It’s an article of faith among most folks that we have more oil/energy than we know what to do with. But, after spending some time with Oilman2 this week, talking through what’s ahead, I’m more convinced than ever that we need to be redirecting our prepping plans slightly to include the prospect of extremely tight energy supplies within the next 5-10 years.
As I’ve reported to you previously, the data suggests we have been in a slow-motion, rolling top, of Peak Energy and we’re slowly heading lower, rounding down toward the abyss.
The only thing that is keeping us stable – for the moment – is a kind of floor under oil at $90.
Here’s the economics of it in a nutshell:
If the price of oil drops significantly, then a lot of the “new oil” suddenly doesn’t make sense: In addition to unannounced helicopter visits to oil rigs by the retooled version of the former Minerals Management Service (at a “regulatory fee” $25,000 a pop, a price which gets rolled into oil prices), there’s the increasing cost of rig rentals, seismic studies, liability insurance, and all that.
Bottom line? Forget about really cheap oil. I doubt that we’ll see $75 oil for a long time, although that really depends on how bad demand collapse is when the stock and bond bubble ends badly in a year or three.
On the other hand, if the price of oil goes significantly higher, then it pushes inflation through the pipeline. When that happens, the rental on money begins to rise (interest rates if you’re not awake), labor rates go up and all the bad stuff turns into a horrific vicious cycle.
Interest rates rise, business collapses, oil demand collapses, and we come back to $100 oil…except it will be $110 oil. Then another pop up and a collapse back to $120 oil…and what used to be the ‘Merican middle class totters off into the sunset to becomes footnote in history. We join the illegal immigrants and except for the language, we turn into Mexico.
Think of it as the Great Crookification already underway. We already have the corruption working its way up, the buying of politicians, though shielded as “campaign contributions” is still graft, just better marketed. But, a purchase, nevertheless. I digress.
The other problem Oilman2 gripes about is the large number of “worms” in the oil industry. A worm, in case you skipped our class “Coon-ass Rig Talk 101,” is roughly the equivalent of a “newbie” in computers. A lot of the young-uns coming up almost need to be burped every time a new joint is turned-up.
Oil timers who know the rig business are quickly cashing in heading for the exits. In the rig business an OF is age 45…and many see what’s coming – much more starkly than makes it into the transfictional media buzz.
With this as stage-setting, OM2 sent me a follow-up overnight with some details about the latest “hot” area in oil: The Eagle Ford Shale Play which runs in a band from the lower Rio Grande Valley area of southwest Texas, up to the northeast, passing south of San Antonio and Austin, but stopping a hundred miles, or so, short of our oil country (Palestine Dome).
From that article OM2 tells me this part is key:
“We’re drilling shale not because it’s a good idea but because we’ve exhausted all other good opportunities,” he says. “It’s all we got left. When this is done, we’re done.”
On this shale drilling stuff, I have been right from the get-go. This is the “rolling price plateau” now, and this type of extraction removes recharging mechanism for shallower fields above the Eagle Ford. The 4000′ depth described in this article is the shallowest workable portion of the play – most of it is below 10,000′.
If you could get onto some of these private ranches and see the mess, smell it everywhere, hit the potholes in all the roads…you would be amazed and not in a happy way.
This means (for us in the USA) that when we hit the wall on these shale plays, we hit it hard and at a good clip.