DrumBeat: December 4, 2008

The Peak Oil Crisis: July 2008 – A Month To Remember

Most students of the subject at first thought that world oil production was going to peak for geological reasons --- the inability to find and produce enough oil to keep our annual consumption of 30 billion barrels increasing. In recent years, "above ground" factors such as wars, nationalistic governments, and failure to invest have become the popular reasons for constraints on increasing world oil production among those who for one reason or another do not like the geologic (running out of reserves) argument.

While all these factors are contributing to the likelihood that from here on out less and less oil will be produced, it seems that the initial decline in production will come because the world economic situation has deteriorated so much that we simply don't need 87.9 million barrels a day (b/d) of oil anymore.

Oil Falls Below $44, Lowest Since January 2005, as Demand Drops

(Bloomberg) -- Crude oil fell below $44 a barrel to the lowest since January 2005 and gasoline futures dropped below $1 a gallon as the recession in the U.S., Europe and Japan cuts fuel consumption.

Prices may dip below $25 a barrel next year if the contraction spreads to China, Merrill Lynch & Co. said in a report today. U.S. fuel demand during the four weeks ended Nov. 28 was down 6.2 percent from a year earlier, an Energy Department report showed yesterday.

“We’ve got the U.S, U.K., Europe and Japan all in recession for the first time since World War II, and the oil market is reacting,” said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $5 billion energy-company bond portfolio.

Oil crunch warning from Solarcentury

The premature peak of oil will result in the world’s third largest crisis ever, according to Jeremy Leggett from energy company Solarcentury. He took delegates at the Soil Association conference this month through the recently published Peak Oil Taskforce report entitled ‘The Oil Crunch: Securing the UK’s energy future’.

“This outlines the kind of things that can be done if you take a proactive approach,” said Leggett. “The drop in oil production will contribute to the crisis, but will not be the only variable. The oil industry is following the same cultural failing as the financial sector has.

Energy Investing: Scenarios for a Turnaround

What changed is the near-onset of peak oil and the related fact that when oil demand from developing economies ratcheted up, production could not be expanded as rapidly. So for a while in 2007 and 2008 oil demand ran ahead of available supply, a market condition that required a super-high price of oil in order to “destroy” some of the demand. During that time we saw the oil price behave not as a function of the marginal cost of production but as a function of the marginal requirement for reducing demand.

Let the Good Times Roll

Obviously, the collapse of fuel prices means an end to all the nonsense about "peak oil" and the need to develop a so-called "green economy" for the future, right? Oil will now be cheap and plentiful until — according to ExxonMobil and the American Petroleum Institute — the end of time. And we no longer have to worry at all about the environment.

Iraq rescinds Kurdish oil export deal

BAGHDAD (UPI) -- Iraqi Oil Ministry officials said Thursday an agreement to allow Kurds to export oil was rescinded due to disagreements over royalties and future contracts.

The agreement between Oil Minister Hussain al-Shahristani and Kurdish Region Prime Minister Nejervan Barzani fell apart on Kurdish demands to write future oil deals and over the collection of royalties, Azzaman News reported.

Reports of Gazprom cancelling power sales disputed

MOSCOW (Reuters) - Media reports on Thursday claimed Russia's Gazprom was set to cancel share sales of its electricity companies, though a source in the firm told Reuters no firm decision has yet been taken.

Nippon Oil to merge with Nippon Mining

Nippon Oil Corp., the nation's largest oil distributor, and Nippon Mining Holdings Inc. will merge their operations next year to become the world's eighth-largest oil company, the firms announced Thursday.

Obama Drops Big Oil Tax as Prices Plunge

The plan was for a windfall-profits tax on oil over $80 a barrel. But even though oil is under $50 now, some are upset that the issue is being dropped.

Small Players Vie for ‘Green Car’ Loans

Tesla Motors, a privately held company in San Carlos, Calif., has applied for $400 million in two loans. One would be used to develop an advanced battery and power train for the company’s electric car — currently Tesla makes an electric roadster with a $109,000 price tag. The other loan would be to develop a lower-priced midsize sedan, the “Model S,” using the same technology.

Another application has come from XP Vehicles, based in San Francisco, which is seeking $40 million to develop two electric cars, a two-seat runabout and a four-seat mini utility vehicle.

David Strahan: Pipe dreams

You can imagine the internal contortions when an old friend was once memorably described as a 60s liberal with Catholic guilt. I got the same impression of grinding gears while reading the International Energy Agency's latest long-term forecast, the World Energy Outlook 2008, published last month. In many respects, the IEA's analysis of threats to the oil supply is bloodcurdling, and yet the agency maintains that global production can keep rising for at least two decades. The rich nations' energy watchdog is clearly alarmed, but seems afraid of its own bark.

The IEA's annual forecast has become steadily darker in recent years, but this time the deterioration in its outlook is dramatic. Only a year ago, the agency was predicting that global oil production in 2030 would reach 116m barrels per day, up from around 84mb/d, but now it has slashed that to 106mb/d.

US Stripper Wells More Important than OPEC?

US stripper wells will be the key to determining oil prices over the next couple of years rather than OPEC. Bernstein analysts Ben Dell and Neil McMahon made that argument in a presentation today. “It is quite interesting that OPEC is turning into a largely irrelevant organization,” McMahon said. From what we have seen of late he certainly has a point. OPEC has met three times this fall and is scheduled to confab once again on Dec. 17 in Algeria. It has announced 2 million barrels per day in cuts. Yet the price has now fallen more than 60% to the dreaded mid-$40s per barrel.

Instead, McMahon says the serious, market-impacting production cuts of the next couple of years are likely to come in North America, and especially from small stripper wells that produce only 15 barrels per day or so. Those amount to a hefty 85% of U.S. onshore wells and account for about 18% of such production. These wells require care and feeding and are the easiest to shut down when prices fall. Bernstein figures that as much as 1.3 million barrels per day could eventually come off the market.

Oil May Fall Below $25 Next Year, Merrill Lynch Says

(Bloomberg) -- Crude oil may dip below $25 a barrel next year if the recession that’s slashing fuel demand around the world spreads to China, Merrill Lynch & Co. said.

Global oil demand will contract in 2009 as economic growth slows to its weakest since 1982, Merrill Commodity Strategist Francisco Blanch said in a report today. In October, when oil was around $100 a barrel, the bank predicted that prices may slide to $50. Crude traded at $45.30 in New York today, the lowest since February 2005.

“A temporary drop below $25 a barrel is possible if the global recession extends to China and significant non-OPEC cuts are required,” Blanch said. “In the short-run, global oil demand growth will likely take a further beating as banks continue to cut credit to consumers and corporations.”

Energy Department, change is coming: DOE is expected to get shaken up under Obama's administration, playing a central role in its plans to move the economy to a greener future.

NEW YORK (CNNMoney.com) -- President-elect Barack Obama's pick for energy secretary will likely lead the department through a new era with a sharp focus on renewable energy, but who'll lead a revamped agency is far from clear.

Despite what some may think, the current Department of Energy isn't really about wind or solar power. It's not even about coal, oil or gas. Mainly, the agency is about nuclear - nuclear weapons to be exact.

Norway Bumps Up '09 O&G Investment View to $20.34B

Norway's statistics agency raised on Thursday its forecast for 2009 investment in the country's oil and gas sector by 9.6 percent to a record-high 145.5 billion crowns ($20.34 billion) but trimmed its 2008 estimate slightly.

The 2009 estimate for investment in the sector, which contributes a quarter of Norway's GDP, is up from a forecast of 132.8 billion given in September.

"The increase is mainly due to higher estimates (for investment) in fields on stream," Statistics Norway said in a statement.

Financial crisis a distraction, says Nobel winner

LONDON (AFP) — The global financial crisis is distracting attention from other pressing issues such as high food and energy prices, and environmental damage, Nobel peace laureate Muhammad Yunus told AFP Wednesday.

The Bangladeshi economist warned that not addressing those other issues would lead to a "much bigger crisis ahead" that would have political and financial implications.

Richard Heinberg: Economists Without a Clue

Prepare to observe the spectacle of the two great economic paradigms of the twentieth century crashing to the ground, locked in mortal combat.

John Michael Greer: Taking Evolution Seriously

Back in 1904, sociologist Max Weber proposed that the modern period was witnessing “the disenchantment of the world” – a process which traditional mythic ideas that wove meaning into human experience were being replaced by the alienating and dehumanizing worldview of materialist science. There’s some truth to Weber’s thesis, but I’m not sure he anticipated the inevitable backlash: the Procrustean stretching and lopping of scientific ideas in the popular imagination that has turned many of them into substitute myths.

West Australia Gas Users Say Outage Report Backs Supply Concern

(Bloomberg) -- An Australian Senate committee report on Apache Corp.'s gas plant shutdown off Western Australia underlines the need for greater security of supply and competition, a group of gas users in the state said.

The report on the Varanus Island outage from the Senate economics committee shows the need to diversify the state's supply beyond the North West Shelf by developing smaller fields near the state capital of Perth, Stuart Hohnen, chairman of the DomGas Alliance, said today in an e-mailed statement.

Forget about renewable energy in Israel, Infrastructure Ministry says

We can forget about renewable energy in Israel, according to National Infrastructure Ministry Director General Hezi Kugler.

...At this stage, renewable energy is a luxury: the stimulous plan seeks effective programs that can generate positive income, not consume subsidies, Kugler explained.

Roadmap for a Changed Landscape: Consolidation and Integration in Solar PV

The financial storm the world is going through might turn out to be positive for solar power. By speeding up consolidation, the current crisis could end the current fragmentation and facilitate the emergence of industry behemoths, with a game-changing ability to deliver massive economies of scale.

That, in turn, would shift the industry towards grid parity — the point at which the cost of renewable power is equal to that of traditional fossil fuel energy — starting with the most favorable regions. Through a domino effect on installed system prices in adjacent regions, this may engender a real "big bang" for solar energy that could quickly snowball its way to dominance of the electricity generation market.

Rich, poor in dispute over rainforest cash

POZNAN, Poland (Reuters) - Brazil ruled out on Thursday letting rich countries offset their greenhouse gas emissions by helping to save the Amazon rain forest, an idea under active discussion by the European Union.

Indigenous peoples attending United Nations-led climate talks in Poznan protested that they had no chance of seeing such carbon cash, and appealed instead for money first to root out corruption and cement their land rights.

Point of No Return for the Arctic Climate?

Temperatures in the Arctic are rising much faster than elsewhere in the world. Researchers now say it may be the result of a dramatic shift in global climate patterns. If they are right, ice at the North Pole may soon be a thing of the past.

ANALYSIS - Ambitious projects drive Saudi $75 oil policy

RIYADH (Reuters) - Saudi Arabia's newly declared $75 a barrel target price for oil aims to ensure crude export revenues can fund ambitious development plans in the kingdom.

Saudi King Abdullah on Saturday said that $75 was a fair price for oil, the first time in years that the world's top oil exporter has named its price. The 85-year-old leader is determined to avoid periods of fiscal irresponsibility that have marred the rule of previous Saudi monarchs, analysts say.

"King Abdullah is thrifty. He hates borrowing," said one source who has spent more than 20 years working at the kingdom's central bank, the Saudi Arabian Monetary Agency (SAMA).

Oil hits near 4-year low on weak economic news

VIENNA, Austria – Oil prices sank Thursday to lows last seen nearly four years ago as more bleak news from the world's largest economy boosted views that crude could tumble below $40 by the end of the year.

After sinking more than $1 earlier in the day to approach levels traded at in February 2005, light sweet crude was trading at $46.10, down 69 cents in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract fell 17 cents overnight to settle at $46.79.

"You could see prices testing $40 by the end of the year because the economic data is really ugly at the moment," said Christoffer Moltke-Leth, head of sales trading at Saxo Capital Markets in Singapore. "Demand destruction is still very much the concern."

Missouri customers revel in falling gas prices

Regular at Casey's General Store in Kansas City was $1.39 Wednesday. In June: $3.89.

"A lot of people seem happier, more stress-free," manager Mandy Krebs says. "But they're on edge."

Some customers top off the tank three times a week. "They believe it's a hoax," she says, "that we're going to wake up one morning and it's going to be up to $4 again."

Mexico: The Next Disaster - Narco violence is exploding - just as oil prices are plunging and Mexico is bracing for a deep U.S. recession.

Is Mexico descending into criminal and economic chaos? "Failed state? That is a very irresponsible remark," bristles Arturo Sarukhan, Mexico's ambassador to the U.S. "The challenge of corruption is being taken on. We are rooting out people who have been infiltrated. Look at the role of the Mexican private sector and civil society. Nowhere can you see signs of anything akin to a failed state."

But there is urgent concern north of the border about a potential strategic threat. "We're fixated on Iraq and Afghanistan, but from a homeland security perspective, right here on our border, isn't this more important?" asks Fred Burton, a former State Department counterterrorism official, now a vice president at Stratfor in Austin, Tex.

SK Energy may scrap Kurdish deals, eyes Iraqi oil

BAGHDAD (Reuters) - Iraq's Oil Ministry said on Thursday South Korean refiner SK Energy had "expressed its willingness" to cancel contracts with the Kurdish Regional Government.

Chile Has First Month of Deflation Since 2007 on Fuel

(Bloomberg) -- Chile had its first month of deflation in November since February 2007 as fuel costs plunged.

The country’s consumer prices fell 0.1 percent last month, compared to a 0.9 percent rise in October, the National Statistics Institute said in a report released in Santiago today. Prices fell less than the median estimate of a 0.3 percent decline forecast by 19 economists in a Bloomberg survey.

Schlumberger warns on 2008 profit, shares lower

HOUSTON/SAN FRANCISCO (Reuters) - Oilfield services leader Schlumberger Ltd said on Wednesday its 2008 profit would fall short of Wall Street estimates as the global economic slowdown hits spending on oil and gas exploration.

Russia will cut gas supply if Ukraine does not pay: Putin

MOSCOW (AFP) – Prime Minister Vladimir Putin warned Thursday that Russia would cut natural gas supplies that transit through Ukraine to Europe if Kiev does not pay its bills or siphons gas meant for other customers.

"If our partners do not fulfil their agreements, we will reduce deliveries," Putin said in a televised question-and-answer session with Russian citizens, referring to Ukraine.

Cyprus complains to UN over oil dispute with Turkey

NICOSIA (Xinhua) -- Cyprus has complained to the United Nations over its oil dispute with Turkey, accusing Ankara of harassing oil exploration vessels within its exclusive economic zone, the semi-official Cyprus News Agency reported on Wednesday.

In a letter to U.N. Secretary-General Ban Ki-moon in late November, President Demetris Christofias cited at least three more" serious incidents taking place involving the harassment of research vessels by Turkish warships in the exclusive economic zone of the Republic of Cyprus."

One killed in attack on ExxonMobil in Nigeria: company

LAGOS (AFP) – Mobil Producing Nigeria (MPN) -- a subsidiary of US oil group ExxonMobil -- said on Thursday that one person was killed during an attack on one of its convoys in the southern Nigerian state of Akwa Ibom.

Unknown gunmen attacked the convoy on the road between the town of Eket and the Qua Iboe oil export terminal Wednesday, the company said in a statement.

Addax Says Vessel Attacked Near Nigerian Oil Facility

(Bloomberg) -- Addax Petroleum Corp., the Swiss oil producer focusing on Africa and the Middle East, said a vessel was attacked near one of its crude oil facilities in Nigeria.

The vessel, the Oceanic Orion, was attacked near the Addax- operated Adanga crude oil flow station, Geneva-based spokeswoman Marie-Gabrielle Cajoly said in an e-mailed statement today. “There have been no casualties and no impact on production,” she said. She was unable to give further details.

EU to push for Caspian gas line

ASHGABAT, Turkmenistan (AP) — The European Union will push harder for a pipeline to carry natural gas from the Caspian Sea region to Europe while bypassing Russia, a senior EU diplomat said Wednesday.

Russia's war with Georgia underscores the need to step up preparations for the prospective Nabucco pipeline, EU special representative Pierre Morel said after meeting with the leader of gas-rich Turkmenistan, President Gurbanguli Berdymukhamedov.

Iran's reformists say president squandered oil cash

TEHERAN - Iran's main reformist party accused President Mahmoud Ahmadinejad on Thursday of squandering windfall oil earnings and driving up inflation, part of its campaign to oust the leader at an election next year.

Most Iranians complain about high inflation, at over 29 percent, and rising unemployment. Analysts say the economy will be the main focus of the June 2009 election when Ahmadinejad is expected to run for another four-year term.

Shell Says Fire Breaks Out at Pernis Refinery

(Bloomberg) -- A large fire broke out today at the gasoline-making catalytic cracker at Royal Dutch Shell Plc’s Pernis refinery in the Netherlands, the Rotterdam fire department said.

...A Shell spokesman in The Hague, who didn’t want to be identified by name, declined to comment. The refinery is Europe’s largest, with a capacity of 416,000 barrels a day. The refinery’s catalytic crackers can process 50,000 barrels of gasoline a day, according to data compiled by Bloomberg.

China May Start Fuel Tax, Change Pricing in January

(Bloomberg) -- China, the world's second-biggest energy consumer, may implement a retail fuel tax and changes to oil pricing as early as January, said the deputy head of the nation's economic planner.

Russia-Vietnam joint oil venture cuts output 12% in 2008

MOSCOW (RIA Novosti) - Total crude output in 2008 by the Russian-Vietnamese joint oil venture Vietsovpetro will reach 7.7 million metric tons (56 million barrels), a drop of 11.5%, year-on-year, the Russian partner said on Thursday.

Rosneft Says Fourth Quarter Will Be ‘Difficult’

(Bloomberg) -- OAO Rosneft, Russia’s biggest oil producer, said the fourth quarter will be “difficult” because revenues will be reduced by lower oil prices and a high crude export duty.

Russia delays gas flaring target to 2014

MOSCOW (Reuters) - Russia has delayed its plan to reduce gas flaring to 5 percent by three years to 2014, Russia's Natural Resources Minister Yuri Trutnev said on Thursday.

Feds halt plan to drill in scenic Utah canyons

SALT LAKE CITY - A section of whitewater rapids tucked between high cliffs, little-changed since explorer John Wesley Powell boated through in 1896, and a canyon decorated with thousands of ancient rock art panels have been pulled off the auction block by the U.S. Bureau of Land Management (BLM).

For the second time in a week, the bureau announced late Tuesday that it was pulling auction parcels from an expanded oil-and-gas leasing program in Utah. The latest tracts include land inside Nine Mile Canyon and Desolation Canyon on the Green River.

Obama's First Policy Retreat?

Did Barack Obama just break his first campaign promise?

On the campaign trail, Obama railed against big oil companies. He often criticized John McCain for backing tax cuts that would reward ExxonMobil and other top oil manufacturers. But now Obama's proposal to apply a windfall tax on big oil has vanished... at least from his transition website. The President-elect's transition team hasn't explicitly announced it will drop the windfall tax plan, but a transition aide, commenting on the condition he not be identified, backed off the promise in an email. "President-elect Obama announced the [windfall profits tax] policy during the campaign because oil prices were above $80 per barrel," he said. "They are currently below that now and expected to stay below that."

Australia: Greens want limits imposed on infrastructure fund

The Greens will not back the Rudd Government’s Building Australia Fund unless it rejects roads and coal ports, focuses more on climate change and adopts greater transparency.

Greens spokeswoman on transport and climate change Christine Milne wants the fund—which will be used to finance port, road, rail and communications projects—to be overseen by a parliamentary committee.

A vital part of the fabric of our lives

I've been hearing predictions of peak oil -- the point at which world oil production reaches its maximum and begins to decline -- since I was a junior at Cleveland High School back in 1970. And I've heard the people who hate cars, whether for environmental or social reasons, use the concept as the reason to not only radically reform the way we get around, but also the way we shop, work and live. Most of Metro's 2040 plan is based on density development on transit routes where people no longer use or need cars.

Unfortunately, just like a group of cultists sitting on a hilltop awaiting the fulfillment of their end of the world prophecy, the date for peak oil keeps getting pushed further into the future. I'm sure the world's oil will run out eventually, but I don't think it will be anytime soon. When it does, the automakers will be ready.

Expert view: Difficult decisions over future energy

CONCERNS over global warming and the realisation that oil will not last forever has focussed increasing attention on our over reliance on fossil fuels.

Although there are many potential alternatives to fossil fuels, there are none sufficiently developed to provide a credible alternative in the foreseeable future.

The reality is that, although we are very good at distributing energy and making sure the petrol stations have sufficient supply, there is little sign that as a nation we have, or ever have had, a practical energy strategy.

