G20 Profits Off Massive Subsidies For Fake Peak Oil

Posted: November 13, 2014 in Econ 101, Technology and Energy

SOURCE: http://www.bdlive.co.za/world/2014/11/12/g-20-still-fund-hunt-for-fossil-fuels–survey?PageSpeed=noscript

SOURCE: http://seekingalpha.com/article/2673165-peak-what-is-it-safe

SEE ALSO: Exxon Sees Abundant Oil & Gas Far Into Future


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G-20 still fund hunt for fossil fuels — survey

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by Alex Morales
November 12 2014
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LONDON — The Group of 20 (G-20) major economies spend $88bn a year on fossil-fuel exploration, five years after pledging to phase out industry subsidies, a study shows. Spending of $17bn and $11.3bn by state-backed oil companies Saudi Arabian Oil and Petroleo Brasileiro are the biggest components in the funding compiled by the Overseas Development Institute (ODI) and Oil Change International.

The total also includes subsidies and tax breaks from governments, and public financing through development banks. The expenditure is adding to carbon emissions at a time when those same governments are trying to devise a new global agreement to limit global warming to 2°C since industrialisation. United Nations scientists last week said that the world could only burn a limited amount of fuel before it becomes unlikely that the target will be met. “Not only are companies continuing to look for fossil fuels and trying to find new reserves, but governments are putting more money and support towards exploration than companies, which is basically governments fuelling dangerous climate change,” said ODI research fellow Shelagh Whitley.

G-20 nations in 2009 agreed to phase out “inefficient fossil-fuel subsidies that encourage wasteful consumption”, without defining their criteria. Ministers from those countries and another 170 will gather in Lima, Peru, next month to draft early texts of an agreement to fight climate change that they aim to complete at the end of next year in Paris. In terms of direct state subsidies and tax breaks, the US led with about $5.1bn a year, according to the report. Australia provided at least $2.9bn and Russia $2.4bn, the researchers said. Japan had the highest total in the public-finance category, with $5.3bn. “The G20 countries are continuing to fund fossil fuel exploration, which is particularly dangerous in the context of unburnable carbon,” Ms Whitley said. “All of these instruments that they’re using to support looking for new fossil fuels are the same instruments they could use to support renewable energy. We’re calling for them to make that shift.” The researchers relied on broad definitions of a subsidy, using methods utilised by the World Trade Organisation and the Organisation for Economic Co-operation and Development, she said. The ODI in London is a nonprofit research group studying international development and humanitarian affairs. Oil Change International is a Washington-based nonprofit researching fossil-fuel costs and campaigning for a move to clean energy. .

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Summary

  • Examination of the perception that oil is a fossil fuel of finite supply.
  • Examination of increases in oil production, refinery yield, capacity and throughput effecting global gasoline production.
  • Examination of the cost effective alternative of LPG (propane) and the grand misallocation that is corn ethanol.
  • Examination of a fear component in oil futures prices and the unnecessary oil futures contango since 1998.
  • Examination of the promotion of a perception which to date has yielded a quantifiable societal cost along with a qualifiable social benefit.

Unyielding

If your refinery is geared toward gasoline production, the production yield from lighter sweeter oil (LTO, Brent, WTI) is higher. King Hubbert’s theorists contend that this kind of oil is depleting, which means since their peak in 1962, 1970, 1995, 2005, 2015?: we have been adding more sour and medium/heavy crude to the mix. Therefore, over the period (we’ll shift the goalposts to 1995 or 2005), the U.S. refinery yield for gasoline should be declining.

In fact, the U.S. refinery yields of gasoline have remained essentially level since 1993. How? Better technology which squeezes more out of the process? And now our mantra for this missive: Is it safe? Regarding global motor gasoline production, the latest available EIA numbers indicate (thousands of barrels per day) 1984: 10,936.874; 2010: 22,298.800 which indicates a steady rise and doubling. From the BP Statistical Review of World Energy 2014: Excepting South/Central America and Europe/Eurasia, refining throughput has increased in every region and globally. Is it safe?

From the same report: Since 1965, refining capacity has increased in every region and globally. Is it safe?

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Drowning in Production

Many of Hubbert’s theorists cite declines at Cantarell (Mexico) and Europe, which are acknowledged. Contrary to the implication, North America [Cantarell’s location] is up overall and more than making up for the European decline. Is it safe?

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Contrary to the 2005 global peak claim, with LTO (light tight) & NGL (liquid gases), – global production of easy to refine product is constantly increasing. Is it safe?

