DrumBeat: October 17, 2008

The dark side of lower prices

NEW YORK (CNNMoney.com) -- Stock prices have plunged in recent weeks. So have oil prices.

Most Americans probably see the former as terrible news and the latter as a ray of sunshine at a dark time.

But both could contribute to a growing concern among economists - deflation.

Simply put, deflation is the opposite of inflation: It's when prices for a wide range of products start falling, rather than rising.

And while consumers struggling with the high cost of gas and food might think the idea of deflation sounds attractive, economists almost universally agree that it would be very bad news.

Oil rises $4 on OPEC, global markets

NEW YORK (Reuters) - Oil jumped $4 to nearly $74 a barrel on Friday, spurred by a broader rise across financial markets and expectations OPEC could cut output at an emergency meeting next week.

C02 field could unlock Permian oil

A massive carbon dioxide and helium field in western New Mexico soon could shore up oil production in southeastern New Mexico.

A very bad year for restaurants: Skyrocketing food costs, imploding stock market and high fuel prices are making 2008 the worst since 1980

...Look for hip, new restaurants to continue their push into the suburbs.

"With traffic so bad each way, even those who can afford the gas don't want to be sitting in traffic. Time is a commodity," says restaurateur Jason Chan. "So you are going to see more really good restaurants opening in the suburbs so couples can still have a night out close to home without hiring an all-night baby-sitter, or getting a hotel room in the city, or dealing with traffic each way."

John Michael Greer: The flight to abstraction

The $250 billion just poured down a Wall Street rathole, for example, could have been used instead to pay for the rebuilding of America’s rail network, with dramatic positive effects that would have resonated throughout the economy. Any such project would hire hundreds of thousands of workers across the spectrum of skilled and unskilled trades; locomotives and rolling stock would have had to be built, countless miles of track laid and upgraded, stations repaired or built from scratch, and every dollar spent on all these things would ripple outward through the economy, supporting businesses of every kind and refinancing local banks with deposits rather than loans. Projects of the same kind played a large role in helping many countries in the 1930s begin to pull themselves out of the morass of the last Great Depression.

Instead, the $250 billion has been assigned the task of making up for a portion of the largely imaginary wealth that has already evaporated from the balance sheets of banks. Abstraction has triumphed over economic realities, and the multiple impacts of that failure of imagination will be with us for a long time to come.

MMS: '77 Platforms Evacuated, 39.4% Of Gulf Oil Production Still 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 77 production platforms, equivalent to 11.1% of the 694 manned platforms in the Gulf of Mexico.

There are no longer any evacuated rigs in the Gulf.

TNK-BP Comes Under More Pressure to Close Deal With Gazprom

(Bloomberg) -- BP Plc's Russian venture TNK-BP came under more pressure to complete a deal with OAO Gazprom on the Kovykta natural-gas field after the Natural Resources Ministry threatened to withdraw the project's license.

Oil Field Investment Steadier Than Service Stock Rout Implies

The six-year boom in oilfield services spending is over, but exploration and production budgets aren't being slashed to the degree plunging service company shares suggest.

Democrats Prove We Can Drill Our Way Out Of The Oil Problem

Since I believe there is no reason to feel guilty about consuming what we produce (you can if you want to), we Americans should instead feel guilty only about our fifteen percent world oil consumption, rather than twenty-five percent world oil consumption.

However, if you work with the math, you will see that there should be no reason for any guilt because there is more than enough oil to go around for everybody. To begin with, American ingenuity now produces ten percent of the world’s flowing oil supply while we sit upon only three percent of the world’s reserves. If ten percent of the world’s oil consumption can be produced by only three percent of the world’s oil reserves, then one hundred percent of the world’s oil consumption should be able to be produced by only thirty percent of the world’s oil reserves, leaving a staggering seventy percent of the world’s oil reserves for the future.

Cuba claims massive oil reserves

The state-owned Cuban oil company says the country may have more than 20bn barrels of oil in its offshore fields - more than double the previous estimate.

Cubapetroleo's exploration manager said drilling in the offshore wells would begin as early as the middle of 2009.

Such reserves would place Cuba among the top 20 oil producing nations.

Cities, counties feeling economic pinch

The city of Lawrenceburg is asking its employees to take voluntary layoffs over the holidays because of a shortage of funds.

Meanwhile, Columbia city employees are trying to conserve fuel, Murfreesboro is considering implementing a hiring freeze and Mt. Pleasant is expecting to receive fewer dollars from the state.

All across Middle Tennessee, cities — both tiny and large — are trying to deal with an economic crisis that has made its way from Wall Street to the corridors of city hall.

And a report released in September by the National League of Cities is forecasting the situation could remain volatile for at least the next two years. The report cited the outlook for the future as a perfect storm of “rising home foreclosures, declining home values and spiraling costs.”

Diesel fuel shortage could hit economy

While trucks continue to roll down Saskatchewan highways, Rosseker said some truckers have had to reduce operations because of a shortage of fuel. Smaller trucking companies particularly are having trouble finding enough diesel fuel, Rosseker said.

The situation could have ramifications for Saskatchewan consumers, as slowdowns in trucking deliveries lead to a shortage of products on store shelves, Rosseker said.

Hunger eclipsed by financial crisis on World Food Day

ROME (Reuters) - The world's leading crusaders against hunger voiced frustration on World Food Day on Thursday that the global financial crisis had overshadowed a food crisis tipping millions towards starvation.

The World Bank predicts that high food and fuel prices will increase the number of malnourished people in the world by 44 million this year to reach a total of 967 million.

A Quick, Easy Way to Lower World Food Prices

While most of the solutions to the current crisis of high food prices will require substantial reworking of our global, fossil fuel-dependent food system to create a more localized and organic one, there is one relatively easy solution that could bring quick and significant reductions in world prices. Financial speculation in commodities' futures markets has increased dramatically in the last three to four years, and especially in the current year, artificially driving up prices of a host of commodities, from food crops like wheat, corn, soybeans, etc., to oil and natural gas, to metals and minerals. This marked increase was brought on by simple policy decisions and can be addressed by similar simple policies.

Pakistan: High prices of fertilisers, seeds

MARDAN: Farmers have demanded of the government to check the rising prices and black marketing of various fertilisers and seeds in the market. Several local growers told this correspondent that farming had become nearly impossible in the face of rising prices of various fertilisers, seeds and pesticides.

Niamat Shah, a farmer, claimed the DAP was currently available for Rs3,200, Sona Urea Rs900, Nitrate Rs800 and Super Urea was available for Rs1,100 per 50-kilogram bag, which was out of the purchasing power of the poor farmers. He said most of the local farmers belonged to lower-middle class and could abandon farming owing to high prices of fertilisers and seeds.

Food promises give way to financial reality

"It's understandable, I worry about it, too," Ms. Walsh said, referring to the stock market. "But we forget about the fact that in some places people aren't able to eat."

Added Ms. Plett, "We start worrying about our own wallets pretty quickly and it changes how we respond to other people."

Alberta to Maintain Oil, Gas Royalty Plan, Globe & Mail Reports

(Bloomberg) -- Alberta plans to implement new oil and natural gas royalties even though commodity prices have declined and tight credit may put planned projects on hold, the Globe and Mail reported, citing Mel Knight, the Canadian province's energy minister.

UAE: Grim tidings for Christmas travellers

Travel agents and airlines are warning expatriates in the UAE to book tickets as soon as possible if they want to guarantee flying home for Christmas – and expect prices to increase further between now and then.

A steep rise in global fuel prices and increasing demand have forced prices up by 30 per cent since last year and anyone hoping to make a late decision on whether to fly home should bear in mind that some flights are already selling out.

Lawmaker: Oil slump to eat $15b into Iraq budget

BAGHDAD – An Iraqi lawmaker said Friday the government expects to cut its budget next year by $15 billion because of falling oil prices.

Abbas al-Bayati, a senior lawmaker of the United Iraqi Alliance, the largest Shiite bloc in parliament, said the government still has one month to present its 2009 budget.

But he said the recent plunge in oil prices to below $70 a barrel — a 14-month low — would cut into earlier budget estimates, which were made when crude was hovering around $120 a barrel.

Nigeria cuts spending plans as oil price falls

ABUJA, Oct 17 (Reuters) - Nigeria has cut back its spending plans for next year, Finance Minister Shamsuddeen Usman said on Friday, as falling global crude prices erode revenue forecasts in the world's eighth biggest oil exporter.

The 2009 budget in Africa's most populous nation had been expected to go before parliament last week, but a sharp drop in oil prices over the past three months has played havoc with the assumptions on which the spending plans are based.

Somalia smolders as pirates seize another freighter

NAIROBI, Kenya — U.S. warships watched a hijacked vessel laden with tanks while other gunboats patrolled the dangerous waters off Somalia, but pirates still seized another freighter this week — and now hold about a dozen despite the international effort to protect a major shipping lane.

Military vessels from 10 nations are now converging on the world’s most dangerous waters, but analysts and a Somali government official say the campaign won’t halt piracy unless it also confronts the quagmire that is Somalia.

State of economic confusion mirrored perfectly in the steel sector

The financial-market events of the last couple of months have shaken many market commentators and economists to the core.

They have also raised a number of questions: Why has a crisis associated primarily with a housing bubble in the US morphed into a global financial meltdown and credit crunch? What does it mean for the South African economy? Is it positive that oil prices are falling, but dragging down the prices of commodities that we sell?

Gas prices plummet but consumers still paying full whack

Britain’s energy companies were accused yesterday of profiteering by failing to pass on to consumers recent steep falls in wholesale gas prices.

Since the last round of retail price increases began at the end of July, wholesale gas prices have plummeted by nearly 19 per cent, after an even steeper drop in the price of oil. But none of Britain’s big six energy companies has indicated that they might pass on any reductions to consumers.

UAE: Powerless, the north waits for dawn

“When I came here in April the building was fully occupied,” he said. “People had moved their furniture in waiting for the power to be connected, but now everything has gone back. The owner told me to get the decorators in as the power would be connected by Oct 1 so I took a bank loan and invested Dh2 million (US$545,000) in getting the restaurant ready.

“But now I have been told there will not be any power for at least two years.”

Russian elite look to Kremlin as wealth dries up

Analysts said the financial crisis could strain the unspoken pact between Putin and the tycoons, who have been allowed to prosper as long as they do not challenge his rule.

"They're going to be fighting to get money from the Kremlin, and behind the scenes, people inside the Kremlin will be fighting to get control of assets," said Peter Boone, an associate at the London School of Economics who studied the Russian economy for investment banks. "That's when the politics get tough."

Russia Has No Plans to Tap Reserve Oil Fund

Russia has no plans to tap its Reserve Fund, which serves to cushion the budget from oil price shocks, due to the lower oil price in 2008 and the following three years, Finance Ministry said in a statament on Thursday.

Adequate response to external shocks, energy crisis control and economy competitiveness are main priorities of Kyrgyzstan, President says

Mentioning energy issue the president said that the biggest challenge in this field will be “water factor”. Government should elaborate a long-term state strategy on water resources, which should protect national interests of the country and on the other hand provide regional stability.

McCain, Obama's visions differ on unleashing innovation

For decades, the United States dominated the technological revolution sweeping the globe. The nation’s science and engineering skills produced vast gains in productivity and wealth, powered its military and made it the de facto world leader.

Today, the dominance is eroding. In 2002, the nation’s high-technology balance of trade went south, and it never came back. By 2007, the annual gap between high-tech exports and imports had grown to $53 billion. The gap this year is expected to be the largest ever — approaching $60 billion.

Both presidential candidates, in their careers and in their campaigns, have made detailed arguments for how the nation should deal with technology rivals, sharpen its competitive edge and improve what experts call its “ecology of innovation.”

US oil fears helped spark Iran uprising, says report

THE Nixon and Ford administrations in the United States created conditions that helped destabilise Iran in the late 1970s and contributed to the country's Islamic revolution, says a report based on previously classified documents.

A trove of transcripts, memos and correspondence shows sharp differences developing between the Republican administrations and Shah Mohammed Reza Pahlavi over rising oil prices in the mid-1970s.

A report in the Middle East Journal, published by the Washington-based Middle East Institute, by the scholar Andrew Cooper, zeroes in on the role of White House policymakers - including Donald Rumsfeld, then a top aide to the president, Gerald Ford - hoping to roll back oil prices and curb the shah's ambitions. This is despite warnings by the then secretary of state, Henry Kissinger, that such a move might precipitate the rise of a "radical regime" in Iran.

Happy Anniversary: Thirty-Five Years After the Oil Embargo

Thirty-five years later, the world is still on tenterhooks, waiting to see what OPEC does with the oil spigot. This time, though, an embargo isn’t in the cards—just an old-fashioned cut in oil supplies. The oil cartel will meet next week in Vienna, and will cut at least one million barrels of oil production per day, Qatar’s oil minister said. OPEC could cut further at its regular December meeting.

The tank isn't empty

Well, what do you know?

Gas prices are back down again. The world is motoring along, some 6.6 billion of us, at about the same gasoline prices that people paid back in the mid-1980s, once today’s prices have been adjusted for inflation.

But how can that be, given the prospect of a world running out of oil? How does it happen that a world whose population has gone up by nearly 2 billion people in 25 years — a world with seemingly fewer discoveries of oil fields than in years past and production declines in many countries — still sells gas at the pump for about the same price?

New US president likely to mark shift in oil policy

The Arabs should be aware that pressure is mounting in the US to reduce dependence on Middle East oil - in other words, to reduce oil imports. Whoever wins next month's presidential election, whether it is Barack Obama or John McCain, is bound to want to shape a new national policy, less dependent on imported oil, for energy and climate change. Both candidates have vowed to do so.

GM, Chrysler deal talks accelerate - report

NEW YORK (CNNMoney.com) -- Merger talks between ailing automakers General Motors Corp. and Chrysler LLC. are reportedly picking up amid increased interest from lenders eager to close a deal.

World Oil Awards Winners Announced

HOUSTON, TX (MARKET WIRE via COMTEX) -- World Oil(R) magazine announced the thirteen winners of the 2008 World Oil Awards at the seventh annual black-tie gala dinner last night in Houston, Texas. The event, attended by close to 350 industry leaders, benefited two universities that offer programs leading to careers in the petroleum industry.

Bill McKibben: Green Fantasia (review of Thomas Friedman's Hot, Flat, and Crowded)

Friedman even comes up with one idea that I think will be new to many readers of the energy literature, as it was to me: to turn many existing office or institutional buildings into "dual-use" facilities (his example involves turning school kitchens into Domino's Pizza bakeries during idle hours). You could go farther still, and note that most American suburbs and rural areas already have a mass transit system — it's just painted yellow and goes nowhere on weekends.

Scientists: Next president needs to act on climate change

Scientists say the next president must take action on climate change. McCain and Obama both say that the country will need to respond with a system to limit the pollution from heat-trapping gases, a plan known for short as "cap and trade."

While their approach sounds similar, the differences between the two candidates could produce very different outcomes because the task is so enormous. A plan to help stop global warming will require developing different sources of energy and a new system to use and pay for them. It also will reshape the nation's economy and security.

Matt Simmons has posted a couple of new presentations, including the one he recently gave at ASPO:

● How To Survive And Thrive In A Post-Peak Oil World

● Grappling With Energy “RISK”

Falling oil demand puts OPEC in a bind

LONDON (Reuters) - For the last two years, analysts have argued about how far oil demand would respond to the rise in prices.

But in the past few weeks evidence of a sharp decline in demand has become incontrovertible, resulting in big cuts in forecast oil demand, and posing a sharp dilemma for OPEC about how to respond when ministers meet on Nov 18.

Oil at $70 still historically high: IEA

PARIS (Reuters) - Crude oil prices remain high, despite a steady decline since the summer, and the oil market is still tight, the International Energy Agency's executive director told Reuters on Thursday.

"$70 a barrel is still historically high," Nobuo Tanaka said in an interview. "Price volatility shows the market is still tight," he said.

Fuel your car with coal? Less likely now

HOUSTON (Reuters) - When crude oil was more than $145 a barrel and investors were flush with cash, building plants to turn coal into liquid fuel for cars and trucks looked like a winning bet.

But, as oil has fallen below $70 a barrel amid a looming global recession and slowing fuel demand, plans to convert plentiful U.S. coal supplies into liquid fuels look less certain.

Plot thickens over oil in boom and bust saga

They said it would never happen. Oil was not supposed to fall below $70 a barrel, which is reckoned to be the minimum level at which producers in Canada's tar sands and in deep-water facilities off the west coast of Africa - the most expensive places in the world to pump oil - can make a profit. These are the so-called marginal cost producers and their economic models were meant to establish a floor on prices.

What is going on? The most straightforward factor is an old-fashioned shift in the balance between supply and demand as recession approaches; the latest inventory data from the US confirms stockpiles are rising. Colder economic breezes are also reaching Asia, where China has been the major source of new demand for oil in recent years.

China power consumption weakens on economic slowdown

BEIJING (Xinhua) -- Power consumption in China weakened further in September because of slowing economic growth, according to the China Electricity Council on Friday.

Electricity use for the first nine months rose 9.67 percent to 2.627 trillion kwh from a year earlier. The consumption growth rate was down from 10.19 percent from January through August.

Kansai Electric to Trim Retail Power Price Increases

(Bloomberg) -- Kansai Electric Power Co., Japan's second-biggest power utility, will scale back proposed increases in retail prices for the January-to-March period, acceding to a request from the trade ministry.

More sabotage feared after 2nd pipeline bombed in northern B.C.

Canada's pipeline industry was on high alert Thursday after two acts of sabotage in less than a week targeted EnCana sour-gas pipelines about 50 kilometres southeast of Dawson Creek, B.C., near the Alberta border.

The latest case, discovered by pipeline workers around 9 a.m. MT Thursday morning, appeared linked to an explosion on the weekend and a threatening letter sent to local media last week, RCMP said.

Lester Brown: 'The great growth industry of the 21st century'

On a conference call Wednesday, I asked Lester R. Brown, president of the Earth Policy Institute, whether the recent financial meltdown would effect the burgeoning solar, wind, and geothermal industries. He responded that while investment of all kinds will be more difficult, a renewable energy jobs program could provide the same kind of stimulus that the Works Projects Administration did in the 1930s if we slip into a deep recession or even a depression. But beyond that, it seems clear from his view of the current energy scene, that renewable energy will be "The great growth industry of the 21st century," as he put it, even out-performing the information revolution of the 1990s.

Amory Lovins on energy

Overall, the U.S. could save half its oil and gas and three-fourths of its electricity at a cost equivalent to about an eighth of their price. RMI's latest $30 billion worth of efficiency redesigns in 29 sectors have consistently found about 30 to 60 percent savings on retrofit, with two to three year paybacks, and about 40 to 90 percent savings in new facilities, with nearly always lower capital cost.

Moreover, energy-saving technologies keep improving faster than they're applied, so efficiency is an ever larger and cheaper resource. The big surprise is that integrative design -- not a technology, but a way of combining technologies -- can often make very big energy savings cost less than small or no savings. For more on how to achieve this, read my Stanford Engineering School lecture notes.

Cellulosic biofuels endanger old-growth forests in the southern U.S.

Cellulosic biofuel is on its way. This second generation biofuel — so-called because it does not involve food crops — has excited many researchers and policymakers who hope for a sustainable energy source that lowers carbon emissions. However, some believe that cellulosic biofuel may prove less-than-perfect. Just as agricultural biofuels have gone from being considered 'green' to an environmental disaster, some think the new rush to cellulosic biofuel will follow the same course.

Scot Quaranda is one of those concerned about cellulosic biofuel’s impact on the environment. Campaign director at the Dogwood Alliance, which he describes as "the only organization in the Southern US holding corporations accountable for the impact of their industrial forestry practices on our forests and our communities", Quaranda condemns cellulosic biofuels as dangerous to forests “by its very definition”.

Protesters disrupt European biofuels summit

Europe's largest conference on biofuels was brought to a halt this morning when environmental activists invaded the main hall and accused the industry of destroying rainforests, evicting communities, and increasing hunger and climate change around the world.

Red tape halts $300M wind farm

A $300-million wind farm planned near Goderich, Ont., has been cancelled three years after the developer, EPCOR Utilities Inc., was selected by the province to build it.

Call it death by delay.

Calif. mulls ads on road alert signs

California's effort comes as many states look to make money from roads, selling or leasing highways and rest stops or charging to drive in congested areas. If the practice is approved, other states are likely to follow, said Ken Kobetsky, chief engineer of the American Association of State Highway and Transportation Officials.

"It's a cash cow. But are you concerned about earning money, or are you concerned about saving lives?" Kobetsky said. A flow of changing ads could endanger motorists by holding their attention on a sign instead of the road, he said.

Gazprom weighs up Romania gas link

Russian gas giant Gazprom said today it is considering building a new gas pipeline via Romania, as Russia seeks more partners to join its South Stream pipeline project.

Gazprom said in a statement that its chief executive Alexei Miller had discussed gas co-operation with the head of Romanian state-owned gas pipeline operator Transgaz, Ioan Rusu, and the head of state-run gas producer Romgas, Francisc Toth, at a meeting in Moscow.

