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Chris Martenson

Chris Martenson

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Why Shale Oil is Not the Game Changer We Have Been Led to Believe - Part 1

There has been a very strong and concerted public-relations effort to spin the recent shale energy plays of the U.S. as complete game-changers for the world energy outlook.  These efforts do not square up well with the data and are creating a vast misperception about the current risks and future opportunities among the general populace and energy organizations alike.  The world remains quite hopelessly addicted to petroleum, and the future will be shaped by scarcity – not abundance, as some have claimed.

This series of reports will assemble the relevant data into a simple and easy-to-understand story that has the appropriate context to provide a meaningful place to begin a conversation and make decisions.

Since completing the Crash Course in October of 2008, much has gone as I anticipated in the way of money printing, official neglect of the main predicaments we face, and generally higher petroleum costs (2012 was the record so far on a yearly basis).

What has not changed is the general trajectory of liquid fuels becoming increasingly expensive and more difficult to produce.  I know that this runs counter to virtually every news article that has come out recently.  It is time to separate the data and facts from the hype.  Much has recently been either muddied or presented so far out of context as to be more distortive than helpful.

This entire body of analysis is so large that it will be broken into three pieces.

The first is a general world outlook for petroleum that presents the macro picture, provides some necessary clarifications on definitions, and illustrates that all of the data is consistent with the idea that the world is on a plateau of oil production.  Here we note that exactly zero of the major energy outlooks provided by the IEA, the EIA, PB, and especially the inexcusably sloppy piece put out under the auspices of Harvard (the Maugheri report of 2012) all failed to make any mention of the declining net energy provided by any of the new unconventional oil finds.  This is a crucial oversight.

The second report will focus on natural gas in the U.S., with a particular emphasis on shale gas, the supposed game-changer that we have read so much about.  There are some very important elements to this story, but the punch line is that there's nowhere near "100 years" of this magic fuel, it costs more to produce than it is being sold for at present here in early 2013, and – once we include the idea of future increases in consumption – there may only be in the vicinity of 20-30 years of proven and probable reserves. And that is if and only if prices rise by a factor of 2.5x or more from the current $3.30 per therm market price.

The third will focus on tight oil, often called shale oil (not to be confused with oil shale, a very common mistake), and make the case that, while it may have some modifying effect to the Peak Oil story, it lacks the ability to return the world to anywhere near its prior glory years of ~2% per year growth in global oil output.

The summary of all three reports leads to the conclusion that all efforts to cram the world full of fresh rounds of new debt lending are going to end in failure because the requisite net energy is simply not there to support continued debt accumulations running several-fold faster than actual economic productive output.

Enormous risks are continuing to build in the world's financial landscape, and the continued unwillingness to confront the truth about our global energy predicament is both puzzling and frightening. The conclusion is that our future resilience as individuals, corporations, or countries will hinge to a very large degree on whether or not we heed the warning signs and adapt our lives and habits to the actual circumstances.

Related Article: Why OPEC is Worried About the U.S. Congress

The Really, Really Big Picture

The really big picture goes like this:  Humans discovered about 400 million years worth of stored sunlight in the form of coal, oil, and natural gas, and have developed technologies that will essentially see all of that treasure burned up in just 300 to 400 years.

On the faulty assumption that fossil fuels will always be a resource we could draw upon, we fashioned economic, monetary, and other assorted belief systems based on permanent abundance, plus a species population on track to number around 9 billion souls by 2050.

There are two numbers to keep firmly in mind.  The first is 22, and the other is 10.  In the past 22 years, half of all of the oil ever burned has been burned.  Such is the nature of exponentially increasing demand.  And the oil burned in the last 22 years was the easy and cheap stuff discovered 30 to 40 years ago.  Which brings us to the number 10. 

In every calorie of food that comes to your table are hidden 10 calories of fossil fuels, making modern agriculture and food delivery the first type in history that consumes more energy than it delivers.  Someday fossil fuels will be all gone.  That day may be far off in the future, but preparing for that day could (and one could argue should) easily require every bit of time we have.