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Hubbert’s theorists have made 2005 peak claims with the chart above which shows global production of conventional oil (C&C EX LTO & NGL) in a sideways pattern since 2005. A flag waving pattern does not make a peak. Is it safe?

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A Grand Misallocation

A theorist comments: “As for global warming … if the present drought hovering over California spreads to the Midwest… farmers are going to have a tough time converting corn into ethanol/gasoline.”

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On this we agree, as in 2007 we Nattered: “Ethanol, The Grand Misallocation. Corn ethanol, rather than sugar ethanol requires many hectares of land to grow. So, the price of food has inflated through rising grain and feed prices. With the misallocation of resources necessary for corn ethanol… to produce 1 gallon of ethanol requires 17 gallons of water.” Is it safe?

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Penitence?

From a theorist: When the author of [Peak What? Hubbert was Wrong] has to pay $5 for a gallon of gasoline at the pump … maybe then the author… will understand why crude oil has peaked.” The vanity, assuming that a price of $5 a gallon would proselytize and make this blasphemous heathen and pagan idolater, repent, convert or ever show penitence. Three things that come to mind, Zippy the Pinhead; this Talking Head’s lyric : “We are vain and we are blind. I hate people when they’re not polite.” and what would the Devil say? Is it safe?

Acolytes

Cults oppose critical thinking (akin to wondering where the Sun goes at night) and have a misplaced or excessive admiration for a particular person or thing; sometimes, a person or thing that is popular or fashionable. Fortunately, popularity is not a measure of scientific correctness and science is a logical rather than a democratic process. News flash, where I spend a large portion of my time, if unleaded petrol were $5 a gallon, we poor bastards would be doing the yippy skippy Snoopy dance. Why?

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It’s $9 a gallon in Mr. Naybob’s hood, so won’t you be my neighbor? Being a contrarian, I installed a dual fuel system and run off of eco friendly propane which is currently $3.25 a gallon. Just like United Parcel Service (NYSE:UPS), I have a big fat grin every time I tank up next to a lemming who uses petrol or diesel. When asked why they choose to pay triple, the disinformed never fail to state the misperception that NGL is unsafe due to volatility and gasoline is less flammable. Is it safe? As Tricky Dick might have said… “I am not a Schnook“. Gasoline could go to $25 a gallon, and I would never join a cult with a house of worship built around an unprovable theory. Hmm, there’s an epiphany, maybe that’s why Catechism didn’t work out and when I think about Sister Mary Elephant, my knuckles twinge. Is it safe? When King Hubbert’s acolytes are faced with opposition through critical thinking they often launch ad hominem attacks and treat non believers much like the Christians did during the Inquisition (heretic scientists), the Crusades (pagan Muslims) and the colonization of the America’s (heathen Indians of the Americas)? Is it safe? And now a word from one of our sponsors…

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The Immigrant Song

Speaking of native Indians (indigenous to North America), with a donation of stocks or bonds, you can avoid paying capital gains tax on the sale of appreciated stock; receive a charitable income tax deduction; and further the American Indian College Fund. The photo below represents the only group of people in the U.S. qualified to complain about immigration or say “go home immigrant”.

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No Red Herring Please

Getting back on the right track… no respectable agency or scientist foresees a peak in total global energy production in the foreseeable future. When Hubbertian bell curves don’t fit the date, the theorists shift their argument to market price. Let’s clarify, economics has nothing to do with how much conventional oil remains in the ground. The only economics that are relevant have nothing to do with supply side economics outside of an industry orchestrated production squeeze at the field and refinery level. The Nattering Naybob’s lex parsimoniae: Rule #1, It’s usually about the money. Rule #2, Never forget rule #1. Rule #3, To ascertain motive, follow the money: Price of crude 1999 $9/bbl, 2008 $142/bbl on speculation. Zippy might ask, but how do you know?

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OMG! No Zippy, although the analysis is logical, it is not a cookbook. After the 2008 “peak” oil price (tongue in cheek), prices cratered to $40/bbl in 2009, rising since to $110/bbl and recently correcting to $80/bbl. Over the period, there were no supply, production or demand variations justifying the price swings. During the 2008 price “peak”, the number of deliverable futures contracts on some oil grades were 92X the actual physical production. Logical conclusion, the market price was manipulated by overleveraged future’s speculation.Therefore, price is irrelevant to how much oil remains in the ground. As Kid Creole saidSorry Ma’am, no fish today“… so theorist’s, please quit attempting to cloud what is crystal clear and put the red herring price contango argument away. Ok, there’s the how, now who profited? The oil cartel, the market brokers and the speculators, heretofore the “oil insiders”. Questions answered as to how and who. Aside from those already mentioned, from 1998 to present, who has publicly promoted a misperception that puts a fear premium in market prices through futures speculation? Is it safe?

