Despite the success of fracking, we're not going back to the days of easy, cheap energy, writes Ambrose Evans-Pritchard.
After eight years, the Oil Drum is closing down, giving up the long struggle to alert us all to "peak oil" and the dangers of an energy crunch. The theme has gone out of fashion, eclipsed by shale and US fracking.
The demise of Britain's leading website for oil dissidents has been seized on by critics as an admission that peak oil is a Malthusian myth. It comes amid a spate of reports from global banks announcing the death of the commodity supercycle, slain by creative technology.
Yet if you stand back, it is hardly evident the world is again enjoying an abundant supply of cheap energy, metals, or food. Commodity prices have held up remarkably well, given that we are in a global trade depression of sorts.
The eurozone is in the longest unbroken recession since the 1930s, with industrial production 13 per cent below the pre-financial crisis Lehman peak. Growth in the US has averaged 1.1 per cent over the past three quarters.
Russia and Brazil have ground to a near halt. China's growth is near zero on a gross domestic product deflator basis.
Oil imports were down 1.4 per cent in June from a year earlier. Imports of iron ore were down 9.1 per cent.
It all adds up to a prostrate global economy, yet Brent crude oil is still trading at $US106 a barrel. There is no comparison with the collapse to $US11 in 1998. The CRB commodities index remains three times higher than a decade ago. You might conclude the supercycle is in good health given what has been thrown at it.
A new Eos report by the American Geophysical Union, Peak Oil and Energy Independence: Myth and Reality, argues that global crude output has been stuck on a plateau near 75 million barrels per day (bpd) since 2005 despite enticing returns.
The output of the big five oil majors - Exxon, BP, Total, Chevron, and Shell - has fallen by 26 per cent, despite a relentless hunt for new fields. The North Sea, the Gulf of Mexico, and Alaska are all wasting away. Costs keep ratcheting up as fields move further out into the Atlantic, drilling deeper through layers of salt.
Eos said flows from the world's existing fields are falling at 5 per cent a year. Shale, tar sands, and such cannot easily step into the breach. "Production from unconventional sources is difficult and expensive and has a very low energy return on investment. Simply stated, it takes energy to get energy," it said.
Using a rule of thumb that 4 per cent global growth requires a rise in oil supply of 3 per cent, Eos said the world will need another 17 million bpd within five years unless we change our habits fast.
What is clearly true is that US fracking has transformed America's economic and strategic prospects, slashing gas costs for industry to a third of European and Asian levels, and reviving the US chemicals, glass, and steel industries. Good for them. It is testimony to US engineering quality and the irrepressible spirit of the republic.
But though fracking is a godsend, let us not lose our heads. The US Energy Department expects shale oil to add 3.1 million bpd to America's oil output by 2020, a remarkable feat but less than the 5.4 million estimates in a much-cited study by Harvard's Leonardo Maugeri.
The depletion rate on fracking rigs at the Bakken field in North Dakota is precipitous. Output falls 30 per cent within two years. Bears claim average decline rates are nearer 70 per cent in the first year, and dismisses the whole craze as a bubble.
That is going too far. The technology is improving every week. The decline rate may flatten over time. Yet the hopes of a 100-year bonanza in the US are wishful thinking. "The upper limit of supply is likely closer to 23 years using present-day rates of consumption," said the Eos report.
Kevin Norrish from Barclays said US drillers have already tapped the "best plays" for shale. "We expect a steep slowdown in the rate of tight oil production growth from the middle of this decade onward," he said.
Barclays is holding to a Brent crude forecast of $US184 a barrel in 2020, betting that spare capacity in global output will prove thinner than supposed, and that oil shocks will come back to haunt us.
We should think of shale as a one-generation play for the US, enough to ensure American superpower primacy into the middle of the century.
Whether the rest of the world can follow suit is unclear.
Argentina, Poland, and Ukraine may try to get going after 2015 but they have little service infrastructure, and all score badly on "ease of doing business". Australia may do better from 2017 onwards.
China has the world's biggest reserves. It is itching to start but much of its shale is in the north-west desert where there is no water.
Even if China seizes the prize, it will first have to build a vast network of pipelines. That will take a great deal of energy, long before shale supply reaches the market.
As for Western Europe, it has mostly shunned shale, depriving itself of a way out of its monetary union quagmire. Commonsense will prevail in the end, but Europe does not have the luxury of time.
We all love a fresh narrative, but consensus has swung too fast from the 2008 oil panic to the energy complacency of 2013, and done so on slender evidence. As matters stand, peak cheap oil remains an incontrovertible fact.