The Crude Oil Export Ban–What, Me Worry About Peak Oil?

Posted in The Petroleum Truth Report on December 27, 2015

Congress ended the U.S. crude oil export ban last week. There is apparently no longer a strategic reason to conserve oil because shale production has made American great again. At least, that’s narrative that reality-averse politicians and their bases prefer.

The 1975 Energy Policy and Conservation Act (EPCA) that banned crude oil export was the closest thing to an energy policy that the United States has ever had. The law was passed after the price of oil increased in one month (January 1974) from $21 to $51 per barrel (2015 dollars) because of the Arab Oil Embargo.

The EPCA not only banned the export of crude oil but also established the Strategic Petroleum Reserve. Both measures were intended to keep more oil at home in order to make the U.S. less dependent on imported oil. A 55 mile-per-hour national speed limit was established to force conservation, and the International Energy Agency (IEA) was founded to better monitor and predict global oil supply and demand trends.

Above all, the export ban acknowledged that declining domestic supply and increased imports had made the country vulnerable to economic disruption. Its repeal last week suggests that there is no longer any risk associated with dependence on foreign oil.

What, Me Worry?

The tight oil revolution has returned U.S. crude oil production almost to its 1970 peak of 10 million barrels per day (mmbpd) and imports have been falling for the last decade (Figure 1).

Chart1_US Crude Prod-Imp-Cons

Figure 1. U.S. crude oil production, net imports and consumption. Source: EIA and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

But today, the U.S. imports twice as much oil (97%) as in 1974! In 2015, the U.S. imported 6.8 mmbpd of crude oil (net) compared to only 3.5 mmbpd at the time of the Arab Oil Embargo (Table 1).

1974-2015 Comparison Table
Table 1. Comparison of U.S. crude oil imports, production and consumption for 1974 (Arab Oil Embargo) and 2015 (Today).
Source: EIA and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

Production of crude oil is higher today by 7% but consumption has grown to more than 16 mmbpd, an increase of 32%. At the time of the Arab Oil Embaro, consumption was only 12 mmbpd.

So, consumption has increased by one-third and imports have doubled but we no longer need to think strategically about oil supply because production is a little higher?

We are far more economically vulnerable and dependent on foreign oil today than we were when crude oil export was banned 40 years ago.

What, me worry?

America-what-me-worry-alfred_e_neuman_Money and
Figure 2. Alfred E. Neuman. Source:

Peak Oil

While the world was focused on an over-supply of oil and falling prices over the last 18 months, world liquids production peaked in August 2015 at almost 97 mmbpd (Figure 3).

Chart_World Con-Uncon
Figure 3. World conventional and unconventional liquids production. Source: EIA, Drilling Info, Statistics Canada
and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Average daily production of 95.5 mmbpd for 2015 exceeds EIA’s Annual Energy Outlook 2015 forecast (April 2015) by 2.6 mmbpd!

Conventional oil production peaked in January 2011 at 86.2 mmbpd (Figure 3) and non-OPEC conventional production peaked in November 2010 at 49.8 mmbpd (Figure 4).

Chart_Con-OPEC-Non-OPEC Conv

Figure 4. World conventional and unconventional liquids production showing OPEC and non-OPEC conventional production.
Source: EIA, Drilling Info, Statistics Canada 
and Labyrinth Consulting Services, Inc.
(click image to enlarge)

It’s not important whether this is the final, maximum world production peak or not. It is a signal about a trend that needs to be acknowledged and incorporated into our evolving paradigm about oil supply.

Peak oil production was accelerated by a confluence of factors. Zero interest rates in the U.S. and Middle East supply interruptions before 2014 caused high oil prices. Easy money caused over-investment in the oil business. Over-production and weakened demand resulted in the collapse in world oil prices. OPEC’s reaction and decision to produce at maximum rates have created the “perfect storm” for peak oil production several years before it would have occurred otherwise.

All oil producers are losing money at current prices but companies and countries are producing at high rates. Indebted conventional and unconventional players need cash flow to service debt so they are producing at high rates. OPEC is producing at high rates to maintain or gain market share. Everyone is acting rationally from their own perspective but from a high level, it looks like they have all lost their minds.

Peak oil is not about running out of oil. It is about what happens when the supply of conventional oil begins to decline. Once this happens, higher-cost, lower-quality sources of oil become increasingly necessary to meet global demand.

Those secondary sources of oil include unconventional (oil sand and tight oil) and deep-water production. The contribution of unconventional and deep-water production has grown from about 15% in 2000 to approximately one-third of total supply today, and it will probably represent more than 40% by 2030.

Despite a popular belief that tight oil is price-competitive with conventional oil production, it is not (Figure 5).  

Oil Prod & Capex Tight Oil-DW-OPEC-Conv from SLB Howard Weil 032615
Figure 5. Slide from Schlumberger CEO Paal Kibsgaard’s presentation at the Scotia Howard Weil 2015 Energy Conference.
(Click image to enlarge)

Figure 5 is from Schlumberger, a company that knows the costs of its global customers. It shows that tight oil is the most expensive source of oil, followed by deep-water and other offshore oil. Conventional oil from onshore and OPEC middle eastern sources is the lowest cost oil.

Schlumberger did not include oil sands in its chart because it is difficult to compare the costs of a manufacturing operation to the cost of drilling individual wells. Existing mined and SAGD oil sands projects, however, break-even at approximately $50 per barrel although new SAGD projects require about $80 per barrel.

Figure 5 reflects costs in 2014. Although cost and efficiency improvements since 2014 probably apply equally to all plays, Table 2 shows late 2015 costs and reserves for key tight oil operators.

The principal tight oil plays–Bakken, Eagle Ford and Permian basin–break even at $65 to $70 per barrel oil price today.

