My Daughter

My Daughter
Remember when you learned how to do this?

Wednesday, November 26, 2008

Denninger to Congress: The Truth Ben & Hank aren't Telling

Congress, please listen: 

The Truth is that we now require about $5 of debt to generate $1 of GDP. 

The Truth is that the reason you were not asked to approve $700 billion to capitalize 10 new banks, thereby creating seven trillion in lending capacity is that the economy cannot soak up that new lending capacity; each dollar of new debt generates almost no aggregate GDP. If this were not true then that would be the logical and effective cure for the 'credit crunch" - if the borrowing capacity and impact on GDP necessary to help existed. They do not. 

The Truth is that you were lied to about the purpose of the TARP/EESA, because what you were sold was mathematically impossible. It is supposed to be unlawful to lie to Congress. 

The Truth is that the purpose of the EESA/TARP is to rescue the bankers on Wall Street and elsewhere who have made imprudent loans, all of whom are aware of the declining value of a dollar of debt in the economy - a fact they have intentionally concealed from you. The bankers (including Hank and Ben) all know how to do this math, and they are well-aware that the best they can do at this point is to "Rob every dollar you can while the getting is good, and hope they don't figure it out before you get the cash." 

The Truth is that once you reach a level where a dollar in debt will not support a dollar in GDP you must inevitably either pay down or default that excess debt. Unfortunately, in this case we must pay down or default approximately 80% of the aggregate public and private debt in the United States in order to return to a standard were $1 in debt will generate $1 in GDP. Defaulting or paying down less will "turn the clock back" to a degree, but does not change the ultimate outcome. Only returning to $1 of debt returning $1 or more of GDP, and holding the total level of debt outstanding at or below that level, results in a stable monetary system. 

The Truth is that if we reach the point where a dollar of debt has a NEGATIVE impact on GDP The United States monetary system and government will implode. The reason for this is mathematically obvious - each additional dollar of borrowing beyond that point actually contracts GDP instead of growing it; this is, for all intents and purposes, a "black hole". It is that event that has led to the implosion of other monetary systems such as the hyperinflationary implosion of Argentina.

Wednesday, October 29, 2008

Oil Price: Dead Cat Bounce

You may have heard this little nugget of wisdom referring to market behaviour as prices fall.

"Even a dead cat will bounce if it falls far enough".

It works the same way in reverse. Take a peek at oil's roller-coaster ride over the past decade. link Expect price volatility like never before seen... if Peak Oil is a credible concept.

It's just Adam Smith's cold, dead hand enforcing supply & demand economic behaviour. The recent meteoric fall in oil's price should be at least as disturbing as it's assent... it heralds the violent correction to come.

These swings will devastate hydrocarbon alternative industries globally. With no firm economic base to ensure profitability, these fledgling oil alternative businesses will struggle for financing, and ultimately be delayed by years... perhaps decades. Imagine the downstream impact this interruption will have on our collective future.

"Drill baby drill" should contribute nicely to wild oscillations in price.

Can you say "demand destruction"?

I knew you could.

How about "poverty"?

Yeah... thought so.

Tuesday, October 21, 2008

The Coming Peak Oil Grand Depression

Posted: Mon Apr 04, 2005 10:48 pm

Yeah... in '05

The Great Depression, which began in late 1929 and lasted for about a decade, was the worst economic downturn in U.S. history, and one which spread to virtually all of the industrialized world. The coming Grand Depression will be no less far-reaching. The "roaring twenties" was an era when our country prospered tremendously, much like we have done over the last few years. And, like then, it was all due to wild speculation and inflated assets. In the 1920's, the U.S. came to rely upon two things in order for the economy to remain on an even keel: credit sales, and luxury spending and investment from the rich. 

Same thing today. 

Our consumer spending is not funded by an increase in income wages, but by an illusionary equity in our homes. In other words, all the inflation has gone into real estate prices. Prices have reached levels that make no sense in terms of traditional patterns and rules of thumb for valuation. A range of evidence suggests that at the market peak in September 1929, something like forty percent of stock market values were pure air: prices above fundamental values for no reason other than that a wide cross-section of investors thought that the stock market would go up because it had gone up. Now, real estate investors think the same thing of the housing market. 

In particular, the FED's efforts to lower interest rates have caused an asset bubble to form around real estate. People tend to over-invest when interest rates are low and when interest rates are raised to stave off the inevitable inflation, the bubble pops. That process is under way as I write this. Throughout the years preceding the Stock Market crash of 1929, the Fed did just that. The Fed set below market interest rates and low reserve requirements that all favored easy credit. The money supply actual increased by about 60% during this time. The phrase "buying on margin" entered the American vocabulary at this time as more and more Americans over-extended themselves to take advantage of the soaring stock market. Today, it is the housing market, and to some extent the stock market again. It was in 1929 that the Fed realized that it could not sustain its current policy. When it started to raise interest rates, the whole house of cards collapsed. The FED is starting to raise interest rates now for the same reason--to cool off consumer spending/speculation and reel in the trade deficit. 

One of our members, somethingtosay, suggested I "interview and learn from the people that lived and survived the great Depression of the 30's. Report back to this Web site on the wisdom they learned the hard way." Some of the following is from some old-timers I talked with recently, and the rest from interviews posted on the Internet. I will let the following quotes speak for themselves. It is a chilling account. 

Quote:
Well, everybody went on relief, and everyone raised a big garden. We raised everything from peas to potatoes and onions, and the extra vegetables we had we sold to people who didn't raise one. We lived off that garden for some time, and it was a big help. Once a month they'd give commodities out. You'd get dried beans, pound of bacon, pound of butter, dried milk, and sugar, and depending on how big your family was, was how much you got; and since we had the cow, we would trade the dried milk for coffee to people who didn't like coffee. That was supposed to last you a whole month, but that was government surplus, and they'd have a place that they dished that out; and I tell you we were so poor we had a gas stove, but we didn't even have the money to hook it up. We also had an icebox and couldn't even afford ten cents a day to put ice in it. When my son was born I'd mix his formula and put it down in the well on the rope and every time I had to feed him I would pull the rope up and get the bottle, but we had no refrigeration and everything we needed refrigerated went across the street to my mom and dad's place. When the war started in 1941, a lot of jobs were left vacant when the men left for war, so unemployment virtually disappeared after that.

Quote:
Gas was sparse, so when me and a group of buddies would drive down a hill, we'd turn off the car so we wouldn't waste gas.
Quote:
Seemed to have just enough food to eat...no leftovers...had to eat everything on our plate. Things we take for granted now, such as water and heat in our homes was something precious in the depression. All farmers had to can food for winter and they ate out of gardens in the summer on a farm, there was no money and the people had to eat from gardens
Quote:
It has affected me all my life. It made a lot of people learn how to conserve. My dad could not find work so we went to live on the farm with my dad's parents. We had no money so when we needed something we had to "make do" or do without.

Quote:
The city was affected more than rural areas. We always had food and wood from the farm, but city people had very little food or wood. They had to collect coal that dropped from the trains. Lived on a farm and had plenty to eat because we grew everything moved from town to live in Smithfield MO on a farm so that they could grow crops and have food to eat.

Quote:
African Americans suffered more than whites, since their jobs were often taken away from them and given to whites.

Quote:
Every tear I saw my mother shed was over the lack of money. All we seemed to do was to, literally, count the pennies in the house among all of us. We fought over money almost all the time, my mother would go into a panic if she could not account for every penny. Not one cent was ever foolishly spent and not one cent ever went for anything that was not vital to life. The memory that I retain to this day (77 years old) is that of my parents crying, singularly and together, about money! I remember one dinner where my mother, myself and my brothers and sister sat down to a meal. The meal consisted of 3 boiled potatoes and one slice of white bread which we divided up amongst us. I noticed my mother was not eating and I asked her why she was not eating. She answered that she was on a diet. When I was about 50 years of age it hit me that she had not been on a diet but was giving up what there was to us!

