DrumBeat: August 7, 2007

Why oil won't hit $100

Despite oil's record high last week, forget about crude going to $100 a barrel.

Prices have already dropped about 7 percent since last week, and are likely to fall even more in the coming years.

That's the consensus of analysts, who say rising production, the advent of biofuels, and conservation measures will likely lead to lower oil prices by 2015.

But how much lower is subject to wide interpretations, and estimates rage from $20 to $60 a barrel.

Carolyn Baker - When Collapse is No Longer Science Fiction: Choosing Hospice Work Instead of Hope

Within the past month, America has witnessed two dramatic events which have illumined the devastating demise of its infrastructure-the New York City steam explosion in mid-July and the collapse of the I-35 bridge in Minneapolis, on August 1. And in the same span of one month, a Chief Justice of the Supreme Court "collapses" with a seizure. Now, in neon lights, we have the word "collapse" writ large across empire even as the overwhelming majority of Americans refuse to face the collapse of every institution in the nation: the economy, healthcare, education, religion, transportation, energy, political systems, and so much more. In fact, the word "collapse" is now being used in American journalism with increasing frequency to describe the ubiquitous crumbling of nearly all facets of our society. Yet as most progressives with the exception of Oprah, along with middle America, avoid talking about the ghastly plot of the recent novel "The Road" or steer clear of discussing information such as that contained in the documentary "What A Way To Go: Life At The End Of Empire", they have only to turn on CNN and see that collapse is no longer something imagined by Stephen King or wild-eyed, doom-and-gloom "conspiracy theorists". Collapse is here, it's now, and it's going to exacerbate, and Minneapolis is a metaphor as well as another gruesome literal example of civilization's grotesque self-annihilation.

2008 – 2012: A Critically Important Period - Migrating to New Energy Paradigms Part 4

There are three possible outcomes:

If the Members of the United States Federal Reserve Board persist in their ill advised strategy of pumping cash into the system as a substitute for wealth building activities, the chart will break up above the top trendline, and the world economy will likely enter a period of asset hyperinflation.

If the Governments of the world continue to support the Fossil Fuel Industries, but the US Fed recognises the folly of its monetary strategy and tightens the money supply, we are likely to experience a break down below the lower trendline. Under these circumstances, the debt mountain is likely to implode, and the derivative mountain along with it.

If the Governments of the world move rapidly to migrate the world economy from its dependence on fossil fuels to appropriate new energy paradigms, then it may be possible to trade out of the problems by causing the world's markets to enter a long term (20 years +) trading range. During this period, the new energy paradigms can give the world economy a shot in the arm, and true wealth (as opposed to money) can be created. Some of this wealth can be diverted to repay outstanding debt.

The struggle for Iraq's oil flares up as Kurds open doors to foreign investors

Baghdad is trying to reassert central control of reserves run by Kurdish authorities.

Iraqis Favor State Companies To Develop Oil Sector - Poll

Most Iraqis believe Iraqi companies rather than foreign firms should take the lead in the development of the country's vast oil fields, the world's third largest, according to a poll released Monday.

Money pipeline is drying up for some biofuel projects

The biofuel industry is thriving on governments’ push for alternatives to foreign oil, though ethanol still accounts for only 4 percent of the nation’s gasoline use. Tax credits and renewable-fuel mandates also are politically popular, especially in the Midwest, where many of the new plants would be built.

Too many, some warn.

China almost pips Japan as world No.2 oil importer

China came close to becoming the world's second-largest crude oil importer last quarter, as North Asia's refinery maintenance season slashed Japan's imports but failed to limit galloping Chinese demand, data showed.

Nigeria: NNPC Plans Two More Refineries

The NNPC says it is working with some International Oil Companies (IOC) to establish two new refineries with capacities for 200,000 barrels daily each.

Japan refiners buy Venezuelan crude after two decades

Japanese refiners have purchased Venezuelan crude for the first time in about two decades under a long-term deal that offers both countries greater diversity.

Nippon Oil Corp bought 500,000 barrels of light sweet Santa Barbara crude, a rarity among Venezuela's largely heavy grades, while Idemitsu Kosan Co bought 400,000 barrels, the companies said in statements released yesterday.

The next energy crisis

More than a quarter of America's oil flows through southern Louisiana. Too bad the land is slowly sinking into the sea.

...Some 25 square miles of Louisiana have been collapsing into the gulf each year for three-quarters of a century. A total of 1,900 square miles, roughly the area of Delaware, disappeared between the 1930s and 2005, and another 217 square miles were pulverized into liquid by Katrina and Rita. And that land loss, says Ted Falgout, who has run Port Fourchon for 28 years, poses a growing threat not only to the people who live here but also to the U.S. energy supply.

"We're on a train wreck here," says Falgout. "We have not designed the energy infrastructure - or any infrastructure - [to handle land loss]."

The problem afflicts all of southern Louisiana. As land turns to water, it is exposing thousands of miles of oil and gas pipelines that were built underground and were not designed to withstand water or waves.

"There are places where a pipeline that was laid in marsh, well protected, is now in five or six feet of water - in an open bay that is subject to a vessel coming across and hitting it," says Falgout. "That's the thing that [oil companies] are spending their money on right now. It's so huge that they're just putting out fires."

Africa: Three Hard Truths About the World's Energy Crisis

When it comes to the future of energy, the world needs a reality check.

Contrary to public perception, renewable energy is not the silver bullet that will solve all our problems. Indeed, in the decades ahead, three hard truths will generate turbulence in the global energy system.

Iran's refinery problem reflects global fuel shortage

The National Iranian Oil Company expects oil revenue to reach a record of more than $52bn in the current financial year. The problem is that much of the state's revenues are draining away in subsidies to support a largely closed economy lacking foreign investment. One of the most pressing challenges to the government lies in the country's lack of refined fuels.

Oman’s oil production in January-May drops 5.3% to 713,000 bpd

Oman’s Ministry of National Economy said yesterday crude oil production dropped 5.3% in the first five months of the year as the country’s ongoing output decline extends into the sixth consecutive year.

Omani oil production averaged 713,000 bpd in the five months ending in May, down from a daily rate of 753,200 barrels in the corresponding period in 2006, according to data published on the ministry’s website.

Output was lowest in May at 708,300 bpd, the data show.

IMF Fears Energy Crisis in Albania Will Damage Growth

The IMF expressed worries on Monday that the energy crisis that has swept Albania will have adverse effects on economic growth.

“The energy crisis presents a great danger for Albania. It affects all medium-term economical indexes and could create a hole in this years budget,” it said in a press release.

Chavez, Kirchner secure energy deal

Venezuelan President Chavez and his Argentinean counterpart President Kirchner have sealed a treaty on energy security in Buenos Aires.

The agreement on Monday follows a series of deals between the two countries that are working on stronger ties to strengthen relations within South America.

Beijing dips its toes in troubled waters

For millennia, China's great rivers have snaked their long, meandering courses across the country, providing the life-blood for Chinese civilization: water. Along the banks of the Yellow River to the north and the Yangtze to the south, 5,000 years of history and culture have unfolded, with agriculture flourishing in an otherwise inhospitable terrain and trade bringing prosperity and dynamism in its wake.

But the effects of severe pollution, large-scale damming and climate change are combining to spell catastrophe for the rivers, with deeply worrying implications for the millions of Chinese who continue to depend on them.

Venezuela's Chavez Lobbies South America

Venezuelan President Hugo Chavez sought to expand his petrodollar influence in South America as he launched a four-nation tour Monday to promote his country's entry into a regional trade bloc and to offer energy and financial deals to allies.

What's the Funding Outlook for DOE's Geothermal Program in 2008?

The Department of Energy (DOE) Geothermal Technologies Program was funded at only $5 million for the fiscal year 2007, compared with $22.3 million in 2006. To you and me, $23 million might sound like a lot of money. But putting this number in perspective, America spends more than $13 million per hour on foreign oil, according to the National Resource Defense Council (NRDC).

Senate Clears BLM Director After Interior Blinks on Roan Plateau

The Interior Department on Friday gave the state of Colorado more time to comment on the oil and gas drilling plan for the Roan Plateau, clearing the way for the Senate to approve the nomination of Jim Caswell as the Bureau of Land Management director.

Sen. Ken Salazar (D-Colo.) lifted his procedural "hold" on Caswell after hearing from Interior Secretary Dirk Kempthorne. Salazar was using the BLM nomination to secure concessions on the bureaus's oil and gas operations.

Hurricane Katrina And Insurance: Two Years Later $40.6 Billion In Insurance Claim Dollars Aid Recovery

In areas vulnerable to hurricane risk, rates have been rising in recent years and they will continue to do so. This is because the frequency and severity of catastrophic storms is expected to grow for decades to come.

Saudis slap big hike on heavy crude oil prices

Saudi Arabia has raised the official selling prices of its heavier crudes in September by more than expected for Asian buyers, setting Arab Heavy at its highest in two years, traders said yesterday.

The world's top oil exporter also raised prices to Europe but cut the OSPs sharply for all its crude supplies to the United States. For Asian customers, Arab Heavy was set at a discount of US$3.60 (HK$28.08) a barrel to the Oman/Dubai average, up 70 percent from August and at the strongest level since July 2005, exceeding the top end of forecasts in a survey last week.

"Refiners in Asia are all after medium and heavy crudes. It's very economical for them now," a seller said, referring to the relatively cheaper heavy crude grades compared with lighter Brent-linked crudes.

Oil continues decline from record levels

Crude oil prices slid further Tuesday on concerns about the U.S. economy as investors sold to lock in profits from last week’s record-setting rally.

Gasoline steadied after dropping more than 10 cents.

The price declines began Friday after the government issued weaker-than-expected employment numbers. That data added to the sentiment from a series of other government reports that analysts say suggest the economy might be slowing.

Analysis: Venezuela's oil takeover

Efforts to nationalize Venezuela’s oil and gas sector have increased government revenue by $5.8 billion a year since 2004, according to President Hugo Chavez.

In a national address last week, Chavez said, “You can’t have a socialist economist model … without including oil,” a reference to his recent efforts to wrest greater state control of the country’s petroleum sector.

Drilling Down on Higher Oil Prices

There is already some oil scarcity, current prices being several times what they were just a few years ago, but a great deal more lies before us. While we wait for the future to unfold let’s visualize what real oil scarcity will look like. So far scarcity is causing poor people and poor countries to be priced out of the market when a portion of their usual oil purchases go to a richer country that is willing to bid more. There are now on the Energy Investment Strategies website a growing list of news articles about developing countries which are experiencing energy shortages, some of which are at least partly caused by insufficient oil supplies.

States leading the way on renewable energy

Back to the bigger picture, though: will Congress have the vision to do what half the states have done already? Or, does that fact lessen the need for federal action? I'm guessing many utilities would like the federal standard, not only because it sets a lower goal (which I'm assuming would override state initiatives), but also because it creates a uniform standard. On the plus side, though, it would show some national resolve for moving towards a cleaner energy future. Still, I'm tempted to say let the states continue what they're doing, as they're setting more ambitious goals, and focusing on the energy sources that will serve them best (i.e., wind in Illinois). The feds may not catch up... but maybe we won't need them to do so...

Nine Eastern Coal States Form New Coalition

The Eastern Coal States Coalition has paid at least two visits to Congress since late June, and the members will continue to keep a close eye on how federal lawmakers focus on mine safety and other industry issues.

A Crude Awakening

If you didn't know we're paying outrageous prices — not just at the pump, but geopolitically, and in blood—to fill up our Hummers and S.U.V.s, you've probably been willfully ignorant. Neither we Americans nor anybody else has a God-given right to cheap oil, and it seems like astonishingly bad judgment bordering on lunacy to build our entire economy and infrastructure on a rapidly depleting natural resource without hope of replenishment. But here we are, and A Crude Awakening is a jolting look at how we got here, and the almost unthinkable consequences of any of the bad options that lie before us for the future.

Climate bill shaves $533 billion off economy

A Senate bill to cut U.S. greenhouse gas emissions would raise energy prices and also reduce American economic output by more than half a trillion dollars over two decades, according to a government report released on Monday.

Gore: Polluters manipulate climate info

Research aimed at disputing the scientific consensus on global warming is part of a huge public misinformation campaign funded by some of the world's largest carbon polluters, former Vice President Al Gore said Tuesday.

"There has been an organized campaign, financed to the tune of about $10 million a year from some of the largest carbon polluters, to create the impression that there is disagreement in the scientific community," Gore said at a forum in Singapore. "In actuality, there is very little disagreement."

World hit by record extreme weather events in 2007: WMO

Many parts of the world have experienced record extreme weather conditions including unusual floods, heatwaves, storms and cold snaps since the beginning of the year, the UN's weather agency said Tuesday.

Preliminary observations also indicated that global land surface temperatures in January and April reached the highest levels ever recorded for those months, the World Meteorological Organisation said in a statement.

A new Round-Up has been posted at TOD:Canada.

Will the Fed cut interest rates to alleviate the developing credit crunch, and will it have the desired effect if they do? Can lowering the cost of credit overcome risk aversion and the fear of cascading default? If not then the Fed will not be able to prevent the contraction of the money supply and the spread of contagion amid a sea of margin calls.

In Canada, oil sands fever continues unabated and a drilling frenzy may be shaping up in the Arctic. One political leader urges the defence of Arctic sovereignty, while another holds talks on North American Union well away from the public eye. In Ontario, businesses are paid not to consume power.

On the climate front, northern infrastructure faces a serious challenge as melting permafrost undermines it's foundations, while Australia experiences a 1000 year drought.

Finally, we remember that 62 years ago, the world was waking up to the beginning of the nuclear weapons age.

Mish doesn't think a rate cut will help. The MMMMB (Ministry of Miracle's Magic Miracle Bucket) is empty!


Yes, and I agree with him. I ran that link in my post, and it was that I was alluding to in the intro.

I think you underestimate two things:
1. the power of the Federal Reserve System;
2. the determination of the Fed to prevent debt deflation.

For all intents and purposes, the Fed has unlimited power to fight deflation. They can legally lend unlimited amounts of money to whomever they think needs it to avoid a financial catastrophe. Although they typically lend only to banks, their charter does not limit them to this kind of lending.

All the members of the Board of Governors of the Federal Reserve System live in the shadow of the Great Depression. To a large extent, the Great Depression was caused because the Fed at that time was worried about inflation and stood by and did nothing while banks folded by the thousands. There is unwavering resolve among members of the Board of Governors that never, never again will the Fed twiddle its thumbs while debt deflation destroys the U.S. economy.

Given their powers and given their will, I think the odds against debt deflation are nine to one, because the Fed will always accept more inflation as a necessary cost to ward off the possibility of debt deflation. Thus I think the chances of a cascade of failures of major financial organizations is almost nil. Businesses will continue to borrow, consumers will continue to borrow more on their credit cards, the government will go merrily on its borrowing way to finance ever greater deficits.

I cannot visualize a scenario in which the Fed allows a debt deflation; Bernanke has said as much with his famous "helicopter" statement. Metaphorically speaking, the helicopters are loaded and the rotors are spinning; and the Fed has all the helicopters it could ever possibly need.

Inflation, normally hard to keep down, is assumed to be easy to initiate. Much like starting a fire with wet wood, in a climate of pessimism it can take a lot of matches.

How many matches Bernanke has and his willingness to deploy them doesn't convince me of whether or not a fire will ensue. This is why timing is so important in order to avoid the downward momentum getting beyond the rate of helicopter deployment.

Compounding the credit bubble is the oil chicken coming home to roost and the general perception that we are 'losing the war', whatever that means. The future of both those aspects will not be altered in the public mind by throwing money about. False confidence, like any confidence, takes time to build. There isn't any - time that is.

I agree with you in the classic sense, but this is looking like 1973 all over again, but for real this time. Vietnam was about ego, and OPEC was arbitrary. Now its really about oil. Really about oil. Adding more money won't change the fundamentals.

How many matches Bernanke has and his willingness to deploy them doesn't convince me of whether or not a fire will ensue. This is why timing is so important in order to avoid the downward momentum getting beyond the rate of helicopter deployment.

Compounding the credit bubble is the oil chicken coming home to roost and the general perception that we are 'losing the war', whatever that means. The future of both those aspects will not be altered in the public mind by throwing money about. False confidence, like any confidence, takes time to build. There isn't any - time that is.

I agree with you in the classic sense, but this is looking like 1973 all over again, but for real this time. Vietnam was about ego, and OPEC was arbitrary. Now its really about oil. Really about oil. Adding more money won't change the fundamentals.

Exactly. In the case of Bernanke's helicopter, there is only so much air as you go up in altitude. That's why they don't use helicopters to get to the space station.

In the case of the Debt engine, the 'air' is the Perception of Perpetual Growth. Banks loan money (supposedly) because you are going to be worth more than you are at the moment they loan the money. Sub-prime believes that the house will increase in value to cover the interest on the loan (the only real value to a bank: the principal is just a present number, whereas interest is Future Income).
It's all about the future, yet nobody is asking the children what they want. Most of them would say "I want Mommy and Daddy to play with me, to cook pancakes, and to get me a puppy." That's it. The wisdom of children is more than the Fed. Most of the things encouraged by the Fed's low interest rates are going to fail without cheap energy. Most of the policies of the Oil Men in Washington are working to MAKE THEM FAIL through HIGHER Prices for energy in order to line their pockets with all that cash that consumers SEEM to have, since they haven't slowed down on buying gas at 3 times it's recent cost. Why? Because they are so in debt to the banks to pay for the house they bought when money was easy to get.

Remember: Energy is the air for Bernanke's helicopter. If he gets cold and shuts off the fan (an old test pilot joke), his helicopter is going to crash on top of the refinery that is fueling his helicopter. It can't come down to a soft landing. Any reduction in altitude is a knife in the eye of Growth Perception, and any increase in altitude(lower interest rates) increases the costs of resource inputs, requiring higher altitude. He's reached the altitude ceiling of that helicopter and it's heading strait for a big, black mountain called Peak Oil.

And that, my friends, is beautiful prose for the day. Back to farming for me. The chickens are hungry.

"If you want Change from the corporatocracy, keep it in your pocket. "

I forgot one little note to Mr. Bernanke:
Put your head between your knees. You know why.

It's all about the future, yet nobody is asking the children what they want. Most of them would say "I want Mommy and Daddy to play with me, to cook pancakes, and to get me a puppy." That's it. The wisdom of children is more than the Fed.

Warning: Somewhat off topic.

Children have a very pure, caring morality. In part, because the adults around them inculcate it, basic principles of fairness etc. are important. Few tell young children, it is just great to rip off those other kindergarten kids and make money and hit other kids to make them obey. For another part, adults want children to believe they live in a stable, safe world, where morals count, because, to bring up their children, they need everyone to respect certain principles, *otherwise they can’t bring them up.* Then, there is also the basic perception of fairness, of evil, of hateful actions, of damage, or violence, that children just seem to grasp. (Naive justice.) That is a constant of human life. Yet, the basic principles are later abandoned, both by the children, and their parents. (Not in all cases of course.)

Here is Rachel Corrie in her 5th grade speech. Her destiny was exceptional, her speech is simply typical.

Corrie, youtube

Thanks for that Noizette.

That was great and in my opinion very relevant.

When I see bad behavior from anyone young or old I automatically think that the parents must not have taught them well.

Dick Cheney’s mom should put him over her knee.

Children have a very pure, caring morality. In part, because the adults around them inculcate it, basic principles of fairness etc. are important. Few tell young children, it is just great to rip off those other kindergarten kids and make money and hit other kids to make them obey.

On the other hand, it is considered 'cool' by some, and a mark of individualistic non-conformity to have a bumper sticker proclaiming "My kid beat up you honor student"

"God bless the child that got his own....
That got his own....'

Interesting message in that rather old jazz "hymnal."

Well, I took those as a humorous response to the "My Kid is an Honor Student" business, which deserved to be lampooned, kind of like putting, "Star Fleet Academy" or, "School of Hard Knocks" stickers on your rear window.

Continuing the Helicopter analogy...

I don't think Ben has the skill to try AutoRotating.
As you know AG, Ya only get one chance at AutoRotaing...


Continuing the Helicopter analogy...

I don't think Ben has the skill to try AutoRotating.
As you know AG, Ya only get one chance at AutoRotating...


AutoRotation reminded me of the Jesus nut (the big one on top that only Jesus can put back on) and then I saw your initials and it all went "click"...

The globalist helicopter might just meet Mr Grail.

Hello Don,

I would say Bernanke has already been round in his helicopter, but he dropped free debt instead of free money, and the consequences of that will (IMO) become apparent this year.

The Fed has acted as midwife to a credit expansion (by holding the cost of credit artificially low), but a credit expansion (as opposed to a currency inflation) can only continue until the debt which created it can no longer be serviced. I would argue that we are at or near that point now.