New turnpike partnership could give Bay State cash

BOSTON -- A public-private partnership could make the operation of the Massachusetts Turnpike Authority more efficient, a transportation expert said Wednesday as government officials discussed alternatives to a proposed doubling of Boston-area bridge and tunnel fees.

Solar a Bust in Spain

Call it irrational exuberance or greed. Companies that couldn't get enough solar panels to build power plants in Spain earlier this year are now trying to sell megawatts worth of panels at a deep discount.

Second biggest off shore wind farm in the world to be built off UK

One of the biggest offshore wind farms in the world is to be built eight miles of the North Wales coast, despite local protests.

As sales plummet, Nice electric car company goes under

Electric car sales have more than halved this year. Just 156 were sold from January to October 2008, compared to 374 for the same period in 2007, down 58%.

The figures come as one of London's two electric car distributors, Nice Car Company, was put into administration.

Set up in 2006 by ex-Lotus colleagues Julian Wilford and Evert Geurtsen, Nice had been selling an all-electric version of the French-made Aixam Mega. It had also planned to expand its range by the end of the year, selling a Chinese-made two-seater called MyCar and five-seat MPV called the Ze-O.

However, administrators were called in last week following a torrid year in which sales fell to fewer than one car a week.

Going Green, which distributes the best selling G-Wiz, is also suffering significantly reduced sales. Volumes are well down on 2007 despite a revised model with improved performance and better range.

Why Algae Will Save Us from the Energy Crisis

Forget wind power or solar power or all the other promising but frustratingly incremental solutions to America's energy crisis. The answer, instead, could be algae. It's plentiful and, like corn and soybeans, can be processed into oil and gas to power our facto-ries, cars, and airplanes. But unlike ethanol, oil made from algae won't compete with the food supply. And because algae can grow off a power plant's carbon emissions and greenhouse gases, it can help solve, rather than exacerbate, global warm-ing. According to some estimates, by dedicating just 2 per-cent of its land mass to algae production, America could meet all of its energy needs.

The U. S. government abandoned its algae-as-fuel research program in 1996 because it didn't think it could ever get the price competitive with petroleum oil. But with oil prices now far higher and global warming an ever-increasing concern, interest in algae oil is back, and tens of millions of dollars of venture capital has followed. There are dozens of different approaches, but the end goal is the same: to find a production method that will fuel America -- and the twenty-first century.

Replacing Corn With Perennial Grasses Improves Carbon Footprint Of Biofuels

ScienceDaily — Converting forests or fields to biofuel crops can increase or decrease greenhouse gas emissions, depending on where – and which – biofuel crops are used, University of Illinois researchers report.

Capturing the ocean's energy

Despite daunting challenges, technology to harness the power of the waves and tides is now being deployed around the world – from Portugal to South Korea to New York's East River. These projects, just beginning to produce electricity, are on the cutting edge of renewable energy's latest frontier: hydrodynamic power.

How Fishy Technology Could Power the Future

Think like a fish not like a bird, say researchers trying to harvest energy from water currents. Their new fish-inspired power generator can work in slow-moving currents where traditional turbines are less effective.

Tidal streams and moving rivers in the United States could generate 140 billion kilowatt-hours per year, or about 3.5 percent of the nation's electricity demand, according to the Electric Power Research Institute (EPRI).

Solar car completes 1st ever round-the-world trip

POZNAN, Poland – The first solar-powered car to travel around the world ended its journey at the U.N. climate talks Thursday, arriving with the message that clean technologies are available now to stop global warming.

Australia's white possum could be first victim of climate change

The nocturnal animal, which is native to the Daintree rainforest in Tropical North Queensland where it lives off moisture in the trees, has not been sighted for three years despite extensive searches.

Russia to Stockpile $58 Billion of Kyoto CO2 Credits

(Bloomberg) -- Russia will stockpile an estimated $58 billion in carbon-emissions credits it’s accumulating by performing better than required under the Kyoto global-warming treaty to reduce greenhouse gases.

Victor Blinov, deputy chief of Russia’s delegation to United Nations climate talks in Poland, said in an interview that credits not needed to comply with the Kyoto Protocol will be used instead for a successor treaty that’s being negotiated to take effect after 2012. None will be sold to other nations, Blinov said.

From hoof to dinner table, a new bid to cut emissions

STERKSEL, the Netherlands: The cows and pigs dotting these flat green plains in the southern Netherlands create a bucolic landscape. But looked at through the lens of greenhouse gas accounting, they are living smokestacks, spewing methane emissions into the air.

That is why a group of farmers-turned-environmentalists here at a smelly but impeccably clean research farm have a new take on making a silk purse from a sow's ear: They cook manure from their 3,000 pigs to capture the methane trapped within it, and then use the gas to make electricity for the local power grid.

Greenhouse gas emissions increase in US

WASHINGTON – The amount of U.S. greenhouse gases flowing into the atmosphere, mainly carbon dioxide from burning fossil fuels, increased last year by 1.4 percent after a decline in 2006, the Energy Department reported Wednesday.

The report said carbon dioxide, the leading pollution linked to global warming, rose by 1.3 percent in 2007 as people used more coal, oil and natural gas because of a colder winter and more electricity during a warmer summer. Half of the country's electricity is generated by coal-burning power plants.

A shortage of hydropower also contributed to an increase in the demand for fossil fuels, said the department's Energy Information Administration.

So if TODer's were to choose the energy source of the future, which one would it be?

a) Thorium Fluoride Nuclear Power
b) Oil producing algae
c) Ocean power
d) None of the above.

If I had to choose between those 4, i'd go b, followed closely by a.

Interesting poll subject VK. Do you think adding a time frame would be useful?

No idea Rockman but as a guess i'm thinking the time frame is URGENT! within the next 10 years?

Making one of the points I always make, the question also depends on how quickly you can ramp up production/deployment of various things, particularly with regard to suitable levels of safety. Although my understanding is that the generation density of wind power is too low for it to be an ideal technology, it does have the advantage that the absolute worst case if it goes wrong is that you might get in rare circumstances one person killed by a collapsing/exploding wind turbine. On the other hand, whilst I'd really like to see nuclear technologies deployed in an incrementally ramping up way leading to extensive use in maybe 50 years, I really don't want, as a vague estimate, 50 nuclear plants of exactly the same initial design built in the UK within the next 10 years. (Look at Holyrood palace in Edinburgh and the millennium bridge for two examples of typical non-safety critical engineering that have been screwed up in the UK.)

So I'd vote for the "all of the above, plus solar heating and to a lesser extent photovoltaic".

Though there were reports this week of ice being projected from a turbine causing some concerns - though I can't see this becoming much of an issue.

Watch out, if someone gets hit and sues, wind turbines builders will have to install containment vessels.

In that case VK I'd have to choose none of the above. There are approaches to be followed but it's difficult to imagine any effort to be scaled up to a significant level in less then 20 years. We do need to start now..it is URGENT. But even with a healthy economy and abundent credit it would take many, many years IMO. But that's not where we are today. Given the continuing deepening recession I doubt any real progress can even begin for 5+ years. It's that same scalability problem we keep running into.

None of those technologies will produce any significant amount of energy in the next 10 years.

Wind, traditional fission, solar thermal, and maybe solar pv are the only technologies that could be ramped significantly in that time frame (pv less so due to materials shortages). Assuming the will and capital were present to do so.

You left one out:

e) All of the above and solar too.

Until we try out the various options, there's no way to make a choice.

I do think that (b) isn't likely to work out, since the mass of material other than the water/algae mix is going to be large. Growing "oil producing" algae in open ponds was shown to be a bad idea by the NREL, due to rapid contamination from wild type species which don't produce oil. That means the only way to grow "oil producing" algae is by building massive closed systems, which would be much more expensive than open ponds. Not to mention that algae doesn't grow when the temperature is below about 40F, so production will be seasonal, just like any other crop.

E. Swanson

Are solar and wind scalable? On a side note some possible progress with regards to thorium power here

New Delhi, Dec 4 (PTI) Engineering and construction firm Punj Lloyd and U.S.-based Thorium Power would form a JV company by March 2009 to provide consultancy service for setting up nuclear power plants in India, Southeast Asia and other regions and operating them.

India has the second largest thorium reserves in the world and the successful launch of thorium technology would make the country self reliant.

I'm guessing that one of the main drawbacks of thorium power is that it is still largely untested, the question of scalability and how much water it uses as well?

Are solar and wind scalable?

Wind certainly has proved itself to be. Spain this year set a record with getting 40% of its entire power demand from Wind Power:

New Wind Power Record in Spain: 40.8% of Total Demand!

Last year we wrote about Spain's wind power production record, which was 27% at the time. That seemed like a lot, but a week ago, Spain's wind turbines produced 40.8% of total demand, or 9,862 megawatts of power.

Hope! :D

That's a bad thing; who wants unusable spikes to 41%?

Wind power contributes on average 11% of Spains electricity demand but it's distributed into spikes that are hard to absorb and lulls that are hard to mitigate(which no doubt creates "security of demand" for Gazprom). There's not even a hint off a plan to build the massive storage they will need.

It wouldn't surprise me if they pay negative prices for wind much of the time(just like the Texas ERCOT, see http://www.knowledgeproblem.com/archives/002745.html)

Wind and solar are very scalable.

What you need is a VERY good grid, some overbuilt capacity, and the externalities of coal priced in.


We probably agree on much but I suspect we define scalability differently. Most of the alts can be constructed on commercial levels. When some of us refer to scalability problems we mean the combination of the lack of investment capital and the timing factor. Given a couple of decades and trillions of $'s many of the alts can development a significant impact on our energy consumption profile. But, as you say, we need a "good grid". So how long before the grid is expanded before the alts can be scaled up? Certainly not 4 or 5 years. No one is even approaching that one problem at the moment with any meaningful action. How long before we see solid political mandates supporting alts? More time delay. How long to build the infrastructure to build the hardware for any alt expansion? And where will that capital come from these days?

Perhaps the use of scalability in this manner is the best nomenclature but it's a common theme in many discussions.

I was referring to technological scalability, not political.

Technologically, we have no problems. We have plenty of oil and coal to fund a 30 year transition. Politically, as you point out, we are screwed.

Liquid fluoride salt thorium/U233 cycle nuclear reactors were built and successfully demonstrated in the US by Oak Ridge Nat'l Labs in the '60s. I'm not aware of any commercial scale thorium reactors at present, but the concept has significant advantages - and some modest technical challenges - compared to the current light water uranium/plutonium cycle that is the standard in the US.

See Energy From Thorium for more details.

Yet there are a lot of people out there working on it. Most of the stories in the news talk about open-pond types of systems, and they just let native species grow in it instead of trying to optimize for oil producing algae. What this means I don't know - one would presume that there is some subsequent step to convert the algae into something fuel-like, but I haven't seen enough details about any of them to say more than that.

d) None of the above.

A ridiculously large portion of our economic activity can be retooled to perform on less energy. That is the answer.

Agreed...POWER DOWN !!!

Stop the waste. There must be an end to the MORE, MORE, MORE attitudes.


d) None of the above

The presumption in your poll question is essentially "how do we keep BAU going?"

The problem we face is not simply an energy issue. The problem is our worship of growth and material prosperity. Any energy source that allow that worship to continue is to be spurned. The solution is not what new energy source do we need, but how do we learn to live lives that are not based on the consumption of ever more resources.

I've been reading a bit of Overshoot by William Catton, still on the first chapter but it seems that humanity is well over its carrying capacity and we are drawing down more resources than over before and we are basically going to systematically exclude more and more people from access to resources by virtue of increased competition.

The Problem with growth and consumption is that they have essentially become religion and dogma. How do we circumvent this desire for more (of which I am guilty of as well) as it appears to be genetic? We are on a hedonic treadmill where enough is never enough!

As several posters commented in response to Carl Etnier's request the other day, "Overshoot" is one of the essential reads regarding PO and the greater human predicament of which PO is merely a symptom. Catton describes the big picture beautifully, and did so nearly 30 years ago. Completing my personal trifecta of sources for groking said predicament are Al Bartlett's talk on Arithmentic, Population and Energy and the documentary What a Way to Go: Life at the End of Empire.

I know that others here will disagree, but to say something is "genetic" is merely to stop asking question. You have not really explained anything. On top of which, there is no way you or any geneticist can claim a proven connection between a gene configuration and a behavior.

Here's a fact you can count on, though. Most of human history has been lived without the sort of over-consumption that defines modern human history. Even if you count only the recorded history, the great majority of people have not pursued over-consumption. Considering this, its hard to see how this could be "genetic" (by which you really meant unavoidable or predetermined).

"Most of human history has been lived without the sort of over-consumption that defines modern human history."

Shaman, that's not true.

We, our species, spread across the globe at least in part because of a series of local "over consumption" periods - sort of a mini-"punctuated equilibrium"-like growth.

Each occasion of local "over-consumption" ended with a visit by the 4 Horsemen of The apocalypse.

The absolute misery of those periods drove the migrations of all of our ancestors (not just the white trash from europe), in all directions, to every crevice of the globe in search of resources for further growth.

There was always a new place to go with new materials and new, improved energy sources to be discovered.

Until This TimezUp.

Nature is no longer our Lender of Last Resort.

modern human overconsumption may have an analog in geologic history - the dinosaurs. one reason i dont buy the comic book asteroid kills dinosaurs version, jmo.

Mahatma Gandhi came close when he said that "there is enough in this world to meet everyone's need but not everyone's greed". He should have put "probably" in there as well.

BAU will kill us.


We are already dead......

Read thru the list of today's Drumbeat. See anything, even remote, that lends us to believe the tide is turning in the right direction to save anyone?

One could have read the magazines on the deck of the Titanic, after it hit the iceburg, and had more of a chance of survival, than most anything currently written.

PEEWEE..!!! What time is it??

I'm not dead yet. Someday I will be, regardless of what happens. It's not every generation that gets to witness population collapse, mass extinction and abrupt climate change. Quit complaining, open your eyes to wonder, and enjoy the ride.

Quit complaining, open your eyes to wonder, and enjoy the ride.

We're all dummies...

;) You got it!

I do think that (c) is underestimated and neglected at present. There are multiple possibilities: tidal, wave, thermal gradient, and currents. We certainly do need more R&D on these. These are more a matter of applied engineering rather than basic research; we've got time for applied engineering, but I'm afraid that we're already out of time when it comes to deploying something that hasn't even been discovered yet.

The big problem with oceanic power schemes is pretty much the same as with many other renewable megaproject schemes - the distance that the energy must be transmitted to end users. There is no point in considering any energy project unless the transport/distribution system is included in the analysis. There might also be environmental considerations. We've already gotten ourselves into enough problems by messing around with global GHG levels without knowing what we were doing; we had best exercise a lot more care before we start messing around with the oceans on a large scale.

Of course, what is now becoming obvious as the biggest problem of all is: money - as in "not enough of it". It might be pointless to talk about large scale technologies of any type if large scale financing is simply impossible. The future in energy may very well be low tech, small scale, and distributed, simply because that is the only possible energy future that anyone can afford.

I think that to be more realistic, for most people living in most places in the future, the answer is going to have to be (d).

Some of the possibilities in ocean power look very hopeful, and in the UK distances are less to transmit the power.
Thorium reactors are also very exciting.
Unfortunately, I don't think we have the time to roll either out on a large scale for many years at best.

So my answer would be d)None of the above.

What will work in my view is aggressive conservation, wind power, some solar power in very sunny locations, the amount to be determined by the early solar thermal plants being tested, and air source heat pumps.

The critical reason for this approach is the difficulty of finance for the long term in the current climate.

Longer term, I don't think we have a real choice in the UK save to go to nuclear, off shore wind is nice and can supplement but I don't think we will be able to afford much of it.

The US in reality will probably burn more coal, but I would hope that this can be mitigated by conservation - not being able to afford it does wonders for that!

How about oil palms? New hybrids promise much higher yields and plenty of land in the Amazon.
But, forget about alternative fuels for the next several years. Financing is gone; the public doesn't care. Oil headed for $10 a barrel. Nobody (outside energy mavens) is going to care poop about alternative fuels or energy for the next five years.
Worse, if this is an "L-shaped" recession (as forecast by gloomy-doomies at The Economist magazine) oil demand may not recover for 10-15 years. It could be 20 years before the Peak Oil movement gets traction again.
Kinda like the last time, at the end of the 1970s, and the "Limits to Growth" movement. I wonder if the price mechanism pushes off "Peak Oil" consequences in 20 year increments.

plenty of land in the Amazon.

Get a clue.

Rainforest Destruction Speeds Up

The people who monitor forest clearance say more than 4,500 square miles of Brazil's tropical woodland were chopped down from August 2007 to July 2008. That's an area more than half the size of Wales and nearly four per cent bigger than in the previous 12 months.

The lush forest is known as "the lungs of the world" because the trees breathe in gases like carbon dioxide - which are harmful to us - and breathe out oxygen, cleaning the air for us.

But, forget about alternative fuels for the next several years. Financing is gone; the public doesn't care. Oil headed for $10 a barrel.

... Kinda like the last time, at the end of the 1970s, and the "Limits to Growth" movement.

What is your point? What is palm oil if not alternative fuel? How can a credit collapse be anything other than what it is, a calamity?

I don't think any business or industry - and few individuals - would agree the current credit failure extending perpetually into the future as having many compensating benefits, certainly not as a leading condition to keeping energy prices low. If your desire is to have a growing economy with low prices, it is not realistic.

Any racheting upward of economic growth here in the US would have energy prices hiking upward ... and dramatically, too. At the same time, government actions to end the credit crisis are making more likely a payment- centered energy shortage is in the near future:

"There is a lot more money to be spent and it is not clear how it is going to be financed,” said Tim Brunne, a Munich-based credit strategist at UniCredit SpA. “Credit spreads don’t reflect expectation of default, just the uncertainty over the enormous cost to the government.”

The Fed’s new plan to kick-start markets for loans to students, car buyers, credit-card borrowers and small businesses means it will be taking on credit risk by buying debt. The central bank pledged to purchase as much as $500 billion in mortgage-backed securities as well as up to $100 billion in direct debt of Fannie Mae and Freddie Mac, the world’s two largest mortgage buyers, and Federal Home Loan Banks.

“They are loading their balance sheet with credit risk,” Brunne said in a phone interview. “Where does all the money come from?”


In case you haven't noticed, the auto industry is standing at the edge of the abyss. I suppose if all the car makers go out of business, there will be a lot less demand for fuel, which would certainly keep prices down.

Something to look forward to ...

I'd guess that if the car-makers go out of business due to very low demand in the short term at least oil demand might be higher than it otherwise would be.
All the old clunkers will be kept on the road, whilst there will be severe pressure on oil prices with that kind of depth of recession.

So the SUV's will continue to roll, right up to the point where the oil runs out due to the lack of investment in the oil industry in that low price environment - 2012?

VK, forget the techno-scientific-voodoo. Soon the global middle-class is going to suffer a catastrophic structural collapse, throwing many into a world of poverty they didn't know existed. And, as many here are middle-class, why not poll them on what preparations they are personally making to ensure they survive it.

The future is less than what we have today. Anyone making plans on a future with what we have today or more (ie. Noddy electric cars, magical power production systems, etc.) is going down with all dependants.

Maybe its time for people to get serious and start dealing with reality, before it deals with them. Do the poll!

I would say first that whatever the source(s), the total amount supplied will be much less than it is today.

I would secondly say that it will need to be less and less dependent on underground resources (i.e. underground hydrocarbons, metals, many minerals) since these are either depeleting or will become increasingly inaccessible because of less energy.

This leaves biological sources of whatever form, plus hydro, plus solar, plus wind -- but increasingly without metals further down the road. 1491 by Mann has some very interesting material on pre-Columbian bio-technology in the Americas.

Parenthetically: I don't know how long the metals we've already extracted can be kept in play by recycling, but I'm sure it's an issue that will eventually get a lot more attention.

This is a fascinating article about the effect of oil tanker speeds on oil supplies as the price of tanker fuel goes up. This is something I have never seen addressed on the oil drum, but it seems very significant. - Emanuel


When the Turn Comes for CL, it could be vicious
My rough estimate says that at any given time in recent years about 600 to 700 million barrels of crude oil are at sea, enroute from exporters to consuming countries.

As a shipowner, about the only cost I have much control over is my fuel cost. Financing and insurance costs are a function of time--so much per month or year. Maintenance is also mostly a function of time, but it might be defered during economic downturns. Crew costs are also a function of time--so much per month, or per shift.

