Guest Post: Another Special Report from SRSrocco

HUGE DOWNWARD REVISIONS OF U.S. SHALE RESERVES:  Impact on Gold & Silver

For many years, the oil and gas industry has been hyping their new miracle baby called "SHALE ENERGY".  Through advances in technology such as fracking and higher natural gas prices, unconventional sources such as shale gas became commercially viable.  The U.S. Government first estimated the total shale gas reserves in the country at a staggering 827 trillion cubic feet.  Furthermore, BP stated that shale gas and oil will make the United States self-sufficient by 2030.

However, cracks began to appear in the GREAT SHALE GAS MIRACLE when in January of this year, the U.S. Dept of Energy released new projections which cut the reserves to nearly half to only 482 trillion cubic feet.  Even though this was a 42% decline in reserves... it is still a great deal of natural gas that the country can depend on.  Or is it?

On Sept. 2nd, 2012, something very startling occurred.  The USGS - United States Geological Society, came out with revisions to the shale gas fields' reserves... and it wasn't pretty.  Before we get into the details of the data, let me give you some background information.

I have been reading TOD - TheOilDrum.com for years.  I wrote a two part series called THE GREAT SHALE GAS SCAM on Turd's blog which you can find at these links (PART 1, PART 2).  The series was based on work at TOD by Art Berman.  Since 2009, Art has been skeptical of the hype put forth by the shale gas industry.

The EID - Energy In Depth (a public relations firm started and funded by the oil & gas industry) had to say this about Art last year:

"We think he's wrong about shale.  But the good news is:  we won't have to wait two or three years to find out who's right."

Well, it looks as if the folks at the Energy In Depth got their answer a hell of a lot quicker than they expected.

According to an article by Deborah Rogers, "USGS Releases Damning EUR's for Shale":

Chesapeake Energy (CHK) claims average EUR’s for the Marcellus at 4.2 Bcf. Range Resources (RRC) has claimed average EUR’s as high as 5.7 Bcf in investor presentations. According to the USGS, however, the average EUR for the Marcellus turns out to be about 1.1 Bcf.

(EUR stands for Estimated Ultimate Recovery)

Folks, this is quite alarming.  Chesapeake had stated that the average estimated ultimate recovery of an average shale gas well in the Marcellus field was 4.2 Bcf (billion cubic feet).  The USGS just cut that estimate nearly 4-fold to only 1.1 Bcf.  In addition, investors with dollar signs in their eyes who purchased stock in Range Resources ... now get to experience how a 5-fold decline in reserves will impact their share price.  I imagine SHALE ENEMAS are in store.

The USGS shale gas downgrades do not pertain to only a few areas, they reach across the whole country.  Chesapeake Energy also claimed the average EUR in the Fayetteville was between 2.4-2.6 Bcf.    But, according to the Powers Energy Investor, an industry publication stated:

“To put into perspective how ridiculous Chesapeake’s claims of 2.6 Bcf is, consider the following: of the company’s 742 operated wells completed on the Fayetteville, only 66 have produced more than one Bcf and none have produced more than 1.7 Bcf. Chesapeake’s average Fayetteville well has produced only 541 Mcf.”

Only 9% of Chesapeake's shale gas wells in the Fayetteville have produced more than 1 Bcf.  I would gather Chesapeake probably doesn't believe the average figures it puts out in its propaganda pieces, but can you really blame them when they have to keep running the investor treadmill slaughterhouse?  The USGS also confirmed this by stating the average EUR of the Fayetteville was only 1.1 Bcf.

One of the important factors not to overlook in estimating the ultimate recoveries of a shale gas field, is the realization that the sweet spots are drilled first, saving the mediocre and dead-beats for later.  Thus, as the field ages with shale gas wells depleting exponentially by second year, it's nice to know the industry has decided to save the best for last.

Once you understand the insanity coming from the bowels of the Shale Gas Industry & Lobby, it becomes easier to pick out the charlatans promoting the business in newsletters and commercials.  One name sticks out like a sore thumb -- Porter Stansberry. 

