Taken from Bank of England report
Trietam
There is a man in the United States whose academic and professional credentials are as impressive and impeccable as one can achieve in a career. His Wikipedia professional/academic resume shows his high-level roles in a who's who of important global institutions.
Larry Summers served as: MIT student, PhD from Harvard University, U.S. Treasury Secretary, Director of the National Economic Council, President of Harvard University, Chief Economist of the World Bank, Undersecretary for International Affairs of the U.S. Federal Department of the Treasury, a hedge fund Managing Partner of the Fund and currently serves on the Board of Directors of OpenAI.
And yet… just a few weeks ago, Larry Summers published a comment saying that the fundamentals of the economy seemed fundamentally bad enough to shake confidence in those institutions. He was talking about whether the United States should create a sovereign wealth fund, which is sort of like a national savings account in which the government deposits money to fund future projects or spending needs. They are indeed very great things and reflect the wisdom of planning for a rainy day, but given that politicians like to spend not just the money they have but everything they can borrow, the idea seems a bit strange and hopeless at first, though Some countries have already done this.
But the shocking part of this story is why Summers was opposed to the idea. Here is his quote: “If you are Norway or the UAE – with huge natural resources and you are exporting, it is one thing to amass a huge wealth fund. But we have a huge trade deficit. We have a huge budget deficit …”
He's absolutely right about America's financial woes. Our dear neighbor to the south is currently the equivalent of a 28 year old man, twice divorced, having 8 kids with 4 women, working in a lumberyard, and handling 14 credit cards at the same time (definitely doesn't mean Canada is any better…).
No, he's right, these are the biggest fiscal issues that need to be addressed, but it's the rest of his statement that's crazy. He said Norway and the UAE should establish sovereign wealth funds because they “With such huge resources, the ones you are exporting will run out'Therefore a large wealth fund can/should be accumulated.
Summers clearly does not understand the depletion of natural resources, the economic powerhouse status that these resources have given the United States, or both. Both facts are shocking given his status. But his analysis of the situation provides clues as to why major Western powers are in such disarray over energy policy.
Mr. Summers presumably means that the U.S. economy is not dominated by the export of natural resources. Oil or natural gas exports, for example, are not as fundamental to the economy as they are in Norway or the United Arab Emirates. Yes, the United States does have other, much-needed uses for its export funds.
But he seems to think that the United States will not be affected by the “exhaustion” of resources. He doesn't seem to understand that while the US economy may not be dominated by oil/gas exports, the issue of resource depletion is not important to the US because it does not dominate the economy. That's the charitable explanation; less charitable, he likely believes the United States will never run out of affordable hydrocarbons.
It's easy to see where he and other policymakers got their ideas. If they consider oil reserves, they will find coverage in the general mainstream financial media, as well as in publications such as Forbes, which is the standard for U.S. economic communications and claims to have more than 5 million readers through 43 global editions . The publication targets financial luminaries: “Forbes ranks No. 1 in business and finance competition that influences influential decision makers.” That's exactly what people like Summers want to know about America's resources Competence required (I suspect he spent a lot of time learning about rock quality).
Here's Forbes' assessment of U.S. hydrocarbon reserves. In an article titled U.S. shale oil and gas, underestimating its entire life, The authors document how projections of U.S. shale oil potential continue to underestimate production capacity. To be fair, this is absolutely true. But the inference/conclusion is pretty wild and dangerous: “…the reality is that shale oil production [for both oil and natural gas] Exceeding all expectations, that is, through continued technological advancements and operational improvements… in fact, the shale revolution shows us that The amount of oil and gas we can produce is essentially unlimited”.
Overall, this is a good article describing how we have underestimated the growth of shale gas, but these silly conclusive assumptions are not good at all. Because of their origin, their voices reach more ears than real expertise from industry journals (including, ahem, this excellent one ). These episodes remain in the minds of people like Larry Summers as he huddles with his global peers to discuss energy policy.
