DrumBeat: December 30, 2008

Tempers rise over oil-heat lock-ins

Consumers and local governments that locked into long-term contracts for heating fuel and diesel this year to save money as prices soared are feeling buyer's remorse as they watch prices plummet.

"We've never gone through anything like this where prices rise so quickly and fall so quickly," says Dan Gilligan, president of the Petroleum Marketers Association of America.

In Connecticut, more than 500 people have called the attorney general's office in the past two months, trying to get out of the fuel contracts. The national average for home heating oil is $2.41 a gallon. Some paid more than $4 this year.

"It's a universal plea: they want us to extricate them from these contracts," says Attorney General Richard Blumenthal.

Gas falls for 11th day, nears 5-year low

NEW YORK (CNNMoney.com) -- A daily survey of gas station credit-card swipes shows that gas prices are dropping to the lowest levels in nearly five years.

Regular unleaded gas fell for the 11th consecutive day Tuesday to an average of $1.616 a gallon, down 3 tenths of a cent from the previous day's price of $1.619, according to motorist group AAA. That's the lowest price since gas hit $1.6027 a gallon in January 2004.

Socialism with cheap oil

DURING a turbulent decade in power, Venezuela’s president, Hugo Chávez, has been greatly helped by his own remarkable ability to inspire loyalty among ordinary Venezuelans on the one hand, and the sharp rise in the price of oil, the country’s only significant export, on the other. But the world price of oil has fallen from a peak of $147 last July to $40. And popular discontent with Mr Chávez’s corrupt and autocratic regime is mounting. So 2009 looks like being a difficult year for Mr Chávez and his “Bolivarian revolution”.

Saudi Arabia eyes more cuts to stop oil slide

LONDON -- Top exporter Saudi Arabia is set to cut oil supplies further in the new year, potentially taking output below its agreed OPEC target, as it strives to shore up a collapsing market, oil market sources said on Tuesday.

It lowered supply to 8.2 million barrels per day (bpd) in December as the oil price dived to less than US$40, far below the US$75 a barrel named by Saudi King Abdullah as a fair price.

The kingdom had previously increased production unilaterally to about 9.7 million bpd in August to calm an oil market that shot up to a record of nearly US$150 in July.

Since then, it has reduced supplies by roughly a fifth and further "significant" output curbs are expected in February, trade sources said.

"This is because of the price. The Saudis want it higher," said a major buyer.

Ukraine Pays Russia for Gas, Says No Obstacle to Deal

(Bloomberg) -- Ukraine agreed to pay as much as $2 billion to settle arrears for natural-gas imports from Russia, potentially averting a threat by OAO Gazprom to halt supplies and clearing the way for a deal on gas shipments in 2009.

Ukraine has paid in full for imports in November and has made an advance payment for December’s supplies, President Viktor Yushchenko’s office said in an e-mailed statement today.

Angola revises February oil exports downwards: traders

LONDON (Reuters) - Angola is likely to reduce its February crude oil exports by about 13 percent from January following OPEC's agreement on supply cuts to help reverse falling oil prices, traders said on Tuesday.

Angola has revised its February loading programme, traders said. The revised programme, which was obtained by Reuters, showed the West African producer's exports for the month would fall to around 1.60 million barrels per day.

Russia to cut oil export duty to $119 per ton from January 1

MOSCOW (RIA Novosti) - The Russian prime minister signed a resolution on cutting oil export duty further down to $119.1 per ton from January 1 amid declining world oil prices, the government's press office said on Tuesday.

Big West Utah Refinery Is Purchasing Oil on Day-to-Day Basis

(Bloomberg) -- Big West Oil LLC said its North Salt Lake City, Utah, refinery is purchasing crude on a day-to-day basis after its parent, Flying J Inc., filed for bankruptcy earlier this month.

“We are still working things out to continue to receive our crude supply,” Joel Elstein, manager of the Utah plant, said in a telephone interview. “It’s been kind of a day-to-day thing.”

Down, not out: encouraging signs for ‘09

“Americans are going to resume their normal traveling habits in 2009,” says Doug Hecox, spokesman for the Federal Highway Administration (FHWA). “We just don’t know when.” Furthermore, he suggests, the size and timing of that shift probably has less to do with the price of gas than the underlying economic situation.

In a nutshell, Hecox believes we’ll adapt. “The longer the economy remains murky, the more people figure out ways to deal with it,” he says. “People start to justify little luxuries — not Godiva chocolates or trips to Paris, but maybe an overnighter or long weekend away.”

Utility's plan big on energy efficiency in Colo.

Xcel Energy's plan for providing energy through 2015 includes an aggressive energy efficiency program that could save the equivalent of a coal-fired plant.

Oil Set for Rebound as Record Drop Spurs OPEC Cuts

(Bloomberg) -- Oil futures may rebound from their worst year to average $60 a barrel next year as OPEC makes record production cuts to counter the deepest economic slump since World War II.

The forecast, the median of 33 analysts compiled by Bloomberg, represents a 52 percent gain from today’s $39.48 price. A 14 percent reduction in supply, equal to 4.2 million barrels a day, pledged by the Organization of Petroleum Exporting Countries will erode U.S. crude inventories that rose 10 percent this year as the slowing economy reduced world demand for the first time since 1983.

Tight Credit Threatens Pipeline Expansion

Steady expansion for pipeline companies is grinding to a halt as tight credit makes it harder to raise construction money, potentially limiting their ability to bring new supplies of natural gas to market.

U.S. gas-pipeline construction boomed in recent years as demand for natural-gas grew and production shifted to new areas, such as north Texas and the Rocky Mountains.

Pipeline demand has remained strong despite falling energy prices, but the financial crisis has made it harder and more expensive for companies such as El Paso Corp., Kinder Morgan Energy Partners LP and others to raise cash to build new conduits.

Canceled and scaled-back pipeline projects are bad news for natural-gas consumers and producers, who now could face higher fees and limitations on how much gas they can move from new production areas.

This oil man favors a gas-tax hike

NEW YORK (Fortune) -- It's not often you hear a corporate executive advocate a tax on the product he sells, particularly not in the oil business, where opposition to gasoline taxes is fervent. But Paul Foster, the chairman and CEO of El Paso-based Western Refining, is (dare we say use the word after the presidential campaign?) a maverick.

Foster, 51, is a conservative Republican who has spent his entire career in the energy industry. He founded Western Refining (WNR, Fortune 500) in 1997 and in a decade built it into a $7.3 billion giant (No. 342 on the Fortune 500) that refines various fuels and also sells gasoline to consumers, mostly in the Southwest under the Giant and Mustang brand names.

Foster contends that the country needs to raise the federal gas tax significantly. He points out that, in real terms, we're paying less than we did decades ago. (At 18.4 cents per gallon, the federal tax is currently 16% lower, adjusted for inflation, than it was in 1970.)

Foster argues that the levy should be increased, in steps, to $2 per gallon or more. He's even willing to credit the Europeans with a good idea or two on this score, as he explains in an interview with Fortune.

Energy dispute over Rockies riches

A titanic battle between the West's two traditional power brokers -- Big Oil and Big Water -- has begun.

At stake is one of the largest oil reserves in the world, a vast cache trapped beneath the Rocky Mountains containing an estimated 800 billion barrels -- about three times the reserves of Saudi Arabia.

Extracting oil from rocky seams of underground shale is not only expensive, but also requires massive amounts of water, a precious resource crucial to continued development in the nation's fastest-growing region.

Byron King: Whither the Oil Markets

“Global Demand for Oil to Plummet,” screams a recent Financial Times headline. Huh? No it won’t. Who are they trying to kid?

Global oil demand is not going to “plummet.” And for the FT to say so is just plain silly, if not irresponsible. OK, I know. There’s an old saying that they teach in journalism schools. “You have to sell newspapers.” But this declaration by the FT highlights the perils of letting a headline-writer do your thinking for you. It’s what I call “arguing a screaming conclusion.” And a wrong conclusion at that.

Drill baby drill — a reality check

Many Americans want to believe that the US still has unlimited oil resources within its boundaries, if only the pesky environmentalists would just get out of the way. Throughout the recent presidential campaign, the “Drill baby drill” mantra was exploited relentlessly by John McCain, his supporters and rightwing media sources.

Apache Resumes Oil Output as Australia Cyclone Eases

Apache Corp has restarted production from two oil fields with combined output of 13,200 barrels per day (bpd) off Australia's western coast after a cyclone weakened and no longer posed a danger to operations, the company said on Monday.

Production at the 8,000 bpd Stag oil field was reactivated on Friday, said David Parker, a Perth-based Apache spokesman. Production at the Ocean Legendre oil field, with a rate of 5,200 bpd, will be restarted later this week.

Bakersfield Refinery Halts Production After Bankruptcy

(Bloomberg) -- Big West Oil LLC, which has two refineries in the U.S., has halted taking deliveries after parent Flying J Inc. filed for bankruptcy, the Bakersfield Californian newspaper reported, citing a crude supplier.

Big West has refused shipments of oil and may be carrying out maintenance, the newspaper said, citing David Wolf, chief executive officer of Berry Petroleum Co. Big West has no plans to close or change operations, company spokesman Peter Hill told the newspaper. Flying J declined to comment, the newspaper said.

Mexico’s Fiscal Prudence Fails to Avert a Slowdown

MEXICO CITY — Twice in the last three decades, Mexico has demonstrated that one country’s profligacy and mismanagement can spell economic catastrophe beyond its borders.

In 1982, the country defaulted on its foreign debt and set off a Latin American debt crisis that led to a decade of anemic growth across the region. In 1994, the peso collapsed and halted capital flows to emerging markets around the world, until the Clinton administration arranged a $50 billion Mexican bailout.

But this recession, it is the profligate United States pulling down fiscally disciplined Mexico.

Argentine government intervenes in troubled natural gas company

BUENOS AIRES, Argentina (AP) — Argentina's government is taking over a troubled gas company after it defaulted on $22.5 million in debt.

Cold turns fuel into gelatinous clump

Equipment doesn't run when the diesel inside it gels up to the consistency of clumpy wax.

Severe cold weather is creating a prolonged call for higher grade diesel, and suppliers are having difficulty keeping up with demand.

Fuel scarcity crisis bogs down festive season in Rwanda

APA-Kigali (Rwanda) As Rwanda waits for dozens of fuel trucks coming from Mombasa, Kenya, as promised by the ministry of Trade, fuel shortage crisis continues to rock the country prompting long queues on almost all pumping stations by Tuesday morning, causing unexpected business paralysis.

The escalating crisis which has persisted for over a week now, has led to a sudden increase in transport fares for upcountry commuters and commodity prices, restraining life especially during the festive season, APA learns.

Consumers want their SUVs; they just don't want to pay for the gasoline

When the gasoline prices dipped to about $1.50 -- I paid $1.38.9 the other day -- guess what? Trucks and sport-utility vehicles began to outsell cars. The numbers show December likely will end that way for the first time since early last year.

If I'm not mistaken, the consumer was less concerned with fuel efficiency than size, luxury and performance, and fuel economy be darned.

And you know what else? This has happened several times in the past few decades, so it's no surprise.

Getting Ahead of the Data Storage Energy Crisis: The Case for MAID

There is a tremendous amount of focus on energy efficiency these days. Some think it’s a nice “green” thing. Others understand the significant financial benefits that can be gained. But for those of us in the storage and networking industry, it’s a lot more urgent than that. We are on the brink of an energy crisis that fundamentally impacts all of our professional lives.

The energy climate plan of Barack Obama

The energy-climate question is one of those areas where the policy of Barack Obama could be most radically distinguished from that of George W. Bush. Under the leadership of the new president, in fact, the United States should quickly adopt an obligatory plan of reduction of greenhouse gases, invest massively in renewable energies and play an active role in the negotiation of a new international treaty to take over from Kyoto, in 2013. The turn is undeniable. We should take note of it, but we should also measure its limits… and dangers.

Will the U.S. Move From Arab Oil Dependence to Asian Battery Dependence?

A consortium of chemical and battery manufacturers is seeking $1 billion from the U.S. federal government to build a domestic industry for electric car batteries.

Possible air hazards rarely considered in plans for schools

MIDDLETOWN, Ohio — The students at Amanda Elementary School here already breathe what appears to be some of the most polluted air in the nation.

Now, a plant that makes coke — the coal-based fuel that melts iron ore for steel mills — is scheduled to be built behind the school, just past the ball fields.

"I can't believe this is possible," says Jena Manley, a college junior who attended the school and lives nearby. "How much pollution are we supposed to take?"

USA's trashed TVs, computer monitors can make toxic mess

SEATTLE — Hong Kong intercepted and returned 41 ship containers to U.S. ports this year because they carried tons of illegal electronics waste from the U.S., according to the Hong Kong Environmental Protection Department.

By turning the containers away, Hong Kong thwarted attempts by U.S. companies to dump 1.4 million pounds of broken TVs or computer monitors overseas and an estimated 82,000 pounds of lead, a known toxin, in the devices.

But thousands of other shipments probably slipped through, says Jim Puckett, head of the Basel Action Network, or BAN, a three-employee environmental non-profit that over eight years has become a respected watchdog over the rapidly growing electronics recycling industry.

October oil demand down 4.07 pct from year ago: EIA

WASHINGTON (Reuters) - U.S. oil demand in October was 598,000 barrels per day more than previously estimated and down 833,000 bpd from a year earlier, the Energy Information Administration said on Monday.

U.S. oil demand in October was revised up by 3.14 percent from the EIA's early estimate of 19.045 million bpd to the agency's final demand number of 19.643 million bpd, and was 4.07 percent less than demand of 20.476 million bpd a year earlier.

The final numbers, in the EIA's monthly petroleum supply report, always differ from initial estimates in the weekly petroleum report.

Oil near $40 as investors eye Gaza conflict

VIENNA, Austria – Resurfacing concerns over the world economy sent crude prices lower Tuesday, eclipsing fears that the conflict between Israel and Hamas could inflame tensions in the oil-rich Middle East.

Prices have blipped upward over the past few days because of the fighting. But with the conflict in its fourth day Tuesday, the market refocused on the turmoil roiling economies internationally — and the negative fallout for oil demand.

OPEC is pumping below target: report

LONDON — Output from OPEC members bound by supply targets fell by 400,000 barrels per day (bpd) in December, consultant Petrologistics said on Tuesday, as the group more than complied with a deal to try to boost oil prices.

Supply from 11 exporters was expected to average 27.1 million bpd in December, down from about 27.5 million bpd in November, said Conrad Gerber of Petrologistics, an established tracker of oil tankers.

Is Time Right To Top Off U.S. Oil Reserve?

At a time that the federal government is printing money faster than postage stamps, any dollar windfall comes as welcome news.

Such is the case with the Strategic Petroleum Reserve. Last May, with oil surging toward its historic peak near $150 a barrel, Congress ordered a halt to filling the emergency reserve in a near-unanimous vote.

Timing is everything, and this is one instance where Congress got it right. Since their July peak, oil prices have dived by nearly $110 a barrel. Just in time to take advantage of this collapse, the suspension ends Dec. 31. In the New Year, the U.S. is free to resume filling the Strategic Petroleum Reserve.

Heavy crude may hit light-sweet parity on Reliance

SINGAPORE (Reuters) - Middle East sour crude could extend this year's rally to reach an unprecedented parity with gasoline-rich sweet grades in coming months, as the world's biggest new refinery in a decade fires up its furnaces.

Indian Reliance's 580,000 barrels per day plant, formally commissioned on December 25 in time to meet a year-end target, enters a global oil market that has turned upside down since it was launched in mid-2005 amid a global refining capacity squeeze and as OPEC pumped every barrel it could.

Now, instead of hoovering up discounted, surplus heavy-sour crude from OPEC, Reliance may be chasing fewer barrels as the cartel cuts output by record volumes in a bid to cope with shrinking demand and put a floor under prices that have fallen more than $100 since July.

Dow Chemical Plummets as Kuwait Cancels Investment

(Bloomberg) -- Dow Chemical Co. plunged the most in at least 28 years and Rohm & Haas Co. tumbled after their $15.4 billion merger was threatened by the collapse of a deal between Dow and Kuwait that would have provided some of the funding.

Drillers eye oil reserves off California coast

The federal government is taking steps that may open California's fabled coast to oil drilling in as few as three years, an action that could place dozens of platforms off the Sonoma, Mendocino and Humboldt coasts, and raises the specter of spills, air pollution and increased ship traffic into San Francisco Bay.

Texaco Toxic Past Haunts Chevron as $27 Billion Judgment Looms

The ruined land around Cevallos’s home is part of one of the worst environmental and human health disasters in the Amazon basin, which stretches across nine countries and, at 1.9 billion acres (800 million hectares), is about the size of Australia.

And depending on how an Ecuadorean judge rules in a lawsuit over the pollution, it may become the costliest corporate ecological catastrophe in world history.

If the judge follows the recommendation of a court-appointed panel of experts, he could order Chevron Corp., which now owns Texaco, to pay as much as $27 billion in damages.

The case, which has languished for 15 years in U.S. and Ecuadorean courts, highlights the growing human and environmental toll of the global quest for oil.

Dollar Falls on Concern Israel-Hamas Conflict May Choke Off Oil

(Bloomberg) -- The dollar declined against the euro as Israel’s assault on the Hamas-controlled Gaza Strip in response to rocket attacks raised concern exports of crude oil to the U.S. may be reduced.

Profiting from Oil's Inevitable Rebound

The price of oil is down, way down. Last June's $142/bl has recently been below $35/bl. Now may be a very good time to invest in oil stocks. On the other hand, prices still seem to be heading south. You have the "falling knife" risk.

