The Shale Bubble

February 19, 2013 Post Carbon Institute and Energy Policy Forum

they tell us

we’re on the cusp of an oil & gas revolution.

But what if it’s all just a short-term bubble?

The Story

We’re being told that – thanks to technological advances like hydraulic fracturing and horizontal drilling – the US is undergoing an energy revolution, leading us in a few short years to become once again the world’s biggest oil producer and an exporter of natural gas. According to the Oil & Gas Industry and their proponents, “fracking” will provide the US with energy security, low energy prices for the foreseeable future, more than a million jobs, and economic growth.

“There’s no doubt that we’re seeing an industrial revolution… taking place because of the shale revolution.”
–Ed Morse, Global Head of Commodities Research at Citigroup

“We have a supply of natural gas that can last America nearly 100 years, and my administration will take every possible action to safely develop this energy.”
–President Barack Obama

“[The Utica Shale is] the biggest thing economically to hit Ohio, since maybe the plow.”
–Former Chesapeake Energy Corp. CEO Aubrey McClendon

“[The surge of U.S. oil and gas production] is the biggest change in the energy world since World War II.”
–Fatih Birol, Chief Economist at the International Energy Agency

“Many people in the oil industry were skeptical [that we had reached peak oil], and the extraordinary recent expansion of unconventional gas and oil production in North America proved the optimists to be correct.”
–Christof Rühl, Group Chief Economist at British Petroleum

Pointing to record low natural gas prices and increased production, policymakers and the media on both sides of the political aisle, as well as investors and utilities, have bought the hype and are shifting their plans and proposals with the expectation that the shale revolution is here to stay.

The Reality

Five years on, the Great Recession is turning into a life sentence

Outstanding, A must read !  What a bright intellect. And helicopter view! I suggest the Nobel prize for economics not for any economist, but for this journalist! (hfk)

By Ambrose Evans-Pritchard, International business editor, Daily Telegraph, 12/8

Five years into the Long Slump it almost seems as if we are back to square one.

China is sufficiently alarmed by the flint hardness of its “soft-landing” to talk up trillions of fresh stimulus. The European Central Bank is preparing to print “whatever it takes” to save Spain and Italy. Markets are pricing in an 80pc chance of yet more printing by the US Federal Reserve in September or soon after.

The world remains in barely contained slump. Industrial output is still below earlier peaks in Germany (-2), US (-3), Canada (-8) France (-9), Sweden (-10), Britain (-11), Belgium (-12), Japan (-15), Hungary (-15) Italy (-17), Spain (-22), Greece (-27), according to St Louis Fed data. By that gauge this is proving more intractable than the Great Depression.

Some date the crisis to August 9 2007, the day it became clear that Europe’s banks were up to their necks in US housing debt. The ECB flooded markets with €95bn of liquidity. It seemed a lot of money then. The term “trillion” was still banned by the Telegraph style book in those innocent days. We have since learned to swing with the modern dance music from central banks.

For me, the defining moment was twelve days later when yields on 3-month US Treasury bills to crashed from 3.76pc to 2.55pc in just two hours. At first we thought it was a mistake, a screen glitch. Nothing like this had happened before, not during the crashes of 1929 or 1987, or after the Twin Towers attack on 9/11.

Investors were pulling money out of America’s $2.5 trillion money market industry in panic. This was the long-feared heart attack in the credit system, even if the economic malaise behind it did not become clear for another year.

Chinese Bubble Bursting: A Probable Non-Event

Author: Philip Pilkington · November 8th, 2011 RGE EconoMonitor

In waking a tiger, use a long stick.– Mao Tse-tung

Well, it looks like it could finally be happening. The Chinese housing bubble could well be bursting right before our eyes.The bubble has long been present for all to see, with news reports popping up earlier this year about ‘ghost cities’ and ‘ghost malls’. Indeed, it’s been so visible and so well observed that even the mainstream media picked up on it. That’s right, folks… you heard me right: the mainstream media picked up on it! God, it must be serious!People have been calling the bursting of this bubble for a while now. But this is the first real indication I’ve seen that this particular house of cards – excuse the pun – is beginning to topple.On Sunday Gordon G. Chang over at Forbes noted:“Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market. The country’s largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing. In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. “The price war has begun,” said Alan Chiang Sheung-lai of property consultant DTZ to the South China Morning Post.”Conservative estimates say that property prices in China will fall by 10% next year, while some, such as Cao Jianhai of the Chinese Academy of Social Sciences, see potential price falls of 50%.So, why did this bubble inflate and what will be the consequences if it deflates?Dude, where’s my communism?We could look at the superficial reasons as to why the bubble inflated – you know, the usual non-story of low interest rates and a boom in bank lending.

The Greatest Bubble in History Is at Our Doorstep

published by Casey Research, 5/10

By Jeff Clark, BIG GOLD

It may not feel like it after a 12% correction in the past 30 days, but Mike Maloney – founder of GoldSilver.com – is convinced that we’re in a gold bull market that will be life changing for those who participate. I interviewed him for our current edition of BIG GOLD and am sharing some of what we talked about here. You may be shocked at what you read, because he’s devoted a larger allocation to gold and silver than we have. See why he’s convinced a bubble is ahead for precious metals, how high prices will go, and why he stores some gold overseas.

