The Slow Crash – by John Kinhart

Back in October 2009 cartoonist John Kinhart published this comic strip that had an outing then on The Oil Drum. I have used this extensively in my University teaching materials as it still manages to sum up the complexities of the energy and economic situation in a charmingly simple way, as poignant today as it was 5 years ago.

At this juncture I think it is safe to say that $110 / bbl suited the producers, especially the high cost producers, much more than $60 / bbl. And that $60 / bbl suits the consumers much more than $110 / bbl ever did (all prices notionally in Brent that symbolically no longer exists as a major oil field). Consumers will eventually learn that there is not enough $60 oil to go round.

Roger and I are winding down for the holiday season. We will have a few small posts like this one over the next couple of weeks. We wish all our readers the very best for this Christian holiday season of massive consumption. We hope you are safe, well, with family and friends and have enough bread on your table in this increasingly fractured and polarised world that we live in.

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8 Responses to The Slow Crash – by John Kinhart

  1. Hugh Sharman says:

    Thanks Euan and Roger for your magnificent effort during the past 12 months! I feel an intellectual pigmy among giants but have nevertheless also enjoyed the company of your many erudite readers around the world!

    Seasons Greetings to you all!

  2. How about using part the money saved to build and keep higher costs oil shale extraction plants nice and ready to go as soon as the oil price starts rising again? That would force Saudi Arabia to boost production to keep the price down for years, because we could then produce our oil at a moment’s notice. Let them exhaust the cheap oil first. After all we haven’t been paying oil at over 100$/barrel for years because there was little oil but simply because the cartel kept production low. Just a thought, I don’t know how workable it is.

    • Euan Mearns says:

      The shale “extraction plant” takes the form of 2000 drilling rigs and the crews to Man them spread over Texas, N Dakota and Pennsylvania.

      Still no major move yet in the Baker Hughes rig count, but its certainly coming. 4 to 8 weeks from now the shale industry will be winding down. And then we find out how fit the operators are.

      I’m guessing the drilling companies will have cash in the bank – at least they should have, and will get rid of overheads via the firing part of the hiring cycle.

      The operators have a calculation that goes:

      estimated ultimate recovery (EUR) * average price = income per well

      Art Berman has consistently argued that the EURs have been overestimated and now price takes a massive hit……

  3. Florian Schoepp says:

    I wish you and your family & friends a peaceful, relaxing Christmas season. Thank you for your work but also a big kudos to the many commentators who have provided me with additional insight and ideas. All the Best, Florian

  4. Graeme No.3 says:

    Best wishes for Christmas and a Happy New Year.

  5. sam Taylor says:

    Merry Christmas one and all, hope everyone enjoys it. I can’t say I’m looking forward to 2015, though it promises to be interesting no doubt.

  6. Ed says:

    Fantastic cartoon. Remember not to have too much pot, Euan, might give you nightmares: ‘save me, the windmills are coming to get me’ variety. Ha ha. Have a good Christmas, 2015 promises to be interesting.

  7. Gunnar Kaestle says:

    I like the explanation of “Price dynamics at the end of the oil age” by Deutsche Bank.

    The analysis from 2009, but on page 51f it is quite useful:
    – Bottom end of the price range is set by the cash cost of supply
    – Upper end of price range set by the price of demand destruction

    So, they say the lowes price are determined by variable costs of production (agree) and this can go forever as far as the demand is going back the same rate of the decline.
    But the high price level is not determined by full costs (including well drilling), but rather by the costs of demand destruction (opportunity costs of waiving consumption). I think this may be true because consuming less can be done very fast, whereas producing more take more time, especially if this is not only done by just turning existing valves on, but exploring sites which had been waiting in the known reservoirs section.

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