Cheap Oil Turns Out Not To Be The Economic Boon Everyone Believed

Fracking has caused more economic problems than energy solutions.

As the endless oil shale commercials proclaim on the tube, the U.S. is "now number one in oil production".  Well, actually, it's the world's largest combined producer of oil and natural gas. Also, since the frack well drilling boom erupted in 2008, U.S. oil production (mainly via shale or kerogen) has increased nearly 75 percent and natural gas production has increased 30 percent.

But has this boom translated into a national economic boost? Evidently not, according to a Denver Post account ('Cheap Oil Hurt, Didn't Help U.S. Economy', May 21, p. 13A).  There are a number of reasons why this great, expected economic boost didn't materialize:

1) It was based on the false belief that if people had more money in their pockets, from saving on gas, they'd spend more. This has turned out not to be the case as CBS finance analyst Jill Schlesinger has pointed out Americans are now saving 5.3 percent of income - nearly double what they were before the 2008 crash.  Causing even more consternation for economists, Americans are more reluctant to take on credit card debt. Thus consumer spending rose an average of just 1.9 % in the first quarter.

2) The Saudis had already lowered their prices and opened their oil spigots so the increased oil shale boom in the U.S. merely added to the existing glut and lowered prices. Indeed, according to the Post account:

"The industry's breakneck growth was thrown into reverse by a 50 percent drop in oil prices from June through January."

It should be pointed out that earlier, ca. 2008-09 when oil prices were $100 a barrel or more, hydraulic fracturing to excavate kerogen was profitable. But when prices fell below about $70 a barrel it ceased to be because that is the "breakeven" point for kerogen.

Thus, reality was instantly brought home to oil producers that oil shale is not the same quality as light, sweet crude. This exposed the brutal reality that this new form of oil embodied a decreasing energy return on energy invested (EROEI).. In other words, our energy-dependent civilization was becoming ever more impoverished as the efficiency of the energy to run it diminishes over time.

No surprise then that investment in wells and production facilities collapsed nearly 50 % last quarter. After all, construction of refineries, production facilities requires real energy input of high EROEI oil, not kerogen (which degraded stuff  is usually exported to nations like China). Thus, the ruse was up and the losing game had begun.

3) For the economy as a whole, in effect, the technological breakthroughs that originally enabled the energy industry to power its growth were now contributing to the slowdown.  The lower EROEI shale was in fact also extracting higher costs in GDP  - a subtle effect not really appreciated until author Richard Heinberg pointed it out (p. 115) in his book, 'Snake Oil: How Fracking's False Promise Imperils Our Future'  citing  a report issued by a London -based brokerage firm Tullett Prebon whose customers are mostly investment banks. In a Strategy Insight report, author Tom Morgan wrote:

"Our calculated EROEIs both for 1990 (40:1) and for 2010 (17:1) are reasonably close to the numbers cited for those years by Andrew Lees. For 2020, our projected EROEI of 11.5 to 1 is not as catastrophic as 5: 1 but would nevertheless mean that the share of GDP absorbed by energy costs would have escalated to 9.6% from about 6.7% today. Our projections further suggest energy costs would absorb as much as 15% of GDP (at an EROEI of 7.7 to 1)  by 2030."

 

 Morgan's report goes on to conclude that the dismal diminishing energy returns means that the economy we "have known for more than two centuries" will "cease to become viable at some point".

 

Energy costs absorbing as much as 15% of GDP by 2030? What does this mean? It means our present energy-intensive civilization with its HDTVs, Nooks, Ipads, Smart phones, F35 bombers, Dreamliner jets,  drones and SUVs will cease to function. To try an analogy, think of a gluttonous guy of 300 lbs, suddenly dropped on to 'Survivor Island' and forced to eat rice, a few crabs and coconuts for the rest of his life as opposed to just 39 days. Think he'd have the energy to do anything?

This gluttonous guy is the perfect metaphor for our current energy gluttonous civilization which foolishly believes it has so much energy on hand it can afford to waste major portions on unprovoked wars of choice, and stupid energy investments - such as the F35 bomber.

If anyone believes this to be make believe or hype, there is this further uncompromising fact to reckon in: last quarter's annual economic growth ( measured by GDP) dropped by more than 0.75 percent.

Other costs from oil production are hidden, such as the clean up costs and devastated environment arising from the Santa Barbara oil spill - with a damaged underground pipeline unleashing  105,000 gallons -  fouling the beaches, the ocean and aquatic life. Also, there are the mounting health costs to consider: everything from COPD (owing to breathing in frack vapors emanating from nearby wells) to cancers - including of the liver, kidneys, pancreas and colon (from drinking water contaminated by hydrocarbon frack effluent such as benzene, toluene, xylene etc.)

Will things get better? Perhaps in spurts but not permanently, i.e. extending into an indefinitely brighter energy future. Heinberg observes that while it may cost less to extract a cubic foot of natural gas or a gallon of oil shale today, it will cost much more in just five years and even more in ten - such that one would have to spend as much or more to get the energy as the benefit it delivers. Heinberg summons a point that most of the snake oil salesman humping fracking won't tell you, that it costs energy to get energy. And if you are a nation that resorts to employing 15 to 1 EROEI energy to extract  5 to 1 EROEI  oil shale energy.....well, can we say 'stupid'?

