Category Archives: Energy

Party On, Dudes, by James Howard Kunstler

Most of the shale and fracking miracle has been based on borrowed money. It may become a lot less miraculous if interest rates keep rising. From James Howard Kunstler at Kunstler.com:

As of this week, the shale oil miracle launched US oil production above the 1970 previous-all-time record at just over ten million barrels a day. Techno-rapturists are celebrating what seems to be a blindingly bright new golden age of energy greatness. Independent oil analyst Art Berman, who made the podcast rounds the last two weeks, put it in more reality-accessible terms: “Shale is a retirement party for the oil industry.”

It was an impressive stunt and it had everything to do with the reality-optional world of bizarro finance that emerged from the wreckage of the 2008 Great Financial Crisis. In fact, a look the chart below shows how exactly the rise of shale oil production took off after that milestone year of the long emergency. Around that time, US oil production had sunk below five million barrels a day, and since we were burning through around twenty million barrels a day, the rest had to be imported.

Chart by Steve St. Angelo at http://www.srsroccoreport.com

In June of 2008, US crude hit $144-a-barrel, a figure so harsh that it crippled economic activity — since just about everything we do depends on oil for making, enabling, and transporting stuff. The price and supply of oil became so problematic after the year 2000 that the US had to desperately engineer a work-around to keep this hyper-complex society operating. The “solution” was debt. If you can’t afford to run your society, then try borrowing from the future to keep your mojo working.

The shale oil industry was a prime beneficiary of this new hyper-debt regime. The orgy of borrowing was primed by Federal Reserve “creation” of trillions of dollars of “capital” out of thin air (QE: Quantitative Easing), along with supernaturally low interest rates on the borrowed money (ZIRP: Zero Interest Rate Policy). The oil companies were desperate in 2008. They were, after all, in the business of producing… oil! (Duh….) — even if a giant company like BP pretended for a while that its initials stood for “Beyond Petroleum.”

To continue reading: Party On, Dudes

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Pipeline Wars: Realpolitik meets Geography, by Tom Luongo

A pipeline the US champions to deliver gas to Europe from a non-Russian source makes no economic sense for Europeans. From Tom Luongo at tomluongo.me:

The headlines are ablaze this month with news from all over about new pipeline projects coming into Europe.  Never one to miss an opportunity to do the U.S. State Department’s bidding in how it presents pipeline politics, Oilprice.com published a howler of a piece about the Southern Gas Corridor.

Titled, “Is This the World’s Most Critical Pipeline?” the piece is pure marketing fluff designed to make you think that Azerbaijani gas will change the face of European gas politics.

The beginning is the most telling, “Europe wants to become less dependent on Russian gas and use more clean energy…” This is a lie.

Europe doesn’t want this as a continent, the leaders of the European Union who are aligned with the United States who view Russia as the enemy want to become less dependent on Russian gas.

Most of Europe wants Russia to supply them with natural gas because it is 1) cheap and 2) plentiful.  For geopolitical reasons the U.S. doesn’t want an ascendant Russia.  The EU technocracy agrees because a strong Russia owning more than 40% of European gas sales is a Russia that can’t be destabilized through currency and proxy wars.

Southern Gas Boondoggle

The Southern Gas Corridor is a nearly 4000km (2500 mile) gas pipeline project to bring Caspian Sea natural gas into southern Europe.  It is slated, when completed with all the side projects tying into it, between 60 and 120 billion cubic meters of gas annually (bcma) starting with an unknown amount from Azerbaijan in 2019.

That number comes from an announcement in the Financial Times circa 2008.  A better number for it is closer to just 16 bcma.

It’s estimated cost at the time of negotiation was over $41 billion.  Today, it’s $45 billion with corruption and graft likely to take that number higher.  This is the very definition of a solution in search of a problem.  It is nothing more than a $45 billion bribe to both the U.S.-favorable regime in Azerbaijan and BP who is sitting on the major Shah Deniz gas deposit with out a market to sell it to.

The U.S has been using EU countries hostile to Russia, namely the Baltics and Poland, to delay or scuttle new Russian gas projects into Europe; projects that countries like Italy, Greece and Bulgaria are screaming for.