Yet, how low can it go? Unlike derivatives, we are talking real assets here. At a certain point, pumping won't pay. And, of course, low prices stoke demand. It is not a matter of if oil prices will rebound, it is a matter of when and to what extent. There is also the geopolitical risk and the "Peak Oil" scenario. Events in the Middle East can flare oil prices up on a moment's notice.

Seeing the bottom and strength of investments

Well, I do agree with the peak oil theory, and there’s evidence that it’s happening. The reason we got to $140 oil is the supply and demand numbers were coming together. There wasn’t a lot of excess supply. Let’s say there was an extra 1.5 to 2 million barrels between OPEC nations, but that isn’t necessarily easily brought on stream. It would be there, but it might require some capital, and there is some question whether those estimates are even valid as to how much extra there is. But the point is that you are getting to a level that it’s hard to replace natural declines.

As a result of this low price, a lot of large projects are either outright cancelled or deferred. And we have seen a lot of that in the oil sands; probably, when all is said and done, we might see the deferral of between half a million and a million barrels of production. The world is producing 86 million barrels a day now; the decline rate in that production is 6% to 7%. So, just to keep production flat, you have to add 5 to 5.5 million barrels of production a day per year.

Libya orders further oil cuts of 20K bpd

TRIPOLI, Libya (AP) -- Libya's oil chief says his country will cut production - starting in January - by almost 20,000 barrels per day more than Libya's OPEC quota.

National Oil Corporation head Shukri Ghanem says the latest cuts would bring Libya's total output reduction to 270,000 barrels per day from September levels. That is about 20,000 barrels more than the country is required to cut under its OPEC quota.

Gazprom renews Ukraine gas threat

Russia's Gazprom has reiterated it will cut gas supplies to Ukraine on 1 January if no new contract is signed.

"The last round of talks with Ukraine is beginning. We are counting hours," the firm's head Alexei Miller said.

Gazprom Offers to Prepay Ukraine for Gas Transit

(Bloomberg) -- OAO Gazprom, Russia’s natural-gas export monopoly, offered to prepay fees for shipping gas to Europe via Ukraine to help the country pay its debt and avoid a cutoff.

The proposal is “under discussion,” Sergei Kupriyanov, a spokesman for Gazprom, told reporters in Moscow today.

Gazprom sets up action group to start gas cuts to Ukraine

MOSCOW (RIA Novosti) - Gazprom has set up a special action group to begin preparations to halt gas supplies to Ukraine if the former Soviet state fails to repay its outstanding debt, the Russian energy giant's CEO said on Tuesday.

Indonesia’s Oil, Gas Revenue Rises 63% in 2008 on Higher Prices

(Bloomberg) -- Indonesia’s revenue from oil and gas production climbed 63 percent this year as crude prices reached a record in July.

Income from petroleum surged to 303 trillion rupiah ($27.4 billion) this year from 186 trillion last year, Energy Minister Purnomo Yusgiantoro said in Jakarta today. The country’s mining industry, including coal, brought in 42 trillion rupiah this year, 13 percent higher than a year earlier, he said.

Getting renewable power to the people

The Southern California desert could produce a gusher of renewable energy.

Strong sunlight bathes its open plains, even in winter. Powerful winds stream through its mountain passes. Fractures in the earth along the San Andreas Fault heat pools of underground water - the perfect fuel for geothermal power plants.

There is, however, a problem. Most Californians don't live there.

Hydro power shows signs of comeback

America's search for cleaner electricity has developers studying dozens of government flood-control dams from North Carolina to Oregon to see if it makes financial sense to retrofit them with hydroelectric turbines.

The studies are part of a broader trend that has developers looking at everything from millpond dams in New England to locks and dams on navigable waterways such as the Mississippi and Ohio rivers.

NZ airline flies jetliner partly run on veggie oil

WELLINGTON, New Zealand – A passenger jet powered in part by vegetable oil successfully completed a two-hour flight Tuesday to test a biofuel that could lower airplane emissions and cut costs, Air New Zealand said.

One engine of a Boeing 747-400 airplane was powered by a 50-50 blend of oil from jatropha plants and standard A1 jet fuel.

Answers To Huge Wind-Farm Problems Are Blowin' In The Wind

While harnessing more energy from the wind could help satisfy growing demands for electricity and reduce emissions of global-warming gases, turbulence from proposed wind farms could adversely affect the growth of crops in the surrounding countryside.

Solutions to this, and other problems presented by wind farms - containing huge wind turbines, each standing taller than a 60-story building and having blades more than 300 feet long - can be found blowin' in the wind, a University of Illinois researcher says.

"By identifying better siting criteria, determining the optimum spacing between turbines, and designing more efficient rotors, we can minimize the harmful impacts of large wind farms," said Somnath Baidya Roy, a professor of atmospheric sciences at the U. of I.

The Floral Majority

How the split between creation care's leaders and its grassroots activists is dictating the future of the green evangelical movement.

Clean future starts now

"CURRENT global trends in energy supply and consumption are patently unsustainable — environmentally, economically, socially … What is needed is nothing short of an energy revolution." I have said similar things myself, but this quote is from a new "World Energy Outlook" by the International Energy Agency.

The change is as amazing as if the Pope were to support contraception or the Business Council to call for stabilising the population. Until last year, the energy agency was still deep in denial about the problems of climate change and peak oil, and was talking about world energy use doubling and an increasing use of coal.

Food lessons from the Great Depression

When she was a kid, for a treat Pat Box and her seven siblings got "water cocoa," which is pretty much what it sounds like and nothing special today. But that was in the 1930s, when her father's business was reselling bakers' barrels to coopers, and the family would get first crack at them, scraping the wood for any traces of sugar or cocoa left behind.

The Malthus Gun

Adapting to climate change and decreasing agriculture’s environmental impact, while substantially increasing its productivity, are among the key challenges confronting us in the twenty-first century. Despite the bad rap they’ve gotten, the GM crops in use today have already contributed to meeting both challenges.

How does a 4.07 reduction in demand result in a price drop to a quarter of its former value? I don't understand that. Does anyone have any theories about the precipitous price decline?

Kevin Walsh
Chicago Peak Oil

october's price (wti monthly) was down by a factor of 1.75 from july's peak.


There was a lot of debate back when prices peaked as to the effect of speculators in the futures market. In particular was the supposed effect of the credit crunch forcing many of those players to liquidate their positions in a rather rushed manner and thus crushed the price support. The price swings we've seen seem to support that theory IMO. Following that the thought, the futures market should swing back to a more reality based flow. Add the potential OPEC production cuts and we could see a significant rise in prices in 2 or 3 months. I've seen it speculated eslewhere that such an expectatioin is being seen in longer term future contracts.

Depletion Marches On

Speaking of OPEC, Indonesia (a founding member of OPEC) is a good example of net export rate versus cumulative remaining net oil exports. I put the final production peak for Indonesia in 1996. The following percentages are net oil exports as a percentage of the 1996 net oil export rate (left) and cumulative remaining post-1996 net oil exports as a percentage of the 1996 number (right), for Indonesia (EIA).

1996: 100% & 100%
1997: 85% & 78%
1998: 91% & 56%
1999: 78% & 37%
2000: 63% & 21%
2001: 46% & 10%
2002: 27% & 3%
2003: 13% & 0%
2004: Net Oil Importer

In 1998, note that the net export rate was only down by about 10% from the 1996 rate, but the cumulative remaining net oil exports were down by close to half.

By the time that net exports were down by about half, in 2001, cumulative remaining net oil exports were down by 90%.

Mexico is following the same trajectory as Indonesia (both consumed about half of production at final production peaks). The top five will follow the same pattern; it will just take a little longer for them to approach zero.

There have been comments that the ELM model doesn't properly capture internal demand changes relative to cost shifts as oil depletes.

I wonder if cost and price for oil are in reality moot (no graphs, whether ELM or Hubbert, include price in the model)? If prices are high, exporting countries have money to spend and use more internally, but they also have money to spend on production technology and drilling. If prices are low, then exporting countries have less money to spend and may use less internally, but they also have less to invest in production, and presumably production will drop.

If the effect is roughly linear, then I think the end of exports will happen at the same date regardless of price, only the amount of oil left for subsequent internal use would increase. The curve would be lower and flatter, in essence, but cross the ELM zero point at about the same date.

I know this is a bit more pessimistic than the original discussions, but I guess we can watch Mexico this year and see how production and exports fare with low prices and a slow internal economy.

Regarding oil prices, US annual oil prices didn't cross the $40 mark until 2004, when Indonesia became a net importer. The 1997 to 2003 decline corresponded to annual oil prices in the $14 to $31 range.

As I've been saying since the summer, there doesn't have to be a good reason for a price decline if it follows a run-up that also wasn't supportable on simple supply/demand changes.

The current price is below what I think it "should" be at this level of supply/demand (which doesn't mean that it can't/won't go lower - it very possibly will), but it isn't unusual to overshoot to the downside if prices previously overshot to the upside.

Let's just hope that the gas price stays low for another two months , so that all the bone_heads around have time enough to buy a brand new SUV .... (before the hikes start all over again)

It's important to remember that oil is traded on the world market. What happens in the U.S. does not determine the world price since it's relatively easy to ship oil from one market to another. Given that the U.S. has been a wealthy nation lately, we have been able to pay the higher prices to purchase the oil we want. Other nations are not so fortunate, so one must consider the change in total world demand. Also, the production of oil can not be rapidly decreased (or increased), as the wells are drilled and the borrowing to do so must be repaid. The producers continue to pump and the last barrels pumped can't be sold when supply exceeds demand, so the price drops. The reverse happens when demand exceeds supply, as may have happened during last summer's price spike.

E. Swanson

There are as many theories as there are analysts. I am not convinced that anyone really knows and have given up worrying about it. There was an article in energy bulletin the other day that made a pretty convincing case that no one really understands what is going on. If someone really does understand and I were convinced they did, I would pay close attention to them and make a ton of money in the process. In the mean time, I am sticking to the theory that prices will rebound; I just don't know when. Buy and hold.

It's not just a 4% reduction in demand. The decline in oil prices represents an "unknown" future decline in demand in addition to the 4%.

6 months ago, it was assumed the demand would be higher in 2009. Now we know it is not going to be as high. No matter what happens, that is a certainty. Much industrial capacity is already scheduled to be taken offline, so we know for sure that we wont need as much oil. The degree of certainty that there will be oversupply is what drives the price down.

Go back in time 10 years and look at oil supply and demand. It was a similar situation, except now the potential demand destruction is greater. $5 a barrel isnt out of the question. That probably wont happen until after the next round of destructive "economic stimulus", Obama style. (Note it was the last stimulus that drove oil to $147.)

excuse me, but where do you get such ideas from .... 5 dollars / barrel ? It's less than a Big Mac in my country slightly more than a bottle of water ..... Man,

Many producers would close the spigots looooong befor that scenario could theoretically happen.

"No matter what happens,..."

unless demand is higher.

The theory is the amount of excess supply determines the price. If there is not enough oil to go around, suddenly the price takes huge leaps upwards, but with just a small decrease in demand (i.e. enough for everyone again) the price drops precipitously.

I am not an economist but supposedly this is well known. Can anyone out there explain it better?

1)we are looking at Feb 09 contract right now - I suspect that when Feb numbers are released there will be a much greater drop YoY than 4%.

2)The concept of price elasticity only works to a point on a non-storable commodity like oil (i.e. storable but with small limits). If storage is full, and even for a few weeks/months time demand is lower than supply, then price has to drop beyond where it would be in a 'normally' functioning economy. Lots of people think oil is cheap, but lots of people also think its going to $10. Watch distillate demand and the shipping indexes (which have really crashed). If those perk up, then oil prices will too- if not then it could be a long wait for demand drop to outpace decline rates, though the recent cuts may start to bite in a month or two.

3)While all commodities have plunged since July (not Gold but the rest), I suspect grains and NG will bounce before oil. Reduction in capital investments in oil and it's substitutes take years to be felt, whereas drops in rig rates will have impact in same year for Nat Gas (though rig plunge is still ahead of us - we are as yet only down about 350 rigs from 1600+ peak). For grains, drops in purchases of seeds or fertilizer will be felt within 6 months, as the entire crop comes to market each year. All of these commodities (except for gold, which is a perceived inflationary/crisis hedge), have built in negative feedback loops - its just a question of how fast the negative feedback occurs. With oil, it will likely be on the slow side - e.g. we might have a 10% YoY drop in crude supply and still have low prices.

All this volatility is like a sonic shock wave with differing amplitude each iteration- low prices inhibit production meaning less product next time around. As events progress, the timing intervals between lows and high prices are going to get shorter and shorter. There is a (meaningful) chance that the July 2008 all time peak in production may also prove to be the all time high in price. I would roughly guess that there is a 30% chance of NO new higher high/energy investment cycles and this is start of permanent great depression - e.g. when fundamentals again support $148 oil, no economic social democracy in the world will be able to afford it and nationalization, stoppage of futures trading, etc. will have occurred along the way. I think a 60% chance that there is one more 'energy bull market' run, where the economy partially reloads, and oil demand outstrips supply and we have significantly higher world prices, for a time. Finally, I put at 10% chance there are TWO more of these cycles left, albeit shorter in length both within and between. In any case, as the amplitude gets narrower each time, there will be fewer (public and national) energy companies making money, as receding horizons on energy costs loom closer.

What to do? Depends if you are an individual or a government.

If you think about it, ALL of us spend our lives trying to get enough abstract wealth to turn it into real wealth when we retire (land, vacation home, books, time with friends, nature hikes, garden, etc.) This energy crisis will just accelerate the timing of this mass 'investment re-allocation' from financial to real capital. My 30/60/10 distribution is just suggestive that though there are still a great deal of variables in play, there is a non-zero chance you may not have years ahead to capitalize on energy investments and transfer dollars into real capital.

From policy perspective, big, bold, and painful decisions need to be made now, to emphasize energy and basic goods over throwing good money (and resources) after dead-end endeavors.

Nicely put.

My observation is that the market is a teacher who gives a continuous seminar, and the speed by which participants learn is much slower, as a group, than the speed by which the clever kids learn. (like yourself). So, while you have moved on to the likely price action in a post-peak era, with a model for increasing amplitude of price along with shorter durations between the waves, much of the world remains decidedly unclear about such things, and is very likely still crowded into the Mean Reversion room. I do think global participants are learning. But, from the vantage point of someone going faster, they may appear stuck.

Because of this phenomenon, I think the world may have several more learning stages to go through with oil, which would mean that there may be a few more price-phases up ahead. Oh, I do think your Amplitude model will punch through and assert itself quite strongly. However, it strikes me that for a good length of time before the world admits defeat and accepts the narrow corner created by growth vs. affordability of oil, we may need to go through three more distinct price phases that I see as follows: 1. The "classical" Peak Oil price phase, characterized by a new understanding and acceptance of limitation on flows. In this phase, participants are optimistic that the world can live within the newly accepted production ceiling. Conservation is accepted, and fluctuations in Days Supply upward are still seen as confirmation that we can cope. Oil is still not priced based on finite reserves. 2. The geo-political price phase, characterized by a new understanding that those who have oil have much more power than previously accepted and those who don't have much less. (Again, this framing may already be obvious to some, considered by more--but is still not close to any kind of widespread understanding). In this price phase, anxiety rises strongly and other hydrocarbons such as NG and coal start to get priced for their strategic value especially in countries like the US which have a lot more coal and NG than oil. 3. The Reserves or Wealth value price stage, characterized by a final breaking-free from value-in-use pricing of Oil. In this stage, oil is priced like money. It's not necessarily used as money (though I could see an oil certificate currency come in to play). In this phase, the Peak Oil value and the geo-political value are fully incorporated into the price. Also, there is still alot of work to be performed on the planet, and even if oil has been priced too high for most users, oil still performs labor. So the value-in-use price still exists, but becomes subordinate the new money valuation of oil.

Ultimately, it's oil's chemical properties that will drive these phases. There appears to be no escape from the pull exerted by oil's concentrated energy, in liquid form. Even in an era of pressured EROI.

For the investor who still intends to do further Alchemy of Capital work in the years ahead, I would position between your Amplitude Model on price (and impending structural change in the global economy)--and--the phenomenon whereby the herd is an ongoing learning phase, and because they are slow and because they hold the capital, they do determine price.


I agree, that explains it all.

The NYMEX is where two people exchange bet. One bets it goes up and the other bets it goes down. When the contract is up, one wins and one looses.

My experience is that I am more likely to be the jumpee rather than the jumper.

Through September YTD marketable natural gas production in Canada is down 6.4%. Through November, well completions are down 18% to 9,684. In the 1990's less than half this number of well completions brought increasing natural gas production.

Regarding the price of 'oil', folks want to remember that the marginal barrel sets the price. The ~86th million barrel is a very expensive barrel to bring to market each morning and therefore a rare and pricey barrel.

" All this volatility is like a sonic shock wave......"

maybe it will develope into a tsunami and when the wave hits shallower water(whatever that means*), the acceleration will be converted to amplitude and swamp everything.

* probably the dreaded collapse. i'm feeling doomerish already.

Reduction in new investment does have a substantial lag, but opec cuts will be felt quicker than, say, new crops. As I noted above, oil is the only commodity that has a relatively effective cartel... even 50% compliance is far more effective than no cartel at all. IMO compliance is growing, we will likely see at least 3mb/d cuts implemented by jan, and this will affect stock levels everywhere in a few months. Meanwhile, demand is growing on account of low price, suv's are selling relatively briskly.

As far as gold goes, look at any jewelry store in any mall - they were all dead just before xmas, imagine jan. And, this lack of buying is duplicated in asia, much more important than here. In fact, people are selling their old jewelry, which is becoming a new highly productive mine. Industrial uses are down, though not so much, too. THe only demand is fear... we are in a deflationary economy, the only thing supporting gold is that short-term treasuries pay nothing. Eventually fear will dissipate, treasuries will pay some yield, and gold will crash.

