Monday, December 5, 2011


Those that study the phenomenon of peak oil will be aware that finding energy increasingly is becoming more expensive, not only from a dollar and cents point of view but also when calculating energy returned over energy invested. The common example offered suggests that in the early days of oil production, a well might return 100 barrels of oil for every 1 barrel of oil invested to find and extract it. During the 1970’s that number had fallen to 30 returned over 1 invested. Now the number is said to be about 3 to 1.

Hence the frenetic activity in South Texas as the Eagle Ford Shale project continues full bore. Roads have become crowded with arrays of massive hunks of steel: pumps and rigs and tanks and other devices used to frack wells and semi-trucks carrying joints of pipe in endless queues. Near Gonzales a monstrosity of a gathering station has formed in what just a couple of years ago was a cow pasture; multiple parallel rails usher tanker cars into filling facilities looking like nuclear reactors with doors in the side. A nearby pipe yard covers land measured in square miles instead of acres.

For what it’s worth, I am convinced the money fostering this activity is one step removed from the now smoking printing press of the Federal Reserve, and comes with the seal of approval of the United States Government. No company on the face of this earth has the money to do this without the subsidization and backing of world banks and governments.

Make no mistake: there is oil in this shale. It’s light and sweet and it’s being produced in a big way. But it’s costing more than ever to extract. The nature of shale is that it produces short lived wells so the only way to keep up production is to continue drilling, fracking and building additional production facilities.

There comes a point when the return is not worth the investment. And you can’t accurately determine that point on cost projections, for things often cost more in hindsight than anticipated beforehand. Those issuing positive forecasts tend to have vested interests; they are being paid well in a time when jobs are hard to find, as are those that own the land on which this activity takes place.

I am beginning to see an agricultural equivalent as the cost of energy continues to rise. People think the cost of food is high, but the cost of fuel, parts and supplies necessary to carry an industrial farm double at astounding rates. Commodity prices that would have been considered over the top just a couple of years ago now barely pay the bills. Truth is, modern farming now survives on subsidies not unlike those that power modern oil companies. Left to our own devices, we'd all be broke.

I read the other day that in Afghanistan, it costs the US military between $400 and $1,000 for a gallon of gasoline.

I wonder how long that equation works?

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