Fuel burned is a function of speed--the drag goes up as a function of the speed--roughly at the square of the speed--double the speed equals more than double the fuel, but half of all the other costs. So at any time, there is an optimum speed--the higher the cost of fuel, the slower to steam to optimize profits. The lower the fuel cost, the faster you show go, up to the limit posed by higher drag on the ship's hull.

We have just had the biggest drop in bunker fuel prices ever experienced, so every good charter captain just started steaming faster--anything else would be to leave profits on the table. How much faster? If 25%, then the amount of crude at sea would have dropped by 100 to 150 million barrels over the past 2-3 months, or about 1.5 to 2 million barrels per day. This destocking at sea would make it look like we have a worldwide oversupply of that amount. By the way, this same factor of ship-speed also explains the weakness in the BDI.

It also says that once oil prices(bunker fuel) starts back up, then that 2 million b/d will dissappear from the markets as the steaming speed slows back down. I happen to think the destocking at sea is about to end, and that, together with the winter seasonal increase and OPEC cuts may remove some 6 million b/d from markets between now and February, and that is why Land-Lubber just might be right in his call for $150 crude by 2-29-2009. Just my 2 cents for discussion. I can sure tell you as a pilot I adjust airspeed to reflect fuel costs, and so do all the airlines.

Very interesting and helpful. Thanks.

encoraged to see someone estimate the in-transit volume. and based upon you estimate, this inventory overshadows anything on the inventory report.

Interesting, but I suspect he left an important point out that would mute this impact in both directions.

He doesn't get paid by the day... but by the load.

You can only slow down so much before fuel savings are offset by fewer trips.

And if the tanker does not have another load to pick up ?

Then we aren't talking about artificial supply declines caused by increased "at sea" supply... we're talking about actual production shortages. So it doesn't matter.

In transit volume has gone very high and stayed high for a while i.e the tankers where slow sailing and they don't have any more loads to pick up. Heading for the US this could have been somewhat related to a bit of a backlog in the gulf from the Hurricane.

Basically they where saving as much money as they could since they did not have another contract.

As far as real production shortages unknown KSA as stated they will cut back and seem to be doing so.

I'm not sure what you mean by artificial if the sail times are longer then we would have more supply at sea at any given time then on land.

We actually had a lot of oil sent our way during one of the weakest seasonal demand periods and it set at sea for a while. Its finally come onshore. Current onshore supplies are close to the top of the 5 year range i.e back to 2004 levels and there is probably another week or so of offloading left assuming these are supertankers and we simply don't have the ability to offload them. The US is actually set up primarly for suezmax or local GOM traffic.

If you want to run a very short sighted futures market i.e only looking at the current data then oil should be about
30-40 a barrel.

However according to Oil Movements at sea supplies have declined significantly.
Even if it does pick up as WT mentions we have a lot longer supply chain with the decline in Mexican production.
Letting the pipeline empty like this does not bode well for longer term i.e more than 2-3 week oil supply.

Thanks for the update, Mike. I don't have access to www.oilmovements.com and there doesn't seem to be subscription info. Can you say something about that website/company?

I've been really impressed with them. A lot of what I post relies heavily on my interpretation of their reports.
If your involved in any serious way with oil investment the report is worth its weight in gold.

Its not perfect like I said its difficult to take sailing and the amount of oil at sea and translate it into when the oil actually lands and makes it through the system. I attribute this snafu to a lot of slow sailing going on this year and some other stuff. But after a while you get a feel for when the oil at sea translates into storage on land.

Some of the short haul data is inaccurate simply because its hard to collect. But given how much garbage data is created having some real data that honest is a godsend.

For example we have had repeated reports of this year being a new peak year for production from oil movements this year was better than 2007 but worse than 2006 so its not even close to a new peak year despite the claims. Thats worth knowing IMHO.

Next there was no seasonal variation in exports from non-OPEC nations it was effectively flat thus there is certainly zero spare capacity outside of OPEC

If you discount the two surges from KSA as unsustainable short term overproduction/storage drawdown then OPEC was flat till August got a huge surge over 2006 exports then dropped back to 2007 level the second surge only brought production up to what it was at the start of the year now its back down to 2007.

For the entire first half of the year OPEC production was flat out. If I'm right about the nature of the surges OPEC might have even started declining in the second half of the year.

Do I think KSA can control oil prices sure if they can cut below current demand they can pretty much set any price they want. I think right now given the demand drop from the Recession which I figure is at least 1-2% we actually have a small amount of real spare capacity in KSA. Historically they cut 4mbpd at one point if they did something similar I think they could easily get prices back over 100. If OPEC works at all to control oil prices and does not leave the entire burden on KSA then I think they are now in complete control. However understand it was KSA surging that played a big role in dropping oil prices in the first place I suspect the rest of OPEC will only play along if KSA takes the brunt of the first round of cuts and cuts enough to actually influence prices.

Now all this is assuming that Gahwar is not in significant decline if it is then we don't really know how much spare capacity is actually available. My guess is that by the end of next year not even KSA can really influence prices lower and prices would the be completely controlled by the rate of demand destruction. However the good news is it does look like for at least six months or so KSA will be able to manipulate prices via cutting production.

If demand actually dropped more than 4 mbpd then I think demand will set the price I however don't see that demand actually went down that much despite the chicken littles claiming the sky is falling. Ok so Americans can't buy half million dollar McMansions and 50k SUV's any more cry me a river. ( Sorry I just can't wait to see what the idiots say when real problems start)

But the point is if demand has dropped less than 4mbd then KSA can control price esp if OPEC actually helped a bit in say a third round of cuts. But this will erode fairly quickly over time. We will have to wait and see how much the cuts are and what the price effect is. It will take several more months before anyone knows the real situation.

My worst case scenario is based on the opinion that the combination of production declines over the last year coupled with KSA not really cutting but returning to sustainable production levels maybe slightly conservative is sufficient to send prices right back to what they where at the first half of the year. Thus I'm saying worldwide the demand decline was on the order of 1-2mbd well within the control of KSA. What funnny is for the first time in almost 3 years I'm in full agreement with what KSA is saying they only need to "cut" 1.5mbpd and the believe a fair price for oil is 75. Remember that when oil was 80 they said the fair price was 40. So using there past fair price announcements and doubling them brings us in perfect agreement. I'm sure this consensus won't last but I find it interesting that at least for now we are both saying the same thing.

looking at the eia price data, it looks like something may have happened in august '06 that initially sent crude prices lower for 11 months or so, only to rebound to the infamous $147 in july '08. and based on what you said above, i.e. a surge in august '08. two election years in a row. this doesnt prove that ksa is manipulating price to influence us elections, but it could be.

and based on what happened yesterday, re:the saudi's increasing the price on asian deliveries, maybe ksa has already cut production by necessity.

Well I'd not call it a cut in production. To be clear KSA is as far as I can tell fairly conservative with its extraction program most importantly it practices well rotation what this does is allows the water cone around a well to subside etc. Its good stuff to rest wells and prevents early water breakthrough. I've seen no reason to doubt the claim they perform well rotation. However what this does is gives them and option of not performing rotation and in a sense overextracting the fields. What they have is significant pulse capacity. Once a pulse is sent then they have to back off or they will damage the fields. Also of course they have significant storage capacity for oil and like the US SPR its probably filled with the lightest sweetest grades they have. And next their SPR is actually made of finished products and is extensive so they can drain that and use it for internal consumption and reroute the oil that was used internally for export. And last but not least they still have some spare capacity in the heavy sour grades that no one wants to buy.

The point is at intervals KSA has more than enough ways to create a short surge of at least 2mbd for about 60 days or so. I've said a few times that I'll beleive KSA is not in decline of they actually increased production for 6 months.
They did not do that this year instead they sent a short surge of I've figured about 60 million barrels or so of whats probably a light fairly sweet oil onto the market. Think about having a new Nigeria pop up for a few months and start exporting and that gives you and idea of what a Saudi surge does to the markets.

Then they had a second "surge" but between the first in the second exports dropped dramatically and the second surge was only up to previous production levels from before the first surge. Who knows what the mix of this was. They could have rested a bit of production or this one could have been more production less storage etc etc.

What important however is not this but the implications of it for the political situation in OPEC. Saudi Arabia is responsible for the physical oil portion of the price drop. They did this. The rest of OPEC is hopping mad at them and will do little until Saudi Arabia itself cuts and cuts deeply to show it can turn prices around. I'm a bit surprised they are even meeting probably its just a serious bitch session between Saudi Arabia and the rest of OPEC. We don't know what the OPEC members themselves know about each others production capabilities but you can be pretty sure all the rest of OPEC want to see KSA be a good cartel member.

So expect the rest of OPEC to do very little and leave the burden on KSA to fix this mess. I expect at least two rounds of cuts with KSA responsible for most of them before OPEC is willing to work as a cartel again. If after two rounds of cuts results in prices going up then you have a chance to see the rest of OPEC make a small cut to achieve some price objective.

If what I said is true then we can expect the Saudi cuts to be deep and fairly large. Now its in there best interest to cut deeply. It gives them a chance to rest the fields and regain surge capacity and refill any empty storage and it shows OPEC that they are going to be good cartel members again. Of course they are only doing it to regain the ability to blow the rest of the cartel members out of the water. Once they regain surge capacity then they will drop the hammer on OPEC and tell them that the rest of the members have to share some of the burdens of cuts or they will unload on the market again. So the compliance of the rest of OPEC after KSA has done penance will be with a gun to the members heads. I actually expect at least a reasonable token third cut for political reasons. So two cuts by KSA the first 1.5 mbd is simply the end of the surge. The next probably 1.5 mbpd is a real cut in production. Then a third shared cut of about 1mbd from all of OPEC and potentially a Russian cut. This will take us to the maximum possible demand destruction level of down 4mbd for sure. OPEC will only be requested to share a real 1mbd cut. Assuming this is not needed and further spikes prices KSA will then dial up production by say 700kbd.

Assuming this plays out then I see no reason that KSA can't set the price of oil with just a little help from the rest of OPEC. Within the year I'd expect that suppply will still not meet demand because of accelerated declines and a pull back from investment in oil esp if oil goes to 30. From that point on we basically will never have any real spare capacity as long as our economies remain functional.

Thank you, Mike.

I suspect you are talking about such a basic part of the equation it didn't seem important to break down. Or, perhaps it's because he was talking about costs, while you are talking about revenues.



Tanker revenues are a mixed bag of contracted rates and day rates so you are always balancing costs vs. revenues and contracted ships versus spot day rates. Therefore Tanker companies will usually blend the portfolio so they have some of both. With rates weakening you would want to maximize the turns on your day rate ships especially with cheaper fuel. With higher day and contracted rates you can take your time and save the fuel

That's possible....

I just had to note how much more pleasant your post here was than the first one you made to me. Thanks!

Still think oil prices are defensible on the fundamentals at $120 and that anyone thinking anything else didn't have a leg to stand on? :)

emanuel -

Very interesting, and something I've never given any thought to!

This 'stocking and de-stocking at sea' effect is something that appears to have been largely ignored by the people doing analyses on the various petroleum production, consumption, and inventory statistics.

When I see comments like, 'US imports were 14.375 million bpd for May as compared to 14.698 million bpd for April, a 323,000 bpd drop', followed by all sorts of conclusions drawn from such, I can't help feeling that many times these differences are mostly noise, rather than any meaningful trend. The stocking and de-stocking effect you described certainly doesn't make such analyses any easier, that's for sure.

I pointed out this summer that Europe and the US are both having what I called the PPP Syndrome--Problems with Proximal Producers--Russia & Norway (RussNor?) for Europe and Venezuela & Mexico (VenMex) for the US. Regarding the US Gulf Coast problem, demand did fall enough (as Datamunger expected) that we did not have to release oil from the SPR (although inventories were down enough that the hurricane related disruptions required a SPR release).

In any case, as net exports from these four exporters dwindle, Europe and the US are going to have to offset the declines with imports from the Persian Gulf and Africa, requiring more oil in inventory at sea.

Fascinating post.
Would you expand on this point?

I happen to think the destocking at sea is about to end


Well first, be aware I did not write this article. I just reposted it from here:


That said, I believe the author is saying that he believes oil prices are going to start going up soon, so that tankers are going to slow down their speed to save profits. That means the amount of fuel "at sea" at any given time will increase. "Destocking at sea" means faster shipping and thus less oil tied up at sea. More oil at the refineries.


Yeah they tagged me hard on my timing with the slow sailing. Also understand if they don't have a new cargo they are not going to be in a hurry regardless of the price of bunker fuel.

Throws things off by a week or two. Also on the US gulf we had a bit of a traffic jam of ships waiting to unload caused by the hurricanes. A lot of oil we setting in the gulf or slowly enroute. It takes a bit to clear.

And last but not least while talking about ships the capacity of supertankers is rated in terms of the light oil it can carry the heavy grades way a lot more and thus a super tanker load of heavy may be a lot less oil by volume.


You can play with the math but you can easily conclude that tankers of heavy crude would ship 10% less oil by volume vs ones filled with light crude. Thus a shift to heavy crudes or light crudes for that matter is not really caught by counting tankers.

Also understand if they don't have a new cargo they are not going to be in a hurry regardless of the price of bunker fuel.

My understanding is that payment methods vary, presumably if they are paid on delivery then they will get there as soon as possible regardless of whether the next load is ready.
I could well be wrong though!

Well shipping stuff halfway around the world the long way via super tanker is not a sure thing for timing.

One reason we keep 20 days supply or so is simply because there is quite a bit of variability. It depends on the contract but I'd suspect that most have at least two weeks if not more of time variability built in. Also you have unloading delays, storms etc. You might even take a vacation in Somalia. No way these contracts can be that tight on time.

Slightly off topic but related.


If the supply is hedged and the delivery date is open then your in good shape.
Some of these tankers are also sailing without a buyer. I.e they set sail hoping to sell on the spot market.

In any case I found that link looking around so I posted looks like a good basic book on the markets for oil drum readers. I found nothing other than the use of futures for dealing with just the natural the variability of tanker traffic going half way around the world.

emmanuel: that is a very interesting thesis, that any change in oil/fuel prices will be magnified, by the effects on the virtual storage of oil in transit. I do think you overestimate the degree of speed changes, however. Because of the other fixed costs -and the need to make contracted deliveries on time, I think the size of the effect will be considerably smaller than you postulate here. An additional factor is that tankers don't spend all of their time steaming, the loading and unloading also takes a good fraction of their time (and that is not affected by the speed change). So the bottom line, it could be a important effect, but your first pass probably overestimates the size of the effect.

Good points enemy of the state. Perhaps you should tell the author of the article. I merely reposted it from here:


In order to email the author, you will need to set up an account at investorvillage.com. It might be interesting to ask him some more questions, and to invite him to share his thoughts on the oil drum.


However, if they're a steam ship and are only in port for a day or two, they're going to keep their boilers "hot." This means the ship is still using fuel even though it's in port.

This type of state space model started my development of the Oil Shock Model. At the micro-level, all flows are transfers from one port to the next. The model is still relevant but the macro aspects have since subsumed it.

Each transition follows a Markov rate, with the strength of the transition proportional to how quick we can "turnover" the amount in the previous state. In general, approximating the strength of extraction on the proportion left allows us to intuitively model such effects as the small amount taken from stripper wells and the infrequency of shipping small volumes of oil.

Extracting 0.2/year
Shipping 2/year
Refining 1/year
Transporting 1/year
Storing 5/year
Trucking 5/year
Pumping 5/year

The initial conditions place all states at 0.0 except the InGround state which we normalize to 1.0 representing the full capacity of the reservoir.

For the rate parameters chosen above, we can calculate the profile after 4 years of extraction (each state gets scaled by the rate going out of that state to capture the "in-the-pipeline" effect, something the consumer can most closely identify with):

What is most interesting about emanuel's post are the effects of latencies on the transfer functions. The variability of latencies on shipping times can wreak havoc on predictably on future supply availabilities.

"At the micro-level, all flows are transfers from one port to the next."

ok, as long as flow only occurs interpore. if one introduces fractures either natural or hydraulically created, this condition no longer applies.

and doesnt the same thing happen in your chain above. e.g. i once filled up at an automated pump at a texaco refinery in longview, wash.

not a criticism of your methodology, just observations.

I am beginning to think that the most difficult thing to get across is the separation between the mathematical abstraction of economic/human flows and that of geology. FWIW, we could be talking about the flow of jellybeans and the math concepts would be the same.

By the same token, the ability to determine what is a first-order effect and what is second-order makes a big deal in whether you get mired in the details. For example, I consider most of these flow latencies such as shipping at least 2nd-order when placed on a global scale.

my experience has been that analytical methods are great for developing an understanding of theoretical concepts, but empirical methods are better in application.

Empirical methods w/o theory are called heuristics, and from what I can see, we have no theory. All the economists that are trying to predict when or whether we come out of this recession are working with one hand tied behind their back without a good oil depletion theory.

Storage at sea is not affected by the speed of oil tankers, only by the number of laden tankers at sea.

If demand drops 10% and tankers slow 10% the same number of tankers will handle the reduced demand, and there will be no net change in storage. If demand drops 10% and tankers slow 20%, they will have to add 10% to the tanker fleet, which will increase storage at sea by 10%. (Ignoring one-off transitional effects.)

As someone pointed out, slowing the tankers slows the income stream, so it's an iffy calculation whether tankers will be brought into or taken out of the transport routes.

As a guideline, the minibus taxis we have here in South Africa face the same conundrum: Higher speeds mean higher costs but more revenue. The result: They drive like maniacs looking for fares, no matter what the price of petrol.

Then there's the effect of piracy. If tankers go round the Cape rather than through Suez, there will definitely be an increase in storage at sea.

Yet another Suburban family plans for the energy descent...

210,000 Christmas lights.

This year we have taken decorating our house to the extreme, we have over 210,000 lights all computer animated and synched to music. It took us 3 months to hang the lights and over 6 months to do the computer programming. This is our third year using our computer to control the lights

Wow. I'm not anti-Christmas, I'll cut down a tree and put it up like anyone else, but does a quarter million Christmas lights strike anyone else as waste?

Possibly... but it certainly strikes me as tacky.

Which is a far greater crime to most.

We don't even keep our outside lights on; guess we're pissing in the wind with people like this on the planet. Would like to think there is a special place in hell for these people.

"Would like to think there is a special place in hell for these people."

I don't think so. This guy obviously just REALLY loves Jesus, and has the light display to prove it. Don't you remember that from the gospels?

I think it was somewhere in Matthew: "Lo, remember me and my teachings for all the ages. Each year, at the anniversary of my birth, light up your house so that it can be seen from the heavens. Don't worry about the coal miners getting black lung from providing the electricity - they will be with me soon. Place animatronic reindeer (a species I have never seen) on your roof as a sign that understand my teachings. Shower your children with electronic toys made by other children in countries that don't love me. Oh yeah, if you have any cash left over, feed the hungry or something."


And yes, God wants you to be rich and consume, consume, consume...

As we enter the holiday season, I'm just amazed at the amount of consumption driven by religion. Think of all the crap we buy (much of it toxic) supporting the holiday season. And every holiday is like this... Traditions of going out, buying stuff and jamming our houses full. And I might be a 'mean' dad this Christmas, by only getting my kids about 10 toys apiece, much of them toys that either excercise your brain or your body. While there are good aspects to the holiday season (the bell ringers for the Salvation Army, for instance, to whom I'll always plop my pocket change) much of what goes on around the holiday season is waste... To go out and buy junior another X-Box game so he can sit on his a$$, gain a few more pounds and ADD to boot, and need to be driven to school because he's not physically active. Think of that... if you are Christian, or Jewish, or Muslim, or whatever is this really what your God/Prophet/Savior would want? I'd think not.

Just as an FYI, not everyone buys into the Christmas thing and consumption thing. I am a Christian and attend a non denominational evangelical church. I don't celebrate Christmas, for one I don't like the whole focus on materialism and I also don't like the focus changing from what was supposed to be a celebration of Christs birth. Jesus was probably also born in the spring, not in December. While there is the nativity story, the New Testament and the early church say nothing about celebrating Christmas, in fact the whole focus of Christianity is on Christ's death.

As for materialism I think the bible says a lot. 1 John 3:17 says that if we really love others, we should be helping those who have less than us, not the opposite of trying to accumlate more: "But whoever has this world’s goods, and sees his brother in need, and shuts up his heart from him, how does the love of God abide in him? ". Matthew 6:19 would seem to be anti-materialism "Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal; 20 but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal." And just because one is a Christian, it doesn't mean they will be rich, in Hebrews 11, when talking about the great characters of faith it says "They wandered about in sheepskins and goatskins, being destitute, afflicted, tormented— 38 of whom the world was not worthy. They wandered in deserts and mountains, in dens and caves of the earth."

