DrumBeat: October 18, 2008

Credit Woes Hit Oil Supply Chain, Push Prices Down

LONDON (Dow Jones)--Already suffering amid a global financial meltdown, oil and gas prices are feeling further pressure as the scarcity of credit squeezes the supply chain that has long provided support for them.

Most observers see the drop in the oil price - which Thursday fell - as collateral damage from weakening consumption, itself driven by the credit crunch. But the link between the two may be more direct: The banking crisis is reducing financial flows that normally propped up the oil price.

Banks are either refusing or tightening up credit conditions in a long chain that starts in the ports of oil-producing Middle Eastern and African countries, goes through tankers and refineries and ends up in gas stations in Europe and the U.S. Less crude is being purchased while buying is increasingly being concentrated in the hands of a smaller number of companies - mostly oil majors and large retailers - that are able to bargain for lower prices.

"The credit crunch is putting on a brake at every level of supply," said Antoine Halff, deputy head of research at brokerage Fimat USA. "Levels of credit are evaporating, so producers and refiners are having a hard time selling -they want to make sure their customers are good for the money," Halff added.

"The oil trade relies on credit lines, so the freezing of credit is making the system less optimal," agreed Olivier Jakob, an analyst at Petromatrix.

Wind energy becalmed by shortage of finance

The credit crunch and falling oil prices threaten to hold up some of Britain’s renewable energy projects just as the UK has raised its commitment to green electricity, financiers said yesterday.

While large projects backed by the bigger utilities are generally thought to be safe, smaller and more speculative developments are facing funding problems as backers adjust their lending criteria or, in some cases, consider withdrawing it altogether.

“The debt is just not there,” said John Dupont, head of renewable energy finance in the UK for Nordbank, the world’s largest clean energy financier. “We are still doing deals but the market is very difficult. This could result in a big delay for wind farm projects being developed in the UK.”

The future of wind power

Massive wind turbines dominate the wind power industry, but entrepreneurs are now racing to build energy-making kites, sails and balloons. Here are five cutting-edge technologies.

As Market Slides, OPEC Seeks Pricing Power

Thirty-five years ago, against the backdrop of the Yom Kippur War, OPEC's Gulf members announced a unilateral jump in crude oil prices to $5.12 a barrel, shattering traditional relationships with multi-national oil companies.

"It was the first move by member countries to exercise their sovereign right to determine the price of the natural resources," according to an official chronology published by the Organization of Petroleum Exporting Countries. "From this point on, OPEC assumed the power to consider and set prices unilaterally for its oil."

Iran to press for output cut at OPEC meet

TEHRAN, (AFP) – Iran said on Saturday that OPEC should cut oil output at its emergency meeting next week amid prospects of reduced demand in the face of the global economic slowdown, the state broadcaster reported.

"Iran's clear proposal for the OPEC emergency meeting is that crude supply should be reduced in proportion with demand," Iran's ambassador to the oil cartel, Mohammad Ali Khatibi, told the state broadcaster.

Turkish Petroleum Wants Japan Cooperation to Develop Iraq Oil

State-run Turkish Petroleum Corp. is urging major Japanese companies, including Nippon Oil Corp. and Mitsubishi Corp., to jointly develop the mostly untapped vast oil deposits in the Kurdish region of northern Iraq, the company's Chairman Mehmet Uysal said recently.

Northeast paves way for climate crisis fix

WASHINGTON — As Congress members struggle to find solutions to global warming, they are looking to 10 Northeast states for help.

Unwilling to wait for the slow-moving federal government to act, New York, Vermont, New Jersey, Delaware, Maryland and five other states have begun an historic experiment to fight climate change on their own.

Earth, but not as we know it

LONDON, England (CNN) -- Dr Jan Zalasiewicz is the author of "The Earth After Us -- What legacy will humans leave in the rocks?" His book examines what might remain of our civilization in the strata 100 million years from now, and how aliens might piece together the story of the planet and our brief but dramatic impact on it.

Comparing present day environmental change with perturbations back in the deep past has always interested Zalasiewicz, a lecturer in geology at the UK's University of Leicester. Here he imagines what distinctive traces humans might leave in the strata and how the past is improving our knowledge of climate change.

Hunton to set up world’s first green refinery

The first “green refinery” will be built by Hunton Energy on the Texas Gulf Coast using an established technology that could revolutionise the way transportation fuels are made, said a report.

“Hunton Energy,” states the The Houston Chronicle, “envisions a refinery with the capacity to convert 340,000 barrels per day of Canadian bitumen crude oil into clean-burning jet and diesel fuel.

OPEC left to its own devices: Hedge fund redemptions lay bare the role in oil speculation

Gone is the steady drone of peak-oil forecasts. Gone is the fear that we are in the pockets of "folks that don't like us very much." Prices are down at the pump, and talk radio has moved on, feasting now on banks, bailouts and rampant greed and corruption on Wall Street.

As the industrial world withdraws into a recessionary shell, it takes oil demand with it. China and India's insatiable thirst for oil looks meager now as factory output slows to a trickle.

But there's also been a rush of roving capital out of the market. According to the latest data from Hedge Fund Research, third-quarter hedge fund redemptions hit a record-high $210 billion, spearheading an exodus wealth that burst one of the biggest commodities bubbles of all time.

Oil's Drag on Russian Growth Poses Test for Putin

MOSCOW -- The prospect of sharply lower prices for oil and other commodity exports -- on top of plunging stock markets and a seized-up financial system -- threatens the economic recovery that's been a foundation of Vladimir Putin's rule in Russia.

Canada diesel shortage seen lasting another month

CALGARY, Alberta (Reuters) - A diesel fuel shortage that has left numerous Western Canadian retail outlets without supplies of the key transport fuel could last several more weeks as refineries undergo maintenance, industry officials and analysts said on Friday.

Canada: Communities fuming

Residents in a pair of northwest neighbourhoods are fuming after a nearby asphalt plant reverted back to using recycled oil as a fuel source, raising new concerns that thick, noxious clouds will once again shroud the communities.

Canada's Sherritt Pulls Out of Oil Contract in Cuba

Canadian energy company Sherritt cancelled its oil-production contract for Cuban waters of the Gulf of Mexico, saying it "wasn't worth continuing" operations in that area, Cuba state oil firm Cupet said.

Khazanah warns of power shortage in Malaysia by 2012

KUALA LUMPUR: There are “structural problems” with Malaysia’s electricity industry that may result in a shortage of supply by 2011 or 2012.

n Government investment agency Khazanah Nasional Bhd managing director Tan Sri Azman Mokhtar said the whole industry structure needed to be reviewed.

India: Citizens of Hyderabad demand drinking water

HYDERABAD: The citizens of Hyderabad held a protest demonstration against prolonged power outages and acute drinking water shortage outside the Hyderabad Press Club on Friday.

It's Time to Make Lemonade

Imagine being 30, with $150,000 in education debt and no job. Imagine your spouse is in the same boat. Your home mortgage is $100,000 more than the current value of your home. And you have two young kids. Oh, wait. I don't have to imagine it. One of those 30-year-olds is related to me!

So, pick your poison—the worst financial collapse since the Great Depression, the energy crisis, global warming, or our dual-front war on terrorism. We'll get through it. And my commitment is to provide you with solid information and expert advice about how you can make the most of what you've got—how you can make The Best Life possible for you and those you love.

Minnesota Nice Wood Recovery: Turning waste into energy

They take the wood you don’t want and haul it away. Free of charge.

The wood is turned into mulch and sold to District Energy in St. Paul.

“The idea was to go out and gather up enough supply that could be ground into mulch and sold to District Energy,” Fritz said. “We just recycle raw wood, we don’t take processed or treated wood.”

Michael T. Klare: The Crisis and the Environment

Given the magnitude and scope of the current economic crisis, the world will no doubt experience a significant economic downturn — of what degree and duration, no one can say — profoundly affecting all aspects of U.S. and international society. Of the many areas that will be impacted by the downturn, the environment stands out in particular. It's closely tied to the tempo of resource consumption, and significant efforts to ameliorate environmental decline will prove very expensive and out of reach for already-stretched budgets. The question thus arises: Will the crisis be good or bad for the environment, especially with respect to global warming?

How Do Experts Estimate The Size Of Oil And Gas Fields?

Turkmenistan is in the news this week after confirming that its South Yolotan-Osman natural-gas field is among the five biggest in the world. That assertion is based on a survey done by an independent British firm.

Such estimates are of vital importance to energy-rich countries, as they cannot plan their national strategies without some idea of what resources they have. So how do surveyors determine how much wealth lies under their feet? And just how accurate are these estimations anyway?

Petrochemical capacity to rise in Saudi Arabia

(MENAFN - Khaleej Times) The Saudi petrochemical sector will witness a massive increase in capacity in the second half of 2008, securing the country's position as a global petrochemicals supplier, according to Business Monitor International's (BMI) latest Saudi Arabia Petrochemicals Report.

'Kenya can't enforce energy price control'

Nairobi, Kenya - Kenyan consumers will continue to pay higher electricity charges, following the introduction of an inflation-related cost in the monthly electricity bills while the local pump prices of fuel are not expected to change soon.

Kenya's Energy Regulatory Commission (ERC), tasked with regulating the local energy market, said on Friday it lacked the requisite legislation to enforce price control, despite a government warning this week that it intended to enforce a fuel price cut.

Nuclear cooperation with Pak 'not on table': US

Describing the Indo-US civilian nuclear agreement as "unique" which cannot be replicated elsewhere as a model, the Bush administration has made it clear that Pakistan cannot be the beneficiary of a similar deal and no such cooperation with Islamabad is on the table.

China to install two more nuclear power reactors in Pakistan

Islamabad - Pakistan's foreign minister said on Saturday that China will help the country to build two more nuclear power reactors to overcome its energy crisis. An agreement was signed during President Asif Ali Zardari's recent visit to China, Shah Memhood Qureshi told a news conference in Islamabad.

Minister directs PEPCO to avoid unscheduled loadshedding

Islamabad — Federal Minister for Water and Power, Raja Pervez Ashraf has directed the PEPCO to devise a strategy to handle the prevailing energy crisis and asked to reduce load shedding duration. He further directed that there should be no unscheduled load shedding and warned the CEOs of DISCOs to place their system in order so that the existing state of affairs could be arrested prudently.

Report: Federal Agencies of Two Minds on Freedom of Speech

Federal agencies have inconsistent media policies when it comes to allowing scientists to share information with journalists, concludes a new study by the Union of Concerned Scientists.

The nonpartisan, nonprofit group issued a “report card” grading 15 federal agencies on their communication policies. Some agencies, it found, “stifle communication” even if their policies encourage free speech. Other agencies simply have weak policies regarding communication with the media.

Credit crunch forces Canada oils to make cuts

CALGARY, Alberta (Reuters) - EnCana Corp was first off the mark, warning earlier this week it plans to husband its cash next year, signaling the end of a spending boom among Canada's energy companies as the credit crunch forces them to live within its means.

The economic turmoil has pushed oil prices to less than half their July peak, lowered access to capital and cut the share prices of Canadian oil and gas producers across the board.

As a consequence, most of the sector is likely to hunker down during the current lean patch. Most Canadian oil companies will detail their 2009 spending plans later this year. Expect them to restrain drilling, slow expensive projects and to spend only cash raised from operations. That would help them avoid the need to search for expensive and increasingly scarce debt funding.

Media-driven fear makes stocks cheap

What about the "age of China" leading to the complete depletion of oil, copper, natural gas and nickel? Weren't we supposed to run out of food right about now? Wasn't potash supposed to become more expensive than gold? How about the "peak oil" stories? Where are all the "oil is going to $200" screamers now?

Because of all these "experts," millions of naive Americans invested in stocks at the top of the supercycle, only to see 70% of their wealth evaporate. Many also invested in China, agriculture and other fads.

