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James Stafford

James Stafford

James Stafford is the Editor of Oilprice.com

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The Real Cause Of Low Oil Prices: Interview With Arthur Berman

The Real Cause Of Low Oil Prices: Interview With Arthur Berman

With all the conspiracy theories surrounding OPEC’s November decision not cut production, is it really not just a case of simple economics? The U.S. shale boom has seen huge hype but the numbers speak for themselves and such overflowing optimism may have been unwarranted. When discussing harsh truths in energy, no sector is in greater need of a reality check than renewable energy.

In a third exclusive interview with James Stafford of Oilprice.com, energy expert Arthur Berman explores:

• How the oil price situation came about and what was really behind OPEC’s decision
• What the future really holds in store for U.S. shale
• Why the U.S. oil exports debate is nonsensical for many reasons
• What lessons can be learnt from the U.S. shale boom
• Why technology doesn’t have as much of an influence on oil prices as you might think
• How the global energy mix is likely to change but not in the way many might have hoped

OP: The Current Oil Situation - What is your assessment?

Arthur Berman: The current situation with oil price is really very simple. Demand is down because of a high price for too long. Supply is up because of U.S. shale oil and the return of Libya’s production. Decreased demand and increased supply equals low price.

As far as Saudi Arabia and its motives, that is very simple also. The Saudis are good at money and arithmetic. Faced with the painful choice of losing money maintaining current production at $60/barrel or taking 2 million barrels per day off the market and losing much more money—it’s an easy choice: take the path that is less painful. If there are secondary reasons like hurting U.S. tight oil producers or hurting Iran and Russia, that’s great, but it’s really just about the money.

Saudi Arabia met with Russia before the November OPEC meeting and proposed that if Russia cut production, Saudi Arabia would also cut and get Kuwait and the Emirates at least to cut with it. Russia said, “No,” so Saudi Arabia said, “Fine, maybe you will change your mind in six months.” I think that Russia and maybe Iran, Venezuela, Nigeria and Angola will change their minds by the next OPEC meeting in June.

We’ve seen several announcements by U.S. companies that they will spend less money drilling tight oil in the Bakken and Eagle Ford Shale Plays and in the Permian Basin in 2015. That’s great but it will take a while before we see decreased production. In fact, it is more likely that production will increase before it decreases. That’s because it takes time to finish the drilling that’s started, do less drilling in 2015 and finally see a drop in production. Eventually though, U.S. tight oil production will decrease. About that time—perhaps near the end of 2015—world oil prices will recover somewhat due to OPEC and Russian cuts after June and increased demand because of lower oil price. Then, U.S. companies will drill more in 2016.

OP: How do you see the shale landscape changing in the U.S. given the current oil price slump?

Arthur Berman: We’ve read a lot of silly articles since oil prices started falling about how U.S. shale plays can break-even at whatever the latest, lowest price of oil happens to be. Doesn’t anyone realize that the investment banks that do the research behind these articles have a vested interest in making people believe that the companies they’ve put billions of dollars into won’t go broke because prices have fallen? This is total propaganda.

We’ve done real work to determine the EUR (estimated ultimate recovery) of all the wells in the core of the Bakken Shale play, for example. It’s about 450,000 barrels of oil equivalent per well counting gas. When we take the costs and realized oil and gas prices that the companies involved provide to the Securities and Exchange Commission in their 10-Qs, we get a break-even WTI price of $80-85/barrel. Bakken economics are at least as good or better than the Eagle Ford and Permian so this is a fairly representative price range for break-even oil prices.

Related: Low Prices Lead To Layoffs In The Oil Patch

But smart people don’t invest in things that break-even. I mean, why should I take a risk to make no money on an energy company when I can invest in a variable annuity or a REIT that has almost no risk that will pay me a reasonable margin?

Oil prices need to be around $90 to attract investment capital. So, are companies OK at current oil prices? Hell no! They are dying at these prices. That’s the truth based on real data. The crap that we read that companies are fine at $60/barrel is just that. They get to those prices by excluding important costs like everything except drilling and completion. Why does anyone believe this stuff?

If you somehow don’t believe or understand EURs and 10-Qs, just get on Google Finance and look at third quarter financial data for the companies that say they are doing fine at low oil prices.