Don't forget the classics:

"It is easier for a camel to pass through the eye of a needle than for a rich man to enter the kingdom of heaven"


"Go and sell your possessions and give to the poor, and you will have treasure in heaven"

And shawnott... You are true to the message of Christmas, and I am sorry if you were offended. However, the other 90+% of America looks at this like a shopping and consumption spree, and this kind of activity (throughout the year) is why we are looking at a lot of the problems we are facing today.

You have a very merry Christmas... You seem to get it.

Thanks for the reply. I agree that we are in this mess because of the consumerism. Have a good day. :)

I have struggled with the paradox of frugality. For millenia people have made their living by producing goods which they sell to someone else. Not buying worsens the welfare of others and yet we are not supposed to accumulate goods. New technologies have reduced the person hours needed to produce all goods. We now have a global unemployment rate of over 25% with millions more who are employed not earning enough for a dignified life. If I have a spare $100 left over at the end of the month should I buy something and save someone's livelihood or just give the money to a local hungry person? Ideally I could buy something useful to a needy neighbor and give it to him. I do feel good about giving money to someone in need and letting them decide how to use it.


I feel that you are really on to something here, something important. Back-to-basics important. What do we need? If it takes some fraction of the people to make what we need, what then? Why are people working so hard and so long? So we can have 40 brands of toothpaste? Does the economy serve us, or do we serve "the economy"?

"Does the economy serve us, or do we serve "the economy"?"

I agree 100% that this is important and would add that any plans for future need to address this up front.

It is an issue that don sailorman talks about a bit too. The issue of mass unemployed, underemployed.

I would like to encourage a feature post about this maybe from Don & Gail, one that can be referenced when the inevitable hordes of unemployed log on to find out wtf is happening.

I live in a college town and have experienced first hand what happens when large groups of people don't have anything to do for awhile.

The petunias planted out front mysteriously disappear, oooooooooooo!

In my opinion, increasing unemployment is going to be THE issue of the next dozen years. As oil production and net exports of oil decline, I expect real GDP to decline also, at roughly half the rate of decline in net oil exports.

In a comment below I suggest that mass unemployment will be the trigger factor that brings dictatorship to the United States. In the Greater Depression to come I think unemployment will get worse than it did in the nineteen thirties.

I'd like to see a post by Gail and Nate on unemployment, though of course I'd be glad to add whatever sociological or economic input that I can. It will take enormous political and social changes to deal effectively with mass unemployment. I favor a negative income tax combined with the government being the employer of last resort. Politically we're not ready now for such drastic measures, but a few years at 25% unemployment or worse will expand the range of the politically possible.

Well its a two edges sword all the Baby Boomers are entering retirement right now and the combo of unemployment and force early retirement is going to send housing prices plummeting I'm figuring we will be at 1980's prices within a few years. Also pension funds are going to collapse left and right.

So its a double whammy of unemployment and people that lost there pensions and who houses have no value.

I actually think that the generally right wing baby boomer generation will ensure we get a more facist type dictatorship.

This big speculation of course is not that American democracy is toast but why you think will replace it.
If oil becomes expensive then I could readily see the nation fracture into resource rich enclaves and resource poor

The two big loser regions would be Southern California/South West and the North East this includes northeastern Canada.

So are you saying that everyone should be assigned meaningless make-work for every waking hour just to keep them "out of the petunias"?

I think its wierd that for about 50 years the average hours worked per week dropped every decade at a fairly consistent rate. Then suddenly about 1970 they appeared to start going back up again. The Canadian history 1900 to present is here. Increase started about 1980, possibly for a variety of reasons (increased worker investment in their education, greater desire to accumulate for longer retirements, several comples incentives on employers) I also suspect the reason may have been economic as well, as 1980 was about the start of a very strange and irrational drop in commodity real prices which has remained in place until the beginning of this decade, a drop which seriously hurt the Canadian economy, and helped the US.


T. J. Kneiser says, for the USA, in this article "The average work week declined by 35% between 1900 and 1940 but has not changed significantly since then."


I have a feeling that you are suggesting:

A standard working week of [say] 30 hours, with no fixed costs to employers for hiring [all costs covered in income tax] so that there is no disadvantage in employing 4 people to do 3 'old' jobs etc is the way forward?

I would agree. I have also noticed the hours worked creep up throughout my lifetime - while there are huge numbers of unemployed outcasts, especially youngsters. In the UK there are financial obstacles to increasing headcount eg 'national insurance tax' pension legislation etc.

We need to re-engineer a society where working 09:30 - 15:00 is normal sensible behaviour.

It is not so much a paradox but a given that if we consume less there will be a decrease in production resulting in less income for someone else and either reduced hours of work or, more likely, unemployment. The problems of increased productivity was recognized decades ago and the solution included things like planned obsolescence and mass advertising to make people feel like they needed what they formerly merely wanted. The answer to potential surplus goods was mass, insatiable consumption. Rather than choose increased leisure with more productivity, most people are brainwashed to choose more work if that is an option. And then we get statements from Bush that having three jobs to support one's family is so American.

In the current recession, you will not be hearing any of the powers that be suggesting that perhaps we need to restructure jobs in such a way that it is possible to embrace a lower level of income by working less. You will not hear much either that perhaps the wealth should be redistributed a bit to take care of the lower employment and the lower, if not nonexistent, incomes. This will be touted as a temporary problem that can be fixed with enough monetary and fiscal stimulus. Then we can all go back to happily consuming again.

If someone can figure out a way to have ever increasing consumption and production and population and still have an ecologically viable planet, then there is nothing to worry about.

Within the U.S., at least, there is more than enough wealth to go around even under the current recession. After all, you don't have to go back very far in time where the GDP was the same or less. Was everyone suffering then. The main problem with the recession is that the losses will not be shared equally. Since we don't share the wealth, those at the bottom will mostly be out of luck. And that is the way the corporate rulers like it. More unemployment will translate into lower wages which will eventually translate into higher profits.

In any event, we don't solve the problems of those in need by personal charity. So while your personal act is to be commended, it will not solve the problems of the millions of poor and the soon to be poor.

Anyway, I expect a lot of rainy days in the future. So, on a personal level, it certainly makes sense to save. Let the government and the fat cats worry about aggregate demand.

I remember things like this being outlawed in 1973. How soon before will we see that again - this time probably for good?

Yes, the good old days. 1973 and 1979, and discussions about the "The Limits to Growth." I loved disco, and we were told the oil industry would be kaput by 2000. Might as well do the boogie.
Funny thing happened. We had gluts instead. Now, I can see only gluts ahead for five years, and maybe 10, if The Economist magazine is right, and this recession will be "L-shaped."
I think an interesting line of inquiry would be does the price mechanism push off the energy doomsday in 20 year increments? We have empirical evidence -- twice, now. The 1980s, and now. It would be a fascinating topic to research.

Be careful what you want...

Just remember - in 1973 there were probably 3 billion. In 1980 probably 4B. China and India had not yet embarked on their own versions of the Great American Dream. Ghawar was only 25 or 30 years old.


A 6% annual decrease (IEA) will remove that glut in virtually no time.

"... twice, now. The 1980s, and now."

i count that as once. once and a maybe.

Here's an idea--let's all take pictures of the gaudiest display in our neighborhoods and post them here! Can we, Leanan? Something like Kunstler's "Eyesore of the Month" page... :)

I support that plan. BTW, thanks for the tip on EOTM, I had never seen that before. My personal favorite:


Santa Monica, California, presents a contradiction in terms: the nation’s first "sustainable solar-powered parking structure." Apparently nobody informed these idiots that happy motoring is not a sustainable activity, and neither is the parking that necessarily attends it. This is apart from the sheer appalling monumental ugliness of the building. The official PR handout is a prime example of how America is blowing green smoke up its own ass:

The six-story, 882-space structure at the Civic Center features photovoltaic roof panels, a storm drain water treatment system, recycled construction materials and energy efficient mechanical systems.

"The structure’s photovoltaic panels -- which cost $1.5 million -- will pay for themselves in 17 years by generating $90,000 a year in electricity,” said Craig Perkins, director of Environmental and Public Works Management for the City.

Ground control to Santa Monica: in 17 years the automobile age will be over.

Yeah, and meanwhile Ahnold will go ask the Federal government for a $26B 'Investment'... Gotta love Cahlifonia...

Hmmm. Maybe on Christmas Eve?

And I'm going to ask people to thumbnail their images. No wider than 500 pixels. If you don't, I'll do it for you.

And if you're not going to be here on Christmas Eve, you can e-mail me your pic and I'll post it for you.

I've never understood the way people in the USA feel the need to buy useless junk to "celebrate" holidays. And their more is better way of thinking.

Sadly, it's a mindset that is spreading (Dubai, Shanghai, Singapore, ...)

Things like this make me think that the coming energy crunch will not be a bad thing. There is so much waste in the world, we would have much better lives using less energy/stuff. With the advances in technology and automation, we could all work half as much, leaving plenty of time to walk in the forest and enjoy the stars.

But the produce/consume/reproduce dogma is quite strong.

China's sovereign wealth fund to avoid western financial firms: report

HONG KONG (AFP) – The head of China's sovereign wealth fund said Wednesday he had lost confidence in western financial institutions during the global economic crisis and would not be investing in them, a report said.

Lou Jiwei, the chairman and chief executive of China Investment Corp (CIC), said the fund would now avoid investing in banks and other groups because of "uncertain" foreign government policies, the Wall Street Journal reported.

China Urges U.S. to Counter Crisis, Prepares for ‘Worst Case’

Its role as a buyer of U.S. debt may only become more important as the U.S. spends to revive its economy and thaw credit markets.

A 0.7 percent drop by the yuan against the dollar on Dec. 1 triggered speculation that China had switched to favoring a depreciating currency, which would help exporters by pulling down prices in overseas markets.

The plunge may instead have been a message to Obama, who has called China a currency manipulator and “is taking a much harder line on trade issues,” said Frank Gong, head of China research at JPMorgan Chase & Co. in Hong Kong.

We're heading into a future where the survival of the communist party depends on Nationalism, if the world does plunge into a depression (which I think it will by early 2010) than China will be sorely affected. Hence nationalistic fervor would be a ploy to keep their population from throwing out the communist party. The figures are really mind boggling in terms of the sheer number of people who've lost their jobs, been sent back to their villages, factory closures etc. For china there are 3 likely options.

1) Civil war before 2015, communist party dissolves and some other entity comes up.
2) Nationalism, possibly a war against some country which is "anti-chinese"
3) Pray that things recover and people start consuming (depleting the planet), miracle new oil substitute is found and world keeps partying like it's early 2007.

2) Nationalism, possibly a war against some country which is "anti-chinese"

It would suck to be Taiwan.

But the Chinese Communist party has always been profoundly nationalistic. It's primary objective, indeed the objective of all the revolutionary/progressive/nationalistic political movements in China for over a century, has been to rouse China from it's 'slumber' and regain control of its territory, culture and economy from foreign domination. The Communist Party was, at its core, a national liberation movement that adopted the formal ideology of Marxism/Leninism as a indication of its modernity and revolutionary credentials and to differentiate itself from the other leading nationalist movements in China.

This is all water under the bridge now, as it's highly debatable whether the current regime in China has anything to do with 'Communism' at all. The nationalist wing of the party has triumphed.

Having talked to number of Chinese intellectuals about China's future they agreed almost to a man, that China's biggest problem was how the United States would react to its growing wealth, power and influence. Would the United States accept the rise of China peacefully, or would it, following the traditional imperialist tradition, opt for war as its final option? Because, as they argued, the United States has spent half a century on a strategy aimed at world domination and empire, and it's therefore unlikely to calmly accept the revival of the Middle Kingdom to its 'rightful' position, as this would inevitably undermine the American imperial project once and for all.

There is the largest ocean in the world separating the USA and China. There is no really good reason why these two nations should have to risk their mutual destruction in conflict. The globe is quite large enough for both.

Thing is, seen from a Chinese perspective, US armies are moving closer and closer to China all the time. They, like the Russians, are starting to feel they are being encircled or contained by the United States. That's how the Chinese, at least the students I talked to, regard the US occupations of Iraq and Afghanistan. What's worse is the US attitude to Iran and Pakistan. Two countries the Chinese have 'friendly' relations with, two potential allies, markets and sources of raw materials. Then there's the growing alliance between the United States and India as a bulwark against China in Asia. The Chinese are loath to talk about these concerns openly, but in private and off-the-record, this is how many of them see the world.

"The Chinese are loath to talk about these concerns openly, but in private and off-the-record, this is how many of them see the world."

Although, more and more, it seems like China policy is to just wait us out and let us hang ourselves.

Perhaps even supply a little more of the drug that’s killing us, Cheap goods.

Interesting point of view, but I don't think that Afghanistan would be a very good place to attack China from. Western China is mostly high arid mountains, not the best place to move an army.
Americans in Taiwan, Japan and South Korea are much more of a threat, but they've been there for years.

Most of the India/China bored is disputed, so there is certainly cause for concern in China as the US is getting closer to India. During the cold war, the US was much closer to Pakistan than India, as India was closer to the USSR, and the US was funding freedom fighters in Pakistan to counter the USSR in Afghanistan.
Oddly, during the same time, China was also closer to Pakistan than India, as China wasn't too friendly with the USSR.

Like GM to Congress, is there a scenario where China asks the US to present a more detailed bailout plan with a clear path to sustainable profits? Would our leaders fly over in personal jets?

Maybe. They have pretty much already bought an equity stake in the U.S.

Michael Hudson makes the case that they do not have an equity stake in the US. On his site, michael-hudson.com, the mp3 about Kleptocracy. I had to listen to it twice last night and still don't entirely understand it. China and foreign holders of US dollars are effectively prevented from purchasing that equity stake.

cfm in Gray, ME

Dryki - I have listened to several of his talks and am learning lots. He almost seems to contradict himself at times but I can't find flaws in his thinking.

I particularly liked his explaination of how US has prospered even more as a debtor nation than as a creditor nation.

As I mentioned in a thread yesterday or the day before, Hudson has written a book called SUPERIMPERIALISM in which he argues that, for decades now, the U.S. has used its ever-growing foreign and government debt as the VERY MEANS whereby it asserts dollar and economic hegemony over the rest of the planet. (What Hudson hardly even mentions, though, is that it is U.S. military superiority that makes this protection-racket-type game possible in the first place.)

It is because of Hudson's writings that I have long taken the minority position here on TOD that the current deflation will NOT necessarily be followed by a bout of hyperinflation in the US, since the US will manage to find a way of using the paradigm discussed by Hudson to palm its debts off on other nations. Other nations will wind up in the poor house at the expense of the American dollar.

Is that part of the reason that we want to bail out USA-based institutions, and banks more-so than industries which can have a foreign component? Because it will continue to put the squeeze on foreign interests, who will just see their US assets continue to deflate due to this increase in bail-out money supply?

Gail the Actuary and I have a running argument over whether the EIA’s domestic natural gas production figures are too optimistic. I have consistently maintained that its figures are inflated, questioning not only its methodology but also its integrity and independence, believing the EIA has fallen under the spell of the “shale to shining shale” folks like Boone Pickens and Chesapeake Energy’s Aubrey McClendon. In June the EIA published a missive saying Q1’08 US NG production was 9% higher than Q1’07 production. The latest EIA forecast, from a link posted recently here on TOD, is that 2008 US NG production will be 6.7% higher than 2007. Even though this latest publication indicates the EIA has lowered its optimistic tone a few notches, my response was still “hogwash.” The EIA figures are still overly optimistic.

I based this on, amongst other things, an analysis of the financial statements of the 10 largest NG producers in the US, which shows production gains far more modest than the 6.7% touted by the EIA. Gail the Acturary suggested I needed to consider a larger sample, that these 10 companies weren’t reflective of the total picture.

Well somebody has done that. Chesapeake Energy, in a report issued last month, took a look at the natural gas production of the 20 largest gas producers in the US:


Scrolling down to page 13 one can find the results of the study. And low and behold, we see that Q3’08 NG production for the 20 largest producers increased 7.1% over Q3’07. That’s almost identical to the EIA’s forecast.

So I’m getting ready to issue my mea culpas to Gail the Acturary, when I take a second glance at the report. And then I discern what the problem is. Looking at the actual production figures from the report one sees that Q3’08 production for the top 20 NG producers is 23,936 mmcfpd and Q3’07 production is 22,977 mmcfpd. That’s an increase of only 4.2%, not the 7.1% Chesapeake shows!

An honest mistake? Who knows.

What I do know is that, even though Chesapeake’s own NG production for Q3’08 has fallen from Q2’08, this has done nothing to tamper its optimism, projecting significant production increases for years to come—17% in 2008, 17% in 2009 and 16% in 2010 (see page 2 of the report).

Neither has the decrease in production from Q2’08 to Q3’08 for the top 20 domestic NG producers done anything to tamper the EIA’s optimism. Despite ample evidence to the contrary, it’s still projecting a 6.7% increase in US natural gas production in 2008 and a 4.3% increase in 2009. And this doesn’t even begin to take into consideration the fact that the number of rigs drilling for NG in the US is falling fast from its August high:


what do you make of the 13% drop in eia estimated dry gas production from august to september ?

My guess is natty production is in the midst of a pretty good drop. Latest rig count data I saw shows a drop in natty rigs from just over 1600 in early September to less than 1450 by the end of November. With depletion rates hitting +20% in the shale gas wells I would expect we are looking at prices in a bottoming phase. My understanding is at less than $7.50mcf the shale gas play looks like a loser. If that's so then the producers have had several months to adjust production and it should be showing up now. What I don't have a handle on is demand especially industrial at this time and its ability to mitigate the supply drops.

If there really are a lot of little natural gas companies producing our natural gas, we could well have had the ramp up the EIA has said. The problem is that those same little companies are the ones likely to be hit hardest by the credit crunch, so production going forward could be hit quite a bit harder than if it were simply oil majors making investment decisions.

We will need to be watching closely what production numbers are saying. The hurricanes very much affected September and October production, so this will be part of the picture as well. It seems like by 2010 we will start seeing the impact of the credit crunch on production, but it could be even sooner than that.

There's also a dramatic difference between the capacity to produce and actual production.

Those who are caught up in "peak everything" frequently mistake production declines as necessarily associated with declining capacity. They mistake "choose not to" for "can't".

It's pretty clear that technology advances have dramatically changed the natural gas supply picture in the US, but that doesn't mean that 55-60% price declines don't take some production offline.

They mistake "choose not to" for "can't".

Peak anything, not just gas or oil, will be caused by producers 'chosing not to' invest/produce since all investment must make a profit for production to continue.

In the case of oil the new profitable investment must increase flows each year ~1.6% more than the steadily increasing decline rates to ensure BAU growth - the available data says that for several years now this hasn't happened, especially in the 'net-exporting' nations!

'Chose not to' and 'can't' are the same thing, separated by a small amount of time!

'Chose not to' and 'can't' are the same thing, separated by a small amount of time!

Not at all. They can be, but by no means have to be.

Look at the last time oil spiked and then collapsed. There were people then (far fewer) who thought that the peak was imminent and, in fact, worldwide oil production declined and didn't return to those levels for years.

But no peak had been reached. Current levels are significantly higher.

Current levels are significantly higher

Actually oil production did decline because of a lack of profitable/affordable demand - the current production levels are higher because people didn't chose 'not to invest' at some stage because they thought they could make a profit again.

The same could happen again, but eventually there will be a final peak which isn't ever beaten - time will tell if this current peak is the final peak, but it cetainly is a peak and implies failure of economic BAU in 'net importing' countries and a lack of an adequate number of profitable oil investment opportunities worldwide.

Each peak in production has more and more chance of being the final peak.

If this is the final peak then it is bad news indeed as it indicates an unexpected imminent paradigm shift to a life with ever fewer fossil energy 'slaves' than now and disfuctional essential systems that must have economic growth, like fractional reserve banking.

Final peak is not a simple failure mode, for some people it will be bonaza time, for others a disaster - ignore the possibility of it occuring in your lifetime at your peril!

Actually oil production did decline because of a lack of profitable/affordable demand -

That's not "peak oil", that's normal economics. The supply and demand curves will always intersect, but one of them is always driving the boat. It's not a "peak oil" peak if falling prices don't justify production.

The same could happen again, but eventually there will be a final peak which isn't ever beaten

The peak oil debate isn't about "eventually" (nobody questions that production won't increase for 10,000 years)... it's about when and whether that "when" is close enough to warrant substantial public policy changes in the here and now.

