Dream of US Shale Oil Revolution Goes Up in Smoke

A rather astonishing thing happened about a week ago. It was undoubtedly one of the biggest stories of the year, and it has implications for the United States for years to come.

Yet, you may have completely missed this stunning news.

The U.S. Energy Information Administration slashed by 96% the estimated amount of recoverable oil buried in California's vast Monterey Shale deposits.

Why is this such big news?

The Monterey Shale formation, a 1,750 square-mile area, contains about two-thirds of the nation's shale oil reserves.

In other words, nearly two-thirds of the US shale oil that was previously believed to be recoverable is not. A 96% reduction is a virtual wipeout.

The Monterey formation was previously believed to contain more than double the amount of oil estimated at the Bakken shale in North Dakota, and five times as much as the Eagle Ford shale in South Texas.

But — POOF! — just like that, the contention that shale oil would generate US energy independence, and lead us to surpass Saudi Arabia in production, went up in smoke.

Only 600 million barrels of oil can be extracted with existing technology from this vast stretch of Central and Southern California, far below the 13.7 billion barrels once thought to be recoverable.

To put that into perspective, at current usage levels, 600 million barrels would meet US oil demand for just 33 days. Yes, you read that correctly.

The energy agency said the earlier estimate of recoverable oil, issued in 2011 by an independent firm under contract with the government, broadly assumed that deposits in the Monterey Shale formation were as easily recoverable as those found in shale formations elsewhere.

Apparently, they are not.

Oil driller Occidental, which owns most of leases in the Monterey Shale, earlier this year put its California business up for sale in part due to lagging oil production.

Fracking — the process of injecting millions of gallons of water laced with sand and chemicals deep underground to crack shale formations — has not been productive in the area, which runs down the center of California roughly from Sacramento to the Los Angeles basin and includes some coastal regions.

This is a stunning reversal, and it's a reminder of that old adage: Don't count your chickens before they hatch.

It was previously believed that an oil boom would bring millions of new jobs to California and boost tax revenue by tens of billions annually.

All of those rosy projections were wiped out the instant this news was announced on May 21.

It's hard to overstate what an enormous blow this is to US energy interests.

For California, in particular, this is a huge setback for the economy and for anticipated tax revenues.

In 2013, a USC analysis, funded in part by the Western States Petroleum Association, predicted that the Monterey Shale formation could, by 2020, boost California's gross domestic product by 14%, add $24.6 billion per year in tax revenue, and generate 2.8 million new jobs.

The fact that none of this is true is a kick in the gut to the Golden State. And it could lead to a national oil shock in the coming years that would be devastating to the US economy and our way of life.

If we're ever going to develop energy independence, it will have to come from other means. The shale oil "revolution" was a myth from the beginning, and one that has quickly gone bust.

Perhaps this news will compel California to instead focus more on developing and advancing renewable energy.

That would provide a happy ending to this truly remarkable story.

Global Population & Global Resources Rapidly Moving in Opposing Directions

The growth of the global population over the last century is nothing short of extraordinary. But humanity's exponential growth is going to pose some great challenges and difficulties for us in the decades ahead.

The world population was an estimated 1.564 billion 1900. However, as of July 2013, the world population had reached an estimated 7.152 billion, according to the United States Census Bureau.

Quite remarkably, the global population quadrupled in the 20th Century.

Population growth in the West became more rapid after the introduction of compulsory vaccinations, and improvements in medicine and sanitation.

However, global population growth was largely driven by greatly increased by food production (which, in turn, was driven by fossil fuels in the form of natural gas-derived fertilizers, oil-derived pesticides, and hydrocarbon-fueled irrigation) that allowed this massive expansion.

As the following chart shows, the global population was relatively stable for many centuries, but then skyrocketed upon the discovery of crude oil.



Absent adequate crude oil and oil-based fertilizers, this population boom cannot continue. Furthermore, billions of additional humans will use vastly greater quantities of resources, many of which are non-renewable and therefore unsustainable.

The UN projects steadily declining population growth in the near future. However, the global population is still expected to reach somewhere between 8.3 and 10.9 billion by 2050.

Yet, some analysts question the sustainability of further world population growth, highlighting the growing pressures on the environment, global food supplies, and energy resources.

For example, the UK government's chief scientific advisor, Professor John Beddington, warns that the world will require 50% more energy, food and water by 2030. And, according to a 2009 report by the United Nations Food and Agriculture Organisation (FAO), the world will have to produce 70% more food by 2050 to feed what is projected to be as many as 3.8 billion additional people.

