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When do you write the obituary for a zombie? When you determine that he has no heartbeat or brain activity? Shoot, he’s just getting started. (No, I mean it. Shoot!) A limb or two has rotted and fallen off? He’s still going. That’s America’s oil industry today. No signs of life and still going.
That’s why I stopped writing obituaries for the American oil industry four years ago. It was not that I changed my mind, or doubted for a moment that the industry was on the verge of collapse; nor was I convinced by the cacophony of liars proclaiming a new era of American energy independence and domination of the global oil industry. It was and remains a colossal lie, gallons of lipstick applied to the rotting carcass of a pig, and yet the pig is still widely regarded as healthy and beautiful.
A brief reality check is in order.
Contrary to what you read in every mainstream publication and hear from every lamebrain politician and see on television every day, America is NOT, repeat NOT a net exporter of oil. This is not a matter of opinion. In order to be true, the sentence has to be completed: America is, barely, for exactly one month so far, a net exporter of oil and oil products. By adding together the smidgeon of fracked oil we export (because it’s too volatile for many of our refineries to process) with the refined fuels and liquids we sell overseas, we get to call ourselves a net exporter. But most of those refined products are made from imported crude. And it is still true that every day we burn three million barrels of oil more than we get out of American ground.
Another thing the cheerleaders for the New American Oil Revolution manage to keep out of sight and out of your mind is the fact that since the fracking “boom” began a decade ago, nobody has made any money at it. Fracking wells are many times more expensive to set up and operate than a conventional well, and play out in three years instead of the usual 20 years or more. Chesapeake Energy, the big dog in the fracking patch, has since 2008 lost 98 percent of its stock value and racked up $10 billion in debt. The average fracking company has obliterated 80% of its value in ten years. Yet this zombie company, and industry, continues to lurch ahead by convincing lenders to lend and investors to invest in its dead hulk.
I believe that it is unearned money that has kept this show on the road — money stacked up in the accounts of the super rich and turned over to wealth managers and hedge funds with orders to make it grow. So they shovel the money at anyone who promises a 20% return and they don’t bother with the fine print. How else can you explain Uber, Lyft, WeWork, and the many other multi-billion dollar companies that have never made a nickel in profit?
Must I re-state Lewis’s First Law of Consumption? “If you have some stuff, and you use some of it every day, one day you won’t have any more stuff.” Like the Theory of Relativity, that Law applies to everything, including oil and money. And the zombie industry appears to be running out of working parts;
- Chesapeake Energy has notified its creditors that it will not be able to make some upcoming payments on its debt, and is, according to OilPrice. com, “on the brink of collapse;
- Since 2015, 200 oil and gas fracking companies have gone bankrupt, 32 of them so far this year;
- When capital expenditures were taken into account — that is, the insanely high cost of replacing wells that play out in 36 months — 95% of American fracking companies had negative cash flow in the first quarter of this year. In other words, business as usual.
- The number of oil and gas rigs operating in the US has declined by 274 in the past year, and has declined in 13 of the past 15 weeks;
- The market value of the entire US energy sector is down 9% so far this year and is less than the market value of Apple, Inc.
Yet there the zombie goes, lurching along with his head under his one remaining arm, muttering about energy independence and world domination. So I guess we can’t run the obituary yet.
There must still be–so I think–some energy return for this industry. The Hills Group, for what it’s worth, thinks that time is soon to end, but some disagree:
https://www.resilience.org/stories/2017-03-01/debunking-hills-group-analysis-future-oil-industry/
But where are we on the road to oil being useless? If it’s anytime in the next 20 years (or longer, I suspect), we’re doomed, I tell ya.
As I see it the problem with predicting this stuff is twofold.
>Oil’s usefulness is contingent on factors other than pure EROEI.
>EROEI itself varies across the board especially since the definition of “oil” has become more inclusive over time.
What can be asserted confidently is that new discoveries minus the zombie fracking boom are close to nil since 14-15. Once the big legacy players start faltering, there is no going back. I’m betting on the mid 20s.
Part of the US industry’s problem:
OPEC nations grapple with oversupply of oil
The world may be heading for an even greater oversupply of oil, and that possibility is hanging over members of the OPEC cartel as they head into negotiations Thursday
https://abcnews.go.com/Business/wireStory/opec-nations-grapple-oversupply-oil-67485052
Aaaaaand – they decide to cut output. Good news for US producers. And the wheel goes ’round and ’round…
https://www.ft.com/content/f53804ba-1832-11ea-9ee4-11f260415385
There is something else going here . . . and I don’t know what it is, but I will hazard a guess.
The investors that are keeping the fracking enterprises alive may have, typically, the upstanding moral character of a Bangladesh pimp. However, they are not stupid.
The strategic goals of the US state are furthered by the large increase in US oil production brought about by the huge increase in the use of hydraulic fracturing to recover oil from low quality deposits. As any good detective knows, you have to understand the motivation to understand the crime . . .
Global Debt up $12 trillion this year. The total at the end of this year to be $255 trillion +-, circa 330% of Global GDP. You and the rest of the 7.7 billion of your fellow men each on the hook for $32,500.00.
Dow Jones Industrials up +10% for the year and non QE qe stimulus underway to salvage the repo side of the market.
The bright side of course is that we are experiencing the longest period of market expansion in the history of the U.S.
add $275 billion into the equation (cost of intervention in Syria)to the pile of debt from the fracking fields and then calculate the EROEI.
“This report examines the oil and gas industry’s expansion plans over the next five years, from 2020 to 2024. It finds the sector plans to invest USD 1.4 trillion into new extraction projects. This would lock in 148 gigatonnes of cumulative carbon dioxide emissions, equivalent to 1200 new US coal-fired power plants. The report reveals 85 percent of the expanded production is slated to come from the United States and Canada over that period. The other countries where the largest expansion is planned are Argentina, China, Norway, Australia, Mexico, UK, Brazil, Nigeria.”
http://ggon.org/OilGasClimate2019/
Tom. Drilling has declined 25% in the last year as you say, but production continues to rise. This is due to the backlog of DUC’s (drilled, uncompleted wells). As the backlog is consumed, without a renewed increase in drilling, production is likely to peak in 2021. This could be the absolute, all time peak. With economic prosperity tied to oil production, it will be interesting to see the impact of declining production on the economy.
If I had nickel for every time I heard on TV that the United States was now an oil exporter or had become, energy independent, I would be a rich man.
Ok, maybe not a rich man, I don’t watch enough TV for that, but it would definitely require the purchase of a couple of extra piggy banks!
Put it this way, I don’t foresee the US military dismantling their middle-East base structure anytime soon, thanks to the “permanent nature” of the fracking boom.