Huh? ... Peak oil IS normal economics! ... and peaking oil flow isn't a debate, it's a fact for individual wells, fields, countries and eventually the world! ... the same short-term economic adverse effects will be felt for any country experiencing a post peak decline ... a recent example would be Russia or KSA a few years back.

When we get the final world peak it almost certainly won't be recognised as such for many many years since separating the linked peak oil cause from economic decline effect is likely too difficult for most to contemplate or accept, we must have growth!

To avoid peak, the ever increasing flow of oil is dependent on the investment in an adequate number of profitable new oil wells producing ever more affordable (in real terms) oil.

The world daily flow-rate of oil is so small in relation to the known reserves that world reserves currently have nothing to do with world oil production. The reserves tell you when oil production will stop, not when it will peak. The final peak is likely not at the URR half-way point as many expect, modern extraction techniques go well past 50% URR before a rapid decline sets in, to say nothing of EROEI. There appears to be plenty of examples of countries demonstrating this, eg: UK.

Economically oil is no different to any other mined one-time-use commodity - the same is true of fish stocks. With fish however there are adequate alternatives, with oil there are none at present!

Huh? ... Peak oil IS normal economics!

No it isn't. It's a factor that impacts supply. My point was that it wasn't peak oil impacting production declines in the 80s. Let's say it was other economic factors. People could look back and see that the world had not produced as much oil as five years earlier but if they concluded that "peak oil" had arrived, they were badly mistaken.

and peaking oil flow isn't a debate, it's a fact for individual wells, fields, countries and eventually the world!

And nobody denies that. The peak oil "debate" is whether that is today... three years ago... five years in the future... or perhaps long after that.

No argument with that....however you can't burn capacity to produce. The pimps and whores on Wall Street have so f-uped the financial system with the overleveraging of derivatives that the market is getting signals that are tantamount to a huge slow motion train wreck. If we don't see some sense return to the commodity markets rather quickly we are IMO going to start seeing significant shortages of energy, food, and other commodities by late summer or next fall. Maybe we will escape the ravages of this in the U.S. maybe not. I am fairly involved in the food supply chain in this country and see decisions being made by all levels in the food channel in the U.S. and abroad that are going to severely restrict future supply.

Gail -- I can offer a rough estimate of how large a group the top 20 companies represent. From the Oil&Gas Journal review of 2007 the top 20 companies produced 73% of the NG in the US compared to the 200 largest companies. That was 6.9 tcf out of 9.4 tcf. The remaining 27% is represented by 180 companies. Just my anecdotal 2 cents but I doubt those 180 companies have contributed to 27% of the unconventional NG plays.

I'll also add that we haven't seen the full downturn in drilling yet. We're one of the biggest unconventional NG players and are cutting at least 40% of our rigs loose. But it takes at least one quarter or more to do so. Besides completion of currently drilling wells you just can't stop operations that quickly.

It will be well into 1Q 2009 before we see the full down turn in drilling IMO. I don't want to offer a wild guess as to how quickly production will decline but given how skewed the current NG production rate by the flush production from the newest wells, I suspect the decline rate will be greater then most anticipate. At this point it's very difficult for me to see the drop in drilling rate to change much in at least the next 12 to 18 months. We're going to drill out of our cash flow and not borrow. We have the credit lines but don't want to pay the interest at the same time future NG pricing is so risky. McClendon might have gotten the "good times go on for ever" fever but most CEO's have been through pricing busts before and they don't forget. It's a lot easier now to scale back quickly. Probably 20%+ or so of the company is consultants like me. We can all be eliminated with a 24 hour notice. It's not difficult for many companies to go into a slight hibernation for a couple of years and still look good to the shareholders.

I concur that the drilling slowdown takes a quarter or two to implement. For us, we will be dropping about 50% of our drilling rig count by the end of Jan. Service rigs have been cut ~33%. Back in July my department had plans for drilling 80 wells in 2008. That's been cut to 20, and if prices stay below $50 for a few more months, it wouldn't surprise me if we cut back even more. I don't anticipate any job losses, but hiring has been frozen. Of course earnings will be way down, but I won't start worrying too much until oil hits 30 and stays there for a while. At $30 oil, without a lot of oilfield deflation, I don't think we would ever drill another well in the Permian.

I'd suggest we may have already hit the wall.


Year-Over-Year Natural Gas Production Declined for the First Time in More Than 2 Years. For the first time since June 2006, monthly U.S. natural gas production was lower than it had been 12 months earlier. The 64.7 Bcf decline in U.S. marketed production compared with September 2007 occurred as hurricane damage resulted in a decline of 150.9 Bcf in the Federal waters of the Gulf of Mexico.

Natural gas marketed production in the Federal Gulf of Mexico in September 2008 declined to its lowest level since the data series began in 1997. Production fell to 68.3 Bcf in September, decreasing more than 68 percent compared with the prior month (Figure 1). The decrease in the September 2008 production is the result of Hurricanes Gustav and Ike, which made landfall on September 1 and 13, respectively, taking much of the offshore production offline. Although production outages associated with the hurricanes have declined from their peak in mid-September of 7.3 Bcf per day (equivalent to 219 Bcf over a 30-day period), according to the Minerals Management Service (MMS), 1.8 Bcf per day (equivalent to 54 Bcf over a 30-day period) of production remained offline in the Gulf as of November 19.

Marketed production in Texas and Louisiana, which includes the onshore and State offshore, decreased in September as well, albeit by smaller percentages. Texas marketed production fell by more than 7 percent compared with the prior month to 560.3 Bcf, while Louisiana production decreased by approximately 20 percent to 91.7 Bcf. As was the case with the Federal offshore, the onshore production in these States was affected by hurricanes. However, shut-in production in Texas for the month of September was offset somewhat by the continued success from unconventional resources, such as the Barnett Shale in the northeast part of the State.

Given some question about the current and future production of NG from the shale plays esp with what look like a very high probability that NG may bust 6 bucks I'd say we are well on our way to TSHTF for North American NG production.

And my favorite graph gets better if this does not scare the piss out of people then they don't understand energy.

don't see this one posted anywhere:


the saudi's may be cutting output opec quotas aside. this could be big, real BIG.

My 2¢ worth (probably an accurate estimate for the objective value of price prognostications)--I think that a combination of involuntary + voluntary net export reductions will cause the average annual price in 2009 to exceed the average annual 2008 price (about $100).

Consider that three top 10 net exporters have been showing long term net export declines--Venezuela, Norway & Mexico--with Russia, IMO, joining the list of countries entering the terminal decline phase, and the Russian net export decline could be very sharp, and like the three examples shown, Russia will probably show an accelerating net export decline rate.

And it remains to be seen if Saudi Arabia will ever again exceed its 2005 annual production rate, while their 2008 net exports will probably be down by about 700,000 bpd, relative to 2005.

Merrill Lynch says maybe $25 next year. Demand is cratering, falling faster than supply.
I hope for the best, and a recession that ends in 2009, though crude demand will almost certainly keep falling even if there is a recovery towards yearend. Demand for crude may fall by 15 percent in next two years, if the global recession lasts longer. I see no way for oil to stay above $20 next year. It might hit $10.
The oil story is dead for two-three years minimum.
It may be a time to sit on sidelines, and look for bottom in oil stocks. You can get 7 percent yield on Shell. Maybe better by next year.
Then, somewhere out there, maybe in five years, maybe in 15 years, we get another spike. You get paid to wait, and then a nice boost.

You seem to forget about Saudi Arabia and its ability to shut in large amounts of productive capacity to decrease supply and thereby raise prices. The Saudis have announced a price target of $75 per barrel. How much would they have to reduce production to achieve that target? Maybe by half. Saudi Arabia would be much better off to pump half as much oil at double the current price than to maintain current levels of production at current prices.

Though it is impossible to have knowledge of future events, based on past history it is not implausible that Saudi Arabia will indeed make massive cuts in production to get prices up to $75 per barrel--and perhaps significantly higher than that.

I agree with you that demand is going to go down--but supply can go down faster. Thus I view predictions of a big oil glut with skepticism.

It may be that the screw has turned. By that I mean oil exporters will have to export more to make more money.
For 10 straight years (1998-2008), prices went up. Incredibly incompetent buffoons, such as Russia and Mexico, got more money for being bad at running fields, not less money. There was probably menipulation of NYMEX prices too.
But now is different. To make more money, exporters will have to export more. That means a worsening glut.
So, $10 a barrel seems likely, 2009-10.
Verily, KSA is cutting production. But supply may exceed demand by 10 mbd in 2010. They can't cut that much. So, instead, they make a point: They drive down prices long and hard enough that new investment and production in crude oil is shelved, and alternatives are crushed.
It will take several years.

I can't make sense of your statement: On the one hand you admit that Saudi Arabia is cutting oil production, and then in your second to last sentence you say: "They [the Saudis] drive down prices long and hard enough that new investment and production in crude oil is shelved, and alternatives are crushed."

Along with declines from other oil exporters, I'm sure that cuts by Saudi Arabia in production will enable them to get prices up to seventy-five dollars a barrel--and probably higher. Although demand for oil in the U.S. and other OECD countries is likely to go down somewhat as the recession worsens and perhaps turns into a depression, you have to remember China and India out there increasing their demands for oil. Despite falling GDPs in the U.S. and Europe and Japan, the current low price for oil will tend to stimulate consumption; in other words, at a lower price, other things remaining the same, the quantity demanded will increase. This effect works with a time lag, and it is a powerful influence that will keep oil prices from falling much more and staying down. Given demand at current levels, it seems to me that a cut by the Saudis in oil production of three million barrels a day would get prices back up to at least $75 per barrel and perhaps higher. If demand falls from current levels the Saudis (based on past history) could make even deeper voluntary cuts in production to get the price back up to where they want it.

Any voluntary cuts in exports by Saudi Arabia will be reinforced by involuntary cuts by other oil exporting countries, as westexas has emphasized.

Here is the Indonesian case history, which like the ELM, was consuming about half of their production at final peak in 1996. By the time that US oil prices averaged over $40, in 2004, Indonesia was a net importer.

A production decline rate of about -4%/year from 1996 to 2003, plus rising consumption, resulted in an overall net export decline rate of about -30%/year from 1996 to 2003--as expected, they showed an accelerating year to year decline rate, with the last year of net exports showing a -74%/year decline rate.



Annual Oil Prices:

Net Exports:

I said "instead" just before the last sentence. I mean that KSA changes strategy. Maybe in 2009-10 KSA decides to crsuh everybody else in the oil game, and they flood market with oil, driving price down to $10. They want to clear the boards, wipe out any new exploration and development, and crush alternative fuels. That sets up a firmer oil market somewhere down the road, maybe in 2015-2020.

I disagree with your opinion that Saudi Arabia is likley to change its strategy drastically. Stability benefits the Saudis, great price instability does not. KSA has announced a goal of $75 per barrel of oil, and there was not a peep of protest from the U.S. (or anybody else that I know of) at that announcement. Therefore I think Saudi Arabia will decrease production until the price reaches $75-$80 a barrel; if the price goes much above $80 a barrel they will increase production as far as they can to prevent the price from going higher.

Note that net oil exports are lower than they were in 2005, and they are continuing to decline. We can debate the exact peak of oil production endlessly, but it is clear that we have seen the peak of net oil exports in the rear view mirror.

I don't squat about KSA and its leadership. I know that in the 1990s, they cut back production to try to shore up prices, failed, and then let it rip, and we got $10 oil. They cleared the decks, and let to another spike. Can they go to 9 mbd or 11 mbd? I dunno. They say they are aiming for 12 mbd capability. Kuwait was aiming for 4 mbd, and they are not cash-starved either.
My guess is nothing will save oil prices this go 'round. This recession is barely out of the crib, and we see oil go from $147 to $42. Oh, only a $100 drop.
I hope I am wrong, and the global economy recovers. But this looks ugly. There seems not a single bright spot. Truth to tell, it is a bit creepy, and I try to be optimistic. Seems like the loor just fell out for everybody. Europe, China, USA, homeowners, stockholders, retailers, manufacturers. Energy was the exception, and now...poof, boom, crash.
I hope the best for you. It might be too late to short oil, but maybe go for yields on oil stocks like Shell.
But oil could have a long, long, long road back. Remember, after 1979, oil didn't hit $40 again (adjusted for inflation)until 2008. 29 years! And then for a blink of the eye, before sinking back down. Maybe all the way back down to $10.

It remains to be seen if Saudi Arabia will ever again exceed, on an annual basis, their 2005 annual production rate of 9.6 mbpd (crude) and 11.1 mbpd (total liquids).

What we do know is that it appears that Saudi Arabia will show three years of production below their 2005 production rate, at about the same stage of depletion at which the prior swing producer, Texas, started declining.

And Saudi consumption is increasing at about 7%/year.

Big glut's consumption numbers are insane. Anecdotally (Holiday travel,tri-state area congestion), it looks like consumption is already back up close to where it was last year (additionally, Ive seen about 5 hummers in the last 2 days. Many of these things had apparently been put away for a while) There is just tons and tons of driving going on. People will burn gas if it stays cheap like this.

"...supply may exceed demand by 10 mbd in 2010. "

that's a lot of storage, a he!! of a lot of storage.

I wouldn't count that as highly likely.

The Saudis are probably the OPEC nation most sensitive to world economic strength. The last time OPEC screwed things up this badly they had to cut production and they still couldn't keep prices up.

I also doubt that cutting their production in half would double prices... I really doubt that they would be interested in doing that since every other member of OPEC would make much more without the same sacrifice.

They don't buy into the "peak" being here already... they worry that they'll see the 80s all over again (or worse). If they artificially inflate prices they not only slow demand, but they increase production elsewhere (and in other forms of energy).

They not only need stronger world economies to need crude... they need them to need their crude... not produce alternatives.

Saudi Arabia looks at the bottom line. They don't care much how well the other oil eporters do, they look at what they themselves can do to affect absolute (rather than relative) Saudi revenues.

If they can get the price of oil up to $75 a barrel by cutting two or three million barrels a day of oil production, then they are much better off to do so rather than stay at today's low-price/high-production regime. What does it matter to KSA if other OPEC countries benefit more from a price increase than does Saudi Arabia? They are thinking in terms of absolute quantities of dollars, not relative dollar flows. Also, Saudi Arabia has an interest in leaving oil in the ground for future generations; thus, they are much better off to cut production to get the oil price back up where they want it.

I trust Saudi Arabia--to do what is in their own self-interest.

I trust Saudi Arabia--to do what is in their own self-interest

Me too. Without oil they are literally dead, so why export more oil than they need to balance their trade?

For KSA the oil has to last forever since they currently have no adequate alternatives!

They have their self-interest to look after, to be sure, but they must also be wary of not antagonizing their imperial patron - the U.S.

Where would the Saudi monarchy be without the umbrella of U.S. protection, ultimately?

At what point would the U.S. bitch and moan about Saudi Arabia shutting in capacity? I don't know the answer to this question, but I think the psychologically important level of $100 a barrel might be of some importance. If the Saudis cut production to get the price up to "only" $75 a barrel, I think the U.S. will be able to live with that, especially since $75 is only slightly higher than half the 2008 high of $147. Of course many in the U.S. would be delighted to see oil at $20 or $30 again, but I don't think that is going to happen for three reasons:

1. Increased oil demand from China and India and some other Asian economies.

2. The fact that as prices fall, a greater quantity will be demanded, other things staying the same. Thus, although the U.S. demand curve may indeed shift further down and to the left, that effect could be swamped by greater quantities being demanded at lower prices. The sharp drop in U.S. gasoline prices will tend to increase the quantity demanded over time, even though other things will not stay the same.

3. Net exports from most oil-exporting countries are likely to decline significantly from 2008 to 2009 due to involuntary declines in oil production in most oil-exporting countries.

Saudi Arabia looks at the bottom line. They don't care much how well the other oil eporters do

Nonsense. OPEC has incredible internal politics that most people never realize. SA will gladly continue to be the swing producer, but there's no way that one of them will make such sacrifices and allow the others to benefit so strongly.

they look at what they themselves can do to affect absolute (rather than relative) Saudi revenues

But they are by no means short-sighted. They recognize that global economic pain now hurts them for years to come. They've been there before.

What does it matter to KSA if other OPEC countries benefit more from a price increase than does Saudi Arabia?

Why not have Ford just cut auto production in half? Prices might go up on the remaining vehicles and they might break even. What do they care if their sacrifice makes every other auto amnufacturer benefit more?

Fallacy of false analogy in comparing Ford to Saudi Arabia with respect to production cuts. There are excellent substitutes for Ford (or any other brand) cars. There are no good substitutes for oil.

Of course KSA would be happy if other exporting countries cut their production in accordance with reduced OPEC quotas, but they are realistic enough to realize that this will not happen, at least for most oil exporting countries.

Saudi Arabia will do what they perceive to be in their own best interests. They have announced a goal of $75 a barrel for oil. They have the power to push the world price output of oil down far enough to get to that target price. Once again, I trust the Saudis to do what is in their own self-interest, regardless of intra-OPEC squabbling.

Still, the longer Saudi Arabia holds off on pumping out their oil, the more likely that alternative(s) will come along to replace Saudi oil as a worthwhile commodity.

Alternatives such as what? I think it is quite clear that at $100 per barrel of oil there are no good liquid substitutes for oil. Even at $200 a barrel it seems unlikely that shale would be much of a source of oil.

What exactly do you have in mind for substitutes? Biofuels do not scale up. Oil at less than $200 a barrel in large quantities from algae is a dream.

One thing the Saudis have learned: To worry about alternatives to oil at $100 a barrel is to worry about nothing.

At a sufficiently high price, perhaps $200 to $300 per barrel we might settle for very imperfect oil substitutes, such as electric cars. With oil at only $100 a barrel or less, electric cars cannot compete with gasoline fueled ones.

"Alternatives such as what?"

Sorry... but they just don't see it that way.

1) There isn't a substitute for cars at that price, but oil isn't just used for cars. Some oil-fired power plants could convert to gas... it's gettin incredibly cheap while supplies are growing and OPEC can't do much about it once the switch is made.

2) There are lots of possible supplies that make sense at $100+. They just don't make sense unless oil companies are convinced that crude will stay above $100. Those companies made clear that they didn't believe it - and right not they appear to all the world to have been right. You simply can't pretend that just because we saw 100+/bbl for a few months that we now know no such supplies exist. It would take years to come on line.

Many options (cheap fusion, economical shale oil or clean coal liquids etc) seem unlikely any time soon, but you have to realize that OPEC fears the possibility. These largely are countries that instantly fall to 3rd world status if their one decent export is gone. You may believe it will never happen, but they can't afford to take the chance. It's why the Saudi's get upset every time an administration talks about boosting research into alternatives.

i half way thought you might know what you were talking about until: ...." economical shale oil..."

"economical" is a function of price. If crude were at $200/bbl and producers were comfortable that it would stay there, we most certainly would see production from shale.

It wasn't all that long ago that people didn't think you could get economically useful quantities of natural gas from (somewhat different) shale formations. Now suddenly it's not only possible but has been ramping quickly up. You're certain that there are no technological advances that could ever make shale oil profitable at any crude price?

Fallacy of false analogy in comparing Ford to Saudi Arabia with respect to production cuts. There are excellent substitutes for Ford (or any other brand) cars. There are no good substitutes for oil.

That doesn't make any sense. Oil is more of a homogeneous good than autos are. Not only are there substitutes for oil, there are obviously substitutes for Saudi oil.

Of course KSA would be happy if other exporting countries cut their production in accordance with reduced OPEC quotas, but they are realistic enough to realize that this will not happen, at least for most oil exporting countries.

What I'm telling you is that your position goes directly against Saudi history. They are possibly the most sensitive to the impact their prices have on the global economy. Iran doesn't care if oil is at $150 and the west stays in decline... they would love the idea.

Saudi Arabia will do what they perceive to be in their own best interests.

Yes... but not what you perceive is in their best interest (no offense intended). They have made clear over the years that they want to avoid damaging the global economy.

More importantly... they don't need to act alone. As I've said... they're about the last ones to cut quotas. Just look a couple months back when they agreed to reductions and then sent the word out "don't worry, we'll keep pumping" (and did). They just need to say "ok" this time.

Comparing the oil industry to the auto industry is an example of a false analogy because there is an enormous oversupply of auto manufacturing capacity and only a small oversupply of oil. Thus while there are excellent substitutes for Fords, there are no good substitutes for Saudi oil, because other net oil exporters cannot increase oil output (with minor exceptions, such as Angola).