Quote:
When I talk about the essentials of life I mean just that. The list is easy to put together and here it is: 
Rent, food, but no ice cream, candy, baked goods; only the essentials, electricity, gas for the stove, clothing, medicineĆ¢€”and that was it. We walked everywhere and I do mean everywhere. If a trip was less than 5 miles we would walk it.
There are five things that seem to be predominating in all that I have read about the Great Depression: 
1) There was not one single private or public institution that was up to the task of coping with the depression. 
2) The United States suffered more than any country in the world since we were the most industrialized. 
3) People had to grow much of their own food in gardens. 
4) There was a mass exodus to the country to live with farm relatives. 
5) Money was seldom seen. 

Are we headed there once again as peak oil/gas inhibits our ability to grow the economy, provide new jobs, and feed--clothe--house the new comers? Even without peak oil, this seems to be in the cards. And without an abundance of cheap energy to grow our way out of it, the forecast for the future is ominous.

Thursday, September 25, 2008

Bush Bailout Plan is Unconstitutional debt servitude

The Thirteenth Amendment to the United States Constitution prohibits "debt servitude." The 13th Amendment prohibits the use of "fear" and "intimidation" to coerce payment of debts. The prohibition of debt servitude includes peonage. For a primer, read this wiki on it:

13th Amendment Wiki

The Bush plan violates the 13th Amendment, because it is a plan to socialize the debts of wealthy onto the backs of the taxpayers using fear tactics. On the one hand, the President argues a bailout is needed to prevent "financial panic", but what does that mean? Bush, in his address to the nation, defined "financial panic" as a "recession."

Quote:
And ultimately, our country could experience a long and painful recession.


Text of Bush' speech

A recession is a normal part of the economic business cycle. America has gone through many recessions. The normal recession last about 6-9 months, the longest recession since 1953 lasted 18 months.


Quote:
On average, the market peaks about six months prior to the start of a contraction and begins to decline more aggressively as the contraction begins. Based on the 9 previous recessions since 1953, the market bottomed an average of 6 to 7 months into the recession (the average recession has lasted 11 months). But this average masks a lot of variability. There have been important bear markets that lasted longer. The market bottomed 18 months after the beginning of the 2001 recession and 10 months after the start of the 1973 recession.


A recession, even a severe recession, doesn't justify pushing capitalism aside and socializing debt of the wealthy and forcing taxpayers to pay for it long after the recession is over.

This bailout is not in the best interest of the taxpayers and is not intended to help them. The fear mongering isn't justified. For example, last night Bush tried to scare the taxpayer by saying if the bailout wasn't approved immediately, their local banks might close. Here's what Bush said:

Quote:
The government's top economic experts warn that without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold:

More banks could fail, including some in your community.


Text of Bush' speech

This isn't true. The bailout won't prevent community banks from failing. The problem is, the subtle lie is, the bailout is not intended to help the local banks and won't help the local banks. In fact, for over a year now, the FDIC has said that in 2009 they expect numerous regional bank failures, and the causes of these failures will not be alleviated by this bailout plan. In fact, as Bush is asking for $700 billion bailout, the FDIC, which insures the banks, is asking for a $150 billion in insurance based on an its estimate that 100 banks that are going to fail next year.

Bloomberg

Further, this banking expert says the banks can weather this storm just fine, that the bailouts aren't necessary.

Quote:
So you oppose the idea of the government putting preferred equity into solvent but troubled banks that cannot raise capital on reasonable terms?

Ely: Yes, it is not necessary, even now. There is absolutely no need for the Treasury to have the authority, as you suggested, to "inject capital into solvent banks that are temporarily unable to raise new capital." If a bank truly is solvent, it can raise additional capital or sell itself, if its present owners are realistic about what their bank is worth. The reason solvent banks have a problem raising capital, or selling themselves to a stronger bank, is that they set their price too high, as did AIG. As an aside, I am glad to see AIG's shareholders getting whacked by the warrants associated with the Fed's taxpayer's loan to AIG. There is absolutely no need for the taxpayer to subsidize banks so they can stay independent, provided no barriers are erected to prevent new entrants into bank or specific banking markets.


This bankinNaked Capitalism

So, Bush is full of crap. He is fear mongering. He is using unjustified fear of calamity to coerce the American people to pay the debts of the wealthy, which is classic indentured servitude prohibited by the Constitution.

Monday, August 18, 2008

Relocalization and Cottage Industry

I started this all off by thinking about food preparation. I was packing corn in Mylar bags and got to thinking that none of my neighbors were doing this, and that few of them would know what to do with it, and that even fewer have the tools to do much with it. This is where it took me... Having spent the last few decades living in cities, eating fast food, prepackaged TV dinners, and food so heavily processed they can't identify the ingredients, a great many people have lost the ability to prepare basic meals from fundamental ingredients. Corn, rice, wheat, oats, and beans are simple foods. They are available cheap, in high volume, and store for years when properly packaged. There are plenty of people who are not able to identify whole wheat. Hand someone a bag of whole dry corn, they have no idea what to do with it.

Rice, on the other hand, has a chance. I was looking online at some recipes for beans. One recipe said something like open the can, cut some hot dogs, mix the hot dogs and beans in a bowl, microwave for 2 minutes, serves 4. years ago I was training a kid to be a shrt order cook at a diner just outside albany NY. We had an order for 2 eggs over easy with some toast. I told him to put two eggs in a pan, buttering it first, then 2 slice of bread in the toaster. He buttered the pan, put in 2 eggs, then showed me to see if he had done it right. I said "Thats good with the butter, but you'll need to crack the eggs open. I though it best if I took care of the eggs, he moved on to the toaster. After a few seconds I hear the guy going "Ouch, Ouch!" It was a conveyor belt toaster, he did not understand that you simply set the bread on the belt. He was singing his hands holding the bread inside the toaster. Simple skills have been lost. Much of the loss is a result in the simple nature of modern appliances. It used to be common for every home to have a woodstove or fireplace, a couple of cast iron skillets or pans, and every town had a grain mill. The loss of the electrical grid will remove the ability to cook a meal from a great many homes in the developed world. If you don't own a grain mill, how many of your friends have one. Where is the nearest one to which you can gain access. What can you make with dried whole corn and or beans?

In the absence of electricity, how many people out there can heat a quart of water to 160 degrees? Its not that many. There are some people who have the ability, campers, camp stoves, bbq grills, some woodstoves out there as well. I can see these items being in high demand in a crisis situation. Bread is a common staple. Local bakers are still around, although the big box stores with a bakery department are surely cutting into the market. I live in a town with 10,000 other people. I know of 1 small bakery downtown. Where is the bread made that the big box stores stock? I have no idea. How many people do you know who have made bread before? The ability to bake bread in a crisis situation would be a skill in such demand that I don't know what to predict. This of course assumes ground wheat, oil, sugar, salt and yeast is available, along with a working oven to bake it in. To maintain bread production a community would need everything already in place to last a considerable period or the ingredients and energy brought in regularly. Equipment which operated on locally available renewable energy would be required at the very least in the event the electricity goes down. In a Post Peak Oil collapse, everyone returns to gardening to replace the lost goods from failed distribution systems. How many of these people will be able to raise enough tomatoes, as well as other ingredients, and produce tomato sauce.

How many have a cooking device which will allow them to do so if they knew how? Preparing for the Future is a tremendous project, requiring tools, expertise, systems, equipment and skills for even the most basic of self sufficient production. The ability to raise and grow food. Garden tools, arable land, water, energy to move the water, the know how to raise this food in a sustainable, duplicatable manner. Harvesting and processing the food, and storing it. Pressure canners, as well as jars and lids, dehydrators, sinks, stoves, pots and pans, mills, grinders, knives, and of course all the tools and supplies to clean up and maintain sanitation. Cooking equipment, be it stoves, ovens, open fires, smokers, BBQ pits, pots, pans, griddles, and a myriad of smallwares are essential to a diet based on local foods coming ripe at different times. How many people do you know who can make their own cheese, flour, butter, vinegar, or wine, have all the equipment in place and are able to grow all the ingredients in their backyard? Don't get me wrong, there are people out there with some ability. Soap and candle making is a hobby craft, basket weaving, pottery, cooking, organic gardening as well. There are those who tinker around in the shop with metal sculpture or blacksmithing, woodworking set up with great skill and a keen eye for detail. Some people make quilts, dresses, even hats. Of all these people, what percentage would be able to continue their skills without electricity and a distribution system to bring them supplies and actuate equipment? A crash that is slow enough to motivate people to get deeper into their crafts to such an extent that they are able to create their products from local materials is a best case scenario.