I don't doubt that the Fed will cut short term rates as well as attempt some sort of bailout. What I do doubt is that they can succeed for long in preventing the money supply from contracting, let alone increasing it, in the face of risk aversion spreading like wildfire. Financial panic can remove liquidity faster than the Fed can pump it in, as we've seen in recent weeks. The Fed's normal game plan depends on incentivizing ready, willing and able borrowers and lenders. If risk aversion or debt serviceability curtail either the willingness or the ability to borrow and lend, then this strategy becomes impotent.

In addition, the Fed can only cut short term rates to zero. As the Japanese discovered, zero is not low enough when the money supply is contracting (ie deflation, following von Mises and the Austrian school), because real interest rates (nominal rates minus negative inflation) can remain punishingly high. Also, under such circumstances longer term rates may remain stubbornly high despite cuts in short term rates, as a reflection of risk aversion. A high rate in nominal terms would be very high in real terms under such circumstances.

I realize that the Fed has other magic wands, but I think they'll do too little too late. Ultimately I don't see them being able to overcome the power of a financial panic (not that we're there yet, and I don't expect us to be until probably the fall). By way of analogy, what the Fed will try to do is to cure a hangover by having a few more drinks - eventually the patient dies of alcohol poisoning. Hence the thought that you can't solve a problem by doing more of what created it in the first place.

Stoneleigh - I agree with you about the interest rate bottom; Japan actually went negative for a while.?? What didn't happen was a contraction of the money supply. It was a contraction of velocity, that irascible bugbear of central bankers.

Offering money at negative rates doesn't assure that borrowers will show up to take it if they think that assets will depreciate faster than the negativity. What if they gave a party and nobody came?

It's hard to develop a hundred thousand dollars worth of action out of a forty thousand dollar wage. Inflation of the money supply without corresponding wage inflation won't turn around a mass consumer economy such as the US. The housing bubble is exhibit A of wage/asset debt disconnect.

There may not be an answer. There wasn't in Japan. For those solutionocopians out there, my sympathies, but this is looking like a classic paradigm shift right about when I would have expected it. Such things have a life of their own to lead. And they never play out quite the same way as the last.

Petro: You make good points, but the Japan example is misleading. Japan has always had a strong current account surplus which has provided strength to the Yen even with very low interest rates. The USA is actually in a situation similar to that faced by Argentina, not Japan. Japan was able to have a deep recession combined with a strong currency- it is very unlikely the USA can do the same. The structural weakness of the dollar makes deflation less likely to persist if it can occur.

Argentina borrowed in dollars, not in local currency. Poor economic management (a delusion by Menem for short-term illusory prosperity) and this mismatch of income to liabilities resulted in the breakdown.

US has the luxury (so far) of borrowing in a currency which can be debased at its own choice---though with consequences.

As it turns out---Argentina has been growing and doing well economically for the last few years after normalizing to true market values. Export of agriculture is strong.

But now, populist and foolish intervention for populist reasons is resulting in another external "debt" crisis, for fossil fuels.

I know. I was hoping that the conundrum of reserve currency/ largest debtor wouldn't cloud the issue. In all probability, the days of US reserve currency hegemony are already over and only the process of how we move to a multiple reserve system is yet to play out. I was hoping for an orderly and managed transition, but the majority of our leaders seem willing to go down with the ship.

Between the Euro and the rise of China, the writing on the wall is now almost fading from age. John K Galbraith refers to the period of the first World War as the 'great ungluing'. It was in 'The Age of Uncertainty', a very fine read. The scene seems set for another such age.

Japan never really dealt with it's bad debt problem and so hasn't been through what's facing the US now, despite nearly two decades of difficulties during which it burned through a huge surplus building things like 4-lane highways to nowhere in a vain attempt to stimulate the economy. I would argue that their problems are far from over though, and that the impact on their money supply (as opposed to problems with the velocity of money) lies largely in their future. They have yet to face the unwinding of the yen carry trade for instance, and the dislocation that will inevitably bring.

Japan never really dealt with it's bad debt problem

As 'we' like looking at everything from energy - how much of the trouble could be from rising energy costs? Has anyone done an analysis?

You can prevent a hangover indefinitely by taking more and then even more drinks: I think that is what the Fed will do. We are addicted to cheap and readily available credit; the Fed dare not take away the punchbowl now that some at the party are getting anxious.

I assume you are familiar with the term "liquidity trap," where lenders refuse to lend or borrowers refuse to borrow. This is the famous case of "pushing on a string" with monetary policy impotent. Although a liquidity trap seems to be what is in your forecast, I consider the possibility of our stumbling into one as remote. Why?

Because Americans are used to borrowing and lending--and then to borrowing ever more. I do not think financial organizations will suddenly refuse to lend out of fear, because I think they will retain confidence that the Fed can and will prevent financial collapse. It is all about confidence and expectations: If fear and panic take over, then we could indeed get stuck in a liquidity trap and have the Mother of all credit crunches (with the Great Depression being the Grandmother).

So I will try to spin a story of financial collapse:

1. The Dow Jones Industrial Average crashes down through five thousand, then falls to three thousand and even one thousand in a matter of weeks this coming October.

2. Brokerage houses and investment banks fail AS THE FED STANDS BY, PARALYZED BY FEAR AND INDECISION because the dollar is in free fall in the international financial markets.

3. By the millions, American home owners give up on the American dream of home ownership and let their homes go into foreclosure without a fight because

4. Massive cyclical and structural unemployment have thrown twenty million Americans out of work.

Now theoretically this could all happen. But the key premise, which I've screamed out in capital letters is that the Fed stands by and twiddles its thumbs. By creating liquidity the Fed can permit debt expansion. Expansion of debt and credit necessarily expands the money supply. Expansion of the money supply is inflationary, not deflationary.

Over the next dozen years I'm betting on worsening inflation, at least to double digit levels and possibly far beyond that level. As the price of oil rises the Fed will have a choice to either

1. Restrain the growth of credit and money so as to restrict inflation or

2. Expand the growth of credit and money so as to avert deflation and depression.

Helicopter Ben is not going to fight inflation at the risk of triggering another Great Depression. (By the way, the case of Japan twenty years ago was very different from the current situation faced by the U.S. Also note that Japan has had a controlled and gradual deflation that has not stopped its long-term economic growth, though it did slow it down a great deal.)

"I do not think financial organizations will suddenly refuse to lend out of fear..."

What makes you think it isn't already happening?


Falling home prices nationwide and a rise in foreclosures have scared investors away from buying securities backed by home loans.

That, in turn, has led to tougher lending standards and higher interest rates.

"I do not think financial organizations will suddenly refuse to lend out of fear..."

Another example:

Mortgage problems hit Houston market

One of the nation's largest mortgage lenders, Houston-based Aegis Mortgage Corp., stopped taking new loans Monday, amid a day of news that signaled tougher days ahead for lenders and homebuyers.

Triumvirate of collapse - Economy, Ecosystem,

Just came across this one at the RoundUp


U.S. mortgage lenders like Wells Fargo and Wachovia are raising interest rates and imposing stricter standards on some of their most creditworthy borrowers as slumping demand in the mortgage bond market chokes off financing.

On Friday, Wells Fargo, which is based in San Francisco, curbed its financing of so-called Alt-A loans, which are made to some borrowers with good credit ratings but without documented income, or to buyers of second homes. On the same day, Wachovia, which is based in Charlotte, North Carolina, stopped making Alt-A loans through brokers and smaller lenders and curtailed some adjustable-rate mortgages, said a spokeswoman, Christy Phillips-Brown.

"The credit crunch is here," said Keith Shaughnessy, president of Foundation Mortgage in Littleton, Massachusetts.

Now theoretically this could all happen. But the key premise, which I've screamed out in capital letters is that the Fed stands by and twiddles its thumbs. By creating liquidity the Fed can permit debt expansion. Expansion of debt and credit necessarily expands the money supply. Expansion of the money supply is inflationary, not deflationary.

Unstated in this is conversion of the debt/credit into consumer spending. The bull market from 1982, culminating with the stock market bubble of the late 1990s, was converted to consumer spending because the resulting "wealth effect" from capital gains in the 401(k)s convinced Americans they did not need to save. Cheap credit blew a real-estate bubble that appears to be deflating now and was converted to consumer spending through equity withdrawals (see, eg, Calculated Risk's charts on GDP with and without mortgage equity withdrawals). While the increased spending was the result of cheap credit, the consumers didn't see it as taking on increased debt -- in both cases, the households saw their net worth increasing.

The Fed can set the stage for cheap credit, but they have little control on where it will flow, and whether or not it will end up as consumer spending. How does the Fed get it into the hands of the consumers without having it show up as explicit debt in their household budget?

I am assuming that if you give the American consumer a chance to spend more, then he or she will do so. By pumping more cheap credit into the system, I think the Fed can keep the real economy perking along; in other words I do not see much of an increase in unemployment during the next twelve months.

To make U.S. consumers afraid to borrow and to spend, you just about have to have a significant increase in unemployment rates. In other words, if real economic growth goes negative, then the elements for a vicious circle of fear and panic and debt deflation and declining real GDP becomes possible. But the real rate of growth in GDP is positive--maybe a bit slower than a year ago, but still well into positive territory. And this positive economic growth is happening despite a rotten real estate market and weak sales for new vehicles--which I find truly remarkable.

I do not assert that Depression and deflation are impossible, only that--given the data we now have--they are extremely unlikely.

On the other hand, a severe stagflation such as we had in the late 1970s and early 1980s is entirely possible and is, in my opinion, rather likely as a response to Peak Oil. Thus I can see zero real economic growth along with double digit inflation and the prime rate back up around twenty percent. We've been there before, we can go there again.

But in my opinion, the conditions that gave rise to the Great Depression simply do not exist any more, and while Peak Oil will (I think) choke off real economic growth, the nominal GDP and the money supply can both go on increasing for years to come. True, stagflation could theoretically mutate into depression, but I think it is much likelier to mutate into increasing rates of inflation.

Debt is a monster. We can kill the monster with major and abrupt and unexpected increases in the rate of inflation. The Fed knows that. When push comes to shove, I think they will kill the debt monster and capitulate on the fight against inflation. Indeed, Ben Bernanke has said as much in his infamous "helicopter" reference: There will be no deflation on his watch.

A real world observation...

A major bank, of which I have a credit card, has been offering me 0% loans for 5 months, or 4.99% for the life of the loan. ($200 processing fee)

Yesterday, I got an offer in the mail lowering that to 3.99%. for the life of the loan.

I'm not sure why the rate dropped 1% when credit markets are supposedly tightening...



My CC gives me those same offers. They have a nasty hook in them. Read the fine print.

What they do is charge exhorbitant rates for ordinary balances. They will set up a special teaser rate for that one "loan".

Any subsquent charges against the card ( purchases, accrued finance charges, etc. ) will incur the exhorbitant rate, and you will NOT be able to pay it off until you have first completely paid off your teaser loan, as they will credit any payments you send them against the freebie teaser first.

While you are enjoying your "cheap" loan, they are enjoying charging you exhorbitant fees for the "ordinary" part of the CC balance which there is no way for you to pay down until you have your teaser account repaid.

Its a baited cat trap. My advice is to shred those offers.



part of what hardhat says is true and part is not. i have bought houses using these types of loans(and i wont bore you with the details). yes by all means keep your credit card purchases separate from these "loans". and as long as you perform as you agree, they really will be at 3.99 or 4.99 for the life of the loan. ask a lot of questions before you borrow any money from them i.e what is the minimum payment ? assuming you deposit the "checks" in your bank, find out when the money will actually be available (typically 11 business days, i think)
currently i have a total of 4 cards, one of which i use for ordinary purchases, which i pay off each month. i hope to get them all paid off by year end.

one problem with these loans is that they are considered revolving credit, and in short the only revolving credit that will do your credit score any good is the ones you have already paid off.

I think you are essentially on target with your prediction of a return of 1970s-style stagflation. However, what is happening with price levels and currency exchange rates and financial markets will mask a more profound underlying trend: As the real price of energy in all forms (and along with them energy-intensive or energy-linked essentials like food) continue to rise inexorably, the real prices of everything else (including wages) must also inexorably fall. The GDP pie can only be sliced so many ways, and a bigger slice for energy leaves smaller slices for everything else.

Thus, while it won't technically be anything like the Great Depression, when you focus on what is really happening with all those non-energy pie slices, the practical effect as far as the daily lives of most people is concerned will be declining wages and declining living standards -- pretty similar to what folks experienced during the Great Depression. This time around, people are going to feel increasingly poor as the government and the media and their bank statements are all telling them how supposedly rich they are.

I agree with stagflation at least at first(likely now). Thinking of all the retirements and such that can be paid with worthless $ makes sense in the long haul.

What so many people miss is that the fed cannot lower rates, not this time. Most of our debt is bought by foreign investors, they won't pay for negative returns, to save our addicted US gov/lifestyle.

Helicopter Ben be damned he is stuck like a rat in a trap.

Don,on another board,I heard it said that "mr Helcopter" had already started dropping....Look at the 8-9 billion that "disappered"in Iraq...easy way to get some inflation without it showing up in statistics....

I assume you are familiar with the term "liquidity trap," where lenders refuse to lend or borrowers refuse to borrow. This is the famous case of "pushing on a string" with monetary policy impotent

It is indeed a liquidity trap that I am expecting.

I do not think financial organizations will suddenly refuse to lend out of fear, because I think they will retain confidence that the Fed can and will prevent financial collapse.

I think they are already refusing to lend out of fear, although I would say we are at the very beginning of the process at the moment. Banks may not be able to sell LBO debt to investors easily, but some deals are still happening with the banks holding the debt themselves. People can generally get mortgages even though the liars loans have mostly dried up, and they can still max out credit cards or get car loans etc. Further down the line, I wouldn't expect any of these things to still be happening. I think loans will be called in in the mother of all margin calls, and that credit will only be available to those who don't really need it, as has traditionally been the case. Fear and risk aversion can spread with lightning speed - Cramer is a case in point if you contrast his rants from three weeks ago with the most recent one.

It is all about confidence and expectations: If fear and panic take over, then we could indeed get stuck in a liquidity trap and have the Mother of all credit crunches (with the Great Depression being the Grandmother).

I agree completely that it's all about confidence and expectation. The difference is that I am fully expecting fear and panic to take over while you are not. I doubt if we'll have all that long to wait to see which way things develop. By the way, I think this depression will be worse than the last one because the scale of the excesses leading up to it is significantly greater.

Brokerage houses and investment banks fail AS THE FED STANDS BY, PARALYZED BY FEAR AND INDECISION because the dollar is in free fall in the international financial markets.

I don't think the dollar would be in free fall. As I said below (I think) to vtfarmer, I think the dollar will benefit from a flight to quality in the international debt markets as credit spreads widen. I also think it would be in great demand domestically as people try to sell all manner of assets in order to cash out or meet margin calls. I think the Fed will fail to act quickly enough because it will underestimate the speed with which fear is spreading and sucking liquidity out of the market. Arguably it is doing that already.

By the millions, American home owners give up on the American dream of home ownership and let their homes go into foreclosure without a fight because massive cyclical and structural unemployment have thrown twenty million Americans out of work.

I think loans will be called in and unemployment will skyrocket. I can indeed see many giving up their homes without a fight. Fighting takes resources, and I'm expecting those to be in short supply.

By creating liquidity the Fed can permit debt expansion. Expansion of debt and credit necessarily expands the money supply. Expansion of the money supply is inflationary, not deflationary.

I don't think the Fed will be able to create liquidity because fear can remove liquidity faster than the Fed can create it, especially when willing borrowers and lenders are hard to find (ie the liquidity trap). I think we're looking at huge debt defaults, which would be magnified by the enormous degree of leverage involved. Leverage can carry you a long way up, but it kills you very quickly on the way down. My guess is that the money supply will implode.

>I don't think the Fed will be able to create liquidity because fear can remove liquidity faster than the Fed can create it,

Bailout is likely to happen from Congress not the fed. A bailout from Congress would imply that the US gov't is guarenting loans which removes the fear factor from the equation. My guess is that we will see some a bailout from Congress soon. How much is initially bailed out is likely to shape the money supply (inflation or deflation). I think if we see a bailout of at least $250 billion we slide into inflation. Below that we'll probably have deflation. Although this a just a guestimate.

Wonder if I'll regret not putting 50 bucks down on a McMansion. If the government eventually pays them all off, it'd be useful to have a spare place for storage.


Wonderful collection of material on Roundup today.

On topic, I know Bernanke is under much pressure to lower rates, but aren't low rates what got us into this problem in the first place? (I know the argument that it was undisciplined lending practices that got us into the problem, but I really don't see the financial institutions policing themselves now.) Kunstler made the point that re-creating the source of the problem is rarely a solution. A couple other glitches I see are the weakening dollar and the amount of our public debt that is held by foreign nationals ($2.2 trillion at this moment). If rates drop and the dollar weakens further, what is their motivation to continue loaning us money? I know they will recognize that if we collapse, their economies might well follow suit, but if they figure we will collapse anyway, wouldn't they want to get somewhere safer first?

Thanks :)

IMO Bernanke is caught between a rock and a hard place because the bond market is a very hard task master. I believe he will lower short term rates, although not soon enough to avoid exacerbating a developing depression. Long term rates are another matter however. I can't see those coming down as investors will demand, and get IMO, their risk premium.

The dollar should benefit from deflation, at least initially. Domestically, I would expect most asset classes across the board to fall in relation to cash (cash is king in a deflation). Internationally, the relative value of different currencies would depend on which currency was deflating the fastest. The dollar should benefit from a flight to quality in the debt markets as credit spreads (the premium over treasuries) widen. Spreads have been laughably low in recent times, reflecting widespread complacency, but that is already changing. Once investors become less concerned with the return ON capital and more concerned with the return OF capital, then treasuries should look really good.

A rise in the dollar could be enhanced by a short squeeze on the dollar bears, who are legion at the moment. With so many people taking the same side of the bet, I would be a good contrarian and take the other side if I were a betting person. I do think the dollar will eventually go the way of all fiat currencies, but a sharp deflation could play havoc with the best laid plans of mice and men in the meantime.

[Once investors become less concerned with the return ON capital and more concerned with the return OF capital, then treasuries should look really good.]

That was my concern, so I put everything into either hard assets that can produce any food or energy I need or in treasuries, figuring at least I would get the principal back, even if it's in devalued dollars.

The estimated value of US residential real estate is well over $20 trilion. It doubled in the past decade, which makes one wonder what the definition of "value" truly is. The paint is peeling, and the roof leaks, but my home keeps increasing in "worth", every single day.

If home prices across the board go down 20%, and they will, and then some, you lose your first $4 trillion. That's a large amount to pump back in, even for a guy with a printing chopper. If it can be pulled off, you're still only back where you started.

But that's only the first wave: all that real estate has been used, through securitization, as collateral to borrow ten times its supposed value, or a hundred times. So you don't just lose $4 trillion when home prices start tanking, you also lose the $40+ trillion in leveraged credit sucked from it.

And that will be far too much for a chopper, or even a spaceship. Money will disappear much faster than it can be printed or lent out. The only people wanting to borrow will be those that need to pay off their debts.

And that is precisely where all stories of Fed to the rescue fail: all suckers have already been sucked in. There are no new buyers or borrowers. And when that home price collapse inevitably comes, there won't be a middle class anymore either. The US dollar will lose value even faster than it has so far, and Wal-Mart will become a store for the rich only.

If Bernanke and Greenspan are such able students of the Great Depression, how come they are producing an exact copy of it?

>If home prices across the board go down 20%, and they will, and then some, you lose your first $4 trillion. That's a large amount to pump back in, even for a guy with a printing chopper.

Home prices probably won't fall that quickly in one year. Over the last 12 months, our trade deficit has been about $60 billion per month or about $720 billion a year. Then factor in gov't deficit spending about $550 billion (if you include the SS revenue surplus that is spent every year), we are talking about expanding the money supply at least $1.2 Trillion a year. Now $4 trillion doesn't see so large. Plus there is a lot of foriegn dollar holdings. Perhaps overseas investors may chose to convert deapprieciating dollars into hard assets (Land, businesses, commerical properties). This could prevent assets from falling in value. There are a lot of factors that make deflation less than a sure outcome of the housing bubble. Sorry I don't have a crystal ball to tell you what will happen.

Deleted to reply below did not see it posted.

If Bernanke and Greenspan are such able students of the Great Depression, how come they are producing an exact copy of it?

Because that is their goal. Along with GoldmanSachs head Rubin (Clinton's Treasury Secty) and GoldmanSachs head Paulson (W's Treasury Secty), they only care about a small minority of US residents. Their insider buddies will hugely profit from the depression.

That I find impossible to believe...a depression is no environment to foster any sort of prosperity, no matter what minority it might apply to.
The uber-rich might be divorced from reality in many ways, but they can't completely separate themselves from the rest of the world. They also presumably had some exposure to history...French Revolution, Soviet Revolution, etc. etc.