I am assuming that Saudi Arabia perceives an oil price of $75 a barrel to be in their own best interest, because that is what they have announced. Now the only way they can get oil back up to $75 is by cutting their own production, because they do not have the political clout to get other OPEC members to adhere to production cuts that they may agree to make.

Do you think an oil price below $75 is in Saudi Arabia's best interest? If not, it makes sense for the Saudis to decrease oil production to the point where oil rises to that price level. If they can get Kuwait or others to also make production cuts, so much the better for the Saudis--but they don't need others to cut output, and they have no fear that others are going to increase oil output at their expense. It's just the opposite with Ford: Any cut in production by Ford will instantly be replaced by other car companies that have lower costs per car than Ford does.

Comparing the oil industry to the auto industry is an example of a false analogy because there is an enormous oversupply of auto manufacturing capacity and only a small oversupply of oil.

Actually... it isn't. For two reasons:

1) The analogy wasn't comparing oil to autos, but giving an example of an entity allowing competitors to profit substantially from significant sacrifices that profit them little.

2) There are plenty of substitutes for Saudi oil. You're approaching this from the perspective of "peak oil is now" and there isn't anyone else to supply that oil if the Saudis won't. Whether or not that's true (I don't think it is), the Saudis don't think it's true. They've seen this show before and they don't like how it ends. New suppliers increase production while their customers target efficiency and shift their balance of demand away from crude.

I am assuming that Saudi Arabia perceives an oil price of $75 a barrel to be in their own best interest, because that is what they have announced.

What they didn't say was that they would be happy at $75 with half the production. There really is a difference.

Now the only way they can get oil back up to $75 is by cutting their own production, because they do not have the political clout to get other OPEC members to adhere to production cuts that they may agree to make.

Again... incorrect. It's the other side of OPEC (Iran/Venezuela/etc) who have been trying to convince the Saudis to come on board. All they have to do is say "ok".

Do you think an oil price below $75 is in Saudi Arabia's best interest? If not, it makes sense for the Saudis to decrease oil production to the point where oil rises to that price level.

Again, they make a profit well below $75/bbl. It isn't in their best interest to sell half as much for that price while hurting their chances (by their standards) of long-term success (meaning keeping the rest of the world from plunging into deep recession).

and they have no fear that others are going to increase oil output at their expense.

Next week? Probably not. But they certatinly do fear losing market share to future producers and other forms of energy.

Does Saudi Arabia "fear losing market share to future producers and other forms of energy."? I think they do have this fear if price goes much higher than $75 per barrel, but at the $75 price they have nothing to fear from shale oil or very deep offshore drilling or any other alternatives to Saudi oil. Indeed, one reason that Saudi announced the $75 price was because they feel comfortable with that price and not threatened by competition from alternatives.

I cannot read the minds of the policy makers in KSA, so I have to judge by public statements and by actions that can be observed, e.g. production levels (though actually these are secret, we can get good estimates). It is plausible to assume that Saudis are rational in respect to their decisions about oil production and target prices. Assuming that rationality, if they can get oil prices up to $75 by cutting production by (say) 25%, then they are much better off in terms of total revenue than in the current price/production regime. Again, assuming Saudi rationality, they have taken into account the effect on the global economy of a $75 price--and also taken into account the probable reaction of their American protectors to that price.

When the king of Saudi Arabia makes an announcement on oil prices, I listen.

I have always wondered why OPEC bothers tinkering with production to manipulate price instead of just cutting to the chase and putting a price tag on their oil. Why don't they just say you can buy as much oil as you want.... the price is $75. What am I missing?

If the Saudis announced a price of $75 but kept their production at recent levels there would be an oil glut at that price. Other OPEC members would find it in their interest to sell at a price less than $75 so as to leave Saudi Arabia with large amounts of unsold oil. The only way to get price up when demand is going down is to cut production.

Thus, other things remaining the same, price moves inversely to production. At $45 per barrel the Saudis are selling a certain amount of oil; they must cut production to get the price above current levels.

That's not quite what I mean. If I was running a cartel, rather than trying to guess how much oil I needed to put on, or take off the market to reach my price target, I would just set my price, then observe the market and adjust accordingly. For example: OPEC could announce a price of $75 tomorrow.... not a penny less (adjusted for crude quality of course). Of their ~40MM capacity, they may observe that they only have takers for 36MM. They could then adjust production down acordingly. On the other hand, if 41MM was sold, they could bump price up to 80 (or sell to the 40MM highest bidders). Announcing such a policy would be quite a shock initially, but after a while it would work quite well. You could adjust price or supply weekly or bi-weekly as needed to meet your targets. Opec's lack of unity would be problematic,as it is now, but I think Saudi Arabia could pull it off by themselves if need be. Announcing tomorrow that they would not accept less than $75 would probably not reduce global quantity demanded by more than 2 or 3MMbo/d ~33% of current production (9MMbo/d), but revenue, at $75 vs. $40 would actually increase. The current system just seems so clumsy and is clearly inneffective. Setting a price floor really shouldn't be this hard for a cartel with as much cash and as as much market share as OPEC has. The first month might be rocky, but after that the new system would increase revenue, and probably add stability to the whole system.

Because other people are allowed to sell oil too.

The purpose of a cartel is to artificially constrain supply so that prices are artificially high. That's why they're illegal here. If they said $75 anyone else could say $74 (ignoring quality differences and delivery etc) and OPEC would always sell the last bbl of oil each month.

If there are two gas stations in town (ceteris paribus) and one sells gas for $1.50... the second one can say "$1.75 - that's my price... take it or leave it" but they won't sell a gallon until station 1 runs out of their current supply. If the town needs 100 gallons more than station 1 can supply, then station 2 gets to sell that much at their price.

It only works if station 2 knows that they town needs everything both of them can supply and station 1 can't get any more gas... but the tight balance between supply and demand is an historically recent thing and they aren't at all convinced that it's permanent. Especially when the town has the option of switching their buses to natural gas.

The world could only balk at their take it or leave it policy for a short time before the world price adjusted upwards around the new benchmark floor. Consumers would buy every BBL of non-opec crude first, at say $74.99, then purchase the remaining QD from OPEC, whether that be 25MMb/d or 40. And that, to me, seems like a much better way for a cartel to set a price floor than the current method, which is like trying to push a string. A Cartel with 40% of the market and more than a week of cash reserves ought to be able to pull this off, yet they don't.
I do understand your argument, but I find it hard to believe that a $75 oil price would cut the current QD by more than a few million b/d, even in today's environment, likely much less than that. A cartel operating in this manner still constrains supply....but this way they know exactly how much they need to constrain it by to enforce their price floor. It's no secret OPEC's goal is to manipulate the price of oil... why don't they just do it directly rather than indirectly? PR fallout???

And that, to me, seems like a much better way for a cartel to set a price floor than the current method, which is like trying to push a string. A Cartel with 40% of the market and more than a week of cash reserves ought to be able to pull this off, yet they don't.

"Should", perhaps... but it would require willingness on all of their part to be that last bbl sold. What if one of them is willing to say "shhh... we'll go a buck lower" to make sure that they sell all of their supply?

They have a tough enough time enforcing quota discipline. "Sell whatever you want as long as it's at this price" would kill Iran (they can't produce their quota right now anyway) as someone else sells it for $75 "with 1.50 volume discount kickback for good customers" that never gets reported.

My guess is that in five years, at their current rate of export, exporting countries will have exported about 30% of their remaining conventional cumulative net oil exports. I expect Mexico to be approaching zero in about four years, and our middle case shows Russia and Norway approaching zero net oil exports in about 17 years.

My simplistic little Export Land Model showed that only 10% of post-peak production from Export Land would be exported; the remaining 90% of post-peak production would be consumed domestically. Initial conditions were: consumption = 50% of production at peak; production decline of -5%/year, consumption increase of +2.5%/year.

Westexas, I'm sure it is not lost on the Saudis that cutting their production in half would more than double the existing price almost instantly. The issue of OPEC no longer having any control over price is simply not correct. They may chose to not exercise that control for fear of adversely affecting the worlds economy, but to think that potential is not there is gross stupidity. The issue of the speed of sailings is an interesting one and could explain, to some extent, the unexpected drop in inventory this week.

I had suspected that the surge in oil from KSA this summer consisted their lighter grades Arab Light and above most of it pulled from storage and the rest from temporary surges in production possible since they rotate wells.

I think the world is going to see our oil supply go distinctly heavy sour over the coming months. And if I'm right about the NG/Heavy Sour refining issues i.e complex refining of heavy sour crude takes a lot of extra NG then we are in a interesting situation since Oil is effectively at the same price as NG on a btu basis. Last winter we seemed to get into a sort of price spiral of NG and Oil in my opinion caused by a loss of light sweet ( perhaps because it was going into storage ? )

However the price spread was much wider then then it is now its practically zero. Assuming the surge was primarly light oil and further assuming that Saudia Arabia withdraws additional light oil off the market its a safe bet that we may see all hell break loose.

If the NG/Heavy Sour price spiral is real and we get into it again KSA will not flood the market with light crude to break the deadlock.

And last but not least the NG/Heavy spiral works as follows.

1.) Price of light sweet crude rises
2.) Producers prefer heavier grades and use more NG
3.) Price of NG rises producers prefers light sweet
4.) GOTO 1

I think the world is going to see our oil supply go distinctly heavy sour over the coming months. And if I'm right about the NG/Heavy Sour refining issues i.e complex refining of heavy sour crude takes a lot of extra NG then we are in a interesting situation since Oil is effectively at the same price as NG on a btu basis. Last winter we seemed to get into a sort of price spiral of NG and Oil in my opinion caused by a loss of light sweet ( perhaps because it was going into storage ? )

I've been brushing up on my knowledge of refining and have been wondering how common cokers are now; and how thorough they are in processing the heavy grades. If they can turn all the viscous gunk into fuels instead of roofing tar in any meaningful volume the refining bottleneck might prove to be a non-issue, that is, unless too much capacity goes out of business with these lean prices - heard the buffed dinks on CNBC yakking about $1 gasoline today. Just saying stuff like that probably moves investor waves to some extent.

Fully expect a turnaround at some point, myself. Keep waiting for the next installment of Traffic Volume Trends to come out - bet that sheperd's crook shape turns into an oxbow form soon. Note also that the downturn in VMT is more pronounced in rural areas, away from the metropolitan centers where you hear all the anecdotal puzzled queries wondering where the demand destruction is taking place.

This is really an important point and deserves more attention. The only real historical precedent we have is the late 70s and early 80s. That was an economic contraction caused by oil price spike, the same as now. The "officials" are now saying the current contraction started in December 07, which leads to my estimate that the American economy, as is, can't run on $80 a barrel plus.

Between 79 and 83, oil consumption contracted by 13%, which today based on 85 million barrels would be around 11 million barrels. Now if the Saudis cut half, thats about 4.5 million barrels, leaving the rest of OPEC to cut 6.5, neither of these are going to happen. OPEC has proven to be ineffectual in closing the spigots when economy is going down, and now you have a number of countries who became quite happy with all that oil money and they're going to be very reluctant to cut...count on it. You can add to that, this contraction looks like it will be even more severe than early 80s.

However this time, supply is even more limited, and to keep running in place, as even IEA now admits, means spending billions. Yet as oil price collapses, spending on new sources and technology has already dropped, so when the economy gets going again, the price of oil will rise along with it, there will not be the great lag there was in the 80s and 90s. Though how long this economy slows is an open question, and just as importantly every dollar spent trying to prime the status-quo pump, will only make the resulting recovery that much shorter.

But there is urgent concern north of the border about a potential strategic threat. "We're fixated on Iraq and Afghanistan, but from a homeland security perspective, right here on our border, isn't this more important?" asks Fred Burton, a former State Department counterterrorism official, now a vice president at Stratfor in Austin, Tex.

Let me preface that I realize that the United States, with exception to the Native Americans who were slaughtered and displaced is comprised of immigrants. However, I believe that in the collapse of Mexico's oil industry which comprises a large portion of the government's income, that Mexico will descend into chaos before the United States. This will lead to masses of people wanting to enter our country simply looking to be fed, but also towards a large influx of criminals as well.

The drug cartels are becoming quite violent (not that they weren't always so), and if the federal government was serious about the "war on drugs" it would put in place border security instead of jailing people who happen to have a few ounces of some sweet leaf on them. I think this is due to the fact that prison is such a big business in this country, that incarceration proves more profitable to companies than border security.

But hey, what do I know?

A border fence does have the added benefit of serving as a WPA style economic stimulus.

Legalize drugs and tax them; end of drug cartels.

But that would mean a drop in funding for anti-drug efforts.

I'm all for that, myself. Even so I don't think that would be the end of the cartels, unless the difference in price between black-market drugs and legal drugs is minimal. Smuggling of tarriffed/taxed goods into the US used to be a profitable business in the colonial days. Like the mafia of the prohibition days, they will adapt into other businesses. Possibly a combination of border security AND legalization would work? Plus, then we could have additional savings by not having so many people in jail due to drug related charges.

Let's take the case of Marijuana (MJ) for example. The cost savings come from a few places:

1. Less police time spent investigating, chasing, processing MJ users/dealers.
2. Less court costs prosecuting offenders
3. Less cost incarcerating them (I believe this should be offset by holding violent criminals and white collar criminals longer).
4. Less social services needed for the children/dependents of the people that you locked up for MJ offences

From the revenue side:
1. Taxes on the sale of MJ
2. Licensing fees for MJ growers
3. Fines for violating growing/selling regulations (selling to minors, etc.)

Plus, you improve the trade deficit by growing domestically, which also provides domestic jobs instead of outsourcing. There are some increased costs, monitoring compliance with growing and selling regulations, but these should be more than offset by the cost reductions listed above.

mayber we need cellulosic (hemp) ethanol. no on second thought, hemp can be better utilized for "other things".

Actually, ramping up the domestic hemp industry would be a major benefit to more relaxed Marijuana laws. With a good regulatory framework in place, growers could apply for different levels of licenses depending on whether they were growing primarily for MJ or Hemp, and their operations could be monitored.

Hemp is a very valuable agricultural product, and we are disadvantaging ourselves by not taking advantage of it. It is also a much more ecologically friendly way of making a lot of things that are currently produced with toxic substances.

hemp is a superior fiber, for clothing for example. polyester, the utility of that expired with liesure suits. but if it lasts a long time, how they gonna sell us a new cheap polyester liesure suit every month ?

hemp rope is far superior in every way than some synthetic fiber rope, same story.

Polyester pile is in every way superior to hemp fabric. Get hemp clothing wet in the wind and cold and you are facing hypothermia. A more apt comparison is polyester to wool. Like wool polyester pile remains "warm when wet" only moreso. And polyester dries much more quickly, doesn't itch, shrink or stretch, is lighter in weight, lasts longer, and costs less.

And as for rope: Try taking a hard lead fall on hemp rope. I'll take modern nylon kernmantle rope any day, over hemp or any other natural fiber.

Agreed. The bad thing about polyester fleece is that it lasts forever. The good thing about polyester fleece is that it lasts forever. I have fleece that I have been wearing for 25 years and it is hardly the worse for wear. It is also great in the cold. Wool seems to breathe better, though.

The bad thing about polyester is that it starts to stink rapidly if you perspire. Wool does too and it smells even worse, imo. All I seem to do is put on these multiple layers of thin polyester when riding or skiing in sub-zero and dealing with the smell afterwards. One layer of cotton especially near the skin destroys the whole benefit. Yet that layer does not stink!

No stink polyester please ?

it depends upon the weave also, e.g. thermal weave cotton. we can and should get along just fine without polyester(that and vinyl siding). try layering for example, i've never had a problem with hypothermia. and that doesnt mean that hypothermia can't happen, try swimming in ice water in your polyester suit.

nylon may be stronger than hemp, but so is a steel cable.

Maybe a change in mindset is in order here.

There should be NO government MJ laws. Period.

It does not NEED to be regulated, either in a positive or negative manner.

It does not NEED ANY level of licensing. PERIOD.

The continued attitude that the government needs to be involved in any way, shape or form, with what I can grow in my back yard is total BS. Should they regulate and TAX my sweet corn? What if I smoke the husks? This continued attitude that the government needs to be involved is typical of the Brainwashing the Sheep in this country get daily.

Power Down the government. You will be better for it.

I'm with you 100% on this one, C_A. It's a plant, and an easy to grow one at that. What's next, tax on my home grown tomatoes?

I guess the difficulty with MJ is that you can grow a large useful amount yourself. I was thinking more of large, commercial growers that would need to be regulated, just as brewers and food producers are now. The Gov may not bother you over your sweet corn, but if have a sweet corn farm, and sell it, of course they tax that - and if there were food safety problems, you would get in trouble.

It's a difficult situation. Think of beer. Nobody cares if you brew your own beer. But if you brewed large batches, and sold it to the neighborhood kids, the Gov would be on you in a minute (I guess you could debate whether that's appropriate).

From WIKI....

The National Minimum Drinking Age Act of 1984 states that revenue will be withheld from states that allow the purchase of alcohol by anyone under the age of 21. Prior to the effective date of that Act, the drinking age varied from state to state. Some states do not allow those under the legal drinking age to be present in liquor stores or in bars (usually, the difference between a bar and a restaurant is whether food is being served). Contrary to popular belief, since the National Minimum Drinking Age Act of 1984, few states specifically prohibit minors' and young adults' consumption of alcohol in private settings. As of January 1, 2007, 14 states and the District of Columbia ban underage consumption outright, 19 states do not specifically ban underage consumption, and an additional 27 states have family member and/or location exceptions to their underage consumption laws. It is an argument in this country whether the age should be 18 or 21 since 18 is the age of majority in most states.
Federal law explicitly provides for religious, medical, employment and private club possession exceptions; as of 2005, 31 states have family member and/or location exceptions to their underage possession laws. [12]

Ever see one of the Management from Coors or AB dragged into court recently?

Time to take off the rose colored glasses my friend....

Power Down

In addition:::::From the Alcohol Policies Project - Center for Science in the Public Interest.
According to the Pride Surveys:1

In 2006, 45.1% of students in grades 9-12 consumed beer.
Between 2005 and 2006, 53.4% of 12th-graders reported using beer on an annual basis. During the same time period, 33.3% of 12th-graders reported using beer monthly.
Among high school seniors who drank beer, most began drinking between the ages of 12-15.
35.3% of 8th-graders and 70.2% of 12-graders reported that beer is “fairly easy” or “very easy” to get.
A 1991 white paper from the Office for Substance Abuse Prevention (now the Center for Substance Abuse Prevention) reported that college students consume approximately four billion cans of beer per year. In fact, the total amount of alcoholic beverages that college students consume, more than 430 million gallons, would fill 3,500 Olympic-size pools.2College drinking trends have remained essentially the same since 1991.3

Power Down

But banks would lose the money-laundering business. It is a NO GO.

I think on the revenue side....your #3 might just cancel out #'s 1-4 on the cost savings side.

There are social ramifications ... with MJ easily accessible I could see a Cheech and Chong society...maybe there would be less wars (cause everyone is so happy) ... and less work ... since everyone is so sleepy ... and less food (since everyone has the munchies)...more stupid ideas (cause everyone is stoned).

BTW...news article from yesterday.


Agree, except the part about the stupid ideas. Anyway, I don't think everyone or even most people would sit around stoned anymore than everyone or most people sit around today drunk.

Holland has pretty relaxed marijuana laws (although they seem to want to change them), and yet they have less people smoking than stricter countries, such as France.

Legalizing drugs would benefit farmers, slow crime in South America, bring more revenue to the government, better public health and help the environment.

The last one is because when you're growing illegal plants, you don't really care about respecting pesticides/fertilizer/... regulations. And a lot of these operations are either deep in the jungles of Columbia, killing large parts of it, or even in US national parks, killing lots of animals, plants and the occasional hiker.

Better public health, as the drugs would be cleaner, and the taxes could be used to fund health programs.

Who in our current paradigm gives a rats ass about farmers, crime in south America, public health, environment, animals,hikers, pesticide/fertilizer (dow monsanto)
there's good money to be made fighting the war on drugs
remember Iran-contra
The bottom line is, take all the added value out of drugs by legalizing them and you have just sucked about a $1,000 mln out of the economy, we'd be be broke er.. broker
nothing personal Xav as I am personally aligned with your sentiment

I found this article to be presenting an accurate picture but the scope of the problem is far greater than 'we' can imagine. It isn't just the head of this beast but the tentacles of corruption that go right to the roots of Mexican governance. Mexican society is generous and honest, indeed amazingly so, but the institutions - perhaps because they were imposed colonially - are rotten from top to bottom, large scale or small. Until you eradicate the corruption at the bottom, the top will just be the sum of the whole mess. The current attempted purge from the top down is amazing and probably an attempt by the PAN to create a secure and organized framework for legitimate business to integrate with the rest of NAFTA. While the election that delivered Calderon to power is one for coincidence theorists, I doubt that his opponent would be tackling this problem as sucessfully.

