Unthinkable
In the drunken, drug-crazed twilight of its run as Leader of the
Free World, America's collective imagination swerves from one breakdown
lane to the other while the highway patrol throws a donuts-and-porn
party down at headquarters and the news media searches the gutter on
hands-and-knees looking for the spot where it dropped its brains.
The other day, Larry Kudlow, the king popinjay at CNBC, told viewers
that the US has over a trillion barrels of oil waiting to be
drill-drill-drilled on our way to "energy independence." This is the
kind of malarkey that America thrives on these days, the way yeasts
thrive on sugary mash. It's a complete falsehood, of course, but the
working dead over at The New York Times said substantially the
same thing in a front-page story the week before. The Timespersons have
only one source for their stories: Daniel Yergin, chief public
relations pimp for the oil industry, because he makes it so easy for
them by providing all the information they will ever need. The oil and
gas companies would like to direct the fire-hose of loose and easy
money out there into their stock prices - building to the magic moment
when, Mozillo-like, the executives can dump shares, cut, and run for
the far hills where no SEC officer or DOJ attorney will ever think to
look. This is just another racket in an all-rackets society.
The fantasy of energy independence therefore takes shape as a
"settled matter" as we lurch toward elections. The arch-moron Mitt
Romney will inveigh against Obama for holding the oil dogs back while
Obama pretends to spank the oil companies for gouging the public on
that alleged Niagara flow of new oil. None of them understands the true
situation, which is that the USA is enjoying one last gulp of a very
expensive oil cocktail with the last few dollars it can prestidigitate
out of the central bank's magic box, and then there is no more even
notional surplus wealth to blow on more drinks.
And it
isn't even much of a gulp. US production of "all liquids" - which
includes methane gas drippings, ethanol, etc - went from 7.2 million
barrels a day in 2004 to about 7.7 in 2011. We use about 19 million
barrels a day, down about a million from peak US consumption before the
financial crash of 2008. The reason it's down: Americans are going
broke, one household and one small business at a time. Shale oil
production is approaching half a million barrels a day. That's about 45
minutes of daily go-power. It might go up to an hour-and-a-half before
production of shale oil permanently crashes on the combination of
fast-depleting wells and a lack of capital to keep drilling new ones at
$8 million per well.
The story for shale gas is similar,
except that initial production was so exorbitant that it drove the
price down to nearly nothing (the $2 range), and the bust from that
Ponzi will be even more spectacular than the shale oil. Everyone from
Mr. Obama to the chiselers who run Citigroup maintain that there is a
one hundred year supply of gas in the USA. They are going to be very
disappointed. The public, on the other hand, will not even remember
what they said as they burn down the cornfields in anguish.
I met a guy at the pumps last week who was filling up a pickup truck
at least twice the size of mine a few yards away. I asked him how
things were going fuel-wise with that monster Ram-Charger he was
feeding. At more than $100 a fill-up, it was killing him he said. His
line-of-work required him to drive all over the county incessantly. His
reality was a bit different from the oil company execs promising
limitless horizons of oil to CNBC-watching retirees desperate for some
"yield" on investment in the face of ZIRP bond rates. The price of oil
(and gasoline) may well crash again, but when it does, there will be
fewer business reasons for anyone to drive around the county all the
live-long day, and that guy's Ram-Charger could fall into the hands of
the re-po goon squad. He may never be able to get another one, either.
No more money for truck loans. Capital shortage. Sorry.
This oil and gas thing cuts so many ways that the public will feel
like it is gargling Gillette blue blades. Just add up the total tonnage
of steel necessary to keep this Ponzi going and you would reach a
discouraging conclusion: this thing has nowhere to go but swift
and implacable contraction. The ultimate destination of "energy
independence" will be a nation with no cars and trucks to run. We'll
get there, you'll see. But that is speaking the unthinkable.