Edison May Buy Assets of Rivals Amid Credit Crisis

(Bloomberg) -- Edison SpA, Italy's second-largest utility, may gain from the worldwide financial crisis if indebted rivals have difficulty getting credit and are forced to sell assets, Chief Executive Officer Umberto Quadrino said.

Bulgaria eyes LNG imports from Yemen

SOFIA (Reuters) - Bulgaria will hold talks over the potential import of liquefied natural gas (LNG) from Yemen to diversify its gas supplies, the Bulgarian economy and energy ministry said on Friday.

Schlumberger 3Q revenue soars; leaner times ahead

HOUSTON (AP) -- Schlumberger reported its revenues jumped 24 percent during the third quarter but the world's largest oilfield services company said Friday that the global economic crisis will undoubtedly take a toll.

Bewildered by peak oil economics

A stunning aspect of the current economic crisis is that most economists didn't see it coming and remain bewildered by its causes. Treasury Secretary Paulson said just over a year ago that the business environment was the best of his career.

Paul Greenstein wrote recently that the crisis struck with little forewarning, as if unleashed by a "secret signal" sent out in 2007 that slammed the economy with soaring energy and food costs, and the free-fall of housing prices.

The current economic crisis was indeed unanticipated by most economists, but the trigger may be hiding in plain sight - peak oil. Oil engineer M. King Hubbert predicted in 1956 that U. S. oil production would peak in 1970 and then decline.

Oil jumps on expectation recession fears overblown

SINGAPORE – Oil prices jumped above $72 a barrel Friday in Asia from a 14-month low as investors bet fears that a severe global recession will devastate crude demand may be overblown.

Oil has fallen by about half since reaching a record $147.27 on July 11.

"I think the market has been way oversold," said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney. "The sentiment has been dominated by fear and panic, and when people are scared, they just keep selling."

Light, sweet crude for November delivery was up $2.80 to $72.65 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract dropped overnight $4.69 to settle at $69.85, the lowest settlement price since Aug. 23, 2007.

Oil Cos Ability To Tap New Sources May Have Peaked-BP

LONDON -(Dow Jones)- Oil companies' ability to tap hydrocarbon resources may have peaked because new reserves are found in more challenging environments and the industry is losing skills and know-how as a generation of experienced workers approaches retirement, said BP PLC's (BP) head of exploration and production Andy Inglis.

In a speech delivered at Rice University in Texas on Wednesday and posted on BP's Web site Friday, Inglis said: "I think it's true to say that we may have reached a period of peak capability, at least in the short term."

He said this peaking in the capability of companies to extract oil bears a far closer relation to the facts than peak oil, the theory that the amount of oil the earth is capable of yielding has peaked.

Why low oil would not last long

Oil prices, which neared the $150 mark just few weeks ago, fell back below $70, mainly due to fears of slower global growth as the financial crisis deepens. Robert Ebel, a senior advisor to the US government on oil and energy issues, is holding firm to his prediction that oil could go back to $90 by the next few weeks.

He believes that $90 a barrel is a ‘fair and acceptable’ oil price for consumers. “Is $90 per barrel acceptable to the American people? Of course it is compared to the $147 dollars in July. That is very acceptable,” he argues.

OPEC Embarks on a Fool's Mission

When oil was consolidating near $100 I thought that was it. It was plain to see that the global economy was slowing, and it was clear that fundamentals were not in favor of another move higher.

I should have known better, because that is not how trends end. Trends end when every disbeliever (or nearly every disbeliever because my tune never changed) gets religion and hops on the bandwagon in spite of rapidly changing fundamentals. The same thing happened in housing in 2005, and in the blowoff top in 2000 in the Nasdaq, and more recently in various currencies like the Australian dollar and the British Pound.

Indeed, we saw analysts who disliked oil at $50 calling for it to rise to $200 or even $300. People who never heard the term "Peak Oil" before, and probably still do not understand what it means, suddenly found a new religion.

How Does the Financial Crisis Affect the Peak Oil Thesis?

Michael Shedlock has a great post on the recent slide on oil prices. Shedlock has been predicting a deflationary scenario as a consequence of the credit bust even when commodities reached all-time record highs earlier in the year. Due to oil’s rapid descent past his $70 target, Shedlock is now predicting possible $50 - $60 oil.

What’s interesting about Shedlock’s call is that he fully acknowledges the possible reality of peak oil but does not think peak oil, alone, is enough to drive prices into the stratosphere irregardless of economic fundamentals. He also asserts that peak oil has already been priced in.

It’s time to improve oil price debate

The price of petrol paid by Kenyan motorists, like their fellow travellers elsewhere, has remained incredibly high in the past few months. But, who is to blame for these incredibly high levels of fuel at the pump?

Candidates off on oil by $350 billion ... or so

WASHINGTON - It’s an attention-grabbing claim: Americans each year are sending $700 billion to unfriendly countries for oil, as much as the entire cost of the Wall Street bailout plan. In rare agreement, both presidential candidates use the number. But is it real?

“We have to stop sending $700 billion a year to countries that don’t like us very much,” Republican John McCain said again Wednesday night during the candidates’ final debate.

Democrat Barack Obama joined the refrain recently, declaring at a Wisconsin rally that a push for alternative energy “will stop us from sending $700 billion a year to tyrants and dictators for their oil.”

The claim, however, wildly exaggerates the amount of money going to unfriendly nations. It also significantly inflates spending in general on petroleum imports, especially considering recent dramatic declines in oil prices.

Government doubling heating oil assistance

WASHINGTON - The Bush administration on Thursday released $5.1 billion in fuel assistance to states, nearly doubling federal money to help poor people cope with high home heating bills expected this winter.

Despite oil price drops in recent months, lawmakers from cold weather states said high energy prices and the slumping economy are leaving many families struggling to pay to keep warm.

ICI Offers Alternative to Pickens Plan

Intelligent Communities President Barry Krusch says, “Not only does the Pickens Plan fail to provide a solid solution to curtail greenhouse gas emissions, but it also lacks the detailed analysis that any comprehensive plan should include. Briefly put, it is too much Pickens, and not enough Plan”.

Palin says God blessed America with oil and gas

ELON, N.C. – Republican vice presidential candidate Sarah Palin said Thursday that God blessed the nation with oil and gas resources and other forms of energy that should be tapped to reduce U.S. dependence on foreign suppliers.

The Alaska governor told supporters at Elon University that she and GOP presidential nominee John McCain will develop new energy sources.

"God has so richly blessed this land, not just with the oil and the gas, but with wind and the hydro, the geothermal and the biomass," Palin said. "We'll tap into those."

West Africa has potential to develop biomass: report

ROME (AFP) – Bioenergy could become an "engine of growth" for several west African countries hard hit by the world food crisis and rising oil prices, the United Nations Foundation said Thursday.

Converting biomass to bioenergy should be encouraged under certain conditions in the West African Economic and Monetary Union, the UNF said in a report commissioned by the group, whose French acronym is UEMOA.

Transforming England's towns into green and pleasant land

(CNN) -- To begin with, visitors to Todmorden, Yorkshire, might think it looks like any other small town in northern England.

But look closer and you will notice some unusual features that have placed the town at the forefront of a new food revolution.

There are herbs growing in flower boxes at the bus stop, raspberry canes on waste land, cabbages in the flower beds at the local park - and even beans between the graves in the local cemetery.

In fact, wherever you look food is growing, free for anyone to pick and take home to cook.

Gulf state rescues £3bn wind farm in the Thames Estuary

The Government of Abu Dhabi has stepped in to help to fund the world’s biggest offshore wind farm in the Thames Estuary after the withdrawal of Royal Dutch Shell from the project.

Masdar, a $15 billion (£9 billion) clean-energy investment fund controlled by the Gulf state, said yesterday that it would buy a 20 per cent stake in the London Array project from E.ON, the German energy giant.

Falling oil prices and higher tax take add to BP's woes

BP served up more bad news for investors yesterday in a third-quarter trading statement that showed production was down, refining margins had slumped and the company had paid more tax.

Profits for the quarter, when the figures are released, would show a $2bn (£1.1bn) gain from asset sales, but the future looked tough as the global price of Brent crude fell yesterday to $57.78, the lowest for nine months.

Goldman Advises Investors to Switch to Shell From BP

(Bloomberg) -- Investors should switch to Royal Dutch Shell Plc from BP Plc as Europe's largest oil company has underperformed its rival the past month and will offer better cash-flow growth from 2010-13, Goldman Sachs Group Inc. said.

Energy: Time ripe for introducing fuel oil tax - Analysts

With the global crude oil price continuing to drop, some analysts said the time is ripe for China to introduce the long-discussed fuel oil tax.

"I believe it is right to introduce the tax while the international oil price is below $80 per barrel," said Zhang Peisen, a senior researcher with the Taxation Research Institute under the State Administration of Taxation.

Britain to cut carbon emissions by 80 percent: minister

LONDON (AFP) – Britain will introduce a legally-binding pledge to cut carbon emissions by 80 percent by 2050, the minister for the newly-created Department for Energy and Climate Change said Thursday.

The promise, which involves amending soon-to-be approved legislation that requires Britain to cut carbon emissions by 60 percent on 1990 levels by 2050, came after a recommendation to do so from a government-appointed committee.

Australian leader holds firm on climate change

CANBERRA, Australia – World leaders must deal with the threat of global climate change despite the spreading "cancer" of the global financial crisis, Prime Minister Kevin Rudd said Friday.

Rudd backed the majority view that the 27-nation European Union reached in Brussels on Thursday that deep cuts must be made in greenhouse gas emissions despite slowing world economies.

After watching the price of oil drop so drastically I have to say I now believe the price was run up by institutional investors IE non industrial users.

The world economy hasn't gotten beaten back so far in 3 months to justify a return to $60 oil. Therefore you can only assume that greed and speculative buying pumped it up to 147 and fear and speculative selling brought it right back down.

If they can unlock the credit markets then we have a good chance of seeing some great economic activity, like the return of the SUV. =-)


Two words: Iron Ore. Iron ore exhibited nearly exactly the same price characteristics as oil: it shot up starting in the middle of this decade, topped out in July, and has crashed since.

However, there is no futures market in iron ore. There are no iron ore speculators, nor is there any way for institutional investors to push the price of iron ore up (or down).

So, I think you are incorrect when you say there is no other explanation. There is: supply & demand. And unlike yours, it explains both oil and iron ore.

eyeballing a trend from '02 to present, and eliminating the noise (too low in '06 and early '07 and too high until about oct 1), would put the trend at about $90 -$ 100.

i just dont see how there can be a trend lasting over 6 ys based upon speculation. and granted, the trend may be ready to change.

I would have to agree. If the "speculators" were falsely pushing price trends too high over such a long time, then inventory numbers should have crushed them with the reality. Of course that didn't happen, and over several years there was one reason after another to keep the pressure on price increases.

Gail has commented a few times, including yesterday, that much of the price drop is being caused by forced selling by hedge funds. Well, hedge funds are the epitomy of speculators, and therefore, they owned oil as speculation.

"I think it is mostly hedge funds and financial organizations selling--either because of margin call, or because they can't get the credit. For hedge funds, it can also be because investors are withdrawing funds. They have to sell something quick, and oil futures are easy to sell."

It can't be both ways. The price going up was supply and demand, but the price coming down is hedge funds selling.

Regardless, I still can't understand for the life of me why we even discuss it as an either/or situation. If demand was indeed exceeding supply, speculators would be foolish not to pile in and vice versa. I piled in while it was going up and bailed when it started going back down. And the day I get passed by a brand new Suburban on the way to work, I'll pile back in again. What can I say, I'm a speculator.

Should be a rule against using "I" five times in one paragraph.

It's Inevitable If I'm Invested In It.

Not the letter I the word I-the narcissism is the thing.

To whom should one attribute one's opinions?

Indeed; I interpret ideas individually, indicating intellectual independence.

Iron is the fourth most common element in the earth's crust.


A building and auto manufacturing recession along with the expansion of mining capacity during the boom cycle are contributing factors to the iron ore bust.

Oil is a bit different inasmuch as it supplies most of the world's transport fuel and was about one third of the total energy consumed in the Unites States. If there were no cartel + Russia then there might be no problem getting oil cheaper. Russian oil companies are so highly taxed they will be hard pressed to produce more as aging fields decline. Higher taxes limit the amount of oil that can be produced in the world.

To whom should one attribute one's opinions?

When I am right, to me, otherwise be my quest.

Shargash -- I don't have the link but a couple of months ago I saw speculation regarding the iron ore price run up: a major mine in Australia was flooded and shut down production. This lost producion was at least a part of the reason.

As far as oil goes I'm still on the fence. Expectation of increasing prices helped run up oil prices to some degree IMO. How much of this expectation was caused by non-oil users I'm not sure. But as long as the crude exporters were expecting higher prices in the short term they were able to pressure the real crude buyers. And the crude buyers felt pressured to make their purchases at the sellers bid before prices rose even higher. Sometimes I just end up with the classic chicken or egg question.

Rockman, I'm confused. How is a supply reduction speculation? I think buyers, knowing a major source of iron ore was shut down, would be willing to pay higher prices almost immediately, but I wouldn't consider that speculation.

Here is my favorite narrative to explain how I see things working. Imagine that freakish weather in South & Central America wiped out 90% of the coffee crop a month before harvest. What should happen to coffee prices?

I would argue that coffee prices should go up immediately, even though there is not yet a coffee shortage. The mechanism by which the prices rise is "speculators" in the futures market performing the role of price discovery. So, lets say coffee prices triple because of that. Note that some people will say "speculators drove up the price of coffee beans". I believe this is an incorrect statement. The bad weather drove up the price of coffee beans. Speculators just realized that and tried to get in ahead of the shortage.

Now, lets say the damage to the crop turns out to be much less severe than predicted. What will happen to coffee prices? They will crash, though they still might be higher than they were before the bad weather. Some people will say, "it was all just a bubble caused by speculators." I believe that this too is incorrect. It is just market forces re-asserting themselves. When the coffee harvest comes in, and it is much better than expected, the specs who were long will get crushed. It is not possible for them to push coffee prices even higher. In other words, speculators lead expectations, but they cannot override fundamentals for any length of time.

All that having been said, I don't think it affects the point I was making in my reply to the original poster: intitutional investors did not drive iron ore prices up. Nor did speculators on the futures market, because there is none. Nor is there any evidence people were filling football stadiums with iron ore in an attempt to manipulate prices.

shargash, your argument seems to be one in favor of the Efficient-Market Hyposthesis, which asserts that at every moment stocks, bonds, commodities, or property price themselves in the market through attracting the input of all information relevant to their value.


This theory originated in the 1960s with the likes of Milton Friedman and the Chicago School and gained dominance, both in economic and political circles, beginning in the 1980s.

Other economic schools articulate dissident theories that hold that markets are not always informed, rational or efficient. One of those that I find particularly appealing is that of the emotion theorists, which holds that markets have manic mood swings, first cavorting with financial utopianism and later sinking into bouts of despair.


I think you're overstating my advocacy of efficient market theory. I think markets can get highly out of whack. What I do believe is that it is very difficult (if the market is relatively free) to override fundamentals for long.

Lets say speculators could drive the price of oil to $120/barrel, but there were not enough buyers for all the oil. Furthermore, lets say that the condition of "oversupply" held for weeks or months.

What I say will happen is that producers will either cut production to bring it back in line with demand, or they will lower prices enough to bring in more buyers. What will not happen is for speculators in the futures market to keep on pushing the price up to $130 and then $140 and have the producers sitting on ever-increasing oceans of oil they cannot sell. Even if they did, it would be impossible to hide the oceans of unsold oil.

Obviously, that's an oversimplification of the situation. There is not one oil market. Oil is not perfectly fungible. Information is not transmitted perfectly. However, in general I believe it to be correct. If there is too much oil for the demand, that oil will not be invisible, nor will it find its way back into the ground. There must be a reduction in production, an increase in inventories, or an increase in consumption (likely caused by a price reduction). That is more the first law of thermodynamics than it is efficient market theory.

What I do believe is that it is very difficult (if the market is relatively free) to override fundamentals for long.

I don't think you and I are very far apart in our beliefs, for I too believe that fundamentals will inexorably, with time, assert themselves. That said, could we not now be in a period where "emotion" has pushed the price of oil down below fundamentals, or where things are in such a state of caos that the fundamentals have become obscured?

Another big question is what one means when one says "for long." For a trader the important time frame might be a day or a week, maybe up to six months. For an investor, like Warren Buffet, it may be 5 or 10 years. For someone like Nate Hagens, who concerns himself with long-term implications, it might be 20 or 50 or 100 years.

I think a lot of controversy arises due to the fact that different people have different fields of vision.

I don't think we're very far apart either.

Part of the problem of this debate is that the terms are not very well defined (exactly what is a speculator, anyway?), and the argument tends to shift grounds over the course of a single exchange of comments.

I am pretty sure that leverage unwinding, the credit crunch, the effects of the two hurricanes, and speculators' expectations of future economic weakness, have pushed oil prices down farther than is justified by supply and demand. In other words, I think the market is out of whack. I don't think it will stay that way for long, but it might have to wait "for the coffee bean harvest to come in", as it were, before it gets back in whack.

And that belief is not at all inconsistent with the idea that the large majority of the run up in oil prices in recent years. The run down in prices is still too recent to be able to say how much is fundamentals and how much is (temporary) maladjustment caused by other factors.

As far as speculation goes one would think that it works both ways with speculators able to push up prices beyond what a well informed market would agree to and below what a well informed market would agree to pay either by simply leaving the market or actively pushing down the price under false assumptions.

Speculators are often the consumers of the real product Southwest airlines certainly speculated in the oil market and lost big time short term. The entire reason for the speculative futures market by definition is to allow the real consumers to offset price risk. A big part of modern speculative markets is to allow non-consumers to enter via cash transactions. These cash speculators add liquidity to a market. But everyone is speculating and you have winners and losers. And since the market is not well informed it will swing potentially wildly around the informed market price.

What I often find funny is people seldom consider that speculation can also result in lowering the price of something below its true market value. Certainly in housing where the goods are durable speculators not only caused a huge run up in prices but also resulted in the housing market moving to devastatingly low prices overtime as the oversupply causes far more money to be lost than was ever made on the upside.

With oil however its slightly different since oil is consumed and not durable or replaceable.
As speculators that forced the price to high leave the market and prices fall below the informed markets price the net result is that demand that would have been suppressed from the high prices is not suppressed. This is outside the real changes in demand and supply whats happened is more people will delay reducing demand for longer. Thus unlike housing any perceived oversupply can and will be cleared by the market simply via deferment of any demand suppression to a future date. Far worse this condition leads to those who would have differed demand assuming that because prices experienced one large decline next time they increase the same thing will happen further ensuring deferment of future demand suppression.

Back to the real world this can probably explain why VMT does not drop dramatically in regions experiencing recession or depression economics we are all optimists and willing to try to maintain our current lifestyles under the false hope that things will get better. I've certainly fallen into this trap myself. I assure its not fun realizing that my current lifestyle is probably at its peak under common consumption criteria. I may be able to live happier in the future but it won't be via net gains in consumption.

So overall in the case of commodities that are declining in volume the long term trend is relentless and the ability of speculators to lower prices is weaker than the ability of speculators to increase prices. What this means is that periods of significant downward price movements are much shorter than periods of upwards price movements. We have seen a five year bull market in crude prices with practically all averages showing strong increases in prices.

I'd be surprised to see this bear market last one year time will tell of course but I'd not be surprised to see the oil market shape up to be basically five years up six months down.

I've actually figured that we would get effectively consolidation or price stalls at around 200 a barrel then 300 a barrel then 500 a barrel then 800 a barrel with further price increases becoming more and more difficult. I don't know what the total average price will be for 2008 and I did not expect a consolidation point at this price but I'll freely admit I never thought about it basically for whatever the reasons the market has consolidated at 100 a barrel. Once this is done our next reasonable consolidation point is at the next doubling i.e 200 a barrel.

We will see if I'm right but given the way I view how markets work the runnup to 200 a barrel should be very solid given the nature of this early unexpected consolidation and its overswing on the down side. Thus 70 dollar or 60 dollar oil wherever it stops pretty much ensures the run to the next consolidation point is assured. Also I suspect the next downward swing will be lower and more muted then the current one. This time it was about 50% next time say 25% then 12% etc with the volatility dampening each time. Given the long bull run in crude prices this retrenchment is actually not all that large.

I do believe that speculation played a role in the height of the recent oil price run up and I don't believe markets are perfectly efficient. Nevertheless, I offer another view point. Supply and demand was not the mechanism pushing prices to their highest levels. Rather, speculators, using the best information available to them correctly recognized oil is worth a lot more in future value than current value. The increasing likelihood of global recession and the speed with which financial markets collapsed surprised many very smart people. I don't know how to value oil today - recovery, recession or depression would seem to produce different outcomes.

Nor would I shargash. The same point as you: decreased commodity = increased prices.

Nor is there any evidence people were filling football stadiums with iron ore in an attempt to manipulate prices.

But they might be flying it around in planes.