I agree with all that except for the 'fear will dissipate' part.
And notice of physical deliveries of gold and silver are going to make for some interesting dilemmas for COMEX and ETF admin in 09. Look at trend of deliveries vs stock %s.

I think that people will lose confidence in the transparency and credibility of financial markets in general and the US stock exchanges in particular and turn to hard assets. This will be supportive of gold bullion prices which already have a higher than typical premiums over the contract spot price.
Gold has outperformed the Dow for the past 3 years and will continue to do so. IMHO

I think the graph of Icelandic Cod Fish Biomass, posted in Drumbeat for December 27, might be a good model for future oil production:

The big question is which oil price a recessionary or even deflationary world economy can afford. What if that oil price is so low that parts of the expensive oil supply system start to collapse?

As is well documented here at TOD, world (C+C) oil production is peaked at ~80 million barrels/day and declining at ~5-10%/year. Gold is real money. Gold's world production is peaked at ~80 million troy ounces (2500 metric tonnes) per YEAR and probably declining. The oil to gold yearly production ratio is ~365 barrels of oil to 1 troy ounce of gold. This is a relatively inelastic ratio. The US dollar is being debased through exponential money printing and is rapidly becoming irrelevant as a store a value. Therefore, it is more useful to discuss the price of oil in real money (gold) than to price it in the dollar. It is the flaw of the dollar and the debt based money system that allowed the credit bubble ($147/barrel) and collapse ($40/barrel). After the dollar gets done dying, the world will still need oil.

The oil producers are not just selling the oil that they produced today but are also selling the oil they pumped yesterday and didn't sell.

And once their storage is full they have to shut down wells and lay off people, which means they sell less oil etc........

So the price goes lower, and lower


I have several written articles on the subject of the big oil-price drop relative to the drop in demand. The current financial issues (including collapse of credit) seem to be playing a significant role in the situation. Those making comments to my articles also have some interesting insights.


Why are Gasoline (and Oil) Prices So Low, and Where Are They Headed Dec. 8, 2008

Impact of the Credit Crisis on the Energy Industry - Where Are We Now? Dec. 1, 2008

Oil Prices, a Little More of the Story Oct. 27, 2008

Why Are Oil and Gasoline Prices So Low Oct. 22, 2008

US is 'only' 1/4 of world market, so 4% US decline is 1% world decline. However, china also sharply cut oil imports just as the olympics began having previously stocked a substantial amount to assure no shortages during their coming out party. Perhaps world demand declined 2%, mostly on account of high prices.

However, opec has been producing all they could since 2004, resulting in a production increase this year of around 1.5%, boosting world production to a record this summer. So the combination of new supplies plus declining demand was around 3-4%.

This is a very large and relatively sudden change in direction of the supply/demand tug of war, reversing the 2003-2008 environment. Western stocks rebounded, refiners had to curtail deliveries. Then a one-time event occurred - hedge funds, facing redemptions, had to cut their commodity holdings. However, this effect is either over or nearly so.

IMO we are now moving into a new era, one where opec is once again in control, surprising many at tod, including me. I thought opec was a spent force, unable to pump enough to maintain prices under three figures... however, their announced cuts are nearly 5% of all liquids, an amount that is more than sufficient to raise prices back to 100, except that cheating has, so far, prevented about half the cuts from being implemented. However, the various countries seem to be becoming more serious, more are announcing compliance daily. Meanwhile, low prices are stoking demand, suv's are once again selling well as of this month and overall driving is rising. IMO opec will cut enough to bring prices at least to saudi desired 75/b level by mid-year, maybe sooner.

Those who think that oil usage must be curtailed will naturally cheer opec cuts and the higher prices they bring. Better, of course, to tax ourselves, but we don't have the political will or popular support for such a policy. OPEC is also useful for investors, note that oil is the only commodity with a relatively effective cartel. Oil price has occasionally dipped during this century's runup in price, and each time was an extremely good entry point for investors. And we are coming closer to the permanent decline, indeed we might never really recover from the opec cuts.

Better, of course, to tax ourselves, but we don't have the political will or popular support for such a policy

And that tax should be used for infrastructure to make us less dependent on oil. Oil price volatility and Gail's above graph of gyrating production is a guarantee that there will be no smooth transition to electric or other "green" cars.

OPEC has become a negative swing producer.

Kevin, I've had the same thoughts, but think of it this way. When there is no extra capacity in the system, people bid up the price and there really is no limit to the upside. But as soon as there's extra capacity, and quite a bit of it, the price will drop to soak that extra capacity up. We have tons of extra capacity now, and that's the reason the price is low.
Philip Arnason

oil demand revised up to 4% down. as gomer might have said surprise surprise surprise.
and if the 4% figure is correct, then their previous demand reduction estimate was off by 100% (actual - estimate)/actual.

october ng demand is essentially flat with '07 and ytd through october is up slightly. heating degree days may be a factor.

so have the forecasters of $10 oil overforecasted reduced demand ?

OPEC is pumping below target: report
There was little sign of supply curbs from Iran and Venezuela, which need relatively high prices to balance their budgets and are usually among the first in OPEC to support measures likely to boost the cost of oil.

This had better change quickly or OPEC will start to splinter again.

Iran is really in a bind at these prices.

Taking other than a short term perspective, might it be in the interests of the low costs producers to let these low prices play out in order to destroy investment and the high cost producers? Then,after this has all washed out, the low cost producers could make relatively massive profits. Under this theory, perhaps Saudi Arabia, by cutting production, is actually operating against its long term interests. Anyway, the cartel does not seem to be very good at being a cartel.

Taking other than a short term perspective, might it be in the interests of the low costs producers to let these low prices play out in order to destroy investment and the high cost producers?

It would... if you assume that the losers will "play nice" and just accept it. Using one label ("OPEC") for what are really very different nations gets people in to trouble.

Iran is certainly one of the ones that would suffer in that scenario. You could even expect their governing regime to collapse. Would they just sit by and watch it happen? Or might they make a few threats? "Threats" that then begin to look like one tanker each from Qatar, UAE, Saudi, and Kuwait sunk as they pass the straights?

Tankers are cheap and replaceable, plus a moving target. I would go for the Oil ports, Oil-water seperator plants, that kind of stuff.

Sinking just a few tankers only adds a few days to the movement of oil, taking out the source will take months to years to rebuild.


Almost all true, but not something that you can back down from when your opponent comes to the table. Tankers may be "moving targets", but they have to funnel through an incredibly tight bottleneck and missiles are far cheaper and move much faster.

They can shut in far more than a "few days" of production cheaply and easily (until it became war with the US again). Then they can "fix" the problem almost instantaneously when the rest of OPEC relents. Actually taking out facilities that take years to replace would require retaliation and Iran isn't in a position to stand against the West if the Arab world opposes them as well.

"This had better change quickly or OPEC will start to splinter again."

reports of opec's splintering are, imo, greatly exagerated.

reports of opec's splintering are, imo, greatly exagerated.

IMO, that's almost exactly backwards. Reports that they ever really got along have been greatly exagerated. They were only able to "sell" the act while they didn't need it (that is, for the few years where capacity was so close to demand that nobody had to retrict their production and quotas were irrelevant.

could you be a little more specific ? i dont see a new north sea coming on production anytime soon, do you ?

could you be a little more specific ? i dont see a new north sea coming on production anytime soon, do you ?

I don't rule out the possibility (thought certainly not "soon"), but it hardly matters. All that counts is whether their ability to produce exceeds demand and they therefore must enforce production discipline. Falling demand does that every bit as effectively as rising production can.

"All that counts is whether their ability to produce exceeds demand....."

it is not. non opec producers have an ability to produce as well.

Home prices post record 18% drop

NEW YORK (CNNMoney.com) -- Home prices posted another record decline in October, falling 18% compared with a year earlier, according to a closely watched report released Tuesday.

The 20-city S&P Case-Shiller index has posted losses for a staggering 27 months in a row. In October, 14 of the 20 cities set fresh price decline records.

Airlines 'shrinking by all measures' - report

GENEVA, (Reuters) -- International airlines saw a huge 13.5% fall in cargo traffic in November and a drop of 4.6% in passengers as business shrank across the industry, the carriers' grouping IATA said on Tuesday.

The figures, reflecting what IATA has dubbed a "chronic crisis" with revenues tumbling and hundreds of thousands of jobs at risk, marked the sharpest declines since the months after the September 2001 attacks in the United States.

Chinese workers leaving cities in droves

CHENGDU, China (Reuters) -- China's ocean of blue-collar workers is streaming back to the country's farming hinterland, bringing thwarted aspirations and rising discontent in tow as their city jobs, their paths out of poverty, fall victim to the global economic crisis.

Student loans turn into crushing burden for unwary borrowers

Most students have little experience in taking out loans, yet the federal government doesn't require lenders to disclose the total cost of a student loan and other terms upfront -- before signing -- as it does for car loans and mortgages.

"Students are in the cross hairs, being bombarded by very sophisticated and, to some extent, ethically marginal lenders," said Rep. George Miller (D-Martinez), who sponsored legislation passed this year that will require lenders to provide more disclosures on fees. "My fear is that we are developing a predatory market, just like we have had in mortgages."

Denninger posted an interesting graph:

His take is that we're hitting the point of diminishing debt returns going negative -- where each new dollar added is doing more harm than good.

From what I observe, this singularity in the graph is a new dollar phenomenon never seen before, and I wonder what it portends in the short term.

Anybody with a better grasp of economic theory willing to take a crack at it? Is our economy about to grind to a complete halt?

Edit: sorry for the obtuse link. I guess I don't see how to post the image.

That's okay. The image is probably too wide for a lot of people to see if you posted it here anyway.

And it's best seen with the rest of Denninger's post.

Which is a good explanation of why printing money isn't as powerful as some think it is. Printing money isn't enough. You have to get people to spend it, too.

Consumer sentiment hit a new low, too:

  • http://biz.yahoo.com/ap/081230/economy.html
  • Down to 38, from an expect bump up to 45 from 44 or so last month.

    But hey, the market is up! Party on!

    I've just read today's Denninger, and I strongly recommend that EVERYONE read it.

    Welcome to the "Oh $hit!!!" moment.

    For anyone who thinks that "recovery is soon around the corner", take a very good, long, hard look at his 2nd chart, "Diminishing Returns From Each $1 of New Debt In The US Economy."

    The bottom line: The Party's Over, folks. We are past "Peak Economy", and are already starting the sled ride downhill. There is NO POSSIBLE WAY left for Bernake or Paulson or any financial or economic guru or messiah of your choice to turn things around at this point.

    Welcome to 2009: The year when we ALL start to figure out how to live in a permanently, and increasingly, poorer US economy.

    I wouldn't make too much of that... he's intentionally ignoring other impacts and assuming that the graph tells you all you need to know. In reality, that "1" line is manufactured.

    A couple problems I see.

    1) He's using M1, which doesn't tell you nearly enough about what is happening to the money supply. It wasn't that long ago that such analysys (almost certainly including Denninger) were griping (with good reason) that the Fed had ceased reporting M3. Now he wants to restrict the conversation to M1?

    2) The graph doesn't exist in a vacuum. The problem right now is attempting to avoid crippling deflation. The velocity of money is important, but if the overall supply of money (by a wider measure) is collapsing, then you can add new dollars at below that magic "1" level.

    Put simpler, if you're pumping in less-effictive M1, it doesn't "make things worse" if higher measures of money supply aren't rocketing out of control. Put even simpler than that... Denninger is looking at a symptom that would make you afraid of rapid inflation when it's actual a symptom of an attempt to fight deflation.

    It's like trying to cure cancer with a drug that causes a high fever and having another doctor tell you that the fever is the problem.

    The St Louis Fed doesn't track M2 multipliers in its Monetary data.

    That doesn't mean that it doesn't exist.

    M1 simply isn't a good measure of how "effective" new injections of supply are. I have no doubt that more inclusive measures of money supply multiples are also falling... but not to anything approaching "1".

    It does somewhere:

  • http://research.stlouisfed.org/fred2/series/M2
  • Somebody else put back together M3 as well:

  • http://www.nowandfutures.com/key_stats.html
  • I certainly don't believe that recovery is soon around the corner. In fact, I'm not sure there will ever be a recovery.

    But I do think there are things the government can do. Printing money may not help, but printing money and giving it to people who will spend it might. And our new more Democratic government is likely to be willing to do that. Increase welfare and/or social security. Offer national health care. Increase food stamps and WIC. Allow people to collect unemployment longer. Build infrastructure to provide jobs. Etc.

    No, I don't think it will "turn it around." But it could be enough to make the Greater Depression look like a normal recession, at least for awhile.

    I think there is some chance your first point may 'work' for awhile. The current bailouts are going into black holes (money velocity = zero?) of bad debt. Maybe this is one form of "debt collapse"? Giving dollars to people who would spend them at least once would have some velocity at least. I think many people are their own mini-black-hole though, and those who would be most likely to spend are the ones least likely to get hand-outs.

    On the rest, I'm not so sure. I think that "created money" does no more good than "busy work" -- it's another round in a zero-sum, resource-constrained game. The money created or work created needs to be spent efficiently on long-term durable assets, in order to increase the relative wealth of the individuals. Created work needs to create durable goods (and services) for individuals in the "real" world, rather than virtual assets in a broken virtual world.

    I guess make-work that created something today that will be thrown away tomorrow would be one way to kick the can down the road one more time, at the expense of wasted resources. It would be better to efficiently focus work on assets of durable value, though, for long-term good.

    As previously pointed out, the velocity of money can only increase if it gets into the hands of those willing and able to spend it. Right now the Fed is pumping enormous amounts of money into the system. In fact, they're close to doubling the total money supply. This money is not helping the economy because it's being eaten up by toxic assets just so that balance sheets can recover. Only after the balance sheets are brought back in line can there be any hope that additional money will get into the hands of those that will spend.

    I find one exception with Denninger's write up. He leads us to the conclusion that each additional dollar is actually slowing the velocity. IMO there may be correlation, but not causation. The new money is going to rebuild the financial foundation, the velocity of money is dropping because banks aren't lending. The more insolvencies/bankruptcies the country endures, the more our money deflates, leaving the system short on money which lowers the velocity. This new money isn't even being introduced to the economy so it has no impact on the velocity. The debt implosion/deflation is what's driving the decreasing velocity, not the additional money the Fed is creating.

    I do agree that this un-earths a very interesting revelation. Just how BAD are the collective balance sheets REALLY. After reading many books and articles, I've come to the conclusion that the derivatives are really what's dragging the financial system down. According to Ellen Brown the total value of all outstanding derivatives is in the neighborhood of $1 quadrillion (as she puts it, or $1,000 Trillion). Derivatives can be veiwed as bets. The problem is that each side of the bet is booking the bet as an asset. Knowing that all bets have two sides, a winner and a loser, it's easy to see how the collective balance sheets became overvalued. Anyways, you bring in the housing slump, which started the credit crisis and it became apparent that the balance sheets had to be written down. Well, this brought many banks down low enough to where they couldn't legally lend money because of reserve requirements. So before the masses see any of this newly created money, the banks have to get their balance sheets fixed. It's a pretty revealing bit of data that shows that the money supply was effectively doubled and yet the velocity is still tanking. It shows just how large the holes in the balance sheets are. So the question is, are the masses going to go bankrupt while the banks are trying to print their way out of insolvency? Or are the banks going to get things fixed and then we'll experience Hyperinflation and lose the value of our money? And just when, in all of this, will countries like China totally lose faith in our financial system.


    Denninger states that mathematics is the only true science. He does not understand that things can be mathematically true and logically false. This is the trap that so many fall into.

    It may be mathematically true that 1 apple + 1 orange equals 2 fruit. But fruit is an abstraction that does not exist in the real world. Fruit is undefined except as a broad intellectual concept. Fruit can not be measured, bought or sold. Only the forms of fruit exist in the real world. Fruit could be plums, cherries or pineapples. If we solve for the value of an apple, we find that it is 2 fruit minus 1 orange which is nonsense since a real orange can not be subtracted from and abstract concept.

    This is the same trap EROEI leads us into and is the reason EROEI is fallacious nonsense.

    Things can be mathematically true and logically false. Logic is the boss of mathematics. Logic is the true science not mathematics. Mathematics is merely the servant of logic and must do its bidding or the result is silly nonsense.

    It is disappointing that Denninger does not understand this. But he has a lot of company at TOD.

    You know, just repeating endlessly your false claims doesn't make them any more true than before.

    You really expect people to believe that the energy invested to get energy is "fallacious nonsense"? I have never seen anything from you that supports this - and I have seen very detailed information that contradicts your statements on EROEI.

    But since you are involved in ethanol directly, I should not be surprised that you would continue to loudly declaim that EROEI is unimportant or false.

    Must bring back rating system. Just not worth the trouble to respond to some people. Not talking about you, btw.

    Is there a version of TODban that will work with the new version of the site on the new Drupal? It's getting to where it would be quite useful again.

    What about fruit cake? Or fruit baskets? Or fruit loops? Anyway, apples can be compared to oranges if one converts them to their sales prices or nutritional values first.

    I would actually agree with X if 'Fruit Loops' were the fruit in question.. I mean, I would be in trouble if I were to try comparing Apple Jacks with Orange Whips.. but even with these, as with Fruit Juice, Smoothies, Fruit Salad or Ambrosia (Even Including their HFCS ethanol gogo syrups), one could certainly gauge one 'fruit-food product' against another by their basic caloric-content.. allowing of course that you deduct the number of calories invested in the growing, processing, storage and transportation (packaging and advertising) of each entrant.