Continental Resources is the biggest player in the Bakken. Their free cash flow—cash from operating activities minus capital expenditures—was -$1.1 billion in the third- quarter of 2014. That means that they spent more than $1 billion more than they made. Their debt was 120% of equity. That means that if they sold everything they own, they couldn’t pay off all their debt. That was at $93 oil prices.

And they say that they will be fine at $60 oil prices? Are you kidding? People need to wake up and click on Google Finance to see that I am right. Capital costs, by the way, don’t begin to reflect all of their costs like overhead, debt service, taxes, or operating costs so the true situation is really a lot worse.

So, how do I see the shale landscape changing in the U.S. given the current oil price slump? It was pretty awful before the price slump so it can only get worse. The real question is “when will people stop giving these companies money?” When the drilling slows down and production drops—which won’t happen until at least mid-2016—we will see the truth about the U.S. shale plays. They only work at high oil prices. Period.

OP: What, if any, effect will low oil prices have on the US oil exports debate?

Arthur Berman: The debate about U.S. oil exports is silly. We produce about 8.5 million barrels of crude oil per day. We import about 6.5 million barrels of crude oil per day although we have been importing less every year. That starts to change in 2015 and after 2018 our imports will start to rise again according to EIA. The same thing is true about domestic production. In 2014, we will see the greatest annual rate of increase in production. In 2015, the rate of increase starts to slow down and production will decline after 2019 again according to EIA.

Why would we want to export oil when we will probably never import less than 37 or 38 percent (5.8 million barrels per day) of our consumption? For money, of course!

Remember, all of the calls for export began when oil prices were high. WTI was around $100/barrel from February through mid-August of this year. Brent was $6 or $7 higher. WTI was lower than Brent because the shale players had over-produced oil, like they did earlier with gas, and lowered the domestic price.

U.S. refineries can’t handle the light oil and condensate from the shale plays so it has to be blended with heavier imported crudes and exported as refined products. Domestic producers could make more money faster if they could just export the light oil without going to all of the trouble to blend and refine it.

This, by the way, is the heart of the Keystone XL pipeline debate. We’re not planning to use the oil domestically but will blend that heavy oil with condensate from shale plays, refine it and export petroleum products. Keystone is about feedstock.

Would exporting unrefined light oil and condensate be good for the country? There may be some net economic benefit but it doesn’t seem smart for us to run through our domestic supply as fast as possible just so that some oil companies can make more money.

OP: In global terms, what do you think developing producer nations can learn from the US shale boom?

Arthur Berman: The biggest take-away about the U.S. shale boom for other countries is that prices have to be high and stay high for the plays to work. Another important message is that drilling can never stop once it begins because decline rates are high. Finally, no matter how big the play is, only about 10-15% of it—the core or sweet spot—has any chance of being commercial. If you don’t know how to identify the core early on, the play will probably fail.

Not all shale plays work. Only marine shales that are known oil source rocks seem to work based on empirical evidence from U.S. plays. Source rock quality and source maturity are the next big filter. Total organic carbon (TOC) has to be at least 2% by weight in a fairly thick sequence of shale. Vitrinite reflectance (Ro) needs to be 1.1 or higher.

If your shale doesn’t meet these threshold criteria, it probably won’t be commercial. Even if it does meet them, it may not work. There is a lot more uncertainty about shale plays than most people think.

OP: Given technological advances in both the onshore and offshore sectors which greatly increase production, how likely is it that oil will stay below $80 for years to come?

Arthur Berman: First of all, I’m not sure that the premise of the question is correct. Who said that technology is responsible for increasing production? Higher price has led to drilling more wells. That has increased production. It’s true that many of these wells were drilled using advances in technology like horizontal drilling and hydraulic fracturing but these weren’t free. Has the unit cost of a barrel of oil gas gone down in recent years? No, it has gone up. That’s why the price of oil is such a big deal right now.

Domestic oil prices were below about $30/barrel until 2004 and companies made enough money to stay in business. WTI averaged about $97/barrel from 2011 until August of 2014. That’s when we saw the tight oil boom. I would say that technology followed price and that price was the driver. Now that prices are low, all the technology in the world won’t stop falling production.

