes sense. It suggests France and Germany have a say in matters and that they oppose any offensive Ukraine has in mind. The commentator analyzes the diplomatic language and Germany and France appear to be fed up. Without coming out and saying so directly, they see things more as Russia does than Ukraine. It's very unfortunate things have developed this way for Ukraine. In addition, if Merkel wants to be perceived as a complete failure as chancellor in Germany, only then will she let NS2 be stopped from being completed. This analysis suggests there may be some strain between France and Germany versus the USA.

https://www.youtube.com/embed/30Lzq-K-cO4?feature=oembed

Zarathustra , says: April 8, 2021 at 4:59 am GMT • 1.7 days ago

I do have to disagree. If Ukraine start a war Russia must take back all eastern part of Ukraine that has prevalent Russian population. Odessa and Zaporozhie is particularly important. Russia must also tale all Kiev area back.

Carlton Meyer , says: Website April 8, 2021 at 5:04 am GMT • 1.7 days ago

Several things to note:

1. Senior Ukrainian officers were once Soviet officers. They, and most of their troops, don't want to fight Russians and know it's foolish. The Ukrainian army will crumble if they come in contact with regular Russian troops. It's not that they are cowards, but sane. It would be like Canadian troops ordered to attack across the American border.

2. The American empire is furious and concerned that its long-time puppet disobeyed orders. Germany wants Russian gas and the empire wants that pipeline stopped. Not only to hurt Russia, but to teach the Germans a lesson. If fighting occurs in the Ukraine, would the Germans dare to buy natgas from evil Russians?

3. Most importantly, Israel controls the American government. A major goal is the destruction of Syria to allow the expansion of Greater Israel, as explained in the video below. This nearly succeeded until the Russians intervened. Fighting in Ukraine would divert Russian military resources from Syria so that nation can be destroyed, or Russia may give up Syrian support as part of a grand peace deal.

https://www.youtube.com/embed/P512QBpjoq4?feature=oembed

The Biden administration is fully supportive of finishing off Syria and Lebanon, then moving on to destroy Iran. The new talks about Iran's nuclear program will go nowhere. It's just a show so Biden can say he tried.

https://www.youtube.com/embed/pEigig2qWkc?feature=oembed

Silicon Silence , says: April 8, 2021 at 5:11 am GMT • 1.7 days ago
@anon

It makes all the difference when the revolving-door regulator-capture reframing is not "USA/Nato vs Russia" -- but rather the more accurate "Raytheon (et al) vs Russia."

The modern truth is: Russia and China have governments in control of policy and industry. The USA (and therefore also its yapping poodle collection) have Industry setting policy and running government for their 1%-er shareholder benefits.

Majority of One , says: April 8, 2021 at 6:06 am GMT • 1.7 days ago

Part of me wants to think that the Ukies will want to fold at the last moment. Yet all this apparent evidence points to their going for it and promptly getting their collective noses smashed in. Those who speculate in meta-political geo-strategic analysis cannot make sense of the moves by the largely incompetent shot-callers and their even more incompetent minions who cut the orders to their chessmen.

Heavy pressure by the equally incompetent regime in the Di$trict of Corruption, where carrot and stick are equally in play, is as Escobar points out, the force behind this nearly automatic death-sentence for the Kiev regime and the poor slobs who make up the draftee elements in the Ukrainian military.

Again, geopolitically, one wonders at the deeper string-pullers within the Pentagram, the CIA and the mass media of mind-control and message-massaging. Is this essentially a move to keep the American people–most particularly the edjumacated managerial and technical classes who make up the core of the alleged "middle-class"–"on message and in line"?

Yes, the WarDefense industry (aka Eisenhower's "Military-Industrial Complex") insist on ongoing wars and threats of war to maintain their profit margins for the prime owners of that false economic basis,prime actors such as the Rottenchild Crime Clan and the rest of the parasites clustered in City of London and Wall $treet.

How will the canny and ever wary Russians proceed? Will they operate in the manner that Escobar proposes, by not directly employing the considerable ground-forces which now stand on alert just to the eastwards of their mutually agreed upon Swiss-cheese border with the Novorussians in Donetsk and Luhansk? Or will Russian strategy be somewhat more comprehensive by liberating the rest of the primarily Russian-speaking parts of eastern and southern Ukraine which had largely backed the overthrown legitimate government of that bedizened composite nation and are still smarting under the heels of the Galician fascists and the smaller grouping of Russophobic Ukrainian nationalists who still harbor nightmares about the Bolshevik/Stalinoid Holodomar? There are, after all human considerations which may influence Kremlin policy.

Should Russia decide to make a move, it is my projection that they would never be likely to even attempt to occupy central Ukraine and would set a stop-line well to the east of Kiev. Something that bemusingly intrigues me is the Belarus factor. It would appear that the Minsk regime, smarting from the attempted coup by the Poles, Baltic states and Ukraine backing of "pro-Westerners, may be mobilizing to get into the action and perhaps readjust their boundaries somewhat southwards. This could indicate a countering move by the Uniates in Galicia to make common cause with their Roman Catholic brethren in the afore-mentioned Poland along with Lithuania and remove their lands of control from a shattered Ukraine and form a confederation with their neighbors to the west.

There is little doubt in my mind that Russia has numerous human assets in central and southwestern Ukraine, who along with elements of a disintegrating Ukie military, would unite to overthrow the rotten regime in Kiev and establish a markedly neutral smaller but more cohesive Ukraine–a natural though smaller nation which could serve as an essential buffer between a strengthening Russia and a collection of NATO nations which would then comprise a hodgepodge of hawks and doves, a discombobulated collection of politico-economic entities attempting to swim their ways to calmer shores or to maintain some semblance of "Great Reset" programming in the face of popular resistance to lockdowns and mandated AstraGenica jabbings.

Worst possible scenario is that someone in the Pentagon-dominated NATO command complex loses their cool and initiates a conflict that could result in planet-wide chaos and destruction. One would hope that cooler heads will take a few hits to their expansionist fantasies and decide to make the best of a failed bit of adventurism and bide their time -- if they feel they have any time remaining before globalist economies hit the skids, leading to a potential collapse to the myth of progress.

Vojkan , says: April 8, 2021 at 6:16 am GMT • 1.7 days ago

Everyone gets American logic. It's the Ukrainian logic that is truly baffling. Just how stupid do the Ukrainians have to be to attack when anyone with a brain knows what will be the outcome?

Silicon Silence , says: April 8, 2021 at 5:11 am GMT • 1.7 days ago
@anon

It makes all the difference when the revolving-door regulator-capture reframing is not "USA/Nato vs Russia" -- but rather the more accurate "Raytheon (et al) vs Russia."

The modern truth is: Russia and China have governments in control of policy and industry. The USA (and therefore also its yapping poodle collection) have Industry setting policy and running government for their 1%-er shareholder benefits.

GMC , says: April 8, 2021 at 6:37 am GMT • 1.7 days ago

You can't do any Normal business with a Crime Syndicate like the USA/ EU and or Israel. Turkey, Saudi Arabia and others. Russia is so close to being self sufficient , they could turn their back on the West and it's cut throat allies , and just look to the East until the West implodes. They will have to destroy all armies within close proximity to their borders, including the Ukrainian/Mercenary one. Moscow must still have Jew Oligarchy baggage, that is making money on Wall Street and those ties need to break apart or come to a Pro Russian agreement or else. Rename Kyiv to Berlin 1944, and Lviv to Dresden and take it from there – and don't look back anymore. And PS : on way to Lviv, Agent Orange every F..n Monsanto/Bayer, Dupont and Cargil farm – like they did to Vietnam.

Levtraro , says: April 8, 2021 at 6:50 am GMT • 1.7 days ago

Behind the fog of war, though, a clear scenario emerges: the deep state/NATO combo using Kiev to start a war as a Hail Mary pass to ultimately bury NS2, and thus German-Russian relations.

Yes but also the Ukraine needs to save those gas transit fees that will go kaput if NS2 is completed and operational, so it is the Ukraine the one with the most immediate incentive to start a war. Though they need just a small war, a little war to force the hands of the Germans to cancel NS2. Problem is the Russians have promised to give the Ukrainians more than what they bargained for. To save those gas transit fees the Ukrainians may end losing the country to a puppet installed by the Kremlin.

Schuetze , says: April 8, 2021 at 7:19 am GMT • 1.6 days ago

Escobar, besides not naming the Jew, does not mention which side Israel is likely to support. We can be pretty certain that whichever side Israel supports is going to be the victor in this conflict. Turkey is also important because of the Bosphorus, and Turkey and Israel are working together to exploit the Leviathan gas field to the detriment of Cyprus and Syria, so Israel can jerk Turkey around like a pitbull on a chain.

The US has been moving drones into Ukraine and they now are right on the border with Crimea. The US Marines also have a large presence in Romania, also likely including all kinds of drones. The Israelis are among the planet's leaders in drone technology, and surely own even more patents. Israel provides much of its drone technology to Turkey, and the Azerbeijanis used Turkish and Israeli drones in their short war with Armenia. During this short war the Azerbeijanis shot up all kinds of Russian equipment with their drones including Pantsir's and ZSU-23's.

The US also has all kinds of stealth drones and missiles, likely that is one area where they lead the entire planet.

Miro23 , says: April 8, 2021 at 10:13 am GMT • 1.5 days ago

https://vk.com/wall-57424472_304332

If this assessment is correct (in Russian but comes out OK in Google translate), then the US / NATO have to get involved to compensate for the lack of a Ukrainian air force – and in fact the rest of their obsolete equipment.

Personally, I can't imagine US or NATO troops on the ground in the Ukraine – and I don't see any planning for it, so what's the idea?

One possibility seems to be 1) to start the fighting 2) then start the real game, which is a massive anti-Russian media barrage "heroic Ukrainian patriots", "Russian atrocities", "killer Putin" etc. sufficient to finish with Nord Stream 2, divide Russia from France/Germany, plus reanimate NATO and sanction Russia. Basically to force Europe back into US hegemony, and away from independent decision making.

They won't have any problem with the UK (their most slavish follower) but at some point the French and Germans are surely going to become tired of all this CIA/Neo-con BS.

The Alarmist , says: April 8, 2021 at 10:18 am GMT • 1.5 days ago

[German Industrialists] are not exactly fond of Berlin becoming a mere hostage, condemned to buy ridiculously expensive shale gas from the hegemon .

German Industrialists and financiers have been repeatedly shaken down by the hegemon for fines related to a number of "infractions." The scuttlebutt I've heard from a number of them is that it got old a long time ago; what point is it to participate in the US market when your profits are repeatedly clawed back as "fines," and those in the US with whom you compete are given a leg up not just in the US, but on the world stage. Left to most industrialists, Germany might have gone its own way years ago. Oddly enough, it is the Ossivergeltungswaffe who dithers over breaking ranks with the "ally" that openly spied on her.

And even assuming there would be some sort of deal, Berlin is inclined to admit Putin's judgment is correct: the Americans are "not agreement-capable." One just needs to look at the record.

The most recent example would be the Doha agreement on the US withdrawal of forces and personnel from Afghanistan. Apparently the Pentagon recently awarded a number of contracts for contractor services in that country for some time well past the "agreed" withdrawal date, strongly suggesting the agreement to leave was a ruse.

Garliv , says: April 8, 2021 at 10:34 am GMT • 1.5 days ago
@J. Alfred Powell

Unfortunately we live in a world where history is/was erased, facts don't matter or they can be twisted to fit anything no matter how ridiculous, the present is what I say it is. Thus US and its vassals are just interested in their today's narrative.
Ukrainian leadership is hopelessly incompetent and corrupt so will do anything Biden's gang tells them. It's simply a depressing scenario.

street worm , says: April 8, 2021 at 12:59 pm GMT • 1.4 days ago

Blinken poking the Ukies to attack is a Hail Mary to stop NS2. Maybe it will work, maybe not. But a few hundred or a few thousand dead Ukies is worth the Russian boogeyman psy-op for the empire.

Marckus , says: April 8, 2021 at 1:23 pm GMT • 1.4 days ago

""Ukraine and Russia may be on the brink of War blah blah""

Contrary to what Pepe asserts the rest of the world will not give a shit. Memories of Chechnya? The sooner Putin over runs the place the better. You can bet the Ukrainian ruling elite, for all their gumption, have their jets all fuelled and ready with flight plans for the US via Switzerland...

Reaper , says: April 8, 2021 at 1:56 pm GMT • 1.4 days ago

"NATO puppets do not have the balls to get into an open conflict with Russia."

Sadly not so sure.
Some has it`s own agenda, like POland, Lithuania. Not even NATO/ US are in full control over that, and needs no more than a misstep. Like activate some system which is potentionally dangerous for Russia.
Or in different NATO/ US bases elsewhere in continental Europe.

"to provoke an irreparable fissure between Russia and the EU, under NATO auspices"
"When all fails, myth prevails. Enter the US Army occupying parts of Europe to "defend" it against – who else? – those pesky Russians."

This sounds to be the real goal.
For long since the US is jealous to Europe as it became more and more equal in economic and political power, and prevail better even with this "global pandemic".
EU wants more independence, US wants it`s colony to more obidient and follow commands.

If not just occupy, but "let" Europe partly destroyed even better: the treat of dominance reduced, and again can be the "nice savior" who helps and "brings democracy".

So seems far too real in the Ukrainian conflict Ukraine is just a side character.

Anonymous [902] Disclaimer , says: April 8, 2021 at 2:54 pm GMT • 1.3 days ago
@Vojkan

Good point. They simply can't "win" anything by attacking.

The (((US))) will provide plenty of encouragement and support as long as they get mountains of Ukrainian corpses in return. Those corpses can then be photographed and the photos broadcast all over the world as "proof" that Putin is Hitler. Basically, Ukrainians are being funnelled into the meat grinder for a globohmo psyop opportunity. What a way to die...

Realist , says: April 8, 2021 at 2:59 pm GMT • 1.3 days ago
@Fred777

The crumbling US economy will provide more than enough meat for the neocon's grinder.

Perhaps they will turn their attention to problems at home. The question is are they smart enough to recognize where the problem lies.

MLK , says: April 8, 2021 at 3:01 pm GMT • 1.3 days ago
@Robert Bruce

Are you referring to the Ukraine fiasco? Would that it were so that it was just a distraction. Just apply some reverse engineering to how Germany and Russia have a pretext to link up energy-wise when Ukraine was a perfectly serviceable transit point until NeoCon filth started working their magic.

[Apr 09, 2021] German Chancellor Merkel spoke to President Putin yesterday and apparently told him she wanted to see immediate de-escalation

Apr 09, 2021 | www.zerohedge.com

Indeed, let's not worry: German Chancellor Merkel spoke to President Putin yesterday and apparently told him she wanted to see immediate de-escalation or else she might not sell Russia any German cars; or buy Russian vaccine; or complete Nord-Stream 2 and tie the German economy into Russian gas supplies. Isn't realpolitik a German word originally?

"Destiny guides our fortunes more favourably than we could have expected. Look there, Sancho Panza, my friend, and see those thirty or so wild giants, with whom I intend to do battle and kill each and all of them, so with their stolen booty we can begin to enrich ourselves. This is noble, righteous warfare, for it is wonderfully useful to God to have such an evil race wiped from the face of the earth."

"What giants?" asked Sancho Panza.

"The ones you can see over there," answered his master, "with the huge arms, some of which are very nearly two leagues long."

"Now look, your grace," said Sancho, "what you see over there aren't giants, but windmills, and what seems to be arms are just their sails, that go around in the wind and turn the millstone."

"Obviously," replied Don Quixote, "you don't know much about adventures."

Or labour vs. capital; or realpolitik. But Happy Friday!


GreatCaesar'sGhost 1 hour ago

No nato troops will ever set foot in Ukraine. They're trying to pressure Russia into doing something so they can force the Germans to stop nordstream. The Ukrainians can't win here and they're being used. Not good.

USAllDay 56 minutes ago

Germans need the gas and Russia needs the revenue. These are facts that can not change.

GreatCaesar'sGhost 53 minutes ago

US has gas to sell. Greater Israel and their Saudi partners believe that after they overthrow Assad they will have gas to sell. I'm not sure the constantly virtue signaling German government will buy Russian gas if there's a war.

BeePee 43 minutes ago

Russia already sells gas. This will continue. Mistake to destablize Russia's economy.

GreatCaesar'sGhost 53 minutes ago

US has gas to sell. Greater Israel and their Saudi partners believe that after they overthrow Assad they will have gas to sell.

I'm not sure the constantly virtue signaling German government will buy Russian gas if there's a war.

land_of_the_few 51 minutes ago (Edited) remove link

They should just mock them mercilessly.

Formation flypasts with rainbow colored smoke, Village People blasting from frigates buzxing them, that kind of thing.

land_of_the_few 40 minutes ago

"In the Navy", anyone?

[Apr 04, 2021] The level of incompetence of some authors at OilPrice.com is just staggering

Russia a major producer of electricity using nuclear power. Which is preferable to Wind turbines or burning money for solar panels (Russia is a northern country with no so much sunlight). As simple as that.
Apr 04, 2021 | oilprice.com

Originally from: Russia Is Being Left Behind In The Energy Transition By Haley Zaremba

When it comes to climate change and the need to update and innovate in the face of changing weather patterns, Russian President Vladmir Putin's strategy is simple: deny, deny, deny. While other fossil-fuel dependent economies scramble to diversify or race to build up clean energy infrastructure in a bid to put themselves at the forefront of the coming renewable revolution, Russia has taken the opposite approach: the world's largest nation is sitting tight and waiting to be the last man standing in a shrinking fossil fuels market. While Russia, with its massive land area and enviable geopolitical positioning, is extremely resource-rich, its oil is more costly to extract than other oil superpowers. Nevertheless, Putin is trying to outlast them all as they are forced to transition away from the oil due to falling prices and political pressure. The world is still decades away from weaning itself off fossil fuels and there will potentially be even more money to be made as the competition begins to fall away. The calculation Russia needs to make is when will its oil industry move from being a profit driver to a burden as demand plateaus and then falls.

While the potential for profit is undeniably in oil markets, when it comes to the clean energy transition, Russia is being left behind . They are being left behind in terms of infrastructure, innovation, and a dogmatic attachment to business as usual. "Putin and other Russian leaders have periodically flirted with outright climate change denial," Bloomberg reports. "Scientists have estimated that melting permafrost could cost Russia $84 billion in infrastructure damage by mid-century while releasing vast quantities of greenhouse gases. Carbon Action Tracker, a non-profit, gives Russia's climate policies a bottom grade of 'critically insufficient.'"

While Russia will soon be feeling the pain from the side effects of climate change, there will also be a silver lining to all that northern ice-melt for the world's largest country. The receding ice caps will unveil a veritable treasure trove of oil, gas, and minerals never before accessible - not to mention an extremely valuable set of new sea lanes to ease access for trade. The tradeoffs for this new natural capital, however, are so costly in terms of devastating ecological externalities that almost all of the world's biggest banks won't touch it .

Related: Recent SEC Decision Could Spark Investment In Big Oil

In the meantime, Russia has doubled down on natural gas. "In recent years, the Kremlin has bet the country's economic and geopolitical future on natural gas," Bloomberg reports, "building new pipelines to China, Turkey, and Germany, while aiming to take a quarter of the global LNG market, up from zero in 2008 and around 8% today." Within the vast expanses of Russia, where entire regions are reliant on fossil fuel for their entire economy, the prevailing belief is that natural gas is the future, and will always be cheaper domestically than renewable alternatives. "What's the alternative? Russia can't be an exporter of clean energy, that path isn't open for us," Konstantin Simonov, director of the Moscow consultancy National Energy Security Fund, told Bloomberg. "We can't just swap fossil fuel production for clean energy production, because we don't have any technology of our own."

While renewable energy is still an emerging sector, with plenty of potential opportunities for Russia to stake its claim in the global clean energy game, it's clear that the Kremlin has a long way to go in terms of ideological politicking for that to become possible.

By Haley Zaremba for Oilprice.com

[Apr 03, 2021] Rapid production increases in tight oil are likely a thing of the past. Most likely a good thing for everyone.

Apr 03, 2021 | peakoilbarrel.com

STEPHEN HREN IGNORED 04/02/2021 at 11:43 pm

Consolidation continues in the Permian. Pioneer CEO Sheffield has stated repeatedly recently that the goal is free cash flow now and not growth at all costs. As smaller producers continue to get marginalized, rapid production increases in tight oil are likely a thing of the past. Most likely a good thing for everyone.

https://www.msn.com/en-us/money/news/fracking-titan-is-bulking-up-with-dollar64-billion-acquisition-as-oil-prices-recover/ar-BB1ffqwP

[Apr 03, 2021] Nord Stream 2 Warns Of Security Risks From Warships Low-Flying Planes - ZeroHedge

Apr 03, 2021 | www.zerohedge.com

Nord Stream 2 Warns Of Security Risks From Warships & Low-Flying Planes BY TYLER DURDEN SATURDAY, APR 03, 2021 - 09:20 AM

Authored by Dave DeCamp via AntiWar.com,

A senior official from Nord Stream 2 AG, the project company leading the Nord Stream 2 Russia to Germany natural gas pipeline project, has reported an uptick in "provocative" activity from warships and planes in the area where the pipeline is being built .

"Higher activity of naval vessels, airplanes and helicopters and civilian vessels of foreign states is observed in the work area after restarted construction of the offshore segment of the Nord Stream 2 gas pipeline, whose actions are often clearly provocative ," said Nord Stream AG official Andrei Minin, according to the Russian news agency TASS .

Above: the pipe-laying vessel Fortuna, which is operated by the Russian company KVT-RUS and recently targeted by US sanctions. Image via Reuters

Minin said a 1.5-mile safety zone is established around the construction area where vessels are not supposed to enter. "Nevertheless, naval vessels of foreign countries are constantly registered near service ships performing work," he said.

He added that a Polish antisubmarine warfare airplane is "regularly flying around the work area at a small height and closely to the pipelay vessel."

Minin said in one provocation, an unidentified submarine was above surface within one mile of the pipeclay vessel Fortuna , a ship that was hit with US sanctions on January 19th. Minin said the activity indicates "obviously planned and prepared provocations." Besides warships and planes, he said fishing vessels have also come dangerously close to the construction area.

https://platform.twitter.com/embed/Tweet.html?dnt=false&embedId=twitter-widget-0&frame=false&hideCard=false&hideThread=false&id=1377891924300939264&lang=en&origin=https%3A%2F%2Fwww.zerohedge.com%2Fgeopolitical%2Fnord-stream-2-warns-security-risks-warships-low-flying-planes&siteScreenName=zerohedge&theme=light&widgetsVersion=e1ffbdb%3A1614796141937&width=550px

The Nord Stream 2 pipeline has been in the crosshairs of the US for years, but despite sanctions and threats, Nord Stream AG reported on Thursday that the project is now 95 percent complete . Construction restarted in December 2020 after being suspended due to threats of US sanctions.

Although it's not clear if the US is involved in these provocations, it is likely. Washington seems willing to take extreme measures to stop the project and is threatening to sanction its ally Germany . Besides the US, another country keen to stop the project is Ukraine, which stands to lose up to $3 billion a year in gas transportation fees if the pipeline is complete.

The original Nord Stream consists of two lines that run from Vyborg, Russia, to Lubmin, Germany, near Greifswald. The new project would add two more lines, doubling the amount of natural gas Russia could export to Germany.
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Be of Good Cheer 1 hour ago

$3 billion loss to the Biden Crime Family. No wonder he wants to stop NS2.

