What confidence!

Second, it is now obvious that shale is not a viable energy source: a mountain of money has been thrown at it and much will not come back according to experts I speak to.

That the first wave of investors into a new technology go bust proves that this technology will never be useful. Discuss.

Bit of a pity that the general economics of this is that this happens to absolutely every damn technology ever really…..

31 thoughts on “What confidence!”

  1. What a lot of people don’t realise about American shale oil is that it doesn’t need to be produced to drive the price of oil down. A large chunk of the record high oil prices we saw in the last 10 years was in response to the question: “What will America do if Nigeria/Saudi/Shitholistan falls into chaos and stops producing?” Now that question has been answered: they’ll produce their own oil. So with that fear assuaged, the oil price has crashed. There wasn’t any need for the oil to enter the market, just knowing the possibility that it could if required was enough.

  2. Tim Newman,

    Yes and no. A rising level of fear will lead investors to stockpile oil; this will cause a rise in the price while they are stockpiling. However once fear has plateaued, oil is no longer being diverted into stockpiles, and the prices falls again. In mathematical terms the oil price tracks the derivative of fear; not fear itself.

  3. That comment must also be equally applicable to wind/solar/wave/bio-whatever. Especially if you don’t allow for the subsidies.

  4. A rising level of fear will lead investors to stockpile oil; this will cause a rise in the price while they are stockpiling.

    There was a lot of talk about oil being stockpiled during the previous boom, but I think most of it was bollocks. Certainly all the talk about tankers full of oil sitting idle offshore was. The US has a strategic reserve, as do other countries, and I’m sure some of the big commodity traders will have some way of stockpiling crude, but I don’t think it’s stockpiled in the way other commodities are. Generally, crude doesn’t store particularly well.

  5. ‘Second, it is now obvious that shale is not a viable energy source’

    As ever I am flabbergasted although I am not sure why. Mr. Murphy is a shyster, a mountebank or brighter than Einstein!

    If he were my son (I am grateful for small mercies), I would tell him to do his homework and not reach rash, unjustified conclusions as when he suggested that at my advanced age, certain parts of my body no longer stood to attention! In an act of true love, his mother put him to rights!

    The use of ‘obvious’ is, is , is, is ….. I am left without words (not a frequent occurrence if you listen to my friends and acquaintances).

    Mr. Murphy, are there no limits to your ‘atrevimiento’?

    I’m going to start a blog to talk about nuclear energy, the merits of bacon sandwiches, defence policy, economics and sex (but, sorry lads and lasses, no squirrels) . I am an expert on all of those subjects. Other experts told me so.

  6. I liked this exchange:

    Santiago says:November 22 2015 at 2:54 pm

    “No offence intended, but another inaccuracy in the piece is that you are described as an ‘economist’ when you are a chartered accountant.”

    Reply
    Richard Murphy says:November 22 2015 at 4:30 pm

    “Respectfully, I am Professor of Practice in International Political Economy at City University, London”.

    You can almost hear him preening himself.

  7. So what are they burning and shipping in the US, if shale is a non-starter?

    Oh, and I read somewhere that fracking has been ongoing since the 1960s, just getting better and cheaper.

  8. Bloke in North Dorset

    “Second, it is now obvious that shale is not a viable energy source: a mountain of money has been thrown at it and much will not come back according to experts I speak to.

    I presume he hasn’t linked to these experts so they must be the voices inside his head.

    The longer the Saudi’s play this game of driving down prices to screw the shale industry the longer they have to improve their own technologies and reduce their costs. And that shale isn’t going anywhere and from what I understand the cost of restarting production isn’t high, so as soon as oil prices start to rise ……

    Anyway, as good neo-liberals we don’t care if capitalists through their money at the problem and lost it, as long as it wasn’t tax payers’ money, some more will be along to see if they can make a financial killing. Just like they did with teh 15 years ago.

  9. Thesimple explanation is surely that Murph didn’t understand what the supposed “experts” were telling him, so he just made up shit, his usual modus operandi.

  10. The longer the Saudi’s play this game of driving down prices to screw the shale industry the longer they have to improve their own technologies and reduce their costs.

    The Saudis are doing no such thing: the price drop was driven by a collapse in demand, not overproduction. There is no good reason for the Saudis to shut in production to help beleaguered western oil companies and shambolic national oil companies to avoid having to work with $40 per barrel, reducing their own revenues in the process.

