Some very puzzling and contradictory data has been spilling out of my trusty Dell  Precision 390 desktop of late. In November or  December there was a report from the Oil industry rag on a slowdown in fracksville. Then the WSJ put out a similar story within the last month. Ditto on a blog from the respected INDEPENDENT oil analyst Art Berman. But what does he know? as a Houston oil man said some time back. “Art hates fracking.” The report that really caught my eye was Tyler Durden’s Zerohedge site on 1/20/19 which carried a report from the Big honcho of Continental Resources, Harold Hamm who said that frack volumes could fall 50% this year. He did qualify it as a “Wild guess.” What was more revealing is that the Frack Ponzi which relies on issuing bonds and stock mostly to the hedge fund and private equity crowd was only able to peddle 3 issues in October and NONE SINCE! That is big news and there was signs that the debt already issued was beginning  to smell like 3 day old fish on Wall Street.I mean who would want it? Most have the frackers have been  free cash flow negative forever. That is they are losing money. Free cash flow is operating cash flow minus capital expenditures. Not all companies mind you, just most depending upon what quarter you take a look at. Art Berman said 1/3  of companies were FCF negative in the third quarter at a time when crude prices were pretty high for the year. Continental was one of the winners as well as a few bigger  diversified companies like Conoco Phillips. Some years back Art put out a similar graph of all the companies and at that time I recall that less than 5 were solidly in the red at a time o

f low prices. Here is Tyler’s graph of debt issuance:Here is Berman recent graph of free cash flow for companies engaged in fracking activities in the Permian formation:

And then here is the just issued report from the EIA and Rystad Consultants on the coming boom in Fracksville:

Last week saw some of the most optimistic forecasts for the future of US shale oil production ever published. Rystad Energy announced that the US is on track to produce some 24 million b/d of oil, more than Russia and Saudi Arabia combined by 2025 – assuming that oil prices stay above $58 a barrel. The growth in US liquids production will be driven by major shale basins such as the Permian, Rystad’s report said.

The EIA also joined the optimism last week.  In its Annual Energy Outlook 2019, the administration forecast that US crude oil production will keep setting annual records until 2027 and will remain higher than 14 million b/d through 2040, thanks to continuously growing shale production.   “Near the end of the projection period (2050), the United States returns to being a net importer of petroleum and other liquids as a result of increasing domestic gasoline consumption and falling domestic crude oil production in those years,” according to the EIA.

This was courtesy of Tom Whipple over at Peak Oil Review.  Those numbers are mind blowing forecasts.completely at variance to what I mentioned at the beginning  of this post. The EIA and IEA have been wrong on forescasts for decades usually dialing back numbers with subsequent Energy Outlooks. For eample  The Monterey Shale in California was for some years predicted by the EIA and USGS as the next big gold mine but in 2014 they had to revise the stimates of extractible oil downward by 96%!!!  Art Berman is especially critical of the IEA in Paris. He once noted that the IEA staff is virtually devoid of geologists and consists of statisticians and economists and their idea of making a prediction is to extrapolate  a line from some arbitrary starting point. The head of the IEA, Faith Birol, is a Turkish economist. I do not know if the EIA has scientific staff and is also cluttered up with  economists,witch doctors,and viziers like the IEA but it wouldn’t surprise me. I am eagerly awaiting Art’s take on Rystad’s numbers.

It should be noted that these agencies and think tanks almost always crank out predictions based upon the estimated resource. But as some wag once noted, it’s not the size of the resource that counts  but the size of the straw! I saw no mention in Rystad’s paper how many wells it would take to reach 24 million bbl/day, or how much sand and water or more importantly how much MONEY  would be needed to hit these numbers.  The inability of  these companies to attract capital in the last 3 months might throw a wet blanket over these predictions.  I assume if the oil price could get to 3 figures and stay there, fracking might become viable but every time in the past 40 years when oil hit a high point, there was a recession. So we have the new truism: high oil prices kill economies. Low oil prices kill companies. There are a few things we do know. Conventional oil wells make money in spades and always have before they eventually deplete. Saudi Arabia has about 1350 wells and as of 2015 the US had  1,666,715!!!

So let’s do the math. Both countries produce about 11 million barrels a day. Divide that by the number of wells and Saudi Arabia extracts an average of 8148 BBL/Day per well and the US 6.59! We know that Frack wells deplete drastically in a year or two and there are a lot of stripper wells in the US but there are stripper wells in Saudi Arabia too.

I have a hunch(just a wild guess) that if these frack companies continue to have difficulty attracting finance they will either go under as many have already or be sucked up by the big fish with deep pockets.(Do fish have pockets?) But the pockets of the big three oil companies may not be as deep as we assume. They have sunk a lot of dry holes looking for oil in the past 15 or 20 tears and piled on a lot of debt:

These aren’t up to date numbers but they show a disturbing trend up to 2017. Little oil companies can go bankrupt but so can big ones if they guess wrong. And to wrap this post up I will state that based upon my own personal research, I do not know if this fracking boom can last . There is no way to be sure.