Porter made a name for himself when he had Alex Jones narrate his END OF THE DOLLAR commercials that aired on MSM.  He got a lot of exposure from these commercials that warned Americans of the upcoming collapse of the U.S. Dollar.  He advised his subscribers and readers to buy gold and silver to protect themselves when the dollar finally died. 

Everything was going fine for Porter until he decided that he could make more money getting people to believe in the Great Shale Oil & Gas Scam.  This is how Porter describes Peak Oil:

OVER the past decade I have written many times that I consider Peak Oil to be one of the greatest intellectual frauds ever perpetrated.

Porter has no idea of the falling EROI - Energy Returned on Invested or the declining Net Oil Exports that peaked in 2005.  I wonder if he is paying any attention to the recent USGS shale gas down-grades. 

There is another interesting trend taking place in Texas.  In the past several years, shale gas from Barnett field has gone up in an exponential fashion.  If we look at the chart below, we can see just how much shale gas the Barnett field is supplying to the market:

In the past three years, shale gas production rose 20%.  You would think this huge increase would greatly impact the overall supply.  However, if we look at the NAT GAS production coming out of Texas, we find that total supply has actually declined since 2008:

In 2011, the Barnett Shale produced 1.936 Bcf or 25% of the total 7.6 Bcf that came out of Texas.  For the Barnett Shale to be able to make the U.S. self-sufficient by 2030, it will have to produce a great deal more shale gas than it is today. 

Unfortunately, this may not be possible as it looks as if the Barnett may be reaching peak production currently:

The only way shale gas production can increase to this level, is by the rapid rate of continued drilling.  We must ask ourselves this question.  How will the Barnett Shale increase future production if the industry practice is to drill the sweet spots first?  Furthermore, shale gas wells depletion rates are running at 70-80% after two years of production. 

Once we add up all the negatives such as, the recent USGS downgrades, the high depletion rates and the industry practice of exploiting the best areas first in the field... how in the living hell is shale gas going to make the U.S. energy independent? 

This brings us to the next supposed SHALE MIRACLE.. and that is SHALE OIL.

Basically, what is taking place in shale gas industry, is also taking place in shale oil.  I could get into a lot more detail, but this article would become too long and too boring.  Instead, I have chosen a few charts done by Rune Likvern to give the reader an idea of what is taking place.

The shale oil players are doing the exact same thing as their shale gas counterparts by manufacturing, packaging and selling SHALE SNAKE OIL.  These companies have overestimated their recoverable reserves as well as hyped how much their new technology will be able to extract more oil from future wells.

If we take a look at the first chart, we can see that there is an accelerated addition of wells just to sustain a specific well production in the North Dakota Bakken.  The hamsters are running faster in the wheel -- getting nowhere:

In this next chart, the shale oil production that started in the summer of 2011, is much lower in its peak than the wells started a year prior.  In 2010, peak production from these group of wells was nearly 130,000 BBL's ( barrels a day).  But in 2011, the next group didn't quite reach 100,000 BBL's.

What we have taking place in the Bakken Field in North Dakota is a severe downturn in oil production per well as the best advanced technology is helpless in stopping it.

Rune made this comment on TheOildDrum about his findings:

For the studied wells in Sanish the decline in well productivity was around 40% over a year. Brigham’s wells (all of them which are spread over a huge area) showed a decline of around 10% in well productivity over a year.
Marathon’s wells show some gain in well productivity.
Overall the decline in well productivity was around 25% in one year.

So in light of this it becomes interesting to read that Marathon has decided to cut down on their activities in Bakken.

So did Occidental

Marathon & Occidental are cutting back their activities in the Bakken while oil prices are upwards of $100 a barrel?  Do you see what is happening here? 

As nitwits like Porter Stansberry continue to berate Peak Oil while pushing the SHALE MIRACLE, the data coming from the field provides a very sobering reality soon to knock on the door of the American Public.  And that is, Shale Oil & Gas is not our future energy  savior, but rather another delusion in a series of delusions propagated on U.S. citizens.