Many people think that the resurgence of U.S. oil production shows that Peak Oil was wrong. Peak oil doesn’t mean that we are running out of oil. It simply means that once conventional oil production begins to decline, future supply will have to come from more difficult sources that will be more expensive or of lower quality or both. This means production from deep water, shale and heavy oil. It seems to me that Peak Oil predictions are right on track.

Technology will not reduce the break-even price of oil. The cost of technology requires high oil prices. The companies involved in these plays never stop singing the praises of their increasing efficiency through technology—this has been a constant litany since about 2007—but we never see those improvements reflected in their financial statements. I don’t doubt that the companies learn and get better at things like drilling time but other costs must be increasing to explain the continued negative cash flow and high debt of most of these companies.

The price of oil will recover. Opinions that it will remain low for a long time do not take into account that all producers need about $100/barrel. The big exporting nations need this price to balance their fiscal budgets. The deep-water, shale and heavy oil producers need $100 oil to make a small profit on their expensive projects. If oil price stays at $80 or lower, only conventional producers will be able to stay in business by ignoring the cost of social overhead to support their regimes. If this happens, global supply will fall and the price will increase above $80/barrel. Only a global economic collapse would permit low oil prices to persist for very long.

OP: How do you see the global energy mix changing in the coming decades? Have renewables made enough advances to properly compete with fossil fuels or is that still a long way off?

Arthur Berman: The global energy mix will move increasingly to natural gas and more slowly to renewable energy. Global conventional oil production peaked in 2005-2008. U.S. shale gas production will peak in the next 5 to 7 years but Russia, Iran, Qatar and Turkmenistan have sufficient conventional gas reserves to supply Europe and Asia for several decades. Huge discoveries have been made in the greater Indian Ocean region—Madagascar, offshore India, the Northwest Shelf of Australia and Papua New Guinea. These will provide the world with natural gas for several more decades. Other large finds have been made in the eastern Mediterranean.

There will be challenges as we move from an era of oil- to an era of gas-dominated energy supply. The most serious will be in the transport sector where we are thoroughly reliant on liquid fuels today —mostly gasoline and diesel. Part of the transformation will be electric transport using natural gas to generate the power. Increasingly, LNG will be a factor especially in regions that lack indigenous gas supply or where that supply will be depleted in the medium term and no alternative pipeline supply is available like in North America.

Related: Economic Inefficiency Means Low Oil Prices Are Here To Stay

Of course, natural gas and renewable energy go hand-in-hand. Since renewable energy—primarily solar and wind—are intermittent, natural gas backup or base-load is necessary. I think that extreme views on either side of the renewable energy issue will have to moderate. On the one hand, renewable advocates are unrealistic about how quickly and easily the world can get off of fossil fuels. On the other hand, fossil fuel advocates ignore the fact that government is already on board with renewables and that, despite the economic issues that they raise, renewables are going to move forward albeit at considerable cost.

Time is rarely considered adequately. Renewable energy accounts for a little more than 2% of U.S. total energy consumption. No matter how much people want to replace fossil fuel with renewable energy, we cannot go from 2% to 20% or 30% in less than a decade no matter how aggressively we support or even mandate its use. In order to get to 50% or more of primary energy supply from renewable sources it will take decades.

I appreciate the urgency felt by those concerned with climate change. I think, however, that those who advocate a more-or-less immediate abandonment of fossil fuels fail to understand how a rapid transition might affect the quality of life and the global economy. Much of the climate change debate has centered on who is to blame for the problem. Little attention has been given to what comes next namely, how will we make that change without extreme economic and social dislocation?

I am not a climate scientist and, therefore, do not get involved in the technical debate. I suggest, however, that those who advocate decisive action in the near term think seriously about how natural gas and nuclear power can make the change they seek more palatable.

The great opportunity for renewable energy lies in electricity storage technology. At present, we are stuck with intermittent power and little effort has gone into figuring out ways to store the energy that wind and solar sources produce when conditions are right. If we put enough capital into storage capability, that can change everything.

