The Winter of Misdirection

–You could describe it as a clever exercise in strategic misdirection. But upon closer inspection, the deal the Greeks have signed with the EU is all about giving bankers time. Time for what? Time to prepare their balance sheets for an inevitable Greek default of course!

–The moral of the Greek story is that the accumulation of large debts robs you of your self-determination. This is true for individuals. It’s true for nations. The more you owe, the less free you are.

–But let’s leave the philosophy of debt aside for a second. Everybody is conning everybody in Greece. The private sector is angling to foist off its Greek bonds on European central banks. That would leave tax payers with the ultimate bill for Greek default. The French and German banks with exposure to Greek debt now have a little covering fire to beat their strategic retreat.

–As for the Greeks, they have signed their sovereignty away to Europe. “The Greeks’ sovereignty will be massively constrained,” EU strongman Jean-Claude Juncker told the German magazine Focus. He means the Greeks will have to do what they’re told in order to get the final $15 billion from the first bailout and any second bailout.

–“Do what you’re told.” That’s what it comes down to as the globalisation of finance wears down the Welfare State. The Greeks have gone along with it for now. You wonder if that will last.

–Give them some credit, though. They’ve managed to get the European Union (EU) and the International Monetary Fund (IMF) to open their wallets one more time. And even the EU realises Greece’s finances are on shaky ground. If Greek economic growth is just a smidgen below what’s modelled in the plan, its debt will grow even more.

–The U.K.’s Guardian reports:

“The European commission conceded on Saturday, after the two-hour Euro group teleconference agreed the fifth tranche payout, that any plan to cut Greece’s debt of 160% of economic output would be at risk of being derailed by internal unrest or external economic conditions. Growth just one percentage point below expectations, it said, would push Greece’s debt to 170% of GDP, and rising, past 2020.”

–The EU’s mechanism for keeping the private sector interested in Greek debt is so Byzantine and complex that it defies an easy description. It involves Greek debt holders rolling over a portion of their debt, a special purpose vehicle (SPV) and a lot of coupons. The simple explanation is probably the best one: it’s an elaborate stalling manoeuvre designed to give banks time to prepare for Greece’s inevitable default.

–The financial markets haven’t seen that yet. It means you’ll probably see a gentle rally in stock prices as people scratch their head trying to figure out what’s going on. By the time they figure it out, it will be too late.

–While Europe is busy trying to prevent a debt reckoning, Saudi Arabia is taking a walk down memory lane. Reuters reports the Saudis are studying whether to begin drilling again at the very first well ever spudded in the kingdom. We wrote about the discovery of oil in Saudi Arabia in our Revolution in the Desert report.

–Dammam #7, the well in question, was renamed the “Prosperity Well”. It produced 32 million barrels of oil over its lifetime. That’s pretty modest in the context of 65 billion barrels pumped at Ghawar, the world’s largest conventional oil discovery ever made. So why bother?

–The next trillion barrels of oil the world uses are going to be harder to find and more expensive to produce than ever before. A good place to look for oil is where you’ve already found it. Enhanced recovery techniques, like the injection of carbon dioxide into underground formations, make it possible for old oil wells like the “Prosperity Well” to be productive again, even though that well was first discovered in 1938.

–The Saudis are in the middle of what they call an Accelerated Transformation Program to transform their energy industry. One part of that plan is recovering more oil from existing fields thought to be played out. Another part is the development of its own shale gas resources in order to power its electricity grid, its desalination plants, and its petrochemical industry. And the strategic part of the plan is to build a new “energy super highway” with China.

–We discuss the implications of this plan for Australian investors in Revolution in the Desert. But as we predicted, the fact that a new shale gas industry in the Cooper Basin is one of our forecasts is not sitting well with some readers. Let’s have a look at some of the more emotional and less rational responses.

Do you like having clean water to drink?  Then you better watch the movie Gasland to see what has happened to the underground water supply in America before you go recommending this for Australia!  YOU WILL LOOSE [sic] YOUR MONEY!

–Yes, clean, drinkable water is good. If you’re basing your opinion of shale gas and fracking on Gasland, though, you need to seriously pull your head in. The famous scene where Colorado home owner Mike Markham lights his tap water on fire has been thoroughly debunked. The State of Colorado has even released an official document showing how Markham’s water well was drilled through four separate coal bed seams. The biogenic methane in his water had absolutely nothing to do with hydraulic fracturing.

Here’s another succinct one…


–This seems to be the main emotional objection to shale gas production, that it’s a destructive attack on the environment for the sake of profit by oil and gas companies and their immoral shareholders. As we said in Revolution in the Desert, it’s unlikely a shale gas industry would ever develop in Australia if all the negative environmental consequences alleged against it were true.

–Most of the criticism is simply hysteria driven by an anti-growth, anti-industrial, and anti-fossil fuel world view. If someone wants to hold that world view, that’s fine of course. But they ought to be more candid about their motivations and more accurate with the facts. As you can see from the image below, the geologic formations in which shale gas is trapped are much further below ground than the coal-bed-methane formations being drilled in Queensland. This doesn’t guarantee methane won’t leak from the drill pipes into underwater aquifers. But it does mean gas-bearing shales in the Cooper Basin (and other Aussie basins) are not going to compete with agriculture or ranching in the same way they might in Queensland. This is one reason we reckon shale gas is going to attract capital in the coming years: if it happens it will happen first in places where oil and gas production has been going on for decades.