I dont,wiz...we have a lot of people in power now who belive that with the orwellian tools at their disposal,control of a population is possible w/o any restaint.They are wrong,but that does not change the belief

Shades of 12ft lizards running the world if you ask me.

I'd modify that a little bit; the aim is to benefit their insider buddies (social class) and pursuing those policies so singlemindedly it seems they might well produce something like the Great Depression. Plus mass die-off, of course. Ooops.

cfm in Gray, ME

Don, the Fed has the wherewithal to create unlimited credit, but it cannot force people or institutions to borrow it. Therefore, it is not all powerful, it is dependant upon the collusion of the rest of society, it cannot simply create money and push it into the economy by itself. Society cannot take on unlimited amounts of debt and at the moment just about every orifice has been stuffed with as much debt as could be possibly created.

The Fed has also already done its inflationary party trick. Since 2001 the Fed has been fighting deflation and ballooning the money supply creating inflation. What we are seeing today is a kind of fatigue where the economy is maxed out and cannot take any more debt. So, unless the Fed can create a new source of debt demand, it is powerless to stop deflation.

One question that someone maybe able to answer; how does oil factor in the creation of dollars. Presumably, the increase in the oil price creates increased demand on the available supply of dollars, which is probably met by dollar creation. Anyone know how this happens? Has the Fed been using higher oil prices to inflate the money supply?

Triumvirate of collapse - Economy, Ecosystem, Energy

the one issue not mentioned yet is the third leg of the "triangle of doom", as i call it..

The petrol dollar is not immune to devaluing. We can only threaten and muscle so much, before opec and the rest of the world cant afford to loose any more money trading oil in dollars. If the fed lowers the rates too much, an avalanche past this line will destroy the dollar, but also devalue the debts of the US gov. and average americans. Holding (or raising) the rates will destroy the banks and the economy, but save the value of the dollar, and the central banks strangle hold over it.

its 2:19pm .. i hope the A.C. is working in the PPT control room....

And let's not forget that economists have predicted 17 of the last three recessions; and armchair economists 73. There is a tremendous need among the producers and traders to have the economy work somehow. It doesn't have to be pretty or make sense, it just has to realize a profit on the short term. Some form of economic system will of necessity continue to go on even if it is just barter.

The dollar has been destroyed so many times in my lifetime that it has become like a video game character. But oil may just pull the plug on the game.

When it is no longer a question of price but availability....

And yet today the Fed chose not to lower the discount rate. They chose not to inflate further. They chose not to loan more money. In fact, they say they are busy fighting inflation!

Don, in my opinion, the Fed still thinks they control the beast they've mounted. They don't realize that the beast is wild and beyond their absolute control. I'd say the Fed is in the very dangerous position where now they could have a big blowoff before their next meeting. The damage can occur overnight. Loans are being called in now. Recently a third Bear Stearns fund told investors they cannot get their money out. More recently a German hedge fund just told the rest of their investors "sorry suckers". We're seeing the 21st century equivalent of runs on the bank and the Fed is sitting still.

I'm not sure the Fed even understands what is happening around them, Don. In fact, I think the Fed is "fighting the last war" with a Maginot line mentality and this war will overtake them from a direction they do not anticipate. The only question is whether they can react in time to cause massive inflation. But even so in a world of declining real resources, whether you inflate or deflate does not matter. Eventually there is not enough to go around and let all live as they live now. Someone, actually many someones, have to move down the quality of life tree, perhaps a long ways and it doesn't matter if they are inflated down to that level or deflated down to that level.

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

The Fed team could drop the ball and we could go into a debacle of debt deflation; I do not deny that this outcome is possible. But for it to happen there would have to be a great destruction of confidence in both the consumer and in the investing community. As of now, most decision makers either believe the Fed's reassuring messages or they think that others believe it (which has the same effect).

The Fed did not cut the discount rate today because they do not see the danger of a credit crunch as imminent. Time will tell whether or not the Fed is correct.

I've lived through real credit crunches (c. 1980) and they are nothing, nothing whatsoever like current conditions. For the credit worthy there is still plenty of money to borrow, and for many of the non credit worthy (such as the U.S. government) there are essentially unlimited sums available to borrow--should the Fed choose to monetize federal deficits.

A debt deflation would worsen our response to Peak Oil because it would tend to cut off funds needed in the energy industry. I don't think deflation will happen, but if it does we'll see a large portion of the U.S. population sink into more or less instant poverty. Bernanke and the other Fed governors will fight without limit to prevent deflation, and I think they will be successful (though at the cost of double-digit and increasing inflation).

I think monetization of federal debt is the direction they will end up going. They are going to just continue to hold firm at 5.25, neither moving up or down, because we and everyone in the world knows now that they are between a rock and a hard place. They'll probably try to do the monetization operations as quietly and discretely as possible, which means slowly and in small steps. There will be plenty of sharp eyes on the lookout for it though, and it is not the type of thing that can be kept secret if done on a scale that will actually make much difference.

With the dollar on the floor, I don't think the Fed had much choice but keep rates as they are.

With the US consumer maxed out, housing bubble busted, derivatives scam on the rocks and LBO's broken, it wouldn't surprise me if the Fed look to new areas for debt creation. But first they may have to strengthen the dollar before looking to rate reductions, if even possible. The US still needs to attract foreign money as it is itself heavily indebted. Those foreigners may well require higher interest to compensate them for investing in an increasingly risky US.

Triumvirate of collapse - Economy, Ecosystem, Energy

Another reason the Fed may have to think about strengthening the dollar.

China threatens 'nuclear option' of dollar sales

Triumvirate of collapse - Economy, Ecosystem, Energy

that would strengthen the china position as well.

inflation is the only viable option.

Copied down here to reply to the proper instead of duplicating.

No but if China does the nuclear option it will get far worse... Thats not cool that China is doing that it shows how even further we are able to be decimated.

Option A) we bow therefore they become our leaders so to speak.
Option B) tell China to stuff that. We would then prove no matter what we honor our bonds and will not be intimidated nor blackmailed.

Its not realistic to nullify the bonds they have as that would make nobody trust the USA ever again for debt... This is a soggy sandwich..


Russia, Switzerland, and several other countries have reduced the their dollar holdings.

This is significant and ominous. You can count upon the Swiss to be totally prudent.

>And yet today the Fed chose not to lower the discount rate. They chose not to inflate further. They chose not to loan more money. In fact, they say they are busy fighting inflation!

Because that won't fix the problem. What is required is a bailout from Congress, which is almost certainly in the works. Just because all the fed has is a hammer, doesn't mean that they can't call up their buddies in Congress that have a saw.

In the inflation/deflation debate again. If the Fed does manage to inflate the dollar, this will, as you say, have the benefit of inflating away a lot of debt at government level and corporate level. However, at personal level, there is a serious difference. I simply do not see wages keeping up with double or triple digit inflation. So, in effect, the debt that corporations and all employers owe their workers will also be inflated away, leaving the consuming public vastly impoverished. What happens when the public is impoverished? They stop consuming, at least at the level that will keep our fantasy economy going. Then you get the snowballing of retail businesses closing, people being laid off and massive unemployment ensues. The Great Depression only this time with an extremely worthless dollar.

So what's worse? An inflation driven Greater Depression in which few have jobs and even those who do earn worthless dollars or a deflation driven Greater Depression in which few have jobs but those who do have dollars that are still worth something?

A 1000 year drought? I assume you mean "1-in-a 1000 year drought", however this statement didn't come from any scientist as far as I can tell: its certainly not clear how this would be measured.

The reality is Australia is a dry country, and has always suffered droughts. The current one is especially bad, and is probably partly due to the effects of global warming, but it's not the end of the world as we know it. As yet, I've not seen one instance of local produce missing from the shelves, or priced at amounts astronomically higher than usual (the one exception was bananas, but that was due to cyclone damage, not drought). We still export large amounts of food, though somewhat less than in pre-drought times.

The one thing that does concern me is that there has been no talk of whether we should examine adjusting our immigration policies to allow for the possibility that our food production ability may not be able to keep up, in the face of a hotter and drier climate. We can't afford to become a net food importer.

The NY times has an article about the problem with roads and bridges today. Generally interesting but it says this:

“Too many American cities are spending far too much money on expensive rail transit projects, which are used for only 1 to 2 percent of local travel, and far too little on highway projects which are used for 95 to 99 percent of local travel,” Randal O’Toole, a senior fellow with the Cato Institute, said in an e-mail interview."

By all means fix bridges and roads but not investing in mass transit is the height of foolishness.

The CATO Institute advocates expanding the US road/highway system.

The thing is...he's right. That is why Stuart Staniford says more fuel-efficient cars are a better investment than light rail. And Stuart is peak oil aware.

For people like O'Toole, who think the happy motoring can go on forever, investing in highways instead of rail is a no-brainer.

Just as Exxon-Mobil et al finance Global Warming deniers, they also fund Wendell Cox and Randall O'Toole (plus some lesser anti-transit advovcates). Their looseness with facts has been documented repeatedly and I no longer waste time reading them.

On a somewhat related note, I got an early version of my "-10% US Oil Use in 10 to 12 Years" plan to the NPC. They avoided considering it by making the policy decision that they would not advocate fewer VMT (vehicle miles traveled).


In that case, is it any wonder that they are not getting a great deal of sympathy these days in the halls of congress. Happy motoring, of course, is the key to their business model. Their business model, however, is not in any way compatible with the long term health of the planet.

Leanan, a classic false dichotomy. We can make small cars more efficient, but building the small cars that we can build now in lieu of most of the SUVs and light trucks would cost less not more.

And while we're at it, a whole lot less new cars in general. Cars last a lot longer now. Americans are scrapping basically sound cars because the upholstery has gotten ratty, the paint isn't great or they need a couple hundred bucks in mechanical repairs.

I am not the heavy advocate for light rail that Alan is, but for whatever reason, people still see riding on a train as something they would do ... and buses as something the other guy / gal should be doing. Let's restore all the old lines that made sense in their day and make intelligent choices about new rail projects.

My point is that the average voter sees funding for rail as something that benefits a small group of people at the expense of the vast majority. And, currently, they're right about that. And being told, "You can move closer to the rail line" isn't going to win over anyone.

One solution to NIMBY (someone else gets the goody) to a city wide approach.

The Washington DC Metro serves a good % of DC and surrounding suburbs.

Miami came up with a plan that would, over 25 years, build an elevated Rapid Rail (think subway) with 90% of current residents within 3 miles of a station and a bit over half within 2 miles and a fair # being within walking and bicycling range.

Medium brown lines are 2016+

Of course, Miami is reforming itself in the meantime. In 2004, I saw 15 of 23 construction cranes within 3 blocks of a Metro station.

Even Mulhouse France (pop 112,000), which got it's first tram line in 2006. will have that line extended and two more by 2012. Something for everyone !

The interstate highway system passed because all 48 states got one (later Hawaii got theirs as well).

France is building a tram line just about everywhere (I found just 5 towns >100,000 in France without a tram or plans for one and two <100K with one) so support can be widespread. Meanwhile the FTA in the USA is doing their best to discourage building Urban Rail.

A truism is as an Urban Rail system expands, ridership overall not only increases, but ridership density on older existing lines increases as well. This makes sense, since there are more places one can go via Urban Rail.

Best Hopes for



I think the problem goes much deeper than that, to the divide between city folk (including those who live in the suburbs of large cities) and the rest of the country.

New York is a microcosm. NYC is like a different planet from upstate NY. Upstaters see public transportation as a subsidy for NYC. While city residents are just as resentful over the highway spending upstate. Each sees the other as a parasite, not paying their own way.

NYC is like a different planet from upstate NY. Upstaters see public transportation as a subsidy for NYC. While city residents are just as resentful over the highway spending upstate. Each sees the other as a parasite, not paying their own way.

Leanan is absolutely right with that statement. Both the City/Long Island/Westchester resident and the upstate resident believe that if New York State was split into two states at the northern Westchester County line, they'd be better off because their tax money could stay home.

I'm not sure which one of them is right, but I suspect it's the City resident. (And this coming from an upstater) Those NYC financial markets bring in an awful lot of money to the State. My guess is it is enough to outweigh all the extra mass transit, social spending, and extra school aid that flows down to the City.

"[E]nough to outweigh"? I'd suspect even just the $14 billion year in tourism dollars generated by NYC would be enough to cover it. As far as the financial markets go, something like a trillion dollars worth of transactions go on every day in NYC, whereas the cost to support the infrastructure might be in the millions of dollars a day.*
NYC must pay for itself many times over.

* Note however someone has estimated at least $1.6 trillion needs spending over the next 5 years to bring the infrastructure up to date. At ~870 million a day, that would definitely throw the GCP into deficit, but presumably it's a "one-off" phase, and the investment would pay itself off soon enough.

A query on those numbers.

If it would cost an estimated $1.6 trillion over 5 years to bring NY(C?) transit up to scratch, what sort of figures would one be looking at for the entire US?

This site http://www.transportation1.org/tif1report/execsummary.html does not estimate costs that high, but it also predicts 400 million vehicles on US roads by 2035, up from 246 million now... seems unlikely given liquid fuel constraints, even with smaller cars. They at least acknowledge rising oil prices (although suggest an initial drop back down to around $50/barrel). Who knows how much PO awareness gets incorporated into this sort of forcasting...

"You can never solve a problem on the level on which it was created."
Albert Einstein

Oops, the $1.6 trillion was for all U.S. not just NYC:

From http://www.cnn.com/2007/US/07/19/manhattan.explosion.ap/:

The American Society of Civil Engineers estimates that it will take $1.6 trillion over the next five years to get the nation's roads, bridges, dams, water systems and airports into good condition.

Of course, Miami will be under water in twenty-five years.

Cherenkov...the new light rail cars come equipped with snorkles.

Given the majority support for light rail in Denver, including voting themselves a tax increase for the long range funding, I guess the people in Denver are not the average voter.

Obviously not. They are city people.

Nobody is proposing building mass transit anywhere except in cities (Rural mass transit makes a pretty good oxymoron).
According to the Census Bureau, 70+% of US citizens live in urban areas, but rural residents unfortunately have out-of-proportion political power (2 Senators for Wyoming's million people, 2 Senators for California's 27 million, so each Wyomingite has nearly 10 times the political power of a Californian in the Senate).

I would think that much over-representation of rural voters would be a very strong root reason why many here are convinced that democracy is so dysfunctional in the U.S. (not suggesting it's the only one, or that I necessarily believe U.S. democracy is completely dysfunctional, but it sounds like a very serious problem).

It was a compromise that was made during the Constitutional Convention to get the Southern agricultural states to sign on. In the Senate each state got two senators regardless of size and population, the allotment of members of the House of Representatives was based on population (but even here they compromised in counting slaves as 3/5ths person) . Originally it was thought the House of Representatives would be the most powerful and influential, and originally it was, and the most prestigious politicians of the day were in the House. But by the 1820’s this had changed and the Senate became more dominate and continues to this day. As the West became settled most of these territories became states that had small populations and rural. With two senators each these rural lowly populated states could wield large power in blocking bills to get what they wanted - such as agricultural subsidies. Hence this is why we have had Senators such as Bob Dole from shitkicker states that have a lot of power..

My point is that the average voter sees funding for rail as something that benefits a small group of people at the expense of the vast majority.... And being told, "You can move closer to the rail line" isn't going to win over anyone.

Someone needs to focus on moving jobs, not just people, close to the rail lines. Take the Denver metro area, currently building a light-rail system that Alan seems to like. The system will be useful if your job is downtown. But there are other major job concentrations -- the Tech Center and Inverness to the south, Interlocken to the northwest, the Diagonal between Boulder and Longmont -- where the light rail system is simply not going to be useful in getting people to and from work. What incentives will companies have to relocate a building where 1,000 people work? What incentives will a walkable neighborhood near a light rail station have to accept a very large building where 1,000 people work?

In reality, we need a whole lot of changes. We need the light rail; we need telecom and computer technology to enable a "virtual" thousand-person building that's physically ten hundred-person locations; we need Engineer-Poet's zinc-air fuel-cell cars powered by wind and solar. And in the transition we need social changes like 4x10 work weeks (and if you think that's a small change, look at all the things that would have to change to accommodate a 4x10 work week for a two-earner family with two kids).

I admit to a bias in favor of the Engineer-Poet. If the suburbs can be electrified and made enough more efficient, it may be possible to avoid the kind of massive wrenching changes (eg, three formerly suburban families sharing a small urban apartment) that Leanan likes to describe.

You know what we REALLY need is farmers. About 50,000,000 farmers.

All the light rail and virtual commute in the world will be completely pointless if we all starve to death.

Quit trying to bandaid a moronic paradigm and start thinking new, NEW!!!!!

Not the same stuff in a different package. We need a complete overhaul of the system from the ground up incorporating, if not modeling our system upon, the natural world.

For you nimrods who say, "But what about the economy? We can't do that in a free-market system." I say, don't be so gloomy, doomy, woomy. The only thing free about the free market is the belief that energy was practically free for the past 150 years. The market is completely rigged to benefit the rich and to provide ever diminishing returns in the form of cheap consumer crap goods for the terminally poor.

Look, we can either scrap the clusterf*ck economic system we currently abuse the planet with, or we can patch and fix this runaway train until it rams into the end of the line.

We need NEW thinking. Not the old BS. Of course, that won't happen. Too many people invested in their 401k, their political party, their love of the great amerkin way. Too many people waving their Titanic brochures under the noses of the doomsayers, "But it CAN'T sink. It says so right HERE!!!"

My favorite post of the day. Couldn't have said it better.

Here's to NEW thinking!

I have a degree in English, but I've started working on an organic farm, in addition to growing my own food.

Oh, and my other new job (five years now) is as an EMT. ;-]

I'm quite serious.

I too am working (volunteering) on an organic farm. And it sure isn't easy. We planted about 8 acres by hand and I am the only one who has been weeding. Needless to say, I am less than successful at keeping the weeds at bay. Nevertheless, we are having a bumper crop of zucchini (not that difficult). On Sunday, I showed my "project" to my neighbor and his friend from Columbia. Both are avid gardners. The first thing they did was to pick weeds. The man from Columbia (70 years old with legs of a twenty-year-old) picked weeds from the row of sweet potato plants (500 plants). I could have kissed his feet. He has promised to return to help in exchange for all the vegetable he would like. When I see the amount of work it takes to farm, the enormous challenges (it hailed here last week) and the low price of selling produce (4 zucchinis for $1), it's really easy to say, 50 million farmers. It's a different reality to do it!
Oh, my neighbor and his friend planted 50 tomoto plants behind my neighbor's barn, a very private location on 20 acres. His friend picked and canned 30 quarts of tomotoes. The next day he went to pick another 50 quarts worth and someone stole all the tomatoes! Picked clean. Not one tomato left! There was no evidence of animals, the tomato plants were still staked, just stripped clean.
We must be getting near the Long Emergency.

someone could overdose on that many tomatoes.

Thefts from gardens and farms are quite common. Most farmers I know keep their shotguns loaded and ready. Some have shot at thieves, and the word gets around about which farmers are willing to shoot at those who would steal their crop. Thieves go for the easy targets.

Dogs help quite a bit as well as they alert the owner to start blasting buckshot ;-)

EMT as the P of ELP. Nice! Very nice.

Nothing wrong with 50m farmers in the US.

That leaves 250m living in cities.

Americans are fond of their "gentleman farmer" past, during the colonial period, but the fact of the matter is all advanced civilizations have been based around cities. Cairo -- Athens -- Rome -- Amsterdam -- London -- Paris -- Beijing -- Tokyo -- etc. etc.

Though not the Inka state, interestingly enough. However impressive and monumental, Cusco was a surprisingly small city relative to the vast scale of the empire.

>You know what we REALLY need is farmers. About 50,000,000 farmers.

With access to fertile fields and plenty of water. Farmers are useless without the land and the water required to grow food. Last time I checked, much of the good farm land in regions that recieve good rain fall have been plowed over into suburbia, and the midwest is dependant on aquifiers that are drying up.

Whats more disturbing about this is that they removed the topsoil that was fertile. Then suburbia has polluted what is left with chemicals to kill DASTARDLY WEEDS!!

Yeah I live in Suburbia and I get ticked off by the neighbors that have grass in a desert..

suburbia will be farmed, again. lawns will be turned into crops. fences will come down, and we'll be better off for it.

How about "the people who use this train will be reducing their demand for gasoline. Lower price at the pump for you."?

At least in Denver metro, the "average voter" saw rail transit as benefiting the city as a whole, perhaps because the FasTracks plan delivered a metro-wide system.
As in most of the recent votes on rail transit, the Fastracks rail initiative passed (with 57% in favor) allocating 4+ Billion $ for Denver metro rail.
Comparing percentage ridership on heavily-subsidized roadways with ridership on the mostly non-existent rail systems in the US is an apples-to-elephants comparision.