If they just piled it up at a quarry somewhere, with no magnetite stabilization field, and it blew, how would we know? Quarries are supposed to be giant holes in the ground.

--- G.R.L. Cowan, author of How fire can be tamed

There are different types of mines. Iron ore mines are large holes in the ground. You can walk away from one, shut it down for a year, no problem.
Other kinds of mines can be ruined by walking away from them for one week. They flood, collapse, catch fire, explode, whatever.
For iron ore mines, the way you stockpile ore is to lay off the third shift and just don't mine ore for a while. Stockpile by leaving it in the ground.

Same with Oil....leave it in the ground.

IMO there are two types of people dealing on the futures market, large numbers of gamblers who never take delivery and relatively few hedgers who will actually take delivery.

The people who will actually take delivery of the oil and consume it pay the price that the gamblers have agreed at that moment - the final price on settlement day when 'spot price'='futures price' is only relevent to the gamblers.

Our various markets have been deliberately set up to facilitate normal buying/selling and gambling - the gambling 'tail' in many markets is now 'wagging the dog'!

It is possible that speculators/governments that have actually taken delivery and paid for storage are emptying their tanks at the moment. Is there any data available that would tell us how much WTI is stored at Cushing for instance?

I think that we are in the eye of the energy storm. It's a period of deceptive calm.

westexas, you said something yesterday, late in the day, that many may have missed, but I think merits repeating:

Texas especially had the following pattern: Higher Oil Prices + Increased Drilling = Lower Crude Oil Production.

Can anyone argue with a straight face that, with non-OPEC production, that hasn't happened in the last five years?

Am I the only person who believes this opens the door for OPEC to establish an effective cartel, at least until the same thing happens to them?

I'm working on 20 minute talk on Peak Oil, Peak Exports and the 'burbs, as an intro to Alan Drake's presentation on 10/24 at SMU: Rail Here, Rail Now, Pay Less (because you are taking electrified mass transit). I'm going to probably lead off with this slide--the Texas & North Sea peaks lined up with each other (two regions developed by private companies, using the best available technology, with virtually no restrictions on drilling):

SMU Conference: http://smu.edu/esp/Lectures/eot%20symposium.htm

Texas today is an oil importer, y'all do not produce enough oil to meet your own demand.

I wonder when Texas went from exporter to importer and if a plot could be created of Texas ELM ?

Best Hopes,


I'm going to probably lead off with this slide--the Texas & North Sea peaks lined up with each other

Didn't that graphic previously have Texas and Saudi? ;-)

Seriously, though, have you dropped Texas as your model for Saudi?

Why not line up all three?

How about a lineup of geologically diverse regions, for example:

North America (Mexico + USA + Canada) in black

versus WORLD in blue?

Here is a link to my most recent presentation (July), at Sandia Labs, in which I used both the Texas/Saudi production plots, as well as the Texas/North Sea plots (and I will use the Texas/Saudi plots in Dallas):


In the Sandia Labs presentation, I noted the 2006 and 2007 Saudi production declines, as well as the 2008 rebound, to an annual level below their 2005 rate. As you know, Stuart's objection, in March, 2007, to the HL model for Saudi Arabia was that the production decline was sharper than what the HL model suggested that it would be. I replied that was one of the reasons that I expected to see a rebound in production ("albeit to a level well below their 2005 rate.") Granted, I have been surprised by the magnitude of the (apparent) rebound in Saudi production, but the fact remains that the Saudis are going to show three straight years of annual production below their 2005 rate--at about the same stage of depletion at which the prior swing producer, Texas, started declining. We shall see what happens in 2009.

And of course, the really important metric--net oil exports--looks worse. I estimate that Saudi net oil exports in 2008 will be about 700,000 bpd below their 2005 rate. The cumulative shortfall between what the Saudis would have (net) exported at their 2005 rate and what they have actually exported will almost certainly exceed a billion barrels of oil next year.

BTW, the real strength of the HL model is that it gives us a plausible estimate for cumulative production, i.e., the area under the curve (which was my reason for warning, in January, 2006, of a near term resumption in the decline in Russian production).

In any case, Texas produced about 3.5 mbpd in 1972 and Saudi Arabia produced about 9.6 mbpd in 2005 (C+C in both cases). If Texas had maintained its 1972 rate, it would have produced about 3.8 Gb in the three years after 1972. It actually produced about 97% of this amount through 1975. If Saudi Arabia had maintained its 2005 rate, it would have produced about 10.5 Gb in the three years after 2005. It looks like they will have produced about 95% of this amount through 2008 (about 10 Gb).

To give everyone some idea of how much oil 10 Gb is, this is about twice the URR of the East Texas Field, the largest Lower 48 field, and not too far below the URR of the Prudhoe Bay Field, the largest US oil field.

Once the "cheaper" commodity is moved out, it will not be

Who would? Ex. farmers wouldn't dream of planting $6 soy
now. Or $3 wheat. None of the inputs, freight rates can come down
fast enough.


Extreme volatility has been totally expected, but most I speak to forget volatility includes up AND down.

What we have is extreme volatility as market participants react to new information. This volatility can create false signals. Hence, the "deceptive calm".


Or, as one gentleman put it, a Head Fake.

I recall seeing a plot of, I believe it was whale oil prices, on this or a related site a while back. As the supply of the commodity peaked, it went through a series of gyrations, eventually settling toward the low end as whale oil was replaced by rock oil.

It is early yet, and a replacement for rock oil is not on the horizon but, doesn't it make sense that there will be a series of wild price swing as the market lurches from crisis to crisis? ... first you have the price runup, then some demand destruction, then a recovery, and another runup ... markets tend to overshoot and undershoot in dynamic circumstances. They are only 'clever' when there is constant supply, or constantly increasing supply.

Eventually we'll be using some other form of power. Electric? Animal? Hydro? Probably some combination of all three.

One thing about whale oil and prices you did not have access to the whalers while they where at see on their long whale voyages. The whale oil market was thus probably experienced more price volatility then we should see today. I'd be careful translating the price volatility from a period of very constrained information to our modern society. Indeed rumor and its effects on prices seem more common place in the past than today. Not that rumors and emotion are not important today but we probably have much better data on our oil stocks then what they had in the 1880's on the whaling fleet and its catch.

I'm not saying it won't be volatile but the current move is probably caused by a number of factors that won't be present going forward. Its a fairly unique set of conditions that allowed it to come to pass. I think todays surprising moves have a lot more to do with incorrect understanding of fairly correct information not outright rumors which probably drove prices around a bit in the 1800's this distinction is in my opinion important.

Not that we won't see steep downward movements and volatility going forward but the down sides will probably not be as deep nor as prolonged.

The head fake link you replied to mentioned that world consumption fell by 13% during the last major oil shock/recession in the 1980's. We have claims the US has fallen by 8% so far this year. Given the changes in oil usage since the 1980's one would readily expect that further falls in US consumption even to 13% will be more difficult. Worldwide its not clear that the rest of the world has experienced as steep of a drop.

Assuming we did decline by 8% and that the rest of the world has probably increased slightly this year the US does not have a lot of room left for further decreases.

Lets say oil prices get back on track and start increasing again the next consolidation point we would have say 4-5% at most we can decrease without getting below the last historical min in consumption. The one after that will be exponentially harder to cause a usage decrease.

Regardless of the reason the US at least has unfortunately blown a good bit of its ability to decrease consumption early in the peak oil game. Even if its closer to a 5% annual decline or less its still a substantial decrease very early in the post peak period. Further decline in consumption in the US will not do a lot to help soften prices going forward.

Given the changes in how oil is used I think we will have a much harder time getting additional decreases. In the 1980's the unemployment rate and decline in production where fairly close numerically i.e a 13% unemployment meant a 13% decline in oil usage. This time around I'd suggest its more like 2:1 not one to one with a 10% unemployment figure needed for a 5% decline in oil usage and a 20% unemployment to get a 10% decline. If you correct our consumption for the outright shortages caused by the hurricane this is probably pretty close to what we will see this year.

20% unemployment is getting well into depression levels of unemployment. Further consumption declines beyond this get even harder as unemployment much higher than 20% probably means outright economic collapse to much lower subsistence living standards as you simply lose the ability to produce regardless of demand.

All my scenarios actually assume that well before we fall into outright unemployment and serious demand destruction we will first default on our personal debts primarly credit card loans, home loans, and car loans. This staves off the point at which the population not involved in the financial, auto or housing industry enter a depression.

Indeed if you look around our depression seems to be exactly following this scenario with consumer debt defaults leading us into this depression. And I've said a zillion times that this first round of demand destruction is primarily driven by the collapse of the housing industry which is a one time event. And additional decreases in demand right now are probably better defined as demand suppression in fact probably almost all concentrated in the regions of the country that have suffered outright shortages.

So overall going forward one would expect that the debt bubble will continue to deflate the housing construction industry is toast and for the most part these are normal folks who will take lower paying jobs to make ends meet. Thus consumption from former construction workers will not drop all that much outside of the one time exodus of illegal aliens back to their home countries. Same of course with the financial and auto industry these workers can and will take lower paying jobs pushing more native American workers into competition with illegal immigrants that stay in the country. Again overall its not a fast destruction in demand at best slow to stagnant. Massive credit destruction but thats not oil demand. Finally only when low wage jobs are no longer available and you have outright unemployment do you start getting into real demand destruction.

We have a long long way to go here and the whole time oil prices can rise much higher as for the rest of the world follows a similar path behind us. Until the credit bubble is well popped which could take several years we really don't enter a real depression.

As long as home loans exist for less than 20% down for example we are still no where near the bottom and in fact in my opinion until 50% is the norm for home and auto loans I won't call the credit bubble dead. It could take five years before we finally give up on loaning money thats not effectively fully secured. And this implies a effectively complete cessation of the use of unsecured credit card debt.

Only at this point is the economy reached the level that further declines in oil consumption have to come from either fairly major lifestyle changes or outright economic destruction.

I strongly believe that as long as credit is extended then people will use it to maintain their lifestyles and this includes oil consumption only once credit is wrung out of the system effectively completely do we finally reach the point that people can no longer easily absorb higher oil prices and we finally start seeing oil prices stagnate as attempts to increase prices in a economy thats effectively all cash and not growing simply results in some true demand destruction forcing prices back down or slowly growing. Until we reach this point overall oil prices will continue to rise and credit will continued to be destroyed as people default on long term debt and unsecured debt.


Your scenario started back when Nixon depegged the $ from gold.

We're at the end of your scenario now.

Collpase will be rapid from here on out.

The Baltic dry Index has been in free fall since the Olympics.
Opium is disappearing from world markets.-BBC from latoc

"Ukraine emerged yesterday as the winner of the title “the next Iceland”, with the International Monetary Fund offering the former Soviet republic up to $14bn (£8bn) to shore up its financial system. An IMF delegation landed in the country on Wednesday to try to stabilise the country’s battered banking sector and ailing currency, hit hard by the global financial crisis. The central bank was forced to impose restrictions on deposit withdrawals and lending after panicked savers rushed to empty their accounts, draining the banking system of more than $1.3bn. The authorities also had to rescue two key banks and battle a sharp fall in the currency as the stock market plunged."-cryptogon

I don't disagree but it could easily take 2-5 years to wring out our credit excesses.

The central bank can and will do everything in there power to prevent it.
Consider that in the US most of the home loans made with 3% down in 2008 are already underwater. Credit cards are still being extended to consumers etc etc.

This continued availability of credit will continue for some time. The underlying problem is that the money multiplier effect of fractional banking and inflationary curriencies are not all that useful in a economy thats stagnant or shrinking. The wealth of the banks was based on fractional banking coupled with enough inflation to keep defaults low.

Thus the current corner stones of wealth transfer in our society have become irrelevant they won't go down without a fight.

It's a period of deceptive calm.

The financials are in the glow of the footlights.

There is no direction because the consumption picture is framed by the depth of the recession-to-come. The currency/interest rate issues seem to be too frightening for the mainstream economists to face. The "deceptive calm" is in the bond market ... the world is indeed holding its breath.

Long bond Treasury yields are 4.12%; 10 year 3.87%. How high will yields go? 8 - 9% is the danger point. It's not that far away.

Since nobody knows right now (and won't even investigate) how far into recession we will go, nobody can calculate the extent of government borrowing. consequently, nobody knows at what the (low) level of output and taxable receipts will be after next year. What future rates our overseas creditors will demand for repayment are hard to calculate.

Unfortunately, there is no financial equivalent to Matt Simmons.

If anyone could calculate what the future would look like, no one would believe it.

To the extent that the press of peak oil can be expected to get worse and worse over time, we are likely to have more and more inflation (if money supply is constant) and more and more defaults. Interest rates will keep going up.

Once our creditors catch on to peak oil, they will realize we will never pay them back. In fact, any country with even a moderate amount of debt will have trouble paying debt back.

It is hard to see how this will end well. The system looks like it will break down.

Gail I'm saying the same thing. Peak oil induced price increases end when debt is not longer extended without being fully secured. Between now and then all thats going to happen is endless defaults and devaluation of anything that takes a significant amount of debt to either purchase or peruse. And as long as this debt keeps getting extended some of the credit will make its way into paying for oil whatever the price. Thus oil prices stop increasing only when debt is removed from the system. Effectively this means only when the economy accepts that it is stagnant to declining and can no longer grow.

A perfect example of debt being converted to purchasing gasoline is the person who defaults on his mortgage then lives rent free for six months or more. This entire time he is using the cover of defaulted debt to purchase gasoline. A better example is someone running up their credit cards using them in part to finance gasoline purchases then defaulting. A whole lot of gasoline has and will be bought in the US using credit with no intention of paying back the loans. On a bigger scale you get companies exhausting their credit lines and using this money in part to pay for goods and pay employees a precentage of this debt goes into purchasing gasoline and other oil based products and energy and once its defaulted on the energy has been used and not paid for.

I wonder how much energy and esp oil is being used today via credit purchases that will be defaulted on in the near future or via cash flow thats been freed up by earlier defaults. I suspect a LOT. Until we get down to the point that only real cash customers are available for oil prices can and will increase. Once its true cash transactions then people can finally decide if they want to spend real money on oil or invest in a longer term alternative.

How high will yields go? 8 - 9% is the danger point. It's not that far away.

I made a small addition (only about 1% of my cash) into an income mutual fund yesterday, the yield over 9%! I think for anything that isn't absolutely government guaranteed, the markets are already pricing debt/credit at those sorts of rates. Thirty year fixed rate mortages, if you can get them are something like 6 and three quarters. I heard of a Puerto-Rican tax free issue (govt backed) offered at six and a half. Unless the risk perception drops dramatically, I'd say we are near your danger point already.

China has 500 years of revenge bottled up. The Chinese will allow the Rothschilds to make them richer and in return, the Rothschilds will get some of this SWF in the form of fees. But the end will be the Chinese taking over.-Elaine Supkis

Immanuel Wallerstein argues there hasn't been a significant revolution in 500 years.


And Mish misses it as well, me thinks.

deflation is grabbing hold while everyone is addressing the old status quo of inflation meaning oil, et al is cheaper.

Farmers will be crushed next year trying to duplicate this year's efforts.


The BDI is STILL falling. If ships aren't moving bulk commodities
are not moving. Globalization has fractured. According to technicians, the odds are now 100% that BDI rises at least 100% from here.

How? Why would shipping rates double? With this systemic crisis
still unfolding? Gold tells the story. The price keeps falling,
but it's getting harder to find the physical commodity.

In the US, at some point, we will reach the corporation that will be told that there's no "unlimited dollars" for you. That point will be like Sodium hitting water.

The gold thing is scary: Coins are expensive and hard to locate in quantity, but it's not reflected in GLD.
It's not about a deflation of the economy, it's a deflation in the faith we have in the economy, as reflected in our declining willingness to accept paper proxies for wealth.


I call my supplier every week and very little is available. 80% silver dimes, Mexican 1oz silver..... He didn't even bother going today. If the real stuff is hard to get, are certificates worth anything?

One of the talking heads on CNBC said paper gold is as useful as a picture of a life raft.

That's actually a brilliant metaphor!

But it's nothing more than a paper life raft. Best thing is to have the real thing where you can put you hands on it. John

The Rothschilds will get Shockwave Flash from China?

shargash -

I think one can take the comparsion between the market for oil and the market for iron ore only so far. While there are of course similarlities, there are also major differences.

First: Oil is used mainly for transportation, heating, and some electrical generation - the production of petrochemicals being a relatively small fraction of the whole. However, iron ore is almost totally used for the production of iron and steel and is therefore almost totally tied to heavy manufacturing. Oil functions more as a utility.

Second: Iron ore is nowhere nearly as fungible as oil. Crude oil is far more of a high-value product, having a dollars-per-ton selling price typically 5 or more times that of iron ore pellets. Therefore, transportation costs are a far more important factor for iron ore in comparison to crude oil. As a result, the links between supplier and user are usually closer together geographically for iron ore compared to crude oil due to this transportation factor.

Third: I am a bit shaky on this one, but I strongly suspect that most of the large iron ore producers use a higher percentage of their output for domestic production or iron and steel (though the a large percentage of the downstream products might be exported).

Fourth: The production and distribution of iron ore doesn't have a fraction of the geopolitical problems associated with it as oil. (When was the last time you heard someone talking about going to war for iron ore?)

Fifth: Oil refiners appear to be operating more and more in a just-in-time inventory mode. Given the size of iron ore stockpiles at major integrated steel mills, I don't think that is the case for iron ore. (Though in the US part of the reason for the large stockpiles is that shipping on the Great Lakes is sharply curtailed during the winter.)

All of the above work to make iron ore a much 'quieter' commodity than oil and one not quite subject to the same forces or in the same way. This make me suspect that the market for iron ore works more along the lines of Economics 101 type of supply and demand than does oil.

Some of what you say about iron ore is true. However, there is a big international iron ore market. Because of the lack of a futures market, it is not that easy to discover what recent iron ore prices actually have been. Most of what I've been able to discover about recent prices comes from news stories about big deals between, say, Rio Tinto and China.

However, I think what you have posted reinforces my point. If iron ore is a much "quieter" commodity than oil, then why did it run up so much? And if it ran up so much, why couldn't the same cause be behind oil's (the more volatile commodity) run up?

Every industrial commodity shot up in price: oil, molebdynum, copper, natural gas, coal, iron ore, you name it, EVERYTHING. When that happens it is highly likely that the run up has a common cause, rather than a separate cause for each case. The pro-speculator people have argued that speculators are the common cause. This is clearly not the case for iron ore, and I think it pretty much kills that argument.

I argue that the common cause was supply and demand: in particular, stunningly rapid growth in asia coupled with a general "diminishing returns" on resource production from late-stage industrial society. That hypothesis fits all the known facts (which "blame the speculators" does not), and it has solid supporting evidence (which "blame the speculators" does not).

shargash -

Much of what you say is true.

However, the thing that makes a lot of people suspicious about the purely supply & demand argument is the fact that the run-up and the subsequent run-down happened so incredibly fast. How did the global supply/demand dynamics worsen so incredibly rapidly on the eve of the price run-up, and how did it relax so incredibly rapidly on the down side?

In other words, what physically changed so drastically and so uniformly in such a short period of time? I can see prices gradually building up to high levels, plateauing there for a while, and then gradually sinking as demand started to weaken. But this whole erratic price behavior seems to have been at least partially decoupled from the actually phsyical facts on the ground. It's as if a super-tanker made a complete U-turn in the space of 10 seconds.

That is the thing that keeps nags at me.

Joule, one of the things that shifts the demand curve around is a change in expectations. Expectations can turn on a dime--and the expectations for change in the demand for oil can be amplified far beyond what they would be if everyone were rational and perfectly informed.


You hit the nail on the head with respect Helicopter Ben's background and determination to avoid a deflationary collapse last year. Any more recent thoughts? Do you think we're heading for deflationary or inflationary times?

Arbitrarily, I now put the odds of increasing inflation (anything from seventies style stagflation up to and including eventual hyperinflation) at 50% and a severe deflationary depression at 50%. I see no chance of stable prices in the next twenty years.

Helicopter Ben has not yet brought out his Big Helicoptor Fleet--the outright monetizing of the debt by having the Fed buy greater and greater amounts of Treasury securities to finance rapidly increasing deficits. But if U.S. government deficits get into the multitrillion dollar range I expect the Fed to buy up U.S. bills, notes, and bonds--because nobody else will want them due to inflation fears. Don't worry about China selling U.S. securities; the Fed can always buy what China (or anybody) wants to sell.

Much depends on political factors. If Obama is elected with a strong Democratic Congress I think the response to rising unemployment will be a typically Keynesian one--cut income taxes and raise government spending to stimulate aggregate demand. We might be hugely lucky and have huge public works to build streetcar lines and do the rest of Alan Drake's proposals plus spending a trillion dollars or so per year on wind turbines and solar panels and beefing up the electrical grid. Actually, a trillion dollars a year isn't enough--either for expansionary fiscal policy or to respond to peak oil, but it would be a start.

One argument against a deflationary depression is that the amount of bad debt in the whole world is limited--very large but finite. With expansionary fiscal policy the ability of the Fed to create money and the government to spend it is unlimited. The Fed is the lender of last resort, and the U.S. Treasury is the borrower and spender of last resort.