Source: U.S. Energy Information Administration

–And finally, a much more suspicious criticism…

I seriously doubt the suggested goodness in your ideas around Fracking mate. Ive been doing enough research, and know plenty of others who are VERY actively involved in areas that are earmarked for exploration and drilling on the north coast of NSW, to know that you are not speaking the truth wholeheartedly, and that is a serious slight on your good name sir. Assumption based on biased preferences ($) wont cut it here. Think about it.

Fracking is ANYTHING but “good”. Do some more research and stop listening to so called “Experts” out of Texas, Look at their track record, just look at the state of that country!   You are starting to seem a bit desperate and greedy, and now you are in my country flogging greed and gambling beyond logic, dont go selling us out by promoting the strip-mining of our good clean country, that would be a sad day for us all. Im sure you could convince some other greedy thugs to get on board with you, but its on your head if it all means that we end up paying through the nose for clean drinkable water, if that can happen…but wait!!! Im sure you’ll have shares in that gig too, right?? Im almost disgusted at where you are looking like coming from…

Our water table is much more important than LNG bets. How is it that Gaslands is a hoax? Why would a guy go out of his way to compile so much info just to cause problems for a nice clean industry?  What do you have to counter all that info? If you have anything, I suggest you present it sooner rather than later. Because innuendo and suggestion will only roll so far in this country, we are not quite as easily led here…


–We never said Gasland was a hoax. But now that you mention it, if you think Gasland is anything more than an anti-fossil fuels piece of propaganda, then you are obviously misled a lot easier than you think. And if you think it would be good business or good ethics for us to advocate an investment idea that destroyed Australia’s drinking water for the sake of selling a few newsletter subscriptions, you’re not really thinking, and you don’t really know us.

–The emotion behind the opposition to fracking is real. There’s no doubt about that. But the quality of the criticism is more emotional than rational. Our goal with Revolution in the Desert was to tell readers about the big changes taking place in the world’s energy markets. Hydraulic fracturing has been around for 60 years. Its application to shale formations has been nothing short of revolutionary.

–But there’s clearly a strong opinion out there that hydraulic fracturing is the latest manifestation of the pure greed and destructiveness of oil companies willing to pursue profit at any cost. The real core of the criticism, we suspect, is that continued use of fossil fuels is not part of the Green agenda, or of some people’s vision of what a “sustainable planet” would look like. Fossil fuels and industrial growth – the dynamic duo behind the vast improvement in standards of living over the last 100 years – are the enemy of the sustainability ideology.

–We also readily concede that a lot of people have very sensible and genuine concerns about the long-term effect of resource extraction techniques on the economy and on the land itself. We’re pretty sure that when the hysteria subsides and people study the facts, they’ll see that this is just another extraction technique to deliver fossil fuel energy. Nothing more. Nothing less. When it’s done correctly, it’s safe. When it’s done recklessly, it’s not.

–But won’t the extraction of fossil fuels lead to even greater depletion? And won’t we increase dependence on them just as we begin to “run out” of them? And shouldn’t we be planning which three billion people to kill in order to make the planet more sustainable? More on those issues in tomorrow’s Markets and Money.

Dan Denning
Markets and Money Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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6 Comments on "The Winter of Misdirection"

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Nathan Chattaway
Hi Dan, “Fossil fuels and industrial growth – the dynamic duo behind the vast improvement in standards of living over the last 100 years – are the enemy of the sustainability ideology.” Sustainability isn’t really an ideology so much as it is an imperative for our survival. It’s seen as an ideology to those people who are primarily concerned and occupied with getting more stuff for themselves. You really need to be careful when making sweeping statements like “the vast improvement in standards of living over the last 100 years”. That is your opinion. It is a majority opinion, but… Read more »
Greener World

…yeah man!


>Define happiness. It’s not easy, but it can’t be measured by GDP.

How about average life span?

I’ve mentioned my book that in part revisits themes of Jeffersonian free enterprise and non socialist agrarianism. Dan might reflect on how his faith in fracking sits with the Jeffersonian vision. It appears to me that he joins with those that continually ignore the lessons learned when interfering in unmodelled complex systems like that affecting ground water. The issues with the CSG process were identified early by the Russians. My point is that Dan should not throw the red label at true conservatives but stick to the facts and not misrepresent the unknowns as knowns (antitheses of “known unknowns”)in an… Read more »
Nathan Chattaway
Hi Lurker, Average lifespan is not my idea of the definition of happines. How do you know what *your* specific lifespan will be, because some arbitrary boundary or classification you submit to tells you what the average might be? Are you a white, male, Australian? You must be happy that on average, you’ll live to 73 and have a 40% chance of a heart attack before 55 on the way. Don’t think so. Tell that to all the white, male Australians who died in their teens and twenties in both world wars. Thinking about how far away the point at… Read more »
Hmmmmm, methinks that like most americans, (particularly those that are far removed from a working/rural environment), you believe that big business can do no wrong. It can and does, with impunity in most instances and government connivance, because all politicians are dependent in some form or other, on donations for their political survival. Gasland presented such a level headed, non hysterical story line, that even if a sensible person discounts %50 percent of it as exageration. Then it still leaves a whole bucket load of accusations that haven’t been answered satisfactorily in way whatsoever by the companies that practice it,… Read more »
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