NoPension 1 hour ago

^^^^^!!!

Pair Of Dimes Shift 45 minutes ago

10% to the big guy would be $300M.

Damn right the big guy's handlers are pissed.

Rid'n Dirty 1 hour ago

The US spends over $1 trillion on "defense" with over 800 bases worldwide, yet we have no control over who illegally takes up residence here. America has become an ugly hegemon run by Wall Street and other corporate whores. Almost 2/3rds of the world is under some type of US sanction designed to wreck economies and starve innocent people (Houthis, Syrians and Iranians).

Let's see if Germany can do what's best for its economy for the first time since 1945.

Based Fren 1 hour ago

It's so tiresome. We just have to stick our finger in everyone else's business.

naro 1 hour ago

Have you heard of the MILITARY INDUSTRIAL COMPLEX. Wars is their oxygen.....they are looking for wars wherever they can find it.

ManOnFirst 59 minutes ago

a Polish fishing vessel rammed a construction ship and blamed a faulty engine for the incident. I really hate the Poles. They are the whiniest, most cowardly country in the world. They lament the fall of their empire 1000 years ago and think they could still be a superpower if only the big, bad Russians weren't so mean. Oh, and the big, bad Germans too.

SoDamnMad 27 minutes ago

I'm surprised the Russians didn't throw a 3 liter gasoline jug with a burning rag taped to it down on that fishing vessel. Your telling me no steerage and no engine control. Two can play this game. Poles best not try to lay any communication cables in the next 20 years.

Games Without Frontiers 1 hour ago (Edited)

Globalists from the US doing everything they can to prevent a more independent EU. The further away you can get from a dying and dangerous empire the better.

2banana 1 hour ago

Established by whom?

Oh, you just made that sh!t up in international waters in one of the most heavily used trade routes in the world.

Minin said a 1.5-mile safety zone is established around the construction area where vessels are not supposed to enter. "Nevertheless, naval vessels of foreign countries are constantly registered near service ships performing work," he said.

Games Without Frontiers 1 hour ago

It's international waters but safety zones are always established on this type of industrial project, it's hard to enforce in open waters but the West looks like a bunch of tools as usual.

not-me---it-was-the-dog 43 minutes ago (Edited) remove link

google is your friend, my friend.

https://www.nord-stream.com/press-info/images/exclusion-zone-around-pipelay-vessel-2665/

https://ens.dk/sites/ens.dk/files/OlieGas/15_-_nord_stream_2_-_transboundary_impacts_-_environmental_impact_assessment_denmark_north-western_route._august_2018.pdf

.... Shipping and shipping lanes In Danish waters, the proposed NSP2 route will run inside and along the TSS Bornholmsgat for approximately 42 km close to the Swedish EEZ. The TSS Bornholmsgat carries most of the ship traffic to/from the Baltic Sea and experiences over 50,000 ship passages per year. The proposed NSP2 route additionally crosses the TSS Adlergrund in the Danish and German EEZs, which has approximately 7,000 ship movements per year. Safety exclusion zones will be implemented around slow-moving construction vessels. Only vessels involved in the construction of NSP2 will be allowed inside the safety zone; therefore, all other vessels not involved in construction activities will be requested to plan their journeys around the safety zone. The shipping lanes crossed by the proposed NSP2 route in Danish waters provide sufficient space and water depth for ships to plan their journey and safely navigate around possible temporary obstructions. The impact on ship traffic associated with the imposition of a safety zone is assessed to be minor and associated with local and temporary changes to the traffic scheme. Therefore, it is assessed that there will be no significant transboundary impacts on Baltic Sea ship traffic caused by the NSP2 project in Danish waters.

so....umm....since the work is being done in danish waters, well, gosh, i would guess the exclusion zones are set up with......wait for it......danish authorities. and the last bits in german waters will require german authorities to set up the exclusion zone.

https://www.argusmedia.com/en/news/2193430-construction-on-remaining-nord-stream-2-string-to-start

Jerzeel 17 minutes ago remove link

Ukraine gets 3B a year in transit fees for Russian gas...

rejectnumbskull 15 minutes ago

Besides the US, another country keen to stop the project is Ukraine, which stands to lose up to $3 billion a year in gas transportation fees if the pipeline is complete.

Did you not read this sentence in the article correctly?

[Apr 02, 2021] The construction site of Nord Stream 2 has been suffering harassment by various vessels and aircraft in recent months, which nearly led to damage to the pipeline itself, according to Nord Stream AG representative Andrey Minin.

Apr 02, 2021 | www.moonofalabama.org

karlof1 , Apr 1 2021 22:22 utc | 49

Nice work on pulling all the puzzle pieces together, b!

The really big problem will be weaning the Outlaw US Empire from its addiction to Unilateralism, which is its primary mode of operation aside from a very brief interlude when FDR was POTUS, devised the UN and its Charter, and got the Senate to ratify it so it would become an integral part of the USA's fundamental law of the land.

All one need do to see the gravity of the bolded text is to examine the Outlaw US Empire's behavior since FDR died--The USA immediately transformed into the Outlaw US Empire on 22 October 1945 when the UN Charter came into full force and the Empire was already in grave violation of its fundamentals.

That those millions of violations have never seen the inside of a courtroom doesn't mean they never occurred or aren't now happening globally.

I was going to post this on the other thread but will use it here as an example that's grave:

"Nord Stream AG Says Warships, Submarines and Helicopters Tried to Disrupt Pipeline's Construction":

"However, it seems that in March threats to the pipeline multiplied and became more 'real'.

"The construction site of Nord Stream 2 has been suffering harassment by various vessels and aircraft in recent months, which nearly led to damage to the pipeline itself, according to Nord Stream AG representative Andrey Minin. He stressed that the disturbances were 'clearly planned and thoroughly prepared provocations,' devised to stop the joint Russian-European project in its tracks ." [My Emphasis]

Unilateral Act of War anyone?!! Yes, its the Poles once again.

IMO, it's sad b omitted mentioning the newly formed Friends of the UN Charter Group in his article since it aims at drowning the "Unilateral, rules based international order" once and for all time. My promotion of it isn't going to be enough. If all but the Neoliberal nations become members, then they can jointly aver that there's only one system of international Law and its based on the UN Charter and all relevant treaties thus shutting up the Outlaw US Empire regardless its protests. Of course, a movement within the Empire that says the same as the Friends would go a long ways to getting us where we as humans want to go to--a peaceful planet that's concerned about the wellbeing of humans and all they need for support instead of making the rich ever richer through the terror of unremitting Class War.

And if you don't think that War isn't based on Terror, then you haven't seen migrant families busted up with the little kids being kidnapped and all put into concentration camps. ( China is beginning to bark up that very inhuman tree watered so well by the Outlaw US Empire.)

Nick , Apr 2 2021 0:16 utc | 71

Dumb Polacks are getting desparate
https://sputniknews.com/europe/202104011082512013-nord-stream-ag-says-warships-submarines-and-helicopters-tried-to-disrupt-pipelines-construction/

[Apr 02, 2021] Tentions in Ukraine are about stopping North Stream: The USA treats business as war, while treating war as business

Apr 02, 2021 | www.moonofalabama.org

karlof1 , Apr 2 2021 18:16 utc | 70

So Alfie, What's it all about?

Geoeconomics and Market Weight and it's not behind a paywall. Escobar intones:

"As it stands, Russia is very much focused on limitless possibilities in Southwest Asia, as Foreign Minister Sergey Lavrov made it clear in the 10th Middle East conference at the Valdai club [Link at Original]. The Hegemon's treats on multiple fronts – Ukraine, Belarus, Syria, Nord Stream 2 – pale in comparison."

Awhile ago, I posted the following acutely correct adage: The USA treats business as war, while treating war as business. I added what Coolidge was misquoted as saying in 1925--The business of America is business (He actually said, "the chief business of the American people is business.") So when the POTUS says its just business, you should prepare for war.

Back to the linked article. While reading it ought to be easy to see why the BRI interconnectivity is seen as a huge threat to the two Outlaw Maritime Empires--UK/US--who initially set forth the parameters of the Great Game. (BTW, Lavrov's Great Game program interview English transcript is now complete.) They have no seat at the table whatsoever. You'll also see why the Outlaw US Empire will try to remain in Afghanistan forever as well as the reason why it can't admit the real reason for being there--to interdict the BRI and the development boom it promises to bring to a great many impoverished people throughout Eurasia. Talk about Human Rights!

But it looks like all the Empire's efforts will amount to little more than a mosquito attacking an elephant for there's no way it can stop BRI or Eurasian integration; at best, it can merely delay it and earn the enmity of the planet, including its own people. Clearly, India will cease its role in the Quad as staying locks it out from what it needs most--development that uplifts its impoverished tens of millions. And the loss of India means the certain loss of the Great Game for the Outlaw Empire.

In the grand scheme of things, Ukraine is merely a tsetse fly as is NATO ultimately. The real prize lies with the geoeconomic riches BRI and Eurasian Integration will generate and being a partner with it, not an adversary.

[Apr 01, 2021] Many shale companies have hedged a majority of expected 2021 oil production at an average price below $45 a barrel discouraging near-term growth

Apr 01, 2021 | peakoilbarrel.com

RON PATTERSON IGNORED 03/30/2021 at 7:43 am

Why US shale oil production will not show a recovery this year. This article was published yesterday, March 29th.

Exxon, Chevron take a slow walk on the path to U.S. shale recovery Bold mine

(Reuters) – Exxon Mobil and Chevron Corp have scaled back activity dramatically in the top U.S. shale oil field, where just a year ago the two companies were dominating in the high-desert landscape.

The cautious approach of the two largest U.S. oil companies is a major reason domestic oil production has been slow to rebound since prices crashed during pandemic lockdowns in 2020. Production now is about 11 million barrels per day (bpd), down sharply from the record of nearly 13 million bpd hit in late 2019.

The share of drilling activity by Exxon and Chevron in the Permian Basin oil field in Texas and New Mexico dropped to less than 5% this month from 28% last spring, according to data from Rystad Energy.

"We essentially hit a pause button," said Chevron Chief Financial Officer Pierre Breber. "When the world was oversupplied we didn't see the virtue in putting more capital to add barrels." (Graphic: Exxon and Chevron slash Permian drilling, here)

Neither company is likely to boost spending until next year, according to the companies and analysts. Chevron expects to produce around 1 million barrels daily by 2025 and Exxon 700,000 bpd by 2025, the companies said at investor days this month.

Chevron will increase Permian spending from $2 billion now to pre-Covid levels of $4 billion annually "over the course of the next several years," Breber said, but the company will not increase drilling in the Permian this year. It is currently running about five rigs in the Permian with two completion crews, down from just under 20 a year ago.
SNIP
However, output is unlikely to increase dramatically, due to the swift decline rates for shale wells.

"We would need three months of oil prices sustained at current levels followed by six months of drilling activity before production begins to climb higher on a sustained basis," said Peter McNally at Third Bridge.

Exxon and Chevron are not the only producers keeping spending down. Many shale companies have hedged a majority of expected 2021 oil production at an average price below $45 a barrel, well below current market prices, Enverus' Andy McConn said. The hedges reduce exposure to the recent increase in oil prices, discouraging near-term growth. (Graphic: Permian oil production stalls, )

It looks like they hope to return to normal production by 2025.

[Apr 01, 2021] if expensing intangible drilling costs is eliminated, the shale boom will officially be dead.

Apr 01, 2021 | peakoilbarrel.com

SHALLOW SAND IGNORED 04/01/2021 at 1:53 am

Biden's plan will end tax preferences for fossil fuel companies. I am not sure if there are more specifics than that.

However, if expensing intangible drilling costs is eliminated, the shale boom will officially be dead.

As percentage depletion applies only to the first 1,000 BOEPD per company, elimination of that would primarily hurt marginal wells.

Also, Biden has proposed $16 billion to plug abandoned wells and reclaim abandoned mines.

Of course, at this point, the infrastructure bill is not entirely specific. There will be a lot of negotiation in Congress.

To me, it would seem short to medium term positive for oil prices. Shale companies will finally have to pay income taxes, and assuming the corporate rate goes to 28%, I don't see how there would be another drilling boom in shale, absent a super spike in oil and/or natural gas prices.

Further, the bill would cause a spike in US oil demand. Lots of heavy equipment and materials that will consume petroleum, even that needed for more clean energy.

Future will be more clear once the plan is signed into law.

I would note grain spiked on the USDA estimates for corn and soybean acres. This could affect oil prices short term.

[Apr 01, 2021] Oil price might get one last surge off this infrastructure bill

Apr 01, 2021 | peakoilbarrel.com

HHH IGNORED 03/28/2021 at 2:03 pm

Short interest in US stock is at all time lows. Hardly anybody is short. Means there are hardly any shorts to squeeze out to ramp valuations higher. My guess is there will be one last ramp higher on the release of US infrastructure bill. Which Biden will release I think it is Wed of this coming week.

Short interest in the dollar is near all time highs. Hardly anybody is long. These shorts will start to be squeezed out soon sending dollar much higher as shorts cover.

Oil price might get one last surge off this infrastructure bill but it will be short lived if it comes at all.

With margin debt set to shrink starting April 1st. There won't be a continued ramp of prices. There will be a contraction of prices. Might take a month for this contraction to start showing itself in prices as banks tighten down on margin debt.

[Mar 30, 2021] Russian gas meets only a fraction of Germany's needs - Germany's Scholz

Mar 30, 2021 | finance.yahoo.com


More content below More content below More content below More content below More content below More content below More content below More content below

BERLIN, Sept 21 (Reuters) - Gas contributes only a fraction of Germany's energy consumption, and Russian gas only a fraction of that, so it is wrong to say that the Nord Stream 2 pipeline will make Germany dependent on Russian energy, Finance Minister Olaf Scholz said.

Asked about the flagship Kremlin project, which has been heavily criticised by the United States and some European countries, Scholz on Monday restated the German government's position that the pipeline was a private investment and should not be the target of U.S. sanctions.

The poisoning of Kremlin critic Alexei Navalny, blamed by most Western governments on Russian state actors, has led to renewed calls for the nearly complete pipeline, built by state-owned Gazprom, to be cancelled.

Critics of the pipeline say it increases Germany's reliance on Russian energy and deprives transit countries Poland and Ukraine of crucial leverage over the giant country to their east. (Reporting by Thomas Escritt; Editing by Maria Sheahan)

[Mar 28, 2021] The five largest fields in Russia produce approximately 75% of Russian oil. And they are all in serious decline.

Mar 28, 2021 | peakoilbarrel.com

POLLUX IGNORED 03/25/2021 at 9:18 am

Russia's crude oil export set to drop 3pc in Q2 vs Q1

Russia plans to decrease its oil exports in the second quarter 2021 despite an OPEC decision to allow the state an additional output hike from April.

On a daily basis, Russia's oil exports will drop by some 3% in April-June compared to the first quarter of 2021, Reuters calculations showed. REPLY RON PATTERSON IGNORED 03/25/2021 at 12:23 pm

And no one asked why? There is a reason for everything.

Hint: Four of the five largest fields in Russia are located in West Siberia, Samotlor, Priob, Lyantor, and Fedorov. 61% of Russian production currently comes from Western Siberia.

Russia's second-largest field, Romashkino, discovered in 1948, is located in the Volga-Ural Basin and is also in serious decline.

The five largest fields in Russia produce approximately 75% of Russian oil. And they are all in serious decline. RON PATTERSON IGNORED 03/25/2021 at 1:00 pm

I wrote, in 2015: Reserve Growth in West Siberian Oil Fields

"Russian oil production will not get any help from reserve growth in Western Siberia. Old dying fields, like old dying men do not grow."

I really don't like to brag, but I was dead on. From 2015 to 2019, Russian oil production increased by about 200,000 barrels per day per year, for a total of 800k barrels per day. That growth came from new fields in Eastern Siberia. The largest of those new fields, Vankor, peaked in 2019 at just under 500,000 barrels per day. Hell, even their new fields are starting to peak.

But those old dying fields did not grow one iota. They are all now in decline. JEAN-FRANÇOIS FLEURY IGNORED 03/26/2021 at 6:14 am

And world oil production is going to skyrocket, according to IEA and EIA projections. Of course. JEAN-FRANÇOIS FLEURY IGNORED 03/28/2021 at 7:39 am

...About Brazil, the oil production will increase at most of 500 kb/d according to the post of George Kaplan. ... About Irak, they are not going to produce more oil. Indeed, after different episodes of wars, UNO sanctions, invasion by US, insurrections against US and British troops and after EI insurrection, they did extract less than half of their oil reserves.

... About Norway, by looking at the post of Georges Kaplan about current state of oil reserves and production, it seems rather unlikely that they will be able to increase significantly their oil production.

[Mar 28, 2021] RON PATTERSON

Mar 28, 2021 | peakoilbarrel.com

IGNORED 03/28/2021 at 10:22 am

The 12 nation group might not see annual C plus C output increases of 1400 kbo/d in the future, but it will take time for the rate of increase to fall to 455 kbo/d (where a plateau in World output would occur) especially if oil prices rise to $80/bo or more.

No, it will not take time. Why would you think production would graduallly fall off? Yes, decline slops are usually gradual as well as increasing slopes. But the change from increase to plateau or increase to decline is seldom, if ever gradual. USA+Saudi+Russia has already plateaued. Their decline is very likely to be sudden, well, it has actually already happened.

However, in the two charts below, I have used your method of stopping the chart just before the Covid induced decline. The charts speak for themselves.

REPLY RON PATTERSON IGNORED 03/28/2021 at 10:26 am

The second chart. The rest of the world is in serious decline.

[Mar 28, 2021] Unless investment increases, I don't expect extraction rates to achieve 2018 levels soon.

Mar 28, 2021 | peakoilbarrel.com

SCHINZY IGNORED 03/28/2021 at 2:26 am

I think it instructive to recall oil and gas investment history. Unregulated oil and gas markets have always yielded boom bust cycles. There was a bust cycle from 1986 to 2000. A boom cycle started in 2001 with investment in oil and gas rising on average 11% per year to $780 billion in 2014 (this was from a Kopits talk in 2014, but the link I have no longer works).

There is a lag between increased or decreased investment and the response in extraction rates. The lag is longer offshore than onshore. For example, in spite of the investment boom from 2001 to 2014, extraction rates were stagnant between 2005 and 2010.

A bust began in 2015 with investment dropping 25% in 2015 and a further 20% in 2016. The drop was more pronounced offshore than onshore. Investment stayed essentially flat through 2019. Extraction rates continued to climb through 2018 but were flat in 2019.

The IEA began warning in 2016 that investment was not sufficient to meet demand in the early 2020s. In their 2019 WEO they stated that $650 to $750 billion was needed annually to attain 106 mb/d in 2030. I am assuming this sum referred to oil AND gas investment. In 2019 oil and gas investment was $483 billion. In 2020 it was $313 billion (close to 2009 levels).

As Dennis noted in response to my comment above, the relationship between a drop in investment and the corresponding drop in supply is not linear. But unless investment increases, I don't expect extraction rates to achieve 2018 levels soon. REPLY SHALLOW SAND IGNORED 03/28/2021 at 6:08 am

Ovi. I appreciate your posts. Thanks.

Schinzy. Look at what the integrated oil companies are forecasting. BP, RDS and TOT are shrinking production. CVX and XOM are greatly reducing CAPEX. So is COP, the largest independent. So is PXD, one of the largest shale players. Of course, these companies can change strategy quickly, likely next year if any do.

For the first time I can recall, the government of the United States is not supportive of it increasing production. Contrary to popular belief, this matters.

To keep a lid on oil prices, on the supply side, either the USA needs to keep adding barrels or some other country that does not benefit as a whole from high oil prices will need to step up. The CAPEX currently isn't budgeted to do that.

Of course, decreased demand due to the continued spikes in COVID cases will continue to put a lid on demand. Hopefully by fall this won't be much of an issue, not for oils sake, but for public health sake.

The other demand side lids I see could be Western EV adoption offsetting developing world oil demand growth. Worried here about both the needed upgrades to the grids, plus the lack of rare earth metals. The other could be another big economic issue. Don't want that, but seems economy issues are also going to be with us given the high debt levels. The stimulus in response to COVID isn't cheap. REPLY SCHINZY IGNORED 03/28/2021 at 7:41 am

All very true Shallow. I suspect these companies are reducing CAPEX because of increasing debt. The more conservative CAPEX spending seems to be helping their share prices. SHALLOW SAND IGNORED 03/28/2021 at 7:55 am

Schinzy.

IHS Markit doesn't see US CAPEX spending at the 2018-19 levels returning until 2024-25. Probably too far out in the future to be accurate. However, it's 2021 forecast is for lower CAPEX in all years since 2010 except for 2020.

I will add another big player to my list above, EOG also lowered CAPEX guidance for 2021 from where it had been pre-pandemic. Will seek to hold production flat in 2021.

[Mar 28, 2021] Looks like the world's three greatest oil producers(The USA, Saudi Arabia, and Russia), have peaked

Mar 28, 2021 | peakoilbarrel.com

OVI IGNORED 03/25/2021 at 5:47 pm

Dennis

Here is the C Plus C chart to to December 2022. In the original chart in the post above, I only took it out to March 2021.

The March STEO report along with the International Energy Statistics are used to make the projection. It projects that world crude production December 2022 will be 81,759 kb/d, 2,735 kb/d lower than November 2018

REPLY RON PATTERSON IGNORED 03/25/2021 at 6:44 pm

Ovi, thanks for a great chart. And even this, 2,735 kb/d below the previous peak, I think is overly optimistic.

I think, at least two of the world's three greatest oil producers have peaked, (The USA, Saudi Arabia, and Russia), have peaked, and the rest of the world has clearly peaked, there is no way we can possibly surpass that 2018 peak. Actually, I think all three have peaked. I was just being conservative.

World less USA, Saudi Arabia, and Russia peaked in 2017. All three peaked, yearly average, in 2019. Of course you can argue that this is just the peak "so far". But I do not believe any of the three will ever surpass their 2019 yearly average peak.

RON PATTERSON IGNORED 03/26/2021 at 8:57 am

Dennis, you wrote: Below I use the trend in the ratio of World C plus C to World petroleum liquids from Jan 2017 to Dec 2019 to estimate World C+C from Jan 2021 to Dec 2022.

Okay, you use past trend lines to estimate future production. Well, I guess there is also how the EIA does it and the IEA does it. I just don't have confidence in that type of analysis.

Above I have charted past World oil production less the USA, Russia, and Saudi Arabia. There is clearly a trend there. Do you think this trend will continue?

World C+C production in 2018 averaged 82,897,000 barrels per day. In 2019 that average was 82,306,000 barrels per day. I have little doubt that future world oil production can come close to those averages. But I would bet my SS check that the 2018 peak will never be surpassed. (I like annual averages but if you like centered 12-month averages, then go with that.)

At any rate here are four possible sources for a surge in World oil production:

1. THE USA
2. Russia
3. Saudi Arabia
4. The World less USA, Russia, and Saudi Arabia

If World oil production is yet to peak, which one, or ones, of these four sources, will it come from? RON PATTERSON IGNORED 03/26/2021 at 12:00 pm

I believe I have seen reports that suggest a plateau near the recent 12 month peak output can be maintained for 5 to 10 years.