As Heinberg puts it (p. 116):

"No evidence suggests that the technology of fracking has actually raised the EROEI for natural gas production. It temporarily lowered prices but only by glutting the market."

 Heinberg's book is essentially a tour-de-force exposing the false promise of fracking with hard statistics and basic energy principles. Just as Richard Charnin's recent book on the conspiracy to kill JFK dispatches (via mathematics) the false narrative of the lone nut brigade , so Heinberg's book skewers the fake promises of the frackers.

Americans need to pay attention to these issues and inform themselves because ultimately they impact numerous aspects of our lives and how (as well as IF)  we assume responsibility as citizens. This was perfectly expressed by Jefferson in his 'Notes on Virginia':

"Every government degenerates when trusted to the rulers of the people alone. The people themselves therefore are its only safe depositories. AND TO RENDER THEM SAFE, THEIR MINDS MUST BE IMPROVED."

Are citizens' minds being improved? Only to the extent they can distinguish truth from lies, and in particular their own welfare and interests from those of the corporatists.

See also:

http://www.smirkingchimp.com/thread/dave-lindorff/62330/finally-some-climate-crisis-honesty-forget-about-a-2-future-it-will-be-4-6-c-degrees-and-soon

Another Train Explosion - Another Reason To Stop Fracking!

The scenes emanating from Fayette Co., West Virginia resembled iconic images of Dante's Inferno as portrayed in several works of art. Giant fireballs lurching into the skies, forcing the evacuation of two WVa towns as another CSX owned train, bound for Yorktown, Virginia suffered a derailment  (as several before) with the explosion of the kerogen it was  carrying.

This had originated in the Bakken oil shale fields of North Dakota and not the first incident to involve Bakken-crude, which kerogen is some of the most explosive stuff on Earth.  Recall last April another Bakken-carrying CSX train derailed near Lynchburg, VA. In December, 2013, a massive fireball erupted over Casselton, ND and in July, 2013, 47 people died after a train carrying Alberta kerogen crude derailed in the middle of a town in Québec.

In the current incident, the Governor of West Virginia has declared a state of emergency. Also,  some of the kerogen effluent poured into the Kanawha River, forcing the Montgomery, WVa water treatment plant to shut down because the river is the source of town water. No one in his or her right mind would want to imbibe kerogen-laced water.

What is kerogen? Richard Heinberg explained it in his recent book, Snake Oil: How Fracking's False Promise Imperils Our Future', page 110 ):

"Kerogen is not oil. It is better thought of as an oil precursor that was insufficiently cooked by geologic processes. If we want to turn it into oil, we have to finish the process nature started: that involves heating the kerogen to a high temperature for a long time. And that in turn takes energy- lots of it, whether supplied by hydroelectricity, nuclear power plants, natural gas, or the kerogen itself. "

Being an "oil precursor" means it's much more volatile and doesn't take much to explode, say from a collision or derailment. None of this has been taken into consideration by the National Transportation Safety Board in its paltry "recommendations" which are more a nod to the energy industry and train operators like CSX.

In fact, what the latest incident shows is that this crap shouldn't be transported at all. Period!  Indeed as one commentator observed on Chris Hayes' show it "ought to be left in the ground". It's too damned dangerous and the killing of those 47 forlorn Canadians ought to have proven that. If that had been an actual terror attack you can bet your sweet bippy no more trains would be running anywhere out of an abundance of caution. Yet because we are so brainwashed by the Neoliberal business before people model, our leaders turn a blind eye -- we must let those trains keep on rolling to keep the $$$ pouring in!

Oil shale fracking is a symptom of diminishing quality supplies of oil, that of high EROEI (energy returned on energy invested) not oil abundance. Anyone with half a brain would know that, which is why Richard  Heinberg  refers to it as "snake oil". It simply can't deliver the energy solution promised and in fact its continued use will result in ever lower quotas of useful energy- at ever higher cost.

As Heinberg adds - following the previous quote (ibid):

 "Therefore the EROEI in processing oil shale is bound to be pitifully low. According to the best study to date, by Cutler Cleveland and Peter O'Connor, the EROEI for oil shale production would be about 2:1. That tells us that oil from kerogen will be far more expensive than regular crude oil."

This compares to the average of 15:1 when we used "light sweet" crude - not this crap which is closer to coal tar. 

Folks, our energy response shows desperation, not any resourcefulness. This is what the Neoliberals won't tell you. They instead want you to believe we're on the verge of a "New Age" of energy bounty with little cost to the citizen. Do not buy it for a second! There are major costs - to our air, water, soil and now to whole communities which stand to be blown up and evacuated if one of the trains carrying this stuff happens to derail. Likely taking lives and towns' water supplies with it.

We wouldn't tolerate terrorists getting away with this shit and we shouldn't tolerate it from the damned frack-happy assholes seeking to send our country and its citizens into perdition. We need to hold our leaders to account on this too, and get rid of all those who put the oil industry's interests before ours!

See also:

http://www.smirkingchimp.com/thread/gaius-publius/61232/lying-pantsuit-lady