Where did all of those oil speculators go?

These wild fluctuations in price correspond with the theory of "peak oil" espoused by Ken Deffeyes of Princeton. The professor emeritus of geology theorized that the world would be hitting its peak in oil production a few years ago. It's not that we're running out of oil. We're just running out of cheap oil. So when demand accelerates, prices rise. When events such as the current recession depress demand, prices fall.

Petrobras September Oil Production Rises to Record, Gas Climbs

(Bloomberg) -- Petroleo Brasileiro SA, Brazil's state-controlled oil company, said its monthly oil production rose to a record 1.89 million barrels a day in September.

Petrobras, as the company is known, said late yesterday in an e-mailed statement that total daily domestic output in September increased 7.26 percent from a year earlier and 1 percent from August. Natural gas output rose 24 percent compared with a year-ago and was unchanged from August.

Biofuel Makers Push to Boost the Amount of Ethanol Allowed in Gasoline to 20 Percent

As presidential candidates Barack Obama and John McCain continue to push their plans to boost alternative energy, there is a growing but controversial effort by some biofuel advocates to increase the amount of ethanol that can be blended into a gallon of gasoline.

Research team probes wind turbines effect on bat population

SUMMIT -- One of the world's largest wind power owner-operators is making history here on one of the numerous ridges that comprise the Allegheny Mountains.

Some 65 miles southeast of Pittsburgh, in Somerset County, Iberdrola Renewables Inc. agreed to let an independent scientific team study the impact of turbines on the local bat population when the company's 10-month-old wind farm in Summit Township is temporarily shut down.

US replaced more than twice 2007 gas used

The US replaced more oil reserves than the country used in 2007 and added more than twice the amount of gas used that year, the US Energy Information Administration said Oct. 17.

The oil additions were the first in 4 years, and the gas additions set a record, the agency said.

Operators added 2 billion bbl of proved oil reserves in 2007, a year in which the country produced 1.7 billion bbl. They added 46.1 tcf of proved dry gas reserves while producing 19.5 tcf.

Gas prices fall below $3

NEW YORK (CNNMoney.com) -- Gasoline prices continued to slip, tumbling below $3 a gallon for the first time in nearly nine months, according to a daily survey of credit card swipes released Saturday.

The average price of unleaded regular fell to $2.99 a gallon, down four and nine-tenths of a cent, according to the Daily Fuel Gauge Report issued by motorist group AAA. Prices have fallen 30 cents in the last week and 84.4 cents, or 22%, in the last 30 days.

Sour gas anger may be root of Canada pipe attacks

VANCOUVER, British Columbia (Reuters) - The saboteur who attacked two pipelines in northeastern British Columbia in the past week is likely somebody who has been hurt by sour gas development, according to an author who has studied past attacks on Canada's energy infrastructure.

China sees more than 50% decline in coal exports in September

BEIJING (Xinhua) -- China's coal exports have kept declining since the beginning of the second half of this year, partly as a result of limits in export quotas.

35 Yrs On, Calls For Lower Oil Imports Echo

NEW YORK (Dow Jones)--Slashing oil imports from the Middle East is echoing as a catch phrase in the final weeks of the U.S. presidential election, even as volumes are on the rise. What's unsaid is that reducing such dependence won't bring lower prices.

In the first eight months of the year, crude oil imports from Persian Gulf members of the Organization of Petroleum Exporting Countries accounted for 24.5% of U.S. crude imports, compared with 20.8% in the year-ago period and the most since 2003, when the U.S. launched the war on Iraq, in which oil has emerged as a central theme. In a twist that shows the complexity of the issue, the increases come largely from Iraq and Saudi Arabia.

A Great Time to Buy?

Buy you ask? Yes. Not stocks, unless you're talking about oil. And unless you're the best of the best of traders you'll probably want to buy the oil trusts, but only if you believe in the peak oil story. Today? Not likely….at least wait until the next market crash, which appears to be coming any day now. And I highly doubt you're anywhere as good of a trader as you think.

RBS says no credit pulled from Venezuela's PDVSA

LONDON (Reuters) - Royal Bank of Scotland said on Saturday it has not pulled any lines of credit from Venezuela's state oil company PDVSA, denying a report it had withdrawn a $5 billion facility.

U.S. business news channel CNBC reported late on Friday that RBS had eliminated a credit line to PDVSA, following similar reports in two small Venezuelan anti-government newspapers.

OPEC eyeing 'sharp' production cut

OPEC oil producers are leaning towards cutting production by 1-1.5 million barrels per day (bpd) at their Oct. 24 meeting, UAE state news agency WAM said on Friday, citing an OPEC source.

"An OPEC source expressed the belief that... a strong tendency among ministers at their meeting next Friday will be to carry out a sharp production cut of between one million and 1.5 million barrels per day from Nov. 1," WAM said in a report from Vienna, where OPEC's headquarters are located.

OPEC sees $70-$90 as floor for oil prices - paper

ALGIERS (Reuters) - OPEC oil producers see oil prices bottoming at $70-$90 per barrel, OPEC President Chakib Khelil was quoted as saying in Saturday's edition of Algerian daily El Watan.

County will feel $25M MTA cuts

The Maryland Transportation Authority has proposed cutting some commuter bus lines and MARC train service, including a bus that runs from Annapolis to New Carrollton Metrorail Station.

...The moves will save the state about $25 million, as gasoline taxes, vehicle registration fees and other revenue sources continue to come in below expectations, said Jawauna Greene, an MTA spokesman.

GM sends Hummer sales book to potential buyers

DETROIT (Reuters) – General Motors Corp (GM.N) has sent a sales prospectus for Hummer to potential bidders as it scrambles to shore up its cash amid a sharp downturn in global auto sales.

The step to put Hummer up on the block and provide financial data to buyers comes four months after Chief Executive Rick Wagoner said GM would look to sell the military-derived SUV brand that had become an emblem of gas-guzzling excess for many consumers.

State, feds investigate rupture of gas line

ALASKA - The state has asked federal regulators to help investigate the rupture of a natural gas pipeline late last month in the Prudhoe Bay oil field.

The rupture was violent, causing the steel pipe to break apart and sending a piece flying across the tundra. No one was hurt in the Sept. 29 incident.

Alaska: Weather thwarts fuel run

Early freeze-up on the Kuskokwim River has left the village of Kwethluk without diesel fuel needed for the winter after two runs by fuel barges failed this week to get through thickening river slush to the community.

An emergency declaration was adopted Thursday in Kwethluk at a joint meeting of the city council, tribal council and village corporation. Kwethluk is seeking state and federal financial help, warning that its 800 residents face loss of electricity and exposure to extreme cold in another month.

Amid green energy euphoria, some solar concerns

SAN DIEGO (Reuters) - Matt Cheney said he felt like the boy who cries "The emperor has no clothes," during this week's Solar Power International conference in San Diego.

Talk from industry executives featured a rosy future for solar power, despite worldwide recession fears.

"Hey, didn't anybody around here notice the dive the markets took last week?" said Cheney, the CEO of MMA Renewable Ventures, which builds solar power plants.

First world must help poor nations on climate change

MANILA (AFP) – Developed countries are obligated to help poorer nations cope with disasters that may be exacerbated by climate change, a UN-sponsored gathering of legislators in the Philippines said Saturday.

MBA's face up to the cold, hard facts about global warming

Climate change students are shocked and depressed by what they learn, but business can also influence the outcome.

Whither Mexico?

Mexico is an ongoing example of the Export Land Model (ELM), in real time. Their net oil exports peaked in 2003/2004 at 1.9 mbpd. I estimate that they will be down to about 1.0 mbpd in 2008. It will be interesting to see what happens going forward. EIA Total Liquids Net Exports:

WT my friend,
The difference between net oil exports remaining constant/growing and net oil exports declining, is whether declining net energy (more and more costly oil at the margin) is being trumped by drop in economic demand in exporting countries. Oil consumption by non-energy sector in oil exporting nations is about to drop considerably, though we won't have data for several months. Ergo, the fundamental driver of declines in net oil exports (export land model) is the decline in net energy.

Oil consumption by non-energy sector in oil exporting nations is about to drop considerably, though we won't have data for several months. Ergo, the fundamental driver of declines in net oil exports (export land model) is the decline in net energy.

I would argue that the fundamental driver in net energy export declines is the tendency for exporting countries to meet domestic demand before energy is exported (see the example above of China cutting coal exports). If we go back to the original Export Land Model, a +2.5%/year rate of increase in consumption results in net oil exports going to zero in 9 years. A zero rate of increase in consumption results in net oil exports going to zero in 14 years.

Here are the recent numbers for Mexico (EIA, Total Liquid) through 2007, with my estimate for 2008:

Production/Consumption/Net Exports (mbpd)

2004: 3.85; 2.0; 1.9
2005: 3.79; 2.1; 1.7
2006: 3.71; 2.0; 1.7
2007: 3.50; 2.1; 1.4
2008: 3.10; 2.1; 1.0*


Through 2008, the production decline rate would be -5.4%/year, consumption +1.2%/year, net exports -16%/year.

Note that the annual net export rate of change would be as follows:

2005: -10.5%year
2006: -5.9%/year
2007: -12.5%/year
2008: -28.6%/year

what would a decline in consumption imply?

what I'm getting at is that declines in global net energy (which I estimate hitting a maxima around 1999-2000), explains 95% of your export land model. Since oil exporting countries are ceteris paribus, 'richer' than oil importers, there is a bit of wealth effect on their consumption - but this is drowned out by net energy decline and each countries individual depletion story. Ergo, the 'more consumption by economies of oil exporters' is a negligible part of the theory.

Don't get me wrong - the energy world should focus on exports instead of gross oil production. But there are many other levels that they should pay attention to, and don't. Like: average cost of the 86 mbpd, amount of BTUs comprising the various tiers of 'oil' that make up 86mbpd, the net energy of the 86 as opposed to gross, the environmental externality costs of the marginal additional barrel (tar sands, biofuels), etc. etc. Just focusing on the headline number has been one of our energy decisionmakers greatest mistakes.

No argument about the mistake of focusing on the headline number (BTW, I assume you mean "negligible").

In any case, some more numbers. If we assume that my 2008 estimates are more or less correct (and with the Cantarell crash the production number might be somewhat optimistic), and if we assume that production drops at -5.4%/year, if Mexico wanted to maintain 1.0 mbpd of net exports, the 2012 numbers would look like this:

Production/Consumption/Net Exports

2.5; 1.5; 1.0

Mexico would have to cut their consumption at -18.5%/year.

I meant what is Mexican consumption declines over that 5 year period (which, by year end 2008, it will be less than 2.0). The ELM is based on declining production and increased internal consumption in exporting countries. The example you've chosen supports my observation that the core of ELM (95% of it) is just depletion/declining net energy*. The 'increase in consumption' part is largely extranneous.

*when I say declining net energy, I say it in a non-scientific sense. We KNOW that depletion has trumped technology in the US based on research by Cutler Cleveland, but outside US (and even currently in US), we don't have data in energy terms. But $ costs can approximate the trend towards more expensive oil. The reason we can't just use $, is because they are abstract concepts, and one day, a change in the international finance system will rewrite how petroleum is priced, but the energy return will remain roughly the same

Net energy and export land get really complicated but fascinating at the same time.

Consider a factory in china that exports to the US most of the oil imports are actually used for goods and services destined for exports. Do you split this energy use between China and the US ? The point is when you add in the value add product flows on top of the net energy flows between countries it gets a lot more interesting. Looking at the oil exporters that are growing their internal economies one sees they are also increasing imports of all sorts of value add products that have significant embedded energy with a lot of that resulting from oil consumption.

