Why Are The Frackers Losing Money And Resorting To Junk Bonds To Stay Viable?

The news in The Wall Street Journal's Business and Finance Section (' Frackers Scrounge For Cash As Wall Street Shuts Spigot'', p. B1, June 7) didn't really amaze me in the least. Especially as we read:

"The companies behind the U.S. fracking boom are turning to asset sales, drilling partnerships and other alternative financing to supplement their cash flow. These forms of funding often come with higher interest rates or other downsides  - such as giving outside investors a hefty share of future oil and gas profits."

And further (p. B2):

"Producers have been forced to get creative about financing because Wall Street began shutting off the cash spigot  last year after frackers routinely failed to turn a profit over the last decade."

Worse, only a tenth -  10 percent - of large shale companies saw a positive cash flow in the first quarter of 2019.   This according to a Rystad Energy analysis of 40  drillers.  And to sustain  or increase their production these companies are having to drill new wells, as opposed to seeing greater production from each existing well .  The piece also noted some companies have become so desperate for cash to jump start new wells that they are starting to turn to junk bonds.  Well, talk about batting on a losing wicket.  But the central question here is why have the frackers - who seem to be all over the place -- failed to turn a profit over a decade?   I've explained this in earlier posts in terms of the lower energy returned on energy invested (EROEI) say compared with the light  crude oil of the past, non-shale based.

I also pointed out the difference in EROEI translated into some bad economics given the lower energy content of shale oil (kerogen) meant the frackers would always be in an energy (and hence economic)  hole.  A less efficient energy source means you have to extract more of it, and at ever higher costs given the innate diminishing returns.  It means, basically, endless reinvestment to support the losing operations.  This isn't relativity or rocket science.

The issue first surfaced some six years ago in Richard Heinberg's book, Snake Oil: How Fracking's False Promise Imperils Our Future', ( p.115).   Therein we learned from a report by a London -based brokerage firm,  Tullett Prebon:


 "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."

The 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". Cease to become viable?  Uh, yeah!  To use a human 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?  Think he'd survive? Guess again. His body - starving of protein  (the equivalent of high EROEI energy)-  would begin to consume itself.    That is effectively what our energy-gluttonous society is now doing but in the process headed toward distinct 'malnutrition"'  given the energy content of what it ingests gets lower and lower.  Think of that 300 lb. human gobbling more and more empty calories.

As Heinberg observes, 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 - whether for oil or natural gas-  with hard statistics and basic energy principles. He also shatters the myth  of "100 years of cheap  natural gas" as  effectively as he does the trope of cheaper and cheaper shale oil.   He observes, for example(p. 110), that "a study of the EROEI for electrical heating of methane hydrate deposits between 1000 and 1500 meters deep yielded ratios from 2:1 up to 5:1, depending on the source of the electricity"

The entire issue of sinking oil shale fortunes pivots on the breakeven price: that amount which the recovered oil needs to earn to have made its extraction worthwhile  If that per barrel amount tends to be below what the market offers, a loss occurs and over years the losses pile up. In many cases, as seen in recent years there is the added factor of an oil glut from over production.  In this case one has an excess supply and so oil prices tend to plummet. According to the Federal Reserve Bank of Dallas:

"The average breakeven price of oil has fallen 4 percent (or $2 per barrel) over the past year, to $50 per barrel, according to the latest Dallas Fed Energy Survey."

 This report was dated May 21st  and since then oil prices have climbed owing to the recurring Middle East instability and especially U.S. saber rattling at Iran.  Nonetheless,, given the frackers have repeatedly found themselves in such gluts, their losses have been magnified even over their inability to achieve  breakeven (in normal times).

Unmentioned until now is that whenever one has increased production which expands the existing supply beyond the current demand, a deflationary force is interjected, What this does,i.e.  in tamping down the cost at which oil can be sold, is create more problems for lower efficiency oil sources like fracking - whether in the Permian or Appalachian basins.   (There is also variability among operators;   according to the Dallas Fed survey, with the breakeven prices ranging from $23 to $70 a barrel.  This merely informs us that different operators will have differing methods of extraction, and some may be more efficient, Also, some areas may be more bountiful then others and that needs to be factored in.)

None of this detracts from the point that shale oil is a lower EROEI source and hence much more work must be done to extract it and process it (i.e.g from kerogen) and hence this inefficiency must appear in the lowered GDP over a future track, as reported by Tullet Prebon, e,g,  "Our projections further suggest energy costs would absorb as much as 15% of GDP (at an EROEI of 7.7 to 1)  by 2030."

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,  Ipads, Smart phones, F35 bombers, Dreamliner and MAX jets,  ICBMS, drones and SUVs will need to go into ever  more debt to function at the same level. That is, to produce the same energy intensive devices, products, gadgets, toys etc.  much greater manufacturing and processing costs will have to be born.  That almost certainly implies much higher levels of debt, namely for the U.S. frackers who will be unable to contend with light crude oil producers (say like the Saudis)- who enjoy far lower breakeven prices (e.g. $23- 24 per barrel).  They mostly enjoy these lower breakeven prices because that oil has a significantly (2x, 3x) higher EROEI.