Table 2. Key operator weighted-average estimated ultimate recoveries (EUR) in barrels of oil equivalent and break-even oil prices. Drilling and completion (D&C) costs used in the economic calculations are shown. Economics also include an 8% discount. Details may be found at the following links: Bakken, Eagle Ford and Permian.
Source: Drilling Info & Labyrinth Consulting Services, Inc.
(Click image to enlarge)

Although EUR is higher and break-even prices are lower for certain operators and core areas of the plays, Table 2 reflects representative average values for operators with the highest rates and cumulative production. If the price of oil increases, service costs will also increase and the production cost will be higher. Efficiency gains are largely behind us as new well production per rig has flattened in the last quarter of 2015 (Figure 6) so it is unreasonable to expect costs to decrease much further.

DPR Dec 2015
Figure 6. Tight oil new well production per rig. Source: EIA & Labyrinth Consulting Services, Inc.
(Click image to enlarge)

The economics of tight oil plays require spot oil prices that are double and wellhead prices that are triple current face values. Excluding new SAGD projects, tight oil is the world’s most-expensive and, therefore, marginal barrel of oil and its cost of production today is more than $70.

Perception is Everything

Congress’ decision to lift the 40-year U.S. ban on crude oil exports reflects the same misinformed and distorted thinking that declares that the world’s highest cost producer–tight oil–can somehow also be the world’s swing producer.

The 1975 export ban was enacted because of the disastrous economic consequences of becoming dependent on imports following the peaking of U.S. oil production in 1970. Now that oil production is again close to peak levels, we have apparently forgotten that imports were the problem then and that we import twice as much today as in 1975.

The same thinking concludes that because oil markets are over-supplied by about 1.5 mmbpd today, prices will remain low for years if not decades.  Although there is certainly a rationale for low prices based on fundamentals of supply and demand in the near term, the longer view is shaped largely by perception.

Oil prices (Brent) rallied, after all, to $65 per barrel in May when the market was more over-supplied (2.25 mmbpd) than it is today. That was based on perception that falling rig counts in the United States and withdrawals from oil-storage inventories would bring less supply. Neither perception was correct in the short term but it didn’t matter. Prices rose. There were, of course, other factors including concerns about the growth of the Chinese economy, the Greek debt crisis, and renewed Iranian exports.

Despite the recent trend toward price capitulation since late November, there is a certain potential energy in the market to find excuses to raise prices or to at least establish a bottom. For example, this week, U.S. crude oil stocks declined by 5 mm barrels and WTI futures increased $3.36 per barrel. We are in the winter de-stocking period so a withdrawal from inventory is normal but the previous week saw an addition to stocks that made this withdrawal seem somehow more important. A price increase of that magnitude makes no sense especially since U.S. stocks are more than 125 mm barrels above the 5-year average. That is the power of perception.

Energy and oil in particular underlie everything in our global economic lives. Oil prices reflect our collective emotional response to the circumstances of the world. Fundamentals are the vital signs of oil price’s body but perception is the key to its psyche.

The more-than $3 per barrel increase in WTI prices last week is an example of a very short-term reaction to some event or circumstance. Oil prices also reflect longer-term longer term price responses that involve considerable lags. For instance, a global production surplus appeared in January 2014 and continued for 6 months before prices responded downward.

Climate change and peak oil are long-term perspectives that many prefer not to think about or to reject as frauds. That is because they force us to consider that there may be real limits to growth. That is anathema to the economic and cultural paradigm that much of the world embraces. They suggest that energy will cost more and that we may have to live with less in the future than we have in the past. That means extreme changes in both our behavior and our expectations.

The prevailing perspective–lower for longer–is that oil prices will remain low for many years.

This is reasonable based on vital signs. The global over-supply of oil persists after a year-and-a-half of lower prices. Iran and Libya could potentially add another 1-2 mmbpd to the existing over-supply. U.S. production has not declined as much as most experts anticipated, and there is considerable if unknown spare capacity in drilled, uncompleted wells. China’s economic growth has slowed and the global economy is weak. Demand for oil will continue to grow but at a slower rate than in 2015.

What Lies Ahead in 2016

In another week, the world will go back to work after the holidays. The bleeding in the oil patch will get worse and prices will plunge again. Year-end results for oil and gas companies will be the worst so far. The Federal Reserve Bank and Standard & Poor’s have issued warnings about bad debt in the U.S. oil and gas business. The tight oil companies have put the best face they can on a desperate situation.

But investors and their bankers should be out of patience. They should be tired of phony economics and tall tales about giant new reserves when the companies they invested in are losing billions of dollars every quarter.

The lower-for-longer perception will begin to change in 2016 barring a global economic collapse. It is, after all, founded on the simultaneous occurrence of every possible negative outcome. The long-awaited response in the economy to lower oil prices will begin to emerge. Demand for oil will increase. Concern about lower growth in China is largely accepted already. U.S. production will continue to fall 100,000 barrels per day every month as predicted, just later than expected. Drilled uncompleted wells will not deliver as much new oil as many now fear.

None of this will happen overnight. Market balance will likely return more slowly than it unravelled. The oil bubble took 5 years to inflate but the world is impatient and expects a quick return to normal. All of the signs are right–lower rig counts, distress for overly leveraged companies, lower budgets for crucial exploration and development projects–but it all takes time.

Energy is the economy. Lower oil and gas prices will be a huge benefit to the global economy but that takes time also. And the longer prices are low the better, although it doesn’t feel that way in the oil business right now.

Tight oil has bought the U.S. another decade or so of additional oil supply but, as peak oil predicted, at a cost. The technology behind tight oil has also made it the world’s most expensive barrel. As all of this sinks in, perception will start to change. Analysts and investors will begin to see that data points more toward long-term scarcity than toward long-term abundance of oil supply.