This is indeed the problem.  The world has been closely watching the United States and its supposed new SHALE ENERGY PARADIGM.  Countries throughout the world have been banking on our recent success so they can reproduce the same technology in their own supposed shale gas fields.  However, we are finding out that our own experiment in this new energy field has proven quite disappointing.

The world will not be able to count on Shale gas or oil to supply a large percentage of its needs for a long period.  In the end, shale energy will just give us a little more time before we have to realize that we as a species are going to have to survive on a lot less.

HOW WILL THIS IMPACT GOLD?

I have been writing about energy and its impact on the mining industry for a few years.  The U.S. and world has been counting on advanced technology and unconventional oil sources such as shale oil & gas to allow us to keep running our car dependent lifestyles for at least another 3 or 4 more decades.  I think we will run into trouble within the next several years... and this is without any black swan events occurring in the Middle-east.

As you know, I have been writing articles showing the declining gold and silver ore grades in the industry and how more energy is needed to mine the same or less metal each following year.  I have finally updated the top 5 gold miners average annual gold yields, reserve head grades as well as their diesel consumption.

The first chart shows the growth (or lack of thereof) gold supply from the top 5 gold producers:

In six years, the total gold production from Barrick, Newmont, AngloGold, Gold Fields and GoldCorp has fallen 5% or 1.3 million ounces.  As you can see from the chart Barrick and GoldCorp are the only two companies that have increased their production since 2005.  Here are the details:

Change from 2005-2011

BARRICK = +2,216,000 oz

GOLDCORP = +1,378,000 oz

GOLD FIELDS = -734,000 oz

ANGLOGOLD = -1,835,000 oz

NEWMONT = -2,300,000 oz

If we start the data from 2006, even Barrick has less production by nearly 1 million oz.  Furthermore, if I had chosen Harmony Gold instead of GoldCorp in the top 5 group, the overall declines would have been much worse.  For instance, Harmony Gold produced 2.9 million oz in 2005, but only 1.3 mil oz in 2011.  The reason why I selected GoldCorp over Harmony was due to two reasons.  GoldCorp will be the larger producer in the future, and due to the fact that I was unable to obtain diesel consumption data from Harmony's website or through several email attempts to their management. 

In researching the gold and silver mining industry there are a few terms that needs to be explained.  There are average reserve ore grades (head grades), average processed (or milled) ore grade, and average yield.  In the past, I may have misused these terms.  I will clarify this in the material below.

Every year a gold or silver company lists their annual reserves  and resources.  I will only focus on reserves at this time.  As the company mines their reserves and replaces it with new reserves (proven & probable), they state the new amount each year along with an average ore grade or head grade.  Below are the top 4 gold producer's head grade based on year-end reserves:

If we calculate a simple average, we get a decline in overall head grade in the top 4 producers at 4% per year.  I did not include GoldCorp in this chart because they do not list an average head grade in their annual reports.  I decided to do a weighted average of reserves in from their 2006 annual report and found it to be 1.05 grams per tonne.  For the life of me, I don't know why GoldCorp does not show their average annual head grade for their proven and probable reserves.  They do list each of their mines' reserves and respective average head grade (and even a total amount of gold reserves at the bottom), but no overall annual average head grade. 

So, all we need to take away from this chart is that the average head grades in their reserves are continuing to fall at the top gold producers in the world. 

The next chart reveals the relationship between head grades and diesel consumption in the these gold producers.  Here we can see that the lower the head grade in the mining companies reserves, the higher the amount of diesel is consumed.  Newmont (shown in red in both charts) has the lowest head grade of the bunch, and it consumes the highest amount of diesel.

On the other hand, Gold Fields (purple) has the highest average head grade and consumes the least amount of diesel.  If we assume that GoldCorp's reserve head grade is similar to Newmonts, and it was producing the same amount of gold as Newmont, its overall diesel consumption would be more than twice of what it is currently.