Small economies and team work can help. One guy cuts down trees, makes lumber and firewood. Another builds fences and cabinets. Someone raises sheep for meat and wool, another takes fresh wool and turns it into yarn, then socks. Someone raises bees for honey and wax, others make candles and mead. The population needs time to relearn crafts which were performed locally a century ago, lost to the ravages of machines and industrial production. A town without a beekeeper has no honey and no candles. Maybe there is a beekeeper in a town close by. Sure their may be horses, but the closest farrier is 50 miles away. If the farrier needs charcoal, he's hoping there are plenty of trees around and someone who knows how to produce charcoal, with the equipment in place. There are seamstresses out there who can make a suit of clothes in her home, but she needs a source of thread, fabric, and parts for the sewing machine. Farmer John can raise the wheat, mill it, even bake the flour into bread. He still has to get it from the farm to the customer, and needs a system of money or barter in order for his activity to be worth his effort.

Relearning a single skill for a cottage industry is all well and good but for that industry to be viable, a support system needs to be in place. While barter can replace money as a means of trading goods and services, there needs to be something out there to trade for. Farmer John is not going to spend all his time baking bread in order to give it away. He'd do better spending some of his time canning tomato sauce or cutting firewood for the winter. An entire community needs to relearn a wide array of skills in order that ancillary products and services are available. It takes time to learn a craft, and the right tools and equipment to do it. Whats more, the tools equipment and skills need to be useful in a pradigm of energy depletion. You can't run to Sears, buy a bunch of tools and start building cabinets unless you already have an understanding-even a basic one-of the steps involved. To keep going, your tools will need to work without elecctricity or fossil fuels. People can learn, they do it all the time, but the awareness of what they will need for the future is not in place on a scale that will be needed to continue any sort of localized barter based economy. The firewood guy will eventually have to give up his chainsaw for an axe, and give up his F250 for a team of horses to haul the logs out of the woods, otherwise there is no more firewood. Furthermore, someone needs to have axes and teams of horses in place ready to sell.

How then, do we move backwards? How does a society, with most of the people having no clue of future events, move from being dependent on a vast and intertwined network of goods and services produced by the indigenous people of whereever, to a local resource and renewable energy based society, and do so in the timeframe available (20-30 years using the most liberal extimates, 10-20 with resonable estimates, 5-10 with worst case scenarios), all the while prices on everything increasing, world politics getting more militaristic, governments continuously reducing civil liberties, shortages of goods on the market and weather patterns resembling bad Hollywood movies? I think the world will simply explode under the pressure.

Thursday, July 03, 2008

Environmental Services Industry Booming

So I have been tracking the activities of industries directly related to peak oil, including associated environmental remediation markets as an indicator of where we really stand in confronting the massive environmental challenges ahead of us.

If there is anything that the so called "free market" system does well, it's getting on top of potentially profitable trends. By examining these commercial efforts we can deduce the level of engagement on a variety of environmental topics, as well as make some meaningful predictions about the future based on the trend analysis.

I like to examine primarily environmental remediation & disaster prevention companies which I consider to have much more real-world impact than stuff like indoor mold remediation for example. These industrial caliber outfits handle things like cleaning up hazardous material sites, radioactive remediation, environmental compliance monitoring etc...

While the governmental side of environmental services is an influential and useful contribution, it can never match the power the market has to transform the landscape of a given market.

Make almost anything profitable, and business will make it happen... guaranteed.

Peak Oil means the smart money goes into oil-alternative businesses, for very obvious reasons. A person could look at Peak Oil, and conclude that there are significant opportunities in environmental services, based on the idea of servicing the needs of oil-alternative companies, who in many cases, will have painful environmental challenges to handle.

Imagine the scope of what is happening to the global energy business as companies & governments struggle with ever increasing prices for conventional oil. We will strip-mine Canada for oil... level the rocky mountains for shale... exploit our nature preserves... convert coal into oil... and on and on.

All these activities have terrible environmental consequences both in terms of destroying ecosystems, and accelerating greenhouse gas emissions from these very dirty fuel sources. Even gentle solar businesses use heroic amounts of electricity in manufacturing.

So, if my theory is correct about the market following trends, then we should see many new ventures into markets to serve these needs.

Sure enough... amazing growth in new companies & new initiatives from existing companies. There is a buying, merging, partnering frenzy going on that reminds me of the DOT com days, where an entire new market was being born in months rather than years.

Fluor, (a giant energy company), is well ahead of the curve looking at co2 sequestration technology for coal power plants, in anticipation of future demand.

Quote:
The primary focus of this partnership is to enhance the technology and to demonstrate its application to safely separate carbon from the flue gas of a coal-fired power plant. This will be the first demonstration of the technology on a coal-fired power plant. Both companies, in applying the Econamine FG+ process, will demonstrate an optimized adaptation of the CO2 scrubbing process that complies with U.S. and EU environmental requirements. E.ON brings essential experience in the operation and engineering of coal-fired power plants to this strategic partnership.


Forbes

Small & medium sized companies are re-capitalizing to expand their services in anticipation of mounting demand. USA Environment just partnered with an investment firm for exactly this reason...

Quote:
Wingate Partners and USA Environment LP (USA) have joined forces in a recapitalization of USA.

USA is a full-service environmental contractor that provides a full range of high-end environmental services. The company is a licensed contractor in 30 states that specializes in turnkey solutions for any environmental construction, remediation, industrial services, radioactive material handling, disposal, transportation or spill problem.


IVS

And so forth & so on... too many to really track, but a very clear indicator that despite their silent treatment of peak oil, many seem quite aware of what's coming.

It would be interesting to see some gross statistics showing percent growth broken down by service I think.

Your dog wants remediation.

Monday, June 30, 2008

Weekly US Petroleum and NG Supply Reports

Quote:
Prediction
Unleaded Prediction 9-May
Beginning Inv mbbl 211.9
Imports Wk/Day 9.8 1.4
Production Wk/Day 61.6 8.8
Available 283.3
Balance Wk/Day 72.1 10.3
Ending Inv Mbbl 211.20
Prod Supplied 9.3
Predicted Change -0.7



Distillates Prediction 9-May
Beginning Inv mbbl 105.7
Imports Wk/Day 1.4 0.2
Production Wk/Day 29.4 4.2
Available 136.5
Balance Wk/Day 30.8 4.4
Ending Inv Mbbl 105.7
Prod Supplied 4.3
Predicted Change 0.0


Crude Oil Prediction 9-May
Beginning Inventory 325.6
Domestic Prod 35.679 5.097
Imports 72.8 10.4
Total Available 434.079
Provided to Refineries 104.3 14.9
Ending Inventory 329.779
Predicted Change 4.179
Ref Utilization 86


I am not smart enough to predict that this week will be any different from last week. The last couple of weeks we have seen a flood of imports in both crude oil and unleaded (not distillates) and lower than normal refinery utilization, because of the high crude oil prices and relatively low refinery margins.

The unleaded inventory will be especially interesting. We should be in the time of year when this inventory is built up to take care of summer demand, and the numbers themselves suggest that there is plenty of gas around, but even with fairly strong imports of 1.4 mbpd, the demand lately has been such that with the refinery system running the way it was last week, at about 85% capacity, we will still see a slight draw down in unleaded inventory. The longer this goes on, the more serious it is going to get.

In crude oil, I have assumed above the same low inputs to refineries, high imports (despite the pricing) and the same domestic production we always have, and the result is a pretty strong build.

