How did silver do for 2010....?

Congrats everyone. We were up 84% for the year. Here's to a prosperous, healthy New Year. May we continue to strive towards our ultimate goal: Freedom!

Silver Fundamentals

Excellent link to a video presenting stunning fundamentals about silver. Must Watch.....

Link...

Why I do what I do....

Why do you do what you do……?

"In the famous simile of the cave, Plato compares men to prisoners in a cave who are bound and can look in only one direction. They have a fire behind them and see on a wall the shadows of themselves and of objects behind them. Since they see nothing but the shadows, they regard those shadows as real and are not aware of the objects.

Finally one of the prisoners escapes and comes from the cave into the light of the sun. For the first time, he sees real things and realizes that he had been deceived hitherto by the shadows. For the first time, he knows the truth and thinks only with sorrow of his long life in the darkness."

Werner Heisenberg, Physics and Philosophy

Pulled from Jesse's Cafe...thx.

$30+

Quote of the Day

"When I despair, I remember that all through history the ways of truth and love have always won. There have been tyrants, and murderers, and for a time they can seem invincible, but in the end they always fall. Think of it. Always."

Mahatma Gandhi

Quote of the Day

"The law has been perverted, and the powers of the state have become perverted along with it. The law has not only been turned from its proper function, but made to follow an entirely contrary purpose. The law has become a tool for every kind of greed. Instead of preventing crime, the law itself is guilty of the abuses it is supposed to punish. If this is true, it is a serious matter, and moral duty requires me to call the attention of my fellow-citizens to it."

Frederick Bastiat, The Law, 1853

Quote of the Day

"None are more hopelessly enslaved than those who falsely believe they are free."

- Wolfgang von Goethe

Silver hits $30

Prepare for take off!

Kiyosaki and Silver or Lady Gaga?

Here's some stats for the history book; a snapshot in time of how insane America is right now.

Silver and gold are at all time highs and what are people watching on youtube?

Kiyosaki talking about silver..... 7,277 views.

Lady Gaga and Bad Romance, plenty of that going around, much more so than silver; 314,920,924 views.

That's right America, keep rockin'! Party on!

Putin and the Euro....

We learn recently that Putin considers using the Euro....

This from Spiegel Online....link

"Russian Prime Minister Vladimir Putin wants the EU and Russia to forge a massive free trade zone. German commentators are wary of the wily politician's true intentions and urge Europe's politicians to read the small print."

The Daily Bell also wrote about this, you can find the link here....

Below is my post from The Daily Bell, you would need to read that article to understand the context of my post but you can still glean much from the post itself.


I don't know what was more interesting, reading the article or reading all the posts. One thing is clear, gold is rather misunderstood. I'll say this straight away, if you have neither gold nor crop seed and you think gold is going back to $300 an ounce, you need to catch up with reality. The production costs of gold alone is around $650 and the only way for that to decrease is for oil to go down in price and for gold to start to reform itself closer to the surface of the earth!

I find myself aligning most with Ingo in that unless gold's role as money is better understood we will continue to struggle with having a productive society and fighting to be free of government and government being free of the fear of revolt. These two forces are always opposing each other and when the tides of time bring them to a meeting point gold is usually there as the mediator.

A few sentences into this article the first thing that came to mind was Fofoa's ideas on free gold. It would make sense that if the dollar was reaching the end of it's usefulness that Russia would support the Euro. Regardless of the ultimate political goal of world government you HAVE to deal with the fact the economics is still being "practiced", much as medicine. The desire for power intentionally obscures the empirical nature of money so it can be controlled in order to control society at large. Gold must be dealt with from time to time by governments as debts and currency printing become unreasonable.

This time around I don't know that war at a global level would serve TPTB in our technological age. War is expensive and if you disrupt the flow of oil, electricity and information it could be devastating. Even if they do want to cull the population a war at that scale might be something the world simply does not recover from. This would explain why Russia and China would work with the West even though it appears they despise us at times.

But there are many factions, many power brokers, many different financial and political interests at work. You could never convince me there's one ultimate hand book all the leaders of the world are playing by. One destination we are heading to. Russia's been buying gold for years as has China. All the members of the SCO have been accumulating gold. The EU has gold as a reserve asset on their balance sheet and revalues it to the market price every quarter. It appears now that China and Russia are trying to minimize the societal disruptions that would occur if the dollar fell rapidly out of favor and contracts in dollars were in jeopardy.

The idea of the Euro being a safeguard (even if transitional) in the event of a dollar collapse would bring to light the reasoning for the forced bailouts of the member states of the EU. Yes you could view it as a power grab but it may also be that they are keeping it intact at all costs until the dollar hyperinflates. Now, we must also consider that all of this is by design and it truly seems that certain elements of the evolution of these currencies are, however when you trace all currencies to their origin they are usually a reaction to world events. And they are usually an attempt to avoid using gold as money.

Therefore I conclude that if you do not own gold at this point in time, you are in grave danger. The deck is being reshuffled, cards facing up. Gold owners get face cards and non-owners plant the crop seeds. That's going to be reality. TPTB are aligning themselves to suffer the least harm through these times of turmoil. Last I checked central banks were net buyers of the barbaric gold.

Sully the Sullen

As agreed, I did not put this on Facebook. Sully's cover would be blown wide open!

It's a Bird, it's a Plane!!!!

China has to be laughing their asses off at how badly they have embarrassed the Pentagon. To me this is so obviously China. And all the commentary from the media and the American public has got to be encouraging them to invade.





Let’s catalog some of the ridiculous responses from the military, news and web posters out there so we can get a good laugh down the road:

*It took the Pentagon nearly two days to reach that conclusion after examining video of the plume, "There is no evidence to suggest it was anything other than an aircraft," said Colonel David Lapan. (Two days? They should all be fired. And mind you they cannot identify what flight it was and it did not show up on radar.)

*For the conspiracy theorists who insist that the missile was some sort of secret government test, this explanation collapses under the weight of its own illogic. Why would the government launch a "secret" missile only 35 miles from Los Angeles? (Well they wouldn’t launch a missile if it wasn’t them that did it….! Fukko!!!) If I could throw this guy under the bus and drive it too I’d be hitting the gas right now. But not before pointing out this brilliant piece of writing….
5) Perhaps most damaging to the missile theory…..This supports the jet theory, and discredits the missile theory. Link

*I love this one: “Despite the official uncertainty behind the vapor trail, NORAD and the US Northern Command, which oversees the defense of the continental US, Alaska, and Hawaii, issued a statement aimed at reassuring the country that the event represents no threat.” Can you find the irony here? Look hard?

*Poster: If it were a missile, NORAD would've detected it once it reached the ocean surface and the Navy would've scrambled some jets either from San Diego Naval Air Station or from a Carrier at sea. It's flight would've been short lived, unless it was an accidental launch from one of our nuke subs, and a self destruct command would've been sent! (Ok, first of all they’ve announced they didn’t detect it which is an embarrassment. They should have lied and just said they did. And if it was an accident, the ship self destructs!?! Watch some more Star Trek, dork.)
*Poster: Some high school kids having fun.

*Poster: definately a contrail...have observed same numerous times, usually at dawn with the light rising behind them...this was the reverse at sunset...

*Poster response to previous poster: How many jets were flying in Southern California?
Why of the HUNDREDS if not thousands of flights around the Greater Los Angeles area did only one "jet" leave a giant plume of vapor? Why did the video not show HUNDREDS of contrails? Were the atmospheric conditions so rare that they only affected one of those HUNDREDS of jets?
Wake Up People.
Don't let them use their mind control tricks on you.
Be smarter than a storm-trooper from Star Wars. (Right: “This is not the missile you are looking for. This is a jet. Go back to watching TV.”

**Bingo!: "It's not an aircraft contrail," says Theodore Postol, a professor of science, technology, and international security at the Massachusetts Institute of Technology, also in Cambridge, Mass. "That I'm confident of. It looks like a big missile…” What does a guy from MIT know anyway? We’ll see how long it takes him to get a phone call and retract his statement.

Watch this video and draw your own conclusions: Link


I will allow for one other possibility: the US Military DID launch this missile off and are playing dumb in order to provide a distraction to the American people. Distract from what? How about $1,400 dollar gold or $88 oil?

Gotta Take the Good with the Bad

The Charge Continues

Highly overbought silver doesn't know it's overbought!