The U.S. is far more economically vulnerable and dependent on foreign oil today than when crude oil export was banned 40 years ago. The world has finite oil resources and the production party of the last 5 years has accelerated the timing of peak global production. A shooting war in the world would bring all of this into instantaneous focus if the data presented here has not.

It is a curious paradox that peak oil should manifest in the midst of over-supply and low oil prices. That is certainly not how I thought things would happen. Perceptions will change and oil-market balance will be restored in ways that few of us thought likely. Peak oil will be part of that change.

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59 comments on this entry

  1. Please add me to your email list

  2. So Congress finally got around to legalizing the export of our unrefined U.S. domestic crude oil production? However this comes at a time when today’s market price of our domestic WTI oil is $38.10, whereas the global benchmark Brent oil is about $37.89, or slightly cheaper. Trying to make a profit by paying to ship a more expensive commodity abroad is a fine trick if you can figure out a way to make it work. This is especially so when both grades are selling at a huge loss on their production cost.

  3. Art, throughout the history of the North Sea, the UK has had a vibrant export / import trade in crude, even since we became a net importer. The reason being to match the refining spectrum to the crude available. A lot of US refineries were tuned to heavy Mexican crude, and there’s maybe more of that coming to market some day soon. But you are awash in condensate. Perhaps this explains more than anything the WTI Brent spread.

    Far Eastern refineries are tuned to light oil – Boney Light – so let them have it while you buy heavy crude form Saudi and UK. The WTI – Brent spread disappeared in a flash. Does this solve the oil price crash crisis? I don’t think so. The IEA has Nov US, global and OPEC production all up.

  4. Euan,

    I am not opposed to lifting the export ban but am pointing out the vulnerability of the U.S. to supply interruptions, with or without the ban. I think it was irresponsible of Congress to repeal the EPCA without replacing it with something to better accomplish what the law’s intent had been.

    I doubt that much light crude oil from the U.S. will be sold abroad because refinery capacity in the world is not much different than in the U.S. There are certain niche markets such as East Asia and South America that can refine the stuff but U.S. producers will likely have to take a deep discount to displace the West African light crude currently supplying those markets.

    More oil on the international market will only make the price collapse worse.

    I see less not more Mayan crude coming to the U.S. Mexico hasn’t made a significant oil discovery in 25 years. Most of what little has been found offshore since then is gas.

    All the best,


  5. Art, while I agree that it can be said that the professed intention of the measures taken in EPCA were “to keep more oil at home in order to make the US less dependent on imported oil” , the road to Hell is paved with good intentions. If one can claim this was an “energy policy”, it was a low bar for one and in fact, I would submit it was nothing more than trade policy banning the export of a domestically grown commodity without addressing the imports of the same foreign grown commodity. It needed fixing to accommodate Modern times, drilling technologies that have, in effect, turned the retrieval of hydrocarbons into basically mining them. Also, what about the variations of grades of crude that are held hostage to a spot price not applicable. It was perverse and did NOT achieve the goal of making us less dependent on imports.
    So let’s try something new…like a market and a production based policy rather than a rationing based policy.

  6. Elizabeth,

    I did not say I was opposed to lifting the export ban. For as inadequate as the EPCA and export ban may have been, I am merely pointing out that the U.S. is dangerously vulnerable to supply interruptions, arguably more than with the ban.

    Now that you have what you wanted, I will anxiously look to Energy North America and its clients to fix that small problem. Why am I skeptical that nothing will be done about it?

    All the best,


  7. Excellent and timely post, Art. Personally, I have given up on reminding the clowns in charge of American domestic and foreign policy how dangerously shortsighted and stupid they are. Clowns will be clowns, and the rest of us are busy shopping for whatever we don’t need. Life goes on, and it will continue with less energy and economic deterioration everywhere.

    I encourage people to look carefully at the nearly-bankrupt U.K., hiding behind robust rhetoric and Brit-exit from the E.U. Their social policies are becoming divisive and self-defeating, but what can you do when you’re going down and are unwilling to admit it. U.K. may be the harbinger of things to come for the U.S.

    I just reread the EIA letter of December 14, 2014, taking Nature and me to task for the statements we made on U.S. gas shale.

    This letter, full of innuendo, was signed by Dr. Gruenspecht, Deputy Administrator of the EIA. I could have written a critical look back in my blog, but I am too nauseated to say yet another time: Didn’t we tell you?

  8. Mr Berman, you say:

    “Congress’ decision to lift the 40-year U.S. ban on crude oil exports reflects the same misinformed and distorted thinking that declares that the world’s highest cost producer–tight oil–can somehow also be the world’s swing producer.”

    In a competitive equilibrium the swing producer is naturally the marginal, ie high cost, producer.

    Certainly oil markets are complex, involving sovereigns, principal agent problems (at public corporations), long leads and lags, technological breakthroughs, refinery infrastructure, enviromental externalities, exogenous shocks, market psychology and the like.

    However, Saudi’s role as swing producer, I would argue was put to bed 30 years ago when their cut of output by 80% did not stem a price collapse. Since then their (and everyone else’s) production has been pretty close to 100% of capability based on installed infrastructure, plus minus a few percent that could be pumped, or suppressed, through temporary in field expenditures, and savings respectively.

  9. John,

    Tight oil producers are not swing producers by any stretch of definition or imagination.

    The term “swing producer” is like a straw-man argument in debate, a position falsely attributed to an opponent that is then used to discredit him.

    So, some analysts use the term swing producer to either try to discredit OPEC or inflate the role of tight oil production in the world market.

    But since we are talking about the term, a swing producer is a euphemism for a cartel. It is a supplier with enough spare capacity to influence market prices by increasing or decreasing output. A swing producer artificially regulates the market to keep prices high and stable. The swing producer must have the financial reserves to live within reduced cash flow at times when restricting supply is required to keep prices high.