  11. Richard

    I suspect that it is not easy to generalise – it depends on the type of well, what the flow rate is, whether they need to re-frack etc, and also how easy it is to get to a distribution point/refinery.

  12. > “Respectfully, I am Professor of Practice in International Political Economy at City University, London”.

    Is he really? I can’t find any mention of him on the city.ac.uk website. You’d think they’d be proud to have hired him; but he’s not listed on any of the staff pages.

    I was hoping to add him to RateMyProfessors.com, but they require a link to his page on the university’s website. I’d love to hear current students’ opinions on how he reacts to questions.

  13. The main thing here is that not many people expected shale extraction tech to fall in cost so quickly, There were, however, quite a few voices saying that US energy production would change the world, but not many thought that would really impact until 2017 or so.

  14. “The longer the Saudi’s play this game of driving down prices to screw the shale industry”

    I think its more to screw the Iranians and the Russians…

  15. Andrew M

    You are right: he’s not listed in the staff directory. However, he is listed in the staff email directory. Public sector inefficiency?

  16. I tend to think his appointment takes effect either next term or next academic year. Cut him some slack : he needs to learn the syllabus before he gets the poly into trouble

  17. Was assuming he was hired when there was publicity around corbynomics and they just wanted a name for advertising. Now that’s gone away will be interesting to see if he lasts (or even teaches an actual class it seems). Shame there isn’t rigour on use of the title as he’s just a part time lecturer at best and I’m sure he isn’t going to ever stop using it.

  18. ” The Saudis depend so much on oil revenues that they are in a paradoxical position of needing to pump more oil as prices reduce, simply to maintain the revenue flows. It is not as if their economy has much else going for it:”

    I seem to remember suggesting this would be a response to Pigou taxation of carbon emissions.
    Taxation encourages reduction in consumption. So reducing revenues to producers. Producers, who can, reduce oil prices to capture the larger share of what consumption there is, to maintain revenues. Reduced overall prices negate the taxation. Consumption rises, but to a higher level than before.

  19. It would be good to have an oil pro’s take….the Saudi crud versus the ASA clean fracked oil. some intersting trade-offs.

  20. So Much For Subtlety

    That the first wave of investors into a new technology go bust proves that this technology will never be useful. Discuss.

    If you catch the train from Edinburgh to Glasgow, you will see, as you look out the window, spill piles from the Victorian Scottish shale industry. Quite attractive they are too.

    https://en.wikipedia.org/wiki/James_Young_%28chemist%29

    When the reserves of torbanite eventually gave out the company moved on to pioneer the exploitation of West Lothian’s oil shale (lamosite) deposits, if not so rich in oil as cannel coal and torbanite. In 1862 the distillation plants began production and by the 1900s nearly 2 million tons of shale were being extracted annually, employing 4,000 men.

    Museum of the Scottish Shale Industry:

    http://www.scottishshale.co.uk/index.html

    Needless to say, the Scottish government banned all fracking and other non-traditional hydrocarbon extraction earlier this year.

  21. So Much For Subtlety

    diogenes – “that’s because the Scottish parliament reckon the sun will start shining in winter where they are…”

    Because them English capitalists have been stealing all the good weather innit? Vote for independence and Scotland will have a Mediterranean climate!

    I like the corporatist nature of the Scottish government – by banning fracking they are pleasing the Unions, Big business and the Greens. It is the poor consumer who is left out of this stitch up.

  22. Nobody who invested in railways ever made any money, other than dash-and-grab speculators, therefore railways don’t exist.

  23. “A rising level of fear will lead investors to stockpile oil”

    1) “Investors” do not “stockpile” oil. They buy futures (not physical), typically front month or close to, and they roll before expiry. Furthermore, when investors are horny for oil, the curve is normally backwardated which does NOT create incentives to stockpile (see point 2, below)
    2) “stockpiling” is done by physical traders, which usually means commodity trading houses, banks with physical assets (mostly MS and GS, IIRC) or oil producers. Not “investors” as commonly envisioned (i.e. not mutual funds or hedge funds). And the stockpiling is done based on the shape of the forward curve, i.e. the returns to storage. Contango leads to storing oil and selling forward, which is the situation we’re in now.

    @ bloke in spain: “Out of interest, what is an oil “stockpile”? Couple days’ consumption?”

    Current OECD inventories are about 64 days worth of cover (i.e. consumption).

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