No Dennis, you have not seen that. I posted that myself some time ago. Russia stated that they hoped to hold production at about 11.2 million barrels per day for the next four years, 2021 through 2024. I have since lost the link but it was posted right here on this list. However, I think that was wishful thinking on Russia's part. I don't think they will hold that level, ever again.

The drop in World minus KSA, US, and Russia C plus C output since 2018 has mostly been due to a combination of lower oil prices and OPEC reducing output to try to bring oil prices back up,

I am not talking about the drop since 2018, I am talking about the peak and decline before 2018. The peak month in my chart above was November of 2016 at 52,206,000. The peak 12-month average was September of 2017 at 51,161,000 barrels per day. At that point, in September of 2017, the World less USA, Russia, and Saudi produced 63% of all World production. 63% of World oil production peaked in September of 2017.

While World oil production was peaking in 2018, due to increased production by the USA, Saudi, and Russia, the World less these big three was declining to 50,737,000 barrels per day, the average for 2018. A decline of almost half a million barrels per day.

Dennis, regardless of what happens in Canada, Brazil, and Norway over the next 5 to 10 years, the World less the big three peaked in 2016 monthly and 2017 annually. Any increase in World production must come from one or more of the big three. HOLE IN HEAD IGNORED 03/26/2021 at 1:22 pm

Dennis , your post on the last thread .
"I stand by my estimate, in 2020 World C plus C output dropped by 5.5 Mbo/d due to a lack of oil demand and the resulting drop in oil prices from the 2019 annual average, so a 10 Mbo/d increase from the 2020 level (annual average) of C plus C output requires a return to the 2019 average level (roughly 82.3 Mb/d) requiring a 5.6 Mbo/d increase and then a further 4.4 Mbo/d increase in output to reach 87 Mbo/d.

If World demand for C plus C warrants such an increase by 2028, I believe it can be produced, and yes the model accounts for depletion, which has been ongoing since the first barrel of oil was produced. The basis for the estimate is likely World resources of 3400 Gb of C plus C (this includes the 1428 Gb of crude plus condensate that was produced from 1860 to 2020), remaining resources (this includes conventional and unconventional C plus C) are about 1972 Gb (this includes future discoveries and reserve growth).

It is possible less will be produced due to lack of demand, if a rapid transition to non-fossil fuel energy sources occurs, I hope that is the case, but I am skeptical"
Well, 2020 production came in at an average of 75.93 mbpd . Decline rate was 7.5% compared to 2019. How will you achieve additional 10 mbpd by 2028 ? Ron is correct . Igor Sechin boss at Rosneft confirms what Ron has stated , shale party is over , KSA is going to cut domestic consumption by 1mbpd so that it can export that oil . Sorry, Brazil , Norway ,Tom Dick and Harry are in no position to cover this lag in production .In the future decline rates will increase as horizontal wells reach their limits of extraction . You must rethink your models with the new facts . Your statement "If World demand for C plus C warrants such an increase by 2028, I believe it can be produced " does not hold water . Your belief or mine is irrelevant . Geology prevails . RON PATTERSON IGNORED 03/27/2021 at 8:55 am

OPEC has been holding back production since 2017 in order to get oil prices up, how much different nations produce depends on their cost of production relative to price,

I don't see any evidence to support that statement. Average OPEC production in 2018 was only 170,000 barrels per day below the average for 2017. If they were holding back, they weren't doing a very good job of it. I think they were producing flat out all three years, 2016 through 2018.

Average 2016 – 31,701 (Peak)
Average 2017 – 31,507
Average 2018 – 31,336 RON PATTERSON IGNORED 03/27/2021 at 4:49 pm

I remembered incorrectly, OPEC likely started cutting back on output in the middle of 2016 to get oil prices higher,

You remember very incorrectly. OPEC, in the last months of 2016 was emptying their storage tanks in order to produce as much oil as they could. They would set their quotas on the amount produced in November and December of 2016, so they were making heroic attempts to produce every barrel possible in order to get a higher quota. (November 2016 was the OPEC all-time peak. And in my opinion, will remain so forever.)

They started cutting in January of 2017. But by June everyone was cheating and they were all, by July 2017, producing flat out.

Why does OPEC exist?

OPEC was formally constituted in January 1961 by five countries: Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela. They existed then for the sole reason of trying to drive oil prices higher. They would like to do that today but squabbling among members has made them somewhat of a joke. They are a disorganized bunch of buffoons. Yes, they have dramatically cut production during the pandemic. But so has everyone else in the world. The bottom dropped out of demand so everyone cut production trying to save money.

A decline in output for the World has occurred since 2018 because oil prices dropped due to oversupply of oil relative to demand.

Okay, but what about 2017 and 2018? OPEC could not keep their members in line and by June of 2017 everyone was again producing flat out, causing that oversupply. And their cut was a pittance anyway, not enough to make much difference. For most of 2017 and all of 2018, every OPEC member was producing every barrel they could. (With the exception of Iran and Venezuela of course, but that is another story for another thread.)

Just look at the chart Dennis, that is just so damn obvious it cannot be denied.


RON PATTERSON IGNORED 03/27/2021 at 6:04 pm

For OPEC minus Iran, Libya, and Venezuela the centered 12 month average peak was 26759 kbo/d in January 2019.

Okay, you need to update your nations here. Libya is already back, producing at maximum possible capacity for the last 4 months. Venezuela will never be back, not in the next decade anyway, long after peak oil is history. That leaves only Iran. Iran, if sanctions were lifted today, could possibly increase production by approximately 1.6 million barrels per day in the next six months or so. That would not be nearly enough to make up for the natural decline in OPEC, especially Saudi Arabia, since the peak in 2016.

Iran is the only nation on earth that can possibly increase production in any significant amount. So you should only deal with Iran when talking about possible OPEC production increases.

Dennis, OPEC has done nothing but basically tread water since 2005. Why do you think they will now save the world?

(In the chart below 2021 is only two months, January and February.


RON PATTERSON IGNORED 03/27/2021 at 8:42 pm

OPEC does not produce at maximum output, except when fighting for quotas.

Dennis, OPEC is not an oil company, they are a cartel. The only ones that increased when battling for quota were Saudi, the UAE, and Kuwait. The rest just produced flat out all the time. Check the charts.

Yes, they were all producing flat out most of the time. Only in a few instances did they actually cut production. Of course, the pandemic hit everyone. But as you can see by the yearly chart I posted their total share of the market has shrunk dramatically since 2005.

Dennis, OPEC peaked in 2016. Saudi Arabia is in decline. End of story. ALIMBIQUATED IGNORED 03/27/2021 at 7:47 am

Ron,
Good point about past trends lines being a dubious predictor of future trends. This is testable too. In this case three years of past data was used to predict the future.

If there is 40 years of data, you could run the algorithm on 35 three-year data sets and check the accuracy of the prediction. That would give you some idea of how likely the latest prediction is to be accurate.

My guess is that the accuracy is fairly low, but checking would reveal the truth. POLLUX IGNORED 03/26/2021 at 3:30 am

In November, Saudi Arabia's domestic crude stockpiles fell to 17-year low:
"Saudi Arabia's domestic crude stockpiles fell by 1.2 million barrels in November to 143.43 million barrels, the lowest since November 2003." ( source )

This trend continues and in January, stockpiles fell to 137.207 million barrels:
"The country's domestic refinery crude throughput rose to 2.343 million bpd while crude stocks fell to 137.207 million barrels in January." ( source ) HOLE IN HEAD IGNORED 03/26/2021 at 11:19 am

We will apply sanctions and abuse you but please give us your oil .
https://www.rt.com/business/519108-us-import-record-oil-russia/
Also Saudi facility is under drone attack as per Saudi govt .
https://www.spa.gov.sa/viewfullstory.php?lang=en&newsid=2207999#2207999 HOLE IN HEAD IGNORED 03/26/2021 at 2:32 pm

In an article Steven Kopits wrote "In its February Short Term Energy Outlook (STEO), the EIA forecasts this month's world oil consumption at 96.7 million barrels per day (mbpd). The oil supply, however, is much lower, only 93.6 mbpd, with the difference of 3.1 mbpd of necessity being drawn from crude oil and refined product inventories. This is a shortfall of 3.5% "
Is he correct ? if yes ,then are we in trouble ?

[Mar 28, 2021] Unfortunately the paper market (or electronic market) is what most US producers are paid on.

Mar 28, 2021 | peakoilbarrel.com

SHALLOW SAND IGNORED 03/24/2021 at 9:21 pm

Ovi.

Unfortunately the paper market (or electronic market) is what most US producers are paid on.

As I have posted before, we are paid on a monthly average of the daily settles of WTI, less a discount which primarily is due to transportation expenses. Saturday and Sunday are the same price as Friday's close, so we watch the Friday close a little more closely.

After a very difficult 2020, 2021 has been mostly good oil price wise. I thought prices might run a little higher, but COVID just has not subsided worldwide like I had hoped it would by now. Maybe this summer? REPLY OVI IGNORED 03/24/2021 at 9:40 pm

Shallow Sand

Thanks for the info. I hope that WTI stays up for you.

I used to follow a Cdn oil company that sold some of their oil on a daily basis and some a month or two forward, based on the settled price of WTI. I later found out that the CEO was a believer in peak oil and did well with oil on the rise to $147. The company doesn't exist today. POLLUX IGNORED 03/25/2021 at 9:52 am

Four scenarios going forward:

1) Higher output and higher prices
Dennis?

2) Higher output and lower prices
"Brent crude oil prices will average $64 per barrel (b) in the second quarter of 2021 and then fall to less than $60/b through the end of 2022" ( source )
– EIA

3) Lower output and higher prices
Many "Peak Oil:ers"

4) Lower output and lower prices
"Within a few months to a year, the worldwide debt bubble will start to collapse, bringing oil prices down by more than 50%." ( source )
– Gail Tverberg

Schinzy?
"I have long maintained that peak oil is a low price phenomenon, not a high priced phenomenon" ( source ) RON PATTERSON IGNORED 03/25/2021 at 10:40 am

The EIA's latest Monthly Energy Review is out.

They have US C+C production falling 58,000 barrels per day in December, 108,000 bpd in January, and 591,000 bpd in February to 10,364,000 barrels per day. The huge February drop was due, mostly, to bad weather. SCHINZY IGNORED 03/26/2021 at 3:09 am

I have trouble with this scenario given Rystad Energy's investment outlook for 2021: flat with respect to 2020 which was 35% below that of 2019 which only got 2019 extraction rate just shy of 2018. See https://www.rystadenergy.com/newsevents/news/press-releases/drilling-activity-is-set-for-two-consecutive-years-of-growth-but-will-lag-pre-pandemic-levels/

[Mar 28, 2021] China Signs 25-Year Deal With Iran in Challenge to the U.S-

Mar 28, 2021 | www.msn.com

A draft copy of the accord that surfaced on media last year showed plans for long-term supply of Iranian crude to China as well as investment in oil, gas, petrochemical, renewables and nuclear energy infrastructure.

Lured by the prospect of cheaper prices, China has already increased its imports of Iranian oil to around 1 million barrels a day, eroding U.S. leverage as it prepares to enter stalled talks with Tehran to revive a nuclear deal.

The Biden administration has indicated that it's open to reengaging with Iran after then-President Donald Trump abandoned the accord nearly three years ago and reimposed economic sanctions, but the two sides have yet to even agree to meet. Iran exported around 2.5 million barrels of oil a day before American penalties resumed.

Iran's closer integration with China may help shore up its economy against the impact of the U.S. sanctions, while sending a clear signal to the White House of Tehran's intentions. Wang Yi, who arrived in Tehran on Friday, also met with Rouhani to discuss the nuclear deal.

In a televised speech, Rouhani raised the prospect of restrictions being eased before the end of his second and final term as president in early August.

"We're ready for the lifting of sanctions," he said on Saturday. "If obstacles are removed, all or at least some sanctions can be lifted."

[Mar 28, 2021] Iran, China sign strategic long-term cooperation agreement

Mar 28, 2021 | www.politico.com

No additional details of the agreement were revealed as Iran's Foreign Minister Mohammad Javad Zarif and Chinese counterpart Wang Yi took part in a ceremony marking the event.

me title=

The deal marked the first time Iran has signed such a lengthy agreement with a major world power. In 2001, Iran and Russia signed a 10-year cooperation agreement, mainly in the nuclear field, that was lengthened to 20 years through two five-year extensions.

Before the ceremony Saturday, Yi met Iranian President Hassan Rouhani and special Iranian envoy in charge of the deal Ali Larijani.

Saeed Khatibzadeh, spokesman for Iran's Foreign Ministry, on Friday called the agreement "deep, multi-layer and full-fledged."

The deal, which had been discussed since 2016, also supports tourism and cultural exchanges. It comes on the 50th anniversary of the establishment of diplomatic relations between China and Iran.

The two countries have had warm relations and both took part in a joint naval exercise in 2019 with Russia in the northern Indian Ocean.

Reportedly, Iran and China have done some $20 billion in trade annually in recent years. That's down from nearly $52 billion in 2014, however, because of a decline in oil prices and U.S. sanctions imposed in 2018 after then-President Donald Trump pulled the U.S. unilaterally out of a nuclear deal between Iran and world powers, saying it needed to be renegotiated.

Iran has pulled away from restrictions imposed under the deal under those sanctions in order to put pressure on the other signatories -- Germany, France, Britain, Russia and China -- to provide new economic incentives to offset U.S. sanctions.

[Mar 28, 2021] Iran, China sign strategic long-term [25 yr] cooperation agreement

Mar 28, 2021 | peakoilbarrel.com

HICKORY IGNORED 03/28/2021 at 12:29 pm

Thanks Dennis.
It is easy for us to discount the production capacity of Iran, however this could be a mistake.
If China needs oil it will fund production in Iran, regardless of the 'worlds' concern over Iranian nuclear and regional ambitions [very aggressive ambitions that are largely theocratically driven].

This weekend-
'Iran, China sign strategic long-term [25 yr] cooperation agreement
The agreement covers a variety of economic activity from oil and mining to promoting industrial activity in Iran, as well as transportation and agricultural collaboration.'
https://www.politico.com/news/2021/03/27/iran-china-agreement-478236

[Mar 26, 2021] The Biden Administration may impose sanctions on companies that help build North Stream 2, which risks a blowup with Berlin.

Mar 26, 2021 | www.unz.com

Germany is showing signs of an independent Russia policy. The main issue between the United States, Europe, and Russia now is the Nord Stream 2 pipeline, which would carry gas from Russia to Germany. The Biden Administration may impose sanctions on companies that help build it, which risks a blowup with Berlin .

Most Republicans want even sterner measures . Senator Ted Cruz is delaying confirmation of some of President Biden's officials unless he takes action.

Hostility towards Russia is one of the few issues that unite Republicans and Democrats – along with support for citizenship for illegal immigrants , interference in Syria, keeping troops in Afghanistan , and thwarting China . We can't count on Republicans or Democrats to stand up for Americans, but we can count on support for invading the world and inviting the world. This combination of an aggressive foreign policy and indifference towards citizens is why some call the current regime the Globalist American Empire (GAE). It may be based in Washington DC, but it has nothing to do with the historic American nation or its interests.

However, what I call the " American Paradox " may doom this "empire." It is run by people who seem to care nothing for the country; the empire is built on sand.

[Mar 26, 2021] Dow and S P 500 Close at Records as Oil Prices Rise

Mar 26, 2021 | finance.yahoo.com

Teresa Rivas Fri, March 26, 2021, 4:31 PM

Global stocks are higher as a positive session on Wall Street inspires investors. Oil prices rise as the crucial Suez Canal waterway remains blocked.

[Mar 24, 2021] Oil demand 'will surge this summer'- expert

Mar 24, 2021 | finance.yahoo.com

Both OPEC Russia and here in North America, have done a good job of curtailing their output. So with regard to supply, the market is more in balance. Yes, we are in the midst of a strong rally today. But that all comes on the heels of a massive sell-off, a $4 barrel sell-off yesterday.

So the market's in the process of balancing itself out. Keep in mind that we've rallied from about $30 a barrel before the winter to upwards of-- we knocked on the doorstep a couple of weeks ago-- $70 a barrel. So we've had a terrific run over this one season. We're now at a level, 57, 58, the high 50s, low 60s, which, more or less, where the market was trading in 2019, i.e. the year when the economy was strong, no one heard of COVID.

... what the really positive to come out of COVID is the consistently strong demand for diesel fuel. Now diesel fuel is your primary industrial fuel, and that never really took a significant hit. It obviously took a hit at this time last year when everything took a hit, but it was the first in energy market to rebound, and it stayed strong. And we're at very high levels.

... if we are correct, we don't go into another set of COVID lockdowns like last year, that demand certainly should be enough to propel us back above that 70 even with Brent in that, towards that $80 range.

[Mar 22, 2021] Biden sleepwalks into a stagflation nightmare: US economy simply doesn't have the productive capacity to meet the demand created by Biden's stimulus package

Mar 22, 2021 | asiatimes.com

The sub-headline is true, but the headline not necessarily. The USA still is the financial superpower, therefore its fiat currency is the universal fiat currency (Dollar Standard). Stagflation will only happen if the Dollar Standard is to be severely weakened in a very short period of time; otherwise, what will happen is some form of partial reverse-stagflation: low unemployment (officially), low inflation (even to the point of zero inflation or even deflation) and low economic growth.

This situation will go on until the Dollar Standard disappears. After that, the American Empire will quickly and inexorably collapse through a spiral of hyperinflation and economic recession. At this phase, it will probably go all-in with WWIII, with military invasions of Latin American, the Middle East and China, while preparing for a delusional strike-first nuclear attack on Russia. By this time, the American people will be completely hallucinated and fuming with anger in a fascist frenesi against the rest of the world (China in particular), so popular support for a global invasion would not be a problem.

[Mar 21, 2021] The US neurotic dynamic is to escalate blindly until it achieves control

Mar 21, 2021 | www.moonofalabama.org

Oriental Voice , Mar 20 2021 0:35 utc | 76

@Posted by: Grieved | Mar 19 2021 23:05 utc | 55:

...., the US neurotic dynamic is to escalate blindly until it achieves control. This is the dynamic that must be defeated.

Yes that's problem all right, but can you ever defeat that dynamic given that the gorilla owns 10,000 nukes and has no moral qualms whatsoever of using them? Until a near perfect anti-nuke defense system is developed I surmise the world would just have to live with, and get used to, the juvenile antics of King Kong because it has stated time and again it would escalate all the way up to using its nukes, because that's what they are for according to a former Sec. of State.

I'm a pessimist on this issue. I'm afraid we'll just have to endure and live with a wild beast for a while to come.

[Mar 21, 2021] I think that Nord stream II is a turning point. If Germany caves in here, there's little hope to get rid of the leash for it and the whole of Europe.

Mar 21, 2021 | www.moonofalabama.org

xototox , Mar 20 2021 0:34 utc | 75

i've been a reader of moa for quite a few years now, but never contributed to the forum. mostly because after a while i found what i wanted to say anyway, and why pile on?

I really enjoy the civility of the forum, and it's internationality. And of course b's insights. as a German myself I share many points of view with him in matters i have knowledge in, or think that i do.

For example i think that trump sure might be seen as a disaster by many, but it was a gift to Europe, and Germany in particular, because he opened the eyes of many, many people here who for decades thought murrica is our friend, our big brother, who will always protect us from the evil of the world - namely communism, Russia and lately china. a majority of the people here, as well as in the rest of the so called "western world" have been brainwashed for about 7 decades to think that way, even when America committed the most obvious, heinous, horrible crimes against humanity and our civilization as a whole.

there was always a spin, "human rights", "democracy", "free trade" and so on, values that had to be "defended" - when in reality it was always an offensive aggression or even a "pre-emptive strike". people just swallowed what the media fed them and went on with their daily chores.

Trump changed that, suddenly the ugly side of the empire became visible, and i will always be grateful for that. because now it cannot be hidden anymore. it wasn't just the unruly behaviour of a "new rich" and uneducated bully who accidentally became president. politically, the general attitude was always the same, trump only worded it much more obvious, making it harder for politicians and media to spin. that's why our politicians and media (for the most part fed by trans-atlantic "think tanks") hated him almost more than Americans themselves - he made their lies obvious and transparent. if it wasn't so sad, it sometimes was almost funny to see them squirm, having to explain why our friend and protector suddenly became so selfish and hostile.

All of them welcomed of course the new Harris administration, being so progressive, just and friendly again - only to witness a change of paradigm they probably didn't even think trump was capable of, or willing to: i think in later years, this week will mark the "official" beginning of the new cold war era. this behaviour against Russia and china was not a slap, but a punch in the face and will NEVER be forgiven nor forgotten. the only question for europe is: does it finally have the balls to emancipate and stand up against the bully? or will it submit and become a collateral damage of it's downfall? in form of a nuclear wasteland maybe?

I think that Nord stream II is a turning point. If Germany caves in here, there's little hope to get rid of the leash for it and the whole of Europe.

If it stands tall, europe might become a buffer instead of a frontline. knowing and seeing our politicians, i'd say it doesn't look good.

[Mar 19, 2021] Fossil fuels are the basis of industrial civilization. Thier disapperiance portends our extinction as a species. We might as well accept as the fact that as soon as the Western civilization experience Seneca cliff it will be severaly damaged

Mar 19, 2021 | www.moonofalabama.org

norecovery , Mar 19 2021 0:05 utc | 42

One more observation from my seat in the gallery: FOSSIL ENERGY is the basis of industrial civilization, and our complete dependence on it portends our extinction as a species. We might as well accept the fact that we are done.

[Mar 19, 2021] With the Nord Stream project, we see the Gangster mentality of the US imperialism -- Do as I say or else!

Notable quotes:
"... Nord Stream 2 is of vital importance to Germany's energy security. The German public was rather hostile to President Trump and Biden's victory was seen with relief. But when it sees how Biden pursues the same policies, and with a similar tone, it will turn on him ..."
"... Since Washington is now in conflict with a goodly part of the public it sees that creating foreign policy crises and enemies as an excellent course of action to shore up support. Americans are always ready to react against enemies no matter how slender the proof of the wrongdoing ascribed to the enemy. There is never a penalty to pay for lying in the US if you are in the mainstream media or in the political arena. Since the CIA controls much of the European media and their ruling class it would take quite a lot for Europeans to drop their status as vassal states. ..."
Mar 19, 2021 | www.moonofalabama.org

Piotr Berman , Mar 18 2021 19:06 utc | 5

Nord Stream 2 is of vital importance to Germany's energy security. The German public was rather hostile to President Trump and Biden's victory was seen with relief. But when it sees how Biden pursues the same policies, and with a similar tone, it will turn on him . <-- b

However "hostile", Germany contributed to uni-lateral Trumpian sanctions, and so far, North Stream 2 is the only beacon of independence. Take Ukraine: Germany and France form half of Normandy Four, and provided name for Steinmeier formula. Ukraine resolutely resists proceeding with any obligations under that formula. Germany is silent on that and support annual extensions of sanctions, not to mention sanctions on Syria, Venezuela and whatever EU sanctions.

Syria is an interesting example. It could be actually popular among German voters to facilitate reconstruction in that country and return of the refugees to their homeland. Iran and Russia are potentially good customers for German industry. Independence of German banks and other companies from whimsical sanctions from USA would help too.