There are other places in the world where formations similar to the Permian in W. Texas exist. Namely the Vaca Muerta in Argentina’s high desert and potentially the world’s largest, the Bazhenov in Siberia.  Again, it’s not the size of the resource but the size of the straw and whether the extraction process is cash flow negative or positive. I haven’t previously mentioned this but besides matters of cash flow there is the matter of energy flow or EROEI(energy return on energy invested). Unless these companies can get a decent return in money or energy, what is the point? Germany in WW2 was making aircraft and tank fuel from coal using the Fischer-Tropsch process . It took 2 units of non oil energy to get one unit of fuel energy for  Tiger Tanks and the  ME109.They lost the war because they ran out of oil. I know virtually nothing about these frack formations but water and infrastructure is bound to be a problem in both areas and if global warming continues as is expected, Siberia will lose its permafrost and turn into one big mosquito infested mudhole int the summer. My final statement in this post is one I have repeated ad nauseam and that is that the world is past its peak in Cheap Oil and it is cheap oil that has driven growth in the  world economy. Richard Miller who oversaw prospecting for BP wrote in the Guardian:”We are like a cage of lab rats that have eaten all the corn flakes and discovered that you can eat the cardboard packets too

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Review of OIL, POWER, and WAR by Matthieu Auzanneau

In this post I am just pasting a review of an amazing book about Oil. The author is a French citizen and the book is a translation recently released. It is far more than just a history of the oil industry such as Yergin’s The Prize published in 1990. I submitted this review to Amazon where I often review notable books and they refuse to post it. I assume it was due to some strong opinions I offered about some of our recent feckless political leaders. Sorry Jeff. Didn’t mean to hurt your feelings.

Matthieu Auzanneau has written the definitive history of oil, far eclipsing the authors who preceded him, notably Daniel Yergin who wrote THE PRIZE in 1991. Yergin’s book, now very dated covers similar ground up to about 1990. Yergin’s book emphasizes the importance and positive aspects of the rise of and importance of the oil industry in transforming the industrial civilization and he is even today a consultant to the world’s oil production titans. He is often portrayed as the authoritative voice of the oil industry broadly brushed.. His predictions of oil demand and supply along with the EIA and IEA have long dominated the discussion over policies of oil extraction and supply. He has been exceedingly well paid as a spokesman of big oil and the conflict of interest should be obvious. An independent analyst he is not. Auzanneau, a French citizen, stands in sharp contrast to Yergin and covers similar ground as did Yergin but delves far deeper into the history and importance of oil and gives a far clearer picture of the people and events behind the rise of the industrial economy fueled by oil. Where Yergin in his readable style gives a history of oil, Auzanneau gives a history of the importance of oil as the fundamental basis of wealth and military power and the bedrock of the world economic system. In addition he fills in the 30 year gap from the publication of Yergin’s The Prize.
Fundamentally the book is a behind the scenes look at the origins of the oil industry from John D Rockefeller of Standard Oil and his necessarily tight relationships with financial Tycoons like JP Morgan. The economic and industrial power of the oil industry allied with the military and political power of the federal government expanded into an empire seeking to control access to oil resources far distant from the dusty windswept plains of Texas and Oklahoma. He covers the other European and Asian competitors also striving for dominance of oil supplies as all sought to monopolize access to The Prize. The book is filled with fascinating anecdotes of the major players in the industries and the palace intrigues of world political leaders. There is a long section on the role of oil in wars of the last century and the 21st century as well. The lesson I learned is that most of the wars were over and about oil. The victors were victorious because they had oil. The losers lost because they didn’t. For example Germany’s military aircraft technology was equal to or superior to American and British technology but the Germany’s insufficient access to quality crude stocks and additives yielded fuel of inferior octane quality. The Luftwaffe’s 90+ octane avgas was no match for the allies 130+ octane gasoline which delivered far higher performance. When the German military failed to secure Caspian ,Middle Eastern and Romanian oil fields, the war was lost. The same happened to Japan when their pipeline to the Indonesian oil was cut. Oil Power and War covers how the US CIA and Britain’s MI6 maintained a stranglehold over Persian Gulf oil in the postwar period by bribes,secret cartels and Faustian agreements with the Middle East countries. This included Operation Ajax toppling Mohammad Mossadegh, the “father” of Iranian democracy in August 1953, and establishing “friendly” regimes aligned with their corporate and colonialist goals. The US played off one country against the other to make sure no country or leader achieved dominance or became too uppity challenging the established order of the giant independent oil majors. Eventually Persian Gulf leaders and tribes rebelled against the colonial powers and nationalized their industries, the situation that exists today. The US with its own domestic vast oil supplies dominated the world stage for much of the 20th century but as domestic resources waned our political and economic elites mounted a renewed power grab for Persian Gulf oil access laid out clearly in the Carter Doctrine which established the US as the policeman of the oil corridors. Auzanneau covers this in exquisite detail. The lies of the Bush and Cheney administration are laid out in stark detail. Dick Cheney shouted “It is not about oil!” He insisted It was about promoting democracy and preventing the use of weapons of mass destruction. It was about creating prosperity and spreading democratic western values. These are revealed as blatant lies as the war was solely about getting access to the last unsurveyed Iraqi oil fields which needed to go to American Oil companies after the invasion of Iraq. But the strategy to seize Iraq’s oil failed. Civil war ensued. The entire region was thrown into chaos and irony of ironies, it was China who ended up with the bulk of the access. The picture Auzanneau portrays of America’s feckless misadventures in the Middle East is not a pretty one. Shortly after the absurd “mission accomplished” Bush spectacle on the Aircraft carrier USS Abraham Lincoln in 2003, Madeline Albright was asked about the 500,000 children in Iraq who perished in the lead up to the war because of US bombs and sanctions. “Was it worth it?” she was asked. Secretary of State Albright did not hesitate. “Yes. It was worth it.”
The books value lies not just in a fantastically detailed history of oil but in the importance of oil as the primary energy of our industrial civilization. Oil IS the economy and the control of Oil is power. Oil and energy use per capita is directly correlated with improved living standards, public health and achievements of medicine,democracy, women’s suffrage, education and technological advancement in the countries that possessed the access and the use of oil. But fossil oil is finite and as it depletes can the economy and these hard won societal achievements principally in the West, be preserved? These are questions Matthieu addresses and he offers his opinions which must be emphasized are his opinions. He does not suffer fools gladly and spares no punches with current world leaders. This will offend some readers and inform others. My opinion as an oil analyst is that his data and facts are unassailable in most cases . This book is the historical gold standard about oil history and anyone who wants to understand how the industrial world came into being and where its trajectory might land must read this 550 page masterpiece.