    That might be referred to as the 'Fruit Net'.. or FroFroi of these foodstuffs?? ('Fructose returned on Fruit Originally Invested')


    I suppose by mathematics you really mean just "arithmetic + elementary" algebra? I'm guessing that you've also never taken a course in Clifford algebra (or any of it's disguised forms like spinor calculus)? Regarding your "equation", the real question a mathematician would ask is what precisely you mean by "equals", and indeed whether a different concept (say, equivalence wrt some criteria or some other variety of morphism) is more appropriate. What you do is something semantically very strange: you are attempting to "solve" for a non-variable in a relationship and then complaining you end up with a restatement of the relationship. Finally, I suspect like most people who aren't experts in the area (and I'm not a logician), you have the idea that there is just ONE logic (some variety of syllogisms/predicate calculus) when there are various varieties of logic, and the issues they deal with make it unclear whether they are can truly be said to be more foundational than many other parts of mathematics.

    That's a pedantic answer to your post. The real irritation I have with your posts is that you keep harping on about how various things are nonsense simply because you call them nonsense rather than actually showing a contradiction they generate. If you've got some analysis rather than rhetoric then it'd be more convincing to post that.

    This is the same trap EROEI leads us into and is the reason EROEI is fallacious nonsense.

    The math in the EROEI calculations is the representation of the laws of thermodynamics. Don't debate them. Learn them.

    "Denninger states that mathematics is the only true science."

    if denninger states that, then he doesnt understand mathematics or science, imo.

    mathmatics is an invention of man, so how is it science ? did man invent god ? or did god invent man ?

    this denninger (guy) is ignoring observation as science. did darwin derive the theory of evolution matmatically or by observation ?

    First off, Denninger appears to be fairly accurate in his observations, (with my limited knowledge of economics and finance). I like what he writes, but he should stay in his own playpen because his analogies suck.

    "In science there is physics, everything else is stamp collecting."
    Sir Ernest Rutherford

    Mathematics is not a science, it is a language created to attempt to describe certain phenomena, which were discovered by direct observation, (data) and later by inference of data about phenomena related to an event that could not be directly observed. As such, it has many flaws, i.e dialects, like any other evolved, and evolving, language. Another example is the nomenclature and equations of chemistry, and perhaps better established. The notation describes the science, it does not define it.

    One might argue that linguistics is a science, but I would consider it a study that is esoteric, not fundamental. People speak to each other without higher learning,in my experience.

    Observation is the fundamental core of science. If observation counters the math, then the math is wrong. This is evidenced by climate change. In this case it is not wrong, just incomplete or insufficiently expansive.

    All that said, his meanderings do not falsify his on-topic rants, it just shows his limitations.

    Oh, and BTW, man invented god (lower case intentional).

    after further thought, i can think of an area where math may be considered science, theoretical physics.

    for example, bose-einstien condensation was derived mathmatecally a long time before scientists were able to create it. man has yet to find a practical use for it.

    so maybe this denninger guy is not operating in the "real" physical world.

    time travel is (mathmatically) theoretically possible, but i doubt currently living earthlings will experience it unless a benevolent space man or woman drops in to explain it to us.

    the quest for the not so holy grail continues, viva the theoretical physics alchemists.

    after further thought, i can think of an area where math may be considered science, theoretical physics.

    for example, bose-einstien condensation was derived mathmatecally a long time before scientists were able to create it.

    Not quite, theoretical physics is a science but the B-E condensates theory was expressed mathematically. For non-mathematicians, the idea could also be expressed verbally, albeit with some difficulty.

    For example, consider philosophy, at the other end of the spectrum. Ideas exist in the mind and then those ideas can be expressed in the form of words, in any language. The words can then be manipulated to better convey or refine the idea but the words did not create the idea.

    I'll keep it short:
    There is a book: "Road to Reality" by Penrose
    In opening chapters he explains how math is attempt by our limited minds to model a much more complex world. Note the part about geometries other than Euclidean. The Universe appears to be non-Euclidean and yet we stick to Euclidean model because our minds can't easily grasp the other geometries.

    "Mathematics is an invention of man"

    As Robinson Jeffers said it so eloquently

    "Or as mathematics, a human invention
    That parallels but never touches reality, gives the astronomer
    Metaphors through which he may comprehend
    The powers and the flow of things..."

    The Inhumanist (Part II of The Double Axe)

    Just to put a little poetry into TOD


    You might be right, but I am old enough to remember when Pelosi and gang were swept into power on a promise to get the boys out of Iraq (it seems like a lifetime ago). Their rhetoric doesn`t seem to match their actions very well.

    Given another year, liberals may become as disenfranchised with their electors as conservatives have become with theirs.

    Denninger is a very smart guy, but he is not mentioning the whole story on this one. 8.5 trillion dollars is a very large sum of money, more than large enough to provoke dramatic temporary surges in the USA economy (if that was ever the intention). Obviously you cannot shift 8.5 trillion dollars from the overall economy (adding a liability) and funnel it into relatively few pockets and expect a surge in the overall economy-rather than efforts failing as Denninger states, the reality is that no efforts at all have been made. Everybody know the numbers-the USA is being looted big time, as surprising and psychologically threatening as the reality is to most observers.

    "His take is that we're hitting the point of diminishing debt returns going negative -- where each new dollar added is doing more harm than good."

    Sounds like something from the Herman Daly post the other day;

    "Marginal costs of growth now likely exceed marginal benefits, so that real physical growth makes us poorer, not richer."

    WOW exactly what I though was happening now we have proof.

    What this means is the economy has effectively reduced to close to a steady state or no growth economy. With the velocity effectively flat monetary stimulus no longer works I think it eventually results in inflation when is anyones guess simply out of devaluation of the currency aka the next step is a currency collapse. This is a different sort of inflation from a debt inflation aka stagflation of the 1970's since wages and goods purchased with debt esp long term debt fall as goods that or needed in a steady state economy i.e food, oil etc rise in price as the currency itself is devalued.

    However whats important is that whatever oil demand is right now given the velocity of money has flattened is probably fairly close to what we need to run a steady state economy without changes. Thus given say a range of 1-2% and including increases from simply population growth this velocity results say that US oil demand is approaching close to its natural bottom level.

    On the reverse side if velocity stays this low which I actually expect it will on a oil/GDP basis any attempts to grow the GDP will be far more oil intensive then in the past when we had high velocity. I.e energy/GDP ratio is effectively the same as the velocity of money. Any further reduction in oil usage would require a major economic collapse as we are effectively now in a day to day living economy.

    As far as oil prices go given that demand has probably stabilized the question is what will the supply be going forward.

    WOW exactly what I though was happening now we have proof.

    Why does someone else thinking the same thing that you've been thinking mean that it's now proven?

    Also... as I said above... M1 is a lousy tool if this is what you're trying to identify. Why would money in a checking account really be that different from money in a savings account at the same bank?

    Why does someone else thinking the same thing that you've been thinking mean that it's now proven?

    Because great minds think alike?

    "Because great minds think alike?"


    Seriously though... unless something has changed since I last looked... even your checking account may not be in M1 if no checks cleared last night. Do you really think that the effectiveness of a supply injection should be judged by whether you wrote a check last week or not?

    His take is that we're hitting the point of diminishing debt returns going negative -- where each new dollar added is doing more harm than good.

    Is this related to my theory/conceipt that the economy as a whole is has passed diminishing marginal returns to negative absolute returns on activity? My intuition tells me it's a parallel expression.

    If more money means more activity that would mean more destruction of our "natural wealth".

    cfm in Gray, ME

    You have to get people to spend it, too.

    Or spend it yourself. I think that is Obama's plan.

    Hmmmm ...

    Denninger isn't a pilot. What he's talking about is a stall. Too high of an angle of attack, you lose airspeed and drop straight down. Hard landing if you are close to the ground. A flat spin is where your aircraft spins on its vertical axis. G forces will make you black out before you can do anything about it. Apparently the space shuttle Columbia was subject to a flat spin:

    The craft went into a nauseating flat spin and the pilot, Cmdr. William C. McCool of the Navy, flipped switches in a futile effort to deal with the problems. The troubles came on so quickly that some crew members did not have time to finish putting on their gloves and helmets. The sudden loss of cabin pressure asphyxiated the astronauts within seconds, the investigators said.


    As for money velocity or lack of same, Denninger is basically on the money.

    When Bernanke "creates" money he is doing so against an asset - that is, he is issuing debt. A Federal Reserve Note (whether electronic or paper) is in fact effectively a bond of zero maturity and indefinite expiration against the future tax collection capacity of The United States.

    Ironically, instead of taxing power the asset that Bernanke and Paulson are printing against is the willingness of the Fed to borrow more and more cash from itself.

    Nice job if you can get it ...

    Speaking of accidents, I heard a pro- nuclear advocate speaking on C-Span this morning mention that there are approximately 1.2 million ('MILLION') auto crash fatalities every year! I thought he was blowing some smoke up my ying- yang ...

    One person dies in the US every 13 minutes in a Car Accident- 115 killed each day. 1.2 Million killed World Wide each year. This is unacceptable! See Statistics Page


    The American Way of Life, what is there not to LOVE!!!

    I read the article related to the graph and this sounds like the liquidity trap that Krugman (see http://krugman.blogs.nytimes.com/2008/12/29/optimal-fiscal-policy-in-a-l... ) has been talking about on his blog at the New York Times site. Krugman also says that the Fed has done everything it can do regarding interest rates and the money supply and any further attempts to use monetary policy will be fruitless. Accordingly, the only tool left with any chance of success is fiscal policy,i.e., government spending approaching a trillion dollars or until we reach full employment, whichever is comes first.

    Those who resist government spending for ideological or other reasons, if successful, may guarantee that we continue the downward spiral. Others, of the doomer persuasion, think that there is no way out of this mess regardless of what we do.

    Krugman, bless his soul, ignores any resource constraints in his analysis. Others may think this is a fatal flaw.

    Thank you. What he seems to not address is a potential inability of the gov't to spend more -- what if a liquidity trap bumps up against a negative debt/GDP correlation and/or an unwilling debt financier?

    Will his model of "have the gov't buy more stuff" work with printed dollars, or does it still end up reducing the utility (velocity?) of existing money?

    Taken to extremes, you could say the gov't could pay people to do work and throw it all away, and gain benefits of full employment and fiscal growth. This seems absurd -- if long-term growth is restricted by resources, and long-term debt is restricted by that lack of growth, then only the most valuable items should be produced, and optimally at that. But that means decline, not growth.

    I think Denninger has one part right -- debt collapse is the only way out. This may require bond collapse as well. The interesting question is whether the drop in the money ratio says there is no more latitude to kick the can down the road again.

    Ilargi over at TAE seems to echo the "debt collapse" as well.

    Debt Rattle, December 30 2008: The End of Credit

    The loss of credit that will be the prime characteristic of the financial world in 2009 marks a watershed moment in our societies, which will have to scramble to find a new model for survival, for getting things from A to B, and to simply feed their citizens. The credit system that we have lived in for the past decades is gone and will not come back in our lifetimes. The losses, when they are revealed, and they will have to be, no matter how much the ruling classes resist this, are simply too big. What is at risk in the derivatives trade alone is more than all the money on the planet.

    He does not comment on the M1 - N relationship and I'd be cursious on his and/or Steoneight's comment on that.


    Anyone with kids or who has been one themselves (most of you I hope) know the sound you get when you blow into a burst balloon. Think whoopie cushion.

    Thats the best description of what they are trying to do that I can come up with.


    That's the best explanation that I've heard!

    You would make a good economist...

    You've got to wonder if some of those kids with huge student loan debts might start viewing emigration as their best bet. I wonder what countries they could move to that are out of reach of the debt collectors? They are young enough to start with a clean slate and build themselves a better life than they are likely to get in the US.

    You've also got to wonder how many people will decide that emigration is not an option, but will nevertheless figure out that they are better off to just drop out of the formal economy and live incognito, not unlike illegal aliens?

    I think you may be on to something when you talk about those who will "drop out" of the formal economy. I'm not so much sure that it will be like being an illegal alien, but I do see possibilities for living in two economies at once. As the formal or "official" economy weakens, the grip of central authority on economic activity will weaken.

    How many of my official economy obligations can be allowed to slide while I move increasingly large parts of my day to day life into the informal or "unofficial" economy? (And it strikes me that the "unofficial" will not be singular and will be local.)

    If I want electricity I'll need to stay connected (unless I go off-grid), but most anything else could be moved to the informal (food, clothing, any actual material good or personal service). Does this mean the end of things that are only possible with a single economy? like the internet? cable and satellite TV?

    And the trillion dollar question is mortgages. Will a failed banking system continue to be able to foreclose on delinquencies? At what point does it become safe to stop paying your mortgage because the bank can no longer enforce its contractual rights?

    (And an aside - does it really make sense for a society to allow a large portion of its housing stock to sit empty when there are many who need housing? At what point to local govt's take over the empty housing stock and distribute on some local created value basis rather than allow them to be squatted?

    Hmmm - lot of possibilities here in the great unwind.

    I would bet that many famalies who double or triple up will have a head of household in the formal economy and the remainder of the members will choose to drop out.

    Would make sense. Keeps some nominal amount of "official" money coming in to allow the extended family to engage the formal economy where necessary (i.e. those debts that are too risky to default on) while allowing most of the effort to go into the informal economy. This is sounding increasingly pre-industrial to me.

    The story on Chinese workers returning to the country is one of the worst I've read all week. The future does not look good for the Chinese or for the Chinese communist party. If China begins to come apart at the seams, it will be extremely unpleasant for all.

    I don't necessarily agree. Pre-Great Depression recessions in the US were moderated when city folks returned to the family farms (or staked out new claims on former tribal lands). The farms became more productive thanks to increased low-cost labor inputs, and over time they accumulated wealth to set off another cycle of economic growth (bought new tools, chairs, etc. requiring more manufacturing). It's probably best for China to ween itself off of U.S. demand for shower curtain rings and stuffed animals.

    You assume there is enough farmland to support the returning people. Is that the case?

    I don't think that will be the case for China. They already have a lot of low-cost labor inputs. And they currently use four times the global average of synthetic fertilizer per hectare. They've been intensively farming for millennia, and aren't likely to find any lands, tribal or otherwise, unused.

    of all the grains rice was/is the biggest beneficiary of the green revolution [hybrids + fertilizer]; hence probably accounts for their greater use of fertilizers.

    I'd be interested in seeing data on hybrid rice use in China, any incites.

    earl i couldn't find the comparison reasearch from u. of mich. i believe, tossed out my hard copy i guess.

    here is a quick googled article of rice alone;

    'The Green Revolution in rice production began in South-East Asia, at the International Rice Research Institute (IRRI) at Los Baños in the Philippines. Since the mid-1960s, the development and diffusion of new rice varieties, and of the agro-technology required to make best use of them, have transformed food production in the region. Mainly from this cause, regional rice production has more than doubled between 1970 and 1990.

    The 'father' of the rice revolution, the plant-geneticist Te-Tzu Chang, is the author of the first paper in Chapter 9. He does not dwell on achievements, however, but rather discusses the problems that have arisen to threaten the sustainability of these advances, and the management improvements that are required in order to make further progress.'

    Note the 'more than doubled'. the article says this was limited to areas where water could be used to irrigate.

    'Roughly speaking, grain production in tropical Asia nearly trippled in the last 30
    years thanks to the green revolution (Pingali et al. 1997). Without the green revolution,
    Asia now would be suffering from food shortage like Africa and would be a food
    importing region. Importing foods means an outflow of valuable foreign currency and
    this in turn would hamper the development of the economy as a whole due to restriction
    on imports of capital goods (Hayami 1997).'


    note the tripled.

    The difference between the two scenarios is that China has gone through a massive industrialization period with little or no environmental control. Much of the arable land and ground water are no longer suitable for agriculture.

    In many markets, the produce is contaminated and would not pass western health standards.

    What they left is not what they are returning to.

    I am a bit skeptical. One can "browse" the landscape on Google Earth and see the volume of farmland surrounding Chinese mega-cities. There is a lot of land and much of it appears to be medium-scaled mono-culture, heavy on annual crops. Difficult to say what condition the water and soil resources are in, but soil can be rehabilitated and better managed. Transitioning these lands to more complex permaculture arrangements will take more low-cost labor than appears to be in use now (fields appear to be mechanically managed at present). I wonder if the returning laborers will be satisfied with rural life?

    Not difficult to say at all, thanks to the Internets:


    Illegal immigrants returning to Mexico, Chinese factory workers returning to their villages. How much longer before we start to see the great relocation from the cities and suburbs to the small towns and rural areas here in the US?

    I thought the general consensus here at TOD, was that the movement would be from rural to city not the other way around. My kids are all in medium to large cities, and if times get tough I fully expect to see them back here.

    Don in Maine

    I don't think there is a consensus. Some think small towns are the future. Others are betting on "new urbanism." Still others want a homestead in the boondocks. That Argentina guy suggested suburbs as the best place during a collapse (though perhaps Argentinian suburbs aren't like ours).

    I am not expecting Americans to head to rural areas like the Chinese. The Chinese and Mexicans returning to their farms are, well, returning to their farms. They're migrant workers. They'd be going home soon anyway, for the holidays; this year, they just left a little early. Most Americans probably no longer have family farms to return to. Even the ones who stayed in rural areas no longer farm, if they ever did.

    Rural Nevada or the Mohave desert does not have much in the way of farms. Take a look at Kansas, Illinois, Iowa, the Del-Mar-Va peninsula, Florida citrus groves, New York wine country and you might find the United States is yet into farming.