In distillates, we saw a little bump in demand last week, with spring planting just underway, and very low net imports, and if that same thing happens this week, with typical production levels of 4.2 or so, we will see this inventory break just about even.
Code:
Closer to Reality

pup55 28
Analysts 26
Tie 0
Avg 0.518518519


Directional Correctness
pup55 36
analysts 41
ttest 0.028524

Sum of Weekly Predictions
pup55 Analysts Actual
Unleaded 12.187 -0.125 4.1
Distilla -19.537 -13.820 -21.5
Crude 34.839 32.660 36

Avg Difference from Reality
pup55 analysts t-prob
Unleaded -0.426 0.222 0.07
Distilla -0.103 -0.404 0.22
Crude 0.061 0.176 0.34

Deviation from Reality (Abs Value)
pup55 analysts t-prob
Unleaded 1.601 1.536 0.41
Distilla 1.168 1.180 0.48
Crude 3.844 3.021 0.02

pup55 Forecast Correctness
Production
Avg Exact
Unleaded 0.019 4
Distilla -0.013 5
Crude 0.007 18

Imports
Avg Exact
Unleaded 0.025 5
Distilla 0.000 7
Crude 0.026 1

Demand
Avg Exact
Unleaded 0.104 2
Distilla 0.047 3
Crude -0.061 5



Here are the stats for the year-to-date. Despite being slightly ahead of the analysts on closeness to reality (over 50%, which as we all know was my long term goal) the pesky analysts are beating me on average deviation from reality in crude oil and unleaded, by a statistically significant margin.

The reason for this is that my little unleaded demand model underestimated demand consistently in Jan-March (it has been pretty close the last couple of weeks) and also, the lack of ability to predict crude oil and unleaded imports. Of the first roughly six months of the year, I have only managed to correctly predict crude oil imports once.

Other than that, pretty good. Now that I understand the seasonality a little bit better, it should be possible to refine this demand model some.

The crude oil imports are up to the Saudis, Mexicans, and weather conditions in the Gulf, so I do not feel too bad about that.

Thanks for your help as we continue to try to understand this important data a little better, to keep with the original goal of the thread, which is to use these reports as a potential indicator that the effects of PO are being felt in the US.

Top 20 Oil Consuming Countries in the World (2007).

Country Consumption (MBD)

1. USA- 20,698,000

2. China- 7,855,000

3. Japan- 5,041,000

4. India- 2,748,000

5. Russia- 2,699,000

6. Germany- 2,393,000

7. South Korea- 2,371,000

8. Canada- 2,303,000

9. Brazil- 2,192,000

10. Saudi Arabia- 2,154,000

11. Mexico- 2,024,000

12. France- 1,919,000

13. Italy- 1,745,000

14. UK- 1,696,000

15. Iran- 1,621,000

16. Spain- 1,615,000

17. Indonesia- 1,157,000

18. Taiwan- 1,123,000

19. Netherlands- 1,044,000

20. Australia- 935,000

Source: BP Statistical Review of World Energy 2007.

Why Technology Will Solve Peak Oil in the End

Over human history Every boost in sustainable population levels has been achieved by a new energy technology.

Neolithic people relied on human muscles for energy/food production.

Early agriculture used animals for hunting/plowing/milling/pumping.

Later agriculture used wind and rivers (for pumping/grinding/shipping)

Even later it used steam for mining/shipping/rail

Modern society is based on liquid fossil fuels.

Our next technology is biotech and this will save us. It will save
us because it will harness the greatest source of energy within
reach- life itself. Indirectly, life is powered by the sun and nothing, not even all the petrochemicals on earth can compare to it.

Think Manhattan Project- 6 years to build a nuclear weapon.

Think microbes that will break down ANY plant cell wall (the real problem in ethanol production is we can't just use any plant matter to produce it. Hence we stupidly use food crops).

They are already looking for the needed microbes in termite guts.

Think genetic manipulation and who-gives-a-damn about the possible environmental consequences of the bugs they produce. (I mean this is civilisation at stake rght?)

Think of all the weed infested waterways, junk land, byproducts of agriculture (stubble, chaff and waste), household waste and simple algae ponds that could be converted to ethanol?

Think of microbes that will turn tar sands into usable fuel instead
'of using clumsy chemical/mechanical processes that pollute and use far too much energy?

Think water weeds manipulated to grow like bamboo (some species grow 1 metre (3 feet) in a day) as feedstock for ethanol.

Think plants engineered to produce high energy hydrocarbons (i mean crush a eucalypt leaf and smell that oil) and which are engineered to release it only in the presence of a new engineered organism.

Plants that grow in salty, dry soil faster than asparagus.

Unbelievable? The gene that protects some crops from the herbicide called roundup is actually from a fish.

Human genes are now in the DNA of lab cows and pigs so they can produce human antibodies for us.

Rest assured, if civilisation is under threat the people with money
and power will spare nothing to solve the technological issues that underlie it. Not because they love we poor and powerless scum but because it offers them the potential to become even richer and more powerful.

We aren't there yet because it was easier for them to play the same old game and win. But if the game is about to change, they will make the rules for the new game as they always have.

Whether we like it or not, life on earth will be engineered and exploited to suit our needs. It always has been whether thru domestication, breeding, overfishing, extinction or whatever.

We don't give up easy which is why we're still here and dinosaurs
aren't.

Do people really think that all the brilliant minds in the world haven't
had a passing thougt to all of this and that a civilisation that can put men on the moon, extract energy from fission, calculate the first moments of the big bang, and NOW!!! has created the first hand made genome from scratch (yes never before in nature) will
just slap its forehead and say "well, this energy thing sure beats me".

No way. I'm not saying society/government is very forward thinking (why would it be when short term approaches make so much money anyway) but when threatened as a species we have tyically had the gonads to find a way out.

We have the embryonic tools to solve this and soon we will have the money, focus and priority to make it happen.

Former crashed civililsations had nowhere near the intellectual understanding or sheer resources to rescue themselves to rescue themselves, but we sure as hell do.

strontium

Abandoning Cargoism & Embracing Our Options

As humans, we tend to be very shortsighted; driven by short-term gains. We live for today and assume tomorrow will take care of itself. The first thing we must learn to do as humans and custodians of the future is to consider the impact of our present actions on that future and modify those actions accordingly. If we cannot do that, the time will come - and soon - when the future will definitely be worse than the present.

We are largely a Cargo Cult, and we suffer from Cargoism: the belief that carrying capacity can "always" be raised anew by further technological breakthroughs. We blindly copy something, without understanding it, to get some positive effect that we’ve observed.

As Catton observed in his book Overshoot: “People continue to advocate further technological breakthroughs as the supposedly sure cure for carrying capacity deficits. The very idea that technology caused overshoot, and that it made us too colossal to endure, remains alien to too many minds for"de-colossalization" to be a really feasible alternative to literal die-off. There is a persistent drive to apply remedies that aggravate the problem.”

Bottom line: There is no techno-fix. But we are obsessed with the notion that one exists.

As James Kunstler points out: " It only made me more nervous, because this longing for "solutions," strikes me as a free-floating wish for magical rescue remedies, for techno-fixes that will allow us to make a hassle-free switch from fossil hydrocarbon power to something less likely to destroy the Earth's ecosystems (and human civilization with it). And I think such a wish is, in itself, at the root of our problem -- certainly at the bottom of our incapacity to think clearly about these things.”

As Sharon Astyk writes: “That is, we're betting our kids lives on the hope that at some point renewables will become self-perpetuating, even though we have no idea how that will happen, that would require major, multiple large scale technical breakthroughs in many cases that might or might not happen, AND, we're not willing to do it now, when we have energy to burn, lots of money and no crisis - instead, we're going to bet the farm (and lives) on the fact that we'll be able to do this 20 or 30 years into a depletion crisis with much less money, much less oil, much less availability in a society that we simply don't know the shape of. That is, we're going to stick the next generation with the problem, and hope it isn't too serious. But if we can't do it now, when we have lots of energy and lots of money and all the time in the world, the chances are excellent we won't be able to do it.”

The Planning Forum has been discussing our options for years, so we know what they are. It’s time to start embracing those options and learn to cope and adapt to the coming changes.

Trying to dodge the die-off bullet is not an achievement to pursue; it is a detour to the same destination.

Friday, June 27, 2008

Our Money System and Oil Depletion; Are they Compatible?

