Bakken shale oil fields and peak oil
The top two stories in today’s links are on shale oil and the fiscal cliff. I will concentrate on the shale oil issue and say a few parting words about the fiscal cliff. We have three articles on shale oil here and I think the lead article from Bloomberg is a recitation of the optimists’ or the bulls’ case on shale oil. Most people who understand the logic behind peak oil and support it do’t believe that the shale oil fields will make the US energy independent. Nor do they believe that the oil finds are significant in global terms given the increasing demand and limited, low-cost supply.
As I stated earlier in the year in my primer on peak oil, the best way to look at the conundrum is through the lens of cost-effective supply constraints. If demand craters due to a depression or sky-high costs of extraction that are passed on to retail customers, then peak oil will be put off a few years. But this doesn’t change the dynamic, which is one in which the supply-demand balance has tilted permanently toward demand and away from supply, which means higher prices and the resulting negative geopolitical and economic impact. By the same token, a huge oil find will have the same effect of temporarily alleviating supply constraints. The Bakken field fits in here. But not the hidden assumptions in this second paragraph from Bloomberg News:
Domestic output grew by a record 766,000 barrels a day to the highest level in 15 years, government data show, putting the nation on pace to surpass Saudi Arabia as the world’s largest producer by 2020.
What Bloomberg is doing is extrapolating the current increase forward. And that’s a big no-no in terms of good long-term forecasting. Nothing indicates that the depletion rates of the Bakken fields make such a forecast plausible. And so I believe you should read the Naked Capitalism and the Econbrowser pieces to get a more even-handed discussion of why this does not alter the long-term supply-demand balance which sees a supply shortage that can only be allieviated by (price) rationing or fuel switching.
That’s it on shale oil. But on the fiscal cliff, I still don’t expect a deal that solves the problem. What I do expect is some kind of tax increase and spending cut but nothing as draconian as the full fiscal cliff. The payroll tax cuts are going to be rescinded, as I have been saying all along. ANd I expect other tax increases and spending cuts to be added as well. Bottom line: there will be at least a small negative impact due to fiscal tightening. But I don’t expect a worst-case full bore fiscal cliff outcome. If the fiscal cliff is activated in January, there will still be time to undo it before it turns into recession. Nonetheless, I still believe that there will be enough of an impact that, ultimately, recession will happen nonetheless.
“Domestic output grew by a record 766,000 barrels a day to the highest level in 15 years, government data show, putting the nation on pace to surpass Saudi Arabia as the world’s largest producer by 2020. Net petroleum imports have fallen by more than 38 percent since the 2005 peak and now account for 41 percent of demand, down from 60 percent seven years ago, moving the U.S. closer to energy independence than it has been in decades.”
“While we must proceed into the energy future with caution—and the knowledge that analysts may be overselling the shale boom—there are also, as always, major opportunities in this story and they can be found in the wider trends related to improving energy efficiency.
Looking at our energy future in more detail we were fortunate to speak with the well known economist and author of the Crash Course Chris Martenson. You can find out more about Chris and the Crash course at his website Peak Prosperity.”
“Oil produced from shale or tight formations is going to be very helpful to the U.S. economy. But this is an expensive way to try to get oil, and there may have been some overselling of how much these fields are actually going to deliver.”
“Yes, I’m still pessimistic about a fiscal cliff deal before January 1. While the odds of avoiding the cliff seemed to improve yesterday as the headlines screamed that Obama and Boehner had moved closer to each other, it was clear to me that, if they had improved at all, it was only marginally. To my mind it’s still better than 3:1 that we go over the cliff.
“The White House’s most recent incarnation of a fiscal cliff offer is not without shortcomings – here are the most pressing”
“S&P ratcheted the credit rating on the troubled eurozone nation’s government debt up six notches from ‘standard default’ to ‘B minus’ following the successful completion on Monday of its bond buyback programme – one grade higher than expected.
The agency lowered Greece’s credit rating from CCC to ‘selective default’ after Athens invited bondholders to participate in a series of debt buyback auctions on December 3, saying it expected to restore the rating on completion of the programme.”