According to their 2011 Annual Report, GoldCorp forecasts a 70% increase in gold production (1.75 million oz)  in the next five years.  If they are successful in bringing on this new production, I would imagine they would have to increase their diesel consumption from 58 million gallons in 2011, to nearly 100 million gallons by 2016.

As I have mentioned before, as ore grades decline more diesel is consumed is the mining process.  Furthermore as open-pit mines age, it takes more energy (diesel) to extract the same or even less metal.  In the past five years, the top 5 gold companies have increased their diesel consumption 72% per ounce of gold produced.

In 2005, the top 5 only consumed 12.7 gallons of diesel to produce an ounce of gold, but by 2011 it took 21. 8 gallons to produce that same ounce.  Here are the individual results:

Diesel Consumption from 2005-2011

GOLDCORP 2005/2011 = 8.5 gal oz / 23.2 gal oz

GOLD FIELDS 2005/2011 = 4.9 gal oz / 10.6 gal oz

ANGLOGOLD 2005/2011 = 8.1 gal oz / 15.2 gal oz (2005 estimated)

NEWMONT 2005/ 2011 = 18.9 gal oz / 28.7 gal oz

BARRICK 2005/ 2011 = 15.4 gal oz / 24.6 gal oz

We can definitely see the distinction between the five companies' diesel consumption.  The South African miners Gold Fields and AngloGold consume the least because they are predominantly underground mines with higher average ore grades.   However, this trend is changing due to the fact that good quality underground gold resources are becoming increasingly scarce. 

I would like to clarify one aspect that is not represented in the charts.  The total diesel consumption from Barrick includes the energy it uses in mining its copper projects.  This is also true to a lesser extent for Newmont.  Instead of going through the time and effort to try and figure out what amount of diesel is consumed at just its gold operations, I have lumped it all together.  I believe if a primary gold mining company is going to dilute its primary status by getting into the mining of base metals such as copper, they deserve to have it impact their gold to diesel production ratio.  We must remember, where there is copper, there is gold.  So, I look at their copper mining projects as very low quality gold deposits.

The next chart shows the change in average gold yield in the top 5 producers.  These miners list the average ore grade of the total processed ore (milled) in their annual reports, but this is does not reveal their true gold yield as they lose a certain amount of gold in the leaching and refining process.  To get this average yield, we have to take their gold production and divide it by the total amount of processed ore (in tonnes).

In the past six years, the average yield in these top producers has declined 23% or 3.8% per year.  Thus, in order for these top miners to keep production flat, they have to add nearly 1 million ounces of gold production (3.8% = 900,000 oz based on 2011 figures) each year to offset these loses.  They can do this by adding new mines or ramping up the total amount of processed ore.  Either way, it takes more diesel to do so.

WHAT ABOUT DIESEL CONSUMPTION IN PRIMARY SILVER MINES?

Let me tell you, the information on diesel consumption in primary silver mining is little to non-existent.  I have just started to research this data and have only found sustainability reports for Pan American Silver and Hochschild Mining.  There simply isn't that much data from these primary silver companies as they don't consume a great deal of energy or impact the environment as much as the larger gold and base metal counterparts.

Hochschild does not list their diesel consumption in a single amount, they list it in a ratio to their processed ore.  Without a great deal of time and math calculations, I have decided to just list Pan American Silver's diesel consumption.  Here it is:

Pan American Silver Diesel Consumption

2010 = 5.8 million gallons

2011 = 8.5 million gallons

Pan American produced 24.3 million ounces of silver in 2010 and 21. 8 million ounces of silver in 2011.  Thus, we have a ratio of 0.25 gal. of diesel per ounce of silver in 2010 and 0.40 gal per oz of silver in 2011.  Even though this figure is increasing we can see that mining silver from primary mines takes a hell of a lot less diesel than mining gold.