    Yes, there are still many farms in the US. (I'm an agronomist's kid, and the family farm that gave me my first job is still in business.) But a lot of the people who live in rural areas no longer farm.

    If you've a roof and can grow some food, you can survive. If you've a roof and no food, you can't. Land wins. City loses. (Not counting the city forming an army and taking your food.)

    People like to point out all the stuff you might not have on your little piece of land. I ask: how long can I live in raggedy old shoes, or no shoes? Years. Decades possibly. Without new clothes? Ditto. Without a hospital? Ditto.

    Without food? Three weeks. Water? Three to ten days, approximately.

    This seems simple to me. What am I missing?


    I think what you're missing is that living in a rural area doesn't guarantee food, any more than city life guarantees a roof.

    I'm reminded of those articles about "food deserts" - rural areas where the nearest grocery store is hours away. People end up having to buy food from the gas station convenience store, paying outrageously high prices for junk food. Many of those people actually do know how to raise food, because they used to do it, in the old days. But they don't want to any more. (They are often elderly, and may not be physically capable any more.)

    If the shrinking economy suddenly means the convenience store closes, what will those people do? Will they start a garden and start raising cows or goats? Or will they move to where the supply line still functions? I think for a lot of people, it will be the latter.

    It would be different if there's a sudden, catastrophic collapse. Or if everyone was sure that collapse was inevitable. But if what we get a slow unwinding - a Greater Depression - then moving to a city might make perfect sense.

    I'm going to lean toward CCPO on this one.

    I don't expect this massive collapse that appears to be the prerequisite for the debate, but IF it happened...The difference is that in an urban setting, you always rely on others for survival. There simply is no way to provide for yourself.

    You can't go hunting... or grow enough food to survive... or even know that you can obtain clean water... and heaven help you if the system that removes the waste of tens/hundreds of thousands of people stops operating. It doesn't matter how "tough" you are... if there are a dozen (or 100) people who want to take what you have, you've lost whatever it is. You can't really protect your family.

    I think Leanan is right that the default move will be toward the city. And I would expect that to be the same for slow unwind or collapse. Food distribution is centralized in Cities and people will move to where the food is when they can't get enough where they are.

    That is not to say that we won't see movement in the other direction by people planning for the future, but the default behavior, the behavior by the vast majority who will be expecting things to return to "normal" will head to the cities (or to other gov't set up food distribution points).

    Food distribution is centralized in Cities and people will move to where the food is when they can't get enough where they are.

    Those two statements are joined by an "and" but they're really very different things. Food distribution is centralized in cities... but food production isn't.

    People will move to where the food is... but that isn't the cities. Despite your statement, what you're really assuming is that the food will continue to move to the people.

    In a worst-case scenario, I can't see how that would be true.

    It's not a matter of where the food actually is. It's where people think the food is - and that's in the city.

    This is why I do not buy in to the argument that rural areas will be overrun by city dwellers looking for food. Food production is very widely distributed and most city dwellers wouldn't have a clue which direction to head.

    As for the "worst-case" scenario, I guess you're going to need to define that for me before I could comment.

    I would say this. As long as our food distribution system continues to function, food will move to cities. In part because people are there, but also because the transport and warehouse systems are based there. If the market function breaks down then I would expect the gov't to attempt some form of continued distribution and that would be to the cities because that's where people are.

    I would expect that by the time the gov't attempted to step in that overall food production would have plummeted anyway. So imagining a point where the gov't fails, I would expect that food production would have already declined to a point where population movement would be reduced in importance behind population reduction.

    People will move to where the work is and the competition for work will be overwhelming for most.
    Expect crime of all persuasions to become a part of that life.
    I find it impossible to envisage a place or city where people move to get free food.

    Where there is work there is food.
    That is why I think the talk of railways and increasing efficiencies is nothing but rhetoric and an expectation to continue BAU.

    When it is known where the shanty towns become established, where the work is contracting to, and to where the people are moving. Then it is time to act with mitigating build outs.

    In the meantime let the present infrastructure serve its purpose. Maintain it by all means but unless there is definite proof that build outs will efficiently serve the purpose they are built for, they should be kept on hold for a time more needy.

    As I said to Leanan, you guys are going a bit further than I meant to. That coupled with it being 5 AM here, means I'm going to leave this with PP for now. PP's got it well in hand.

    Cheers and goodnight (morning)

    I think what you're missing is that living in a rural area doesn't guarantee food, any more than city life guarantees a roof.

    The question was rhetorical. I said nothing of guarantees, and we were speaking in generalities. You are moving the goal posts.

    I'm reminded of those articles about "food deserts" - rural areas where the nearest grocery store is hours away.

    Irrelevant. I indicated growing your own food.

    suddenly means the convenience store closes... Or will they move to where the supply line still functions? I think for a lot of people, it will be the latter.

    Again, the point was general, but you are framing specific conditions. In general, better to be growing your own food than relying on others where issues of scarcity are involved.

    It would be different if there's a sudden, catastrophic collapse. Or if everyone was sure that collapse was inevitable. But if what we get a slow unwinding - a Greater Depression - then moving to a city might make perfect sense.

    Not at all. I, at least, never post without all three parts of the Perfect Storm in mind. Ecological issues dictate we *must* change. We have no choice.

    Whether we will or not is beyond my intent in responding. Back to that:

    An apartment with zero or very little food grown of my own or a few acres and the ability to grow my own.


    In the former, I have little chance of surviving if others can't provide me with food; in the latter, I have a much better chance since I can provide my own.

    Again, a simple model. Hail storms, marauding armies, etc... ?


    And yet...in collapses past, people moved to the cities because it was easier to get food there.

    In the case of Rome, government taxation grew so punitive that it was easier to get food in the city than on the farms that grew it. Farmers abandoned their land because they could not pay the taxes. With the Maya, people clustered in the cities because isolated farms and villages were vulnerable to raids.

    I guess my view is that you are never really self-reliant, as long as there are other people and the government to deal with.

    Well... yes and no. I suspect the difference is in what we call a "city". The population of Rome in the first century wouldn't even match some of our mid-sized suburban counties today.

    The question is "how much food can be produced on a given area of land without energy-intensive production techniques?" The answer is "it sure ain't enough to cart 100 miles to the big city".

    It gets worse in the northeast of course. Some "cities" might survive if they're surrounded by hundreds of miles of food-producing areas (many southern cities for instance) AND have something to offer in return... but in the NE we stack one city next to another. Food would have to come in from hundreds of miles away.

    In the case of Rome, government taxation grew so punitive that it was easier to get food in the city than on the farms that grew it.

    Again, this is beyond the scope of where the conversation started. So let me say it this way:

    ALL THINGS BEING EQUAL, but food being scarce, then a piece of land....


    Honestly, I don't really understand what specific situation you have in mind.

    In any case, what we were originally talking about was what the average American is going to do. I don't think we can look at what Chinese migrant workers are doing and assume American suburbanites will do the same.

    I think you hit it Leanan, people will choose to go somewhere else if they have better options, or think they have better options. That said, I prefer an extremely rural option, over staying in a city most likely under martial law, with travel restrictions and food and water rationed. There's some thought here that the government will keep the cities supplied, good luck with that. We can't keep the supply chain open to our guys in Afghanistan.

    A homeland security red alert, requires people to stay in their homes, no travel. I don't see a better way to control large chunks of the population other than to lock down the cities and ration food and water. If I needed to exert control, I'd certainly look to the largest populations and take control there first.

    Happy New Year

    Don in Maine

    I don't think water will be rationed in the northeast. There's plenty of water. At least in the cities. The people who suffer from water shortages are those in the country. Usually because they have old wells that aren't deep enough. In the occasional dry summer, the wells can go dry.

    I suppose that could change with global warming...but that holds true for everywhere, urban or rural.

    If people have family farms, I'm sure they'll go back to them. But most people don't have family farms any more. I suppose it's possible that land will become so cheap that it might be a draw, but I suspect most people will try to go where there are jobs, rather than looking for land to subsistence farm.

    As for martial law...people might actually prefer it, if it gets that bad. I've seen that overseas. If things get really out of hand - looting, people shot in the streets, etc. - martial law is welcomed. It's hard to do business or get any work done if you don't feel safe on the streets or in your home.

    "I don't think water will be rationed in the northeast. There's plenty of water. At least in the cities. The people who suffer from water shortages are those in the country. Usually because they have old wells that aren't deep enough. In the occasional dry summer, the wells can go dry."

    Well, once again I'm thinking infrastructure. I know when I go to Mass. to visit my father, no one drinks the tap water, local wells are only good for flushing the loo they are so polluted. I have hundreds of acres of forest around me, I drilled a well 30 years ago. Went down 85 feet, hit water and it came up to 25 feet and in all those years has never dropped a bit. With a hand pump in the basement lift is small and it's easy to pump, doesn't freeze. Water tests just as pure as it did 30 years ago. for long periods of time we've had up to 8 people living here, laundry and showers and all, the hand pump is just a back up.

    I'm thinking, turn off the water, turn off the power, block a few freeways and overpasses, maybe a tunnel or two. You could have 3 or 4 million people who think you are a hero when you give them 4 hours of electricity a day, and water pressure from 6 to 8 at night. Maybe even some food.

    "As for martial law...people might actually prefer it, if it gets that bad. "

    Yes Ma'am, they will beg for it.

    I've drunk the water in Massachusetts. And the town I attended college in supposedly had the best water in the country. (I didn't like the taste, though. At least at first. Eventually, I realized that it was because I was used to the slightly brackish tapwater in Hawaii...when I went home, drank the water, and realized how salty it was.)

    I'm thinking, turn off the water, turn off the power, block a few freeways and overpasses, maybe a tunnel or two. You could have 3 or 4 million people who think you are a hero when you give them 4 hours of electricity a day, and water pressure from 6 to 8 at night. Maybe even some food.

    I dunno. I read an article today about people in the midwest protesting because the power company was taking too long to repair power lines after the snow storm they had. They wanted to dissolve the power company.

    I don't think water or power is going to be a problem. I used to, but now I don't think it will be something that will be a big concern. Fixing infrastructure will be a great jobs program for the government. Engineering firms are salivating over the Obama handouts they are expecting soon.

    And consumption will likely be way down, because of the economy. Industrial use is way down, and that is likely to continue.

    I just figured out why it is sometimes very hard to discuss with you (things often go in circles), and I think it is because you make these statements, as above, with no time reference. Since you have been clear about expecting catabolic collapse, I tend to interpret your statements as where we will end up. That makes them sometimes not make sense. But since that point of final collapse in a catabolic scenario is decades, if not centuries away... you could be talking about anytime between next week and 2300 AD!

    Maybe we all need to time reference our prognostications.


    I've seen that and brought up the time frame issue before. My fast is someone else's slow and so forth. I consider a decade fast and suspect lots of us think would think two weeks is fast. That's I'd call immediate. It would make a good hashout.theoildrum.com theme. Define the terms for TOD use.

    I agree. Terms need to be defined, or we're all just talking past each other. You and I could argue fast vs. slow crash, when we both mean 2 years.

    "But most people don't have family farms any more. I suppose it's possible that land will become so cheap that it might be a draw, but I suspect most people will try to go where there are jobs, rather than looking for land to subsistence farm."

    This gets close to an important point that appears to be overlooked so far in this discussion - that is, most people DON'T KNOW HOW to produce their own food. Even if they wanted to. Why would it make sense for them to move to a rural area, even if they had access to land/farms?

    I've been an off and on hobby gardener for years. Then last summer I made a serious attempt to produce a significant percentage of our vegetables and fell far short of my goals. There's a steep learning curve. Initially, unless you're a skilled gardener or farmer, or teamed up with someone who is, the smart thing to do would be to go to where you might find work and food to purchase or earn.


    True, people don't know, but at the same time we aren't talking about normal times. People will need to think more long term. If society is breaking down and you can expect the markets to be empty, what real choice do you have?

    As always, underlying this is the hope of a public that is more educated, communities that are aware and willing to help teach newcomers for the mutual benefit, etc.

    I've been an off and on hobby gardener for years.

    And, yet, I've got tomatoes and peppers still growing on my south-south west facing balcony that doesn't get direct sun till noon in a suburb of Seoul on Jan 1. Not saying you are wrong, just that many things are possible.


    In any case, what we were originally talking about was what the average American is going to do.

    Unless you are going to lay down some assumptions, this conversation is going to keep going in circles. I can guarantee you: a higher percentage of Americans will be working the land by the time all is said and done than are now.

    Beyond that, if you want to give me a specific scenario, I'll give you a specific answer. You're all just chasing your tails here because there are no parameters, which is why I made a very general point and left it at that.

    I don't think we can look at what Chinese migrant workers are doing and assume American suburbanites will do the same.

    Um, I didn't mention the Chinese.


    But that is how this thread started. You're the one that referenced "how this conversation started."

    Everyone else seems to have no problem following the discussion.


    But that is how this thread started.

    Leanan, you can't use a pronoun like that.

    OK, so three problems here: We are ALL talking around, though and past one another because none of us can be sure what time frames or parts of sequences we are talking about, we are talking about different types of collapse and... your use of pronouns is... oblique.


    Please believe me when I say I am not being pissy here. Just hoping to bring some focus to the conversation.

    And, yes, it may be only me that is confused, but it's not so much confusion as preferring precision so there is clarity.


    Perfect people prefer precision and punctuate properly? Pissy perfectionists persecute particular pronouns? Pre-existing people problems predict pejorative pronouncements? Preferably, personable posters practice patience.

    Who p'd in the punch?


    I was quite jolly when I wrote that, and still am, so no pee, thank you very much!

    But, can you tell me with precision which thing "that" referred to in her post? That is, not infer, but actually show grammatically?

    Excellent alliteration, btw! Almost got me to write a limerick or a haiku...

    Merry New Year!

    Edit: it's a holiday, so what the hell:

    I was once much confused by a that
    It wasn't clear what it pointed at
    I posted a point
    Got Paleo out of joint
    What else can I say about that?


    EDIT: If TOD weren't such a reputable place, I might suggest a via-poetry-only thread. E.g.

    The IEA report on decline
    By the heavens they scored it a nine!
    It was four-five before
    then oh-point-seven more
    Is six-seven net or gross decline?


    There once was a field named Ghawar
    Where the Saudi’s pumped oil from afar
    But now it’s in decline
    Due to ELM I don’t get mine
    So now I use my bike and not my car

    Prior Planning Prevents Piss Poor Performance

    I don't expect to see anyone relocating from mid-town Manhattan to a farm outside of Manhattan, KS anytime soon.

    On the other hand, there is another dimension to this: crime. We haven't really seen urban crime ramp up yet, but a great many people fear that this is about to happen. If crime gets to be too much of a problem, that will make a difference in what people do and where they live.

    I do not live on a farm, I live in a small town. I don't grow all of my own food, but I do grow some of it. I could ramp up to producing about 75% of our total direct food consumption (by weight) if I took out several trees and planted most of the lawn, and got chickens and a dairy goat (which I could get away with in my small town); I would still need to buy grains and dried legumes, some fruit, and feed and fodder for the livestock. I also walk to work every day, so my motor fuel consumption is pretty low.

    If I lived in a large city, would I have the same potential to raise as much of my own food? Maybe, but how secure would it be from theft? And how wise would it be to commute on foot each day? There are some cities where crime is not that big of a problem - now. That may not hold true much longer. Crime could become a problem in my small town, too. However, the small towns in the Southern Appalachians have some of the lowest crime rates in the nation, so if our crime rate increases, it is starting from a much lower base than in the cities.

    My point is that there are a lot of small towns in the US. IF you can line up some adequate source of income (and that is a very big 'if"), then life in just about any of them could be pretty good, and certainly better than in many crime-infested cities. Most small towns have the potential to be at least 50-75% self sufficient in food just by cultivating their residential lawns; add the surrounding farmlands, and just about all of them could be more or less totally self-sufficient in food.

    I agree that crime may be an issue. But I'm not convinced that rural areas will be safer, crime-wise.

    Indeed, that is a big reason why the Argentina guy didn't recommended rural living. It was too isolated, allowing criminals to torture their victims for days, not just rob them.

    A few years ago, there was an article about a peak oil aware couple who tried a homestead in the country...and hated it. Mainly because of their neighbors, who were violent drug addicts who kept breaking into their home, vandalizing their property, etc. The local cops wouldn't do anything. So they moved to downtown Portland and were much happier.

    It's hard to interpret that last comment without full context. Insider vs outsider takes lots of odd forms and carries unusual weight in many rural locales. You definitely want to be an insider.

    You definitely want to be an insider.

    I agree with that. I also think it's too late to become an insider, unless you are going home to a family farm or otherwise have roots in the area.

    Or marry well.

    We moved out of the major metro area and into an isolated rural area. We bought my husband's family farm and I agree with the comments that being an insider helps. But I think insider can be extended to many degrees of seperation.

    For those rural areas that still have some intact culture and know all the people in the community, crime will be less of an issue. I'm scratching my head over the ethics of this one. The nearest town, 11 miles away, has no police officer. There was a woman experiencing domestic abuse so some of the men of the town got together to let the husband know that wasn't ok. There have been no more such incidents-- for the time being there's still enough cultural pressure to check certain kinds of crime.

    Also, I'm lucky to live in a rural area that is heavily Democratic and progressive thinking-- albeit sparsely populated. Hey- there's a grocery store for sale here ($40,000) that's located on an east-west running rail line (like 200 feet off the line). There's access to 9 acres of organic certified land for growing food right there as well. The community would be grateful to keep the grocery store open (back to Leann's point about food deserts!).

