Nate Hagens - On Credit, Depletion, Energy Nationalization - Radio Interview

Nate will be on University of Wisconsin-Stevens Point radio this afternoon from 6:30 pm to 7:30 pm EST (5:30 local) discussing the ongoing credit/financial crisis and the impact on energy. He also talks about the broader backdrop the world finds itself in, and what might be done. Topics include energy nationalization, industrial agriculture's impact on behavior, the currency crisis, and localization efforts.

It is a very good interview though Nate incorrectly stated the US oil peak in 1971 when it was 1970. Also there seems to be someone playing a tuba or a polka band in the background at times.

This is a link to the Live Radio Show.

If you missed the live show, this is where you can download an MP3.

Note Archived link here.

I perpetually conflate US Peak Oil (1970) and end of US dollar conversion into gold (1971). It was the Bouzouki player in the background distracted me.

And to be clear, I don't 'advocate' energy nationalization. I just think government will eventually see it as lesser of two evils as domestic resources will not be economic to drill vis a vis ROW, so we will become more energy dependent the longer oil and gas stay low.

In the next few years I see one of two paths (assuming we continue with economic growth as the plan):
1)energy prices remain low and energy companies go out of business en masse forcing us to import more because the foreign oil is cheaper or
2)some sort of nationalization where this 'cost' is hidden by the government i.e. they auction bonds to generate dollars to pay domestic oil and gas companies to drill low energy gain resources - even sub unity EROI sources, paid for with someone elses dollars.

The latter path is ugly, but can keep an illusion of affordable energy for society going longer. But I cannot imagine employees of Conoco or XOM or others willingly working for DOE, so I'm not sure what would happen - its just a mess as is though. And if government puts a price floor of say $80 per barrel and $8 per mcf then those prices will be able to be met with foreign energy so this path would just be a half measure.

What a great interview. We are becoming more and more excited about your future visit to Amherst Wisconsin, home of many concerned and colorful citizens, a great mico brewery and, yes, the ever present music. Eric Olson (the interviewer) has been a powerhouse here and his efforts to bring together a multitude of local activists cannot be understated. I particularly enjoyed the inclusion of economic issues and thoughts in relation to resource depletion. I do believe that there should be more discussions on stable state economics, ecological economics and the tie-ins with resource depletion. With our present state of economic affairs the inclusion of new styles and modes of economic considerations is one thing that may bring in new interest to this cause. Resource depletion is an issue that rings with this choir but frightens others. With the hard realities of our present economic state smacking folks over the head, your discussions of new economic thought is a real grabber. I was very taken by your direct, informed and honest presentation. I know that you take your words out to many big audiences but taking it 'local', to the small town folks has great value. On Wisconsin! Good job, Nate.

Please post link to audio archive if available. I couldn't find anything about archives/podcasts etc. at the radio station website.

Is Wisconsin becoming the center of the Peak Oil universe? Ya Hay!

This is a link to the podcast.

I am from Wisconsin, too. At least I grew up there, and graduated from high school there. My mother now lives in Minnesota about an hour's drive from where Nate lives. I grew up in Mauston, Wisconsin, north of Madison.

Another Badger! Why am I not surprised? Now that we have definitely established Wisconsin, USA as the center of the Peak Oil universe, we must ask ourselves why.

I suspect it has to do with the unique intersection of gloomy Lutheran sensibilities with nominally-strict but sometimes-permissive Catholic attitudes. A deep sense of guilt combined with a pervasive sense of foreboding, exacerbated by a climate that often flagellates the non-migratory population, and Presto! (also a Wisconsin brand) you have perfect conditions for a responsibility-laden non-cornucopian worldview.

Yet if this is so, why is the most popular single-occupancy commuter vehicle in much of this fair state a nineteen-foot, three-ton 4WD crew-cab pickup truck? Why has copious gasoline consumption become the alpha and omega of recreation and amusement?

Curious Badgers wanna know.

I don't know about the trucks. You see them pretty much everywhere in the US.

My background is Lutheran - Norwegian ancestors. I graduated from St. Olaf College in Northfield, Minnesota. There was always somewhat of a divide between the Polish Catholics and the others. There was even a divide between the German Lutherans (who believe the Bible is literally true) and the Norwegians (who generally do not).

Given that Wisconsin is one of the few states outside of New England w/out any oil and ags production, I hope that we Badgers can put some sense (and humor) into the Peak Oil discussion. I am University of Wisconsin 1981 grad, I am 4th generation UW. I got into the oil biz in the last economic meltdown (1980).