By James Stafford of Oilprice.com

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  • Lee James on January 04 2015 said:
    This interview pretty well covers our energy landscape, and covers it well. Thank you. I hope we can get our bearing and proceed without quite so much drama. National political divisiveness is fully reflected in the current debate. Although still in the "hope" stage, I hope electric vehicles and nuclear power will become a lot of the solution.
  • Dr. Rafiq Awal on January 04 2015 said:
    About the prospects of solar and wind combo disrupting fossil fuels, I wonder if Mr. Berman would like to comment on a recent article by Mr. Vivek Wadhwa.

    And it's difficult to see why Mr. Berman is negative about the impact of technology on reducing the cost of production. True, the combo horizontal well and multistage frac techniques are very expensive and need high oil and gas prices to be viable. But who says NEW technology cannot be developed, for extracting oil and gas at a tiny fraction of current frac and even drilling practices? Now that oil price has rendered the current technology unaffordable, it's time the industry invests in R&D to try cutting-edge technologies from lab to field. One such technology is the PLASMA FRACTURING TECHNOLOGY (developed at Texas Tech University in 2010).
  • Earl Richards on January 05 2015 said:
    Low gas and oil prices are good for business and good for the economy.
  • John Scior on January 05 2015 said:
    Very Nice Analysis, good insight on meeting between SA and other non-opec producers. The thing the Oil producers cannot control is demand. As The Euro-one once againheads to disasteras it is a confederation instead of a federation, you'll see the Euro weaken and correspondingly their ability to pay for oil diminish. This will equate to less demand from Europe. Also China is expanding its use of methanol which, utilizing technology ( I.E. Exxon-Mobil ) can be converted to gasoline. This allows China to utilize its coal reserves and be less dependent on importing petroleum. Also, I have read that Chevrolet is increasing its electric Vehicle Volt investment which means fuel economy and thus demand for oil will face a declining demand as well. ( Article : http://www.greencarreports.com/news/1096124_2016-chevrolet-volt-breaks-cover-at-ces-last-night-photos )Technology is making progress on alternative fuels and energy but the simple physics of Electricity mean that there is currently no economic means of storing vast amounts of electricity for homes and commercial use during night time or less windy periods. Ultimately Nevada would benefit by deploying vast solar arrays into areas of desert to produce electricity during the day and only use the hydraulic generating capacity of Hoover dam at night. It might also help them with their drought. Technology is making light bulbs more efficient and television sets consume less electricity so demand can go down from technological advances as well. The initial investment in fracking technology was high but now that the technology is proven,more and more areas of the world can adopt it to produce not only oil but gas as well. One thing to keep in mind is fracking brings forth natural gas along with it. Technology may be employed now that oil prices are low to bring electrical generators to areas where gas is being flared off so that drillers can get a return on otherwise wasted natural gas and bring this supply to the grid. Lastly, let it be heard here first that when the Federal reserve begins raising interest rates ( my estimate is sept 2015) you will begin to see a cease to money being reinvested in overseas markets and more being invested in the US. This should cause demand from emerging economies to shrink as the US economy expands at a rapid pace. Shrinking budget deficits and the end to quantitative easing means that the value of the dollar will increase and thus while the nominal price for a barrel of dollar is going down, the actual trade of dollar to unit of oil may remain equal as the dollar you obtain for your oil will go further in its ability to purchase other goods and services such as congressmen.
  • Don on January 05 2015 said:
    I don't understand the arithmetic re: Saudi Arabia. Currently they are producing 9,000,000 BPD at $60 BP.
    Resulting in a revenue of $540,000,000 daily.
    Should they cut production by 2,000,000 to 7,000,000 resulting in Brent going to $100 they have a daily revenue of $700,000,000 which is an increase of $160,000,000 per day or $4,800,000,000 monthly and the keep 2,000,000 BPD in the ground - 60,000,000 a month.
  • Ibrahim on January 05 2015 said:
    Mr. Berman seems to be an expert on Oil, but he's definitely no expert on understanding financial statements. He says "Their free cash flow—cash from operating activities minus capital expenditures—was -$1.1 billion in the third- quarter of 2014. That means that they spent more than $1 billion more than they made." Well the numbers are right, as everyone can check Google Finance, but the explanation is totally wrong. They DIDN'T LOSE MONEY on their business activities. It says, Cash from Operating Activities was $2.277 billion, that means they had $2.277 billion more cash inflow than cash outflow FROM BUSINESS ACTIVITIES in 3rd quarter. They earned money with producing and selling oil.
    Yes, Capital Expenditures was $3.355 billion, but Capex IS NOT COST! Capex is the money you are investing into ASSETS. So Capex is not representing spendings made within business activities. Cash Flow DOES, therefore it's published by public companies. And it's very normal to invest with money you lend, that's called leverage. And it's possible to invest more than you have earned, it's called credit. So, Mr. Berman shouldn't accuse anyone of making propaganda, while he hisself is bending the truth.
  • Tom Kitta on January 05 2015 said:
    Very well written article - well done analysis.

