AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (11 comments)

  1. The EIA is currently forecasting a 14% increase in US oil output in 2013 (following last year’s 13.7% gain), with an additional gain of 8.2% next year in 2014….

    Is this the same EIA that had conventional depletion rates at 3.5% only to be forced to admit that the real figure was closer to 6.7%? The predictions of the EIA is about as accurate as those of Congress when it estimates future revenues and expenditures. I would rather look at the financials of the producers and see if the price at which marginal fields are unprofitable. In the case of shale, the producers need much higher gas and oil prices to be able to keep adding to their ample debt and be able to support their negative cash flows.

    What we are seeing is nothing new. There has always been the hope of some Ellis Wyatt type who could squeeze out useful oil out of rock at a low price. But no matter how much self-promoters like Aubrey McClendon tried to pretend to be like him, Mr. Wyatt has remained a fictional character and the dream has remained elusive. What you are doing is confusing production increases driven by capital destruction with wealth creation. They are not the same and when the accountants apply the proper depreciation costs to the process we will find that shale oil was not much better than shale gas.

    Of course, some people want to believe and promoters and charlatans will try to give them a nice story to facilitate that belief. And when the dream turns to a nightmare everyone will pretend that we could not have seen the bubble coming or argue that without fraud they never would have been fooled even though all of the accounting tricks and assumptions were clearly disclosed on the financial statements filed with the SEC.

  2. RE: “the US now produces almost 60% of the oil required to fuel the US economy, and relied on foreign sources last year for less than 41% of the oil consumed.”

    Does that reduction in percentage oil consumed from foreign sources have much to do with an overall reduction in consumption in this country?

    1. US oil production increased 13.7% in 2012 and total petroleum decreased by 3.5% last year.

    2. <b?Does that reduction in percentage oil consumed from foreign sources have much to do with an overall reduction in consumption in this country?

      Yes, it does. Thanks to the contraction in real activity the US now uses around 12-13% less oil than it did in 2005. When you look at that decrease in demand and add the increase due to all of that new ‘investment’ in shale wells that do not seem to be self financing and you can see why the reporting is what it is. And will understand why so many supposedly intelligent people have a blind spot to obvious bubbles.

      http://gailtheactuary.files.wordpress.com/2012/04/recent-us-oil-consumption.png

      1. Gail the Actuary is a complete nut. She is a Peak-Oil lunatic to such an extreme that she insists that the world of 2040 will be so poor that car ownership will be rare.

        Here is a systematic takedown of ‘Gail the Actuary’ from early 2008, long before the Shale Gale.

        1. Gail the Actuary is a complete nut. She is a Peak-Oil lunatic to such an extreme that she insists that the world of 2040 will be so poor that car ownership will be rare.

          Since when is the Peak-Oil theory lunacy?

          And given what the Fed and Congress are doing to the USD I think that the prediction that most Americans will have much lower purchasing power is a good one.

          And what exactly is the problem with the chart cited? Do you think that demand has actually gone up since 2005-2006? None of the numbers that I have looked at show anything different. Demand in the US fell off as the real economy slowed down. The real economy is still slowing and as the bond bubble bursts and interest rates head higher it is hard to make a case for good times for American savers.

    3. Does that reduction in percentage oil consumed from foreign sources have much to do with an overall reduction in consumption in this country?

      Yes, it does. Thanks to the contraction in real activity the US now uses around 12-13% less oil than it did in 2005. When you look at that decrease in demand and add the increase due to all of that new ‘investment’ in shale wells that do not seem to be self financing and you can see why the reporting is what it is. And will understand why so many supposedly intelligent people have a blind spot to obvious bubbles.

      http://gailtheactuary.files.wordpress.com/2012/04/recent-us-oil-consumption.png

  3. MacDaddyWatch

    I enjoy charts. Especially those charts that depict the inevitable demise of the phony, hoax-based, taxpayer supported, windmill and solar industries.

    Uneconomic, unreliable, inefficient and forever requiring taxpayer supports and bailouts means that today’s “renewable alternatives” will forever remain just that–alternatives.

    R.I.P. Green.

  4. While oil production is roaring ahead infrastructure is lagging seriously behind. Imagine the day when our socialist programs could be supported by exporting these resources. How about some pipelines or how about an export LNG terminal. Other countries are paying 4 to 5 times our production cost for natural gas. Even with shipping expenses there is still a healthy profit.
    The need for importing cleaner low sulfur feed stock like Brent or BLCO will continue as the demand for clean burning fuel will not disappear.

    1. While oil production is roaring ahead infrastructure is lagging seriously behind. Imagine the day when our socialist programs could be supported by exporting these resources.

      You mean by socialist planning that creates infrastructure that cannot be justified?

      How about some pipelines or how about an export LNG terminal.

      How about them? The Bakken is very close to a peak. That means that any pipelines will outlive gas production and will have to be written down a lot faster than anticipated. And there is no way to support LNG terminals with shale gas production because it is far too expensive.

      Other countries are paying 4 to 5 times our production cost for natural gas. Even with shipping expenses there is still a healthy profit.

      Yes they are. But LNG terminals that have a ten year useful life will add a huge amount to the costs. So will the infrastructure that will outlive its usefulness. That is why exporting LNG will never happen unless your own demand collapses as your real economy contracts sharply.

      The need for importing cleaner low sulfur feed stock like Brent or BLCO will continue as the demand for clean burning fuel will not disappear.

      But the North Sea production is well past its peak. If you want Bent you have to line up with the other bidders. With real rates negative you will either get a collapse in the economy or a spike in oil prices. Either way the shale producers are screwed because their costs will not support the prices that they can get for their product.

  5. What is your take on the national hydraulic fracturing “fracking” issue going on right now? Does your findings account for this?

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