Our Money System and Oil Depletion; Are they Compatible? "Houston, we have a problem." The world's present industrial civilization is saddled with a dilemma: how can a debt-based monetary system based upon infinite growth in a finite world deal with resource depletion? Quote me and answer that question with your reply. On another thread, nero wrote: "The belief that the current monetary system is incompatible with a declining energy resource is not an essential component of the peak oil thesis." It's not? I care to differ. It's part and parcel. The steady state economy into which we are being inexorably forced by oil and other fossil fuel depletion means the end of the current money system. The following is a quote from a summary of a seminar taught at MIT by M. King Hubbert in 1981:
Quote:
"The world's present industrial civilization is handicapped by the coexistence of two universal, overlapping, and incompatible intellectual systems: the accumulated knowledge of the last four centuries of the properties and interrelationships of matter and energy; and the associated monetary culture which has evolved from folkways of prehistoric origin. The first of these two systems has been responsible for the spectacular rise, principally during the last two centuries, of the present industrial system and is essential for its continuance. The second, an inheritance from the prescientific past, operates by rules of its own having little in common with those of the matter-energy system. Nevertheless, the monetary system, by means of a loose coupling, exercises a general control over the matter-energy system upon which it is superimposed. Despite their inherent incompatibilities, these two systems during the last two centuries have had one fundamental characteristic in common, namely exponential growth, which has made a reasonably stable coexistence possible. But, for various reasons, it is impossible for the matter-energy system to sustain exponential growth for more than a few tens of doublings, and this phase is by now almost over. The monetary system has no such constraints, and, according to one of its most fundamental rules, it must continue to grow by compound interest. "Hubbert's Prescription for Survival, A Steady State Economy http://www.hubbertpeak.com/hubbert/hubecon.htm Richard Heinberg, in The Party's Over, wrote: "Hubbert thus believed that society, if it is to avoid chaos during the energy decline, must give up its antiquated, debt-and-interest-based monetary system and adopt a system of accounts based on matter-energy--an inherently ecological system that would acknowledge the finite nature of essential resources." Our system of fractional reserve banking suffers from an inherent instability that increases over time; because at the base, fractional reserve banking is a kind of Ponzi or pyramid scheme. As long as there is economic growth the pyramid stands, but if not, it collapses like a house of cards. Under our current economic system, Hubbert wrote that the maintenance of a constant price level in a non-growing industrial system implies either an interest rate of zero or continuous inflation. However you spin it, there is no price component for resource depletion. What if the supply of oil cannot increase forever, but the demand for more oil continues to grow? The conclusion is simple: The house of cards comes down. Who is going to loan money at zero interest?

Tuesday, June 24, 2008


According to the most recent EIA chart below, Saudi net oil exports have fallen more than 1 million bpd average, from 9,095,559 bpd average in 2005 to 7,925,464 bpd average in 2007:



And so far, it appears that Saudi total oil production had peaked at 11,095,559 bpd average in 2005. Was down to 10,236,101 bpd production average for 2007: At the same time, Saudi domestic oil consumption continues to increase at a steady pace: And so does total Saudi domestic energy consumption:
Source: EIA This probably isn't 'news' to anyone here. Still, interesting to see their exports dropping at a time when the world needs more oil than ever before. Saudi domestic oil consumption appears to be increasing about 275,000 bpd per year the last few years. Even if they increase oil production some, will it get sucked up domestically instead of being exported?

Friday, June 20, 2008

Why I'm Here

Why are you here?

What is it that moves you to spend your valuable time reading (or writing) on the Internet about our energy future?

For some, it's simple boredom... others may feel a social responsibility to inform ( & be informed). Maybe you feel confused, and are looking for some bit of truth to latch on to, or perhaps your job has thrust you into this environment, without even asking. I imagine countless thousands looking at the price when they fill up, coming home, and Goggling like crazy trying to discern what's causing the crazy-high gas prices.

Maybe you feel threatened... vulnerable & exposed, & are looking for some hope to carry you through.

For each of us, there remains some launching point for the journey of discovery, which lead us to this place. Every person reading these words has some original purpose... intending to fill some need they harbor. All of us share this feeling... this idea of need.

I'm not any different than you.

As is so often the case... I'm here for a girl.

...of course.

My wife Marnie passed in Sept. of 1999 from suicide... hanging.

Needless to say, I was devastated by the senseless tragedy, ( & in many ways still am), and retreated into my own little world; which was basically raising my son David, and trying not to cry all day. It didn't work... I cried all day... every day.

I took as much time as I needed mourning this tragedy... more than 2 years. Ever cried daily for years? It's ... ummmm.... ...unpleasant. Eventually you get sick of almost any repeated pattern of course, (I say almost because I never will get used to the screaming dreams... Can you imagine your young child standing at the foot of your bed scared & weeping 'cause you're screaming in your dreams? ...me either, but then, I don't have to); eventually I grew out of my selfish wallowing in misery and an emerging consensus of thought tightened it's grip on my fragile mind.

You can't imagine the irrational feeling of guilt that comes with this most intimate event. How could I still be here when she's gone? It is so unfair it borders on insanity... lunacy even. But I promise you it's where all of us suicide survivors end up... guilt.

I have remarked many times, (& will continue I'm certain), that 'it's a funny 'ole world. I left my highly paid (6 figure) job in 2002, and began searching for some meaningful place for me to reside; Some way to sooth my terrible feelings... a task which mere alcohol was powerless to confront or abide. And as is often the case, the answer to my dilemma came from the most unlikely of places.

My son David & I bonded in many ways, and still do. When he was younger, it was music, the outdoors, art... and computer gaming. I have been participating in computer gaming for many years (decades?), and so it was a natural place for us to meet as cross-generational partners. We eventually joined a gaming clan ( competitive league gaming on the Internet), and made many friends and had great adventures. And so it was, that peak oil came into my vision.

A member of our gaming clan posted a link to Matt Savinar's website on our clan forum, and my casual click of the mouse led me into the world I inhabit today.

I was already acquainted with resource depletion topics for many years. That's why Matt's website hit me so hard. His eloquent description of Colin's "Peak Oil" gripped me immediately, and has not let go since. It took me a month to read all the links on dieoff.org.... and I knew what my place was without doubt.

peakoil.com

And that ladies & gentlemen... is why I'm here.

And it's more than a little cathartic to write this.

Thanks... much.

Thursday, June 19, 2008

Lifting the Ban on Off-shore Drilling:The Facts

“The U.S. has huge amounts of untapped oil, but pesky politicians and environmentalists won't let us get it.” That’s the indignant cry we hear over morning coffee these days.

So, George Bush proposes we roll-back the ban on off-shore drilling to ease oil prices.

Ease oil prices? When? Not today and not tomorrow…maybe never.

The U.S. Energy Information Administration (EIA) recently did a detailed study of the likely outcome of offshore drilling for their Annual Energy Outlook 2007, “Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf (OCS).”

http://www.eia.doe.gov/oiaf/aeo/otheranalysis/ongr.html

The conclusion:

“The projections in the OCS access case indicate that access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017….Because oil prices are determined on the international market, however, any impact on average wellhead prices is expected to be insignificant.”



According to the Energy Information Administration, lifting the bans might boost the nation's oil production by 1 or 2 million barrels a day by sometime next decade. Places like the Atlantic coast, thought to be rich in natural gas, lack drilling platforms, pipelines, terminals, storage facilities, and other energy infrastructure.

“Although a significant volume of undiscovered, technically recoverable oil and natural gas resources is added in the OCS access case, conversion of those resources to production would require both time and money. In addition, the average field size in the Pacific and Atlantic regions tends to be smaller than the average in the Gulf of Mexico, implying that a significant portion of the additional resource would not be economically attractive to develop at the reference case prices.”


What about ANWR? (Arctic National Wildlife Refuge) How much oil is there?

 95% Probability 5.7 billion bbls = .5 mbpd
 Mean (Expected)10.3 billion bbls = .9 mbpd
 5% Probability 16.0 billion bbls = 1.9 mbpd

 Seven to 12 years are estimated to be required from the time of approval to explore and develop ANWR to the first production of oil.