The much higher processing costs for shale oil also contribute to its producers never having made profits over the past 10 years, and always seeking loans or going through the junk bond route in desperation.   Why? Look no further than the fact (from FactSet) that 40 of the largest oil and gas frackers  since 2009 have collectively spent more than $200b  more than they took in from operations.  This is an ancillary aspect to the lower EROEI and efficiency of the source.   Again, Heinberg succinctly describes the basis of the problem which one never reads about in the mainstream media:

"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. 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 is something to keep in mind as one reads more and more media accounts of how the frackers are going into debt, and basically getting nowhere fast in extracting their product and selling it beyond the breakeven threshold.  The problem for them now is getting the money to support their continued operations since "investor appetite for buying shale companies' corporate bonds has dwindled"  - leaving the companies "no choice other than to explore the junk bond markets"   There they may find the loans, but with up to 13 percent interest imposed on each one.

This isn't even just a losing wicket, but a veritable sinkhole.

Robert Samuelson: "Peak Oil in Retreat" - Don't Believe It!

As I've shown in numerous earlier blog posts, WaPo Neoliberal hack Robert Samuelson generally gets more things wrong than he does correct. For example, on the issue of deficits under JFK, see:

http://brane-space.blogspot.com/2012/07/thats-right-now-blame-60s-jfk-for.html

We also know Samuelson has frequently played fast and loose with economic facts, e.g.

http://brane-space.blogspot.com/2011/08/more-ridiculous-lies-from-robert.html


So, it should be no surprise to those of us who've followed his career of PR hijinks that he'd also dissemble and spin about one of the most important energy milestones in recent human history: Peak Oil.   For reference and perspective, let's recall  peak oil theory was developed in the 1950s by oil geologist Marion King Hubbert, who predicted domestic U.S. oil production would peak by 1970 and decline steadily thereafter. In exploiting an individual oil field, Hubbert contended, production ramps up quickly and hits a peak at about which time about half the recoverable oil has been extracted. As the oil becomes increasingly difficult and costly to pump out, the field goes into decline.

More importantly, Hubbert maintained that his theory was applicable to the continental U.S. oil production and even the entire world, which he predicted would peak around 2000.In fact the evidence shows that global Peak Oil occurred around 2005-06. But what about the so-called "oil boom" due to fracking etc. It's all bogus!  It arises by conflating all oil sources as having the same efficiency to deliver energy.

This is exactly the error made by Samuelson in his article, as when he writes ('The Retreat of Peak Oil', Denver Post, June 15, p. 17A):

"Supply and demand have unexpectedly expanded the global surplus, reducing prices. The increase in U.S. shale oil unexpectedly boosted supply....the world now used 93 million barrels daily but can produce 95 mbd or a bit more"

The problem is that cheap shale oil is a mirage, which doesn't detract from the validity of Peak Oil. Let's examine this at length. The shale oil, from drilling into shale rock to get kerogen, is in fact evidence of grabbing near BREAK EVEN oil NOT high EROEI oil!  It is a sign of defeat and desperation.  not success - just like deep sea drilling for oil.

The planet was endowed with ~ 3,000 billion barrels of oil  – of which we’ve consumed one third and another one sixth of relatively cheap oil remains, after there will reside another third of “break-even” oil (costs as much to access as it delivers), after which one -sixth of very expensive oil remains (costs much more to reach it than it deliver in energy).  At the heart of these considerations is the net energy eqn. (cf. Weisz, in Physics Today, July, 2004, p. 51):

Q (net) = Q (PR) – [Q (op)  + E/T]

In effect, for break-even oil one would find Q(net) = 0

 

Thus, there is no net gain in energy given the quantity that must be used to obtain it.

For the last 700 billion barrels:    Q(net) = negative quantity =  -Q

Since the rate of energy production (Q (PR) must be debited by the energy consumed for its operation Q(op), and the energy E invested during its “lifetime” T. Thus its Q(PR) will be small in relation to the bracketed quantity.
 

In a similar vein, Richard Heinberg uses the quantity EROEI or ‘Energy returned on energy invested’ - which for oil reached a high of 30 (ratio) in the 70s and is still the highest of all energy sources at around 22.   Thus, the problem in a nutshell is not “running out of oil’ per se but running out of CHEAP oil.

 

Contrary to Samuelson's descriptor, shale oil at an EROEI currently of 4-5 EROEI is not "cheap oil"  The reason is that its low EROEI relative to earlier more accessible light sweet crude (at 22-30 EROEI) makes it necessary to consume more of it to get the same jobs done. That ALSO includes exploration, drilling for new, degraded oil sources. So one is effectively squandering higher EROEI oil to extract lower EROEI shale oil- resulting in a radical lowering of efficiency which ultimately affects energy consumption across the board, and the GDP. See e.g.

 

http://brane-space.blogspot.com/2015/05/cheap-oil-turns-out-not-to-be-economic.html

 

And while shale oil is currently "cheap" in the monetary sense, this doesn't mean that the condition will be sustained. It can't be since we are adding more people every day who use more energy and a low EROEI source is not tailored to incessant demand on account of population growth.

