DrumBeat: October 13, 2008

Growth Economics on a Finite Planet

Over the weekend, I asked Herman Daly, the specialist in “ecological economics” at the University of Maryland, about the recent financial turmoil. He pointed me to a short piece he wrote that was posted on the Oil Drum blog a few days ago and that he gave me permission to post below. It’s mostly about economic theory, but does get at one of the keystone concepts explored here — which is how many people, consuming how much stuff, can one livable planet support?

To Dr. Daly, the implosion after the burst of trading and investment in high-concept paper offerings was inevitable, and simply a reorientation of the market toward the only real economy — the one grounded in actual assets. In the end, the only economy that can’t be gamed is one that is grounded in the way the Earth works. That is where “real wealth,” and real limits, lie, he says.

Sept. OPEC oil output down 340,000 b/d to 32.47 million b/d

The 13 members of the Organization of the Petroleum Exporting Countries (OPEC) pumped an average 32.47 million barrels per day (b/d) of crude oil in September, a Platts survey of OPEC and oil industry officials showed today. This is down 330,000 barrels per day from August and reflects output declines in Saudi Arabia, Iraq and Angola.

Excluding Iraq, the 12 members bound by production agreements produced an average 30.18 million b/d, the survey showed. This is 230,000 b/d less than the August output of 30.41 million b/d and exceeds the so-called OPEC-12 output target of 29.673 million b/d by 507,000 b/d.

"At Platts, we are seeing increasing signs of crude and products going unsold on the market," said Platts Global Director of Oil John Kingston. "This means that from an OPEC perspective, the cuts we estimate for September may not be coming fast enough to keep the market in balance. OPEC's upcoming meeting is in November, and the conditions we face today could be radically different by then."

MMS: '81 Evacuated Platforms, 43.3% of Gulf Oil Production Shut-In'

Based on data from offshore operator reports submitted as of 11:30 a.m. CDT today, personnel are evacuated from a total of 81 production platforms, equivalent to 11.7% of the 694 manned platforms in the Gulf of Mexico. There are no longer any evacuated rigs in the Gulf.

From the operators' reports, it is estimated that approximately 43.3% of the oil production in the Gulf is shut-in. As of June 2008, estimated oil production from the Gulf of Mexico is 1.3 million barrels of oil per day. It is also estimated that approximately 38.2% of the natural gas production in the Gulf is shut-in.

OPEC to weigh recession risk as well as price

LONDON (Reuters) - A looming global recession could make even aggressive members of OPEC more tolerant of cheaper oil, but the group still needs to cut output by early next year to control swelling stocks and insure against a price collapse.

Already top exporter Saudi Arabia has begun to pare back production in line with expectations of lower demand, which last week pushed oil to a 13-month low below $80 a barrel, nearly 50 percent down from the July peak of $147.27 for U.S. crude.

"'What is the highest price the market can profitably pay?' is the real question," said Serene Gardiner of Standard Chartered Bank.

Gas projects in Russia unaffected by financial crisis

MOSCOW (RIA Novosti) - The tough economic situation in Russia and the world will not affect Russian natural gas projects, such as the Nord Stream and South Stream pipelines, the president of the Russian Gas Union said on Monday.

"These projects are so advanced that the crisis will not affect them," Valery Yazev told the press.

Oil's Fall Won't Affect Norway 2009 Budget

A plunge in oil prices to below the average foreseen in Norway's 2009 budget is unlikely to affect the public finances of the world's number four oil exporter, Oil and Energy Minister Terje Riis-Johansen said on Monday.

"Oil prices have been high for a long time and we have a considerable surplus from our oil sector," he told reporters during a conference about climate change in Oslo.

Lesson learned from gas shortage: ‘It'll be a couple of weeks…'

So here we are a good six weeks out from when the hurricanes hit and turned our gasoline world upside down, and some stations are still having spotty problems with supplies.

I was talking with an oil company owner last week and he expressed dismay that he still can't get a straight answer from the suppliers in Spartanburg, S.C. — or anyone else, really — as to why we got shorted so bad and why it dragged on so long.

Indie oil hunter strikes a 'screamer'

I had joined these characters on the Stillwater Project oil rig because, against the back-drop of a global energy crisis, I was hoping to witness the moment when a rock hound named Mark Herndon found out whether he could actually strike oil by drilling horizontally beneath a small Oklahoma city.

Gas Prices Record Largest-Ever Drop, Close In on $3

CAMARILLO, Calif. — The average price of a gallon of gasoline in the United States recorded its largest drop ever as crude oil prices plunged and consumer demand continued to wane, an industry analyst said on Sunday.

The Lundberg Survey released this weekend showed the average price of a gallon of self-serve regular down 35 cents over the past two weeks to $3.31. Mid-grade was $3.45 as of Friday and premium was $3.57.

Australia: Woodside Petroleum begin hiring freeze

Woodside Petroleum Limited has begun a hiring freeze and is warning Western Australia the economic downturn will be worse than expected.

Lower oil prices will help travellers

Oil prices are tumbling. That is good news, right? Well, it is good news for drivers as prices at the petrol pump begin to come down. It is reasonable news for cruisers as several lines have vowed to reduce their surcharges (albeit for 2010 bookings) but for most British air passengers it is the same old story: airlines are still imposing exorbitant fuel surcharges that do not reflect what is happening to the price of oil.

Nigeria hopes to meet gas needs without export loss

LAGOS (Reuters) - Nigeria hopes it can reach agreement with international energy firms on how to meet its domestic gas needs without threatening their export plans, officials said on Monday.

The West African country has made increasingly strident public demands for Western oil companies to help it increase domestic gas use, saying the time has come for firms that have seen decades of profit to help resolve its chronic power crisis.

But despite the sometimes barbed rhetoric, officials say they are reluctant to jeopardise exports which make up close to 10 percent of world liquefied natural gas (LNG) supply.

Addax uses Nigeria navy staff to guard oil facilities

LONDON (Reuters) - Militant and pirate activity in Nigeria's oil producing south has led Canada's Addax Petroleum to hire ex-U.S. military speed boats staffed by Nigerian navy personnel, the company's CEO said.

Jean Claude Gandur, chief executive officer of the oil exploration and production firm, told Reuters in an interview that an attack on an Addax supply vessel in June, which left one of its contractors dead, had forced the company to act.

Kidnappers in Nigeria release 5 Filipino sailors

PORT HARCOURT, Nigeria: A military spokesman says five Filipino sailors kidnapped in Nigeria's restive southern oil region have been freed.

Is There a Fuel Crisis in Baghdad?

Baghdad, Iraq – it’s well known that Iraq has one of the largest reserves of oil in the world, so it is quite ironic that the Iraqi people are constantly having problems obtaining various products produced from oil such as gasoline, propane, diesel, and kerosene. Furthermore, the prices of these products, when compared with the average income of an Iraqi citizen are barely affordable.

The average income of an Iraqi citizens is between $100 and $300 per month. The price of one liter of gasoline is 450 Iraqi Dinar, or approximately $.30. While on the black market the price of one liter of gasoline is nearly 1500 Iraqi Dinar or $1. These prices are not stable and depend on the current conditions, whether there is an oil crisis or electricity shortage. The prices could jump between 2000 and 5000 Iraqi Dinar, or between $1.50 and $4 per one liter. Reaching most any destination in Baghdad could cost you half to three quarters of your gas tank due to the large number of checkpoints, walls, and convoys causing traffic jams across the city.

World food scarcity and the challenges of climate change and bio energy

FAO was founded in 1945 on the 16th of October - a day which is observed as World Food Day (WFD) in about 150 countries all over the world. The theme for this year’s WFD is ‘World Food Scarcity : The Challenges Of Climate Change And Bio Energy’ as there is a strong need to expand global awareness to reduce the effect of severe climate patterns on agriculture and the impact of bio fuels on food production.

Global warming and the bio fuel boom are threatening to push the number of hungry even higher in times to come. During 2007 alone, around 50 million more have been added to the rank of the world’s hungry due to rising prices, thus pushing the number of unfed to about 900 millions. The world seems to be further distancing itself from reaching the U.N. Millenium Development Goal of halving hunger and poverty by 2015. Poor harvests, high oil costs, bio fuels and a rising demand for basic staple crops, especially in fast growing Asian countries, have been cited as examples for the spiralling food prices which have sparked protests, even riots, prompting the U.N.Secretary General Ban Ki Moon to give a wake up call.

Letters from Zimbabwe: We need seed

I had three questions in mind when I phoned around the main agricultural suppliers in my farming home town this week: Have you got seed maize; how much is it; can I pay in Zimbabwe dollars? I knew I was being optimistic because just a week ago it was reported that there was only enough seed in the country to plant 360 thousand hectares of land. Zimbabwe apparently has to plant at least one million hectares in order to feed itself.

My phone calls were a waste of time. There is no seed maize to buy, not in Zim Dollars or American dollars and we are just a couple of weeks away from the main planting season. I asked one main farming supplier when they were expecting a delivery of seed maize and he laughed and said he didn't think any of their seed orders were going to come at all.

Milk imports surge as British production drops to 30 year low

Two dairy farmers are going out of business in this country every day because of low prices and high costs, and the wet summer has also affected cows' ability to produce high yields.

But there are concerns that the quality of milk brought in from overseas could be substandard because of the time taken to transport it.

Retailers and processors are now buying a million litres each day from Northern Ireland, Holland and Belgium, but the increased cost of foreign milk is adversely affecting them as well as the customer.

A new misery for Pakistanis

The country's economic troubles - a balance of payments crisis threatens to bankrupt Pakistan in the next few weeks - have been quickly translated into misery for millions of Pakistanis. Inflation is running at 25 per cent, more for many vital food items, throwing an ever greater proportion of the population into poverty.

A sudden economic collapse this year has greatly tarnished the restoration of democracy in Pakistan, a vital international security partner, and weakened its role in the U.S.-led campaign against terrorism.

Pakistan: Middle class worst hit by terrorism, inflation

RAWALPINDI-At a time when the giant of inflation and economic vicious circle have grasped the world economy as most of the countries are hit by this inflation phenomenon,the people of Pakistan specially, the middle class has become the victim of this unprecedented price hike ever before in the country, which in fact has broken the backbone of the people, who do not have the stamina to resist this enormous load, under limited and meager resources of income, they face lot of problems to sustain and survive under the given atmosphere.

The nation which has been passing through a war-like situation, due to ongoing wave of terrorism and extremism has also been facing other crises and challenges like scarcity of flour, long running electricity loadshedding, shortage of natural gas and above all, unbearable enhancement in fuel charges, i.e. from 50 to 70 % up in electricity beyond the reach of a common man.

Farmworkers have fewer job options

Although the candidate pool this year continues to grow — significantly boosted by layoffs from the construction industry — the local farm labor market isn't necessarily brimming with job opportunities.

With prices for everything from hay to fuel hitting unprecedented heights, horse farm owners are making efforts to stay strong by keeping their operations lean. Cost cutting is the rule of the day, and payrolls continue to shrink, leaving job seekers with little or no field experience with few options for making ends meet in this sector of agriculture.

Russia to build Ukrainian nuclear power plant

KIEV (RIA Novosti) - Ukraine's energy ministry has approved a Russian company's winning bid to construct a nuclear power plant (NPP), Ukraine's UNIAN news agency reported on Monday.

The approval came after the Russian nuclear equipment and services exporter Atomstroyexport, won a tender to complete construction of the Khmelnitsky NPP project, which was frozen in 1990 over fears following the Chernobyl nuclear tragedy.

New, improved and unnecessary

With the Bush administration, no bad idea ever dies. So it should be no surprise that the Pentagon and the Department of Energy have released a new policy paper - pitched to the next president - arguing the case for a new nuclear warhead.

Solar tax credit gives huge opportunity to PG&E

As the solar industry reveled in the better-than-expected 8-year tax-credit extension Congress passed October 2, PG&E was celebrating, too.

Utilities will for the first time be able to collect that 30 percent credit as part of the federal government’s latest extension. And that means utilities will now be able to develop their own solar or wind or biomass power plants rather than relying solely on private developers.

Vancouver goes for the green: Six new Olympic venues designed with energy conservation in mind

Vancouver's push for sustainability in its new Olympic venues would be pointless if it built them for 16 days' worth of events and then never used them again. The city is making sure that each structure can serve the community long after the Olympic torch has been extinguished.

Plastic film could make house lights obsolete

NISKAYUNA, N.Y. - On a bank of the Mohawk River, a windowless industrial building of corrugated steel hides something that could make floor lamps, bedside lamps, wall sconces and nearly every other household lamp obsolete.

It's a machine that prints lights.

How the Crisis Saved the German Railroads

The rolling stock of the German railroads, due to be peddled off to the highest stock market bidders on October 27th, has been saved, at least temporarily, and is still nationally owned. That seems to be the one possible bit of good news in the present economic crisis. All the rest is bad.

Nonprofits, charities brace for the worst

The economic downturn is hitting Bay Area foundations and social service providers hard. Charities are faced with cutting services at the same time people need more help.

"We just toured the Second Harvest Food Bank in San Carlos and heard the director say she's seeing former donors and former employees come in for help," said Emmett Carson, CEO and president of the Silicon Valley Community Foundation, which has $1.7 billion in assets (having lost $9 million in the recent market downturn) and serves Santa Clara and San Mateo counties. "That was a pretty telling statement."

And, the grim economic news - including a global credit crunch, the slide in the Dow Jones industrial average, rising unemployment and a housing collapse - couldn't come at a worse time. Most philanthropic donations are made toward the end of the year.

Saudi prince to build tallest building

LONDON, England (CNN) -- Saudi Prince and billionaire Al-Waleed bin Talal says he will build the world's tallest building, planned to be over a kilometer (3,281 feet) high. The tower will be built in the Saudi town of Jeddah and will be part of a larger project that will cost $26.7 billion, (100 billion Saudi riyals) said the Prince's firm, Kingdom Holding Company.

Time is right to raise taxes on gasoline, says author of 'Declaration of Energy Independence'

GRAND RAPIDS -- While motorists celebrate lower gas prices, a former U.S. Department of Energy official sees an opportunity: Raise fuel taxes to help end America's dependence on foreign oil.

"Unfortunately, it's high prices that cause people to be careful about energy use," said Jay Hakes, who lived in Grand Rapids as a child and is director of the Jimmy Carter Presidential Library and Museum in Atlanta.

...Among his seven recommendations for regaining independence: a tax on fuel and rebates to all Americans, including those who don't drive.

It would punish those who burn the most gasoline and reward those who burn less, eventually driving down demand, he said.

Kurt Cobb: Too complex to fail?

Much that has happened in the last few weeks in the markets was shocking in its swiftness even to the financially literate. But it shouldn't have been all that surprising. The explosive cocktail of too much debt and too little energy has now had the effect of toppling the already top-heavy world markets.

When the world economy was humming along, nary a thought was given to its enormous complexity. It is only now when it is disrupted that we are forced to notice where that complexity is breaking down. And, perhaps the biggest disconnect is between the scope of the problem which is international and the response which has been largely national. The cowboy capitalism which spread across the globe in the past 20 years is now looking for a marshall to come to town and straighten things out.

Whither the Oil Price?

While the plunge to sub-$80 oil came sooner than I expected, if current trends in the global economy and financial markets continue, oil is likely to come under further pressure, taking it towards $60 a barrel. If so, would take us to oil price levels not seen since early in 2007 and far below last years average.

With credit markets locked up and investors unwilling to put money into any asset seen as risky, oil’s downward momentum seems likely to continue. Even if the coordinated injections and nationalizations of flailing financial institutions succeed, we will still be in a recessionary environment – bad for oil demand and probably almost all commodities except gold (which hasn’t been too shiny lately despite the flight to safety environment). Yet some of these commodities may be approaching their production costs, providing some floor in the near term.

A Retail Pricing Policy For Petroleum Products In SL

Petroleum is an important and essential raw material for all the economic activities, including transport, power generation, Industries, domestic purposes and everything else. The retail prices of essential petroleum products are directly linked to the cost of living through the transport costs and the cost of goods and services.

