Drumbeat: March 31, 2009

Russia says Ukraine credit tied to gas

Russian President Dmitry Medvedev said today it would be difficult for Moscow to grant Ukraine financial credits to cover its deficit until the two states resolved their gas dispute.

Russia has said the Ukrainian government, seeking to extend credits to help cover its budget deficit, has asked it to secure a $5 billion loan.

However, the two countries are also locked in a battle over gas supplies.

"Our Ukrainian colleagues ask us to give money. How can we give money if we cannot agree on such a crucial issue," Medvedev told a news conference with German Chancellor Angela Merkel.

GM, Chrysler may be in fast lane to bankruptcy

Executives at General Motors and Chrysler are speeding to put in place workable plans to restore their faltering businesses. But this may be one race they are unlikely to win.

Cnooc to Cut Costs, Boost Oil Output to Survive ‘Severe Winter’

(Bloomberg) -- Cnooc Ltd., China’s biggest offshore energy explorer, will cut costs and boost oil production this year to help cushion a likely slump in profit as the global recession curbs fuel demand.

“In 2009, we continue to feel the pinch of a severe winter,” Chairman Fu Chengyu said in his annual earnings statement yesterday. Profit surged 42 percent to a record 44.4 billion yuan ($6.5 billion) last year, with the bulk of the gains coming in the first half amid record oil prices.

Mexico's Pemex to sell up to 5 bln pesos debt - IFR

MEXICO CITY (Reuters) - Mexico's state oil company Pemex will sell up to 5 billion pesos in three to seven year debt on the local market on Wednesday, IFR, a Thomson Reuters publication, reported.

Duck deaths at Syncrude Canada triple initial tally

CALGARY, Alberta (Reuters) - The death toll among ducks that landed on a toxic waste pond at Syncrude Canada Ltd's oil sands operation last spring was 1,606, more than three times higher than previously made public, Syncrude's chief executive said on Tuesday.

Balkans must cut red tape in power sector-investors

SARAJEVO (Reuters) - Balkan countries need to get rid of red tape to attract more investment in their ailing infrastructure to make their power sector and economies more efficient, an executive of Italian utility Enel said.

Power infrastructure in the region has fallen into disrepair due to a lack of investment over years. Power plants are inefficient and transmission lines are not in a fit condition to absorb new capacities.

Iran to stop diesel imports from April on higher gas

DUBAI - Iran plans to halt diesel imports from next month as it uses rising gas production to generate more power, a top Iranian official said on Tuesday.

The world’s fourth-largest crude exporter had made no allocation for buying diesel in the budget for the calendar year starting on March 21 as Tehran expects new gas output to meet power needs, Ali Asghar Arshi, executive director for international affairs at National Iranian Oil Co (NIOC), told Reuters.

“We will substitute with gas from our network,” Arshi told Reuters. “Because we now have new production from South Pars... and other fields.”

Kuwait Targets 450,000 Barrel-a-Day Heavy Oil Output

(Bloomberg) -- Kuwait plans to pump 450,000 barrels a day of heavy oil by 2020, cutting an earlier target agreed on with Exxon Mobil Corp., as part of a new energy strategy that will be completed this year, Kuwait Oil Co. Chairman Sami al-Rushaid said.

“The heavy oil portion is going to be less,” al-Rushaid told Bloomberg in an interview today in Kuwait City. “Instead of going for the 750,000 barrels we are going for the 450,000 now.”

India, China will increasingly rely on oil imports by 2030

NEW DELHI: India and China will increasingly rely on oil imports by 2030, according to the International Energy Agency (IEA).

According to a China Daily report, China and India are expected to account for over half of incremental energy demand by 2030, the IEA says, adding that China will account for almost 75 per cent of global total oil consumption.

Sinopec Wins Order to Build Oil, Gas Rigs in Kuwait

(Bloomberg) -- China Petroleum & Chemical Corp., the oil company known as Sinopec, won a contract to build five oil and gas rigs in Kuwait, according to the nation’s state crude producer.

“Last year we tendered the biggest tender, probably regionally, for 27 rigs,” Kuwait Oil Co. Chairman Sami al- Rushaid said today in an interview in Kuwait City. The contract with Sinopec will be signed tomorrow, he said.

Exxon eyes big savings on UAE oilfield development

KUWAIT (Reuters) - Exxon Mobil Corp (XOM.N) aims to chop billions of dollars from the cost of increasing output capacity at the world's fourth-largest oilfield in the United Arab Emirates, a senior executive said on Tuesday.

The capacity rise at Upper Zakum accounts for about a third of the UAE's planned boost to total capacity of 3.5 million barrels per day (bpd) in 2018 from around 2.8 million bpd.

Iraq’s faltering oil revenues hurt public services

BAGHDAD - Iraq’s falling oil income will force it to cut spending on basic services that its war-weary citizens crave, such as sewage treatment and power supply, officials say.

The authorities have already cancelled around $600 million in electricity contracts with U.S. company General Electric, French heavy engineering group Alstom, German conglomerate MAN AG and South Korean firm Hyundai, said deputy electricity minister Raad al-Haris.

Norway oil industry checks impact of pipes defect

OSLO (Reuters) - Companies operating oil and gas fields offshore Norway are checking the scope and impact of sub-quality metal components found in pipe fittings, the Norwegian oil industry association (OLF) said on Tuesday.

"The involved operating companies are already working to determine the scope of the problem, and to repair the weaknesses," the OLF said in a statement."The quality discrepancies have not led to incidents on facilities."

Venezuela to Sell 2.7 Billion Bolivars in Local Bonds

(Bloomberg) -- Venezuela will sell 2.68 billion bolivars ($1.2 billion) of bonds in the local market as part of an effort to finance a budget gap that has widened as oil prices tumbled.

Australia: Electricity network upgrades put on hold

ELECTRICITY upgrades that had been planned to prevent power blackouts from spreading across the city were put on hold by the Energy Minister, Ian Macdonald, two years ago.

Power struggle: Colorado’s largest electric co-op split over renewable energy

A coup attempt by radical greenies or a long-overdue transition to a more environmentally balanced, 21st-century energy policy?

Concrete Is Remixed With Environment in Mind

All that concrete may seem the same. And the basic product did remain relatively unchanged since the invention of Portland cement in the early 1800s. (The ancient Romans made concrete, too, but from volcanic ash.) Producers have always tinkered with the mix to find the right proportions of concrete’s basic ingredients, but the recipe never varied much.

Now the experimentation is more elaborate, designed to tailor the concrete to the need. Increasingly, that need includes the environment. Aesthetic considerations aside, concrete is environmentally ugly. The manufacturing of Portland cement is responsible for about 5 percent of human-caused emissions of the greenhouse gas carbon dioxide.

Revenge at sea - How passengers are getting even with cruise lines

We should have seen this coming. In addition to the epidemic of fees and surcharges, cruise lines have more or less had it their way for years. After the fire sales that followed 9/11, cruise prices rose like the tide, and passengers were slammed with more than just onboard fees. Their vacations were often held hostage to illegal, mandatory fuel surcharges that were imposed even after they had paid for their vacation in full.

“Payback is a funny concept,” cruise expert Paul Motter told me, adding that there’s some evidence that passenger discontent has been bubbling up, including a recent class-action lawsuit against Park West Gallery, which offers onboard art auctions, and a $40 million settlement in last year’s fuel-surcharge scandal.

U.S. power use tumbling with recession

NEW YORK/HOUSTON (Reuters) - U.S. electricity demand will continue to shrink in 2009 as the economic meltdown hits industrial power consumption, but a rebound could come in 2010.

Bigger houses, a myriad of electric devices and an expanding economy have kept U.S. power use on a nearly uninterrupted climb for 25 years - until the recession put the brakes on industrial demand in 2008.

Electricity sales to industrial customers are expected to shrink 6.4 percent this year, leading to an expected 1.7 percent drop in overall power consumption in 2009, the U.S. Energy Information Administration said in its most recent outlook.

EIA, which provides data and analysis for the U.S. Department of Energy, said in another report industrial consumers bought 11.4 percent less power in January 2009 compared with the same time last year.

Chavez to seek Arab backing for 'petro-currency'

DOHA, Qatar (AP) -- Venezuelan President Hugo Chavez sought Arab support Tuesday for his idea of a new oil-backed currency to challenge the U.S. dollar at a twin-region summit whose agenda focuses on trade issue but also touches on Arab worries about rival Iran's growing influence in Latin America.

It's highly unlikely Chavez will gain any serious momentum for his "petro-currency" proposals from key oil-producing members of the Arab League such as Saudi Arabia and Gulf states, which have close ties to Washington.

But the summit between Arab and South American leaders kicks off another high-profile foreign trip for Chavez that includes stops in Iran and China in his efforts to build economic and diplomatic links to confront the United States.

Oil May Fall to $28 a Barrel, SocGen Says: Technical Analysis

(Bloomberg) -- Crude oil is set to drop to $28 a barrel in New York in the second quarter, according to technical analysis by Societe Generale SA.

Prices may rally until meeting resistance at $71 a barrel and then plunge to their lowest since 2003, Societe Generale analyst Stephanie Aymes said, using charts that make use of Elliott Wave theory.

“The market can continue to bounce, but in the next month the bear-trend will resume,” Aymes said in a telephone interview from London yesterday. Her prediction that oil will fall to $28 was made in the Paris-based bank’s technical analysis for commodities in the second quarter.

OPEC president eyes $75 oil this year

LUANDA (Reuters) - Oil prices could reach $75 per barrel in 2009 despite a the economic crisis, OPEC president Angola said on Monday, adding that compliance by the 12-member group with the agreed cuts remained at around 80 percent.

Bernstein Says Oil Will Be $50 in 2009, $80 in 2010

(Bloomberg) -- Crude oil is likely to be $50 in 2009 before falling supply causes prices to increase to $80 next year, Sanford C. Bernstein & Co. analysts said.

“The combination of reduced OPEC volumes and non-OPEC production shut-ins and declines will result in a larger than anticipated reduction in global supply,” Bernstein analysts including Ben Dell said in a report today. That “should help to tighten the oil market in late 2009 and early 2010.”

Brace Yourself (and Your Portfolio) for an Oil Price Shock by 2012 Or Sooner (Part 1 of 2)

How ironic that, even as President Obama fights an uphill battle to convince Congress to accelerate alternative energy development despite widening budget deficits, it looks like it’s already too late to avoid a new oil price shock.

Commodities Head for Worst Slump Since 2001 as Demand Shrinks

(Bloomberg) -- Commodities headed for a third quarterly drop, the longest losing streak since 2001, as demand for raw materials from crude oil to nickel shrank and producers failed to cut output fast enough.