Elected governments tend to cut taxes and raise spending, because nobody likes taxes and everybody likes to get money from the government. Thus the long term tendency--even while real GDP declines year after year due to declining net oil exports--is toward more inflation.

True but we this little problem of oil imports. One thing I've noticed is that extreme inflation only happens after a economy has become economically isolated. You can look at countless examples show me one where international trade remained brisk while the country inflated like mad. I don't know of a single case.

Thus to play the final inflation end game oil imports would have to be sharply curtailed or outright cease otherwise increasing oil prices effectively suck the money right out of the country as spiraling import prices.

Its a checkmate situation that seems to prevent attempts to finally inflate away a fiat currency. To some extent you could look at Japan which imports all of its oil as and example of a country that failed to inflate despite every attempt to do so. Every attempt to inflate simply resulted in the cash draining out as higher import costs.

Certainly this is a bit simplistic but it does raise the issue that any country that imports vital raw materials or food probably cannot play the inflation game with abandon.

Smaller countries can isolate themselves and do it but not ones that form the backbone of the global economy regardless of their desire. I'm not saying they won't try but they will simply stoke the fires of commodity prices at every attempt.

However inflation via public expenditure that reduces imports esp oil seems quite feasible.
It effectively keeps the money at home strengthening wages and reducing the amount that leaves the country for imports. Devalued money that leaves the country to pay off past debts does not matter since in the end it would generally be spent on exports.

Theoretically the drill baby drill campaign can do the same thing and I think all sides recognize the need for "energy independence" people that look at the problem a bit deeper hopefully realize that its needed to allow one last inflationary blow out of the fiat currencies without it we are stuck in a endless deflationary cycle.

Going back to WWII it should be noted that inflation only finally took hold once the War itself isolated the worlds economy. Germany of course was the exception as it never really reintegrated after WWI.

Now for the even more devious minded soul like our esteemed leaders who understand this.
They realize the other trick is to adopt a world wide currency then spread the final fiat inflationary collapse over the entire world.

But its best not to encourage these megalomaniacs even though I fear they already have it figured out.

I don't think we will go to hyperinflation either intentionally or soon. But when oil exporting countries go to zero net exports (pretty soon according to westexas), we won't have to worry about paying for oil that cannot be produced or that will not be exported.

From a political point of view, the beauty of increasing inflation (especially if this is done without people anticipating it) is that it erases debt and makes bad debts (e.g. my mortgage) into good ones by raising asset prices. Also inflation wipes out most savings held in the form of money or bonds or anything else tied to money. Thus creditors (lenders and savers) get the shaft while debtors get relief. There are way more debtors than there are creditors--that's what John Maynard Keynes meant by his phrase "the political superiority of the debtor class."

To a large extent, the history of money is the history of inflations interrupted by a few periods (e.g. 1814-1913) of stable prices (though there was great inflation during the Civil War; the English pound [the dominant trading currency] was more stable). Even the Great Depression lasted only eleven or twelve years.

One argument against a deflationary depression is that the amount of bad debt in the whole world is limited--very large but finite.

If the fed were to calibrate its stimulatory use of the printing press to exactly compensate for the money going down the deleveraging black hole, wouldn't that be inflation neutral? Of course that may not leave enough scope to fully stimulate the economy. But, at least an argument can be made that a certain very substantial amount of stimulus can be used before inflation kicks in.


Don Sailorman you are back.

I trust you and yours are well and that you enjoyed your anabasis.

Thank you. It is good to be back. All is well with me; for one thing I have nothing invested in stocks, bonds, or commodities. Actually, not everything is well; I've been trying to sell my house and find no buyers at a price substantially less than I paid five years ago. I plan to move in with my daughter and granddaughter, thus "walking the walk" in addition to "talking the talk."

Don -

I realize that expectations can change quite rapidly and that expectations can affect price. This is what speculation and hedging are all about.

However, the argument I frequently hear at TOD is that short-term speculation, hedging, or whatever you want to call it does not and cannot have much effect on the price of oil. This argument goes on to maintain that it is 'the fundamentals' of supply and demand of real oil produced and real oil consumed that ultimately controls the price of oil. (The term 'real oil' here refers to oil that comes out of a well and is then actually used by someone - as opposed to 'paper oil' in the form of future contracts traded by people never intending to ever take delivery).

And this is where I have a problem. Unless I am mistaken, the amount of oil produced and the amount of oil consumed were not all that radically different shortly before the sharp run-up in oil prices as compared to after the sharp drop-off in oil prices. There was neither a sudden major drop off in production nor a sudden major increase in oil usage in the time period leading up to the sharp run-up in oil prices. The reverse is also true for the time period following the sharp drop-off in oil prices. Thus, I think it is hard to explain the wild price swings solely by 'the fundamentals' of physical production and physical consumption.

If 'expectations' are the culprit, then as I see it, those sorts of expectations would appear to be decoupled more than just a bit from the physical reality of production and consumption. Dare we call this speculation?

Anyway, when this subject comes up, I sometimes feel like someone just told a joke but I'm the only one in the room who doesn't get it.

In the long run, fundamentals rule and expectations will converge toward reality. Of course, as Keynes said, in the long run we're all dead.

Hedge funds speculate; that's all they do. They have been involved with recent volatility in oil prices for sure. Thus, to some extent speculation has affected oil prices, and of course hedge funds are not the only speculators around. However, even without speculation (e.g. the iron ore market) there can be tremendous volatility as expectations shift rapidly and far.

Thanks Don -

So, then would I be correct in saying that you DO believe that hedge funds and other speculators have had a not insignificant effect on the recent large oil price swings?

I wish you would tell that to the many people here at TOD who have automatically pooh-poohed any conjecture whatsoever that something other than real oil consumption in relation to real oil production has been at work here. While I found some of their arguments persuasive, I've always had a gut feeling that something about those arguments was leaving something very important out of the picture.

Of course, I suppose we can then all argue about what time frame constitutes the short-term versus the long run.

For some reason I have no idea everyone seems to assume that speculation and real oil levels are two different issues and cannot occur simultaneously. Everything I see about the market this year indicates prices rose because of demand for oil and supply problems earlier in the year this surge enticed more people in to speculate on oil driving the price up by about 20 dollars.

Next the price went down because Saudi Arabia unleashed a large short burst of oil right when seasonal demand was waning and prices where at their highest. Demand was dropping naturally prices where somewhat inflated and the global oil supply situation changed dramatically leading to a price drop. Notice I said global here because its been a pretty strange year this oil surge did not head to the US. The US which was buying oil like crazy at the high prices and had built up a large excess of gasoline then proceeded to not but all the way down as prices fell the US allowed both oil and gasoline to drop down to MOL.

Why I have no idea in any case we then got wacked by hurricanes and only recently received a decent surge of oil.

This was posted on PeakOil.com


Real oil played a huge role in both the price run up and decline.
Speculation near sent prices slightly higher then the should have gone as the US kept on buying oil even as it built up a large surplus of gasoline.

The only point at which it seems and sort of serious price manipulation happened started in Sept when the US did not have enough oil or gasoline and we had the hurricanes but at this point all hell was breaking out in the financial world forcing hedge funds to dump their oil positions and this is still going on.

You can look at distillate and propane data to get a better feel for markets that did not have such interesting dynamics. This was not a good year for either. Distillates are esp worrisome. The biggest point however is Distillates and propane did not follow the wild gyrations of gasoline and oil inventories which moved exactly opposite to price.

I don't know of another year where gasoline stocks built while oil was the most expensive then both gasoline and oil stocks where allowed to decline as oil prices fell.

I have my own opinions but its clear that real oil and real gasoline played a large role in the price movements. Speculation at best played a role for a few weeks and certainly forced selling has played a large role over the last few months.

For oil you always have to look at both factors in a sense generally from what I've seen I've felt that speculative pressure can add a ten or at most a twenty dollar premium on the high side. I believe this year for various reasons we have seen downward speculative pressure during the second half of the year. Give it the same ability say lower prices by 10-20 dollars then the absolute extremes you could get from speculative pressure would be 40 dollars. Indeed we saw oil go to 140 and it tried very hard to find a floor price around 100. Then we finally got things running after the hurricanes and received a healthy does of imports for the first time since May. This coupled with extreme negative speculation going on as people are forced to sell oil futures for cash at the moment did the final push downwards.

Can it go lower maybe more oil seems to be headed our way 60 is now not a impossibility. However everything I've read indicates that the flow of oil to the US will decline quite rapidly over the next few weeks and it seems certain that imports will be unseasonably low for sure after the first week in November ( how convenient ).

And last but not least I have my own theories about heavy sour and NG and they indicate that the first half of 2008 light sweet crude was in distinctly short supply and became readily available at the same time Saudi surged supply. Not only was it a surge in barrels but it was a surge of light sweet crude on a strained market. And most of it did not go to the US but out to the world market. Given that NG prices have remained low I think the recent build up is also light sweet. The fairly high recent gasoline builds coupled with low NG prices makes me believe this is the case.

Going forward we probably will see strong price increases up towards 200 as KSA cuts back to rest its fields I have to thing they gave 110% to move the oil market this year. And they will be able to blame speculative forces throughout most of the year.
So at the end of the day KSA has managed to turn six months of with holding light sweet of the market followed by a 60 day surge then a month later a smaller 30 day surge for a total of 90 days of excessive light sweet crude on the market into a huge political win for them long term. Its been a impressive series of moves.

I doubt that this wild ride will be repeated any time soon it I suspect at least four years :)

Note the main reducing agent for iron ore is low sulphur coking coal which has its own supply issues. India for example has its own iron ore but not enough coking coal. I believe export spot prices for coking coal near doubled in the past two years and are still holding up somewhat.

I'd still say supply and demand. OPEC finally stopped talking and actually did (at least temporarily) surge production to the highest level in 3 years. There may be some debate about the actual figures but there's no doubt that world oil production (and exports) jumped considerably in 2008 until, coupled with the Olympics and recession, supply exceeded demand for the first time since the price run up began.

Can you guess what will happen to the oil price soon if the recent downward production trend continues - especially as the US has to rebuild stocks into the winter with over 1/3 GOM production still offline after Hurricane Ike?

I think that is a deceptive chart, comparing crude to all liquids - try comparing opec crude to world crude.

Not sure why it's particularly deceptive. It just doesn't show the comparison you want. OPEC don't break down non-OPEC "oil" production in their report although they do give figures for OPEC non-conventional oil and NGLs. Have to wait for the IEA and (bringing up the rear) EIA September figures to catch up with OPEC.

I wanted to post a graph with figures for September even if it is preliminary and OPEC provides the only data currently available. For clarification it's OPEC's graph from their latest monthly report - not mine.

For clarification it's OPEC's graph from their latest monthly report - not mine.

Exactly, deliberately opec not comparing 'eggs' with 'eggs' - trying to show opec in a good light maybe?

xeriod, I'm pretty sure you are not reading the graph correctly.

Nothing personal, just try reading it again. If you think the two lines are meant to draw a comparison, you are misreading the graph.

It tells me all liquids and opec crude have actually peaked and world all liquids has dropped close to 2 mbpd in just 3 months or so, an annual rate of maybe 7 or 8%. What am I missing?

Much of the GOM was shut in for September. Refineries were down in the U.S. thus some oil was not shipped from Mexico, etc. It was published in The Oil Drum. OPEC shut in production after the Sept. meeting. Russian taxes on oil companies allowed them to profit at $147. a barrel oil, not much profit at $70. a barrel. If that country has 60 billion barrels of oil, three times what Cuba is claiming, and as much as was stated in a recent report about Syrian BOE reserves/in place, yet it would have difficulty expanding production in consideration of low oil prices.

There have been many peaks in oil production since I was born, sometimes worldwide oil production peaked several times a day.

I agree with all you are saying but your extra information is not in that chart, I was just commenting on the chart.

I would add things like - one, two or three months figures are meaningless in isolation, the USA isn't the world, we don't know how many surface stores of crude have been used in the last three months, the past is no predictor of the future etc etc.

IMO the chart has two lines to compare/correlate. OPEC is a political organisation in the crude oil business, so IMO comparisons with all liquids instead of crude makes them look much less important than they really are. The chart shows them having ~37% of the all liquids market whereas they actually have something like 43% of the crude market and ~50% of C+C net exports.

The left hand scale and the right hand scale are different, why? - (1 mbpd on the LH is ~1.5 bigger than 1 mbpd on the RH), the correlation between the two lines is actually not as tight as it might seem.

IMO the chart is a type of executive summary and deliberately sets out to deceive people like politicians who don't know (or want to know?) the full story.

Overshoot on the upside, now overshoot on the downside. The overshoot up didn't last long, and the overshoot down won't either.

Well I did not expect a consolidation at this price point it was a surprise. But now that its behind up give we had one earlier than I expected.

I see absolutely nothing preventing oil prices from going practically strait to 200 once they start rising again within the next few weeks.

Potentially we could even miss our 200 dollar consolidation point and instead not hit it till 250 I really think this early consolidation was forced on the market looking at all the data.

This the next one will be in the 200-250 range as apposed to the 150-200 range.

BAU should have resulted in prices going on into the 150-200 range towards the end of this year then we would have consolidated and had a bit of a breather before heading on upwards.

I've not expected these consolidations to result in significant price drops and again I suspect this one was forced we will see what happens next time but if its natural then we can expect a much shallower price pull back if any. However since the natural consolidation point should have been 200 and we are probably going to overshoot on the high side say 250 a drop back to 200 would be possible or about 20-25%.

So overall we should see a spectacular runup in oil prices next year that makes 2008 look like a cakewalk. The 50 dollars we knocked off prices this year by forcing a early consolidation will be added back with interest.

You could be right.

Personally I'm expecting prices to tend downwards until around 2011. It wouldn't be surprising to have a rally up to 80-100 now, but I don't think we will see 150 within 12 months.

This is more based on my experience with markets rather than with anything else.

I'd just like to have this view included here view because i do believe in peak oil. I don't want to be in a situation in 2011+/-1, where prices have been falling for years and everyone thinks peak oil believers were wrong because they predicted higher prices than actually occurred. After 2011 prices could escalate rapidly.

Again I would just like to include my point of view in the conversation that's all.

Hey, Jack saying greed drove up the price of petroleum is like saying gravity causes plane crashes. Accurate, but not very useful. On the long trip down to today's prices for every sale there is a buyer, no? So, all those buyers from $147 to today are altruistic idiots? Somewhere in there I believe you might still find a tiny weenie bit of greed Jack.

Gday Jack,

The reasons why the run up could not have been speculation are still valid, and apply equally to the price fall. Whether or not the world economy has been 'beaten back' or not is irrelevant - expectations about the future economy certainly have (together with a repricing of risk) - and that is what has driven the oil price to the extreme oversold position.

If the real economy has not much damage as you believe, then undoubtedly oil price will rise as expectations are corrected by reality...

Personally, I believe the expectations are correct, and thus the oil price at these levels is not altogether surprising... However, I was very surprised that the price got as high as it did... That surprise notwithstanding, it is simply impossible that speculation can drive the price of oil to extremes for periods longer than several weeks...

Good luck...

"The world economy hasn't gotten beaten back so far in 3 months to justify a return to $60 oil."

What you overlook is that the current oil price also includes an expectation of future supply/demand. The future demand picture has changed from economic boom to bust.

Also, where the supply is tight and the demand largely inelastic, expect a very non-linear response as you move away from a supply/demand balance.

I do believe that speculative money was also a factor in oil, as most commodities, which exaggerates price swings.

DC Suburb Reacts to Collapse in Home Prices

WaPost article (see Iron Triangle) on 41% drop in median home prices ion Prince William County. So far, "vultures" looking for bargains and rental property (at least till recovery) are the main buyers, although "young military families" are also buying.

(Note: Military officers will be transferred and want to sell in a couple of years).


If new renters cannot be attracted in sufficient quantity, and "vultures" with 30% down payments run into their own financial problems, and find that they are under water from earlier buys, the supply of "41% off homes" should exceed the demand.

Barely mentioned in the article is the fate of homes that require serious and expensive repairs. A number that will surely grow over time.

Best Hopes for Shrinking Suburbia,


I've lived in northern Virginia (inside the beltway) for 20 years, and there is another factor that comes into play here. Next month's election will see a change in administration. Every time a new president comes into office, there will be a substantial influx of outsiders. This is evidenced by the flood of license plates (in 2000 they were from Texas; in 1992 from Arkansas) that populate driveways in the inner suburbs. The trickle begins right after the election and slowly crescendos, probably peaking in the summer when the appointee trickle-down reaches to the families whose kids are finishing the school year in Illinois or Arizona (as the case may be). Most of these families never leave, the beneficiary of the appointee trickle-down burrows into an agency or transitions into the association/lobby community. The kids get entrenched into the local school systems. People like living here and just stay. This gives the northern Virginia suburbs, especially those close in, a real estate boost every 4 or 8 years.

When I last lived in No.Va. in 1993, Prince William along with the county to the north, Loudon, were known for what many considered to be a reckless expansionist policy. Their mantra might have been "build, build, build" and suburbs and strip malls blossomed just as far as the eye could see. Growing up in the county next door, Fairfax, I saw the last farmland developed and highways built where once there was sparse suburbs with lots of woods (the fairfax county parkway). Loudon and Prince William wanted to share in that "prosperity". Manassas in PW county used to be considered outside the metro. D.C. area but now the metro. area stretches all the way to West Virginia, something like 50 miles. In the end though, it looks like that expansionist policy really was reckless.

Alan--I'm curious to know if you have run across any data which compare recent declines in home values in suburbia between properties which are or are not near rail transit.

There have been some reports that homes near transit stations (or even transit stations to come, Dallas Green Line) are holding their value better than those far distant. But too soon for comprehensive analysis of the database yet IMHO.


Manassas is about 32 miles outside of DC. It also mentions "The housing markets in Arlington County and Alexandria were generally more stable. ". Many new Arlington condo projects have been converted into (expensive) rentals, and are maybe half full or less. Arlington was recently named safest city in a recession by Business Week.

Following up on the thread from yesterday on GEAB...

First, the original link (tip of the hat to pi):
GEAB is predicting the US will default on its debt summer 2009:

To see this in historic context, read the article below, which is in part an overview of eight centuries of sovereign defaults.

Eight hundred years of financial folly

Note that the Royal Bank of Scotland warning of a financial meltdown came true just a few months after they issued it.

RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 5:42pm BST 18/06/2008

The Royal Bank of Scotland has advised clients to brace for a full-
fledged crash in global stock and credit markets over the next three
months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob
Janjuah, the bank's credit strategist.

YMMV, although with the US debt exploding and the real economy declining, I can't imagine the Chinese have much of a stomach for more of our debt...and without access to a bit more debt, we won't be able to pay off the debt we have.

Last, watch Roubini on Charlie Rose from October 14, 2008:


Countries around the world used to assess the value of their resources against the value of the Dollar.

Now they are beginning to assess the Dollar against the value of their resources.

A subtle but hugely important distinction that could effect the US in a big way, very rapidly IMO.

How do you explain the fact that the dollar has been rising against the EURO, to name just one major currency, for sometime now?

puhkawn - Its been explained by lots of folks here who are better at it than I but basically it is huge amounts of liquidity looking for warm moist spot to be safe. I expect it to start tanking soon.

The GEAB prediction lends support to the latest comments from (outspoken and politically incorrect) financial analyst Jim Willie.

From this Oct 13 piece http://news.goldseek.com/LemetropoleCafe/1223914271.php

I got a great source of info who is involved in the current "Post-US World" planning, execution, positioning utterly frightening / jw
"some incredibly nasty "S" coming the USDollar is to be killed off, along with the USTreasury Bond it is to follow a plan, already agreed upon numerous global forces concluded and decided to kill off the US entirely since they could not separate the innocent from the crime syndicates they want to surgically cut off the Wall St guys, big bankers, arms dealers, Dept Treasury, a few global bank centers (IMF, WB) and more but they could not determine a method to do so, while sparing the US population
a new global currency has been agreed upon, a basket
it will be based upon the euro, ruble, yen, dinar notice the dollar and psterling are not included, therefore to become Third World Nations the common factor is that all four come from export surplus nations the dinar will be gold-backed and bring a sudden end to the Petro-Dollar the ruble is expected before long to also be gold-backed, but smaller in scope after Europe is forced to purchase all energy products from Russia in rubles, big changes word has come to me that a global basket will SOON displace the USDollar that will immediately kick the US into the Third Wold
the Canadian Dollar will survive ok since demanded to purchase commodities
the Chinese will want to keep it down somewhat, in order to render cheap their commodity bill
gold will be over 2000 by January, silver over 25
the paper gold and paper silver prices are now meaningless
the COMEX is setting up for a metals default
look for defaults in oil, gold, silver, and USTBonds before too many months
absolutely frightening nasty "S" is coming
/ jim"

When I first read that, I wondered how someone could go out on a limb with a forecast like that, risking total loss of professional respect if it does not materialize. But on Oct 16 Jim Willie repeated the forecast in http://www.financialsense.com/fsu/editorials/willie/2008/1016.html

"Several key meetings have already concluded, totally unreported in the US press, which occurred in Berlin Germany. Consider it the Anti-G7 Meeting. Implications are profound, and involved the Shanghai Coop Org tangentially, since its member nations possess so much new commodity supply. Consider it the Anti-NATO group. An important and powerful alternative financial system is soon to spring into action, including high-level bilateral barter. Those who expect the current US Regime to continue their financial terror are in for a big surprise.
Expect defaults in the COMEX with gold & silver, whose prices for paper vastly diverge from physical, to the anger of foreigners watching. They hold massive precious metals assets. Disparities now contribute to powerful forces, sure to break the current system. Grand systemic changes come. THE RESULT WILL BE A BREATH-TAKING DISCONTINUITY EVENT.
Ironically, the more inner anguish felt on the falling gold & silver prices, the closer we are to a new financial framework, with the USDollar relegated to a Third World role. A REPLACEMENT GLOBAL RESERVE CURRENCY HAS ALREADY BEEN DECIDED UPON. Its launch awaits the proper moment. The Americans are last to know, as usual. The US leaders are under the illusion of being in control!"