Seemingly, ingrained masochism is hard to overcome.


karlof1 , Mar 18 2021 19:22 utc | 8

Seej @4--

Thanks for posting Pepe's comments, some of which are in his current article I linked to on the open thread. In my comment related to Pepe's article I noted his excerpt of Chinese academic Jisi and this specific part:

"the Americans are eager to deal with problems before they are ready to improve the relationship."

That observation is consistent with that of an entity that only wants its orders obeyed and seeks no relationship or friendship with any other entity since it sees itself as Top Dog, and #1 in every way. As with the Nord Stream project, we see the Gangster mentality--Do as I say or else!

Not only does the Emperor have no clothes or much of a working memory, he's got erectile disfunction too that's well beyond the ability of Viagra to fix.

psychohistorian , Mar 18 2021 19:38 utc | 9

So here we have Blinken, Winken and Nod providing direction for failing empire

Blinken is obvious
Winken is that behind the scenes, wink, wink, nod, nod (there ain't no class structure here) type VP and
Nod is the new normal as US President.

I am sure they will try to take America to new places, yet to be dreamt of....will the brainwashed of the West follow?

About Germany and Nord Stream II.....To a degree that I am not sure of, Germany is like Japan, a fully owned colony of empire....this may be the time that the Germany nut gets cracked wide open....interesting times indeed.

Where are the details of Blinken telling China how to behave? I can hardly wait for the next act of Blinken, Winken and Nod

Mao Cheng Ji , Mar 18 2021 19:50 utc | 11

"Why, after so many bad words towards it, would China help the U.S. with solving the North Korea problem? It has zero incentive to do so."

This (as well as the Germany/NS2 thing) sounds like a rather naive view. Western headlines are for western internal consumption. And what's happening behind the scene, what incentives are offered and what threats are made in exchange for what specific actions, we simply don't know.

Chris Cosmos , Mar 18 2021 21:43 utc | 29

I notice a lot of accusations that Washington is "stupid" but that's not true. You have to understand how Washington works before you make such statements. The Deep State knows that it can control the minds of most Americans by inventing "truths" without any need to prove anything.

Since Washington is now in conflict with a goodly part of the public it sees that creating foreign policy crises and enemies as an excellent course of action to shore up support. Americans are always ready to react against enemies no matter how slender the proof of the wrongdoing ascribed to the enemy. There is never a penalty to pay for lying in the US if you are in the mainstream media or in the political arena. Since the CIA controls much of the European media and their ruling class it would take quite a lot for Europeans to drop their status as vassal states.

Remember, Washington can throw endless amounts of money around and fund everything from terrorism, crime waves, sexual indiscretions a la Epstein (the CIA had it's own whorehouse which my father pointed out to me decades ago--it was in Roslyn Virginia and it used underage girls and boys to improve its soft-power).

So far, no one has paid a penalty for lying or corrupt practices in Washington if they were "made" men or women (Trump never got that far).

As long as Europe, Japan and some other countries continue to be vassal states the US can and will get away with anything. Nordstream 2 is the issue that may change all that. Once Germany rebels the rest may follow.

mastameta , Mar 18 2021 20:22 utc | 18

germany breaking rank will be first big turn in nato. nordstream is a non negotiable issue for germany. meanwhile the US is not agreement capable. on anything and the vaccine hoarding is a big F U in EU to so called allies. all the pieces are set. just need time to let it all play out. the global south woke to it before the slower europeans can see the world anew.

as for the US china alaska meeting, it does seem to me that the US administration and deep state or whatever you want to call it are not coordinated or fully aligned with each other. the timing of the US sanctions on hk officials seem designed to thwart any possible dialogue. as if some elements are working to ensure the meeting resolves nothing.

the china global times calls this move the US stick that comes down before any negotiation and says it's a continuation of trump era tactics. maybe. I see it more as designed to make the meeting fail instead of designed to achieve anything such as extracting concessions from china. not being agreement capable because it is sabotaged from within.

but at this pt in the crumbling empire it is perhaps foolish to analyze its tactics in terms of means and ends. its only 'rationale' at this pt is to just keep doing what it's doing. sanctions wars threats coercion and moral grandstanding. it only knows it is right and there is nothing else besides.

Bernard F. , Mar 18 2021 22:41 utc | 36

@mina
@piotr berman

About Vlora to be an Alternative to NS2. Just a Fake from Radio France International, paid for by french gov. France is now full play in US hand. Macron want NS2 [and soon NS1..] to be shut down.

Nord Stream 1 is 55 Md.M3/y
Nord Stream 2 too.

110Md.m3/year

The biggest ship to deliver US GNL in Europe is 260.000 m3. 1m3 GNL is 600m3 natural gaz.

It's me or my computer? 3 ship per day? How many ship necessary? 60? 80?
Not an economy, a nightmare.
American capitalism was plunder and is now parasitism.


In order to get energy, Germany need Russia. Nord Stream is a direct tie in order to avoid "reliable" intermediate like Ukraine or Poland.
In order to get everything under control US need [reliable intermediate] to cut the tie between [oil/gas fields] from Middleeast or Russia and Germany, the sole country in Europe with Great industrial/technical capacity.

And good economic links to Eurasien.

Pardon my Englisch, I'm french. And tired

[Mar 12, 2021] When sweet spots will be exhausted in the US shale

At some point geology takes upper hand over technology
Mar 12, 2021 | oilprice.com

... ... ...

On the technical side, drillers have vastly lengthened the horizontal leg of the typical shale well, from slightly over a mile in 2014 to an average of 8,500 feet in early 2019. The ability to do this has come in part from improvements in drilling fluids design to permit entry into longer sections, and better rotary steerable MWD/LWD assemblies that enable more reliable real time drilling data from the bit to ensure they are staying in the sweet spot of the reservoir. Improvements in perforating, frac stage design with 4-D fracking that takes into account the frac's progress over time have also contributed to this increase in productivity.

The amount of sand or proppant pumped per foot of interval has also increased hugely from around a 1,000 pounds per foot-PPF, to between 2,000 and 2,500 PPF. Increasing the amount of proppant ads to the well's cost, but it also hugely increases the permeability of the completion. Permeability is a measure of the flow capacity of the rock. More permeability results in more production for longer periods of time.

High grading of drilling opportunities has been a prime contributor to being able to maintain a lower decline rate that originally supposed in my calculations. What this means is that operators have been focusing on their Tier I acreage and bypassing lower tier opportunities.

When you take this performance and multiply it across the top twenty or so drillers, you can begin to see how shale production manages to hover around the 7.5 mm BOEPD level.

... ... ...

One of the questions that often comes up is what will happen when Tier I acreage is drilled up. Some estimates have been put forward that this might occur within the next decade.

Rystad has challenged those estimates showing an estimate of the longevity of Tier I shale in years at present rates of drilling.

It comes as no surprise the Delaware sub-basin of the larger Permian basin is the king of shale, and operators there will retain a low cost drilling advantage for a number years beyond other plays.

By David Messler for Oilprice.com

[Mar 12, 2021] Looks like US shale oil production do not have much upside even at current prices

Mar 12, 2021 | oilprice.com

Most analysts believe that most public companies will stick to discipline. OPEC+ also seems to have gambled on expectations that U.S. shale will look at higher profits instead of production this time - unlike in any of the previous oil price spikes in recent years - when it decided not to raise production from April, except for small increases for Russia and Kazakhstan.

In view of the recent high prices, JP Morgan now expects U.S. oil production to average 11.36 million bpd in 2021, slightly up from 11.32 million bpd last year.

[Mar 11, 2021] How Oil Could Go To $100 Per Barrel

Mar 11, 2021 | oilprice.com

The EIA sees demand continuing to recover at a good pace to mid-year, with July world oil consumption forecast at 98.2 mbpd (but still about 4 mbpd below 'normal'). This incremental demand is being materially supplied by two sources, Brazil and OPEC. We might accept Brazil's crude oil production growth as given, allowing that the timing might be off by a month or two. The pivotal question is instead OPEC's intentions.

The EIA uses a volume (or demand) driven model, implying that OPEC will passively increase production to meet demand, and thereby keep oil prices low. But why would OPEC do this? If OPEC simply maintained current production levels, the world would be 3.5 mbpd short of supply by mid-year. A shortfall of 3.5 mbpd -- 3.6% of global consumption -- is a lot. It would rapidly drain remaining excess inventories, leaving only oil prices to mediate between supply and demand just as the world economy is showing both strength and momentum as the pandemic ends. In other words, in the coming months consumers will be prepared to compete for the available barrels of oil, and that should push oil prices up sharply.

... ... ...

... now is OPEC's best opportunity to make real money in the short to medium term. They would be fools to let the opportunity slip by.

By Steven Kopits of Princeton Energy Advisors via Zerohedge.com

[Mar 09, 2021] Texas' power 'death spiral' was unavoidable; it is that simple

Mar 09, 2021 | peakoilbarrel.com

JOHN S 03/07/2021 at 6:25 pm An interesting and fact based article on the Texas Power Crisis: https://www.mrt.com/business/oil/article/Texas-power-death-spiral-was-16005919.php

"There is no one party in the electrical power generation chain on which to lay the blame, and we should quit trying"

Power lines are shown Tuesday, Feb. 16, 2021, in Houston. More than 4 million people in Texas still had no power a full day after historic snowfall and single-digit temperatures created a surge of demand for electricity to warm up homes unaccustomed to such extreme lows, buckling the state's power grid and causing widespread blackouts.

In 1882, Thomas Edison formed the Edison Electric Illuminating Co., which brought electric light to Manhattan but most Americans still lit their homes with gas light and candles for another 50 years. Only in 1925 did half of all homes in the U.S. have electric power. It has been many years since the US has been fully electrified, but in 2015, 1 billion people (three times the US population) in the world had no access to electricity. Access to electricity is a key metric to determining a nation's affluence; as late as 2001, the entire county of Afghanistan was virtually without electricity. Afghani GDP was $500 per person in 2019 while the United States GDP was $65,000 per person.

We have come to expect that we should have electric power 100 percent of the time, and when that doesn't happen, then it must be someone else's fault (Oncor, ERCOT, power generators, retail electric providers like Griddy, employees and/or board members of any and all of the above, etc.). There are very few who know how electric power is generated and even fewer who understand the vast number of both mechanical and human factors that must operate seamlessly (and do operate seamlessly 99.9 percent of the time) to provide this modern miracle. We should really consider ourselves quite fortunate to have electricity at all, but of course we, as Americans, are smarter, better looking and more talented than everyone else and expect to have our every wish granted immediately; "Vanity of vanities, and all is vanity" spoke Ecclesiastes. Not a few have observed that this event occurred at the beginning of Lent, forcing involuntary penance on a people who refuse even the slightest voluntary inconveniences.

Within ERCOT, natural gas burned in gas turbines provides about 50 percent of the generating capacity in Texas, with wind/solar at about 30 percent, coal about 15 percent and nuclear about 5 percent. Since natural gas provides such a large percentage of electric power, and in an effort to find the appropriate scapegoat to Texas' woes, we first need to understand what a typical oil and gas production facility contains. A three-phase stream (oil, salt water and natural gas) is produced from the wellhead and flows to a separator, where the gas leaves the top of the separator in the vapor phase and the oil-salt water mixture leaves the bottom of the separator in the liquid phase and goes to a (gas-fired) heater-treater, which applies heat to break the oil-water emulsion and separate the oil from the saltwater. Oil then goes to storage tanks or pipelines, while water is either sent to a disposal well (via electric pump) or trucked off the lease.

Let's examine what really happened during the 221 consecutive hours with temperatures below the freezing point of water (32 degrees Fahrenheit). The natural gas in the vapor phase leaving the separator is saturated with water vapor, and since all the functions listed above occur above ground in steel pipes and vessels, the gas quickly drops in temperature, and the water vapor can freeze in the pipeline creating an ice block (a hydrate). If the gas cannot leave the lease then, unless the gas is flared, the well must be shut in. Even if the gas does not freeze in the line, if the paved roads and dirt lease roads are too hazardous for 18-wheeled truck transports to pick up the oil and water from the lease, then as soon as the on-lease storage is filled, the well must be shut in. Most leases have some level of electric power for pumps, lighting, heat tracing or similar uses, and when the electric provider ceases to provide that power, then any efforts to restore production and unfreeze equipment are hampered. The combination of freezing within on-lease flowlines, hazardous conditions preventing company employees from getting to the lease, lack of crude and water truck hauling, and the loss of electricity results in a complete wellhead shut in.

The graph below illustrates actual field production data from a Reagan County producer who battled all the issues above:

Virtually 100 percent of the gas produced in the Permian Basin must be processed in a gas processing plant for the removal of water, hydrogen sulfide, carbon dioxide and valuable natural gas liquids (NGLs, which are ethane, propane, butanes and heavier), with the remaining molecules consisting almost entirely of methane (called residue gas) delivered into large-diameter pipelines at the plant outlet. As producers struggled to keep wells on, gas processors also struggled as volumes to their plants steadily decreased (making it more difficult to operate), and they faced similar issues of employee safety, in-plant freezes and loss of electricity to key pieces of equipment like NGL pumps (if the NGLs cannot be pipelined from the plant on a continuous basis, the plant is forced to shut down). All plants have a minimum volume of gas required to run the plant, and many plants hit this wall; Navitas' processing complex east of Midland dropped from 750,000 Mcf per day to zero Mcf per day) while Cogent in Reagan County dropped from 460,000 Mcf per day to 40,000 Mcf per day.

Assuming a total loss of wind/solar and a 50 percent loss in coal, natural gas' share of the remaining generating capacity rose to about 80 percent; when wellhead freezes dramatically reduced gas flow to the processing plants, and when plants were having their own freeze issues, electric providers then cut power to these plants, eliminating what little gas supply was left available, effectively creating a "death spiral."

So, irrespective if (a) power generators were properly winterized, or (b) we had more gas-fired powered generation, or (c) Texas was not deregulated, the fuel supply simply was not available, "not even for ready money" (in Oscar Wilde's "The Importance of Being Earnest," Algernon expresses his dismay to the butler regarding why there were no cucumber sandwiches, to which the butler replies "There were no cucumbers in the market this morning, sir, not even for ready money"; after you read this comedy you should read his equally compelling but more somber tale, "The Picture of Dorian Gray").

As gas supply dwindled, and power demand increased, the price of gas "for ready money" jumped from its normal price of $3/MMBtu to $100-$200/MMBtu, and as the price of gas surged, and the demand for power increased while its availability decreased, the price of power also surged from $.03 per kilowatt-hour to $9 per kilowatt-hour. The typical consumer reaction was that there was "price gouging" simply because the price increased; what we witnessed was the classic supply-demand-price dynamic of the free market, which that same consumer enjoys on a regular basis when shopping for virtually any product.

Griddy customers enjoyed the rewards of supply-demand-price when power was plentiful and cheap, but they knew full well that they were susceptible to price spikes; Griddy updated open-market prices every five minutes and sent alerts when the price was increasing or decreasing, so those customers had the tools available on their "smart" phones and could elect to cease or continue to use power at a known cost.

Force majeure is a French term that literally means "greater force" and is related to an act of God, an event for which no party can be held accountable, such as a hurricane or a tornado (or 221 consecutive hours below 32 degrees). Try as we might, there is no one party in the electrical power generation chain on which to lay the blame, and we should quit trying. Will all the entities in the chain expend the money to protect against an event that happens once in a hundred years? Will you expend the money to buy and maintain a gas- or diesel-powered generator and beef up the insulation in your house to protect against an event that happens once in a hundred years? Do you expect the answers to both questions to be the same?

It is very unfortunate that lives were lost as an indirect consequence to the temporary loss of electricity. In another segment of our lives where man and machine interact, let's look at deaths on Texas roadways, which run about 3,500 per year. For the last 20 consecutive years, at least one person has died every single day in a vehicle accident; are we filing lawsuits or calling for the resignation of employees of TxDOT, DPS or vehicle manufacturers? If we were serious about reducing deaths to zero (TxDOT's 2050 goal) would we drop the speed limit to 30 miles per hour on all roadways and post officers every 10 miles to issue mandatory citations? Or would we appeal to taking personal responsibility for safe driving habits every time we turned the key in the ignition?

Switching gears, what should oil and gas producers be prepared for in late March when they are paid for gas delivered in February? Just because natural gas traded for $100-$200/MMBtu for a few days does not mean you will receive that price; it depends on what your gas contract stipulates and whether the plant to which you are connected sold any gas during that period. In an effort to be equitable, gas processors who did sell some high-priced gas could possibly allocate that value to only those producers who actually delivered gas to them during that period, rather than compute an average monthly price and applying that price to all deliveries during February. If your gas processor passes through your share of its electricity bill, you could be in for a shock on high pass-through power costs. You may get inquiries from royalty owners wondering why they are not seeing the effects of $100/MMBtu gas and whether you exercised a fiduciary responsibility to obtain that price.

This is only a partial list; the storm outside is over, but the financial and legal storm could only be beginning.

[Mar 07, 2021] Private shale Firms want to go all in as for production in their small spots, but will they get capital and do they have any sweet spots? by Tsvetana Paraskova

Sweet spots depletion might be a problem for them. U.S. shale production as a whole is unlikely to return to the levels before the pandemic. The high decline rates of shale well are more acure outside of sweet spot. Larger firms which still have sweet spots feel the pressure from investors to produce level of dividends expected in the industry. That excude "all-in" drilling as happned inthe past when Wall Stertt money were abundant and discipline was lacking.
Mar 07, 2021 | oilprice.com

Currently, OPEC itself sees U.S. crude oil production for 2021 at 11.2 million bpd, slightly down from an estimated 11.28 million bpd output for 2020. In its latest Monthly Oil Market Report (MOMR) for February, the cartel actually revised down its 2021 forecast for U.S. oil production by 210,000 bpd and now expects a 70,000-bpd annual decline from 2020, as continued capital expenditure discipline is "expected to weigh on production prospects in 2021."

Larger listed U.S. producers are concerned that some drillers would break promises of output restraint.

"There are going to be bad actors [who pursue] growth for growth's sake," Matthew Gallagher, an executive at Pioneer Natural Resources, told the Financial Times in January.

Pioneer Natural Resources itself will look to limit production growth to an average 5 percent over the long term, CEO Scott Sheffield said on the Q4 earnings call last week. Moreover, Pioneer expects to return up to 75 percent of its annual free cash flow to shareholders after the base dividend is paid, Sheffield noted. This will be returned in the form of variable dividends paid out quarterly the following year, the executive said. Related: Is This The World's Next Big Offshore Oil Region?

While Pioneer and other major listed shale players seem to be heeding investors' calls for higher returns to shareholders, the smaller closely held operators are not promising anything other than chasing higher returns on their investment, which is being generated by more oil production.

[Mar 07, 2021] Offshore Oil Gas Projects Set For Record Recovery by Tsvetana Paraskova

Commitments are not oil...
Mar 07, 2021 | oilprice.com

Offshore oil has already started to show signs of emerging from last year's crisis, as costs have been slashed since the previous downturn of 2015-2016. Deepwater oil breakevens have dropped to below those of U.S. shale supply, making deepwater one of the cheapest new sources of oil supply globally, Rystad Energy said last year.

In its new report this week, the energy research firm expects 592 offshore project commitments between 2021 and 2025, up from 355 projects in the 2016-2020 period and up from the 478 project commitments in the period 2011 to 2015.

Over the next five years, deepwater is set to show the most impressive growth in the number of commitments, with the number of projects rising to 181 from 106 in 2016-2020 and 115 in the five years before that, Rystad Energy has estimated.

"The search for large new fields in deep and remote waters became much more economically viable after dayrates for drilling rigs and offshore supply vessels fell in the wake of the oil price crash in 2014 and 2015. This offers significant support for companies interested in deepwater," said Rajiv Chandrasekhar, energy service analyst at Rystad Energy.

By Tsvetana Paraskova for Oilprice.com

[Mar 07, 2021] Oil Market Even Tighter As 500,000 Bpd Come Offline In Canada - OilPrice.com

Mar 07, 2021 | oilprice.com

Canadian Natural Resources, Suncor Energy, and Syncrude will all idle an upgrader each, taking off 250,000 bpd, 130,000 bpd, and 70,000 bpd, respectively, from total oil sands production.

... The oil sands cut will be temporary but, according to the industry itself, even when the three companies resume operations at their upgraders, there is little upward production growth pressure in Canadian oil sands. It seems emission reduction is a bigger priority for oil sands operators than production growth.

[Mar 06, 2021] Pointless Pain Is What We're Enduring. And All for the Sake of Accepting That Money is Not a Constraint on Our Potential

Mar 06, 2021 | www.nakedcapitalism.com

I worry that people cannot survive this. Real, warm blooded, caring, loving people can be broken by this. And that's what makes me angry. Because this is unnecessary. The money to deliver a decent society exists.

All that we need to make the lives of the vast majority of people in this country is a real understanding of economics, of money, of how it interacts with tax, and how we can use that for the common good.

But no political party seems to get that as yet. And until they do, this unnecessary suffering will continue. And that makes me very angry. Pointless pain is what we're enduring. And all for the sake of accepting that money is not a constraint on our potential, and never will be.


DTK , March 6, 2021 at 8:28 am

Hey Steve K,
Please explain why MMT is a bad joke.
Thank You

dummy , March 6, 2021 at 2:59 pm

Let me have a go.
If prosperity and wealth can be created by printing more money, why there is still poverty in the world?
After all, isn't every country equipped with a central bank that can print as much money as they want?

eg , March 6, 2021 at 5:37 pm

Depends upon what the additional money is used for -- if it's to employ the currently unemployed productively, then everyone is better off.

dummy , March 6, 2021 at 6:59 pm

Real wealth is not denominated in dollars, only in what those dollars can buy. Devaluing the dollar doesn't hurt the wealthy, most of their wealth is in the form of equity and real assets, not dollars.
The average person's wealth is measured mostly in his future labor, how much he is going to earn. He will earn less because the Fed devalues his labor through its manipulation of the dollar. He will see this in the rising cost of living without an increase in his pay. Sure perhaps the value of labor will at some point catch up to the devalued dollar, but in the interim he will earn less and will never catch up to what he would have earned otherwise. It doesn't hurt the wealthy, it hurts the middle class, and will for years to come.

occasional anonymous , March 6, 2021 at 5:43 pm

That isn't what MMT says. You're arguing against a strawman.

eg , March 6, 2021 at 10:14 am

Your macroeconomic ignorance is duly noted, featuring as it does the usual "commodity money" and mercantilist shibboleths.

MMT describes fiat monetary operations which have been in effect since the Nixon shock and the abandonment of Bretton Woods almost 50 years ago . Do catch up.

Louis Fyne , March 6, 2021 at 7:53 am

honest question, wouldn't MMT (in a hypothetical universe run by committed MMTers) in the UK likely will produce vastly different results than MMT in relatively autarkic economics like the USA or Russia?

The UK relies on imports to one degree or another for virtually every physical good necessary for a first-world living standard (food -- even basic foodstuffs like wheat, medicine, spare parts, petrol, apparel, even steel, etc).

While the UK's economy tilts to exporting services education, finance, media, medicinal/technological intellectual property, tourism, etc.

Would a weaker UK pound encourage more service exports? Or merely increase inflation, particularly for the bottom 50%?

honest question.