 From first production to peak will take 3 to 4 more years where the production rate peaks at .9 million barrels per day.

 EIA estimates that if Alaska's Arctic National Wildlife Refuge were opened for drilling tomorrow, oil wouldn't flow at full tilt at .9 mbpd until 2025.


By 2030, the US is projected to consume 22.8 mbpd. Today, we consume 21 mbpd.
22.8 mbpd divided by 24 hours = .95 mbph

 .9 mbpd is 95% of one daily hour US demand

 Conclusion: ANWR would power the US for 57 minutes/day, the rest would have to be imported.
 EIA, best case scenario would reduce oil prices by $.30 to $.50 per barrel

 Reduce oil imports from 68% to 65%. Today, we import 60% of our oil.

Not to mention, 2 million barrels a day would need to be balanced against steep production declines expected in many non-OPEC areas like Russia, Mexico and the North Sea over the next several years.

US oil production has been in terminal decline since 1971 from a height of 9.6 mbpd to barely 5 mbpd in 2008. Even the discovery of oil in Alaska in the 1980’s was unable to reverse this decline.

We cannot drill our way out of this oil crisis. Since 2000, oil companies working in the U.S. have doubled the number of wells drilled per year.

Although increased drilling has added new oil to the nation's supply, it has not done so fast enough to offset the terminal decline of existing fields.

We are going to have to import more of our oil. Period.

Source

Monday, May 19, 2008

Walking the TightRope

So a funny thing happened to me yesterday, and I just had to share it with several thousand of my closest friends.

You guys.

I had just finished breakfast at a local restaurant with some friends and as we were walking to the car, a man walked up to our group, obviously in some sort of distress. He stammered a bit, then finally managed to croak out, "I'm choking".

So we are standing there, watching this guy expire right there in the parking lot, and it hits me just how fragile our lives really are. It made me think of so called "intelligent design" theory. Like, "Ok people, here is something you must do everyday, or you will die... oh yeah, and every once in a while... it'll kill you.

Kinda reminded me of that old joke:

If Mama Cass had shared half her sandwich with Karen Carpenter, they would both be alive today."

Anyhow, all that took about 1 second in real-time, then I hopped behind this guy and Heimliched him. (That didn't sound right)

Never done it before, or even been trained in it's use. But it was just like they say... pop! Then a great whoosh of air as this guy took a desperate breath.

We just stared each other for the longest time... he said thanks & I said no problem, or something else lame like that, and we left.

After some thought about this brief demonstration in mortality and the human condition, it occurred to me that what we do here on this website, is kinda like a larger version of the same thing that happened to this guy yesterday. We just need allot more arms to wrap around the collective human torso, and expel the blockage which is strangling our species.

Never caught his name.

Hope he makes good use of this new life he has... same wish I have for us all.

What we do in our lives, echoes through time,
with hilarious & unexpected consequences. Who can say what my arrogant meddling will result in down the line, as I causally exercise my god-like power over life & death?

Interesting day... went sailing the rest of the day, which was less dramatic, but just as excellent.

Funny ole' world huh?

(I guess the take-away" message here is, if you're choking, you wanna be standin' next to me.)

:)

Monday, May 12, 2008

Mainstream?

What does mainstream mean anyway?

From wikipedia:

Mass media is a term used to denote a section of the media specifically envisioned and designed to reach a very large audience such as the population of a nation state. It was coined in the 1920s with the advent of nationwide radio networks, mass-circulation newspapers and magazines, although mass media was present centuries before the term became common. The term public media has a similar meaning: it is the sum of the public mass distributors of news and entertainment across mediums such as newspapers, television, radio, broadcasting, which require union membership in large markets such as Newspaper Guild and AFTRA, & text publishers. The concept of mass media is complicated in some internet media as now individuals have a means of potential exposure on a scale comparable to what was previously restricted to select group of mass media producers. These internet media can include television, personal web pages, podcasts and blogs.

The communications audience has been viewed by some commentators as forming a mass society with special characteristics, notably atomization or lack of social connections, which render it especially susceptible to the influence of modern mass-media techniques such as advertising and propaganda. The term "MSM" or "mainstream media" has been widely used in the blogosphere in discussion of the mass media and media bias.


From Money Week:

Matt Drudge has just taken Peak Oil mainstream.

Up until today, you could randomly ask 10 people on the street what “Peak Oil” is and you’d get a blank stare from at least nine of them. I’d wager that as of yesterday, Drudge himself would have been among that vast majority.

Up until today, the idea that there’s only a finite amount of oil in the world that can be recovered, and that once you reach the halfway point there begins an irreversible decline, simply hasn’t been in most people’s awareness.

Of course, geologists and oil industry insiders have been familiar with it. Whiskey & Gunpowder readers are certainly familiar with it. And so is a subset of Lexus liberals who like Peak Oil because it dovetails nicely with their Malthusian and anti-capitalist worldview.

But all of a sudden, awareness of Peak Oil is spreading exponentially. It started today, and will only grow from here.



wikipedia

Scientific American

Wall Street Journal

CBC

Telegraph

National Geographic

World Oil

US Army

Forbes

Shell Oil

Washington Monthly

New York times

CNN

MoneyWeek

Popular Mechanics

MSNBC

USA Today

Financial Sense

Christian Science Monitor

Huffington Post

Exxon

So... has Peak oil gone mainstream?

Ummm... yeah... it has.

'Nuff said.

Wednesday, May 07, 2008

Positive feedback for oil prices

Often overlooked in the grand scheme of things, is the dependency of oil producers on their own products.

We tend to look at the downstream effect of higher oil prices on the various markets which are dependent on the products refined from oil. If this logic is correct, that as oil's price soars higher the price of these products which depend on oil also rise, then the same logic must hold true for oil production itself.

This feedback loop means that as oil becomes more expensive it becomes even more expensive to locate, extract & produce that oil. Which in turn, causes even higher oil prices, which again raises the cost of oil production.

You get the idea...

This compounding effect becomes more & more pronounced the higher the relative price of oil climbs, creating a cascading effect which will eventually lead to price "super-spikes" where large jumps in price may happen very quickly compared to traditional inflation.

Because markets can't adjust quickly to these super-spikes, the potential for collapse of markets becomes a realistic fear as oil continues it's meteoric climb skyward.

Your dog wants blissful ignorance.

Tuesday, April 15, 2008

China Becomes A BP Shareholder

HONG KONG -

China has quietly accumulated nearly a 1% stake in BP to help secure its oil supply to fuel rapid economic growth. The silent investment from China has come to the attention of Downing Street, which has been monitoring the situation carefully.

A Chinese sovereign wealth fund has purchased about 1 billion pounds ($2 billion) worth of BP (nyse: BP - news - people ) over a period of time, accounting for just less than 1% of the U.K.'s biggest enterprise. "We are aware of the Chinese holding and we welcome all shareholders," a spokesperson for BP said, confirming the investment without identifying which Chinese state fund had bought the stake, the Daily Telegraph reported Tuesday. Although the British government may publicly welcome the Chinese state fund's investment, the newspaper noted that all parties on Downing Street are keeping a close eye on developments.

U.K. Chancellor Alistair Darling is in Beijing this week for talks to tighten Sino-British economic links. He is speaking with Chinese government officials including Lou Jiwei, chairman of the China Investment Corp., the sovereign wealth fund that manages $200 billion, about 12% of China’s foreign exchange reserves. China Investment Corp., which invested $3 billion in Blackstone (nyse: BX - news - people ) last summer before the U.S. investment firm listed its shares on Wall Street, is not the company buying into BP, according to the Daily Telegraph.

Xinhua Financial Network News in Beijing said Tuesday that the buyer is actually SAFE Investment Co., a Hong Kong-registered investment vehicle of the State Administration of Foreign Exchange, which had already bought a 1.6% stake, worth around 1.8 billion euros ($2.9 billion), in France's Total (nyse: TOT - news - people ), the third-largest oil company in Europe. (See: "China Takes A Piece Of Total")

China's foreign exchange reserves hit $1.68 trillion at the end of March, the People's Bank of China, reported last week. In an effort to keep its rapidly expanding economy humming along, China boosted its crude oil production to 30.8 million metric tons during the first two months of this year, the National Development and Reform Commission disclosed earlier this month. But that constituted just a 1.2% rise from 2007; China will not achieve energy independence any time soon. Meanwhile, crude oil imports rose 9.5%, to 28.23 million metric tons, according to the agency. Still, shortages of gasoline and diesel fuel caused public discontent in some areas of the country.