Road expansion in most US cities is no longer physically or financially possible, so the only practical choice is between transit and gridlock. Tearing down building to expand roads is financially ridiculous and the voids in the urban space created by expanded lanes just push all the uses and destinations farther apart, increasing the demand for travel. This is the core reason that even LA, now more than 50% pavement, still does not has gridlock. If LA was 70% or 80% or 90% pavement would traffic flow smoothly then? I doubt it, but LA would be an even less desireable site for human habitation.
Meanwhile European cities with many less lane-miles and much better transit transport millions of people every day with much less human life wasted in traffic jams, staring at a bumper or a guardrail.

The problem with restoring the old lines “of the day” is that you also have to restore all of the businesses and workplaces which at one time existed within walking distance of those rail lines when the old rail lines were originally built. Here lies the biggest flaw of Alan’s unceasing advocacy of light rail - workplaces are so scattered nowadays that most rail lines would be literally tracks to nowhere only servicing a few choice employers. Moreover, most employers moved away from urban centers to the hinterlands. It’s not like the early 1900’s where most things where located in a central hub. Are all of these employers going to relocate to be close to a rail line? Give me a break, or better yet start handing out big tax breaks for these employers to relocate further bankrupting the system.

Employers will move to where their workers can get to them.

An excellent example is when DC Metro added a new Station (New York St) to an old line (Red). Half a dozen office buildings started construction immediately.

Likewise Miami. Some of the new construction within 3 blocks of a Metro station is residential, and some is office.

We made a DRAMATIC move in 20 years (1950-1970) in the USA without any strong external force, just gov't policies. Add similar gov't policies and the force of post-Peak Oil, and it can go significantly faster.

Best Hopes for TOD,


Why should I move my place of business if my employees can already get to me by car? And sell my infrastructure, i.e., buildings etc.? And to an area where the real estate prices are probably higher as are the taxes? Another thing, and I’m getting the impression many readers here don’t grasp this, not everybody works in an office.

Why should I move my place of business

Most businesses move fairly often. Part of the "creative destruction" that some economists wax eloquent on.

They get bigger, they get smaller, they merge, they spin-off, processes change, they need better access to the Interstates, they need a rail siding, etc.

Post-Peak Oil, I expect this rate of change to increase.

Location depends upon a number of factors, and I suspect that the lower paid the workforce, the more important access via non-oil transportation will be. But being close to non-oil transportation will grow in importance for every business as oil gets ever more costlier. Access to suppliers and support techs will grow in importance.

The 1970s era model of small factories surrounded by agriculture on the side of the road, with an 18 wheeler loading dock and employee parking lot full of pickups will not be sustainable long term IMHO. Getting the wide diversity of supplies (from toner cartridges to specialty belts & bearings to drill bits) and support personnel (IT to HR to air conditioning repair) out there is an issue. And shipping all materials in and products out by truck will be ever more costly. And the labor commutes by vehicle an average of 22 miles or so.

When a major customer demands shipment by rail, perhaps that will tip the balance towards moving.

Just an illustration of what can happen, and IMO, will happen over a decade or so,


Alan, you have raised a point that I failed to consider. I remember most businesses built in the fifties in early sixties all had a rail line for receiving supplies and material. That stopped by the seventies - I’m guessing trucking costs went down and were more flexible than trains. Rail trunk lines will become more important again. Industrial corridors will develop around these lines. With rail right of way maybe passenger trains will also expand…

Most businesses that in the past have moved fairly often were heavily subsidized by (1) a growing economy and (2) cheap energy.

So, sure, if you see those two things continuing in the future, then rail has a significant future as a mitigation option.

The way I see storefronts currently, it looks like it's easier today to go out of business than to move.

In the future when a major customer demands shipment by rail, in a shrinking economy, with primary energy costs skyrocketing, it will more likely move immediately to someone who can currently provide rail shipment to a reachable market. It won't wait for further development to the suburban and rural hinterlands, and what services and products are provided in hard-to-reach places will be higher-priced.

Even Walmart can ship products by rail in the future, and by truck where there's no other option until the roads start breaking down from lack of maintenance and asphalt, and still claim "always the low price", because it's the only game in town after having assimilated local small town economies. Which doesn't help any of the town folk having to buy milk at $8 a gallon off of sparsely stocked shelves from a store open only 10 hours a day to save on electricity. And as monolithic corporations become the only viable employment option for most people, urban or rural, the corporations will concentrate where their lowest costs are, the cities, and that's where people will concentrate as well, increasing efficiency and reducing resiliency and slack, vastly outstripping local carrying capacity for basic necessities. Over time, the migration toward the cities will curb demand for rural rail development, cost estimates for which are continually increasing due to escalating primary energy costs. Leaving the self-sufficient people stranded by a government where the only vote that counts is the dollar.

Just an illustration of what's more likely to happen over the next five years. IMNSHO. Because it would be easier if we, right now, jacked up primary food costs by 300%, started forcefully relocating people to the cities, and blatantly released control of the government in a orgy of corporate fascism. Over the long run it would use less energy, even taking the orgy into account.

Post peak oil, it becomes harder to do anything that is "more", "progressive", "better", or "new". The only thing it becomes physically easier to do after peak is "less".

Yes, I suppose.

Not the case everywhere. For ex. in Switz. with its sharp up and down terrain, the tracks that the old trams or electric ‘light rail’ took were determined by geography, and existing towns, villages, also a result of the terrain. These rail - tram transport routes were killed off by cheap oil (or even just available oil) and some kind of nutty stab at modernity. Now they are all being re-instated, but the landscape of biz etc. has not changed much, because the geographic characteristics modeled them from the start. Small biz, settlements, villages, light industry, agri, and today, the office of Reuters and Hewlett and Firmenich, Rolex, (etc.) are on those routes. And the employees will take the RER (rail) or tram or boat, they will have no choice.

So problems in some places - necessity in others.

That is why Stuart Staniford says more fuel-efficient cars are a better investment than light rail

Stuart failed to consider the indirect effects of Urban Rail (Rapid or Heavy Rail, Light Rail, Streetcars and, to a lessor effect, Commuter or Regional Pax Rail) via TOD (Transit Orientated Development). Citywide experience shows (Washington DC being the most clear cut example) that gasoline demand/capita decreases as a city reforms itself around transit.

The walkable neighborhoods in Los Angeles are clustered around Red Line stations, few if any exist elsewhere in LA (I would like to see some Walk Score analysis, now that a numeric tool is available to measure walkability).

This makes intuitive sense. Services (shopping for groceries, dry cleaning, police bicycling, postal workers walking, UPS & pizza deliveries, plumber service calls, street lighting, water & sewer service) are all more energy efficient in denser rather than sprawl locations.

The observations to date show that the indirect energy savings of Urban Rail exceed the direct savings after time to "mature".

Best Hopes for TOD,


http://www.walkscore.com is sometimes too busy and coems back with an NA. Try again later.

Probably he does consider it but is worried about the time it will take for these effects to kick in. How long would it take to reform an existing typical suburban city to a walkable one? 50 years? I'm not sure we have that time...

Probably the best approach would be to combine them, with fuel efficiency being the near term (tactical) goal and electrified transportation and walkable neighborhoods being the long term goal.

Personally I think that the other indirect benefits of walkability - increased social cohesion, healthier and more natural lifestyle, more favorable position of elders and minors etc., are enough to persue it even without having energy efficiency in mind. But I'm an European so maybe I'm skewed about it.

Yeah. And so far, there's no convincing evidence that transit-oriented development works. Everyone says they want it, but even when they get it, they just keep driving.

It can even increase traffic problems:

Moreover, the attraction of shops and cafes that are often built into developments at transit stations can actually draw more cars to neighborhoods, putting an additional traffic burden on areas that had been promised relief.

I agree that, as the New York Times documented last year, Americans tend to keep driving until they are literally incapable of buying gasoline. So, perhaps the best model that Alan has is Switzerland, i.e., how a society coped with a 100% cutoff of new oil supplies.

The Export Land Model suggests that we are going to see an accelerating rate of decline in net oil exports worldwide.

I may write an essay about my daughter and son-in-law's search for housing along the commuter rail line between Dallas and Fort Worth. As fate would have it, they are working in different cities. I have been very strongly suggesting that they find something close to the rail line, and they finally found something they liked (the line has a station about a quarter mile from her workplace).

In any case, what amazed me was that no one renting residential properties along the line was pushing proximity to the line as a selling point. One apartment complex within walking distance of the line didn't even use it in their marketing information. The apartment manager had not even seen a schedule until I showed it to her.

In Switzerland almost everyone is Swiss.

In Switzerland almost everyone is Swiss.

The "Swiss" speak 3.5 official languages, generally only interacting with their own linguistic group.

It's not so much who one interacts with on a day to day basis, but more of a issue of whether one can come to a working arrangement when necessary. The Swiss can.

Much as though I am a 100% supporter of Alan's electrified rail plans and would like to see us move forward with them immediately, I am also a realist. I am afraid that what will actually happen will be BAU, more precious investment capital thrown down the rathole of soon-to-be-useless highways, and no electrified rail UNTIL significant numbers of people have no resort but to walk to work -- if they have jobs to walk to (or homes to walk from) at all, that is. Actually, it will probably have to get to the point where employers start finding it increasingly difficult to fill vacancies because they can't find any prospective workers that can get to their workplace. Once that happens, you can bet that there will be a sea change, and businesses will be demanding that passenger rail be put in ASAP. Unfortunately, there will be almost a decade lead time after that -- IF the money (real purchasing power I am talking about, not just paper with zeroes printed on it) can still be scrounged up AND it is still possible to obtain deliveries of rails and rolling stock.

Some places will probably somehow manage to still pull it off, with much needless, avoidable suffering in the interim. Other places will discover too late that they had by default and denial and inaction made a life or death decision, and it wasn't for life.

The problem I think is that the infrastructure inertia is enormous. In the end it comes down to that you can have a pedestrian-friendly city or a car-friendly city but not both.

Building urban rail and small communities around stations is NOT transforming a city to a walkable one, actually in some way it is encouraging suburban sprawl.

See Boston and their network of commuter rail.


Lack of parking at the Park & Ride lots is a constant issue with the MBTA.

Commuter rail is noted for having the smallest TOD impact by far, but it still has one. Apartments & condos are developing (slowly) around MBTA commuter rail stations, and smalls scale commercial to service them as well (I stayed with friend in Salem, she commutes by rail & bicycle to her job in Gillette Razor in South Boston, lack of North Station-South Station link is a major hurdle, we built the Big Dig for cars but not rail). She lives in pre-WW II sprawl (marginally walkable) and bikes to the station.

Is the about to open GreenBush commuter rail line SE of Boston a bad thing (from an energy POV) ?

A series of small villages (say 10K to 30K) will have commuter rail. Before, part of the work force worked in the village and part commuted by car to Boston. The old villages were walkable and still survive with small scale sprawl around the edges.

Some existing auto commuters will take the new rail line (good). New rail commuters will move to town, some into walkable areas close to the stations (good) and some into sprawl, driving 2 or 4 miles to the Park & Ride and 2 or 4 miles for groceries (questionable).

In theory, even the new sprawl rail commuters will drive less than "otherwise" (20+ miles into Boston) and they add density to Boston subways once at South Station. The spouse often works locally (tough to have two commuters in the family).

The Boston model is sustainable IMVHO. A large core city surrounded by walkable and low mileage drivable villages, connected to the core by commuter rail. The more remote country estates may have to go longer term.

And radial rail lines (better connecting villages to each other) MIGHT be a good thing.

It is not ideal, best is better than good, but good is better than bad (see The Big Dig, Phoenix, Houston...)


Apartments & condos are developing (slowly) around MBTA commuter rail stations,

So in order for your rail plans to work everyone is going to have to relocate to be near them? Or transfer two or more times to get to where they are going? That is really going to go over big with most people.

You'd be amazed at the hoops people will jump through after unemployment benefits have run out and mailing 30 resumes per week finally lands a job. Get on the train or get on the bread line.

And in an economy where that is the norm light rail, or anything else for that matter, is not going to help anything.

Actually GETTING unemployment benefits and landing a job with ONLY 30 resumes per week IS the norm? Gee, where is it THAT good?

People who've always had cars think that this is 'freedom', where I avoid getting in the driver's seat any chance I can, since I'm saddled with parking, spending time and gas while looking for parking, and having to keep looking at the watch to make sure my meter doesn't need feeding, etc.

You are right, people will be and already ARE very resistant to losing the 24/7 4-wheel drive capability, and the seats and trunk where they can strew countless bags and 'just in case' junk.. but many don't know the freedom of NOT lugging all that junk around.

I meant to comment on that article when originally posted.

Living in TOD reduces oil & energy consumption even if they do not ride the Transit in TOD.

Two friends (I own part of their former home in the Lower Garden District, they own the rest & we rent it out) until recently lived at Hollywood & Vine (see linked story). With rent increases, they moved to Downtown LA about 3 blocks from a Red Line station.

As in New Orleans, they like to live in Transit Orientated Development, but they rarely ride Urban Rail (now they do to get to the Farmer's Market they formerly walked to).

Two working adults in Los Angeles, one car, and they use 10 gallons (a fill up) every 2 to 4 weeks. They care not about auto congestion, because they do not drive most days.

Urban Rail > TOD > Low oil consumption but low oil consumption in TOD does not always = using Urban Rail. A disconnect missed by the LA Times story.

Auto traffic on Magazine Street is horrific. 5 miles of small shops and a narrow two lane street with parking on both sides. I see Magazine Street as a major social & economic TOD positive and auto congestion as a positive rather than a negative.

People are repelled by auto sewers, the traffic engineers dream and goal. We do not want to walk, shop and live in close proximity to high volume, high speed auto traffic. Speed up traffic on Magazine Street too much and you will kill it (the merchants came out against a traffic light timing scheme to speed it up).

TOD should be, IMO, devoid of auto sewers, and auto traffic should be secondary to living. I live on a 28' wide street (parking both sides), and it is a crime that new streets cannot be built less than 32' wide in the USA. That extra 4' allows traffic to move faster and makes every human activity 4' further away and reduces space for us humans !

What is fun is a nearby 30' wide street, parking both sides, that is two way :-)) It is not a high volume street for obvious reasons.

After Katrina, the Texans that came here in their dually pick-ups and Hummers were in a constant state of rage about our streets and parking. The city is just not designed for their vehicles, thankfully.

Best Hopes for fewer Vehicle Miles driven & More Congestion,


On the contrary, there is a great deal of evidence that transit oriented development works. Dozens of studies over the past 20 years have confirmed that. Walkable, well-connected neighborhoods with convenient transit and mixed uses in close proximity have significantly reduced VMT per capita.

VMT reduction for transit oriented development in more suburban locations is on the order of 20-30%. VMT reduction for central city locations is on the order of 60%.

And that's under current conditions and cultural preferences. If peak oil and global warming make driving a lot more difficult and/or expensive, the market demand will increase a lot. Plus, there are demographic changes already underway that will be increasing demand for walkable and transit oriented lifestyles.

How long would it take to reform an existing typical suburban city to a walkable one ?

An interesting question.

It took roughly twenty years (1950-1970) for the bulk of the destruction of central cities and downtowns, but that was just due to gov't policies, not under crash conditions and without a strong external driver (unless one wants to consider school desegregation as an external driver and not a gov't policy).

Dallas and a few other examples have shown TOD effects after the light rail line has started construction (dirt being moved, but paperwork) but before opening. Post-Peak Oil that effect should be stronger (buy your condo 3 blocks from the station 18 months before it opens and get it cheaper).

My opinion is that a crash program for Urban Rail will have little impact for 4 years, minimal in 5 years, moderate in 7 or 8 years, significant in 10 years and strong in 12 to 15 years. "Strong" means current EU levels of Urban Rail (but not 2025 levels in the EU).

Past 15 years, as success breeds support, the urban evolution will be powerful and strong.

The timeline to electrify our freight rail lines and expand their capacity follows about the same time line.

This makes a good match with changing the fleet, which will have the strongest impact in the first 5 to 7 years (assuming high mileage drivers are the first to trade in their Hummers for Priuses) and diminishing down towards zero by 17 years (in theory, total fleet replacement, everyone drives Plug in Pruises that can).

In the first few years, better fleet mileage, fewer VMT and reduced economic activity (see recession & depression) are the only significant oil saving options that I see. Even adding new railcars to existing lines is likely to be 30+ months.


Best Hopes for Subway Pushers,


People tend to compare driving with using public transportation as if the two were equal, but in reality they are two very different things. In spite of traffic congestion and the hassles of parking, often people still opt to drive even if public transport is available. I don't think any public transit system or solution (rail, cycling, bus, walking) at present can compete with the public perception that it's easier to drive from Point A to Point B. (There are some exceptions to this of course such as extremely dense walkable urban settings, like NYC.) When people compare driving to other forms of transport, they are comparing apples and oranges. If you use the public transportation system, or if you bike or walk, as I do, most of the time it takes longer to get where you are going, and you aren't sealed off in your comfortable private air-conditioned microenvironment, insulated from the rest of humanity as you are when you drive. You rub shoulders with the masses and/or you are contending with being a pedestrian or cyclist who must share the road with cars. It's necessary to radically alter your way of thinking about the choices available other than driving before you can accept what are often perceived as, and often are, the current limitations of not driving.

THE big issue really is money. If you are an affluent member of an affluent society, it doesn't set you back that much to buy a car or to keep it filled with gas. On the other hand, if you are just scraping by in a society that is a lot poorer than the USA, the owning and operating a car may very well be impossible to swing. Maybe you can just afford to rent a car for an occasional trip to places where public transit doesn't reach, but otherwise your options are public transit, bicycle (or maybe motorbike), or walk.

The inevitable and inexorable rise in energy prices will put US affluence to an end sooner or later, and most of us will end up with per capita incomes no more than about 25% of present values, at best. That will pretty much do it for the private passenger motor car, even if some form of fuel were still to be theoretically available at some price. Then, everyone will have the same choices as most people do in the rest of the world: public transit (if one is lucky enough to live in a locality where civic leaders had the wisdom and foresight to put it in -- that is to say, not in most of the US, at least not when needed, though maybe 20 years later), or bike or motorbike (if enough of them are still being made that you can actually get your hands on one, and keep the theive's hands off), or walk. I suspect a lot of people are going to get in a lot more walking in the future than they are expecting.

You left out the non-affluent members of the affluent society. Include them and it's not even clear to me that the society as a whole remains affluent. The affluent will continue to use their power to take away from everyone else: the privatization of the Maine State Pier comes to mind - either the consortium headed by Governor's brother gets it or the consortium headed by ex-senator George Mitchell gets it. Everyone else loses.

Expand that out - %5B the Maine Turnpike authority wants to spend to widen the turnpike through Portland. The Governor and legislature expanding tax breaks for businesses; isn't it a kool concept that a business can get back the income taxes paid by it's employees? The non-affluent will continue to have less and less ability to affect the policies that matter. There won't be any money for rebuilding cities, making them more walkable, or replacing vehicles (except for the affluent) because the system is run by the affluent to shift any available money to the affluent.

Because it will all be the fault of immigrants and welfare cheats everyone will need chips and there will be no welfare - meaning services of any kind. Except, of course for the police and prison system.

cfm in Gray, ME

True, although I'd suggest that even if the only people who switched to public transport were those who everyday sat frustrated in slow-moving traffic jams because that's just what they'd always done, despite there being a fast, clean, comfortable, safe and reliable train service that would get them to work in less time, that'd be a lot of cars off the road.

Of course, ensuring there is a fast, clean, comfortable, safe and reliable train service is the hard part. Here we have "reasonably fast, mostly clean and safe", but from what I hear, not terribly comfortable or reliable (indeed, so overcrowded that passengers have to wait for 2 or 3 trains to pass before one has enough room).

From a recent online poll from in one of our local papers (FWIW, one with a generally more politically conservative readership):

What should [new state premier John] Brumby's priority be?

Education 9% (71 votes)
Public transport 48% (350 votes)
Health 22% (165 votes)
Farmers 6% (44 votes)
Planning 4% (31 votes)
Major projects 8% (63 votes)

Hello AlanfromBigEasy,

The Quote: "How long would it take to reform an existing typical suburban city to a walkable one?"

I am 100% in favor of Alan's proposal, but failing that: my speculation on narrow guage minitrains quickly bolted to existing sidewalks could possibly be broadly geographically implemented in just a few years in a city like my Asphalt Wonderland. It only takes a few recycled Hummers and SUVs to make a minitrain like in these photos [please scroll down and click to enlarge photos of minitrain]:


Recall my numerous earlier posts detailing the advantages.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

I'm afraid that the Hirsch report was right, though. We really did need a 20 year lead time for painless mitigation. Since we should have started 20-25 years ago, we're now guaranteed years of pain while we're "in the gap" -- and that is presuming that we start today. We won't, of course. It will probably be another 5-10 years before we even get started in earnest.