PlutoniumKun , March 6, 2021 at 8:03 am

Because MMT analysts tend to be mostly US or Australian, the applicability of it to smaller, more open economies has not, I think, had the attention thats needed (although to be fair, Richard Murphy has done quite a lot of writing on this). While the UK is a large economy, its also very open (although increasingly less so, thanks to Brexit). So it clearly has much less room to manoeuvre in terms of monetary or fiscal policy than a more autarkical nation. Its not just with MMT and inflation – things like Keynesian multipliers tend to be lower in more open economies as the benefits of fiscal expansion get exported out. The Labour party under Corbyn did put together some very interesting and well thought through MMT-influenced policies, but of course that all got thrown out with Corbyn.

As Yves has pointed out before, the UK has a particular problem in that it has little spare physical capacity in its economy to take advantage of a weaker currency. In the past, it has been unable to increase output when the pound has been weaker. So a weakening pound is likely to be more inflationary than in many other economies.

I think that in a general sense, MMT makes sense in all economies in a Covid scenario of a massive drop in output thanks to a black swan event. As Murphy points out, you just need to shove the cash into the economy through monetary means and forget about having to repay it. Inflation just isn't a problem in those circumstances, and it has the benefit of maintaining productive capacity within the economy. But in more 'normal' times, MMT needs to be applied with far more care in an economy like the UK than in a US or China or Russia or EU.

Susan the other , March 6, 2021 at 1:16 pm

Kind of wondering here what would happen if all the poor and unemployed/welfare recipients and even the precarious middle class also decided to offshore their money. Why not? Say in every country; say it became a global movement. The neoliberal nightmare should inform us all. Just because a small country doesn't have spare capacity or idle resources is not really a contraindication for MMT. It is more a factor of having an intrinsic imbalance due to decades if not centuries of grift and graft by those in a position to help themselves. And it creates confused politics. As you mentioned above – the Tories in the UK seem to have also usurped the opposition. Well, to my thinking, that is exactly what Trump did. And it is almost a crazy hope of "If you can't beat them, join them." And just exactly where does that leave a functional economy? My first image is a junkyard.

James E Keenan , March 6, 2021 at 9:55 am

Two points:

First, apropos the applicability of Modern Money Theory to relatively open economies like that of the U.K., see the discussion of the prerequisites for monetary sovereignty as outlined by Robert Hockett and Aaron James in their 2020 book, Money for Nothing . In addition to the well-known requirements (nation must issue its own currency; currency not pegged to metal or any other currency; no borrowing in foreign currencies), Hockett and James add others, including "limited trade dependence in essential goods such as food or energy sources, in order to mitigate foreign exchange and inflation risk ." (274)

Second, apropos the applicability of MMT to smaller economies, I am pleased to note that Fanny Pigeaud and Ndongo Samba Sylla's 2018 book, L'Arme Invisible de la Françafrique: Une Histoire du Franc CFA , has at last been published in English as Africa's Last Colonial Currency: The CFA Franc Story . (Your search engine will take you either to the publisher or to an internet behemoth where you can order it.)

Pigeaud and Sylla's book is a history and analysis of the political economy of the CFA zone: the countries of central and west Africa which were French colonies and which continue to use a common currency imposed on them by the French imperialists in 1945.

This book is, in my estimation, the best book we have so far in applying the insights of Modern Money Theory to non-monetarily sovereign economies. You have to love any book that starts out by translating Hyman Minsky's most famous aphorism into French: Tout un chacun peut creér de la monnaie: le problème est de la faire accepter.

HotFlash , March 6, 2021 at 11:42 am

"limited trade dependence in essential goods such as food or energy sources, in order to mitigate foreign exchange and inflation risk ."

Again, we/they have choices based on resource constraints. But, as usual, they are political. Most of these choices seem impossible now, but remember Victory Gardens ? Alas, such things are not looked upon favourably by Big Ag and the supermarket chains, but my depression-era grandparents grew most of their own food for their very large (by our standards) families. Maternal side, farmers -- my mother, born 1923, said that she never even knew there was a depression until she read about it later in high school. Grandpa paid his property taxes by driving snowplow for the county in the winter. Father's side -- my father, born 1922, grew up in a village (5-bedroom two story house built by his father, a shoemaker, and friends/relatives/contractors) on a biggish, maybe 1-2 acre? lot, which was part of a grant to the family for Civil War service. Grandma still had apple, peach, cherry and walnut trees, raspberry and currant bushes when I knew her, and had grown beans, tomatoes, potatoes and all that stuff before the 7 kids got married. Obviously, the kids did a lot of the work, too. Sewing room -- made most of the clothes for family, Dad says the kids' diapers were made of sugar sacks.

IOW, this is not rocket science. We did this sort of thing for millions of years, omitting the last 200 or so, and can very likely do it again. People explored the whole round world, and conquered a lot of it, without electricity or the internal combustion engine. We're not all gonna die!

Unless we as a species continue to act on maximizing shareholder value rather than surviving.

fwe'theewell , March 6, 2021 at 1:01 pm

Michelle Obama, izzat you? Gorgeous designer bootstraps.

The Rev Kev , March 6, 2021 at 5:53 pm

I think that you might be onto something here. I suspect that the lives of our grandchildren as they grow older will resemble the lives of our grandparents from your description. Of course that may mean a lot off decentralization from out of big cities but it can be done – especially if there is no other choice. And it's not like in the US that there is not the land to do this with.

RODGER MITCHELL , March 6, 2021 at 8:21 am

It is an excellent article, with one small exception, the words, "I accept that creating money this way is inflationary."

Contrary to popular wisdom, inflation is not caused by money creation . All inflations are caused by shortages , most often shortages of food or energy.

That includes hyperinflations. Consider, for one, the Zimbabwe hyperinflation. The government took farmland from farmers and gave it to non-farmers. The inevitable food shortages caused inflation. The government's "money-printing" was merely the wrongheaded response to the inflation, not the cause.

In fact, the hyperinflation could have been cured by more money creation, had that money been used to cure the food shortage, by purchasing food from abroad and distributing it, or by teaching the non-farmers how to farm.

In the past year, the U.S. has spent an astounding $4 trillion, and soon it will spend another $2 trillion, Yet, there will be no inflation so long as there are no shortages of food, oil, or labor.

Bottom line: Scarcity, not money creation, causes inflation.

Economists: Revise your economics textbooks.

Gengiskahn , March 6, 2021 at 3:55 pm

How do you define inflation?

DTK , March 6, 2021 at 8:36 am

In the US, as in the UK, planned inequality and (managed) unequal access to the benefits of the money system are two of the most salient activities of our (US) three government branches.

Patrick , March 6, 2021 at 9:02 am

So are ye telling me the reason conservatives don't (for example) want to raise the minimum wage is not because of some economic or monetary reason or law but instead just to keep people in their place, i.e. preserve the status quo? Amazing! And I guess them conservatives that "havenot" go along because of that "relative advantage" thing – they are so fixated on keeping those below in their place that they are blind to the upside of a more democratic and social monetary policy. Well I'll be. Now I git it!

Patrick ,

Patrick , March 6, 2021 at 9:21 am

Adding that yes, "fear of inflation" is an applicable "economic or monetary reason or law" that may explain the conservative position.

Anonapet , March 6, 2021 at 11:42 am

Then the MMT School are conservatives since they'd use taxation to curb inflation (by some undisclosed means that does not curb consumption).

But why should price inflation be a problem so long as:
1) It does not exceed income gains for ALL citizens;
2) the means that produce it do not violate equal protection under the law;
and
3) it is not extreme?

The only reason I can think of, and it's a contemptible one, is that large fiat hoarders* would see their hoards diminish in value in real terms.

*not to disparage those saving for a home, initial capital formation, legitimate liquidity needs, etc.

Adam Eran , March 6, 2021 at 1:50 pm

One point of inflation is to restrain creditors (rhymes with "predators").

Meanwhile, "printing" money does not initiate inflation. Most inflation–even hyperinflation–is "cost push," i.e. related to shortages of goods. In Zimbabwe, the Rhodesian farmers left, and the people to whom Mugabe gave their land were not as productive. Result: a shortage of food requiring imports (balance of payments problem).

In Weimar Germany, the French army invaded the Ruhr, shutting down Germany's industrial heartland, making a shortage of goods. They already had a balance of payments problems with WWI reparations.

Patrick , March 6, 2021 at 1:50 pm

"Then the MMT School are conservative"

In my example, no. The MMT School does not invoke inflation FEAR to deny nurses a meaningful wage raise.

Fear. Of change. Of "others". Of a level playing field? These pesky conservatives.

(For the record I did not excel in Father Brennan's freshman year logic class. And that was fifty years ago!)

Amfortas the hippie , March 6, 2021 at 2:23 pm

https://en.wikipedia.org/wiki/Bond_vigilante

it was always thus.
the real Burkean Conservatives behind it all, who yes want to keep everyone in their place.
as i've lamented many times, it's hard to get a read on who the real Bosses are, since they don't go on TV and brag, generally(various rightwing billionaires in the last 15 years, notwithstanding)
C.Wright Mills and Domhoff are the only taxonomists of that cohort that i'm aware of Diannah Johnstone, perhaps.
Maybe Pepe Escobar when they hide the rum.
otherwise, every attempt i've seen in the last 30 years has had elements of tinfoil and illuminatii/NWO scattered throughout.
I reckon this is by design, at some level.
whatever there exists a demographic cohort of humanity that is exceedingly wealthy, thinks it's in charge and mostly really is and that is truly cosmopolitiain citizens of the world.
their most defining feature is that they pretend real hard not to exist and most of us little people give them no mind, and pretend right along.
This cohort is not monolithic, nor all powerful they each are as prone to tunnel vision and stupidity as any of us but they have better connected steering wheels, and cleaner windshields, and mirrors that work.
One hopes that, like in FDR Times, they will feel threatened enough by the results of their long term policy preferences to allow a few larger crumbs to fall from the table, so as to mollify the ravening hordes .ere those hordes notice who the real Hostis Humani Generis are.
But it looks like they're more likely to double down on the diversionary division of the Bewildered Herd hence, Cancel Seuss! and Sinema's little antoinette dance .and an hundred other mostly unimportant things that happened just yesterday to keep us'n's riled up about the wrong things.

see: https://www.latimes.com/archives/la-xpm-1994-06-16-me-4587-story.html

for an enlightening memento mori of being right here before .Time is, indeed, cyclical, like the Ancients insisted.

Patrick , March 6, 2021 at 6:39 pm

"Maybe Pepe Escobar when they hide the rum". LOL! Needed that.

[Mar 06, 2021] BRAZIL SUMMARY Peak Oil Barrel

Mar 06, 2021 | peakoilbarrel.com

Oil Production

Production jumped in late 2019 but has struggled to maintain a plateau since then as FPSO start-ups have become sparser while the Campos basin decline continued apace.

Drilling rig numbers offshore increased in 2020 in support of the new FPSOs but land drilling virtually disappeared.

Rate of decline in the Campos basin, onshore and for small offshore basins have accelerated decline rates through 2019 and 2020, and all growth is coming from the Santos basin, which seems to be entering middle age with a rising water cut and the first developments reaching exhaustion.


Future Projections

Fitting a Verhulst curves to Santos basin production is virtually impossible as it is in such an early stage of development. An attempted fit resulted in remaining reserves of 22Gb compared to the APB figure of 11 to 12Gb. The estimate is bound to increase as a number of very large FPSOs come on line before 2025. Therefore the projection is based on a bottom up on recent, developing and possible projects that have started up or been announced, using any data for throughput, reserves etc., that is available and otherwise using usual design practice (e.g. typical field size for a given design throughput, FPSO availability, ramp-up times, decline rates, plateau periods).

The Verhulst best fit including annual production through 2019 results in a much thinner tail than from 2017 because recent figures have been much lower than the fit then. 2020 production was not used in the fit but the value prorated from monthly data through September shows the declining trend is continuing. The remaining reserves calculated from the fit is only 2Gb compared to 6 to 7 Gb from APB data. Fitting the curve but constraining the reserves to this numbe produces an unrealistically thick tail. The 2017 gave a better match but more likely there is another round of developments due that would need a separate curve to match. The first three of this are currently under development and their expected additional flow over the next few years matches the prediction from Petrobras – it only shows Petrobras' share of total equivalent production so the line shown has been prorated to total oil.

[Mar 05, 2021] The Feedback Loop Between The Fed The Elite - ZeroHedge

Investing lemmings are lured into energy stocks as a counterbalance to singing bond funds. It would be interesting to see how this will play out.
Mar 05, 2021 | www.zerohedge.com

takeaction 11 hours ago (Edited) remove link

I just closed EVERY position at open except for Energy.

My holds....XOM...MRO...VET....GTE.....OXY.....

And then for the Roll of the dice 2 million shares of CBDL just for the dream.

This Bond s&^t is going to get real ugly....and in my opinion...the inflation play is in Energy.

Crow-Magnon 11 hours ago

all have negative earnings but at least XOM has a decent dividend

Apocalypse2020 7 hours ago

Small oil companies are drowning in FCF right now.

TreeTopSlick 10 hours ago

Long Oil and/or commodity fund

[Mar 04, 2021] The next commodity supercycle

Mar 04, 2021 | finance.yahoo.com

Commodities have seen four supercycles over the past 100 years. The last one peaked in 2008, after 12 years of expansion.

Last month, two of the biggest banks on Wall Street - JPMorgan Chase and Goldman Sachs - joined others predicting a new commodities supercycle as economies reopen and the risks of the pandemic subside.

The expectation is for a long-term boom spanning oil, metals, and agricultural material prices. JPMorgan's head of oil and gas, Christyan Malek, recently offered one of the most bullish forecasts for oil, suggesting international crude prices could rebound to US$100 per barrel.

[Mar 01, 2021] The 13-member Organization of the Petroleum Exporting Countries pumped 24.89 million barrels per day (bpd) in February, the survey found, down 870,000 bpd from January.

Mar 01, 2021 | peakoilbarrel.com

POLLUX IGNORED 03/01/2021 at 9:33 am

OPEC oil output falls in February on Saudi additional cut – survey

The 13-member Organization of the Petroleum Exporting Countries pumped 24.89 million barrels per day (bpd) in February, the survey found, down 870,000 bpd from January.

Riyadh achieved about 850,000 bpd of that reduction in February, the Reuters survey found.

Compliance with pledged cuts in February was 121%, the survey found, up from 103% in January.

[Mar 01, 2021] Art Berman on Twitter

Mar 01, 2021 | twitter.com

In the past decade, capital employed in Exxon's upstream business has risen by a third -- and...production fell 17% & proved reserves by 39%.

"In the past decade, capital employed in Exxon's upstream business has risen by a third -- and...production fell 17% & proved reserves by 39%. This...has trashed Exxon's return on capital." https:// bloomberg.com/opinion/articl es/2021-02-25/exxon-reserves-debooking-of-6-billion-barrels-matters?sref=866aH6XX #OOTT #oilandgas #oil #WTI #CrudeOil #fintwit #OPEC #Commodities

[Feb 28, 2021] Possible end of "plato oil": Increase in countries that shtill have unpapped reserves now is unable to make up for the decline of production of the rest of the world

Feb 28, 2021 | peakoilbarrel.com

The natural annual deline from exiting wells is around 800 kb/d/yr.

Originally from: US December Oil Production Drops – Peak Oil Barrel

RON PATTERSON IGNORED 02/27/2021 at 5:25 pm

Dennis, I must disagree with your assessment. OPEC peaked in 2016. Yes, Iran can come back and increase production by about 1.5 million barrels per day. But that still will not make up for the decline in the rest of OPEC. No need to mention Venezuela, they may come back around 2030 or so, long after the peak has passed.

Russia said they had peaked in early 2020. I see no reason to think they were lying.

That leaves Brazil, Norway, and Canada. They all three may increase production but nothing spectacular. Not nearly enough to make up for the rest of the world in decline. REPLY STEPHEN HREN IGNORED 02/27/2021 at 5:58 pm

I'm inclined to agree with Ron. So much investment deferred because of 2014 and 2020 price crashes. LTO can come back quickly if the price stays consistently high (a big if) but it won't be enough to save the day. Investors are expecting cash from LTO these days, not production increases. I imagine most other countries are just coasting after the turmoil of the last year. Also still plenty of wildcards in the collapse department over the next 5-10 years: Iraq, Nigeria, Libya, etc. WATCHER IGNORED 02/28/2021 at 1:12 am

Factions in the administration are on record as wanting sharply higher oil prices. Seems difficult to see how this would get through the Senate, but it is a green priority. RON PATTERSON IGNORED 02/28/2021 at 8:48 am

Does Occidental know what they are talking about? They are saying that the investors are just not there for a massive increase in production. And they are one of the two largest producers in the Permian Basin.

U.S. Oil Production Has Already Passed Its Peak, Occidental Says Bold Mine
By Kevin Crowley
October 14, 2020, 1:49 PM CDT

America's oil production will never again reach the record 13 million barrels a day set earlier this year, just before the pandemic devastated global demand, according to Occidental Petroleum Corp.

"It's just going to be too difficult to replace the 2 million barrels a day of production that we've lost, and then to further grow beyond that," Chief Executive Officer Vicki Hollub said Wednesday at the Energy Intelligence Forum. "Over the next three to four years there's going to be moderate restoration of production, but not at high growth."

Occidental is one of the biggest producers in the U.S. shale industry, which added wells at such a rate prior to the spread of Covid-19 that the country became the world's top crude producer, overtaking Saudi Arabia and Russia, ushering in an era that President Donald Trump called "American energy dominance."

U.S. oil production is stuck below it's pre-pandemic high
Shale's debt-fueled expansion came to a juddering halt due to lower gasoline demand and oil prices, but also because of Wall Street's increasing reluctance to fund growth at any cost. Shale operators are increasingly prioritizing cash flow and returns to investors over production growth.

Occidental, which vies with Chevron Corp. to be the biggest producer in the Permian Basin, has been forced to throttle back capital spending, lower growth targets and cut its dividend in a bid to save cash during the downturn. Its finances were already severely challenged by the debt taken on through its $37 billion purchase of rival Anadarko Petroleum Corp. last year.

Hollub said global consumption stands at about 94 billion barrels a day, and it will take a Covid-19 vaccine before it returns to 100 million barrels. Due to cutbacks around the world, supply and demand for oil will likely balance again by the end of 2021, she said.

Unlike some of her European peers, Hollub sees strong long-term demand for oil. "I expect we'll get to peak supply before we get to peak demand," she said. HICKORY IGNORED 02/28/2021 at 11:31 am

"Unlike some of her European peers, Hollub sees strong long-term demand for oil. "I expect we'll get to peak supply before we get to peak demand," she said."

Thanks Ron.
I wonder if she is referring to the balance in the USA, or the world.

It will be a horse-race finish for the whole decade- "and here comes Demand up the backstretch " RON PATTERSON IGNORED 02/28/2021 at 11:26 am

Figure this one out. The EIA's AEO2021 In the past they have always given scenarios based on "Low Price" and "High Price". But now it is "Low Supply" and "High Supply".

They are not making a prediction, they are just saying: "Here is what low supply looks like", and "Here is what high supply looks like". Hell, we already knew that.

Anyway, it is all about tight oil. Everything depends on tight oil. Occidental says tight oil has peaked. But the EIA is taking no chances. They are saying in effect: "Here is what it looks like if tight oil has peaked and here is what it looks like if it has not."

REPLY

[Feb 28, 2021] Bank Of America Expects Fastest Oil Price Rise In 30 Years - OilPrice.com

Feb 28, 2021 | oilprice.com

Oil prices are set to rise by the fastest rate since the 1970s over the next three years, Bank of America said in a new report, joining the growing group of analysts forecasting a return of oil to three-digit territory.

The average price of Brent over the next five years, however, will be between $50 and $70 per barrel, according to the bank, as quoted by The National.

[Feb 28, 2021] OPEC+ Faces Calls to Cool Oil Market Frenzy With Extra Barrels

At some point changes in oil price will became qualitative and all this paper oil speculation designed to keep them down will stop working. It might well be that the moment of declining world production is near or already reached.
There is a finite amount of oil in the ground and with the current size of population it will eventually be depleted. The only question is how soon.
Bloomberg, of course, repeats IEA propaganda as the USA need low oil prices to survive as transportation of goods is mainly done by trucks and to keep it global empire from shrinking. So take the information provided with a grain of salt.
The problem for the USA is that shale oil production (which actually mostly produce light fractions; the fact carefully hidden in EIA statistics) is in decline and can't be revived without huge subsidies and the write down of debt.
Feb 28, 2021 | finance.yahoo.com

From trading houses in Geneva to Wall Street banks, much of the oil world agrees that global markets could use some more barrels. The big question is whether OPEC+ will provide enough of them.

A crude glut that piled up during the pandemic is vanishing fast. Global inventories are plunging at the steepest rate in two decades, according to Morgan Stanley. Prices have rallied to pre-virus levels, while U.S. production has taken a hit from freezing storms. Talk swirls of market supercycles, and even the return of $100 oil.

With the need for more supply evident, traders expect the OPEC+ coalition, led by Saudi Arabia and Russia, will agree to increase production when it meets on March 4, reversing some of the output cuts made last year.

But it's unclear if the group will act vigorously enough. Wary of the virus's persisting threat to demand, Saudi Energy Minister Prince Abdulaziz bin Salman has urged fellow producers to remain "extremely cautious."

If the alliance agrees an output hike that falls short of requirements, however, it could trigger a further price surge

... ... ...

Goldman Sachs Group Inc. sees Brent hitting $75 a barrel in the third quarter as a new commodities supercycle beckons , while trading giant Trafigura Group says it's "very bullish" on the months ahead. Socar Trading SA, a unit of Azerbaijan's state oil company, predicts $80 could be reached this summer and triple digits within two years.

"The fear is that in 12 months there will be a shortage" even if OPEC+ revives output, said Socar Chief Trading Officer Hayal Ahmadzada. "It will drive the price very high, very fast."

... ... ...

Prices are still far below the levels most OPEC nations need to cover government spending , and the International Energy Agency -- a leading forecaster -- anticipates a market setback in the second quarter as a seasonal lull briefly causes inventories to accumulate again.

[Feb 25, 2021] This Obscure Energy Treaty Is the Greatest Threat to the Planet You've Never Heard Of -

Feb 25, 2021 | www.nakedcapitalism.com

This Obscure Energy Treaty Is the Greatest Threat to the Planet You've Never Heard Of Posted on February 25, 2021 by Yves Smith

Yves here. An ugly trade treaty that included corporate-profit guaranteeing "investor-state dispute settlement" mechanisms is again getting the bad press it deserves. We mentioned the 1994 Energy Charter Treaty in our 2013-2015 opposition to the TransPacific Partnership and its Atlantic sister, the TransAtlantic Trade and Investment Partnership because it had become notorious in Europe for undermining clean energy initiatives. From a November 2013 post, quoting Public Citizen :

Vattenfal, a Swedish company, is a serial trade pact litigant against Germany. In 2011, Der Spiegel reported on how it was suing for expected €1 billion plus losses due to Germany's program to phase out nuclear power:

According to Handelsblatt, Vattenfall has an advantage in seeking compensation because the company has its headquarters abroad. As a Swedish company, Vattenfall can invoke investment rules under the Energy Charter Treaty (ECT), which protect foreign investors in signatory nations from interference in property rights. That includes, according to the treaty's text, a "fair and equitable treatment" of investors.

The Swedish company has already filed suit once against the German government at the ICSID. In 2009, Vattenfall sued the federal government over stricter environmental regulations on its coal-fired power plant in Hamburg-Moorburg, seeking €1.4 billion plus interest in damages. The parties settled out of court in August 2010.

