Don't fall for the shale boom hype

Chris Martenson: I think we're going to have to go with the nasty shock at this point. The political will just isn't there. Recent events have really confirmed for me that Washington, D.C. just doesn't get it. They really want to believe in the story that the US is a new energy powerhouse; just don't want to look at the complexities that are actually involved in the story at this point in time.

So will we change through pain or insight? Those are the two main avenues of change, either at the individual or cultural level. I truly believe that pain is probably the most likely way we're going to change in this story. Maybe not - hope springs eternal - but from a betting standpoint change will follow pain.

James Stafford: What do you see happening with the oil market in the coming, say, three to five years?

Chris Martenson: Despite all of the hoopla about tight oil, which I think has been oversold by the way, I remain focused on the fact that for whatever reasons, world oil production has been effectively flat for six years running despite a tripling in the price of oil. Brent crude remains solidly over 100 a barrel, and 2012 will be the highest yearly oil price on record for global oil.

So my ideas here are that oil's an utterly non-negotiable necessity of modern life. Demand for it is going to grow further on the world stage. New oil discoveries all have a marginal cost of production that ranges from 60 bucks on the low end per barrel to 100 dollars per barrel on the high end. What this means is that my new floor, for the price of oil, is somewhere in the vicinity of $70 to $80 a barrel. That's my low end target.

On the upper end, so much depends on whether the world economy finally recovers, which is looking increasingly unlikely, or whether there are further geopolitical difficulties in the few remaining productive oil basins, notably West Africa and the Middle East. Should either or both of those regions see their oil production shut in for any length of time, I can easily see the price of oil doubling from here to $200 a barrel, with very dire effects on the struggling world financial system.

James Stafford: What are your thoughts on the situation we are seeing with declining net energy returns?

Chris Martenson: This is really the important part of this conversation. I think it's a subtle idea, but it's actually the most important one here, and that is that net energy returns are what we run our society on. And the net energy returns we're getting from these new finds are a fraction of those that we enjoyed in prior decades. So that surplus energy left over after exploring and extracting energy, that's the stuff on which our complex, just-in-time economy runs.

With less surplus or net energy, there's just less left over to do other things with, such as growing our debts--at nearly double the rate of underlying economic growth, which is what we've done for the past four decades. Or shipping billions of economic items tens of thousands of miles from low cost labor markets to high profit consumer markets. Those activities require net energy, and that's the part of this story that's really missing, that even if we have these large finds, the tight oil shale plays, the heavy oils, the ultra-deep water finds, the net energy we're getting back from those is just a fraction of what we used to get.

James Stafford: With cheap oil looking like a thing of the past, what other energy sources should we be looking at developing? What are your thoughts on nuclear?

Chris Martenson: I believe nuclear can be done much more elegantly and safely than we're currently doing it. And I am intrigued, also, by the possibility of thorium reactors. There are a variety of developments that we could look into. It will take quite a bit of investment, and there are a number of issues to be worked through, clearly. But nuclear does provide us with the possibility of having very low emission, very cheap electricity, which is important.

And if we're going to talk about how we need to move towards electricity, which I believe we do, the thing we need to solve first is storage. We need to figure out how to store electricity.