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  1. Sure. It’s largely a Wall-Street driven bubble … nothing new there. I suppose you’ve read the deservedly famous Matt Taibbi article in Rolling Stone in 2009: ‘The Great American Bubble Machine’ (http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405), where the phrase ‘Vampire Squid’ was coined. From the article:

    ‘The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

    Wall Street doesn’t care about nuclear or fossil fuels or anything other than absurd amounts of money. Housing, fracked gas, whatever … the specifics of the next scheme don’t really matter.

  2. It would be priceless if an insider/whistleblower reading this article would step forward and corroborate some of this. Until that happens though, the scheme you describe still seems just a tad bit too difficult (for me) to accept. I still think it is more likely that the general paradigm at the time of expected imminent (conventional) natgas shortages drove (too many) gas producers to try their hand at shale drilling, while the ability to lock-in profitable futures prices allowed them to drill and drill without much price risk.

    Of course, it could be that the existence of this apparently (too) large and profitable natgas future’s demand at the time was largely or partly created by scheming banksters, exaggerating the prevailing fear of persistent high prices, but it doesn’t seem highly likely to me.

    It could also be that the financial collapse of 2007/2008 itself, which drove natgas prices even lower than they otherwise would have been, due to slumping demand, was foreseen at the time by the banksters (which might seem absurd but is not IMHO completely unthinkable, since in hindsight the origins of the financial crisis seem clear enough and might therefore have been foreseen by the savvy as early as the 2001-2004 period?)

    In any case: the belief at the time that conventional gas was petering out in the US (which it is actually) and would therefore lead to ‘permanent’ high natgas prices was strong and general, which even led to the building of a lot of costly LNG import capacity which now sits mostly idle. All part of the scheme to destroy natgas prices and nuclear/coal energy?

    On the other hand, Daniel Schrag – advisor to the obama administration – has actually stated that the administration now looks at shale gas as a means to ‘break the back’ of the coal lobby, which may hint that the shale gas development may have also been strongly stimulated by Washington from the start?

    I guess its easy to get carried away with conspiracy theories.

    I really like your smoking gun series though, and I’d love to see more evidence concerning the ‘shale gas revolution’ angle, since it could well be the biggest story since the 2007/2008 crisis, as you propose.

    All the best,


    1. BTW, I agree with your view (if I understand you correctly) that the ‘shale gas revolution’ does not have much staying power, at least not enough to deliver on the oversold promises of energy independence, etc.

      Besides that, its becoming increasingly clear that natural gas as a ‘bridge fuel’ does not actually solve the anthropogenic global warming problem, although it can provide a little bit of respite in the short to medium term if it replaces coal. To solve AGW, natural gas too has to go before long, so even if there is almost a 100 years supply in the US (which actually does seems likely to me, because you can produce a lot of shale gas if the price gets above $8/mmbtu which is not a back-breaking price) most of it will have to remain underground anyway. If not, climate change policy becomes a farce.

      As you know, I believe that AGW is real and it this will only become more clear in the coming years, so the time that climate change could be ignored by credible governments of OECD countries is pretty much over. Natural gas fitted with carbon capture and storage is possible and probably affordable, but there is no way either coal or natgas with CCS can compete with advanced, rational nuclear. Additionally, CCS will only reduce co2 intensity by 90% max, which is not really good enough in the long term. Coal and natgas burning cannot credibly feature in any sane energy policy, unless we decide that the future doesn’t matter.

      1. The trouble is that on the short term, 10 to 20 years, coal releases polluting, but also cooling aerosols that limit the warming effect. That’s, given the very large increase of coal use both in China and India in the last 10 years, the most likely explanation for the slow down in temperature rise during that period.

        It also means that switching to gas is not likely to change much anything, especially when you properly take into account the large indirect methane leaks this industry has.

        I don’t know who has sold you CCS as something that really could be done. Some site try to give a sense of how physically large carbon emissions actually are : http://www.carbonvisuals.com/work/new-yorks-carbon-emissions-in-real-time

        CCS even if we forget the energetic price of the solutions currently considered just doesn’t scale to a size large enough to capture any significant part of the world’s carbon emissions. All the projects are currently at a standstill, which is good since they basically are nothing more than deception. If at some point, we are desperate to remove carbon from the atmosphere, the only option is biomass. It has worked in the past, see the Azolla event.

        It’s nice to see Hansen actively joining the pro-nuclear group, but it’s also worrying to hear him say that we effectively need to stop all emissions now, just in order to keep future climate changes at a still controllable level.

  3. The real enemies of democracy are the financial capitalists that rig markets, buy politicians and otherwise corrupt the politico-economy machinery. Now that they have succeeded in recent years in rolling back government regulation and effective oversight with battle cries led by Fox News (“Free Markets!, Free Markets, Democracy!), they can continue with their ways of unremitting greed with callous disregard for The People who ARE the economy. The people are the economic system and it is SUPPOSED to serve them, not rent seeking Vampire Squid. Finance is supposed to grease the wheels of enterprise, not act as a way to manipulate markets in order to steal money from hard-working people.