    One other thing- I sit on the county emergency preparedness committee and also do a bit of work on a state health dept pandemic project. Our neighboring rural county is planning for a 3-4 fold increase in their population within 72 hours of any major "event" including a pandemic. Garrison Keillor calls it the "return of the exiles." Our church quadrupled in numbers over the holidays with returning family. I see that happening in times of crisis.

    This is the best example and most cogent response in this thread. You have capsulized the entire argument.

    1. There are many variables, but comparing now (Leanan's example) to then is not only impossible, but pointless.

    2. When I speak of these things I always keep in mind not only what might happen, but what needs to happen. Localizing and sustainability need to happen. They are not luxuries, thus there is an assumption inherent in all this: people won't just be moving back to the farm for a lifestyle change; they will be moving back for survival and doing so in such a way as to enhance their survival. They will be doing so with the intent of growing food.

    3. Small towns/groups provide THE best crime prevention there is, as described above by VFH. It is both cultural and due to familiarity. We tend to take better care of those who mean something to us. People will be moving back FOR this. They will be intending to build community to create this.

    All of the above is based on yet another unforeseeable variable: will people have TIME to make a semi-orderly transition? That is the key question. (It is why I am so frustrated and angry at the limitations on my freedoms imposed by the gov't with regard to where I can and cannot be with my family, and when. The need for as much as an 18 mo. wait for a visa for my wife, for chrissakes, is a huge problem. I don't believe I have anywhere near 18 months to transition.)

    But small towns and newly formed communities will hopefully see the writing on the wall and pull together before/as this happens and insist on those moving in to abide by the local ways. (Possible freak societes/militarized socieites/etc. understood as also very possible, if not probable, but let us be at least a little hopeful here.)

    I've not be very excited about the transition town or relocalization movement in practice because they have come across, to me, as overly intellectual/pseudo-hippie-ish in their styles and nature. I've seen their ability to do successful outreach as limited. That said, the more I look, the more I see pragmatic things happening. I am becoming of the mind that these movements, or something like them, might be the vehicle by which a relatively orderly transition might be managed.

    Practical solutions can, and hopefully will, speak to the greater majority of people. Here's how to build a windmill vs. kumbayah is, to me, the right sort of message. You gotta sorta slip the kumbayah in when they ain't lookin'!

    So, what will happen? Who knows? Are enough people aware of how much climate chaos we are in for? Are enough aware of the energy transition and all it's implications? Can enough be made aware of the need for sustainable solutions and lifestyles? Will enough stand against greed and for community? Can people get past their brainwashing and understand food need not be grown with chemicals and need not turn you into a slave of the land to grow it? How many realize how short time is? Etc., etc.


    Hey- there's a grocery store for sale here ($40,000) that's located on an east-west running rail line (like 200 feet off the line). There's access to 9 acres of organic certified land for growing food right there as well. The community would be grateful to keep the grocery store open (back to Leann's point about food deserts!).

    In all seriousness, more info please. My e-mail is in my profile.


    Depends on the locale. Definitely true for many places. On the other hand, there are places like mine where newcomers have been relocating here more or less continuously for over a century now. There are not very many people around here that go back more than three generations or so at the most. I've been here a little over a decade, now, and feel pretty well connected and integrated into my local community.

    I do know full well that there are many other small towns across the US where that could never happen.

    Do you know how I could find that article? Would be interesting to read.

    The isolation and potential vulnerability of rural homesteading is a real issue, which is why I prefer small town life. I am friends (or at least am acquainted with) most of my neighbors. We have a neighborhood watch group and have met occasionally with the local police. That is all we need for now, but I have no doubt that if crime becomes more of a problem in the future, the people in my community will step it up and become more actively involved with our local police. I could see us forming a citizens police auxiliary (avoid the term "militia") if it is really needed. Such would be impractical in the countryside, and large city police forces are too bureaucratic and inflexible to even consider working with such.

    The bottom line is that, from the neolithic age (and probably in the paleolithic as well) until very recently, the stereotypical human settlement pattern was people mostly living in villages and small towns. This is how people have typically lived, because this is what usually worked in most times and places. There is a reason why it tends to work well: people know each other, it is reasonably possible to get people to cooperate for the common defence and welfare, and it is possible to organize food production in a more or less sustainable manner.

    I think neighborwatch groups would work in the city, too. That's where they were invented.

    And I agree that humans are hard-wired to live in small groups. There's been some interesting research about that. Even in big cities, people generally know only 150-200 people - perhaps the size of our ancestral villages or family groups.

    But that can work in the city, too. Something like this, say.

    There seems to be a tendency to think that your neighbors will be your friends in the country but your enemies in the city. I don't think that's necessarily the case.

    In terms of community-building, I don't see one as better than the other. In both cases it is a matter of volition. Food is the variable that makes a distinction possible, perhaps even necessary, depending on how far things fall.



    Just like you, I always recall 'that Argentina guy' when somebody mentions the joys of rural life in a post-peak world.

    The site is Ferfal's 'Survival in Argentina' and the post in question is 'Thoughts on Urban Survival':


    I understand where you're going with this. But I believe the bigger issue is not what the prepared person can do, but what the vast majority of people will do, the one's who think the world of the last 60 years is the only way the world can be organized. Are Americans capable any longer of putting together an effort that includes things like "victory gardens"?

    I think that as a nation we've lost that strong self-reliant streak and have come to expect that previously unequaled wealth is our birthright. While our material suffering is likely to be a lot less than poorer parts of the world, I think we will suffer more psychically, socially and spiritually as we don't have the family and community strength to fall back on.

    where i live about 3 hours without fire. and to finish about 3 minutes without air. if you happen to break thru the ice. also some sort of alcohol may be handy. for medicinal reasons of course.

    I agree with Leanan--there is not a consensus about rural versus urban.

    People who think things will hold together for quite a while longer (electricity will not be affected by our shortages of oil and natural gas and believe that we can afford to build a lot of trains, wind turbines, and grid upgrades) think cities are the place of the future. People who are more pessimistic about electricity and funds for infrastructure investment tend to think rural is a better bet. I am in the latter group.

    How this happens and when it happens (this year next year, in five years) are up in the air, but I think the end result will look a lot like old Tuscan organisation. Cities will thrive (how big who knows) based upon a local hinterland and being the access point to some sort of trade with other cities. The supporting hinterland will be mainly modified urban, i.e. the Tuscan village surrounded by working farmland. The farmers will live in the village for both protection and the easy access to required service (butcher, baker, candelstick - or wind turbine- maker etc). There may be some larger units involving several of these urban focused units. My favorite here is "The Republic of The Great Lakes". My planning horizon is too short for me to ever see this but the getting there will be our version of the Cuban "special period", but not anywhere near as calm as they experienced. Unfortunately even Cuba will go through a new much worse special period. All we cn do is make whatever we think are reasonable preparations such as Jeff's ELP and be prepared to be fast on our feet. We just had a tragedy in Canada that is a metaphor for what may come. Eight snow mobilers, experienced and prepared with shovels, probes, locator beacons etc headed into the mountain back country. Inspite of their reasonable preparations all were killed by a series of avalanches. In the near future churches and psycic studios will fill as people strive to add good luck and grace to their preparations.

    I think I want to be in the middle.

    On the trade route between two cities, the route most traveled is normally the safest.

    Now that's after things have changed, during the change I don't think there's gonna be a safe place?


    Why wait? Tell the kids to beat feet out of the city before it's too late...ever see the idiots in FL try to outrun a CAT4? Not a pretty picture.

    Plan ahead.

    Power Down. It's the only way.

    Does that mean I get to go back to Scotland?


    Sory in french but I will translate the essential. In november, russia exports to western countries did decrease year on year of 18% for oil and 22.1% for natural gas.

    Jeffrey, this is far too fast even for the export land model. What is that crap? Especially as in november, russian oil production was still stable according to their daily production website (seems to be crashing now...no news since 18/12 and for russia, no news usually mean bad news).


    La Russie a réduit en novembre ses exportations de pétrole de 18 % par rapport au même mois de 2007, et celles de gaz vers l’Occident de 22,1 %, selon un communiqué diffusé par le ministère russe du Développement économique. « Les exportations en novembre ont constitué 17,7 millions de tonnes, soit 82 % par rapport à la même période de 2007 », selon un rapport du ministère cité par l’agence Ria Novosti.

    Jeffrey, this is far too fast even for the export land model. What is that crap?

    Westexas and I don't see eye to eye on the model, but I believe I can provide something for you anyhow.

    The model can only speak to export declines that are based exclusively (or at least primarily) on post-peak depletion and internal demand growth. It doesn't say much about production declines caused by much simpler economics like crumbling prices and unprofitable production.

    Let's assume that the Saudis are not post-peak in crude production (I don't think they are and they say they aren't, but few here believe it... let's just assume it for purposes of the discussion). Their production is about to decline substantially (in fact likely already has) because they choose to pump less. Their production will also look "too fast even for the export land model" because the reasons for the decline are not related to the causes/assumptions that ELM requires.

    My guess is that it's the export taxes, not ELM, that were the problem. Prices fell so fast that Russian producers ended up not able to make a profit under taxes set when prices were high.

    Lots of things going on.

    First and foremost, IMO mature Russian basins are at an advanced stage of depletion, which is a point I first made in January, 2006. After some discussions with Khebab, I predicted that Russian crude oil production would start falling within one to two years.

    The export duty causes problems for Russian oil companies, and I think that there has been some shift from exporting crude to exporting refined products.

    However, our middle case is that Russia's post-2007 remaining cumulative net oil exports (from mature basins) are about 22Gb, and they (net) exported 2.6 Gb in 2007 (EIA). You can see the problem.

    Here is our outlook for Russia showing the projected initial 10 year net export decline rate (again, Khebab did all of the mathematical heavy lifting):

    The frontier basins are a wild card, but IMO they are to Russia as Alaska is to the US, they will help, but they are no panacea.

    That's an interesting graph.

    Can you take a step outside of yourself and imagine what you would have said in 1990, 1991 and 1992 if you didn't know what the rest of the graph looked like?

    While you're at it, pls consider this question. How would your modeling change, if at all, if you were given the following two scenarios:

    a)You KNEW economic growth would continue unabated for the next 25 years

    b)You KNEW that economic growth would fall off a cliff and oil demand growth would never again be as high as it was in 2007.

    Assume that in these two scenarios the underlying geology doesn't change one bit (a good assumption).

    Basically, how much do demand side changes alter your modeling?

    Are you suggesting that Russian production is not at its peak?

    Has Russia's oil production peaked?

    I'm saying that I don't know and I doubt anyone else does either.

    I'm saying that if today was 1990 many here would look at the graph and say that their exports had peaked two years earlier. Then over the next couple years that would be confirmed as export declines increased. No doubt we would see the ELM predicting that Russia was 3-5 years away from having no exports at all. The reduced rate of decline in '93-'94, and even the slight uptick in '95-'97 would be a temporary abberation that meant little since it was negligible compared to the 1988 peak - it just meant that the declines in the coming years would be even more severe.

    Then things took off.

    It's peaked.



    Can you "guarantee" that you wouldn't have said the same thing about their exports in 1993?

    Yes, though I was too busy with theater and a certain few young ladies to pay any attention.

    It was socio-political.

    The fact they never surpassed their true peak from back then guarantees all the more they have peaked.

    You are making the mistake of, essentially, equating "can't be proven" to "can't be true."

    What I said about methane last summer, for example, has thus far proven true. I had two things to base that on: the melt of '08 despite cool temps and normal conditions and the first report of methane bubbling up out of lakes in the arctic. I extrapolated general increased emissions from that.

    Could I prove it? No. Was I right? Yes. Will I continue to be right? Yes. Can I prove it? No. Check back in '09, '10, '11....


    "It was socio-political."

    And of course it can't be that today, right?

    Not when we already know it isn't. Perhaps you are forgetting their production started dropping late '07. Of course, things are exacerbated by above-ground issues, but those are not the primary problem according to accounts from the first half of this year which were widely discussed here at TOD.


    Can you "guarantee" that you wouldn't have said the same thing about their exports in 1993?

    No, but Jeffrey's graphs are not made in isolation. Backing them is knowledge that this peak in Russian production is not the same as 1993 due to a variety of reasons, as outlined in the link I provided, from the inability for capital to be mustered to increase production beyond today's levels to inherent geological decline.

    If you are willing to operate on the premise that we are not at world or even Russian peak oil, this is entirely your choice and you are entitled to make it. Other people (myself included) are operating on the premise that Jeffrey's graphs are fundamentally correct.

    So I don't have an answer for 1993 but I have one for today: I'm personally preparing for world peak oil and I assign it a 99.99% probability. I'm open to being wrong, but that's a very different thing from planning to be wrong.

    The absolute Russian peak was back in the Eighties, in a production plateau centered roughly on 1984. My January, 2006 comment that Russia would probably resume its production decline within one to two years was based on a HL analysis that cut off the data in 1984, and it was discussed in this article:

    In Defense of the Hubbert Linearization Method (June, 2007)

    russia exports to western countries did decrease year on year of 18% for oil and 22.1% for natural gas

    enough said

    Can't get your link to work - 404 not found

    Found this link though covering YTD production

    Russian gas exports up 5.6% through November, crude down 7.5%

    Oil exports to CIS countries grew 3% compared with the same period (January-November)last year to 34.9 million metric tons (255.8 million barrels), due to increased supplies to Belarus. Exports to non-CIS countries fell 9.2% in the reporting period to 185 million metric tons (1.36 billion barrels), the ministry said.

    Depleted and watered-out oil wells, delays in the commissioning of new deposits and reduced incentives for oil companies to boost crude production due to the heavy tax burden and lower oil prices since September have been the main factors behind decreased production, the ministry said.

    Remove the : at the end. Note that the info on this link is a stream of news, meaning that the info will probably disappear in a few hours.

    This should work...

    Can't believe I didn't spot the colon at the end when I was looking for an obvious typo.


    Came across this update on the aftermath of the Bellevue, Ohio flooding.

    It turned into a massive blame game. The victims weren't eligible for disaster emergency funds because the flooding was so sporadic, and because basements aren't considered living spaces by the feds. Neighbor turned against neighbor, as people blamed others' land use patterns for the disaster. They're furious at the government for not doing anything, but the government engineers say there was nothing they could do, except wait for the waters to recede. They also recommend not building in low areas again, because it will happen again, and there's nothing they can do to stop it. (I imagine this will be ignored.)

    This might be a good use for federal bailout money. Buy the houses of people who have built "in harm's way," and do not allow rebuilding there.

    One of the links Leanan posted also had some interesting comments about Petrobank's Canadian Tar Sands operations, presumably with respect to its "Toe to Heel Air Injection Method." A few comments from an interview with oil and gas analyst Alan Knowles:

    The company’s oil sands technology is in the pilot stage now, but all indications are that that pilot is working. The oil is upgraded in situ in this process, so instead of producing 9- or 10-degree oil, it produces 20- to 21-degree oil—a significant advantage; and capital costs are a third to a quarter of competing projects.

    Petrobank has signed two projects—one with Duvernay Oil (DOI.DE), which was recently taken over by Shell, and another with a company in Canada called True Energy Trust. It has signed confidentiality agreements with most South American state oil companies—and there’s a huge amount of heavy oil in South America; and it has ongoing negotiations with other companies besides the state oil companies in South America.

    Like I was saying, the technology is actually cheaper; for instance, the estimates are that this will cost $20,000 per producing barrel to put a project together, and it likely will be less, whereas your average SAGD (steam assisted gravity drainage) project is $60,000 per producing barrel. So, it’s a third, and if you add an upgrader, you can get into the $80–$100,000 per producing barrel. And so you’re comparing $20,000 versus those higher numbers, depending on the project.

    I wrote an article quite a while ago about the subject. I got a lot of flack then, because it is the technology of a single company, and it is difficult to write about without looking like one is trying to sell their stock (or crash it). We should figure out a way to write an updated article, perhaps focusing on some new technology of other oil sands companies as well.

    It would be nice to have some hard production data. Here is a link to recent Petrobank news releases: http://www.petrobank.com/press-releases.php

    I noticed that in their January, 2008 release, they gave explicit production numbers about most properties. They were notably circumspect about the Whitesands project numbers.

    A Canadian I talked to at a Casey Research meeting expressed the opinion that Petrobank was primarily using the THAI process to get their stock price up and then use the appreciated stock to buy conventional producing reserves. Just one guy's opinion, but there are several Canadian readers of The Oil Drum. Perhaps they can opine.

    In any case, it would be nice to have some hard production numbers. Perhaps they will release something with the January, 2009 operational news release.

    I read with interest your recent article on the cause of the oil price decline.
    I know when you did your ELM model a couple of years ago you used top down approach - HL plus estimates

    have you thought of revisiting ELM and updating it with bottom up data - i.e. using the megaprojects database and Rembrandt's monthly growth rates for OPEC internal useage, etc.


    We will do an updated top five paper when we get the 2008 net export data, but right now my plan is to stay with the HL method.

    The 2006, 2007 and (estimated) 2008 data points are falling between the middle case and the best case curves, based on the HL models--which suggests that the top five have already (net) exported about one-fifth of their post-2005 cumulative net oil exports. One-fifth gone, in three years.


    The use of a $ value per producing barrel is very interesting. I haven’t seen that parameter tossed about in a while. During the 90's I was involved in the acquisition evaluation of a great many oil producing properties. We quickly came up with a simple parameter to estimate what an oil property would sell for: the same price per producing barrel as the average from the last few deals we saw closed. It didn't matter where the field was, how big the reserve base, what the operating costs where or what any portion of the technical evaluation indicated. Fields were priced by what the market would pay...not on what the field was actually worth. I know that sound simplistically silly but it never failed…never. It would take all of 15 seconds to calculate a close approximation to the final selling price. If we couldn't come up with value of $'s per producing bbl within a few percent of the going rate we dropped the project. It didn't matter if we were right in our evaluation or not: that was the price at which the field was going to sell. During the spring of 2008 properties in the US were selling for $120,000+ per producing bbl.