    I also think that the oil is going to go yo-yo once prices drop supply will drop - prices will go up and supply will go up.

    I wonder however how long can that last? Certainly next few years, but will it extend to a decade? Two decades?
  • Andrew Watson on January 05 2015 said:
    Capex...Capex.. Capital Expenditure. Capital that is expended. Goes out the door, is gone, swims with the fishes, is pining for the fjords. If I spend 3 dollars to make 2 then...I have to finance with long term debt on CLR and looky here the long term debts' up to 5.8 Billion now. Wanna make a bet on the terms and what oil price they're based on?

    The only question to me is whether the banks will look the other way when they start fudging the covenants or hang him out to dry. My money is on the former.
  • Terrance McGovern on January 06 2015 said:
    Excellent article. I agree with that the June OPEC meeting could have a major impact on supply and ultimately price expectations leading to a rebound to at least $80
  • phil jones on January 06 2015 said:
    Author states re Continental : Their debt was 120% of equity. That means that if they sold everything they own, they couldn’t pay off all their debt.

    According to 3rd q 10Q they had $14.7b assets and $9.9b debt so I'm confused.
  • umar on January 06 2015 said:
    "But smart people don’t invest in things that break-even. I mean, why should I take a risk to make no money on an energy company when I can invest in a variable annuity or a REIT that has almost no risk that will pay me a reasonable margin?"

    The above is one of the sillier things I have ever read. REITS and variable annuities have risk. How can anyone take the rest of the article seriously after such a flippant and uninformed remark.
  • Joseph Somsel on January 07 2015 said:
    Sorry, but energy storage buys renewable energy squat. Storage and retrival cost energy, typically about 25% of gross input. That jacks the price of the stored output by a third. Capital costs for storage are non-trivial which means that storage has to be regularly and fully cycled to amortize the capital cost of storage.

    All this means that electric storage economics strongly prefer a reliable, low cost power input source. Does that sound like ANY renewable energy source you know of?

    In historical fact, electric storage ("pumped storage") is always associated with a large coal or nuclear project. The technology of the storage still has similar economic factors.

    Ergo, you'd be stupid to build more storage and to depend on wind or solar to charge it. Better to build more nukes!
  • Laurence Hunt on January 08 2015 said:
    This is for Don: Saudi's math is simple. They take a loss now, and get back 9,000,000 BPD at $100/barrel when the high-cost competition has shut down operations, resulting in a revenue of $900,000,000 daily after the squeeze is completed. So much wealth will be destroyed in the shale fields that they will remain uninvestable for many, many years to come (there will actually be no capital left, as it will be destroyed). The Austrian economists call this malinvestment, a type of misdirected expenditure that vaporizes capital. This occurs, in turn, because economic "stimulus" encourages borrowing, leverage and debt, and creates booms which go bust, rather than growth. Booms look like growth, but they end like 2000 and 2008. The next bust is coming up. With a Federal Reserve balance sheet of $4.5 trillion, this could be the biggest bust ever.
  • Trip on January 08 2015 said:
    F D&C CAPEX in tight oil should be virtually treated as an expense outside of tax purposes. It's not like you're investing in tangible property that you're expecting to appreciate. You Drill that hole in the ground, that money isn't coming back, even if the well fails. A lot of firms will wax lyrical about operating cash flow and ignore the massive capex spent to get it, with payback periods going decades into the future if they're ever reached at all, and this is particularly important in a regime where you have 75% decline rates and greater. Berman is exactly right in using Free Cash Flow as THE metric, above EBITDA and whatever dressing and bull that operators try to sell their investors.
  • Rick Larson on January 09 2015 said:
    Humans can get along nicely on renewables, and can get along with sunshine exclusively without renewables as well.
  • Mehran Mikail on January 09 2015 said:
    While the supply and demand equations and the North American oil production have something to do with the drop in oil prices, but the current drastic drop is nothing but for political reasons. Saudi Arabia under orders from the western powers is increasing production to drop the price of oil to put pressure on Russia and Putin to leave Ukraine. Oil as a weapon has been used successfully before in the 80's and is well documented. Back then, Reagan and Saudi Arabia did the same thing and dropped th oil price to mid teens and that helped collapse the Soviet Union economy and resulted in the end of the cold war and the Berlin Wall collapse. With the current Ukraine crisis, the West does not have a military option so they are using the weapon of oil very effectively and it is apparently starting to work.