Lots of pain ahead -- all of it totally needless, totally preventable.

Maybe it's not completely needless though. Sometimes we need a bit of pain to wake ourselves up to the problems in our lifestyles, which have arguably become far too comfortable and isolated from reality. Of course we may well experience quite a lot more than just "a bit of pain", which would be regrettable.

As to preventable: only if you ignore human nature. And this being human civilisation we're talking about, kinda silly to do.

You are correct sir!! He is not considering that it would take a major overhaul of American society to implement a France rail system. It would take at least 30 years or more. It would entail major resources that are not going to be there. Remember, this country is many times larger then France and we are staarting from basically nothing.

All this light rail is a pipe dream.

Show me a schedule and cost, not just empty words.

Bingo! This is the mistake of all utopian planners in that they fail to take human nature into account. And the nature in this case is resistance to change. There should be a bumper sticker stating “before I give up my car, you’ll have to pry my dead cold fingers off my steering wheel“.

Americans are resistant to the concept of a finite world, but that does not make the world any less finite. So, regardless of what Americans want or anticipate, change, i.e. reality, is coming fast, and it is coming hard.

So, how have some societies--like Switzerland--coped with 100% cutoffs of new oil supplies and how did the US provide for transportation before we really started using oil? Why not base our plans on these real life case histories?

C'mon man, you're comparing Switzerland of 65yrs ago with present day America?? You might as well compare stone age man with astronauts. This is a giant country consuming gigantic amounts of FF every day and the entire economy is predicated on that continuing. Switzerland in 1943 never used much FF to begin with and their economy wasn't dependent on it, Hell, they were only a few decades from when they first started using ANY FF. This is a ridiculous comparison IMHO.

Just watched a travel show on Europe. Lotsa electric rail and people riding them.
The point that I had a hard time getting my head around is that we are not going to have good options, unless you are aware of something I'm not. The past systems are proven. Energy is still pretty basic, compared to software, chips, etc. Looking back gives us our best lower tech sustainable transportation. I agree times are more crowded, more dependent than ever on FF.

1) The US will not have to go completely without fossil fuels the way that Switzerland did because of wartime. Hence USA's job should be simpler.

2) The Swiss population and output was proportionally smaller than the USA. More need, more resources.

3) Switzerland is mountainous even in populated areas, making rail more expensive than the USA.

There is a perfectly valid comparison---except for the apparent fact that Swiss are apparently able to do decent things for the good of society and too many Americans, unlike Americans of 1945, complain about how everything is impossible, even things that they and other people once did two or three generations ago.

the apparent fact that Swiss are apparently able to do decent things for the good of society

In 1998, the Swiss people voted in favor of a twenty year (2000-2020) program to improve their already excellent railroad system. Several goals, but #1 was to shift almost all heavy truck freight from trucks to rail. Another major goal was establishing (almost) High Speed Rail on several routes.

Cost ? 31 billion Swiss francs.

Adjust for currency and population and this would be like USA voting $1 trillion over 20 years.

Before the 1998 vote was an earlier 1994 vote that authorized a study. I wonder how many of those that voted in 1994 and 1998 will still be around in 2020 ?

To me, it was clearly a vote for the common good and long term sustainability of Switzerland, regardless of personal benefit (pay taxes now for two decades, maybe use the improvements a few times before death, perhaps not).

Best Hopes,


Nope, "human nature" does NOT equal "resistance to change". Human societies and cultures (there are many more than one) have always been changing and are changing even now. Otherwise we would still be subsistence farmers, or serfs, or pastoralists, or hunter-gatherers, or...

Of course, anything on such a big scale as societal change is impossible to see on a day-by-day scale. Kind of like watching a tree grow. You won't notice it grow while you are standing there - but come back an in a couple years and see the change.

Below is some info on societal changes happening in the USA on a generational scale. It is copied over from an earlier post of mine about our current "resistance to collective action"...

I know that it is hard to imagine "us", today's average citizens of the USA, pulling together for any collective purpose. We all know how divisive and polarized and contrary "we" can be.
*On average of course, you and I are not like that :o)

Something can give you some hope for the future is to look into how our society, our US culture, has changed its personality and its individual-vs-community focus many times during our history in pretty well defined and patterned cycles or waves. And another wave change is supposedly happening at this moment - towards a more community focused and collective action orientation.

You can read about it in the books by:

William Strauss and Neil Howe,especially -
"The Fourth Turning" http://www.fourthturning.com/ and
Millennials Rising: The Next Great Generation" http://www.johnreilly.info/miri.htm


Jack Lessinger's "Schizomania" and "Your County - Boom or bust?: The Rise of Penturbia the & The Fall of Suburbia" http://www.predicting2020.com/
(check out the "Insights" section for a quick overview)

Remember that our societal personality keep changing as the young replace the old, and today's ideas replace yesterday's. Even though "we" of today can not imagine doing something together, that does not mean that "we" of tomorrow will not be able - maybe even enthusiastic - to do it.

Greg in MO

Show me a schedule and cost...

Step #1


Start at $50 TO $70 Billion/year and increase from there. Completely stop building new roads & highways#, and devote 100% to new rail, plus additional resources, depending on how bad things get with oil and how much we can build, how fast.

Best Hopes for the WILL to do something,


# Much should also have deferred maintenance because 1) the money would be better used for rail and 2) much of it should be demolished at end of life rather than renewed. Bad roads are another inducement to move to non-oil transportation (keep the bike lanes in good shape, but that is easy).

Hope you see this..

What do you see as the preferable model in a renewed buildout of railways, private or publicly owned track and ROW? Maybe this is obvious or already stated, but I know that the old monopolies keep many people uncertain about the potential of allowing rail to grow again.

Bob Fiske

I thought about your question a bit.

IMHO, a time of major stress and convolution is not a good time to experiment with new ownership forms. Too much confusion can result. OTOH, I would like to see the duopoly's that were created via merger after the Interstate Highways & deregulation disappear and for there to be 3 and 4 Class I railways in a region.

Just speculating (not endorsing) reverse mergers like Union Pacific and Southern Pacific; make "trackage rights" (which already exist) more common and uniform (one RR can use another RRs track), make it easier to build brand new track and start new RRs (a small RR wants to expand from Montana to Minnesota now and is having trouble).

On a related note CSX is seeking federal aid to upgrade/build a 3 track (1 track for 100 mph passenger rail) without at grade crossings from Washington DC to Miami. We would benefit from that.

A worthy issue for which I do not have conclusive opinions.

I do see it as a Phase II or III issue though,


No schedule.

Let me try:

Year 1: planning.
Year 2: plans generate lawsuits and Enviromentals are upset, they sue too.
Year 3: More planning, more lawsuits.
Year 4: Projects start to be built, but at 100 billion a yr thrown at it, there is much corruption.
Year 5: More of year 4 stuff.
Year 6: Nothing has been built despite billions of $$ invested. Congress calls for investigation. Construction companies call for more time and money.
Year 7: Lawsuits all around due to non-completion of projects. The president finally puts the Army corpp of enginners in charge of the whole thing.
Year 8: more planning.
Year 9: First rail system is completed. A 60 mile line fromm Fresno to Merced, CA. Few riders, not very good planning. Rich Contractors.
year 10: The whole project falls apart much like bagdahd due to corruption, lawsuits, and lack of money since the economic effects of PO have cratered the USA
Year 11: Much of USA looks like Iraq circa 2004

You’re optimistic. I’m willing to bet it would never get out of committee because of legislators in districts not served by the rail system can’t see spending money on such a project without getting some kind of pork in return for their constituency.

New Mayor of Lyon France was elected on promise of building two new tram lines in the city (from A to B and C to D).

Three years 5 months later he cuts the ribbon on both of them.

We hire the now retired mayor and associated French bureaucrats, engineers, etc. and change our procedures to model theirs.

Similar deal in Madrid for 40 km subway in tunnel (1.1 billion euro, just over 4 years construction time).

The French build new tram lines (as they once did nuclear reactors) with amazing speed (typically 3 to 4 years from hand wave ("I want a tram from here to there") to ribbon cutting, and quite respectable prices (20 to 25 million euro/km including rolling stock, maintenance yard, etc.).

Just because Americans are terrible do-nothing paper pushers does not mean that we cannot learn from the French bureaucrats and their "Can Do" "Get it done" attitude and policies.

I have hopes that one day Americans will be 2/3rds as efficient as the French (who do this with 6 weeks of vacation/year, including the month of August, and 36 hour work weeks AND good food and good wine :-).

A toast to the French with a light dash of sarcanol !

American procedures are DESIGNED to slow down light rail as much as possible as a way of rationing and, quite frankly, killing them. Make the queue as long and as diffucult as possible.

Best Hopes for French Efficiency on American soil,


Bless you Alan.

The French are much maligned here even though they have a better life, lifestyle, healthcare, food, transport, culture and on and on and on.

Recently they elected a conservative. Now, compared to our conservatives, he is a mere piker, but nonetheless, he will make conservative policy changes. And, when that happens, we get to sit back and watch the fun. If he follows the conservative playbook, first we will see wages slashed, privatization and services cut. Then we see healthcare go away, no free education, massive highway building, then a few resource wars. Finally, he will implement a fascist state amid the smoldering ruins of his dilapidated infrastructure.

C'est la vie.

I think that if the US ever does break up into 50 states, I'm going to suggest to the NC state govt that we declare war on France and immediately surrender. ("The Mouse That Roared" scenario)

France may surrender first - as you may recall, "the Mouse" won.

We fondly hope for a reversion of the Louisiana Purchase.

The French have shown what timely and effective relief and rebuilding is about here.

A more intimate contest of "French Regional Cuisines" including New Orleans & Acadiana would be quite interesting. I contend that our food is better than that of Paris >:-)

Viva La France !


Most US light rail projects come in under-budget and ahead of schedule.

The T-REX Project, (Transportation Expansion Project), was completed November 2006 under budget and nearly two years ahead of schedule. The $1.67 billion project will added lanes along Interstate 25 and I-225, and a 19-mile light rail line connecting Metro Denver's two largest employment centers."

So, you can continue with your fantasy future or you can deal with reality.

The Canal Streetcar Line was completed $10 million under budget (total of $160 million for 5 miles & 24 Streetcars) but 1.5 months late.


My theory is that the interstates will eventually be mined for their asphalt, and then PV panel arrays and wind generators will be erected on all but one service lane -- an ideal use for a mass of public-owned that would otherwise be useless.

If that is their destiny, why spend one cent more on them than is absolutely necessary?

Alan, let me ask another question that I think might be related: Can light rail be profitable to investors without massive subsidies? FDR was a genius when it came realizing that industry had to be brought on board to make any of his programs work. Is it possible to enlist industry, especially sunset industries, in light rail?

In specific instances, developers will build streetcars. Paul Allen is Seattle has talked seriously about it.

The Red Line to the airport in Portland was financed by major corporations that got development land at two stations along the way. I think TriMax paid for the rolling stock though (vague memory). Bust hit Portland just as Red Line opened, so did not work out for investors.

Las Vegas monorail was a public/private partnership that is failing badly.

Dulles Airport (another gov't entity) badly wants DC Metro to go out to them. They control the toll road (AFAIK) and raised tolls to pay for it.

Lots of money to be made off engineering and building rolling stock. Building RR is hardly a sunset industry though !

Toll roads only work because of the much larger network of free roads that feed them traffic.

NYC subways, DC Metro and BART could be oeprated at a profit; but the much increased fares would hurt the public good.

Overall, the benefits of Urban Rail are diffuse and hard for a single entity to concentrate these benefits and make a profit.


Rode the Red Line a couple of weeks ago in Portland (and a whole bunch more public transit) and couldn't have been happier; cleanest public transit I've ever been on. A couple across from me on the train to the airport asked me "you have this in Texas, right?" Wished I could've gotten a picture of their expressions when I told them no...Portland is a wonderful example of what's possible, given the right regional culture.

And a revised development plan (allowing in larger, box stores like Ikea) means development is now happening at those two stations...but it appears to be a concession to much more auto-based development (esp. with super easy freeway access for Washingtonians just north across the Columbia River). Don't think that vitiates the overall Red Line project as a model, but it was something of a setback.

I do hope you realize how much further advanced your community is, just to even be able to debate this, is quite incredible, to a resident of Texas...I did think it was kind of strange how crazy Portland media went over that IKEA store, although it really should be placed far far away from anywhere.

You are not starting from nothing, you have a big and growing rail freight industry with suppliers and skills.

Bringing back trolleys
Streetcars could again be clanging about Fresno avenues someday.

Streetcars are an old idea whose time has come again. The city is proposing a two-mile line to connect downtown Fresno with the Tower District. That's a great start.

But making such projects work is much more complicated than simply laying tracks and waiting for people to climb aboard. Such systems work when they are part of a complex mix of residential, commercial and recreational developments, built with higher densities than is the norm in Fresno. That's part of a philosophy called "transit-oriented development" that's rapidly catching on in dozens of American cities.


Public projects in the US are a sea of graft and corruption, in Europe at least existing laws are enforced.
They are building light rail in Phoenix, the thing is a joke for the ages, they keep tearing stuff up and putting it back together and going nowhere in a hurry, while bankrupting the few businesses along the line.

Other then the few people getting rich off it, it is totally useless. No one will ride it because the buses covering the routes now will remain and the fares are much lower.

"That is why Stuart Staniford says more fuel-efficient cars are a better investment than light rail"

Stuart's analysis was based on a world Hubbert plot that had very low decline rate. We have since seen that decline rates of existing fields and exporters could be much larger.

If we want to keep our standard of living (drive 12,000 miles per year) and oil declines, we need to get more efficient (higher MPG). This chart shows just how fast the US fleet will need to improve in the face of higher decline rates. (Note: This is the average MPG of the whole vehicle fleet, not the most efficient cars, or the average of cars being sold that year, like CAFE).

The required MPG numbers quickly climb above 80 MPG that can be provided by even small cars and buses. Long term, they all go well above 100 MPG (40 years) even at low decline rates. Long term, we must have trains. It is basically trains, or lower standard of living.


Suppose we implement a crash program to put people into hybrid cars. Will that help? Here is a chart showing how much driving will decline as oil declines, even if we implement the crash program. (program details taken from the Hirsch report). As you can see, if the decline is small it does help. But, again, long term milage driven will decline every year. The only way to get ahead of the decline is build light rail, which is dramatically more efficient.


Long term, the US must reshape it's cities. There is no other option. Oil peaked. NG peaked. Coal is peaking. There is nothing to substitute but increased efficiency!

Keep pushing rail Alan!!!!

Jon Freise

Analyze Not Fantasize -D. Meadows

Building small cars is a separate issue from building more roads. Besides, we are not really doing much of a transition to small cars, anyway. Regardless, let's think long term; in the long term it makes sense to substitute transit for more highways. But what some cities have done, like Denver, is try to do both. They expanded their highway system while simultaneously expanding their light rail system. This is counterproductive, in those areas where both the expanded highway and the light rail go. If you throttle back the congestion while trying to encourage light rail, you will be less successful than if light rail or other rail is an alternative to congestion. That's what happened in Washington, D.C. They provided an alternative while letting their highways continue to suck. If people choose to be stuck in traffic, so be it.

As long as we accept the infinite growth mentality, highways will continue to rule. At what point, however, will their ever expanding maintenance be affordable, especially with higher and higher oil prices.

Denver is a special case. The water supply is insufficient for all the people currently in the entended metropolitan area. The area will probably be depopulated before the effects of peak oil are really fealt.

Do the writers of the NYC live somewhere in the far suburbs? NYC without mass transit would be eternal gridlock.

The citizens of Toronto or Montreal nixed the "more convenient" bus option over street cars; because rails on the ground are a long term commitment.

The NYT articles also ignores that of the funds earmarked for transportation, $280 million, about half was to go to "the bridge to nowhere", the remainder were probably marginally worthwhile projects.

I am Shocked! Shocked! at this report.


Dubai crude output plunges as govt moves to arrest decline
Published: Tuesday, 7 August, 2007, 01:30 AM Doha Time

LONDON: Production of Dubai’s crude oil has fallen as much as a third in the past two years and is a fraction of that recorded in some government statements, company documents show, undermining the already fragile position of one of the world’s top three oil price reference points.

Current output in the booming Arabian Gulf emirate is some two-thirds below the figure released by the national government, according to calculations by Dow Jones Newswires using data from the previous operators of the fields.

It has fallen as much as a third in the past two years.

The Dubai government took over operating the oil fields in April from a joint-venture led by ConocoPhillips Corp, which has since complained of poor financial returns due to the structure of the previous operating agreement.

Daily output in the first three months of this year fell to between 65,000 barrels and 80,000 barrels against the 240,000 barrels stated on the UAE government’s website.

BTW, the UAE was the only exporter in the top five (which accounted for about half of net oil exports in 2006) to show an increase in net exports from 2005 to 2006, but CERA says not to worry, party on dudes!

What I find most interesting about that article is that Dow-Jones originally published it weeks ago. Why did it take the Gulf Times so long to pick it up?

I knew that there had been a prior story, but I thought that this was an update. I didn't realize the magnitude of the discrepancy between the "official" number and the apparent actual production.

In any case, as we have mentioned several times, how do you know that most National Oil Companies are lying about their production? (Their lips are moving)

From experience in the Middle East region, I can tell you that even in Dubai (probably the most uncensored of the ME states) newspapers practice 'self restraint'. Sheikh Mohammed (the ruler of Dubai) is held in huge regard by the people and institutions of Dubai - with pretty good reason, if you ask me. Thus, publishing anything that pretty much points out that the govt are lying their ass off would probably be tricky indeed.

If you ask me, the fact that this made the Gulf Times at ALL means that it is almost certainly true.


BTW, I've noticed an interesting pattern on the WSJ Energy Blog. I have twice posted links to charts showing declining crude oil exports and declining OECD inventories, and both times the posts were deleted. I posted the above story under "Crude Really Tumbles." I guess we will see how long it stays up.

Didn't someone write something about an "Iron Triangle?"

I have previously made a good argument that the press are being manipulated/muzzled but Ron keeps shooting me down. I even got first hand inside knowledge from the horses mouth!!


I don't think that there is a conspiracy per se, but I do think that the groups within the "Iron Triangle" perceive that it is in their interest to push the message that we can--in effect--have an infinite rate of increase in the consumption of a finite energy resource base.

As shocking as it may be to many American suburbanites, some scientists actually think that an infinite rate of increase against a finite resource base may not be possible.

"Iron Triangle" description: http://www.theoildrum.com/node/2767

I worked as reporter for major media for seven years and as a freelance for fourteen and I have seen the memos, been shouted down in editorial meetings and fired for pieces that were not pro-business.

If anyone here really believes that the media is some kind of fair and balanced place where reporters can dig up whatever they want, then you are as dumb as a brick.

The media does not want anyone to rock the business boat. They will spin it, soft-peddle it, massage it, muddy the waters with contrarian "experts" ala global warming, but they will NEVER EVER concede the truth if they feel there is a single farthing to be made out of a lie.

Now all of this is not sent down to the newsroom in a manual. That would be really stupid. It is inculcated by direct and indirect methods, by stories pulled, resources denied, being assigned to dead-end beats, and occasionally enduring a good ole fashioned stint in the woodshed where your editor yells at you for not toeing the line.

Then there is the complete denutting of the profession that has occurred since Watergate. If you step into any journalism school, you will find them teaching you to be a stenographer, not a thinking questioning reporter. They spin this as "balance." In other words, if one scientist says that gravity exists, it is your job to find some whacko to say it doesn't and then give that person a few inches or seconds without caveat. This gets the average Joe Blow to believe that these two ideas have equal weight because why would a public resource such as the news put on a wack-job?

By the way, this serves the interests of the fascists perfectly.

yup. thank you.

I looked on the WSJ Energy Roundup blog, but I didn't see your post. (It's a pretty lame blog -- basically news shorts, and the same few bylines.) They must have taken it down... I saw this on it, though:

"July 13, 2007, 4:44 pm
Blog Roll: Deny, Deny, Deny
Posted by Gabrielle Coppola

The Oil Drum has guest blogger and petroleum geologist Jeffrey Brown writing about a post-peak world of oil production. With plenty of charts and graphs, Brown says, “It is quite likely we are facing a crash in oil supplies . . . what I have described as the “Iron Triangle” is doing everything possible to keep this message from consumers." According to Brown, the triangle of denial includes: oil companies, exporters and analysts, the auto, housing and finance group, and the media."