To secure stable import supplies, China has been granting loans to oil-exporting countries in Africa such as Nigeria over the past few years. Investing in BP and other Western oil companies is seen as another way to raise China's bargaining power as a big importer.

Monday, April 14, 2008

News!

Wednesday, April 09, 2008

Running With the Bulls: EIA Says $100 Oil “New Norm”

Chalk up another convert from the oil bear camp: The U.S. Energy Information Administration has given up on seeing double-digit oil prices this year, and says $100 oil—and loads of volatility in crude markets—is the “new norm.” That’s a sudden shift from the $87 barrel of oil the EIA was forecasting in January.

bulls_art_200_20080409091805.jpg
They’ve got company. (Associated Press)

What gives? For the U.S. energy agency, sustained high oil prices can’t be solely attributed to financial speculation, as many analysts insist. But it’s not entirely a supply shortfall either, though excess capacity is tight. Rather, it’s a double-whammy of increasing oil consumption in developing economies and greater domestic consumption in oil-exporting countries that offsets U.S. belt-tightening during the slowdown. Notes Neil King in the WSJ (sub reqd.):

Oil demand continues to grow briskly in China, India and Russia, where fuel prices are heavily subsidized. In the Middle East, soaring energy needs and shortfalls in natural-gas supplies mean major exporters such as Saudi Arabia and the United Arab Emirates must use more oil at home. The EIA predicts that even with falling consumption in the U.S., oil demand world-wide will jump by 1.2 million barrels a day this year.

Sleepily eyeing a peak in world oil output

Last week the price of crude oil broke new records, running about $110 a barrel. That's well above the previous record (in inflation-adjusted dollars) reached in 1980 after the revolution in Iran resulted in the nationalization of its oil.

Since tanks of crude are full to brimming, many traders in oil markets suspect that $110 could be the top price for now. But a growing number of oil-market analysts reckon the supply of oil to the world economy has reached a peak or is about to. The discoveries of new oil are now exceeded by the output of old oil. At some point, global oil output will start to decline, as happened in the United States in 1971.

If that is the case, before long $100-a-barrel oil will be regarded as "the good old days," says Robert Hirsch, a senior energy analyst at Management Information Services, Inc., a Washington, D.C., research and consulting firm.

The price of oil in the New York futures market, a financial market that promises the delivery of oil in the future, has already climbed more than $20 in the past two months.

Global oil production has been on a plateau at around 85 million barrels per day (b.p.d.) for about 3-1/2 years. It is widely debated whether that output level could be pushed much higher to reach demand in the future, which, according to the International Energy Agency (IEA) in Paris, could reach 98.5 million b.p.d. in 2015 and 116.3 million b.p.d. in 2030.

What greatly concerns Mr. Hirsch is that the US and most of the world has not prepared seriously for a "peak" in world oil output.

"If we wait until the problem hits us, we are in for very serious economic problems worldwide for at least 20 years," he says. "There is no good news. Nobody is really doing anything."

The peak for production of conventional liquid crude has or will occur sometime between 2005 to 2016, says Roger Bentley, an advocate of the peak-oil view at Reading University in Britain.

That same time span holds for nonconventional oil sources, such as the Canadian oil sands or the Venezuelan oil tars, he maintains.

A few years back, Hirsch and two other experts wrote a report for Science Applications International Corporation on the impact of the peak. It concluded that the price volatility of oil will increase dramatically and, "without timely mitigation, the economic, social, and political costs will be unprecedented … extremely damaging."

The biggest problem for the US is the supply of liquid fuel. Its more than 210 million automobiles and light trucks run on mostly gasoline.

The average age of the cars is nine years. So replacement of only half the automobile fleet will require 10 to 15 years.

Peak Oil Review -- April 7th, 2008

07 April 2008 @ 05:20 pm EST

1. Prices, Production and Exports

2. Electricity Shortages and Diesel

3. Rice, Inflation and Oil

4. Massachusetts Hosts a Meeting

5. Energy Briefs

1. Prices, Production and Exports

It was another week of volatility for oil prices as a potpourri of fundamentals, financial crisis, hearings, unemployment and a looming recession drove oil prices one way and then another. After losing $4 a barrel on Monday as speculators closed positions, prices recovered on Wednesday after the EIA reported that US gasoline stockpiles had fallen by 4.5 million barrels the previous week, twice what analysts had expected. On Friday, prices rose again to close out the week at $106 a barrel after the report that US jobs had declined for the third straight month, confirming fears that the US was headed for a recession. This time oil prices rose on bad economic news in expectation that there will be more interest rate cuts, a weaker dollar, and a flight to safe assets such as oil.

US gasoline prices rose to a record $3.30 on Friday and most analysts believe they will continue rising. The EIA is holding that average gasoline prices will peak at $3.50 later this spring, but many are predicting a spike to the vacinity of $4 a gallon.

In the wake of the inconclusive attack on Basra, Shiite cleric al-Sadr is calling for a million-man demonstration against the US "occupation" on Wednesday, the 5th anniversary of the fall of Baghdad. Some fear the demonstration could set off events destabilizing the government. In the meantime Iraq is still exporting oil from Basra at slightly below pre-attack levels.

OPEC reports March shipments were down about 85,000 b/d from February due to extensive maintenance and other problems in Nigeria that cut exports there to the lowest in five years. Of more interest was the report that Russia failed to increase its oil production for the third month in a row and the first quarter production was down by one percent from a year earlier. Moscow, however, is still predicting that production will grow by 1.7 percent this year, well below the 11 percent increase in 2003. Russin pipeline exports to Europe recovered to 4.23 million b/d in March, but many believe the surge was in anticipation of forrthcoming export taxs and that Moscows exports will soon drop.

2. Electricity Shortages and Diesel

Stories of current and imminent shortages of electric power are becoming more frequent each day. A combination of inadequate rain for hydro power, unaffordable oil and coal for thermal power, and rapidly increasing demand is leaving country after country with inadequate power for national grids.

It is becoming apparent that one of the unforeseen consequences of globalization is that there is simply not enough power being produced in the world to run the flood of inexpensive electric consumer goods TVs, kitchen appliances, air conditioners -- that are pouring from the factories of Asia onto the world.

The increasingly frequent "rolling blackouts" that are appearing around the world unfortunately are killing "essential" systems water pumps, hospitals, banking computers, factories, TV stations, and telephone exchanges as well as the less-essential consumer devices.

While electric companies may eventually be able to make special arrangements to exempt organizations that are vital to the economy from blackouts, there are massive numbers of organizations around the world that are completely dependent on electricity to keep functioning. For these, the choice is generate their own electricity with their own generators or shut down.

What is developing is a new and potentially very large demand for gasoline and particularly diesel fuel as the national power grids fall further and further behind in their ability to keep up with demand for electricity. Higher prices and shortages are clearly in store as more and more Chinese-made small and medium sized electric generators come into service around the world.

3. Rice, Inflation and Oil

Rice prices increased by 50 percent in the last two weeks to an all-time high as importing countries scrambled to hold off social unrest by securing supplies from the few exporters still willing to sell. As the staple food for 3 billion people, 33 countries are facing unrest as the price of food and energy becomes unaffordable.

There are multiple reasons behind the sudden price increase ranging from weather-related poor harvests, hoarding, and world-wide inflationary pressures resulting from high energy costs to the financial crisis. Major rice exporters such as India, China, and Vietnam have already curtailed or stopped exports to hold down domestic prices.

Among the hardest hit countries so far have been Bangladesh, the Philippines, and Pakistan where millions now face seriously restricted diets.

Even rich oil states are facing problems. Nigeria is one of the worlds largest importers of rice and Kuwait is now shut off from the Indian rice that is the staple food for most of the 1.3 million foreigners working in the country. Even the Saudis have removed the import duties on imported food. In Pakistan 80 million people are estimated to be at risk of not receiving sufficient food.