Cheney, Dick, is a Pirate!

Who's that other guy?

Silver $27.00

New Highs in Silver and Gold

There's Something Happening Here....What it is...

is, well, pretty clear.....

Phases of a Mania-Bubble Chart

Note: the stealth phase is more commonly known as the accumulation phase.

Chart source...link

Something to think about....

If you don't understand the significance of this you're brain dead....

$24 Silver

There's still time. Much more time....

Quote of the Day

"To be nobody-but-yourself - in a world which is doing its best, night and day, to make you somebody else - means to fight the hardest battle which any human being can fight; and never stop fighting."

– E. E. Cummings

Facebook Defacto Owned by CIA

"Facebook.com is the de-facto controlled Internet asset of the CIA and Department of Defense Information Awareness Office (IAO), "The IAO was established after Admiral John Poindexter, former United States National Security Advisor to President Ronald Reagan and SAIC executive Brian Hicks approached the US Department of Defense with the idea for an information awareness program after the [false flag operation] of September 11, 2001."

Read full article here....

Go ahead, keep using Facebook. Put your whole life up in there. It's harmless right.....? Right?

Wakie, wakie, sleepy heads....

To Most:

Farmville is earning you no money as your nation is being robbed. Lady GaGa does not enlighten as she bedazzles. Alcohol does not inspire you as it darkens your soul and enriches the tax man. Drugs do not clarify your mind as your cognizance is split and your possessions seized. Your ignorance makes you complicit in the degradation of our fine country. Without understanding you deserve neither peace, security, freedom nor comfort.

Soon it may be a call to arms, and what will you do? Where next will you bury your heavy heads.....?

Tough Guy Cop Tasers Mother in Front of Children

And in regards to my last post......

Who hasn't see a cop taser a mother today? Well now's your lucky chance......

View.....



One day.....one day.....there will be hell to pay.

Quote of the Day

"The evils of tyranny are rarely seen but by him who resists it."

John Hay, Castilian Days, 1872

New High in Silver....again.

Thanks Japan. Thanks Bernanke. Thanks Easter Bunny, Tooth Fairy, Santa and every other imaginary character that led these guys to believe they could print imaginary money!!!

Keep it up. Let's bring the whole thing down.

Pertaining to The New World Order

Wondering about the status of The New World Order.....

In this VIDEO, John Gray, speaking of paradigms, says that what we can count on NOT happening is a "New World Order".

This is taken, verbatim from the speech given at The Guardian's Capitalism in crisis events that took place at Kings Place, March 11th, 2009.

"There was talk, nearly ubiquitous talk, and some of it became the basis of action….among the safe hands who usually run these things…(mutterings)……there was talk of the Great Moderation….The New Paradigm…..Davos Man…..The Weightless Economy….The Long Boom…..nonsense from beginning to end..but lots of very sober, grave looking, wooden people….accepted it. So that period of opinion is gone for good. And the problem we face now is it’s not quite clear what’s going to replace it. What’s not going to replace it is some new universal paradigms. What’s not going to replace it is some New Global New Order either….because what I think we’re in for now is a period of great uncertainty….lasting a number of years. We’re only at the first stages of a protracted and deep shift, revolutionary in it’s implications which I myself think is not best compared with the 1930’s but with something more recent namely the communist collapse which changed things irreversibly. And I think the changes that have occurred in the United States with the implosion of it’s financial institutions are irreversible.."

Clueless. All of them. How will you protect yourself from the "uncertainty" promised you. The ruling class are on the run and that means YOU will suffer for it.

Quote of the Day

"Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats."

H.L. Mencken

The New Normal

At some point there will be a correction but this is nice for a while. And it may be that the correction comes at $25, correcting back to $23??

Did I See $22 In There.....

Why yes I did, I did see $22 in there.....

Whoaaaaa, Better Hurry! You'll look back and Cry, cry, cry...

Is Gold in a Bubble?

Not according to Jonathan Kosares.....read the whole article here...

By Jonathan Kosares

With the number of financial bubbles inflating and bursting over the past decade and a half, it isn’t surprising that financial analysts have their “bubble-dar” honed and active. What is surprising though is the large number who have resoundingly dubbed the gold market as “the next big bubble.” But is it? Most gold owners reject claims that gold is in a bubble, but they might not be sure exactly why. The most concrete and convincing evidence against gold being in a bubble, though, is right in front of us.

New High in Silver....

Denninger, Address Your Fears.....

From Denninger.....(and I very much respect the man except on the issues of gold and silver.....

""Quantitative Easing" is a scam. It's yet another sop and fraud to allow the government to deficit spend "allegedly" without consequence. It covered $1 trillion of deficit spending the last time. If they do come in again all they will do is cover another $1 trillion in deficit spending by the government, while your actual disposable income in terms of goods and services will see yet more declines, just as occurred from 2000-2010.

That's all folks.

The "scam" part of it is that there is no way The Fed can ever reduce it's balance sheet once it does this, because to do so the government will have to decrease spending by an equivalent amount to that "eased." It will never do so. Not voluntarily, anyway. Gold is moving higher on the bet that the attempt to "allow" continued government spending will fail and ultimately the government will be forced to default (either literally or through massive unsterilized money printing that destroys the currency.) I don't think that will prove correct - I think our foreign creditors will pull our credit card first.

But that's what Gold is saying, and if Gold is right, then America as a nation is finished, and our government will eventually dissolve either into outright tyranny or civil war and you will be THROWING your gold at people to defend yourself."

You see Karl, before I throw my gold, I'll throw my lead.

If the world denigrates to Mad Max status having food will be more dangerous than having any precious metal. And if you're not buying gold because things may deteriorate that bad, why are you investing in the markets at all? You should be digging your bunker and filling it with food.

You can add this type of thinking to the pile of "If I don't get the world my way" I'll throw a fit crowd. If the above scenario plays out and it likely will (i.e., the gov WILL print, they WILL default and credit WILL be pulled [it's already happening]), the dollar will become devalued against gold. That simple. The vacuum that will be created will be filled by the Euro, Yuan, Ruble, Real, etc. To assume the world ends because America falls is the height of idiocy. Rome is no longer and the world is better off.

The land grab that has been happening and all the real estate acquired by the banks will become a new national asset. How? The banks will be nationalized. The Fed is already buying their junk debt to keep them liquid and keep the digital flow of currency alive. Do you think the Fed will just go up in smoke? No. Even if they are dissolved they will still own the major banks and they will simply weasel their way back into Government even if it takes them another hundred years.

America's failing infrastructure will be built back up by the newly formed peasantry, recruited from the ranks of the middle class. They will work for their debt masters from abroad, rebuilding the infrastructure of America so the lights will stay on and the water will flow. Pay your bill at the local Chinese owned Walmart and they will forward the money on to Beijing.

Do not buy silver and gold at your own peril. It's the 4 B's time: beans, bullion, bullets and bible (though I recommend throwing out the Old Testament).

$21 Resistance breached

Now we need to close above it.....thanks Bernanke!!

Knocking on prosperities door....you know this door?

Why You Will Never See Me on Face"book" Again

This is just pathetic. A nation of laws for the money that can write them.

From Cnn......


Facebook sues start-up for using 'book' in name
By Julianne Pepitone, staff reporterAugust 26, 2010: 10:24 AM ET


NEW YORK (CNNMoney.com) -- Facebook is suing start-up site Teachbook.com for using the word "book" in its name, according to court documents.

The complaint, filed in a California district court last Wednesday, alleges that Teachbook is "rid[ing] on the coattails of the fame and enormous goodwill of the Facebook trademark," said the document obtained by Wired.com.

Facebook, based in Palo Alto, accuses Teachbook of a slew of crimes including federal trademark dilution, trademark infringement and unfair competition. Neither site immediately responded to requests for comment.

Teachbook, based in Illinois, isn't launching until fall 2010 and many of the site's links are dead. Its homepage says it is a "teacher's community" where users can share lesson plans and seek advice from fellow educators.

"[Teachbook] has created its own competing online networking community in a blatant attempt to become Facebook 'for teachers,'" the suit alleges.

The court filing also claims Teachbook has marketed itself as an alternative to Facebook. It alleges a page on Teachbook's site -- which has since been removed -- once read, "Many schools forbid their teachers to maintain Facebook and MySpace accounts ... With Teachbook, you can manage your profile."