The Reuters/Jefferies CRB Index of 19 commodities fell 6.3 percent this quarter, adding to a 50 percent drop in the second half of 2008. Natural gas, nickel and wheat led the declines, overwhelming advances in gasoline, copper and hogs.

Opec stares into the abyss

FACED WITH a depression in oil prices, Opec's strategy has always been to cut production. But the cartel's ability to effect a supply side rescue has, this time, been overwhelmed by the fundamental shifts under way in the global economy. Demand rules the game, and Opec's cards are suddenly very weak.

The end of cheap energy will change us

The fact is, we have three serious problems that are going to bring about radical change in our lifestyles: the current financial crisis, the peaking of world oil production, and the eventual issue of global warming. In earlier columns, I dealt with the causes and ramifications of the global credit crunch, but it is the second issue that worries me far more: the end of cheap energy.

Decisive Action Needed to Address U.S. Oil Dependence, According to Stanford Business School Research

STANFORD, Calif. (AScribe Newswire) -- Reported in this month's Stanford Knowledgebase, Stanford Graduate School of Business researchers examine the strategic, economic, and military implications of U.S. dependence on oil. The longer the delay in taking decisive action, the more difficult it becomes to reverse the nation's dependence, they warn.

In 2007 and 2008, the price of oil skyrocketed, hitting historic highs. The corresponding increase in gas price was felt sharply in the United States by ordinary people, industries, the military and the government. Citizens were spending more and more of their paychecks to fill their gas tanks, airlines grounded planes to avoid the high cost of fuel, and the military saw its daily price tag for the wars in Afghanistan and Iraq increase due to fuel costs. The U.S. military depended almost exclusively on oil to power its weapons and vehicles.

Economists the world over debated whether this sudden price jump was caused by supply and demand dynamics, market "speculation," or the weak dollar. In addition, debate intensified over whether the world was hitting "peak oil," a time when global oil production capacity would plateau.

Beyond the Credit Crunch, An Oil Crunch

In the last few days and weeks a few fringe bloggers and Jeremiahs (myself included) have prognosticated that oil prices are about to surge again, and in the last week we have seen prices breach $50.

Oil prices will rise again in 2009 to last year's record $150 and surpass this record. It may go beyond $200 or even $250 before we see another collapse, in a cycle of convulsions. It is for this reason (severe supply constrictions) that talk of recovery is nonsensical, foolish and shortsighted. A real recovery is impossible. The pretense of a recovery (that is a very short term return to "growth") is possible, but to base our faith and hopes in this is unwise.

After the bird strike

In hindsight, last summer was a moment of “peak leverage,” when the global economy broke apart under unanticipated G-forces like the space shuttle Columbia re-entering the atmosphere. For bloggers and experts and prognosticators, the astonishing events of the last 9 months are a cautionary tale. A large dose of humble pie seems in order. Last summer, as oil touched $145 a barrel, some experts were predicting a super-spike to $200. The F150 lost its place as the most popular “car” in America. Vehicle-miles traveled fell at the steepest rate since World War II. The cost of jet fuel caused air travel to plummet, and articles about “peak oil” were ubiquitous.

Now we find ourselves in a strange new universe of unsustainably low energy prices, where both oil production and credit seem to have peaked. Once-shunned super-bears like Roubini have been elevated to the priesthood. Jon Stewart skewers CNBC’s Jim Cramer. Oil is trading for $40-50 a barrel and drilling rigs are being mothballed at the fastest rate in American history. A simultaneous collapse has occurred in US natural gas prices. Unable to obtain credit, E&P companies are slashing their budgets; drill, baby, drill has given way to chill, baby, chill. In Venezuela and Russia, Chavez and Putin are also being forced to rethink their grandiose plans.

Saudis stop swinging

Saudi Arabia has long been the swing producer within the Organization of the Petroleum Exporting Countries cartel. When crude oil prices have been too low, the Saudis have cut more than their fair share to help increase prices. When oil prices have been too high, Saudi Arabia has filled the gap to help bring prices down. But at OPEC's most recent meeting on March 15, Saudi Arabia appears to have abdicated its role as swing producer, at least for this downturn.

China oil cache boosted in 2008

China found more oil in 2008 than a year earlier, but discoveries of natural gas resources declined, data from the government showed today.

Sinopec considers adding commercial fuel stockpiling

BEIJING (Reuters) - Asia's top refiner, Sinopec , is considering adding four large commercial storage facilities capable of holding a total of 8 million tonnes of refined oil products, to boost its supply capacity.

The volume would equal more than half of China's production of gasoline, diesel and kerosene in February, or meet nearly 10 days of domestic demand at current rates.

CNOOC says deepwater project not affected by oil prices

HONG KONG (Reuters) - China's top offshore oil and gas producer, CNOOC Ltd, said on Tuesday its deepwater project will not be affected by current oil prices.

Tupi Oil Imperiled as Price Decline Undermines Lula Energy Plan

In the wake of the discovery, there was euphoria in Brazil. Citizens literally danced in the streets of Rio de Janeiro at 2008’s Carnival parades to celebrate the find, with one float named “The Black Gold That Comes From the Sea.” President Luiz Inacio Lula da Silva said the flood of oil money would allow the government to attack poverty among Brazil’s 191 million people, 24 percent of whom live on less than $3 a day.

Then the world economy hit a wall, and the price of oil sank to $32 on Dec. 12 from a peak of $147 on July 11. Even though prices have recovered somewhat -- they stood at $48.4 on March 30 -- investors are now wondering whether Tupi will be a bonanza or a case of misguided national celebration.

Work on abandoned refinery projects to resume

A significant drop in construction cost during the economic downturn has forced oil majors in the Gulf to resume the construction of abandoned refinery projects and take up new ones.

Little slowdown seen in offshore pipeline construction

The price of oil may not be where many operators would like, but field development plans still must be carried out, including the laying of pipelines, so operators can bring oil and gas to market.

While the offshore pipeline market has not seen any real growth over the last year, it has not experienced a considerable drop either. That said, many of the fields that are being developed now were approved when the price of oil was higher. However, the offshore construction market in the future may see a downward trend as operators pull the purse strings a bit tighter in these tougher economic times.

US govt wants court to rehear oil royalty dispute

WASHINGTON (Reuters) - The U.S. Justice Department on Monday asked a federal appeals court to rehear a legal decision over oil royalties between the Interior Department and Anadarko Petroleum Corp (APC.N) which, if allowed to stand, could cost the government billions of dollars in lost royalties from oil companies.

Market Analysis: Deepwater, Ultra-Deepwater Newbuilds for 2009 and Beyond

An emerging industry trend, many exploration and development projects have been put on the backburner as companies wait out the current economic downturn. Whether oil and gas companies can't get financing due to the credit crisis or the projects are no longer commercially viable because of the lower price per barrel, the immediate result is the same: some projects are being postponed – or even worse – cancelled.

Gazprom braces for export drop

Russian giant Gazprom expects its gas exports to fall to about 140 billion cubic metres this year, down from last year's 179 Bcm.

OMV sale fuels fears about Russian influence over gas pipelines

OMV, the Austrian energy company, announced the €1.4bn (£1.3bn) sale of its 21 per cent stake in Hungary’s Mol to a Russian oil and gas group yesterday, prompting speculation about Russia’s expanding influence in the Balkans.

Nepal: Crippling fuel crisis across the country

KATHMANDU - The Kathmandu Valley has again been hit by a petroleum shortage due to a strike called by Federation of Petroleum Products Transporters (FPPT) on Sunday.

According to Santosh Basnet, chief of Sajha Petrol Pump in Jawalakhel, the last consignment was delivered to the pump on Friday after which there has not been any inflow of petroleum products. He added that the pump was expecting petroleum products today but had no updates on the delivery so far.

Dutch, Malay venture to build all-electric cars

The four-door vehicle will roll out of Proton's factory by early next year, Lam told The Associated Press in an interview.

The aim is to produce 40,000 units in the first year, ramping up to 270,000 by 2013, he said. The cars will be priced between $23,000 and $33,000, depending on the model and taxation.

Consumers clutch cars longer, choking March sales

According to J.D. Power and Associates, the average age of vehicles traded in at U.S. car dealerships in February was 6.1 years. That's up from 5.6 years a year earlier. That trend is expected to contribute to another month of depressed auto sales when carmakers report their March results on Wednesday.

Consumers are starting to see vehicles as long-term investments, said Trevor Traina, founder and chairman of the car ownership Web site DriverSide.com. Automakers for the most part have stopped offering leases, which allowed people to drive a new vehicle for $200 or $300 a month and repeat the cycle every few years. People are taking better care of their old wheels instead.

FAA: Air travel will fall 7.8% in '09

WASHINGTON (CNN) -- The number of travelers boarding U.S. airliners will plunge 7.8% in 2009, a drop matched only in the year following the 2001 terrorist attacks on New York and Washington, according to a U.S. government forecast out Tuesday.

Council discusses bike-share

Boston City Councilors discussed plans for a new city program at a public hearing Monday night that would potentially provide intra-Boston commuters with a transportation system of shared bike stations throughout the city.

Trucking jobs: No longer a fall back

The U.S. recession has turned a serious shortage of drivers into a surplus virtually overnight. Disappearing credit has hurt production and shipments of goods of all kinds all at once, idling thousands of trucks.

"When I began trucking two years ago you couldn't throw a dime up in the air without hitting a trucking job," said Brian Short, 26. "Those days are gone."

Sustainable energy

Everybody knows that the world is running out of oil. The predicted year of the peak varies from 2000 to 2100, but it is generally conceded that it won’t last forever. Of course, economists know that when you have a scarce resource, it doesn’t just suddenly run out: the price rises, more expensive sources or substitutes come into play, and so forth. So it’s unlikely to run out, but rather get more expensive.

I would argue, however, that for most practical purposes peak oil occured in the 1970s.

Chu believes FutureGen project has merit

A proposal to build a futuristic coal-burning power plant in central Illinois that languished under the Bush Administration has merit, U.S. Energy Secretary Steven Chu said Monday.

Chu wants to work with FutureGen's developers to chart a path forward, said Department of Energy spokeswoman Stephanie Mueller.

Obama signs landmark U.S. conservation bill

WASHINGTON (Reuters) – U.S. President Barack Obama signed sweeping land and water conservation rules into law on Monday, setting aside millions of acres as protected areas and delighting environmentalists.

The measure, a package of more than 160 bills, would designate about 2 million acres -- parks, rivers, streams, desert, forest and trails -- in nine states as new wilderness and render them off limits to oil and gas drilling and other development.

New plan to reduce planes' C02 emissions

GENEVA – Aviation groups in Europe announced a plan Tuesday to change the way commercial planes land in order to reduce their global-warming emissions of carbon dioxide.