As an alternative, consider some of the more thoughtful but less conclusive analyses, such as the work of Novi Labs, who publish extremely detailed reports analyzing production trends, with one key difference from Forbes: Novi's forecasts are based on actual well data, well distance, well productivity, well length, gas/oil ratio, rock quality and many other parameters. For example, Novi recently published a paper titled “Using machine learning to analyze well performance and future prospects in the Midland Basin,” in which they concluded that based on the above parameters and others, the Midland Basin still has down about 25,000 positions and broke them down and came up with the price required to develop these products and wisely concluded: “Because of the Permian Basin's role as a marginal growth barrel, overestimating remaining resources will have consequences ranging from price spikes to energy security and geopolitics.》29dk2902lhttps://boereport.com/29dk2902l.html
Based on this extremely detailed analysis, Novi can confidently forecast Permian oil/gas production through 2030.
Forbes is happy to project oil/gas production to infinity, based on nothing more than a series of failed forecasts.
People read Forbes before entering the highest levels of government, but not Novi. We got Germany. And Canada. etc.
It's not a question of whether we will “run out of oil.” The surest way to piss off an audience—right after challenging the superiority of electric cars—is to question the ultimate production capabilities of hydrocarbon resources. “Peak oil” is now a term of derision, and to some extent, that's right, because as time goes on, many smart people warn that the resource is about to be depleted.
This idea does seem wrong, because as the price of something increases, more exploration will occur, and by definition, we don't know what those discoveries will encounter. It might be a little, it might be a lot.
This is best explained through real-life examples. A long time ago, towards the end of the last century, natural gas was very cheap in Western Canada. (Oddly enough, it's even cheaper now, but that wasn't always the case.) In Saskatchewan, where I grew up, the alfalfa processing industry has grown, and it's been a godsend to many small communities. Farmers grow alfalfa and donate the output to local (often community-owned) alfalfa processing facilities, which convert the green alfalfa into nutrient-dense pellets, for which Japan (mostly) seems to have an insatiable appetite.
The entire business exists because of the availability of cheap natural gas, which allows green alfalfa to be dehydrated quickly and cost-effectively; huge drying drums run around the clock throughout the summer, turning large quantities of freshly chopped alfalfa salad into Dry granules.
But then natural gas prices surged to unprecedented levels, over $10/GJ, and reached a new average price that is roughly double the average price of the 1980s and 1990s. The surge in natural gas prices devastated the entire industry. Every town lost the backbone of its community, investors lost their investment, municipalities lost their tax revenue, and hundreds if not thousands of punks like me lost their summer job opportunities.
This is what people like Larry Summers should be thinking about when talking about, or heaven forbid asking, questions about the longevity of our hydrocarbon resources. Yes, oil and gas reserves will always exist – but at what price? What are the consequences of rising prices?
In the spring of 2022, some large U.S. trade associations warned of the consequences of rising natural gas prices. “Last winter's heating bills were unsustainable,” said the CEO of the Western Equipment Dealers Association. He was referring to an average price of $4.56/MMBtu at the Henry Center during the winter of 2021-22 – significantly higher than today, but a number that may be needed in the long term for continued development of U.S. reservoirs and Meet the export demand for liquefied natural gas.
It’s worth noting that the price levels the CEO fears are only a fraction of global LNG prices. In other words, if American industry only had to pay half as much as the rest of the world, it would panic.
At a time when the United States is in dire need of substantial manufacturing capacity “onshore,” policymakers should remain very cautious about the “certainty” of the future of U.S. and Canadian energy production capacity.
Energy ignorance at these levels of government is becoming deadly. I mean, we can all see Germany, right? What they are doing with energy policy is turning into a farce, and many Western leaders seem intent on following their lead. Force shutdowns of baseload power, force intermittent power, watch AI buy up all power from nuclear sources, claim support for new nuclear power that we all know won't be around for decades, and then trot off to the annual fall climate conference that tells the world what to do next.
As Mark Twain said, “It’s not what you don’t know that gets you into trouble. It’s what you’re convinced isn’t true.
What the world desperately needs—energy transparency. There were also a few laughs. Learn about the end of fossil fuel madness,Can be found in Amazon Canada, indigo.caor amazon.com.
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