The US obviously sucks in far more energy then is normally assumed via the net inflow of imports. Again looking at the middle east you can look at the food imports and see a large net flow of oil energy back into the region. Mexico also imports a lot of food from the US. So maybe its not so obvious we are actually trading food for goods.

If you combine these concepts the situation is grimmer than assuming they are unrelated. The amount of real excess energy thats available to support our debt economy seems close to zero once you include the movement of value added goods and their embedded energy.

Mexico could already not be a net energy exporter for example consuming as much energy or more then its producing in the form of imports.


The import export web is exceedingly complex and difficult to figure out but it seems to me that by including the embedded energy that returned back to oil producers in the form of goods and services makes a lot of sense in the full EROEI/export land model.

This also explains to some extent how China could continue to grow even as oil supplies remained flat the energy was put into export goods that where then sent to other markets. In these markets local production of these goods and services declined using less energy so on the energy flow side we see that eventually everything balanced out and its just a changing of the flow pattern so one nations growth has resulted in declines elsewhere.

Once you include the embedded energy value added goods and services that are flowing back into the oil exporting nations and calculate net energy exported the result looks interesting. For wheat and corn for example we have a pretty good idea about the net embedded oil used in their manufacture. ( I don't consider modern farming a natural process ).

I've got no idea what the real numbers are but just looking at the situation indicates that the total energy available for real growth might be quite small inline with the fact that we have seen no significant increases in oil. What seems to have happened is a good bit of the economy is now stuck in a cycle of extracting oil and converting it to value added goods with a net flow of energy back into the original producers leaving close to zero total value add.

A stab at figuring out how much energy we actually send back to Mexico in the form of corn.



Give .87 gallons to a bushel lets make it 1 gallon for this exercise this would include transport drying packing etc.


Give Mexican corn imports at 10.2 MMT or 10.2*36.74 = 374 million bushels.

Assume 20 gallons of gasoline to a barrel and 1 gallon =1 bushel 374/20 = 18 million barrels
18 million barrels /365 = 0.05 mbd or 50kbd removed from the net energy.

I'd guess wheat is similar so maybe 100kbd per day for food ?

Anyway its not unimportant as Mexico's oil exports decline this is like 10%

The ELM is based on declining production and increased internal consumption in exporting countries. The example you've chosen supports my observation that the core of ELM (95% of it) is just depletion/declining net energy*. The 'increase in consumption' part is largely extranneous.

The core of my ELM argument--which seems blindingly obviously, but as we have discussed, is widely overlooked--is that production declines in exporting countries magnify the net export decline, because domestic demand tends to be satisfied before oil is exported.

Just use the Rule of 72 and consider the initial conditions for Export Land--production of 2 mbpd and consumption of one mbpd (and net exports of one mbpd). With no increase in consumption, and a -5%/year production decline rate, production would be cut in half in about 14 years, to one mbpd, when consumption would equal production, so net oil exports = zero. So, a 50% drop in production would be a 100% decline in net oil exports.

BTW, I looked up the 10 year consumption increases for the (2006) top 10 net oil exporters. It looks like it was about +2.6%/year, from 8.7 mbpd in 1997 to
11. 3 mbpd in 2007 (EIA). Saudi Arabia increased at +5.1%/year over the 10 year period, but their recent consumption is higher, +7.2%/year. In any case, the previous 10 year rate of increase is probably a conservative estimate for the next 10 years, especially if we assume an upward trend in prices as export volumes decline.


I think you missed Memmel's point. Think of it like an energy balance a ChemE would use when designing a plant. I believe his thrust was that although Mex exports oil to the US, the US exports "oil equivalents" via grain to Mex. Therefore, it isn't a simple one way street and that these "equivalents" have to included in the calculation.


I'd only count the portion that actually gets used as fuel (and not as human or animal feed). Otherwise you're on the slippery slope of saying that you have to include X as it is a product of the import and it is exported to Mexico.

Of course, getting those stats could be a bit tricky.

Why does it matter what goes back? What keeps the system going is the input...and that is barrels of oil. Everything else is derived from that.

It's like having two mirrors facing each other. Sure, the reflections and counter-reflections go on forever but take away one mirror and everything stops.

what would a decline in consumption imply?

That something really bad is happening there.

If EROEI is going down, then consumption must go up to maintain production.

Population is always going up and will increase energy use. If the standard of living moves even a blip upward (in 20th century economical terms) then the energy consumed must go up even more. Well, I suppose theoretically it could come from better efficiency, but that is not likely in a developing economy.

One does have to keep in mind the total energy availability from all sources. No oil exporter is developing enough solar, wind, hydro or nuclear to make a big difference. I don't know how much impact there could be from switching from oil to NG for electricity generation.

Without digging into details as to why, a decline in consumption would likely imply a deterioration of the local economic and political systems. One could then infer that the production would be at a greater short term risk of falling if consumption were falling.

Note that I'm not disagreeing with Nate so much as filling in around the edges and being silly enough to take his rhetorical question too seriously.

Mexico's consumption can't decline substantially unless the economy collapses. The economy is still growing, the population is still expanding by more than a million people each year and if the government can solve some of the factors holding the country back (like the very bad education system, the vested interests in numerous sectors which stifles competition, and the corruption), then the economy could accelerate to 4-5% annual growth and the country could reach developed country status by 2020. Mexico is already a trillion dollar economy (by comparison, the remittances is only about 20 billion or 2% of the economy). A developed Mexico would use 10 barrels per person per year, that's what developed countries do at the absolute minimum. Only several hundred dollar a barrel oil would kill demand sufficiently to prevent that from happening if Mexico reaches Portuguese standards of living in 10-15 years.

I would argue that the fundamental driver in net energy export declines is the tendency for exporting countries to meet domestic demand before energy is exported.

I think we may need to distinquish betwen two sots of exporting economies. The first type, like the UK during the North Sea export times, oil exports were never a huge part of the economy, so shrinking net exprt revenues didn't have a large impact on the domestic economy. Compare that to KSA, where oil essentially is the economy, and shrinking export revenues will have a large impact upon the local economy. In this second sort of exporter, internal consumption must be driven down as export revenues decline. Economic nationalism cannot trump not having a viable economy. Of course if say KSA did well enough with its sovereign wealth fund investing, perhaps they can substitute investment income for oil export revenue. How well they are able to do that, and/or develop other domestic industrial exports (say perhaps solar electric power for KSA) should determine how quickly their net exports decline.

Even in an economy dominated by oil export revenues, there are lots of areas where they can cut back spending that do not affect consumption. The aforementioned sovereign wealth funds for instance are typically not investing in country. They could stop buying so many T-bills, banks, etc.

Also, on the downside of the global peak, revenues will not decline as fast because the price will be increasing. The existing wells will have been put in at a much better EROEI than newer wells. So long as demand meets supply, the price will be set by the newest and lowest EROEI wells. Thus the older wells will be gaining in profitability per barrel as they lose production (post global peak).

This graph shows the year over year change in net oil exports for Export Land, the UK and Indonesia, from their final production peaks to the last year of net oil exports. Note the accelerating decline rate, and as noted above, Mexico is currently showing exactly the same kind of accelerating net export decline rate.


One thing I was just noticing is how much oil the US imports from Mexico, and then re-exports to Mexico. I would presume this is oil that is refined in the US and sent back to Mexico in the refined state. Mexico is now number one country for US oil exports.

In July 2008, the US imported 1,290,000 barrels a day from Mexico, but then exported 408,000 barrels a day to Mexico, making net imports from Mexico only 882,000 barrels a day. This lines up fairly well with your estimate of net exports this year from Mexico of 1.0 million barrels a day.

When viewed on an imports less exports basis, Mexico is quite a ways down on the list of countries providing oil. For July 08:

#1 Canada 2,390,000 - 276,000 = 2,114,000
#2 Saudi Arabia 1,675,000 - 0 = 1,675,000
#3 Venezuela 1,340,000 - 24,000= 1,316,000
#4 Mexico 1,290,000 - 408,000 = 882,000
#5 Nigeria 822,000 - 22,000 = 800,000
#6 Iraq 696,000 - 0 = 696,000
#7 Angola 652,000 - 0 = 652,000
#8 Russia 556,000 - 1,000 = 555,000

I find it hard to get a warm fuzzy feeling about this group of countries providing our oil imports.

The U.S. is, now, producing 700,000 Barrels/Day of Ethanol.

That puts us slightly behind Mexico, and Nigeria, and slightly ahead of Iraq, Angola, Russia.

Now, THAT gives ME the warm, and fuzzies.

Bizarre way to calculate, kdoliso.
Even if we ignore the fossil-fuel inputs to the production of that ethanol, its energy content is 85% that of petro per barrel, right? And that simplistic view also externalizes the costs in water and soil.

Depends on how it's "mixed" in the engine, Nelsone. I Can be higher than oil.

"Externalities?" You mean, Like the Tar Sands? The "Other" marginal barrels?

I thought that I had read something about a big boost in product exports to Mexico, so my estimate of 2008 net exports of 1.0 mbpd from Mexico may be on the high side, subject to what does happen to demand in the remainder of 2008--especially combined with the Cantarell crash.

We won't know if this is true for some time, but my guess is that the decline in consumption in exporting countries will be less (maybe much less) than that in importing countries. In all countries there will be a desire to subsidize growth. Exporters actually have something they can do about it (subsidize oil consumption). Pretty much all the importers will be able to do is create more debt (i.e. drop interest rates, increase budget deficits, etc).

Is Switzerland the next Iceland?


With even the mighty Swiss banking system needing government support, it will come as little surprise that a swathe of emerging market economies are suddenly looking fragile.

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."

Any nation not nationalizing it's banks will go under or move
into the Russian/Chinese orbit.

Like S Korea.

"Dollars are VANISHING into thin air faster than the US government can create Treasuries to sell to the central banks. Now, the streets are silent as people wait to see what will happen next. The future explosion of rage is just below the surface.-Elaine Supkis

Dollars are VANISHING into thin air faster than the US government can create Treasuries to sell to the central banks.

My laptop can go from 0 to 4 billion at about 1 billion instructions per second. The governments and central banks have much faster computers.


It doesn't matter how many bytes you can assemble.
The proof is now in actuals. At some point interface with
reality must happen.

There is approx $400 billion in the US in actual cash.
Dispute at will. The number is definitely not in the trillions.

The instant the world finds the limit/boundary between
who gets bailed(sovereignties more than banks) and who doesn't
is when vaporizaton of the status quo system takes place.

All this mountain of government debt is being created in response to the mountain of private debt preceding it. We normally think of mortgage debt as the main problem here, but there is something about as powerful - the stock market debt cycle. I've updated a chart I posted here two years ago showing the last two cycles:

This shows the love affair debt had with the new internet and its technology in the last cycle and how it left the technology laden Nasdaq for its new love, BRIC and its commodities. The forced selling on the way down is interwoven with all the other debt problems.

A popular notion now is that surely the market is near the bottom. Warren Buffett says cash is trash and we should be buying. I hope he's right, but it's worth noting that the primary victim of the last cycle, the Nasdaq, went from 5000 to about 1100 taking over two years to do it before the cycle ran its course. The current cycle victim, the XLE and resource indexes have a way to go to equal that decline. The main technical breakdown of the Nasdaq was late '00 and the decline ran to late '02. The corresponding technical break in the oil and gas index happened only about 3 weeks ago! And there is much more debt to unwind this time as the above chart shows with the added feature a global debt crisis in all the other forms of debt that was not a problem in the last cycle. The early years of this decade was a time of near free and unrestricted credit flow. All this would lead one to assume that this unwind will be more powerful than the previous one.

One should never underestimate the power of these debt unwinds. You hear so many analysts tabulating stock valuation ratios saying they haven't been this cheap in umpteen years. But in the last cycle unwind, the decline eventually caught up with about all stocks whether or not they had anything to do with the internet and having nothing to do whatsoever with their valuation ratios. If you look through the charts of even the utilities, you see the mid '02 trashings.