    It is beyond me why sociopaths and psychopaths that “earn” insane amounts of money on Wall St. are generally revered in society. In most cases, their “success” is a product of an innate ability to lie, cheat, steal, and manipulate others driven by lust for power and a need to dominate without one whit of conscience or remorse. I fear their capture of government is almost complete.

    It was so with the housing / mortgage debacle for which no one was held responsible, now it appears to be so with the unsustainable shale-gas bubble which has slowed down the only real solution to the climate-change problem: new nuclear.

    Who is going to pay and who is going to make money as the bubble inflates then deflates? Who is going to pay the consequences when the shale-gas “miracle” is ultimately proven to be a mirage?

    You can bet the inevitable fall-out will lead to much hand-wringing and calls for more austerity measures as the little guy and struggling families get kicked in the rear once more… I’m sick of this!

    Its enough to make one mad as hell when you see it coming, can see what is going on, but the masses keep bleating “Free Markets”, “de-regulation good, Government bad”, “More Free Markets”…

    Who is the maker and who is the taker in this scheme of things? The power of propaganda works in so many ways contrary to the public good.

    1. “Its enough to make one mad as hell when you see it coming, can see what is going on, but the masses keep bleating “Free Markets”, “de-regulation good, Government bad”, “More Free Markets”…

      Who is the maker and who is the taker in this scheme of things? The power of propaganda works in so many ways contrary to the public good.”

      It’s even more maddening when you realize that about 40% of the masses are bleating “More free markets….” and the other 40% of the masses are bleating, “more windmill, more solar, more biomass” and both of them are inadvertently conspiring to lead us down an incredibly destructive path, both to our economy and to our environment.

      It’s especially ironic, given that the former believes that it’s “saving” the economy and the latter believes that it’s “saving” the environment.

      Ah, people…. I don’t much like them, but there are about a billion of them in my supply chain, so I guess I must put up with them.

    2. Steve, I agree that the government is almost completely bought off in some way, but isn’t that an argument for giving the government less power? I do not understand how you can simultaneously state that government is completely corrupt, but then come to the conclusion that free markets are our problem and that giving the government more power to regulate and alter the markets will solve the problem.

      Where did you get the idea that the U.S. economy is run by anything even resembling a “free market”?

      1. Joe, you, on the other side seem to assume that less government power automatically means freer market. Have you ever heard about the robber barons ?

        Back then, the US government was light and with little power. Being under the power of an abusive corporation is no better than the power of an abusive government, and those abusive corporations are quick to claim the government should be tiny so that they can grab the power instead.

        The trouble with the current US government is that it seem both to be too small to control the biggest companies, and to big to resist the temptation to regulate too much. But the solution’s still a better US government, rather than really a smaller one.

        1. The world saw a period of the largest increase of wealth of the regular man during the “robber baron” era than at any other time in the history of man. What do you think drove the massive migration of immigrants to the United States during that period? The incentive of prosperity for themselves and their family brought these people.

          There were most certainly “robber barons” during that period, that is human kind and you will never escape those types. However, the “robber barons” participated in voluntary exchange, a voluntary exchange in which everyone gained wealth. The robber barons may have benefited far more than most during this period, but this also enabled millions of people to benefit and grow their own wealth.

          And that is where the difference comes in between a corporation and a government. A corporation must only deal in voluntary exchange, anything past that is an initiation of force, which is morally reprehensible and illegal in a just society. A government, however, acts only in force. There is no voluntary exchange when dealing with the government.

          The solution of a better big government avoids the fact that big government can only be accomplished through the certain sacrifice of some for the potential benefit of others. When exchange is by force and not voluntary, you will always end up sacrificing some at the alter of some vaguely defined “public good”. Aside from the fact that restricting voluntary exchange is an affront to individual liberty, it will likely lead to a loss of wealth for most.

          1. Corporations have every incentive to act to restrain trade, either colluding with competitors to raise prices or shutting the doors to competition through forms of lock-in.  It was abuses such as those which led to the anti-trust laws, and they were justified.

          2. EP,

            How can competitors ever collude for long enough for it to matter? You are saying that cartels would work in the free market when it is obvious that cartels never last. There will always be a member who will drop their price in an effort to gain market share. The only time cartels stay together is when it is a government enforced cartel a la the result of the break up of Standard Oil.

            Do you believe that the break-up of Standard Oil was actually a benefit to the United States? What about Alcoa? The only true monopoly that anti-trust has ever broken up was At&T, but this was a government enforced monopoly.

            The greatest hits of anti-trust suits have all been set to punish a company who is beating all of their competitors by providing superior service at a lower price to the consumer. The suits have also always been to punish a company for possible intent, not for actual action (aside from AT&T, a government enforced monopoly).

          3. Escalators builders are an obvious cartel that is quite lasting even after having been condemned twice by the EU : http://europa.eu/rapid/press-release_IP-07-209_en.htm

            They are big enough that they can buy any small scale competitor, or if he really doesn’t want to sell, underprice him long enough to put him out of the market. We don’t see the free market leading to any quick dismiss of them.