Facebook recently hit the 500 million member mark. By contrast, Teachbook's site said 47 members were online Thursday morning.

While Facebook doesn't claim to own rights to the word "book," it argues "if others could freely use 'generic plus BOOK' marks for online social networking services .... that would dilute the distinctiveness of the Facebook marks."

This isn't the first time Facebook has gone after small sites over the -book suffix. The blog TripTrace -- once called PlaceBook -- detailed in a post how the social networking behemoth forced it to change its name.

"We didn't believe anyone could own the word 'book' apart from 'face,'" reads TripTrace's post. "We knew of a number of websites that had similar names that were clearly not copying Facebook: Cookbook, Blackbook, eBook, RunBook ... Racebook, Casebook, Tastebook."

But the blog acquiesced to Facebook because, "as a start-up we were in no position to fight." Still, TripTrace seems to have the last laugh.

"We still think of ourselves as PlaceBook," the post reads. "Or, if you chose to pronounce it differently so it doesn't rhyme: PlacéBoök." To top of page

For the Record-Illusionist Tricks Revealed

This is Obama addressing 1st graders. Now they are a very attentive lot, thus explaining the need for the teleprompters. Notice the Secret Service agent; there was rumor that one of the 1st graders had a grudge against Obama Nomana. They feared he may be attacked. In actuality they were probably teaching the kids how to grow up in a state of fear of the Presidency. Twisted to the core.

Quote of the Day

Always be ready to speak your mind, and a base man will avoid you. William Blake.

Thank goodness, right?

This Is Significant...

...whether you understand it or not.....link.

Indian silver imports poised for strong recovery

Good monsoon rains suggest a good fillip for the Indian silver market with imports poised to pick up strongly this year.
Author: Shivom Seth
Posted: Tuesday , 06 Jul 2010

MUMBAI -

The annual monsoon rains, a key factor that drives India's economy, has covered the vast country after a sluggish spell, boosting the outlook for farm products and rural income, as well as for precious metals, gold and silver. Global uncertainty has also added its bit and is proving to be a major fillip for the price of silver in India, which shot up by 64 rupees to clock 28779 rupees per kilo, in day trade on Tuesday.

Like gold, silver is sought after as a hedge against dollar weakness and financial distress. In India, good monsoons portend a bullish scenario for silver consumption. Though prices are at near record highs on the Mumbai market, traders expect to see a short term correction in the next couple of days.

On Monday, business activity across the country came to a standstill, as traders pulled down their shutters in response to a 'Bharat Bandh' called by the Opposition parties to protest the hike in fuel prices. With the closure of wholesale commodity markets, the trading volumes declined to a certain extent in futures trade, which remained opened for regular trading. On Tuesday, business was back to normal.

Traders in the bullion market said silver imports into India are set to recover this year from the 1,000 tons of a year ago, though June did not witness any imports of the white metal. In a good year, India can import up to 4,000 tons of the precious metal. Traders pointed out that the surge in silver was based on its traditional role as an investment alternative to gold, with investors seeing silver as providing better relative value.

Analysts maintained that the extra-long weekend and the strength of the US dollar continued to weigh on prices. The Fourth of July holiday and talk of option strikes between $1.2500 and $1.2550, inspired the dollar, lifting it 0.3% versus the euro to $1.2499, depressing commodities.

The silver September settlement contract was trading marginally lower at 28,707 rupees per kg, after having opened the session at 28,680 rupees. On the back of fresh buying by stockists, however, silver made a marginal recovery. Silver futures in the country are also set to extend gains and hit a record high this month, traders pointed out.

In the international market, silver prices have been on a roller-coaster since moving above $10/oz in March 2006. The long rallies have been interspersed with steep and aggressive sell-offs - though none more so than the drop from $21.36/oz to $8.50/oz, between March and October 2008. However, analysts maintain that the strong rebound after last year's sell-off does indicate ongoing steady interest.

Though silver demand in India has been muted this year, silver imports are poised to recover from a first half slump. Traders insist that silver imports could end up around 1,500 tons this year, from the earlier annual position of 1,200 tons.

In Mumbai, the country's main bullion market, the onset of the monsoon saw silver prices touch 30,095 rupees a kilogram on July 1, just shy of the all-time high of 30,400 rupees. Traders also alluded to the GFMS' fundamentals for silver, whereby increased fabrication demand and flat supply, are expected to continue to support the metal's price.

The latest World Silver Survey 2010 by the Silver Institute and compiled by consultancy firm GFMS has noted: ``While the global recession caused fabrication demand to fall sharply in the early months of 2009, a rebound began in the latter half of the year, which has continued into 2010.''... ``Flat supply is expected in 2010, and solid gains in fabrication demand are anticipated, which should buoy prices this year.''

The Light

This is a quote from a book I'm reading right now called, The Secret of Light, by Dr. Walter Russell....pg. 8-9....

An online pdf of the book can be downloaded for free here. Consider reading it.

"He who is far out of the jungle and still seeks the
Light in the High-heavens is forever finding it, and is
forever being transformed as he finds it.
One cannot for one moment remove his seeking eyes
from his High-heaven, for ever so slight a glimpse
below into the dark brings him back to the fears of the
dark, which tempt him to plunge back into them.
Look ye, therefore, forever upward into the High-heavens
of inspiration, where glory awaits the fearless,
all-knowing seekers of Beauty in the purity of the universal
Light.
To him' whose eyes are in the High-heavens, the Light
will forever come, and he will be forever transformed as
he finds it.
The dark road from his jungle to his mountain top of
glory becomes ever more illumined during the ascent
from body to spirit."

Silver and EROEI Pt II

This post and the next are a response to an article I just read over at Goldseek.com. It's an interview with Bob Moriarty who is no novice in the commodities markets and analyzing gold and silver producers.

When it comes to Bob's views on silver I just don't feel he's got it right, like his announcement at a silver summit (I believe?) that the dollar would "crash" by the end of '09. "Guaranteed". Well that didn't happen but we all make off calls.

I wanted to keep track of these two excellent articles by Steve St. Angelo so I'm posting them here on the blog. They directly address Bob's views on silver and give us an excellent overview about how energy can impact mining.

Make sure to click on the link to see the original article and the charts therein.

PEAK SILVER & PEAK MINING by a Falling EROI

By: Steve St. Angelo

Link

-- Posted 4 November, 2009 | Share this article | Discuss This Article - Comments: 16 Source: SilverSeek.com

EROI = Energy Returned On Energy Invested



The Peak of World Silver Production may be just around the corner due to a falling EROI (energy returned on energy invested). This will also be true for most industrial metals. I may go as far as to say, if the Global Economy does not make a full recovery shortly (which I doubt), 2008 could be the all time peak for world silver production. At least, the world production of silver will be in a plateau as unconventional oil supplies start to peak and decline.



We have two problems concerning the mining industry. First we have the numerous Black Swans ready to take down the Global Financial System in the immediate future, and secondly, the falling EROI ratio that will provide less net energy for mining into the not so distant future. One deals with the evaporation of credit to fund new and existing mining projects in a Global Financial Meltdown, and the other limits the production of future mines to those companies who have the best quality high grade ores.



I was inspired to write this article by reading “Mexican Silver” by Bob Moriarty. Mr. Moriarty stated that Mexico has so much silver, the country has barely been scratched. Even though it is true that Mexico has plenty of silver, it takes a great deal of energy to explore, develop, mine and produce this silver for market. Very few, if any analysts understand the falling EROI ratio and its impact on the future of the mining industry. To understand the EROI ratio, I would direct the reader to check my previous article: THE MOST IMPORTANT ASPECT MOST ECONOMISTS AND ANALYSTS FAIL TO RECOGNIZE. You can find the article HERE.



Basically, the EROI is the net energy remaining after exploration, development and extraction has been factored in. When we just consider the energy coming out of the ground, this is called the EROI from wellhead. We also must factor in the refining, distribution and energy cost to maintain the infrastructure system to get a more complete EROI ratio. This will be discussed in a later article. But, if we just go by the basic EROI from the wellhead, Cutler Cleveland of Boston University reported that the EROI of oil and gas extraction in the United States has declined from 100:1 in 1930, to 30:1 in 1970, down to 11:1 in 2000. [1]







Plot of three estimations of EROI for U.S. oil and gas (Source)





The reason for the falling EROI ratio is due to the increasing energy investment and technology to extract the more difficult and harder to get oil. Back in the 1930’s the great oil boom in the United States produced 100 barrels of oil for only 1 barrel of oil invested. Those were the good ‘ole days when lakes of oil were just sitting there for the taking. Today, we find oil companies like BP and Exxon building and putting into service THUNDERHORSE, the largest offshore oil rig in the world at an expense of $5 billion to tap into deep water oil to feed the insatiable energy demand of the USA.