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The Resurrection

Did you ever notice how King Hubbert’s theory resurfaced in 1998 to go hand in hand with the Y2K scare? And how all these academic “experts” suddenly showed up en masse? In 1998, the article that moved the debate into the public view appeared in Scientific American, co authored by geologists, Colin Campbell and Jean Laherrere. But, this was just another rehash of Hubbert’s failed 1956 method. 06/19/14 from Michael Lynch at Forbes: In 1989, Colin Campbell had revived the failed 1956 Hubbert method, arguing that conventional oil production had peaked that year. Subsequently, he joined with Jean Laherrere to produce a series of consulting reports making various claims for their ability to accurately estimate recoverable resources and production patterns. These all proved to be incorrect, and they abandoned most of their early arguments, after initially deriding critics… as not being ‘scientific’. Various other technical arguments have been advanced, including that decline rates were too high to allow production to increase, or that the energy needed to produce oil had become too great, but all have faced the problem of increasing discoveries and production. The fact remains that there is no significant work suggesting that world oil production must peak any time in the foreseeable future.”

Proselytism

06/25/14 more from Lynch: “Campbell himself created the myth that the debate was between geologists and economists, making it seem as if doubters were denialists, to use the current term, or anti-science. It has become clear that most petroleum geologists do not support the concept [of peak oil]. Indeed, most of the writing has come from generalists, or at least people unfamiliar with the field. they often make technical mistakes as a result. Their embrace of the Hubbert curve as a scientific model has proven an embarrassment. In many ways, this is reminiscent of the debate over vaccines and autism, where so much of the support comes from people with no medical or scientific background, but much fervor.” Third Reich Minister of Propaganda, Joseph Goebbels: “The English follow the principle that when one lies, one should lie big, and stick to it. They keep up their lies, even at the risk of looking ridiculous.” Slowly but surely, with an assist from media white noise, social ADD and the sound byte society, given the ruminations from the theorists since 1998, the journey from fringe to mainstream has shifted into high gear. Witness the price of Brent oil going from $9 to $142 during this period of sudden “peak oil” awareness. Coincidence? We think not.

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The benefactors of this theory (the oil insiders) have managed to get it mainstreamed in academic circles and the media to the point where it is accepted as fact by supposedly discerning and intelligent individuals. This does credit to Pravda, Goebbels and the mainstream media in providing a forum for Hubbert’s theory which promotes a perspective benefiting the oil insiders. Is it safe?