There may be a nice rally in the market shortly as the freeze thaws, but that may not be the bottom of the bear market if the market's debt cycle has anything to say about it.


Something I don't understand.

From 1999 to 2001 the Nasdaq and Nasdaq Margin Debt pretty much followed each other up and down. However, from 2003 to 2008 we saw a huge expansion of Nasdaq Margin Debt but no simultaneous run-up in the Nasdaq. How do you explain that?

And also, what does Nasdaq Margin Debt have to do with the emerging market and oil and gas stock indexes? Wouldn't you need to show some sort of an indicator of the amount of debt assosciated with those markets?

The present cycle Nasdaq debt likely focused on the many smaller BRIC and resource stocks in the Nasdaq. But since the Nasdaq moves more in sync with technology, the debt veered away to the popular themes in the other indexes. The debt-induced forced selling going on now with hedge funds is very resource centered. This had become the major theme of market debt in general.

OK, thanks for the heads up, netfind.

I suppose where my confusion came from is I thought that the Nasdaq was all tech and communications stocks, but you say there's a strong element of emerging economies and energy stocks also in the Nasdaq.

So let me restate in my own words to make sure I understand exactly what it is you are saying, because you're clearly an insider and use a lot of jargon and technical terms. You are saying that the hedge funds and others bought a lot of stocks of independent oil and gas companies and BRICs, and they used a lot of leverage to buy those stocks. Now these hedge funds and others are having to sell these stocks because of 1)margin calls on those stocks, 2)redemptions--people who gave them money to invest now want it back, and 3)need for money to put out fires somewhere else. Furthermore, you are saying that this process may still only be in its infancy, that it may still have a long way to run.

And as to underlying economic theory, does that put you into the Austrian school?

I had to look up what was the Austrian School and couldn't really make heads or tails of it. But it seemed to say economic outcomes are determined more by our subjective whims than by logic and the way it should be. As regards the stock market, it would seem to be saying what the old value adage says: in the short run, the market is a voting machine; in the long run, it is a weighing machine. This simply says that emotions and whims can temporarily move the market away from its rightful monetary value, but the market winds up weighing money to set prices. So I guess I'm an Austrian in that sense.

What I was going by was what Kevin Phillips wrote in his book Bad Money:

The Austrian School of economics, for its part, taught that booms brought about by credit expansion must ultimately collapse. Basically, these economists concentrate on economic booms and what distorts them. Every boom, they say, comes from extraordinary credit expansion out of proportion to real economic growth.

That sounded a lot like what you were saying.

Ukraine is merely the worst off. Other countries in trouble mentioned in the article are Hungary (5 billion euro loan received) and the Baltic states. There were massive property bubbles there. I can see why the Europeans are worried.

This is from the, "We can bankrupt them a lot faster and easier than they can 'rescue' us," department:


"We are in a special position because we have huge money," Tamura said, referring to about $950 billion in government foreign reserves, $1.5 trillion in public pension funds and $15 trillion in personal financial assets, about $8 trillion of which is on deposit at shockingly low interest rates in Japanese banks.

"We should send the signal that we are ready to save the world with this money," he said in an interview.

There is nothing wrong with the idea of the US coordinating with our creditors (the US has both a current account deficit with Japan and our government borrows from them) but having a strategy about what to do is essential. Saving US- style speculating and consumption is a lost cause and any Japanese liquidity going down that road would wind up in the same place as US Treasury and Federal Reserve liquidity.

A smart move on the part of the Bank Of Japan would be to raise short term rates in line with Eurozone rates. That would ration capital by cost, separate the idiotic investment proposals from the reasonable and reward the incredibly stalwart (and foolish) Japanese savers who currently earn zilch on their savings.

Unfortunately, the only strategy from the US viewpoint that would retrieve the current situation would be one that eliminated any further US government borrowing. That would obviously eliminate Japanese investment; that and the fact that the Japanese have economic problems of their own.

The auto industry in Japan is near the point of taking an enormous, crushing hit. It and the personal electronic business relies on Americans with lots of credit. When the Japanese government is finished bailing out its own businesses, banks and stock market, there won't be much left.

The auto industry in Japan is near the point of taking an enormous, crushing hit. It and the personal electronic business relies on Americans with lots of credit. When the Japanese government is finished bailing out its own businesses, banks and stock market, there won't be much left.

So far, the markets aren't pricing in a collapse of Japan. The Yen seems to be a safe haven compared to the dollar and euro - it has appreciated recently. The American auto stocks have declined a lot more than the Japanese ones. From Yahoo Finance: Toyota's market cap is $106B, Honda's is $79B, Ford's is $5.5B, and GM's is $3.64B.

LOL!!! Mr Tamura wants to "save" the US economy with Japanese money! Why not the whole world??

Mr Tamura is 45, and belongs to a generation that cannot conceive of life without oil. There is a lot of desperation and a lot of denial in the cement caverns of Tokyo as the panic sets in. People are imagining --and rejecting--- what has been unthinkable for longer than a generation, that Tokyo would slowly empty out as its economic advantages over the countryside evaporate. It has been a center of business but since this was based on oil, that will slowly be shown to be a losing proposition. People can't bear to think about it actually. There is a strong will here to see Tokyo as the center of Japan in ever way. Now for example its large department stores (these have symbolized the good life here in Japan for over 60 years) are reporting sharply lower sales and you can imagine the fear striking as you see the customers dwindling.

Its my generation too, by the way, and I have a lot of friends, plus a husband, who are of the same mindset. It's very difficult for many people to imagine any other way of life than within the radius of Tokyo.

Mr Tamura is 45, and belongs to a generation that cannot conceive of life without oil.

I had the impression that the only automobile company that got peak oil was Toyota. Is this true? What does it say about the degree of PO denial in Tokyo?

When poverty knocks on the door, love flies out the window:


From The Times

October 17, 2008

EU climate change push in disarray as Italy joins Iron Curtain revolt

David Charter and Rory Watson in Brussels

Europe’s commitment to ambitious green goals became the latest victim of the global financial crisis yesterday when a growing number of EU countries rebelled, claiming that the plans were now too expensive.

"What did the Easter Islander who cut down the last tree say as he was swinging his adze?"
Jared Diamond - Collapse

"I win"

Probably more like, "Why should I conserve if other people won't?"

Maybe it was a cyclone which blew the last tree down?

"Okay, that's done. Now let's go to America!"

Howcome all these weeds keep coming up in my garden?

He was using his adze as a grubbing how

Nate Hagens -

I think that Easter Islander said, "Chop here, chop now!" Or perhaps, "Chop, baby, Chop!"

"You know, if I turn the blade of this adze 90 degrees, I'd have an axe, and it would be much easier to chop down the trees."

Easy. It never happened.

Not that way, anywhow - as Diamond points out right after he raises the question in the main text. The actual question was "What did the Easter Islander who cut down the last palm tree say as he was doing it?", and the question, along with the answer, appears on page 426:

We unconsciously imagine a sudden change: one year, the island still covered with a forest of tall palm trees being used to produce wine, fruit, and timber to transport and erect statues; the next year, just a single tree left, which an islander proceeds to fell in an act of incredibly self-damaging stupidity. Much more likely, though, the changes in forest cover from year to year would have been almost undetectable: yes, this year we cut down a few trees over there, but saplings are starting to grow back again here on this abandoned garden site. Only the oldest islanders, thinking back to their childhoods decades earlier, could have recognized a difference. Their children could no more have comprehended their parents' tales of a tall forest than my 17-year-old sons today can comprehend my wife's and my tales of what Los Angeles used to be like 40 years ago. Gradually, Easter Island's trees became fewer, smaller, and less important. At the time that the last fruit-bearing adult palm tree was cut, the species had long ago ceased to be of any economic significance. That left only smaller and smaller palm saplings to clear each year, along with other bushes and treelets. No one would have noticed the falling of the last little palm sapling. By then, the memory of the valuable palm forest of centuries earlier had succumbed to landscape amnesia.

For some reason, most commentators raise the question without context, and skip over Diamond's answer. Perhaps they don't like that answer. After all, if it had happened as they unconsciously imagine, both we and they might comfort ourselves that the Easter Islanders were so utterly, unimaginably stupid that we needn't concern ourselves about the matter except as an idle historical curiosity.

Like I said: the last tree they cut was a seedling, a weed in somebody's sweet potato patch.

Sort of the same thing occured here in the Southern Appalachians. There is nobody left alive now to remember when the mountainsides were filled with Chestnuts - so many that you did not need to worry about feeding the hogs, just let them loose to forage on the nuts. The nuts went away and people had to adjust to a world without them long before the last Chestnut tree was dead. (In fact, there may still be a few out there, but they no longer matter in our regional economy.)

There is nobody left alive now to remember when the skies were filled with Passenger Pigeons - so many that you didn't need to be a good shot to hunt, just point your gun in their general direction and you were bound to hit one. People stopped hunting the Passenger Pigeons long before the last one died, because there were no longer enough around to be worthwhile trying to hunt them.

It was a different landscape then, not so very long ago but tantalizingly beyond living memory.

Hello WNC Observer,

Eventually: the same will be said of I-NPK. It will be a different landscape then with massive whellbarrow & SpiderwebRiding efforts to complete the O-NPK recycling loop, not so very far away, but just tantalizingly beyond our current imagination. Anyway, I hope...

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

And many other things I fear....fish/food in the oceans...

Of course the peoples resistance to the green terror is growing. As an article pointed out global warming is a nineties and early naughties fad, the product of an affluent age in search of a hair shirt religion to assuage it's guilt. Now it's as relevant as the Jitterbug or Rubik's Cube. Now the hard times have hit people have better things to worry about.

Now the hard times have hit people have better things to worry about.

You mean kinda like when the Great Depression hit and the dust bowl suddenly was rendered irrelevant?

weatherman -

Wow, that is about the highest number of negative points I have ever seen on TOD! A rather perverse distinction, I would say.

You are half right but also half (very) wrong. Sadly, I would have to agree that in light of the current financial/economic meltdown, global warming as a pressing issue is going to fade into the background and will be largely ignored while we struggle with the more immediate problems of trying to keep our heads above water. Perhaps that's the way it should be. After all, if you can't eat today, you are not likely to pay too much attention to where your food is going to come from a month from now.

However, I strongly dispute your apparent notion that global warming is some sort of scare tactic by a bunch of closet-Commie, humorless, quasi-hippie enviro-geeks. While many aspects of the issue are points of contention, the immediacy and seriousness of global warming is a legitimate contemporary scientific question, being dealt with by many people of good faith.

For what it's worth, I would advise you to pay no heed to the likes of Rush Limbaugh, et al, on this subject. As a recovering Ditto-head, I can tell you that while Rush may be very entertaining and a brilliant political analyst, his ignorance on environmental, energy, and labor/management issues is pathetic, and actually rather dangerous.


I thought he was being sarcastic


I know it sounds like that, but he's not. He's serious. He has a posting history here, which is why people are responding the way they are.


Denialism is the employment of rhetorical tactics to give the appearance of argument or legitimate debate, when in actuality there is none. These false arguments are used when one has few or no facts to support one's viewpoint against a scientific consensus or against overwhelming evidence to the contrary. They are effective in distracting from actual useful debate using emotionally appealing, but ultimately empty and illogical assertions.

Oh, I thought that might be when you ascribe the rising temperatures to the increasing atmospheric CO2

while the recorded temperatures are declining.

That's not it?

Yes , people have other things to worry about right now.

This is manifest in the media and even here on TOD: Climate Change is off the front page and will stay off for some time.

The reason I posted this was I was struck by just HOW FAST the Europe-Wide 'Political Consensus' can evapourate, with eight (mostly new and emerging) states in rebellion and Italy - the 2nd largest industrial base after Germany. The rebel states have looked at the numbers and the costs and reckon they would be pauperised by them.

