Energy Dominance should be the catchphrase of the day. It’s on the minds of every political figure, and the focus of every economy.
This is especially true of those vulnerable to a change in the status quo, namely Saudi Arabia.
While some continue to believe the gyrations of the oil market over the past few months are evidence of our running up against the limit of the petroleum based global economy, I disagree.
The world is awash in decades of easily-extracted oil and gas. The supply of it has been kept off the market due to its centrality in the grand game of geopolitics. But, it has nothing to do with the amount of oil and gas out there.
Peak oil has become a religion among its adherents. Decrying the U.S. shale boom, rightly, for its profligacy has more to do with it being a consequence of disastrous central bank inflation rather than some grand plan of the ‘cabal’ because we passed peak EROEI some time ago.
When you drop interest rates to zero and flood the world with liquidity that can only find a home in equity markets, the natural result is malinvestment into unsustainable business practices.
The first wave of the shale boom in the U.S. occurred during this period and created the dynamic we have today. It’s groundwork was laid when oil prices spiked during Greenspan’s post-9/11 reflation and the Iraq War took a lot of marginal supply off the table.
That sparked a gold rush mentality and a huge boom occurred as oil prices kept rising after “Bernanke saved the world” with trillions in liquidity and multiple rounds of QE.
Properties were bought based on sky-high valuations which were the result of searching for yield in a yield-free world.
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