Wednesday, April 26, 2017

Don't be fooled by oil 'glut,' #peakoil is real

Cheap oil peaked in 2005. Since then, a re-definition of oil to 'liquid fuel' magically increased world production by 10 million bpd. Then massive debt-fueled investment raised "production" a little bit more. Now, we are in the falling net-energy trap for oil. Every day it costs more joules to get a joule. If all the externalities of oil are included net-energy is likely negative, especially in tarsands.

Negative net-energy means that it costs more than 1 joule to get 1 joule. How is that economic? Well, it's not. But transportation, and hence the developed economy, needs liquid fuel. So debt and oilwars will increase.

Currently there is a glut because of three things.
  • price war for market share
  • debt-fueled production in difficult areas
  • weak economies in developed countries
The industry is stuck in the fallacy of composition. Each producer must maximize to keep cash flow and avoid default, or to avoid losing market share. All the agreements to cut back have failed and will continue to fail. 

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