    Above all, the swing producer seeks to be the master of commodity prices.

    De Beers is an example of a swing producer of diamonds, a cartel of suppliers that together can restrict the supply of diamonds enough to keep prices where they want them.

    Tight oil producers live from paycheck-to-paycheck to service debt and overhead, and totally lack the financial reserves to regulate the market. The fact that their product is the marginal barrel makes them, in fact, hostages to commodity prices rather than masters of commodity prices.

    Tight oil producers act independently to satisfy their own company needs and, therefore, lack the cohesion and unanimity of action required to be a swing producer. Their reserves are relatively small–about 25 billion barrels proven plus PUD according to the latest from EIA–and their spare capacity is limited to drilled uncompleted wells which is unknown but probably small in the global scheme of things.

    Many thanks for your comments,


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  18. […] What Me Worry About Peak Oil? | Art Berman The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it – John Kenneth Galbraith Reply With Quote […]

  19. From what I hear the export ban was lifted in a horse-trade deal involving the extension of the 30% ITC for renewable energy. That extension was/is critical to solar — the ITC was to sunset at the end of 2016 to 10% utility/commercial and zero for residential. Pretty darn good deal for clean energy. Who said Congress wasn’t capable of compromise/action?

  20. Alan,

    I don’t believe that subsidies for renewable energy are productive. Subsidies discourage the innovation needed to make renewable energy competitive with fossil energy. Most of the so-called subsidies for oil and gas are standard tax-code allowances for intangible (non-capex) drilling costs and capitalization of investments that are enjoyed by most businesses.

    All the best,


  21. […] What Me Worry About Peak Oil? | Art Berman It is a curious paradox that peak oil should manifest in the midst of over-supply and low oil prices. Perceptions will change and oil-market will balance. […]

  22. Hi Art,

    First and foremost – thanks for sharing your work.

    Secondly – what do you think of Jim Chanos’s comments that if he was an oil-producer or -producing nation, that he would pump all the oil he could today because due to the rapid development of electric-powered vehicles(EV’s), that in 15 years oil won’t be worth anything? He says 80% of oil is used for transportation and that will evaporate due to EV’s.

    Thank you

  23. Bance,

    One of the last times I took a trans-Atlantic flight, there were no electric outlets in first class (I was upgraded) because the plane was 30 years old and still worked fine.

    Our expectations of technology generally exceed reality. We are not going to retire working equipment because something better comes along as long as economics favor using the somewhat older but perfectly acceptable technology.

    There is no transportation fuel as efficient and cheap as gasoline. Period.

    How will the electricity for Chanos’ EVs be generated? Mostly fossil fuels. How will the EVs be manufactured? Mostly fossil fuels. How will the new infrastructure to deliver the electricity for EVs be built and maintained? Mostly fossil fuels.

    Wind and solar sources of electricity account for less than 3% of primary energy consumption. I doubt that percent will increase to even 20% under the most aggressive plans over the next decade or two.

    I hope that Chanos is right but I am not holding my breath!

    Thanks for your question,


    Most electric fantasies for the future ignore these questions.

  24. Art, Thank you for your thoughtful reply to my comment.

  25. John,

    And thank you for forcing me to think carefully about the swing producer term. I will probably dedicate a post to that subject in coming days because I think it is widely misunderstood.


  26. Art,

    I much enjoyed the article. However, your comments on renewable energy in the comment section are pretty hard to understand.

    Allow me to summarize your own analysis:

    #1. Conventional oil production is at or near peak (+/- Iran)
    #2. Unconventional oil is expensive. It’s so expensive that it’s being produced at huge losses given current prices.
    #3. Not stated, but the obvious conclusion is that oil prices are due for very large rises at some point. Global demand is soft, but it’s certainly not in net decline over any 10-year period.

    So given that it’s more or less impossible that oil prices will stay under $70 a barrel – I can tell you personally that I bought an entry-level battery EV and broke even against a entry level conventional sedan over lifetime when gas was back to $2.25 a gallon. When oil prices go back to $100 a barrel and gas is a $4.50 a gallon, you’re going to do a lot better than break even.

    So your pessimism on renewable energy is bizarre, and it’s anti-empirical. Wind outcompetes most other new power sources in LCOE except US natural gas right now, today, with no subsidies, and natural gas prices in the US are headed up fast for the same reasons that oil is.

  27. Art,
    When it comes to renewable energy subsidies, you simply don’t know what you are talking about. The myriad subsidies, both Federal and State, have made it possible for renewables to get on the board and follow a fast cost reduction curve so that they would be scalable and commercially viable. Solar and wind are currently at grid parity in some locations, and they will be dominant sources within our lifetime.

  28. Alan,

    Please don’t misunderstand me: I support renewable energy but I also need to be as realistic with renewables as I believe I am with oil and gas.

    My understanding is that residential PV is still twice as expensive as natural gas according to IEA’s recent study that integrates a lot of data from around the world. I appreciate that cost reductions are impressive and may very well reach parity in the future. I also appreciate that there are all kinds of regional market and technology variations as well as differing amounts of sun and wind. 2x is a lot less than 5x but it is still 2x.

    Then, there is the rather substantial matter of scale. Renewables represent ~2.5% of world primary energy consumption. Regardless of advances in technology and cost plus aggressive measures/desire to move to renewables ASAP, it will take a lot of time for renewables to compete with established forms of energy.

    There is also the problem of converting an existing transport fleet from mostly liquid fuels to something else like electricity.

    I should not have criticized subsidies for renewable energy as pointedly as I did but why is it still necessary if everything is going so great? That’s an honest question.