It still amazes me to this day just how many people believe that there is a GRAND CONSPIRACY to cap wells in the United States and exploit cheaper foreign oil. It never fails, when I meet someone for the first time and the discussion of peak oil comes up, a good percentage have this knee jerk reaction that they know someone in the oil industry who told them we are capping our oil wells to use up foreign supply first. Now If I feel up to it (which normally I don’t), I ask this Einstein why on earth would U.S oil companies build billion dollar off shore oil platforms, deal with hurricane force winds and waves, salt water corrosion, sea floor pipelines and highly paid technicians if they can do the same thing at a fraction of the cost on land in the states?



Normally, the reaction I get is this glazed over stare as their brain tissue tries to come up with something to counter that argument. If I notice they are having difficulty understanding that example I give them another. I say, what farmer would pump water from a distant state to irrigate his crops, if he could pay a fraction for the water which he could access near his own property? Maybe then, some of these people finally understand just how silly the notion of capped U.S. oil wells really sounds.


Reverse Alchemy and Analyst Hype



Before I get into some interesting facts and data about EROI and the Mining Industry, I have to discuss what I call as REVERSE ALCHEMY and ANALYST HYPE. During the Middle Ages, those who performed Alchemy tried to turn lead into gold. It was never successful, but many poor slobs wasted the better part of their lives trying to make it rich. Today, we have the opposite. Thus, grown men are now slapping each other on the back because they have learned the great secret of turning gold into lead. A perfect example of this in work is the Canadian Oil Sands Operations.



The Oil Sands Operations in Alberta, Canada have found that by using huge amounts of natural gas and excellent quality fresh water from the Athabasca river, they can take sand mixed with tar molasses and produce oil for the market. Just think about that for a minute. At one time in the past, high quality light sweet crude was so easy to extract, it just came out of the ground under pressure all by itself. Today, a falling EROI has turned the oil gushers of the past into huge strip mining operations. Vast amounts of potable water and natural gas are necessary in modern day Reverse Alchemy to transform oil sands into oil for the market. Basically turning gold into lead. What in the world will we think of next to top that one? Well, what do you know, the present day alchemists have come up with another example. It’s called the wonderful world of Shale Gas.



Shale Gas wells are such LOSERS, only 28% of them return a reasonable profit.[2] The only way it can be sold to the public is by ANALYST HYPE. There is this grand illusion that because we now have a huge glut of natural gas in the United States, it is time to export the surplus and sell it for peanuts. Not only are energy analysts guilty of propagating this nonsense, many energy companies have joined the bandwagon. Prices of energy are traded in such an incredibly insane system, it behaves as if humans have a lifespan of a gnat. This is the same kind of lunacy the grand oil gurus were stating back in 1999 when oil was $10 a barrel. The oil analysts back then were saying, because there was such a glut of oil on the market, oil would drop to $5 a barrel a stay there for a decade. Silly forecasts from silly people. Today we find, nothing has changed.



The Barnett Shale Gas Field in Texas was the only field of its kind exploited to a large degree due to the higher price of natural gas in the past. It was this high price of natural gas that allowed these energy companies surplus assets to invest in the high cost of long extended horizontal drilling and hydraulic fracturing to exploit the Barnett Shale Field: 60-70% depletion rates are normal for first year drilling in these shale gas fields.





First year decline rate of Texas natural gas wells (Swindell)

(Source: Heading Out – TheOilDrum.com)





The Canadian Oil Sands Operations and the Shale Gas Plays are great examples of Reverse Alchemy by a falling EROI. These analysts and energy companies hyping the shale gas fields as the next savior to our energy needs, are in a sense, destroying future production by giving away the present for a song. They are behaving like flesh eating bacteria devouring the patient from the inside out. If oil and gas prices do not head higher, future supply will be destroyed like never seen before.





CERA estimate of full cost of production of various oil sources, at time when

Oil was about $90 a barrel, so blue line represented then high-cost of new

Production justified by $90 price, from Horizon Oil presentation.

(Source: Heading Out – TheOilDrum.com)





Deflation of energy prices were possible in the 1930’s due to the high EROI of about 100:1. Because of the much lower EROI today, if we had deflation of energy prices (and they remained low), production would be destroyed from the top down. By looking at the chart above, if oil fell and remained at $20 a barrel as some deflationary analysts forecast, we would have more than 50% world oil supply destruction. And by that, I mean the companies that have the highest cost per barrel like the Canadian Oil Sands would be one of the first to cut production. The higher the cost of production the lower the EROI. To understand how a falling EROI will affect the mining industry, we need to take a look back in history.




A Brief History of Ancient Mining



I am amazed at the lack of understanding of the declining ore grades worldwide by the analysts who are so called specialists in this field. In acquiring the research for this article, I had email correspondence with several analysts who seemed quite surprised at some of the graphs I had found. Some even asked where I had found this information and who was the source. I then began to understand most of these analysts really didn’t have a clue on how a falling EROI would affect the mining industry and its declining ore grades.



If we go back to ancient Greece, we find they mined silver and lead from the Laurium (Laurion) massive sulphide ore district southeast of Athens from the 7th to the 1st century BC. For 600 years the ancient Greeks mined 13 Mt (million tonnes) of ore with an average grade of 20% lead (Pb) and 400 g/t silver (Ag); the extracted metal was estimated to be about 1.4 Mt lead and 3,500 tonnes of silver. More recently, between the years of 1865-1977, the same district produced 30 Mt with an average ore grade of 3% lead and 140 g/t silver; the extracted metal was approximately 0.9 Mt lead and 4,200 tonnes of silver.[3]



The next great silver and lead miners were the Romans. When Rome took control of the mines in Iberia (Spain), they were able to build their economic wealth to expand their empire. According to the work of the late Professor Claire C. Patterson of Caltech:



Although man began to mine silver on a small scale in about 2500 B.C., Patterson says that it was not until Rome took control of the silver mines in Iberia that it was able to attain the economic strength necessary for the rapid expansion of the empire. Silver production, mainly in Iberia, peaked between 50 B.C. and 100 A.D., when some 30,000 tons were extracted; Roman legions were furnishing 30,000 fresh slaves a year then to maintain the ranks of miners at 150,000.[4]





The amount of silver and lead the Romans exploited from the Rio Tinto mining region in Iberia (Spain) was so large, they left an estimated 6.6 million tons of slag from their smelting operations. French and Australian scientists using ice-core analysis estimated that between 366 B.C. and 36 A.D., when Rome was at its peak, 70% of the total global lead pollution came from the Roman mining operations from the Rio Tinto. After the collapse of the Roman Empire, global lead pollution declined and did not reach the same level again until 1523, during the period of the Renaissance.[5]




Modern Mining and Falling Ore Grades



If we fast forward to the 19th and 20th century, we find an interesting trend. A trend of steep declining ore grades. From the time of the Greeks, Romans and up to the industrial revolution, most of the mining was done by human and animal labor. This pre-industrial physical labor seemed to work fine as the ore grades were extremely high and condensed in a relatively small area of veins. As the low hanging fruit of high quality ore grades were exploited, the mining industry had to reinvent new ways of making declining ore grades economical.



It was both the invention of new machines and technology as well as the tapping of high EROI coal and oil of the late 19th and 20th century did the mining industry solve its problem of declining ore grades. You might say, the discovery of the vast reserves of coal and oil in the world came at the perfect time to help transition the mining industry into the modern era.



Gavin Mudd, from the Department of Civil Engineering in Monash University, Australia has done some very detailed work on the history of the mining industry in Australia as well as global trends in gold mining. We can see from the graph below just how much the ore grades have fallen in the Australian continent.