However, higher oil prices, the loss of arable land, and the effects of climate change will inevitably drive grain and food prices much higher, perhaps beyond the reach of billions of the world's poorest inhabitants.

Around the world, fish stocks are being depleted due to overfishing. This is quite problematic since so many people are reliant on our oceans for food. Presently, about 40% of the world’s population lives within 100 kilometers (64 miles) of the coast, and they eat a lot of seafood.

However, the global fishing fleet is 2-3 times larger than what the oceans can sustainably support, according to the World Wildlife Fund (WWF).

As a result, says WWF, 53% of the world’s fisheries are fully exploited, and 32% are overexploited, depleted, or recovering from depletion. Additionally, most of the top ten marine fisheries, accounting for about 30% of all capture fisheries production, are fully exploited or overexploited.

Unless the current situation improves, says WWF, stocks of all species currently fished for food are predicted to collapse by 2048.

That's really bad timing for humanity since the global population is projected to peak as high as 10.9 billion people by mid-century. Apparently, we'll have to scratch seafood off future menus. That will make feeding all those additional billions of humans really challenging, if not impossible.

We'll also have to reevaluate our farming practices and start doing things in a far more efficient and sustainable manner to avoid mass starvation. The main issue going forward will be water. Around the globe, as the population has soared, our consumption of water has grown exponentially.

As a result, our water aquifers are emptying at an alarming rate. For example, the Ogallala Aquifier, which covers 30 percent of the United States' irrigation needs, could be mostly depleted by 2060 if current trends continue.

One of the world's leading resource analysts, Lester Brown, has warned that 18 countries — together containing half the world's people — are now overpumping their underground water tables to the point where they are not replenishing and where harvests are getting smaller each year. This is what's known as "peak water."

Clearly, the way we presently use fresh water is unsustainable. The realities of global population growth and water supplies are now colliding.

Case in point: Nearly half of all the water used in the United States goes to raising animals for food.

It takes more than 2,400 gallons of water to produce one pound of meat. However, growing one pound of wheat only requires 25 gallons.

While the Earth has 57 million square miles of land (36.48 billion acres), there are just 12 million square miles (7.68 billion acres) of arable land (agricultural land). This amounts to just 21 percent of all the land on earth, a number that should raise some serious concerns in everyone.

Yet, due to erosion, that number is dwindling. In fact, arable land is being lost at the alarming rate of over 38,610 square miles (24.7 million acres) per year.

This is indicative of a populace that is using ever more precious resources — and in some cases non-renewable resources — at an ever expanding rate in order to meet the needs of a burgeoning global population.

Humans now need the equivalent of 1.5 planets to sustain us, and by the 2030s it will have risen to two planets. The problem, of course, is that we have only one planet.

Again, according to that previously referenced 2009 report by the United Nations Food and Agriculture Organisation (FAO), the world will have to produce 70% more food by 2050 to feed what is projected to be an extra 2-3 billion people.

Quite alarmingly, a leading Australian scientist says the world will have to produce more food in the next 50 years than we have in the thousands of years since civilization began. That's a daunting prospect.

How could this ever be accomplished? Such a goal sounds absolutely fantastical.

In this century, we will finally bump up against the limits of resource extraction. Going forward, the life we have always taken for granted will ultimately be limited by resource constraints.

Sadly, our entire way of life is plainly unsustainable. Humans are now depleting all the natural resources the Earth can provide for the year in less than three-quarters of a year, according to the Global Footprint Network.

In 2013, humanity used as much of nature as the Earth can regenerate in a year in less than nine months.

As Herb Stein's Law states with such elegant simplicity, "If something cannot go on forever, it will stop."

'Earth overshoot day' is the point in the year that humans have exhausted supplies such land, trees and fish, and outstripped the planet's annual capacity to absorb waste products including carbon dioxide.

This is calculated by comparing the demands made by humans on global resources — our 'ecological footprint' — with the planet's ability to replenish resources and absorb waste.

Earth overshoot day fell a couple of days earlier in 2013 than it did in 2012. It was part of a troubling and ongoing pattern — one that is plainly unsustainable.

The Global Footprint Network said that in 1961, humanity only used around two-thirds of the available natural resources on Earth, but by the 1970s increased carbon emissions and consumption began to outstrip what the planet could provide.

The report reiterated what other researchers and scientists had said before: humans now need the equivalent of 1.5 planets to sustain us, and by mid century it will have risen to two planets.