The volatility of world oil prices in the recent past has become a critical factor in the economic development of this country, as the impact of frequent fluctuations in the retail prices of petroleum products impacts on the cost of all the essential commodities and other goods and services to increase their costs in several folds. The dangerous side of it is, that the costs of these goods and services are not sensitive to any decreases in the retail prices of petroleum products at any time. This clearly proves that the frequent fluctuations in the retail petroleum prices are not a healthy situation for a country and its economy.

Ten Things You Can Learn From '70s Recession

7. Big Oil is always the villain, but it knows how to drill home its message

Oil-company profits surged in the energy crisis. Facing a backlash, companies offered their best spin. Congressional foes pushed for an antitrust breakup of oil companies; a proposal was floated to ban the deductibility of some oil-company advertising expenses.

An Ad Age editorial said, "Oil companies have used every possible device to convince the public that their big increase in profits is needed to develop new energy sources."

Mexico Lawmakers Propose Incentives for Companies to Help Pemex

Bloomberg) -- Mexican lawmakers drafted bills that, if approved, would allow the state oil monopoly to hire private and foreign companies for exploration and production under contracts that provide performance-based incentives.

Mega power project in the works, says minister

RIYADH - Amid a global financial crisis triggering recession worldwide, King Abdullah, Custodian of the Two Holy Mosques, continues his never-ending development policies begun with his accession to the throne in August 2005 with a world-scale power project worth SR6 billion to be inaugurated soon across the nation.

The project will connect the Kingdom's regions by guaranteeing the flow of a better and uninterrupted power supply, said Ali Al-Barak, CEO of the Saudi Electricity CompanySaudi Electricity CompanyLoading....

Where We’re Going We Won’t Even Need Lithium: A Neurotic Look at Our Energy Future

For the record, I support all forms of alternative energy. Anything but oil I say, it’s a relic of the Cold War as far as I’m concerned. But what will be the future of energy? Well, my time machine wasn’t completely accurate. While I sincerely hope that we can establish an electric infrastructure, it appears that the market will decide our energy future.

In the scientific community, we keep running into this massive roadblock known commonly as thermodynamics. It’s an intimidating word for an intimidating world-view. Simply, thermodynamics states that we just reuse matter. Matter cannot be created or destroyed, it can only be converted. It appears that we will only be converting matter to energy for the next, oh I don’t know, maybe million years or so? Sorry, my imagination couldn’t take me much further past 2015 (plus I had a broken flux-capacitor).

Commods bull Goldman turns bearish, warns on $50 oil

SINGAPORE (Reuters) - Goldman Sachs, one of the foremost bulls on commodities, turned a near-term bear on Monday after conceding that global financial turmoil would take a far bigger toll on demand than first anticipated.

"We have underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand," its commodity markets research team lead by Jeffrey Currie said in a report dated Oct. 13.

The bank, which has consistently been at the top of Reuters oil price polls for years, said in the report that it now expects U.S. crude oil prices to end the year at around $70 a barrel, down from a previous forecast of $115 a barrel.

"However, should the financial and evolving economic crisis cut deeper into demand, the market could fall as low as $50, which we believe to be the industry's cash cost and shut in level," the analysts wrote.

Goldman faces limits in Platts oil window - sources

DUBAI/SINGAPORE (Reuters) - Goldman Sachs, the biggest oil trader on Wall Street, has been restricted from making a market in price assessment agency Platts' daily oil trading window as counterparty anxiety grows, two sources familiar with the move said on Monday.

Goldman is the latest in a series of major investment banks to be placed under a so-called "review" by Platts, which has said it may sometimes need to limit the activities of some companies in its half-hour price-discovery process if their acceptability by counterparties threatens to distort benchmark prices.

Oil prices rally as world leaders act to save markets

LONDON (Reuters) - Oil rose above $81 a barrel on Monday after governments around the world acted to boost confidence in the global banking system, spurring a rally in European and Asian stock markets and commodities.

But investment bank Goldman Sachs said the financial crisis had already done more damage than it expected to commodity demand and warned that a slide to $50 a barrel for oil could be possible.

Kuwait shuts down oil refineries temporarily

KUWAIT CITY - The Kuwait National Petroleum Co. says it has temporarily shut down the country's three oil refineries because of a power surge, but that exports have not been affected.

Mohammed al-Ajmi, spokesman for the state-owned company that owns the refineries, says the surge occurred early morning Monday. He says the refineries were shut down as a precaution but that exports of stored oil continued smoothly.

Iran predicts OPEC to cut output at November meeting

TEHRAN (AFP) - Iran on Sunday predicted that OPEC would cut oil output at its November meeting in Vienna, the state-run television news website reported.

"OPEC will probably seek a cut in its production at the November meeting in order to balance supply and demand," Iran's OPEC representative Mohammad Ali Khatibi was quoted as saying.

Raymond J. Learsy: While The World's Economies Are Reeling OPEC Wants Us To Pay More For Oil

In November of 1999, in a speech to the Houston Oil Forum, Saudi Oil Minister Ali al-Naimi bragged that the "all inclusive" cost to the Saudis to produce a barrel of oil was less than $1.50 a barrel. Costing $1.50 then you can make your own extrapolation as to what it may cost today. My estimation is is less than three dollars today, and probably a lot less. My reason for putting forward this tidbit of information is to give one a comparative benchmark of production costs of other OPEC member states be it Libya, Kuwait, Iran, Algeria, etc. All would be comparable to Saudi production costs. As to the argument that todays oil price reflects a rapidly declining resource, this post has long argued that OPEC's and especially Saudi Arabia's reserrves have been purposely understated and are vastly greater than we have been led to believe (among other posts please see "Peak Oil" RIP. Official Obit Front-paged In the New York Times" 3.8.07)

Plans, Plans and More Plans

With crude prices falling so sharply last week the price of gasoline should be under $3 very soon. That may not be a good thing because it will convince consumers the price spike was temporary and it has passed. They can now feel good about rushing back into showrooms to buy new SUVs. I heard one commentator saying peak oil had been pushed back at least ten years by the financial crisis. That is probably the dumbest statement I have heard in months. The IEA just reported last week that global consumption EVEN WITH a slowdown will grow by over one million barrels per day in both 2008 and 2009.

Algeria president warns over oil price fall: paper

ALGIERS (Reuters) - Algeria's President Abdelaziz Bouteflika said in a newspaper report on Monday the country, which is heavily dependent on energy income, needed to brace for a possible oil price collapse.

Algerian government officials see no immediate threat to the country's ambitious plan to sustain growth this year, but they are concerned about the impact of a possible fall in oil prices beyond 2008.

Saudi Aramco to Maintain Supplies to Asian Refiners in November

(Bloomberg) -- Saudi Aramco, the world's biggest state oil company, will maintain crude supplies in November to customers in Asia at levels agreed under annual contracts, refinery officials said.

The Dhahran, Saudi Arabia-based producer will supply full volumes of crude oil to Asia next month, unchanged from October, said three refinery officials who had received notices from the company. They asked not to be identified because of confidentiality agreements.

Commodity Rout Far From Ended as Recession Approaches

While tumbling prices of oil, nickel and soybeans already crippled stock markets from Moscow to Sao Paulo and sliced Alcoa Inc.'s profits by 52 percent, investors say rising stockpiles of copper and slowing energy demand mean prices will continue to fall. The U.S. slowdown will last more than a year and be deeper than any in three decades, according to Harvard University economist Martin Feldstein, a member of the committee that charts American business cycles.

``This downturn is going to make 2001 look like a walk in the park,'' said Tim Mercer, chief investment officer of Hong Kong-based hedge fund Musashi Capital Ltd., who sold all his commodity investments in July. ``This is the bursting of a 25- year asset-credit bubble. People have really stopped spending money, everywhere.''

Chevron Predicts Higher Profits Despite Lower Output

Chevron Corp., the focus of Money Morning’s “Buy, Sell or Hold?” feature back in late July, said it's predicting a jump in its third-quarter results, despite a decline in oil-and-gas output.

Without offering actual financial details, the second-biggest U.S. oil company said in its interim update that it “expects third-quarter earnings to exceed those of 2008’s second quarter.” The San Ramon, Calif.-based Chevron attributed the improved results to higher energy prices and better refining margins - both factors that were predicted by Money Morning Contributing Editor Horacio Marquez.

Gazprom may get 27 pct in Canadian LNG terminal

MOSCOW (Reuters) - Russian gas export monopoly Gazprom may get a 27 percent stake in Canada's Rabaska liquefied natural gas (LNG) terminal, a top executive of France's GDF Suez was quoted as saying on Monday.

IOC issues annual Nigeria crude swap tender

NEW DELHI (Reuters) - Indian Oil Corp (IOC) has issued the annual Nigerian crude swap tender for 2009, a trade source said on Monday.

... IOC started the swap contract at the end of 2004 as it does not always require all the grades offered by NNPC.

Through the tender, IOC swaps various grades out of its quota allocated by NNPC with other Nigerian varieties such as Bonga, Bonny Light, Escravos and Qua Iboe that suits its refining process.

China's independents to sue oil majors over fuel

BEIJING (Reuters) - Frustrated by an unsteady trickle of overpriced fuel, China's independent oil firms hope to sue the country's two energy giants Sinopec and PetroChina under a new anti-monopoly law, Chinese media reported on Monday.

The companies have crushed their smaller rivals as they fought to protect their own bottom line from the impact of unprofitably low state-set fuel prices, the Beijing News reported.

Woodside, Chevron May Delay LNG Projects on Turmoil

(Bloomberg) -- Woodside Petroleum Ltd. and Chevron Corp. are among liquefied natural gas producers in the Australian region that may delay committing to new projects costing more than $70 billion because of lower oil prices and difficulty in raising finance, analysts said.

The most-expensive projects, such as Woodside's proposed Browse LNG and Chevron's Gorgon off northwest Australia may be worst affected, said Di Brookman, an oil and gas analyst at Citigroup Inc. in Sydney. Most projects not already approved will probably ``slide in time,'' said Stuart Baker, an energy analyst at Morgan Stanley.

Alcoa signs power contract with Bonneville Power Administration

The memorandum of understanding (MoU) provides the framework for a contract which would begin in October 2011. It would provide up to 240MW of direct power sales, enough to operate the facility at 50% capacity, contingent upon Bonneville Power Administration (BPA) acquiring additional power to augment the NW power system, within certain threshold price levels.

Under the terms of the contract, Alcoa would commit to minimum payroll levels, based on the amount of power supplied. In addition, assuming at least 10 years of power can be assured prior to the contract start, Alcoa would commit to spending between $125 million and $160 million by 2028.

100th Anniversary of Safe Water, Safer Lives

Unlike many more complicated world health issues (e.g., AIDS) and global conflicts (e.g., Darfur, Iraq, Isreal/Palestine) the solution is as accessible as it is affordable; easy as it is uncontroversial. Chlorine. Yep, one of the 8 building blocks of life can not only disinfect original water sources, but it can also stay in the water and fight off bacteria that it encounters whilst traveling through our pipes (or water jugs, or whatever your water travels in before it gets to you).

Weak flood defences 'risking lives'

Recent flood events in Nepal, India and Bangladesh that displaced millions have stoked fears that defences along rivers in the region may not withstand climate change-induced floods, and could result in bigger catastrophes.

Experts say many infrastructures are becoming weaker while the rivers' flows are getting stronger - a classic setting for projected climate change calamities.

From energy efficiency to war: thinktank sees 2030 climate future

PARIS (AFP) - The challenge posed by climate change could be resolved by a peaceful switch to a low-carbon economy, or alternatively inflict stresses that could include war and desertification of swathes of the US and Australia, a thinktank said on Monday.

The provocative report is published by a British NGO, Forum for the Future, which carries out strategic analysis on sustainable development on behalf of business.

Climate author goes political

In Keeping Our Cool, Weaver outlines in a comprehensive way what climate change is, why it's real, what causes it and what obstacles politicians and industrial interests place in the way of countering it. Throughout there are diagrams and tables that attempt to present graphically what he admits is an inherently complicated truth.

It's so serious, he said, that unless we reach a point where we stop emitting greenhouse gases entirely, 80 per cent of the world's species will become extinct, and human civilization as we know it will be destroyed, by the end of this century.

"Climate scientists who grapple with this every day ... we see where it's headed. We understand it very well.

"I think the public needs to know, straight in their face, that you can give up on civilization as we know it. This is what I'm trying to get across in the book. Do we actually give a s--- for future generations?"

Krugman won the Nobel Prize for economics.

Mr. Krugman received the award for his work on international trade and economic geography. In particular, the prize committee lauded his work for “having shown the effects of economies of scale on trade patterns and on the location of economic activity.” He has developed models that explain observed patterns of trade between countries, as well as what goods are produced where and why. Traditional trade theory assumes that countries are different and will exchange different kinds of goods with each other; Mr. Krugman’s theories have explained why worldwide trade is dominated by a few countries that are similar to each other, and why some countries might import the same kinds of goods that it exports.

That's lovely. Paul Krugman has been a very prolific, provocative (he wrote a book called The Great Unravelling, and even occasionally politically active writer and lecturer.

However, in my opinion (worth very little, of course) Naomi Klein has done far more than Paul Krugman to actually bring home the reality of global "free market" trade in a way that people can really understand.

To me, Paul Krugman remains an apologist for this pernicious system, and seems to think it can be "reformed."

Yes, I more or less agree. Heck, I'm not sure even Klein really gets it.

They want some design changes in our stone heads, and more efficient methods for building them, but in the end, it's still "build a bigger stone head."

Despite whatever Klein doesn't get, her book is a masterful expose of the empire from one angle. She tells a story which I'm more or less familiar with, but supplies innumerable fascinating details that I was completely unaware of. I gave out 20 or so copies to friends. The book is far better than her interviews, just because the details she gives cannot be reduced to sound bites.

"..and even occasionally politically active writer and lecturer."

LOL. I guess you don't read his blog/opinion column in the New York Times on a regular basis, do you?

LOL. All the way to the bank.

Yes, I do read his column on a regular basis. I do not hear him say that the problem we face is, well, us.

That unless human beings stop behaving as though they can appropriate 100% of all of earth's resources (and even if we do), that the planetary alignments are going to shift -- and not in a nice way.

After the Chicago Boy's have trashed the world economy, why not acknowledge Krugman?
At least he is not a idiot, and has spoken up.
But agreed, just make Bigger Heads is still the problem, and as Leanan has pointed out, I don't even know if Naomi understands.

Well, for those wanting to know what she thinks about building ever bigger stone heads, this page provides her current speaking schedule and a link to someone who might just pass along a well worded question on the subject. But prior to asking, it might be wise to read her latest articles (there are many) as she quite likely has already made her position known.

Paul Krugman remains an apologist for this pernicious system, and seems to think it can be "reformed."

I think you've got Krugman wrong there, NeverLNG!

Nobel winner Krugman says world recession likely

The people who assured us that markets work, that the private pursuit of profit always leads to a good result have been rather massively wrong," he said."

Worth reminding people that there is no real Nobel Prize for Economics. It's a bought and paid for fake.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel

Relation to the Nobel Prize

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is not a Nobel Prize.[4] However, the nomination process, selection criteria, and awards presentation are conducted in a manner similar to the Nobel Prizes.[12][15][18] The Prize in Economic Sciences is awarded by the Royal Swedish Academy of Sciences "in accordance with the rules governing the award of the Nobel Prizes instituted through his [Alfred Nobel's] will",[12] which stipulates that the prize is awarded annually to "those who ... shall have conferred the greatest benefit on mankind".[3]

Controversies and criticisms

Some critics argue that the prestige of the Prize in Economics derives in part from its association with the Nobel Prizes, an association that has often been a source of controversy. Among the most vocal critics of the Prize in Economics is the Swedish human rights lawyer Peter Nobel, a great-grandnephew of Alfred Nobel.[25] Swedish economist Gunnar Myrdal and former Swedish minister of finance Kjell-Olof Feldt have also advocated that the Prize in Economics should be abolished.[26] Myrdal's objections were based on his view that the 1976 Prize in Economics to Milton Friedman and the 1974 Prize in Economics shared by Friedrich Hayek (both classical liberal economists) were undeserved, on the argument that the economics did not qualify as a science. If he had been asked about the establishment of the Prize before receiving it, Hayek stated that he would "have decidedly advised against it."[26][27]

Some critics claim the selection of recipients for the Prize in Economics is biased toward mainstream economics.[28][29] The Department of Economics at the University of Chicago has garnered nine of these Prizes—more than any other university—leading some critics to opine that such an outcome demonstrates either a bias, or the appearance of one, against candidates with alternative views.[29]

Milton Friedman was awarded the 1976 prize for his work on monetarism. The prize to Friedman caused international protests,[30] primarily in relation to a six-day trip he took to Chile in March 1975 where he gave lectures on inflation and met with many Chilean government officials, including the dictator Augusto Pinochet.[31] Four Nobel Prize laureates – George Wald, Linus Pauling, David Baltimore and Salvador Luria – wrote letters to the New York Times protesting the award in October 1976.[32][33]

It has been a very effective fraud. Until Undertow started posting this, I certainly had no idea that there was no "real" Nobel prize in economics. This would seem to be a sort of theft of "intellectual property." If we were following NAFTA rules, Peter Nobel should be in line for a major judgement against Royal Swedish Academy of Sciences.

