The Coming Breakdown Of U.S. & Global Markets Explained… What Most Analysts Miss

Typical Bakken Shale Oil Well

Here is another chart showing the rapidly falling EROI from Louis Arnoux’s article linked above:

Falliing-EROI-Levels

As we can see from the chart above, the Global Energy EROI continues to fall below the 10/1 level which only offers a minimum viability for our industrialized world. Thus, the more low quality tar sands, shale oil and other unconventional oil supplies we bring into the mix, the less the overall EROI.

This is the reason why there is so much debt in the world today.We are trying to enjoy the same standard of living as we had a few decades ago, but we can’t as the EROI is falling below our basic minimum requirements. So to counter the falling EROI, we add more debt to bring on expensive energy that for a short period allows us to continue BAU – Business As Usual.

NOTE: The Solar EROI of 30/1 in the chart above, is one figure that does not represent the true value of solar. This is where we have to distinguish between good and bad analysis.I will get into more detail on this in future articles.

Unfortunately, the massive amount of debt in the system is becoming unsustainable. This is why we are seeing many countries going to zero or negative interest rates. Furthermore, the amount of global bonds with negative rates are increasing at a stunning pace.In just the past six months, global bonds with negative rates have doubled to $13.5 trillion.

Why are we seeing such a rapid and volatile change in the markets recently? It’s due to rapidly falling EROI and oil price.

The Coming Oil Pearl Harbor Will Destroy The World’s Oil Industry

Very few people understand just how quickly the U.S. and world oil industries are disintegrating. This chart is from Louis Arnoux’s Part 2 of the article linked above:

EROI-Oil-Pearl-Harbor

Louis along with the work of the oil engineers at the Hill’s Group, suggest that oil prices will not rise going forward, rather they will continue to fall. This goes against the economic principle of Supply & Demand, but according to their studies on how thermodynamics impacts the oil price, they forecast a continued lower oil price.

According to Louis Arnoux:

In brief, the GIW (Global Industrialized World) has been living on ever growing total debt since around the time net energy from oil per head peaked in the early 1970s. The 2007-08 crisis was a warning shot. Since 2012, we have entered the last stage of this sad saga – when the OI began to use more energy (one should talk in fact of exergy) within its own productions chains than what it delivers to the GIW. From this point onwards retrieving the present financial fiat system is no longer doable.

This 2012 point marked a radical shift in price drivers.[1] Figure 4 (shown above) combines the analyses of TGH (The Hills Group) and mine. In late 2014 I saw the beginning of the oil price crash as a signal of a radar screen. Being well aware that EROIs for oil and gas combined had already passed below the minimum threshold of 10:1, I understood that this crash was different from previous ones: prices were on their way right down to the floor. I then realised what TGH had anticipated this trend months earlier, that their analysis was robust and was being corroborated by the market there and then.

Their forecast of continued lower oil prices is due to a “Thermodynamic Collapse” of net energy. The Hill’s Group put together this chart forecasting the oil price to reach $11.76 by 2020:

Hills-Group-Oil-Price

The Hill’s Group is an association ofconsulting oil engineers and professional project managers headed by B. W. Hill.If you want to read their technical explanation as to how they arrive at this price forecast, you can click on the following link: The Energy Factor- Part 4.

This is by far the most important paragraph from that analysis:

The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy. Its only function will be as an energy carrier for other sources. Production will continue as long as producers can realize the lifting costs at existing fields. E&D expenditures, and field maintenance costs will have been curtailed. All production from that point forward will be from legacy fields only. The economic impact that will result from the energy lost to the general economy is beyond the scope of this report.

Basically, what the Hill’s Group is saying here, things will become pretty ugly by 2020. Thus, this will negatively impact the United States much worse than either the Main Stream or Alternative precious metals analysts realize. Here are two more quotes from the Hill’s Group posted from my previous article:

1) Within 10 years the Oil Industry as we know it will have disintegrated

2) B.W. Hill considers that within 10 years the number of petrol stations in the US will have shrunk by 75%…

I would imagine very few, if any, Americans understand the dire consequences presented by the analysis here.If we thought the Great Depression during the 1930’s was bad… this would be several orders of magnitude worse. Why?Because a lot of people living in the cities who couldn’t find a job during the Great Depression could move to the country and live with family. At least they could have a place to stay and have something to eat. This is no longer possible… only a small fraction of the population could do this today.

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