So what does this mean for humanity? Well, the prospects are frightening.

According to a new joint-university study, utilizing NASA research, society could collapse in just a few decades.

The report lists five risk factors for societal collapse: population, climate, water, agriculture and energy. The convergence of food, water and energy crises could create a 'perfect storm' during the lifetimes of many of us presently living.

The study says that all societal collapses over the past 5,000 years have involved both "the stretching of resources due to the strain placed on the ecological carrying capacity" and "the economic stratification of society into Elites [rich] and Masses (or "Commoners") [poor]."

The latter is a topic that I won't even get into here and now, but I have previously covered inequality and the vanishing American middle class many times.

While some are surely inclined to believe that technology will ultimately save us, the report dismisses that notion.

"Technological change can raise the efficiency of resource use, but it also tends to raise both per capita resource consumption and the scale of resource extraction, so that, absent policy effects, the increases in consumption often compensate for the increased efficiency of resource use."

These are scary prospects. Consequently, they are difficult topics for many of us to discuss, much less accept. But simply ignoring them will not make them go away. Massive, historic, and unprecedented changes are already underway.

We must adapt, and we must do so quickly. The global population and our global resources are rapidly moving in opposing directions. This will result in desperate and unforgiving outcomes for billions of people around the world.

The path we are on is inherently unsustainable. The world must immediately focus its efforts on conservation and efficiency, with a particular emphasis on renewability. And, of course, there's the whole matter of birth control.

The time is now. This won't wait.

Corporate Profits vs. Wages: The Great Divide

Corporate profits, both in dollar terms and as a share of the economy, are at an all-time high. Additionally, worker productivity is also at an all-time high.

Yet, American workers are seeing the benefits of neither.

From 1973 to 2011, worker productivity grew 80 percent, while median hourly compensation, after inflation, grew by just one-eighth that amount, according to the Economic Policy Institute. And since 2000, productivity has risen 23 percent while real hourly pay has essentially stagnated.

Even as American workers have grown continually more productive, they aren't being fairly compensated for all their efforts.

For example, had the minimum wage kept pace with gains in the country's productivity since 1968, it would be $16.54 an hour today.

Sadly, for millions of workers, wages have flatlined. In fact, wage growth is near its lowest level in half a century. And stagnant wages have led to steadily worsening income inequality.

Wages have fallen to a record low as a share of America’s gross domestic product. Until 1975, wages almost always accounted for more than 50 percent of the nation’s GDP, but in 2012 wages fell to a record low of 43.5 percent. And that percentage has been falling steadily since 2001.

Meanwhile, fuel, food, health and education costs have all risen steadily. In other words, people are being squeezed from both ends.

Companies have boosted profits to record levels by employing as few workers as possible, at as low a pay rate as possible. Money that should be paid to workers for their labors is instead being siphoned off to further enrich wealthy CEOs and other top corporate officers.

Today, American CEOs get paid 354 times more than the typical worker. But back in the 1980s, CEOs "only" got paid 42 times more.

So, while corporations reap all the benefits of record profits, American workers continue to suffer and decline.

The US cannot return to the higher growth rates of the past if workers keep getting a smaller share of profits, while watching their purchasing power continually diminish.

Historically, from 1948 through 2013, the United States annual GDP growth rate averaged 3.21 percent.

Yet, over the last two decades, as with many other developed nations, US growth rates have been decreasing. In the 1950’s and 60’s the average growth rate was above 4 percent. In the 70’s and 80’s it dropped to around 3 percent. But in the last ten years, the average rate has been below 2 percent.

It should surprise no one that the US economy has reached the 4 percent growth mark in just two of the 19 quarters since the Great Recession ended. Call it the new normal.

I've made the same argument repeatedly: Absent adequate and fair wages, the US economy will remain incapable of growing in a way that was previously considered normal or acceptable. In the current environment, demand and consumption are inadequate to sustain previous growth rates.

Put it this way: If you owned a car dealership, would you rather have one rich customer that can afford a $100,000 car, or 10 customers that can afford $25,000 cars?

We are seeing what happens when too much wealth — too big a slice of record corporate profits — is hoarded by the moneyed corporate class.

US Economy Contracts 1.0% in First Quarter. Aberration or Omen?

Troubling news: The U.S. economy shrank in the first three months of 2014.

Gross domestic product contracted at a 1.0% annual pace in the first quarter, according to the U.S. Bureau of Economic Analysis.