I suspect that now that Italy is rebelling, Germany will follow soon (it's hard to run engineering companies on windmills)

We of course here in the UK move electrons around screens now. :-(

I always suspected that Anthropogenic Global Warming would ultimately be seen on a par with chic radical student politics.

Let's see, the next president has to deal with the following, probably by ranking them in order of importance:

1. The financial meltdown & the economy
2. Iraq
3. Iran
4. Peak oil & the coming energy crisis
5. Climate change

Climate change will be last on the list, because without money and a sound economy, you can't solve any of the others. Quite the pickle we're in, huh?

Don't forget the Russian style exit from Afghanistan too.

Yes, I would substitute Afghanistan for Iran on the proposed list.

While there is no particular reason to deal with Iran (most of the animus against Iran is anti-Muslim hysteria), I'm pretty sure the next president will "deal with" Iran in some horribly inappropriate way. Thus, Iran will probably wind up #2 on the list, when it really shouldn't be there at all.

Iran is to be dealt with not because it is Muslim, but because of all the Middle Eastern countries, it is the least dependent on the United States. Its independence is the ultimate problem. It is almost able, for example, to defend itself from American bombers.

I do not like this fact, and I wish the USA did not need to subjugate anyone.

Iran has a very strategic location astride the straight of Hormuz. Ironically, its people are actually fairly favorably disposed towards America. But they cannot forget what we did to them on 53, and we can't forget what they did to us in 79. Add in the Israeli paranoia regarding Iran, and the fact that no American politician get on the wrong side of AIPAC, and it makes it difficult for our government to act as if they are anything but public enemy number one. Then you have the fundamentalist Christians who see confronting Iran as a necessary precondition to be met before the second coming. Add in the Persian high act of hyperbole, which sounds to Americans as if Iran is intent on committing suicide by attempting Israel, and the ability of Americans to see Iran as just another country is nearly nonexistant.

Its really tragic, IMHO, America and Iran are natural allies. If only we (both) could get over the effects of some unfortunate historical events.

Unfortunately I suspect that Israel's destiny will be similar to that of the World Trade Center in New York City - as something outrageously unsustainable that is sacrificed to the "Global War on Terror."

Don't forget Peak Phosphorous. Certainly something all presidents have to deal with...

Peak phosphorus is still beyond the reckoning of even some people here at theoildrum.com. I've been trolling here for three years, and just two weeks ago was the first time I ever heard of the 110 kilometer phosphate rock conveyor belt in Western Sahara.

I immediately showed it to my coworkers, who you might call rocket scientists. At least one refuses to believe that a conveyor belt of that length exists, despite the fact that it does, everyone else in the office agrees it does, and he can see it on Google maps.

Yes but yesterday Yahoo had an article about how the US, broke at last, might have to end the Iraq war early and just call everyone home more abruptly than originally planned. I thought, "Yay, just YAY that is the best thing I've heard in a long time!" Maybe they will give up on other adventures too, just stay home, the military eating canned beans in the dark and quiet (lights off to save money) of their training camps back on US soil. Then (soon perhaps) no more practicing because there's no more money to buy bullets and guns. Then they'll all just go home to their families and everyone will try to forget the whole Pentagon thing ever happened!!

Just a quick thought on my fav topic; unemployment.

I have always been bewildered by the job description of “professional shopper”.

However this might just be the answer. Pay people to shop.

Kill two birds …

Creates jobs and spurs consumption.

;-{) - (I have a mustache)

Are you proposing another stimulus check?

fed rez issued unlimited credit cards all around.


A question from the story about "US replaced more than twice 2007 gas used", if companies are able to justify adding more reserves because they become economically viable at high oil prices, do they ever take those reserves off their books when oil price drops? Do their books hold X number of reserve barrels at $20 oil and Y barrels at $30, etc. ?


Oil field reserves represent an estimate of the amount of oil available for recovery given a specific technical and economic environment.

Using enhanced recovery methods may permit the extraction of oil that would have remained in the ground before the new technology was available. The new technology will also have an associated economic cost. Normally this cost will be reflected in higher operating costs. To remain profitable you need a higher market price.

This process works in reverse if there is a prolonged drop in prices. Proved reserves are the only reserves acceptable to the SEC so US operating companies must adjust their books and restate their reserve numbers in the light of a severe price decline.

Folks operating in Bushwackistan can do what they want and frequently do. But wishful thinking will never load a tanker to her marks; you need product for that.

Workers gather at shuttered China toy plant

DONGGUAN, China (Reuters) - Hundreds of workers gathered outside a shuttered toy factory in southern China on Friday, after a Hong Kong-listed toymaker closed amid tough times made worse by the U.S. economic slowdown.

"Because business is bad, we are unable to give you your salaries," read a notice stuck on the main gate. About 10 riot police with batons and shields stood in front of the gate.

This economic crisis, as well as its impacts on other countries, and on other priorities like climate change and renewable energy, was predicted and expected by peak oilers.

In fact, most of us were expecting it a lot sooner. Once again, where we went wrong was timing. It's happening, but it's happening slower than most expected.

Speaking for myself, I learned a lot about timing issues - which I occasionally got wrong quite badly in the early years that I was following Peak Oil - from John Michael Greer. And recently, I have also been finding Samsam Bakhtiari's T1-T2-T3-T4 transition-to-2020 concept helpful in mapping out my personal prognostications about the future.

Also, I think that I as well as many others who frequent this site are learning a lot about how to refine our predictions regarding the future from paying careful attention to the way things are unfolding now. None of us could have had this empirical experience two or three years ago - it was all a priori guesswork then.

On another note, I think that Heinberg was right in recently saying that world economic growth is over as of 2008. From here on in, it's all contraction - which makes for a chaotic future however you slice it, since the soundness of the world's fiscal superstructure is predicated upon growth. There is just no way economies can grow in an era where $60 per barrel oil per force comes to be regarded as LOW, rather than as the stratospheric, growth-stifling price that in fact it is. A fortiori, the stifling of growth will only be all the greater once oil shoots up into the three-digit range again.

The good news (behind paywall, unfortunately):

Aramco fast-tracks upgrades at Manifa and Dammam

The bad news:

Planned production increase at Shaybah field to be postponed because of cost.

The interesting question is why they have to fast-track the upgrades at Manifa & Dammam. It might have something to do with the fact that most of their oil comes from a handful of old oil fields that were found decades ago.

Yes, why would they be doing that in the current economic climate, if demand is crashing so fast that the world will be awash in oil?

Demand is still growing though, the world is more than the US.

Vincent Field, Australia

While some adhere to strict engineering standards in reporting proven oil reserves and production estimates there is a tendency for some to overestimate reserves and production.

The EIA estimated intitial production of the Vincent Field at 100,000 bpd.

The operator of the Vincent Field, Woodside Petroleum (AU), had more recently forecast intial production at Vincent as 40,000-50,000 bpd. When the initial field production was realized it disappointed at about 32,000 bpd. (Reuters -- http://www.reuters.com/article/rbssEnergyNews/idUSSYD35194120081016).

Increased drilling has brought record production in some mature areas. One report out of Ecuador indicated increased oil production in 2008 after increased drilling efforts.

While exagerrations were common in some oil reserve reports, others have oil in the ground they cannot report as they have not drilled into those parts of the field or basin yet. Sometimes a country appeared to have a ten year supply of oil reserves and then ten years later had eight years of oil in reserves as increased drilling proved more reserves. Currently there are many untapped Persian Gulf oilfields, deepwater OCS frontiers opening before one's eyes, and hudnreds of billions of barrels of heavy oil that might be won if oil demand will be high enough.

What 'Joe Sixpack' and 'Joe the Plumber' do not understand (and won't since they refuse to try) is that the vast increase in drilling level of effort will only come when economies rebound to provide capital. Ergo, oil prices must rise to underpin this great last push out to the OCS, the deepest jungles of Ecuador etc, the polar sea floor, etc. The big upshot is that cost of production will be very high, leading to to the cost of product being very high again as well, leading to another economic slump, which may choke off high cost production...

In sum, as you all know, but Joe Average refuses to see since he is susceptible to 'drill now, drill more, pay less' and 'those greens are screwing everything up': We have pumped and burned our (Earth's) easily accessible and cheap-to-produce oil. We are now firmly in cost-push inflation of production, overlain with demand-pull inflation, periodically slowed by recessions.

1. Reduce per-capital FF consumption (save some for long-term plastics and other petrol-chemical production

2. Push forward with maximum effort to produce energy from solar, wind, wave, biomass, and yes, 4th gen fission.

3. Start managing Earth's population dynamic to achieve a steady-state population sooner than later.

But, for now, the people see $2.50/gallon oil and think that is that.

Why do you think Joe Sixpack and Joe Plumber are as ignorant as you suggest?

Because virtually nobody one runs into out there in the big, bright world knows anything about Peak Oil. And those that do don't understand it well at all. The same goes for every other issue we face.


ccpo - I have gotten alot of traction by getting people to go through Chris Martensons Crash Course;


IMO he does not go far enough with the doom but he certainly did better that I.

The plumber charged $50.00 an hour, marked up fixtures and materials, charged a flat per job fee to include travel time and fuel, and used $1.00 in gas to get to the other side of town and back. Will the super high cost of gasoline not choke his business? Oil producers might go out of business.

Even IF the doom ends up being correct, life is short (either way). A large majority of the people wouldn't want to hear anything that is too disruptive of their worldview. Imagine if you have young children - would YOU believe in the worst prospects of Peak Oil? I doubt it. It would be a great sociological study - to survey 1000 families about Peak Oil who have been exposed to concept. Also to survey 1000 families about climate change (in big cities like chicago, denver, boston, NY, Miami)

My hypothesis would be that people WITHOUT children and people living INLAND, would be much more receptive to facts about the dangers of peak oil and climate change respectively.

I don't think having young children or not makes any difference.

Actually if you've got kids you might sense threats better and you want to make sure your kids get through it in good shape. That is how I feel at least. There are a lot of opportunities to bring it up---when dealing with food, watching the news, in shops, etc. My daughter said "it's like trying to fly a kite without wind" when talking about the economic problems facing some stores here.

Peak oil is very complex (although it's very simple too) and people who can understand it are simply rare. Most people are just bored by the topic I find. If you think about it, 50 years down the line, few people will care about it still. Most people will still be busy focusing on other things.

I have 2 kids (plumbing turned off now) and yes I am not receptive to peak oil.

Trouble is I cant make it go away damn it.o_O

It has been my experience that the most resistant are those who are the most comfortable, wealthy, secure income + benifites, tenured Profs. (no offense to the Goose), etc.

They either dismiss it completely or else say that there is really nothing we can do so why bother.

My experience is almost the opposite.

The most receptive are friends with the least education and the most practical skill. The least receptive are friends and family with the most education and the least practical skill. There is little correlation between wealth and receptiveness.

There is a strong positive correlation between practical skill level and receptiveness. I and one coworker are the only exceptions I know. Our survival skills in an energy-depleted world are poor, but we seem to have the reasoning skills to understand why, and have figured this out independently of each other.

The most receptive [to Peak Oil, etc. are people] with the least education

I suspect that "level" of education is not what does it.

Rather it is whether you remain open minded and curious.

That in turn depends on the "whats" and "whys" in your education. Even before you got to kindergarten, did mummsy warn you never to talk to strangers? Or did she encourage you to learn from people who are different? Did teachers permit or encourage you to remain inquisitive and receptive to new ideas, or did they insist you learn the rote responses?

The "moneyed" crowd was brought up on the idea of playing it conservative and not listening to the Chicken Little crazies of this world. That philosophy has worked well all their lives and why should they change? It it ain't broke, don't fix it.

