Efficiency is the straightest path to Hell.

J. H. Kunstler

I think the UK will be in the running for basket case economy of the decade. My real concern is inflation, now officially over 4% in the UK it is likely running way over 10%. This masks the fact we are in deep recession and deep shit - all courtesy of New Labour Lies.

The government will of course be found out when lower paid workers being offered 2%, can no longer borrow, find they are totally insolvent and strike.

I suspect the mafia ran out of enemies to murder - it looks like a logistic - pretty much like the oil industry running out of oil fields to discover.

At some stage we need to have a debate about efficiency. It is clear that efficiency is very good in some circumstances and dreadful in others.

Caro Ugo,

From here, I could tell you a lot on how Italians are reacting (actually, non-reacting) to the situation. In this hot summer of 2008, Italians are enjoying their vacations. They seem to be worried mainly about sports and convinced that all problems are due to crime, speculation and immigration. Most people seem to believe that the Euro currency is the culprit for the decreasing purchasing power their salaries. Nobody is discussing the possibility of an economic collapse. Whenever some data show that the economy has improved a bit, it is hailed with enthusiasm in the front pages of the newspapers. When the data show that it has gone down (much more often) it is written in small characters in an inner page. Italians may be unpleasantly surprised on coming back from their vacations, this september.

A most interesting observation indeed!

I myself having been fortunate enough, (or perhaps cursed) to have been brought up with native fluency in three cultures on three continents with family and friends scattered to the farthest corners of the planet, could tell you that you could very easily substitute "Italians" for just about any other nationality and the "Euro" for some other currency without having to change another word in this quote and you would have have perfectly described the situation in those other countries as well. It is not only the Italians who would like to continue with "la dolce far niente".

the government seems to think that all problems can be solved by a grand plan of public works that includes new nuclear plants,

Which replace imported gas with uranium.  Great for the balance of payments.

high speed railways,

Eliminating petroleum burned for aircraft and cars.  Perfect for a post-peak world.

waste incinerators

These can eliminate trash piling up on the streets of major cities and perhaps produce some electricity as well.  They may have their drawbacks, but it's hard to argue that they can't address some pressing problems.

Ugo,

I think you are being a bit too gloomy about this.

Italy uses about 1.75m barrels of oil per day. At 110 US$/barrel, that's about 70 billion US$. The Italian economy is a 2.1 trillion dollars (according to wikipedia) and oil is thus 3.5% of GDP.

As a reference, the US uses 20m barrels a day and has a 14 trillion dollar GDP. That's 5.7%

I think the issue with Italia is its political climate. It seems to be impossible to change anything for the good of the people, because the political system is locked.

Oil is not part of the problem, I think.

This is an interesting article - thanks Ugo. It seems that Italy and the UK are vying for first place in the EU for the most complacent, dysfunctional response to our energy crisis. Italy may be in a worse state (for now) because we do still have some FFs remaining in the North Sea. Both countries have craven media dominated by Berlusconi and Murdoch respectively: both failing to provide the populace with meaningful news about important issues that affect them directly - instead they fill people's heads full of trivial nonsense dressed up as "news". Each has compromised their country's democracy by damaging the "feedback loop" between those in power and those they govern, thereby contributing to their countries' utterly inadequate responses to the crisis.

I like the juxtaposition of Italy and Ryanair. One is the canary for the canary? Violent crime (and crime generally, especially burglary)however has also been going down steadily in the UK. The most apparent explanation has been the increasing modernised affluence: we are on the plateau of the Zenith. I note that Italy's GDP grew most years from 2001. Ryanair followed this affluence curve into summer holidays and winter breaks and sporting events. If 100 dollar oil is the turning point for Ryanair's business model, then the same could be said of the national model. Point well made Ugo. (I understand for example British Airways 85 dollar fuel finishes in January 2009, so there seems to be time lag before full impact?)
Perhaps Mafia might play a resurgent future role, maybe in the home repossession and debt collection industry? The post-Soviet model could apply? (Dimitri Orlov is a good 'beach read' if you are still heading off.)
Agree with Euan that UK is not well placed. How much will 'financial services' really be worth?
Phil

Interesting stuff. Whilst Italy has long been seen as the sick man of Europe, I think there are a few encouraging cultural differences between the UK and Italy which may help the Italians in the long term. We have vested interests (planning to move there full time in 2010) so I hope so!

Their attitude to commuting seems to be different to ours. Outside of the major cities, many Italians live very close to their places of work, if not above them and do not have huge commutes.