A Brief History of Oil & Humans

What galls me at this stage is that all of the pronouncements of additional oil being squeezed, fractured, and otherwise expensively coaxed out of the ground are being delivered with the message that there's so much available, there's nothing to worry about (at least, not yet.)  The message seems to be that we can just leave those challenges for future people, who we expect to be at least as clever as us, so they'll surely manage just fine.

Instead, the chart above illustrates that on a reasonably significant timeline, the age of fossil fuels will be intense and historically quite short.  The real question is not Will it run out? but Where would we like to be, and what should the future look like when it finally runs out?  The former question suggests that "maintain the status quo" is the correct response, while the latter question suggests that we had better be investing this once-in-a-species bequeathment very judiciously and wisely.

Energy is vital to our economy and our easy, modern lives.  Without energy, there would be no economy.  The more expensive our energy is, the more of our economy is dedicated to getting energy instead of other pursuits and activities.  Among the various forms of energy, petroleum is the king of transportation fuels and is indispensible to our global economy and way of life.

To what do we owe the recent explosion in technology and living standards?  To me the answer is simple: energy.

United States per Capita Energy Use

Related Article: Oil Industry Cycles Offer Good Investment Opportunities

Because a very large proportion of our society was no longer tied up with the time-consuming tasks of growing their own food or building and heating their own shelter, they were free to do other very clever things, like devote their lives to advancing technology. 

When energy starts to get out of reach either economically or geologically, then people revert to more basic things, like trying to stay warm – such as this fellow:

Greeks Raid Forests in Search of Wood to Heat Homes


Jan 11, 2013

EGALEO, Greece—While patrolling on a recent cold night, environmentalist Grigoris Gourdomichalis caught a young man illegally chopping down a tree on public land in the mountains above Athens.
When confronted, the man broke down in tears, saying he was unemployed and needed the wood to warm the home he shares with his wife and four small children, because he could no longer afford heating oil.

"It was a tough choice, but I decided just to let him go" with the wood, said Mr. Gourdomichalis, head of the locally financed Environmental Association of Municipalities of Athens, which works to protect forests around Egaleo, a western suburb of the capital.

Tens of thousands of trees have disappeared from parks and woodlands this winter across Greece, authorities said, in a worsening problem that has had tragic consequences as the crisis-hit country's impoverished residents, too broke to pay for electricity or fuel, turn to fireplaces and wood stoves for heat.

I think it is safe to assume that all of the people in Greece who are chopping down trees to stay warm are not simultaneously working on the next generation of technology.  Energy first; everything else second.  In other words, our perceived wealth and well-being are both derivatives of energy.

Like every other organism bestowed with abundant food – in this case, fossil fuels that we have converted into food, mobility, shelter, warmth, and a vast array of consumer goods – we first embarked on a remarkable path of exponential population growth.  Along with these assorted freedoms from securing the basics of living, we also fashioned monetary and economic systems that are fully dependent on perpetual exponential growth for their vitality and well-being.  These, too, owe their very sustenance to energy.

It bears repeating:  Not just energy is important here, but net energy.  It's the energy left over after we find and produce energy that is available for society to do all of its complicated and clever things.
Not only is the world struggling right now to increase global oil production, but all of the new and unconventional finds offer us dramatically less net energy to use as we wish.

Continued in part 2…

By. Chris Martenson

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  • Francesco on January 18 2013 said:
    "...The first type in history that consumes more energy than it delivers...".
    If i'm not mistaken all physical systems consumes more energy than they deliver.
    The article is very clever and simple.
  • Timothy Maloney on January 18 2013 said:
    At the dawn of the oil age, late 19th century, the energy return on investment - EROI - was about 100:1. We obtained 100 barrels of oil by expending energy worth 1 barrel.

    For fossil fuels, that ratio has now declined to a much smaller value. The value is disputed, but it is certainly much smaller.

    With fissile material (uranium) the EROI for material alone (ignoring plant construction) is about 2000:1 with no spent-fuel reprocessing. With fuel reprocessing (think France), EROI rises to about 10,000:1.