Pan American Silver had an average yield of silver in 2011 at 4.7 ounces a tonne, or 146 g/t (grams per tonne).  To get an idea of how diesel consumption in primary silver mines compares with primary gold mining, below are the following figures:

TOP 5 GOLD MINERS 2011 AVG YIELD = 1.3 g/t

PAN AMERICAN SILVER 2011 AVG YIELD = 146 g/t

TOP 5 GOLD MINERS 2011 DIESEL CONSUMPTION = 21.8 gal/oz

PAN AMERICAN SILVER 2011 DIESEL CONSUMPTION = 0.4 gal/oz

RATIO of DIESEL CONSUMPTION = 21.8 / 0.4 = 54.5

Here we can see that the top gold miners use 54 times more diesel to produce an ounce of gold compared to an ounce of silver coming from Pan American Silver mines.  As Primary Silver miners ore grades continue to decline, their diesel consumption will increase in the future.

Lastly, there is a reason why the market price of diesel is more than gasoline.  In the refining of a barrel of oil, on average it produces 19.2 gallons of gasoline and 9.2 gallons of distillate fuel oil.  Of that 9.2 gallons of distillate fuel oil, it consists of a portion of diesel fuel as well as heating oil.  The world's demand for diesel continues to increase, but the supply has been relatively flat over the past several years.

There has been some advances in refining technology to produce more diesel from a barrel of oil, but this is not a huge amount.  I still run across people who tell me that the price of diesel is manipulated because it is just a waste product from the refining of a barrel of oil.  That may have been true back in the 1930's, but it is not true today... I can assure you of that.

THE POPPING OF THE SHALE ENERGY MIRACLE MEANS PEAK METALS SOONER THAN LATER

As I mentioned, the world has been closely watching the United States and its supposed success in its new SHALE ENERGY PARADIGM.  According to the facts and data provided in the energy portion of this article, it looks as if shale gas & oil will not be able to supply our increasing demands for liquid energy in the future.  Moreover, it may be difficult to just keep shale gas & oil production from falling in the next several years. 

With the pathetically low price of Nat Gas (at least $4-5 below breakeven prices for the shale gas players), drilling rig numbers in this sector have been dropping like a rock over the past several years.  The hype coming from the Shale Oil & Gas companies will come back to bite them very hard when the public and the world realizes they have been sold an horizontal pipe dream just to keep the HAMSTER SHALE ENERGY WHEEL TURNING.

As the world wakes up to the fact that these unconventional liquid energy sources will not be able to offset the ongoing depletion of conventional crude production, the world will have to survive on less in the coming years.  And, that means less gold and silver.

So, the popping of the SHALE GAS MIRACLE just erased any remaining doubts that the world will be able to continue its delusion of maintaining business as usual... forever.

113 Comments

jaynutter's picture

first?!?!?!

YES!!! First ever first!!!

QE to infinity's picture

Second!

Thank you very much for this very informative article, much appreciated.

145Bluesman's picture

thanks Rocco

thanks Rocco

Bollocks's picture

goddamn

somewhere!

@SRSrocco, I always wondered about the price of diesel. I always understood that it should be a fair bit lower than the price of petrol (gas, ahem, I'm in the uk) as it needs less refining.

Thanks for pointing out why it's not at a lower price.

I am now cleverer cheeky.

Marblesonac's picture

I need a fifth

I need a fifth

Karankawa's picture

Excellent organized collection of data, and very well presented

How you do this and keep up with a mini farm baffles me, but then I'm no longer young.

I was amazed at the interview Stansberry did with Mortenson.  He totally missed the EROI, and went to ridicule Mortenson.

They were discussing two different arguments, and Porter didn't get it.

With a falling dollar, it's peak everything.  I just spent almost 9 bucks for a brass 3/4" * 2" pipe nipple that would have costs 2.50 a few years ago.

Great post!

Battle Beagle's picture

Oversupply/Lack of refining capacity

SRS, how do you account for the oversupply/lack of refining capacity in the Bakken area? They are having to sell their oil at a discount and drillers are heading where they can get a better price/return. I know that they are shipping Bakken oil via train and barge since the local refiners aren't paying squat. Regarding shale gas, you're spot on, what a scam!

However, if prices of nat gas were $10 higher I'm sure more drilling and more gas would be coming online. 

Big L's picture

This is an amazing community

The generosity of the members of this community on the whole is not just unusual, but also very special.