These treaty terms are designed to erode national sovereignity and establish supra-national mechanisms to make corporate profits senior to national laws. I'm not making that up. Again from that 2013 post:

Word has apparently gotten out even to Congressmen who can normally be lulled to sleep with the invocation of the magic phrase "free trade" that the pending Trans Pacific Partnership is toxic. This proposed deal among 13 Pacific Rim countries (essentially, an "everybody but China" pact), is only peripherally about trade, since trade is already substantially liberalized. Its main aim is to strengthen the rights of intellectual property holders and investors, undermining US sovereignity, allowing drug companies to raise drug prices, interfering with basic operation of the Internet, and gutting labor, banking, and environmental regulations.

Or as Public Citizen put it :

It's not really about "trade", but a system of enforceable global governance that is not designed for modification by those who will live the results.

The only good news about the Energy Charter Treaty, compared to its later versions of investor-state dispute settlement provisions, is that signatories can withdraw. And that might actually happen with the Energy Charter Treaty.

By Fabian Flues, an adviser on trade and investment policy at Berlin-based PowerShift, Cecilia Olivet, project coordinator with the Economic Justice Programme at the Transnational Institute, and Pia Eberhardt, a researcher and campaigner with the Brussels-based campaign group Corporate Europe Observatory. Originally published at openDemocracy

On 4 February the German energy giant RWE announced it was suing the government of the Netherlands . The crime? Proposing to phase out coal from the country's electricity mix. The company, which is Europe's biggest emitter of carbon, is demanding €1.4bn in 'compensation' from the country for loss of potential earnings, because the Dutch government has banned the burning of coal for electricity from 2030.

If this sounds unreasonable, then you might be surprised to learn that this kind of legal action is perfectly normal – and likely to become far more commonplace in the coming years.

RWE is suing under the Energy Charter Treaty (ECT), a little-known international agreement signed without much public debate in 1994. The treaty binds more than 50 countries, and allows foreign investors in the energy sector to sue governments for decisions that might negatively impact their profits – including climate policies. Governments can be forced to pay huge sums in compensation if they lose an ECT case.

On Tuesday, Investigate Europe revealed that the EU, the UK and Switzerland could be forced to pay more than €345bn in ECT lawsuits over climate action in the coming years. This amount, which is more than twice the EU's annual budget, represents the total value of the fossil fuel infrastructure that is protected by the ECT, and was calculated using data gathered by Global Energy Monitor and Change of Oil International.

With ECT-covered assets worth €141bn (or more than €2,000 per citizen), the UK – which in 2019 became the first major economy to pass a net zero emissions law – is the country most vulnerable to future claims.

In 2019 the European Commission called the ECT "outdated" and "no longer sustainable", and more than 450 climate leaders and scientists and 300 lawmakers from across Europe have called on governments to withdraw from the treaty.

But in response, powerful interests have mobilised to not just defend the treaty, but to expand it to new signatory states. These interests include the fossil fuels lobby keen to keep its outsized legal privileges ; lawyers who make millions arguing ECT cases; and the Brussels-based ECT Secretariat, which has close ties to both industries and whose survival depends on the treaty's continuation.

A Bodyguard for Polluters

Supporters of the ECT make a number of controversial claims to prevent countries from leaving the treaty and persuade new countries to join. But their myths and misinformation are easily debunked .

For example, ECT supporters say the treaty attracts foreign investment, including into clean energy. However, there is no clear evidence that ECT-style agreements do this: a recent meta-analysis of 74 studies found that investment agreements' effect on increasing foreign investment "is so small as to be considered zero".

And while ECT supporters claim the treaty protects renewable investments, in reality it predominantly protects and prolongs the fossil-fuel dominated status quo. In recent years only 20% of investments protected by the ECT covered clean energy, compared to 56% for coal, oil and gas.

By protecting the status quo, the ECT acts as a bodyguard for polluters . As the RWE example shows, when a government decides to phase out coal or cease oil and gas operations, fossil fuel companies can demand steep compensation via the ECT. So with no public benefits and clear risks for climate action, why are countries hesitant to leave the treaty? Two more myths are preventing them from taking action.

Firstly, ECT proponents claim that an ongoing process to 'modernise' the treaty will fix its flaws. But modernisation has proceeded at a snail's pace since 2017, and is unlikely to succeed given resistance from powerful ECT members like Japan , whose companies have used the ECT to take legal action against other governments. Leaked reports show that the talks are stalled due to the requirement to take decisions unanimously.

No signatory state has proposed removing its dangerous corporate courts, which take the form of arbitration tribunals run by three private lawyers. No state has proposed a clear exemption for climate action. No ECT member wants to exclude protection of fossil fuels from the modernised treaty any time soon.

In short: the negotiations around ECT 'modernisation' will not bring the treaty in line with global climate commitments.

Secondly, ECT supporters claim that leaving the treaty offers no protection against costly lawsuits. The ECT's sunset clause – which allows investors to sue a country for 20 years after its withdrawal from the treaty – makes a unilateral ECT exit useless, it is claimed.

In practice, however, withdrawing from the ECT significantly reduces countries' risk of being sued and avoids carbon lock-in from new fossil fuel projects. The ECT's sunset clause only applies to investments made before withdrawal, while those made after are no longer protected.

At a time when the majority of new energy investment is still in fossil fuels, not renewables, this is important. The sooner countries leave, the fewer new dirty investments will fall under the ECT and be 'locked-in' by its legal status.

Italy took the necessary step of withdrawing from the ECT in 2016. Going forward, if multiple countries decide to withdraw together – say, the EU bloc, supported by allies such as the UK or Switzerland – they can further weaken the sunset clause. Countries that withdraw could adopt an agreement that excludes claims within their group, before jointly leaving the ECT at the same time. That would make it difficult for investors from those countries to sue others from the group.

This week a European-wide petition has been launched so that citizens can call on their governments to end the ECT madness.

Leaving the outdated, climate-killing ECT is a no-brainer. It is not just good governance, but the logical step for all who take global warming seriously.


The Rev Kev , February 25, 2021 at 3:27 am

Those "investor-state dispute settlement" mechanisms are nuts and I can see a rush for the door if one or two countries pull out of the Energy Charter Treaty. There has to be a point where they realize that the Energy Charter Treaty is not in fact a suicide pact. Good thing that there is not an equivalent in the medical industry or else healthcare companies would be suing nations for giving their citizens vaccines on the grounds that it is robbing those companies of future income from treating them during the present pandemic.

Unknown Unknowns , February 25, 2021 at 5:24 am

"not an equivalent in the medical industry or else healthcare companies would be suing nations for giving their citizens vaccines on the grounds that it is robbing those companies of future income from treating them during the present pandemic"

Are you sure?

They have been given a non-liability clause for side-effects. The EU has ordered more vaccine in spite of not knowing if the vaccines will stop the transfer of the disease. If that doesn't sound like an equivalent, what does?

Yves Smith , February 25, 2021 at 6:30 am

No. that's quite different. The governments under an ISDS type of regime would be required to buy or to compensate for non-purchases.

Here, they are competing with each other to try to get supplies. The liability waivers are in a completely different economic category and result from governments being so eager to get the vaccines that they were released without going through the normal approval process (and the drug companies as a result having an upper hand in bargaining).

Olivier , February 25, 2021 at 9:50 am

It was the governments themselves who enjoined the pharma companies to rush vaccine development and who then also rushed the approval process. Thus in this case (and only in this case) I think that a waiver of liability (maybe with some residual liability for gross negligence) is entirely appropriate.

vlade , February 25, 2021 at 7:14 am

I believe the EU contracts kept at least some liabilities, which was one of the reasons why it took so long to get it.

Dave in Austin , February 25, 2021 at 7:32 am

The ECT mechanism is a reasonable response to a question: "If a company in good faith follows a nation's laws and invests money in a long-term, legal project, who should pay for the stranded costs if the nation decides to change the law to make the project illegal?" This is about who should pay for stranded assets.

Legislators naturally are looking for someone else to pick up the bill and the "someone else" is often a foreign company because domestic companies have to much political power to be messed with and the company shareholders are often local people.

The Canadian gas pipeline to the US gulf coast is an example. More than two billion dollars were invested, the proper permits were gotten and the pipeline was built- all except a five mile stretch now held up in the usual creative American litigation machine. So who should pay for the two billion invested- half of which came from the Alberta provincial government? Alberta has already filed the arbitration claim and I support their position; if a country encourages a legal investment and then changes the rules the country can do it- but the country should pay for the loss.

When American assets are confiscated overseas using the same sort of creative legal reasoning the US investors are rightly up in arms. I'm specifically not including the all-to-common cases of fraud and political payoffs by foreign investors. In the cases Yves cites there are no allegations that the contracts were tainted by fraud.

A well known modern historian has pointed out that if the American abolitionists wanted to end slavery they should have campaigned to do what the British did- buy all the slaves, set them free and compensate the owners for the "taking" of the property. In the 1830s the British spent the money and freed the slaves. In the U.S., on the other hand we had a civil war, more than half a million young men killed- and the cost of the war was five times what it would have cost to purchase and free all the slaves. I use this example because there were clearly both moral and economic issues involved in slavery, just as there are in the fight to limit air pollution and stop climate change.

Not only is there no free lunch, but there is always a fight about who should pay for the lunch.

Susan the other , February 25, 2021 at 11:41 am

This sets the stage to rethink contracts of all kinds. If the Energy Charter Treaty (basically contracts to protect vested interests for profits and against liabilities) is breached by a country simply leaving the organization it makes all those contracts worthless. And it explains why the TPP and the TAP don't have a get-out clause. I think the question of stranded assets is being mishandled too. Especially because we will need fossil fuel for many decades to come. At this point it is a question of what do we sacrifice to protect the atmosphere? It looks like gasoline-cars and maybe home heating fuel. But not electricity. RWE AG is a huge generator and provider of electricity. Asia Pacific as well as the EU. So taking Texas as a good example, what happens to RWE if they are faced with any number of problems and need to generate electricity fast? Their best backup is oil and natural gas. And it's gotta be a no-brainer that they are seriously involved with Nordstream-2, and something similar in eastern Siberia (?), to supply fuel and back-up fuel for their operations. ECT is an old agreement. TPP is a newer one. Neither one of them are looking at the downside to the environment. So they should both be rethought and re-construed. Because, for more accurate consideration, fossil fuels are not so much a stranded asset as an asset that must be carefully conserved to last us through a long transition period.

Michael McK , February 25, 2021 at 12:02 pm

Given that industries spend as much effort lobbying for the environmental disasters our leaders (they paid to get elected) approve I don't think they deserve to earn back the expense of their investments, let alone the theoretical profit that that stupid, immoral investment could have generated
I think this sort of situation shows how important it is for governments to be the investors/owners of critical infrastructure instead of capitalists (paid for by asset taxes, transaction taxes and MMT).
At this point I can think of no wealthy person who's fortune is not built on the misery of our grandchildren (Oh no! It's us, now, not our grandkids at the edge of the abyss) and we need a massive asset tax on top of huge lifestyle changes. An asset free, radically different life is coming soon for us all whether we choose it or not and putting the decision off is only making the looming reality worse..

[Feb 24, 2021] Poland, Ukraine Urge Biden to Do His Best 'to Put an End' to Nord Stream 2 Project

Feb 24, 2021 | www.moonofalabama.org

vk , Feb 22 2021 12:16 utc | 109

Clipping:

Poland, Ukraine Urge Biden to Do His Best 'to Put an End' to Nord Stream 2 Project

"Our calls for vigilance and boldness were heard in the US Congress, which pressed on with measures designed to stop this dangerous, divisive project. We call on US President Joe Biden to use all means at his disposal to prevent the project from completion", the pair added.

They think they have a voice in the US Congress? Should apply for Statehood then.

The ministers suggested that if completed, the project will add to Russia's drive "to try to convince the Ukrainian public that the West doesn't care about its own principles, and ultimately, about the security and prosperity of Ukraine".

But wasn't the critique against socialism from the Soviet space that it was "utopian", i.e. that it put its "principles" (ideology) before economic fundamentals?

--//--

EU must be 'united and determined' on Russia sanctions, says Borrell

90 years old and still has not grown up.

I guess old dogs indeed can't learn new tricks.

snake , Feb 22 2021 22:15 utc | 151

Poland, Ukraine Urge Biden to Do His Best 'to Put an End' to Nord Stream 2 Project
vk @ 109. Congress of the USA to interfere with the completion of Russian-German Nord stream II project because the LNG cartel in USA governed Texas, Lousisana , Oregon want to require every man women and child in Europe to pay monopoly prices for LNG. As I see it failure of Nord Stream II will be extremely dangerous to the survival of the solar and wind renewable energy efforts; its a do it or die situation for dominate energy is the goal of the LNG cartel...

[Feb 20, 2021] The USA is the only large oil producer which consumes more than it produces and the only one of the three that favors lower prices

Feb 20, 2021 | peakoilbarrel.com

SHALLOW SAND IGNORED 02/15/2021 at 8:49 am

There are a few factors at play IMO.

One factor is a change in one of the three large producer's policies. This large producer is also the only producer that consumes more than it produces and therefore the only one of the three that favors lower prices. I'm referring to USA, of course.

USA shale (and to a much lesser extent GOM) growth kept a lid on prices. Where would prices have been 2010-19 without USA adding 7 million BOPD?

USA growth doesn't appear to be headed toward adding 1 million BOPD or more per year in the future. USA companies are all being pressured to pay dividends. To cover dividends, USA companies need much higher prices. USA companies aren't forecasting growth like past years.

For the first time ever, the USA government is not making oil production growth, either domestic or foreign, a priority. I am not making a "political" statement here trying to rile up the left on the board. Just look at oil prices since the USA election on 11/3. Not a coincidence. Not likely USA will be intervening anytime soon in the ME to protect oil supplies. At least not in a big way.

I have no idea how high oil prices will go. I wonder what happens politically in USA with $3 gasoline? $4 ? Are high gasoline prices no longer a political liability? They weren't for Obama in 2012. But USA was drilling like crazy in 2012. Not sure what happens this time if that occurs, given clear desire of Biden Administration to discourage USA oil production growth.

Another factor is the Western European producers have told the market recently in a very straightforward manner that their oil production is past peak. The CEO's of both BP and RDS have stated this. Total is also transitioning away from oil. Equinor also, it changed its name to remove the word oil.

Next, even though total worldwide demand will still be below a record, demand growth from 2020 to 2021 worldwide will be big, much bigger than from 2009 to 2010 after GFC. What did prices do from the depths of GFC to 2011? Compare GFC stimulus to COVID stimulus.

Last, how many paper barrels are traded per physical barrel? With the increase in paper barrels (I would call them more accurately day trader barrels) volatility in the oil market has grown. The price went negative big time one day last April. It was purely a day trader phenomenon.

Just my thoughts. Feel free to disagree. REPLY HICKORY IGNORED 02/15/2021 at 11:28 am

Everyday you can find headlines that point to a huge transition underway in the world energy scene.
For example today-
-Exclusive: Equinor considers more US asset sales in global strategy revamp, and
-Ford bets $29B on leading the 'electric vehicle revolution'

There is a huge scramble underway to adapt to the conditions these big companies now see coming to be over this decade.
In the meantime, I think that oil demand growth will be very strong over the next 18-24 months.
And as the price of gas in the USA goes up in this rebound phase, the great difference in travel cost/mile between plug-in vehicles (like a Ford mustang) and ICE vehicles will become a widely known fact. Ford (and the other manufacturers) all know that now, even if they were slow on the uptake.

This world is going to change rapidly this decade in so many ways. REPLY ALIMBIQUATED IGNORED 02/15/2021 at 11:34 am

I think a general feeling of optimism that there is light at the end of the Covid 19 tunnel is helping as well. REPLY SURVIVALIST IGNORED 02/15/2021 at 12:23 pm

" For the first time ever, the USA government is not making oil production growth, either domestic or foreign, a priority."

Great observation. I recall when GWB2 went to KSA to 'kiss the ring' and ask for more oil production. I wonder how it will play out next time. REPLY HICKORY IGNORED 02/15/2021 at 12:33 pm

"" For the first time ever, the USA government is not making oil production growth, either domestic or foreign, a priority."

Of much greater impact- For the first time ever, the major oil companies are not making oil production growth, either domestic or foreign, a priority. REPLY SHALLOW SAND IGNORED 02/15/2021 at 1:11 pm

Both are happening simultaneously.

Both are making a big impact. REPLY SHALLOW SAND IGNORED 02/15/2021 at 1:12 pm

Trump jumped on KSA when oil prices went up during his admin.

Will Biden? REPLY PAOIL IGNORED 02/15/2021 at 1:57 pm

The Biden administration is under pressure to see oil prices rise. The green agenda of wind, solar and EV's is only cost competitive with fossil fuels in two ways: 1) green subsidies; or 2) higher oil prices. Until high oil prices threaten the economy, the Biden administration will enact policies that gladly see oil prices rise. And with the oil price experience of 2009 to 2014 still relatively fresh in people's minds, the Biden administration is not afraid of $60, $70, or even $90 oil. They are hoping for it. REPLY HICKORY IGNORED 02/15/2021 at 2:13 pm

"$60, $70, or even $90 oil. They are hoping for it."
As are the people working in the oil industry. REPLY STEPHEN HREN IGNORED 02/15/2021 at 4:59 pm

As far as anyone on this board is considered, the higher the price of oil the better. Let's phase out oil production in the US over the next three decades and keep the price high the entire time so the producers make money and people are incentivized to switch to less polluting EVs. It'll be like the TRC for the whole country but heading towards a bottleneck. Auction drilling rights so only the best wells get drilled. Keep restricting drilling in a phased manner, enact a gradually lower cap on the number of wells that can be drilled until it goes to zero in twenty years and then maintain these stripper wells until they are empty. REPLY PAULO IGNORED 02/15/2021 at 6:33 pm

Can you imagine any US party that would actually dare to promote a higher cost for gasoline? Personally, I think there should be a big carbon tax and fuel tax surcharge imposed to fix infrastructure, but whatever.

Confession: I am not anti oil. My son works in the Cdn industry. I just think people drive more than they should and that energy should be priced higher. Win win. LLOYD IGNORED 02/16/2021 at 3:55 pm

So $90 oil is good for:
-Saudi
-Democrats
-Shallow
-Tesla
-Renewables

But not for:
-Rednecks with huge vehicles

The election calculus gets tricky here. REPLY ALIMBIQUATED IGNORED 02/16/2021 at 4:09 am

PAOIL-
I disagree that high oil prices are needed to make green energy competitive, because oil is already very expensive energy, which is why it is rarely used to generate electricity. Wind and solar compete against coal, nuclear and gas, not oil.

Oil shines as a way to store energy in a moving vehicle and power internal combustion engines. As such, it really competes with batteries, not with the rest of the energy market at all. And batteries still have a tiny impact on oil markets.

So higher oil prices might be useful for the EVs, but not particularly useful for wind and solar. But in reality, the EV market is suffering from chronic battery shortages as manufacturers struggle to build factories fast enough to meet 20% or more annual demand growth. The oil price really isn't an issue, and raising oil prices wouldn't help.

If Biden's goal was to make EVs more competitive, the government has an easy way to raise oil prices, which is to raise taxes at the pump. This would be more or less neutral to the oil price from the producer point of view. It would just encourage exports and discourage imports, improving America's balance of payments. But it hasn't worked in Europe, where taxes are over 60% of the price at the pump. The most effective way to promote EVs is subsidizing the purchase price of the vehicle. That has been very effective.

Hoping that the American consumer will keep oil demand up internationally no longer makes sense, as America's relative economic importance has been falling since 1945. I'm not sure what the previous administration was trying to accomplish by talking down the price. REPLY JEFF IGNORED 02/16/2021 at 5:13 am

"But it hasn't worked in Europe, where taxes are over 60% of the price at the pump. "

So average fuel economy in Europe and US is the same? REPLY EULENSPIEGEL IGNORED 02/16/2021 at 8:47 am

I have driven a Toyota Corolla on an 4 week US trip.

With an engine for the US market – you can't buy this modell in Europe. It was very steady going – and thirsty. At least for european thinking, we used 7-8 litres / 100 km by mostly driving country roads in cruise control at the given speed (didn't wanted to deal with US police). Slow for my feeling, I'm driving faster in Germany.

And use only round about 6 litres with a car of similar size, which is a bit faster than this Corolla – with this lazy slow driving I would use below 5 litres with my car (and get a lot of flashing).

So there is a difference in fuel economy. ALIMBIQUATED IGNORED 02/16/2021 at 5:55 pm

Jeff –
That was a little unclear on my part. I meant high gasoline prices haven't gotten people to buy, EVs, but direct subsidies seem to work.

It's also worth mentioning that $120 oil didn't really dent consumption much, and certainly didn't inspire many to buy EVs.

In my opinion liquid fuel is cheap. I mean I think that consumers aren't willing to make significant changes in behavior even if prices increase significantly. S IGNORED 02/17/2021 at 3:05 am

Alimbiquated, as an European in a well-to-do country, the matter of car buying is somewhat more complicated than just gasoline price. E.g. fully electric car availibily, their price, distances that need to be travelled (range anxiety in other words) are still important. Hybrid cars are also rather expensive. Here it seems that these two car groups are selling better and better, public charging points are increasing etc so we will see what happens. As I have a full electric car I got relatively cheaply (still a bit of ouch ) I think I will not get a petroleum or diesel car ever J HOUSMAN IGNORED 02/18/2021 at 4:08 pm

"The green agenda of wind, solar and EV's is only cost competitive with fossil fuels in two way" Three ways, actually. The third is when we finally start to realize the actual cost of destroying the environment by burning fossil fuels REPLY MATT MUSHALIK IGNORED 02/15/2021 at 10:01 pm

Global crude oil may have peaked 2018-19 before Covid

https://pbs.twimg.com/media/EsHyv1FVQAIDRAd?format=jpg

If ever we come out of the Covid tunnel, there could be surprises ahead REPLY POLLUX IGNORED 02/15/2021 at 5:30 am

Strike threatens shutdown at Norway's giant Johan Sverdrup offshore oilfield

A dozen workers that are members of the Safe union are threatening to down tools at the Mongstad terminal from midnight on Monday if talks with the industry body aimed at breaking an impasse over a 2020 wage settlement with Equinor fail.

Other fields that could be impacted include Kvitebjorn, Visund, Byrding, Fram and Valemon, with gas output exports from the Troll area also in danger of being hit. REPLY MATT MUSHALIK IGNORED 02/15/2021 at 8:05 am

With an excursion to Gabon and Azerbaijan

15/2/2021
Exxon-Mobil's refinery closure in Australia: peak oil context
https://crudeoilpeak.info/exxon-mobils-refinery-closure-in-australia-peak-oil-context REPLY TULSAGEO IGNORED 02/15/2021 at 9:37 am

An interesting scenario showing what happens when demand outstrips supply due to lack of investment is playing out right now in Oklahoma and Texas. There has been a lack of investment in the region last year due to the drop in prices, and in Oklahoma, the slowing of investment has been happening for a few years. The massive cold snap that descended on the region made spot prices (not the futures price you can look up on Bloomberg etc) rise from $2 an MMBTU, to $5, to $9, to $300, to $600, all in the course of a week. It is currently higher. The cold weather has caused shut ins of wells, and processing plants. You have a situation where demand is increasing but supply cannot keep up. I know this is a micro problem that will resolve itself as temperatures increase, in the coming weeks, but this could be an example of what oil prices might see in the near future. There has been a lack of investment for years in large projects, if demand rebounds quickly as vaccine roll out continues, we will not be able to turn back on new production fast enough to keep prices from running higher, resulting in some temporary ridiculous price spikes. REPLY SHALLOW SAND IGNORED 02/15/2021 at 10:31 am

I saw this resulted in a lot of wells that have been shut in for 5-10 years being reactivated. REPLY GREENBUB IGNORED 02/15/2021 at 8:25 pm

Shallow, are you affected by the cold snap or power outages? REPLY SHALLOW SAND IGNORED 02/16/2021 at 12:41 am

Yes. We have about 10% frozen off. Our pumpers decided what to drain and shut in, and what to keep on. They are real pros. You can't find better.