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Can Jackson Hole be sustainable?


“Sustainability” is one of those words often used but misunderstood. The dictionary definition goes like this: Sustainability is meeting the needs of the present without compromising the ability of future generations to meet theirs. It has three main pillars: economic, environmental, and social. In this valley I have often seen the word combined to produce an oxymoron, as in: sustainable growth. Unlimited economic growth is impossible on a finite planet because of limited non renewable resources like oil and metals and degraded renewable resources like soil and water. The dominant force driving economic growth is solar energy, primarily stored  fossil energy with a small contribution from so called “renewable” energy.. There is a direct correlation between energy use per capita and GDP going back almost to the dawn of the Industrial Revolution. Increasing energy use yields increasing economic growth, improvment in living standards and rising wealth. Environmental sustainability is assured if the organisms in the system can obtain the necessary nutrients to meet their energy needs using what is available in their environment’s “carrying capacity.” Social sustainability is a community which cares for, fosters and respects its member’s social, cultural, legal and economic rights and needs allowing loyal members to bind together as a community. It is my contention that we are entering what Jim Kunstler has termed “The Long Emergency.”  We are facing a host of predicaments: Global Warming, species extinction, digital surveillance, economic inequality, social disintegration and violence, political polarization, overpopulation, critical resource depletion, and massive debt issuance  just to name a few. The common cause is the growth and development path the world has followed for the past few hundred years which has been made possible by harnessing the cheap concentrated solar energy contained in fossil fuels, primarily oil. That rodeo is coming to an end. The worldwide production of cheap conventional crude oil has been essentially flat for more than 10 years. Expensive less useful “unconventional” oil has increased but too high oil prices imperil an economy and too low prices imperil the oil companies. The economy has become a highly complex networked, self organized and globalized entity. It has been characterized as a “dissipative structure” capturing and converting energy in much the same way as a hurricane or for that matter almost any living organism. This complexity has hit a point of diminishing returns where problem solving by implementing complex solutions has the effect of adding unanticipated problems. The most obvious problem for Jackson is the Just in Time(JIT) supply chains that allow this valley to survive. Everything and everyone coming to Jackson arrives by oil. We produce virtually no food besides cattle forage. Even the alfalfa pellets for the Elk Refuge arrive by truck. We saw the fragility of Jackson recently when the access corridors were largely closed by avalanches. Grocery shelves went empty as did most gas station fuel tanks.  What Jackson does is produce “services” to the inhabitants, most of whom are visitors able to visit because of their discretionary income. Environmental  sustainability exists when the individuals can live within the carrying capacity using  available resources and not contaminating the environment with their waste. What is the carrying capacity of Jackson Hole? It is effectively Zero for humans if food can’t be grown and stored over a long winter. It might be a few hundred or thousand under skilled agriculture and judicious harvesting of the flora and fauna to augment protein needs. JH a century ago had an operational fabric of social sustainability characteristic of small agricultural communities. I contend that is now degraded by vast income and class inequality, hyper tourism, expensive housing, and services provided by distant workers among other factors.  The decline of cheap energy will end growth as we have known it.  The decline may be swift and sudden going over a “Seneca Cliff “as recently noted in a book by Ugo Bardi. It may also be possible to obtain energy from renewable sources “decarbonizing” the economy as has been proposed by Alexandria Ocasio Cortez. Ultimately we will have to obtain all our energy from renewable solar energy rather than non renewable solar energy from fossil sources.  It is vital to develop a risk management strategy as an intelligent response if we are to ever achieve sustainability in JH.