SRS Rocco, your contributions are are truly outstanding, your presentation and content are excellent.

Thank you very much sir, for educating us all. We're lucky to count you among the 'faithful'.

Short Stack's picture

Regarding the oil report.

Crying shame we can't stockpile barrels of crude oil the way we can PM's.  Even if I did I wouldn't have the space to store it in and it wouldn't be long before thieves got wind of it and took their fill.

It does deserve the title of "Black Gold,"  that is for sure. 

flaunt's picture

The way I interpret this is

The way I interpret this is not that "peak metals" are going to occur sooner than expected, but that it's going to cost increasingly more to pull an ounce of gold or silver out of the ground which will put pressure on the margins of the miners.  So if prices don't rise fast enough to keep up with costs they'll stop producing as much.  This won't really be "peak metals" but instead logical choices by mining companies to reduce output until demand picks up and makes it economical.  It's like the old mines that are reopened because they're suddenly economically feasible due to rising prices.  For silver this would help put a floor under the price, but less so with gold since there is so much above-ground supply.  This is also assuming they won't find an alternate way of fueling the equipment necessary for producing the metals.  If for some reason there were a collapse in the price of gold coincident with this doomsday scenario in diesel fuel then conceivably it could put the entire mining sector on hold or out of business.

El Gordo's picture

SS

Just rent you a couple of those idle tankers and keep your oil stored off shore.  Harder to get to there.

Bollocks's picture

This is the kind of shit...

That's really important in the UK right now:

X Factor and Strictly Come Dancing

ITV's X Factor was seen by an average audience of 9 million people on Saturday night, ahead of the figure for Strictly Come Dancing's launch.

The BBC's show was watched by an average of 8 million people, although the two programmes were not scheduled against one another.

At its peak, however, Strictly was seen by 9.8 million - slightly higher than X Factor's peak audience of 9.5 million.

Strictly's peak came at 19:30 and was the highest TV audience of the day.

http://www.bbc.co.uk/news/entertainment-arts-19615801

========

YES, IT IS OFFICIALLY TRUE:

"Strictly was seen by 9.8 million - slightly higher than X Factor's peak audience of 9.5 million".

WAKE UP everyone here at Turd's.

Jeez!

SEE what you're missing out on???

¤'s picture

Iran Official: oil prices aren't too high

Nice work SRS. Appreciate it! yes

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Sept. 16, 2012, 6:44 p.m. EDT

Iran Official: oil prices aren't too high

By MarketWatch

LONDON--Oil prices aren't too high and they shouldn't be blamed for any economic woes, a top Iranian oil official said Friday.

Speaking to Dow Jones, Muhammad Ali Khatibi, the country's governor with the Organization of Petroleum Exporting Countries, said: "According to our information, it's [the oil price] not too high" compared to overall inflation in the price of other goods. The price of Brent crude oil--the most widely used benchmark globally--has risen 25% since late June on geopolitical tensions, rising close to $117 a barrel Friday.

Also Friday, Fatih Birol, the International Energy Agency's chief economist, said "the current high prices put the global economy on very thin ice and puts us at risk of returning to recession."

But Mr. Khatibi said oil prices had been at a higher level earlier this year--at $127 a barrel in March. "Compared to that peak, the price is not high," he said.

In addition, he said currency changes and inflation meant that the current price "will not have the same impact as five or six years ago."

According to OPEC, the price of the basket of crude oils it uses as a reference stood as $68.82 last month, when adjusted with inflation and currency fluctuations. That was 31% lower than the basket's nominal price of $99.55 a barrel.

--Sarah Kent in London contributed to this article.

http://www.marketwatch.com/story/iran-official-oil-prices-arent-too-high-2012-09-16?link=MW_home_latest_news

peterleee's picture

Wow

Great peace of work. Smart research, pure and understandable language, brilliant presentation. Thank you so much.

Short Stack's picture

@ElGordo

Oh, yeah right !  Like I have the bucks to afford one of those humongous oil tankers.   If I had that kind of money I'd buy my own island in the Caribbean and thumb my nose at the world. 