Hmm -- could it be that WSJ finds you annoying -- you can't be implying that they're part of the "Iron Triangle", could you--?? <:)

perhaps it depends on who is editing the blog that day

So this came to light when the _government_ took over operation from a _private_contractor_. I wonder who is the greater lier.

May numbers are out at EIA: http://www.eia.doe.gov/ipm/supply.html

I haven't looked at them yet...others are better qualified. :-)

We now have two years of production data since the May, 2005 (crude + condensate, EIA) peak. The May, 2007 number (subject to revision, but generally downward, as Khebab has shown) shows a 1.2% decline in production from May, 2005. I suspect that net oil exports are probably down more than 5% from their 2005 peak.

Texas and the Lower 48 as a Model for Saudi Arabia and the World
(Posted May, 2006, using production data through 2005)

These two charts basically supported prior work by Simmons & Deffeyes. I think that the world data is for C + C + NGL.

The May, 2007 number (subject to revision, but generally downward, as Khebab has shown) shows a 1.2% decline in production from May, 2005.

That must be an all liquids figure. C+C is down quite a bit more.
May 2005...74,272,000 barrels per day.
May 2005...73,063,000 barrels per day.
Down 1,209,000 barrels per day or 1.63 percent.

Ron Patterson

Sorry--trying to do too many things at the same time.

BTW, note that the Lower 48 decline really didn't kick in until 1973, which would correspond to 2008 for the world.

This kind of superposition of graphs is, at least in my eyes, manipulative. The only reason for superposing the graphs the way it is done is the assumption that the world is peaking right now. But if this assumption is put into making the graphs, they cannot be used to "prove" or even to indicate, that we're peaking right now. Notwithstanding my own point of view, the world curve might be shifted almost arbitrarily far to the right, and if also the scale is adjusted in a good manner, then it looks again like a perfect correlation, just this time it would seem that we're able to increase production for a few more decades...

You might want to read the article, at the link shown above, which was posted in May, 2006, using production data through the end of 2005. The following excerpt is from that article:

In summary, based on the HL method and based on our historical models, we believe that Saudi Arabia and the world are now on the verge of irreversible declines in conventional oil production. While there will be massive efforts directed toward unconventional sources of oil, we predict that unconventional sources of oil will only serve to slow and not reverse the decline in total world oil production.

As noted above, we were building on prior work done by Simmons & Deffeyes. and of course indirectly on prior work by Hubbert. Some more information on the HL (Hubbert Linearization) method:

In Defense of the Hubbert Linearization Method
Posted by Khebab on June 24, 2007 - 8:30am
This a post by Jeffrey J. Brown (westexas)

A lot of the disbelief/denial about a World/Saudi peak is very similar to the reaction that we saw in the Lower 48/Texas in the Seventies. Probably 9 out of 10 Texas oilmen were shocked that Texas didn't show increasing production after the Texas RRC went to a 100% allowable in 1972.

But the bottom line is that we are using a fairly objective method that takes the two pieces data that we have the most confidence in, annual and cumulative production, to generate mathematical models. And many large producing regions--Texas; Lower 48; Total US; North Sea; Russia and most recently Mexico and the world--have shown production patterns that are consistent with the HL models.

The most common response I get to all of this is simply denial. The reserve situation "can't be that bad."

All I can tell you is what the mathematical models are telling me. In a nutshell, I think that the reserve situation is that bad, and I think that we are facing the near certainty of rapidly declining net export capacity worldwide.

World production is down just over half a million barrels per day from April. However April figures were revised upward by 162 thousand barrels per day so the figures are really down by 341 thousand barrels per day from last months unrevised figures.

Ron patterson

It is hard to make an argument that production is still increasing with a graph like this.

The May 2007 world production of 73,063 is almost tied with low amount in may 2006 of 73,059. To get to a number this low previously, it is necessary to go back to 2004.

The country that stands out as unusually low in May 2007 production is Norway, with a decrease from 2,427 in April 2007 to 2,181 in May 2007, a change of -246,000 barrels.

Russia is also down from January - March 2007, but up a little from April.

Saudi Arabia is shown at 8,600 for the fourth month in a row (February through May 2007). Prior to that they were at 8,750 for two months (Dec 2006 - Jan 2007) and 8,800 for two months (Oct. 2006 -Nov. 2006). Prior to that, production had dropped fairly quickly from 9,500. Staying level for four months is an accomplishment for Saudi Arabia, compared to its recent production experience.

The really damning graph, IMO, is one that goes farther back and shows a couple of the other downturns, but plotted along with oil price. These last years are the only ones in which supply declines while price increases.

After seeing the EIA's IPM report for August, I think its official: We have reached the two year marker for decline in Crude oil and Condensate for the world! Why is this such a big deal? Matt Simmons of Simmons & Company International and peak oil evangelist has been quoted as saying, "We won't know we've peaked until two years after". To me, this is it, Crude & Condensate has peaked, from a high of 74,272 MBPD to 73,063 (over a million barrels difference!).

I know some will say..."but but but Cleatis, the world produces on average 85 million barrels per day last year, how can you only include Crude & Condensate?" I think its mainly becuase Crude and Condensate are really what makes the world go round. Bio-fuels, NGL's and heavy oils are just niche players and will always be that. What matters is crude and condensate. Happy Peak Oil all!

I am more and more convinced we're past peak. High prices have not increased production. Something has fundamentally changed in the oil market.

I think the graph's and discussion points that Khebab and ACE are working on are becoming more important every month. If I'm talking to a libertarion or "resources are infinite economist", I'll bring up the whole pleateau is now discussion point. And they have a hard time counter-pointing the whole prices are rising while production is stagnating data. I think they still believe another Alaska, mexico, north shore is on the way.

Unless a miracle comes along in the July/August time frame and Saudi Arabia is able to boost its production by the one million barrels the world needs. We'll have past the all time production peak of all liquids of July '06. July of '08 will be the 2 year mark and if Skrewbowski is right about the bottom up projects list peaking in 2008 then maybe ACE is on to somthing.

Its a big deal to me since it is one of the major miles-stones out there for peak oil. The peak oil denial-ists like to point out 2001 as a false peak by Deffeyes. Production was cleary brought down by a US led recession. Where is the recession this time? Production down but no recession? What is going on?

The chances are Saudi CAN up production significantly, and probably will in the next few months. However its only a surge, not sustainable. What it will do is provide for another year or two of status quo before realisation strikes home.

Bio-fuels, NGL's and heavy oils are just niche players and will always be that.

To the extent biofuels have oil inputs, counting their volume amounts to double counting. Really, that's true to some extent of all of these.

If I'm talking to a ... "resources are infinite" economist

While doing so, it might be instructive for all concerned to have the economists in a sealed chamber to determine at what point "demand signals" cause them to develop an alternative to oxygen.

I'd like to comment on food prices, something I haven't seen discussed much here. According to a few spot checks it seems the fed is lying about inflation (ya think??).

Gallon of milk was $1.99, now $3.19
Boboli pizza crust was $2.50, now $3.48
Shredded cheese for above was $1.79, now $2.50
Hawaiian Punch was $2.00, now $2.50
Subs at my local Pizza shop just went up 15-20%
etc., etc.

and this feels like just the beginning...

Food is getting hit by a triple whammy:
1. Higher energy costs
2. We're burning up food in our gas tanks.
3. Global warming/climate change is destroying/limiting crops.

I'd also like to make an appeal from the have-nots/owe much around here. Us working poor. While I see the logic of higher taxes limiting the use of fossil fuels, please, please consider rationing. With price controls. It would be the only fair way to distribute our dwindling resources.

I think higher prices are less bad than price controls. With price controls you always get shortages and corruption (cheating). I admit that higher food prices create hardship for poor people, but I note that your examples do not include the staples I live on such as oatmeal, dried beans, and peanut butter. For decades the price of food has been much too low in the U.S.; we eat excessively fatty foods and most of us eat far more meat than we need for nutritional purposes.

Oddly enough, an inexpensive diet (cabbage, potatoes, beans, brown rice, peanuts, soy nuts, occasional can of tuna) can be much more healthful than relatively expensive pizza and tropical punch, which are respectively fat and sugar bombs.

Or grow your own food:

Published on 22 Jul 2004 by San Francisco Chronicle. Archived on 25 Apr 2005.
Berkeley: Urban farmers produce nearly all their food with a sustainable garden in their backyard
by John Fall

Exactly. I wish there were more emphasis on relocalization in these TOD discussions. True, not every urbanite has 6,000 sq ft of backyard to worth with, but that one feeds several people. With intensive gardening (such as the Square Foot Gardening method) one person can get quite a bit of food from a small plot. In Seattle, I had an ~700 sq ft vegetable garden that grew enough food to feed at least two families.

The Bay Localize project is looking at ways to use our urban rooftop space for gardens, water catchment, & energy.

Other projects are exploring the potential food growing resource in the SF Bay's urban areas. Through the Post Carbon Institute's Relocalization Network, lots of other communities are working on similar analyses. I hope that all TODers will at least look into what their local communities are doing, and how they can contribute.


Energy consultant, writer, blogger www.getreallist.com

I think your expectations are misplaced. TOD has identified itself as not being party to notions that entertain the end of the world as we know it. And relocalization on the scale necessary to avert catastrophe is (in my personal opinion, of course) the end of the world as we know it today. It's not even necessarily violent but it's not a world that many of us here will recognize or understand.

But TOD has given off clear signals that such discussions here are unwanted. Why? Because along with the necessity to relocalize comes the necessity to realize that some places will not succeed and thus must collapse. And there's that dirty word, collapse, the mother of all evils that the techno-geeks cannot abide.

And so it is that relocalization discussions here are discouraged, for fear they might turn into collapse discussions and attract that trailer park trash survivalist mindset types... :P (Sarcasm, in case the humor impaired can't smell it from a mile away.)

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

I'd second that. I think it was Westexas that said something along the lines that we all know we have a problem so, there's no point in discussing it further, we should now turn our attention to what we should be doing about it.

I don't believe people should hold out and hope the problem is solved for them, it's likely that many, if not all, large scale mitigation schemes will fail. In fact, large portions of the population will likely be lead into numerous box canyons by politicians, scientists, technologists, economists, et al.

Better that people make their own arrangements and take control of their own lives (literally). Disengagement from the mainstream economy and into a localised economy would seem to be an obvious goal, albeit, not an easy one.

Triumvirate of collapse - Economy, Ecosystem, Energy

Well, that's the thing. Some recognize that we have a problem, and others are still holding on to a forlorn hope that business as usual is still on the menu.

As far as "what we should be doing about it", well, this is a huge and multidimensional issue that TOD is not necessarily the appropriate venue for. There are all kinds of sites out there re: agriculture, transport, electricity, etc., etc. It gets very specialized very quickly.

I think TOD is all about demonstrating and documenting that we, indeed, have a problem re: PO. Once you are convinced of this, you can look elsewhere for "what to do about it". Or, if you're not convinced that PO is a problem, present your argument and your data to TOD and see what happens.

Ol' airdale, left in a bit of a huff because people here didn't want to talk about what to do about it. But this is not a sustainable agriculture site. There are plenty of those - Google is your friend.

IMO, the job of TOD is to help one understand the FF situation, and decide whether there is "the problem" or not.

Hello ChrisN,

Good points. I have posted in the archives numerous speculative proposals for relocalized permaculture to help keep humans above the rock bottom survival level of the full-on Thermo/Gene Collision. Everything from strategic reserves of bicycles and wheelbarrows, humanure and sewage plans to rapidify urban topsoil rejuvenation, the need for guano from bat & bird shelters, harvesting autumn leaves to process into simple toilet paper, minitrains and bicycle free-ride hitch-hiking, cameltrains for Southwest desert trade routes, Earthmarines and geo-Secession by watershed boundaries for sequential biosolar habitat building, SpiderWebRiding as a low-energy dual purpose replacement for crumbling underground infrastructure, and much more.

The trick is convincing Tiger Woods to lead the relocalization charge by him becoming a true Peakoil Outreach Master, then plowing up Augusta National. The google 'Unlucky' button on the search homepage could transform multi-millions overnight into Peakoil Outreachers who would quickly spread the word for needed change.

EDIT: My hope is that the thousands of TODers have taken the few minutes of time to email/snail mail George Clooney, Tiger Woods and the ProGolfers Assoc. [PGA], Just-in Timber&lakes, Google, and key targeted others to help jumpstart the Paradigm Shift. I am doing what I can even though I am a fast-crash realist. Time will tell.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

GreyZone & Burgundy: I can see the rationale behind that--I wouldn't want TOD to become another dieoff.org either--but there's something very unsatisfying about its becoming a mere site for economic autopsy, isn't there, when some of the greatest energy thinkers in the world are here?

I think most of us would agree that waiting for politicians to come up with a sustainable energy policy is suicide. I wrote about that last week in The Renewables Revolution Will Not Be Televised.

So if we are left to shift for ourselves, what's it gonna be? We know that supply-side solutions going forward are limited, so relocalization is the obvious answer, along with other demand-reduction schemes such as Alan has helpfully provided in the rail transportation arena. While a large-scale implementation of such plans would undoubtedly require a level of political support that we can't muster today (eminent domain, anyone?), there are lots of things that can be done locally with private capital and supportive local governments. And there are all the things that can be done by individuals and neighborhoods, like gardening, carpooling and car-sharing, neighborhood day care, and many of the things Bob mentioned.

Bob: Some of those concepts are farther afield than anything I had considered, but I love 'em all. From a thousand such ideas, we might just come up with a good handful of viable small-scale solutions. In fact that's what my next newsletter will be about: how to adapt, relocalize, and become more self-reliant.

I believe that BAU-or-collapse is a false tautology. What is "collapse," anyway? I think fuzzy thinking and words like "collapse" have led many otherwise sensible observers to look upon something that might take a couple of decades to fall apart (e.g., interstate trucking) as though it could cease to be any day now.

There must be a Middle Way. In fact there will be a middle way. My question is: will the smart analysts here on TOD help to find it, or will they content themselves with armchair forensics?

I know there are at least a few folks here who are no stranger to growing their own food and other self-sustaining activities. We know that's the future, so why not give them a greater voice? Why relegate the discussion to those who only have the courage to run out and shoot the wounded?

Energy consultant, writer, blogger www.getreallist.com

I believe that BAU-or-collapse is a false tautology. What is "collapse," anyway? I think fuzzy thinking and words like "collapse" have led many otherwise sensible observers to look upon something that might take a couple of decades to fall apart (e.g., interstate trucking) as though it could cease to be any day now.

My thoughts exactly. What is "BAU" anyway? Do we really think "business" today is the same as "business" 30 years ago, 50 years ago, 100 years ago? The way business is conducted has changed dramatically throughout the 20th century, and it will continue to change dramatically through this century and beyond, due to any number of reasons.

Most of the "anti-BAU" sentiment here seems to be against economic growth, as though "economic growth" is something that is necessarily dependent on consuming larger and larger amounts of resources at a faster and faster pace. I strongly suspect the idea that this is an optimal way to drive economic growth is one that will fade out over the next century, as it becomes obvious that more and more environmental limits are going to prevent it. Once economic growth becomes better focused on improving efficiencies, improving overall human welfare (as opposed to profits alone), and making the best use of what we have, then I wouldn't be the least bit surprised to see economies become wealthier at a much faster rate than they do today. And yes, there will always be those who question why we need to get wealthier and wealthier, but if nothing else, it seems to be basic human drive that we're unlikely to ever be able to counter. At any rate, there are some strong arguments as to why continually increasing our wealth is a good thing: it gives us more capacity to reduce poverty, more capacity to start taking better care of our environment, and more capacity to develop technology to help protect us against mother nature - which will we always need, if we care about our survival, especially if we end up triggering unstoppable climate change. Further, there's no question that a high level of prosperity is the most effective and humane way to bring our population under control, which will ultimately benefit all of us.

Hi Chris,

It's good to see another relocalization person posting :-) (Willetts, CA also posts sometimes). Seattle has over 25 groups now busily relocalizing, and I am very grateful to Leanan for her kindness in posting our "Eat Local Now" article on Saturday's Drumbeat. As we were tabling at the Sunday Farmers' Market, we wound up being interviewed and then broadcast on KING 5 TV, and today are profiled in the local paper's editorial:

As a symbol, the 100-mile diet launched by a local group is a deliciously healthy antidote to an industrialized food system. We hope the diet will be an adventurous starting point for enjoying healthier food and drink from -- everywhere.
Throughout history and before, though, people have traded foods, herbs and tools. The 100-mile diet can make us more conscious of what we have here, without losing appreciation of the cheeses, coffees and fruits and other products we seek from elsewhere. So, here's to a diet that takes one sensible step away from a system that mashes together products of unknown quality, hidden origin and rock-bottom cost in a recipe for corporate gain rather than human or environmental health.

We also partner with Seattle Tilth, ("creating sustainability, one garden at a time"), and Seattle Urban Farm, who are now overbooked turning lawns into gardens.

Here's a clickable link into the groups at the Relocalization Network.

Hey, SustainableBallard. Thanks for chiming in with this practical and hopeful info! Great stuff!

I sure do miss my Seattle garden...

Do you know if there is a "Fallen Fruit" chapter in Seattle?

Energy consultant, writer, blogger www.getreallist.com

Heh, I like the FF guerrilla attitude, I just checked out the Web site, Fallen Fruit Manifesto. No, we don't have a chapter up here, but we have something a bit more formalized, called Lettuce Link:

Lettuce Link's project connects people who have fruit trees with volunteers who harvest the fruit and deliver it to food banks.

The Community Fruit Tree Harvest, a partnership between Lettuce Link and Seattle Tilth, connects your surplus fruit to food banks. To register your trees, call the Natural Tree and Garden Hotline at 206-633-0224 or e-mail info (at) lawnandgardenhotline.org. Volunteers will come and do the rest of the leg - and ladder - work!

While I don't have any objection to reading and discussing how people can or should respond to PO, and I'm taking steps of my own in various ways, I do think there are other sites that are more appropriate for those who have concluded that it's all over but for the crying.
For me, the value of this site is the analysis of what is happening and how the whole phenomenon is transpiring. Even though some here have already decided that TEOTWAWKI is definitely by Jan 1, 2008, in fact, it has not been predetermined just how and when and at what pace this will all unfold. In fact, I've seen very few accurate predictions here about what will or won't happen within a weeks time let alone over a period of years. Never the less, the discussions are thought provoking and interesting and I think it's too early to conclude that the jig is up.


See also "The Integral Urban House" about a similar experiment in urban self-sufficiency in Berkeley published in the '70s during the back to land movement of the time as well as the initial oil shocks.

...The Integral Urban House...

thanks VT,
I read that book years ago and enjoyed it. I had long since
forgotten the title so I had been unable to locate it.

Not to diminish the message, but when is the reference date? 1 year ago, 2 years ago, 2 months ago.

The other food inflation measure is to note that many package sizes are decreasing (same package, less in it).

I've noticed these increases just recently, over the past couple of months. The milk is over maybe the past year.

And a good point of the decrease in package size, seen the new cereal boxes lately? Although, somewhat to their credit, it was announced by the companies involved.

All those measures of inflation don’t in any way take into account what is needed for sustaining life - decent employment, affordable food, child health etc.

I mean, argh, the consumer price index in the US takes ‘jewelry’ into account.

CPI / gov

Rationing, part of the panoply of control (see Iran for ex.) is hardly ever mentioned on this board, it goes against the grain of techno - economico - based on free-market, fixtures. I’m not advocating it, simply it is curious that is is so absent, hardly discussed.

Rationing properly implemented is a response that can work, in a limited way (to reduce consumption) and even represents a ultimate measure when everything else has failed. Of course, a heavy state apparatus and control is needed to implement it, and a black market is inevitable, although some ppl simply accept they have to save and share, rationing makes them aware, but that is somehow considered bizarre in the West today (cornucopia), though in the EU many have memories of rationing and even approved of it.

All those measures of inflation don’t in any way take into account what is needed for sustaining life - decent employment, affordable food, child health etc.<\blockquote>
I take umbrage with at least one part of this - employment (decent or any other kind) is not needed for sustaining life.

I understand your objection. Yet::

Today, in the OECD, to be someone, to not be dependent or extremely poor, to be able to consume and live in a way that permits one to hold one’s head up, and have a stab at acceptable status, one need employment (or to be dependent on a wage earner), to acquire the necessary housing, clothes, car, education for children, etc.

Some ppl - actually usually pretty rich ones, in terms of education, social capital, money, and determination, manage to ‘leave’ the system, they think.

The rich who do no work at all can garner resources and lord it, just like in medieval times.

So employment is not a be-all, but pretty much the linch pin in the US, the EU, East Asia, etc. for a majority.

Today, there are almost no situations where ppl can live outside the system, grow their own food, etc. The vestiges of that Wild West mentality are located in the US. Oh! and the Larzac, in France!

You forget the huge welfare class in the US. They may be slaves of the system but they wouldn't dream of employment.