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COP 24…a waste of energy?


It has been a long time since my last post. This statement reminds me of the old Catholic confession days:”It’s been __days since my last confession”…..

I offer no excuses because a Marine never makes excuses, paraphrasing what  colonel pappy used to say. My “explanation” is that we have been very busy here on our sprawling Rendezvous Mountain Farm trying to grow fodder, irrigate, harvest hay, feed the livestock and keep the elk and moose from destroying our fences. But the current state of affairs in the world does demand a brief return to blogsville, perhaps a post on the Year in Review or some such. Indeed it has been a helluva year for the planet. I’m sorry to report that it has been all bad. Those of you who want happyspeak putting lipstick on one of my Kunekune pigs had best now move your mouse to the “X” and surf elsewhere.

What kind of year has our planetary goddess  Gaea endured? Well, she (Gaea) is hotter than ever and more turbulent. She is too wet in some places and too dry in others.  She is losing insect and animal and bird species at a rate not seen since some of the great species extinctions of the past 500 million years. The insect extinctions have been helped along by the likes of the globalized chemical companies like the vaporous shell of IG Farben and its bastard children:  Bayer, Heochst, BASF and of course mow “roundup ready”  Monsanto and Dow. No surprise that this year the Monsanto slut has climbed into bed with Bayer in Germany.  You might recall that it was IG Farben’s brats that brought you those great Nazi products so beloved by goose steppers as Zyclon B which they piped into summer camp showers in Auschwitz and Buchenwald. Amazingly these chemical assassins live on, pumping out herbicides and pesticides wiping out species after species under the umbrella of industrial agriculture making money hand over fist. So if a few bees die, what of it? It’s business.

And the markets have been  volatile of late, now in “correction” territory.  Calling them markets is a misnomer. There is no market and I don’t mean just the stock and bond and housing markets. There hasn’t been any market in a decade because the various central banks have killed them. The US markets are dead because the Fed  killed price discovery  with misguided purchases of bank garbage and QE . There is no way to know what anything is worth and if you can’t accurately price what an asset is worth, you have no market. Throw in stock and bond trading based upon algorithms which dominate 70-90% of stock trades and what do you get? No market. The Fed printed trillions of money and gave it to the criminal banksters to “save” the economy(aka:the banks) who then gave the nearly free money to the global corporations and foreign banks bailing them out at the expense of middle classes in the developed world who became poorer. Zero sum game and as a result the wealthier got wealthier at the expense of the 99% who loaded up on debt to sit in stalled traffic with their financed  400 hp Cummins crew cabs and  SUVs . This printed money sloshed everywhere as corporations and countries and citizens loaded up on this cheap debt(money). Where is this all headed? What happens when your dope peddler cuts you off? Right. You guessed it. Does this mean the end of growth?  We can only hope so for the sake of our dear third rock from the sun. The “growth” meme will be hard to kill because economic growth is the Siamese Twin with  energy growth. You can’t have one without the other. And energy growth means more emissions. CO2 emissions went up 1.3% in 1016 and 1.6% in 2017 and 2018 looks to bump up as well. So what is  poor Gaea  to do? The enviro lefties say we can have our cake and cram it down our pie hole too! All we have to do is swap all those stinky coal plants burning Wyoming coal for windmills and solar farms. We can still have growth but it will be clean growth using “Clean” energy instead of dirty energy. And it’s not just our dewy eyed environmentalists mouthing this nonsense. Over there in Katowice, Poland, representatives to the United Nations Climate Change Conference COP 24 from a few hundred countries have tried to nail down an agreement to monitor emissions and somehow try to implement the limited targets of the Paris Accord.  The conference didn’t fool a 15 year old Swedish girl who grabbed the mic:                                                        The problem is that the COP 24 targets were feeble and enforcement nonexistent not to mention that President  Trump pulled out of the previous Paris Accords ages ago. I am not denigrating these well meaning people who think they can save the world by trying to implement sustainable economic strategies switching to “renewable” energy sources. The fact is: we CAN’T. Their assumption is: we CAN. All the world has to do is stop using fossil fuel energy and embark upon a crash program of getting our “renewable” energy from windmills and solar farms. tides etc. Where there is a will, there is a way says COP24. Si se puede. No puedo. To understand why I am shouting No Puedo you need only look at the breakdown of world energy consumption by source in 2015; (from BP):oil 33%, coal 30%,NG 24%,hydro 7%, nuke 4% and others 2%.” Others” includes renewables like ethanol, biomass,wind and solar geothermal and tides.. Renewables and hydro total about 9%. Hydro is nearly maxed out worldwide. Other organizations like the EIA and the IEA give  renewables 12-13% .  No matter who you source, solar and wind renewables were a tiny fraction in 2015 . They have increased slightly in the past few years but they remain  minute.  In fact in some countries the energy contribution of wind and solar has not played out as hoped despite gerous subsidies. The PV boom in Spain resulted in impressive nameplate capacity far above delivered real world capacity. IN Germany the first gen windmills are being torn down and shipped to the third world as the subsidies expire. And here is my considered opinion: they will always be a tiny fraction of the primary energy output and can never replace fossil fuels not the least because they are constructed assembled and transported  using fossil fuels. Renewables only make electricity.  Renewables cannot substitute for oil no matter what Elon Musk tells you. Renewables can’t move plastic salad spinners from China to Walmart!   I do pity the poor reader trying to sort out  all the conflicting opinions in the media concerning a switch to renewable energy.

