Deconstructing The "Oceans Of Oil!" Story (Courtesy Action McNewstime)

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Richard Heinberg: Right. Yeah, the big news right now is that the industry needs prices higher than the economy will allow, as you just outlined. So we are seeing the major oil companies cutting back on capital expenditure in upstream projects, which will undoubtedly have an impact a year or two down the line in terms of lower oil production. That is why I think that Campbell and Laherrère were right on in saying 2015, 2016 maybe, we will also start to see the rapid increase of production from the Bakken and the Eagle Ford here in the US start to flatten out. And probably within a year or two after that, we will see a commencement of a rapid decline.

So you know, on a net basis, taking all those things into account, I think we are probably pretty likely to see global oil production start to head south in the next year or two.

But this change in capital expenditure by the majors, that is a new story. You know, just a couple of years ago, they needed oil prices around $100 a barrel in order to justify upstream investments. That is no longer true. Now they need something like $120 a barrel but the economy cannot stand prices that high. So you know, if the price starts to go up a little bit, then demand just falls back. People start driving less. And so the economy is unable to deliver oil prices to the industry that the industry needs. This is—I think Gail Tverberg is saying this is the beginning of the end. I think she is right.

Chris Martenson: Well, this part about the oil majors, I really want to harp on this because to me, this is a smoking gun. The oil majors are not in the business of supplying us oil. They are in the business of making money and they have been extraordinarily good at it. And they are businesses. Very intelligent people—I know a lot of people who work at Shell and Exxon. They are really hardworking. And they have scoured the globe. They have looked at all their possible opportunities and they have come to the conclusion that the extent to which they spend money on capex is the extent to which they are going to hurt cash flows and the potential for shareholder value and dividend payments.

So they have decided to cut back on capex—capital expenditures—meaning exploring for new finds, in-fill drilling in existing places, all the places, that upstream word you mentioned, that is creating more supply. They all have now, I think we are on the fifth year of declining output from the seven oil majors. These are the big ones—Total, Exxon, Shell, BP, etc.—and they have been spending, I think they have doubled their capex in the last five years and their collective output is down at least 10% or 12%. So they are spending more, getting less, and they have just thrown in the towel this year and said, “Until and unless oil prices are higher than they currently are, we cannot invest in this game anymore.” How is that not front-page news with Congressional committees being formed immediately in urgent haste?

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http://www.resilience.org/stories/2014-03-10/the-oil-revolution-story-is-dead-wrong