Regardless of one's views about rationing, I do expect to see it in the US, but probably not before 2009/10 at the earliest. I don't expect to see it until gasoline has crossed the $10/gal level, and I don't expect to see that until 2009 at the latest. We won't see it during Bush/Cheney under any circumstances.

I also do not expect to see it implemented because it is "fair" -- though I do expect that to be the official explanation. Rationing will be implemented to assure that the military/corporate complex gets their guaranteed cut before the shrinking remainder is allocated amongst us nobodies.

I've been trying to plant the seeds for rationing. I started about 3 years ago and have finally got Lorna Salzman, a green party firebrand, Club of Rome member and carbon tax advocate to go for it. She is starting to cite Raymond Learsy, though I think the ration ought to be on carbon rather than just gasoline. Note, these would be user level tradable rations.

Early in the year I picked on Phil Sharp at an energy efficiency conference. He blew his top. But he seemed a little interested when I explained about trading. A guy from Dow followed me out to ask more about the idea.

There are two things that I like about rationing. 1) it is not bankrupting. And 2) in the case of a substitutable thing, it does not create black markets but rather white markets.

I feel we should be aiming for an oil price of about $10/barrel, below the cost of production for a lot of fields. This still allows the production of lubricants and some plastics, but not fuel. You can't tax to this level of reduction in demand because the response to higher gasoline prices seems to be to lose the house. So, under rationing, people keep their houses and pay less for fuel.

If you have to pay a bit of ration to cover the fuel used to bring you lettuce from across the country, you start making decisions about growing your own or finding someone local with a greenhouse. These are the white markets that don't need any rations. You end up with much stronger food security if a complete diet is being grown in each area. Of course, the people who used to sell you lettuce might figure out a way to get it to you without using fossil carbon, but that would still be OK.

So long as you keep the rationing ahead of the decline in production, the the price of oil goes down and people pay less of their income for oil. This leaves more available for say an electric vehicle to handle some transport and the quality of life actually goes up a bit as you use less oil. You can only use so much electricity from coal, that comes with your electric bill as a ration charge, but you can opt for renewable energy instead so that you don't run out of power just because you've run out of rations. And, you can always enrich your frugal wood stove owning neighbor by buying some of her unsued rations.

Having a carbon currency, like a postal currency, gets people to make decisions about the specifics of energy use and so we get everyone working on the problem and not just those who see it coming now. We'll end up with millions of smart solutions as people focus their attention on energy.


I forgot to say why I wrote such a long post.... One of the places I tried to plant a seed for rationing was in the peak oil group that was gathering around Rumsfeld. This was at a talk I went to, mostly about clathrates, last summer. But, it seemed to me that the seed was already taking root there. The really big issue seems to be jet fuel because it is hard to get the right flash point from other sources than oil. So, yes, I think you are correct that contingency plans are not so dusty on the shelf.

I would like to see the 'cut' be a purchase of rations though so that all available rations start with the people. If the government has to buy the rations it needs to operate, then it will make smart decisions about energy use as well.

One more though. Jet fuel is also a bottleneck for getting biodiesel in pipelines. I learned about this last in May at a talk given by Jim Peeples of NewGen Technologies. The folks who send jet fuel through pipelines are very worried about contamination and so don't want the (to them) unknown qualities of biodiesel to be a problem for them.

In a couple of post you have generated a world of questions and doubts.

Learsy? To me he peddles snake oil on whatever blog wants his diatribes against the oil companies..

Rumsfeld? The Donald? Part of a peak oil group?

Who would finance this $10 barrel oil-The US taxpayer?

I doubt any of the powers that be would consider it. Sounds nice, but I don't think it would get training wheels, much less fly.

I don't know much about Learsy but he is proposing tradable rationing so can be cited. Maybe he is wrong about everything but this?

There has been a group in DoD that has been pushed, especially by Roscoe Bartlett, to get a grip on what peak oil means for DoD. They've been holding a series of talks around the DC area mostly on alternatives to oil. The only one I went to was where I used to work. The gathering around Rumsfeld part was that these were fairly senior folks and so they aimed at influencing DoD policy which meant persuading Rumsfeld. I suppose they are gathering around Gates now.

On $10/barrel oil, this is just a consequence of reducing demand. It can't go much lower because it costs something to extract, but so long as there is much more supply than demand, the price will be low. Rationing works on the demand side by reducing it. Cap-and-Trade is rationing as well but it works higher up the supply chain. The advantage of people-level rationing is that you get more decision making that is different from cash based decision making alone. Cap-and-Trade convolves energy decisions into consumer prices and has issues such as should it be done sector-by-sector or across sectors. It also ossifies markets since large polluters get to keep their share of pollution within a sector or even across sectors rather than allowing alternatives to flourish where they work best. It amounts to a pollution monopoly. This is what the guy from Dow was worried about. To avoid most of the consequences of global warming we should be reducing carbon emissions by about 10% a year. Going for 2% a year, as is popular, matches the anticipated decline in oil supply, so that prices will stablize but not go down. The consequences of the lower rate of reduction are that sea level rise over the next three centuries will be substantial while at a fast rate of reduction this might be avoided. The slower rate may avoid a feedback based runaway sometimes called dangerous climate change. The fast rate also puts fossil energy prices close to the price of the cheapest production.

To me, levelized over the economy, the faster rate is the less expensive because while alternatives are not hugely less expensive than fossil fuels now, they are competitive so we can start to transition at a constant cost for energy. Ariving at the sweet spot for economies of scale for alternatives happens at the same relative place in the transition, fast or slow. But a fast transition means much lower prices for the fossil fuels we do use during the transition so we get a discount with the fast rate that we don't get with the slow rate. This is a double discount because we also pay for less total fossil fuels. There is an additional advantage that oil producing countries get to transform their economies with some urgency so that they'll not simply end up with an ecologically degraded wasteland as a result of oil production. With $10/barrel oil it makes much more sense to fabricate solar panels in the Middle-east where the oil is since the energy produced per unit mass in the silicon is much much larger than for oil so much less transportation is needed than for shipping oil around the world. The ratio of energy per unit mass for installed silicon is about 200 times higher than for delivered coal (actually more like 500 once generation loses for coal are included). The number won't be much different when compared to oil, so oil producers can leverge their cheap local supply of energy tremendously. Without reduced oil prices, the opportunity cost would be too high to do much of this and those with hydro resources will dominate the market, leaving the oil producers with very little economic base in the future. I suspect that this will start happening anyway for landlocked oil like in Uzbekistan because the security costs for pipelines will be much higher than for solar panel convoys. Their production cost is about $11/barrel I think, but getting it anywhere is tough. But not getting quickly into a bootstrap solar economy in the Saudi desert where there is both oil and sunshine would be a sad consequence of a slow transition.

I would like some DoD contacts to sell the strategic advantages of non-oil transportation in parallel to our existing systems.

My eMail address is linked to my name.



All those measures of inflation don’t in any way take into account what is needed for sustaining life - decent employment, affordable food, child health, etc.

I mean, argh, the consumer price index in the US takes ‘jewelry’ into account.

CPI / gov

Rationing, part of the panoply of control (see Iran for ex.) is hardly ever mentioned on this board, it goes against the grain of techno - economico - free-market, fixtures. I’m not advocating it, simply it is curious that is is so absent, hardly discussed.

Rationing properly implemented is a response that can work, in a limited way (to reduce consumption) and even represents a ultimate measure when everything else has failed. Of course, a heavy state apparatus and control is needed to implement it, and a black market is inevitable, although some ppl simply accept they have to save and share, rationing makes them aware, but that is somehow considered bizarre in the West today (cornucopia), though in the EU many have memories of rationing and even approved of it.

When Americans start to get sane, they are going to have to come to grips with the reality that they are not going to be able to continue eating the way they have been, just like they are not going to be able to continue to drive around in cars like they have been.

A sustainable US economy is one where the per capita GDP is about 25% of present levels -- and that's assuming that at least the US population doesn't increase further and maybe starts edging downward a bit.

Imagine living with 25% of you present income. Can you still afford a car? Can you still afford to fill the gas tank and drive it as much as you do, even with gas at present low prices?

And so we come to food. Per capita, Americans consume 3800 calories per day. The recommended allowance for most people is 2200-2800 per day. No wonder we're all fat. The average per capita consumption in the countries that are around that 25% of US per capita GDP level just happen to also be in that 2200-2800 range -- what a coincidence! No wonder they're not fat. We're all going to have to eat less; get used to it.

As Don has pointed out, most of your examples are highly processed foods. Junk foods. Empty calories. People in most of the rest of the world can't afford to eat that way; people making only 25% of what we do sure can't. We are all going to have to eat more whole foods, and learn to cook them ourselves at home; get used to it.

Don also mentioned meat. It is expensive. Beef especially requires huge amounts of land and huge amounts of energy to raise. That's why it is a very rare treat for people in countries at that 25% level. They might get chicken a few meals per week, and maybe a little pork to flavor some dishes, but they are usually much more intimately acquainted with the humble bean than we are. Beef: it's what's NOT going to be for dinner; get used to it.

Finally, westexas mentioned growing your own. That's SOP for most people in poor countries. Many of them don't have access to enough land to grow 100% of their food, but you can bet that except for the very few wealthy elites, all of them make the best use of what little land they do have at their disposal. Even if they only have a balcony, there will at least be a few tomato plants in containers on that balcony. In the US, many of us are fortunate enough to have access to community gardens -- or could have, if we got our civic act together. Home grown vegies: it's what IS for dinner; get used to it.

So the bottom line is: the new "normal" food budget in the US is going to have to become something closer to 25% of what it is now. That is not going to be possible without huge changes in our eating habits. Even poor people -- maybe especially poor people -- are going to have to make some big changes.

As price controls/rationing are instituted a black market will spring up, and pronto, and then the store shelves will become bare, or nearly so. Retailers will always figure a way to defeat price controls unless draconian measures are put into place to inforce them. This begs the question...who will pay for the inforcement and how much will it add to prices? The entire population must be behind price controls/rationing if they are to have any chance of success...I dont see this happening with a population of spoiled brats.

Oil prices are down again today (around $72 as of this morning).

In yesterday’s drumbeat, I speculated that investors are selling asset classes of all types and not differentiating between quality and future potential in order to raise cash to meet margin calls in their investments into mortgage back securities.

Another potential thesis that occurred to me late last night is I wonder if another push is being made in the oil market to crush prices, similar to what was orchestrated when Goldman Sacs modified their commodity index around the Dec 06/Jan 07 time frame and successfully hammered commodity prices down for a few months.

My basis for this concept is that currently the Fed is stuck between a rock and a hard place. They recognize the significant problems that are quickly coming down the highway due to the subprime mortgage fall out. However, with crude running at nearly $80 and other commodities hitting record highs, the Fed can not reduce its hawkish stance on interest rates without looking dovish on inflation. The Fed needs to hammer the commodities before they can say that inflation is under control and begin setting the stage to interest rate reductions that are required ASAP to save the economy.

I do not believe these dropping oil prices are the long term trend. I believe it is part of the set up for the Fed to begin rate drops and start its next great re-inflation. (Note that I believe that this will play out over a 6-9 month time frame and the Fed is not going to jump in until there is blood in the streets and a major bank is in financial peril).

Can't they just delete whatever new commodities are becoming too expensive from the CPI calculation like they do with energy and food to keep inflation under control? Seems to be working so far.

I think that thought occured to you after I posted that that is what they are doing. You're welcome.

I don't find a preceding reference, but if you posted the same thing before me, sorry. Didn't mean to take credit for the thought.


I believe that there is a structural reason built into the market systems for this type of ebb and flow of price. I do not believe that any of the traders truly believe that we have peaked or even will.

If one takes the perspective of long-term trends, then short-term price swings of +/- 10% or more are little more than random noise.

I don't really care whether oil tomorrow is going to be $70 or $75 or $80; then again, I'm not a trader. I do care a great deal about whether oil in 2012 is going to be $50 or $150 or $300; I'm not a trader, but I AM alive.


This is a perhaps simple explanation for oil prices falling.

(Financial Times, August 6 2007)

Commodities prices on Monday fell from recent highs on profit-taking after speculators began to liquidate their record bet on surging prices, particularly in the energy complex.

Non-commercial net long positions on the Nymex oil contract – speculative bets on higher prices – in the week to July 31 were at an all-time high of 127,941 contracts, according to the US Commodity Futures Trading Commission. The record bet on surging prices came just one day before the Nymex WTI price touched an all-time high of $78.77 a barrel.

Barclays Capital said that given the large size of speculative long positions in the market, further downwards pressure in the short-term cannot be ruled out.

Harry Tchilinguirian, of BNP Paribas, added: “The question is whether the accumulation of this length will unwind as it did in 2006 when it had reached comparable levels.”

In August last year, oil prices plunged by about $20 a barrel just a few weeks after surging to $77.40 a barrel on fears of an escalation of the Israeli-Lebanon war and with speculators betting on higher prices.

It is now clear.

The Industrial Revolution did not occur because of expanded use of Fossil Fuels (FF) according to this NYT article (Theory of Affluence) but rather thanks to "genetic transmission of capitalist values".

Rich people with genetic predisposition to higher "productivity" had more children than poor people according to the professor.

I suspect we will find out that it's Pomeranz who is correct, not Clark.

The natural-selection part of Dr. Clark’s argument “is significantly weaker, and maybe just not necessary, if you can trace the changes in the institutions,” said Kenneth L. Pomeranz, a historian at the University of California, Irvine. In a recent book, “The Great Divergence,” Dr. Pomeranz argues that tapping new sources of energy like coal and bringing new land into cultivation, as in the North American colonies, were the productivity advances that pushed the old agrarian economies out of their Malthusian constraints.

"genetic transmission of capitalist values".

So Dick Cheney's kids have caught affluence? Would stem cell therapy let the rest of us catch the affluence?

No. It's us peons who support Cheney that have capitalist genes. They allow us to work much harder and not rebel, so our corporate overlords can accumulate wealth without a peasant uprising.

Can I get stem cell therapy for correct that condition, or must I develop the stem cell therapy to sell to cure the condition?

(If I use dead babies as my source of cells, but I make money, does that make it OK)

Wel, I must have seriously misunderstood. I could have sworn he was trying to prove that all blacks and natives are lazy after all.

...or conversely, that whites are pathologically obsessed with power and wealth.

From this quickie review and the odds and ends PR stuff from the publisher it's difficult to tell what his argument is. This is, of course, a discussion with a very long history. I would hope that Dr. Clark isn't being lauded for the rather tautological account being provided - in essence, we became modern (industrial, capitalist, whatever) because more and more people were becoming modern (industrial, capitalist, whatever).
Unsurprisingly, one's take on the cause of the particular dis-juncture which resulted in the modern world depends an awful lot on one's belief in what moves society in general. This means that for, say, some economists it is the emphasis on mechanization in western Europe that leads to industrialization. For Marx it is the dialectic of class relations, for Weber it is the rise of the protestant work ethic. This list goes on and on. What all these theories lack is any way to determine what the particular causal force is as opposed to those aspects which are coincidental. (Though I confess that those arguments "from within," essentially interpretive rather than determinative, are more convincing to me.
One thing that always strikes me as odd is that western academics (and those "trained" in western universities) scarcely ever consider that maybe there wasn't any sort of dis-juncture at all.
Be that as it may, thanks for bringing this book to our attention, I'm looking forward to looking into it a bit deeper.

If I pretend to be scientifically illiterate, especially about genetics and evolution, can I write for the NY Times too? :)

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

Look at 'social darwinism' in wikipedia. It's a puzzle to me what new ideas Clark has brought to this line of thought. There is a lot to be worried about in social darwinism as an idea that is divisive and disruptive of good social order. It provides a lot of room for invidious judgementalism towards one's fellow man.

This "Theory of Affluence" is comically boneheaded.

It's almost surreal the extent to which the author looks at everything possible except energy use. Even most of the critics don't pick it up.

And "Malthus' Trap" has not been avoided. The bigger they become, the harder they fall.

FISA debacle

Attorneys and writers Glenn Greenwald and Marjorie Cohn join Democracy Now! for the hour to discuss warrantless spying, torture, the Iraq war and the future of Attorney General Alberto Gonzales. Greenwald is a blogger at Salon.com and author of "A Tragic Legacy: How a Good vs. Evil Mentality Destroyed the Bush Presidency." Marjorie Cohn is president of the National Lawyers Guild and author of "Cowboy Republic: Six Ways the Bush Gang Has Defied the Law." [includes rush transcript]

"Warrantless Surrender" – that's what the Washington Post called the Democrat-led Congress handing President Bush a major legislative victory this weekend when it voted to broadly expand the government's authority to eavesdrop without warrants on the international telephone calls and email messages of American citizens.


In a clip from the above segment, Amy Goodman, interviews Greenwald and Cohn about the slippery slope of the FISA bill that the Democrats caved on last week and the ramifications for oversight when the bill “sunsets” in six months.


Yet another disappointment. The Dems won the House and Senate by promising to rein in the Reps, provide oversight and conclude the war. Other than a few investigations and show hearings, they haven't done what they promised. Way too many Dems voted for the torture bill, and now for eavesdropping.

Donal, And this has what to do with OIL? Good god man there are plenty of sites out there to drop this into. Why do you feel you must clog up the drum?

The Iraq war is about what then?

Securing a source of potable water in the Middle East?

eric blair,
surely you've guessed that the Iraq war is about disposing of nuclear waste by shooting depleted uranium anti-tank rounds! (sarconal alert)And, oh yeah, the democracy thing.

The problem is, once the US withdraws, our ships will never get past the Straight of Hormuz again. Everybody's our enemy over there now since the torture at Abu Ghraib.
Bob Ebersole

Well I think it has to do with our future. No matter who we vote for, we won't be getting out of Iraq, we won't be getting CAFE standards, we'll get ethanol shoved down our throats, we'll find nukes in our backyards, our mail will be read and our phone lines will be tapped.

and all of the while... it will be getting warmer.

Yeah, it's bigger than Iraq. This is about monitoring who gets what and keeping the prosperous on top. The race is on between the declining resources and the extension of hierarchical control required to maintain the concentration for a smaller and smaller ruling class.

cfm in Gray, ME

Yet another disappointment. The Dems won the House and Senate by promising to rein in the Reps, provide oversight and conclude the war. Other than a few investigations and show hearings, they haven't done what they promised. Way too many Dems voted for the torture bill, and now for eavesdropping.

Yup. Air American talking heads are starting to 'get mad' over it. (and these are 'their boys')

Dr. Paul is getting traction in part because of his history of saying "no" - even if his reasons for saying no are not in the favor of many of his supports ideas. And he did say 'no' to the Iraq war. (too bad he isn't at least making noises for support of ways to get the US off of fossil fuels, but he's consistent.)

Like the socialists party platforms popularity had the Democrats take many of those POVs, the more support Dr. Paul shows, the more the others running for office will move towards the ideas that Dr. Paul supports list as the reason in attempt to get votes.

Well, it took only 2 days of oil price declines for stories like Why oil won't hit $100 (CNN Money, Leanan's link at the top). Those of you with a memory will recall that the same thing happened last year at about the same time and probably for the same reason — some hedge fund speculators have pulled out because they've got bigger troubles elsewhere.

Here's the Jerk of the Day, Peter Beutel, an oil analyst at the consultancy Cameron Hanover.

"If this market can continue going lower without OPEC disrupting it, it's very possible that by 2010 we could be substantially lower than anyone is imagining," said Beutel "Four to 8 years from now, we could come down and break $20 a barrel."
Given that Homo Sapiens is a species with limited abilities and even more limited prospects, it is not necessary to turn over a conveniently placed rock to find life-forms like Beutel. They are easy to find after 2 days of price dips.

On the subject of the decline crude+condensate since May, 2005 according to EIA data, I often wish someone at TOD (since I am ex-officio) would also consider

Natural Gas Liquids

as part of the "oil" supply. I never find selective presentations of the peak oil (liquids) problems persuasive, and nor will anyone else who knows something about the "oil" business. The IEA medium-term report was quite specific about this, saying that NGLs will be the only reason for any non-OPEC liquids growth after 2008/2009. So, if we want to make our case, track NGLs.

— Dave

I can think of two good reasons to track crude + condensate: (1) The price of oil is generally given in terms of crude oil, and not propane/butane, and (2) Crude + condensate is the primary feedstock component for refineries.

Re: C+C is the primary feedstock component for refineries

Yes, it is. But NGL's are easily converted into liquid fuels. Think liquids, not crude. I know this is hard for some. If we want to make this peak oil case, it is important to use the same vocabulary as the "other side", which invokes substitutes for oil.


The above link shows gross US refinery inputs of 16.3 mbpd and crude oil inputs (presumably crude + condensate) inputs of 16.2 mbpd.

Perhaps you could help us out here. Does this mean that crude + condensate represent 99.4% of the refinery inputs for the most recent week?