I'm not Forbes fan, but this article and this subject in general is required reading. If government revenues plunge with the oil exports the shift of power to the underworld will be potentially destabilizing. Not that there is much stability to maintain. Calderon will have no option but to open Pemex to foreign nationals which Obrador ideologically could not. And don't think the state department doesn't know the intimate details of the situation. ELM on the Rio Grande. Ringside seats.

And a Lear falling into an upperclass neighborhood? Small target. Nothing to see here folks.

In 1984, President Reagan's National Security Council expert on Latin America, Constantine Menges, told Casey that things in Mexico had gotten even worse. It was on the verge of chaos, if not revolution, he insisted. Mexico was strapped with a more than eighty-billion-dollar foreign debt, rampant corruption, and many other social problems. About the same time, an intelligence board that advises the president issued a top-secret report charging that the CIA wasn't paying enough attention to political instability in Mexico. This prompted Casey to order a CIA estimate of the Mexican situation. He picked his national intelligence officer for Latin America, John Horton, to head the project. Horton, who had been the CIA station chief in Mexico, picked another analyst, Brian Latell, to work up a draft report. Latell visited Mexico and wrote a report that listed the familiar items: urban and rural unrest, large foreign debt, enormous capital flight, and widespread corruption. Horton agreed with the facts in the draft but not with Latell's conclusions that Mexico was ripe to fall. Horton refashioned the report so that it concluded there was at best a 20 percent chance of a collapse in Mexico. A Horton footnote indicated that most U.S. intelligence didn't even support a number that high. Latell's mistake in making direr predictions, Horton told Casey, had been to assume that Mexicans would react the same way that Americans would to such conditions. Americans would revolt. Latell assumed Mexicans were about to do the same. It was an amateur's mistake...

Mexicans may complain vehemently and often about the ineptness and corruptness of their leaders. But that does not mean that Mexico will soon go the way of Iran, or even the Phillippines or Haiti. The glass may be half-empty in Mexico, but it is also half-full. There is joy and laughter and love of children. There is artistic talent and hard work. There is patience and, most of all, an ability to endure. Aguantar means to bear or endure, to put up with. That's what Mexicans do. They have suffered a lot through their Indian, colonial, and modern history. They have learned to put up with things that Americans and other foreigners have not.

--Patrick Oster, The Mexicans

Sub-comandante Marcos and the Zapatistas would beg to differ with the stereotyping.

"My new book's coming out in June," Subcomandante Marcos announces with relish during the first interview he has given to a British paper in years. "There's no politics in the text this time. Just sex. Pure pornography."...

Still, Marcos says that his next writing project will be a work of political theory analysing the forces he believes are pushing Mexico towards social upheaval. From dispossessed indigenous communities powerless to stop dams and agribusiness destroying their lands, to street vendors evicted from the capital's kerbs to make way for the retail magnates, he says the country's poor and exploited are close to their limit.

The former orthodox Marxist-Leninist turned anti-globalisation guru, who is not himself indigenous, predicts that the subconscious power of the year 2010 - the 200th anniversary of the war of independence and the 100th of Mexico's revolution - will ignite a fuse laid by American efforts to secure the bilateral border, leaving millions unable to escape to jobs in the north. "Mexico will turn into a pressure cooker," he says. "And, believe me, it will explode."

When I first went to Mexico the population was about thirty million. Now it is four times that. A chicken scratch existence is only an endurable alternative when there aren't too many chickens. How long will it be to when the population is half that of the US in a small rocky land? Plus, they are far more dependent on oil than they were.

Mexico has had numerous revolutions and wars. I'd submit that the mirage of potential escape from poverty has maintained the peace, but when the oil exports stop the imports stop too. If you know the country and not just the Cancun version you are more concerned. I'd be far less concerned if the population were still 30 mill. A Mexican told me that he would stop having kids after he had two sons because he need an heir and a spare heir; so far he was cursed with two daughters.

Rolling Stone had an excellent piece from a reporter attempting to get close to one of the drug lords who is popular with the poor to the point of being a folk hero of sorts. The War Next Door : Rolling Stone.

Perhaps the most ingenious and hardworking of these Mexican mobsters is Joaquín Guzmán Loera, better known as "El Chapo," or "Shorty." Chapo, who controls the border towns of Nogales and Mexicali, built massive underground tunnels to smuggle cocaine into Arizona. He concealed tons of cocaine in cans of chili peppers destined for California. He assembled a fleet of boats and trucks and airplanes with hidden compartments to enable them to slip past customs. To the U.S. government, he is one of the most wanted drug dealers in the world, a fugitive with a $5 million reward on his head. In Culiacán, he is more folk hero — part Pablo Escobar, part Robin Hood, part Billy the Kid.

There is patience and, most of all, an ability to endure. Aguantar means to bear or endure, to put up with. That's what Mexicans do. They have suffered a lot through their Indian, colonial, and modern history. They have learned to put up with things that Americans and other foreigners have not.

Zimbabwe is another example of a nation where the population puts up with what are by any standards intolerable conditions.

A willingness to use the police and army for the ruthless suppression of political opponents also helps to ensure stability, of course.

So how is it that Education, Healthcare and Housing costs went up so dramatically in the last two decades in America and by my reckoning the rest of the OECD (I just don't have that data, just anecdotal evidence) and the CPI was so well below the rise in the cost of the big three?

The image is here from the NY times

It might well be true that living standards peaked in the 1970's, that corresponds with the Genuine Progress Indicator that Nate Hagens uses from time to time and isn't it a lovely coincidence that Energy available Per Capita seems to have peaked in the 70's as well. Hmmmm....

What's being implied here is the idea of a generational class system. Let me explain:

1) You need to get a college degree to get a high paying job (common axiom)
2) In order to get a college degree, you need to pay big bucks (Tuition, books, etc.) to the tune of $9,000 - $35,000 per year.
3) Since one starts college when they are young (and hence before they can accumulate wealth), they either need to pay for it themselves by taking out loans OR they need to get the money from others (i.e. parents).
4) Since loans are becoming scarce due to the economy, the best option is to get the money from the parents
5) Because of the high cost of college, one needs to have a high paying job to afford to pay for it for their kids
6) See #1

It's a treadmill, really... One can't be better off unless your parents are better off. Things like aptitude, determination, drive, and hard work start getting thrown out the window when college is something only the rich can afford to get.

Yes college is bloody expensive! I paid full fees as an International Student in Australia, saved a few dollars due to the scholarship but absolutely ridiculous prices compared to what my older relatives paid while they did their university degrees in the UK in late 80's and early 90's! In fact I was astonished earlier this year at some of the price increases in the last 3 years as I hadn't noticed how much they'd gone up! At this rate, in a few years everyone except the richest of the rich will be priced out of University.

Hopefully this deflation brings down the cost of tuition and health care. Those with degrees in economics should be especially angry, they were taught downright fallacies, apart from comparative advantage, time to get a refund! LOL :)

This is a big chunk of Elizabeth Warren's video linked and discussed in last week's Drumbeat.

IMO, Peak Oil followed by the ELM will cause a big increase in downward social mobility. In other words, few people will move up in the world during their lifetimes, but many will move down from the living standards of their parents. There will be increasing numbers of formerly well off households as unemployment increases and as wage increases lag behind price increases. Thus social mobility will still exist, but instead of it being upward for most people it will be downward for most people. In a small way, we're already seeing this from the current recession--and this is before there has been much decline in net oil exports.

Not only will there be an increase in downward social mobility, I think that also there will be an increasing concentration of wealth and income at the top. Why? Because some of the rich will become middle class, thus carving away from the top of the income pyramid.
The upper middle class will shrink, and the lower-middle class will probably increase. The biggest increase will be at the bottom of the pyramid, as more and more people become unemployed and underemployed.
The income distance between those in the top quartile of the income distribution and the bottom quartile may increase dramatically.

All my statements above are in relative terms. In other words, in absolute terms I expect even the very rich to become less rich, as land and stocks continue to fall in value. However, the working class is likely to suffer relatively more income decline than will the higher social classes, because I think increases in unemployment will be concentrated among the lower half of the income distribution.

A college education used to almost guarantee a decent job for those who were adequately motivated to seek one. The value of many college degrees in a post-Peak world is likely to decline greatly as economic decline persists over many years. Graduates of elite colleges may do much better than others due to social networks developed at these colleges and universities; indeed I expect the value of connections to increase as the value of most college degrees diminshed.

I know quite a few people, who've finished their degrees this year or last year with fields related to financial services and are just out of work/ still looking for work. There were so many job cuts announced today as well, marketwatch was awash with grim data. (Stocks will rally I assume).

Thousands of well paying jobs are going and the vicious downward spiral goes on. Denninger was talking of the possibility of 30% unemployment or more and a huge huge contraction in GDP. Bad for us but possibly good for the planet.

Bad for us but possibly good for the planet.

How can anything that's good for the planet possibly be bad for "us"?

To quote an upcoming portrayal of Klaatu...

"If the planet dies, you die. If you die, the planet lives."

In other words, the USA is going to become more like a third world country. To see what the next few decades are going to look like, just look at what most third world countries have looked like over the past few decades.

It is actually well worth studying daily life for common (non-rich)people in third world countries, just as it is worthwhile studying daily life in the US in earlier times. There is a lot one can learn from the experiences of these people.


I do like your calm, rational, style.

I think the scenario you describe has actually been forming for over a quarter of a century in the United States and elsewhere. According to a number of sources, real wages and incomes in the United States have been falling or stagnant since the mid seventies. However, the fall in living standards has been hidden by several factors. Women being 'forced' to enter the labour market because suddenly two incomes are required. The growth of hi-tech industries. The property bubble financing debt/income. The Wall Street bubble. The vast increase in cheap credit etc.

Now, the age of cheap credit is over. Society is reversing to type. The collosal and positive social changes caused by the Second World War and the long post warboom, which have been systematically attacked and reversed for decades, are really going to be savaged by the coming Depression. Society will become incredibly polarised, with the gap between the rich and the poor expanding to levels no one can remember or probably understand. Already the United States is probably the most 'unfair' society in the entire Western world, with massive, entrenched inequalities of wealth and power. In a way the United States has been 'fighting' a 'class war' for many, many, years. With the share of the nations wealth controlled by the super-rich exploding in recent years, at the same time that the poor have seen their share fall drastically. Now it's going to be different because this time the great American middle-class are going to be hit really hard. This depression will effectively smash what's left of the 'American Dream'. It's the death of the concept of meritocracy, if not democracy, and the terrible realisation that the country has evolved into a savage kleptocracy/aristocracy, who are violently determined to defend their position at the top of the pyramid.

I think the society you're describing already exists to a great extent and has been slowly gathering 'momentum' for decades. One can argue that the destruction of the real wages and purchasing power of the working people of the United States, their share of the national 'pie', has had a devastating effect on the overall health of the American economy. I think this is the most important cause of the Depression we're heading for.

At the same time their wealth has been cynically transfered to the richest few per cent of the population by successive governments of reverse Robin Hoods, who stole from the poor to give to the rich! It's really quite disgraceful how this was allowed to happen, and with so little resistance, by a 'castrated' citizenry, without leaders or ideas, without power. When the majority have no political power, where's the democracy?

"When the majority have no political power, where's the democracy?"
Recall what happened in ancient Rome before Julius Caesar came to power: The plebians were used and manipulated by various factions (including that of Julius and Marius before him) for their own ends. The mob had some amorphous power; it demanded bread and circuses, and it got them.

I may be calm, and I may be rational, but the future for the United States I see is a dark one. Most likely, the failure of democratic institutions will lead to the rise of dictatorship. Now the exact nature of this dictatorship is in question. It could be one of the religious right, with Sarah Palin as dictator. Don't laugh, stranger things have happened. It could have strong populist elements--a kind of Huey Long phenomenon. Or it could be outright fascism, perhaps more on the Italian or Spanish models rather than the German form of fascism.

Whether we will have inflation or deflation in our immediate future I do not know. But in the coming Greater Depression I expect 25% to 40% of the population to become unemployed--possibly within a few years or possibly around 2020 as declining net oil exports bite deeply. I think massive unemployment together with the decline of the middle class will be the social forces that end democracy, to the extent that the U.S. has had democracy for the past couple of centuries.

I agree with you, Don, especially your comment above about unemployment becoming the big issue in the coming years.

I think the problem for peak oilers is that we're so focussed on the long-term issue of oil depletion. We aren't prepared for the economic and political turmoil in the short-term (exacerbated by oil).

About the exact nature of the political turmoil, it's hard to say. Keeping in mind the Black Swan theory, we should expect a high degree of uncertainty. Who would have expected the election of Barack Obama two years ago? More unexpected changes are in the wings.

Fascism is a definitely possibility, but 80 years have passed since Mussolini came to power. If it is fascism, it will look much different than the stereotypes.

A more benign possibility is a New Deal coalition with Keynsian spending and nods to European social democracy. This too would look different than our preconceptions.

In any case, I would be prepared for government intervention in the economy and rapid political changes.

Energy Bulletin

Don: Unfortunately, I often share your fears during my darker moments. The country has so many huge problems, none of which are being addressed in any sort of effective way. I can't see this possibly having a good ending.

While none of us know the future, I have suspected that we'll probably end up with the military being in charge, or at least dominating government in some way. The military seems to be one of the best-functioning institutions in our country, and also is one of the best thought-of institutions amazingly. When the USA is desperate enough, it is probably the military to which people will turn. One need not spin improbable conspiracy plots, we'll probably ask them to take charge and hand it to them on a silver platter by commom consent.

(Some would argue that the military, or more accurately, the Military-Industrial Complex, is already "in charge", that they are the fist inside the glove of government. That may very well be true to a large extent, and what we see in the future might be nothing more than the evolution of this into something more explicit - eventually the glove might be pulled off, revealing the fist that has been underneath all along.)

Even the creme de la creme are feeling the pain:

Harvard endowment loses 22%

In a sign of the economic times, Harvard has sent a letter to its deans saying that the university's $36.9 billion endowment fund lost 22 percent of its value in the last four months and could decline as much as 30 percent by the end of the fiscal year on June 30.

So they likely had half in stocks and "growth" :) bonds, and half in stable funds. Which to me sounds like a better balance than many investors recommend?

While there are many factors behind the rise in college costs I see the collapse in manufacturing and union busting have caused too many to give college a try when the odds of actually earning a degree are small. In times of high unemployment even more youngsters try to get that elusive degree. It is amazing how well off those without a degree were back in the 1960s. The percentage of the adult population with a degree has doubled since WWII and the income of working families has dropped. The illusion that a well educated work force is good is deeply entrenched in the psyche of Western countries. There is just too much demand for a college education and the sooner we give our youngsters a good alternative the better.

Hey! The boyz are back in town!

Big Three plead for $34 billion from Congress
The CEOs of GM, Ford and Chrysler are back on Capitol Hill asking for loans and trying to undo damage they did during the previous auto bailout hearings.

The CEOs of the leading automakers were back before Congress Thursday, arguing for a larger bailout than they asked for just two weeks ago, and hoping to undo the damage they did to their case at the earlier hearings.

The three automakers are now asking for up to $34 billion in federal loans, up from their earlier request for $25 billion in assistance. Two of them, General Motors (GM, Fortune 500) and Chrysler LLC, are warning they could run out of the money they need to operate before the end of the year without immediate help.

This time GM CEO Rick Wagoner, Ford Motor (F, Fortune 500) CEO Alan Mulally and Chrysler CEO Robert Nardelli drove fuel-efficient hybrids to Washington, rather than flying in on corporate jets as they did two weeks ago.

Ford and GM have since announced they would sell their jets. And all three CEOs have agreed to cut their pay to $1 a year if they get the federal help they are seeking.

So, hybrids for all (no jets), >99.99% pay cut, but an extra $9 billion. We'll see how this pans out...

The companies are a mess, but these guys are asking for less than .4% of the taxpayers`money that has already been thrown away with very little discussion-where was the MSM outrage over the other 99.6% of the pie.

a) I'd ask them each 3 very good reasons why they should still remain CEOs. how can they continue after having run their respective companies to the ground?

b) They seem to have no clue on the state of their finances. Two weeks back they wanted 25B. Now 34B. If they have burned through an extra 9B in two weeks, no great maths needed to figure out how quickly they can run through even 100B. Otherwise what has changed since then to ask for 36% more money. 9B can fund good MRT systems for 2 cities in the US. These are all pretty big numbers.

c) why should they be rescued? none of the employment bs. they don't care if people are unemployed or if they are starving.


Let's see, $1 per year in wages plus millions in bonuses and more millions in stock options --- Hummmmm Ya, they will starve on that $1 per year wages.
The only real way to wring the excesses out of management and labor at the "big Three" is to have them go through bankruptcy.
Strange how you don't see VW (who are building a 1 billion dollar new plant in the USA), Mecerdes (who can't make their Smart for Two car fast enough (1 1/2 year wait for a new one!), Toyota, Nissan and Honda (all of whom have manufacturing plants in the USA making cars and trucks with as many or more Made in the USA parts than the "Big Three") asking for bailouts?
Why do they still talk about the "Big Three" as "THE" American auto industry. If the "Big Three" all disappeared over night would the rest of the companies manufacturing cars and trucks in the USA somehow magically vanish with them?
But the below 10% public approval rated US Congress will probably hand over the 35 billion of our kids, grandkids and great grandkids tax dollars in an attempt to put a new coat of paint on a sinking ship.

The European car makers are asking for plenty of money, but through the European countries:

How does $50 billion grab ya?
The big 3 are too modest!

These big shots have sources of income other than their current jobs. Golden parachutes from their previous employers and investment in China and India for instance. They won't lose their over sized homes or miss any meals.

"We can't consider Chapter 11, because then people wouldn't buy our cars."

Here's a little news flash: People are already not buying their cars. That is not going to change in a few months, that is a more or less permanent state of affairs.

A few people might be persuaded to buy a few small, energy-efficient vehicles, were they to be put on offer at a reasonable price. I doubt that any of these CEOs or their staffs have any idea how to make that happen. Maybe there is someone, somewhere, who does . . . and would do so, if they could acquire some automotive production facilities at a bargain (i.e., liquidation) price.

That is what will happen, sooner or later, whether we throw more or less money that we don't have down the black hole. IMHO, we are better off biting the bullet, throwing less money down the black hole, and seeing the change come sooner rather than later.

Hello WNC Observer,

Good points. The Big3 CEOs would be better off doing Captain Kirk's "Kobayashi Maru Move"; moving outside-the-box:


Picture the topdogs saying they have been studying Congressman Roscoe Bartlett's speeches, ASPO, TOD, EB, LATOC, Dieoff.org, etc. Picture them displaying fresh tattoos of #119198 on their arms. Picture them saying they want to manufacture Alan Drake's RR & TOD, wheelbarrows & bicycles, manure surfboards, and other items vital for Optimal Overshoot Decline and specie diversity.

Then picture all three topdogs simultaneously cutting off their pinky fingers, then attaching them to necklaces for the Senators to wear daily [next to flag pin on their suit lapels].

"Senators, we have just shown that we are willing to pay a high price to move towards Optimal Overshoot Decline in the hopes of gaining taxpayer funds to retool our industry away from cars. If you refuse our plea plus refuse to wear our pinky necklaces, then the fate of America will be much worse than these three little fingers. It is up to you to now determine the future course of events."

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

Prototype of a Post-Peak Vehicle:


Well, somehow 55% of car buyers, 400,000 people, must not have gotten the memo saying nobody buys American cars anymore because that was the market share of the domestic brands in October. When 97% of consumers choose other products, Apple, with their cutesy Mac vs PC commercials, is regarded as a marketing success with a great consumer image, but when 55%, a majority of car buyers, choose domestic brands, those brands are presumed to have the stench of death about them.


Your wish to have the change come sooner rather than later if the loan (repeat, loan not bailout) the domestics are asking for is not granted will materialize in the crashing of our already teetering economy.
Think you will be immune?
No one will be prepared for what will ensue.

I do think its worth calling attention to the glaringly stark contrast between the insouciance with which banks are being handed hundreds of billions, practically no questions asked, and the harshness with which the auto executives are being made to grovel for mere tens of billions. I wonder whether this glaring contrast might not possibly strike some of the sheeple out there as odd too, and get them wondering about why the banks are making off scot-free with so much more.