Declining ore grades in the Australian Mining Industry

(Source: Research Report 5-Gavin Mudd)





We can see from the graph above how much the ore grades have fallen from the middle of the 19th century to present. Putting some actual numbers to the declines, the picture becomes even more apparent:




Metal 1880-1900 avg. 1950-1960 Present



Gold 22-23 g/t 5 g/t 1.94 g/t

Silver 1,175 g/t 154 g/t 98.4 g/t

Copper 7.60 % 1.35 % 0.95 %

Lead 14.42 % 10.41 % 3.50 %

Zinc 15.68 %* 10.42 % 7.77 %



* (average for zinc was figured from 1900-1905 due to a lack of beginning numbers)



The figures above clearly demonstrate how ore grades have fallen in modern times. Gold and silver ore grades in Australia have fallen more than ten times their original values whereas the base metals of copper, lead and zinc have fallen 8, 4 and 2 times respectively. The important thing note is the degree of decline from the figures in the 1880-1900’s to 1950-60’s compared to the slower declines from the 1950-60’s to present.



The author of this article did not go into detail in providing declining ore grades in all the countries of the world as the information is not readily available in a condensed fashion. But, certain assumptions can be made. We know that ore grades declined first in Europe as this was the epicenter of advancing civilizations who needed gold, silver and base metals. The next great area of the world to suffer declining ore grades was the United States. This can be shown neatly in the graph below.







(Source: Dr. A.M. Diederen Presentation posted on TheOilDrum: Europe)





As a percentage of global mining, Europe peaked in the 1860’s, the United States peaked between 1930-1950, and the former Soviet Union peaked in late 1980’s. It is interesting to coincidence that the former Soviet Union peaked at the same time their country and economic system collapsed. As for Australia, it maybe in the peak plateau currently, but China and the 6 resource rich developing countries are still in their upward trend.




Declining Global Gold Ore Grades



The good ole days of finding bonanza gold deposits as well as locating elephant oil fields like Ghawar of Saudi Arabia, are gone. Today, the world is exploring for minute quantities of gold in tons of ore. Basically, we are left to mining gold dust. Sure, there are the occasional Aurelian finds, but they are becoming more rare each passing day. Below we can see how 5 different countries gold ore grades have declined over a period of time.






Declining Global Gold Ore Grades

(Source: Gold Mining and Sustainability: a critical reflection)





In looking at the chart above, you don’t need to be an engineer to understand what is happening to the global gold mining industry. It is safe to say that 4 of the 5 countries listed above are now mining gold below 5 g/t, while United States, Canada, and Australia are below 3 g/t. Even though there are only a few countries represented in this graph, it signifies what is taking place in the global mining industry itself. As the ore grades fall, the amount of rock that needs to be mined increases proportionately. The increase of waste rock in mining low quality gold ore grades can be seen in the next graph.








Waste Rock from Gold Mining

(Source: Gold Mining and Sustainability: a critical reflection)




Falling Ore Grades need Exponentially more Energy to Mine



The higher amount of waste rock comes from the method of open pit mining. This is by far the choice of most mine developers when the ore is situated close to the surface. The removal of the vast amounts of ore and waste rock are done by large earth moving machines and trucks. Most of these machines and trucks are powered by diesel. As long as diesel remains relatively cheap and abundant, this type of operation can continue economically. Unfortunately, as the world peaks in oil production and the effects of EROI are felt, this type of mining will become increasingly prohibited.



When the system of mining was limited to simple machines along with human and animal labor, the EROI was relatively positive. We know that simple hunter gathers and early farmers were able to produce food at a ratio of about 10:1. That is, it took 1 unit of energy (work) to produce 10 units of energy (food). The Romans were able to produce silver and lead at a relatively higher EROI compared to competitor nations as they had vast numbers of slaves who lived a meager existence. There is no science I have come across that measured the EROI of human and animal labor in the mining industry, but I would imagine it would be much higher than the Energy Devouring Method of Open Pit Mining…..as open pit mining is only allowable when liquid fuels come from a high EROI environment. Remember from what I presented in my first article linked above, high tech farming and modern transportation of food has an EROI of 1:16. A huge net energy loser. We can just imagine what it must be like for open pit mining.



I would like to clarify how I use EROI in the mining industry. EROI is normally used to state the ratio of producing net energy. When we speak of human labor in producing food as an example, the net food remaining thus becomes the energy available for human consumption. In mining, it is difficult to compare an EROI as precious and base metals are used in many stages of production, manufacture and distribution in our labor saving modern economic society. Thus, it is safe to state that the more simple method of human extraction of higher grades ores in underground mines would have at least a positive EROI ratio, whereas open pit mining would show a negative EROI ratio and be a net energy loser. Again, this type of modern mining system will only continue with a relatively high Global EROI Energy Ratio.



If we consider what is happening in the King of base metals, copper, the results are not much better. Copper is the most important base metal when it comes to the modern electronic world of ours. Technology would have not advanced to the degree today, without the increase production and use of copper. Furthermore, a good percentage of gold and silver come as a by-product of copper mining. As the world ore grades of copper have fallen, the increase of waste rock and the energy to mine it have gone up exponentially.







(Source: Dr. A.M. Diederen Presentation posted on TheOilDrum: Europe)





The slide above from Dr. A. M. Diederen’s presentation “Metal minerals scarcity and Elements of Hope” given at the Oil Drum/ASPO Conference in Alcatraz, Italy in June, 2009 shows that even though copper ore grades have leveled off in the 1990’s, the total Ore compared to the Metal mined, has increased substantially. It takes the extraction of 250 tons of solid waste to produce one ton of copper.[6] As it takes more energy to produce the precious and base metals in the future due to declining ore grades, it is important to understand the relationship of energy and mining reserves.




Energy and Mining Discovery Rates: a comparison



During the exploration oil boom of the early to mid 1900’s, the world was finding more oil than it knew what to do with. Those were the days when the massive discoveries of the Burgan Field in Kuwait (1938), and the Ghawar Field in Saudi Arabia (1948) added to the huge world reserves. Oil contracts at this time were done on long term fixed price contracts. For five years from 1948 to 1952 the price of crude oil was fixed at $2.77 a barrel. Here are the world discovery rates of conventional crude compared to production. Except for the two large blips in the late 1930’s (Burgan Field-Kuwait) and the late 40’s (Ghawar field-Saudi Arabia), the peak of discovery takes place in the 1960 decade.







(Source: ASPO-Ireland.org taken from Peak Oil Primer-Energy Bulletin)





Even though the world peaked in oil discoveries in 1965, it did not peak in conventional production until approximately 40 years later. According to Matt Simmons of Simmons International, the actual peak of conventional crude was in May 2005 at 74.3 million barrels a day. You can see his presentation HERE. There is a lag from peak discovery to peak production of 40 years. If we compare the discovery of world oil fields to that of global mining deposits, a similar trend is taking place.







(Source: Dr. A.M. Diederen Presentation posted on TheOilDrum: Europe)





According to this slide, world class mineral discoveries peaked in 1981, whereas the number of major deposits peaked in 1988. As one travels along the horizontal axis of the graph up to the year 2000 and onwards, discoveries of both world class and major deposits fall off a cliff. Matter-a-fact, once you pass 2001, there aren’t any. ZIPP. This indeed is a telltale sign similar to the World Oil-Discovery-Production-Decline story. All that is left to complete the last chapter of this book is to give the details as to the exact date when Global Mining Production will peak. It is always easier to point out the peak from a rear view mirror as it was when the United States peaked in oil production in 1970.



The exploration expense during the years between 1995-98 peaked at $5 Billion dollars producing approximately 7 major deposits, but when we look at 2004 and onwards, $7 Billion dollars was spent with no major deposits discovered whatsoever. This is just as depressing as what is taking place in the Big Oil Companies. Last year ExxonMobil, Chevron and ConocoPhillips spent more money buying back their stock then they spent on new exploration. Maybe the oil companies know something we don’t. They probably realize that there is no money made drilling lots of dry holes. We have to remember, oil companies are not in the business to find oil, they are in the business to make money.




Resource and Resource Base: Nothing but Bad News



The USGS, Energy Analysts and Wall Street Media talking heads will always drum up wonderful news about new large resource discoveries to the market. The Jack Field in the Gulf of Mexico and the Tupi Oil Field off the coast of Brazil comes to mind. For a few days the euphoria gives the public a new sense that EVERYTHING IS GOING TO BE OKAY. But after the Brainstem Buzz is gone, it’s back to good old fashion reality……and that is, we’ve got some serious resource constraints coming dead ahead. This is terrible news for the Suburban Retail Leech and Spend Economy of the United States.