And then I realized that there have been quite a few signs lately from officialdom supporting this forecast, such as:

Oct. 15 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said officials reshaping the world's financial system should try to return to the ``discipline'' that governed markets in the decades after World War II.

``Perhaps what we need is to go back to the first Bretton Woods, to go back to discipline,'' Trichet said after giving a speech at the Economic Club of New York yesterday. ``It's absolutely clear that financial markets need discipline: macroeconomic discipline, monetary discipline, market discipline.''

Recalling that the key of Bretton Woods I was the monetary link to gold, note the emphasis on "discipline", a concept that in economists' minds immediately evokes the gold standard as Alan Greenspan wrote in an article in the Wall Street Journal of September 1, 1981 (also found here):

"Nonetheless, once achieved, the discipline of the gold standard would surely reinforce anti-inflation policies, and make it far more difficult to resume financial profligacy.

Now, as Gail observed in an unanswered comment on a past thread

"If we divided all of the gold in the world among the 6.7 billion people, it seems like the amount would be pretty miniscule. How would one overcome such a shortage?"

Indeed, a quick calculation gives 20 g per person of total gold. The way to overcome it is by means of a valuation way higher than today's. (Gold-backed paper money would be used for small denominations, just as silver and not gold was the metal used in everyday life in ancient times. Note that most coins mentioned in the Bible are silver, not gold. Silver could now serve as store of value but not as means of exchange, since by now it's clear that it is unfeasible to "fix" the exchange rate between gold and silver as mankind tried to do in vain for centuries.)

So, if Jim Willie's information is correct, these words by Jim Puplava in 2004 sound like they were written for today:

"Let me use another analogy from the recent movie, Titanic. The lookout on the Titanic has just discovered that a large iceberg field lies ahead and a collision is inevitable. He alerts the captain. The problem is there aren't enough lifeboats (gold and silver). First class passengers are a priority (financial elites). Passengers in steerage are too numerous, so they must be kept calm and fooled. Only after the elites are safely aboard the lifeboats (gold and silver), will those in steerage be told of their fateful predicament.

This is where we are today.

The lifeboats are gold and silver. The number of boats available are few and certainly there are not enough to go around for all of the passengers. The captain and the ship’s crew must keep the passengers in steerage mollified until they are safely aboard. So they tell everyone that things are okay. The last thing they want is for the vast majority of passengers to head for the lifeboats. This is what is going on in the gold and silver markets today. The sell off and panic in the markets are the financial elites' attempt to get those in steerage off the boats, so that the elites may safely get on board. A major currency storm is headed for the financial markets and the only safe haven will be real money."

And "the selloff" Puplava wrote about could very well be applied to that which I hereby forecast will take place today Friday Oct 17 after 12:00 NYtime (London close), and which will accelerate towards the COMEX close (13:30 NYtime) and evolve into a dive after that, taking gold to below 700 and silver to below 8.

The method is simple: at that time the market becomes extremely illiquid and can be moved by a very low number of contracts, particularly on a Friday. Just a little selling causes a big downward price movement placing long positions under water and giving rise to two levels of margin calls and subsequent forced liquidations:

1.From the exchange itself (COMEX for gold and silver), if the long position has been established on margin with respect to the exchange.

2. From the prime broker of the speculative investor (fund), if the long position has been established on margin with respect to the prime broker (i.e. involving in part money that has been borrowed from the prime broker). If in doubt, from http://www.optionstrategist.com/

"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%;"

And the prime brokers of the long funds are precisely the same big banks that hold the (shrinking) concentrated short positions in gold and silver.

To note, one of those banks, which recently predicted the oil price to fall to 50, has a NET LONG position equal to 10% of the open interest in crude oil futures in the Tokio Commodity Exchange. Hint: find "Goldman" in http://www.tocom.or.jp/souba/crude_oil/torikumi.html

A global currency alternative to kill the dollar? Give me a break. The US would blow entire countries to smithereens to prevent that if they had to.

But I don't think it will come to that. Behind-the-scenes diplomatic strong-arming, combined with an occasional invasion of a West-Asian country, has been, and will continue to be, sufficient to put the kibosh on all attempts to dethrone the dollar as the world's reserve currency.

Remember: The strongest military forces in Europe are those of the Americans - and I am talking here about just those American forces that happen to be stationed in Europe.

To me, this whole idea of a global alternative currency is just fear-mongering by someone in the gold-industry who stands to benefit personally by the fear-mongering since undermining confidence in the dollar increases interest in his product.

Expanding this comment that "the lifeboats are gold and silver".....

O.K. Now read the Archdruid's excellent essay on the increasing abstraction of wealth throughout Western history.

The rich may be trying to turn their wealth to a lower level of abstraction (i.e. gold and silver) before the poor can try it at home. I mean the conspiracy theory outlined may be valid.

But the point is that the Archdruid cites farmland (food-producing land) as the original form of non-abstract wealth. (And he's correct I'm fairly sure).

Does this mean that the rich are eventually going to be trying to buy land in order to secure their wealth? Or is everyone fed up with the real estate market already, or is land just too awkward to deal with, to use for trading, so the return to less abstraction might never go "back to the land"?

I don't think there's any such plan.

And I think gold and silver are a risk. Deflation could see them crash, too.

If you know of a dumpster where people are tossing their now worthless gold, let us know. Some of us would even be willing to dive for it.

Well, there's probably some gold in all those electronics those foreclosure cleanup guys were dumping. :-)

But I was talking about in the future. You can't eat gold, and I wouldn't count on being able to trade gold for food when you need to.

OK, yeah. I have thrown away gold myself come to think of it. It's too much trouble to scrape it out of the various gadgets.

Gold in landfills:

One tonne of PCs is equivalent to 16 tonnes of gold ore, it says.

""Let me use another analogy from the recent movie, Titanic. The lookout on the Titanic has just discovered that a large iceberg field lies ahead and a collision is inevitable. He alerts the captain. The problem is there aren't enough lifeboats (gold and silver)."

Humph. Sounds like a thinly veiled shill for gold to me. If you want a lifeboat I don't suggest you grab a hold of gold to stay afloat. Take a look at the price of gold from 1975 to today.

Life boats float, gold doesn't.

And "the selloff" Puplava wrote about could very well be applied to that which I hereby forecast will take place today Friday Oct 17 after 12:00 NYtime (London close), and which will accelerate towards the COMEX close (13:30 NYtime) and evolve into a dive after that, taking gold to below 700 and silver to below 8.

You read about it first here, in TOD.

You take first place in my book of bold predictions on TOD.

Any trigger event which leads you to this conclusion? Or maybe an accumulation of pressures which you think will snap today?

I think a lot of us feel the economy is under enormous pressure and will likely do chaotic manuevers to release the pressure. We know Why, but none of us seem to be privy on What, Where, When, or How.

Delayed reply:

You are off to a good start....

Gold falls for biggest weekly percentage drop in two months.

Russia has promoted the idea of a group of strong 'reserve' currencies - including the dollar, by the way. (Noted in a comment in another thread, buried at the end http://www.theoildrum.com/node/4654#comment-423051)

The distinction it makes is the need for a strong dollar as a reserve currency, not the current weak dollar.

The reason is obvious, and has been amply stated: one badly regulated currency of international settlement can 'take the world down'.

Its about spreading the risk.

And oil. Russia sells oil and gas mainly in the Eurozone and east. Why not strengthen the ruble and the euro at the same time? Iran takes Euros as much of its imports are euros.

Russia will be a major wheat producer (stepping through from hydrocarbons to carbohydrates), why take dollars when it will be selling in Eurasia?

There is no grand 'conspiracy'. It is inevitable economic commonsense.

By the way, Russias gold reserves are very large, and have increased in recent years quite strongly. Per capita gold holdings are very good indeed.


I am not convinced the Chinese will want to kill anything off, especially the dollar.

About 3000 Chinese toy-making factories have gone bust in the last year. One such factory was on tonight's news. They laid off 7000 workers and there was a mini-riot at the factory gates.

If it's a crap christmas for western kids, it's an even crappier christmas for Chinese workers.

China has gotten itself in a bind: She now needs us for it all to work. - The biggest migration in Human History was the movement of Chinese peasants off the land and into factories. It dwarfs the Dark Age Migrations of Eurasia.

This was a big mistake: pandering to non-essential western tastes. Toys will be the first casualty, then white goods, then electronic goods.

I too am a big fan of Roubini's.

I especially liked his answer in regards to Rose's quesiton about why so few, including Bernanke, didn't see the financial meltdown coming. After pointing out that the economists that work for the finance industry and the government are obviously muzzled, he added:

And you don't have enough independent thinkers and scholars who are willing to speak the truth.

I disliked his "deregulation for the last 8 years" comment. I think this deregulation snowball has been growing bigger for the last 35+ years, and Clinton was just as guilty of pushing it down hill as Reagan, Bush I or Bush II.

Also, what Gail the Actuary has pointed out before really showed through in this interview. Did you notice that when he was proposing a major fiscal stimulus program, he had to be prodded by Rose to even include energy? He seems to be oblivous to the energy problem, or how it is inextricably interwoven with the economic problems.

I worry that Roubini will be followed too closely and the fiscal stimulus will include public works projects that make no sense post-peak, e.g., NAFTA superhiways. We need a Roubini type that talks about the stuff Al Gore and Van Jones are promoting.

This is about focusing investments on assets that provide a return, such as low-input agriculture and renewable energy, and not kill us with their maintenance costs, such as more roads and bridges. Infrastructure that can capture, store distribute and use energy, including food, will not turn into a liability but remain an asset. If we are going to invest in non-food and energy systems, focus on rebuilding water systems and railroads. Also, put a lot into ecosystem restoration work. In terms of housing, write off the leaky trailer parks and refurbish McMansions into multi-family units, or revitalize downtown buildings for multi-use.

I agree that fiscal stimulus should focus on post-peak projects and realities, but the plans for such project need to be "on the shelf" and ready to go. Alan Drake's rail electrification would be my first choice, it would be realistically 2-3 years before serious work could be done on such a project and 5-10 years before you'd see results. The congress people just love them interstates!

re. Roubini and his view of the sprawl/mcmansion/exurbia waste of the past decade, see:


Our current form of electricity, traded over long distances, is not stable long-term without a huge amount of infrastructure upgrades. To be able to maintain the voltage transmission wires, one needs to be able to maintain roads near the wires and have suitable equipment to continue servicing the wires. I doubt we are going to be able to keep all of that up over the long term. We may have electricity, but it likely to be more local. Outages are likely to be more frequent.

If we make electric trains, it seems like they should be dual fuel, so that they are not so dependent on a difficult energy source, and will last longer.


Your positions are based upon a lack of detailed technical knowledge.

Roads are not required to maintain electrical transmission lines.

I have seen barely noticeable tracks used to maintain a high voltage transmission line in the uninhabitable highlands of Iceland. Winds prevent the safe use of helicopters.

The electrified Trans-Siberian Railroad is sometimes hundreds of kilometers from the nearest road. And the Trans-Siberian RR is of absolute strategic value; Russia cannot hold Siberia without it ! (only in the last couple of years has a dirt road been completed across Siberia). All maintenance by rail.

SBB (SwissRail) is building a 58 km tunnel (diesel locos cannot be used in such a tunnel) and the stated standard is for every major system to last 100 years. No roads a kilometer underneath the Alps. All maintenance by rail.

SBB gets over 90% of it's electricity from dedicated hydroelectric plants (which last for a half century plus with minimal maintenance in places like North Korea and Albania).

Transportation is a high enough priority to give electrified rail priority use of hydroelectric plants (6% of US electricity is hydro, electrified inter-city and Urban rail might use 3% in a best case).

High voltage transmission lines should be located on electrified rail ROWs (no roads required, good rail & ties can last an half century), guarantying electricity for at least the railroad.


Until recently, it was normal for railroads to have their own electrical transmission and often their own generation plants (often generating electricity incompatible with the grid, SBB and DB (German Rail) use 16.7 Hz electricity, the Northeast Corridor uses 25 Hz from Philadelphia to New York City from memory)

Dual fuel locos are an unneeded expense and complexity. If electric supply is an issue (highly unlikely even if homes get power only 4 hours/day#) then position some of the surplus diesel locos (bio-diesel if need be for once a year use) along the line as rescue locos. A prolonged power outage would be a nuisance, but hardly disastrous.

# As one example, the Germans deprived occupied Paris residents of coal and electricity, diverting both to the German war effort. But they let the Paris Metro run without interruption. Very little power, lots of utility.

I would like to engage you on several of your positions. Technical facts and world experience ## both argue against your projectiosn.

## In North Korea, a married couple was sent to a labor camp for using a light bulb under a blanket to keep their infant warm during a frigid winter. That is how short their society is of electricity. Yet their electrified railroads (about 70% of all NK railroads are electrified, USA <1%) and Urban Rail operate without interruption.

Best Hopes for Electrified Rail,


Hello Gail,

To further add to AlanFBE's comments:

In the past: I have dirtbike ridden many miles of very rugged trails beneath and/or alongside the big power-towers and the HV transmission lines. These utility right-of-ways [ROWs] serve double duty as minimally protective wildfire firebreaks [no trees], and as the path for those big multi-wheel drive service trucks [Unimog?].

No asphalt anywhere: if required, they will even use a bulldozer to pull these big rigs safely up and down the real steep grades prevalent in many areas of the Arizona wilderness. Generally, they only blade a path in those slopes where a repair vehicle might slip sideways or roll down the canyon. Most of the ROWs miles ecosystem resemble the surrounding landscape; the trail is more like a narrow cowpath than a dirt road.

In extremis, one could see teams of mules being used for power line maintenance if a rail line was not nearby.

Typically, high voltage transmission does not require much maintenance. Very robust, very well built.


I agree Gail
Maintenance free and revenue free railways are BS. Access roads to railways are mandatory.
They have curves, switches, passing tracks, substations, cuttings, culverts, gantry, stanchions, crossings, tunnels, bridges, signalling, marshalling yards, locos and rolling stock. They have snow, floods, fire, washaways, lightening strikes, breakdowns of enormous variety and so on.

There are personnel of all types who do not work for free. Shunters, train crews, gangers, fettlers, clerks, brake examiners, train controllers and maintenance staff for rolling stock, locos and signalling. The support network for a major railway is large.

Now of course if we are talking about a few trains a day that's crap too because it would never get built in the first place.
If we are talking about taking the majority of road freight and passenger service, which entails large amounts of traffic then we are assuming BAU, which I estimate is not gunna happen either.

What is assumed with the proposed electric expansion is "build it and they will come". That means the government will have to build it because private enterprise won't be able to raise the capital, they will not be able to demonstrate a revenue return to attract investors. If the government builds it, it will cost the taxpayer over and over.

What are these electric railways going to haul and to and from where?
I'd like to see a lightly detailed proposal of expectations of freight and revenue.

As I have said before. Build it when and where it is absolutely needed. Being speculatively proactive with railway expansion and conversion is inefficient. Preserve what we have and complete what has been financed or started.

I simply can't comprehend what building more and/or expanding railways is supposed to achieve.

Are we now saying oil is becoming more expensive and scarce but business, manufacturing, retail and employment is remaining the same so we had better electrify, does that mean we expect BAU or a recovery. Are we expecting the same rail traffic or more?

Or are we saying we are at peak oil, prices are rising and oil is becoming scarce, the economic outlook is grim for business and employment so we should electrify and build railways to start a recovery or simply save the day.

I say if you want to build new, electrify or expand railways go ahead. Just don't expect me to believe you will achieve anything but satisfaction.
I say they will be nice to have but not be a saviour or even contribute towards saving anything.

We don't have a precedent or history to look back on. What we expend now could possibly be a one shot affair. We should ensure our mitigation attempts have a high to very high chance of success.

Not enough time to address all of the plethora of wrong statements in detail, but some simple facts.

Roads are NOT required to maintain railroads. The several early trans-continental railroads (and Trans-Siberian and Trans-Australian today) were/are hundreds of miles from the nearest road.

Dirt roads (all that existed outside cities) were for local travel from the nearest railhead up to about WW II. Eisenhower observed an early experiment to see if it was possible to take a convoy of US Army trucks cross-country in the 1920s (after several months, and parts and fuel supplied by railroads, it was).

Many rail spurs have not seen ANY maintenance for decades. "Slow orders" reducing the speed limit are the result, but they still work. Concrete & composite ties have a stated life expectancy of 50 years (some problems in high humidity areas are resulting in premature failure of concrete ties and their replacement with composite ties) and rail life span depends on how heavy the loads are. Outside very heavy coal lines, most rails last well over 40 years.

You seem to not comprehend my proposals, your critique seems directed at a straw man. or just reflects a lack of understanding.


All you have is "trust me I'm right".

All railways have access roads no matter what you claim. Access roads ARE required to maintain railways, dirt roads are fine and will do the job..
You make exotic claims of maintenance free railways.
The Trans Australian Railroad has access roads all the way. Why don't you follow it with Google Earth? It's called the Trans Access road.

If the Trans-Australian has an access road, it is a recent addition. My reading of the construction and early operation of the Trans-Australian (oddly, standard gauge with narrow gauge connections on both ends, requiring two gauge changes when narrow gauge construction could have meant one gauge) was without access roads.

I noted that you did not claim that the Trans-Siberian or BAM (the other east Siberian railroad in Russia) require roads to operate.

A ride on Amtrak will soon convince you that roads do not parallel every railroad.

And talk to any railroad maintenance man and ask how often some spurs are maintained, and how long first class track will last. Fairly new mainline track (say <30 years old) the primary maintenance required to to keep a precise alignment to avoid "slow orders". Failure to maintain just creates a slower railroad; it does NOT stop it from operating.

Early railroads operated quite successfully without dirt roads; they were in essence the major roads AND ONLY ROADS in some areas for decades. Roads are *NOT* required to maintain railroads !

And the broader point, and quite mistaken, by Gail was that paved roads are required to keep railroads operating is simply wrong. Post-Peak Oil, we will not run out of dirt roads.


A list of "on the Shelf" urban Rail projects that could start physical construction in 12 to 36 months from a financial & regulatory OK.


With "Maximum Commercial Urgency" (see Alberta tar sands), electrifying our freight railroads could start in Year 2, and the annual mileage could double in Year 3.

Best Hopes,


I can't resist reacting to Oil Cos Ability To Tap New Sources May Have Peaked-BP posted above--

Inglis said: "I think it's true to say that we may have reached a period of peak capability, at least in the short term."
He said this peaking in the capability of companies to extract oil bears a far closer relation to the facts than peak oil, the theory that the amount of oil the earth is capable of yielding has peaked.

This seems to me to be a perfect "distinction without a difference." Apparently "Peak Oil" will forever be a poisoned word. Spin doctors will do everything possible to confuse what should be a fairly straightforward matter. Economics is really all smoke and mirrors after all-- no wonder it is called "the dismal science"

However the full phrase "dismal science" first occurs in Carlyle's 1849 tract entitled Occasional Discourse on the Negro Question, in which he was arguing for the reintroduction of slavery as a means to regulate the labor market in the West Indies:

"Not a 'gay science,' I should say, like some we have heard of; no, a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science"

Developing a deliberately paradoxical position, Carlyle argued that slavery was actually morally superior to the market forces of supply and demand promoted by economists, since, in his view, the freeing up of the labor market by the liberation of slaves had actually led to a moral and economic decline in the lives of the former slaves themselves.


The issue here is that it is hard to face and solve real problems when our leaders are in denial, and profess alternate realities.

Net Oil Exports and the "Iron Triangle"

If one resides in the oil industry leg of the Iron Triangle, and if one has concluded that Peak Oil is upon us, or extremely close, does one say, "We cannot increase our production," and thereby encourage massive conservation and alternative energy efforts, or does one say "We choose not to increase production and/or we are temporarily unable to increase production for the following reasons (fill in the blank)?"

In a speech delivered at Rice University in Texas on Wednesday and posted on BP's Web site Friday, Inglis said: "I think it's true to say that we may have reached a period of peak capability, at least in the short term."

Yet another BP person who doesn't understand peak oil, but then goes on to explain how it works ... they are getting it, but slowly.