 

This error leads to an inevitable compounding of confusion as when Samuelson asserts (ibid.):

 

"Peak oil would occur when new oil discoveries no longer offset annual consumption and provide for future growth. This seems unavoidable. Oil is a finite natural resource  There's only so much of it- when it's gone it's gone. The trouble is that this compelling logic has yet to play out in the real world"

 

But in fact, it IS playing out in the real world!  As noted in the previous link, the London -based brokerage firm Tullett Prebon (whose customers are mostly investment banks). already warned in a Strategy Insight report that: energy costs would absorb as much as 15% of GDP (at an EROEI of 7.7 to 1)  by 2030."

In other words, the low EROEI is adversely impacting economic growth into the future! This is exactly meeting Samuelson's criteria but he can't see it on account of mistaking the shale boom for a true energy boom that contributes to economic growth.

 

As Richard Heinberg explains (p. 110) it in his book, 'Snake Oil: How Fracking's False Promise Imperils Our Future':

 

"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."

 

Also:

 

"A  study of the EROEI for electrical heating of methane hydrate deposits between 1000 and 1500 meters deep yielded ratios from 2:1 up to 5:1, depending on the source of the electricity"

As I noted, energy costs absorbing as much as 15% of GDP by 2030 means our present energy-intensive civilization with its HDTVs, Nooks, Ipads, Smart phones, F35 bombers, Dreamliner jets,  drones and SUVs is literally on life support.  Other costs from degraded oil production are hidden, such as the clean up costs and devastated environment arising from exploding shale oil trains, oil leaks from pipelines, as well as escape of oil effluent such as benzene, xylene etc. into the air and water.  These costs, exacted over time in cleanups and health costs - also limit GDP.

Now, let's affix our heads on straight. In the real world, the top part of the oil production curve for the high EROEI we've been conditioned to use  is nearly flat (cf. A. Bartlett, Physics Today, op. cit. p. 54)  In more practical terms – what it means is that if 2005  was the actual year of peak oil production then the worldwide oil production in 2025 will be the SAME as in 1985, demanding that Q(net) > 0.   Also, it means that 2045 will be the same as 1965, and 2065 will be the same as 1945, and 2085 will be the same as 1925!

In fact, the situation is likely much worse than this given we are desperately trying to substitute degraded oil to do the earlier work of high EROEI oil!   Hubbert predicted U.S. oil production would peak around 1970,  which it did (at 2.2 liters per person per day). He also predicted world production would peak around 1995, which it would have – had the severe OPEC-induced oil crises not created an artificial supply problem in 1973, thereby pushing this critical peak back 10 years (to 2005).

So when someone like Samuelson offers this micro-byte of misinformation:

"Oil is not inexorably fading from the world stage. Peak oil remains distant"

Stop and think - and read - about the declining EROEI aspect before you buy into the bullshit that cheap oil prices mean Peak Oil is in retreat or a myth. And should you disbelieve it, then take note of this forecast from yours truly: as high quality, efficient oil becomes ever scarcer, look for returns on investments to sink ever lower and the world economy to 'bottom out' with growth barely 1 percent per year. Look also for common goods including food to become ever more expensive since oil is the fuel needed to produce it, as well as transport it. Not to mention the water resources consumed as well.
 

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

Lower Living Standards For Generations To Come? Thank Global Monetary Policy

In many areas of the corporate Pollyannish press one reads about the expanding future and how many millions of more gadgets and processes will make our lives easier. Oh, and it'll all be much cheaper and we'll each even have our own drones and driverless vehicles.  To read some of this codswallop one would think a limitless cornucopia is soon upon us and everyone will basically be on "Easy street". Don't believe it for a second.

As the Mar. 25  Financial Times article ('QE Will Lower Living Standards Long Term')  puts it:

"The prospect of improvement in economic growth is largely a monetary illusion. ....Lacking the political will necessary to address the issues, central bankers have been left to paper over the global malaise with reams of fiat currency"

By "paper over" the FT means the ongoing practice of QE or quantitative easing  - which has already resulted in the Federal Reserve infusing more than $4 trillion into the U.S. bond markets and - combined with essentially zero interest rates - fed a ginormous stock market bubble.

Accentuating this low note, a report by the Bank of America -Merrill Lynch has projected that the year 2015 will mark the first decline in growth since 2009 the year after the financial meltdown and credit crisis. The FT piece notes how the Fed's QE, for example, has "perversely morphed into a new monetary orthodoxy" where central bankers themselves use their balance sheets as tools to implement fiscal policy.

This as opposed to politicians doing it via new regulations, tax reforms, monetary policy. But see - the politicos these days have no courage. They are all basically spineless worms who so fear the T-word they are afraid to actually practice representation. Thus, as the FT notes:

"The politicians lack the willingness or ability to implement labor and tax reforms."

So, because of these venal jackals, the banksters (in which I include central banksters)  are de facto allowed to set policy with their QE. But long term it isn't working and the world will become poorer for it, that is - the world our children will inherit.

Much of this follows from the extent to which QE policies damage fiscal health. For example, the FT points out correctly the negative impact of QE on interest rates. The depressed returns available on fixed income securities (such as commercial paper), largely as a result of QE, effectively act as a tax on investors, including individual investors.  At the same time the QE is providing a subsidy to borrowers.