To continue reading: Pipeline Wars: Realpolitik meets Geography

The Value Of Bitcoin Isn’t what most people think it is, by Chris Martenson

What is cryptocurrency worth? Good question. Chris Martenson tries to look at the question logically. From Martenson at peakprosperity.com:

So… in the past week, I’ve been asked for advice on Bitcoin by my brother-in-law, my local realtor, and close friends from as far away as Texas.

None of them cared to learn what it actually is. Or how it works. They just wanted to understand why suddenly so many folks they know are trying to buy Bitcoin hand over fist. And, of course, should they buy in now, too?

If you (or people you care about) have similar questions, this report is for you.

A Brave New World

Remember the scene from the movie Avatar, where the main character first explores the alien world of Pandora? I found that scene astonishing and beautiful. He’s encountering an entirely new and completely foreign ecosystem.  Every element is fascinating and wondrous, even the dangerous elements — yet it all still follows understandable rules.

Everything is involved in either gathering sunlight or eating something else that had. Every niche is filled. Every organism has its own strategy: some light up, some fly, some run, some crawl. As entirely alien as everything is, if you understand the basics of how organisms filled their niches on Earth, you have a great starting point for understanding of the rules of life on Pandora.

Similarly, a great way to begin to understand the new world opened up by Bitcoin (and the other cryptocurrencies) is to realize that it’s an ecosystem that, at its heart, maps neatly into the universe you already understand. A few examples: payments, identity, contracts, verification, and record keeping (ledgers).

As with any ecosystem in nature, a new organism will survive and flourish if and only if it’s more efficient and effective than the prior model. For example, nothing has displaced sharks in the past 425 million years because they’re extremely efficient in their niche. To displace them, a new ocean predator would have to come along that does what they do faster, better, and (energetically) cheaper.

So the operative questions we need to keep in mind when looking at the brave new world of digital currencies are: What problem(s) are they solving?, and, Are their solutions faster, better, and/or cheaper?

To continue reading: The Value Of Bitcoin Isn’t what most people think it is

 

Russia’s Grip on European Natural Gas Markets Tightens, by Nick Cunningham

Europe remains dependent on Russia for much of its natural gas. From Nick Cunningham at oilprice.com via wolfstreet.com:

US LNG has been billed as a game changer, threatening to end Russia’s control of the European market.

Despite years of effort from the EU, Russia’s grip over natural gas supplies in Europe is tightening, not waning.

Gazprom shipped 190 billion cubic meters of natural gas to Europe in 2017—a record high, according to Bloomberg. In 2018, that figure is expected to dip slightly to 180 billion cubic meters, which will still be the second most on record.

The higher reliance on Russian gas may come as a surprise, not least because of the ongoing tension between Russia and some European countries on a variety of issues. Russia’s intervention in Ukraine and its annexation of Crimea in 2014 led to a standoff between Russia and the West—but Europe’s imports of Russian gas are up more than 25 percent since then, despite a lot of rhetoric in Brussels about diversification.

There has been some progress. U.S. LNG has begun arriving on European shores for the first time, promising to compete with Russian gas. Importing LNG has been a lifeline particularly in some areas that are acutely exposed to Russia’s gas grip. Lithuania began importing LNG, offering an alternative to Russian gas and forcing price concessions from Gazprom.

For years, U.S. LNG has been billed as somewhat of a game changer, threatening to end Russia’s control of the European market. There have been some notable concessions from Gazprom—more flexible pricing, for example, and an erosion of oil-indexed pricing—but the Russian gas giant has not lost market share. A lot of U.S. LNG has been shipped to Latin America, not Europe.

Part of the reason is that European natural gas production continues to fall, leaving a void that Russia has been eager to fill. At the same time, Gazprom’s Deputy Chief Executive Officer Alexander Medvedev told Bloomberg that coal prices are expected to rise a bit in 2018, making Russian gas more competitive.

To continue reading: Russia’s Grip on European Natural Gas Markets Tightens

 

The Petro-Yuan Bombshell and Its Relation to the New US Security Doctrine, by Pepe Escobar

Surprise, surprise, the countries the US’s latest National Security Strategy calls revisionist powers and rivals are moving away from the US dollar as a reserve currency. From Pepe Escobar at russia-insider.com:

The new 55-page “America First” National Security Strategy (NSS), drafted over the course of 2017, defines Russia and China as “revisionist” powers, “rivals,” and for all practical purposes strategic competitors of the United States.