By 2013 some 100 European airports will allow planes to descend all the way from cruising altitude to the runway in one smooth glide, saving up to 450 kilograms (992 pounds) of CO2 per landing, the International Air Transport Association said.

EPA head announces new port emissions proposal

NEWARK, N.J. – The head of the Environmental Protection Agency wants to limit emissions along the nation's coastline and within its seaports, just as the agency does along highways, with tougher pollution standards on large commercial ships.

EPA Administrator Lisa Jackson said Monday that the United States and Canada have applied to the International Maritime Organization to create a 230-mile emissions control area around much of their coastline.

Thomas L. Friedman: Mother Nature’s Dow

While I’m convinced that our current financial crisis is the product of both The Market and Mother Nature hitting the wall at once — telling us we need to grow in more sustainable ways — some might ask this: We know when the market hits a wall. It shows up in red numbers on the Dow. But Mother Nature doesn’t have a Dow. What makes you think she’s hitting a wall, too? And even if she is: Who cares? When my 401(k) is collapsing, it’s hard to worry about my sea level rising.

It’s true, Mother Nature doesn’t tell us with one simple number how she’s feeling. But if you follow climate science, what has been striking is how insistently some of the world’s best scientists have been warning — in just the past few months — that climate change is happening faster and will bring bigger changes quicker than we anticipated just a few years ago. Indeed, if Mother Nature had a Dow, you could say that it, too, has been breaking into new (scientific) lows.

Lots of opinions this morning about our proximity to Peak Oil, but here is what the last six years of EIA crude production and average annual crude prices show:

Oil prices rose from $26 in 2002 to $57 in 2005, and crude production rose from about 67 mbpd to 74 mbpd. No surprise here.

Oil prices then rose from $57 in 2005 to $100 in 2008, and crude oil production fell slightly in 2006 and 2007, with 2008 being flat with 2005. A big surprise.

But this is all consistent with what Kenneth Deffeyes predicted–a world conventional crude production peak from 2004 to 2008, most likely in 2005 (although he made an erroneous observation that the world peak was 2000). It is also consistent with what we saw in the Lower 48 and North Sea at about the same stage of depletion--flat to declining crude production in response to lower crude prices. And the initial Lower 48 and North Sea declines, over the first three years, were quite low--an average of about one percent per year, with the decline rate accelerating after that.

IMO, the difference between the world & the Lower 48/North Sea, is that the world is getting some contribution from unconventional sources, which resulted in basically a zero decline rate in 2008, relative to 2005, versus the initial three year average one percent that we saw in the Lower 48/North Sea, but of course then the Lower 48/North Sea decline rates accelerated.

These future price predictions are all over the map.

I don't know where demand is headed, nor do I know for sure where crude production is headed, but my bet is that world crude production will never again exceed 74 mbpd on an average annual basis.

What we do know is that it appears that world crude demand, after falling in 1930, rose throughout the Thirties and oil prices rose from 1931 to 1937.

Reminds me of a truck pulling a broken down car, with
nothing but a chain (rope!?).

The truck must give ample warning on grades, sudden stops
because all the chain can do is pull.

But when the truck takes up the slack, the chain might
break from the sudden weight of the car.

So collapse with production.

Tis why I use tow straps instead. They have some "give." Of course, it's better to use a tow-bar.

Should read: "It is also consistent with what we saw in the Lower 48 and North Sea at about the same stage of depletion--flat to declining crude production in response to higher crude prices."

IMO, the difference between the world & the Lower 48/North Sea, is that the world is getting some contribution from unconventional sources, which resulted in basically a zero decline rate in 2008, relative to 2005.

So, the net energy peak from crude oil could have been in 2005.

The toplink nanotech article makes a good point about peak oil being in the 70s, where they adjusted to a per capita basis. Of course, that's redefining Peak Oil. I like the way they redefine "real sustainability" too:

"Real sustainability requires a path to exponential growth."

It's going to be very difficult to parse out the April Fools' jokes from the news tomorrow.

cfm in Gray, ME

It's going to be very difficult to parse out the April Fools' jokes from the news tomorrow.

That occurred to me too.

Anybody agree with the $28 per barrel oil by quarter 2? I really can't see it happening.

What you can expect is volatility, so 28 a barrel is as possible as is 128 a barrel.

The $28 prediction was based on technical analysis, specifically the Elliot Wave Theory. That is akin to witchcraft. It's a little like trying to predict the market by looking at goat's entrails. I find it hard to believe that a Bank actually employs a technical analyst, especially one that uses the Elliot Wave Theory. That is basically a theory that looks at ups and downs of the past and then extrapolates those ups and downs into the future. In other words it is a theory that waves in the future will look like waves of the past.

Well, it's actually a little more complicated than that. The theory is that there are, at any one time, several waves going on in the market. Kind of like frequencies beating together. Then they superimpose all waves on top of each other and make a prediction based on the resulting frequency or wave.

Ron P.

Strikes me like applying a Fast Fourier Transform to pi. You'll find something.

For real money, unleveraged investment in positions that are calculated from fundamentals to be strong would seem to be the way to go. Less upside potential, but limited downside potential as well.

"For real money, unleveraged investment in positions that are calculated from fundamentals to be strong would seem to be the way to go. Less upside potential, but limited downside potential as well."

The only way. Never meet a margin call. Never put yourself
in a position to get one.

"AIG CEO Liddy Said He Didn't See Anything Illegal in Cassano's Actions"


Arrest both now.

And we haven't even gotten to insurance fraud yet.

Denningers take on it ....


The theory is that there are, at any one time, several waves going on in the market. Kind of like frequencies beating together. Then they superimpose all waves on top of each other and make a prediction based on the resulting frequency or wave.

This is exactly what I attempted to do in grad school, summating the Milankovitch cycles, modeled first as sine waves and then again as terms of a Taylor series, to see where they potentiate & where they cancel one another, in order to predict effects on climate & potentially to predict mass extinction episodes. The difference is that nothing short of some gravitational influence is going to change orbital dynamics whereas any number of unknown & unknowable in advance social/political/ economic factors may well disrupt oil price changes.

LOL might as well throw in my two cents. With my interest in complexity I have a keen interest in the markets.

What I found was that declining markets acted as focal points if you will. Once a market is in decline people with investments focus on the market and small moves can be amplified rapidly. The system becomes chaotic in decline.

What this does is wipe out a lot of the information if you will thats in the market regardless of why people entered the market anyone long is simply worried about losing money. Anyone short is excited about making money. So falling markets have nothing to do in general with the underlying good thats being marketed and are transformed int a pure and highly sensitive money market. The role fundamentals play in a falling market is to eventually set a floor price when enough player believe that the underlying good is significantly undervalued. Eventually you get small rises and if indeed the floor is correct and the good was undervalued you get a rising market that then turn quickly into your traditional speculative market but what important on the rising side is that fear has now moved to the shorts not the longs.

Given that we are naturally optimistic and have had a growth society for decades the markets themselves are generally naturally weighted to support rising markets. Mechanisms to short a market are generally reserved for experts while anyone is allowed to enter a rising market.
Lambs for slaughter if you will since they provide the needed liquidity that will be fleeced later.

Whats important is that little information survives a falling market it cleans the slate resets the clocks changes the paradim etc etc. In fact falling markets are a signal that previous assumptions held by the majority of the market participants in the rising market are no false. Thus they really work to introduce doubt and introspection into the market.
They force most of the participant to evaluate their positions and determine if the logic they used to enter the market is valid.

And last but not least falling markets are heavily influenced by any number of short term events both internal technical moves and external data. As a market falls the participants are seeking information to bolster the model any data available immediately is heavily weighted older information that can be valid is discounted. The time horizon of the market in a sense contracts to weeks, days, or minutes. This of course leads to many micro peak and valleys in prices as the market effectively moves randomly until a consensus is reached.

No methods known to man can predict through a falling market its impossible by its nature to predict when a falling market bottoms out then later falls or rises. Its by its nature indeterministic.

Now in such a market if you really believe that the good is undervalued you want to go long but since timing is difficult assuming a futures market exits you have to go long well out in time you can't easily go long in the short term or you can day trade betting on average that the bottom is heading upwards. This leads to steep contango that actually works to depress short term prices if your dealing with a commodity. Oil is in the funny situation that so many people are still long betting on price increases that oil is worth hoarding on the short term depressing short term prices.

What I find thats really funny about the oil market is everyone blames speculators for the rise in prices but my own research indicates that real speculators are most active in falling markets since this is where the pros and technical analysis takes control and fundamentals are thrown out of the window. Right now the oil market is almost purely speculative with a large group of fundamental players camped out on the long end of the futures curve and calling BS on the current price.

The same is of course true for the stock market and its also a pure technical charade.

My fried in the markets claims now that fundamental analysis is rubbish yet my own fundamental approach says that fundamentals say that the markets are now purely technical money speculation markets and no longer controlled by fundamentals. So there :)

With that said I have no problem trying to guess when fundamentals will reassert.
One of my fundamental assertions was that demand will effectively flatten so far this seems to have held with the decline rate approaching zero or maybe even positive. Demand should continue to remain fairly steady with slow moves off of zero.

The next fundamental assertion is that the market will pay attention to fundamentals once the large hoard of stored oil is drained and storage levels return to the five year range.
I made a big mistake assuming that storage would not go over the five year range and was burned hard by this. I'm a bit surprised we even have the physical storage capacity claimed with the current levels. Many of these tanks have not been filled in ten years or for some reason storage was expanded over the last several years. Generally I had accepted WT assertion that the system was naturally moving to a more just in time delivery to minimize costs however given that ample storage was sitting empty and that we filled it at the first opportunity it seems that the move to just in time was not by choice but forced.

Whats funny for for those that argue that the price increases where purely speculative we can point to the fact that the first chance the oil industry had to actually get excess oil they filled every tank and bucket they could find with oil. Why on earth did they not do this in 2007 or 2006 when oil prices where rising strongly ?
They did not actually have the oil is the answer. Given that the current contango is much lower and less profitable vs what we have seen this must be the answer they simply did not have the physical oil needed to profit from the contango.

Everyone seems to know that this hoard of oil is a one shot event at least thats what the market says and its in my opinion primed waiting to see when the hoard is drained once its obvious that the current excess storage is being drained down and not replaced then I think the oil market will reawaken and restart price discovery using fundamentals.

If your intrested in playing the oil markets based on fundamentals you should do what the market is doing now and go long way out in time and if you have a decent profit you should take it periodically. What this probably means if you have enough money is you have to set up a ladder of futures contracts several years out and roll forward profits from the front to the back quite similar to a CD ladder many people use for savings.