I voted for Obama, and am beginning to regret the choice. His energy policies are idiotic--I hope it is posture.

Heh, parsnip wine eh? So it all boils down to ethanol after all ;-)
Great talk thanks!

No other place to put this so providing this review here.

There was an article about Bakken Oil with a prediction from April 2008 that production would peak at 225,000 barrels per day with difficulty.

By the end of 2008. North Dakota alone is at 205,000 after hitting 215,000 barrels per day. This decline is not because of oil well depletion but because companies are cutting back because of oil prices. This does not include about 50,000 barrels per day from Montana's portion of the Bakken. It does not include about 40,000 barrels per day from Saskatchewan.

It appears likely that when some more pipelines are put through the area that production will be higher. Plus the horizontal pipeline methods used here are being deployed to revive other older reserves. Pennwest is using it for other locations.

When oil prices recover there will be a lot of domestic and Canadain oil ready to go at stronger prices.

Cool. The Bakken production in North Dakota will offset about one-third of the one year drop in net oil exports from Venezuela and Mexico. I shall go out tonight and buy Hummers for the whole neighborhood.

Ditto. If you just can't get enough of these itzy bitzy plays in tight shale check this out: THE Bakken Thread (merged). 60 pages and counting. I like the idea proposed therein of flooding every field in site with chlorine, damn the costs financial or environmental. Never had my question answered of whether chlorine is an effective surfactant, though. I just like the obnoxiousness of how the idea was proposed.

Get a load of this, too:

Looks like the Bakken was the worst thing to ever happen to MT's production. Or perhaps ND has a more attractive tax code?

I suspect some folks are confused by the apparent high activity and hype in the Bakken and some of the negative comments about the play. It remains to be seen how the details of the economics play out as we get more production histories. But if you aren't familiar with the role of "promoting operators" let me explain how many unproven, and even non-commercial, wells get drilled. I'm a promoter. I lease the mineral rights for $X and find investors to fund the drilling. The investors typically pay back 100% - 200% of my costs to date and also a front end prospect bonus (commonly around 20% of the well cost). The well will cost $Y to drill and complete. The investor pay 100% of this amount but only earns 75% of the net revenue. This is called a "quarter carry" in the oil patch. In other words the operator is carried for 25% of the costs. This is quit legal and all explained to the investors up front. Thus even if the well never recovers its cost the operator still makes a profit and a decent living. This is how exploration companies survive. Most exploration efforts are failures. Most companies could not survive if they spent their own money to drill the initial wells.

How well does this work out for the operator? During the late 70's boom I watched one operator drill 18 wells in a joint venture I managed. All 18 wells were non-commercial failures. And the operator and his upper management retired as millionaires. All quit legal. This method thrives upon the greed of investors who will pay anything to "get a piece of the hot action". How much of the Bakken play is driven by good economics and how much by the promoters remains to be seen as the play matures. But the promoters are there. There is a very old creed many promoters follow when it comes to a new booming play: "Roll into town with the first load of whores and run out of town before the first production equipment hits the ground". It is generally a good plan to follow.

How is 290,000 barrels per day an itzy bitzy play (250,000 barrels per day in the USA) ?
Oil Megaprojects definition:
Significant is defined here as capable of producing at least 40,000 barrels of oil per day. This is seven times that level.

The Mexico, Venezuela decline: Yet this is mostly domestic oil increase. So it is more valuable given the Export Land Model.

The horizontal frac drilling is enhancing recovery of other older fields. So not just Bakken but accessing a significant part of the 280 billion barrels locked in older fields in the USA.

The increase of 140,000 some barrels per day was over the course of eight months.

This level of production will increase to the million to 2 million barrel per day or more from Bakken over the next five years (as they get the pipeline and refining capacity in place). At least 4.3 billion barrels accessible in North Dakota, 1.3 billion barrels in Saskatchewan and not including the Three Forks-Sanish formation below the Bakken. Plus improving technology can access more of it. Plus they can use the technology on other oil outside of Bakken.

It's a region, not a discrete field, and misleading to treat it as such. Horizontal fraccing has been in use for decades now, and has a finite contribution to recovery which is covered in any model. It isn't anything exotic by any means.