Jeff Clark: For those who don’t know you, why is Mike Maloney such a big believer in gold and silver?

Mike Maloney: Around 1999, my mother needed help with the estate my father had left her. My sister and I interviewed a dozen financial planners and picked the one that had the most glowing recommendations and gave him control of the assets. He lost about 50% of them in the next year and a half. What I’ve found is most financial planners get it wrong. They’re always chasing yesterday’s news. To be fair, there was a market crash, but with 50% of her assets gone by 2001, I ripped everything away from him, moved it to cash, and started studying the economy like crazy.

I discovered that the people concerned about budget deficits and trade imbalances at that time were in the precious metals sector, the hard money advocates. All the rest of the economists and newsletter writers didn’t really care. Concerns about international trade imbalances and how they were going to come back to bite us one day were coming from the hard money analysts. They also wrote about monetary history, something I just fell in love with. The fact that things just repeat over and over again is amazing.

China: Economy on the Edge of a Nervous Breakdown

Author: Patrick Chovanec · October 3rd, 2011 · RGE EconoMonitor

I just returned from a trip to New York, where earlier last week I gave a talk at the Council on Foreign Relations. The topic was the question on everyone’s mind these days: the outlook for China’s economy.Over the past several weeks, a number of news reports and market figures have caught my attention, which appear to indicate that China’s economy may be approaching a crisis. I use the word “crisis” in the traditional (or medical) sense, meaning a critical turning point when tensions or contradictions are resolved, for better or worse — sometimes in unexpected ways. One potential interpretation of this crisis is that China is entering the terminal stage of a bubble, and that what we are seeing are the early signs of a much broader collapse. But it may not be that simple. I have been saying since the year began that China is due for a correction, and just last week I told the Globe and Mail that such a correction could be a lot worse than most people expect. How exactly the situation will unfold, though, and whether we’ve already reached a tipping point or not, remains to be seen. For the moment, I’m reminded of that song: Something’s happening here; what it is ain’t exactly clear. But — and this is the real point — something is happening, and people both inside and outside of China are right to be nervous.

We’re in a Bubble and It’s Not the Internet – It’s Higher Education

Date: 26-04-2011
 Source: TechCrunch Peter Thiel:
Analysts prowl for the next bubble, and venture capitalist Peter Thiel argues that higher education is a likely candidate. In an article for TechCrunch by Sarah Lacy, Thiel compares higher-education costs with US housing prices: Both are touted as investments, promising long-term financial security; highly exclusive homes and educations can convey what Thiel calls “an unhealthy sense of entitlement.” Yet after an expensive Ivy League degree students often return to board with parents. He contends that talented students should succeed even without educations from the world’s most reputable institutions. Setting out to gather evidence supporting his theory, Thiel launched a contest to select 20 talented young adults, including international students from emerging economies, with good ideas, paying them to leave school and start companies instead. The notion that a select education determines success is limiting and self-reinforcing, and Thiel wants to establish a debt-free alternative. Great ideas, aided by funding and determination, can emerge from many sources. – YaleGlobal

A Bubble in Search of a Pin

John Mauldin, 6 Feb 2010.

Should Greenspan and Bernanke have seen the bubble in housing and other assets and acted, or should we accept their defense that you can’t know whether there is a bubble until after the fact? We will look at research that suggests they should have known, and, at the least, policy makers should no longer be allowed to say, “How could I have known?”

Of course, the employment numbers came out this morning, and the results are mixed; but that is better than they have been for the past two years. We dig into the numbers to see what they are really saying. And finally, we examine why the markets are so volatile. Is it just Greece, or is there more? There’s a lot of very interesting, and important, material to cover.

Will the Chinese Property Bubble Burst in 2010?

Urban property prices increased 7.8% y/y and 1.5% m/m in December 2009, up from 5.7% y/y and 1.2% m/m in November. This marked the highest y/y growth rate since June 2008, and the third-fastest m/m growth on record. Prices rose y/y in all 70 cities in the main index except Tangshan. In 2009, sales increased 42.1% y/y by floor space or 75.5% y/y by value, which implies a slowdown in December, as sales were up 53% by floor space and 86% by value for the year through November. Real-estate investment increased 16.1% for the year, which also implies a slowdown from the 17.8% y/y pace through November. [The December y/y figures released by the National Bureau of Statistics suggest that the 2008 data was revised upward, which may explain the apparent slowdown.] (01/19/10)

The Chinese Bubble Economy

Edward Harrison, Jan 11, 2010 12:02PM

The well-regarded and surprisingly independent Beijing-based media outlet Caijing is no more. The site is up, but the content is frozen in time, nothing having been written since early November. Happily, Caijing editor Hu Shuli has now re-appeared with Caing. And Caing has started things off where Caijing left off, drawing attention to the bubble economy China has become.  

The Dollar Bubble – Preparing Americans for Hyperinflation

Outstanding Video from Lebed.biz.

Most Americans have been brainwashed into believing the financial collapse of October 2008 through March 2009 was a once in a lifetime panic and now the worst is behind us and our economy is getting back to “normal”. 

Unfortunately, they don’t know what normal is… because they have been living inside of a bubble, The Dollar Bubble, which is getting ready to burst and when it does, the whole economic system will collapse and come to an end.