If you have your money stashed in a money market fund for commercial paper - which is used to fund new  business investment - there is little reward given the 0.5 percent rates, so there is a bigger incentive to pull the money out and put it elsewhere for higher yield (say in an online bank for a fixed income account for which the interest is doubled.)  Practiced widely such pullouts will  dampen investment and stifle new business. As the FT puts it:

"The cost of QE is greater than the income lost to savers and investors. The long term consequence is likely to permanently impair living standards  for generations while creating a false illusion of reviving prosperity."


Less on the radar but surely playing a role in declining living standards is the ever degraded quality of energy sources. For example, current fracked oil (from shale) costs on average $70 a barrel to extract. If the oil price is less than this, that means the source isn't even at "breakeven" point in terms of energy returned on energy invested.. By contrast, the light sweet crude oil we'd been getting earlier returned nearly 18 times more than the cost to extract it per barrel. These are signs Peak Oil has come and gone (estimated in 2005) but most people don't even know what Peak Oil means. It doesn't mean the oil has stopped or slowed in production, it means the era of cheap oil is over,  making everything more expensive. Plainly put, our current energy -intense civilization is simply unsustainable in an era where only low EROEI oil is available.

You can read much more on this aspect here:

http://brane-space.blogspot.com/2013/09/44-trillion-in-deficits-by-2024-minus.html

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

Does Cheap Oil Disprove Peak Oil? Absolutely Not!

Blogger Arun Gupta recently wrote a piece on smirkingchimp in which he claims that Peak Oil is all overblown nonsense. According to Gupta:

"Fervent peak oilers are neo-Malthusians, believing the relentless growth of population and society on their own will outstrip natural resources. While Malthus’s ideas were discredited on scientific, historical, and economic grounds in the 19th century, they live on in peak oil, peak water, peak minerals, peak soil, peak food and peak everything."

But in fact, this is emphatically true, despite Gupta lacking the education to see it. Please refer to:

http://brane-space.blogspot.com/2014/05/yes-population-growth-spurs-higher.html

And:

 http://brane-space.blogspot.com/2013/09/44-trillion-in-deficits-by-2024-minus.html

The gist of the above content is that YES- usable energy and resources are decreasing and at a clip most people don't grasp (including Gupta). But the evidence is all around including: slow economic growth, lack of new investments which help many people instead of the few, and ever increasing difficulty in obtaining oil supplies.

One of Gupta's biggest howlers in his piece is when he claims:

"The inherent flaw of peak oil is that it naturalizes capitalism. Energy reserves are determined by price, investment and technology. The current oil boom, driven by innovations in fracking and drilling, tar-sands production, low-cost investment capital and persistently high oil prices, have smashed Hubbert’s theory to bits like brittle shale."

First some background into Hubbert's theory, as Gupta accurately notes:

" Shell Oil geologist Marion King Hubbert developed peak oil theory in the 1950s, predicting domestic U.S. oil production would peak by 1970 and decline steadily thereafter. In exploiting an individual oil field, Hubbert contended, production ramps up quickly and hits a peak at about which time about half the recoverable oil has been extracted. As the oil becomes increasingly difficult and costly to pump out, the field goes into decline. Think of the production as abell-shaped curve. The top point means half is gone and half is left. But because population and the economy continue to grow, so do energy needs. Hubbert held that his theory about an individual field was applicable to the continental U.S. oil production and even the entire world, which he predicted would peak around 2000."

But hold on! In fact the evidence shows that global Peak Oil occurred around 2005-06. But what about the so-called "oil boom" due to fracking etc. It's all bogus!  It arises by conflating all oil sources as having the same efficiency to deliver energy.

At the heart of Gupta's - and many others' misunderstanding - is the failure to distinguish between different classes of oil.  Here is my effort to sum it all up, from an energy perspective, so readers can consider it the 'Cliff Notes' version of the whole story:

The planet was endowed with ~ 3,000 billion barrels of oil  – of which we’ve consumed one third and another one sixth of relatively cheap oil remains, after there will reside another third of “break-even” oil (costs as much to access as it delivers), after which one -sixth of very expensive oil remains (costs much more to reach it than it deliver in energy).  At the heart of these considerations is the net energy eqn. (cf. Weisz, in Physics Today, July, 2004, p. 51)

 

Q (net) = Q (PR) – [Q (op)  + E/T]

 

In effect, for break-even oil one would find Q(net) = 0

 

Thus, there is no net gain in energy given the quantity that must be used to obtain it.

 

For the last 700 billion barrels:    Q(net) = negative quantity =  -Q

 

Since the rate of energy production (Q (PR) must be debited by the energy consumed for its operation Q(op), and the energy E invested during its “lifetime” T. Thus its Q(PR) will be small in relation to the bracketed quantity.

In a similar vein, Richard Heinberg uses the quantity EROEI or ‘Energy returned on energy invested’ which for oil reached a high of 30 (ratio) in the 70s and is still the highest of all energy sources at around 22.   Thus, the problem in a nutshell is not “running out of oil’ per se but running out of CHEAP oil.