    With single-cycle total fissile-fuel burnup, as in a Liquid-Fuel Thorium Reactor (LFTR), EROI is on the order of 1,000,000:1. That is, we obtain one million times as much energy into the electric grid as we expend on obtaining and processing the material alone, (ignoring plant construction).

    What do you think the future energy source for human civilization will be?

    check out www.dirkpublishing.com
  • Jake Marley on January 18 2013 said:
    That shale gas wells don't make money at current gas prices is a refutation of your thesis, not a confirmation of it. The wells don't make money because the price of gas is too low. But the price of gas is so low because the productivity of gas shales is so high.
  • fairguy on January 20 2013 said:
    One can't ignore the energy consumed in building nuclear plants, only this way the comparison would be more level and realistic.
  • skyshark on January 22 2013 said:
    Has anyone published an honest/objective net energy balance for nuclear power, including long-term maintenance and protection of the waste products?

    It is highly doubtful that nuclear power gives a "1000:1" return on the input fossil energy invested in physical plant construction and the fuel cycle, when you consider that such a small percentage of the enriched fuel is actually "burned" in the reactor, before the total mass of enriched fuel is removed as highly-radioactive, long-term waste, for which we have no acceptable solution. Thorium-based reactors have their own issues, as well.

    And, yes, we could reprocess spent fuel,though a number of energy-intensive and highly polluting processes while increasing risk of nuclear terrorism and environmental damage as at Hanford. What do you do with land that can never be reclaimed?

    The larger point is that self-contained nuclear power does not exist. There would be no nuclear power, or thorium reactors, for that matter, without readily-available, cheap fossil fuels to build the plants, mine, transport and refine the ores, etc.

    Conservation and renewables, backed by the same level of federal involvement that has been devoted to the nuclear power, seems like a more sensible path to pursue, while we use the last of the easily-recoverable fossil fuels.
  • Timothy Maloney on January 23 2013 said:
    Right, a socially and economically valid comparison must include energy expended in plant construction and in long-term waste storage.

    I was just trying to keep the discussion simple by focusing on Energy Return On Investment in obtaining the fuel itself.

    But since you bring it up, we anticipate that LFTR will beat its competitors on plant construction too (we won't know for sure until we actually build a commercial-size facility).

    Nuclear technology is best adapted to energizing the electric grid, not propelling things (of course there's the occasional submarine or aircraft- carrier). On that basis LFTR doesn't compete directly with oil. Instead, it competes with coal and renewable WWS - Wind, Water, Solar.

    Taking into account WWS's need for rare-earth materials and for gas-turbine backup, LFTR beats WWS hands-down on plant construction dollar-cost. Check out slides 76 and 77 of Thorium Nuclear Slideshow at my website www.dirkpublishing.com for a photovoltaic solar comparison.

    We think LFTR can even beat plain coal - it can certainly beat advanced "clean" coal.

    Similar dollar-cost ratios (which are a stand-in for energy-expenditures) are operative for Wind and thermal Solar. As for Water, we're just about out of rivers to dam anyway, so why even discuss it?

    Waste is a whole different can of worms. Suffice it to say that a LFTR enjoys complete 100% burnup of its thorium fuel. It produces virtually zero heavy-atom waste.

    Sure it produces fission-product waste (think iodine). That's manageable.
  • Mike Conley on January 24 2013 said:
    Not to be a nitpicker, but a 1-gigawatt LFTR (sufficient tp ower a city of 1 million at Western standards) is estimated to produce about 3.5 oz of Plutonium isotopes a year, or about a teaspoon. Believe it or not, out of that ton of Thorium-232 fuel, they estimate that a teaspoon of it will absorb seven or more neutrons without fissioning.

    As for the LFTR's waste, it is estimated that 83% will be neutralized in 1-10 years. The remaining 17% (340 lbs, about the size of a basketball) will mellow out in 500 years.

    I would think that a city of one million could construct and maintain a lead / concrete vault for 500 basketballs that would last for 500 years.

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