Thursday, January 7, 2016

Thirty-nine TRILLION!?

Yes, that is the amount of funds that must be scared up to keep oil extraction going over the next few or several decades decade.  There is a very informative article at, originally posted at, which explains the present status of the Oil and the Global Economy.  It starts off with this money quote:

"By our calculations it will require additional debt formation of $39 trillion over the next decade to keep petroleum production operating.  Where that funding will originate from, when it is very unlikely to ever be repaid, will be of tantamount importance.  It will take very strong-willed societies to make such sacrifices.  If those sacrifices are not made, the integrated global production system will have disappeared by 2026.  2016 will be witness to the beginning of this event with dramatically increasing closures and bankruptcies throughout the world’s petroleum industry."

The Hill’s Group — “an association of consulting petroleum engineers and professional project managers”

The Hill's Group isn't just a group of bloggers who write about Peak Oil. I know these bloggers have all written about this before, but from what I remember when I read about future oil supply investment needs at Life after the Oil Crash back in the mid-twenty-noughts, the figure was something like $20-25 Trln through 2030. Which means something is afoot.

Because obtaining those thirty-nine trillions may be a tad difficult to come by. And even if not, at today's prices, exploiting the remaining petroleum reserves (1,482 bln barrels at the end of 2011) might not be a profitable enterprise, because the remaining oil is very expensive to extract compared to easy-to-obtain conventional crude oil. So here is this tidbit from Raúl Ilargi Meijer of The Automatic Earth:

If there’s one thing to take away from this year’s developments in markets and economies so far, it’s that they are all linked, they’re all part of the same thing. If you can’t see that, you’re not going to understand what’s happening.

Looking at falling oil prices as a separate thread is not much use, and neither is doing the same with Chinese stocks, or the yuan, or the millions of Americans who are one paycheck away from poverty, for that matter. It’s all one story.

And the take-away from that, in turn, is that focusing too much on ‘narrow’ conditions in your particular part of the globe has only limited value. We’re very much all in this together. In the UK today, it matters very little what George Osborne says or does, or Mark Carney, because they don’t shape the future of the economy.

The same goes for all finance ministers and central bank governors across the planet, Yellen, Draghi, Koruda, the lot: the influence they exert on their own economies, which was always limited from the start, is running into the boundaries imposed by global developments....

And with the exposure of the limits to their abilities to make markets and economies do what they want, come the limitations of the mainstream financial press to make their long-promoted recovery narratives appear valid. Before we know it, we might have functioning markets back.

Oil -both Brent and WTI- have breached the $32 handle, and are very openly flirting with the $20s. China’s stock market trading was halted for a second time this year, just 14 minutes after the opening. This came about after the PBoC announced another ‘official’ devaluation of the yuan by 0.5% (stealth devaluation has been a daily occurrence for a while).

$2.5 trillion was lost in global equities in three days this year even before the Thursday China trading stop and ongoing oil price decline. Must be easily over $3 trillion by now. And counting: European markets look awful, and so do futures.

For the first time in years, markets begin to seem to reflect actual economic activity. That is to say, industrial production, factory orders, exports, imports and services sectors are falling both in China and the US. Many of these have been falling for a prolonged period of time. In fact, Reuters quotes a Sydney trader as saying: The Chinese economy actually contracted in December....

What we are looking at is debt deflation, in which virtual ‘wealth’ is being wiped out at a fast pace, and it’s taken some real wealth with it for good measure. It’s not going to be one straight line down, for instance because there are a lot of parties out there who need to cover bets they carry from last year, but it’s getting very hard to see what can stop the plunge this time. Volatility will be a popular term again.
And the present debt overhang, individual, corporate, and governmental, will make it very uncertain that there will be sufficient capital to get at enough oil to get us through the next decade at today's rate of consumption of about 33 bln barrels of oil. 

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