RE: Natural gas: The fracking fallacy

Tue, 23 Dec 2014 21:37:27 -0800 

 

 

From: [email protected] 
[mailto:[email protected]] On Behalf Of John Clark
Sent: Tuesday, December 23, 2014 8:18 PM
To: [email protected]
Subject: Re: Natural gas: The fracking fallacy

 

On Tue, Dec 23, 2014 at 7:08 PM, 'Chris de Morsella' via Everything List 
<[email protected]> wrote:

 

>> I was under the mistaken impression that you understood that historically 
>> the proven oil reserves of a country have remained about as constant as the 
>> New York Stock Exchange, it changes every time a new oil discovery is made, 
>> and even more important, it changes  every time a new technology is 
>> developed that allows for the economic extraction of oil in places where it 
>> had previously been uneconomic.

 

> If that is the case can you kindly point these new super giant fields that 
> must have been discovered

 

I'll do better than that, I'll give you a chart of all the oil and gas reserves 
of all the super giant fields combined in all of the USA as they have changed 
from 1073 to 2013.

 

Yes, the very same EIA that got it so wrong with the Monterey shale deposit 
reserve projections it made in 2011 – that were projected to be far larger than 
the Bakken or Marcelus (have you noticed I actually site the important geologic 
formations by name) All you gave is the one bucket global reserve projections 
made by an agency that has a track record of producing reserve projections that 
it is forced to later revise downwards by 94%.

Am I supposed to be impressed?



 
http://www.usnews.com/cmsmedia/69/cb/488ad887410c904878caf6f3a11d/141204-eiareserves-graphic.png

 

> the bubble mania that was being frothed up in the media

 

There you go again, oil and gas prices are dropping like a rock and you're 
still babbling about a bubble. 

 

I am describing a huge financial bubble, tied to tight oil sector energy 
derivatives that is bursting as we speak, yes. I am describing this investment 
and perception mania that was manufactured on promises of endless supplies of 
new shale deposits. The EIA, IMO, is complicit in this fraud. And as evidence I 
produced the grossly overstated reserve numbers it produced for the Monterey 
shale deposits in 2011, as well as reserve numbers that are proving highly 
optimistic for other formations (the Bakken, Marcelus). Six months ago – with 
hardly anyone noticing the EIA, revised those rosy projections down by 94%.

What are you babbling about, John?

 

 

>> So your theory is that the price of oil collapsed from $130 to $60 because 
>> of some sort of byzantine conspiracy of the Saudi's, but your theory just 
>> does not fit the facts.

 

> You have not been following the news coming from recent OPEC meetings have 
> you. 

 

Saudis block OPEC output cut, sending oil price plunging 
<http://www.reuters.com/article/2014/11/27/us-opec-meeting-idUSKCN0JA0O320141127>
 

For god's sake, don't you at least read the title of articles before you 
recommend one to the list?! The title of the article is "Saudis block OPEC 
output cut" ; the key words are BLOCK and CUT! The Saudis decided NOT to 
decrease production but to keep it CONSTANT. Meanwhile the USA INCREASED oil 
production from 5.0 million barrels per day in 2008 to 7.4 million in 2013 and 
8.5 million this year and it is expected to be 9.3 million in 2015. Knowing 
that do we really need conspiracy theories to explain the huge drop in oil 
prices since 2008? 

You continue to believe in whatever numbers the EIA is putting out – even after 
such embarrassing lack of accuracy of their previous and very loudly and widely 
quoted reserve projections for what was to be an even much larger formation 
than the Bakken. Once the bankruptcies start happening in the oil patch US 
production numbers will begin to slide. Your rosy – EIA produced projections 
will (as is their habit) have to be revised (quietly with little media 
attention) downwards.

You don’t seem to understand the implications of a global spot price of under 
$60 for oil for the drillers in the Bakken, Marcelus and Eagle Ford shale 
deposits. These are debt financed operations that have a voracious need for 
huge amounts of new capital just in order to sustain current levels of 
production. Production that does not make economic sense at anything less than 
$100 per barrel. New financing, is not going to be available with oil at under 
$60 and the drillers will get no loans till it again climbs to well over $100. 
The financing bottleneck is going to really hurt this sector and constrict the 
rate at which upstream projects make it to market.

>> And the free market ensures that the sort of silly conspiracy you're so 
>> concerned about could never work. I manufacture 99% of the worlds widgets, 
>> you make 1%. I want to drive you out of business, so I figure I'll lower my 
>> price until you go broke and then I can jack them up to anything I want. So 
>> now you lose money on each widget you sell, the trouble is I do too. I have 
>> 99 times as much money as you do, but I'm losing it 99 times faster. Even 
>> worse, because the price is very low the demand for widgets is huge, and if 
>> prices are to remain low I must build more factories (or oil wells) and 
>> increase production. I'm losing money faster and faster, meanwhile you just 
>> temporally halt production in your small factory and wait for me to go 
>> broke. It won't be a long wait.

 

> How can I possibly benefit from an economics 101 lesson from a man who 
> swallows cornucopean reserve statements hook line and sinker. 

 

>From that non-response would I be correct in assuming that you have no logical 
>counter argument?

No! You should assume absolutely nothing from my unwillingness to engage you in 
debating some trite little artificial scenario you have devised by yourself 
that has nothing to do with actual global oil markets; with the real world 
reserve & supply situation. 

You do not seem to grasp the concept of low cost producers being able to put 
the squeeze on the high cost producers by engaging in a price war to drive them 
from the market, and I do not care to go through the considerable effort I 
would need to go through in order to have a chance of making it through the 
rather thick protective shell of your own arrogance and conceit, in order to be 
able to finally have a small chance of illuminating you to this important 
dynamic.

-Chris

  John K Clark

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<http://www.reuters.com/article/2014/11/27/us-opec-meeting-idUSKCN0JA0O320141127>
 image

 

 

 

 

 


VIENNA (Reuters) - Saudi Arabia blocked calls on Thursday from poorer members 
of the OPEC oil exporter group for production cuts to arrest a slide in global 
prices,...

        


 
<http://www.reuters.com/article/2014/11/27/us-opec-meeting-idUSKCN0JA0O320141127>
 View on www.reuters.com

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