Unfortunately, many analysts and geologists are putting a present value on future low grade-high volume mines to be the saviors as replacements for existing mines which will be depleting each and every passing year. This is sure folly as a falling EROI ratio will curtail future net energy, making these kind of deposits increasingly uneconomical. The value of a mine that a bank will lend, is tied to its PROVEN and PROBABLE RESERVES, not its FUTURE INDICATED and INFERRED RESOURCES. Furthermore, a large portion of the so called resources and resource base of many commodities we see listed on the USGS website will become uneconomical as the effects of declining net energy head into high gear.









(Source: Dr. A.M. Diederen Presentation posted on TheOilDrum: Europe)





For those readers who have just come across this new information, it sure can be an eye opener. As for others who might be skeptical, it seems quite unbelievable. At first glance it does seem a bit inconceivable, but when you take a detailed look at the future possible trends of the United States and Global EROI ratios, it is down right depressing.




A Falling EROI Ratio and Declining Net Energy



I put a link to my article above which describes this in length, but I will reproduce 2 graphs again, as these are necessary to get the point across. The first graph is a forecast of net energy declines plugging in Cutler Cleveland’s figures of past USA EROI estimates on the future of United States oil production.



United States Gross & Net Oil Production Estimates

(in thousands of barrels)





Red is Gross Production, Blue is Net

(Source: Nate Hagens-theoildrum.com)





According to the estimates in this graph, by 2010, the gross production for the United States will be approximately 1.7 Billion barrels a year with 1.5 Billion net for use in the market. The Gross production estimate for 2010 seems very reasonable as the EIA (Energy Information Agency) has reported the following annual crude oil production figures for the United States. Figures can be found HERE from the EIA website:


USA Annual Crude Oil Production



2001…..2.12 Billion barrels

2002…..2.09 Billion barrels

2003…..2.07 Billion barrels

2004…..1.98 Billion barrels

2005…..1.89 Billion barrels

2006…..1.86 Billion barrels

2007…..1.85 Billion barrels

2008…..1.81 Billion barrels





Taking the 2010 gross minus net estimates we come up with approximately 200 million barrels in US Dollar figures as the cost from wellhead….roughly speaking. This seems quite reasonable as we will be receiving 88% net energy returned. Unfortunately, that is the good news. When we fast forward to 2025, a decade a half later, the numbers become bleak. By 2025 the gross production estimate for U.S. crude oil will be about 1.2 billion barrels and the net will only be 500 million. The EROI ratio has fallen off a cliff as well as the net energy available for use in the market. This not only means that 700 million barrels in US Dollars (if the dollar is still around) will be absorbed by the cost of the energy itself, but the United States has now past the break-even point. It cost more to produce the oil, than you get from using it. It is a NET LOSS. Basically GAME OVER for the USA.



Alright, so we now know the United States might be in serious trouble in a few years, what about the Global EROI ratio? The second graph below produces the same result, just a few years later. Nathan Gagnon, Charles Hall, and Lysle Brinker recently presented a paper to the Energies journal called “The Preliminary Investigation of Energy Return on Energy Investment for Global Oil and Gas Production.” They estimate that the EROI at the wellhead was roughly 26:1 in 1992, increased to 35:1 in 1999, then decreased to 18:1 in 2006.[7] If we take the calculations on a chart and superimpose them on a graph showing a possible future extrapolation, this is the outcome:




Linear Extrapolations of Historic Global EROI Trends

(Source: reprinted by David Murphy-theoildrum.com)





The zigzag graph with the dots represents the change in Global EROI ratio. The two dashed lines are the extreme minimum and maximum that the EROI could follow. The solid black line is the probable extrapolation based on current estimates. Based on that estimate, the Global EROI ratio hits 1:1 on approximately 2036, only a decade and a half after the United States. Of course the 2 graphs shown above are only estimates based on the limited information gathered in a very complex and rapidly changing Geopolitical and economic world. Much more research needs be done to get a better understanding as to where we are heading.



On the other hand, due to the probable rigging of the US Dollar, US Treasuries, and Interest Rate Markets over the past several decades, these future EROI estimates presented might turn out to be quite conservative. Do not forget, the EROI estimates shown in this article are based on converting energy figures into US Dollars. Most countries don’t have huge amounts of Gold bullion in their Central Banks, but boat loads of U.S. Treasuries. They classify these U.S. Treasuries as assets on their balance sheets.



When the US Ponzi Finance system comes tumbling down, and all those $trillions of dollars of paper capital (US Treasuries, 401K’s, CD’s, Pension Plans, Muni Bonds, etc and etc) vaporizes into thin air, where will the real capital come from to invest into exploring, drilling and producing energy for the future?? This is a question I doubt many newsletter writing analysts ever ponder as they cash the next check they receive from their extremely uninformed subscribers when it comes to this topic. Believe me, I am not discouraging the newsletter for hire as a form of business, rather I am just amazed at the lack of insight and comprehension many of these analysts share when it comes to the seriousness of a falling EROI ratio in the future energy and mining environment.




PEAK SILVER: The Canary in the Coal Mine



Okay…here is the information on PEAK SILVER. Always best to keep the best for last. Unless some Alien mining ship comes crashing down on earth unscathed and we have the smartest minds reverse engineer the technology within the next several years, in all likelihood, the world peaked in Global Gold Production in 2001 at 2,604 tonnes. Because gold is a special case due to its ranking as the King Monetary Metal, its peaking is not as significant as the global peaking of silver production.



Increased production of precious and industrial metals can not go on forever. When these metals, especially silver head in an exponential production projectory, it is just a matter of time before the collapse take place. Nothing that abides by the laws of nature on earth can continue in this fashion. Looking at the exponential increase of Australian mining production, we can see this taking place. Silver in Grey has the finest exponential graph of them all.





Increasing Annual Australian Mining Production

(Source: Research Report 5-Gavin Mudd)





As most of you already know, silver is not only a monetary metal, it is also an industrial metal in high demand. Many economists and pit traders will tell you that silver is just a mere commodity. They say, its monetary status was lost decades ago. I would like to inform this kind of mindset, when the price of silver goes ballistic, amnesia, stupidity or ignorance won’t be acceptable excuses.



A far larger percentage of silver world production comes from by-product mining compared to gold. It is this very reason why silver will show the world when the production of world industrial mining is peaking. Huge copper or lead-zinc mines are not going to ramp up production just to produce more by-product silver if prices of silver head much higher. Mining companies will only increase base metal production if there is a demand for the base metal they are currently producing as the major source. How about this for an example. If you went to the store to buy red maraschino cherries, and they were out of jars of these cherries, you’re not going to buy a dozen cakes with the cherries on top just to get the amount of cherries you need. Not only is this extremely uneconomical….it’s insane as well.



Understanding the ramifications of a falling EROI ratio upon the mining industry, it becomes very apparent that the silver reserves will be the only portion available for extraction and the majority of resources and the resource base will not. If the estimates in the graphs above for US and Global future EROI ratios are accurate, then we can assume only the reserves+ may be economical in the future.





(Source: Dr. A.M. Diederen Presentation posted on TheOilDrum: Europe)





Besides Strontium (Sr), Silver (Ag) has the least amount of world reserves remaining. In a recent article on kitco commentaries, David Morgan put some highlights of what Adrian Douglas had stated in a recent interview about silver (article found HERE):



There’s very little left on the planet. The U.S. Geological Society said just a couple years ago that silver would be the first element in the periodic table that would become extinct. It’s incredibly bullish. The USGS said that would happen by 2020. So if we’re in the situation where we can run out of silver, the price clearly has to go up, because you can’t obviously run out of silver. What will happen is, the price will have to go to a price level where it’s economic to recycle it.. (emphasis mine)





We have seen history in the making here. Normally whatever the government states, we know as of late is false. But here, we have some honesty from the USGS. Unfortunately, as energy becomes more expensive due to less net energy available due to a falling EROI ratio, even recycling will become expensive and prohibited. There will be plenty of challenges in the future for the modern technological society we live in as we transition to a world with less of everything right at the time when China and India are westernizing.


Conclusion and Final Comments



The world is peaking in global oil production. The downside slope of the graph is much worse when you factor a falling EROI (energy returned on invested) into the mix. If the certain data listed above is correct we may see the USA hit a 1:1 EROI ratio by 2020’s and the world by the 2030’s. The real damage to a modern society starts when the EROI figures reach 3-5:1. When 1:1 is reached….the movie has been over for quite a while and the theater is officially closed for business.