The problem right now is that the oil futures markets are stuffed with people playing this game and they are not moving their positions that much so its stalled out across the futures curve.

Agreed. Seems like the way to play it is to load up on the Dec. 2011, 2012, and 2013 100 and 120 calls. That gives a person 36 - 60 months to let the supply demand situation rectify. My thought is that if by then demand growth has not resumed we are probably so screwed (globally that is) that losing money on a long term options trade will be the least of my worries. It will be interesting to see how long the short term decrease in demand can mask the inexorable decline rates in conventional oil production.

The key is to not get greedy if your 2011 are in the money at a good return sell and buy 2014's.

Sure you can get lucky at get a bit hit like we got in 2008 but also recognize that the system is highly unstable and your pretty much going to be forced to hold losing ones until they have little value.

I messed up on some 2010's but I still have no choice but to ride them down 18 months or so is a long time from now and they could be in the money. But once you place these bets you have to both right them off to zero and not get greedy.

Next consider other issues and be alert the open oil markets will probably be shut down at some point in the fairly near future and oil bought and sold by a national entity good chance the futures market will get screwed on this.

Next at some point Americans will swallow their pride and start car pooling I figure this is good for at least on more bit 5% reduction in usage. Right now I estimate that this will happen when oil hits the 300-400 price range. At that point carpooling even with strangers will become acceptable. So you have a chance for another pullback that could be substantial in that price range as cars are finally shared.

And also at some point congestion will drop off this should substantially increase the fuel economy of the remaining cars that are driving. As traffic jams lesson oil usage will go down. And although most people talk about fuel efficient cars and expensive electric car the realistic solution thats ignored are motorcycles. A large portion of the population is physically capable of riding a motorcycle and as they become more common drivers will become more alert. A migration to motorcycles could easily give us another 5% reduction in fuel usage.

So overall the US has two easy to implement and cheap ways to further reduce fuel usage by 10% or so. Now I don't think these will make prices drop significantly but they could readily slow the rise in oil prices for a year or two.

After that other solutions like electric cars and public transport either can't be phased in fast enough or in the case of electric cars no longer have enough people able to buy them that they simply can't cause a big enough change over a short enough time period to impact oil prices. They will keep certain lifestyles some with changes viable but and start leveling demand but I can't see them have a big impact on price.

And last but not least on of the key factors that I think will make America fairly resilient to rising oil prices is our massively overvalued housing stock. Home prices need to fall a further 30% in most of the US to match the old 3X income rule. This is just to return to sanity and additional 25% fall is quite possible because of growing unemployment. But for oil and food purchases this provides a really good buffer to cash flow since rent and mortgage payments are generally peoples largest expense often up to 50% of income now.
As housing costs are reduced people have plenty of money to spend on necessities.
Assuming housing continues to fall at 10-20% per year esp if oil prices start increasing we should see falling home prices provide more cash flow then rising oil prices are taking away. For people that buy over the coming years they will go underwater substantially within one year then for many they will walk away but this gives them six months or more free rent.
Expect over the next few years that the time between when someone stops making payments to when they are actually evicted to increase to 9-12 months. If your already in bad financial shape free housing for 12 months will help a lot. At some point however say after houses have fallen in price by 75% - 90% further price reductions simply no longer free up that much cash to make a difference and cash flow will finally dwindle.

On the wage front I'd be surprised if we see wages fall more than 20% over the next 2-3 years. And to clarify this is for those with jobs not people working under the table or have fallen through the cracks. These people will probably be working often for less than minimum wage.

But you can see that some cultural shifts could happen and also as we continue to convert the equity thats built up in our houses into immediate cash flow via declining values we can for some time cover rising oil and food costs.

What I find fascinating is that home equity acts exactly like equities or stocks in companies its exactly the same type of investment. If sentiment turns against stocks stock value drop to zero and current cash flows no longer go through stocks. Housing equity works exactly like any other joint stock company.

But realize that the real problems are not the above thats just unwinding of the leverage we built up over 50 years. It does allow us in general to last a lot longer than most people realize but underneath this I expect us to see a persistent unemployment rate of 15% for the next several years and a growing class of what I call true poor. These are people that actually studied in high school are articulate don't have any obvious social problems and simply can't find a job. These people will be increasingly disgruntled and of course I expect at some point for welfare benefits to be reduced and real true poverty thats not been seen in most of the US for at least 30 years to resurface. This torn social fabric is what you have to watch out for not the price of oil.

Interesting posts memmel. How do you figure the 5% drops for carpooling and motorcycle usage? Hey, maybe the big three will start producing motorcycles.

Yeah, I get the the feeling that home and property "values" will drop to well below the beginning of the housing bubble that started in 1998, inflation based. Torn social fabrics tend to unite people as well as create chaos. Any thoughts on what we might see stemming from that? Also cars will be repo'd sooner than houses, so what will be the net result of that? A car buyers market?

Yes. Even though there is no possibility of a margin call with call options, timing remains critical. If crude gets anywhere near $300, these calls will have been closed out. I am also concerned that if there is a material price spike over July '08s previous highs: (i) the NYMEX pit will blow up and there will not be anyone to answer the phones and take the other side of the trade; or (ii) the gov't will put an end to the crude futures market.

"The $28 prediction was based on technical analysis, specifically the Elliot Wave Theory. That is akin to witchcraft."

Which is how Mandelbrot invented software that could
create "curved lines" and fractals.

Stalin killed Kondratieff for his "witchcraft".

I'll side with Kondratieff. ;}

So they were right because they were called witches? They all laughed at Einstein, but they also laughed at Bozo The Clown.

The problem with Elliot wave theory is that any movement could be a small wave or the start of a larger cycle. You really can't tell until it develops, and therefore can't necessarily project very well. There is a lot of guesswork involved. For that reason, I think it is a great tool for describing the past and examining reactions in dynamic systems.

All I can say with confidence about technical indicators (like Elliot Wave) is that they do have a very real effect on prices to the extent that they impact market participants' beliefs about whether they should buy or sell.

Beyond that, who knows. Emergence is a key natural phenomenon that we simply don't understand or have adequate scientific theories to explain. Anyone who "knows" that technical indicators have more meaning than their impact on market psychology, or who "knows" that they're bunk is taking a faith-based position, in my opinion...

I have a hard time seeing technical analysis for stocks being all that different than card counting in blackjack.

Not sure I get that.

Card counting actually works. It is based on solid math (probability theory) and you can effectively get a real edge in Black Jack turning the odds in your favor.

I don't think there's any real math / evidence that technical analysis works at all.

Card counting in black jack with a single deck and all, or almost all, of the deck delt prior to a shuffle will give an advantage to the counter.

Card counting in a casino using six deck shoes, most common now, dealing two or three hands prior to a reshuffle does not work.

In a past life I was going to be a professional gambler! I was programming all sorts of odds on my early IBM PC. I dealt BJ at the Circus-Circus from '87 to '89 and it was a lot of fun. I was also practicing my card counting eight hours a day. There were three or four of us dealers that were the best card counters in the area for that time period.

In the early days of card counting (mid 70s), the counter could bet from $2 to $100 as the deck got more positive for about 10% favored odds but soon the casino's figured out how counting worked and the dealer was told to re-shuffle if anyone at the table changed bet by more than about 5:1 ($5 -> $25).

By the time I got into it, with a bet ratio of 1:4 or 1:5 the odds for the counter were less than 1/2 of 1%. We were all dealers so we tipped more than that. I kept track for a couple hundred hours of play and I earned ~$8/hr which is what I made at the Circus dealing. Really not worth the trouble. Tournament play was a money maker then because the tourists did not know how to play or bet. But now there are so many retired counters in the tournaments it is a fun draw.

I play occasionally now and it is about a break even deal. At that, the typical visitor here will lose 15% average because they don't know how to play this simple game.

Q: When do you split nines on first deal of a new deck? A: If the dealer has any card up except a ten or a seven.

BTW: The six deck shoe is prime target for team play but the casinos know that and the dealer will shuffle up if they suspect it. Also, security may want to talk to you down in the basement.

What you may be missing that if a lot of people "believe" in technical analysis it becomes self-fulfulling to a certain extend. And to be fair, the underlying notion that all known information is in the price at any given moment, seems reasonable.

I think you are way too dismissive of Elliot Wave Theory. Look, the sun came up yesterday, and the day before, and the day before, etc. Therefore it will come up tomorrow. Similarly, I was breathing yesterday, the day before, etc. and I will therefore be breathing tomorrow. What's to argue?

I wouldn't put much stock in the Elliot Wave Theory either because it is self defeating. It predicts human behavior, but if people are aware of that behavior they will try to play it correctly so that they can benefit. If enough people do this then the wave behavior is altered. It may have had some credence if nobody had found out about it.

Hmmm... by your logic Chaos Theory doesn't exist.

Don't tell Mandelbrot.


Nope, just that the first rule of psychohistory is you don't talk about psychohistory.

I think you are way too dismissive of Elliot Wave Theory. Look, the sun came up yesterday, and the day before, and the day before, etc. Therefore it will come up tomorrow. Similarly, I was breathing yesterday, the day before, etc. and I will therefore be breathing tomorrow. What's to argue?

I am to argue! The Elliot Wave Theory is just like all other technical analysis, it just doesn't work. It is an attempt to divine future patterns in the market by looking at past patterns. Back test is what technicians say, back test. If you had played this pattern in the past then you would have made millions, so play the same pattern in the future and you will make millions. Wrong! You will go broke. It has been tried again and again and again, it simply does not work. There is no rhythm in the market, only fundamentals matter.

There are no rich technical analyst in the market. All those who have gotten rich in the market have been fundamentalists like Warren Buffett. Technical analysis simply does not work.

Dismissive, hell I am extremely dismissive of such stupidity that has made paupers of many a wealthy man.

Ron P.

I disagree, technical analysis did make some people rich!

Namely the brokers, who benefit greatly from the transaction costs they are pocketing. Technical traders tend to make many more short term trades, putting more money in the pockets of the brokers.

So technical analysis most definitely works (if you are a broker).

It is really a beatiful scheme (for the brokers), because people are so prone to seeing patterns in random/chaotic movements, that they really want to believe that it actually works!

Dismissive, hell I am extremely dismissive of such stupidity that has made paupers of many a wealthy man.

I am for anything that makes the wealthy paupers...especially if it increases the velocity of money. Now if I could just set up a fish trap in the river of money.

I'm afraid it doesn't make the wealthy into paupers.

I think it rather enables the wealthy to more effectively skim of the top of the investment of small investors.

It's the wealthy who own and control those fish traps that you speak off.

There are no rich technical analyst[s] in the market.

