Pops wrote:Clicking your heels together and saying "slo decline, slo decline" over and over doesn't alter the fact that marginal oil is becoming unprofitable. Oil extraction is a money making business, not an energy making business. When the customer can't pay to produce the most expensive oil, production of that oil stops, if another producer of less expensive oil can't make up the shortfall, decline takes over.
Just that simple.
This is a key point Pops raised and I have been thinking about it since I saw his post.
Oil producers are in the business of extracting oil from reservoirs for a profit. Because we find the product they produce extremely useful in our culture we are willing to pay them well for providing that product, but there is a limit to what our civilization can afford to pay. Estimates range from a low of $100.00/bbl where the USA is more or less now, and $147.00/bbl where we were when the economy in the USA and Europe fell apart. Theoretically $147.00 won't break us this time because we are much more efficient in 2014 than we were in 2008, and this argument does have some logic and statistics supporting it.
In the USA the Government subsidizes all sorts of businesses that are not profitable when it is deemed in the public interest to do so, like Solar Power, Grain Farming, Helium storage... the list is very long. Would it be in the best interests of TPTB to subsidize oil production to keep world oil prices under that $147.00/bbl danger level? Solar, Wind, Ethanol have all at one time or another gotten generous production subsidies from the Federal Government, just like the agrigiant corn farmers in Iowa do every year. If the Federal Government passed a subsidy tomorrow that stated every barrel of oil produced in the territory of the United States would not only be tax free, but that the company producing it would get a $20.00/bbl subsidy for every barrel produced what kind of an impact would that have on the future production plans of oil companies in the USA? Would it set off a new round of massive investment in oil fields? Or would it just increase the profit margins of the oil companies?