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Fear is the Enemy

The only thing the oil insiders needed was something to spook the herd into thinking “the end is nigh”. As Olivier’s Zeus said… “Release the Krakken.” Cloaked in their authoritative robes of academia, the theorists marched on an unsuspecting and naive public; waving their Hubbertian charts with ever shifting bell curves like magic wands at a Hogwarts quidditch match; in unison chanting an unprovable mantra in Goebell’s like fashion; they did their job in spades. When the dust settled from the ensuing investor stampede, the herd was “long” gone and had put an onerous fear premium into oil prices which is there to this day. Using our razor, lex parsimoniae, who profited? The oil insiders. Who has paid? John Q. Public. Is it safe? As a certain network’s news arm would say, to be fair and balanced, prices would have risen, even if the only thing we were pumping was an unlimited supply of C&C… even if it was like water, as in your dowser says here, you drill down deep enough you probably hit it and its a gusher finer than olive oil. Why? Regardless of supply/production, do you really think the oil insiders were going to just keep pumping and brokering oil for a paltry $2 or $8 or $25 a barrel? With the debauch in the fiat currency which oil is denominated in, the dollar, prices would have risen (albeit, not as much). From the June 2004 printing of A Synopsis, Limits To Growth, The 30 Year Update: A prime example of a nonrenewable resource is fossil fuels, whose limits should be obvious, although many people, including distinguished economists, are in denial over this elementary fact. The underground stocks of fossil fuels are going continuously and inexorably down. The ratio of known reserves to production actually rose, due to the discovery of new reserves and reappraisal of old ones. Nonetheless the stock of reserves is finite and nonrenewable…Peak gas production will certainly occur in the next 50 years; the peak for oil production will occur much sooner, probably within the next decade.” Printed in 2004, the conclusions presented are very authoritative and fear mongering. However, much like a call girls wink and smile, they are lacking in substance. As for production data, its like anything else, the charts go up, go down, go sideways and all around, round and round they go, where it winds up… nobody knows. You can draw all the inferences you want, Permian, Mexico, Kern, here today, depleted tomorrow. But don’t look now, that field is back and producing like there is no tomorrow. Why? From Russia With Love Perhaps it’s replenishing itself. From where? I thought oil was formed from long dead plankton and fossils? Why are oil and gas found at depths (30K – 40K feet) where there was never was any life (deepest known life at 18K ft)? Did those fossils manage to bury themselves that deep through gravity or tectonic plate movement? According to the abiotic theory, oil seeps up from far underneath the field, originating from the hydrocarbons created in the top of melted magma chambers which are formed under high pressure and temperature. From Crisis By Design: “The Russians applied their theory of abiotic deep-drilling technology to the Dnieper-Donets Basin, an area understood for the previous half a century to be barren of oil. Of sixty wells drilled there using abiotic technology, thirty-seven became commercially productive-a 62 percent success rate compared with the roughly 10 percent success rate of a U.S.wildcat driller. The oil found in the basin rivaled Alaska’s North Slope. Since their earlier discoveries, the major Russian oil companies have quietly drilled more than 310 ultra-deep wells and put them into production. Result? Russia recently overtook Saudi Arabia as the worlds largest oil producer.” Why did Russia reject the Exxon-Yuko’s deal? Maybe they didn’t want their abiotic technology exported to the West? Who knows? Putin knows? TBD. Is it safe? Remember, a production graph or chart is much like a stock chart. A chart or graph is is merely a picture, snapshot or image in time, which reflects perceived market value prior to that given moment. And what is the caveat disclaimer we investors know all too well? Past performance is never a guarantee of future results. So nobody really knows if a well, field or our reserves are depleted or not, and nobody can prove otherwise. Is it safe? From Wikipedia: Multiple packer systems with frac ports or port collars in an all in one system have cut completion costs and improved production, especially in the case of horizontal wells. These new systems allow casings to run into the lateral zone with proper packer/frac port placement for optimal hydrocarbon recovery. (See photo below of a Halliburton HF1)

Some theorists become apoplectic when one dare question their gospel intoning the sanctity of Hubbert’s theory. So what is the point of taking a production packer to the theorists who authoritatively pretend that they know their ass from an oil hole in the ground? However well intended, the theorists proclamations, predictions and fulminations have been and are a costly disservice to the rest of us. Why?

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Factor’s of Influence

The EIA issues a report in which they track key factors that could influence oil markets: physical fundamentals such as energy consumption, production, inventories, spare production capacity, and geopolitical risks. Other influences, such as futures market trading activity, commodity investment, exchange rates, and equity markets. Upon further review, Investopedia’s Commodities University lists the largest factor’s that influence the price of crude oil. No surprise here, coming in as the largest factor that influence’s the price of crude oil: the exchange rate of the dollar. This supports our contention that price has nothing to do with the amount of oil remaining in the ground. Is it safe? Drum roll, spot lights, coming in as the second largest factor that influence’s the price of crude oil: Hubbert’s Peak Oil Theory! So, production, supply and demand (the politics of dancing) are not even in the top two. As Ben Dreath would say… “givin’ him the business, down there.” In other words, the price has more to do with leveraged overspeculation in the futures market, based in part upon a misperception.

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Perception is Reality?

These days, things being what they are, we live in a sound byte society which suffers from ADD, leading to a lack of ATD (attention to detail), which is where the devil can usually be found. As an unfortunate result, perception is considered reality, even if its a misperception (like the person stuck in the elevator alone, after someone who farted has exited). And that is the ever so sleight of hand that the devil needs. Hubbert’s argument ignores other hydrocarbon fuels, the potential of future finds, and the technological advances to come. At the same time, his acolytes offer authoritative guarantee’s that declining production and increasing demand will at some TBD point in time, cause a disruption in supply.

Lazarus, come out!