Of course there are! And they all got rich not through their investments, or investing for you, but by collecting trader's fees from other people thinking they've found the magic marker, the great secret. Don't you know that the oldest business in the world is: Pssst! I have the secret. Pay me and I'll give it to you. This has worked well for all the priests and con artists, I mean business men, of history.

I disagree the only way to time markets is via technical analysis fundamental analysis because of its very nature is incapable of telling when say oil will go to 200 a barrel. Realistically it gives a 2-3 year spread on when and even will happen. If your a real trader technicals are pretty much the only way to tell time in the market. Fundamentals can really only tell you to go long and wait or go short and wait you have little choice but to position far out into the future set up and wait. The entire time other investment opportunities are bypassed.
You can of course make money this way but its illiquid and you could wait for years only to find that some event blows out your position at the last minute.

Certainly its one investment strategy to take and if you have enough money and patience it makes money but its not the only investment strategy and anything that goes shorter has to be based on technical analysis. Even something as simple as buying oil because of a bullish weekly report is not really fundamentals but technicals your buying because you think other people will think its bullish not that a weekly report with a lot of error as any bearing on the overall oil market. Basically any "fundamental" approach for oil based on timing less than 2 years is really just a form of technical analysis playing sentiment. Pure technical analysis is simply using past market moves to gauge the current sentiment of the market.
What you use to try and figure out what the market is thinking does not really matter its still technical what matters is your concern is what the market thinks about the oil supply not what long term fundamentals say.

Right now I'd suggest that outside of a few outliers most people agree that the current oil prices are simply not sustainable long term. To many future production projects need higher prices. But this says nothing about how long the market will choose to weigh other factors. Outside of the current high storage levels most of the factors effecting the market are pure sentiment and have nothing to do with the future.

I disagree the only way to time markets is via technical analysis fundamental analysis because of its very nature is incapable of telling when say oil will go to 200 a barrel.

I am not sure what you are disagreeing to. As far as I know there is no such thing as: technical analysis fundamental analysis". There is only one or the other. I think you meant one or the other but I am not sure which one.

Ron P.

I guess I should have put a smiley or two in there.

Taleb's turkey thought the same thing through mid November.

May--not will. The Sun may come up tomorrow, if everything remains the same as it was in the past, but if there is a pole shift, for example, the Sun will neither go down, nor rise, at least for a few days...And as for you, well, tomorrow you may not be breathing at all.

We have to assume that the future will be like the past in order to make any predictions--or, for that matter, plans. But we also need to allow for exceptions and changes in the environment. Natural processes and most especially any processes managed by irrational humans are always subject to contingencies--accidents, changes, chaotic events.

My guess would be that anyone who invests using any theory based on the future being like the past is going to win some of the time, and then lose big time. Just like a casino. Hey, just play hunches, feelings, lucky rabbit feet, whatever, and you'll be just as lucky--or unlucky.

Humans are habitual creatures. They get up about the same time. They watch or read the same news. They make decisions about investing based on the info and their feeling. Whether you use a fairly simple mathematical model to predict those behaviours or a complex one using a larger data source, the reality is that humans in a group are more predicable than individuals. That why TBTB use the MM to influence their behavoir especially regarding the markets. I'm certainly no expert and I am not part of any think tank but if I had that capability I would use it to my advantage. There will always be uncertainty but that can be factored in. A good model will work more often than not and thats all the house needs to win.

Even given a pole shift the sun will rise and set. Angular momentum for a body the size of Earth is incredible.

Of course, you'll be wanting to wear a lead fedora if you need to go outside for a while while the magnetic field is weak.

if there is a pole shift, for example, the Sun will neither go down, nor rise, at least for a few days

I'm curious as to where you get your info. Pole shifts are changes in the magnetic field, not a physical stoppage of Earth.


I dunno ... I am an oil bear but I can't see that low a price.

I am still seeing - $1.85 gas which is dirt cheap. Gas @ $2.25 should take traffic off the road and get the price down to $1,85 again. Consumption in the face of all the unemployment can't expand by much; 2008 @ 6 pct. unemployment as opposed to 8 pct. now and unnofficial unemployment much higher.

Wait 'til GM and Chrysler go Chpt. 7 next month, you might see 1 million unemployed per month through the summer.

As referred to above that's the EIA Annual Energy Outlook 2009 (with projections to 2030) out now. Time to go download it.

Maybe they just forgot to release it on Friday :-)

Here's the three case supply summary

Click for larger image

And here's US oil production

Why do they label the columns as though the "low" versus "high" oil prices are the driving factor? Note though at least the high price goes with low production and low price goes with high production, so economists didn't write the chart this time!

Realistically, what is the probability that the reference case can be maintained? Isn't even the low production target on the optimistic side?

If we had maintained the 2002 to 2005 rate of increase in production from 2005 to 2008, we would have produced about 82 mbpd (C+C) in 2008, versus the 74 mbpd (more accurately, 73.8, subject to revision) that we actually saw.

That increase (to 2005) was simply opec fully opening the taps.

We have to appreciate that the system's response to higher price is quite slow, new projects typically take six years following the decision to do it, and such a decision is not made until companies are convinced that higher price will be stable for at least six years... IMO part of the restraint on growth is price uncertainty, and the latest price crash is bound to cause new uncertainty among both companies and states. Investors large and small will nowadays be reluctant to invest in any project that requires $80 oil.

It was certainly a big factor, in much the same way that the Texas RRC allowed Texas production to increase from about 2.5 mbpd in 1962 to 3.5 mbpd in 1972, and the decline in Texas production from 3.5 mbpd in 1972 to 2.5 mbpd in 1982 was a big contributor to the overall Lower 48 decline.

As we noted in early 2006, Saudi Arabia in 2005 was at about the same stage of depletion at which Texas peaked in 1972, and the world in 2005 (supporting Deffeyes' work) was at about the same stage of depletion at which the overall Lower 48 peaked in 1970.

And as noted above, we have recently seen the same kind of production response to higher prices that we saw in the Lower 48 in the Seventies and the North Sea following their peak in 1999, i.e., higher crude oil prices = lower crude oil production.

The question I keep asking is why has the industry refused to use the magical mystery technology--that reverses production declines and brings production back to peak levels--in Texas and the North Sea?

Inquiring minds want to know. BTW, the price of oil increased at +20%/year from 1998 to 2005. A pretty good price signal.

These really are some pretty amazing numbers.


Price of oil (WTI) in 1962, about $3, Texas production, about 2.5 mbpd.

Price of oil in 1972, about $3.5 (up at about +1.6%/year), Texas production, about 3.5 mbpd (up at about +3.4%/year).

Price of oil in 1982, about $32 (up at about +22%/year), Texas production, about 2.5 mbpd (down at about -3.4%/year).

North Sea:

Price of oil (Brent) in 1990, about $24, North Sea production, about 3.6 mbpd.

Price of oil in 1999, about $18 (down at about -3.2%/year), North Sea production, about 5.9 mbpd (up at about +5.5%/year).

Price of oil in 2008, about $97 (up at about +19%/year), North Sea production, about 3.9 mbpd (down at about -4.6%/year).

Summary for the Time Periods Shown

The average rate of decline in oil prices, pre-peak for our two case histories, about -0.8%/year, the average rate of increase in production, about +4.5%/year.

The average rate of increase in oil prices post-peak for our two case histories, about +21%/year, the average rate of decline in production, about -4%/year.

Two regions, developed by private companies, using the best available technology.

Which is not to say that we stop finding oil post-peak. We tend to have problems offsetting the declines from the old, large oil fields--kind of like the problems today trying to offset the declines from fields like North Ghawar & Cantarell.

If you believe in near term Peak Oil then everything about public EIA future projections is fantasy. That's the thing - officially we're a bunch of loonies remember ;-)

Is that US chart upside down? It looks like a Hubbert's Valley.

Welcome to the EIA "We don't let no 30 year trend get in our way" forecasting.

The long-term decline in total U.S. crude production
has slowed over the past few years, as higher world oil
prices have spurred drilling. In the projections, total
U.S. domestic crude oil production, which has been
falling for many years, begins to increase in 2009.
Most of the near-term increase is from the deepwater
offshore. Growth is limited after 2010, however, because
newer discoveries are smaller, and capital expenditures
rise as development moves into deeper
A number of deepwater discoveries in the Gulf of
Mexico have begun to ramp up production recently or
are expected to begin production by the end of 2009.
The largest include Shenzi, Atlantis, Blind Faith, and
Thunder Horse. Expiration of the Congressional moratoria
on the Eastern Gulf of Mexico, Atlantic, and
Pacific regions of the OCS also allow crude oil production
to increase in the Atlantic and Pacific OCS after
2014 and in the Eastern Gulf of Mexico OCS after
2025. Total offshore production increases at an average
annual rate of 2.8 percent, from 1.4 million barrels
per day in 2007 to 2.7 million barrels per day in
U.S. onshore crude oil production also increases
throughout the projection, primarily as a result of
increased application of CO2-enhanced oil recovery
techniques, exploitation of oil from the Bakken shale
formation [98], and the startup of liquids production
from oil shale, which is supported by favorable world
oil prices and continued advances in oil shale extraction
technology. Total onshore production of crude oil
increases from 2.9 million barrels per day in 2007 to
4.1 million barrels per day in 2030 (Figure 70).

No mention of EROI anywhere. Keep at it guys! We know you will figure out this forecasting stuff around 2030! We have faith in you!

A number of deepwater discoveries in the Gulf of Mexico have begun to ramp up production recently or are expected to begin production by the end of 2009. The largest include Shenzi, Atlantis, Blind Faith, and Thunder Horse.

All these platforms came on line late last year and are now in full production except Shenzi. Shenzi just came on line this month. The three are responsible for the US's rise in production from just under 5 million barrels per day to 5.43 mb/d. (Last weeks production number.) Shanzi is supposed to add another 100,000 bp/d.

Ron P.

New deepwater US Gulf of Mexico oil production should help. The US "Hubbert Valley" is shown in more detail from the EIA AEO.

Note the huge increase in Deepwater offshore (green line) which is assumed to be mainly Gulf of Mexico. The EIA forecasts this production to be about 2 mbd from 2010 to 2030. My forecast below indicates Gulf of Mexico shallow and deepwater production to be only 0.2 mbd.

click to enlarge

From my Gulf of Mexico story http://www.theoildrum.com/node/5081 the EIA proved oil reserves for Gulf of Mexico at Dec 2007 was 3.5 billion barrels (Gb). Allowing for probable reserves, the remaining recoverable oil as at Oct 2008 is estimated to be 6.6 Gb, excluding the Jack discovery which is still being assessed for development.