    Obviously that’s not the going rate today. I’ll ask my A&D buddies what they are seeing now. Given the holidays it might take a while though. My off the cuff bet is that the price is below $50,000 per prod bbl. Maybe a good bit lower. The actual number should have a bearing on all new projects including tar sands. If a project represents an $80,000 per prod bbl cost it’s not likely to go forward if the capital can buy existing production for half the cost.

    WT's comment about companies using pumped up stock to buy conventional producing reserves might be the best use of tar sand reserves right now. How ironic if true.

    The guy I talked to said that Petrobank had bought some conventional producing properties (using appreciated stock) that were doing quite well. He was generally pessimistic about THAI. I don't have any direct knowledge one way or the other, but I have found that a reticence about production rates is generally not a good sign.

    Thanks to everyone for their comments. I tend not to trust the comments on one analyst (who seems to be interested selling the stock). The lack of production rate data is not a good sign.

    Great update Gail, I also found this article with a bit more info:

    Petrobank seeks nod for thermal project

    It has been demonstrating the technology-- and a variation called CAPRI that employs chemical catalysts to further improve the quality of the oil--with a three-well pilot for nearly two years and recently got approval for a second set of three demonstration wells.

    and another update from September about Petrobank:

    The Long Case for Canada\'s Petrobank

    One of the delayed oilsands projects that I follow may be revived in 2009 as a technology pilot. Two guesses are in-situ upgrading or geothermal heating.

    There is a lot of pressure on producers to reduce NG consumption because of GHG emissions, cost, and future supply reliability.

    Also, in-situ upgrading is a major win since it produces higher value product and reduces the need for purchasing diluent.

    Perhaps it is counter-intuitive, but an economic slowdown may accelerate technology progress in the oilsands. Costs are dropping, labour is available, and there is diminished pressure to bring new production online as fast as possible.

    If THAI/Capri isn't practical, then some other technology will evolve to replace it.

    The oil majors started throwing major resources into the oilsands about 1997. Time+brains+money = new technology.

    What, when, and who are still the open questions.

    does this mean that my next to worthless tuijf shares are now worth next to something ?

    i should have know better than to buy shares in the company that was merged into tuijf, dynamic oil and gas (DOG).

    they do pay a decent dividend, based upon trading price, but not on my book value.

    Here is one more skirmish in the deflationary war.
    The company I used to work for is apparently putting through a price increase in Canada for the product I used to deal with (low voltage machine control). I am watching to see how this attempt to swim upstream works out in the light of manufacturing contracting quickly here.

    Interesting. I'd always thought dept. stores took the hit themselves for discounts.

    It gets really murky in retail-land. A lot of these vendors will buy inventory back (temporarily) to move it off the department store books. Later, the stores take the goods back. Then the vendors do their own books. It's a circle game. They move liabilities around, dodging accounting periods.

    You might say the big retailers perfected mark-to-model (and off balance sheet) accounting a long time ago.

    Storing the Breeze: New Battery Might Make Wind Power More Reliable


    I can't believe that batteries will ever extend wind power substantially beyond "when the wind is blowing". The largest battery in the world backs up Fairbanks' grid just long enough to give people time to start backup generators.

    IIRC, it's larger than a football field and can only handle the load for seven minutes.

    Plenty of applications already support the cost for rarely-used 8-hour UPS backup, at per-wh costs higher than sodium. But the real key isn't load-shifting, but peak-shaving. A fairly small battery can help flatten wind/sun peaks and valleys, and provide time for surge generation and variable/sheddable loads to react.

    Flow batteries tend to have very good cycle lives, so the goal has to be to 'reuse' the storage often -- many times per day, rather than once a day (or month, or year, as for UPS apps). Even with existing tariffs this is possible today.

    The peak-shaving apps will help drive economies of scale for large batteries, and then some of those will make fiscal sense (as electricity gets more expensive) for load-shifting as well, first for peak-periods and finally for intermittent source storage.

    Really its just an arbitrage equation, with the cost of battery storage versus the cost of transport (to/from another locale that needs/has power) or the cost of secondary generation. It's not a question of size as it is of economics -- once the electrolyte is cheap enough it doesn't really matter how big it is. Municipal water tanks are really big, too -- for the same reasons.

    I was trying to figure out how to invest in NGK a while back, and may make another stab at it... sadly the folks with money to invest are largely clueless about energy and all that science-y stuff. I also like the products of places like Timminco in Canada, REC or whatever in Norway, and Valence right here in Austin more or less. But they've been lousy investments :)

    Canceled and scaled-back pipeline projects are bad news for natural-gas consumers and producers, who now could face higher fees and limitations on how much gas they can move from new production areas.

    OTOH, lack of new pipeline capacity is good for consumers in Colorado, where the drillers are producing more than can be piped out and consumed locally. Looking back at the historical prices for local households, it is easy to spot almost exactly when new pipeline capacity came online -- each such event caused a sharp bump in the local price. Over time, the same factors that drive the export-land model -- use production to satisfy local demand first, and export only if there is a surplus -- may come into play regionally in the US. Long-distance transport of natural gas, electricity, and even coal depends on easily disrupted infrastructure. At some point, the Gulf Coast and the Rocky Mountain regions may ask themselves if they are willing to live a reduced-energy lifestyle in order to keep the Boston-Washington corridor going.

    Good point! An argument for more regionalization.

    About 25% of the US population lives in the strip from a bit north of Boston to a bit south of Washington, DC, and 100 miles inland. To the best of my knowledge, the electricity supply for that area is very heavily dependent on hydro from Canada, natural gas from the US Gulf Coast, and coal from points much further inland. How do you regionalize an area with that many people and that little resource? To be blunt, this is an area of great monetary wealth and political power whose long-term viability depends on exploiting the energy-rich regions that have less wealth and power. Regionalization is not in their interest. I expect to live long enough to see the issue settled violently, when the BoWash corridor attempts to use its influence to force the energy-rich regions to live an energy-poor lifestyle.

    Put in wind turbines.

    I thought this was a good summary: oil is potential wealth and gold is stored wealth.
    the gold/oil ratio is critical, and addresses several EROI issues

    Seasonally, oil (USO) is extremely weak from October through December. In 2008 oil started October at about $100 and ended December around $40 or around a monstrous 60% decline. Oil is strongest seasonally from July through September with the strongest individual months being January and August. Oil’s 200dma sits right around $100, appears to have hit around its bottom and the 200dma is exerting a gravitational like effect pulling oil prices up.

    By contrast gold’s 200dma is at about $860 per ounce. Gold (GLD) has recently passed through its strongest seasonal period from September to December. It maintains the uptrend from January to March, is asleep the rest of the year except for a strong rally in May. While seasonality is helpful, it does not etch the future in bullion and this year has been different.

    The recent financial turmoil has caused tremendous technical damage to gold almost as if it was done intentionally to stunt its bull market during all of the financial carnage. GATA asserts that when the news is really bad gold goes down. Well, the last half of 2008, when gold should have performed well seasonally, it swooned from over $1,000 per ounce to the $680’s while Lehman Brothers (LEHMQ.PK) evaporated, Fannie (FNM) and Freddie (FRE) were nationalized and bailouts were served every night on the news. Such suppression has only wound the spring that much tighter.

    It is important to keep in mind that both of these commodities are still in strong secular bull markets. The FRN$ is in a strong secular bear market as is the DOW and real estate. The Gold/Oil ratio is now about 23 barrels of oil per ounce of gold. The 200dma is about 9.5 and the historic average is around 15.

    The extremes happened in 1974, 1986 and 1988 as the ratio approached 30 and 1977, 2001, 2008 at about 8 and 2006 at around 6. For these relative prices to return to more normal ratios something is going to give. Oil is either going to go up, gold is going to go down or to move into some sneaky calculus the rate of oil’s rise will be faster than gold’s. The silver (SLV) to oil ratio is not nearly as extreme as gold to oil but silver will most likely follow gold, either up or down, at a faster rate of change.

    This is where geo-politics arrives. Are the oil producers willing to take so little value in exchange for their precious black gold? With Peak Oil (mp3) asserting itself the oil producers should hold the bargaining power. The latest IEA numbers indicate an extremely serious steeper than expected 9.1% decline rate. Yes, the Canadian Oil Trusts will rise in value as a safe, secure and stable source of oil. But perhaps the oil exporters should sit on their oil and let the importers roil and writhe in pain as E. M. Forster’s 1909 essay The Machine Stops is played out. After all, a barrel in the future will be worth more than a barrel today. Obviously, the collapse will not be televised.

    At all times and in all circumstances gold remains money. It is the most powerful currency in the world. Oil is the world’s primary energy source which is why the gold to oil ratio is important. Gold is the most effective tool humans have to perform mental calculations of value. By analogy it is the tool used to determine how many calories an apple provides and how many calories it takes to collect and process the apple so it can be eaten.

    Producing gold is essentially converting energy into bullion. How many calories go into producing a one ounce gold coin? In some cases to produce a single ounce hundreds of tons of rock are moved. Ultimately, money is about energy. To make it personal, how much value should you put on that nice steak dinner, bottle of water from Fiji or 3,000 mile Ceaser salad? Well, think through the supply chain and how much energy the good or service represents.

    The world has a very serious problem. Because it has used a fiat currency with no definition or basis in reality for nearly 100 years and because oil production was constantly increasing during that time the effects of unwise capital investment were masked. Energy Return On Energy Invested (EROEI) calculations were not even performed. A fiat currency attempts to sustain the unsustainable while a commodity-based currency employs the strict laws of reality to ensure the unsustainable is not encouraged.

    In other words, no one knew or calculated either how many calories the apple supplied or how many calories it took to procure and process the apple. The entire infrastructure of the entire world was built using mental calculations of value based on a derivative illusion. As natural and economic law assert reality and gold begins circulating as currency in ordinary daily transactions the distortions will be removed and the gross misallocations of capital will be revealed. I wonder what such a world will look like? Will The Machine Stop?

    Truly engaging thoughts poly. Looking forward to more. Being conceived and raised in a fiat world it's a refreshing take on reality.

    Called a potato farmer

    New innovation has allowed an operator to extract heavy oil in Texas where a previous generation was not able to produce oil:


    Down Under there are just a few hours to go before millions of dollars go up in smoke for fireworks displays. Frivolous consumption at its best. Media airheads will wish us a happy and prosperous New Year. Most of us would settle for 'may you be able to pay your bills in 2009'.

    Seeing as how there will all this green stimulus and cleantech I have an alternative pyrotechnic idea for the next New Year celebrations ..let's dynamite a coal fired power station on live TV. The media persons can wish us 'may you have a less carbon intensive New Year and may your prosperity achieve a steady state'.

    Here's a Main Street impact of the credit collapse:

    Company behind TriMet WES rail cars closes

    TriMet will evaluate its dealings with the Colorado rail car manufacturer the agency kept alive the past year with more than $5 million in public money.

    Colorado Railcar Manufacturing won't be around to help that review, though. The company went out of business last week, unable to attract new financing.


    So even though MAX ridership is reaching record levels and Trimet is throwing cash at the railcar manufacturer, there's simply no way to stay in business if you can't get credit.

    This sounds like the first Great Depression: the means and the needs can't get hooked up, so "the engine of the world" slowly grinds to a halt.

    This sounds like the first Great Depression: the means and the needs can't get hooked up, so "the engine of the world" slowly grinds to a halt.

    At least it isn't happening in our food supply chain....Yet. I wonder how many farmers might experience a similar scenario when buying I-NPK, seeds, etc.



    I think you're right. More and more, this is looking like Great Depression II.

    As for food...well, there's this:

    British food production could drop sharply, warns NFU

    British food production could drop sharply next year as farmers are squeezed by rising costs and the effects of the credit crisis, the NFU has warned.

    Uh....Yeah, Leanan....That's what I was talking about. Can't say I'm thrilled to see it being reported but I'll complement you on your good eyes for finding it.


    Here's some interesting articles/links that I found today at the Daily Digest over at Chris Martenson's Website

    "When", not "If"

    You see folks, grade six math dictates that fundamentally, world gold supply [1 and 2, above] equal approximately 113 million ounces [88 + 25 million ounces]. Now, if one simply looks at the number of ounces of gold transferred at the LMBA in the most recent 12 month period [Dec. 07 – Nov. 08], we can see that 275.2 million ounces of gold [two and one half times annual global production + scrap] allegedly changed hands:

    Detroit Real Estate Listings

    3 Bed, 1 Bath, 1,259 Sq Ft on 9 Acres
    Property Type: Single Family Home
    Bank Owned. Property sold in as-is condition. Buyer to sign ACR with City of Detroit prior to closing. Earnest Money Deposit to be held by listing broker and be certified... more


    Detroit real estate...
    That's in a safe neighborhood too, right? ;-<


    Ecohood... that is exactly what needs to be happening...

    But where's the food?


    Nine acres? Pretty big lot.

    I think cities like Detroit may have a fairly bright future. As the Ecohood article points out, older cities were built in places that were highly desirable in a lower-energy world, as far as soil, water, transportation, etc. are concerned.

    Detroit's urban gardens have been in the news lately. Apparently, they have several government programs that encourage it.

    des moines, iowa has areas prone to repeated flooding, thanks in part to the acoe. the city is buying up some of these properties, demolishing them with the plan to "redevelop" in the future. this area would make a great area for urban gardening if only the city had the vision to do so.

    des moinse also had a great street car system at one time, before the gm, firestone, standard oil purge.

    As some of you know, I'm highly sceptical of the technical merits and economic utility of current LED technology with respect to general room illumination, but that's a personal opinion and nothing more. However, for those who prefer to draw their own conclusions, the U.S. DOE's recently released CALiPER Benchmark Reports are a good place to start (short answer: don't whip open your cheque books quite yet).

    See: http://www.netl.doe.gov/ssl/PDFs/a-type_benchmark_11-08.pdf


    I am trying one of every LED bulb I get my hands on. So far, they range from "bad" to "terrible". Color is poor and intensity is bad too. Some are a lot better than others, though. My unscientific results match the pdf -- you can't believe anything on the labels.

    I just got a recessed can 12W today, with Cree LEDs. I have hopes that it will have an acceptable color and intensity for at least my hall, and maybe the kitchen. I have 10 such lights, and they're turned on a lot, so there is a potential savings of over 500 watts. I am looking forward to trying a geobulb when they become available, too.

    I've also tried many CFLs, with better but still poor results. The best ones put out adequate color and intensity, but life has been poor for me -- too many cycles I think. Some don't last a year, which isn't much better than incandescent. Some slow-start, too, which irritates everybody.

    There are applications where LED lights would work just fine -- closets, toilet areas, some halls -- if the color were OK.

    I think the "incandescents going away" is a bit premature. The alternatives are getting better, but still not "good enough" in my view. When my wife says the LEDs are OK for her vanity, I'll know the technology is mature.

    While I'm not using LEDs for principal area light, (I have CFL's almost everywhere.. pretty good lifespans where I don't bottle them up in hot chambers) I have a homemade strip under a kitchen counter, mixing cold-whites with yellows for a decent balance.

    Otherwise, they basically serve us as flashlights, nightlights and the colorful Christmas strands I find to have some really stunning color to them.

    I'm looking forward to making a pair of old 'Lite-Brites' into an LED Stained-Glass Window one of these days, and as one other eccentricity, I put 24 flickering yellow Tea-light LEDs into a reflector made from a silvered plastic Eggcarton to have a lightweight, overhead 'campfire' light for dinner and dishes out in the woods. It's aimable, and doesn't get in your eyes like candles, lanterns and many other LED Area Lights.

    (I didn't get to the sales to pick up more of the warm white strings, but I still hope to.. not for task lighting.. just mood lighting and maybe 'glowing' a stairwell enough to come and go.)


    I am trying one of every LED bulb I get my hands on. So far, they range from "bad" to "terrible". Color is poor and intensity is bad too. Some are a lot better than others, though. My unscientific results match the pdf -- you can't believe anything on the labels.

    Sadly, that pretty much sums up the state of affairs at the moment; outside of a handful of manufactures, there's zero credibility in this segment.

    I just got a recessed can 12W today, with Cree LEDs. I have hopes that it will have an acceptable color and intensity for at least my hall, and maybe the kitchen. I have 10 such lights, and they're turned on a lot, so there is a potential savings of over 500 watts.

    This is the LLF LR6 product I take it (http://www.creelighting.com/residential.htm)? Please let me know how this works out for you, as I'll be very interested to hear your feedback.

    I've also tried many CFLs, with better but still poor results. The best ones put out adequate color and intensity, but life has been poor for me -- too many cycles I think. Some don't last a year, which isn't much better than incandescent. Some slow-start, too, which irritates everybody.

    CFL life is adversely impacted by frequent switching, but perhaps not to the extent most people think. As Bob mentions, heat is the major enemy of CFLs and that's even more true of LEDs -- recessed fixtures and, in particular, the non-vented or IC versions can cook these products in very short order.

    I've also tried many CFLs, with better but still poor results. The best ones put out adequate color and intensity, but life has been poor for me -- too many cycles I think. Some don't last a year, which isn't much better than incandescent. Some slow-start, too, which irritates everybody.

