[CAMWEST-discuss] oil industry debt and production

Danny Hannan danny_hannan at yahoo.com
Fri Jan 2 20:00:03 UTC 2015

G'day all,This is the text of an e-mail I just sent to my local state and federal members:
Here are some interesting numbers on global oil production and the debt levied against that production.Information that is not being past to the public or apparently to our politicians.  I know that politicians are largely numerically challenged but they must be ignoring the numbers completely to not see this crisis unfolding.
According to the IEA (International Energy Agency, a political body with political appointees from 27 member nations.  The projections from the IEA have a history of being very much on the overly optimistic end of reality as you would expect from political appointments) and EIA (US Department of Energy, particularly since the year 2000 have also been shown to have suffered political embellishment of both data and projections.)
The global total debt for the petroleum industry is US$700,000,000,000,000.00 (seven hundred trillion US dollars).  Both countries and companies producing oil are having liquidity problems meeting cash flow requirements to cover costs of production and loan repayments and are discounting crude sales to bring in cash, pushing prices down.  Exacerbating the oversupply situation due to declining demand caused by economic contraction across Europe and Asia.
Global consumption is put at 93 million barrels of oil equivalent a day by the IEA.  Or 34,000,000,000 (34 billion) barrels of oil equivalent a year.  At US$60/barrel (current Brent price is US$57/barrel, Tapis is about US$60/barrel) that provides about US$2,000,000,000,000.00 (two trillion US dollars) a year gross returns from the production of oil, or US$2 per year gross returns to service every US$700 of debt.  Even if the debt number is out by a factor of 100 at a ridiculously low number of US$7 trillion global debt, it is still only US$2 of gross returns per year for each US$7 of debt requiring around 25% of the gross return to service the interest on that debt.
Even if the debt includes all production and refining debt even at double current oil prices, at US$120/barrel, which would stall the global economy if not send it negative, and if the refining industry doubled the value of the product, (a gross over estimate) there is only US$8 trillion gross return each year to service an interest bill of US$35 trillion.  At 10% of the stated debt, US$70 trillion that is an interest bill of between US$3.5-5 trillion each year to be paid from a very optimistic US$8 trillion gross return each year.
I have no idea how the quoted US$700 trillion of global debt for petroleum industries was arrived at but it comes from credible economic sources. At 5% interest the oil industry needs to achieve US$35 of net profit each year from production just to pay the interest bill on each US$700 of debt, but current gross returns are US$2 per year for every US$700 of debt.
It does not take an accounting or economics degree to work out that this situation is totally unsustainable.
There must be a shake out of the debt that although is growing at a slower rate than before 2010 is still growing.  In particular fossil fuel production income to debt ratio is so far off the reasonable scale to be ridiculous, there must be a shakeout at some time.  Higher energy prices and reduced supply will be the result.  With the global economy already tittering on the edge, tighter energy supply and higher energy prices will be devastating.  Fossil fuels still supply well over 85% of global energy; petroleum 35%, coal 30% and natural gas 22%.
Australia is currently importing 90% of its oil and liquid fuel needs and by 2030 almost 100% will be imported.  The current import bill for fuel and vehicles is in the AU$60 billion a year range but by 2020 could easily exceed Au$100 billion/year.  Current governments and both Liberal and Labour policies are to build more roads and airports that will increase the countries dependence on imported vehicles and fuel; economic and environmental vandalism.
Dandanny_hannan at yahoo.com
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