The EIA says 2 mbd deepwater from 2010 to 2030. This is equivalent to 14.6 Gb which means that the EIA is assuming lots of undiscovered oil from Gulf of Mexico as well as Atlantic and Pacific deepwater to become future production. I'm skeptical.

The US Gulf of Mexico projects are significant but I think that they are sufficient to increase Gulf of Mexico production only in the short term. These projects should ensure that the entire US crude oil production increases by about 0.2 mbd from 2008 to 2009, assuming no hurricane interruptions. However, 2010 production should decrease and be about the same as in 2008.

It seems to me that the real purpose of the EIA AEO 2009 is to create the illusion of plentiful future world oil supplies in order to keep oil prices low for as long as possible through this global recession. This could be a catastrophic policy decision as low oil prices discourage oil investment, potentially causing the next oil price spike to be higher than the 2008 price spike.

Hello Ace,WT,Darwinian, and other TODers,

Thxs for your analyzes of this EIA release: I agree it is a pretty ugly piece of work which I attribute much to internal and external politics [which must be gradually tearing this org up over time]. Recall my earlier Maalox postings.

I am disappointed 0bama hasn't ordered the EIA to break up its top-level analysts into two writing camps: doomers vs techno-cornucopians. Let the statisticians continue to collect the data, but order two published versions of the analyzed results and forecasts --then let the public and markets decide who is doing a better forecasting job.

The US "Hubbert Valley" is shown in more detail from the EIA AEO.

Note the very slight token downturn they show right at the end about 2030 - there's no chance in hell they could predict that this far out but yet someone put it in - That's what we in the UK would call "Taking the Piss"

It is bizarre. I wonder what their justification is for predicting US oil production will increase after decades of decline.

hahaha -- Oopps april fool time already?

Actually, the EIA is showing a recent increase in oil production, apparently due to deep offshore. For the week ending 3/20/2009, they are showing production of 5,432,000 bpd (See weekly production numbers. This compares to amounts prior to the hurricanes that were averaging about 5,100,000 bpd, and similar amounts in December.

It seems like we could get a little uptick in Gulf of Mexico production this year, at least based on the data so far. I haven't studied future prospects the way "ace" has. We will want to watch this.

If you believe in near term Peak Oil then everything about public EIA future projections is fantasy.

Believe ? I thought PO was a study.

One can "believe" as in having a strong religious faith or one may "believe" as in accepting the evidence as factual or true. It might have been better if he had said, "If you accept the evidence for near term Peak Oil.." He could also have meant he believes in a religious sense as if he has faith in the metaphysical evidence presented by the PO literature/dogma. English is a bitch. Meaning is often best found in the context. In this case I'm pretty sure Undertow accepts the evidence for near term PO if I read his inflections correctly ;-)

It's crazy but the EIA is treating price as a driving factor.

Have a look at this table for the low oil price scenario.
Table 21 of http://www.eia.doe.gov/oiaf/aeo/aeolowprice.html

The EIA oil price in 2008 was $99, OPEC produced 35.1 mbd. In 2009, the price falls to $61 and OPEC is forecast to produce 34.9 mbd. In 2010, price falls further to $59 and OPEC produces more at 35.3 mbd, even though Saudi Arabia says a price of $75 is desirable.

For the low oil price scenario, the EIA assumes that lower oil prices will increase demand and suppliers will produce more. The EIA even has Brazil producing 2.7 mbd in 2013 when oil prices are forecast to be $52. As most of this production would be deepwater, Petrobras would be losing lots of money as deepwater requires about $70 to be profitable.

Now have a look at the table for the high oil price scenario.
Table 21 of http://www.eia.doe.gov/oiaf/aeo/aeohighprice.html

Price increases, demand decreases so supply drops. Normally high prices stimulate supply but not according to the EIA forecasting world. In 2010 the price is $91 and OPEC produces 32.8 mbd which is less than the 35.3 mbd in low price scenario.

One observation about the EIA forecast is that the years up to 2015 are treated very differently to the years from 2016 to 2030. Once again, using the high price scenario, the EIA shows a peak total production, including unconventional, of 86.28 mbd in 2009. Total production is forecast to decline to 80.42 mbd in 2015, followed by a sudden increase based upon some kind of magic, perhaps undiscovered technology applied to yet to be found oil fields accompanied by trillions of dollars of investment.

The EIA's forecast to 2015 will probably be about 2 mbd/year higher than my forecast from 2011 and beyond as shown by this chart http://www.theoildrum.com/files/price20090316.gif
from http://www.theoildrum.com/node/5177

The EIA does not seem to have adjusted their forecast for the recent credit crisis. The chart above shows 2009 production higher than 2008 and 2010 lower than 2009. It is probable that 2009 will be lower than 2008 and 2010 could be higher than 2009.

There are also internal differences in EIA's actual world liquids production for 2008. The high price scenario says 86.02 mbd, yet the EIA STEO says 85.46 mbd.

Furthermore, the EIA STEO is forecasting 83.53 mbd for 2009 which is almost 3 mbd less than the high price scenario of 86.28 mbd. It seems that the EIA AEO 2009 data might have been finalised back in 2008.

It seems that the EIA AEO 2009 data might have been finalised back in 2008.

Same can be seen for natural gas where the projected price is already way off.

I would like to think (unrealistically I know) the publication delay was caused by the sudden realisation within the EIA: "Are we really going to put our names to this piece of shit?" All you EIA folks out there, who statistically must read this, - yes that means YOU. Enjoy being part of an organisation famous for its bullshit?

But just knuckle under like you did - withdraw the objections and take the pay cheques. Let the anger be directed at the bankers (for now; it will get to you later, but sooner than you think when it's time to shift blame) you, truth be told, misled.

Or answer the criticisms here. Show us we're as wrong as you imply. If you don't believe your own report - then simply RESIGN.


Signed: A Peak Oil Loony

And Nat Gas

And coal

Party on Dudes!

Oh, yes and here's CO2 emissions

Yep they carry on rising. Maybe not party on dudes then...

Just to make it clear I believe that anybody who criticises climate projections for not taking Peak Fossil Fuels sufficiently into account should go take a long hard look at these charts and similar from the IEA then redirect their criticisms to the appropriate bodies.

Looking at those data projections for CO2, we see just how difficult it's going to be to actually do something about Climate Change. Just now, there's a story on the WSJ which describes the new bill in the U.S. House regarding CO2 reductions.

House Climate Bill Leaves Open Key Details (behind pay wall??)

the American Clean Energy and Security Act

House Energy and Commerce Committee Chairman Henry Waxman unveiled a draft climate bill Tuesday that calls for a 20% reduction in U.S. greenhouse-gas emissions by 2020, but leaves many critical details open for negotiation.
Mr. Waxman's draft also includes: A proposal to require that utilities get 6% of their power from renewable sources by 2012, and up to 25% by 2025; a new performance standard for coal-fired power plants that cuts carbon-dioxide emissions by 50% by 2015 and 65% by 2020; new energy-efficiency standards designed to produce up to 15% in electricity savings and 20% in natural-gas savings by 2020; a low-carbon fuel standard designed to drive development of electric vehicles and biofuels; a $10 billion utility charge to fund projects that capture and store carbon-dioxide emissions, keeping them out of the atmosphere; a mandate for a 30% increase in building efficiency for new buildings by 2012 and a 50% increase by 2016.

It's a good thing (for them) that they left out the details about how this is to happen...

E. Swanson

I think it's quite likely that we will see a 20% or greater reduction in US greenhouse gas emissions by 2020. Not because of any cap-&-trade scheme the Obama admin comes up with, of course, but because the US economy will have been in interminable depression for years by then. Even given such a scenario I wouldn't expect that cumulative greenhouse gas levels would be in decline. Positive feedbacks have already been triggered that will ensure that high heat capacity gasses continue to accumulate in the atmosphere & surface ocean even given such a reduction in emissions. The biosphere is rapidly losing its ability to take up & sequester carbon. The decline in global primary productivity, thawing of permafrost, forest fires, CH4 releases from clathrates, etc., ensure that the non-anthropogenic component of the biosphere becomes a net contributor of oxidized carbon & other greenhouse gasses; i.e., becomes a pollution source rather than a sink.

the non-anthropogenic component of the biosphere becomes a net contributor of oxidized carbon & other greenhouse gasses; i.e., becomes a pollution source

you forgot, "self-sustaining".


Democrats Unveil Ambitious Global Warming Agenda This is the NY Times version of the story:

The debate on global warming and energy policy accelerated on Tuesday as two senior House Democrats unveiled a far-reaching bill to cap heat-trapping gases and quicken the country’s move away from dependence on coal and oil.

But the bill leaves critical questions unanswered and has no Republican support. It is thus the beginning, not the end, of the debate in Congress on how to deal with two of President Obama’s top priorities, climate change and energy.

The draft measure, written by Representatives Henry A. Waxman of California and Edward J. Markey of Massachusetts, sets a slightly more ambitious goal for capping greenhouse gases than Mr. Obama’s proposal. The bill requires that emissions be reduced 20 percent from 2005 levels by 2020, while Mr. Obama’s plancalls for a 14 percent reduction by 2020. Both would reduce emissions of carbon dioxide, methane and other greenhouse gases by roughly 80 percent by 2050.

Looks like a "FutureGen" type CC&S could also be re-started. Sure, do the research, but don't expect the utilities to embrace CC&S, much less their customers, when their electric bills start skyrocketing thanks to CO2 cap-and-trade policy, if it ever gets implemented. I'm not optimistic. When it's jobs, profits, and cost-of-living vs. a nebulous threat to the global environment (remember that 41% of U.S. citizens think the media has exaggerated the likely impacts of global warming - recent Gallup poll) - the environment is gonna lose.

Dick Lawrence

Dick, I reside in Nebraska, which is served 100% by public electric utility.

About 6 months ago I attended in a technical session as part of my community college HVAC/R program. Also in attendance was a representative of the the states largest electric utility Nebraska Public Power District. The rep indicated that they were expecting a cap and trade regimen. No more was said, as it was tangential to the agenda.

Projected Prices on Customers and Corn

Opponents of the cap and trade plan contend that it would create a $3,000 per household energy tax and boost the cost of corn production by $40 to $80 an acre.

boost the cost of corn production by $40 to $80 an acre.

A measure of the energy cost of irrigated corn in Nebraska, Soon, a non-issue as the fossil water runs out.


Hope our Congress Critters are aware of this analysis prior
to passing any CO2 Cap and Trade Legislation ..


I know enough to know that I don't know enough ..

Seems the 'science' is far from 'settled' vis a vis
AGW ie Al Gore Warming ..

Triff ..

Seems the 'science' is far from 'settled'


* Latest survey: 97% of climatologists express no doubt.

