Preparing For The Coming Shock
- The importance of understanding the difference between depleting vs declining
- Why the shale “miracle” can’t rescue us from this predicament
- Why 2019 will be a seminal year
- How high will oil prices go when the shock arrives?
- Why the next oil shock will force the economy — and EVERYTHING we depend on — to diminish
There are two words that are related but important to understand the distinction between. One is depletion, which refers to the amount of oil that is removed from a reservoir. The other is decline, which refers to the amount of oil flowing from a given well or field.
Depletion is a relatively straightforward process. If there are 100 units of removable oil in a field and you pump out 3 of them, the field has depleted by 3%.
But you might be able to hold the rate of pumping constant for a long time by injecting water or performing other stunts to force more oil out of a given well. If in our example we kept removing those same 3 units year after year, our decline rate would be zero. But the depletion rate would be increasing, because 3/100 = 3% but 3/97 = 3.1%. And after ten years the rate would be 3/70 = 4.3%.
That is, all efforts to keep oil flowing out of the wells at a maximum rate results in increasing rates of depletion. But we should also point out here that fighting decline rates is an expensive proposition. And that funding, too, has dried up of late.
The bottom line is that depletion is what really matters. Because once the oil gone, baby, it’s gone. All of the MSM headlines will keep you focused firmly on rates of extraction but only rarely on the rates of depletion.
So where is the world in the story of depletion? This is where our various sphincters should be involuntarily tightening. Rates of depletion are increasing, and they are substantial as seen here in…