    All the best,


  29. […] of their market share stripped during the North American oil resurgence in recent years. But as Art Berman recently pointed out via Zero Hedge it appears that the entire industry has lost its mind and the […]

  30. […] of their market share stripped during the North American oil resurgence in recent years. But as Art Berman recently pointed out via Zero Hedge it appears that the entire industry has lost its mind and the […]

  31. In support of Art’s comment on fossil fuels and renewables:

    Comparing hydrocarbons with renewables and hydrocarbon driven vehicles with electric cars from the sheer physics point of view (I am not talking about rail transit systems but road and off road):

    1. Energy density and infrastructure requirements.

    It may seem strange to those enchanted by renewables, but hydrocarbons are unsurpassable in this aspect. If you go down from the chemical level to nuclear energy, this is too dense. Remember all those 50s concepts – nuclear driven planes, cars, etc. Theoretically feasible – the Soviet Union developed and deployed in space an 800 kilo reactor in the early 70s. The US also did some very convincing research. Did not come to anything – the risks are just too great. Potentially small chernobyls galore.

    If you go up from the chemical to physical energy transformation, then energy density just isn’t high enough. To power the bulk of cars and trucks electrically you have to centralise the infrastructure (as opposed to one of the current fads of decentralisation for domestic and some commercial energy supply) and geographically separate generation (in a power plant of whatever nature) from storage (the car battery). While battery costs may eventually come down, the whole geographically extensive generation, distribution and storage system called on to emulate pumping of gasoline or diesel from the tank to the engine will be definitely more complicated in systemic terms and more costly over the complete life cycle. I would not deny though that batteries are easier to shape in the car, hence better space layout in Teslas. People may argue that with power generation renewables may and will be used – where the conventionalistas will have to explore, drill, field treat, transport, refine, distribute, the greenies will only have to erect a wind farm and harvest free energy practically forever. In response to this there’s more to follow.

    So hydrocarbons offer a portable energy source of ideal density. It will take a long time, megatons of money to make electric batteries that would be on par with a tank of gas or diesel. When greenies start quoting the speed and scale of the IT revolution as an analogy they fail to take into account that IT systems ultimately deal with data – they crunch data, store data, transmit and receive data. IT revolution is about making data carriers small and efficient. Here we are talking about handing, storing and transmitting energy and physical matter (transporting in the latter case). Here physical laws of conservation, limits and limited returns will fully apply.

    2. Geography and dependability.

    While electric vehicles will operate very well in hot and moderate climates, what do you do with them in places like Alberta, Saskatchewan, Siberia, Kazakhstan even European Russia in winter? In some of those places during colder spells people don’t switch their cars’ engines off for the night for fear of not being able to switch them on in the morning. Batteries just don’t work there. It’s sheer physics. You want to keep them warm – that’s reducing the systemic efficiency. And in those parts, as well as in extensive deserts you won’t want something which needs to be infrastructure dependent or may accidentally trickle discharge with no hope in hell to charge it again. Imagine an electric car breakdown 250 miles away from civilization at -30 in Kazakh steppe. The automobile was developed as a tool epitomising freedom of movement, not infrastructure dependency.

    Talking about the really developing world, Laoses, Cambodias, Sudans of this world. These who walk there will want to ride bikes, those who ride bikes want to move to tuktuks, proud owners of those will be migrating to cars, and it won’t be 5th generation megalithium battery Teslas. More like 4 thousand dollar new Tatas.

    Further on renewables – a Russian Nobel Prize winner in physics Petr Kapitsa said in 1975:

    “It will not be possible to maintain current standards of living for the humankind (those of the 70s) using only renewable energy – you will have have to reduce the world population by a factor of a hundred.

    To summarise Kapitsa’s postulates:

    Any energy source is characterised by two parameters: energy density and energy propagation speed. The multiple of the two is the maximum wattage you can get from a unit of the surface for the given energy source.

    If you look at solar. The energy density is minimal, but it propagates very fast, at the speed of light. The solar energy flow coming from space towards the Earth is significant, more that a kilowatt per square meter. The atmosphere reduces this to 170 watts. This energy flow is sufficient to support life on Earth but unfortunately not very viable as a source of energy to support a technological civilisation like ours. Kapitsa said that at the sea level, taking into account losses in the atmosphere, with sun cell efficiency of 15% (now top commercial 22%, expensive, top specialised 44% – veeery expensive. This is an improvement but the growth in population from 4 to 8 billion negates this). To continuously and reliably meet the requirements of 1 household back then you needed a panel of no less than 40-50 square meters (now more). In order to completely replace hydrocarbons with solar, according to Kapitsa the humanity would have to build a 50 to 60 kilometer wide solar farm along all of the land duration of the equator (again, the increase in solar panel efficiency does not mitigate the population growth). Even a small fraction of that is not achievable for financial, technical or political reasons. I doubt the 47% ones will be commercialised and affordable for mass deployment any time soon.

    Wind also shows lamentably low energy density to be able to meaningfully displace hydrocarbons.

  32. Andrew,
    “…Petr Kapitsa said in 1975:”
    It would probably help if your “expert opinion” was less than 40 years old. I wonder what Petr would say about an iPhone? You might also learn something about electricity, although maybe that’s why you said electricity had to come from distant, centralized infrastructure. Or are you just playing with us…?

  33. […] of their market share stripped during the North American oil resurgence in recent years. But as Art Berman recently pointed out via Zero Hedge it appears that the entire industry has lost its mind and the […]

  34. […] of their market share stripped during the North American oil resurgence in recent years. But as Art Berman recently pointed out via Zero Hedge it appears that the entire industry has lost its mind and the […]

  35. Alan

    Laws of physics do not change in 40 years. Neither does energy density. As the author correctly pointed out in one of his latest comments, wind and solar account for only 3% of the current energy generation, and taking it beyond 20% is not feasible. This guy Kapitsa I am quoting actually worded it sharper: trying to cover all of the world’s energy needs with wind and solar will only work if you drastically, by an order of magnitude reduce this population, including the dangerously deluded idiots who propagate such ideas.