* Scientific papers: 1000 to 1 in support of ACC.

* Books: 90% of anti-ACC books produced by think-tank bought and paid for "science."

* No significant national or international scientific body stands in the anti-ACC camp.

And most importantly, as alluded in second bullet, there is virtually no science to back up your claim.

Where your propaganda started from:

The American Denial of Global Warming

ExxonMobil’s Tobacco-like Disinformation Campaign on Global Warming Science

UCS report finds that the oil company spent nearly $16 million to fund skeptic groups, create confusion

As for Lindzen:


4. Majority scientists are contemptuous of those in the minority who don’t believe in the dangers of climate change. I often find myself contemptuous of efforts to misrepresent science to a lay audience. The target audience of denialism is the lay audience, not scientists. It's made up to look like science, but it's PR. We have documented Lindzen’s tortured and twisted representation of the science to non-scientists here and here. If Lindzen had a credible argument to support his gut feeling (and apparently Dyson’s), I can promise that I for one would take it seriously. I’ve got kids at home whose future I worry about. If Lindzen were right, no one would be happier about that than me. But I do get contemptuous of bullshit.


As part of a much larger discussion on Learning to live with Global Warming in Newsweek recently, the editors gave some space for Richard Lindzen to give his standard 'it's no big deal' opinion. While we disagree, we have no beef with serious discussions of the costs and benefits of various courses of action and on the need for adaption to the climate change that is already locked in.

However, Lindzen's piece is not a serious discussion.

Instead, it is a series of strawman arguments, red-herrings and out and out errors.

Lindzen claims that because we don't know what the ideal temperature of the planet should be, we shouldn't be concerned about global warming. But concern about human-driven climate change is not because this is the most perfect of possible worlds - it is because, whatever it's imperfections, it is the world that society is imperfectly adapted to. Lindzen is well aware that predictions of weather are different from climate predictions (the statistics of weather), yet cheerfully uses popular conflation of the two issues to confuse his readers.

It speaks volumes of your discernment that you cite a blog by a layman rather than scientific analysis. And that your science, such as it is, comes from Lindzen. BTW, you do know Lindzen doesn't deny ACC, only what the effects will be, right?

On the off chance you'd like to educate yourself, may I suggest you look up Spencer Weart's history of global warming, How to Talk to a Climate Sceptic and Real Climate?

Alternately, you could do a simple thought experiment:

1. Large changes are already happening to weather and climate.

2. We've had only about .8C warming over pre-industrial times with at least another 1.2C to go if we stop GHG emissions today.

3. Climate is like water in a bathtub. A .5C degree change to the average can mean several degrees of change in specific locations because the changes aren't uniform. It's exactly the same as sloshing that bathwater around: it all piles up at one end if you push it that way. I.e., extreme instability can come from relatively small changes to the average.

4. What happens at +2 or more?

4. What happens at +2 or more?

We lose the West Antarctic Ice Sheet and along with it our great coastal cities.

More on the Plunge Protection Team:

Pension Benefit Guaranty Corporation = Plunge Protection Team - Pension insurer shifted to stocks.

On the say so of Charles E F Millard from 2007 til January 20,


"Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent - and all of its stock-related investments were down 23 percent - as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest."

What is going on now is a harsh lesson in why it’s called CAPITALism. Because it’s based on CAPITAL. Not credit. Not “insurance” (which turns out to just be more credit, in our silly system).

Capital is equivalent to useful goods and physical plant. Credit can allow you to hold these things for a while, under certain conditions, but can be *called*. And credit creates debt, which isn’t really an asset like capital, because it can DEFAULT.

These distinctions don’t seem so important in normal or flush times, but these times are not either. We are now going to learn the lesson the hard way.

By Aaron Krowne on Mar 11, 2009

And why we're nowhere near the end:


"The study, conducted late last year in conjunction with the 2008 Global Absolute Return Congress, polled representatives from public and government pensions, corporate pensions, endowments and foundations and insurance companies with an estimated $1 trillion in total investable assets.

It found a moderate decline in overall portfolio allocations to hedge funds, but revealed that nearly 90% of institutions intend to increase or maintain current hedge fund allocations over the next 12 months....

... We highly doubt -10.7% is anything even remotely close to where CalPERS should consider its residual equity value in Apollo VI. And by fair estimates, this is merely the tip of the iceberg. Nonetheless, presenting public data that shows that the public pensions manager is disclosing over $14 billion in profits when it is hiding potentially much more than that in losses could be interpreted as borderline illegal. The question is, is this a responsibility of Apollo (to show the true sad state of affairs), or of CalPERS (to actually check these numbers and not to pull a Fairfield Greenwich "sorry, we had no clue what was really going on until it was too late").

Regardless, as CalPERS itself points out, the numbers were as of September 30. It is a fact, that the December 31 numbers are due any minutes and we are salivating at the prospect of feasting out eyes on these numbers, to see just how much disconnected from reality the column known as IRR as presented by CalPERS has become."

The wild speculation is bad enough, but what is a real problem is the widespread neglect of fiduciary duty on the part of pension fund managers. These guys were caught, but they are the tip of the iceberg and as the penalties are soft and enforcement lax, things are going to get a lot worse before (if) they get better http://www.reuters.com/article/domesticNews/idUSTRE52I82R20090319

It just amazes me that no class action lawsuits have been filed for breach of fiduciary duty yet. Maybe it just takes a long time to prepare for the filings?

That's just it. The numbers aren't out yet.
The interest is being paid. That's what $12.6 trillion
in loans, guarantees and grants is for.

But at some point, the bail outs stop. Who's going to
default first. Class Actions will precipitate this.

See Credit Anstalt :
Credit Anstalt Bank Collapses

When Credit Anstalt, Austria's biggest bank, failed in the spring of 1931, Germany was badly affected as well. This resulted in the strengthening of the anti-democratic Fascist and Nazi movement in Austria and Germany respectively.

End of the quarter. Numbers in.

Let the Games begin:

Smoking Gun Exclusive: Exxon Pension Fund Sues Northern Trust Alleging "Massive Losses"
Posted by Tyler Durden at 7:28 PM
And Northern Trust thought it had problems when Barney Frank went postal for the company's House Of Blues romp. A smoking gun lawsuit filed March 30 in Northern Illinois District Court (09-cv-01934) by Joseph Diebold on behalf of the pension scheme of one of the world's largest companies, Exxon Mobil, alleges Northern Trust breached its fiduciary responsibility under ERISA and claims Northern Trust invested the fund's capital since 2007 "recklessly and imprudently, by acting disloyally and causing massive losses."


The Exxon Mobil pension fund, which is represented in the lawsuit by Joseph Diebold, Jr., and is pursuing class action status, was worth $13 billion at the end of 2007, and states in the lawsuit that "defendants inappropriately invested the collateral in collateral pools that were illiquid, highly-leveraged, and unduly risky, containing mortgage-backed securities and other securitized debt instruments. These investments were inappropriately risky for retirement plan investments - especially when compared to the relatively small amount of gains that the plans could expect to receive from securities lending arrangements."

While no definitive figures have been set for total losses yet, the lawsuit is set for class-action status, and other plaintiffs are being sought to join the class-action suit, according to a news release from the four law firms representing plaintiffs. The suit represents 600 pension schemes for which Northern Trust was carrying out securities lending collateral investment services.

Just months before the start of last year's stock market collapse,...

Errr...This investment while the market was still rising! That damn plunge protection team had things backwards. They were supposed to wait until a plunge was in progress. Well, actually it was the Pension Benefit Guaranty Corporation who switched while the market was still soring, trying to get in on the boom that was then in progress. But nevertheless it was inevitable that the wingnuts would put a different spin on it.

Ron Patterson

Denninger commented on this as well...

What I warned of was the potential loss of your private pensions a few months back, if you remember.

Here's the formula for your impending doom, if you forgot:

The S&P 500 goes to 300 as the "bailouts" and "handouts" collapse the economy.
The PGGC's equity investments are worth 20 cents on the dollar, the private equity and REITs are zeros. This puts the fund 40% underwater across-the-board.
It is unable to pay and goes to Congress.
Congress can't fund additional borrowing because the bond market has dislocated.
You get 10 cents on the dollar for your supposedly 'guaranteed' pension.


I'm thinkin my wife's Florida State Teacher Pension may not be there in 8 years.


Denniger hits the nail on the head. This was gross mismanagement of retirement funds. Those who made this stupid and very risky investment should be fired, one and all. And all those who think this was all to protect the market from plunging show even poorer judgment than these fund managers.

"And all those who think this was all to protect the market from plunging show even poorer judgment than these fund managers." ...who are doing everything in their power to
protect the market from plunging.

See latest rally begins with AIG buying Citi/BofA portfolios
so Pandit and Lewis can claim days apart that Jan/Feb are looking to be really prosperous.

"And so the Sun does orbit the Earth" Please.

Can we dismiss free markets now. After $12.6 Trillion has been thrown at it?

That the Capitalist System even exists anymore?

Explain this then:


A process in a complex system whereby new emergent structures, patterns, and properties arise without being externally imposed on the system. Not controlled by a centralized, hierarchical "command and control" center, self-organization is usually distributed throughout a system. Self-organization requires a complex, nonlinear system under appropriate conditions, variously described as "far-from-equilibrium," critical values of control parameters leading to "bifurcation," or the "edge of chaos."

But cycles and waves and prediction of bifurcation to new
steady states is just so much fairy tale.


When the complexity or chaos of the system exceeds our ability to process its information, there can be no free market. I'm preaching to the choir, I know. :)

The explanation of self-organization was very good. Source?


Lucky. I usually toss the links.

And don't forget the Pareto Levy Distribution:


Go to the bottom of the page. Every reset draws a different
leptokurtic image:

"There are Levy-Pareto stable distributions that are leptokurtic. Furthermore, there is a generalization of the Central Limit Theorem that says that the sum of a large number of independent random variables will have a stable distribution. Thus if some phenomenon such as changes in stock prices or rain from a storm is the result of a large number of independent influences then it would be expected that the distribution would be a stable distribution. If the distribution is a fat-tailed distribution then that fact would account for the unexpected extreme changes in a variables, the sort of occurrences associated with catastrophes."

But cycles and waves and prediction of bifurcation to new
steady states is just so much fairy tale.

Not necessarily. One of thehallmarks of Chaos is that it can be used to determine ranges of possible events, or a set of events, but not necessarily when or what order they might occur in.


They are public servants who get paid peanuts and therefore will do whatever consensus at that time is because it is the "safe" way to go - from a job protection point of view.
When you pay peanuts you get monkeys.


the Boston Globe article which Denninger links to is also worth reading:

Analysts also believe the strategy would not have been approved if the government had foreseen the precipitous decline in the stock market.

