Also popular: Is the Shale Bubble already beginning to burst?

For several years now mainstream publications have been filled with stories about the amazing boom in crude oil production coming from so-called shale basins. As the story goes new hydro-fracking technologies are making it possible to harvest new sources of oil from "tight oil" formations like the Marcellus shale. As the mainstream media has put it, there is a "revolution" in domestic American oil production that is changing global energy markets. 

There is reason for optimism. For the first time in years, American production—the total amount of oil coming up from all the nation's oil wells—is rising. The peak in production of conventional crude oil in America was in 1970 when daily production hit 10.5 million barrels a day. Since then production has generally fallen. Production declined after November 1970 until the mid-1980s, when new production of crude in Alaska and deeper waters of the Gulf of Mexico temporarily stemmed the decline in conventional production. A so-called "secondary" peak in American production occurred then. But as the big old onshore conventional fields continued to give way, as production moved further out into the gulf, production began to decline again by the end of the '80s, falling all the way through to the mid-2000s when American domestic production dropped to just 5.5 million barrels a day. Since then the shale boom has stemmed the declines, and production began to rise again. But this current increase in production is limited. This is the "tertiary" peak in American production according to peak oil activists. The current rise in production will only last so long, is already giving way according to the latest thinking.

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Recently, a number of commentators have begun to question the shale "revolution", have begun to point out that a more accurate phrase might be shale "bubble."  Canadian geologist David Hughes has issued a couple of key reports pointing out that the output from unconventional shale oil wells plummet dramatically after the first three years. The rock in shale basins is unpermeable, unporous—which is why they are only being tapped today, now that the conventional, easy-to-access oil regions are in production. Unlike the convention wells of yore, some of which have produced for 30-40 years, the average depletion rate of wells in the Bakken Formation are 69% in the first year and 94% over the first five years. The best locations in the shale regions have been drilled and depleted. It will not be long before the majority of shale gas basins in America begin to decline production. OPEC's World Oil Outlook (WOO) 2013, suggests US tight oil, including natural gas liquids, could reach 4.9 million barrels a day by 2018, before declining in the years after. That is, the shale boom, really a bubble, is already beginning to burst.

This week, popular financial site CBS Market Watch ran a story on coming investment trends in the stock market—0ne of the stories, "The Happy Story of Oil Turns Sad” gets to the point. This morning, Bloomberg notes that legendary oil trader, Andrew John Hall, founder of Astenbeck Capital Management LLC, is now putting his money down on the end of the shale boom. Apparently, he has a big bet that the price of oil going back to $150 in a five years or less. Which would be bad.

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It was good ol’ Shell Oil geophysicist Marion King Hubert who pointed out that as the harvest necessarily moved on from easier-to-exploit sources of oil to more expensive sources of oil the economic machine would seize up. The price of oil rose to allow the more unconventional sources to be mined. The high prices would short circuit the economic machine. as is, arguably, happening today. If oil goes back to $150 a barrel in the years ahead, count out any kind of economic recovery. If oil spikes again, the economy will slow and sag as it did in 2008 (when oil went to over $140). Consumers pull in their spending to buy energy. The recession returns. Many more people wake up to the fact that the economy is now trapped in a now permanently, sluggish, slow-growing cycle of “price spike-recession-recovery-price spike-recession.”