 Bottom line, we need not run out of the stuff before the world economy runs into problems of untold, unspeakable proportions! We already have ample economic indicators showing the signs.

“Peak Oil’ is a somewhat misleading a term, since it suggests a specific date of peak production- a common error Gupta also makes, i.e.

 

"Then there is the concept of a peak. Even though Hubbert was off by only one year—domestic production peaked in 1971—production looks nothing like his bell curve over time. It rose after each seventies shock, went into a twenty-year funk after the mid-eighties crash, and in the last five years it has soared to near its 1971 peak."

 

In the real world, the top part of the oil production curve is nearly flat (cf. A. Bartlett, Physics Today, op. cit. p. 54)  In more practical terms – what it means is that if 2005  was the actual year of peak oil production then the worldwide oil production in 2025 will be the SAME as in 1985, demanding that Q(net) > 0.   Also, it means that 2045 will be the same as 1965, and 2065 will be the same as 1945, and 2085 will be the same as 1925! All this while the population is expected to reach 9 billion or more in the SAME PERIOD! (cf. Bartlett, ibid.) In other words, as time goes on the available accessible oil constantly diminishes even as population constantly rises with the same demands.

Hubbert predicted U.S. oil production would peak around 1970,  which it did (at 2.2 liters per person per day). He also predicted world production would peak around 1995, which it would have – had the severe OPEC-induced oil crises not created an artificial supply problem in 1973, thereby pushing this critical peak back 10 years (to 2005).

 

 Some wildly optimistic prognosticators forecast predictions that 2020-2035 will the “true” date, but as Matt Savinar points out (‘Life After the Oil Crash’ p. 7), these are all based on government agencies “that admit cooking their books" - like they do with inflation and unemployment numbers. SO how can you believe them? You can't!

 

Now, let's return to the claims made for fracking. Alas, fracking oil - drilling into shale rock to get kerogen, or alternatively, natural gas, is in fact evidence of grabbing BREAK EVEN oil NOT high EROEI oil!  It is a sign of defeat and desperation.  not success - just like deep sea drilling for oil.

As Richard Heinberg explains (p. 110) it in his book, 'Snake Oil: How Fracking's False Promise Imperils Our Future':

 

"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."

 

Also (ibid.) :

 

"A  study of the EROEI for electrical heating of methane hydrate deposits between 1000 and 1500 meters deep yielded ratios from 2:1 up to 5:1, depending on the source of the electricity"

 

Regarding the promises for kerogen or oil shale, he writes:

 

"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. 

 

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."

 

In other words, conflating oil shale (kerogen) with actual light crude oil of high EROEI is like mixing up cow turds with cow's (calves') liver.  One can be eaten, the other can't - and for the oil - one requires additional energy inputs to put to use, the other only refining.

 

Heinberg's numbers and projections are reinforced by sound sources such as the London-based brokerage firm Tullet Prebon, whose Strategic Insight report declares:

 

 

"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."

 

The Report goes on to note that the "diminishing dismal energy returns" (and again one needs to separate Q(PR)   from Q(net))  means that "the economy we have known for two centuries will cease to become viable at some point." In other words, far from being "capitalistic" - the Peak Oil model and meme is fiercely the opposite because it discloses there are serious limits to our use of resources. BY implication - and direct observation as here in Colo. with its 50,000 frack wells - it also means we have already passed the break even oil extraction point.

 

Obama, in addition, now evidently wants to permit deep sea drilling off the Atlantic coast, which is further evidence the break even point has been passed and we are I desperation oil extraction mode.

 

Stop and think - and read - before you buy into the bullshit that cheap oil prices mean Peak Oil is or was a myth. And should you disbelieve it, then take note of this forecast from yours truly: as high quality, efficient oil becomes ever scarcer, look for returns on investments to sink ever lower and the world economy to 'bottom out' with growth barely 1 percent per year. Look also for common goods including food to become ever more expensive since oil is the fuel needed to produce it, as well as transport it. Not to mention the water resources consumed as well.

 

Oh, and look for your energy bill - relatively low now - to go through the freaking ceiling!

Mensa Bulletin Looks At The Two Sides of Fracking - What Should You Believe?

The latest issue of the Mensa Bulletin featured two interesting back to back articles on fracking. The first, 'Energy and Economic Freedom' by Leonard Gaston, sang the praises of fracking for both natural gas and shale oil (kerogen) and how it is helping to make us energy independent. The second, 'Selling Our Health and Homes', by Al Bell, examined how fracking is undermining not only our environment - devastating water sources and ecological systems - but also our own health by extension.


 According to Gaston, in his frack- praising piece (p. 20):

"The Independent Energy Agency indicated in its 2012 world energy outlook, that by 2018 North America will provide 40 percent of new supplies  through the development of tight oil and oil sands and that the expected steep rise in U.S. shale oil reserves will change the global balance of power between existing producers and new producers."