Why Dave! You positively sound like... a "doomer". :) Welcome to the club. ;)

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

Not a doomer ... usually. I am feeling bitter lately about the awesome displays of ignorance, complacency and shortsightedness that we've seen recently from various people and institutions (e.g. the Democrats in Congress).

Sometimes, I find it is necessary to vent.

Yeah, it is very frustrating. We are wasting time, very precious time. The $64 question is how much can we waste and still get out of this relatively unscathed?

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

We passed the unscathing point on Reagans inaguration day.

We passed the unscathing point on Reagans inaguration day.



Do you have any particular insights into natural gas liquids (NGLs)?

Looking at EIA data, I see production is up about 150,000 barrels per day, comparing 2007 YTD to 2006. Production of NGLs seems to be increasing where natural gas production is increasing. Production declined in 2005 with the hurricanes in the gulf, but has now recovered. Long-term US production seems to be trending downward a bit, which isn't surprising if natural gas production is down.

None of this seems very profound. The breakdowns by country provided are fairly limited. Anything you think we should be looking for?

Check the recent summary by Ace. In it he clearly shows rising NGLs and even a nice bump upward in the fall of 2008 which should help us temporarily (and further mask the peak). Of course if C&C is down another 1mbpd by fall 2008 then the NGL jump will simply make it look like "noise" on the all liquids plot.

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

Gail — first off, the way NGLs are accounted for is very strange. Both the IEA and OPEC count them as outside the OPEC supply column because they are not subject to quotas. So even Persian Gulf NGLs, where most of the supply originates, is counted in the non-OPEC supply. Because of this, and for some other reasons, it is difficult to follow NGL production developments. The Oil & Gas Journal (Pennwell's data) does break it out, however. The EIA data set is not complete, or they lump NGLs together with C+C in countries that they don't have separate data columns for. I want to write something up about this soon.

Re: Anything you think we should be looking for?

Not really. It is important to track NGL production going forward to see if it offsets whatever declines there might be in C+C production, and even provides some growth in the liquids supply (outside of biofuels). Also, I always count unconventional (tar sands syncrude) oil in the C+C category.

One issue is that one barrel of NGPL contains 3.724 106 BTU and one barrel of crude oil contains 5.800 106 BTU (US definition, ref). It means that you need 1.55 barrels of NGPL to replace the energy content of one barrel of crude oil. Consequently, apparent growth on a volumetric basis can appear more impressive for the NGPL category (same for ethanol). I'm always uncomfortable when an aggregate energy measure is on a volumetric basis (i.e. simply adding barrels).

When I make calculations using EIA data, I am not getting as much as I would expect in the non crude and condensate category.

When I take World Total Liquids (1.4) and subtract World Crude and Condensate (1.1d), I get a pattern that is slightly increasing, but decreases in 2007:

2003 10,331
2004 10,781
2005 10,751
2006 10,957
2007 YTD 10,889

If I take out World Natural Gas Liquids from this (1.3), I get

2003 3,005
2004 3,150
2005 3,112
2006 3,182
2007 YTD 2,962

I thought this last group would include biofuels and whatever else that is supposed to be growing rapidly. I notice that there is a fair amount of seasonality in the last category, but even considering this, 2007 is a bit lower than 2006 at May. Does anyone know what is going on here? Biuofuels don't appear to be having much of an impact from this.

I run the same calculations from the IPM data (as well as a country by country evaluation of OPEC condensates since condensates don't count toward the quota).

Some of that IS biofuel/ethanol and the like. But part of that is refinery gain/loss where volume of liquids "produced" is greater than the input volume.

But I also keep some the running totals and differences and they swing back and forth in various months and that may be the short-term accounting at work.

Note that NGL's also have show distinct "pulsating" seasonality (particularly in the US) as they have become an important addition to the total liquids picture.

I've long had a theory that one could do very well by just doing the exact opposite of whatever is touted in Money magazine. They inevitably advocate buying right when something has already run up to a peak and it is time to sell. The few times they advocate selling or shorting or not buying anything, it has usually been in the basement for a long time and is ready for a rebound.

Quite a bit like Westexas and his Yergin theory. . .

"If this market can continue going lower without OPEC disrupting it, it's very possible that by 2010 we could be substantially lower than anyone is imagining," said Beutel "Four to 8 years from now, we could come down and break $20 a barrel"

It's certainly deluded, but in a larger sense, if nobody believed that stuff, I wouldn't be able to buy long-dated naked crude call options cheaply. Wagering against cornucopians is such fun it's amazing it's still legal.

Just wait 'til Bush puts out an executive order mandating a freeze in your assets because wagering against cornucopians encourages America's enemies.

Hey, no kidding, hence the "still legal" comment. That's why I'm not going longer than 2010, I figure that by that point either King George will have made it illegal for anyone poor to profit from oil, or the democrats in power will be erecting guillotines in the public squares to behead oil speculators. Or both.

Of course, I'm investing in American oil, WTI delivered to oklahoma. If I stop doing that, the terrorists win.

(mostly) off-topic treat: remarkable video of a flash flood:


And this has what to do with OIL?

(just kidding) :-)

This is a partial extraction of a post I did yesterday (note: Leanen replied to it and took issue with my logic). I am running this part for a reason...

Gasoline today in central Kentucky, $2.65 to $2.69 per gallon at most outlets, Diesel now climbing a bit to $2.75 (I attribute the distillates going to heating oil), no other way to say it, ASTOUNDINGLY CHEAP, UNBELIEVABLY CHEAP, FOOLISHLY CHEAP. The U.S. currency decline and normal inflation would explain the runup in gasoline prices for this decade....

THINK about what the market has been through....9/11, multiple hurricane hits, pipeline breakdowns, the complete disabling of Iraqi production, the almost complete disabling of Iranian production, Saudi Arabia flat, North Sea down for almost half a decade, Mexico declining at this time, Nigeria in chaos, Angola showing signs of boiling over, Venezuala nationalization, plus the press and studies, Matt Simmons on major news outlets, T. Boone Pickens declaring allience to the peak oil idea, The Hirsch Report, the GAO Report, the recent admissions by the IEA, the NPC Report, PLUS the multiple refinery fires and breakdowns....and gasoline is $2.69 in much of the South! (!!!!) YOU HAVE NOW ENTERED THE TWILIGHT ZONE!

If we accept the idea of peak in our lifetime, we have to assume that price has ABSOLUTELY NOTHING to do with warning of impending doom....

(a) my argument was not that peak is not here or coming, but that price will provide NO WARNING. (b) All this idiotic talk by CNN and others about a major oil price drop, all this howling that gas is SOOOOOO HIGH......give me a break....if I could assure you (I can't, but if) that oil will NOT GO DOWN in price, but that I can assure that gasoline will gasoline will not go over say, $6.00 bucks a gallon before say 2015.....you tell me, do you think the Americans would change their consuming habits more than a hair? What do you really think?

Roger Conner Jr.
Remember, we are only one cubic mile from freedom

Let not get too excited - the amount of change in gas prices and oil prices will see its ups and downs. But we all know how the story ends.

I agree, the price fluctuations we're seeing are pretty much meaningless. I think there is a trend line going higher but it sure can get clouded by stochastic noise. I don't see how the price can justifiably go below $65 but that doesn't mean it won't. I don't understand the lower price for gasoline though because I thought it was linked directly to the price of crude, but I guess their supply is out of phase with each other.

It's amazing to see how CNBC and the others jump on every tick or two higher or lower. If prices tick up, we must be headed for $100. If they tick down, it won't be long before we see $20 a barrel. They're so hard up for real news to fill the long hours of the day that they just go from one sensational opinion to the opposite without blinking an eye.

My view is that PO requires actual shortages in order for it to be palpable. We see that there are shortages occurring in various parts of the world and it seem KSA and others are going to do their best to protect the U.S. from shortages for some time. So at the moment, supplies do not appear to have tightened for the OECD countries at least.
Can someone explain why that is since there have been graphs etc... posted here that show demand at 86mbd worldwide and actual production at something like 84.5mbd. Is it the third world nations eating the shortfall or is it something else?


My view is that PO requires actual shortages in order for it to be palpable.

I agree. Indeed, for example the whole rail argument upstream is being couched by some as a discussion over utopian hopes; I wonder how the reality on the ground will change (wrt local politics of rail) once shortages become chronic (rather than the acute shortages we see due to hurricanes or flooding of refineries.)

Is it the third world nations eating the shortfall or is it something else?

A friend from Europe recently told me that there is an big increase in refugees from Africa. Bodies washing up on shore from ships that sink before making the journey and a big flux through Spain. They could be climate refugees, but I think the increase in blackouts is having an effect on the economy and forcing people north.

Is this view shared or do TOD Europeans have another version?

What recent lower gasoline prices absolutely have to do with is the current Energy Bill. When Boosh signs it prices will go back up. The Demoncrats have caved on CAFE, so oil is well.

SeekingAlpha has a shameless plug for a company called Wavefront Energy:

Steady revenues that the spreadsheet crowd can model are still a few quarters out. The licensing of Powerwave and Primawave have the potential to create significant revenue streams. Wavefront is an energy technology stock that has the potential to alter the shape of "Hubbert's Peak".

That should get people excited.

He mentions the Weyburn Oilfield in Canada as an example of tertiary recovery--although this uses CO2 from the N.D. synfuel plant.

The Weyburn field is a great example of how peak oil can be delayed with improved technology and higher prices. Out of the 1.4 billion barrels in place, an incremental 10+% will be produced as a direct result of Encana (ECA)'s EOR efforts. Their estimated 144 million barrels of extra production is worth over $10 billion assuming $70 oil prices. A 10% increase in incremental oil recovery is worth a very large fortune indeed. The capital costs of implementing Encana's CO2 include a ~$100 million pipeline to bring CO2 from North Dakota.


First I want to give you a little caveat, I believe in tertiary oil production because I'm currently putting together some deals like that. I have no interest in Wavefront, its the first I've heard of them. The guy with the newsletter freely admitted that he had an interest in the company, and surely people will take his recommendation with a grain of salt and investigate further before buying into a penny stock crapshoot. I have no knowledge of their particular approach.

In the United States, modern oil production was more or less invented, and the science of petroleum engineering invented. about half of the oil in the lower 48 onshore was discovered before 1930. Check out M.King Hubberts charts for that. The early average of field recovery was quite low-from 10% of the original oil in place to about 1/3rd of the OOIP. See Bureau of Economic Geology "Potential For Additional Oil Recovery In Texas", published about 1980, still available from them.

Modern petroleum engineering has pushed the recovery of the OOIP up to about 50% average, and they think a 66.6667% is possible with newly discovered fields using the best techniques, source the National Petroleum Council Report just published.

Wavefront Energy's target, and my target too, is the stranded oil in fields that were abandoned before modern Tertiary Recovery Techniques, and they also target fields that are on their last legs. They think that they can increase the Ultimate Recovered Reserves (URR) by 10% with their process. Note, they didn't say how fast, or the cost per barrel. IMHO, this is an extremely conservative claim.

Now don't think this is going to "alter Hubbert's curve".
"It isn't the size of the tank, its the size of the tap", to quote Steve Andrews of ASPO. Production rates in the US at their peak were around 10,000,000 barrels a day and we consume 21,000,000 barrels a day now. But the guy with the newletter is a salesman and a stock tout, and as I said, take him with a grain of salt, or maybe a whole handfull.
But it could damn sure make a bunch of people rich.

Now here's my idea. I've got a gulf coast piercement salt dome field I'm looking at about 70 miles from downtown Houston, you guess the location. Production was established there in Miocene and Frio Sands between 1,000'-5,000', and its had several waves of abandonment because of price collapses. It has produced around 17,000,000 barrels of sweet 18 gravity oil. It will take about $250,000 to buy the leases, and about $500,000 to start working over the wells and set up some equipment. I think I can get about 10% more out of this field, or 1,700,000 barrels of oil. The total possible target is perhaps 5 million barrels of crude, but lets be conservative. Since the oil is a little heavy, but sweet the current selling price is about $60 should be about $100,000,000 worth of crude at todays prices. A realistic figure is its going to take about 50% of the revenues for workover costs, lifting costs,royalties and overhead, and about 20 years to get the rest of the oil out. If anybody wants in, my emails by my name in TOD. I will operate, but want a quarter of the net profits, or I'll sell the deal for $10,000 cash, a 2% override and the landwork business putting it together at standard rates.

Ive got about 10 more like it.

Is this a serious possibility? If so i have many questions but I don't want to air them all out here. For instance, do you have enough data so that I could get my investment banker involved?

Korg if you will email me at Bob Ebersole two thousand four at yahoo.com all lower case and run together will send you my telephone number and we can talk

Where's that horizon? Where'd the pot of gold go?

Oilpatch risks turn from value creation to value destruction

Everybody Wants A Bigger Cut Of The Booming Industry

For the first time in a generation, Alberta is facing a general strike within its construction trades that threatens to disrupt its booming oilsands industry and is introducing a new type of uncertainty --labour unrest.

It's an absurd situation. Alberta has such a severe labour shortage the worker is king. Construction workers, in particular, are among the highest paid, most job secure, most coddled in the world. For its part, the oil industry is earning lavish profits, suggesting it should have plenty of cash to keep labour content as it presses ahead with ambitious oilsands investments.

Underscoring this absurdity is the provincial context -- this is unfolding, after all, in redneck Alberta, where the union movement is about as cherished as the NDP and job action in the oil industry is a distant memory.

Yet five large construction unions have been given strike mandates by their members and can walk out at any time. Another two are getting close to that position. Some 30,000 workers could be involved. They are turning down pay increases that would make most Canadians cringe with envy: 24% over four years, topping up salaries that often exceed $100,000 a year. (A pipefitter or a welder earns basic pay of $44.91 an hour).

Because we are looking at production data in real time to date, rather than after the fact, I like to think about peak production in terms of shifting probabilities. Each month that data shows demonstrable declines in output increases the probability that 2005 is the peak for crude and 2006 is the peak for all liquids. There may be enough noise in the data that we see months of increase alternating with months of decline. However, the more time passes without sustained increase in production, the higher the probability that any statement claiming that the peak is a past event is true. At this time, the probability that the statement, "peak oil has already happened" is true is qute high based on the preponderance of the evidence.

Chinese auto sales up 32% YOY for first seven months of 2007:


Before Running Cars, Ethanol Fuels Land Boom

DeKALB, Ill. — While much of the nation worries about a slumping real estate market, people in Midwestern farm country are experiencing exactly the opposite. Take, for instance, the farm here — nearly 80 acres of corn and soybeans off a gravel road in a universe of corn and soybeans — that sold for $10,000 an acre at auction this spring, a price that astonished even the auctioneer.

“If they had seen that day, they would have never believed it,” Penny Layman said of her sister and brother-in-law, who paid $32,000 for the entire spread in 1962 and whose deaths led to the sale.

Skyrocketing farmland prices, particularly in states like Illinois, Iowa and Nebraska, giddy with the promise of corn-based ethanol, are stirring new optimism among established farmers. But for younger farmers, already rare in this graying profession, and for small farmers with dreams of expanding and grabbing a piece of the ethanol craze, the news is oddly grim. The higher prices feel out of reach.


And this boom will go bust too.

An article in the UK Telegraph warns of a Chinese government threats to use the "nuclear option" of liquidating its US Dollar holdings if the US imposes trade sanctions or forces a revaluation of the Yuan. The article warns that such an action would result in a crash of the US Dollar.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.


It is unclear whether the Chinese would actually use the "nuclear option" should the US Congress be stupid enough to impose sanctions. However, should the Chinese go ahead with the threat, such action would undoubtedly push the price of oil (priced in US Dollars) much higher than could have been imagined. It would be a doublewammy of Dollar devaulation and huge increased costs of oil. It would also push most countries to drop the petrodollar in a heartbeat. The implications seem quite shocking.

GTL: What is shocking is how stupid American politicians can be. China has 1.2 trillion dollars that these politicians are requesting up to a 40% write off on (if China revalues the Yuan by up to 40% as requested that is 480 billion dollars they are requesting that China set fire to- money China earned in good faith by delivering the product). China fed the dog and now the dog is snarling -saying if you don't get me some milk bones I will bite you. China is just reminding the doggie that the doggie no longer knows how to hunt for itself- it just expects China to deliver up the chow whenever requested.

The doggie needs one of those electric collars set on high.

Its shocking how everyone buys into this hype. China's not doing any such thing, it would be economic suicide for them. It's the equivalent of Mutual Assured Destruction inthe cold war. Ain't happening people.

I have serious doubts that it actually will happen as well, but it is being reported in the Telegraph. And the mere thought of it happening could actually negatively affect the markets tomorrow or in the next few days.

It seems as though the US and China are embarked on a certain level of economic warfare over the past several weeks. The stories surfacing re the quality of Chinese goods and contamination of pet food etc probably are coming from inside the government and are being fed to the media. The tit for tat continues.

Right GLT149.

The message was a China collectively giving the US the finger salute on it's currency demands.

How many times has Paulson been there? He got nothing. It's starting to be a farce.

It's just another volley in the war. This one being on the Financial Front.

"Its shocking how everyone buys into this hype. China's not doing any such thing, it would be economic suicide for them. It's the equivalent of Mutual Assured Destruction inthe cold war. Ain't happening people."

And it might not be a bad thing if it did.

The Chinese products we receive have proven to at best deficient and at worst outright dangerous. The companies purchasing Chinese goods to resell at huge markup are finding out there is no such thing as a free lunch. Mattel with it's lead painted toys are only one example, a chain store that will now cough a nice chunk of change in lost sales and possible lawsuits. The lawyers will have a field day with this one. And do you know of anybody going to the store and asking where they can find that high quality Chinese produced food and pet food? :-)

One would think that now would be the time for American business to completely review their supply chain and ask themselves some hard questions.

As for those hysterics who are worried about the Chinese dumping the U.S. dollar, we should boost interest rates and in effect buy our dollars back.

Oh, that will cause a "housing collapse"...well, if it does, who would notice. Even in the poorer areas of the South now, construction has completely run amuck, housings being built by speculators who assume that if they can sell them and make big, they keep the money, but if they overbuild the market, uncle sam will have to come in and bail them out. When the sub prime mortgage idiocy hit the news, the first words out of the rip off artists mouths was "what's the government going to do to stabilize this market?"

The short answer should have been NOTHING. But now, we will attempt to bleed the poor bastards who could never get credit to buy one of these dumps to bail out the arrogant bastaards that built them. (yeah, loose credit....my azz...)

The American people are blessed with the "sucker gene". We just love being made azzes of, over and over and over again.

What's going to be fun to watch is when China falls to the ground like a sack of shiit due to excess spending, over investing in capacity for markets that have now figured out they are selling garbage, and outright corruption, and all the boneheads who jumped both hands and feet into this commodity bubble come down to Earth the hard way, because guess what? The Chinese put their pants on one leg at a time, and their shit still stinks just like the rest of us....and for those who keeping preaching about the "evils" endless growth.....well, if it is an "evil" here in the old U.S. of A, it's an evil in China too.....would that not be true?

Roger Conner Jr.
Remember we are only one cubic mile from freedom

Roger: You're right- China is just a big fraud-an overgrown Enron. The South shall rise again and Kentucky will again be the centre of the universe (as it should be).

Neither side used their weapons during the cold war, so MAD worked. The non-use of weapons has its purposes as well.

It would have been a different story if one side didn't have weapons and there was no MAD. China has announced that they've equipped themselves with a weapon, and that MAD is now in effect.

How much would it have cost China to build up an ICBM and SLBM force as large as that of the U.S.? Probably more than $1 trillion, I bet.

Asymetric warfare.

The share of Chinese exports going to the US has declined dramatically over the last 5 years, and continues to go lower every day. If necessary, China can drown the dog and walk away.

"The share of Chinese exports going to the US has declined dramatically over the last 5 years...."

Hey, if the EU and Asia want to buy that poison rubbish, let 'em....


A question.

If China is deemed to be "allowed" to take legal and financial activities for its particular benefit (yuan peg), why is it apparently disallowed for the USA to follow suit?

China has those 1.2 trillion dollars because of a policy created primarily in Beijing.

Mb: I have no idea where you got the idea that China has that stash because of the value of the Yuan. I realize that the MSM is currently telling you that but think for one second- how is revaluing the Yuan by 40% going to change the competitive situation? it isn't- the wage differential isn't 40%, it is many multiples. A lot of products currently made in China and sold in the USA will never again be produced in the USA under any circumstances. If you are talking about trade policy, that was created on Wall Street, not in Beijing. Chinese leaders appear to be working to enhance the economic power of China- contrast that with American "leaders".


This seemed worthy of a Drumbeat, but I haven't see it in one:

The great biofuel fraud (asia times)

The problem will solve itself.
But not in a nice way.