In my neck of the woods a little hole-in-the-wall coffee shop named "Sam Buck's" (the owner's name) was shut down by massive legal bullying by Starbucks.

Conversation between Stephen Colbert and Peter Agre, who won the 2003 Nobel Prize in Chemistry:

Stephen Colbert: "You said 'anyone who grew up on a farm knows that evolution exists'. OK, are you saying a monkey can milk a cow?"

Peter Agre: "Well, if I can milk a cow I suspect a monkey as smart as I am can milk a cow."

Stephen Colbert: "Are there monkeys as smart as you?"

Peter Agre: "I'm sure there are quite a few, quite a few.

Stephen Colbert: "Oh really? Mmhum. Do they give a Nobel prize for throwing your own feces?"

Peter Agre: "........That's the Economics prize, I think."

Correct me If I am wrong, didnt Nobel invent a better explosive to kill people with?
Whoops...That was a bit harsh. Of course it should have been used to further mankind in positive ways, like fishing, or stump removal. You can't blame the guy who invented something, that someone else uses to kill and maim.

My bad.

I think it was remorse over the use to which his invention had been put that instigated the Nobel Prizes to begin with. But maybe that's an urban legend.

IG Nobel for Economics:
ECONOMICS PRIZE. Geoffrey Miller, Joshua Tybur and Brent Jordan of the University of New Mexico, USA, for discovering that professional lap dancers earn higher tips when they are ovulating.
REFERENCE: "Ovulatory Cycle Effects on Tip Earnings by Lap Dancers: Economic Evidence for Human Estrus?" Geoffrey Miller, Joshua M. Tybur, Brent D. Jordan, Evolution and Human Behavior, vol. 28, 2007, pp. 375-81.

Their methodology must have been intriguing!

Where was I when they were looking for Research Assistants???

I can see a future where the various regimes in the middle east are all painted with a black brush...as the ones responsible for the world financial collapse...it would not take too much ....there is a lot of righteous anger in the population right now,all it takes is 1 demagogue,or perhaps a administration looking for scapegoats..

OPEC's Heavy Hand

Who manufactured the financial meltdown? It wasn’t only Wall Street: OPEC’s heavy hand is felt but unseen by the media and our politicians.

In bypassing a narrow economic analysis of the ongoing crisis, we can detect clearly the connection between the dizzying ups in petrol pricing and the slowing of American buying capacity. Though we have to conclude that while it is due largely to both Wall Street’s corruption and politicians’ abuse of the system handed the tools of doom to the middle class, Main Street’s rapid disenfranchisement was manufactured overseas, thousands of miles away, at the hands of many of the members of OPEC, the oil-producing Cartel.

That's what we've been looking for: an external scapegoat. There are lot's of them here at home, but to paraphrase Donald Rumsfeld, they don't make good bombing targets. OPEC! Let's go to war!

...wait, we've already tried that.

I thought it had already been decided to blame all our problems on ACORN.

I forgot all about ACORN as soon as they palmed a saw buck in my mitt and and after I voted for Obama.

Well half of that is true. The part where I voted for Obama. Here in Cuyahoga county, you can vote early. And I did. Cuyahoga county Ohio is great, I doubt many will pick this place post collapse.

Looking at the averages for the last few years: Average C+C production for OPEC in 2004 was 31,504,000 barrels per day. For non-OPEC it was 40,989,000 barrels per day in 2004. OPEC produced has averaged over 32 million barrels per day every year since and has averaged 33,621,000 barrels per day for the first seven months of 2008. That means OPEC has increased average production by 2,117,000 barrels per day since 2004. Non-OPEC on the other hand has averaged 40,624,000 barrels per day for the first seven months of 2008. That means non-OPEC production has decreased by 365,000 barrels per day since 2004.

So how can we blame OPEC when their production has increased over the last four years while non-OPEC production has decreased?

Ron Patterson

So how can we blame OPEC when their production has increased over the last four years while non-OPEC production has decreased?

That is a very rational, and to my mind, valid question -- if entirely rhetorical. "Blame", however, isn't about establishing a rational world order. It is about empowering one's own fantasies.

Darwininan, you haven't perhaps been paying attention to Rush Limbaugh, Karl Rove, and their acolytes? Truth, in our world, answers to the highest bidder.

Angola has joined OPEC since 2004, accounting at least partially for the increase of OPEC oil production since then, if not also for the decrease of non-opec as well...

Yes, no doubt together with the jihadist-leaning, fifth-columnist eco-terrorists in the "Peak Oil" movement....

He goes on...

OPEC’s manipulation of the markets did hit Americans hard in their pockets. Hundreds of millions of John and Jane Does were intimidated, terrorized really, into abandoning their lifelong dreams of owning properties because of the aggressive stance of petro-regimes towards the US and its campaign to spread democracy in the Greater Middle East

I don't know how you come up with this stuff so fast, Leanan, but it must just be all over out there on the internet.

The author claims to be a "conservative" -- whatever that means these days. The article seems to be mainly about apportioning blame for a situation that isn't even clearly defined yet on a group of people who appear to be operating in a totally rational, economically self-serving way. Why, exactly, should anyone expect the owners of oil reserves to price them lower than the market will bear in order to benefit "hundreds of millions of John and Jane Does"? -- that would be socialism

I got a mass e-mailing the other day describing how Hugo Chavez was tricking 'Merikans into buying his gas, and then collaborating with communist Russia to build and deploy WMD's, using our very own dollars, in our hemisphere and ultimately plotting to kill millions.

I had to mass mail back and call BullS&%t. It was one of those viral things, and so wrong and hateful.

And just starting with the premise that we're 'innocently filling our tanks...".

I know this is directed at the audience driving big SUV's and striving for a bigger McMansion.

The groundwork is being laid for the thing that will replace the Republican Party. Hint: it won't worry about counting votes for a living.

The Times of London ran a brutal story on how Palin kept pushing McCain to amp up the hate at campaign events, and when he finally began to back off, she told the media "well, that's up too him." In other words, she set him up to take the blame for defeat as being too moderate or too committed to peaceful elections. She will try to take the rump of the Bush-lovers, e-mail believers, hate radio and the Christian Dominionists and turn them into an iron legion, while all the various degrees of more "normal" Christian Republican leaders who expected to take over the GOP, especially Huckabee, scramble to outbid her rhetoric.

Is the goal a real 2012 victory, civil war, or just a fantastic racket selling DVDs describing her cult's expedition to the Himalayas to exorcise the evil Queen of Heaven (I'm not making this up)? We shall see.

to the Himalayas to exorcise the evil Queen of Heaven

Didn't Obama just do that in the primaries?

Sorry, too tempting to pass:-)

You mean the lunatic religious fringe that the repubs always courted soley for their votes, have taken control of the asylum?
"Say it ain't so Joe" the extreem evangelical crowd wants one party (Reps) and one news source (FAUX) and one religion (Rapture Ranger) and will outlaw all others Catholic, Luthern, Presbiterian, Qauker, Jehovah Wittness, Protestant, Muslim, Jewish Ortho, Jewish reform, Jewish conserv.

Huh! Who could have seen that coming?

Maybe, when they told everyone "Your all gonna die in a lake of fire, while I watch with joy and bliss and glee, cause all you other Christian denominations and Muslims and you Jews , Jesus hates you, so there!"

At least, thats when I got an inkling.

This is a great example of the simplistic thinking of people like the "Conservative Movement" (the author of this text is also the author of "Future Jihad: Terrorist Strategies against America" and Director of the Future Terrorism Project at the Foundation for Defense of Democracies).
Reality is probably not that simple. The economy of the OPEC countries depends heavily on their oil exports (for example almost 100% of Saudi Arabia's exports) - so thrashing the economy of their client would mean their own economical suicide. I don't think they are that stupid.

The scapegoats won't be limited to the Middle East. Hell hath no fury like an FWO--Formerly Well Off--who is sitting on the curb, with his remaining possessions, after his SUV was repossessed and he was evicted from his McMansion. He will want to blame someone else--anyone of course but himself.

There were of course countless voices warning that we can't have an infinite rate of increase in our consumption of a finite resource base and we can't borrow our way to prosperity, but the implied message--live simply, conserve, etc.--was not a message that people wanted to hear.

If some get their way, this person won't be sitting on the curb but will still be ensconced in his McMansion as he will be bailed out and given a new mortgage reflecting the new lower value of his home. That way, all those who unwisely chose to live in the exurbs will be able to stay there. Bad choices will be reinforced. Politicians and this government will do everything it can to reinforce bad choices and try to prevent the necessity making other arrangements as Kunstler likes to say.

Those who made better choices and chose to live within their means will not be rewarded, at least for now.

"Those who made better choices and chose to live within their means will not be rewarded, at least for now"

You will eat, bye and bye,
In that glorious land above the sky;
Work and pray, live on hay,
You'll get pie in the sky when you die.

Also, "no good deed goes unpunished" Etc. ad nauseum

But ask yourself. Do you really want to live in a McMansion, knowing what you know now?

Therein lies the whole problem, one that people just don't want to hear, and thus no politician can say: We are the problem. The "non-negotiable" American way of life is the problem.

Greed doesn't just exist on Wall street, it's rampant on "Main Street" as well. There is some backlash now from the responsible people, but it won't be enough.

The real problem, as I see it is people's concepts of "Rich", "Poor" and Middle Class. What is considered a basic, middle class house now, was a palace for the rich 60 years ago. A family owning two cars is no longer considered a hallmark of the rich, but the basic necessity of the lower middle class.

I'm guilty of all this too (except I did not buy a house, because I couldn't afford it), and am trying to reform, but it's hard to change the thinking that more is always better, and frankly, it's hard to stop wanting more stuff.

They tell me apple pie up in the sky
Waiting for me when I die
But between the time you're born and when you die
They never seem to hear even your cry

-- The Harder They Come

Middle Class House/Palace of Rich

My brother lives in Milwaukee, WI and bought one of the many rowhouses (not quite the correct term because most have some sort of sideyard, although the architectural style is correct) built during the 1890s, 1897 to be exact. It has 3 stories and a basement all the same size, quite close to 4,000 sq.ft. This was considered a middle class dwelling during its youth, and most still are. Its size clearly rivals a McMansion.

They have those in Boston, and they were middle class dwellings, but you only got 1/3rd of it. They were for 3 middle class families.

In the 19th century, a household would typically include husband & wife, a bunch of kids, maybe an aunt, uncle, or grandparent, and maybe even a hired hand or two (in the country) or servant(s) (in town, if the family were modestly well off). All told, maybe somewhere around 8-12 people in total, or sometimes even more. Compare that with three or four people today.

It did take some space to house all those people.

Yes, all those folks took up space, and often the top floor was rented to a boarder. Many were/are flats, which my brother's was once and since remodeled. The question at issue is clearly density of settlement, not the size of the structure. The Russians were assailed in the UK and US for turning the elites's houses into proletarian dormatories/apartments, but from our POV such actions are logical/beneficial. Elsewhere, I have called suburbanization the formative step in atomizing society, thus making it easier to control.

Plus the basement was utility space that also offered thermal regulation, and the overall shape of the dwelling were simple boxes (about 30' by 30' by 30') or thereabouts, with a simple roof.

Compare the surface area and footprint to a 2 story mcmansion with no basement (so it's all heated/cooled above-ground space), a funky outline with lots of cuts and jags that is expensive to build and expensive to heat and cool, and a complex roofline that is leak-prone, expensive to replace, and makes many areas impossible to access.

The Mcmansion look is pretty, but inefficient. A cube is about as good as you can get, unless you go for rounded shapes like domes.

Here's another idea for the not so cubic minded.


Then we have this for folks who insist on living in disaster prone areas such as the Gulf of Mexico.


Just for the record, even though I myself live in a cube, a cube is in no way about as good as you can get.

"The Mcmansion look is pretty..."

huh ? you really think the three car garage motif' is pretty ?

Hopefully he won't be sitting there for long, but will be housed and fed by the local communally coordinated comminuty co-operative, and shown a whole different path to undertake in the pursuit of happiness.

I picture Osama Bin Laden sitting cross-legged on the dirt floor of a cave with a laptop, a small band of like bearded men all tapping away on their computers with sat-link to the www, manipulating the markets using Saudi billions. LOL!

Given US electronic warfare capabilities, any such satellite link would be detected and the cave bombed.

No need to look that far; all the criminals who caused the current debacle reside in the USA. The big Hedge Fund managers/owners heads need to roll first, then the politicos.

'almost beyond recovery'

By environment reporter Sarah Clarke

Posted Wed Jun 18, 2008 6:13am AEST
Updated Wed Jun 18, 2008 9:44am AEST
Dead waterbird chicks at Narran Lakes

Ecological catastrophe: A dead waterbird chick at the Narran Lakes wetlands (ABC: Richard Kingsford)

* Related Link: Scientific report on the Murray-Darling Basin

A leaked scientific report on the Murray-Darling Basin warns parts of the river system are "beyond the point of recovery" unless they get water by October."

That was June 18, 2008. Since nothing has been done we can
now say that today the Murray-darling is dead as we knew it.


Longest, hottest drought on record, says Bureau of Meteorology

Asa Wahlquist, Rural writer | October 11, 2008

THE long drought affecting southern Australia is officially the worst on record.

And yet the golf courses are doing good business down in Oz and it is still impossible to publicly admit that the imported European style of argiculture is a complete failure in Australia. Huge quantities of precious water is wasted on luxury products. Cull all sheep and cattle in marginal areas (probably 90% of farmed animals in Australia) and 'farm' roos and emus as a first step. Retrain farmers. Ban private bores in drought areas. Make rain water tanks mandatory on properties larger than a few hundred square metres.

As long as people flush fresh water down the drain with their urine, run water fountains, waste bore water and play golf, don't say there's a water crisis. The sickness is civilisation, the water crisis is a mere symptom.

Agree. The Med and the SW US aren't far behind.

Just saw a live shot of a 5000 sq ft home in LA going up in flames.

Have any calculations been done on the likely savings from a more rational policy in the Murray-Darling basin?
Greenroof technology, storage of water run-off, eating Kangaroo instead of beef, etc?

There is no study I know of that considers such points. I guess things like green fairways and flushing toilets are still 'non-negotiable' and lawn is still one of the largest 'crops' in the country.
The Australian government subsidises solar technology for households earning below a certain, fairly low, annual income. The monies set aside for this is are low though. The country clearly lacks stringent building requirements for new homes with regard to water and energy use. Australians don't eat much roo meat, largely due to social factors. It's primarily used as pet food. Kangaroo flesh is lean and nutritious but that isn't much of a draw for a population that is, on average, at least as hefty as that of the US. Emu meat is a little gamy and not to everyone's taste.

Maybe the new global currency should be called the "The Aqua" it would give a whole new meaning to flushing money down the toilet.

"However, should the financial and evolving economic crisis cut deeper into demand, the market could fall as low as $50, which we believe to be the industry's cash cost and shut in level," the analysts wrote.

It seems to me that one person's shut in is another person's spare capacity. There is no big reason not to go below $50/barrel if we can continue to cut demand. $20/barrel with sufficient spare capacity makes sense since it was at that level not too long ago. http://mdsolar.blogspot.com/2008/06/oil-is-too-expensive.html


And beer will be 50 cents the bottle since it was at that price some years
ago and we do have sufficient spare capacity.

homes will cost $25k for 2500 sq ft because it was at that price...

people will work for $1.25/hr since...