            You can blame the EU for not efficiently getting rid of it, but they are trying the best they can. In addition to fining them after having demonstrated the cartel, they have also sued them for marking them overpay the escalators of the EU buildings in Brussels.

  4. Rod and Steve raise really important points. Capitalism and democracy go hand in hand, but sometimes you have to question the way we have it set up here in the US. When everything is great it’s great for EVERYONE. But when it goes south it’s really, really bad–and the cost of that seems to outweigh the good times. The short term mentality of the kind of capitalism we practice in the US certainly doesn’t help with energy policy.

  5. Nice. The problem with nuclear is not its competition. It is the regulatory and legal burden the industry is forced to carry around in licensing, operations, testing, maintaining and decommissioning nuke plants.

    Are the oilies and natural gas guys pirates? Unquestionably. But then again so are the unions, the auto manufacturers, and everyone else. The trick in winning the competition is to get the marketplace for energy as free as humanly possible rather than sitting around bemoaning the unfairness of it all

    Get the feds and the lawyers out of the way; speed up and significantly cut the costs of licensing and new design approval, and this industry will do wonderfully well. Cheers –

    1. Agimarc,

      Look at the 2011 performance in China. 11 plants in 12 months.

      Regulatory and legal burden say you ? Pretty right you are …

  6. There is an article posted in the forum over at nukeworker.com comparing the number of death caused by natural gas vs. Nuclear. Might make a good topic for Rod to post on.

  7. There is a larger context to why shale oil and gas has gotten so much investment from Wall Street. To avoid a protracted recession after the dot com bubble, the Federal Reserve started driving interest rates down, to in their mind stimulate the economy. The subsequent lowering ing interest rates, effective price controls on the value of time, changed preferences toward investment.

    Artificially low interest rates, lower than the natural rate, force investors to not defer consumption. They chase yield in shorter term projects that net a higher return on equity. This equates to risk. Artificially low interest rates force investors to seek risk. This lead to the housing bubble 1.0, housing bubble 2.0 (the current one), the ongoing sovereign debt bubble, and the shale bubble. Back in 2008 The Onion had the most prescient article, Investors seek another bubble to invest in. This is actually what our policy has been, create another bubble and force investment. The drawback is that the investment is in risk, nuclear is the antithesis of risk. It is boring long term investment with consistent and predictable returns. From an investment perspective, the only risk associated with nuclear is regulatory risk. Once a plant is built, its risk is gone. The problem is crossing that hurdle.

    In markets where there is a mandate for renewable consumption, we see price destabilization, Duke identified this as one of the primary reasons for shutting down Kewaunee last year, during the ANS plenary here in Atlanta. In my analysis of Bonneville Power Administration’s experiment with wind and copius online data, clearly shows the extent that RE forces other generators to have to work harder in order to maintain the grid operational. Rockefeller said it best when he called wind plant natural gas plants.

    We have a two simultaneous things going on, first is the shifting of risk preference to risky ventures, mining is one of the riskiest, and the one of forced market consumption, through grid destabilization. While these are relatively short term policy effects, sustainable for about a decade or so, they have significant long term impacts.

    My main worry is two fold. First is that prices for gas will have to go higher to justify risk once interest rates start to normalize. This will drive up the price of power in the US and lower our economic output. We will have no alternatives for power. It will take decades to rebuild the coal and nuclear capacity that was shutdown.

    Second is that the shock we will have in prices in natural gas and the impact that has on viability of the drilling. We have an international economic slowdown, which is driving the price of crude to the floor, WTI is around $75/bbl. The shale cost curve is right between $70-80/bbl about half of the oil producers are operating at a loss, the other half are barely keeping afloat and cannot justify further expansion. Much of the natural gas that we have comes from the gas that is associated with oil, the bottom falling out of the natural gas market makes extraction of natural gas alone not viable. That price break even is around $6/MMBtu. This does not include ROI.

    What we saw in the beginning of the shale boom, were people making money on high quality plays, oil decline curves that had a longer half life than 1-2 years. These were predominantly funded through equity investment, and people made money hand over fist. As margins declined and the mineral rights on the higher quality plays finite, the oil and gas producers were pushed into ever tighter margins. Here is where debt came in, by increasing debt financing through artificially suppressed interest rates, what were marginal producers were able to maintain their ROI on the declining fraction of equity from investors. This drove e bubble. This when combined with the economic slowdown (use of debt makes the assumption that prices will rise and the economy will grow). Because of the quantity of debt and the fallacious nature of the assumption of economic growth and stability, the seeds are sown for a major restructuring if prices don’t rapidly recover. I am not confident that this is possible.

    What really worries me is that we will have high prices and not enough wells, this will lead to gas shortages. This will be much worse in the winter months, and people will loose power and heat. The grid will go down, and there will be nothing available to black start and bootstrap the grid. There are solutions, but these projects don’t just happen overnight, partly due to the amount of regulation, but that’s a separate topic.

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