Liquid energy fuels are such an important part of our way of life, to transition to another type of technology or energy would cost countless trillions of dollars in an upgrade. People talk about changing the auto fleet to electric. This sounds nice on paper, but the economics, cost and logistics would make this theory, DEAD IN THE WATER. We have to start making wise decisions with the resources we have left. Until we find ZERO POINT ENERGY or some poor Alien Slob crashes his ship here on earth, we are going to have to tighten the belts, bite the bullet and get to work.



The mining industry will follow the peaking of global oil and natural gas production. There was a peak in conventional oil discoveries in 1965 and a peak in conventional production in 2005. There was also a peak in world class mine discoveries in 1981. A great deal of capital has been invested in the past several years in both the oil and mining industry, but very little to show for it. The world is surviving on the back of large depleting oil fields and declining world class mines.



The peaking of world silver production will be the Canary in the Coal mine. Soon after, we will see the peaking of world industrial production. Even though the USGS states that there are over 550 million tons of copper reserves in the world supplying 35 years production at current rates, a rapidly falling net energy supply will very quickly erode the annual production rate. Sure there might be plenty of silver in the Mexican mountains, but it will be mined in the future at a very smaller annual rate. Many people confuse the Peaking of Oil with running out. This is not the case. It is the FLOW RATE that peaks. To add insult to injury, adding the falling EROI ratio to the equation, you’ll have a lot less oil flowing a heck of a lot slower as time goes by.



I stated in the beginning of the article that I believe the world silver production peak may have occurred in 2008. The disintegration of the global economy has put a damper on base metal production along with by-product silver. I don’t see the global economy recovering anytime soon with money printing and derivative game playing as the primary source of real capital. If we don’t have a peak in world silver production in 2008, it will plateau and decline soon there after.





Reference





[1] Net energy from extraction of oil and gas in the United States, by Cutler J. Cleveland, Energy, Volume 30, Issue 5, April 2005, Pages 769-782



[2] Shale Gas Estimates Perhaps Optimistic: An Interesting and Worrying Talk at ASPO, Heading Out- TheOilDrum.com, Oct 14, 2009



[3] Metallogenic Mineral Provinces and World Class Ore Deposits in Europe, by W. De Vos1, M. J. Batista2, A. Demetriades3, M. Duris4, J. Lexa,5 J. Lis6, K. Marsina5, and P.J. O'Connor7 , Foregs GeoChemical Atlas of Europe-Article, Oct 3, 2006



[4] Science: The Coin of the Realm, Time.com magazine article, Oct 4, 1971



[5] Ice Caps Shows Ancient Mines Polluted the Globe, by Malcolm W. Brown, The New York Times Science, Dec 9, 1997



[6] Metals Mineral Scarcity and the Elements of Hope, Rembrandt-TheOilDrum.com Europe/node 5559, July 9, 2009



[7] A Preliminary Investigation of Energy Returned on Energy Investment for Global Oil and Gas Production, by Nathan Gagnon, Charles A.S. Hall, and Lysle Brinker, Energies 2009, 2, Pages 490-503



Gold Mining and Sustainability: a critical reflection, Lead author- Gavin Mudd, The Encyclopedia of Earth, Sept. 12, 2008



Research Report 5 : The Sustainability of Mining in Australia - Key Production Trends and Their Environmental Implications for the Future, by Gavin Mudd, April 2009



Steve St. Angelo



sst.angelo@gmail.com

Silver and EROEI Pt 1

Link...

Make sure to click on the link for the original article that has some excellent charts.

The Most Important Aspect that most Economists and Analysts fail to Recognize



-- Posted Tuesday, 18 August 2009 | Digg This Article | Share this article | Source: GoldSeek.com

EROI…Energy Returned on Energy Invested



By Steve St. Angelo



The biggest problem that most economists and analysts fail to comprehend when making forecasts and predictions on the US Dollar, Precious Metals, Financials or the whole Economy in general, is the ability to get to the Root of the Problem. Most of them are using information and methodologies that are either outdated, superficial or completely worthless. Those economists who are either Keynesians or Monetarists are living in a economic model that will have a life expectancy of less than a century. Indeed, a blip in the history of mankind and increasingly worthless going forward into the 21st century.



Unfortunately, the leaders in government and finance who are making the grand decisions are still well entrenched in this worthless monetarist’s economic model. We know their forecasts are worthless, as all you have to do is to remember that at the end of 2007 and beginning of 2008 the head of the U.S. Treasury, Hank Paulson, Fed Chairman Ben Bernanke, and President George Bush were saying, “The Fundamentals of the Economy were Sound.” All it took was a little patience and bubble gravity to make their words complete rubbish.



As we head down the hierarchy of economists and analysts, we find even more stupidity. One example is the infamous YouTube video on August 18, 2007 when Peter Schiff debated Ben Stein and Charles Payne on Fox Business News. Link to YouTube video here: HERE. Ben Stein, who you can still see plastered on Yahoo Finance’s front page as an EXPERT OPINION, made the most lousy forecast by saying, “Merrill Lynch was so cheap, they should have put them in Cereal boxes.” Peter Schiff, on the other hand, had said financials were terrible investments. At the time, Merrill Lynch’s stock price was $76.04 a share. One year later in August of 2008, it had fallen to $25 a share. If that wasn’t bad enough, Merrill fell to $11.27 by the end of 2008. Ben Stein’s expert opinion made mince meat out of the investing public’s buy and hold portfolio. It is amazing to me that those with a decent functioning brain stem still listen to anything any of these people have to say.



The list goes on and on when you include most of the analysts on CNBC, FOX Business, and Bloomberg who are calling for a bottom in the housing market, end of the so called recession, return of green shoots, higher stock prices and continued safety in the U.S. Treasury markets. Unfortunately, nothing could be further from the truth. Why? You can blame that on (EROI) Energy Returned on Energy Invested.


(EROI) Energy Returned on Energy Invested



EROI, or sometimes known as EROEI, is what I term as “The Root of the Problem.” Before I get into why most economists and analysts are missing the boat in their present and future forecasting, I have to lay a basic foundation of EROI - Energy runs this modern economy of ours. Without cheap and abundant oil our global economy would come crashing down. We are able to have this modern lifestyle due to the surplus of energy we get from the energy invested. Basically, EROI is how much net energy remains after production. Cutler Cleveland of Boston University has reported that the EROI of oil and gas extraction in the United States has declined from 100:1 in 1930 to 30:1 in 1970, down to 11:1 in 2000.[1]





Plot of three estimations of EROI for U.S. oil and gas: (Source)





What this means is that during the 1930’s the oil men in Texas, Oklahoma and Louisiana were finding so much oil, it only took the amount of energy in 1 barrel of oil to produce 100 barrels for the market. It was this great oil endowment that allowed the United States to build the largest economy and infrastructure in the world. The implications of the declining EROI from the chart above reveals that in the future the United States will have to invest more energy to get less in return.



Furthermore, declining EROI means that the net energy which is contained in each unit of energy (oil, gas, etc) delivered to the market will decrease over time requiring even larger amounts of energy just to meet demand. This will decrease the amount of energy in the ground and will make it even more difficult to extract the remaining energy.


Some Basic EROI ratios



1) Hunter Gatherer = 10:1



2) Farmer, Horse & Plow & Pre Industrial transportation= 10-20: 1



3) High Tech Farmer & Modern Distribution-Transportation = 1:16



(Source: 1, 2-3)



If you look at the ratios you will realize that men gathering and harvesting food in the good ole days were much more productive than the modern farmer sitting in his air conditioned quarter million dollar John Deere tractor today. For instance, a typical pre-industrial farmer with a horse and plow could produce 10 units of energy (food) by only expanding 1 unit of energy (work). The modern agricultural practices of the past 50-70 years have been possible only with high EROI. The present system of food production and distribution is devouring 16 times the energy to supply only 1 unit of energy in the form of food.



Many people believe that technology will solve our future problems, but as you can see from the ratios above, technology has done just the opposite. The modern food production and distribution system has been a huge net drain on our vital resources. If technology was used correctly in the benefit of mankind, it would have been utilized to increase the EROI not decrease it. This wasn’t much of a problem with cheap and abundant energy, but now that the world is peaking in global oil production higher prices and volatility are here to stay.