You make a mistake here. The cost of producing most oil is likely below $20/barrel still because expensive sources do not yet doeminate supply. This is clear from the recent price history. A 5% cut in worldwide demand puts us back to the level of spare capacity that supported $20/barrel oil. Goldman is looking at the cash cost of the most expensive oil now in production. But that curve is still steep. reduce demand a little more an you shut in production that costs mcuh less than that. What we should be attempting to do is to keep that curve steep by cutting demand faster than the cheap to produce oil supply can physically decline so that our transition off of oil is low cost and we don't waste resources on exploring for pointlessly expensive to produce oil.


we can produce oil at $20/bbl (or whatever). probably.

imo,your model has some serious restrictions. what happens tommorrow when the $20 oil begins to decline ?

can you give us a model that takes into account replacement costs ?

Do you mean replacement costs for oil infrastructure or replacement costs for oil production capacity. If the latter, then you have misunderstood me. I propose an end to exloration for oil forced by cutting the price of oil below any reasonable prospect of making any money with a new oil field. If the former, I suggest that we convert off of oil on a retooling timescale so that we do not pay any more any sooner than would in any case with or without oil. The US can unilaterally force the price of oil down for about a decade. If acting in concert with other developed consumer nations, the price can be held low for about 15 years, the amount of time a transportation fleet lasts in any case.

I propose that the US cut consumption 20% now with conservation, not a difficult thing, and then replace its transportation fleet ASAP to continue to make cuts and keep ahead of depletion.

I think that this is likely the best approach to depletion. If we allow prices to have the current level of volitility, there is always going to be some yo-yo who will start trying to destroy the world economy by producing oil sands or some other foolishness just to make a buck. Expensive energy is poison.


yes, we probably made a mistake in becoming so fossil fuel dependent.

i have no crystal ball and i doubt that you have a silver bullet either, i can guarantee you that if we stop replacing reserves, the price wont stay at $ 20 (or whatever).

Of course, to accomplish your goal of reducing U.S. oil used in transport, either the price of fuel to the consumer would need to remain high enough to discourage it's use or a direct rationing effort would be required. Keeping the price high would imply either a large tax on fuel, or a "floor" tax on fuel if the market approach is to be used. To achieve a 20% cut in consumption "now" (i.e., in the immediate future), would require drastic market intervention, which would likely exacerbate the already difficult economic situation. One result would be that many more people who now commute long distances would find that difficult to do with their present vehicles.

Those folks could purchase new vehicles, but there aren't many very high MPG vehicles available today except small motorcycles and scooters. Think in terms of a major shift in the car market, with half of the new vehicles sold were Prius or Civic hybrids, then think about the lost sales of larger trucks and SUVs, along with the reduction in sales of larger cars. There isn't the production capacity to build all those high MPG vehicles, and where would the money to buy them come from, given the impending "recession", caused in part by the recent higher prices for fuel?

I think we've painted ourselves into a corner and can't get out without making an even bigger mess.

E. Swanson

As you know, I prefer rationing to taxation. This is just because the tax is too much revenue for the government to handle and has a very peaky profile if it is to be effective. Taxes should be structured in a more continuous manner. If you want emenrgency revenue, sell bonds.

I like the white market-based rationing plan developed by the Economic Regualtory Administration http://www.law.cornell.edu/uscode/42/usc_sec_42_00007136----000-.html that I think you first mentioned to me some time back.


The rationing plan from the U.S. DOE in 1979 was never put into action. Also, the plan does not cover distillate and jet fuels, only gasoline. While I do like the concept of a direct rationing system, I think it should be applied to ALL petroleum products, not just gasoline. The basic problem is that people would be likely to switch to unregulated products if the plan covered only gasoline. Also, the plan allocates fuel on a per car basis, thus it would be easy for some people to obtain more fuel by owning more vehicles. I'm guilty there, having 4 cars, a motorcycle and a PU registered to my name (the newest car/truck is a '97). Of course, how would it be possible for Congress to institute such a plan, except during an extreme emergency? We've just gone thru a serious disruption in supply after IKE and prices are still quite high in my area as a result, yet, there's been no effort by politicians at the state level to curb demand with the simplest rationing effort, a temporary odd/even purchasing limit.

While I would prefer an overall rationing system, until there is general acceptance of the need for such, I think a stiff tax might be a politically acceptable approach. I would tax all petroleum imports on a BTU basis, setting the tax rate at a level which would produce roughly half of the amount we now spend on our entire military efforts, including our "wars" in Iraq and Afghanistan. The tax income would be offset for the average worker by a direct reduction in the income taxes now dedicated to the military. This would allow "the market" to price in some of the "external" costs, which in many ways is a subsidy for the U.S. oil industry and the OPEC national oil companies. That way, the American consuming public might come to realize the real cost of our military adventures and might then vote to reduce them...

E. Swanson

So far as I know, rationing can be initiated by the executive since the legislation is already in place. It would be good form to nominate an adminstrator of the Economic Regulatory Administration and have the Senate confirm the nominee, but I think the president can just start rationing going. This is much easier to do than passing a tax increase I think. And, we do face an emergency. Right now, most money payed for oil just recirculates. If we get to the point where most oil is expensive to produce, then most money paid for oil with go into sunk costs and will be lost. More than lost because you still have to pay to dispose of offshore platforms or junked tarsand mining trucks. That punctures a huge hole in the world economy and that great sucking sound will be the sound of its collapse.


More than lost because you still have to pay to dispose of offshore platforms

I think South Florida might take a few of them.

I often dive on this one, the fishing on it is really good too. If it wasn't for the very unpredictable currents and depth I'd paddle out on my kayak and dive it that way.


So Chris. You stopped driving yet?

You stopped buying food from your local grocery store or restuarant?

There is no need to stop driving yet. I have cut down some though, enough to begin to bring the price of gas down. My groceries are delivered using biodiesel I hear and the store is power by wind. I stopped using oil for heat last winter which may help some people who can't convert this winter keep from getting overwhelmed. We'll see if we can keep on pushing the price down.


I almost always walk to buy food, and either walk or take the streetcar to restaurants. Two world class restaurants within 7 blocks and more a streetcar ride away.

Best Hopes for Transit Orientated Development,


"I almost always walk to buy food, and either walk or take the streetcar to restaurants."

If only the farms producing for you were still located at the audubon Zoo area. But they're not.

And as long as those 18 wheelers/boxcars are able to come into sight of your purview, all will be well.

Lettersofcredit are needed for the above. Will you provide those?

Behind the curtain of silence the subprime loan problem, better described as a global meltdown of credit and default derivatives, continues. The reason for this condition is an attempt to value that for which there is no value. It is spreading globally as a product of the limitless manufacturing PRIMARILY (above 75%) by USA financial entities.

Keep in mind that over the counter derivatives created between 1999 and 2007 generally have the following characteristics:

1. Without regulation.
2. Without listing on public exchanges.
3. Without standards.
4. Therefore not in the least bit transparent.
5. Therefore without an open market of the bid/ask type.
6. Dealt in by private treaty negotiations.
7. Without a clearinghouse.
8. Unfunded without financial guarantee of any kind.
9. Functioning as contracts of specific performance.
10. Financial character or ability to perform is totally dependent on the balance sheet of the loser in the arrangement.
11. Evaluated by computer assumptions made by geek, non-market experienced mathematicians who assume religiously that all markets return to their normal relationships regardless of disruptions.
12. Now in the credit and default category alone considered by accepted authorities as totaling more than USD$20 trillion in notional value.
13. Notional value becomes real value when the agreement is forced to find a real market for ending the obligation which is how one says sell it. "


True.. of course the likely outcome is that investment in both expensive oil (Tar sands/Ultra deepwater/EOR type stuff) will be heavily cut back, even more so than by the credit crunch, AND a fair number of renewable/substitution projects will be cut as well.

So a couple of years hence, as declines in the cheap oil mean that demand starts to rise again, we'll have less capability than before.

Demand will rise to meet the supply at the market price. It will depend on how much money people actually have, though. I haven't figured that out yet-- where does the imoney come from?

Seems like we have just been through a period of money creation based on the assumption of future availability of cheap oil. That dream has vanished, and with it, trillions of dollars of "money" that didn't really exist.

Knowing what we all know now, it doesn't seem likely that money creation and "demand" can be pushed so high so fast any time soon.

Demand does not rise if fuel is rationed. Demand may rise outside the US but that is not immediately important since it can't rise faster that new cars can be put on limited Chinese and Indian roads. As long as we can conserve and switch fast enough then we can do this cheap.


Demand for alcohol rose all the way through the enforced "rationing" of Prohibition.

Rationing just creates another opening for criminal activity. I suppose it slows down the velocity of increase a bit, though.

Actually, the US Government has worked out a rationing method that includes trading in rations. This means that extra fuel can always be had legally at a price. Prohibition is a completely different matter.


If fuel is rationed, and demand outside the US increases due to low prices/no rationing, wouldn't that just require even more rationing here?

It seems the major demand issues are outside the US. Between 2000 and 2007, US consumption was between 19.7 and 20.7 mbpd (2008 projected at 19.85). The entire OECD only rose from 47.9 to 49.1 mbpd from 2000 to 2007.

Non-OECD consumption was 28.8 mbpd in 2000, 36.7 in 2007.

I don't want to say that US is doing a good job at conservation, it isn't, but it is also true that its consumption over the last 8 years has been fairly flat. During the same time period, the less developed parts of the world increased consumption around 8 mbpd. If the US reduced consumption by about 40%, we would merely offset the rise from non-OECD consumers.

EIA's table of data I referred to above.

In my mind, I think the future of oil prices will be affected most by the strength of third world economies. If the economic downturn affects poor countries severely, than demand could shrink.

Yes, demand would increase outside the US at a rate moderated by policy in Europe and by auto manufacturing capacity elsewhere. But, as the largest single consumer, we have the edge for a while because our reductions can be larger that anyone else's increases. We can't suppress the price for long, but we can suppress it long enough so that we don't use oil much any more when we lose our leverage. At that point, the price does not matter to us except that I doubt we'd drill off California to sell oil to China no matter how much they were willing to pay. If we can get off oil, they can too. They'll just have to do it the expensive way if they wait for us to use up all the cheap oil during our transition.


I think I finally get what you are saying after reading the rest of your posts here: we suppress prices by artificially reducing demand through rationing. This in turn eliminates incentives to produce "expensive" oil, and drains the wells that produce cheaply. As a result, world dependence on oil will quickly transmute to dependence on other energy sources.

It will take a bit of convincing to get me thinking that this is a good idea. First, you are assuming that other countries will not be able to suck up any slack we leave in the system, at least not right away. I don't know that is a valid assumption.

If we assume it would cause a lowering of oil price, cheap oil would stimulate the non-OECD economies. There are already tons of inexpensive and highly efficient cars that would appeal to people with some new-found economic might (*) ... heck, they appeal to me if only we could have them here in the US. The non-OECD economies could take off like gangbusters and overwhelm anything offset here because they would have energy, and energy is easily transmuted into wealth and power.

Meanwhile, our own industry would be crippled and those manufacturers who could, would move to countries with cheap and _abundant_ energy. Rather than usher in an age of new prosperity, the further erosion of our industrial base would help us slide faster into decay than we are presently. We'd be left with a bunch of telecommuting jobs (because people wouldn't be able to get to work) which by their very nature, would be subject to outsourcing (if you can do your job remotely from 20 miles, someone else can do your job remotely from 8000 miles). Aside from that, a telecommuting job is "non-productive" in the sense that it will be some kind of service job -- not a job that actually creates something of value (manufacturing).

In contrast, if we suffer an involuntary 20% reduction in energy because supply actually decreases for physical rather than political reasons, the incentive to move the rest of our economy offshore will be lessened because energy will be equally expensive in all localities, and quite likely, MORE expensive in the more remote/less developed nations.

If we're smart (big "if"), we'll use our remaining time to work on alternatives, but I'm not convinced that creating artificial demand reduction is the best way to achieve our goals.

(*) I've been all over Japan 7-9 years ago in different mini-cars on several trips. 60-70 mpg (gas engine), air conditioning, power windows, very zippy, and cheap to buy. VW currently makes a diesel smaller than a Golf -- I think "Polo" -- which gets 70 mpg (rather pricey though).

A am advocating the US Government plan for fuel rationing. This includes white markets where those who don't use all of their rations can sell them to those who do. This means that people get to work just fine and they do it for less money usually since the base price of oil is less. This makes the US more competitive since the US is more dependent on commuting so high oil prices makes our work force more expensive. I would think that if stuff is exported, the energy used to maufacture would not be counted in a ration while if things are imported, rations would apply to the oil that brings the stuff in or produces it. That sort of thing is just fine under WTO.


So you are saying individual fuel use would be rationed, but in certain business areas, energy would not be rationed. Which businesses would be excluded from the quota? Manufacturers only? What about non-manufacturing businesses? If non-manufacturing business is excluded from the rationing plan, how rapidly would it come to pass that most people drive a "company" car?

It seems to me that once you start rationing energy to some, and allowing others to use as much as they like, the system becomes incredibly susceptible to abuse. Even if not abused, a whole economy of "energy accountants and lawyers" will spring up around the scheme just like we have with our byzantine tax laws ... not that I mind lawyers or accounts -- I'm a lawyer (though not in tax/business law) and a good friend an accountant, but realistically, lawyers and accountants aren't producers in the economy, they just help businesses/individuals navigate the insanely complex system of carrots and sticks our government has created to promote pet concepts.

Aside from economic issues -- would people actually accept this? People get upset enough when the Government doesn't effectively address natural disasters, but when the main cause of the problem was mother nature, people will grudgingly chalk up the response to government incompetence. With rationing in the absence of any apparent need, public perception of government would wholly unravel perhaps even to the point of civil war. Rationing would have to be enforced, likely at the barrel of a gun, and I suspect a reasonable portion of Americans would start shooting back.

Secondly, there would be incredible amounts smuggling. What would stop me from driving over to Canada (30 minutes away) and fueling up with all the unrationed gas I wanted, perhaps into a specially modified tank, then coming back and selling it for whatever the market would bear? No tax revenue for local roads. No income tax on my smuggling gains. Will we add the cost of a "war on gas" to the "war on drugs"? Will Hollywood make movies about "gas runners"?

I can't possibly see how a rationing system in the absence of an actual crisis would work.

Not really. We cut US consumption. Flow through foreign consumption is somebody else's business.

As to smuggling, the going price will be about $0.70/gallon so it won't be worth it. The thing that will be pricy will be the tradable rations. But, most people will be happy about that because they'll be getting paid for their extra rations. I expect smugglers will get turned in pretty quickly.


Gas won't be $0.70/gal overall -- only the rationed portion will be that much. Then there will be some percentage that costs $X/gal extra due to the markup on ration tickets. After that, the remainder of the gas people buy will be paid for at the smuggler's rate.

As for turning in smugglers, why would anyone do that? How would a person be able to get to grandma's house across the state when she breaks her hip unless he knew a guy who knew a guy who could get some gas? Rationing would create a huge "us against the government" mindset and aside from a handful of narcs, who'd probably get beat to death in jail, nobody is going to say squat.

What people would see is that gas is plentiful in Europe, Canada, Mexico, Ecuador, or anyplace else in the world. They would wonder why the government is forcing austerity while the world parties, and they'd fight it every way they could. Arguments about peak oil, global warming, God's plan -- whatever you want to dream up -- if people see others with plenty and only the government standing in the way of their share, whether by ballot or bullet, the government won't last.

A forced rationing scheme in the absence of any cause plain enough for J6P, would only work in the context of a military dictatorship with the will to publicly execute people who smuggle gas. The more I think about forced rationing, the more I just don't see it.

Again, the white market pretty much erases the black market because people can get as much fuel as they want by buying extra rations. Those who benefit from the sale of those extra rations will not tolerate the black market.


In what I propose, substitution projects would move along pretty quickly. Remember that I am urging that we us the white market-based fuel rationing plan that the Economic Regulatory Adminstration in the DOE developed to ensure reduced consumption. When people can make money off of using less gasoline, they will have what they need to make substitutions. http://mdsolar.blogspot.com/2008/06/oil-is-too-expensive.html


From your blog: If the US alone, were to cut its per capita consumption to seven gallons a week down from nine, (think carpools and second small cars) we'd cut world consumption by about 6%.