 Note that "tight" oil means that extracted at or near the "breakeven point", i.e. the energy input to extract it is nearly equal to the energy that will be delivered by it. In most instances of kerogen fracking, I am putting in about 1.1 barrels of high EROEI (energy returned on energy invested) light crude oil, to get about 1 barrel back.  This is based on the additional energy needed to clean up nasty fracking waste pits, spills, leaks and other collateral damage. And btw,  this is heavy, volatile, 'skank'' oil of the type that has recently been traced to explosions in rail way storage cars - in Canada and in the U.S.

From there, Gaston goes on to sing even more praises and presses the case for pie-eyed optimism, quoting the head of British Petroleum (surely a font of insight), stating that the rise in U.S. oil production -  largely due to shale oil - would make the United States "completely independent of imported oil, likely by 2030."

Maybe, but what condition will the planet be in by then- with over ten million fracking wells and more added all the time? Is it really worth all that extra energy and to boast of "energy independence" to live in a ravaged world where you can barely breathe and looking across the landscape you see only barren, shredded terrain, with barely any water left to drink (all poisoned by methane and other effluent)? What kind of a parent would even want to bring a kid into such a world?

These questions are left to Al Bell to answer, but even before he does, Robert Heinberg ('Snake Oil: How Fracking's False Promise Imperils Our Future'  ) has butchered the whole Pollyannish nonsense that fracked oil and natural gas are our energy saviors - oh, and will be kind to the environment.

As Heinberg observes, 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.  Regarding the much ballyhooed "shale oil" or kerogen, Heinberg is blunt (ibid.):

"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. 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."

Many Mensans, I think, would not have read any of this before seeing Bell's account, and hence may be skeptical (especially since way too many Mensans buy into the libertarian nonsense.)  I will be looking to see what sort of responses come in over the next few months,

Bell's bona fides and familiarity with oil and natural gas came from his father who had been president of the Southern Gas Association and a member of the American Gas Association. No surprise he had largely been into the "drill, baby, drill" meme.  His education on the deleterious effects of natural gas fracking, however, came by virtue of seeing Josh Fox's Gasland and Gasland II documentaries, e.g.

http://brane-space.blogspot.com/2013/07/gasland-ii-too-intense-for-wifey-to.html

http://brane-space.blogspot.com/2013/07/gasland-ii-fracking-is-worse-than-you.html

As Bell observes (p. 22):

"My views have now been completely reversed by two documentaries, Gasland and Gasland II, and by the all out and totally unscrupulous efforts by the gas industry to discredit the information provided by those two films.  I have little love for environmentalists, but when they are right we must pay attention and this is such a case."

He goes on to elaborate on the pro-frack propaganda, leading to too many brainwashed citizens:

"Gas industry ads blanketing television now are intended to show you how safe this process is and how we all benefit from it. The ads show how this fracked shale is separated by thousands of feet of rock from the aquifers high above and how steel casings and cement liners prevent any gas escaping into the aquifer."

He goes on to show what bollocks this is by citing the gas industry's own stats that disclose 5 percent of cement liners fail immediately, and more fail progressively with time.  In Gasland II, for example, Josh Fox shows an actual document from Schlumberger, revealing that cement failure occurs at alarming rates - as depicted in one of their graphs showing 'fraction of wells affected by cement failure' vs. the well age in years'.  The document showed a failure fraction of 40 percent after only 12 years, and a failure fraction of 50 percent after 30 years.  That means if 1.5 million new wells are added in the US of A, as projected, 750,000 will leak after thirty years. If 180,000 are added to PA, that means 90,000 will leak after 30 years.

So the natural gas and other ads pumping "safety" are all BS.

The result of all the leaks, as Bell notes (p. 23): "The result is tap water that contains methane, other gases and chemicals" (Like benzene).  He also shoots down the idiocy, pushed e.g. by Niall Ferguson, that the quality of air is unaffected. He writes (ibid.):

"Special FLIR cameras have captured scenes of massive amounts of methane escaping from the drilling sites, polluting the air."

As here in Colorado, Bell has noted "frequent fogs of brown gas escaping from wells, blanketing homes and herds".  Such instances have caused gas companies to erect enormous walls, some fifty feet high and blocks long, in some Denver metro communities - to try and prevent the noise and effluent from affecting communities excessively.  One of them near Denver is shown below:


But the negative health impacts can't be cordoned off so easily - especially as the frackers can extend their drilling underneath the walls, even into neighboring properties.  Bell observes (ibid.):

"You may now be eating meat from cattle raised in this environment. Much of our country is being destroyed by fracking. Just the sight of dead wildlife, poisoned streams, sick children and burning wells  - and government mendacity and collusion will disgust you."

Indeed! And lo and behold there on CBS Early Show this a.m. was the little shyster, Lloyd Blankfein - of Goldman Sachs - which made out like bandidos in the aftermath of the '08 financial meltdown ( by making credit default bets against good lenders). Here he was proclaiming what a "blessing" it is to now have energy independence in the near future. As the little rat said:

"Here we had all taken it for granted that we'd have to import energy from the most troubled places in the world. Now, all of a sudden, we have a completely different view forward.  And if you want to think how that will change the world going forward - just think of how the world might have been different if we didn't have the energy situation we had. Going forward, we have a terrific situation and we should recognize it. It's a gift and it has to be picked up."