    I have numerous recessed fixtures throughout my home that are equipped with 100-watt halogen IR lamps (http://www.lighting.philips.com/us_en/browseliterature/download/p-5761_1...). At one point, I tried retrofitting these fixtures with good quality hard glass CFLs (http://www.standardpro.com/sheets/pdf/476_STD_CFL_PAR38_SS_e.pdf) but I can't tolerate the soft, diffuse nature of this light -- everything ends up looking flat, dull and lifeless. I also tried Philip's self-ballasted ceramic metal halide PAR38s (http://www.nam.lighting.philips.com/us/ecatalog/tds/1447_7-4_8-2_9-0.pdf); although a step above CFLs in terms of overall light quality (point source), there are performance issues that made them largely unsuitable for this type of application. Ultimately, I went back to the halogen IRs because nothing can match the sparkle and brilliance of halogen.

    I think the "incandescents going away" is a bit premature. The alternatives are getting better, but still not "good enough" in my view. When my wife says the LEDs are OK for her vanity, I'll know the technology is mature.

    Your wife is right, and I'm not sure we'll ever find a suitable alternative.


    I'll try the LR6 tonight or tomorrow. My cans are not IC, so I'm hopeful I'd get a good, long life out of it, if it works. I'll have it next to a high-output CFL and an incandescent, so I should have some side-by-side comparison.

    There are specialized apps that I think would benefit from purpose-built LED solutions. The under-counter application is one (I have 2 that I need to address). A high-eff bathroom fan/light is another. The bulbs in these could optimally be "flat", facing down, and not a lot of intensity is really needed. If you're the sort to read while doing your business, a fairly focused spot would handle that. I tried putting an LED bulb in one, but the light is 50% consumed by the bezel, and still a spot appears on the wall with zero value, and the resulting light makes the toilet room have an unearthly bluish glow straight out of a horror movie.

    Thanks, Paleocon; much appreciated. One of our lighting suppliers has a large quantity in stock and tells me they're great, but I'll without judgement until I can see them in action and get more feedback from folks like yourself who don't have a vested interest in their promotion.

    With respect to under-cabinet lighting, Osram Sylvania have some interesting products you may wish to consider. Their web site is having a hissy-fit at the moment, but I'm hoping the following two links still work:

    http://www.sylvania.com/AboutUs/Pressxpress/Innovation/LightingNews%28US... and http://www.sylvania.com/BusinessProducts/ProductLiteratureDownload/Produ...

    Although a different application from what you have in mind, you might find this of interest:


    Initial LR-6 comments:

    This is by far the best LED bulb I've yet tried. Compared to the Lights of America LED flood bulb, (5W, says it replaces 45W) it's a world of difference. It's at least 2x brighter, probably more like 3x, and better in every aspect.

    The LR-6 is brighter than a 65W incandescent, and a CFL flood (26W, IIRC). I would say it is close (by recollection, not comparison) to a 120W flood. The cone is "broadly dispersed", and its total light output is greater and the pattern is broader than the other lamps I have. Not as focused or bright as a halogen (outdoor style bulb) I have over the sink, but that one is old and power-hungry -- maybe 90W? It is also instant-on, unlike the closest match, the CFLs.

    The color is still not quite as warm as the warmest bulbs I have, but it's very close (2700 color temp, over 90 CFI). Overall the light tone, color, and intensity is acceptable in every way. In side-by-side comparison tests, even my wife likes it "best". I do too, especially for the hall and kitchen. It may be a bit white for a "mood" room, though.

    Installation was easy, but harder than any of the others (which just took a screw-in bulb change). For the LR-6, I had to remove the fascia/trim (2 springs - simple), release the socket (required removing a wingnut), and add a ground wire (I used the same lug and wingnut that had held the socket). Then it just pushed up in place. Works fine, looks fine. It's also dimmer-ready.

    I like it enough that not only will I get more (one per month, since at $100 each they eat my "small savings" budget), but I'm going to find more Cree LED bulbs and try them for other applications.

    For $1000 investment I will save approximately 500W. At $2 per watt it's cheaper than buying PV.

    Wow, $100 per? Makes my CFLs look cheap.

    My big concern would be lifespan at a that price.

    I purchased a high intensity light panel for jet lag and winter blues. In less than a week, I lost about 6% of the LEDs and my guess is wafer contamination. I returned it and didn't risk picking another one up. It was made in China.

    Thanks, Paleocon; your comments are greatly appreciated.

    If this helps you to judge their relative performance, according to LR6 spec sheet, this product draws 12-watts, produces 650 initial lumens and has a rated life of 50,000 hours (source: http://www.creelighting.com/downloads/LR6_spec_072908.pdf). By comparison, a conventional 65-watt GE BR30 incandescent reflector supplies some 770 lumens and has a rated life of 2,000 hours, and a 15-watt Standard Pro PAR30 CFL generates 700 lumens and has a projected life of 8,000 hours (source: http://www.standardpro.com/product/getproduct.aspx?id=4078). Lastly, a 40-watt Philips 40PAR30S/IRC/HAL/FL25 halogen IR is rated at 720 lumens and has a service life of 4,200 hours (source: http://www.lighting.philips.com/us_en/browseliterature/download/p-5761_1...).

    Assuming the LR6 achieves its full 50,000 hour life, we would require roughly twelve halogen IR lamps to equal the service of this one LED fixture; at an average cost of $8.00 per lamp, lamp costs would be similar, although the LR6 has a much steeper entry price. The halogen IR lamp uses 28 additional watts so, over the course of these 50,000 hours, it would consume an additional 1,400 kWh (70 kWh/year based on an average usage of 2,500 hours per year) -- at $0.10 per kWh, the dollar savings are in the range of $7.00, which makes the economics somewhat less compelling.


    Good point Paul,

    My guess is that expected lifespans are BS (what? manufacturers lie? no, YMMV ;-) ) but even so, the upfront cost factors widely depending on inflation or deflation, and varying power rates, affecting your investment. And then there is the subjective factor of satisfaction.

    Do we get used to looking blue, or green? Do we have a natural attraction to the red spectrum due to fires and candles?

    The CFLs I'm using are actually pretty good, for me anyways.

    Perhaps the issue should be: What is the price of aesthetics when the objective is to see when it is dark outside, if it comes to that?

    IOW, efficient illumination trumps Better Homes and Gardens.

    I'm not disparaging your views but I have been monitoring other (doomer) forums that tend to trivialize the issue of light quality, hence my mindset.

    So, please keep the discussion flowing.

    Hi pragma,

    I have a strong efficiency drive and I'm also insanely fussy about good light, so it's very difficult for me to strike an acceptable balance. In the end, I've adopted a layered approach whereby the most energy efficient sources are used most frequently and supply the bulk of my needs (i.e., linear fluorescents and CFLs), and the less efficient but more desirable light sources (halogens) are turned on only when and where required. So, for example, I use T4 linear fluorescents to illuminate my kitchen counters and they perform the lion's share of the work and the recessed halogens only come on when we're entertaining guests or undertaking tasks that requires large amounts of light (e.g., grooming the dogs).

    With regards to rated lamp life, I have bought some nice high-end products from very reputable manufacturers that have met their maker well before their "best before" date (some days, the lighting gods don't shine their love upon us). I now think long and hard as to whether I want to spend a large amount of money on a lamp that may die prematurely and if it doesn't pass the "will I cry if this happens?" test, I've learned to say "no".


    I am of three minds on this subjects (which does not aid decision making):

    1) Every "high efficiency light" I have ever purchased has been disappointing in at least one aspect. Short life is the most egregious, as it makes the whole thing financially sub-optimal. I hope the LED LR-6 does better. I will be surprised if I still live here by the time 50,000 hours of use is over. Heck, I may not live that long at all!

    2) I like helping out the new technology curve. I know most people won't buy them until the payoff is completely obvious, and many won't do it unless the step-in cost is lower too. As long as you can buy incandescent can-light bulbs for $5 people will, even if they last only a year. I'm happy to take the chance on the long-end of the curve in an effort to support the technology leaders and helping to make the world a little better.

    3) If costs are break-even with cheap oil/electricity, I'm willing to bet on a payback with expensive power. The analysis by HIH above says $7 per year savings which isn't shabby on a $100 investment (more versus the bulbs I have now). I doubt many can get a safer return in the market. Over a 20 year life that's $140. Sure, it's a risk, but what investment isn't? In any case, that's at 10c/kwh. What if prices double? I have $100 now (well, sort of -- there's always opportunity cost), but will I have bill money in five years?

    A year or two ago my wife and I looked at hybrids. Gas was cheap but getting expensive, but the cars didn't quite make sense yet, dollar-wise. Last summer the payback was obvious, but there were no hybrids to be had. This year, we're back to no-payback, but we bought one anyway. Might we lose money? Sure, but that means that oil is cheap and life is affordable, so we win. If oil skyrockets, we'll get our payback, and maybe still be able to run our errands longer than most. We still win.

    Lighting is "easy" though, compared to HVAC replacement. My units are now 10 years old, and having maintenance issues. Should I invest in a good air-exchange heat pump? Seer 19 or 20 Trane, Lennox, or Carrier, or what? Each has a different rep here, and all are expensive. For these we're talking "real money", not a hundred dollars a month worth of new light bulbs.

    Hi Paleocon,

    At the end of the day, it comes down to whether or not you're happy with your purchase and, for some, reducing your energy usage or "carbon footprint" is sufficient reward in itself. One risk we do face when we make a large financial commitment like this, with the expectation that there ultimately will be some sort of financial reward or pay off, is that a new, more energy efficient, less costly or otherwise more desirable alternative will emerge six or twelve months from now making our current investment obsolete. Twenty-five years ago when I bought my first PC (a DEC Rainbow), I opted for the "gold plated" solution secure in my believe that this system was built to last me a lifetime (yes, I'm a card carrying idiot). If you substitute "LED" for "PC", you can see the parallel here.


    I agree 100%. But if there aren't a few who will help foster the $100 market there may never be a $25 or $10 market.

    I am POSITIVE that LED prices will come down eventually. But it is also quite possible that that energy prices will go up first, and it is possible there will be some period where LED bulbs are hard to find. I'm pretty sure gold prices will drop, and ammo prices, and house prices, but I have some of all of those too (though not as much as I'd like). I won't lose sleep over any of it if it drops in value.

    As for my values, I'd rather pay $100 for LED bulbs that I am completely happy with than $25 for CFLs that I'm not, though the $10 halogens are appealing. I won't buy any more 65W incandescent bulbs for sure.

    Thanks for all your help on lighting and heat pumps. Your solid data helps put a sharp pencil to the options and possibilities for readily saving money.

    I've also been researching and experimenting with LED lighting over the past year, and have had some limited success (see below). IMHO, the LR6 (and LR4!) are the first (and only) credible room-lighting LED lighting solution I have found. I checked out the LR6 in a 'local' lighting store (at my sisters, which I was installing some closet lighting for her) - the light quality is fantastic, especially in comparison to all CFL's and LED's I have used in my home. They use a mix of white and red LEDs at the base of the fixture, which mix before they hit the diffuser plate, to create a very clean, very bright, pleasant white light. It doesn't replicate incandescent light, but I found it very appealing in the store. It looked to be too bright for my kitchen, so I would need to install a low-voltage dimmer switch, that is if I was going to install them...

    Unfortunately, my house is fitted out with 4" cans, not 6" cans... Cree just released the LR4 for 4" cans, but only for new construction or complete retrofit. They only sell the entire fixture (~$200, including the enclosure), as far as I have been able to determine. I don't know if they are releasing a retro-fit like the LR6 or not. A friend of mine knew the current president of CREE semi-conductor when they were in college together, so I may try to influence that decision... :-)

    My most successful LED projects to date have been based on this product from IKEA:

    The white version is much brighter and more useful than the multi-color. They are completely different fixtures, in fact - the multi-colored discs have a metal frame, and are thicker than the lightweight, plastic enclosure for the white-light strand.

    Since this is designed to plug into an outlet, and has surface wiring to manage, I have used it to light closets, and pantries. A very clean white light, extremely easy installation if you don't need to hide the wires (which is why closets are a nice application). There are 4 disks per set, and I used 2 sets to light a 96" wide closet with a shelf-system installed. I distributed the 8 disks fairly evenly around the top and side inside walls of the closet, facing the shelves. This suffuses the entire closet with a soft white light - more than sufficient to find clothes in a dark room. In some cases, I was able to mount one of the lights on the underside of the bottom shelf, to directly illuminate a shoe rack - each light is on a 3' wire, which gives you a lot of flexibility.

    I installed an outlet above the door inside the closet, in place of a standard light fixture (there was already Romex cabled to that location, and a switch plate outside the closet, which made the project exceedingly simple...).

    So far, I have installed it in 4 closets, and 1 pantry, and will probably use it to replace my under-counter lighting in the kitchen (replacing the xenon system I installed last year - the filaments keep breaking when they get whacked by mixing spoons...)

    I have also used the multi-colored sticks (another option for this product, not shown on the website) to get a wall-wash effect behind my TV, which is quite cool. My wife doesn't let me set the color on "slow change" - says it looks like a disco :-) The multi-color sets are great for mood-lighting, but crap for any kind of task lighting.

    There are some low-wattage edison-style bulbs that reproduce an incandescent light pretty well, which I have been playing with in my bathroom light bar as well (from SuperBrightLEDs.com). Unfortunately, they are only about 30w equivalent, which isn't quite bright enough for the vanity application. They are the same cost as the Ikea solution too, for a single bulb. Not yet practical.

    One 'successful' application of the edison-style bulb from SuperBrightLEDs.com which I neglected to mention: My garage-door opener area light, which turns on when the car enters the garage. I had previously tried vibration-resistant incandescent bulbs, and compact CFLs, but both would burn out within a few weeks of installation. The low wattage LED bulbs are a much better solution. They have been working for over 6 months, and they give just enough light to get from the car to the house. This was an earlier version of the bulb, with a lower wattage and light output. I will probably try upgrading at some point, to get a bit more light - but it is still a very expensive solution...

    Thank you, all, for the informative input. This turned into a very helpful thread!

    I am surprised that Cree doesn't offer more bulb varieties, given their unique advantages. There must be some engineering bandwidth and funding problem there somewhere (and a desperate need for manufacturing cost improvements!). I do see third-party devices that say they use Cree LEDs, in everything from flash-lights to light bars to bike lights, but I wonder a bit about quality, thermal design integrity, and counterfeiting with those.

    I am hopeful about the upcoming Crane Geobulb as well. If it will handle the 60W applications it will be a major plus. The vanity app is the holy grail in my view, though.

    Thanks for that Paul,

    I have an LED flashlight, but frankly, I wouldn't use it if dead batteries when one least needs them then was such an annoyance.

    There is something that the report did not cover, perhaps because there is no metric for it. I call it the "quality" of the light. For example, I still prefer to look at a CRT rather than an LCD lit by a CCFL. (Remember CRTs?).

    Subjectives aside, one of the big issues with semiconductor manufacturing is purity control. Contaminants can change both the life and the performance of a device. I used to regularly exclude semiconductor manufacturers from the bidding process because of quality issues even though they appeared to be "equivalents" on paper. The report, unfortunately, did not mention manufacturers or country of origin.

    I wonder if part of the issue is a "melamine" problem, i.e. Manufacturers with loose or unscrupulous manufacturers (China for example) may have skewed the results.

    As I said, I am not a fan of LEDs, this is just a caveat when one interprets the data.

    Hi pragma,

    This is a critical point that is overlooked time and time again. The issue of light "quality" encompasses a wide range of factors beyond the traditional metrics such as the lamp's ability to accurately render colours (i.e., its CRI or colour rendering index), its colour temperature (e.g., "cool", "warm" or "neutral"), its colour appearance (e.g., some CFLs may have a noticeable greenish-yellow tint whereas others might have a somewhat pinkish tone) and so on. For example, as mentioned above, I dislike soft, diffuse light sources so I much prefer the jewel-like and shadow generating effects of a clear incandescent to the light provided by an inside frosted or soft-white. Likewise, if you were to replace the incandescent BR reflectors used in most recessed fixtures with halogen PARs, you would radically improve the appearance of a room, even though both lamps are incandescent sources.


    A wee bit of housing humor for you, via The Housing Bubble Blog:

    “Alex Espinoza Sr., president of Ontario-based California Capital Home Loans…says there are 8,000 homes and condominiums in the two-county area now going for $200,000 or below. Buyers should realize it’s a long-term investment and that California home prices rise an average of 5 percent to 6 percent every year if you hold on to the property for at least 30 years, Espinoza said.”

    “Jim Mulvihill, an urban planning and economic geography expert at Cal State San Bernardino…notes the tax break homeowners receive for owning a home. ‘We’re the only industrialized country that does that,’ he said. ‘We’re going to have that, I think, forever.’”

    “‘In general, in California, property is always going to rise in value,’ Mulvihill said about long-term real-estate values. ‘It’s an investment.’”

    “‘In general, in California, property is always going to rise in value,’ Mulvihill said about long-term real-estate values. ‘It’s an investment.’”

    That's the kind of thinking that got us into this mess to begin with.


    Finally a little news on the local paper website about the wind farm going up around here:


    FPL has been very quiet about what's happening. And the local paper like so many newspapers is under stress since it is owned by Lee Enterprises which is facing bankruptcy due to competition from the internet.

    FPL has been taking down the blades on seven 2.5 megawatt Clipper Turbines nearby our farm. The article explains why.

    The reporter doesn't know about spell check or doesn't care; another sign of stress at the paper. The Forest City Summit has deteriorated since it was sold to Lee Enterprises some years ago.

    The former owner, Ben Carter, was smart to sell when he did.

    What I find shocking is that a major project envolving probably over $360 million is kept so tightly under raps in a rural setting. One would think there would be more local discussion about the implications of the transformation of the countryside that is taking place. But narry a word. The farmers quietly take their money and shut up. It's in the contract they sign with FPL.

    Meanwhile someone who came back after a year would hardly recognize the place for all the turbines.