Our people are the key. We owe them bigtime. They have been out there in this stuff keeping the rest from freezing.

We will be good soon, temps will come up.

Keep in mind, with one exception, our pumpers are 50+ years old.

Are there millennials that are going to keep the strippers going 24/7/365?

Takes special people. REPLY STEPHEN HREN IGNORED 02/16/2021 at 4:33 pm

No. I work in construction biz. 90% of twenty somethings can't work five minutes without looking at their phones. They are useless. All my buddies have the same complaint. REPLY OVI IGNORED 02/15/2021 at 9:49 pm

An interesting clip from this article:
"This isn't a consensus view yet but it's quickly coming. Two heavyweights in the past week have stepped up and called out the problem.

The first was Goldman Sach's Jeff Currie, who called the bull market in the early 2000s.

"I want to be long oil and hang on for the ride," Currie said in an interview with S&P Global Platts on Feb. 5, warning "there is a lot of upside here."

"Is it back to $150/b? I don't know as it is a macro repricing we are talking about and everything needs to reprice."

The other is JPMorgan and Marko Kolanovic, who said Friday that oil and commodities appear to be entering a supercycle.

"We believe that the new commodity upswing, and in particular oil up cycle, has started," the JPMorgan analysts said in their note. "The tide on yields and inflation is turning."

"We believe that the last supercycle peaked in 2008 (after 12 years of expansion), bottomed in 2020 (after a 12-year contraction) and that we likely entered an upswing phase of a new commodity supercycle."

https://www.forexlive.com/news/!/what-an-incredible-turnaround-for-oil-prices-20210215 REPLY RON PATTERSON IGNORED 02/16/2021 at 2:31 pm

WTI hit $60 today. How come high oil prices seem to be doing nothing for the shale business.

Anyone? Anyone? Bueller? Dennis? 😉

REPLY STEPHEN HREN IGNORED 02/16/2021 at 4:34 pm

They're too busy spending all their earnings REPLY OVI IGNORED 02/16/2021 at 6:45 pm

Drillers Trying New Pricing Structure

Shale driller bases rig lease costs on well performance

Rigs are typically rented out at a daily rate for a period of a few months, which has meant less money for oilfield service providers as drilling becomes quicker and more efficient. So Helmerich & Payne Inc. is touting a new pricing model based on overall well performance, and almost a third of its U.S. rigs are now being leased on that basis, CEO John Lindsay said Wednesday on an earnings call.

In the Permian Basin of West Texas and New Mexico, home to the busiest shale patch in North America, operators are now drilling the same number of wells with 180 rigs as they were with 300 rigs a year ago, according to industry data provider Lium.

https://www.worldoil.com/news/2021/2/16/shale-driller-bases-rig-lease-costs-on-well-performance REPLY RON PATTERSON IGNORED 02/16/2021 at 8:45 pm

Yeah okay. That's all great. But what I was looking at was oil production. It's going down, not up. With these prices oil production should be increasing, not decling. Why is that? After all, that's really all that matters.

[Feb 20, 2021] The USA is the only large oil producer which consumes more than it produces and the only one of the three that favors lower prices

Feb 20, 2021 | peakoilbarrel.com

SHALLOW SAND IGNORED 02/15/2021 at 8:49 am

There are a few factors at play IMO.

One factor is a change in one of the three large producer's policies. This large producer is also the only producer that consumes more than it produces and therefore the only one of the three that favors lower prices. I'm referring to USA, of course.

USA shale (and to a much lesser extent GOM) growth kept a lid on prices. Where would prices have been 2010-19 without USA adding 7 million BOPD?

USA growth doesn't appear to be headed toward adding 1 million BOPD or more per year in the future. USA companies are all being pressured to pay dividends. To cover dividends, USA companies need much higher prices. USA companies aren't forecasting growth like past years.

For the first time ever, the USA government is not making oil production growth, either domestic or foreign, a priority. I am not making a "political" statement here trying to rile up the left on the board. Just look at oil prices since the USA election on 11/3. Not a coincidence. Not likely USA will be intervening anytime soon in the ME to protect oil supplies. At least not in a big way.

I have no idea how high oil prices will go. I wonder what happens politically in USA with $3 gasoline? $4 ? Are high gasoline prices no longer a political liability? They weren't for Obama in 2012. But USA was drilling like crazy in 2012. Not sure what happens this time if that occurs, given clear desire of Biden Administration to discourage USA oil production growth.

Another factor is the Western European producers have told the market recently in a very straightforward manner that their oil production is past peak. The CEO's of both BP and RDS have stated this. Total is also transitioning away from oil. Equinor also, it changed its name to remove the word oil.

Next, even though total worldwide demand will still be below a record, demand growth from 2020 to 2021 worldwide will be big, much bigger than from 2009 to 2010 after GFC. What did prices do from the depths of GFC to 2011? Compare GFC stimulus to COVID stimulus.

Last, how many paper barrels are traded per physical barrel? With the increase in paper barrels (I would call them more accurately day trader barrels) volatility in the oil market has grown. The price went negative big time one day last April. It was purely a day trader phenomenon.

Just my thoughts. Feel free to disagree. REPLY HICKORY IGNORED 02/15/2021 at 11:28 am

Everyday you can find headlines that point to a huge transition underway in the world energy scene.
For example today-
-Exclusive: Equinor considers more US asset sales in global strategy revamp, and
-Ford bets $29B on leading the 'electric vehicle revolution'

There is a huge scramble underway to adapt to the conditions these big companies now see coming to be over this decade.
In the meantime, I think that oil demand growth will be very strong over the next 18-24 months.
And as the price of gas in the USA goes up in this rebound phase, the great difference in travel cost/mile between plug-in vehicles (like a Ford mustang) and ICE vehicles will become a widely known fact. Ford (and the other manufacturers) all know that now, even if they were slow on the uptake.

This world is going to change rapidly this decade in so many ways. REPLY ALIMBIQUATED IGNORED 02/15/2021 at 11:34 am

I think a general feeling of optimism that there is light at the end of the Covid 19 tunnel is helping as well. REPLY SURVIVALIST IGNORED 02/15/2021 at 12:23 pm

" For the first time ever, the USA government is not making oil production growth, either domestic or foreign, a priority."

Great observation. I recall when GWB2 went to KSA to 'kiss the ring' and ask for more oil production. I wonder how it will play out next time. REPLY HICKORY IGNORED 02/15/2021 at 12:33 pm

"" For the first time ever, the USA government is not making oil production growth, either domestic or foreign, a priority."

Of much greater impact- For the first time ever, the major oil companies are not making oil production growth, either domestic or foreign, a priority. REPLY SHALLOW SAND IGNORED 02/15/2021 at 1:11 pm

Both are happening simultaneously.

Both are making a big impact. REPLY SHALLOW SAND IGNORED 02/15/2021 at 1:12 pm

Trump jumped on KSA when oil prices went up during his admin.

Will Biden? REPLY PAOIL IGNORED 02/15/2021 at 1:57 pm

The Biden administration is under pressure to see oil prices rise. The green agenda of wind, solar and EV's is only cost competitive with fossil fuels in two ways: 1) green subsidies; or 2) higher oil prices. Until high oil prices threaten the economy, the Biden administration will enact policies that gladly see oil prices rise. And with the oil price experience of 2009 to 2014 still relatively fresh in people's minds, the Biden administration is not afraid of $60, $70, or even $90 oil. They are hoping for it. REPLY HICKORY IGNORED 02/15/2021 at 2:13 pm

"$60, $70, or even $90 oil. They are hoping for it."
As are the people working in the oil industry. REPLY STEPHEN HREN IGNORED 02/15/2021 at 4:59 pm

As far as anyone on this board is considered, the higher the price of oil the better. Let's phase out oil production in the US over the next three decades and keep the price high the entire time so the producers make money and people are incentivized to switch to less polluting EVs. It'll be like the TRC for the whole country but heading towards a bottleneck. Auction drilling rights so only the best wells get drilled. Keep restricting drilling in a phased manner, enact a gradually lower cap on the number of wells that can be drilled until it goes to zero in twenty years and then maintain these stripper wells until they are empty. REPLY PAULO IGNORED 02/15/2021 at 6:33 pm

Can you imagine any US party that would actually dare to promote a higher cost for gasoline? Personally, I think there should be a big carbon tax and fuel tax surcharge imposed to fix infrastructure, but whatever.

Confession: I am not anti oil. My son works in the Cdn industry. I just think people drive more than they should and that energy should be priced higher. Win win. LLOYD IGNORED 02/16/2021 at 3:55 pm

So $90 oil is good for:
-Saudi
-Democrats
-Shallow
-Tesla
-Renewables

But not for:
-Rednecks with huge vehicles

The election calculus gets tricky here. REPLY ALIMBIQUATED IGNORED 02/16/2021 at 4:09 am

PAOIL-
I disagree that high oil prices are needed to make green energy competitive, because oil is already very expensive energy, which is why it is rarely used to generate electricity. Wind and solar compete against coal, nuclear and gas, not oil.

Oil shines as a way to store energy in a moving vehicle and power internal combustion engines. As such, it really competes with batteries, not with the rest of the energy market at all. And batteries still have a tiny impact on oil markets.

So higher oil prices might be useful for the EVs, but not particularly useful for wind and solar. But in reality, the EV market is suffering from chronic battery shortages as manufacturers struggle to build factories fast enough to meet 20% or more annual demand growth. The oil price really isn't an issue, and raising oil prices wouldn't help.

If Biden's goal was to make EVs more competitive, the government has an easy way to raise oil prices, which is to raise taxes at the pump. This would be more or less neutral to the oil price from the producer point of view. It would just encourage exports and discourage imports, improving America's balance of payments. But it hasn't worked in Europe, where taxes are over 60% of the price at the pump. The most effective way to promote EVs is subsidizing the purchase price of the vehicle. That has been very effective.

Hoping that the American consumer will keep oil demand up internationally no longer makes sense, as America's relative economic importance has been falling since 1945. I'm not sure what the previous administration was trying to accomplish by talking down the price. REPLY JEFF IGNORED 02/16/2021 at 5:13 am

"But it hasn't worked in Europe, where taxes are over 60% of the price at the pump. "

So average fuel economy in Europe and US is the same? REPLY EULENSPIEGEL IGNORED 02/16/2021 at 8:47 am

I have driven a Toyota Corolla on an 4 week US trip.

With an engine for the US market – you can't buy this modell in Europe. It was very steady going – and thirsty. At least for european thinking, we used 7-8 litres / 100 km by mostly driving country roads in cruise control at the given speed (didn't wanted to deal with US police). Slow for my feeling, I'm driving faster in Germany.

And use only round about 6 litres with a car of similar size, which is a bit faster than this Corolla – with this lazy slow driving I would use below 5 litres with my car (and get a lot of flashing).

So there is a difference in fuel economy. ALIMBIQUATED IGNORED 02/16/2021 at 5:55 pm

Jeff –
That was a little unclear on my part. I meant high gasoline prices haven't gotten people to buy, EVs, but direct subsidies seem to work.

It's also worth mentioning that $120 oil didn't really dent consumption much, and certainly didn't inspire many to buy EVs.

In my opinion liquid fuel is cheap. I mean I think that consumers aren't willing to make significant changes in behavior even if prices increase significantly. S IGNORED 02/17/2021 at 3:05 am

Alimbiquated, as an European in a well-to-do country, the matter of car buying is somewhat more complicated than just gasoline price. E.g. fully electric car availibily, their price, distances that need to be travelled (range anxiety in other words) are still important. Hybrid cars are also rather expensive. Here it seems that these two car groups are selling better and better, public charging points are increasing etc so we will see what happens. As I have a full electric car I got relatively cheaply (still a bit of ouch ) I think I will not get a petroleum or diesel car ever J HOUSMAN IGNORED 02/18/2021 at 4:08 pm

"The green agenda of wind, solar and EV's is only cost competitive with fossil fuels in two way" Three ways, actually. The third is when we finally start to realize the actual cost of destroying the environment by burning fossil fuels REPLY MATT MUSHALIK IGNORED 02/15/2021 at 10:01 pm

Global crude oil may have peaked 2018-19 before Covid

https://pbs.twimg.com/media/EsHyv1FVQAIDRAd?format=jpg

If ever we come out of the Covid tunnel, there could be surprises ahead REPLY POLLUX IGNORED 02/15/2021 at 5:30 am

Strike threatens shutdown at Norway's giant Johan Sverdrup offshore oilfield

A dozen workers that are members of the Safe union are threatening to down tools at the Mongstad terminal from midnight on Monday if talks with the industry body aimed at breaking an impasse over a 2020 wage settlement with Equinor fail.

Other fields that could be impacted include Kvitebjorn, Visund, Byrding, Fram and Valemon, with gas output exports from the Troll area also in danger of being hit. REPLY MATT MUSHALIK IGNORED 02/15/2021 at 8:05 am

With an excursion to Gabon and Azerbaijan

15/2/2021
Exxon-Mobil's refinery closure in Australia: peak oil context
https://crudeoilpeak.info/exxon-mobils-refinery-closure-in-australia-peak-oil-context REPLY TULSAGEO IGNORED 02/15/2021 at 9:37 am

An interesting scenario showing what happens when demand outstrips supply due to lack of investment is playing out right now in Oklahoma and Texas. There has been a lack of investment in the region last year due to the drop in prices, and in Oklahoma, the slowing of investment has been happening for a few years. The massive cold snap that descended on the region made spot prices (not the futures price you can look up on Bloomberg etc) rise from $2 an MMBTU, to $5, to $9, to $300, to $600, all in the course of a week. It is currently higher. The cold weather has caused shut ins of wells, and processing plants. You have a situation where demand is increasing but supply cannot keep up. I know this is a micro problem that will resolve itself as temperatures increase, in the coming weeks, but this could be an example of what oil prices might see in the near future. There has been a lack of investment for years in large projects, if demand rebounds quickly as vaccine roll out continues, we will not be able to turn back on new production fast enough to keep prices from running higher, resulting in some temporary ridiculous price spikes. REPLY SHALLOW SAND IGNORED 02/15/2021 at 10:31 am

I saw this resulted in a lot of wells that have been shut in for 5-10 years being reactivated. REPLY GREENBUB IGNORED 02/15/2021 at 8:25 pm

Shallow, are you affected by the cold snap or power outages? REPLY SHALLOW SAND IGNORED 02/16/2021 at 12:41 am

Yes. We have about 10% frozen off. Our pumpers decided what to drain and shut in, and what to keep on. They are real pros. You can't find better.

Our people are the key. We owe them bigtime. They have been out there in this stuff keeping the rest from freezing.

We will be good soon, temps will come up.

Keep in mind, with one exception, our pumpers are 50+ years old.

Are there millennials that are going to keep the strippers going 24/7/365?

Takes special people. REPLY STEPHEN HREN IGNORED 02/16/2021 at 4:33 pm

No. I work in construction biz. 90% of twenty somethings can't work five minutes without looking at their phones. They are useless. All my buddies have the same complaint. REPLY OVI IGNORED 02/15/2021 at 9:49 pm

An interesting clip from this article:
"This isn't a consensus view yet but it's quickly coming. Two heavyweights in the past week have stepped up and called out the problem.

The first was Goldman Sach's Jeff Currie, who called the bull market in the early 2000s.

"I want to be long oil and hang on for the ride," Currie said in an interview with S&P Global Platts on Feb. 5, warning "there is a lot of upside here."

"Is it back to $150/b? I don't know as it is a macro repricing we are talking about and everything needs to reprice."

The other is JPMorgan and Marko Kolanovic, who said Friday that oil and commodities appear to be entering a supercycle.

"We believe that the new commodity upswing, and in particular oil up cycle, has started," the JPMorgan analysts said in their note. "The tide on yields and inflation is turning."

"We believe that the last supercycle peaked in 2008 (after 12 years of expansion), bottomed in 2020 (after a 12-year contraction) and that we likely entered an upswing phase of a new commodity supercycle."

https://www.forexlive.com/news/!/what-an-incredible-turnaround-for-oil-prices-20210215 REPLY RON PATTERSON IGNORED 02/16/2021 at 2:31 pm

WTI hit $60 today. How come high oil prices seem to be doing nothing for the shale business.

Anyone? Anyone? Bueller? Dennis? 😉

REPLY STEPHEN HREN IGNORED 02/16/2021 at 4:34 pm

They're too busy spending all their earnings REPLY OVI IGNORED 02/16/2021 at 6:45 pm

Drillers Trying New Pricing Structure

Shale driller bases rig lease costs on well performance

Rigs are typically rented out at a daily rate for a period of a few months, which has meant less money for oilfield service providers as drilling becomes quicker and more efficient. So Helmerich & Payne Inc. is touting a new pricing model based on overall well performance, and almost a third of its U.S. rigs are now being leased on that basis, CEO John Lindsay said Wednesday on an earnings call.

In the Permian Basin of West Texas and New Mexico, home to the busiest shale patch in North America, operators are now drilling the same number of wells with 180 rigs as they were with 300 rigs a year ago, according to industry data provider Lium.

https://www.worldoil.com/news/2021/2/16/shale-driller-bases-rig-lease-costs-on-well-performance REPLY RON PATTERSON IGNORED 02/16/2021 at 8:45 pm

Yeah okay. That's all great. But what I was looking at was oil production. It's going down, not up. With these prices oil production should be increasing, not decling. Why is that? After all, that's really all that matters.

[Feb 20, 2021] Did the USA eneterd that stage of permanet decline of oil production?

Feb 20, 2021 | peakoilbarrel.com

OVI IGNORED 02/16/2021 at 10:19 pm

Good to hear from you Ron.

In ShaleProfile published today, the Permian is showing a slight bump up in production. It may have hit bottom. The latest STEO is showing US production dropping till June and July before beginning to increase. Looks like many more LTO wells have to be put on line before the decline from all of the current wells can be offset. OVI IGNORED 02/16/2021 at 6:36 pm

U.S. oil output plunges as Arctic air freezes Permian shale fields

(Bloomberg) –U.S. oil production has plunged by more than 2 million barrels a day as the coldest weather in 30 years brings havoc to key producing states that rarely have to deal with frigid Arctic blasts.

Oil traders and company executives, who asked not to be identified, lifted their forecasts for supply losses from an earlier estimate on Monday of 1.5 million to 1.7 million barrels. They said the losses were particularly large in the Permian Basin, the most prolific U.S. oil region, which straddles West Texas and southeast New Mexico. Output cuts were also significant in the Eagle Ford, in southern Texas, and the Anadarko basin in Oklahoma.

Two million barrels would be the equivalent of about 18% of overall U.S. crude production, based on the most recent government data.

Wonder if this drop will show up as a drop in US inventories on Feb 24. While production is down, so is driving.

https://www.worldoil.com/news/2021/2/16/us-oil-output-plunges-as-arctic-air-freezes-permian-shale-fields WATCHER IGNORED 02/17/2021 at 2:30 am

Reminder back in the day in the Bakken they had to equip their onsite huge storage of fracking water with heaters, because NoDak is cold. One suspects the Permian is not equipped with that and widespread frozen pipe damage can be expected. HOLE IN HEAD IGNORED 02/18/2021 at 8:31 am

From the Blog of Mike Shellman , TSHTF in Texas . He says about 3.5 million barrels will go off line and for how long don't know .
https://www.oilystuffblog.com/single-post/update-from-texas?postId=602d1a9d98be8f0017126cd1 HHH IGNORED 02/18/2021 at 10:28 pm

There is a lot of reasons to be bullish on oil at the moment. There is one problem lurking over next 4-5 months though. Treasury will shrink the TGA by about 1 trillion USD. Most assume this will be bullish for most things other than the dollar. But as this cash gets pushed into the economy/markets. Banks are forced to hold more collateral, mainly T bills. Short end of treasury yield curve is without a doubt going negative as banks have to have collateral to except all this cash. Likely another collateral shortage in the making (repo blowup) Fed would likely have to cut QE purchases to get yields back into positive territory. Which is no different than hiking interest rates on an economy with a massive debt load that can't handle higher rates.

Most of the US government debt is on short end of the curve. Therefore most of the debt will have a negative yield. This would likely end the reflation narrative/ inflation narrative we currently have. It's likely dollar bullish because the collateral underpinning everything just went negative yield. And if it turns out to be highly dollar bearish. Well lookout oil prices would be well beyond the moon.

[Feb 20, 2021] Russia Oil Output Below OPEC+ Quota

Feb 20, 2021 | peakoilbarrel.com

POLLUX IGNORED 02/17/2021 at 1:39 pm

Russia Oil Output Below OPEC+ Quota Amid Cold Siberian Weather
The OPEC+ member pumped 1.38 million tons a day of crude and condensate on average from Feb. 1 to 15, according to two people with knowledge of production data, who spoke on condition of anonymity. That equates to a daily rate of 10.115 million barrels, about 44,000 barrels lower than January's level.

Rosneft oil production to decline as it parts with legacy assets
Russia's Rosneft is braced for a decline in oil production this year despite a gradual removal of output restrictions that have been imposed on the company by the Kremlin under its commitments to members of the Opec+ alliance.

Speaking on a conference call on Friday, Rosneft first vice president Eric Liron said the oil giant expects annual output of oil and condensate to fall by 5% in 2021.

In 2020, Rosneft reported an 11% annual decline in oil and condensate production to 4.1 million barrels per day and a 6% drop in gas output to 63 billion cubic metres.

[Feb 10, 2021] Hedge funds bet on oil's 'big comeback' after pandemic hobbles producers By Reuters

Feb 10, 2021 | www.investing.com

By Maiya Keidan and Rod Nickel

TORONTO (Reuters) - Hedge funds are turning bullish on oil once again, betting the pandemic and investors' environmental focus has severely damaged companies' ability to ramp up production.

Such limitations on supply would push prices to multi-year highs and keep them there for two years or more, several hedge funds said.

The view is a reversal for hedge funds, which shorted the oil sector in the lead-up to global shutdowns, landing energy focused hedge funds gains of 26.8% in 2020, according to data from eVestment. By virtue of their fast-moving strategies, hedge funds are quick to spot new trends.

... Tawil predicted prices of $70 to $80 a barrel for Brent by the end of 2021 and is investing long independent oil and gas producers.

... ... ...

Global crude and condensate production was down 8% in December from February 2020, prior to the pandemic's spread accelerating, according to Rystad Energy.

North America's output was down 9.5% and Europe's production declined just 1% over the same time period.

U.S. sanctions against Venezuela and declining oilfields in Mexico have kept oil output from Latin America sluggish.

DarthSlack Ars Praefectus et Subscriptor REPLY FEB 8, 2021 2:57 PM Jamjen831 wrote: peachpuff wrote: Barcode scanners and flashlight apps... who installs these? Phones come with these features already baked in.