Of course, people on the losing end of the social equation already understand that something is fundamentally flawed. They work hard. Yet they can't get ahead. And because they ain't gots communication skills, it's hard to even express what they feel and know inside.

People on the winning side of the social equation (i.e. CEO's of mega-Corporations) experience the exact opposite. They hardly work and the wealth just pours in. So they have to assume the others are just plain "lazy" or "stupid". In their mind, the system (the market) has and always will provide for those who put in just a small amount of work into it --think GWB, Ken Lay, Hank Paulson and friends, etc. According to Phil Graham, the others are just whiners.

People on the winning side of the social equation (i.e. CEO's of mega-Corporations) experience the exact opposite. They hardly work and the wealth just pours in.

Most CEOs of large businesses that I have met are mega bright and mega driven.

Your day-to-day line manager may be lazy and stupid ... but the CEO almost certainly isn't.

Could YOU run say Exxon? I doubt it.

Most CEOs of large businesses ... are mega bright and mega driven.

No doubt that *some* CEO's are super stars. But on average, they are of average IQ. The way the CEO gets to be CEO is not through proving superior performance on a flat playing field but through brutal elimination of other contenders and through convincing the Board of Directors (BoD) to keep them on. That means being harmonious with the BoD. That means talking the talk that the BoD wants to hear. Members of BoDs tend to be old, conservative and rather uncurious. George is CEO of the USA. Hank is CEO of the Treasury. Greenspan was CEO of the Fed and he talked gobbledygook because that is what his BoD (a.k.a. US Congress) wanted to hear. Ken Lay was CEO of Enron and his BoD just wanted to hear about positive quarterly results. He and his minions gave gave the BoD what it wanted.

I have young kids (although do live INLAND) and am extremely receptive to facts about the dangers of peak oil and climate change. In fact, much of my concern translates into raising children who are able to have some self reliance in the basics- securing water, food, and energy.

Let's do that survey you're suggesting Nate. Bet we could id some resources...

I have often been struck by the irony: here I am, childless, caring about the future, while I see so many people with kids (sometimes LOTS of kids) presenting no evidence that they give a d@mn about their kid's futures.

Why do you think Joe Sixpack and Joe Plumber are as ignorant as you suggest?

Perhaps because Joe Media and Joe Marketer keep them that way.

Joe Educator and Joe Politician might have something to do with it, too.

... also History. We didn't get to this place over night.

The balance sheets of U.S. financial institutions are the blackest of black boxes, and an article in today's NY Times gives an example of the types of unknown liabilities that might be lurking on those balance sheets.

The story involves "Russia’s richest man," Oleg V. Deripaska, the "nuclear physicist turned post-Soviet corporate raider."

In a drive to consolidate his control over the Russian metals and mining industry, he announced in April of this year that he had acquired a 25% stake of the mining company Norilisk. He paid $13 billion, $8 billion in stock issued from Rusal, a company he already owned, plus $4.5 billion in cash. Where did the cash come from? From none other than a syndicate of Western investment banks, including Goldman Sachs and Morgan Stanley.

Now here comes the rub. That 25% share of Norilisk is today worth only $2.34 billion, but the $4.5 billion note hasn't gone away.


We hear a great deal about the American homeowner who shipwrecked the U.S. financial system. He, and millions of others like him, bought homes for $250,000 thinking they would go up in value. Now that that house is only worth $200,000, he finds himself upside down and the financer with a loan of dubious value on his hands.

Now this is the strange part, for we hear almost nothing about the Deripaskas of the world. One has to wonder just how much the finance industry's problems are due to the bad loans of those lowly but greatly maligned homeowners, and how much is due to the bad loans of the masters of the universe, like Deripaskas, of whom we hardly ever hear a snippet.

This may also explain why Paulson is moving heaven and earth to keep the American people from getting a glimpse at the balance sheets of those principal American financiers. I have a sneaking suspicion that most Americans might not be quite as eager to throw a lifeline to Deripaskas as they are their next door neighbor.

Yes-how do you think all these "Hedge" funds got so levered up? BY borrowing from their cronies and connections at banks. Giant unsecured loans given with no regard to prudence-it has been quite a while since many financial institutions were run like actual sustainable businesses-they are run like private clubs, with the theoretical owner (the shareholders) seen as sheep to fleece. This is one of the main problems with the bailouts-you cannot force management of these firms to behave responsibly-logic would say if you are determined to recapitalize the banking system with taxpayers money you would supply the capital to responsible managers of capital, which is not overall what they are doing.

The timing of this deal, April 2008, goes a long way to reinforce what you are saying. By that time it was already clear that the balance sheets of these investment banks were in precarious shape, and yet here we find them making this insane multi-billion dollar loan to, of all people, a Russian oligarch! Give me a break!

Paulson and Bush should be tarred and feathered and exiled to the coldest extremes of Siberia to serve out their last miserable days on this earth.

These people have no shame.

and yet here we find them making this insane multi-billion dollar loan to, of all people, a Russian oligarch! Give me a break!

If I assume that Norilisk was the collateral, then the then market value of several times the loan amount would have seemed sufficient. Only a really spectacular share price fall (as we have just seen), would be capable to destroying the collateral. Making this loan may have logically been seen as a low risk proposition to those who didn't believe in black swans.

But, of course you are right about the political fallout, should a lot of these sorts of deals gone bad be found.

This topic covered on THE AUTOMATIC EARTH today-naturally both of the puppets competing to be Grand Poobah are totally silent on this one http://theautomaticearth.blogspot.com/

That is a scary piece on TAE today, very ominous, even by their standards.

GEAB is also predicting civil unrest, I guess its a no-brainer actually.

A friend in the US who teaches in the public school system in one state said that their pension fund was zapped by the market crashes there, so much so that 2% of their pay has been indefinitely redirected to the pension system, to support current retirees. Well, 2% is a lot, actually hundreds of dollars per worker, so they're talking about a strike soon. Of course a strike is not civil unrest, but it's starting down the path, it seems to me.

I was reading something the other day about the Russian Oligarchs losing 60% of their combined wealth since April. Roman Abramovitch IIRC lost $12 billion alone.

Even the Queen managed to lose £34 million.

The banks hidden losses must be massive and we've still got a full blown depression to get through yet.

I can pretty confidently guarantee you that when Hank Paulison was on his knees, begging, it was not on behalf of ordinary people like you or I.

I don’t know if anyone on TOD picked up on this guest editorial yesterday in the NY Times by Warren Buffet . In it he basically reiterates the investment advisor mantra of “the market always rises in the long term, so diversify and invest for the long term.”

I read another piece by Buffet some time back in which he averred that, since the long term market returns averaged about 6%, the best or optimal one should expect over the long term is about 6%.

I wonder how the prognosticators of TOD feel about this Warren Buffett endorsement of BAU? Is the ‘Oracle of Omaha’ full of it, or will the US economy and—by extension—the world economy get through this economic messiness in a couple of years and revert back to the growth paradigm? Or… is it different this time?

I wonder if Buffet is shaping up his rhetoric for a possible cabinet position is either prez candidates roster.

My impression is that he has been asked to try to reduce fear amongst financial dudes.

No evidence - just the way it feels.

It's funny that this long-term return of 6% from the stock market is the same as the "real inflation rate" of average 6% since the 1960s. The idea, it seems, is to inflate the currency to punish savers, who are then forced to invest in things which can't inflate, such as stock.

In this light, the stock market hasn't "performed" at all in 50 years, except to serve as a store of wealth, like gold or silver. Makes you wonder if metals are a better deal in the first place.

A pertinent question might be: If Buffet were to have began investing in 1925 instead of 1965, would the outcome have been the same?

Even though I don't think our current situation is anything like 1925 or 1965, it seems to me it has a lot more in common with 1925 than with 1965.

I wonder how the prognosticators of TOD feel about this Warren Buffett endorsement of BAU? Is the ‘Oracle of Omaha’ full of it, or will the US economy and—by extension—the world economy get through this economic messiness in a couple of years and revert back to the growth paradigm? Or… is it different this time?

I'm of two different minds on this. One mind says that it is (will be) different this time, as the world is entering a new economic era, whicht I call neo-Malthusian, where physical resource constraints become important. That mind set, says future growth will be restrained (or perhaps eliminated). The second mindset says that we can innovate enough to make dramatically more efficient use out of fixed resources, i.e. GDP per ton of oil/coal/iron-ore/what-have-you, can be continually increased by better use of technology. My guess is that the second effect will help, fixed physical resources need not be the end of economic growth, but that a lot of innovation/effort that in the past went into baking a bigger pie, will be directed towards maximizing the usage of the pie's ingredients, rather than making the piepan larger, and thus growth will necessarily be considerably slower than before.

This need not be the end of the world for equity prices, at a fixed discount rate (essentially interest rate) decreased growth means lower equity prices. But in a low growth world interest rates should decline as well, and that would tend to increase equity prices.

I think it is difficult to say whether there has been any real economic growth in the US over the past 10 or 20 years. During that time, the financial services industry has exploded, nearly doubling it's percentage of GDP. Was the explosion of derivatives and SIVs real economic growth? I don't think so. What does GDP look like if that is subtracted out?

Also, during that time, various fudges were added to the GDP (like adding in the presumed value of free checking accounts and the "rent" homeowners pay themselves). What does GDP look like if that is subtracted out? What if the falsely understated inflation is corrected?

I suspect that there has been close to zero (maybe even below zero) real economic growth in the US for decades, which is precisely why the fiat currency ponzi scheme is blowing up. As long as you have real economic growth, you can keep the ponzi scheme going indefinitely. That fact that it blew up is prima face evidence that we did not have growth.

So, I think one can make the case that the ability of technology to fuel growth has already played out, at least in the US. Looking back at the 20th century, I think the pace of innovation and technology slowed dramatically as the century progressed. Almost all there was in the last quarter century was computers. Technology isn't going to save us. Technology is petering out.

I suspect that there has been close to zero (maybe even below zero) real economic growth in the US for decades, which is precisely why the fiat currency ponzi scheme is blowing up.

Agreed. However I would suggest adopting a language outside the framework of economic professor double speak. Perhaps by "real" economic growth you mean: sustainable improvement in well-being ?

The question is whether all the frenzied activity of trading papers back and forth in the US economy (which trading "is" an economic transaction) created a sustainable improvement in the well-being of Americans or of all mankind.

Assuming what you say is true then Retirees and Disability recipients are really taking the working stiffs for a ride - especially if GDP growth was fake - these retirees got a raise based on that illusory GDP growth anyway.

1. Social security payments are tied to GDP growth, plus inflation
2. Social security checks go up by 6.4% next year.
3. No payroll or income taxes on social sec. payments (ya ya - you guys are going to tax the top 1% - it is not material)
4. Ref. Leanan's link above on the young working couple with 250k in debt and two kids.

1-4: We (workers) are getting ripped off by Retirees and Disability recipients (the amount of fraud in Disability is very large). And who the heck in the private sector is getting a 6.4% raise next year? You may be lucky to save your job.

I have not even gotten into UNLIMITED Medicare reimbursements.

Given powerful lobbying by the AARP this is not going to change. It may be time for younger workers to work outside the US if you can get a job and move back here for the retirement gravy train.

Where do you get your data or do you just make up things?

1. Social security is taxable. I get SS, I pay tax on it.
2. Next year's increase is 5.8% not 6.4%
3. I never heard of UNLIMITED Medicare reimbursements. What the hell does that mean?

This is what the SSA says about how cost of living adjustments are calculated:

How is a COLA calculated?
The Social Security Act specifies a formula for determining each COLA. In general, a COLA is equal to the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the next.

You need to pay a little attention to reality.

1. Taxable for some...

Regardless it is another income redistribution program.

2. I saw a news release saying 6.4. SSA site is projecting 5.8. We will see what the final number is. Either number is excessive (IMO) given what is happening to non-Government workers. Especially so if the claims of Shargash are correct, i.e., GDP growth is illusory.