    Citing “successes” like Uruguay which managed to get the renewables to cover the bulk of its energy needs as an example to the rest of the world is like comparing an English country village to an industrial city in China’s Inner Mongolia, with 10 million population, a couple of cement plants, an aluminium smelter facility and a car factory with supporting parts production factories. Ever tried to purify aluminium with solar energy?

  36. Andrew,

    Alan is awbeattie.

    Vaclav Smil is among the great scholars of energy history and is Bill Gates’ favorite writer. I recommend everything he has written but his 2015 Politico article “Revolution? More Like A Crawl” is short and highly relevant to our discussion of renewable energy.

    “Electricity generation by new renewables has been growing fastest, but it is far from taking over: at 7 percent in 2014 it was still only about a third of all electricity generated by the aging nuclear stations. And because electricity is only a part of the overall energy supply, the contribution of new renewables (wind and solar) to the country’s total primary energy consumption (including all industrial and transportation fuels) remains very modest: it rose from just 0.1 percent in the year 2000 to 1 percent in 2010 and to 2.2 percent in 2014.

    “The U.S. is still an overwhelmingly fossil-fueled society, albeit a bit less so than it was a generation ago. Even if the new renewables keep on advancing at the same rate as they have been so far — a rate hard to maintain as the aggregate solar and wind capacities to be installed every year get progressively larger — fossil fuels would be supplying 78 percent of the U.S. primary energy in 2030 and still about 75 percent by 2040.”

    The intermittency of wind- and solar-generated electricity is a serious drawback compared to natural gas and coal for baseload power. Andrew has correctly pointed out energy density as another consideration that we must consider in our forecasting the energy future of renewables. The application of all electricity to transport is a third factor that is often overlooked. The transition to electric vehicles will be a very slow transition and the application to flight is difficult to imagine.

    I advocate aggressive renewable energy development but I also think we must be realistic about the time line. The advances in cost particularly for solar PV are impressive. At the same time, we must look at the example of Europe, particularly Germany where renewable implementation has been the most aggressive in the world. There, electricity costs are the highest in the world as a result and there is a huge backlash going on against renewables as a result. There are many arguments to counter this such as Germany is a poor place to apply both wind and solar because of its weather but this goes to the core of the renewable problem–you can’t cite the relatively few places on earth with lots of sun and wind and apply that generally.

    Electricity storage is a breakthrough that will change everything. Let’s work on that.

    All the best,


  37. Alan, apologies, this was a response to awbeattie.

    Talking of iPhones – I doubt that a Nobel physics prize winner would have been phased by an iPhone. As I said earlier, processing information and handling energy and matter are 2 different things. We may have made a gigantic step forward in the former but we are just marginally closer to manned missions to the Mars for example, fusion energy or protecting ourselves from earthquakes.

  38. […] of their market share stripped during the North American oil resurgence in recent years. But as Art Berman recently pointed out via Zero Hedge it appears that the entire industry has lost its mind and the […]

  39. Art, agreed. The move to renewables is a major paradigm shift. I would compare it to evolving from a purely mechano-electric-technical civilisation to something more resembling living organisms. A modern city or perhaps this should be called intelligent living environment which generates, manages, stores and uses electric energy very efficiently and delivers it in precisely required quantities to the required point. But this, while achievable, is still very far away. Efficient storage is the move in the right direction but I am more concerned about the costs. Lithium, highly purified semiconductors are not cheap enough yet.

    So for most of the world, for quite a few more years, it’s good old gasoline or diesel – put it in a jerry can, pump it through the pipe, take it anywhere.

  40. Regarding renewables as a replacement for fossil ful (and mothballed nuclear plants) is a stretch for a number of reasons mentioned. Rather an “all of the above” with an emphasis on getting cleaner affordable power to world’s poor (some of who use wood a dung, burnt indoors, for energy) seems more compassionate. Clean coal, oil, natural gas, and yes nuclear, would be a huge environmental improvement to current practices.

    It is easy to find enough energy to power the Swiss watches (or Apple watches), spot lighted decor, and google search engines of the richest billion people in the world. However the world’s poorest billion, and “middle”, also need energy, and likely in growing amounts as they become more industrialized and their current numbers of ~6 billion grow.

  41. […] of their market share stripped during the North American oil resurgence in recent years. But as Art Berman recently pointed out via Zero Hedge it appears that the entire industry has lost its mind and the […]

  42. Fully agree

  43. […] of their market share stripped during the North American oil resurgence in recent years. But as Art Berman recently pointed out via Zero Hedge it appears that the entire industry has lost its mind and the […]

  44. Art

    You always warn that the information out there on oil and natural gas is subject to manipulation, mostly from vested interests. Those very same folks, whom I lovingly refer to as Big Fossil/Utility, have created a tremendous campaign of disinformation against renewables. You mention IEA — they are far from objective. Look who created that agency and pays its bills. As for the EIA, they are notoriously biased and behind the curve. And don’t forget the Kochs.

    One thing you can be sure of. At this point in time Big Fossil/Utility has come to understand the exponential growth of renewables/storage, and they are freaked because within a decade or two their own interests are existentially threatened. This has as much to do with the movement on Climate Change, which is beginning to take on a global mandate.

    The Utilities have already been forewarned by their own trade group (Edison Electric Institute) that their century old business model will no longer will work.

    And Exxon/Mobil clearly understands the meaning and potential for “stranded assets.” To be on the correct side of the Climate Change regulations to come, XOM will likely have to leave a significant percentage of their reserves in the ground. Imagine the hit to their market cap. CEO Rex Tillerson actually acknowledges disruptive Climate Change — his response, “We’ll just adapt.” This from a man who spent ~$31 billion to buy XTO to try to get into the fracking fray… late. So far, Rex says it’s all red ink.