I assume some of it is just old stuff people just re-download without thinking. Android hasn't always had a built in flashlight app (and am I crazy in that the early ones required root?). And I'm pretty sure that's the same with QR readers. I hadn't realized that Google Lens was a QR scanner until fairly recently.

Count me in that boat. I just checked my phone and sure enough, Barcode Scanner was there. I'm guessing it's from 3-4 phones ago and just came along for the ride as Play autoloaded my apps on the new phones because I haven't used it in ages and ages. daggar Ars Tribunus Militum REPLY FEB 8, 2021 2:57 PM

Jamjen831 wrote: peachpuff wrote: Barcode scanners and flashlight apps... who installs these? Phones come with these features already baked in.

I assume some of it is just old stuff people just re-download without thinking. Android hasn't always had a built in flashlight app (and am I crazy in that the early ones required root?). And I'm pretty sure that's the same with QR readers. I hadn't realized that Google Lens was a QR scanner until fairly recently.

It's more likely that it's stuff that gets re-downloaded without user interaction. When you set up a new Android, the phone will often re-download all the apps from the old phone. Unless you're going through to curate those apps, your 2021 new phone might be getting something that's gone through a succession of auto-downloads since the mid 2010's. everythingallatonce Smack-Fu Master, in training REPLY FEB 8, 2021 2:57 PM

peachpuff wrote: Barcode scanners and flashlight apps... who installs these? Phones come with these features already baked in.
I can't really speak for the barcode scanner, but given that a lot of Android phones are incapable of being updated there is a decent chance a lot of people with much older phones actually have to install a flashlight app.

Google really needs to do something regarding the malware problem. I'm not going to pretend to know the answer, but for a company that made $15.23 billion in earnings last quarter and owns Project Zero you'd think they'd be able to protect a platform they have complete control over. Jamjen831 Ars Scholae Palatinae et Subscriptor REPLY FEB 8, 2021 3:02 PM Dr.Bananas wrote: peachpuff wrote: Barcode scanners and flashlight apps... who installs these? Phones come with these features already baked in.
Not all phones. I haven't had an Android phone with a stock barcode scanner ever. Samsung Galaxy Ace, Galaxy Nexus, Moto G, Nexus 5X, Nokia 3 and my current Sony XZ2 Compact all came without one. It should be part of the default camera app, but sadly that's not always the case.

As mentioned above, Google Lens is the defacto QR Scanner (it's part of the camera app). Do those phones have Lens? I've been on Nexus\Pixel for a long time so not too sure how Google has pushed that. Xavin Ars Legatus Legionis et Subscriptor REPLY FEB 8, 2021 3:03 PM

marsilies wrote: So I use an app called "Barcode Scanner" that's not the malware app. However, the recent reviews blast it for adware, which I haven't noticed. I think having the exact same name has caused some people to post negative reviews on the wrong app:
https://play.google.com/store/apps/deta ... nt.android
That's correct, it's clean, people are just confused by the same names. The one with the malware was always a sad copy of the ZXing Team one you linked.

Jamjen831 wrote: show nested quotes

As mentioned above, Google Lens is the defacto QR Scanner (it's part of the camera app). Do those phones have Lens? I've been on Nexus\Pixel for a long time so not too sure how Google has pushed that.
You need an internet connection for Lens to scan barcodes. Batmanuel Ars Tribunus Militum REPLY FEB 8, 2021 3:12 PM Ancan wrote: I've got a Galaxy S8+ and if there's a built in barcode scanner I must admit I haven't found out in the years I've had it.

It's built into Bixby Vision. Jeff S Ars Praefectus et Subscriptor REPLY FEB 8, 2021 3:16 PM

CrookedKnight wrote: show nested quotes

And how many users know they can use an app called "Lens" to scan barcodes?

Does Lens give you technical info about the type of a barcode (aka the Symbology)? Granted, most people don't have a need to know or care, but I have a job doing work with retail POS equipment, including hand and flatbed scanners. For my job, it's SUPER helpful sometimes to have a barcode scanner app that can tell me what type of barcode is being scanned - because sometimes scanners will scan all the barcodes, *except* this one type of barcode, and then I gotta find out what kind of barcode it is, so that I can enable that symbology for the scanner in question (or provide instructions to my customers on how they enable it for their POS).

Or, I can scan the barcode to get the underlying text in the barcode, to compare with our app's logs, to make sure it's scanning correctly (e.g. not getting truncated or anything like that).

That's why I have ZXing Team barcode scanner on my phone and recommend it to co-workers.

  1. AreWeThereYeti Ars Praefectus et Subscriptor REPLY FEB 8, 2021 3:16 PM Jamjen831 wrote: show nested quotes

    I assume some of it is just old stuff people just re-download without thinking. Android hasn't always had a built in flashlight app (and am I crazy in that the early ones required root?). And I'm pretty sure that's the same with QR readers. I hadn't realized that Google Lens was a QR scanner until fairly recently.

    It isn't just old people, as you admitted yourself practically everyone doesn't understand all the things their apps can do, especially when that changes over time. A big part of that problem is the appalling fact that most apps, even the most widely used and professionally developed, have basically no documentation, and no way of finding out what their features actually are.

    Developers have this fantasy in their heads that they don't document the programs because it's really hard to keep the documentation in-sync with a changing app, but the real reason is just a pervasive problem in development culture caused by the race to get things onto the market, and the convenient lie that developers tell themselves that their apps are "self documenting", as if everyone has the time or desire to play "app scientist" and experiment with the app endlessly to find out all its hidden, unobvious features.

    @dmccarty: Yeah, the "update or not" decision is tricky for apps. What I do, is turn off update only for apps that I have no desire for updates too and which shouldn't be doing any internet activity or only activity to a defined, trusted spot. Any other kind of app, especially ones that might be subjected to varying network input from undefined sources, gets updates. Up +21 ( +22 / -1 ) Down 3906 posts | registered 9/15/2009

  2. MikeSafari Wise, Aged Ars Veteran REPLY FEB 8, 2021 3:17 PM peachpuff wrote: Barcode scanners and flashlight apps... who installs these? Phones come with these features already baked in.

    I unfortunately didn't have a choice. I bought a Nokia 6.1 a couple of years ago and installed the official Google Camera app, which has a built-in barcode/QR code reader, but when Nokia pushed the Android 10 update, it broke the camera app completely. And Nokia's default camera app does *not* read barcodes or QR codes for some reason. So to read them, I had to install a third-party app.

    Not super thrilled anyway, but thankfully it was not this one.

marsilies Ars Praefectus et Subscriptor REPLY FEB 8, 2021 3:20 PM Jamjen831 wrote: show nested quotes

As mentioned above, Google Lens is the defacto QR Scanner (it's part of the camera app). Do those phones have Lens? I've been on Nexus\Pixel for a long time so not too sure how Google has pushed that.
Lens looks like it was initially exclusive to the Pixel 2, and slowly expanded until it became its own Android app in June 2018:
https://en.wikipedia.org/wiki/Google_Lens

So all the phones listed peachpuff came without it, and you'd probably have to have an Android phone released in the last 2 1/2 years to even have it pre-installed.

Then, as others have noted, one would have to know that Lens can scan barcodes, and if you have had Android phones for a while, the initial setup and migration may install their old barcode scanner app anyway.

[Feb 10, 2021] Short summary of Saudi Arabia

Feb 10, 2021 | peakoilbarrel.com

POLLUX IGNORED 02/09/2021 at 6:03 am

Short summary of Saudi Arabia

The economy is in bad shape:

"Saudi Arabia projected its 2020 budget deficit will soar to around $79 billion,
Riyadh has posted a budget deficit every year since the last oil price rout in 2014, prompting the petro-state to borrow heavily and draw from its reserves to plug the shortfall."
https://www.france24.com/en/live-news/20201215-saudi-says-2020-budget-deficit-will-surge-to-79-bn-amid-pandemic

Oil rig count is falling fast:

https://pbs.twimg.com/media/EsmaAwkXEAg91D7?format=jpg&name=large

Saudi crude stocks fell to 143 mb in November 2020 (17-year low) from over 300 mb in 2015:

https://www.hellenicshippingnews.com/rising-saudi-crude-exports-leaves-domestic-stocks-at-17-year-low/

The few drilling rigs is (probably) located in Ghawar:

"Further work programs on fields such as Khursaniyah, and legacy assets like Khurais and Abqaiq that need workovers and rehabilitation, are being delayed, the source said, whereas at Aramco's low-cost giant fields such as Ghawar -- the world's largest -- production is increasing.

"There isn't a place in Ghawar that doesn't have a drill, it is very dense. They're beating the hell out of it.""

and contractors are not being paid in time:

"Aramco's tighter spending has resulted in several international contractor companies working on pipeline and offshore projects not getting paid for several months, three sources told S&P Global Platts. The payments are set to be delayed further, with Aramco not intending to make any payments to these companies until 2021, a source added."
https://www.hellenicshippingnews.com/feature-saudi-aramco-faces-tough-2021-as-rivals-race-for-oil-capacity/

Oil production was cut by 1 mb/d this month and is currently just over 8 mb/d, not far from Euan Mearns forecast in 2007:
http://theoildrum.com/node/9321#comment-904645

Population has grown from 20 million in 2000 to 35 million in 2021:
https://www.worldometers.info/world-population/saudi-arabia-population/

Groundwater is falling fast:

"Groundwater resources of Saudi Arabia are being depleted at a very fast rate," declared the UN Food and Agriculture Organisation as far back as 2008. "Most water withdrawn comes from fossil deep aquifers, and some predictions suggest that these resources may not last more than about 25 years." Saudi Arabia leads the world in the volume of desalinated water it produces, and now operates 31 desalination plants. Desalinated water, as distinct from naturally occurring fresh water, makes up 50% of water consumed in Saudi Arabia. The remaining 50% is pulled from groundwater."
https://www.theguardian.com/cities/2019/aug/06/oil-built-saudi-arabia-will-a-lack-of-water-destroy-it

So, what is done to solve the problem?

"According to Bin Salman, who is also the chairman of the Neom company board of directors, construction of The Line will start in the first quarter of 2021.
The 100-mile-long (170 kilometres) mega-city will consist of connected communities – which it calls "city modules" – and link the Red Sea coast with the north-west of Saudi Arabia.
In a statement, The Line's developers said its communities will be "cognitive" and powered by AI, which will "continuously be learning predictive ways to make life easier"."
https://www.dezeen.com/2021/01/13/line-saudi-arabia-170-kilometres-long-city-neom/

What could possibly go wrong? REPLY HOLE IN HEAD IGNORED 02/09/2021 at 6:54 am

Pollux , thanks for the info and update . What could possibly go wrong ? Answer 1 ;: More days for some princes to spend at the Ritz Carlton . Answer 2 ; Heads roll for MBS and company . :-0 REPLY POLLUX IGNORED 02/09/2021 at 7:51 am

The situation is not better in Kuwait:

Economy is in bad shape:

"Source says government has transferred the last of its performing assets to wealth fund in exchange for cash.
Years of lower oil prices have forced the Kuwaiti government to burn through its cash reserves while a festering political standoff has prevented it from borrowing.
"It's a very immediate crisis now, not a long-term one like it was before," said Nawaf Alabduljader, a business management professor at Kuwait University."
https://www.arabianbusiness.com/politics-economics/458217-kuwait-facing-immediate-crisis-as-it-seeks-cash-to-plug-deficit

And oil projects are getting canceled:

"KOC's Board of Directors has decided to cancel the heavy crude project that involves 11 oil wells although it has been awarded recently," the report said without naming the company that had won that contract.
It said KOC and other local oil firms intend to freeze more projects in line with instructions by the Kuwait Petroleum Corporation to slash capital expenditure "
https://www.hellenicshippingnews.com/projects-kuwait-scraps-400mln-oil-project-report/

REPLY HOLE IN HEAD IGNORED 02/09/2021 at 8:06 am

Pollux , do you have any info on Ghawar ? As they say " As goes Ghawar ,so goes the world " . REPLY POLLUX IGNORED 02/09/2021 at 8:28 am

True, or as Matthew Simmons wrote in "Twilight in the Desert": "Ghawar is the king of Saudi oilfields. There is no "crown prince" waiting to assume the throne. It is the same in an oil basin as it is in chess: Once the king has fallen, the game is over."

Sorry, no new info on Ghawar but the situation was pretty bad in north Ghawar over twelve years ago so it is probably not better now: "If the area with remaining oil were an island, it would be time to look for a boat."
http://satelliteoerthedesert.blogspot.com/2008/06/north-ghawar-updated.html REPLY HOLE IN HEAD IGNORED 02/09/2021 at 1:35 pm

Just a query for some old TOD carry overs . There use to be "Memmel" who use to post a lot on KSA and stuff . Any info on him . Tks Pollux for your response . We are in agreement . REPLY WEEKENDPEAK IGNORED 02/09/2021 at 4:44 pm

I loved that post on TOD on Ghawar by Joules.

Has anyone ever done an update on it – that would be fascinating. When I look at google earth I see lots of dots but I can't tell injection wells from extraction wells so I have frankly no clue what I am looking at REPLY OVI IGNORED 02/09/2021 at 5:15 pm

HH

The latest data that was published on Ghawar came from the Aramco IPO. They included a table which listed their primary oil fields along with their production. The following statement was included:

The Ghawar field has accounted for more than half of the total cumulative crude oil production in the Kingdom but still maintained MSC of 3.800 million barrels of crude oil per day as at 31 December 2018.

In a presentation given by Nawaf Obaid in Nov 2006, the following statement was made: Without "maintain potential" drilling to make up for production, Saudi oil fields would have a natural decline rate of a hypothetical 8%. As Saudi Aramco has an extensive drilling program with a budget running in the billions of dollars, this decline is mitigated to a number close to 2%.

This raises the question of whether with today's reduced income, can Aramco maintain its extensive drilling program to reduce the natural decline rate to 2%.

REPLY JEAN-FRANÇOIS FLEURY IGNORED 02/09/2021 at 6:47 pm

Thank you for the analysis. That's very important to know for European oil supply. Do you consider to do the same with Norvegian production?

[Feb 02, 2021] Drilled Uncompleted Wells Won't Save U.S. Oil Production by Art Berman

Notable quotes:
"... U.S. oil production has fallen more than 2 million barrels per day since March 2020. It will fall much lower. ..."
"... EIA's forecast is impossible. It does not account for the low level of drilling and for the high decline rates of U.S. wells. It seems more likely that production will drop by at least another million barrels per day below October's level later in 2021. ..."
Feb 02, 2021 | www.artberman.com

U.S. oil production has fallen more than 2 million barrels per day since March 2020. It will fall much lower.

Output has fallen from almost 13 mmb/d in late 2019 to below 10.5 mmb/d in October 2020 (Figure 1). EIA forecasts an increase in November to 11.0 mmb/d and then an average level of about 11.1 mmb/d for the rest of 2021.

... ... ...

EIA Forecast is Impossible

EIA's forecast is impossible. It does not account for the low level of drilling and for the high decline rates of U.S. wells. It seems more likely that production will drop by at least another million barrels per day below October's level later in 2021.

... ... ...

What About DUCs?

Many reasonably expect that DUCs (drilled uncompleted wells) provide a solution to the lag between drilling and production. There are, after all, about 5,800 DUCs in the main U.S. tight oil plays. These are already drilled and could be converted into producing wells for the cost of completion which is about half the total well cost.

Most DUCs, however, are uncompleted for a reason namely, that their owners don't believe that their performance will be as good as wells that they chose to complete instead.

... It doesn't matter whether wells are newly drilled and completed or DUCs -- there are simply too few wells being added to maintain present levels of production.

... ... ...

It is unlikely that the tight oil business will recover from the effect of Covid-19 and lower oil prices. Markets will continue to send higher price signals until rig counts recover to the 800 or so rigs needed to support EIA's 11 mmb/d forecast.

The public and many investors have the peculiar belief that the world will be just fine without oil. The world will be fine. It has survived meteor impacts and mass extinctions but humans are more fragile. Higher oil prices are the last thing the global economy needs right now.

Javier JANUARY 17, 2021 AT 11:56 AM REPLY

Art, I couldn't agree more. Commodities are rising and oil price is set to rise, in the midst of a global economic crisis. A perfect storm is brewing and no amount of money printing can fix that. If things take a turn for the worst the economic crisis could be followed by a monetary crisis. Energy per capita and standard of living are going down for the majority no matter what.

That could easily add a social crisis whose first signs we are all seeing. Peter Turchin predicted the increase in social instability 10 years ago in Nature Vol 46, 4 February 2010, pg 608.

The pandemic was just a catalyst for what was already brewing. We are living in interesting times.

[Feb 02, 2021] The natural decline rate of Ghawar was 8% per annum but continuous drilling reduced that to 2%.

Notable quotes:
"... "There isn't a place in Ghawar that doesn't have a drill, it is very dense. They're beating the hell out of it." ..."
"... Around 2005, speculation was that Ghawar was producing somewhere between 5 Mb/d and 5.5 Mb/d. To get to 3.8 Mb/d by 2018, implies a roughly 2% annual decline rate. This turns out to be consistent with what some SA spokesperson said around 2005. Something along the lines of "The natural decline rate of Ghawar was 8% per annum but continuous drilling reduced that to 2%." ..."
Feb 02, 2021 | peakoilbarrel.com

POLLUX 01/20/2021 at 8:32 am

https://www.spglobal.com/platts/en/market-insights/latest-news/oil/012021-feature-saudi-aramco-faces-tough-2021-as-rivals-race-for-oil-capacity

Further work programs on fields such as Khursaniyah, and legacy assets like Khurais and Abqaiq that need workovers and rehabilitation, are being delayed, the source said, whereas at Aramco's low-cost giant fields such as Ghawar -- the world's largest -- production is increasing.

"There isn't a place in Ghawar that doesn't have a drill, it is very dense. They're beating the hell out of it."

OVI 01/20/2021 at 4:53 pm

Pollux,

When Saudi Aramco went public, this statement was in their IPO.

"The Company believes that the Ghawar field is the largest oil field in the world in terms of conventional proved reserves, totaling 58.32 billion barrels of oil equivalent as at 31 December 2018 for the Concession term, including 48.25 billion barrels of liquids reserves.

The Kingdom's original reserves of the Ghawar field increased from 19.0 billion barrels of crude oil in 1951G, when production began at the field, to 127.7 billion barrels of crude oil in 2018.

The Ghawar field has accounted for more than half of the total cumulative crude oil production in the Kingdom but still maintained MSC of 3.800 million barrels of crude oil per day as at 31 December 2018."

Around 2005, speculation was that Ghawar was producing somewhere between 5 Mb/d and 5.5 Mb/d. To get to 3.8 Mb/d by 2018, implies a roughly 2% annual decline rate. This turns out to be consistent with what some SA spokesperson said around 2005. Something along the lines of "The natural decline rate of Ghawar was 8% per annum but continuous drilling reduced that to 2%."

[Jan 27, 2021] PACE decided to pass a non-binding resolution of more sanctions against Russia for the Navalny fiasco while Frau Merkel (and her likely successor) remains clear that Nord Stream II must be finished

Jan 27, 2021 | consortiumnews.com

Jeff Harrison , January 26, 2021 at 02:13

Incisive and grim. As Mr. Putin observed, Presidents come and go but the policy stays the same. But wait! I think there's more

WRT Iran. Iran recently announced that their sales of oil had increased substantially, without, of course identifying how much or with whom. If they are doing these transactions in national currencies, there's nothing other than piracy that the US can do, making the US more dependent on our vassals to carry our water here. But

In other news, the EU has decided to stop supporting Guido. If some of the OAS vassals get the idea that they, too, can stand on at least their two knees, maybe Mr. Maduro can get a bit more of a break. The US is sure to be wroth.

PACE decided to pass a non-binding resolution of more sanctions against Russia for the Navalny fiasco while Frau Merkel (and her likely successor) remains clear that Nord Stream II must be finished. The German FM pointed out that they could face serious court battles since the Pipeline consortium which includes other EU countries has all the permits they require.

The results are in aaaaannnnnddd – thanx to Covid, for the first time in history China had more Direct Foreign Investment (DFI) than the US. The US better hope that doesn't keep up ..

[Jan 26, 2021] When guys like Michael Saylor put a half a billion into bitcoin they have done their homework. Seems to me a scam is an operation containing a lot of lies

Jan 26, 2021 | www.moonofalabama.org

uncle tungsten , Jan 26 2021 1:11 utc | 172

c1ue #118
I actually talked about this with Kuppy last week.

He considers HFT a problem but not crippling; he says they cost him $10K to $25K a day but apparently this isn't enough to deter his hedge fund activities. He said that up to 70% of trading volume activity in any stock is HFT (!).
As for scam: well - the value of the front running exists only so long as the herd is in the market. Every single market crash - whether bitcoin or the stock market or whatever - sees the vast majority of players exit (or bankrupt). At that point, the trading volumes and numbers of people participating plummet dramatically.
How valuable do you think RH's model is then?

Sounds to me that HFT is a scam in itself. Am I to believe that algorithms trading against each other repetitively at high speed is anything other than machine driven gambling on one algorithm's interpretation of the behaviour of another algorithm, mostly outside of the human buy and sell in the market place. Are the humans just strapped on for the ride through a cabal of trading companies?


psychohistorian , Jan 26 2021 1:29 utc | 173

@ uncle t # 168 who wrote
"
I was looking back at some earlier reports to gain an insight into the means by which the USA gave the game away and the means that might restore its place in the economic world. It has allowed itself to be completely captive to global private finance AND ownership of the keys to its salvation. If it does not nationalize its key industries then it can rest assured of its doom.
"

I continue to posit that the key industry that needs to be "nationalized/made totally sovereign" is finance. If humanity can follow China's lead, the motivations in the other industries will revert to doing what is right, rather than what is profitable.


In regards to your HFT comment in # 172, you have calling HFT a scam correct. It is programmed/manufactured theft under the guise of AI.

Thanks for your comments.

uncle tungsten , Jan 26 2021 1:32 utc | 174
arby #110
When guys like Michael Saylor put a half a billion into bitcoin they have done their homework. Seems to me a scam is an operation containing a lot of lies. I don't see how bitcoin falls into that category.

As far as a Ponzi scheme I also do not see the connection. It is nothing like a Ponzi. There are no promises of big returns or large dividends.


When people follow 'guys like Michael Saylor [and see him] put a half a billion into bitcoin they [think] have done their homework [and follow like fish chasing a lure] THEN they have been sucked into a ponzi scheme where the lure is a fast buck if they follow the (smart?) leader. Then the smart leader progressively sells out at a sweet peak and the chumps watch it dip for a month or two. Unless of course there are lots of paid journalists and bloggers and facebook praise singers pumping the lure of the endless profit of bitcoin.

Sounds like rumours of gold in them thar hills.

There are a large number of lies (or exaggeration?) in bitcoin and all spun within a sheath of mystery and complexity and even 'mining' to smear some credible lipstick on the scheme.

There is a sucker born every minute and they invest in BS and love a veneer of mystique and bitcoin falls squarely into the category of lies and scams and fancy imaginings and the lure that suckers are forever chasing. Yes, people buy and sell and some make a profit - same as any ponzi scheme.

While the BS is pumped the ponzi is inflated.

[Jan 26, 2021] USA domestic petroleum liquids production is scheduled to drop to 5 million bbl / day by july.

Jan 26, 2021 | www.moonofalabama.org