3. Medicare is unlimited - The United States Government will pay benefits without a dollar amount limitation


Most private insurance has a $1 million lifetime limit, or less.

Most medicare recipients have paid a very very small fraction into medicare taxes when compared to the benefits they are receiving.

The bankruptcy of this country is due to excessively generous medical and retirement benefits of Union workers, medicare, social security and to a lesser extent medicaid.


IMO maximum medicare and social security benefits should be limited to 2x what one individually paid into the system. Heck, make it 10x, and put a dollar cap on those who made >$50,000 per year and we are still ahead.

Good luck finding a country that has worse retirement benefits than the US.

I don't have data - not sure if that is true in more than few cases.

At the very least, the very cream that provides seed capital for future innovation should never ever be incorporated in the US - e.g. VC funded firms. A US incorporation immediately subjects you to excessive corporate (Fed and State) income taxes with no recourse and vilification to boot.

Yet many start-ups are still incorporated in the US, e.g. so many of the Solar companies. Either they do not hope to be profitable or it is inertia or good old fashioned nationalism. Or it could be that US incorporation makes it easier to list on the NASDAQ/NYSE which are more liquid than non-US exchanges. The US does have strong property rights, but those are weakening with run-away jury verdicts while competitor property rights are strengthening.

Time will tell. The NASDAQ/NYSE fund raising advantage will have to shrink first.

US incorporation could also be a result of our strong Research University system. e.g. Google, should have incorporated off-shore but could have had operational headquarters in silicon valley. However, when those Stanford grad. students started it they were probably just another start-up who found it convenient to incorporate locally.

So we are also going to need strong competitor research universities which is also a challenge since the best in top schools across world always come to America for graduate school. Hopefully a coming Democratic super majority will kill legal immigration under union pressure. That may make grad. school here less attractive.

A couple of Norwegian Universities are getting very good reviews for some technical fields.


I suspect that there has been close to zero (maybe even below zero) real economic growth in the US for decades, which is precisely why the fiat currency ponzi scheme is blowing up

I think there is a lot of truth in that statement. I don't know if a real objective measurement, if we had such a beast, would be zero or negative. But, I am certainly of the opinion that growth was well below the expectations of the people, and hence the temptation to fudge via financial engineering was overwhelming.

It is shocking that finance became such a large part of the economy. I can offer only two explanations:

(1) We have been increasing the fraction of GDP captured by the finance industry by trapping an increasing fraction of the population into a debt trap. Once caught, it is then time to crank up the interest rate to usurious levels. This is a way to grow the amount of revenue collected by credit card and related sectors. Basically enslave the middle and lower classes, in order to generate dividends for the upper class.

(2) Financial engineering, essentially ultra sophisticated ponzi schemes, which are now unwinding.

Right - and if economic growth has been essentially zero with thirty years of LOW oil prices from 1973-2003, then permanently HIGH oil prices spell permanent economic contraction.

If energy were used way more efficiently than it is, then growth or a steady-state situation would perhaps be possible even with modestly high oil prices. But the fact is that most energy-use-inefficiencies are structurally embedded in both our physical infrastructure and our economic superstructure - the latter due to the fact that many, many jobs in our society are predicated upon people buying useless crap that they can now no longer purchase. But useless crap is ultimately completely wasted energy, is it not?

Wow! that was well put.

Do you remember when they recalculated the output of old Soviet satellite economies? It's the old East Germany (GDR/DDR?) that I recall the best: It's growth was revised taking real depletion and other genuine deferred costs into account and poof! Three or four decades of supposed progress became decades of net losses and declining living standards - right in the midst of the best part of the ascending side of the oil curve (they used coal...).

Time for new accounting that takes ALL costs into account before calculating bonuses. Isn't preventing this one of the real targets of the cornucopians? Silly pay packets for their pals (and supporters) and phoney government reporting of progress? It's high time to figure those people out so real or at least "conservative" numbers are used to make decisions.

BTW, I like reintroducing a good old word in its old-fashioned and highly respectable sense. Real conservatives, unlike vapid cornucopians, can help us sort out suicidal economic policies with regard to risk and savings before burning the furniture and eating the cat move up to the top of our menu of choices. It's in everyone's interest (individually and collectively) to plan to set aside a little for the future eg. Prop up oil prices...

It's different this time.

We have just passed the end of global growth. Buffet is a nice man, but was a black swan of an era - he took the right risks then had positive feedback during particular financial conditions. The next decade will not be kind to Berkshire. (but I still like the guy).

I wouldn't be so sure that he's likeable. Maybe he knows that Heinberg is right that growth is over, but has agreed to take on the role of shilling for growth as a way of keeping the masses slumbering while the elites can figure out how to bail while leaving the former holding the bag.

A good test would be to see if he is putting his money where his mouth is. If I remember correctly, he said that he would be putting 100 percent of his personal funds (as distinct from his investments in Berkshire Hathaway) into standard American stocks. Is there any way to check up on whether he is in fact doing this?

And beyond that, if he is so bullish on US stocks, why doesn't someone challenge him to take ALL his holdings out of Berkshire Hathaway and invest all of THAT in U.S. stocks too?

In the absence of both of the above, I really see no reason to trust the man.

Sure, I believe ole Warren B. is investing in the stock market:

I am too!

Maybe its not about money. America isn't going to vanish and somebody is going to control it after TSHTF. Maybe it is some kind of power play by Buffet and the particular brand of elite He's representing.

Now is obviously the time to position one's resources to take advantage of the existing Order's failure. Special interests will be sniffing the air, sensing blood and readying themselves for the change in the ruling elite that's coming.

The slaying of Lehman Brothers seems to have put the brutal game in motion.

"power play by Buffet"

Are you aware of Buffet's history of philanthropy ?

Buffet isn't part of an 'elite' .

What, you mean like the philanthropist George Soros? Get real!

Philanthropy to these people is just a case of pushing their own agenda by other means. And of course Buffet is part of an elite.

There are probably more powerful people in America that are dissatisfied with the way it is going and want to fundamentally change it. Some bad, some good. Regardless, now is the time that they make their move. If such moves presage a change for the better, then god speed to them.

Buffet reflects what Shargash was saying up stream. Looking at Warrens flagship fund, Berkshire Hathaway (BRK.A) its is the single most expensive equity in the world. Seems to mimic what Shargash was saying, the inflationary illusion of the financial sector adding to the GDP by pushing fiat financial papers around.
The gragh shows the implosion of the "ponzi" scheme perfectly. Sure Buffets a good guy, he still lives in a modest home, wears modest cloths and is easy to like.
As opposed too the witch of Wallstreet of a bygone era, dressed in rags, refusing medical attention to a son in ill health, rich beyond emagination, yet frugality taken to an extreem. I think it "is different this time". This time its for keeps.

marketwatch.com had a good retort article entitled "If Warren Buffett is feeling greedy, maybe you should be fearful".

I find these words curious:

>>>... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.).....<<<

As a fiduciary of Berkshire shareholders, isn't Buffet obliged to be acting similiarly on their -- the shareholders -- behalf if he deems American stocks a prudent investment?

It will be interesting to see what purchases Berkshire has actually made in this timeframe in their next SEC filing.

Just a reminder that even if the long term trend is decline from here on out, there will inevitably be a lot of variability in the system. It will still be possible for a few nimble, astute, lucky traders to make lots of money even in a bear market lasting a century or more. Note, however, that for ever winner in that game, there will be lots more losers.

I find most people (including myself) Play the market as well as they play a violin, not well at all. Ive found it easier to play dumb, even that can be screwed up easily.
Getting in and out on something that ocillates yearly of even quarterly is hard enough, when the market swings 700 points a day for weeks on end, as the guys downtown say "Furgitaboutit".
When it gets this frothy, bailing is all any can think about, Iam talking bilge pump action here. Floatsam, Jetsam, Salvage, theres no safe port in this storm.

Yes totally stay out of the stock market! it is better to invest ones time learning to fix things, learning to make things, chatting with neighbors and people in ones community to find out what skills they have that you need and what things they need that you could provide.

Soon, very very soon, the US and perhaps everyone else too will be in a BARTER ECONOMY. You won't be able to go to the big box store, it will be gone. You won't be able to find help from the govt, they are busy barricading themselves behind bank facades.

What do you have that you can sell or trade for food? I don't think stocks will help you at that future point we're headed for. You should spend your time now focusing on local living skills. I am doing this now, and saving money (fixing things instead of buying new ones), probably more money than I could possibly make in this tanking stock market!!

What’s Really Wrong With the Price of Oil

What the country doesn’t want is to remain dependent only on oil — to lose the urgency to develop alternatives. It happened once before. After the gas lines of the ’70s, Jimmy Carter declared that solving our energy problems was the moral equivalent of war. Then, in the 1980s, Americans forgot.

The way to avoid a repeat is to dust off an idea that Gerald Ford once proposed: a tax on oil. Ideally, it would kick in only if the price fell back to, say, $70 a barrel. The beauty of this tax is that, very likely, no one would have to pay it. The tax would merely serve as a floor — a new lower bound. Auto companies would never have to worry that cheap gas would tempt consumers away from efficient cars; investors could finance development of batteries and fuel cells, because cheap oil could never undercut them. Oil itself would be used more sparingly and last longer. The oil market did its part when it sent the price to almost $150. The government should make sure there is no going back.

I hate to point it out here, fearing the highest negative rating ever, but Pres. Reagan ripped those solar panels off of the White House as a symbolic gesture, showing the world how stupid the US was. Probably sold them to the Germans, since they have continuously liked solar.

And, look at where the suggestions of developing efficiency and conservation policies got both Pres. Ford and Pres. Carter.

We want perpetual cornucopia, so idiots just promise it to us and we get great new slogans about drilling. The chanting of them is like some sort of tantric stimulus, but seeking anger instead of peace. W\(Also,when you make lots of money, if we cut taxes, you will not have to pay them like we did. And, when I get angry enough, I am going to become a Republican, too.)

More evidence of demand destruction within Canada's heating oil market in today's Montréal Gazette:

Hydro can't keep up with dual-energy conversions

Special meters in short supply. Six times as many customers changing as heating oil prices skyrocket

Source: http://www.canada.com/montrealgazette/news/story.html?id=17bb1a83-f804-4...

For those who subscribe to the dual-fuel rate, Hydro-Québec charges $0.0433 per kWh for all electricity consumed whenever temperatures remain above -12C (-15C in colder regions); the rate quadruples when temperatures dip below this point, but that's when oil takes over.


Can't fit this into a thread ... a comparison of pre-collapse USSR with today's USA in terms of collapse preparedness. Somewhat chilling.


Around here, we usually cite the copy posted over at The Energy Bulletin:
It's not so cluttered with advertising.

I believe we've had a keypost or two from Mr. Orlov as well. He has also written these wonderful insights into a book, "Reinventing Collapse," from New Society Publishers.

This is a link to my write up of some of the points in Mr. Orlov's book Dmitry Orlov's Book--Reinventing Collapse: The Soviet Example and American Prospects

Future planes, cars may be made of \'buckypaper\'

It's called "buckypaper" and looks a lot like ordinary carbon paper, but don't be fooled by the cute name or flimsy appearance. It could revolutionize the way everything from airplanes to TVs are made. Buckypaper is 10 times lighter but potentially 500 times stronger than steel when sheets of it are stacked and pressed together to form a composite. Unlike conventional composite materials, though, it conducts electricity like copper or silicon and disperses heat like steel or brass.

Might I recommend if it's not already been stated the BEST SIGN OFF/RESIGNATION LETTER EVER

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

EDIT: Andrew Lahde made 870% returns last year betting against subprime.