    We live in interesting times.


    P.S. Andrew, no one said physics changed in 40 years. But our knowledge of it sure has.

  45. Alan,

    You make excellent points and it is indeed difficult to separate agenda-based information from truth.

    Many of my colleagues are profoundly cynical about IEA reliability on oil and gas reporting much less renewable energy data. I have more faith in the intent of IEA’s efforts but it is a complicated problem to integrate data from a world that has a lot of un-evenness in data transparency and reporting competency. I believe that IEA is quite sympathetic to climate issues and the need for renewable energy. I do not think IEA gets any funding from the fossil energy industry although they do get “staff on loan” from the industry.

    There is no doubt that renewable energy is an important part of the world’s energy future. This is understood by big oil companies and has been duly incorporated into their business plans to diversify more. Mostly, this has meant natural gas but all of the majors have significant research and investment in renewable energy projects (sometimes passive and indirect).

    I feel strongly that it is important to modulate our expectations of renewable energy’s short- to medium-term contribution to total energy supply. I was profoundly affected a decade ago when I discovered research on the diffusion of innovation begun at Iowa State University in the late 1920s.

    Bryce Ryan, a graduate student, did his PhD study on the adoption of hybrid seed corn among Iowa farmers. This was a major breakthrough and was offered free by the Agronomy Department at ISU and yet, it took years before even a small number of farmers planted the stuff and a generation before it became the standard for corn production. Ryan and his advisor Neal Gross developed a now famous classification of early and late adopters that is widely used in the business and marketing world today after being popularized in the 1960s by Everett Rogers.

    We have only to look at the adoption of digital television a few years ago to appreciate the problem of getting humans to try anything new even if it costs nothing and everyone agrees that is is better or, in the case of TV, is mandated.

    I don’t see stranded assets of oil and gas reserves as a realistic probability. I think it far more likely that there will be a continuum of change and transition away from fossil energy toward renewable sources that will take decades. I reiterate my recommendation to read Smil’s Energy Transitions: History, Requirements, Prospects.

    All the best,


  46. […] of their market share stripped during the North American oil resurgence in recent years. But as Art Berman recently pointed out via Zero Hedge it appears that the entire industry has lost its mind and the […]

  47. Birds are killed by the millions each year by wind mills. This is not being covered much by the “media” as it is inconsistent with the save the planet mindset. After all we did not want to disrupt polar bears in Alaska or disrupt the environment to build the pipelines. But millions of birds being killed is for the most part being ignored.

    A second point is that a utility company typically turns on generating plants in order of cheapest cost to most expensive cost. If demand is low, maybe only nuclear and some natural gas plants are on line. When the sun comes up and the utility needs more power it turns on the next in line low cost plant, and does not turn on the highest cost producers until demand requires it. But no longer (at least in Southern California). The utilities are mandated by contract to purchase all the power from the Palm Springs Wind Mills (owned by several firms), at prices that allow the wind mills to be profitable. Naturally the utility companies that must buy this wind generated power at a price higher than it charges its customers passes this cost on to the consumer when the utility company negotiates its rate case with the state and includes the cost of wind generated power in its tariffs, resulting in an increased cost per kWh to the consumer.

    But wait a minute, the wind speed has just increased and the mills must be turned off as the mills are only effective within a given range of wind speed. So the grid operators must find a substitute for the Wind generated power from another source. And lets not discuss the power loss on the grids as the wind generated power is produced 200 or so miles from its ultimate destination.

    Sorry if I come across as sarcastic, but renewable energy can not stand on its own two feet without substantial government subsidization today (IMHO). And then there are the birds………many of them eagles!!


  48. Steve,

    Bird deaths from wind turbines are an issue but the impact has been exaggerated. A peer-reviewed study found that there are about 368,000 annual bird deaths resulting rom collisions with wind turbines vs. “millions to billions” from other human-related sources of bird deaths(e.g., communication towers, buildings [including windows]), and domestic cats). The Audubon Society supports wind energy and has issued guidelines for siting of wind facilities.

    Many states beyond California require that public utilities give grid priority to electricity generated by wind and solar sources. This sometimes requires that operators power down thermal baseload generation in order to comply with these regulations resulting in spikes in cost per KwH.

    I am less concerned about the tax-credit subsidies for renewable energy than for the pass-through tariffs that are charged to consumers.

    All the best,


  49. […] of their market share stripped during the North American oil resurgence in recent years. But as Art Berman recently pointed out via Zero Hedge it appears that the entire industry has lost its mind and the […]

  50. Art,

    We seem to be in basic agreement on a number of things — others not so much. You make references to the time-frame of the “diffusion of innovation.” This is good observation when dealing with non-lethal transitions. I am referring to the rapid changes that can (and do) occur when, for instance, the Japanese bomb Pearl Harbor. The transition there, more appropriately referred to as mass mobilization, is mind boggling in its speed and result. It changes our life on earth.

    Were there to be a global event (which most Climate scientists acknowledge as distinct possibilities) such as a run-away thawing of the Arctic permafrost and the methane hydrates stored within, releasing a massive wave of methane into the atmosphere — I can assure you that our response would be on a par with what happened after Pearl Harbor. We’re just not ready for a 12 foot rise in sea level over the next decade.

    Or the Greenland ice-sheets and glaciers begin collapsing en masse, which, among other things, would basically stop the main Atlantic Current… and then you have Europe going into deepfreeze within a couple years. These types of Global events have a way of getting everybody’s attention right quick.