There is general consensus in the scientific community that global climate change is largely man caused. CO2 emissions is a form of pollution just like the plastics flowing into our oceans. The problem I see with these conferences presented by the scientific community is that they assume that educating the public about the causes and implications of climate change will lead the public to conclude that something needs to be done and that they will get on board.  These writers and speakers tiptoe around what exactly needs to be done to bring down emissions. What needs to be done to bring down emissions is to EMIT LESS! That means using less energy from fossil fuels but as I have pointed out, fossil fuels represent roughly 87% of all primary energy sources. The world has been using less coal of late but more NG has replaced it so emissions have even grown. Those politicians and corporate bigwigs in positions of power know the direct correlation of energy to economic growth and a sudden decrease in energy use will decrease economic growth and generate a recession. Their power  and wealth is dependent upon economic growth. That is why they have fought the idea of using less energy. The greatest polluters are the Industrialized countries. That is where any meaningful reductions of CO2 would have to occur. What’s the chance of that happening?  The COP24 conference recommended that the wealthy industrialized countries would need to help the newly industrializing ones preferably by encouraging them to adopt renewable energy sources and helping them pay for the adoption. Gaea will not be saved by well meaning pie in the sky ideas like these strategies.  Even if some of these ideas could be implemented,  the amount of energy switching is just too little to make a difference. The World Energy Outlook for 2018 is just out and it acknowledges that emissions are continuing to rise and will continue to rise up to 2040. The Paris accords mention reducing emissions by 80% by 2033 and 100% by 2060. What is the chance of that happening especially in view of steady INCREASE in emissions for the past 3 years?!!! This is devastating news for Goddess Gaea. In a future blogs I would like to show scenarios of what it would be like if we actually had to meet the CO2 reductions of the Paris Accords . At some point this century the world will almost certainly make drastic reductions in emissions of CO2. Can we do it voluntarily or will it be forced upon us?

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The End of Oil Part 7

The End of Oil Part 7

In this post I will attempt to explain in more detail the methodology of the Hills Group  in their 65 page paper issued as a second version in March 2015 entitled “Depletion: A Determination for the world’s petroleum reserve An exergy analysis employing the Etp model.

Fair warning: the interpretation and explanations are mine and mine alone and they may be inaccurate, wrong or confusing. I come from a scientific background and took advanced chemistry, physics, biology and calculus level math but I struggled to understand portions of this paper and had to refresh long forgotten concepts in thermodynamics. If I am uncertain of my understanding I will so state.

I will give the abstract to their report……..


Petroleum is a primary energy source; its other uses have only minor commercial value. It therefore follows that to be an energy source petroleum must be capable of providing sufficient energy to support its own production system (extraction, processing and distribution). Thus, the total specific (per unit) energy needed to complete the process cannot exceed its own specific exergy. Entropy production (a Second Law mandate) in the petroleum production system (PPS) requires that a point will to be reached when the production energy required to drive the process forward becomes equal to its specific exergy. It can be shown that this breakeven point for petroleum production occurs when the cumulative production curve approaches its top abscissa. This point represents the maximum theoretical volume of petroleum that can ever be extracted for use as an energy source. The total production energy (ETP) is therefore a function of the cumulative production function (CPF) and the entropy production of the PPS. The entropy production of the PPS is derived through the solution of the Entropy Rate Balance Equation for Control Volumes. The ETP function generated is an accurate predictor of historic and future petroleum prices, production, and the depletion status of the world’s petroleum reserve.

M King Hubbert who first predicted depletion of the world’s reserve made a prescient statement and is taken from a new book “The Oracle of Oil(2016):

So long as oil is used as a source of energy, when the energy cost of recovering a barrel of oil becomes greater than the energy content of the oil, production will cease no matter what the monetary price.”

I will attempt to simplify the key methods used by Hill et al and use a few definitions as possible.

I have previously stated in an earlier blog some of the world Resource estimates which are not  reserve estimates. A reserve is a known quantity that can be economically extracted. A resource  is an estimate based on educated guesses, proximity to active producing fields, perhaps preliminary seismography fields, similar geology and so forth. Both resource and reserve terms have many sub headings which I will not go into here. The USGS in 2000 gave a world resource base of 4300 Gigabarrels(4.3 trillion barrels.)  The world to date (2016) has consumed 1.29 trillion barrels. The Hills group decided at the outset that they could use only verifiable data sets and not company or country figures and they chose world production of conventional oil starting in 1900 through 2009 which was obtained from the EIA along with the price history. They attempted to analyze then entire production process such as extraction, processing and distribution. It is not stated in the paper how this was achieved or obtained and what factors were included or omitted. Nevertheless they determined as best as possible how much energy was used per year and called it Etp, total production energy.. Obviously this figure had to be less than the specific Gross Exergy which is given by the unburned virgin energy of a specific variety of crude API 30-45 deg. Which is 140,000 btu/gal. They call this quantity exergy, not energy which I believe is incorrect. Exergy is energy available to do work and no work is available to be performed until oil is burned . After it is burned 29% is given off as waste heat which generally (but not always) is lost as exergy, which leaves 99,400 btu/gal as your exergy, your quantity to do work.