It's the first time that's happened in three years, and only the second time since the Great Recession ended in mid-2009. The last negative quarter was in early 2011, when growth fell by 1.3%.

Slumps in exports, housing and business investment, especially on equipment, were the main drivers behind the weak performance.

Some are blaming the impact of harsh winter weather for the downturn. If that's the case, we'll see a vigorous rebound in the second quarter. But I think the problems are much deeper than that.

The latest GDP figures are based on incomplete data and will be revised at least two more times in the coming months.

One way or another, it's a huge comedown since fourth quarter 2013 GDP was 2.6%.

I'm dubious that weather is the only reason for the pullback. Household incomes remain depressed, which is crushing demand and consumption.

In 2012, inflation-adjusted household income was $51,017. Yet, back in 1989, it was $51,681. Incredibly, household income is now lower than it was a quarter-century ago.

Additionally, Americans no longer have mortgage equity extractions to help fuel their spending binges, as they did in the previous decade. Mortgage equity withdrawal was responsible for more than 75% of GDP growth from 2003 to 2006.

However, in the forth quarter of 2013, net equity extraction was minus $46 billion, or a negative 1.5% of disposable personal income (DPI).

These are different times. The housing market remains on shaky ground more than six years after the bubble burst. Recent data shows weak building rates, as well as slow sales for both new and existing homes.

Sales of new single-family homes plunged 14.5% in March. New-home sales averaged an annual pace 434,000 in the first quarter. But sales had averaged 1.1 million annually from 2001-2005. Additionally, existing-home sales in March slowed to their slowest rate since July 2012.

These downturns compelled the federally controlled mortgage-finance giants Fannie Mae and Freddie Mac to recently cut their forecasts for the housing market’s performance in 2014.

It's little wonder.

Housing cut economic growth in the first quarter, as it did in the fourth quarter of 2013, resulting in the sector’s first back-to-back subtraction since the first half of 2009. Specifically, housing cut almost two-tenths of a point from the first quarter’s overall growth. That drop followed a cut of almost three-tenths of a point during the fourth quarter.

The median sales price of new homes sold in March was $290,000, the highest rate ever. The combination of rising prices and rates are creating a drag on sales, which could further undermine the economy.

The housing boom of the last decade was a boon to the economy. People weren't just buying houses; they were also remodeling and furnishing them. Those days are over.

It should surprise no one that the economy continues to struggle.

Economist Noriel Roubini says the US economy seems to grow only during a bubble, such as the Internet bubble of the 1990s and the housing bubble of the 2000s. He's right.

The Federal Reserve creates every bubble through its monetary policy. And it's doing it again. As a result of its zero interest rate policy (ZIRP), the Fed has spurred Wall Street's five-year bull market rally.

Yet, at the same time the nation continues to endure a weak five-year economic recovery. It's quite incongruous.

In essence, the stock market rally is benefitting a relative few. As Wall St. booms, Main St. continues to struggle.

Since the economic recovery began in mid-2009, annual growth has hovered around 2%, well short of the nation’s historical average of 3.3%.

Again, this is simply because there is less household income today than before the Great Recession. Yet, instead of continuing to spend more than they earn, Americans are finally showing a bit of restraint.

Though consumer spending rose 3% in the first quarter, the increase was largely due to big spikes in utilities (heating costs rose due to the cold weather), as well as higher outlays on health services related to the enactment of the Affordable Care Act (aka,Obamacare).

Given that millions of additional Americans are now purchasing health insurance, health-care spending, as a percentage of GDP growth, was the highest ever recorded. Consequently, spending on services jumped 4.4%, the biggest increase in almost 14 years.

The other side of the coin is that spending on goods rose a much narrower 0.4%, the weakest gain in nearly three years.

In essence, people are spending their money on necessities, not on luxury items, entertainment, vacations and other non-essential goods and services. Wages and employment simply aren’t allowing greater spending.

While average credit card debt per indebted household was $17,630 at the end of the first quarter of 2010, it has dropped to $15,191. That four-year decline is substantial.

Overall, consumer debt is now 9.1% below its 2008 peak of $12.68 trillion, according to the Federal Reserve.

Perhaps Americans have concluded that increasing their personal debt is not the same as having discretionary income. After all, overspending and an inability to manage debts is what helped to initiate the Great Recession in the first place.

All of this indicates that the economy will continue to struggle, and that growth will remain a challenge going forward.

It will be interesting to see if anyone continues to blame the 'weather', rather than the more obvious and uncomfortable realities behind our economic stagnation.