Ortos and Stufas. This for me was one of the most heartwarming and encouraging signs. Ortos are small-holdings - many people (outside big cities of course) have them, they are tended manually. They have not lost their horticultural knowledge yet. Many people sell produce locally without huge depots being involved. Most restaurants serve local produce only, grill and make pizza over wood fires too. The agriturismo is well established (organic veg b&b)

Stufas (woodburning stoves) are very common in the countryside. Where we are (Le Marche) most houses in villages have vast woodpiles that they spend the summer collecting. The majority of houses, unlike the UK, still have servicable chimneys. We can cook on our stufa out there.

The high price of electricity (we pay 3x what we pay currently in the UK) and a cap at 6KW (should be mandatory in the UK I think) has encouraged a culture of awareness about large KW devices. If we use more than that the lights go off! No buying your way out - you run devices consecutively not concurrently. When we turn on fans - the lights dim! Electric kettles are not common and electric toasters don't really work. Tumble driers are not needed for most of the year. Compare this with the 25KW per day allowance for most houses in the UK.

Also as bottled/tank gas is common rather than mains gas and as it 'runs out'/needs to be refilled there is heightened awareness of price and conservation.

Although very slow on the uptake with solar thermal and photovoltaics, Italy has recently launched grid tiedwind turbine initiatives which are at least a step in the right direction.

Additionally, Italy has some indigenous production, and gets some of its gas from North Africa via direct pipeline (IIRC correctly from oildrum readings). They may not be as beholden to the Russians for gas as the UK is in the future. I believe North African gas is set to peak later than other countries from what I've read.

Happy to be corrected - could be seeing things through rose tinted specs etc

[P.S. also PhD Chemist! :) ]

A right wing think tank has released a report consigning some of the
UK's major northern cities to history ... well .. hard to say really -
the advice seems to be that they should be effectively abandoned and
that their populations should move South !.

http://www.guardian.co.uk/society/2008/aug/13/communities.regeneration

There is no realistic prospect that our regeneration towns and cities can converge with London and the South East. There is, however, a very real prospect of encouraging significant numbers of people to move from those towns to London and the South East.

Although perhaps a little off-topic, I would like to briefly mention an issue to do with the Mediterranean Sea, namely rising sea temperatures. When I visited Sardinia in the late summer of 2006 I was shocked by the water temperature and stagnancy. I am not an expert, but it is clear this will have huge ramifications for countries on the Med. One of those is ecological, with stinging jellyfish overwhelming the sea. This, as many of you probably know, has led to the closing of some beaches along the coast of Spain and Italy in recent years. This year the jellyfish returned to the Tyrrhenian coast. Many of the them feed on fish larvae or the plankton and tiny crustaceans that make up the larvae's staple diet. Algae, presumably caused by a combination of warm waters and effluent released from the coast, has been another persistent problem. Then there is the rise in the ejection of hypersaline water (from desalination plants) and heat waste water into the Med as well, the consequences of which I am unsure. And, of late, there is also an increase in the numbers of refugees washing up on tourist beaches in Italy as well.

Needless to say, none of this is conducive to a healthy fishing industry or sustaining a mass tourism industry that is focussed mainly on coastal holidays. I have visited so many cheap, empty museums with eager and friendly staff in Italy only to face traffic jams when approaching nearby beaches.

To make a long story short, these images should be enough to really worry anyone whose livelihood is directly or indirectly related to the health of the Mediterranean Sea. Look at the dates on which the photos were taken! The combination of inflation, higher fuel costs and degradation of the coastal waters could prove a huge blow to an important industry in Italy.

And you know what happens if you keep spending money you don't have.

Yeah, you become a presidential candidate or a high ranking member on some house/senate committee. Why doesn't Italy just do what the US does: print money out of thin air and hand it out to the rich, and then hope that the bottom 95% doesnt revolt?

You show a graph of declining oil consumption in Italy and comment:

Italy is using less and less oil; a sure sign of a slowing down economy

I must take issue with this particular comment. This is really an oversimplified analysis as Italian consumption of both coal and natural gas have increased over this same period as seen in the Energy Export Databrowser:

I have no argument with the overall assessment of your excellent article and believe that the energy consumption patterns shown in the graphs above argue only more forcefully that Italy is in for some hardship as access to fossil fuels begins to decline.

I just wanted to clarify that it is overall energy consumption that is important, not just consumption of one type of fuel.

Happy Exploring!

-- Jon

PS -- I'd love to add Italian as one of the supported languages in the databrowser. Any volunteers to help translate the ~35 key words and phrases would be greatly appreciated.

JonFreise and memmel,

After doing a little bit more research, I wish to add to a discussion that began on another thread last week when someone posted a link to this June 11, 2008 EIA Bulletin:

http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm

My intention here is two-fold:

1) To demonstrate that at least some of the information contained in the EIA bulletin is not accurate, and

2) To pose a couple of troubling questions. To wit, could the EIA’s publishing of erroneous data be intentional? What reasons would the EIA have for manipulating data? And why now?