They then modeled oil production in three control volumes which by definition are open systems allowing mass and energy to be transferred. These control volumes differ from some types of thermodynamic analysis which is structured using isolated or closed systems. This open system is assumed to closely represent an oil reservoir/well head environment. I am unable to reproduce their sketch but it shows a simple diagram with at the bottom the black oil reservoir with a drill pipe passing through the ground to the well head exiting in the Environment, that is reservoir, well head and the environment as three control volumes. The next section shows the calculation of Etp(Total production energy) using a daunting equation which again does not reproduce accurately for me. If I can reproduce these pictures and equations later I will include them in this blog. They are available to view on pages 6 and 7 in their paper. The group then endeavor to simplify using the Entropy Rate Balance Equation for control volumes which seems straight  forward enough as they calculate the entropy production in the Petroleum production system  and in the end they show their calculated value for btu/gallon per 1 billion barrels for premium API 35.7 crude. They determine the flow rate out of an oil reservoir calculating the rate of crude flow and water mass flow which they say is the cumulative distribution function of the production data set. The resulting production function is displayed  as a logistic curve.   A logistic curve is the familiar sigmoid or s shaped curve which is a type of exponential curve combining the standard exponential increasing at an increasing rate curve combined with with a bonded exponential so called.


The result is a nice s- shaped curve which describes biological systems like population growth and finite resources of certain types.. The logistic curve is the shape of the Etp curve of the Hills Group. Hubbert’s curve(remember Hubbert’s curve?

Hubbert’s curve

is the so called first derivative of Hill’s cumulative production/Time curve.


Hubbert’s curve is a Gaussian or bell shaped curve depiction of oil depletion derived from  entirely different ways of predicting oil field depletion than BH Hills work employing thermodynamics but the results are strikingly similar, particularly the above grey curve which is the NET Hubbert curve.  Both curves show in plain sight as plain as the nose on your face that we may be reaching  a crucial point that M King Hubbert said in a quote I listed in an earlier blog. When all  the oil energy used to extract, process and distribute  oil is being consumed by the petroleum industry then it is game, set, match for society as none of that energy is being returned to society as energy or as wealth. Our industrial society is entirely dependent upon that received energy and  matter to advance an energy dependent technology and maintenance of its complex institutions and remove that crutch, that support and all growth and expansion of societal growth and wealth will cease. If you follow Hills curve to when that point will occur, you will see the year as 2031. No one, No One! is  acknowledging or mentioning this possibility although there have been plenty of hints within and without the Oil Industry for many decades. Here a a few quotes gleaned from books I have on hand and the net: “We’ve embarked on the beginning of the last days of the age of oil”—-Mike Bowlin, CEO ARCO, 1999.

“By early in the 21st century, the era of pumping black gold out of the ground to fuel industrial societies will be coming to an end”—Paul Ehrlich(1974)


Is BH Hill’s model of oil depletion correct and is it really possible that the end of oil  could be happening as soon as 13 or 14 years hence? I don’t know but I cannot find any substantive flaw in his work.  If oil exergy cannot support its extraction then it’s my guess that other energy sources will need to be utilized as subsidy but what can we use ? Coal or gas  energy? Electricity?

Coal and gas are poor substitutes for petroleum and electricity of course is not an energy source anyway. It is just a convenient carrier of energy, which would have to be supplied from gas or coal or nuclear and none of those sources can  compete with oil’s utility to make things move! Remove oil and most motion of goods in trade, in transportation will grind to a halt. Will every car and truck and plane stop flying in 2031? Of course not. Hill’s work is directed at field and reservoir depletion and at extraction, production and distribution of the so called marginal barrel, the next barrel. There will still be oil in those legacy fields being drawn to the surface and distributed but in ever diminishing amounts. If society could wake up and go on a crash program to conserve what oil exergy remains to smooth out the transition to a carbon constrained future, we could find as a society a way to safely ride the backside of Hubbert’s curve and stretch out what is left but I see no reason to be optimistic that  the United states with 5 % of the world’s population who consume 25% of the world’s oil is showing any inclination to even consider changing its energy wasteful lifestyle  of suburban sprawl and happy motoring. The leaders of the new administration are embarking on a clueless pursuit of trying to recapture a period in US history that was fostered by almost unlimited cheap fossil energy to make America great again? The clock is running down on the oil age and whether it happens as soon as 2031 or a decade or so later, is irrelevant. This fossil energy that has provided vast wealth, enormous exponential population growth, exponential food production, easy cheap mobility and wasteful extravagance and complexity is starting to run down but our business model at least in the US and developed economies with its dependence upon oil energy is kaput or soon to be. We will simply have to switch to non oil energy sources and use far less energy to boot, and  very soon if BH Hill is right.