It's interesting that they deliberately define peak oil in a way that isn't true so they can debunk it.

If the top people in BP are only just starting to admit to peak oil, no wonder Joe Public doesn't get it.

I went to the UK Parliament the other day, we had presentations by three cornucopians, all based their views of the future on known reserves numbers - just like the IEA - sadly, the reserves numbers tell us absolutely nothing about flow rates so are of no value at all in predicting peak oil flows.

I despair, how do we stop these people from influencing politicians and decision makers with faith based predictions?

>>If the top people in BP are only just starting to admit to peak oil, no wonder Joe Public doesn't get it.<<

Dont worry about it.

There are plenty of people in Oil Companies and Oil Service Companies who fully understand the nature of this beast. And they are at all levels.

The problem is as always, They are still Singing the Corporate Song.

The immediate problem in the oil industry is the impending retirement of some very wise old owls.

BP are scheduled to retire about a quarter of its workforce in the next five years. The problem is that during the last two decades of retrenchment and cannibalisation means that an entire generation of Geology, Geophysics and Engineering types are missing.

You dont even want to know about the coming shortage of Chopper Pilots...

This will become an extreme problem.

But dont worry, perhaps all the psychology and history graduates can turn their hands to finding the black stuff.

Mudlogger, could you post some links for your point about employee retirement? 25% seems high enough that it would not just impact starting new projects, but even impact current operations.

Couldn’t find a direct link to a Speech by BP re the 25% loss, but if I find it , I will post it.

The average age in the North Sea area is 50 years. The Booze Allen pdf is worth a look.




It has been discussed here many times. The idea that as we move forward, we will be chasing larger numbers of smaller oil fields. I think one aspect of higher costs for extraction has been missed. Most explanations of higher costs are related to deeper water or arctic drilling. I think even with conventional drilling the costs are worth noting. As you chase more and more small fields, you need more equipment. Even though that equipment is not pushing the technical limits of our ingenuity, it still costs money (or credit).

The company that I work for makes a large percent of the heavy drilling equipment, and we are booked for almost two years with backlogged orders. Regardless if it takes two months or ten months for the oil price to increase again, when they come looking for the tools of the trade, they will still find that they need to wait in line. And they better have cash. :)

Signs grow that stock market may have hit bottom: The McPaper lists the various signs that the worst is over.

West Virginia teachers got a do-over. They didn't do a very good job with their 401(k)s, so they demanded, and got, a chance to switch over to a traditional pension plan.

Americans are finally saving again. Of course, this is bad for the economy.

Recession may be deepest since 1970s

WASHINGTON (Reuters) - The U.S. economy is showing disturbing similarities to patterns seen in the painful recessions of the mid-1970s and early 1980s and it may be a year or more before it resumes anything near normal growth.

Banks borrow record $437.5 billion per day from Fed

NEW YORK (Reuters) - Financial institutions ran to their lender of last resort for record amounts of cash in the latest week, under extreme pressure from the worst global financial crisis in a generation, Federal Reserve data showed on Thursday.

Signs grow that stock market may have hit bottom. Right. We no longer have journalism, we have only haruspicy -- "...the inspection of the entrails of sacrificed animals, especially the livers of sacrificed sheep and poultry. The rites were paralleled by other rites of divination such as the interpretation of lightning strikes, of the flight of birds (augury), and of other natural omens."

Haruspicy continued to be practiced throughout the history of the Roman empire. The emperor Claudius was a student of Etruscan and opened a college to preserve and improve their art, which lasted until the reign of Theodosius I. In 408, the haruspices offered their services when the Goths under Alaric threatened Rome; Pope Innocent I reluctantly agreed to allow them to help so long as the rituals were kept secret. Further evidence has been found of haruspices in Bath, England where the base of a statue was inscribed to honour a god for a haruspex.

What ever happened to the rational world of the Enlightenment? Was that just a mirage? Will Obama bring back reason?

Nice blog post by London Banker: We had to burn the village to save it.

And so in the US, UK and EU we have politicians appropriating more petrol to hand to the arsonists who started the conflagration which is consuming our economic and political fabric. The regulators whose forbearance is a root cause of the current conflagration are handing the arsonists fresh zippo lighters. The policies adopted in these debtor nations will fail, must fail, because they destroy what remained of market economies. In the meanwhile, however, the bankers and the politicians and the regulators cannot conceive of failure and so insist on more of the same – ordering hundreds of billions in more incendiaries to fuel the blaze. The same tax breaks. The same housing subsidies. The same regulatory forbearance. The same ill-transparent, off balance sheet, accounting sleight of hand. The same eradication of market incentives to productive, disciplined saving, investment and labour.

Those who would prudently save will be punished with negative real interest rates and asset deflation. Those who would prudently invest in productive industry will be starved of scarce capital and forced into liquidation. Those who would prudently labour for a decent wage will be slowly robbed by inflation and kept docile by the threat of unemployment.

That is a good post. The comments are interesting, too.


LB was a long time poster to Nourel Roubini's blog before he started his own. Always had some insightful things to contribute.


Still can't sign on to TOD from Home, Sent the Trace's to the folks who emailed me about my probem, but NEVER heard back from them on what to do...

I can't post from Anonymouse...

From the article; “Those who would prudently save will be punished with negative real interest rates and asset deflation.”

Isnt this the essence of the problem?

Can we expect the ones responsible for this condition to correct it?

"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
-- Thomas Jefferson

Good Morning America!

I am so freekin piss off at the complacency around my town.

The complacency is a product of Mainstream Media's ownership by large corporations who are financially inclined to lull the public into complacency. If the public is scared, they buy less, and profits go down. If the people are happy, they buy more, and profits go up...

Who is ABC owned by? Disney
Who is NBC (and CNBC) owned by? General Electric

Almost every major media outlet is owned by some large conglomerate that wishes you to spend more money. Most of all, they don't want you to get angry and revolt! That would end their reign!

Mainstream complacency is a good thing if you hope to load up on beans & bullets before your greenbacks go *poof*

Rescue of the elites is an old theme, and we here are no doubt the beneficiaries. According to the calculations above, anyone with more than 20g of Au in his pocket might fall into that category!

We've heard so many prognostications of The End on this forum. Who knows, maybe the time to panic really is upon us. The fable of the Boy Who Cried Wolf would be meaningless if the wolf didn't actually pounce in the end.

First, don't get mad, get even.

Second, now that you're getting even with your adversary, know that it is wise to understand the ways of your adversary.

So, third, ask yourself why people are complacent. The understanding will help you deal with complacency.

We can't expect anyone to effectively correct the condition, because that would require changing or eliminating the various causes.

If we continue to use the same level of thinking, empathy, awareness, and action, we'll keep adding to our problems.

Thanks for the reply 710.

I usually save my venting for TOD.

Locally I just slam the folks with toe curlingly good soup.

Then hit them with humorous, thought provoking conundrums that address the pressing issues.

The two seem to go together well as I keep getting busier, they keep coming back for more of both.

This paragraph provides supportive background for the forecast mentioned in my previous post.

"Such hyperbolic growth in the fiscal deficit and debt is unsustainable, even with such very tolerant creditors as the Japanese, Gulf Arabs, Russians and Chinese. They can see that each dollar added to the Fed’s balance sheet is tinder for burning those already held or denominated in their reserves. They can project the curve forward. At some point, they must react and restrain further debasement of their reserves and investments, either by collectively raising the prices charged for the resources and products they export, the interest charged on existing and future debt, or the forced exchange of debt for equity ownership of real economic assets."

Good article. My analysis of the "bailout" is that we simply gave taxpayer money to the big banksters without many (if any) strings attached. In Europe, they attached many strings. I can't figure out if Jim Willie is a "nut", or right on. But I am increasingly reading signs elsewhere (as evidenced above) that other countries may be trying to form another reserve currency. This would be horrible for us. Jim Willie has pointed out that if that happens, we would not be able to afford OIL. Yikes. Would like to hear more analysis of this.

This explains the need to "short circuit" the global system as fast as possible, using the terminology of Richard Douthwaite.

If people in a community would get together and pay each other to provide needed services at a fair price then some places might eke it out. Try to get local farmers to sell to you instead of the commodity markets. Help with labor on the farm to keep it affordable. Try to get local people to pay for renewable energy systems instead of distant supply chains, etc. Ditch your expensive mortgage and move into a house with someone else so the cost of living for everyone declines rapidly.

The very wealthy who have a lot of savings are going to use this deflationary spell to foreclose on everyone else. Then, if the ice dam of credit breaks and/or the dollar loses reserve status or has a run on it, inflation will wipe out what is left.

Get out of the sinking ship while you still can...if it is not already too late.

Denninger is worth a read today.

CNBC's Fast Money finally started talking about the outright fraud and lies last night. Dylan Ratigan was absolutely on fire about the fact that Paulson was in fact one of the executives lobbying hard for removal of leverage limits in 2004, just two years before he took the position at Treasury (and cashed out $500 million in Goldman Sachs stock tax free.)

I am starting to think they might not get away with it. Not because the media is finally waking up, but because the bailout isn't working, they're going to need more money, and somebody's going to have a lot of 'splaining to do.

Here's some horse-racing for you about the U.S. presidential election:

Old Dominion Leaning Blue

Virginia, with 13 electoral votes, becomes the latest state to move from the toss-up to the leaning Democratic column in The New York Times presidential map today. Based on polling, along with interviews with officials in both campaigns, that determination suggests that Senator Barack Obama now has an advantage over Senator John McCain in a state that was once reliably Republican. This is the third state won by President Bush in 2004 that The Times now has leaning blue, joining Iowa and New Mexico.

If all those states favoring Obama vote for Obama, Obama wins. If he loses one, e.g. Virginia, he needs to pick up a mixed state (yellow), unless it's Nevada and then he needs two. McCain needs to win all the states favoring him, all the yellow states and win one of the blue states to win.

I can comment on why states like Virgina and Colorado that have been solidly Republican in the last few elections are now not so. In Virginia, there's always been a competition between Northern Virgina (the D.C. metropolitan area) and Norfolk who tend to vote Democratic against the rest of the state that tends to vote Republican. In the past the rural areas have always outvoted the urban areas, but that's changing as these urban areas get bigger and bigger. There's a similar thing happening in Colorado, Ft. Collins and Boulder tend to vote Democratic whereas the rural areas and Colorado Springs tend to vote Republican. Also in Pennsylvania it's Philadelphia (demo.) versus the western part of the state (repub.).

The different voting patterns are partly due to cultural and economic differences between urban and rural areas. I read a book by Kevin Phillips once call "The Cousins Wars" where he details these kinds of differences between areas in England during the English Civil War, and in the U.S. during the Revolutionary war and the U.S. Civil War (and also in England for where their sympathies lay).

Speaking from Northern Virginia: this race is nowhere near over. I receive several phone call recordings from both candidates every day. Door-to-door canvasing is way higher than I've seen it in 20 years. Both parties know this is a key battleground this year.

Virginia is a divided state in which the suburban voters in the north tend strongly democrat whereas the rest of the state tends strongly republican. Another state like this is Oregon in which metro Portland goes democrat and the rural parts of the state go republican. (Note that there are exceptions.)

Expect an outcome as close as the 2000 Florida election. I don't run into undecided voters here--everybody already knows which way they are voting. It's a numbers and turnout game. Please, if you live in Virginia, go and vote!

The party's name is Democratic not Democrat.

That's a 'tell'.

Only Republicans call the Democratic Party, the Democrat Party.

And only when they're in a good mood; usually it's the Gay Pinko Socialist Party of America-Haters(even when they are in the majority). You see, only Conservative Republicans are True Americans.

That's a 'tell'. Only Republicans call the Democratic Party, the Democrat Party.

"Typo" is probably a better word.

I'm a die-hard democrat and member of the Democratic Party. I always have been. That said, I do hope everybody, democrats ("democratics"?) and republicans alike, go out and vote. Perhaps believing in majority rule makes me "democratic". If my neighbors, who will definitely vote for the republican candidate, need a ride to the polls I will gladly take them just as I know they would take me.

Language changes, and perhaps "democratic" -> "democrat" is a shift that is gaining traction. Some apparently consider the "Democrat Party" an epithet (see Wikipedia http://en.wikipedia.org/wiki/United_States_Democratic_Party).

Let's leave this one to the linguists/grammarians. I think I'll align myself with the folks who think getting offended easily is a waste of time.

I think the worst thing about the Bush-isms is that after it ends up all over the comedy shows, people start using the same phrases and forget that it's a joke. E.g. I caught myself once jokingly saying "strategery" but so far out of context of Iraq and the administration that it might as well of been a normal use.

It's the same thing with the democratic party vs. democrat party. Democratic is the adjective describing what type of party it is. Democrat is a noun, which is someone who is a member of the democratic party. Republican is both the adjective and the noun so it's easier and that's probably why more people on the right call it the democrat party. But maybe in the future it will become accepted to use either democratic or democrat as the adjective, but then maybe we'll all speak in Bush-isms of one form or another.

Perhaps I'm a bit sensitive to your comment having read this remark attributed to the Republican Veep, Sarah Palin.

Palin also made a point of mentioning that she loved to visit the "pro-America" areas of the country, of which North Carolina is one. No word on which states she views as unpatriotic.



The Chicago Tribune endorsed Barack Obama today over John McCain, which might not seem all that surprising since it is Obama’s hometown newspaper, and they encouraged him to run in the first place. However, the Tribune’s editorial board is one of the most conservative in the nation, and the backing of Obama marks the first time in the paper’s history that they’ve endorsed the Democratic candidate for president.

“The Tribune in its earliest days took up the abolition of slavery and linked itself to a powerful force for that cause–the Republican Party,” the paper wrote today, “The editorial page has been a proponent of conservative principles. It believes that government has to serve people honestly and efficiently.” The paper concludes that the “Republican Party, the party of limited government, has lost its way.” The paper spends equal time bashing McCain as it does lauding Obama, in particular drawing a distinction between their choices of running mates.

The Tribune charges that McCain “failed in his most important executive decision” by choosing Alaska Gov. Sarah Palin, stating that “it’s clear she is not prepared to step in at a moment’s notice and serve as president.” Riffing off McCain’s “Country First” campaign slogan, the paper charges that “McCain put his campaign before his country.”

Interesting comment from a former speaker at the Alaska Independence Movement convention.

Best Hopes for Gov. Palin completing her one and only term in office,


PS: The last time Louisiana tried this independence thing, the results came out quite badly.

Good point! It's ironic that Palin would consider NC as a Pro-America state, considering that they have a proven track record of unpatriotic behavior: they seceded. South Carolina's even worse, they've seceded once and nearly did it during the nullification crisis of 1832-1833.

More relevantly, Gov. Palin once (perhaps still ?) supports secession of Alaska.

So her "pro-American" credentials are severely suspect.

Treason ?


I dunno about treason, thats a bit of a stretch. Hawaii has a movement of secession, Texas too, ( I am seeing more and more bumper stickers of a Texas flag with Secede written on them.) I see these secession movements as people waking up and realizing that our federal gov't is more corrupt than they thought, and that is the peoples way of making a statement about it.

But I can't understand how the majority of Americans would rather have a more socialist type gov't. If I am not going to be rewarded for trying to better myself, then why bother? Ask a brit, ( i married one) they will say the same thing? why bother? If the gov't will give me everything I need to survive and penalize me with taxes if I try to better myself then I'll just sponge off the govt.

I think if Barack had come out said at the outset, that he is communist, the media and the democrats would still have supported him.

FEMA couldn't handle Katrina, and FEMA does not get good points in Houston with hurricane IKE. And suddenly everyone (Obama supporters) think that gov't will be good with education, employment, medical and taxing big oil? I am not comfortable with Obama's views of government fixing all of americans woes. what about free enterprise? not Obama, he thinks gov't should take care of everything your little heart is upset about.

I just heard a radio commerical about free cell phone service if you make less than $26K a year. free minutes, free voice mail etc. the rest of pay good money for that, and some people who are freeloaders, will get that for free. free for them, but not free for me. Linksys was the company i believe it was.

I also don't know why people are so scared of Sarah Palin. suddenly experience is an issue? when Barack Hussien Obama is by devine intervention more qualified just because he is The One running for office?
uh, don't they all have advisors? hello?

but that aside, should the prez and vice pres be removed from office at the same time. Nancy Pelosie will take over as President. feel better now?

goodnight america!

FEMA was an efficient and worthwhile gov't agency under Bill Clinton.

Only under Republicans, with their bias, bigotry and incompetence, did FEMA become an obscene parody.

The moral is not that we do not need gov't, it is that we not need Republicans running our government.

Best Hopes for two decades till the next Republican President or a Republican majority in either house, Long enough for the GOP to reform.


I was a Republican from age 19 till GWB cured me.

Or maybe the infrastructure has been decaying from the inside out, and gov't has been largely an incompetent and growing bureaucracy since the 70's, and Clinton just got lucky enough not to have any stressors that caused visible fractures?

FEMA was competent at doing studies and planning long before Clinton, and other gov't agencies were incompetent before GWB, so isn't it likely that the massive growth of Homeland Security just bloated an already festering body?

** No intent to justify the current brand of Republican at all, just vilifying bureaucracy in general.

Best hopes for a small gov't, fiscally conservative GOP?

Some say that the better Bush (President #41) almost lost Florida because of the screw-ups and bigotry by FEMA after Hurricane Andrew. Certainly lots of resentment of both the late response and the political favoritism of the relief.

Bill Clinton recognized (I suspect) that good disaster relief was good politics (do a good job, serve people in need well, and you get to keep your job :-) and made it a point to improve FEMA. All reports of FEMA during the Clinton presidency were positive.

Perhaps 20 years out of power will be long enough to purge the Republican Party of the neo-cons and re-create a party that Eisenhower could recognize and support. But by then I may be nearing my last Presidential election :-)


Bush is a bad president. I think the Republican leaders need punishment for choosing him. I also think that McCain is a bad candidate. But I think Romney would have been very competent if elected.

To put it another way: One can get too general about the parties. The individuals matter too.

But I can't understand how the majority of Americans would rather have a more socialist type gov't.

The biggest problem is that most humans seem to be cursed with a sort of binary logic. Communism is bad, therefore any attempt to tamper with the distribution of wealth is bad. The logic doesn't follow at all, but it pervades political discussion. There is a natural process in human societies which over time leads toward increasing concentration of wealth. If this process is allowed to continue unchecked long enough then the society begins to resemble fuedalism, where a very small fraction of the population controls most of the wealth and power, and those born into the peasant class have little chance for advancement. The enlightenment was about breaking up this unfortunate state of economic/political affairs, as well as establishing reason over faith. Both of these considerable accomplishments are under severe threat in the US today. Those, who either by possesion of great wealth or because they have unquestioningly swallowed the Chicago school (of economics) have teamed up with those who want to reestablish the preeminence of faith over reason, and return to good old fashioned religion. In the US these folks are called Republicans. Anyone who works towards a more balanced approach, whereby the government performs a limited degree of wealth distribution in order to counter the natural concentration of wealth (thus keeping the distribution of wealth within some reasonable limits), are labeled as socialists or communists. It has been an effective method of political suppression, but it is leading us onto perilous ground. We need to have a discussion about what level of income/wealth inequality makes most sense for our era, and how to acheive that level with the least impact on personal freedom, not turn things into a left/right grudge match.

A second consideration comes to mind as well. That is that the optimum level of inequality is not invariant, but depends upon the economic and technological level of society, and the goals of that society. In a country where rapid economic growth is the overwhelming desire (such as say China today), a higher level of inequality may be deemed a price worth paying for maximization of growth. If the world, and especially the richer parts of it, is now transitioning into an era of slower growth (or no growth), it is reasonable the presume that a lower degree of inequality would be preferred, as the rewards for extraordinary personal actions to achieve economic growth, which are presumably enhanced by higher inequality, are not needed nearly as much as in the high growth reqime.

Palin is a self-centered, mean-spirited, overly-aggressive dumbass, but it is not fair to call secession treason. They are different acts. To merely decide your best interests are no longer met being part of a larger nation is certainly a legitimate choice before any State.

Treason is to act against your nation; not wanting to leave it.


I was echoing (but added a ?) the comments north of the Mason-Dixon line and Ohio River circa 1860-1861.

Once upon a time a democratic debate on seceding from the Union was called treason.


Before 1860 it was considered a constitutional right. :)

In what Article of the Constitution does it say that States may secede from the Union?

Bottom line, the Conservatives support those parts of Constitution which they agrees with it, like owning machine guns but deny those parts, like the income tax that restricts their 'freedom' or gives rights to people who they dislike or don't agree like ie the First Amendment.
People swear to uphold the (whole) Constitution.

If they can't live the letter and spirit of the Constitution they are traitors by definition.
It's time for Conservatives to read that document and try to live by it.

'America, love it or leave it!'

It's ironic that Palin would consider NC as a Pro-America state

I think its perfectly clear. Her kind see the USA as a country with a unique god-given charter to spread dominationist christianity throughout the world. You are either with them, or against them.

You are either with them, or against them.

Unlike, say, Nancy Pelosi who wants to restrict conservative speech with the Orwellian "Fairness Doctrine"?