If all you want to do is drop average consumption by a bit over 22% from 9 to 7 gal/wk, there are much less painful ways of doing this. I mentioned mini-cars in a prior post. There have been gasoline powered mini-cars running all over Japan for ages that get 60-70 mpg. This isn't future tech fuel cells or exotic batteries -- this is regular old gasoline engine technology.

If the average US car gets 25 mpg (I'm guessing on this stat), you would get a 22% savings in gas merely by bumping that average fuel efficiency up 5.5 mpg.

Assuming 120m cars in the US (from random google result) at 25 avg mpg, you would only need to replace 18.85 million of those cars with cars getting 60 mpg to achieve the 22% drop in fuel usage (30.5 mpg avg). That's about 15% of the car population. Given the low purchase cost of a mini-car, coupled perhaps with tax incentives, it isn't inconceivable that such a reduction could actually happen without resort to painful rations or faith in future technologies.

Without question, this would be a whole lot less harmful than coerced rationing or $380/bbl tax rates -- I'd certainly want to see if Americans will buy small cars if incentivised to do so before choosing the nuclear option (rationing).

I think we agree that the first 20% of consumption reduction is pretty easy. Having a small second car is one example for sure.

Remember, the US plan is for tradable rations. They are going to be pretty popular since most people will make a little money with them. Making that money will be part of the incentive to get a smaller car.


The cost of producing most oil is likely below $20/barrel

If you're talking about pure pumping costs, and not recouping discovery costs, then I would agree that most of the oil the world currently produces can probably still be pumped for $20/barrel (whether it is 95% of the world's oil is another question). If you factor in total costs, it is doubtless much more. According to a US governemnt report (in '05 I think), the cost of offshore oil was $68/barrel, counting discovery costs. So while you could pump for a while at $20, you couldn't even think about replacing depleting wells.

Also, a 5% decline in world wide demand probably puts the world in a pretty ugly place economically. Add to that the effects on oil producers of oil at $20, and I question whether the world could be politically stable enough to pump & distribute oil at all with the scenario you lay out.

Fortunately, it is not the case that most oil comes from offshore wells, though we are foolishly trying to move in that direction.

If we force the price down to $20/barrel, that will have a huge stablizing effect politically. No one would want to risk what cashflow still remained and there would be much less money spent on destablizing governments in the ME.


When Willy Sutton was asked why he robbed banks, he replied, "because that's where the money is." Foolish or not, we drill offshore because that's where the oil is (or more precisely where most growth in oil production is going to come from).

I would say the idea that $20/barrel is stabilizing is bizarre. The last time oil was that cheap, China was all but a 3rd world nation, the USSR was collapsing, and the people of Brazil and India were much poorer than they are today. A rollback in demand to the levels of the 1990s would be a huge problem in those countries (not to mention the Gulf counties, with their huge disparity in wealth and ballooning social programs that would have to be slashed or eliminated).

IMO, you are being excessively Western-centric. $20 oil would be stabilizing to the first world Western consuming countries. The rest of the world is unlikely to be happy about giving up their 10-15% annualized economic growth since then, even if the Western oil consumers are happy giving up their faux economic growth.

In any case, I think you misunderstood my point -- the economic conditions that would cause oil to drop to $20 will produce a large amount of political instability, even in the Western consuming nations. In other words, $20 oil won't matter if you don't have a job, a house, or a car any more.

You seem to believe that a 5% reduction in oil consumption is no big deal, that the drop in oil will make everyone happy that they cut back so much, and that the drop in oil won't cause them to go out and consume like it was 2007. On the other hand, I believe that a net 5% demand reduction even after the stimulative effect of $20 oil puts us deep in apocalyptic territory. It might happen, but it isn't going to be a world you would want to live in (and it sure won't be like 1999).

I don't see why we would initially rool back to demand levels in the 90's. Production has risen since then. All that is needed is a good bit of spare capacity.

And, you seem to be misreading me. I am only proposing that the US cut consumption. If we partner with a few other large consumers, that might be better, but we don't need to because we dominate the market. This is a deliberate cut in consumption, not a recession driven cut.

Finally, you don't seem to understand that efficiency is good for the economy, especially in energy use.


If you make your own beer, you might get it at a net cost of 50 cents a bottle.

I just bought 2, 30 can cases Friday for 14.98 each including tax. OM light.

If these lower and falling prices continue for a significan time it will basically guarantee that the world has passed its peak for all liquids. Stick the flag up, build the rock pile and take the photo. Nothing to doi now but climb down .. or fall ...

I think that is correct. And, that is just what we want. Peak oil should be peak cheap oil. It does not make any sense at all to try to delay the peak with expensive-to-produce oil. So, driving the price down is probably the best possible response to the current situation.


It would be interesting if we see a continuation of an accelerating net export decline rate, combined with lower oil prices. I guess this would be analogous to an expectation for an accelerating rate of increase in the volume of exported oil worldwide, combined with rising oil prices.

Actually, oil consumption inceases in producing counties owing to the profit from exports. Cut that profit, and there won't be money to buy new cars and such. I need to point out that low prices are achieved though rationing in the US. Exports should decline because demand declines, not because local demand increases. We want Saudi production shut in as it used to be.


Good luck with implementing rationing, when we so far can't even get a gasoline consumption tax, offset by cutting the Payroll Tax, passed. Haven't you heard? Ed Wallace says we won't peak for 50 years.

The only way to build a constituency big enough to get a consumption tax is to completely eliminate the payroll tax, and then use rebate checks to replace the remnants of the welfare system and fire all the tax and welfare bureaucracies. However, I imagine there would be other problems with that. You would probably need a wealth tax at the very top just to slow down the current polarization of wealth into El Salvador-hood.

Rationing can be started by executive order. Tax policy has to go through congress.


Ah... But the executive must enforce the regulation.

OPEC has spare capacity.

If you check the EIA charts you might see similar to what is shown here for Kuwait:


Saudi Arabia has 80 untapped oil fields and has found numerous fields since 2000. Ghawar is aged and some areas of Ghawar are depleted or in decline, yet this country has the capability to be launching 500,000 - 1,000,000 million barrel a day projects, muli-billion barrel plays, not even scrapping bottom like the U.S. lower 48 onshore with its Bakken play or searching for missed areas in the Austin Chalk.

As OPEC nations have been used to high living off the high price of oil, they might go into shock as the price of the oil collapsed, same as the U.S. oil industry. The United States is yet the third largest oil producer in the world behind Arabia and Russia.

Non-OPEC production was predicted to grow in 2009 according to the IEA.

Previously I posted India was going to double digit oil production growth. Now I can confidently confirm my presumption that Indonesia may reverse out of production declines after large scale exploration and development efforts that have yielded two dozen oil field discoveries:


It may be too soon to call a peak. Australia has some large projects including a 100,000 barrel a day project scheduled as well.

Brazil has estimated 3P reserves of 55 billion barrels. The U.S. lower Tertiary has 250,000-1 billion or more barrel oilfields from the Walker Ridge to the Mexican Border. Angola may have subsalt prospects as well. Eventually a production peak will occur that will never be surpassed again. But when? OPEC may be producing on an undulating plateau while diverse places as far away as the Phillipines discover they have more oil.

Too small, too slow (Brazil will take over 20 years to fully develop already discovered fields) to offset the declining production from depleting super-giant oil fields. Conventional oil is past peak. Only increased tar sands and NGL keep the #s up.


Will have to wait and see. For two years people declared 2005 was the worldwide oil+liquids peak. Not only were there tar sands and NGL's, there were deepwater drilling rigs being built. If you check the marine drilling company websites for investor presentations you might find that the oil boom has also brought a rig building boom and more rigs on the water will mean more oil. There is also some gas to liquids production.

The megaproject list is important, yet it does not have the ability to predict OPEC moves, or the many small projects. The Phillipines production may lessen their dependence on imports by 6%. India may soon be needing less imported fuel. Egypt goes to a 14 year production high. Indonesia is predicted to return to a million barrels a day oil production. Before the hurricanes the United States had increased production year on year, while decreasing consumption a million barrels a day. Angola, Sudan, Vietnam, China, Canada, Brazil and others were increasing oil production. Mexico and the North Sea continue a long term decline. Venezuela has economic factors and OPEC allegiance to limit production growth, as did other OPEC nations.

The price of oil is up this morning on strong Asian trading. Will need to see what lower oil prices do to consumption #'s. Usually lower prices increased oil demand. China was increasing imports ahead of winter. They lowered stocks after the Olympics.

Not only were there tar sands and NGL's, there were deepwater drilling rigs being built.

True, but (thinking out loud here) we should bear in mind that tar sands and deepwater only work when oil prices are sufficiently high. I'm not sure what the breakeven cost is for deepwater these days, but it's high. I believe the strip-mined tar sands projects require at least $65/bbl to be worthwhile. The domestic unconventional plays (like the Barnett/Bakken/etc shales) also require a fairly high price. If oil prices drop much lower, we could see rigs laid down and production slowed, and if that went on for six months or more it could cause a delay of a year or more in increasing production overall...leading ultimately to higher prices than we might have had, and (probably) a more proximate peak.

That is not what I mean by spare capacity. I mean wells that could produce right now but don't because there is not enough demand to use the oil. A lot of spare capacity means that oil prices will be low. That is the case right now. If we develop a lot of expensive to produce oil, then spare capacity will not reduce prices all that much. You need the shut in production to include low cost production. That can't happen if a large fraction of oil production costs $60/barrel because the marginal barrel cost remains high even with a lot of spare capacity. We need to ensure spare capacity in cheap oil to avoid excessive costs in our transition off of oil.


I've been thinking a lot lately about the "accelerating net export decline ". I see the next update from http://netoilexports.blogspot.com/ is due on Oct 24th..which is where I have been going to get the latest. I sometimes think it would be more appropriate if TOD created a poll on these type of numbers instead of the price of oil.

There are going to be some short term net export fluctuations, but the long term trend is pretty clear. Even Saudi Arabia, which is showing a year over year increase, is probably going to be down about 700,000 bpd from their 2005 rate. Russia is declining. Norway is in terminal decline. Venezuela has averaged an annual decline of about 100,000 bpd per year for 10 straight years. Mexico is crashing. Even Angola, which is one of the few countries showing increasing exports, is showing signs of flat production.

I am starting to think this crisis may solve one of the biggest problems: how to convince people to live simply and conserve ahead of the decline of oil and gas production.

Of course it does not solve all problems and cause many new ones. But the rules of the games are changed. If we think out of the box, may be we will find an unforeseen opportunity to mitigate peak oil.

Oil was, in a away, simplifying since it reduced the requirements for raising horses. There is enourmous room for conservation, yes, but I expect that we will shift to something that simplifies in the way oil did, by requiring less effort to get energy, less effort than even oil required.


Perhaps trade 20 BTUs of diesel for 1 BTU of electricity by shifting freight from trucks to electrified trains ?

Or trade 20 BTUs of gasoline for 1 BTU of electricity by shifting form single occupancy cars & SUVs to electrified light rail and TOD ?

Or bicycles ? (1,000,000 BTUs of oil fuel for 1 BTU of synthetic rubber for tires ?)

Best Hopes,



That is room for conservation. I was thinking more about EROEI which looks very good for renewables given present trends.


Sorry, ain't gonna happen. The 5% of the people that have a clue as to what is coming, and already are making changes, the other 95% are as stupid as a rock and will never change. Do you honestly think anyone of the Nitwits in Congress will realy do anything until Rome burns? Trade BTU's? WTF is that? How many of the idiots in Washington even know what a BTU is? "Blue Tasseled Underwear"? You know this, as does most everyone that reads this site. Why dwell on pipe dreams? Revolution is the only way they will change, and that will not be pretty. If you are one of the 5%, I'd get my act together, get out of the cities and plan to turn Amish.

"never" is forever. People may continue to be "as stupid as a rock," but at some point they will change. Beware the fallacy of absolutes.

OK Should have said "probably will never change until forced to do so"....Although I'm sure a few of our CongressMEN know what "Blue Tasseled Underwear" is... Barney! Are you there Barney? I need another Bailout!!!!

I must admit finding your BTU humorous, since having known what BYU meant from a very young age prevented me from coming up with such a witty explanation.

It's very hard to have a successful revolution when the hoi polloi are as ignorant and apathetic as you describe. I'm inclined to be pateint and await the time when conditions are riper, which is to say the country has a long way to fall beforehand. A lot can happen in the 98 days before Jan. 20. I think the odds good that Bush will get drunk and Cheney will have his fatal heart attack, perhaps at the same post-election wake.

Turn Amish? Now I got to learn a Duetch dialect and speak it backwards too? And the straw hat thingy? And the thin blue jean material?, aw come on, This PO stuff is harshing my mellow.

Another prediction from Goldman Sachs:

The bank also cut its forecast for copper prices in three months to $3,500 a tonne versus and old forecast of $7,960, but predicted a recovery to $6,625 in 12 month's time. London Metals Exchange three-month copper rose 2.5 percent to $4,920 a tonne.
"As copper is the only base metal that remains substantially above its marginal cost of production even at the current depressed price levels, we believe that it remains the most vulnerable to further downside in the near term."

I wonder, what's the "marginal cost of production" for copper which is taken from foreclosed and abandoned houses?

E. Swanson

"marginal cost of production"

Of course, nature never gets paid, so the marginal cost of production does not include the heavy lifting - the geological and perhaps universal time frames necessary not only to create, but to concentrate in economic proportions, the copper reserves.

cfm in Gray, ME

at Monday October 13, 2008 - 01:43 PM
Click on the Grade name for more specific details.
Click on the price for Historical Reports. LTL TL UNITS FUNDS
No.1 Heavy Scrap Copper 2.02 2.17 lbs USD
No.2 Scrap Copper 1.78 1.93 lbs USD
Soldered Copper Pipe Scrap 1.54 1.69 lbs USD
Beryllium Copper Scrap 1.42 1.57 lbs USD
Light Scrap Copper 1.54 1.69 lbs USD
Copper Turnings 1.54 1.69 lbs USD
No.1 Bare Bright Copper Wire 2.07 2.22 lbs USD
No.1 Copper Wire Scrap 1.97 2.12 lbs USD
No.2 Copper Wire Scrap 1.78 1.93 lbs USD
No.1 Copper Wire Nodules 2.14 2.29 lbs USD
No.2 Copper Wire Nodules 1.78 1.93 lbs USD
No.1 Insulated Copper Wire 0.96 1.21 lbs USD
No.2 Insulated Copper Wire 0.57 0.72 lbs USD
No.3 Insulated Copper Wire 0.38 0.48 lbs USD
Copper/Aluminum BX Cable 0.57 0.72 lbs USD
Copper/Steel BX Cable 0.19 0.24 lbs USD
Copper/Fractional Electric Motors 0.36 0.43 lbs USD
Copper/Large Electric Motors 0.22 0.29 lbs USD
Scrap Copper/Sealed Motors 0.13 0.19 lbs USD
Copper/Aluminum Rads 0.81 0.96 lbs USD
Copper Content Scrap - - - -
Other Scrap Copper - - - -
Recycler's World USA Source: ScrapIndex

Wars, modern any how, need copper. Copper prices always are a precursor to war. Its as sure as death and tax cheaters....I mean taxes.

Dow up 360 points in first 60 seconds after open. Wheeee.....

WTI around $82

This might be a great opportunity to be buying energy and commodity stocks ...

How much of the "crash," especially the late stages, has been margin selling, especially by "smart money."? How long will that last?

How much has been simple panic selling - throwing the baby out with the bathwater?

Demand may drop, but the money supply continues to grow... this is inflation.

- the Fed was pushing on a string... they printed the money but the markets "froze" and the bankers wouldn't lend, even to each other.

- So now the Feds (world wide) decide to Pull the (g*dzd*amn)string by opening the (helicoptor) window to more banks and even large corporations...

Next, will we see:

-Government-sponsored mega projects with direct funding from the Fed ?

- Individuals with a Fed-issued ATM card (cheaper and more efficient than dropping money from helicoptors) ???

The credit crunch has caused deflationary symptoms that the feds will ultimately overwhelm by going direct to the consumer if they have too.