 The NSS stops short of defining Russia and China as enemies, allowing for an “attempt to build a great partnership with those and other countries.” Still, Beijing qualified it as “reckless” and “irrational.” The Kremlin noted its “imperialist character” and “disregard for a multipolar world.” Iran, predictably, is described by the NSS as “the world’s most significant state sponsor of terrorism.” 

Russia, China and Iran happen to be the three key movers and shakers in the ongoing geopolitical and geo-economic process of Eurasia integration.

The NSS can certainly be regarded as a response to what happened at the BRICS summit in Xiamen last September. Then, Russian President Vladimir Putin insisted on “the BRIC countries’ concerns over the unfairness of the global financial and economic architecture which does not give due regard to the growing weight of the emerging economies,” and stressed the need to “overcome the excessive domination of a limited number of reserve currencies.”

Yes, this is photoshopped, but still very apt – the whole world is wondering what his next move will be …

That was a clear reference to the US dollar, which accounts for nearly two-thirds of total reserve currency around the world and remains the benchmark determining the price of energy and strategic raw materials.

And that brings us to the unnamed secret at the heart of the NSS; the Russia-China “threat” to the US dollar.

The CIPS/SWIFT face-off

The website of the China Foreign Exchange Trade System (CFETS) recently announcedthe establishment of a yuan-ruble payment system, hinting that similar systems regarding other currencies participating in the New Silk Roads, a.k.a. Belt and Road Initiative (BRI) will also be in place in the near future.    

Crucially, this is not about reducing currency risk; after all Russia and China have increasingly traded bilaterally in their own currencies since the 2014 US-imposed sanctions on Russia. This is about the implementation of a huge, new alternative reserve currency zone, bypassing the US dollar.

To continue reading: The Petro-Yuan Bombshell and Its Relation to the New US Security Doctrine

The Great Oil Swindle, by Chris Martenson

Supposedly declining break even costs for oil rigs often embody unrealistic assumptions about the amount of oil that will be produced from those rigs. From Chris Martenson at peakprosperity.com:

When it comes to the story we’re being told about America’s rosy oil prospects, we’re being swindled.

At its core, the swindle is this: The shale industry’s oil production forecasts are vastly overstated.

Swindle:  Noun  – A fraudulent scheme or action.

And the swindle is not just affecting the US.  It’s badly distorted everything from current geopolitics to future oil forecasts.

The false conclusions the world is drawing as a result of the self-deception and outright lies we’re being told is putting our future prosperity in major jeopardy. Policy makers and ordinary citizens alike have been misled, and everyone — everyone — is unprepared for the inevitable and massive coming oil price shock.

An Oil Price Spike Would Burst The ‘Everything Bubble’

Our thesis at Peak Prosperity is that the world’s equity and bond markets are enormous financial bubbles in search of a pin. Sadly, history shows there’s nothing quite as sharp and terminal to these sorts of bubbles as a rapid spike in the price of oil.

And we see a huge price spike on the way.

As a reminder, bubbles exist when asset prices rise beyond what incomes can sustain.  Greece is a prime recent example. In 2008 when the price of oil spiked to  $147/bbl, Greece could no longer afford imported oil. But oil is a necessity so it was bought anyway, their national balances of payments were stressed to the point that they were exposed as insolvent and then their debt bubble promptly and predictably popped.   The rest is history.  Greece is now a nation of ruins and their economy might as well be displayed alongside the Acropolis.

What happened to Greece will happen to any and every financially marginal oil-importing nation. As a reminder, the US still remains a net oil importer (more on that below).

Well, if you thought that world debt levels were dizzyingly high back at the beginning of the Great Recession in 2008, then you might want a fainting couch nearby before looking at this next chart:

(Source)

To continue reading: The Great Oil Swindle

She Said That? 12/3/17

From Eleanor Roosevelt (1884–1962), American politician, diplomat, activist, First Lady of the United States, and United States Delegate to the United Nations General Assembly:

It takes as much energy to wish as it does to plan