Which makes me wonder what turnip truck this little prick fell off of. For one thing, his reference to what "might have been" is totally disingenuous. What is he saying? That if we'd only started to plumb natural gas and shale oil sources 40 years ago we'd have avoided becoming embroiled in Middle East geopolitics? Or the Arab Oil Embargo? Hello! It was precisely that HIGH EROEI light sweet crude that enabled everything that advanced the nation - from powerful machines leading to efficient manufacturing, to jet aircraft in modern aviation (and mass transport via such) to air conditioning, and  petroleum byproducts (including fertilizers for growing crops). It was that HIGH quality oil, not degraded kerogen, that enabled it,  you doofus! Hence, without that Arabian  (and domestic) light sweet crude, our economic growth up until the 1970s or so never would have been what it was!

As for shale oil fracking being a "gift", tell that to the kids dealing with sores and rashes all over their bodies, and unable to breathe without coughing half the time.

Blankfein also pointed to the creation of "2 million new jobs"  but as Al Bell observes, these are mainly in Texas, Louisiana, Pennsylvania and North Dakota where the frack craze has brought in drillers by the tens of thousands, to try and grab their brass ring.  The result? "Motels in Texas and Louisiana are doubling all their prices" and roads are clogged with many more thousands that the towns were not developed to accommodate. Meanwhile, pollution and noise reigns supreme.

Meanwhile, the claim that  these new fossil fuel "plays" are resulting in a "5 percent reduction in greenhouse gases" is just plain balderdash. In fact, greenhouse gases- including methane and CO2 -are now increasing at an ever more dangerous level (See 'The Years of Living Dangerously' which can also be viewed online.)

At the end of his PR appearance, Blankfein claimed that:

"Everybody is pro-environment and everybody is pro-energy. It's not a question of somebody being right and somebody being wrong".

But in Al Bell's essay, it is! Key among the issues is the loss of water supplies, especially, since each fracked well consumes 3-5 million gallons of fresh water  So that question, not to be facetious, becomes:

"Would you rather have clean water to drink and use, OR energy?"

This puts the issue in a more objective form than Blankfein's.   Since no one can live without water, and we can live with less energy (though yes, it might be hard to surrender all those smart phones and notebooks) it is a no -brainer. "Balancing" the two seems to be a fool's errand, because as it is,  the gas industry isn't interested in being balanced. They will not, for example, allow communities here in Colorado to establish limits to fracking. (It has been left to Jared Polis to table such a referendum for vote in November  - to enable all CO communities to decide for themselves if they want fracking or not).

Given the lack of balance, the environment and human health must trump the energy mandate. However, don't look for industry, government or Wall Street to go along with anything citizens want.  On this score, Bell is perhaps correct when he ends his piece with:

"If we do not stop plans to frack (in the CA Central Valley, where most of the nation's produce is grown) we will be totally fracked!"

We're Enmeshed in the "Spoils" Society? Think Instead of the LOW Grade Oil & Debt Society!

WaPo Neoliberal hack Robert J. Samuelson is at it again, this time condemning what he calls a "spoils society" approach ('Here Comes the Spoils Society'), which takes from the poor widdo rich 0.1 percenters  to slightly lessen some of the nation's gross inequality. According to Samuelson:

"We are, I fear, slowly moving from “the affluent society” toward a “spoils society.” In 1958, Harvard economist John Kenneth Galbraith published his bestseller, “The Affluent Society,” which profoundly influenced national thinking for decades. To the Great Depression’s survivors, post-World War II prosperity dazzled. Suburbia offered a quiet alternative to crowded and noisy cities. New technologies impressed — television, frozen foods, automatic washers and dryers. Never, it seemed, had so much been enjoyed by so many."

Unstated by Samuelson is how Galbraith deplored the excesses of a consumptive society and in particular the pernicious influence of the advertising complex which confused wants and needs. As Galbraith put it, the basis for this complex was purely to make Americans confused over what was really a need, and the luxuries (large or small) they desired. Meanwhile, the objective of Madison Avenue was to brainwash the hoi polloi into believing luxuries were really essential needs that they were obligated to satisfy via purchase. In this way, the energy depletion of resources took on a new head of steam and now, some 60 years later, we find ourselves mired in 'stuff' (55 million square feet thus far devoted to storage mods, according to a recent Denver Post piece) and having to dredge up ever more degraded forms of energy to support our unsustainable consumption.

So, let's not hesitate to note Samuelson is already off base in his adulation of 'Murica's cornucopia of goods, especially, and that Galbraith in any way extolled or endorsed it as a permanent feature. Galbreath, in fact, evinced a basic distrust of the advertising complex and its pathological ability to persuade people to spend beyond their means. As he wrote (p. 147):

"In a society where virtuosity in persuasion must keep pace with virtuosity in production, one is tempted to wonder whether the first can ever keep ahead of the second. For while production does not clearly contain within itself the seeds of its own disintegration, persuasion may."


 But, knowing Samuelson, it isn't surprising he distorts it like he did JFK's deficit spending in the early 60s. Samuelson writes:

"This explosive abundance, Galbraith argued, meant the country could afford both private wants and public needs. It could devote more to schools, roads, parks and pollution control. Economic growth became the holy grail of government policy. Production was paramount. It muted social conflict."