This situation is too complex to foresee future developments. If it gets worse, widespread food riots could topple governments. If millions are faced with starvation, pressure to stop production of biofuels will increase. Leverage of food exporting nations in world affairs will increase.

4. Massachusetts Hosts a Meeting

Last week Chairman of the Committee on the Environment of the Massachusetts legislature hosted a meeting on Peak Oil. The standing-room-only meeting heard presentations from Dick Lawrence, co-founder of ASPO-USA; economist Roger Bezdek one of the co-authors of the Hirsch Report on Peak Oil; John Kaufman, member of the Portland (OR) Energy Task Force; and Sen. Bob Duff and Rep. Terry Backer from the Connecticut General Assembly.

The material covered in the presentations should be familiar to readers of this publication. The meetings purpose was to provide background for the establishment of a Peak Oil Caucus in the Massachusetts legislature. The US Congress and the Connecticut legislature already have caucuses and other states are close to establishing bodies or legislation to deal with peak oil.

There is clearly a massive educational job ahead. As one speaker at the meeting pointed out, peak oil has not yet made it into the Presidential campaign. The various energy plans that have been proposed are directed at lowering gasoline prices or have little appreciation for the urgency or seriousness of the problem.

5. Energy Briefs

(clips from recent Peak Oil News dailies are indicated by date and item #)

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Shell CEO van der Veer said easy-to-produce oil and gas would likely peak in the next 10 years. Van der Veer said while depletion of maturing conventional resources would certainly play a key role in peak production, lack of access to remaining large reserves, such as in Saudi Arabia, was also a central component in his forecast. (4/2, #2)

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Diesel shortages are appearing across China from southern Guangdong to the northern Tianjian. Long queues of trucks and cars stretching over one kilometer have appeared at some gas stations; and at one point, diesel was rationed to 300 yuan. (4/2, #8)

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In South Africa, year-over-year mining production for January was down 10.7 percent owing largely to the electricity supply crisis that led to mine closures, with gold production in particular feeling the effects. (4/4, #3)

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Aloha, ATA and Skybus airlines halted passenger service last week, casualties of fierce competition and rising fuel prices. (3/31, #17)

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Ecuador wants to increase its participation in oil projects to more than 50 percent following contract negotiations with private firms. (4/4, #5)

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A court-appointed expert in Ecuador has recommended that Chevron pay $7 billion to $16 billion if it loses a marathon lawsuit over oil-field contamination in the Amazon. (4/4/, #6)

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Venezuelas lawmakers approved the first reading of a new tax on oil companies that will take as much as 60% of their gains from sudden increases in world oil prices. (4/4, #7)

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ConocoPhillips said on Thursday its first-quarter oil and natural gas production, just below 1.8 million barrels/day, was down more than 2 percent from fourth-quarter levels, hurt by an unplanned shutdown of a natural gas processing plant. (4/4, #11)

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BP America announced a new significant oil discovery at their Kodiak well in the deepwater Gulf of Mexico in 5000 feet of water. Further appraisal will be required to determine the size and commercial potential of the discovery. (4/4, #13)

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In Alberta, TransAlta Corp., facing rising unease over greenhouse-gas emissions from their coal-fired generating plants, has announced a deal with Alstom to develop a large carbon capture and storage facility (4/4, #14)

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India's Oil and Natural Gas Corp ONGC.BO plans to invest $450 million over three years in exploration and production at San Cristobal oilfield in Venezuela, a senior government official said on Saturday. (4/5, #6)

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Indias oil imports increased to 2.48 million b/d in February, 8.1 percent more than a year earlier to meet a demand that surged 10.9 percent. (4/2, #11)

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Pressure from the Kremlin on BP's joint venture in Russia, TNK-BP, may before long lead the British oil company to cede control to either Rosneft or Gazprom, the Russian stateowned energy companies. (4/5, #17)

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Russia failed to grow its oil output for a third month in a row in March and closed the first quarter with a one percent production decline year-on-year. Energy Ministry data showed on March oil production edged down to 9.76 million barrels per day from 9.79 million bpd in February, and well below the post Soviet high of 9.93 million bpd reached in October last year. (4/3, #16)

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Libya says it will review all future contracts with oil companies in a bid to reap more benefit for the country, a senior Libyan government official told Dow Jones Newswires. (4/1, #4)

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The American Trucking Associations is calling for the return of a uniform national speed limit of 65 mph for all cars and trucks to help cope with the soaring price of diesel. (6/4, #21)

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Europe's refineries are shutting around 900,000 barrels per day of capacity for maintenance in April, more than many expected at a time when diesel supply in Europe is running low. Even at 900,000 bpd, or about 5.5 percent of Europe's total capacity, the schedule is lighter than it was in April 2007, when well over 1 million bpd was shut.

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US lawmakers scolded oil industry executives for booking huge profits on record gasoline prices while not investing more in renewable energy. Executives were asked to explain why they should not forfeit $18 billion in tax breaks after posting profits of $123 billion. (4/2, #6)

Tuesday, April 08, 2008

Oil peak theorist warns of chaos, war

Veteran oil industry financier paints grim picture of resource scarcity, derailed global growth; others disagree


WASHINGTON -- Matt Simmons sounds the alarm like the Cassandra of the oil industry, warning that crude production has peaked and that looming energy shortages could derail global growth and even spark armed conflict.

As a prominent "peak oil" theorist, the veteran oil industry financier paints a grim picture of a world facing resource scarcity. Still, it doesn't take a "peak-ist" to conclude that the global oil producers will find it increasingly difficult to keep up with growing demand.

He squared off yesterday against other experts who argue that the world has yet to reach the physical limits of oil production. But while they disagreed on the extent of the problem, the panelists at a U.S. Department of Energy conference in Washington concurred that future crude production will be constrained by physical, economic and political factors that add up to tight markets and higher oil prices.

Despite oil prices that have topped $100 (U.S.) a barrel, there was little sense at yesterday's conference, put on by the Department of Energy's Energy Information Administration, that high prices would spark either a boost in oil output or a sharp fall in global demand.

Global demand for oil will continue to grow, analysts forecast, even as the developed world reduces consumption in the face of high prices and environmental concerns. Economic growth and rising living standards in developing countries like China, India and the Middle East will more than offset reduced energy consumption in the mature economies of North America and Europe.

The views of Mr. Simmons, who runs Houston-based Simmons & Assoc. investment bank, bordered on apocalyptic.

Oil shortages "could lead to social chaos and war," he warned. "The issue is the most serious risk to sustaining the 21st century. Peak oil is real, and we have to take it seriously." He argued that production of conventional crude peaked in May, 2005, at 74 million barrels a day.

Since then, the world has met rising consumption - now at about 88-million barrels a day - by cutting inventories, tapping natural gas liquids that typically are included in crude production figures and using better refinery efficiencies.

Peter Jackson, a director at the Cambridge Energy Research Assoc., said Mr. Simmons was overstating decline rates of existing fields, was not taking into account the prospect for new discoveries, and played down the importance of unconventional resources such as Canada's oil sands.

Still, he said the industry faced "above ground" problems that would make it difficult to keep production growing fast enough to meet rising demand. About 90 per cent of existing conventional reserves are controlled by state-owned oil companies, many of which are not investing enough in capacity expansion, he said.

At the same time, the industry worldwide has seen construction costs explode, even as oil companies are forced to exploit smaller, more remote and more geologically complex reserves. The average cost of producing a barrel of oil has more than doubled in the past eight years, with most of that increase occurring in the past four, he said.

James Schlesinger, who was the United States' first energy secretary 30 years ago during the oil shock of the late 1970s, warned of a new crisis looming.

That 1970s shock was the result of supply disruptions caused by the 1973 Arab embargo and then the Iranian revolution. The current runup in prices reflects a more fundamental disconnect between constrained supplies and rising demand in the developing world, he said.

"At some point during the decade immediately ahead, we will hit a plateau, and this will have a tremendous shock both economically and politically," Mr. Schlesinger said.