“Industrialists remain concerned about how the Swedish krona, which rose again after the Riksbank’s decision to the surprise of some analysts, is strengthening at a time of a weakening economy. In previous downturns, Sweden’s companies – many of them world leaders in industries such as mining equipment and trucks with the likes of Atlas Copco, Sandvik and Volvo – have been helped by a weaker currency.
“It is not the tailwind we would normally have,” Tom Johnstone, chief executive of SKF, one of the world’s largest makers of bearings, told the Financial Times. He added that only time would tell how that would affect the economy but noted that SKF had more than 95 per cent of its production outside the country.”
“Of course, Germany fails to recognise that successful monetary unions such as the US have a full banking union with significant risk-sharing elements, and a fiscal union whereby idiosyncratic shocks to specific states’ output are absorbed by the federal budget. The US is also a large transfer union, in which richer states permanently subsidise the poorer ones.”
“Spanish banks’ bad loans rose to 11.2 percent of their outstanding portfolios in October, reaching a fresh record high, Bank of Spain data showed on Tuesday”
“Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited, an examination by The New York Times found.”
“Saxo Bank, the online multi-asset trading and investment specialist, today releases its annual batch of ten Outrageous Predictions for 2013. This is Saxo Bank’s annual exercise in rooting out relatively extreme market and political events for which the probability is perhaps low, if still vastly under-appreciated.”
“I find myself thinking a lot about the New Guinea people with whom I have been working for the last 49 years, and about the comments of Westerners who have lived for years in hunter-gatherer societies and watched children grow up there. Other Westerners and I are struck by the emotional security, self-confidence, curiosity, and autonomy of members of small-scale societies, not only as adults but already as children.”
“Analysts who had been universally bullish are reconsidering their positions and cutting price targets.
I think it comes down to the fact that Apple created and captured a once-in-a-lifetime opportunity with the iPhone.
And, the era of explosive iPhone growth has drawn to a close, at least at the current iPhone price points.”
“From Oregon to Connecticut, gun shops reported soaring sales over the weekend as national attention returns to gun control”
“General Motors Co (GM.N) said on Wednesday it will buy back 200 million of its shares from the U.S. Treasury, which intends to sell the rest of its GM stake over the next 15 months, bringing to an end ownership that led to the nickname “Government Motors.””
Unemployment in Latin America and the Caribbean is at a historic low of 6.4%. Predictions are for a further reduction to 6.2% next year, according to this article in a Swiss newspaper.
“I’ve been testing the new Google Maps on iPhone for a week or so in the San Francisco and Washington metro areas, and I really like it. It isn’t perfect, but I prefer it to any other iPhone Maps app I’ve used, and to Google Maps on Android. The latter will likely also gain the new design in time, but for now, it looks inelegant by comparison.”
“Financial protectionism and US intransigence blight the Basel III drive, testing the mettle of Basel’s chief cheerleaders, Bank of England governor-designate Mark Carney and Swedish central bank governor Stefan Ingves. The post-Lehman bid to craft harmonized global banking standards is under severe strain amid a global policy rift and fierce lobbying.”
“he VPPA didn’t stand the test of time, as consumer tastes changed and new sensibilities prevailed. A whole new generation came in and not only didn’t care if companies shared what they were watching, but actually found value in them doing so — or at least found value in being able to see what their friends were doing. Users have embraced Facebook’s Open Graph, as apps like Spotify seamlessly share the stuff that they’re listening to, or reading, or whatever, once they’ve opted in.
That’s got video services like Netflix interested, as social sharing has the potential to boost discovery of video titles that users might not have known about, but see their friends watching. Already, Netflix makes social sharing available overseas, but has not deployed the feature in the U.S. due to the VPPA. “
“Getting Netflix streams to play on all of your devices requires a whole lot of encoding: The company is preparing 120 different versions of each movie to deal with different screen sizes and bandwidth requirements, according to a recently published behind-the-scenes video.”