Not sure where you get this 1 mb/d+ target for the Bakken, unless you're just extrapolating a trend. Your link does provide a handy list of over 1 mb/d in cancelled oil sands projects. Don't think the Gold Rush operators working in the Bakken have any great sense of purpose to the overall good, either. As ROCK detailed they are businessmen top to bottom and will pull out once the economics head south.

Rockin' Bakken feels economic growing pains - News

Economic theory says price will take care of everything; it also says if the cost out weighs the benefit, it's not going to happen.
As Huseby explained, "Back in 2008 when the price was up to $147 these guys were doing real good. At $70 a barrel they do fine. Below that, they have a hard time making a decent return on their investment. The average cost for a North Dakota horizontal Bakken well is between 5 and 6 million dollars."
The 2008 prices spurred economic growth, but will it bring lasting development?

Huseby said "It's not just the rigs being stacked, it's the people on the rigs, and the companies providing service to those rigs. On each rig, there are up to 100 different people working and supplying materials. There might be up to 20 or 30 different companies servicing that one rig. Every time a rig gets stacked, you can basically say 100 jobs just got lost."

For anyone not doing the math, going from 92 to 61 is 31 rigs lost. Meaning that's 3,100 people who just lost their jobs.
As Huseby said, "It really has a ripple effect through the economy of western North Dakota."

TWIP for this week highlights the Bakken, interestingly enough. This Week In Petroleum.
USGS: Bakken formation is the largest "continuous" oil accumulation.

The majority of the people on this site are saying that oil will head back over $70/barrel lickety split and probably up to $200, $300 or $500/barrel.
Therefore the Bakken would get fully developed.

So "the Dude" are you projecting oil prices to not go back over $70/barrel ?

Horizontal Fraccing has become economic recently.
thus the 1995 USGS assessment of 151 million barrels of recoverable oil in the Bakken in ND/Montana and the new one with 3.1-4.3 billion barrels.

Delayed oilsand projects just means that the oil stays there until the prices go back up and then they go get the oil. It would mean more gettable oil would be around until after any peak and thus slowing any decline.

Yes, I was extrapolating trends and planned future drilling activity. Just like the original post by Piccolo did.
And Piccolo was way under what has already happened in less than one year.

If you have a projection for the Bakken then put it out there. I say 1 million barrels per day for the US and Canada from the Bakken by the end of 2015 and 2 million barrels per day by the end of 2020. I am willing to put a money bet behind a more conservative number like 600,000 barrels per day by the end of 2015.

Ha ha ha, some polka music in the background must be a natural hazard in Wisconsin. Stuff like that is what makes this country great.

That isn't polka, or a tuba, or a bouzouki, near as I can tell. Sounds more like industrial music, Einstürzende Neubauten perhaps. Instruments include knocking radiators and a bridge. That would be kinda apropos, actually.

Also called musique concrète.

I'm another Wisconsinite -- near Mount Horeb in western Dane County. I'm heavily involved with Hans Noeldner's Madison Peak Oil Group.

Not only have we discussed what's coming in the local offices of US Congresswoman Tammy Baldwin and US Senator Russ Feingold, but our group is playing an active role in pushing for creation of Dane County Regional Transit Authority (RTA).

As a trained urban and regional planner, I spend a lot of my time testifying around our county about the interrelationships of "smart growth" comprehensive planning; tranportation planning based on multimode public transit that must include electrified commuter rail, farmland preservation and environmental protection of ground and water resources.

One of the interesting studies I've picked up from The Oil Drum was last year's review of Alan S Drake's plan for electrifying and double-tracking the key 36,000 miles of the US railway system -- the Stracnet, as defined by the US Department of Defense -- and using the main and branch line right of ways for establishment of a new electric power transmission grid, plus wind-powered electrical generation towers.

Borrowing some phrases from some railroad folks in Virginia and Pennsylvania, this could rightfully be termed an "electrified steel interstate for the 21st century".

As I recall, this new system could be planned and built in six years, could pull a significant share of the diesel-powered 18-wheelers off the 20th century interstates, significantly reduce carbon based emissions and even more significantly, reduce US dependency on an overseas oil supply that probably will begin to disappear about three years from now.

In any case, welcome to Wisconsin, Mr Hagens. I'll be among those listening to you on the campus of the University of Wisconsin-Madison when you show up here.

Arnold Harris
Western Dane Coalition for Smart Growth and Environment

Great - looking forward. Given the topic I guess it's appropriate I am forgoing 3rd row seats for Death Cab for Cutie in Minneapolis so I can come speak with you all... Less is more and all. I hope to meet with some UW professors at an interdisciplinary brown bag lunch the day after, but duality and specialization is endemic in the academy so projects likes this move slow.