That is until the first big hurricane comes my way.  Now that I think of it, there really is no place on this planet that can truly be safe.   Hmm,  maybe one of those abandoned missile silos.

Or a submarine.

No, a fortress steel.  Or -

Ah, screw it.

El Gordo's picture

SS

What, you mean the people posting on this thread aren't the super rich?  Damn, I thought I was getting info straight from the Rockefellers and the Illuminiti.  Boy, it's just getting harder and harder to get good insider information anymore.

alphamorph's picture

Interesting 54 to 1 fuel consumption

Given that silver, which historically ran at a 16:1 ratio to gold is now (approximately) in the 54:1 region. 

Don't tell me...... no, it can't be!!!

Xeno's picture

Another Great Article

Another great article SRS. This is a good part of what makes TFMR the place to be.

One thought that kept nagging me when reading this piece is, when, or do you see diesel from coal, CTL, technology playing a larger part in the energy equation?

After all, it's been around for more than 50 years.

http://www.worldcoal.org/coal/uses-of-coal/coal-to-liquids/

DavidSilverSwe's picture

ROCCO

Great piece as always, you might consider having a recap, or cliffs at the bottom, as your posts are quite often lengthy :)

kingboo's picture

Hey ShortStack, apparently you havent seen my backyard

thumbnail.aspx?q=4633772201477456&id=070

alphamorph's picture

How much did North Dakota settle for?

I can think of only one good reason for the oil/gas explorers to so grossly over-estimate the probable reserves trapped in shale.  Royalties.
Each state would strike an arrangement with energy developers where revenues would extend over 15 or 20 years, perhaps more.  I think they would want a much higher percentage if they knew they were only looking at just a fraction of that time and income stream.

Karankawa's picture

SRS

I've reconsidered.  I'd buy your work.  Let me know where I could sign up.

¤'s picture

SRSrocco

Short Stack's picture

Super Rich ????

I understand that you were just being facetious, but just for the record -

I do not believe I, have ever tried to give anyone here the impression that I was in any which-way, rich.

I've stated multiple times, I am a locksmith.   I see no reason to express, let alone brag about how much I make, how big my stack is (my handle is:  Short Stack, take that as a hint everyone).   I will tell you all this:   My silver is between 400 ozt. and 4 ozt.

My gold is between 1/10 ozt. and 10 ozt.   And yes, I am critically aware of how dangerous a situation I would be in if the SHTF tomorrow.  Didn't use to be that way but I had nothing to live on but my stack after the accident until the settlement and recovery so that I could work again.  Then mom died and left me with this house, in need of a lot of repairs.

I guess you could say I'm clawing my way back up.  With my luck (and age) I'll probably reach the top of this pit just in time to kick the bucket.   But I'm not about to throw in the towel.   Knowing my luck, I'll probably win the lottery and it will be two days before I go to collect that the dollar collapses.

OY !

Quisp's picture

Thank you SRSrocco!

For your massive time and effort put into such a masterful presentation of the facts! Kudos (and hat tips) to you sir!

Personally, I'm not too worried about the price of diesel, in spite of the fact that I driver a diesel car, and a diesel pickup truck. For the last 7 years I have making my own biodiesel from used veggie oil. The only time I have to buy petro diesel is in the winter when night time lows are below freezing. Otherwise, I'd have a fuel tank full of jello. So, 7-8 months out of the year I'm running on $1.50/gal fuel. It takes a lot of time, but I have more time than money. I do use biodiesel in the winter to heat my house as the tank is inside. yes

Q

alphamorph's picture

Manners

Seems I've forgotten them.

This was far and away the best and most informative analysis of the shale energy industry that I have ever laid eyes on.

Your the top, SRSrocco.  The Coliseum!

SRSrocco's picture

REPLY @ ET AL....