70 dollars a barrel, that makes me $10 high at predicting $80 at this time http://www.theoildrum.com/node/3457#comment-284561. Shout out to Memmel on your reply

Thus your effectively predicting economic collapse.

I say we are below $80 in November 2008, he would see that coming.

? It's not november yet.

Yeah your right, my timing is a bit off, but come on that seemed silly in January. But basically SAT had it pretty good the way the market gets overbought and oversold, causing downstream effects. It could come back before November, but I think next January is about when the rally will start in for earnest, again.

OPEC meets next Friday, Oct 24.

What is the liklihood they will reduce production and, if so, could it be as soon as November?

Battle between restricting production and demand reduction due to worldwide economic slowdown.


$1,000 a Barrel Oil / $20,000 a Pound Uranium
by Saif Lalani
October 28, 2007

As I had predicted in my earlier article, OPEC is now blaming speculators for high prices. Regardless what OPEC is saying now or will in the future, it will not derail in the oil bull market. Oil will eventually reach over a $1000 a barrel. No that is not a typo. In the next 10-15 years the export market will contract by over 70%. Assuming essential services required to keep society functioning at whatever level feasible are still around, that would mean that the average person in the US would have to cut his consumption by 90%. I think it will take prices at least 4 fold higher from here to achieve that. That multiplied with the Fed's aim to use the US dollar to put “Charmin” out of business will result in at least $1000 a barrel. But the road will a long and jagged one. Prices will spike and dip at every turn. Rumors of alternate energies being developed will cause “limit down” down days and threats on oil infrastructure will have the opposite effect. Through it all Joe Kernen and his his band of illiterate merry men on CNBC will keep trying to tell you that speculators are destroying your life. Sharron Epperson will keep telling you that oil is going down on a particular day because 2 and half weeks of world oil consumption were discovered somewhere. Although production should start after 5-8 years will make little difference to her astute explanations. (Those who saw her reaction after Devon's Jack discovery know exactly what I am talking about).

Finally I would like to add that in spite of the long term outlook for oil prices being incredibly bullish it is possible that a pullback to $70 -$80 could happen at anytime. This does not negate the long term fundamentals. I have stated my case above for why oil could go up 10 fold or more over the next 10 years.

Finally I would like to add that in spite of the long term outlook for oil prices being incredibly bullish it is possible that a pullback to $70 -$80 could happen at anytime.

LOL, so basically he predicted anything could happen, thats genious.


ON: Thu Oct 9th 03:26 AM
Commented on:
Japanese Yen ETF Stands Tall Amid Global Carnage
Well very lonely in the Yen but terrific profits.

I guess it's time to start rotating out of the Yen and into a short gold / long airlines position now.

75% profit in 10 days.

Please consider the possibility peak oil means decreasing oil prices unless the debt is monetized (i.e. unless the govt starts printing money instead of borrowing it).

Let me ask the readership a question.

How bad will the recession have to be (unemployment figures, demand destruction estimates, etc.) for oil to be trading at an average of US$60 a barrel next year?

Because that is what the markets are currently telling me is going to happen.

I'm suggesting wide spread layoffs in the resource industry (in addition to the layoffs that have already occurred in the housing and finance industry).



I'd say I was spot on on that one.

In a drumbeat about a week ago, many folks talked about a blog with the acronym TAE. However, no one mentioned the full name nor shared a link. What is the full name of the blog? I'd like to check it out. Thanks!


Don't visit The Automatic Earth on an empty stomach.

Did you guys see that the bankers on Wall Street and in the City of London stand to get $100 billion on fees and bonuses? Until last week, that may have seemed sort of 'normal', but now, the banks belong to the government, which means you. And that changes the entire picture, because now the people -directly- responsible for paying the bonuses are Paulson, Bush, Senate and Congress.

Who among you wants to pay Lloyd Blankfein his $70 million X-mas present? Well, whether you do or not, you're doing it.

I've been writing for a while about what I see going on, and the reactions have been, let's say, tepid, but I still insist you are witnesses to something far more perverse and perverting than you realize.

In the US, the legislative and executive branches of government have already been taken over, or crippled if you will, by lobbyists and their corporate puppeteers.

If these bonuses are not halted by the remaining, judiciary, branch of government, there is no longer a democracy in America. And that will have far-reaching consequences. I don't mean to propagate or induce anything, I merely observe, but I must say it scares me deeply.

Bloomberg reported yesterday that $30 trillion has vanished from global equity values over the past year. That will translate into a behemoth surge in poverty in the US, and beyond, even before Christmas, but certainly through 2009.

Empires Built on Debt

What we see unfold before our eyes is not an economic crisis. It is something much bigger.

This is a very serious threat to what the founding fathers meant America to be. And it's international, I have a list of 14 countries today that are in real deep doo-doo. Which doesn't yet include Iceland, where people there cannot even access their bank accounts anymore.

Hello Ilargi,

Excellent points. Recall my much earlier posts on Mercs and profitable security--I expect this to expand greatly on the Hubbert Downslope, and nope... their interests will not be geared toward protecting the interests of the common man. Since when does a private corporation own a naval battlewagon?

Blackwater sends warship to Gulf of Aden
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Many thanks for a fine site.
I have probably missed it since I haven't been aware of your site for long, but since presumably there are others in a similar position I wonder if you would clarify a little for me.

Plainly you consider the Paulson bail-out to be just throwing good money into the coffers for the elite, and most of the European measures to be similar.
I would like to know what you would consider to be appropriate measures which might mitigate the inevitable huge down-turn?
Obviously no-one would want to start form here, but given that is where we are, what would you do?


All major financial institutions and governments have tons of securitized paper in their vaults that they, with the permission of their various regulatory agencies, value at X. If they would try to sell it today, it would fetch 1/X. In the US, EU and Canada, provisions have this week been accepted that allow them to claim X is the value.

The reasoning: once the markets do a Lazarus, it will be worth X+y. This paper will have to be exposed to daylight, though, because if it isn't no bank will lend to any other bank. They know how bad the others are, because they know how bad they themselves are. As long as it remains hidden, there will be no Lazarus. A central bank or government can inject $25 billion, or $100 billion, but the losses on the paper will still be far greater.

Yes, the revelation will bankrupt the vast majority, it not all, of the banks, but there is no other way to clean up. What we see now is an ever more expensive attempt at buying an ever diminishing amount of time in which the already deeply bankrupted banking system can limp along a few more inches. The price paid for it is beyond comprehension: the Paulson plan alone costs most American families more than they make in a year. And there will be lots more of these plans, ironically and cynically since they don't work, because they cannot work. You're looking at a coup.

This is the stuff revolutions are made of. Unrest ahead.

There has not been democracy in America for a long time. I think what we are seeing now is just the shriveled up remains starting to be blown away by the winds.

Off the top of my head ... The Automatic Earth ?


thank you!

Hello TODers,

AIG going belly up appears to make it more difficult to expand on Alan Drake's ideas:

MTA may have to cut commuter service

It may not be able to keep trains and buses running if it has to quickly pay investors in AIG-related lease-back deals.

The next potential victims of the nation's credit crunch: nearly 1.5 million people who ride buses and trains each weekday in Los Angeles County. Transit officials say riders could soon be facing serious service cuts.
I hope Cali-residents are gearing up with purchases of bicycles, wheelbarrows, e-bikes, and small ICE-scooters.

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

I am a little concerned about keeping order in the economy with all the resource constraints, environmental problems and financial meltdowns. The chaos is more than a little scary because actions we might consider to be possible solutions to peak oil and climate change are forestalled due to financial freezing and economic contraction. I don't assume anything nefarious on Buffet's part. I think he believes it is in the world's interest (ultimately his) not to panic and to continue investing what we have in American companies. Any positive ideas out there for how to deal with the volatility?

Energy Plan. Draft,

We need and now must, study / plan, an orderly transition to sustainable resources to achieve some level of energy independance this transition is began but what many people want they cannot have as wind and solar can only provide very limited amounts of energy.

Becouse of the finite nature of FF, to try and continue to use them at current levels is not possable.

However the flow rate can, with a [ decline rate considered ] be maintained for X number of years, ,,,THIS,,, question needs to be studyed with great care in order to plan for the decline and increased cost of future available energy supply's.

The only major none FF energy resource is atomic power, this energy resource must be carefully planned and installed without further delay becouse it really does take years to build these power stations. becouse of the sharp output decline in large oil fields such as mexico and the UK north sea and others that I know about, At the end of two or three years not only is it going to be

,,,,,,, very expensive to traval,,,,,,, but also houses are going to be very cold and dark

With out these plants installed we will also enjoy ,,,,,,,unaffordable electricity,,,,,,,,,

Energy Plan. Draft.

Solar and wind are currently being manufactured useing FF and thus the cost must increase to provide these products,, IF we use atom power to manufacture these products we will not be dependant on outside energy support that many now realize we are critically dependent on today.

At the least we are going to need some diplomicy if we cannot vote down carbon caps. I think they will become a lesser issue as all manufacturing / transportation begins a forced decline and the ensuing job losses that we are now seeing.

If FF were a constant energy resource carbon caps perhaps would in some form be needed but with energy resources some soon to be in decline and some already in decline to mandate carbon caps will cause many problems and we are currently dealing with one that is in distress and is also very sensative to haveing more financial stress put appon it by mandating carbon caps.


Hello TODers,

New Fertilizer Rules

The rules for fertilizer just keep changing...Now, with fertilizer prices taking another quantum leap in 2009, the real cost climbs.

Prepay Precautions

Prepaying for fertilizer six to eight months, or even a year, in advance may let you lock in a good price—but you’re tying up a lot more money than you would have just a few years ago. “That raises some questions,” says Farm Journal Field Agronomist Ken Ferrie. “If your fertilizer dealer goes bankrupt after you have prepaid for fertilizer, do you still own the fertilizer? And will your banker accept prepaid fertilizer as collateral if you go to him for an operating loan?

Credit squeeze comes on top of price hikes for farmers

There's new trouble on the farm...

..With confidence dwindling in borrowers' ability to repay loans, some banks are requiring more collateral and higher interest rates from crop farmers, ranchers and meat processors, said Carl Anderson, an agricultural economist at Texas A&M University. "The bankers are turning conservative."

Just saw gasoline at $2.55 tonight as i drove home. I am seeing the general public seeing this as a relief. with the mindset of "see? i knew the price would come back down, this was just a temporary thing".
Honey! I am buying a truck. 5.8 liter quad cab dually, with all the bells and whistles.

But I am trying to figure out why gasoline has dropped so fast, and how much further it will go? does this really have to do with the ability to pay for oil with credit? and the sellers want proof positive that the buyer can pay?

Was the price increase really speculators? or was it supply and demand? For a while I too thought it may have been speculators driving up the price, but I am not so sure. Could this all be be credit driven? Because somewhere in July, the price started dropping. I can't seem to find the link, but i found a reference indicating that sellers of oil want proof of money before they sell the oil.

If that is true, then once this proof of credit issue is resolved (when banks trust other banks liquity) and money starts flowing again, we should see oil and nat gas absolutely accelerate.

on the reverse side, since gasoline has dropped, shouldn't we expect food and other items to start dropping in price?

so confusing these days!

Hello TODers,

I suppose this is one way to save on FFs, but it doesn't seem very merciful:

Spanish NGO Medicos del Mundo on Monday blasted Morocco for abandoning a new group of African immigrants in a no-mans land littered with mines between the Western Sahara and Mauritania.

"One immigrant died when he stepped on a mine in September, his body was never found," Beatriz Relinque, coordinator for Medicos del Mundo in Mauritania, said.

"They were given a bottle of water, a can of sardines and bread and told: 'walk to Mauritania'."

It also condemned the practice two years ago after one of its teams found two severely dehydrated immigrants and the corpse of a third man in the zone.

In a July report, Amnesty International also detailed similar stories told by immigrants to its representatives in Mauritania.