    Once Russia and Putin decide that they have had enough and under pressure from their own people have to leave Ukraine, oil prices will start shooting back up again. There is no other explanation for this sudden drop than politics.
  • Vivi on January 09 2015 said:
    As the German experience in these last few years has shown, any appreciable percentage of renewable energy sources on the grid (about 30% of German annual domestic electricity consumption - excluding the country's ever increasing net exports - came from renewables last year) cannot work well with baseload power plants, whether nuclear or lignite. Hydro and natural or biogas are okay, because they can lower their output quickly when the variable renewables are producing, but nuclear and lignite are far too slow to react, and especially nuclear plants can't run only on half or quarter power if only that much needed as residual backup for the renewables. (That's also the reason why France sells electricity cheaply to Germany in the summer, when they can't use all their 'always on' baseload nuclear power. But then the country has to buy German electricity at a higher price in the winter, when particularly cold spells can even cause brown outs in France (like in Jan/Feb 2012), since their nuclear fleet, while already too large for summer demand, is too small for the winter peaks.)
    When you've got both a lot of variable renewables and big, slow to ramp up or down baseload power plants on the grid, the result is extremely low or even negative spot prices on the power market, as has been happening in Germany with increasing frequency lately. It's gotten so bad in April to October last year, that most of the time the wholesale price wouldn't rise to the 4 Eurocents per kWh that fossil fuel power companies said they need to keep operating. Hence why the "Big Four" electricity providers either went into the red for the first time since WWII or are frantically trying to restructure their business model right now. The next baseload nuclear power plant sheduled to shut down this year actually decided to shut down several months earlier than the law says they have to, because refuelling just for those few last months doesn't make economic sense. Though that case is also because of new tax laws for nuclear plants, the baseload coal power plants are only running at about 60% of capacity anymore and their operators demand capacity payments to keep them running. It's even worse for natural gas plants, which are running only about 20% of the time, because in Germany, gas has to be imported (at a price bound to the until recently very high oil price) and is more expensive than imported hard coal and far more expensive than domestic lignite. (Most of the lignite power plants have similar ramping problems as nuclear plants and thus can't lower their output much. That's why Germany has so much excess electricity to sell to its neighboring countries right now - with the German wholesale price lower than domestic prices in those countries, they still keep German lignite power plants running even though some of them aren't needed anymore for German domestic demand.) This is especially unfortunate since we do need to keep the natural gas power plants in business, as fast-acting backup for the variable renewables. But at the moment, the power prices are forced so low by the slow baseload plants that it's not economic to run gas plants, let alone build the fleet we are going to need.

    And this entire situation would be even worse right now if the German government hadn't decided to get rid of several baseload nuclear plants in 2011 - which by the way were chosen because they had technical security problems that would have cost so much to fix that they wouldn't have been able to operate economically anymore anyway.
  • Vivi on January 09 2015 said:
    Also, building new nuclear plants is just too damn expensive these days. Which is why even France has decided to reduce its fleet from 75% of its electricity needs to just 50%. They're not going to shut down any plants prematurely, it's just become unaffordable to build replacements of these aged plants at the rate that would be needed to replace all of them when they're at the end of their 'safe' running time.

    Nuclear plants have never been built anywhere without massive subsidies from the state (and state-sponsored insurance, because no commercial insurance company is willing to carry the risk). And that's not even talking about costs to taxpayer of waste storage for hundreds or thousands of years, or for example the 50 million in security costs (thousands of police personnel, water cannons, etc.) that every waste transport through Germany used to create for the government due to frequent civil protests in the 80s and 90s. (It was just peaceful sit-ins and people chaining themselves to the train tracks, not riots or anything like that. But with nuclear waste, the risk is too great to ever let things escalate.)