Karankawa.... I have not yet listened to that interview.... but I plan on it.  It reminds me of the BIG PEAK OIL DEBATE on Coast to Coast back in 2005 with Jerome Corsi & Mike Ruppert.  Objectively, I thought Mike won the debate, but a poll taken after the debate was finished stated that Corsi won.  I believe that is because Americans don't want reality... they want the delusion.

Battle Beagle... Because ramp up production was so quick at the Bakken, there isn't pipeline infrastructure to move the oil to market... so we have bottlenecks.  The Canadian Tar Sands oil is also at a discount because their pipeline runs to Cushing Oklahoma... where there is also a glut.  I hear there is big movement of truckers heading to North Dakota to move their oil by Semi-tractor trailer load.  There is huge back-order for oil tankers.  It is a modern day OIL BOOM... but as booms go.. so will a bust.

Flaunt... it will be PEAK SILVER & GOLD.  Why? Let's first look at global oil production.  This chart is from my last article:

Of the 1,160 Gb (billion barrels) of oil produced since the 1880's, 263 Gb or 23% was pumped between 2002-2011.  That is just a staggering figure.  For the world to continue to pump this amount of oil, progressive annual depletion rates keep rising... which means the world has to pump even more just to stay flat, much less grow production. 

Currently, the approximate annual depletion rate of global oil production is about 4-5%.  If we assume a 75 mbd figure (crude & condensate only), the world has to bring on an additional 3-4 mbd to just to keep production flat.

This holds true for GOLD & SILVER.  The world produced 88 million oz of gold in 2011.  If we assume a conservative 3% depletion rate (due to declining ore grades), the world has to add 2.5-3 million oz of gold just to keep production flat.

It doesn't matter if lower quality ore grades become commercially viable because gold and silver prices are higher.  If there isn't enough DIESEL in the HAUL TRUCK TANK.. .the ore doesn't move.  Thus, we have the same thing taking place in the Oil Market.  The price of oil has risen 4-fold since 2004, but global production has been basically flat.

The AGE-OLD ECONOMIC PRINCIPLE that if the prices of a THING rises, the market will eventually bring on more supply.  This may be true in a textbook, but does not hold true in a peak oil environment.

My gut tells me (from oil projects slated to come online), the world will peak in the next few years... and this doesn't even include the loss of NET OIL EXPORTS due to the Land Export Model.

It's bad news all the way around.  However, it's great for those who own PHYSICAL GOLD & SILVER

Fritz's picture

lack of refining . . .

The refiners understand that they may not be able to build plant and purchase equipment for 30-50 year assumptions due to the difficulties that are pointed out in this research. It really is that simple.

El Gordo's picture

SS

Go for it.  I just had to take a couple of my SSI checks to do repairs to my mother's house to keep the varmits from moving in to the attic for the winter.  I highly suspect that many of us are just doing the best that we can and trying to do the next right thing most of the time.  My goal in life is to get a stack of 500 oz silver at which time I will declare my mission accomplished - hope I live long enough to complete that task.  Two years ago my apartment was burgled (twice, they couldn't haul it all in one load), and they took everything except my pots and pans.  BTW, insurance doesn't cover cash, bullion, coin collections, or anything else of real value, a fact I found out the hard way.  So I know a little about climbing back out of a hole.  But, I try to hold on to my hat and not dig any deeper - that's life you know.  Just keep on chugging.

SRSrocco's picture

THE GREAT BALANCING....

HERE IS AN EYE-OPENER

EIA data for Alaska + North Dakota (C+C):

1/12: 1.15 mbpd
6/12: 1.15 mbpd

I picked up this nice little stat from Westexas on TOD. 

ALASKA CRUDE JAN = 612,000 bd

NORTH DAKOTA JAN= 535,000 bd

ALASKA CRUDE JUN = 493,000 bd

NORTH DAKOTA JUN = 660,000

ROUNDS NICELY to equal = 1.15 md

So, here we see that declines in Alaska is being offset by a rise in North Dakota.  Furthermore, the Gulf of Mexioc oil production will more than likely go into a rapid decline due to the fact that the majority of production is coming from DEEP WATER.  Deep water oil is very expensive to produce and suffers very high depletion rates.

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