In fact, Galbreath implicitly questioned the excess materialism of the country in terms of producing consumer items that weren't genuinely needed and which could be projected to add to debt, if people purchased items they couldn't afford.  As he observes (p. 146):

"...we should expect that every increase in consumption will bring a further increase - possibly a more than proportional one, in consumer debt. The evidence is already impressive. ......From 1952 to 1956, total consumer debt increased from $27.4 billion to $42,5 billion or over 55%....although those were prosperous years, disposable income of individuals increased by only 21 percent."

And what, pray tell, is the consumer debt picture today? According to the site nerdwallet.com it stands at a total of $11.13 TRILLION or orders of magnitude larger than Galbreath cited by 1956. In other words, what he foresaw as the metastasizing cancer of wants converted to needs by clever advertising has come to pass. Indeed, $898.4 billion of that debt is in credit card debt while some $7.81 trillion is in home mortgages. Most of the latter owing to the American penchant to purchase way too much home, far beyond what they can afford.

Hitherto uncited, but vastly worse than the era of Galbreath's mere "21 percent increase in individual disposable income", is the fact that incomes in the U.S. have remained stagnant since 1973. This, in tandem with Americans' over-consumption (buying what they don't need), has incepted the massive debt load. It also begs the question of how any serious writer or Neoliberal hack could complain of WHY there exists a "spoils society".

Samuelson writes, on the heels of his claim that production was paramount earlier:

The “spoils society” reverses this logic. It de-emphasizes production and fuels conflict. Here’s why: There are two ways to become richer. One is to provide more goods and services; that’s economic growth. The other is to snatch someone else’s wealth or income; that’s the spoils society. In a spoils society, economic success increasingly depends on who wins countless distributional contests — not who creates wealth but who controls it. This can be contentious. Winners celebrate; losers fume.


He then complains that the country  "is losing ground to predatory behavior (grabbing existing wealth and income)" and that what was once 3% growth per year (since 1950) is now projected to be 2% or less. And this degradation of growth heralds smaller gains, so that  "more people will fight over existing income and wealth, because — as has been said — that’s where the money is. "

Samuelson, oblivious as he is to the energy factor underlying production, has no clue, not one, that the degradation of economic growth is inextricably tied to the decreasing energy return on energy invested (EROEI) of fuel sources. In other words, our energy-dependent civilization is becoming ever more impoverished as the efficiency of the energy to run it diminishes over time. As it becomes more impoverished, production becomes more costly as well as inefficient and energy-intensive at all levels. As a result, growth decreases while debt increases except for high end rentiers and labor expropriators - who prosper (and hence deserve to have their wealth redistributed). All of this was explained in detail in my earlier blog post: http://brane-space.blogspot.com/2013/09/44-trillion-in-deficits-by-2024-minus.html

As I noted therein, essentially, a nation which had become addicted to energy delivering 20 to 30 or even 40 times as much energy as it costs to extract, now faces a future with energy return 5 to 8  times less. This spells monetary-economic disaster because at the end of the day it is energy which  determines wealth of nations, money is only the medium to represent it.  Dilute the energy sources and money's value must be diluted also, what the wonks call "debasing the currency". The alteration of the EROEI fuel projections also translates to less growth. If Samuelson really knew about this fundamental underpinning of economics he wouldn't be so mystified as to why growth must diminish as high EROEI fuel sources do.  He also would be less surprised that we have now entered more into a redistributive society.  

Since assets must remain basically fixed as high EROEI energy stores plummet, it means that a fixed resource 'pie' is all we have to divide, and there is no "adding" to it. We have entered what we call a "zero sum" economy.  If the richest have more resources, then we must redistribute their excess resources and wealth  to ensure all citizens are able to meet their basic life needs. It's as simple as that. Samuelson can squawk all he wants about taking spoils, but all the foot stomping in the world will not repeal the diminishing energy future with which we are faced. At least the guy is honest about one thing, when he admits: "The promise of economic growth was oversold."

As for those who may be mesmerized by the recent report that the U.S. is now "the greatest oil producer in the world" (on account of oil shale) don't make me laugh.  If you really, truly believe that low EROEI shale oil (kerogen) provides a way out of the debt, low growth and lower production morass (and hence 'spoils society')  then I have five acres of choice beach land in Barbados to sell you for a song.

As Richard Heinberg notes (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. 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."

And oh, btw, if more expensive it is not going to solve either our lower growth problem, or our higher debt problem. As for fracking, that's no savior either. 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."


In other words, like it or not, we are indeed enmeshed in a veritable  "spoils society"- but not out of spite or envy of those who have the "most toys" - as Samuelson asserts. But rather on account of a declining energy base for us all. And unless Neoliberals like Samuelson know where we can find another Earth to populate with plenty of resources and energy (and the least energy intensive way to get there), or know how we can downsize our current system to accommodate lower energy sources  - he better just shut up and learn to like it. Meanwhile, we need progressive and even socialist thinkers to conceive of improved ways of resource re-distribution from the hyper-rich to the struggling citizens who can now barely feed their families because of the sequester and government shutdown.