    But even without that high level of public disagreement which every government calling itself "democratic" should listen and bow to eventually, new nuclear seems to be prohibitively costly in any country relying on capitalist markets instead of a planned state economy. The project in Finnland is way behind its building shedule and cost overrun, and the planned costs of the new plant in the UK seem to rise every year. Also, that planned British nuclear plant apparently needs a government-assured sale price for its electricity that is considerably higher than the German feed-in-tarif for newly built renewables (which is sinking every year to encourage efficiency improvements in production and installation costs - hence why the price of solar cells has plummeted over the last decade) will be when that nuclear plant is eventually built and going online. It might even be higher than the feed-in-tarif for renewables built today, which will have been producing for at least decade whenever that nuclear plant is finished - but I don't have the exact numbers in my head right now.

    Plus, renewables (aside from large dams), and natural gas plants, can be put up much, much faster than nuclear plants (even if a miracle happens and the nuclear plant is on schedule), which makes planning much easier for governments that get elected every few years. Nuclear plants are something that only makes sense for governments without rival parties and with 5-year-plans.
  • taxpayer on January 10 2015 said:
    " Their debt was 120% of equity. That means that if they sold everything they own, they couldn’t pay off all their debt."
    No it doesn't mean that. It simply means that if they were able to sell everything at 55% of book value, they would have just enough to pay off their debt. At a higher percentage of book value, there would be something left for the stockholders. Sure, book value would have declined as oil price declines, but the company could still be viable.
  • Jose Coutinho Barbosa on January 12 2015 said:
    Excellent article. However I think that when the author considers the financial effects resulting from a reduction of current 9.0 mm BPD of Saudi production to 7.0 mm BPD, it seems reasonable also to consider political aspects involved in the current scenario of oil prices. USA and Saudis, has political interests aligned, when considering the effects of price reductions for Iran, Venezuela, Jihadists (selling Iraq's oil).
  • Gene Frenkle on February 02 2015 said:
    Great interview. OPEC does not want to lose marketshare to natural gas. Natural gas impacts the oil market from several different directions. Cheap natural gas will be exported to Mexico which will allow Mexico to export more oil. Cheap natural gas will be used in many urban fleets. These two things will happen regardless of the price of oil. EVs are superior by most measures and as costs fall they will become more popular.

    Next is the areas in which the price of oil comes into play. The Caribbean would switch to LNG if oil prices stayed high. Long haul trucking could switch to LNG. Companies would invest in gas to liquids. The tar sands are essentially a gas to liquids that become economical during high oil prices. Passenger vehicles could switch more quickly to CNG and electric vehicles.
  • James Ferguson on August 20 2015 said:
    Good interview but I think Berman is a little off on renewables. You don't have to store wind and solar energy, you run it through established grids, augmenting electricity needs. Germany has a well developed system offering solar and wind energy suppliers credits, which they can use against their overall energy consumption. As a result, Germany now meets 20-30 per cent of its domestic energy needs through solar and wind and bio-fuels.

    Too many persons point to "storage" as the problem with wind and solar. It isn't like oil or natural gas. It is a more fluid energy source. However, I do agree it won't be until 2030 that we see renewables meeting 20 per cent of the global energy needs, but I would think the low cost of oil would encourage Shell and other so-called energy companies to start taking renewables more seriously.
  • EnoughAlready on September 26 2015 said:
    The average wingnut still thinks oil is cheap because it's somehow infinite if we just drill enough, and that conspiratorial government agents have been suppressing new finds.

    Petroleum geology should be taught to all high-schoolers so they don't take their modern livelihoods for granted.
  • EnoughAlready on September 26 2015 said:
    Whether or not wind power can "disrupt" fossil fuels, it's certainly disrupting huge swaths of landscape. It will be an aesthetically dismal world if we keep banking on those giant eyesores to fix things. Over 250,000 are apparently installed already, with several million planned in starry-eyed, fake green scenarios. Who are these neo-environmentalists who've decided that natural looking vistas are suddenly expendable? I never saw a public vote on landscape ruination.

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