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The End of Oil Part 6


Today was a big day for this blog because I finally have found a reference to the work of the Hills Group and their Etp model in a linked post on the written by Alastair Crooke: That post is worth a read and contains a lot of good opinion on aspects of society not involving the declining net energy to society as a result of oil depletion which is of course the subject of the Hills Group 65 page monograph which I have been referencing in my latest series of blogs. It is my hope that the work of the Hills group gets wider dissemination ASAP by people with the training and perspective to understand the methodology and significance of that 65 page paper. If their work is correct then the Industrial World is in for mammoth changes in BAU and I don’t mean in 2050 or 2100 which most of the mainstream energy agencies, oil companies and business media have been assuming. The sources for their opinion has been the work of economists and economic oil analysts, oil executives and some geologist organizations and political figures who have incorrect assumptions, biases and financial motives which have hindered and impeded answers to the questions: How much oil can we realistically expect to receive in the future and for how long and what prices can we expect to pay?. It is my well considered opinion that these people are seriously mistaken in their assumptions,predictions and projections, particularly those residing within the economics profession, which is a “social” science, composed of many “schools” of thought who have had a dismal record of prediction and their recommendations to central banks and political figures have been appalling failures by any standard. Ted Williams the famous Red Sox hitter famously said “If you don’t think too good, then don’t think too much!” It is high time to listen to true scientists from valid scientific disciplines looking at these questions from valid and established scientific perspectives from fields like physics, chemistry, thermodynamics,  energy ecology, systems analysis  and climate science. We need continuing input from economic historians and I fully expect that the economic profession will be able to evolve and understand eventually the dynamics of the situation that the world is facing in the next decade or two. Lawrence Peter once wrote:” An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” And my favorite from Mark Twain:”It ain’t what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so!.”

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The End of Oil Part 5


I n this post and in future posts I will attempt to explain the methodology of the Hills Group using thermodynamic principles to examine world petroleum depletion. I will try to do my best to simplify and explain concepts foreign to some readers and if I explain correctly and perhaps more simply, the interested reader might be better able to draw his/her own conclusions

Unfortunately the Hills Group doesn’t give background and history on how their research started. That might be a worthy subject for an extended magazine article but I will try to imagine the early steps. Keep in mind these guys are engineers, not poets and what counts with engineers are numbers and data.

In a recent lecture on Oil depletion Dr Alister Hamilton who is senior lecturer in the School of Engineering at the University of Edinburgh pulled up a graph from the book “The Limits to Growth” in which he presented a graph of how the relative resource cost of the extraction of a resource ( eg oil) changed over time as the resource headed toward depletion. The graph showed that the relative cost remained relatively fixed until about 60% of the resource was consumed. After that point the cost started to climb ever more steeply as the remaining resource was extracted. This seems intuitive. IF I were to relate this to oil I would say that the early extraction up to about 60% represented the “Cheap oil”, the easy to get oil. That is in fact how the oil business has been run. In the early days of  the Spindletop Field in East Texas all they had to do was sink a pipe and the oil shot out under its own pressure. EROEI analysis of these early days estimated the energy output received versus  the energy input was enormous, perhaps 100:1 or more. This was the case for many of the early Texas and Oklahoma fields. This was fossil energy that was virtually free. It was the same case later in the Middle East where mammoth fields like the Ghawar in Saudi Arabia produced vast gushers of oil with little energy input or trouble. But today more than 60 years after the Ghawar was discovered the worlds petroleum industry has become long in the tooth and depletion of the early huge fields is an undeniable fact and except for the North Sea and Alaska North Slope discoveries, almost no new significant easily accessible fields have been found. There have been some significant discoveries in the deep sea and there is some hope that some big finds might await in some other regions such as Siberia and the Arctic but as yet almost all the great fields have been petering out declining at 5-8% a year.. Small oilfields decline twice as fast as big ones and HSBC reported recently last September  that the typical new oilfield size 40 years ago was 500 million to a Billion barrels whereas in the past decade that has fallen to only 75 million barrels, an amount only enough to power  the world for one day! Last year the exploration success rate hit a record low of 5% and the average size was a miniscule 24 million barrels enough to supply the world for less than 8 hours!  US tight oil had been one of the few bright spots and currently is providing about 4.6 mbpd, about 5% of world supply, but there has been declining production in almost all fields due to the natural 5-7% depletion rate and low world oil prices. However, world demand continues to grow at more than 1 million bpd. The Hills Group in their paper gave the USGS  resource estimate in 2000 of as much as 4.3 Trillion barrels . The world currently is using 33 Billion barrels a year. The world’s cumulative consumption since 1859 has been 1.29 Trillion barrels. So what’s the problem? It turns out that a resources depletion state has as much to do with the efficiency and cost with which it can be produced as it does with how much is in the ground and what it can be sold for. So to look at Depletion comprehensively Hill et al emphasize that the entire production system has to be looked at, not just the volume remaining and extraction at the well head. The term they use in the paper is what quantity in the resource or the reserve meets their engineering requirement which they define is “fit to use”.   Hill further states that each succeeding barrel in a field costs more in energy terms than the previous barrel in effect yielding less energy to the end user, a mandate of the second law. I understand this to mean that in addition to oil being removed, heat energy is also being removed. The temperature of the earth increases 1 deg/F for every 70 feet. A well 7000 feet deep might have a temperature 100 degrees higher than the surface. Early on in their project they must have realized that accurate prediction needed accurate data and trying to get data on 48000 fields all over the world from small and large oil companies and oil producing countries as well as knowing the geology would be impossible. Not only was the data incomplete or inaccurate or lost, oil resource and production was often kept secret by the producers for a variety of reasons, some of which are obvious. The group decided the most reliable data set was the cumulative production produced and that data was available from energy organizations such as the EIA and the IEA. Price history was readily available as well. The Hills group chose the data set from the EIA as their starting point starting arbitrarily in 1900.   At this point I will digress temporarily to explain a bit about the energy available to be used in the petroleum producing system.

