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Gail Tverberg: This Is The Beginning Of The End For Oil Production | Peak Prosperity

What we need is cheap energy. We need cheap, liquid oil. When it's high-priced it really messes up the economy. We need oil to run our cars and to operate our trucks and such things, but it needs to be cheap. And it suddenly is today.

But, you have to be able to keep pulling it out at that same price. And the critical thing is, we can't keep pulling it out at that price. What is going to happen, I'm afraid, is that once production goes down, we won't be able to get it back up again.

There's several reasons. One of them is that very low interest rates have been helping keep production up. Once you get your interest rates back up because there's been a lot of failures, particularly in the shale industry, the costs will be higher. So, they can't pump it out for the same price that they had it before. But, there's also the issue that these old wells need to be produced continuously and they need continuous investment. If you cut that off, it's going to be very hard to restart them. So, there will need to be an extra investment just to get it back online. Trying to do that becomes extremely difficult when the price is low. If it's really an affordability issue, you've got a double hurdle then. Not only do you have to get the price up, but you have to get the price very high so you can get lots of investment dollars so you can kind of make up for lost time, besides everything else. As we know, it takes a long time to get new production online.

I think, too, that it gets to be even worse than that, because financial institutions have sold derivatives based on the assumption that things can kind of go along as normal ....

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by das monde on Sun Jan 18th, 2015 at 07:18:09 PM EST
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