The bulletin makes the following claims:

Natural gas production in the Lower 48 States has seen a large upward shift. After 9 years of no net growth through 2006, an upward trend began that generated 3% growth between first-quarter 2006 and first-quarter 2007, followed by an exceptionally large 9% increase between first-quarter 2007 and first-quarter 2008.

and

…more than half of the increase in natural gas production between the first quarter of 2007 and the first quarter of 2008 came from Texas, where supplies grew by an exceptionally high 15%.

I stated previously that this last statement is false. After doing a little bit more digging into the EIA methodology, I am even more convinced that the EIA figures are in error.

Here are the EIA figures juxtaposed next to the Texas Railroad Commission figures so you can see yourself how they compare. (I have also included production from the Barnett Shale East Newark Field since I felt there might be some curiosity about that too):

              Texas Natural Gas Production (BCF/day)

Month          EIA Bulletin        Texas RRC          Texas RRC
                (statewide)       (statewide)      (Barnett Shale)
Jan 07             17.64             17.47               2.27
Feb 07             17.82             17.89               2.35
Mar 07             18.37             18.28               2.45
Apr 07             18.26             18.28               2.53
May 07             18.3              18.44               2.62
Jun 07             18.75             18.66               2.70  
Jul 07             18.86             18.67               2.76
Aug 07             19.19             18.77               2.84
Sep 07             19.30             18.73               2.84
Oct 07             19.60             18.75               2.95
Nov 07             19.94             18.75               2.82
Dec 07             20.24             18.55               2.70
Jan 08             20.42             18.21               2.59       
Feb 08             20.80             18.20               2.49
Mar 08             21.05             17.89               2.36  
Apr 08             21.25             17.36               2.26
May 08             21.54             16.58               2.18

The Texas Railroad Commission figures can be found here:

http://webapps.rrc.state.tx.us/PDQ/generalReportAction.do

and the EIA figures here:
http://www.eia.doe.gov/oil_gas/natural_gas/data_publications/eia914/gros...

As you can see, the EIA figures began diverging from Texas Railroad Commission figures beginning in July of last year, and have progressively grown farther apart.

Texas Railroad Commission figures reflect actual production.

EIA figures reflect estimates, calculated using a mathematical model as described here:

http://www.eia.doe.gov/oil_gas/natural_gas/data_publications/eia914/eia9...

In switching from using actual production figures (provided by State agencies) to estimates (based on a sampling of well operators), the EIA offered the following justification:

Currently EIA publishes estimates of natural gas production based on data supplied by or collected from individual State agencies and the Minerals Management Service. Because these production estimates were not considered sufficiently timely or accurate to meet customer needs (to understand and resolve natural gas supply issues) EIA obtained approval from the Office of Management and Budget (OMB) to implement the new survey, EIA-914, “Monthly Natural Gas Production Report,” which collects production data directly from well operators.

And talking of the shortcomings of the old methodology, the EIA goes on to explain:

Current EIA monthly natural gas production estimates generally aren’t available until about 120 days after the close of a report month, and even these estimates do not always accurately depict the levels of production or directions of month-to-month changes.

The Texas Railroad Commission figures I believe to be absolutely correct, based on actual production, derived from reports that are a statutory requirement imposed upon the operators (see http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=16&pt=1&ch=3&rl=54
). I have several overriding royalty interests and I can assure you that one can accurately calculate his royalty payments using the Texas Railroad Commission data. And the Texas Railroad Commission always publishes its monthly production figures within 50 to 55 days following the close of the month.

So in those states like Texas that publish accurate and timely production figures, why does the EIA not use actual production instead of estimates, estimates derived from some arcane mathematical model open to manipulation and error?

Just a couple more observations/questions: It seems the EIA methodology is susceptible to manipulation by operators. The EIA may be collecting data faithfully and applying its model without bias. But since the operator responses are voluntary and not mandatory, as is the case with the production reports required by the Texas Railroad Commission, a handful of large operators could give false data and purposely skew the data.

Also, could these inaccurate EIA reports have any effect on spot and futures prices?

Ugo, I would like to comment on your "peak mafia" hypothesis. An alternative view is that up to year 1989 the mafia had a strong grip on politics, thanks to its tight links with the christian-democrat party ruling the country for 40 years. After the Soviet Union collapse the political situation suddendly became more fluid, and this triggered a phase of enhanced acivity of the mafia, which needed to redefine its control over the territory and over the fluxes of money. The surge in activity, which included the killings of judges Falcone and Borsellino, ended after a few years, when new political links and supporters were found. I will not make any name, because in Italy free speech is far from being guaranteed, but such links are easy to trace. Actually, there are entire books on these topics, for people who want to know. I just wish to stress the fact that mafia is actually killing less when it is feeling stronger, not the opposite.