Interesting how you don't bother to deny the proposition that conservatives want to restrict free speech, FP.
(You really should--unless of course you can't).

Instead you 'propose' that Nancy Pelosi 'wants' to restrict conservative speech(mind reading, her actions as Speaker require her to give conservatives time to speak under the rules) and that the "Orwellian Fairness Doctrine" of giving equal time to all or many points of view in fact restricts speech(I would guess by reducing your share of the media megaphone bought with your money--the idea that the airways are owned by the public is just socialism).

Your view seems to be that 'real fairness' is whoever can buy or bully their way to the top deserves whatever they can get and complainers should shut up.
As they say in the 'hood---it's all good! ;)

What in your experience of life makes you believe this?

majorian, First off, Pelosi really does want to resurrect the "Fairness Doctrine". Second, resurrection of that regulation would reduce conservative speech. That's why her supporters are for it. Do you deny this?

Equal time? The New York Times doesn't provide it. CBS and NBC do not provide it. The majority of the press really does lean Left.

So some conservatives tune into talk radio to hear opposing views. But that upsets Democrats who do not want the ratings of conservative pundits to be the sole factor in deciding whether they get on the air. After all, these conservatives are saying offensive things and challenging liberal faith.

I favor free speech. I oppose regulated speech. I don't even like talk radio (or talk TV for that matter). But I think the people who listen should be able to hear what they want to hear without government agencies weighing in on the matter.

CBS and NBC do not provide it.

Under the Fairness Doctrine they would be required to do so. Not required today.

The airwaves are socially owned property, newsprint is not.


When the Fairness Doctrine existed CBS and NBC leaned leftward. The regulators see being a Democrat as being the center.

The majority of the press leans left

Tell that to Ralph Nadar and you will receive strong, and correct, disagreement. The press is pro-establishment. It is certainly right of center in any European context. And any right ward turn in US body politic by Reagan was reversed by GWB.

The study you link to calls the Wall Street Journal news pages left of the New York Times. I read the WSJ for over a decade (not today, too many $$) and that "finding" invalidates the survey.

The news pages of the WSJ strive for both sides but the conservative side dominated (60/40 in column inches was my judgment with the general POV being establishment conservative).

Radical conservatives have had their shot at governance and failed miserably. Hopefully they will be marginalized and forgotten in the political debate (as they are in the rest of the OECD)



I see George W. Bush as a liberal hawk. He eagerly signed the new Medicare drug benefit and other expansions of the welfare state. GWB and GHWB both are to the left of Reagan.

I hope the dummies and ignorant people stay home. I do not think that democracy is a magical talisman.

That's a 'tell'.

Only Republicans call the Democratic Party, the Democrat Party.

I'd like to start a movement to promote the name 'Repuke Party' for the other one ... but it hasn't really caught on in Texas. Except around Austin.

Sometimes I think I've landed on the Huffington Post instead of TOD. Can't you all at least try to weave in some sort of oil commentary into your oh-so-clever banter?

I think the only way Obama can win is if the major media shows him far out in front going into election day. If the major media call this a neck and neck race, then the vote can be stolen just like before. It will be more difficult to steal the vote this time given Obama's lead.


I have faith in the corruption of America. I think the election is up in the air until they announce the results. If I had any money, I'd have invested in Diebold after 2000.

Hey, speaking of jokes, Calculated Risk is trying to lighten up some of the gloom and doom. For example:

Q: What the difference between today's investment bankers and pigeons?
A: Pigeons can still make a deposit on a BMW.


I liked:

"this is worse than a divorce - i lost half my assets but still got my wife"

A banker throws himself out of a ten story office block.

Co-workers watch his descent in horror and anguish.


He lands on the street.

He gets up and dusts himself down.

His co-workers watch him get up and walk away.

He shouts up to his co-workers:


This is a link to the text of Christopher Hitchens' remarkable article in Vanity Fair about the 2004 election in Ohio. He went there with no particular agenda (and he was not a Kerry fan). He concluded that Ohio was probably rigged.


Well, I would say that the big problem was the distinct lack of a paper trail using Diebold's machines, but in 2000 we saw that the then secretary of state of Florida, Katherine Harris, managed to stop the recount long enough for the case to get sent to the supreme court where they told the state of Florida that according to their own election rules, they needed to be finished with the recount by a certain date and it was too late to recount now or something like that. There was no machines involved there, only hanging chads.

Any computer software that you don't have the source code to is an inherent security risk. It is possible that Diebold (now Premier Election Solutions) makes really terrible machines and these people running their governments are not doing a very good job buying them and that these errors are random (screen miscalibrations, etc.). However, we'll never know now because there's no paper trail.

This is what happens when governments trust private industry to tell the truth. I'm still amazed that corporations are allowed to do the safety testing on their own drugs and tell the FDA if it's harmful or not.

*edit* I'll also add that this is what happens when you let politicians determine the outcome of political processes. I'm not sure how you'd keep the politics out of the voting process though and make it unbiased -- international observers maybe.

Krugman is pointing out that the 2008 manipulation is already starting:

Manipulating the future

An internal investigation by the popular online market Intrade has revealed that an investor’s purchases prompted “unusual” price swings that boosted the prediction that Sen. John McCain will become president.

Over the past several weeks, the investor has pushed hundreds of thousands of dollars into one of Intrade’s predictive markets for the presidential election, the company said.

Ahh, the free market. :)

Merrill Lynch cut its 2009 oil price forecast to $90 a barrel from $107 a barrel and warned that a "synchronous global recession" could bring oil prices to $50 a barrel. It said U.S. oil demand is far outpacing its decline expectations, European demand is falling rapidly, and some of the emerging markets aren't keeping up either. Plus, a string of fields in Saudi Arabia, Qatar and others will bring about 3 million barrels of oil a day in incremental capacity over the next 12 months.

OIL OIL OIL where are we going? we can all keep guessing, but the real power is on OPEC. They can easily control supply to inflate prices.. as they did in previous months. Collusion is the true predictor of where oil will go.

My 2 cents.

Using ExxonMobil's upper end estimate of a 6% per year decline rate from existing wellbores, the world would need about 50 mbpd of total liquids production in 2015--that we did not have in 2005--just to keep production flat.

While Saudi Arabia is showing a year over year increase in net oil exports in 2008, they will probably be about 700,000 bpd below their 2005 rate. Russian net oil exports are declining. Net exports from Norway and Mexico are in terminal decline. While Venezuela has some large potential resources, their net exports have fallen at about 100,000 bpd per year for 10 years, and they are on track to approach zero net oil exports in 20 years.

When you say Venezuela has large potential resources, are you referring to their tar sands?

Gwydion -- looks like WT hasn't has a chance to answer you so I'll take I stab at it. I suspect he's referring to Vz heavy crude. Very thick stuff that's difficult to produce, transport and refine. But we do have refiners in the Gulf Coast that can handle it. As far as the future goes, just a few weeks ago China signed a deal with Vz to help exploit those reserves. China will build 4 tankers specifically designed to transport the heavy crude and also build 3 refineries in China to process it. WT probably has a number on those reserves but they are really big. Unlike the tar sands, the process for dealing with these Vz crudes is well established. All they needed was an increased market and it looks like China intends on developing one for them.

I was talking about the tar sands stuff--large potential reserve base--but the extrapolated trend shows them approaching zero net oil exports in about 20 years, and BTW the decline in production and net exports preceded Chavez coming to power (although Chavez has certainly made things worse).

As you noted, Chavez is redirecting their declining oil exports to China as the Chinese build up their heavy oil refining capacity.

Thank you guys for your comments. I can remember quite a few news items about China making trade deals in South America. From Chavez's perspective, China is probably a preferable trading partner to the U.S.

Don't know about trading partners, but he got the line of the week with "Comrade Bush"

WT -- are you talking about surface deposits of tar sands?

I'm not an expert on Venezuela, but my impression is that the Orinoco stuff is generally too deep for strip mining. In any case, the bottom line is that despite the happy talk of huge unconventional reserves, net oil exports have been dropping for 10 years.

My sentiments exactly, at least in the immediate future.

Until OPEC reaches peak oil, the thing that will determine oil prices is if they can achieve an effective cartel.

Here's my question: if the economic downturn is severe enough, can we have shortages and low prices at the same time? Six months ago, I would have said no. Now I'm not so sure.

We may learn the answer to that question with food in the not-so-distant future.

Didn't that happen during the Depression? Seems like I remember seeing fotos of farmers pouring their milk out onto the ground due to low prices or because they couldn't sell it at the same time people were starving to death in the cities.

Pouring milk on the ground reflects surplus, not a shortage.

During the Great Depression some Americans starved to death while many went hungry--all this because people did not have the purchasing power to buy milk or even beans or bread.

During the Greater Depression to come I hope that the massive unemployment we will see will not be accompanied by people starving in the midst of plenty, as happened during the nineteen thirties.

>>I hope that the massive unemployment we will see will not be accompanied by people starving in the midst of plenty, as happened during the nineteen thirties.<<

That would require planning and organisation.

I have not seen anywhere a realistic discussion of how to deal with the chronic and massive unemployment that will occur as a result of net oil exports going to zero over the next twenty years or so.

Traditionally the economists' answer to unemployment is that we need more growth in real GDP. Keeping unemployment rates down is a strong reason to support economic growth. Nowhere can I find in the economic or peak oil literature a detailed discussion of how to deal with rising unemployment (20%? 30%? Even higher?) that is almost certain to result from falling oil output, and then falling natural gas production.

One reason most economists favor economic growth is because they see no other way to create jobs.

net oil exports going to zero over the next twenty years or so.

It's difficult for me to see that happening. I just can't see the producer countries continuing their rate of increase. They will drop, too. The top line declining and the producer consumption line rising will last for a little while, then the producer consumption line will drop, too. Producer countires operate within a global economy, also.

westexas presents a strong argument that net oil exports will tend toward zero fairly rapidly. Maybe not twenty years. Maybe twenty-five years if exporting countries quit subsidizing domestic gasoline gasoline consumption. In any case, U.S. oil imports are almost surely going to be half and perhaps less than half of current levels within the next twelve to fifteen years. Just cutting our oil imports in half (as domestic production continues to decline) will cut our real GDP (and hence jobs) enormously. And don't forget natural gas: Once we're past peak in North American natural gas we'll either have to greatly increase imports of LNG or get used to rapidly declining supplies of natural gas.

Since I take it as self-evident that top line production will decline, when net exports reach zero then becomes a function of the producer country consumption. If it increases, zero is reached sooner. If it decreases — even if at roughly the same rate as top line production is falling (the world economy will be a mess, after all) — we get some more years.

Of course all bets are off if producer countries keep their oil to themselves (seems likely to me).

Thinking through this, I can see I am dickering over a small number of years; it seems to be another matter of arguing over the precise date of the peak. Perhaps fun for sake of intellectual exercise but ultimately clearly missing the forest through the trees.

Good lord. I've said in the past that discussing EROEI in public talks is not necessary because it confuses the crowd and the argument for action can be made purely on the basis of barrels alone. Despite that, it's really just hit me how much ELM is a bigger factor than EROEI.

net oil exports going to zero over the next twenty years or so.

It's difficult for me to see that happening.

I think the model that has exports going to zero is oversimplified. Clearly as the value of their exports declines as a percentage of their internal GDP, their internal growth will be impacted, possibly going into reverse. If they are smart, they would push efficiency and conservation long before that happens. But if the oil price becomes very high, it is possible that net exports could decline to a small fraction of current levels. Unless the importers have reformed their energy economies to the point of only using oil as a chemical feedstock, and not as a liquid fuel, the effect will be similar.

Agreed. However, the final net exports will likely be just a fraction of what was formerly available. The damage to oil importing countries will be both great and unavoidable, I think.

I recall reading about that as well. I'm just not sure whether there were shortages before the milk was dumped. Also, I'm not sure that poor people being unable to afford food is necessarily the same thing as a shortage.

In the milk scenario, if customers stop buying milk in New York City, the stores aren't going to buy it from the farmer (it'll just spoil), and the farmer has to milk the cow. What else can the farmer do?

Now, a radical idea would be that the stores could buy the milk from the farmer and give it to folks that couldn't afford it (and are suffering from malnutrition), but how can the stores afford to do that? Perhaps a government program? (thinking school lunches here)

Another idea would be for the farmer, since they have to milk the cow anyway, to give the milk away so that hungry people could have it. But how will the farmer be able to feed and care for the cow, and what incentive would there ever be for customers to buy it? So this would not last long before the cow stopped providing milk altogether, which then nobody would benefit.

Now, in this century, what would happen is they would just sell their milk to China.

"Now, in this century, what would happen is they would just sell their milk to China."

Where it would get stretched with melamine and poison millions.

Another idea would be for the farmer, since they have to milk the cow anyway, to give the milk away so that hungry people could have it.

The way I've heard it, sometimes there wasn't even money to haul the milk to the city even if the farmer did give it away.

I don't know enough about the dynamics of the Depression situation to know exactly what was going on. I only remember the visual images.

The only other anecdotal example that comes to mind is what happened in China recently. Prices of diesel fuel were set by the government at a price less than production cost, and since they lost money on every gallon of diesel they sold, the oil companies didn't supply enough diesel to stations to meet demand. These huge lines formed to buy what diesel was available. I saw it on CNN.

Price controls pretty commonly lead to shortages. In the case of Chinese diesel, and in the case of depression-era farmers & milk, those were voluntary reductions in supply, because of low prices

I was more thinking of involuntary reductions of supply. Agricultural commodity prices have dropped a lot. What happens if there is not enough food to feed the world this year? I think that's a possibility, since there are more people than last year, and this year's harvest doesn't look (overall) to be better than last year's (and maybe not as good). If there is enough food, and poor people just can't afford it, you can subsidize prices for the poor. But subsidizing prices doesn't do anything if there isn't enough food to go around.

I'm really just kicking ideas around. I haven't got my mind around what would happen.

shargas --that's exactly what happen back in 1986. Not so much a shortage as an inability to pay for oil. Because of the price spike in the late 70's the world went into a deep recession which cut consumption by 15%. OPEC had so much surplus capacity at that time they keep undercutting each other to capture market share. The KSA kept cutting back their production to allow some price support. But in 1986 they said to hell with that and open the valves up. Oil dropped to $10/bbl. Many believe this was one of the key factors in the long bull market we just slammed out of.

But this isn't 1986. Many of the exporters admit they are at or near PO. Mexico was in deep doo doo because to their steep decline rate when oil was at $147/bbl. Anything close to $70 for an extended period could push them into a real nightmare situation before you know it. That's why the world will be hanging on the outcome of next week’s emergency OPEC meeting. Early unconfirmed reports speak of a combined 1 million bopd cut in production. Even if they say that's the plan we'll have to wait to see what the individual OPEC actually do vs. what they say they will do.

Rockman, I think history has pretty many examples of "want in the midst of plenty", which is what you're describing in 1986. In that case, prices will plunge, or producers will stop producing, or some of both. The social problems of want can get addressed by subsidizing or diverting some of the "plenty" to those in need.

However, as you say, times are somewhat different now. What happens if we have "want in the midst of scarcity"? I think prices still have to go up. There has to be some way to ration scarce supply to those who do have the money. I think it also comes with a large amount of social unrest. Charities and welfare programs can really only function in cases of "want in the midst of plenty".

Hello TODers,

Glad to see WT's upthread post on the Iron Triangle. In the following link, the marketing power of the Iron Triangle becomes fully embodied into a real, aero-sleek and physical 'Iron Triangle':

Dear Future:

We're really, really sorry. Kinda got carried away, what with all the petroleum and all. You're probably wishing that we had saved a few barrels of oil for you, for airline travel and making fertilizer. And those little plastic swim fins would come in handy, now that Greenland has melted...

..The problem with petroleum, you see, is that it's so utterly intoxicating, so rapturously explosive, such a giddy kick to the Newtonian groin...

..We're only human.
Nate Hagens' postings on the 'Lust for the Dopamine Rush' sums up our predicament precisely. How can a postPeak compost heap compete with a high-horsepower leap of metallic Viagra?

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

LOL, especially as I know my four year old son is interested in cars, but not interested in the compost pile!

But many people are really like children when it comes to consumer items. People are wowed by powerful machines or flashy clothes and this starts YOUNG and seems to continue.

Anyone who isn't in on this behavior is kind of seen as a weirdo or a nascent monk, an ascetic, or a "Walden" type.

So peak oil, whatever awful things it may bring, may also put an end to the consumer society (which would be a good thing in my opinion). Like telling a four year old boy he CANT have another plastic piece of gimcrack junk, the acquisition of which, in the end, doesn't make him happier at all anyway.

Oddly tankless gas hot water heaters (not quite as green as solar water heaters, but a good step in the right direction) have become status objects and subjects of discussion here in New Orleans.

Kind of cool (especially the hydroelectric sparked pilotless Bosch units) from a gizmo POV.

That they cost about $700 each helps (status is NEVER cheap it seems).

Best Hopes for Green Gizmos I guess,


We just had a solar water heater installed. The company that came out to replace our old one under the home warranty tried to push the tankless WH. The rep couldn't answer simple questions like how many appliances could be used at a time with it, or how much current it required. I was afraid it would require heavier gauge wiring and we couldn't take a shower while the dishwasher was running, ect.. But he insisted "There is NO downside at all". He also told us that Progress Energy was giving out rebates for the tankless WH.

We called Progress Energy and they said they discontinued the rebates for tankless and just kept a rebate for solar. They said they found that in most cases people use just as much electricity with tankless as a regular WH if not more. With all the various rebates, the solar WH will pay for itself in about 2 yrs.

Natural gas tankless water heaters are significantly more efficient than electric tankless WHs in New Orleans (we burn significant amounts of NG to make electricity. 21% or 22% nationwide is generated from NG. Burning NG directly is about 2.5x more efficient).

Lack of pilot and standby losses are significant energy savings (especially if the WH is inside, we have minimal need for heat and lots of need for cooling, and tank WH dump a lot of heat inside).

Except during the winter, our "cold" water is not that cold, and "one major use at a time" capacity tankless WH can be stretched for most of the year. Warming 72 F water to bath temperatures is easier than warming 50 F water, and a given capacity gas flame can warm more water with 72 F "cold" water.

Also, tankless WH can be positioned closer to the bathroom, saving on hot water stranded in the lines.

Best Hopes for energy efficiency,


Thanks for your response Alan. That explains why a tankless WH was a poor choice for us, as we have no nat. gas in our area.

I've been thinking about installing a tankless water heater along with a solar setup. I'm already using an electric hot water system with a 50 gallon tank, one of those lifetime heaters which has a stainless steel tank. I thought to plumb the solar into the existing tank and then use the tankless system to boost the water to a desirable temperature. That way, on days when there is no solar input, the tankless system would provide all the hot water, but on clear days, the solar input would provide a substantial fraction of the thermal energy. At present, I don't know whether the tankless device would work when fed warm water, say at 90 or 100F. If these devices can work that way, I may try it.

Initially, my other option was a high efficiency propane heater, with combustion air from the outside. These systems were rather expensive a few years ago and most required electricity to run a fan. As it is, propane prices locally is now almost as expensive as electricity on a BTU basis, although I expect the cost of electricity will increase in future as newer plants are built to replace the existing mix of coal, nuclear and hydro.

E. Swanson

Bosch makes a tankless gas hot water heater that is specifically designed to boost solar hot water heaters. Unfortunately, it has a standing pilot light.

I suspect that other makers also make such solar supplement units, hopefully some with pilotless ignition. I also suspect that Bosch will adapt their pilotless system to their solar unit soon.

Best Hopes for maximum energy efficiency,


Tankless gas domestic hot water heaters are not a good idea IMO.

The government has a 'test' where they rate water heaters; intantaneous tankless gas hot water heaters usually score ~82% efficient versus ~58% for tank hot water heaters. NREL field tests indicate a annual savings of around a ~33% for small water usage(<40 gpd) and about 10% for larger water usage(>80 gpd).

By contrast solar hot water heating (with a back up electric tank HWH) will
reduce your hot water bill well over 50% in almost all parts of the USA. If reducing your part in depleting the energy of the world is important to you this is the way to go.

Most tank water heaters cost about $400 and last around 10-15 years. The annual bill for a 40 gal tank gas HWH is ~$200 at current prices, $220 for a 40 gal electric HWH.

A tankless gas HWH goes for $1000 and are offered with a 5 year warranty even though salesman often claim they last much longer(20 years?!--good thing, these units are expensive!).

For example, $300 + $200/yr versus $1000 + $120/year--7.5 years before the tankless beats the tank (but will the tankless last that long?). If you add in installation costs, you'd drive the break-even further out.


That's the good news.

The bad news is that they create VERY hot water and often you have to wait for hot water. In many municipalities, temperature and pressure relief safety valves must be retrofited to avoid scalding temperatures.

Tankless HWH use tremendous amounts of gas or electricity when they do run so your utility service might have to be increased just for hotwater.

A 40 gallon gas HWH at 40,000 BTU might be replaced by a 160,000 BTU tankless unit to get the same performance.

They are usually sold with the promise of endless hot water, which is true. Imagine taking a 30 minute hot shower!!