    I am familiar with Vaclav Smil’s “Energy Transitions,” published in 2010. At that time Smil’s notion of solar power was hopelessly behind where we are today after only 5 years of exponential growth. At that time, Smil did not know what he was talking about, at least not 21st Century energy transition. He doesn’t even foresee the effect that rapidly developing energy storage would have on the deployment of renewable energy. He does have a new book just published in 2015, “Power Density; A Key to Understanding Energy Sources and Uses.” I just ordered it — I hope it’s not as didactic and turgid.


  51. Alan,

    Neither of us knows the future and I would be happy if you are correct. I just don’t see runaway adoption of renewable energy at any price because of human behavior and infrastructure-related costs and complications. An electric energy storage breakthrough is critical. In any case, I see things progressing more gradually than I think you do.

    I don’t see climate changes progressing at the alarming rates that might provoke meaningful action by governments or people in general. Only after a crisis do people get serious about change, and changing behavior is another subject altogether. Look at how little change followed the 2008 Financial Collapse, for example.

    Your criticism of Smil’s earlier work is fair but the changes he documents with oil transitions (internal combustion engine in particular) were certainly big steps and exponential in nature and cost, and yet took decades. Maybe it’s a now vs then thing but still… Every time I fly, I am impressed by how many 30+ year old planes are still in service and running just fine.

    I will order Smil’s new book and we can compare thoughts!

    Have a happy new year,


  52. Alan, on our understanding of physics over the last 40 years I beg to differ. No substantial changes.

    As soon as we start talking not terabytes and teraflops but joules, kilos, tons, miles per hour and meters per second we are still essentially at the same technology levels as 40 years ago. Flying the same turbojets, driving the same cars, sailing the same ships – a lot more efficient in terms of fuel consumption but nothing revolutionary. Based on the scientific base laid down throughout the XIX and the first half of the XX century.

    No fusion energy – the tokamaks are still negative EROEI. I remember reading as a kid about blowing up deuterium ice cubes with lasers (as I recall someone at MIT was playing with it), and it was seriously viewed as a viable fusion energy alternative. I am in my late 40s, and this is nowhere near. On fusion energy research companies websites there is of course a lot of bragging not dissimilar to what shale drillers used to and still publish.

    No large scale intra Solar system space travel. No lunar or Mars bases. No deep ocean settlements. No substantial migration to a biology rather than mechanical/electric/electronic based civilisation. Sahara is still a desert last time I looked at the map.

    I think we are at the limit of our knowledge and energy envelope in practical terms as far as the current social and economic format. In this current format the mankind can move forward in these directions, but each step requires an exponentially higher effort, with an exponentially lower gain. Gail Tverberg calls it “the limits of growth” Energy is a good example – we have hit peak oil in terms of optimal EROEI. There’s a lot on hydrocarbons on this planet – gigatons of methane hydrates in the depths of the ocean, but it is not feasible to mine them for a tangible economic or energy yielding effect.

    In summary, optimising our civilisation’s energy supply system requires not only and not so much technology but social and demographic adjustments.

  53. Art – Thanks for your pragmatic article relating to the new change to allow U.S. exportation of crude oil. Great Figures, but I have a question regarding your percentage of unconventional oil.

    “Those secondary sources of oil include unconventional (oil sand and tight oil) and deep-water production. The contribution of unconventional and deep-water production has grown from about 15% in 2000 to approximately one-third of total supply today, and it will probably represent more than 40% by 2030.”

    When looking at Figures 3 & 4, I come up with 83.7 mmbpd conventional oil and 13.2 mmbpd unconventional oil (total oil is 96.9 mmbpd). That’s 13.6% for the unconventional oil. With Figure 4 I come up with about 13 mmbpd unconventional oil which is again about 13% of total world production. Since you said unconventional and deep-water production makes up about 33% (one-third) of total supply today, I assume the deep-water production amounts to about 20% of world production today. Is the 20% figure close for the deep-water production today?

    I do get your point that one-third of the total oil today comes from expensive unconventional and deep-water production. Thanks again for your on-going articles. Regards, Daniel.

  54. Dan,

    I believe that the discrepancy is because I only included tight and heavy oil in the “unconventional” volume in my chart whereas the graph that Ray Leonard made with the percentages of 15% and 30% included deep water. I will work on getting the international deepwater production volumes and update the chart.

    Many thanks,


  55. […] It is unbelievable how many times I’ve heard people telling me “the US has become self-sufficient in oil production,” a group that includes some respectable members of the EU parliament. This is probably due to the confusion that the media have made on the fact that the US production has recently surpassed the US imports of oil. It is true, but that tells you nothing of how much oil the US still imports. And that is, actually, much more than it was at the time of the oil crisis and domestic consumption is on the increase (as you see in the figure above, from Art Berman’s blog) […]

  56. Art Thank, a Very Interesting article.

    You have so much more knowledge and data than I can find on the web. However i do think the price will react a little faster than you predict. I suspect the Hot Spots have been drilled this last year and that probably only 6 month are left. Also I suspect that more than 50% of the economical Duc have been completed.
    Also why do the Saudi’s have a limited output when they have supposedly 260 B barrels of oil, which should last 100 years. I have seen an article today quoting that they will start to decline rapidly within a few years Is it because the undrilled areas have problems or that they have damaged their producing well.

  57. David,

    Thanks for your interesting questions. As you know, there is considerable doubt about Saudi reserves. A lot of their spare capacity is heavy, sour oil that is not marketable. Reserves have to be drilled and produced to become supply so that is another constraint and Saudi rig counts are high (see Euan Mearns’ latest graph).

    All the best,


  58. Art. Thanks for reply. That explains why the Saudis are limited to around 10mbpd.

    As for the Hot Spots and the Ducs. Do you estimate that they are both being exploited and is the reason that the US production is level for the last 3 or 4 months. If so do you expect both will be in decline within 6 months and this will exacibate the decline in production in the Q3 and Q4
    Regards David

  59. Excellent summary