Oil For Growth Is Over. But Do YOU Know?
The goal of this essay is to prove that growth from oil is over and its decline is already observable in both oil production and follow-on economic data.
Here is the global production of oil
Here is the global production of humans
Do we need to do the math to agree that the amount of oil per person is declining.
That fact isn’t important because oil use, manufacturing power, other resources, top soil, water, etc., is not spread evenly but coalesces around various groups and nations.
Nonetheless, the World is getting poorer on an aggregate basis which creates conflicts as everyone jockeys to coalesce around those who can hoard remaining resources.
Can we find data that shows a connection between access to oil and economic strength? I believe the U.K. is such place where declining oil has led to economic weakness.
The U.K. built its power on local coal mining and access to Middle East Oil pre-1930s. Let’s look at past 30 years where all the cheap coal has been mined in the U.K. and North Sea Oil production has declined.
Now let’s look at the U.K. industrial production
If you have any doubt about the weakness of the U.K. economy search “U.K. economic strength” and find a positive story!
Research the U.K. military. 53 Admirals and 27 fighting ships. Yikes!
American can’t conceive the possibly that the U.S. is in close-behind!
The U.S. oil story is better than the U.K. because the U.S. has oil fields that are conducive to fracking (England did not). In simple terms, it means that U.S. oil fields are like sponges that can be wrung for more oil. Not all oil fields are like that.
That doesn’t mean fracking resources won’t follow Hubbert’s model. (Some argue they are, and will have an even worse rate of decline).
Hubbert was ridiculed but was proven correct. Now history is repeating in that many argue that fracking won’t suffer the same fate.
I’m not going to argue when the U.S. will experience a decline in oil production.
Here’s an oil well from our past
What do you think the above cost vs this, a Chinese built oil rig for Saudi Arabia’s offshore Marjan field (a rarity in new oil rigs btw).
Rig counts are down around the world because it isn’t worth the burning of oil to manufacture the steel and and run the equipment to get it.
In the early 1900s oil was mined at 1,000 feet. Today it is 10,000 feet and above. All the easy oil is gone. No one disputes that. Trump’s “Drill baby drill” only gives comfort to the ignorant. Again, no one drills for something that won’t pay back its initial investment!
More to the point. If you mine a barrel of oil for $50 and it costs one barrel to get 1.5 barrels from a well would you sell your existing barrel or reinvest it in drilling for a new one?
As it takes more and more oil — as time goes on — to extract oil, miners get more sensitive to future prices. There is less room for error. That’s why we’re seeing a reduction in new rigs and mining. One can say “drill baby drill” all they want. After drilling, if oil goes down to $25 a barrel you’ve just exchanged $50 for $37.
Trump knows a lot about how to do that ;)
Some of you may find this argument far-stretched but here it is anyway.
The following is FEMA’s spending over the past few decades.
The first thing to recognize is the amount of oil necessary to build is being reduced by the amount of oil necessary to re-build.
Oil is getting more difficult (expensive) to mine and property is getting more difficult to maintain over the time it was expected to last.
The way I look at it is that if the U.S. had increasing supplies of oil we wouldn’t need FEMA because new growth would outstrip existing re-construction. We’ve had oil shocks before, especially in the 1970s and 1980s. We never needed financing for manufacturing. The reason is that availability never really slowed down.
High prices do not always mean low supply, just low availability; that is, the Middle East pulled availability over the Yom Kippur war but they weren’t short of supply.
That the U.S. has high availability does not mean it has the ability to increase supply.
It’s accepted fact that “field” oil followed Hubbert’s controversial curve. It is not accepted fact that “tight” oil will also follow such declines, yet, how can we not accept it with what happened here in the U.S. and in the North Sea?
Few talk about the fact that the U.S. running out of oil is a given. Instead, the question is always about when. Or if some new source of energy will replace it.
Politicians always kick the bad-news can down the road. For complex reasons, the majority of educated people in the U.S. (and Europe) won’t look at the data and do this simple math. Instead, American elites believe they will be in the group who will burn the last remaining oil — they will hoard resources.
No, they don’t consciously believe they’re hoarders. Instead, they believe we have time before oil and gas runs out. They believe there will be a new energy source to take over from oil (as oil replaced coal and whale-oil).
I know it sounds like a stretch, but to me, the Trump phenomena is how everyone is expressing panic that energy growth is over and we need to shake things up because…well…without a fix, without energy to keep everyone on the same growth train, what is there to do but go into hysterics?
Brexit was how the U.K. manifested its panic that it was no longer capable of guaranteeing oil supplies for everyone.