If The Money Supply Grows... it is Inflation. If it's inflation, prices will increase for all goods, especially Essential Tangibles (commodities).

Thank godz there are well-run, domestic energy companies w/o debt that are priced too cheap to be rational.

And we're off. Up 400 points in the opening minutes.

A selling opportunity. ;-)

Haha, that was my thought exactly. I have a few things I ought to have sold earlier and over the weekend I was thinking of selling today..

This all reminds me of the old Chinese curse - "may you live in interesting times".

The markets are so chaotic that it is hard to predict what is going to happen, so I guess for the time being we need to be prepared to rapidly change course and adapt to changing conditions.

While I don't want to throw this tanker load of water on anyone's optimism, commercial banks are closed today, and margin call related sales will resume tomorrow. The bank margin sales frequently take a few days to get executed, in part because they often give the borrower a chance to pay down the margin account before a sale. Also, stocks pledged on loans which are now inadequately collateralized and included stock pledges always allow time to correct the deficiencies, often in loan agreements, and take some time to get to the sale point. I pity the poor optimists who thought they could refinance and resisted the sales of securities a week ago.

Yeah, I didn't even realize the markets were going to be open today.

Oh well, another week of the the usual pattern: irrational exuberance Monday, panic by Friday, emergency government meetings over the weekend and announcement of the latest plan by Sunday.

Columbus day (OcT 12th) Fell on a Sunday this year.
Post office and gov stuff is closed on Mon 13th though

Days like today make me wish for a bank or Fed. government job -- I had to use google to figure out why the banks would be closed today. ;-)

In case anyone else is wondering: Columbus Day
(a holiday you won't know about unless you get a long weekend for it)

As of 17:46 GMT, the Dow is up over 9000 again. So far a 566.86 point rise, that's + 6.71%.

Break out the champaign glasses and serve up the bubbly. Eat, drink and be merry for tomorrow we may die!

To my Canadian confréres, Happy Thanksgiving.

The turkey is roasting as I type. Cheers!

Up 936 points. Biggest point gain ever.

Oil doesn't go straight up, and the stock market doesn't go straight down. I believe I said last week that down 30% would be a magnet for a while. My timing/luck this year has been unbelievable, but I'm heading back to neutral (cash) again, probably after the sheep jump in tomorrow morning, but I think this might run until Friday's expiration.

From my desk, it all looks so damn predictable. Retail panic and institutional indifference have always signaled a turning point. Unfortunately, it only signals polarity and not amplitude.

Looks like they're trying to get penalty free IRA withdrawals passed. You might look into that.

Looks like they're trying to get penalty free IRA withdrawals passed.

I saw that. Obama's new economic plan calls for allowing people to withdraw money from their IRAs without penalty.

If I were expecting BAU, I'd think this is even more stupid and irresponsible than Bush the Elder's giving everyone an advance on their tax returns. The answer to every economic ill: more shopping now.

But since I'm not expecting BAU, why not.

penalty free, but wouldnt traditional ira withdrawls still be taxed as ordinary income at the highest marginal tax rate ?

Re Goldman's $50 projection for crude oil, keep in mind that on November 12 the IEA will release the results of a study assessing the depletion status of the world’s top 400 oil fields, which was announced in
and about which Jerome a Paris said:

"I have been told by a reliable source that the IEA has been forbidden by the US administration from updating their absurdly cornucopian oil supply and demand scenarios until the report that comes out late this year (after the election); that report, which will publish the result of a "bottom-up" analysis (ie a summary of all existing oil fields, their production and/or prospects) is expected to show that oil production is unlikely to reach the levels that so many have blithely assumed - notably on the basis of previous optimistic IEA reports."

Those "forecasts" from Goldman et al are intended to prompt weak hands to sell good investments so that they can end up in "righter and tighter" hands. A case which is supported by some insightful views from a seemingly very good trading site (Forbes Magazine Best of the Web Award, 2002 and 2004, etc.)

"The selling has reached historic proportions. There literally is a "run on the market," as investors worldwide are dumping stocks. It seems that the major catalyst for this selling is the fact that the newest large banks primarily J. P. Morgan, Goldman Sachs, and possibly Morgan Stanley as well -- have issued massive margin calls to hedge funds and other professional traders who use these banks as prime brokers. These calls were not issued because of market losses, but more because the banks arbitrarily decided that they wanted their customers to use less leverage. Margin rates as low as 15% for broker dealers were raised to 35%; hedge funds who had been used to operating on high leverage were told that they had to bring accounts up to a much larger percentage of equity. In this illiquid environment, where all manor of exotic securities literally have no bids, the only place to raise the cash to meet margin calls was to sell stock. That is what really set this market over the edge -- as the first notice of these calls were issued on October 2nd and 3rd. There was something of a grace period to meet the calls, but funds realized they weren't going to be able to meet them other than by selling stock. There are rumors that the most massive of the calls are due Monday (October 13th). If so, this market could continue to decline through then.

There doesn't seem to be any reason for this increase in margin. The most benign one is that the banks became overly worried that their prime brokerage customers could cause problems with leverage. A more sinister reason revolves around the fact that the banks issuing the calls will likely wind up the owners of some excellent inventory (relatively illiquid preferreds, bonds, etc., which are being sold at prices well below theoretical value). They are in effect confiscating from their prime brokerage customers."

The comment above applies perfectly to the gold and silver markets, fitting nicely with my previous comment on Friday's plunge in gold and silver prices. When I then asked Ted Butler for this thoughts on it, he replied "Only thing I would add is the forced margin call liquidation of hedge funds and other traders by their prime brokers, which was intentionally designed to drive prices lower still". So, there are several levels of margin calls in play:

1.From the exchange itself (COMEX for gold and silver), if a long position has been established on margin and a fall in price gets it under water.

2. From the prime broker of the fund holding the long position, if the money the fund has used for establishing the position (using margin or not) has been borrowed from the prime broker.

And guess what? The prime brokers of the long funds are the same banks that hold the big short positions!

So what we are seeing is the mother of all clean outs.

The shape of things to come?

Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports

Oct. 13 (Bloomberg) -- After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports.

``We have had crazy days for a week now,'' said Johannes Smari Oluffsson, manager of the Bonus discount grocery store in Reykjavik's main shopping center. ``Sales have doubled.''

Bonus, a nationwide chain, has stock at its warehouse for about two weeks. After that, the shelves will start emptying unless it can get access to foreign currency, the 22-year-old manager said, standing in a walk-in fridge filled with meat products, among the few goods on sale produced locally.

Ironic. A lot of people thought Iceland would be a good place to weather peak oil.

It still might be.
In my opinion, the places that undergo 'dress rehearsal' crises before we really are fossil fuel limited will be better prepared - because they will have had time to access high quality resources to build more local infrastructure for food and energy, reduce consumption patterns to be more consistent with basic vs luxury goods, and build more local community.

Early disadvantages will be long term advantages..

Dress Reheasal? Do they have another 10 or 20 years to prepare for the 'big show'

Does this economic crisis have nothing to do with oil/energy?

Nate, sorry if this seems pointed (as I respect your contributions immensely). But I can't believe you are suggesting they have sufficient time to prepare for the 'Real Deal'.

IMO, it is the other way around...ICELAND is the first Peak Oil/Cheap Energy casualty.

As I stated in my Dec 2007 recession posts, we have seen the END of NET energy growth...which impacts our 'Money is Debt' endless growth requirement society.

Having ample geothermal energy and lots of fish about the place, yeah, they just might be OK in the long run: travel mostly by water and use your geothermal for everything else. Sometimes people seem to forget that what you mostly need to survive is a bit of clothing, shelter and food. They've got 2 out of 3 without doing a blessed thing more. How many places in the world can say that?

Also, it is good to remember that economic collapse and societal collapse are not the same thing. My thinking, along with others, is that pockets of relatively highly developed societies will survive no matter how bad it gets. Iceland might be a candidate for long-term survival.


Iceland is mostly hydro power - from Iceland official stats (via wikipedia):

"In 2006, 26.5% of electricity generation in Iceland came from geothermal energy, 73.4% from hydro power, and 0.1% from fossil fuels."

It is also a wonderful location for wind power.
It's a shame that building a transmission line to take power from it to Britain would be 'challenging' to say the least.

2006 was before Karahnjukar became operational, a steady 540 MW of hydroelectricty. I was involved with the project.


Being the first to crash also means that there are external sources of survival necessities. One reason why Russia and Argentina recovered as well as they did is because of the cross-border runs for goods conducted "informally" by small enterpreneurs.

The remaining, soon-to-be-priceless supplies like generators and tools will end up going to Icelanders who are presumably foregoing the Xboxes this Christmas.

So let me see if I can get the jest of all the responses:

1) You think that GOODS are going to keep flowing perfectly into Iceland with no foreign reserve and no functioning currency.

2) They are suddenly going to realize that this is energy based and rig for efficiency and wind power.

3) Having fish and geothermal makes it a good place to SURVIVE. Who needs trees anyways.

4) Societal collapse and isolation are not outcomes of economic collapse.

K, if those are the assumptions, sure why not.

But I hope you don't expect me to buy those assumptions.

So I don't think they will start buying generators anytime soon, or stockpiling food. They need a functioning currency, and shipping to make that happen.

That said, TPTB might create the mother of all bubbles to replace the last and give some 'good times' to a few for a few more moments.

But I believe you are witnessing events that you will not see reversed...ever. JHK's The long emergency began in 2008 and has no relative end without severe actions, if ever.

Societal collapse and isolation are not CERTAIN outcomes of economic collapse. Iceland is a pretty unusual country in many, many ways.

It is possible for any people to cohere and assist each other in economic difficulty, if they choose to do so. A shared culture and/or shared spiritual beliefs will assist with this.

Many cultural groups in Europe survived the devastation of two world wars and decades or cimmunist rule, and still emerge as a cohesive community. even if they are at war with the cohesive communitites around them.

IIRC, Iceland is relatively homogenous and does not have sharp cultural or religious divisions, so there may not be as many social problems as one might expect in the higly polarised, relatively racist USA.

I guess a lot depends on if they can bootstrap a basic manufacturing system sufficient to maintain power generation, in which case I don't agree with your pessimism in this case.

Good point. Another reason why the US is so utterly unprepared for the coming crises.

Too many of us have had it too easy for too long. The majority of living Americans have never faced a genuine societal crisis. The small minority who are old enough to have experienced one (e.g., WWII), are often treated with disdain and disrespect. Our nation's elders are not viewed as valuable sources of wisdom; they're merely 'bad drivers' or the family burden.

I do think the dress reheresal meme is a good one. And Iceland has really good renewable energy resources (hydro and geothermal) and should be able to benefit from the coming era of expensive energy. And seeing the unsustainable collapse around them is a great way to change attitudes. I also think we global recession we are just beginning will put off the major effects of the world hitting Malthusian limits for a few years. My guess is we have maybe five years to get our act in order. I doubt the slump will hit hard enough in most of the developed world to force a sufficiently large attitude change, but clearly I think Iceland is the best candidate to be the exception.

The big problem for Iceland will be learning how to catch fish without diesel.

Sailboats- that's how their ancestors did it

That's what I was thinking, but you would have to build them first, and without money you can't do that.
Iceland hasn't even got any timber.
If they can't get any credit, I suppose they could always lease fishing rights for a time to Scottish trawlers, who are more or less permanently beached by fishing quotas.

The IMF will probably come up with the money, as it has apparently abandoned it's lethal insistence on fiscal rectitude now the advanced nations are in trouble, and which it so rigorously and so damagingly applied to developing nations such as Haiti.

According to "Dr. Hydrogen", Dr. Bragi Arnasson at the University of Iceland, not practical. He prefers using hydrogen & CO and making methanol.


Rapeseed oil and methanol from renewable electricity can power fishing boats.


I wouldn't have thought there would be much rapeseed in Iceland, Alan?
In general it is a pretty lousy location for crop growth.
Plenty of other sources of power though.

I talked this over with Dr. Þrostur Eysteinsson, deputy Director of the Icelandic Forest Service (they plant @ 6 million trees/yr, several with good ship building properties such as Sitka Spruce and Siberian Larch. Several trees over 20 m today).

Rapeseed can grow well in Iceland, but not profitably. They are actively breeding for an Icelandic variety, best suited to their climates.

I am the only non-Icelandic member of the Iceland Tree Growing Club.

Best Hopes for Icelandic Trees,


I am the only non-Icelandic member of the Iceland Tree Growing Club.

How cool is that? :-)
Don't change your allegiance from the Big Easy to Iceland, or you will freeze your cojones off!

Any thoughts on transport for Reykjavik, when they can't afford cars?
Hybrid buses might do well, if the finance can't be arranged for rail.

I have been in the Icelandic Highlands (not just uninhabited, but uninhabitable) in November and December. In response to my "30 degrees" (latitude & temperature of New Orleans) comments, I compliment them on all of their free air conditioning.

I have talked with Straeto (Reykjavik city bus). They hate the 3 hydrogen fuel cell buses they got from Daimler-Chrysler.

Electric Trolley buses are their best option with a core streetcar loop. But Reykjavik has sprawled as the population concentrates there from smaller towns and villages.

Best Hopes for Iceland,


The third world is the new first world. The more ff you have been drinking the more severe the withdrawals.

I was an energy slave at the weekend!

So I got the opportunity to 'help out' with some tree cutting for firewood. Got a friend with some land who lives in the middle of no-where! Lots of trees (too many in fact!)

The trees were reasonably small: 10-35cm bole. Anyway. There are 2 wood fired stoves that heat a rather large house. Four of us felling, chopping, transporting and splitting for a total of 80 man hours across 3 days (20 man hours x four people)

The end fuel was 2 months worth of firewood. He reckons this has saved him about a 1/2 tank (500-750L) of oil that would otherwise be used on a central heating system across the 2 coldest winter months. It would be possible to make it last longer by not using 1 stove and effectively 'shut down' one end of the house for non regular habitation.

So that is 4L oil per man hour equivelant? Not too bad! Still, it makes you apreciate the value of energy a bit more. I can't imagine how intensive it would become if the boiler heating system incorporated water heating also (there are a few modern stoves which also pump the heated water to a tank.) Or an extra stove for greenhouse heating for food etc...


I got a permit from the forest service to cut firewood here in Colorado. Unfortunately it was just me and my chainsaw. One cord of wood is now stacked at home but I have a lot to split still. Gee... what a real physical burnout that was! I was beat after two days of it. This was at altitude in the mountains and I had to lug the logs several hundred yards to my truck. It makes me really appreciate the VALUE of the money I pay for firewood. This amount of physical labor would be beyond the abilities of most sedentary Americans. We are in for a shock if life in the future requires more physical labor!

The wood is nice smelling but fast burning ponderosa pine. I'll supplement it with a 1/2 cord of hardwood which should get us through this winter supplementing our natural gas furnace.

Personally I would prefer the quick death of a hard labor induced heart attack to the slow death of starvation. My luck would be the heart attack wouldn't kill me fast put leave me to die slowly in a cold dark house.

that is 4L oil per man hour equivelant?

With good chainsaws. Try it with axes or bucksaws and compare the numbers again. You have a good baseline; fill us in after next weekend.

FWIW, I can easily burn half a gallon of gasoline in my largish Jonsered in a couple of hours of straight cutting.

Sorry I should have said we used:

40L of petrol for chainsaw and very hungry chipper machine.
15L diesel for tractor and log splitter attatchment!

If had just piled up and burned the branches, the chainsaw would have been the only petrol, say 10-15L

so 500-750L minus above fuel!!

Remind your friend to allow the wood to dry before burning it. Creosote can build in a chimney when "green" wood is burned, which in turn can start chimney fires. Note also that transporting green wood is more difficult because of the extra weight- many folks fell their trees and then wait a while (length of wait depends on local climate) before cutting to smaller pieces and eventually chopping the wood. Happy burning!

Good advice. Also, drying has the benefit of increasing your net heating (less energy going into boiling water out of the wood). For anybody who's new to wood heating, or just interested in learning more about the topic, woodheat.org is an excellent resource:


"For anybody who's new to wood heating, or just interested in learning more about the topic, woodheat.org is an excellent resource:

I really like it when people promote woodheat.org. It is the main outlet for my volunteer work. I've been hanging around the oildrum for a couple of years, mostly silent.
Thanks stclair

I also piled up the wood this summer. I bought two wood burning stoves because last winter, exactly when I need the heat the most, the electricity would turn off (ice). This year the electricity will go out because everybody will use space heaters. My oil heat system needs electricity to operate.