What's the crisis du jour?

That's the crisis of the day.

That sounds good, I'll have that.

Great interview. Nate agrees capitalism is dead, and making wine is a good thing to do!

Fun book on homebrew: The Alaskan Bootlegger's Bible.

I haven't imbibed of any of the recipes though, or done much in the way of winemaking for that matter. I'm a bit reluctant to start out by making dandelion wine with a bleach bottle and a rubber glove. It's just a fun tome, and, as you'd surmise, very hands-on.

Tomato Contests.

Many, many years ago I worked at a company where the CEO judged a tomato contest every year. Anyone could enter. It was not till after your UofM lecture on relative fitness that I saw that contest as a very interesting way of shifting around status. Someone who was normally low status, say the cleaning staff, could gain a huge bit of status by growing really good tomatoes. We need a lot more of that.

Hahhaa, I am also from Wisconsin. Milwaukee to be precise.

I received my BS degree in Nuclear Eng. from University of Wisconsin-Madison. A Great School and great place to party.

When I graduated I was ready to work for a utility company in Minnesota but at the last moment decided to join Schlumberger on a great adventure. Never regretted it but I do miss Madison and Wisconsin. :-(

In the 80's UW had a department which was looking at Solar power and various other energy saving technologies. Since then I do not hear much about this as related to UWM, leading me to think that this department died out or was significantly cut back due to Regan politics.

Nuclear power was also promising much in the early 80's but since then there has been great silence for years. Most likely a new direction was taken toward defense industry needs.

The current situation is double dangerous which showed up in the last 5 or so years in the Oil and Gas Business. Namely retirement of more and more experienced petroleum engineers. If this Depression lasts for 3-5 years or more, people in this industry will disappear never to be replaced. There will be less incentive to go in this direction for the young resulting in further manpower losses in this business. It will be interesting how this is dealt with.

This has always means the same thing our business, high costs. Costs of screw ups, bad decisions and DELAYS !!!! Delays I think could be a back breaker in the future as will also be the loss of knowhow. The roller coaster of oil prices has been a hell while working in this business and it looks to have returned with a vengeance.

Lets hope for the best :-)

I too am for expansion of rail travel (multimode public transit) and find it a shame that this great country was not smart enough to foresee that energy efficiency and conservation was the best road to the future. Instead money is wasted on highway expansion, airport expansions and tollway building.

THough Global Public media has attempted something similar, this thread makes me think it would be a worthwhile thing if The Oil Drum readers from each state/region/country could somehow connect with eachother if they chose to. Not sure how to pull it off, but as the clock ticks the world becomes smaller (or not, I could be wrong...;-)

On this subject, I was thinking that maybe the User Profile section of TOD could be updated; with fields for Name, Location, Occupation etc. All info optional of course, but if there were specific places for it, maybe more people would fill it out.

I'me getting the message "This drop is empty" when I click the download link and I'm not finding the archive on the radio station site. Suggestions?

Nationalization of the oil industry advocated by Nate is one of the stupidest things I have heard. The government oil czar will not want to stand in front of congress and explain why he drilled 10 dry holes in a row, so the government oil company will study and study and study and drill many fewer wells than the free companies do. If one wants to accelerate the decline in oil production, nationalize the oil industry.

read first comment upthread. I certainly didn't 'advocate' energy nationalization but think we will eventually have little choice because people in government don't understand 'net energy' - nationalizing certain parts of energy industry is consistent with everything government has done to respond to this crisis so far. I will write a post explaining the particulars when I have time. In 6-12 months when you see lots of energy companies going under you might understand more what my intent was.

When you say we have no choice, that becomes, effectively, an advocation of it, a blessing that it will be necessary. I have spent my life in exploration and have, with the groups I have managed, been involved with discovering just shy of a billion barrels of oil. I have sold international oil deals of up to $40 million dollars, and US deals of up to $50 million (not to mention the $100+ million dollar wells I have been involved in drilling in deep water.

I say all the above just to let you know that I know this business, having spent 39 years in it.