IMO, this is just an invitation to burn up energy. I would guess that people with tankless water heaters would tend to run their 'energy efficient' tankless HWH longer than customers who know they have a limited tank.

I subscribe to the theory that if you give people the choice of
unlimited hot water, they will use more of it--which obviates any energy savings.

Tankless are okay for SMALL point-of-use applications but not a whole house, IMO.

You may wonder why they are popular in Europe and Japan.
The reason is that the average water use in those countries is closer to 25 gallons of hot water per person per day whereas Americans use about 50 gallons per person per day. Also energy costs are much higher there.

Solar domestic hot water will reduce your annual energy use the most, but today energy is so cheap you may not care.

Several counterpoints:

-30% of hot water needs with the rest being made from natural gas is significantly better than -50% of hot water needs with the balance being made from electricity in most of the country. NG used directly for heat is 1.9x to 2.9x more efficient than NG fired electricity.

However, Bosch and others do make a tankless gas hot water heater designed specifically to "top up" solar hot water heaters. Best of both worlds.

An existing tankless gas hot water heater can be easily changed out for a solar top-up unit and provide a point of connection for the solar HWH. Several people see a tankless has HWH as Step 1 and supplemental solar HWH as step 2 (I have pointed out that a very small/"cheap" solar HWH with some storage can supply most domestic needs in the summer and a good % in spring and fall).

Solar hot water heaters produce a surplus of hot water during the summer and are far short of demand in the winter. If the storage tank is inside conditioned space, they add excess heat during the summer.

Tankless gas hot water heaters are NOT new and 20 years is a reasonable/conservative life. Solid copper construction of heat exchanger helps.

OTOH, most solar hot water heaters are made by new companies with widely varying quality. Life expectancy of solar hot water heaters ??? (Is your area subject to hail ? How hard is the water ?)

Solar hot water heaters are expensive. Several thousand $ is typical. You overstate the cost of gas tankless hot water heaters at $1,000. A new Bosch 1600H at $650 (the unit most often installed in homes rebuilding after Katrina, the one I usually recommend). Multi-major use at once ones can run to $1,000.


One simply cannot install a solar hot water heater in many homes. Historic areas do not allow them if they can be seen from the street, good orientation with no trees is required and the existing plumbing has to be adapted to where ever they are mounted (a plumbing nightmare in some cases).

Your "utility service may need to be increased" is, IMO a red herring. Standard residential gas service in New Orleans is 1" with fairly high pressure. 700,000+ BTUH. Enough for a tankless gas hot water heater, clothes dryer, gas stove and a typical furnace (150,000 BTU is largish).

There are specific cases where solar hot water heaters are better. But from a "green & economic bang for the buck" much of the time (most of the time I suspect) tankless gas hot water heaters are a better option.

Best Hopes for Energy Efficiency adapted to local conditions,


I think the big problem with water heater replacement is that it is usually not a planned change, but an emergency call to the plummer, when the old one springs a leak. The consumer, unless he has analyzed the market ahead of time, has little time to do research and usually lets the plummer install his (the plummers) recommendation.

Thanks for your comment. Luckily those of us who read TOD are informed enough to make good choices in this kind of situation. It was just a little more work to go online and verify that the flow rate limits the hot water to one major use and call the power company to see what their recommendation was.

With our home warranty we had to pay out of pocket for the solar WH and they gave us a rebate. Normally we have a $50 flat cost for any home repair. But as I said, the cost with various rebates was such that it will be recovered in just a couple years, so the economics of it really make sense for anyone who can afford the initial cost.

I think most people would opt for a more efficient replacement, but a solar WH requires a solar installer, and we were fortunate to have one that we dealt with previously. It would not be recommended by a plumber since they don't normally do solar installations.

Hopefully word gets around here that a solar WH is the best option and we are only a little ahead of the curve.

BINGO! A tankless water heater is such a different beast than a tank heater that they almost never can be "swapped in" on in an emergency basis.

I've used the same Aquastar 125 NG demand heater for about 13 years now - and installed 2 others for friends.

A tank type heater is slow and steady - a tankless heater is fast and furious.
* A tank type heater only needs a 3" vent - a demand heater needs a 5" vent.
(replacing exhaust venting is often very difficult and sometimes involves
reworking things from basement up through the roof)
* A tank type heater uses a small gas line - a demand heater needs a big gas line
(this is because of buner size: stove top burner size for a tank heater
versus furnace type burner for a tankless water heater)
* A tank type heater can be in a small space with minimal air exchange - a demand heater requires bigger clearances around it and more combustion air
(because it has a bigger burner and gets hotter)

So plan your installation NOW while your old tank type heater is still working. Download the Installation Instructions (Aquastar has them on their website) or go to the water heater dealer and Xerox a copy of the instructions for the units you are considering BEFORE you buy one.

I have had to refuse to install tankless heaters before just because there was no reasonable way to deal with the three issues above.

*Be wary of the tankless water heater recommendations of plumbers. Most have no experience with them and therefore do not recommend them. Or if they do have experience it is only with big COMMERCIAL units (like used in restaurants) which are very different from homescale units and are run at such high temperatures (for those rapid dishwashers) that they are maintenance headaches, they scale up, and they generally self-destruct. Homescale units do not get as hot and therefore do not have the scale or maintenance issues.

Greg in MO

WASHINGTON - The Bush administration on Thursday released $5.1 billion in fuel assistance to states, nearly doubling federal money to help poor people cope with high home heating bills expected this winter.

Billions of our tax dollars to pay for someone else's heating bill this year & next year & every year, but not a darn dollar to super-insulate any of those houses so the owners never have to buy oil again to heat their homes!
When it comes to the Government, Bugs Bunny had it right - "What a bunch of Marroons!"

Billions of our tax dollars to pay for someone else's heating bill this year & next year & every year, but not a darn dollar to super-insulate any of those houses so the owners never have to buy oil again to heat their homes!
When it comes to the Government, Bugs Bunny had it right - "What a bunch of Marroons!"

More to the point, what a bunch of oil rentiers.

(I'm not sure the Bugs Bunny quote is accurate.)

--- G.R.L. Cowan, author of How fire can be tamed

"..but not a darn dollar to super-insulate any of those houses so the owners never have to buy oil again to heat their homes!"

You are wrong.

For years there has been a weatherization program for both regular & trailer homes. (Two separate programs.) Insulation, weather striping, new windows, caulking, and similar things like that. They are government programs and operate in every state as far as I know. They exist solely to reduce heating bills for poor folks. The amount available depends upon how poorly the home is "weatherized." The money provides for both materials and installation. My local paper just had a blurb about signing up now while there was still time and money left before cold weather.


While your point stands technically correct, at a practical level, it's not worth much. There is an awful lot of housing stock built in yesteryears mindset.

Right now I rent a house that previous tenants qualified for the help you mention. The attic has a bunch more insulation in it, which the landlord was quick to mention. I don't know the R values involved but I notice the difference and wish I had more.

These weatherization programs are targeted to elderly and disabled homeowners who live in certain neighborhoods. The house I had in Michigan happened to be in the right area while my mother-in-law who lived just two blocks away wasn't. Her house needed the upgrade much more than mine and her income was much less than mine but could have had the help if it was on the other side of the street. Rules are rules especially if you are poor.

Insulating these homes doesn't help out the oil companies who give large quantities of money to the politicians!

No, the oil companies are not at fault on this one.

Billions of our tax dollars to pay for someone else's heating bill this year & next year & every year, but not a darn dollar to super-insulate any of those houses so the owners never have to buy oil again to heat their homes!

In the near future, the poor will also need help coping with food bills and food shortages.

Will we see the same near-sighted governmental action with regard to food production? I think so. Billions will be spent on subsidizing the unsustainable (the Monsanto's), but not a dollar to help people and communities set up their own local food systems.

Fuel assistance is not sustainable and only discourages conservation measures. People need to move to smaller dwellings, move to milder climates, and do major insulation.

For some reason, with things changing at such a rapid clip, I thought of Billy Joel's song "We didn't start the fire."


RE: Toplink
Democrats Prove We Can Drill Our Way Out Of The Oil Problem

If that's the "intellectual" conservative point of view, I can better understand Palin's education...

Back to the real world, looking for ideas on street talk on what works for others. Less than $3 gas is convincing many I meet or have spoken earlier with that peak is hogwash, there's plenty of oil.

Graphs and curves don't cut it-many can't visualize the significance looking at it, much less having it explained. So much revolves around price, and switching to "well last year, you were outraged as gas hit 3, now we're dancing in the street" is ineffective too.

I'm always back to the 85 mbd figure, + or - for several years and not able to break it. Need some soundbites.

Less than $3 gas is convincing many I meet or have spoken earlier with that peak is hogwash, there's plenty of oil.

Every one I've talked to here (die-hard McCain, 'Obama is a terrorist' types) say that the cheaper gas is pure manipulation before the election. "It's amazing how well they can manipulate prices" is the usual refrain.

The peak oil argument falls on deaf ears, here, or at the very least cannot be heard over the roar of the V8-powered truck just purchased this summer.

Every one I've talked to here (die-hard McCain, 'Obama is a terrorist' types)

I just had a run in with one of those. The police were called, I was ticketed, I tried explaining that in a manner of self defense, I raised a stiff arm and a fist, the gentleman ran into it as he advanced.

The cop was polite, said I could explain it to the judge. I did, he fined me $300.00. I thought....thats acceptable, I can afford that, so I raised a stiff arm and a tight fist, sure enough, the gentleman ran right into, again.

This fine was again, $300.00 and 4 weeks of anger management classes. Iam appealing the sentence, seems anger management is causing me anger issues.

This story was entirely fiction, no it wasn't, yes it was, no really, it wasn't.

Need some soundbites.

Truth is that USA is some 35 years past its Peak Oil (1970) and is still in denial over the situation.

Every time there is a threat to choking off the Straits of Hormuz we quake in our China-made designer sneaker shoes. That's because the Straits are our carotid artery, our security underbelly. We can talk tough, but in truth we are way past our prime. Rest of the world (ROW) knows it. It's just we who don't get it yet.

Say buddy, can you spare another bailout?

Maybe Westexas can develop a psychological POEM model: Peaked Out Export-land Model.

The idea would be to look at nations who are post peak and don't seem to know it yet.
Their politicians insist that the old solutions will work yet again. We did it back then and by golly we'll do it again now. Our best days are still ahead of us. Drill Baby Drill.

See how effective that is.

Three words and peak oil is no problem, it's not my problem, prices will fall, a political mantra, everything but the kitchen sink all in one phrase. I liked your "Can you spare a bailout", but need a soudbite more to oil.

A wounded Uncle Sam begging:

"Oh my good international friends, brothers and OPEC lodge members, please help me out. I need 230% more oil at bailout prices. Surely you can give me a break this time around. Was I not equally understanding in your hour of need? Bless you. Bless you."

(70% imported/ 30% domestically produced = 230%).

Hey westexas...this one's for you.

Homebuilders scramble to downsize floorplans

"The only way to respond to the lower price environment ... is to make the home smaller," Sood said. "As you kind of reduce the floor plan size, we're getting back to more the way things were historically, kind of undoing the excesses, not just from a price perspective but home size and (fewer amenities)."

Interesting report Dragon. Did you notice that KB was pricing the 1200+ sf house for $165/sf vs. $125/sf for the 2400 sf house? As might be expected they are marketing to "payment buyers" and not folks looking for value. I suspect if you had a handle on comparable existing homes in the same area the asking prices are probably half the sf price of the new homes. Not any different then a car dealer selling a customer a piece of crap because it's all he can afford to pay monthly. When ever the market rebounds I wouldn't be surprised if these new small home buyers do get screwed on resale value...just like the folks that bought Hugos.

Rockman, one of the many careers I enjoyed(?) before retiring was that of a builder and developer. In general small houses cost more per square foot than larger houses. They don't always reflect that in resale prices for various reasons but quite often in the same area/development this holds true for years. A small house with two baths cost more per square foot than a large house with two baths because the cost of the baths are more or less constant divided by smaller number of square feet. By code a small 12'x12' bedroom has the same number of electric outlets as a 14'x14' bedroom. The major expense, then, was the number of outlets/labor not a couple of extra feet of wire. (Today I bet they measure wire carefully.)

Interesting point.

I'm an HVAC/R student at
milford.asp (SCC Milford). The trades all take part in building a house on campus. For a while, maybe a couple years, the exterior walls are 2X6 construction instead of 2X4.

Now, I have always been cognizant that this increases cost. But unless you have a discriminating buyer the seller of this product is at a competitive disadvantage. This must be one of many explanations why 2X6 construction is slow to be adopted in this region.

I live in a 2 X 6 framed building, 24' X 24' south facing Saltbox. Interior is post and beam, wide open. 8 X 8 main beam, 4 X 6 spruce for floor joists. Central chimney and wood stove. All cut at a local sawmill less than 20 miles away. Diagonal exterior sheathing with 1.25 to 1.5 inch rough cut lumber. The interior sheetrock is " floated " out from the wall studs with strapping. Stores heat that way, no or minimal conduction. Cedar shingle siding, local again. 2 X 12 roof rafters insulated to the max.

I can cook a baked potatoe and have to crack a window.

Burn at the max, 4 chords of wood through the worst Maine's northern coast can throw at me. Coming on to 30 years in it and feeling very cozy now. I know people who heat with wood up here and they wear hats to bed. I crack a window at 20 below.

All of the lumber for the house cost just over $4,000. I put a $1,000 cash up front and the lumber yard itself took payments for 3 years on the rest.

This was during the last big recession 1980 or there abouts.

I can't imagine building any other way.

Don in Maine

Floated? New term for me, can you explain how and what you used?

I would assume that the strapping is thin slats of wood with spaces between them, running across the 2x6 studs. Sort of like the lath in old fashioned lath-and-plaster, but with fewer slats.

The sheetrock is stapled to the strapping, so it doesn't directly touch the 2x6s. The strapping only touches the 2x6s where it crosses them. Filling the rest of the wall with some sort of fluffy insulation would finish the picture.

The best example are the floating ceilings found in most offices. The frame is hung from wires and the panels placed in the frame. Since the frame is not firmly attached but loosely hung its floating.

Sounds like he has the same setup for his sheetrock. I've only heard the term used for horizontal stuff like floating floors in computer rooms and ceilings. Its a tad strange to here it used in the vertical.

LOL ! Yes floating a wall is strange in the vertical.

I assisted framing/finishing a room add-on in which one wall was the back wall of a double car garage.

Come to find out the top of the wall was falling out (inside room addition perspective). After adding roofing members to stabilize the wall, we continued to finish the addition's wall – and here's where it got really fun – with horizontal tongue and groove 1X4 pine !

I think my favorite article today is Bill McKibben's review of Hot, Flat, and Crowded. He really nails what's wrong with Friedman's views, and what's wrong with American conventional wisdom.

The world is a growth machine and "nobody can turn it off." Everyone wants "an American style of life," and "their governments will not be able to deny" it to them. So the only option is to tinker with the American style of life to make it greener. Hence the longest soliloquy in the book, a hymn to the soon-to-be smart home, where the solar panel calls up to tell the "utility" when there's been a blackout, where the smart lights in your office are triggered by motion sensors, where you plug in your "Smart Card" ("sponsored by Visa and United Airlines Mileage Plus") into your Sun Ray computer terminal to start your workday. All this gear is so intelligent, in fact, that "when the sun is shining brightly and the wind is howling" (i.e., when your house is generating solar and wind power), your utility turns on your dryer to finish your laundry.

Does it ever occur to him, in the grip of a fantasia like this, that if the sun is shining brightly, or the breeze is blowing steadily, you could dry your clothes on a $14 piece of rope strung off your back deck, or for that matter on a foldable rack in the apartment hallway? And that since most of the world already knows how to do it, we might be smarter moving in their direction instead of insisting that they buy into our entire high-technology suburban dream?


Americans are driving less too, and the frictionless transport system that undergirded Friedman's flat world has begun to creak: the cost of shipping a container load has tripled since 2000, and some manufacturing jobs are beginning to come home. I suspect Friedman didn't include the most important news story of the year because he hasn't had time to process it—it undercuts the idea of a flat world. With higher oil prices, we live on what a slogan-coiner might call an Uphill Planet, and the grade between you and everywhere else increases as the cost of oil climbs. Friedman blames any shortages on a paucity of drilling rigs and tankers, the mendacity of oil regimes like Russia, and limits on offshore and Arctic drilling in the US and other Western nations. But the possibility that we're starting to run out seems not to have crossed his computer screen.

Friedman can't see these new probabilities because they conflict with the one great imperative of the conventional wisdom, which is optimism. Just as you can't run for commander-in-chief on any platform other than "Our best days are still ahead of us," so you can't run for pundit-in-chief either. But those instincts can get you in trouble. Friedman, after all, supported the war in Iraq with a similarly glib but upbeat forecast. The day of the invasion he weighed the two schools of thought: the Europeans were predicting "more terrorism, a dangerous precedent for preventive war, civilian casualties," while Bush was arguing "that it will be a game-changer—that it will spark reform throughout the Arab world and intimidate other tyrants who support terrorists."

When I first read this, I totally agreed with the bit about the clothesline, but now I am thinking about it with relation to what pi said above. People always want new and better toys. This isn't going to change, so selling them on high-tech eco toys might be a very good thing.

I think you will need to end up with a combination of smart-dryers and clotheslines.

But what if it's not possible? It all comes down to natural resources in the end. While 7 billion people driving Priuses is better than 7 billion people driving Hummers, I question whether either is possible.

I'm also not sure that people always want new and better toys. I think a lot of that is cultural, and driven by advertising. Including the less-obvious advertising sent all over the world in the form of American TV shows and movies.

Yes, we primates are naturally curious, and we like to play with shiny things, but we don't necessarily want to keep them or own them long term, let alone pay for the privilege.

In Hawaii, the missionaries and plantation owners were horrified at the "laziness" of the natives. They spent much of the day just sitting around (especially the women), and money to buy new and better toys did not do much to motivate them to do otherwise. Hawaiians were used to working to get what they needed - and no more.

Some state agencies adopted a "Hawaiian style" schedule. Instead of set shifts, you worked until the job was done, and then you could go home. I don't know if they still do this, but it was an acknowledgment of different cultural attitudes toward work.

I suspect given an energy crunch people will have other priorities in energy uses than inefficient automatic clothes drying. However, as a single man who uses an outdoor clothesline they really did fit better when the majority of women worked in the home (so that they could bring in the washing at the first sign of rain.) I often put washing out first thing, go to work and a shower during the day will have rendered it as damp as before when I get home in the evening.

If times get tough then you had better plan on keeping a close eye on your washing, or it will get stolen.
I can see a lot of people using indoor clothes racks and airing cupboards - that beings back childhood memories for me, and not too pleasant ones.
The smell of damp clothes drying is not wonderful.

Leanan -

Friedman rubs me the wrong way in so many places!

The few times I have seen him interviewed on TV, my immediate impression of him was that of a glib, bloviating jerk with a decided talent for latching onto the next hottest idea and packaging it in a clever way so as to make it appear to be the product of his own unique genius.

A guy who never tires of the sound of his own voice and who cannot comprehend the possibility of being wrong, even when totally wrong.

Attention must not be paid. It only encourges people like him.


I could have written your post. Friedman is a blowhard, selling brand Friedman at all times. Feh.

Does it ever occur to him, in the grip of a fantasia like this, that if the sun is shining brightly, or the breeze is blowing steadily, you could dry your clothes on a $14 piece of rope strung off your back deck, or for that matter on a foldable rack in the apartment hallway? And that since most of the world already knows how to do it, we might be smarter moving in their direction instead of insisting that they buy into our entire high-technology suburban dream?

Friedman definitely fits into the former category...

"Any intelligent fool can make things bigger, more complex and more violent.

It takes a touch of genius-and a lot of courage to move in the opposite direction."

-- Albert Einstein

Anybody like conspiracy theories?

Yesterday there was an article saying that there are likely to be a lot of mergers of the Canadian oil sands companies because the oil price is now around their cost of production. It also said that the major integrated oil companies are likely to be suitors, as they are sitting on large amounts of cash from the high prices.

What if the majors are artificially driving down the price through massive short selling of futures, driving down the price for the oil sands companies (and for that matter the Canadian dollar), and then buying up the companies on the cheap, after which they would unwind their short positions.

Far fetched? Absolutely. But it's fun to think up conspiracy theories.

interesting theory. but you dont have to be xom and have $ 40 billion cash to buy shares in some of these companies.

Frank Sesno on CNN is talking about how the drop in oil prices is affecting the oil industry. He says exploration is being cut by as much as 70%. Massive cutbacks. Some are expecting it to be as bad as 1987-89.

Perhaps the Saudi's know what they are doing when they resist OPEC pressure to cut production. They realise low prices undermine alternatives and exploration. They might keep it up until the Canadian tar sands stop production and exploration budgets are cut. Then prices go up again for the duration.

In 2003, if you had predicted that in 2008 the oil price would be $70 and this price would be considered so low that oil companies would be cutting back drastically everyone would have laughed.

Lehman CEO Richard Fuld has been subpoenaed.

Good start. Now they need to subpoena Paulson too.