I was an energy slave at the weekend!

I have to disagree. I know how hard you worked, as I was doing much the same (although the wood I'm cutting and splitting now is for next year, and most of my work for this year is hauling and stacking). However, it was that small amount of fuel that goes in the tank that is doing the lion's share of the work - that's where the energy slaves were.

It is one of the best illustrations of just how much energy is in gasoline. Even though I split by hand, the gasoline in the saw and in the old 12hp garden tractor I haul with is providing far more energy than I am.

However, it was that small amount of fuel that goes in the tank that is doing the lion's share of the work

That detail wasn't missed on me! I quietly added it later:-). It gets worse becasue we used 5L of fuel getting to the gas station to fill up the Jerry cans for the tractor/chainsaw.

Very interesting experience though.

Agreed that with 2 people on a buck/bow saw, hauling logs on a barrow splitting with an axe etc...thats the real McCoy. We were cutting trees 1/2 mile from the house and that would be the other big differece - we would be going for ones MUCH closer and MUCH smaller if it were not for all of the powered mechanics.


That Goldman article is actually extremely bullish if you read between the lines. They are SLASHING their 2009 forecast for oil to $109....in view of economic crash, they only think oil will rally 30% from todays price in next year!!! Think about it..

I wrote my first essay on net oil exports in January, 2006, focused on Saudi Arabia, Russia & Norway. Note that at that time we did not even have complete production data for 2005. In any case, these three exporters accounted for about 40% of total world net oil exports in 2005. Here are the EIA net export data for these countries:

2005: 18.5 mbpd
2006: 18
2007: 17.2

Of course, Saudi Arabia in 2008 is showing a year over year increase (to a level probably around 700,000 bpd below their 2005 net export rate), while Russia is showing a year over year decline, after two years of small increases. And of course Norway is in terminal decline. In any case, I expect these three in 2008 to be collectively more or less flat, relative to 2007. However, even if they are collectively flat versus 2007, note that the cumulative difference between what they would have exported at their 2005 rate and what they actually exported would have increased at a rate of about 1.3 mbpd per year.

Nate wrote:

They are SLASHING their 2009 forecast for oil to $109....in view of economic crash...

Actually they have lowered their 2009 forecast to $86 a barrel (average).


But, Nate, your reasoning here is off a bit. Goldman is not forecasting an economic crash.

It's important to make sure that one includes the forecasters assumptions.

Here's their forecast as of Oct 3:

WASHINGTON (MarketWatch) -- The U.S. recession will be "significantly deeper" than they previously thought, Goldman Sachs economists predicted Friday in a research note. The economy will probably show no growth at all between the middle of 2008 and the middle of 2009, with gross domestic product falling 2% this quarter and 1% next, they said. Two other quarters will show 0% GDP growth. The unemployment rate will likely rise to 8% by the end of next year from 6.1% currently. "We now also see at least another 100 basis points of monetary easing from the Federal Reserve, aggressive measures to stabilize the money markets, and a possible further easing of fiscal policy under a new administration," wrote Jan Hatzius and his team of economists

A few days back we had a commenter who was comfortable with J.P Morgans projection that house prices would fall only another 10% (he was about to buy) but at the same time believed that people would soon be able to afford only local food and not heating in the winter. One mixes forecasts at one's peril.

So the production plateau is almost over and depletion will soon set in hard. When does depletion catch the new demand destructed consumption?

To me, it looks like a moving target, because gas prices change consumption habits as fast as monthly inventories of crud change production.

The fact that your neighbor is not driving to work anymore is not that important, what is important is that "I just bought gas this morning for $2.99/gal, whooo hooo !!!".

I'm very curious to see what happens with the EIA's gasoline consumption numbers once the disruptions from Ike & Gustav are out of the way. Gasoline here in SE PA is at $3.0x/gal. The roads are jammed again. I think most people have written off high gas prices as a bad dream.

"Commods bull Goldman turns bearish, warns on $50 oil"

I didn't search to see if this story ==>


made it to Drumbeat but I suspect it did given Leanan's thoroughness. It's an interesting conspiracy theory. Bottom line, today's Guardian article doesn't pick up on the fact that there's a new sheriff in town at GS commodities desk.

Edit: My bad - The Long Island Press Article is about Morgan Stanley not GS, sorry. Anyway, my interest in the story is essentially that these analysts are paid by players in the business and may not have the public's best interest at heart.

Saddled With Debt, Some Decide to Torch Vehicles

Add Lopez, who pleaded guilty in the case this year, to the band of Washington area residents who have torched their cars hoping for a quick insurance check. A Baltimore police officer did it. So did a Baltimore firefighter. A Prince William County resident burned a minivan for a friend.

Pretty soon, people will start being more subtle and just put cement in the fuel line.

If America is anything like the UK, the most they will eventually get for the vehicle is it's estimated trade-in value, so if it's a SUV they would be SOL.
The emphasis is on the eventually though, as the Insurance companies are well aware that in hard times people try this, so settlement would take many months and they would be thoroughly investigated, with the likelihood of criminal charges as in the above cases.

“ The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.” -- Cicero , 55 B.C.

And they didn't. And look what happened. The glory of the Roman Empire was still in the future!

Yes, the Roman Empire continued, but not the Roman Republic. Cicero's warning was not heeded, he was murdered, and it wasn't long after that before government under a republic ended and imperial tyrany started.

We assume that constitutional government here in the US will go on forever. I fear not.

Going on?????? YOu mean all this about the government getting into the banking business is constitutional??????

We lost it in 1913.


"Yes, the Roman Empire continued, but not the Roman Republic"

My point, exactly.

"living on public assistance"
welfare in 55 b.c.?my god we have been doing the same thing for a long time.we have climbed higher this time though (6.6 bil.)and have longer way to fall.

Have you ever heard the expression "bread and circuses" as a way of keeping the populace content? Well, ancient Rome is what it refers to.

The influx of cheap labor (in the form of slaves) during the late Republic lowered wages and encouraged patrician landowners to force working peasants off the land (whether the patrician owned the land or not). Having no other recourse, the dispossessed peasants descended on Rome, which swelled in population to be the largest city the world had ever seen, or would ever see until the 19th century.

Massive numbers of unemployed and under-employed people in desperate straits and with too much time on their hands was a political powder keg waiting to explode. The Romans solved the problem with free food (the bread) and copious entertainment (the circuses).

The powder keg exploded when Julius Caesar ended the Roman Republic. Julius, you see, had given lots of money to the plebians, as well as sponsoring the best circuses. He was a hero to the common man of Rome. So, when Julius wanted to become emperor, they declared him to be dictator for life (having the biggest and best army in the Republic was important too).

The US is far more like ancient Rome than most people realize, from workers disossessed by cheap labor, to the empire built up while it was still a Republic, to the subsequent imperial overreach, to the cheap food and entertainment to keep the populace pacified, to the gradual erosion of republican rule.

France and Germany join rescue with €820bn pledge

France and Germany today agreed to pledge €820 billion (£642 billion) to the future of their country's banking systems following Britain's ground-breaking £37 billion bailout.

The German cabinet has approved a package of €400 billion in bank guarantees and an additional €80 billion of fresh capital for its banks.


Undergrads on the Bread Line

College students have always scraped by on less-than-nutritious food - ramen noodles, pizza, Diet Coke - but as the price of grocery shopping climbs, more of them are struggling to find their next meal. With the economy tanking and a 5% increase in food prices this year, the highest in nearly two decades, college students are increasingly turning to a new kind of financial aid: food pantries.

One of my colleagues told me that there was a major drop in aid for tertiary education in the UK while he was going to Imperial College. He says he survived it by eating cat food.

The next bailout: Your adult children?

Many young adults are heavily leveraged. Average student loans among the two-thirds of college undergraduates who have borrowed rose an estimated 5 percent in the past year alone, to $22,000, says the nonprofit Project on Student Debt; many also have credit-card debt.

As the economy weakens, starting salaries aren't keeping pace, says Robert Shireman, the Project's director, and a growing number of recent grads aren't likely to find jobs at all. As a result, "we'll see some rise in defaults" among recent grads, Mr. Shireman says. That means more moms and dads will face tough questions about whether to bail out their kids, and how to structure the aid if they do.

I think a lot of families will be re-thinking education, especially college.

If adults have to bail out their kids, who's going to take care of the adults when they (are forced to) retire with nothing but a house (possibly with negative equity), a very battered 401k (assuming they put anything significant in the 401k in the first place), and whatever is left of Social Security?

Why that is easy: just raise taxes on the working young.

After all it is vitally important for society for Grandma and Grandpa to:
(1) Draw 100x what they paid into Social Security
(2) Draw 10,000x what they paid into Medicare - unlimited Heart operations, cancer medicines, kidney dialysis at $5000/week
(3) Drive around in heavy vehicles because a subcompact is not safe for them.

I once made the mistake of trying to explain to my Mom how little she paid in relative to how much she's taking out. Trust me, better to fuel her Buick so she can get to the doctor than to try and win that argument.

It's either GM, Social Security, and Medicare, or my house!

Now how much would you pay to keep the system going?

The CW (conventional wisdom) and actuarial projections are that if SS benefits are indexed to inflation, rather than GDP growth, then the program is solvent - but at harsh cost to the working. Unlikely to be done I am afraid - seniors are a fast growing proportion of the population and medicare sees to it that the numbers keep growing ;-)

Unless unlimited medical benefits are reigned in, we may have to go to Nationalized medicine and count on the bureaucracy to distribute benefits, as is done in Canada.

``The greatest risk is in inertia,'' Sarkozy said today.

This was in response to the credit crisis and setting up a huge fund. Now if only he'd said the same thing about peak oil. sigh...

One of the people mentioned in the article seems to be paying ~13% interest on a $75,000 debt. Effectively debt slavery.

This would be the logical time for the bad guys to sneak through legislation making personal debt inheritable. But since someone would blow the whistle on that, it is probably intended that Paulson use his new powers to mandate it.

My staple was:

spuds + frozen veg + an egg in pot, boil, drain, add sauce, eat from pot.

In fact I reckon I could have grown what I ate in the land I had, and I think I could still now, but it's undeniably a lot of work to do so. Anyone who's interested should see a book called "The good life" by a Queensland couple who lived off their own land for twelve months. The husband really loved his delicious snails.

Tomorrow is election day in Canada and the results are far from certain.

A good overview of where things now stand is found on the first half hour segment of this morning's, CBC "The Current":

Canadians have become increasingly skittish and all the pollsters indicate the level of undecided remains anywhere from 1/3 to 1/2 of those polled, historic highs for this late stage of an election campaign. What these folks will do tomorrow -- stay home, vote for the opposition parties, back the government -- is unknown.

The sound of silence is deafening.

Who knows how today's upswing in the markets will translate in public opinion.

If I was to make an educated guess, another minority parliament is in the works. Time (another +-30 hours) will tell.

As for the FAO: Maybe they should take note that in 1947 Corn was $2.16/bu and Oil was $2.16/barrel.

Today, corn is about $4.16/bu, and Oil is about $82.00/barrel.

Considering the fact that on average a box of corn flakes (about $0.06 worth of corn) travels approx. 1500 miles, and I think we might have found the "Problem."

In Emerging Economies, Consumers Feel the Pinch

Heavyweights Brazil, Russia, India and China May Not Be Able to Pick Up the Slack; Bracing for Tough Times

The global credit crisis is starting to take its toll on consumers in a group of nations that have boosted the world's economy over the past few years: the big emerging economies of China, India, Russia and Brazil.

Global growth this decade has been powered by the economies of the U.S. and these so-called BRIC countries. As a troubled financial system sidelined the U.S., hopes remained that the developing nations could pick up the slack. Instead, the economies of the big four are slowing as consumers feel the pain emanating from the West.

This is definitely not bullish for oil.

Did you take into consideration declining exports?

I will be giving a talk on "Peak Oil and the World Financial Crisis" at my university this Wednesday and was thinking about making the following bold prediction - just to be provocative:

The Dow will stand at less than 4000 one year from today.

Am I sticking my neck out too far here? I would be very interested in hearing reasoning both in favor of and against this proposition.

EDIT: As of 3:30 pm, the Dow is up 700 points for the day. Does this invalidate my thesis?

Phil -- Let me answer it this way: anyone can predict where the Dow will be in 12 months. That number isn't as important as the assumptions regarding underlying conditions that would have to prevail to lead to that particular level. How will the fed's actions impact the credit system in 12 months? How much energy demand destruction will an economic slowdown cause? How much will the economy slow down? Will demand destruction lead OPEC to finally function as a true cartel and reduce production sufficiently to cause oil prices to rise even in the face of a global recession? And if OPEC does take such action what will be the political/military response by the global powers?

I'm sure others can add even more significant assumptions needed to design a model for the Dow in 12 months. And there in lies your answer: it will be where ever your assumptions design it to be. More to the point: if someone, 12 months ago, had assumed the banking problems, credit problems and energy price spikes of the last few months then they might have predicted the Dow meltdown we just witnessed. But who would have accepted those assumptions as really possible at that time?

But cannot one hazard some reasonable guesses in answer to all those questions - from a Peak Oil perspective - based on the available empirical evidence at hand and a sober-minded analysis thereof?

That's really what I am looking for. I admit that my below-4000 prediction is just a WAG. I am looking for help in refining the grounds for the WAG, and, if necessary, in revising the guess altogether.

You can't predict anything based on the price movements of one or two days. Actually, you can't predict anything based on any set of past price movements. (Read Taleb for a fuller explanation as to why.)

Generally and in theory, the price level of the stock market should be:

(expected) earnings (e) X price/earnings ratio (p/e) = price

(I placed "expected" in parentheses because published p/e ratios are usually based upon present earnings levels, whereas price movements tend to be based upon anticipated future earnings levels.)

IMHO, the market p/e last Friday was just getting down to historic (and thus appropriate) norms. Thus, the big question is: where do we expect earnings to be heading?

If today's move indicates that most people think that the earnings outlook is improving, then IMHO "most people" are wrong. The underlying "real" economy is not likely to perform very well for at least the next several years, and maybe even for beyond the rest of our lifetimes. Stagnation and gradual decline seems to me to be about the best we can hope for, given the huge problems confronting us and the ineffectual response to them up to now. Stagnant or declining earnings thus seems to me to be the best bet.

That being the case, there doesn't seem to be much reason for bidding up those stagnant or declining earnings by increasing the p/e ratio. If that (rather than an anticipated improvement of earnings) was what went on today, then again the majority is wrong - and will probably soon realize it.

IMHO, a fair and appropriate level for the DJI is probably somewhere in the range of maybe 4-9K, and will likely continue to be so for the next several years.

I would concentrate on making a sound argument, rather than making bold (some would say foolish) predictions.

If you want to get the audience thinking, why not ask them for their predictions? Get them to think about it while you give your presentation.

I agree with Bob on the first point. Valid arguments will lead people your conclusion, not bold predictions.

Besides, the stock market is probably due for one more over the top melt-up before Peak Oil's ramifications fully engulf society. I personally wouldn't not rule out 4000 or 40000, with the former caused by deflation and the later caused by inflation. I could go into it more fully, but I don't have a presentation to make.

Have fun.

Yes, get the audience thinking. Sometimes saying things like "the Dow will be down to 4000" just gives people something to push against. It creates a reaction rather than engagement. There is a difference.


The "Dow" is a 3 card Monte shell game. It's a scam.
Did you know that on Sept. 22, 2008, AIG was quietly slipped out of the Dow Indu and Kraft Cheese snuck in in its place? They keep swapping Dow components in and out as it pleases them. What is the value of the original Dow 30? (err, make that the original 12. Take out GE and I would suspect the answer is zero.)

Almost all of the Dow 12 still have value. One was broken up into three major tobacco companies, another continues in business as a SP 500 company, most were merged into continuing business,

And the returns from ANY 1800s investment in GE would be substantial. Enough to offset 11 losers.


There is nothing "quiet" about changes to the composition of the Dow Jones index, especially when it is the basis of the DJIA index fund, in which many people invest.