A rumor from Japan---one of my students told me her friend who works for Mazda said that he and some other employees had stopped getting paid regularly because of the inability to sell enough cars. The company seems very sorry I got the impression. Here there is the idea that you look after your employees and it's painful when a company can't.

2000 men rallied in Tokyo yesterday because their welfare benefits will expire and they'll be left homeless. They can't find jobs as the electronics/construction/auto sectors continue to weaken.

An update on the Canadian political crisis. Prime Minister Stephen Harper has secured from the Governor General a prorogation (suspension) of Parliament until the 26th January. This was to prevent a certain defeat in the House of Commons this Monday by the three opposition parties who are cobbling together a plan to set up a Liberal/New Democratic Coalition, supported by the sovereigntist/separtist Bloc Québecois.

Tempers are raw and the passions aroused are vicious. Otherwise sedate Canucks are animated like never before. The Prime Minister has bought himself 7 weeks with his move to prorogue the house before the legislative agenda gets started. Moreover, it is highly unlikely the government will last more than a few days following this unprecedented recess. Alberta, which contributed greatly to the core of Conservative support, is feeling alienated over the possibility of being shut out of power in Ottawa. Québecois are furious over the Prime Minister's inflammatory remarks of demonizing the Bloc MP's which forms the bulk of that province's parliamentary representation. Ontario's manufacturing sector is sinking fast as the country slides deeper and deeper into the economic abyss.

At the end of January, unless something else intervenes (like a miracle), the Governor General will have to chose between calling an election or allowing the opposition to govern.

Stayed tune. This is very nasty and turning nastier by the day. The maelstrom is far from settled.

John Robb has post up about the break up of Canada. I'm not going to comment on how likely that might be. What interests me is the rapidity with which something like that might happen. Think fall of the Soviet Union. Virtually overnight. And no one expected that, either.

Break up of these large nation states - US included - seems to me a fairly likely outcome of energy depletion. The periphery is less and less well-served by the core and it gets sick of supporting the parasites in the core. Control of money. Control of resources. Ultimately it goes back to "legitimacy" of the state, which depends on the state's ability to meet the needs of its people. [Where in the US the state is facilitating the rip off of its own people, the issue of legitimacy is right in our faces.] How delaying a vote of confidence - is that what it would have come to? - in CA for a month helps the situation is beyond me. "Painfully obvious" by end of January, comes to mind.

The hierarchy is unsupportable in a lower energy regime.

cfm in Gray, ME

"The hierarchy is unsupportable in a lower energy regime."

Good. bout time, can't happen soon enough for me. Then maybe we can get on with our lives.

Don in Maine

Well there goes the neighborhood. After their lease is up on 1600 Pennsylvania Avenue, guess who is moving in a few miles away from yours truly?


(Our estate is somwhat smaller than the ones discussed in the article)

For those of you who want to see it from the street...

Street View

I hope he doesn't have to deal with foreclosed homes around him... Although I think it would be fitting if homeless squatters set up shop next door...

Just a few months ago the plan was to hide in Paraguay. The cost of this home will probably be less than the first "speaking fee" he gets from Bejing or New Dehli on Jan 22, 2009.

Funny. I'd pay to have Bush not speak. I'd charge him for speaking to me.

7. Foreign countries who have purchased US Bonds are not stupid and they are NOT going to wait until those bonds reach maturity. As soon as it becomes crystal clear that default may be looming, the run on the US bond market will be, shall we say, entertaining.

From the "automaticearth.com".

Main question: Now everyone knows, that the world is falling apart. Why is Bernanke not printing more money? They are discussing 500 billions or 700 billions bailouts....
Why not to take a 50 Trillion ticket? Why not just to print 50 trillion? They could it! So, go ahead moneymakers! Otherwise the world will enter another world war.

Because this would totally undermine the US economy, and probably destroy it. The dollar would lose it's value completely and it's role as a reserve currency, US treasury bonds would become virtually worthless as well. Nobody would invest or lend money to the United States. As the world's biggest debtor nation has to attempt to keep its reckless, irresponsibility, within the realm of moderate insanity, at least for as long as possible, or face disaster.Is that enough for you?

Look up-thread for the discussion on Michael Hudson. Some consider this as a possible strategy that benefits the US. I don't have a clue anymore.

The FED can vanquish inflation buy announcing to the world that starting Monday it is going to buy dividend paying stocks on every stock market in the world, commercial rent-paying property in every city in the world, along with gold, silver, and foreign currencies. This is essentially James Hamilton's point ( econbrowser.com ). In some sense, the FED is already doing this and it has started with MBS in the USA.

It would not take long before the holders of those assets would demand more dollars for them in exchange. Thus, the FED would be successful at forcing the exchange rate down between the USD and "stuff." It would also own income producing assets for their effort.


A big problem the rest of the world has, at least those 'voluntarily' supplying the United States with loans and credit, or 'tribute' if you prefer; is how long do they go on 'subsidising' the US economy? Obviously the US isn't just the world's biggest borrower, it's also the biggest market, sucking in products, services and resources from the entire planet, and it cynically uses this position as a form of 'blackmail' in relation to the rest of the world.

But now this system of 'imperial tribute' is breaking down before our very eyes. A new world order is coming into view. We are rapidly reaching the end of this line of unlimited credit for a form of 'parasite' empire that's squeezing the planet dry. How the American ruling elite, history's richest and most powerful, will react to this unpleasant new reality is anyone's guess. I doubt they'll be particularly pleased and could lash out in any direction in a fit of colossal pique, mixed with desparation.

With all due respect to the UN climate agency I submit
-tree planting offsets are easily exaggerated
-clean development credits are an accounting fiction.

Thus we see Brazil holding the rest of the world to ransom 'give us the money or the forest gets it'. I suggest instead if they raze the forest they have to pay hefty carbon tax. Moreover it is not clear that forests can absorb ever increasing amounts of carbon or merely store accumulated levels.

Now Russia wants to sell credits for using less than their UN assessed entitlement. Mind you if the 'entitlement' had been a tad less there would nothing to sell. Now a cashed up country gets to burn more instead.

The Gristmill website among others is onto the offset scam. The people in high places like the UN don't seem to be listening though.

Before Settlement, Iceland was about 22% forested. This declined to a low of 1% 1800-1900, with an estimated release of 6 billion tonnes of carbon.

Replanting trees in Iceland, on land denuded for a millennium, is clearly carbon capture.

I am, BTW, the only non-Icelandic member of their Tree Growing Club (searching for new, hopefully invasive, species of trees).

Best Hopes for Bigger and more trees in Iceland,


Alan, you've mentioned your interest in Iceland before. I had not heard that there were trees in Iceland, pre Viking. What species were they? Are the Icelanders looking for a warm climate tree or cold climate? Is the goal a tree for lumber or for biomass energy? Fast growing poplar or maple might be a good choice. Some maples are thought of as "invasive" since they propagate very fast.

E. Swanson

The Icelandic birch (a natural hybrid of a tree and a shrub) was 99+% of the trees pre-Settlement. The Icelandic willow, a shrub was also common.

VERY tough climate for trees, HIGHLY variable weather. 5-6 million trees planted each year; native birch, Sitka spruce, Siberian larch, lodgepole pine are the major plantings (no non-native species will do well in every part of Iceland). South Iceland is warmest, but most variable for example. The variation (not enough heat to accumulate sugars after July one year in ten/fifteen for example) kills many imported trees.

Maples do very poorly, but I had someone gather some from Labrador for a second trial (same species (red maple from memory) that had been tried before, and failed, but from Quebec. The hope is that a more maritime climate will select for better genes for Iceland).

Best Hopes for Icelandic trees,


If they are looking for invasive species, why not try Kudzu? We have had wonderful success with that here in the southern US, and Iceland's climate will probably be warm enough for it soon, if not now.

Kudzu doesn't grow as tall as a tree, but man does it grow. Forget 22% - they can probably cover 100% of their island in just a few years if they can get some kudzu going.


The contango in the marketplace is incredible right now. Never before have I seen the contango this large.

JAN09 $43.67
JAN10 $58.25
JAN11 $67.26
JAN12 $77.30
JAN13 $84.79
DEC15 $87.08

Gulf Oil CEO says gas could hit $1 next year

Gulf Oil CEO Joe Petrowski said on Wednesday that the price of oil could sink to $20 per barrel, and there is a chance gasoline prices could drop as low as $1 per gallon by early next year.

Well, inflation adjusted, we've never seen $1/gallon gas...

While he said he believes global warming is a danger, Petrowski is not sure there is as much of a correlation between carbon and global warming as some environmentalists claim.

“Carbon is our greatest threat – there’s another myth,” he said. “I do think economic devastation and reliance on foreign supplies of oil (are).”

He might be right on this (with respect to foreign supplies of oil), only if carbon burning is set to peak shortly. If we stop burning carbon, GW might not be as bad as we think (emphasis on might). However, that will eventually mean he's out of a job.

I do not think there would be a snowball's chance in hell we can keep GW from being catastrophic. Positive feedbacks are beginning to influence the climate, and the CO2 now in the atmosphere will continue to cause temperature increases for a minimum of 30 years. Those two things alone mean we are going to experience catastrophic GW. Positive feedbacks were not considered in the IPCC report since they were not reproducible in modelling. Now in the next few millenium...maybe GW will moderate.

Anyone who thinks PO trumps CC is playing a very dangerous fool's game. Look at the changes already observable at levels supposed to be "safe." I wish to god people would just use their heads.

Let me say it again: 450 and even 550 is supposed to be safe but at only 385 the world is seeing large changes. These changes are already disrupting lives and affecting the economy (Georgia, USA or the Darling region in Australia, anyone? How about the Carterets, etc?).

Peak oil? Ain't gonna end humanity. Climate Change just might. That's all you need to know to NOT make the logical mistake Petrowski is making.

Then again, he's probably one of those deeply insightful people who can't see past the next four quarters of economic activity... if that.


Does anybody have information on heluim 3? From what I understand its sustainable and can be used for vast amounts of time but theres not a lot on earth. Russia says it will start collecting heluim 3 from the moon by 2020.

3He supposedly facilitates a next generation "clear" fusion power.

That would be quite an accomplishment, but likely not as great as "mining" the moon by 2020.

A gram of the stuff would equal about 150 megawatt-hours at 100% efficiency (which, of course, you'll never get close to). That's just a few minutes of output from a large power plant. So let's say that you need 250 or so grams of 3He per day to opperate your plant. The concentration on the Moon's surface is about one part per hundred million.

So to fuel one day's operation at a single power plant, you would need to mine/process about 25,000 tons of lunar material.

Now how likely are the Russians to get such an operation up and running on the Moon by 2020 when they haven't even visited yet?

And has anyone proved that the EROEI is positive? It might just take more energy to make the trip than what we can extract from Helium-3.

And has anyone proved that the EROEI is positive? It might just take more energy to make the trip than what we can extract from Helium-3.

Thats the one part of the scheme that makes sense, the EROEI would be high. But, the (non-energy) cost would be enormous. And, of course we can't even make a reactor for the much easier Deuterium-Tritium reaction, so the whole thing is just pointless space travel boosterism.

Dude, stop harshing my buzz. I'm going to make flying cars, powered by the uranium in seawater.

I'm sure there's plenty of 3He on the moon, but as we all know, there's Death, Taxes, and EROEI.

To obtain 3He:
- build and operate a CANDU reactor
- sell the electricity. Profit.
- Separate the 3H produced from deuterium in the heavy water primary coolant
- Wait 12 years. Half will have decayed to 3He. Better yet, operate a beta-voltaic battery for 12 years, sell the electricity, profit.

That way you get a working nuclear plant (probably several) for less than the price of a scheme that may not work, and will require lots of invested energy

Wassup with the markets? A 300 point plunge in the Dow in the past half-hour, reporting at 3:35 p.m. EST. Now at -311 and falling fast.

Maybe the Masters of the Universe accidentaly stumbled on TOD while doing a Google search, and were scared you-know-what-less.

Anybody else who are feeling the heat from friends and acquaintances having invested in your advise regarding peak oil? It is really getting awful for alot of people now. People are losing alot of money, oil prices are falling like a rock, close to 40 dollars now and could head for 25 dollars a barrel according to merril lynch newest report. People on this site insisted that it was all about fundamentals 6 months ago, and people took action based on this assumption, now it is turning into a bloodbath.

Not me, and it's still fundamentals -- supply and demand, willing buyers and willing sellers, and all that. I suggested to my family and friends that they work toward high-efficiency paid-for cars, reducing debt and consumption wherever possible. I taught them what I could, with a lot of YMMV disclaimers, and especially pointed to "volatility" in all things. They seem to generally get the notion that cheap gas is expensive for those without jobs or with negative cash-flows and no more credit, and that low prices reducing investment are setting us up for a whip-saw the other way before too long.

I've had several say "I should have sold my 401K to cash this Spring like you suggested" too. Most are just happy for some days of cheap gas and added time to hunker down.

Mmmm, yes -where are all those pundits who insisted it wasn't speculation? There hasn't really been that huge a demand drop but now the hedge funds are liquidating the price is dropping like a stone...


Let's hope they hadn't bet their family nest egg. It looks like the Saudi's may have been right after all. With reference to the Tom Whipple piece: Economic versus Geologic peak. How many of you have changed your minds now ??

I'm feeling the most heat from myself for not selling at peak price. I knew a severe downturn was coming and advised many people not to buy a house and certainly not stocks other than energy. And I thought there might even be a downturn in energy, maybe at worst down to a $100/bbl but nothing like what has happened. And I was also worried that a war would break out and that there'd be a spike. So I stayed in. But even so, I bought below what it is now, so it's not so hard for me to stay in.

I think the fundamentals haven't changed. What's unknown is how much more demand destruction will take place. It could be a lot. Still, there are several factors conspiring to bring supply down: natural decline, project cancellations and cutbacks, and finally producer cutbacks. How soon the lines cross again know one knows.

The deeper problem is not investment losses, one is lucky to have something to lose, but the havoc all this is bringing down upon society. I have children and grandchildren. What will they have?

The Nobel laureate, I forget his name, who says that the current crisis is nothing compared to the others that are coming due is entirely right. Not that this removes the sting (or worse) the people are suffering now.

Anybody else feeling the heat? ... oil prices are falling like a rock, close to 40 dollars now and could head for 25 ... People on this site insisted that it was all about fundamentals 6 months ago ...

Maybe you should ask if anyone is feeling the cold yet, and when does the Iceman Cometh? And the heating oil delivery guy arrive?

As for the "fundamentals", I feel your pain. You had a certain model in your head about how the "economy" works today and how it will/must work tomorrow. The model was wrong. Don't be embarrassed. Alan Greenspan had a model in his head about how the fiscally prudent Wall Street crowds and the "free [fall] markets" would deal with default swaps.

The Peak Oil model (i.e. the Hubbert curve model) does not directly include "price" as one of its input or output parameters. The output of the model is purely in terms of average barrels per day extracted assuming a free [for-all] market situation where everybody is drilling as fast as they can to maximize their current profits. At some point, after the easy-to-extract-and-ship oil is gone, cost of production invariably goes up and, well, if current market prices don't justify the drill-baby-drill paradigm anymore, rate of production goes down.

"Anybody else who are feeling the heat from friends and acquaintances having invested in your advise regarding peak oil? "

hell no, they dont pay any attention. except my brother-in-law we had a discussion about chk a few months back and i told him i wasnt impressed. he had to admit i was right(by default really).

I never give anyone investment advice, especially with regard to oil. If anyone asks, I remind them that oil is a commodity, and like all commodities its price goes up and down. True, the long term trend will likely be toward more scarcity, which implies an upward long term price trend. However, this only means that there will be more ups than downs, and the the ups will generally be up more than the downs will be down. If you speculate/gamble in the commodities market, you need to understand that you can be absolutely right about the long term trend, yet absolutely lose your shirt in the short term. That's not a game for me.

Baltic Dry Index closed at 666 exactly today.

Or as Seatrade Asia Online puts it in their current top story...

Satanic earnings for owners as Baltic Dry closes on 666

London: The evil tailspin that has seen dry bulk plunge to near all time lows closed yesterday on the Mark of the Beast --- 666, the alleged number of the Devil, a suitably dark and appropriate number amid the rate bloodbath.

The association of the number 666 with the Devil is taken from the Book of Revelations. However, earlier versions of the book suggest the actual number was 616. For owners the latter number is where the index is heading as the index continues to slide each day from its highs of nearly 12,000 mid-year.

According to a latest report by Allied Shipbroking, the up to 99 percent drop of rates is described as disappointing, with almost every ship type suffering amid a lack of cargoes and tonnage oversupply. This has led to an idling of many vessels. Allied estimated that almost 25 percent of the capesize fleet is now off market, since they can’t even break even.

Very interesting.

Without all those gigantic cargo ships scurrying about, I wonder how much this factors in to the perceived drop in demand for oil.

ExxonMobil just released their Energy Outlook to 2030

The forecast has been downgraded to agree with the IEA WEO 2008.

Gotta keep the lies strait.

I hope someone is keeping an archive of all these things. They will make for very humorous reading some day.

oil below $44 a barrel? geez, its dropped dramatically since August. where will it bottom? $30, $20, $10, $5.

i thought it would have bottomed out a at $50, but boy was i wrong. Guess nobody wants to buy oil.

Nat gas has dropped too, but it seems to hang around $6 range. not sure if it's hit the bottom, but it hasn't exactly risen past $6 either.

The next stable price point is 30.

That should kill the tar sands. Even with the current price give they way funding for projects work I think its a safe bet that peak production is in the bag. We don't need a rear view mirror.

And NG just broke 6 so its heading for 4 this will wipe out the North American shale plays so future North American NG production is probably toast although its still to early to call it.

Now if our nation actually understood peak oil the bean counters would hang in there and keep the funding going but I think we all know that most oil/NG projects are probably toast with whats happening now. And by the time price moves high enough to convince people we need to invest it will be to late to arrest the decline.

I really hope I'm right and the market wakes up and oil/ng prices rebound fast but I'm becoming afraid that the market is not going to move till obvious shortages start occuring.
By then the damage to future investment is done not that its not probably already trashed.

This is no doubt the most pragmatic comment I have read in the past month.

I have been telling everyone for the past month that gasoline prices will continue to fall until they begin to see bags on the pumps here and there around the country.

Really good articles



A few mistakes that changes the conclusion.

For example OPEC lifting costs are not $15 a barrel. At best maybe 50% of OPEC production has
this lifting cost. Most of it is now around 40 or more a barrel. We have discussed this some on
the Oildrum but I good thread on worldwide extraction cost would be good with oil now below production
cost for a significant amount of our supply.

Plus he expects non-OPEC to continue to exapand does not include the need to replace decline etc.

But for someone who is obviously not a peak oiler to start independently seeing what we have for a while
and do a really good job at it is impressive.

Hello TODers,

Dec. 4 (Bloomberg) -- Brazil, the world’s biggest coffee grower, will confiscate untapped deposits of phosphates and other raw materials used in fertilizer because foreign companies haven’t sufficiently invested in them, Agriculture Minister Reinhold Stephanes said.

The country plans to revoke the licenses of companies that aren’t investing to develop their deposits as part of a plan to become self-sufficient in fertilizer by 2010, Stephanes said today in an interview in Montevideo, Uruguay. Brazil imports more than two-thirds of the fertilizer it needs, he said.

“If the company doesn’t explore the concession, the government takes it back,” Stephanes said in the Uruguayan capital, where he was attending a fertilizer conference. “Brazil will get those mines back,” he said.
Brings up some interesting speculation:

What if Morocco doesn't develop their phosphate deposits at a flowrate suitable to stay above a Liebig Minimum [much less a flowrate suitable for Liebscher's Optimum] for American farmers, plus other farmers around the globe? When cash becomes worthless: IMO, it will take an offer of energy plus 2:1, 3:1, or higher ratio of sulfur tons/phosphorus ton to complete a trade due to the beneficiation process.

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

Question for TODers,

Assuming deflation and economic collapse continues until most globalized trade is kaput: How low does the Baltic Index have to go below 666 before it becomes economical [profitable?] to run Hi-Tech wind-powered sailing ships like Perkins' Maltese Falcon to move essential cargo?

Or is that only possible when the price of bunker fuel goes sky-high?

Or drone ships?

Like the traindriver, ship crews appear to be fairly redundant with modern technology. A company with a few ships could control them remotely saving labour time wasted travelling.

Who's going to fight off the pirates?

Blackwater perhaps Consumer. If the price is right.