Hill states that if crude oil is to be a useful as energy source it must be capable of delivering enough energy to support its extraction, processing and distribution. That is, oil provides the energy to produce oil.  The drilling energy used on most drilling rigs is diesel which may be used directly or by means of diesel powered generators which in turn generate electricity or power hydraulic pumps and air  compressors   and a variety of pumps to add or remove water or drilling muds for example.  Once oil appears at the well head it must be processed to remove undesirable contaminants, processed to separate the oil into component fractions and then moved to refineries to yield the various needed fractions of diesel, gasoline, asphalt and bunker fuel for ships. All this energy available to do this work is called its Exergy, which is defined as energy available to do work. Keep in mind that the energy contained in the oil is not destroyed. The available energy to do work, its exergy is what is consumed as the oil energy is transformed into work with a large part of the energy lost to heat as entropy which always increases in irreversible processes such as these. Once the exergy has done its work, its value falls to zero. It is necessary to keep in mind that in this inefficient exergy cascade, heat is lost, “wasted” all along the way. All those diesel engines and refining and transportation engines generate entropy and waste heat and energy prodigiously. Electricity in the oil production/processing system may come from a coal power plant   which is 35% efficient or generated by a gasoline or diesel engine which is 20-30% efficient. Let’s not forget the  175 pound workers arriving to work in 6000  pound trucks powered by those inefficient engines, the vast majority of energy being used  to move the 6000 pound truck  and  that transportation efficiency  (175/6175 lb) yielding an efficiency of 2.5%!  And I almost forgot to mention that the very process of combustion of the oil yields only 71% of the energy in the original crude. This is derived from the combustion equation for crude oil. That is, there are 140000 btu in a gallon of crude but after burning you are left with 99,400 btu as energy left to do work, as  crude’s Exergy or if you will, its net energy. The other 29% is wasted as heat, adding to the entropy in our world, contributing to global warming.  By now I hope the reader is getting an understanding  of the vast amount of energy flowing into the production system. The  MOST IMPORTANT POINT TO KEEP IN MIND  is that it is energy of the fossil fuels being returned as exergy to society  provides the vast majority of the wealth in our industrial civilization. Just like past civilizations, we still have slavery leveraging the work needed to be done but the slaves powering our industrial lifestyle are primarily the bond energy released from the carbon-hydrogen bonds in fossil fuels, the most important being oil. Oil Exergy to a huge extent is how wealth flows into society. By this I mean of course our current fossil fuel dependent industrial society. Energy or exergy always was the driver of wealth but in the pre-industrial era, that exergy came from our own backs and hands and the power of our animals whose energy came from eating plants grown by energy received from the sun. If follows then that if exergy from fossil fuels depletes, then wealth generation will also decline unless of course energy from another source can be found and substituted.    It also follows that if more and more work goes into the oil producing industry, energy is being subtracted from society, Wealth is being subtracted from society and diverted back to oil production. This means that we in society are getting poorer. The point is not far off when all the energy, the “wealth” is flowing into oil and nothing flowing back to soon to be poor little us. As Bob Dylan said “It doesn’t take a weatherman to tell you which way the wind is blowing.” It doesn’t take an economist to understand that if wealth is subtracted from an economy, the economy will contract. I think it is very possible that our recession both here and world wide is partly caused by energy and wealth being diverted back to oil production and if energy available to the world economy declines then growth will decline, or stop or become negative in the not too distant future. So is it happening as the Hills Group seems to indicate and if so when will it happen? Will we have to pay more to fill up our Landcruisers here in Jackson Hole? Will we still be able to fly to Davos to the World Economic Forum and will all the central bank officials, bankers and hedge fund managers still be coming here every summer to strategize how to keep money flowing from the periphery of society into the financial elites? Stay tuned as I continue to try to unpack this little known and very complicated problem.

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