With every merger, the resulting company drilled fewer wells than the previous two independent companies drilled. If you nationalize the oil industry, I will guarantee you that the resulting behemoth will drill fewer wells than the total drilled by the stolen companies (and I use the word stolen properly). People, like your grand parents, Nate, invest in oil companies hoping to maintain their principle and get a few dividends while they live in their old age. But people who talk about nationalization, like you did on that radio show which I listened to last night, don't seem to give a rats rear end about grandpa and grandma. Nationalization steals the money they will live on in retirement. There seems not to be a consideration that such thievery hurts other people. Those thinking nationalization is helpful only think of those to whom the resources are given, and don't think about the impoverishment of those from whom it is stolen.

Now, if your intent is that because all the oil companies go broke we will need to nationalize, them, I am sorry, but it will be too late then to nationalize them. There won't be anything left to take. Why? Because if things get that bad, and there is no bank credit for anything, then there will be no need for oil. No one will be shipping goods and no one will be going to work.

The government simply can't manage capitalist enterprises because they do things for political reasons, not business reasons. Look at Pemex where the government takes 103% of their profits and wants them to drill lots of oil. Chavez nationalizes the food companies in Venezuela because he wants them to sell rice at below cost to the poor in Venezuela. What will happen is that he won't be able to do it either unless he simply steals all the bank deposits and after that--there will be no Venezuelan economy.

Frankly, with the banks being nationalized and forced to do stupid things because of political (not business) reasons, I think any talk of nationalization, as if it is a rational thing is pure and simply nuttery. The government can't even do a decent driver's license bureau much less run a good oil company. (and yes, I have worked with many NOCs)

Here is a discription of the state of Chile's state owned copper mining industry 30 year after nationalization (Pinochet did not reverse Allende's decision):

Copper output totaled 4.6 million tons in 2000, 4.8% above the 1999 level and up from 3.1 million in 1996—2000 saw a significant recovery in the price of copper and a strong drop in metal stocks. The state-run Chilean National Copper Corp. (Corporación del Cobre de Chile—CODELCO) produced 1.6 million tons of fine copper in 2000 (35% of the country's output), slipping to second among the world's producers. On the other hand, CODELCO positioned itself as one of the industry's lowest-cost firms and remained one of the state's most important sources of revenue—its revenues from copper sales in 2000 were $2.74 billion, and from 1994 to 1999, CODELCO paid $5.45 billion to the treasury.

I am not promoting nationalization of the the oil and gas industry, but the assumption that such an action necessarily implies ruination for the industry appears to be unjustified.

Of Codelco. And what about the poor investors, grandpa and grandma, whose investments were stolen? I guess we don't have to worry about them, they were rich and they deserve what they got. After all, they shouldn't have been rich in the first place, right?

I also looked up the 2007 annual report for Codelco. They made $8.451 billion in pre-tax profits, but with dividends (presumably to the government) and taxes, and the 10% charge on foreign sales, they were left with $117 million of that profit. (see page 54 of their 2007 annual report. This is nothing more than what Mexico does to Pemex (only Chile left them some crumbs)

Reality: governments and politicians are not good capitalists.

Your arguments are more about the religious doctrine of evil politicians and saintly capitalists than about whether a government owned industry can be a competent producer.

Capitalists are indeed good at producing short term wealth, since that is their raison d'etre. Whether they are good maintaining long term wealth remains to be seen. For example we are busy mining rock phosphates like crazy and dumping them into the soil to produce high agricultral yields rather than creating food producing systems which recyle nutrients, because the former strategy produces higher short term profits. If the continued pursuit of this stragegy leads to global hunger and malnutrition on a colossal scale you may find many people who will blaspheme against the doctrine of private finance capitalism as a perfect and eternal form.

Bob with due respect I think we have a fundamentally different outlook of the ability of the US consumer to be able to pay the prices needed for US oil and gas companies to make a profit -I agree that in general private interests (at least historically) can do much better job of getting as much resource out of ground vis a vis clunky inefficient government, but that is not my message. My message is that as we approach energy break even we will hit dollar break even first. Instead of announcing this or letting it be known, this fact will be subverted as government will pay the costs and collect the revenues. And I don't 'predict' it or 'wish' it, I just think it is plausible given that we consume 25% of the worlds oil, and possess about 3% of the worlds oil -most of that being in the top 10-15% of most expensive oil left in world - much of it being below break even economically. This angle has been neglected by virtually all oil folks I know but I still think it reasonably likely.

Put simply I think we disagree on the severity of the financial crisis.

I could be mistaken, but I believe that's Little Albert and the Teutonic Brass in the background. They have a very distinctive tuba sound. rather than the usual "Oom-Pah, Oom-Pah"... They go "Pah-Oom, Pah-Oom"