Peak Oil and EROI



There has been great debate about the timing of the Global Oil Peak. Many believe we have reached peak oil already. Here is a modern graph of M. King Hubbert’s World Peak Oil Graph, which he presented in 1956.



(Source: Wikipedia)





If it is true, that the world is peaking in oil production, it has serious ramifications for the Global Economy. The only way an economy can grow is by growing its energy source. Any economist will tell you the best way for any country to pay back its debts and the interest on those debts is in a growing economy. Thus, a declining energy supply will contract the Global Economy. The decline of oil production as Hubbert predicted is not as simple as his uniform bell curve represents. It would be nice to rely upon all that oil on the downward slope of the graph; unfortunately, EROI will produce a much different picture.



If we would take Cutler Cleveland’s EROI figures of 100:1 to 30:1 to 11:1 and plug them into the United States Peak Oil Graph, this is what it would look like:



United States Gross & Net Oil Production Estimates

(in thousands of barrels)



Red is Gross Production, Blue is Net

(Source: Nate Hagens-theoildrum.com)





As you can see from the graph above, by 2010 the gross oil production will be about 1.7 billion barrels a year with a 1.5 billion net. Thus, the net supply is still a large percentage of overall production. However, by 2025 the net oil supplied to the United States will have fallen by more than half due to the decreasing EROI. The Red line shows that in 2025 the USA will produce about 1.2 billion barrels of oil, but it will only be able to supply about 500 million barrels net (discretionary) to the market. Where did that 700 million barrels go? The 700 million barrels went into the increasingly higher amount of exploration, development and production costs. Even though these are estimations, at some point in the near future, we will past the BREAK-EVEN POINT. In that, it will take more energy to extract the oil then you get from using it.




Global EROI and Forecasts



If we look at what is going on in the global oil scene it’s not much better. Nathan Gagnon, Charles Hall, and Lysle Brinker recently presented a paper to the Energies journal called “The Preliminary Investigation of Energy Return on Energy Investment for Global Oil and Gas Production.” They estimate that the EROI at the wellhead was roughly 26:1 in 1992, increased to 35:1 in 1999, then decreased to 18:1 in 2006.[2] The reason why the EROI went up to the 35:1 ratio in 1999 was partially due to the low price of oil, especially when it dropped to $10 a barrel. The lower the price of oil the higher the EROI ratio and vice-versa. I can only imagine what the global EROI was when oil hit $140’s in 2008.



When they say that the EROI is 18:1 at the wellhead, this is the energy returned on energy invested the moment the oil comes out of the well. If we were to include the energy it takes to refine the oil, transport through pipelines, and then finally truck the gasoline/diesel to individual filling stations this decreases the EROI even further. And, we haven’t even considered the cost of energy on maintaining the infrastructure. What’s the use of having gasoline or diesel if you don’t have good roads and bridges to drive on? When you start to add all these additional energy costs to the EROI equation you find that as times goes by there is less and less net energy left for the economy in general.



Here is a graph of Global EROI from 1992 to 2006:
EROI for Global Oil and Gas production

(Source:reprinted by David Murphy-theoildrum.com)





The authors of the paper, previously cited, used 3 data inputs from the EIA (Energy Information Agency), the British version of the EIA, and John S. Herold Inc., the worlds leading independent researching firm on energy valuation and measurement, to get their EROI figures. Even though there has been some volatility in the figures, the overall EROI ratio has declined from 26:1 in 1992 to 18:1 in 2006.



Furthermore, to get a best estimate of future EROI, they took a linear extrapolation of the trend and forecasted it between the steepest and more gradual trends. According to the paper:



Our results indicate that indirect energy use (the energy cost of materials and supplies) represents 11% of total energy input in 1992 and 9% in 2006, with an average of approximately 11% over the entire study period. If the EROI for global oil and gas extraction continues to follow the trend that is has over the period of this analysis, andif a linear extrapolation of that trend is appropriate, then the EROI would drop to 1:1 in about three decades. [2]



Linear Extrapolations of Historic EROI Trends



(Source: reprinted by David Murphy-theoildrum.com)



The black solid line represents the trend line of past global EROI plotted into the future. Both black dashed lines represent a steeper and more gradual trend. As you can see, the global EROI oil and gas production figures from 1992 to 2006 have been superimposed on the chart to give an estimation of hitting an EROI of 1:1 by approximately 2036. This is about a decade and a half after the United States will supposedly reach its EROI of 1:1.


What’s the Big Deal about an EROI of 1:1?



Well, that’s the real clincher. The United States and most of the western world has been built on cheap and abundant oil with a high EROI. When we were extracting oil at 100:1 down to 30:1 there was plenty of net oil left to supply the growing economy. Now that the United States EROI is only a fraction of its once formal self, there is far less discretionary oil available to the economy…hence the rise of the price of a barrel of oil to $140.



An EROI of 1:1 means that there is no net oil remaining after exploration, development and production is considered. It becomes a zero-sum game. That isn’t the worst of it. Once you figure in all the other energy costs of refining, transportation and maintenance of the infrastructure system for a modern economy to be a sustainable one there has to be a minimum EROI of 3:1. If you want to bore yourself with the details of why a 3:1 is a minimum EROI for a modern society to survive, you can read “What is the Minimum EROI that a Sustainable Society Must Have?” [3]



Has the light gone off in your head yet? Once the USA and the world hit an EROI of 1:1 -- it’s game over. We have passed a sustainable 3:1 ratio for a modern economy. This has serious consequences to many facets of our society. This is what most economists and analysts are missing in their forecasts. They are getting in front of television cameras and writing online articles, predicting where the economy is heading without understanding the most fundamental aspect… the EROI. They are in fact just rambling on without a clue. I call it “BLABBERING IN A VACUUM”.


Conclusion



In my opinion, EROI will prove to be one of the most important aspects in understanding where we are headed in this global economy. As the EROI ratio declines in the future it will put a severe strain on mining, manufacturing and production in the world. EROI will affect precious metals, industrial metals, agriculture, real estate, the US Dollar, all fiat currencies, stocks, bonds and just about everything else one could imagine.



Economists and analysts talking about green shoots, a bottom in the recession, and a return to the good old days are totally incompetent. The continued blabbering never ceases to amaze me. The huge debts attached to the public and private sector in the United States will never be paid back; they are nothing more than a huge Ponzi scheme. Printing US Dollars might allow the grand economic iIlusion to continue for a brief period longer, but the ultimate extinguisher of debt won’t be gold, as Mr. Antal Fekete reminds us, but rather the lowering of the EROI ratio.



Don’t get me wrong, I am very bullish on Gold and Silver. The lowering of the EROI ratio makes precious metals even more bullish far into the future. Once the world figures out that in a declining EROI environment debts will be increasingly difficult, if not impossible, to be paid back; the entire US Debt Market will implode. There will be a great avalanche of investors stampeding out of Ponzi debt (i.e. US Treasuries, US Bonds and US Dollars), and into tangibles -- especially Gold and Silver.



In future articles, I plan on writing how the EROI will affect different individual markets. My next article will focus on EROI and its affect on the mining industry, especially with regard to silver in a response to Bob Moriarty’s recent article, “Mexican Silver”. Mr. Moriarty says silver won’t hit $100 an ounce unless we go back to a gold standard. He states that Mexico has so much silver, the country has barely been scratched. Although I am on the same side as Mr. Moriarty when it comes to gold and silver, he fails to understand what EROI will do to future silver production. Even though there may be a lot of silver down in them thar hills, you need energy to get it out.



Energy which is actually Net Energy, becomes increasingly more expensive and less available in a falling EROI environment.



By Steve St. Angelo



sst.angelo@gmail.com



Reference





[1] Net energy from extraction of oil and gas in the United States, by Cutler J. Cleveland, Energy, Volume 30, Issue 5, April 2005, Pages 769-782



[2] A Preliminary Investigation of Energy Returned on Energy Investment for Global Oil and Gas Production, by Nathan Gagnon, Charles A.S. Hall, and Lysle Brinker, Energies 2009, 2, Pages 490-503



[3] What is the Minimum EROI that a Sustainable Society Must Have?, by Charles A.S. Hall, Stephen Balogh, and David J. R. Murphy, Energies 2009, 2(1), Pages 25-47



-- Posted Tuesday, 18 August 2009 | Digg This Article | Source: GoldSeek.com