We do not refer to the biblical account of Lazarus resurrection, but to the Lazarus theory. “The interpretation of stressful events is more important than the events themselves.” – Richard Lazarus Lazarus states that stress is experienced when a person perceives that the “demands exceed the personal and social resources the individual is able to mobilise.” Neither the environmental event nor the persons response defines stress, rather the individuals perception of the psychological situation is the critical factor. If an individual feels they cannot manage the source of the problem, and have no control over the situation, they may engage in emotional based coping strategies for regulating their stress, some of those being, avoidance, distancing and acceptance. The above is the psychological crux of fear mongering. King Hubbert’s theory is an argument in support of a misperception. The misperception is one of supposed scarcity because there are too many unknowns to prove any factual scarcity. Scarcity and the fear of it, whether factual or supposed, is what creates market fear and profits, and to our salient point witness the 314% increase in the price of a barrel of oil, since only the year 2000. What is used to transport literally everything (aside from electronic credit) in the supply chain (including most labor) via plane, car, truck, train, ship? If the promoters of this misperception were speculators, and many are, wouldn’t this be self serving insider disinformation? As a result of the ruminations of King Hubbert’s theorists; which the uninformed and naive take to heart, and the speculators use as fodder; John Q. Public paid higher prices at the pump, and for all goods in the supply chain effected by the price of oil. As Michael Buffer would say: For the thousands in attendance and the millions watching around the world… We thank the theorists for keeping that same public believing in the depleting oil fairy tale while picking our collective pockets for billions of dollars in oil insider profits. As a means to an end, the theory and its misperception, has had a quantifiable societal cost. Unless Hubbert’s theory is put in its proper place along with other unproven and disproven theories (Aristotelian, Ptolemaic, Geocentric and Flat earth theory) , it will continue to have a quantifiable societal cost, and generate profit for the oil insiders, for many decennia to come.

Perdition or Redemption?

Unlike those who feel “out of control” and engage in the emotional coping mechanisms of avoidance, distancing or acceptance, there exists a Lazarian alternative. Problem based coping is used when we feel we have control over the situation and can manage the source of the problem. Steps to problem based coping: Define the problem; Generate alternative solutions; Learn new skills to cope; Reappraise and find new standards of behaviour. What say ye? Off with their heads? This isn’t the Inquisition, so bear with us, for a Nattering moment… The emotional coping or “golem effect” influencing the fear premium, which has inflicted a quantified societal cost through higher market prices, has led to a “pygmalion effect” through problem based coping, yielding a qualified social benefit in the discovery of new sources, methods, processes and technology. Thereby rendering King Hubbert’s malthusian prediction a “prophet’s dilemma” or a self defeating prophecy, as in one that prevents what it predicts from happening. Proving there is a silver lining in every cloud, and on occasion, even a blind squirrel, like moi, finds a nut. As the poet Jagger said… “you can’t always get what you want, but if you try sometimes, well you might find you get what you need.” On that note, how about a weekend in the laughing stocks and pillary? Not. These alarmists should file for tax exempt status, open a house of worship, and start passing collection baskets and plates at their services to pay a penance owed to the rest of us. The Nattering One muses… Reading some of the commentary at “Peak What? Hubbert Was Wrong“, I felt much like Dr. Christian Szell (Olivier) drilling sans anesthetic on Dustin Hoffman’s teeth in Marathon Man. We must have struck a raw nerve, because the majority of the comments consisted of the vitriol of those who cannot prove their point, nor tolerate any critical thinking which renders it irrelevant or moot. When we finished with the fulminations, much like Olivier’s character commented: “Gerhart, he knew nothing. If he had known, he would have told.” Speaking of it, is it safe? Alrighty then... until next time, thanks for coming and drive safely. Market Plays: You can go long or short on Ethanol with: Pacific Ethanol (NASDAQ:PEIX), Green Plains Renewable Energy (NASDAQ:GPRE), REX American Resources Corporation (NYSE:REX) and Valero (NYSE:VLO). To go long on natural gas, VelocityShares 3X Long Natural Gas ETN (NYSEARCA:UGAZ); to go short VelocityShares 3X Inverse Natural Gas ETN (NYSEARCA:DGAZ). To go short or long on the price of crude oil through (NYSEARCA:OIL) iPath S&P Crude Oil Total Return Index ETN. To go long on crude oil VelocityShares 3X Long Crude ETN (NYSEARCA:UWTI); to go short VelocityShares 3X Inverse Crude ETN (NYSEARCA:DWTI) For the US dollar Powershares long 3X (NYSEARCA:UUPT) or Powershares short 3X (NYSEARCA:UDNT).

Other reading:

In Peak What? Drowning in Oil, an examination of why oil prices are currently correcting to the downside: lower demand, higher supply, a rising dollar and a shakeout in market speculators. In Peak What? Hubbert Was Wrong, an examination of how to date, Hubbert’s peak oil theory has been proven wrong. In Peak What? Dancing With the Devil, an examination of the potential for another unnecessary futures contango begat of energy related junk debt and foreign national budgets tied to the price of crude oil.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
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