This might help drag the Dow down; I've seen it in one place only, and it's one quote from one guy; but it would not be very good for Australia, I suppose.

China has it's own subprime problems.

Look at this in terms of trends. There was an uptick in the trend at about 1985/86 from 1300 to 3600 in ten years. Then an explosion to a much sharper trend from about 4000 in 1995 to 11497 in 2000. Then we had the dot com crash going back to @7600 by mid-2002. Finally, a return to the explosive trend going up to @14000 in July 2007.

So, if you think it will return to the long-term historical trend, 4000 looks right. If to the beginning of the explosive rise of almost ten years ago, then between 7000 and 8000.

Who knows?


Ten people who predicted the financial meltdown

The financial events of recent weeks have filled many of us with shock and panic. Surely no one could have predicted that we would be in this mess? Well, actually, they did. Here are ten people who saw the financial meltdown coming...

10? There's probably 500 on TOD alone! Sunrise was less obvious than this.

How about a poll that asks TOD to answer honestly, did you see this coming?

In January of 2006 George Soros predicted a recession might occur in 2007, but not 2006. In January of 2008 Soros said the U.S. was facing the worse financial crisis since WWII.

Hello TODers,

Global stock markets up, DOW up 600 points

What happened? Did the Tiger Woods & the PGA just announce they will be plowing under every golf course so local veggies can be grown?
Did Haiti wakeup to find itself lushly reforested? Did some major country proudly broadcast their minimal need to buy future I-NPK as they are now going into full-on O-NPK recycling?

Did someone discover a formerly polluted watershed in now sparkling clean and the offshore reefs are now teeming with corals and fish? Did some giant metropolis and its suburbs trumpet loudly that their personal cars are soon to be prohibited; it will be mass-transit, bicycling, and relocalized permaculture from here on out?

What other moves to rebuild our real planetary wealth would give a solid underpinning to these stock market 'advances'?

Did someone just discover a high yielding, tasty, and nutritious grain specie that needs a magnitude less of the inputs of water, NPK & sulfur, and both mechanical and human labor? Did the G7 just announce that Peak Everything Outreach [which includes birth control] will be the basis of all education? Have the worldwide aquifers and mountain glaciers suddenly refilled/regrown to prehistoric volumes?

Did the multiplicity of religions suddenly agree to a new, universal dogma so that we never have to worry about conflicts over faith again? Did everyone go color-blind overnight so that ethnic and racial enmity will never occur again?

Have the wealthy decided that even war and revolution is now too expensive for their single child's single child's single child? That the materials that compose their jetplanes and yachts are better served being converted into surgical, dental, and gardening tools for all?

Did this 600 point 'upswing' materially improve the prospects for all lifeforms? Or did the Grim Reaper just get an additional 600 lbs of 'downswing' force to his wicked blade?

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

I really look forward to your posts every afternoon. I'm not being sarcastic either.

PS - We are cleverer than the yeast, but no more knowledgable about our situation.

Hello Consumer,

Sorry for the late response, but I had to leave right after my posting. It was basically just a combo-thought of the DB's toplink by Herman Daly + the DOW's 900 point jump.

Hi Bob,

I usually don't get what you're talking about with all your acronyms: I-PoKN, O-PoKN, etc. It's way over this yeast bud's head.

However, the other day on C-SPAN books they had the author of Alchemy of Air on. It was quite informative. I never realized our bodies are made of elements extracted from the atmosphere, or how vital synthesis of ammonia (NH3) via Haber-Bosch reaction is to our very existence.

Yeast don't know or care about where their nourishment comes from in the expansive and infinite Petri dish and neither do we sapiens. It is provided for by an invisible hand and that's all that counts. It's all good. Don't rock the dish.

Hello Stepback,

Thxs for responding. You maybe sorry you asked for more clarification of my acronyms. :)

NPK = Elements: [N]itrogen, [P]hosphorus, Potassium [K}.

NPK includes both types: I-NPK and O-NPK; also much easier than typing out every time 'industrial fertilizer' or 'organic fertilizer' respectively. My nomenclature I/O-NPK signifies both; basically the whole global industry of moving any and all forms to support life. There are literally hundreds of different choices.

NPK: The major quantity 'Big Three' for successful photosynthesis, but smaller quantities of other Elements may be topsoil required if soil sample testing warrants their addition to avoid a Liebig Minimum or controlling soil-PH. Sulfur, manganese, etc.

Also, NPK is a common certification ratio of these Elements [look at fertilizer bags next time you are at Home Depot or Lowes] 16-16-16, 16-16-8, plus many other ratios. For example: 21-0-0 printed on the bag for ammonium sulphate [basically a stabilized urea and sulfur chem-combo].

**I-NPK**: Industrial fertilizers such as liquid anhydrous ammonia, urea, other chem-combos such as these common I-NPK types: DAP, MAP, UAN, TSP, MOP, etc. Prilled, pelletized, powder forms. Some forms are more highly purified: it is then suitable for animal feed or for human consumption.

Miracle Gro, Vigoro, Bandini, Scotts, Bayer, etc, may be familiar retail brand names to you.

Sulfur now mostly sourced from sour crude & sour natgas. Nitrogen from natgas-sourced Haber-Bosch. P and K are mined, then beneficiated through huge factories. Huge quantities of sulfuric acid are needed to turn P-ores into water soluble ions suitable for plant absorption.

**O-NPK**: Organic fertilizers such as leaves, yard clippings, kitchen scraps, animal manures & humanures, urine, bird & bat guanos, other composted materials. Retail stuff such as sphagnum peat moss, steer manure, mulch-mix, woodbark chips, bone meal, etc.

To add even more to your confusion: you can even buy various types of O-NPK that has been further enriched by adding various amounts of I-NPK. This typically is bags of topsoil amendments and potting soils sold at retail outlets. Hope this helps you understand.

I personally, think it was a "dead cat bounce" albeit a pretty large bounce, as far as dead cats go. I love cats, I have even been lucky enough to be owned by a few. You read that correctly, you don't ever own a cat, they choose you and own you. I don't really trust cats though, crows refuse to eat even a dead one.
I don't trust the people controling the market either.
Ive been lucky enough to not be owned by them, others havent fared so well. Good news though, crows will eat the dead of this breed. I believe there won't be much follow through with this 'surge'.
Some people have a mistaken idea, that big money, knows what its doing. Any fool knows, when something becomes so big, it becomes unwieldly, sometimes to the point of its own demise. I think you brainy mugs, call this overshoot.
I won't rejoice when it collapses. But crows gotta eat too. I said I didn't trust crows, not that I didn't like them, I do.

Horse industry economics; bottom line is that it will have to contract 80 or 90% as we head towards the 'steady state' or collapse. Having been a bit player in the industry at one time I can see just how incredibly wasteful it is. Every year tens of thousands of foals are bred for thoroughbred racing, harness racing, Western riding, kid's ponies and so on. However as spare cash declines and the need for biofuels increases horse breeding and owning will be a low priority. Add to that the fuel costs of keeping horses; you can't tow a horse trailer with a Prius. Unfortunately the industry is a big employer so those people will have to find other jobs.

Generally speaking I think there must be a decline in hoofed animals, especially those under close confinement or hand feeding. Perhaps their ecological services will be more valued than meat or recreation. Flocks of sheep and cattle can be moved around a lot to turn weeds into manure or reduce the fire hazard around suburban fringes. It's kinda sad because a lot of the romantic aspects of the 'old days' will disappear.

Can you tow a Prius with a horse?

Yes! You can also pull a pickup truck out of the mud with a horse, as I have done a couple of times...

Goldman Sachs WTI oil forecasts are probably too low at $70 for year end 2008 and $107 for year end 2009.

My WTI forecast is $115 for year end 2008 and $135 for year end 2009. One of the difficulties in this forecast is trying to forecast what the US dollar will be worth. In July, the US$ Index was about 72, then it increased to over 82 last week as scared funds moved to the "safety" of the US dollar, and now it's approaching 81. If the long dated US treasury bubble bursts, the US dollar could weaken back to say 70, causing oil prices to increase by at least another 15%.

Another difficulty in forecasting the oil price is that currently the credit crisis has overshadowed the possibility of military or terrorist intervention in the middle east. Just an increased probability of Israel attacking Iran's nuclear facilities, instead of an actual attack, could be enough to increase oil prices by at least a further 10%.

If Israel were to attack Iran, it probably will do it in the next two months, as the likely new President Obama will not support Israel's attack.

Israel doesn't have much time to attack Iran

Furthermore, just as prices may have increased too high when at $150 barrel due to overleveraging, current prices probably have dropped too low due to forced selling of long oil positions caused by deleveraging. Some of this forced selling probably occurred within Goldman Sachs and by Goldman Sachs clients, as Goldman Sachs has to deleverage as it has failed as a stand alone investment bank and is now a regulated deposit taking bank.

Below is the updated chart for the recent drop in oil prices and the IEA OMR Oct 10 2008.

Supply, Demand and Price to 2012 - click to enlarge

There have been statements made about falling oil demand. While OECD demand has been falling, non OECD demand has been increasing more, causing the IEA to forecast a small demand growth 0.5% for 2009.

The IEA stated that September production was 85.6 mbd. The IEA forecasts that average demand for 4Q08 is 87.7 mbd, shown in the IEA's chart below.

That means that world production has to increase by about 2 mbd to meet 4Q08 demand. There is still shut in production from Gulf of Mexico and Azerbaijan which will come back onstream adding about 1 mbd, but I believe that there could be difficulties meeting the demand with a required additional 2 mbd. Consequently, there is likely to be upward pressure on the oil price.

The biggest component of total liquids, in the first chart, is the crude oil and lease condensate production rate which is likely to enter an irreversible decline next year, in a few months.

Crude and Condensate to 2012 - click to enlarge

See an ex-British Foreign Secretary's estimate of the chances of an Israeli attack on Iran in the next few months:

In the past 40 years there have been few occasions when I have been more concerned about a specific conflict escalating to involve, economically, the whole world. We are watching a disinformation exercise involving a number of intelligence services. Reality is becoming ever harder to disentangle.


The writer, David Owen, is a very balanced individual who must still have serious contacts with the powers that be.

Don't forget that in the super big picture over the next few decades the most critical thing in the world is Iranian natural gas supplies.

Looking at your chart, ace, it is now pretty obvious that those saying that oil >$100 bbl earlier this year was too high were correct. It is also obvious that it has gone from overshoot to undershoot, and this cannot last very long. Just eyeballing it, and not considering any geopolitical shocks like Israel vs. Iran, it looks to me like we might expect to see a return to >$100 bbl sometime in 2009 or early 2010 at the latest. I furthermore expect us to see >$200 bbl by 2012 at the latest. 2012 is certainly shaping up as a momentous, ominous year, at it looks like that will be the year when depletion finally, unambiguously, and permanently exceeds new additions.

What we are experiencing right now is just the outer rain band. We'll get to experience the eyewall in 2012 or shortly thereafter.

I'm watching the ALCS. They are heavily promoting this contest, where you can win a big screen TV if you promise to turn your lights off while watching Game 4 of the ALCS. (The connection? The TV has an energy saving mode.)

They are tying it in with CNN's "Planet in Peril" series, with Anderson Cooper ads warning of declining oil reserves and wars over energy.

I'm glad I worked late today so I didn't have to see the ALCS. Red Sox losing to TB 9-1? It truly is TEOTWAWKI.

I guess the Doomers have been proven right.

Funding problems, potentially due to the credit crisis, are starting to decrease oil production rates. In Mar 2008, OPEC member Nigeria produced 2.1 mbd.

Nigeria ‘producing 1.5m bpd’

Nigerian Foreign Minister Ojo Maduekwe said today that the country was currently producing just 1.5 million barrels per day of oil, a far lower figure than previously announced.
Industry sources say persistent funding problems at state oil company Nigeria National Petroleum Company and continued insecurity in the southern Niger Delta, Nigeria's oil heartland, are depressing output in the world's eighth-biggest oil exporter.

On what basis did you arrive at your price target of $115 for the end of this year? What was your price target for the end of this year back in June?

The basis uses demand elasticities and mostly fundamentals. World supply is unlikely to meet the forecast demand, sourced from the IEA, over the next six months, placing upward pressure on price. The drop in Nigeria's output to 1.5 mbd should reduce supply putting more upward pressure on price.

Some technical analysis is also used as it is assumed that oil has been recently oversold due to forced selling by deleveraging, not fundamentals.

One thing is certain, all forecasts are wrong. It's the long term trend which rules. The long term price trend, due to fundamentals, remains upward. There will be continued high oil price volatility.

The price forecast does not take into account price shocks from planned/unplanned maintenance, terrorist attacks, wars, hurricanes, oil pipeline leaks, voluntary production cuts, hoarding, further project delays, labour shortages, oil tax changes, funding problems due to the current credit crisis or fuel price control changes. The price forecast does not include investment demand.

For more info on the forecasting basis, you can read this link

My WTI price forecast for the end of this year, back in June, was $135.

What's your forecast?

So true ace. I suppose forecasting also depends to a degree on your goal. Future traders live and day in 24 hour cycles. In the oil patch we don't use point-in-time forecasts. Simply put, we run economic evaluations on a 12 month average. A 12 month running average might be an even better tool but typical econ software allows only a calendar year average input. During 2008 most companies were using $70 -$80 for 1st year prices and then dropping them around 10% for years 2 and 3. Further years out were allowed a small escalation.

It's truly amazing to see folks comment about "how far oil prices have dropped” and how the oil companies must be hurting. Just a guess but it looks like 2008 average price will hit around $90/bbl. I can promise you that when econ analysis was done on new drills as well as acquisitions prior to 2008 price forecast probably had oil down around $60 or less as you go back a year or two. Thus even at $80/bbl the 2008 revenue stream would have greatly exceeded expectations. The same is also true for current NG prices. Though they are currently down from the spring price spike they are about the same place as last Jan….the “high price season”. With a good bit of NG still shut-in in the GOM and the NWS predicting a much colder then normal winter it’s easy to expect a price jump this winter well above the current $7+/mcf price. But, again, I know of no one using a price above $7.50/mcf in their current econ analysis.

What's your forecast?

I think we will be north of $100/barrel by the end of the year.
Maybe north of $150/barrel if US/Israel decide to bomb Iran or Pakistan falls in the hands of radicals.

It is hard to make a prediction; especially about the future :-)

Jay Hakes has got guts. A gas tax! OMG get him!

I do like the idea of turning the gas tax into a rebate for those who dont consume a lot of gas. But such a concept would cause a system shock in america! A tax on consumption? OMG!

I'd rather see the tax money go straight into alternative energy.

If we want to lessen the shock of PO I see no other approach that can have an impact as quickly as the Fed gov't implementing such a tax. The key would be a long term schedule (minimum 10 years) over which taxes would be significantly raised. But the auto industry and consumers have to have faith that the program will be followed. This would allow a sufficient time for the infrastructure to change. It would have changed the entire dynamic we see today had this same proposal Jimmy Carter made over 20 years ago had been enacted.

I've been a petroleum geologist for over 30 years and know first hand we can't drill our way out of the worst effects of PO. But I also understand capital requirements and infrastructure shifts and also know all the chatter about alternatives etc is wasted breath. A financially motivated significant conservation effort is the only way we can avoid slamming into the PO wall IMO.

I advocate a X month delay (to allow some adjustment) and then a 3 cents/gallon/month tax (with quarterly inflation adjustments) for 20 years.

If a 6 month delay

+$0.18/gallon first year
+$0.54/gallon second year
+$0.90/gallon third year
+$1.26/gallon fourth year ...

+$7.20/gallon when completed

(with inflation adjustments)

Maximum motivation to change coupled with minimized pain.

Conservation is *NOT* the only response though.


Good plan Alan. But then almost any plan would be better than where we're at now. Even with a plan like yours the populace (and auto makers) must believe the plan won't be altered by later politicians. Just look at the foolish chatter 6 months ago about suspending the current fuel taxes for the summer. Just one more disappointment from my hero (really is) McCain. Just one more proof that thoughtful and sincere folks can make really bad decisions. Just like his preaching "ENERGY INDEPENDENCE". At least he's not offering that prospect in a few years as Sen. Obama is. Unfortunately on energy issues it seems the race has gotten down to dumb and dumber.