Now, they warn about a "perfect storm" scenario in which the agency*'s fund plummets in value just as more companies go into bankruptcy and pass their pension responsibilities onto the insurance fund. Many analysts say it is inevitable that the agency will face significantly increased liabilities in coming months.

"The worst case scenario is coming to pass," said Mark Ruloff, a fellow at the Pension Finance Institute, an independent group that monitors pensions. He said the agency leaders "fail to realize that they are an insurer of pension plans and therefore should be investing differently than the risk their participants are taking."

[emphasis mine]

*Pension Benefit Guaranty Corporation - Car.Obs.


Good luck with your wife's pension anyhow.

A "perfect storm"? Seems like coupling a downturn in the markets to a rise in corporate failures would be the commonly expected case.

Who were the braniacs who failed to grasp that statistical independence of failures is not representative of the real world? Making the math easier AND getting the results you wanted seemed to trump any sort of analytical realism.

At the least you'd think they would have been buying option-swaps AGAINST their customer base. That would at least have been a hedge, though it would have failed too as the system still couldn't have paid up. At least it would have been a plausible strategy.

Who knew the US had fallen so far that the "best and brightest" are all brainless idiots?

Your description of these guys as "brainless" would be accurate if they had invested and lost their own money. If employees are paid to look out for their own interests which conflict with those of their employer then that is what they will do. Obama is spewing the same nonsense-no corruption, just lots of honest mistakes.

I think all at the investment banks knew what they were doing. I'm not sure that everyone at various funds did. I think some are just incompetent.

I don't think it's so much that the employees were in conflict with the employer, but that the goals of both the employee and the employer are in conflict with the investor/customer, and now the taxpayer.

Max Keiser on Bankers Bonuses...and much more. Keiser want to use the RICO Act (operation of a continuing criminal enterprise) against the oligarchs. Interesting short video debate between Keiser and a proff of economics at Dauphine U, Paris.


Kunstler is famous for saying that suburbia represents the greatest mis-allocation of resources in history. But with high-powered, over-bonused, disasterously-wrong-guessing financiers, I believe we may have finally found a serious challenger.

They all made the same mistake as Taleb's turkeys - projecting past growth trends forward into the future, assuming that past performance is a guarantee of future results - and totally oblivious to the possibility that a very unexpected and unpleasant surprise might happen around late November.

October 2007 was the peak.

"That damn plunge protection team had things backwards."

Manipulation always backfires. The definition of a Ponzi.

Once "off the trail", you can never catch up.

Which is why violence is always the result. The only way to cover up the Ponzi. Either that or do a Madoff. ;}

"The agency's board - which consists of the secretaries of Treasury, Labor, and Commerce - approved the new investment strategy in a meeting in February 2008. But the board members have had only a limited role in the agency's operation, meeting only 20 times over the 28 years before 2008.

The board is also too small to meet basic standards of corporate governance, according to an analysis by the Government Accountability Office.

"The whole model of having three sitting Cabinet secretaries with day jobs overseeing a $60 billion investment portfolio and occasionally owning significant percentages of large American companies is fundamentally flawed," said Belt, the former agency director."

Sounds like the perfect def of a slush fund to me.

Mac, you miss the point, either that or you choose to totally ignore it while trying to make the point that this had something to do with "Plunge Protection". An investment made while the market is rising could in no way be plunge protection. I was joking when I said they had it backwards. I meant they were acting if they were there to insure a rising market rose even more, not to protect the market from plunges.

The market was not plunging, or even dropping when the investment was made, the market was rising. Read your own post Mac, this happened months before the market started crashing! To say this was plunge protection is absurd. It just shows how desperate you are to show some kind of market manipulation. You are the one who has everything backward Mac.

Ron P.

"An investment made while the market is rising could in no way be plunge protection."

Which is exactly why I posted that October 2007 was the peak
in the market and the PBGC started moving into stocks
in 2008.

"The market was not plunging, or even dropping when the investment was made, the market was rising."

Here's the first sentence in the article:

The Boston Globe
Pension insurer shifted to stocks
Concern increases as losses mount; Failing plans could overwhelm agency
By Michael Kranish
Globe Staff / March 30, 2009

WASHINGTON - Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks."

However, Charles E.F. Millard, the former agency director who implemented the strategy until the Bush administration departed on Jan. 20, dismissed such concerns. Millard, a former managing director of Lehman Brothers, said flatly that "the new investment policy is not riskier than the old one."

The above man is an idiot. He could only have gotten the
job of "protecting" the PBGC by being a "Brownie."

Look at this:

" www.pionline.com/apps/pbcs.dll/article?AID=/20071126/PR - [Cached Version]
Published on: 11/26/2007 Last Visited: 12/5/2007

Charles Millard won't predict whether the PBGC board will boost the equity allocation.
"It is premature to judge what the outcome of that process (the ongoing review) will be," said Charles E.F. Millard, PBGC interim director.

Everything about the bush43 Admin has been corrupt. Millard
no exception. Millard sounds like bush43 on Iraq-"We haven't decided on invading yet." Of course they'd decided and of
course Millard was funneling all the money he could into
stocks. against every rule of investment. The next best
thing to privatizing SS.

"this happened months before the market started crashing!"

I can't believe you typed this. Millard wasn't in charge until
Dec 2007 as far as I can tell. You need to read that aticle again:

Past PBGC Directors and Executive Directors (PBGC.gov)
Charles E.F. Millard December 14, 2007 – January 20, 2009 .... Under Edwin Jones, PBGC developed and implemented its first fully integrated agency-wide information ... before he officially became Executive Director in December 1977. ...


Here ya go Mac. Don't know if you have seen this or not...

"The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time."

The Quiet Coup - Simon Johnson - The Atlantic Monthly


No, ron, Mac doesn't have it backwards. You do. Go read the article again and don't use your rose colored reading glasses.

River, I simply stated, as the article stated, that the switch to equities was made months before the market plunge therefore it could not have been plunge protection. Even a fool could see that.

So Mac and I are fools and you are a genius? Thanks for the laugh.

The oligarchs are crashing the entire financial system. It is not as much an overt attempt as it is extortion of the government carried to the extreme. Any fool should see that. When the PGC is collapsed then the government will be under intense political pressure to divert funds (more monetizing) into corporate pension systems, if any still exist, or the PGC.

Go to Brad Setzers site and look at foreign CBs and foreign soverign funds total holdings of treasuries over the last 6 months. Check out foreign treasury purchases up to current time. Dollar recycling has slowed dramatically so foreign treasury purchases have done likewise. G 20 will be a flop because there are at minimum three very divergent goals by three factions. Irreconsilable differences.

After G 20 the push for a new world reserve currency begins in earnest. The dollar is a dead man walking. China and Russia are considering backing the Yuan and Ruble with gold.

What effects would be felt from China/Russia gold backed currencies?

Ok, Sherlock...Tell me the next steps. Let's see if you know anything.

River, your post has absolutely nothing to do with the thread being discussed. You are simply a jerk. Once a jerk, always a jerk.

...and you are simply a hindshight historian and a revisionist historian to boot.

You believe that the potential collapse of the dollar is not worthy of discussion? Why not?

Is oil not traded in dollars? China - Russia have opened swap lines in Yuan/Rubles. Yesterday China = Argentina opened swap lines in their own currencies. Today, tomorrow, it will be more countries end running US Dollars...but you think this unworthy of discussion? Soon all the SCO countries will be using gold backed currencies...not worthy of discussion?

Perhaps when all your holdings in dollars evaporate you will want to talk about it?

This was one of the first things that crossed my mind when reading the report yesterday. I'm glad someone else noticed.

From up top:

"WASHINGTON (Reuters) - The U.S. Justice Department on Monday asked a federal appeals court to rehear a legal decision over oil royalties between the Interior Department and Anadarko Petroleum Corp (APC.N) which, if allowed to stand, could cost the government billions of dollars in lost royalties from oil companies."

I have long pointed out that royalty shenanigans are a form of subsidy for oil companies. To expect unsubsidized ethanol to compete with gasoline which has royalty and other defacto subsidies is unreasonable. Ethanol subsidies only level the playing field somewhat and buy off the liquid fuel distribution monopolies/oligopolies who would otherwise not distribute ethanol because it is competition for their main product.

Those who resent ethanol subsidies refuse to admit the unfairness of the "free market" without them. They would have ethanol compete with subsidized gasoline in a monopolistic/oligopolistic liquid fuel distribution system owned mostly by oil companies. The only way that ethanol subsidies can be removed is to raise the gas tax by an at least an equivalent amount IMO.

Stuff & Nonsense !

who would otherwise not distribute ethanol .. a monopolistic/oligopolistic liquid fuel distribution system owned mostly by oil companies

The existing pipeline network cannot distribute ethanol for purely physical chemistry reasons (it absorbs water). A separate, mainly rail (some barge) network is required to distribute ethanol.

And why would people want to buy diluted, lower energy fuel unless required to do so ? (Which the ethanol lobby forced on the public).

Royalties are a subsidy ? They are an EXPENSE that ethanol (rightfully in this case) does not have to pay. Although corn farmers sucking dry fossil water reservoirs should be paying royalties (see Nebraska).

Corn based Ethanol is the Welfare Queen of Queens !

BTW: Protected by tariffs with competitive sugar cane ethanol.


You better get the word out to Kendrick Morgan. They're pipelining ethanol in Fl as we speak.

I don't know about "Welfare," but I'd like to have back the 4,000 Dead American Kids, and the $700 BILLION we've spent "protecting" the MiddleEastern Oil.

Not to mention the $180 BILLION Hit to the "Balance of Payments" to pay for imported Oil every year.

I wrote:

The existing pipeline network cannot distribute ethanol

It is possible to build a speciality, new pipeline for ethanol, oxygen or hydrogen. But the existing pipelines cannot pump oil products and ethanol.

Ethanol will NEVER replace enough oil to make a difference regarding Iraq.

Electrified railroads, Urban Rail and bicycles could though. that is where the subsidy $$ should be going, NOT corn based ethanol !


The Kinder Morgan pipeline is NOT a "New" pipeline. It's an existing pipeline with just a little work done to it. You should know that.

Ethanol is transporting the equivalent of 20 Million People right now.

How many people are conducting their work on a bicycle? Or how many people are carrying their produce to town by electrified rail?

How does that "Urban rail" do when you need to spin up to Wichita, or Sioux Falls?

How much difference will ethanol make? I don't know. But, I know this: When I put E85 in my tank that money is NOT going to Saudi Arabia, or some Terrorist-Supporting, Kdolliso-hating State. The farmer that gets that sawbuck just might turn around and buy something from my son, or daughter. And, pay some taxes that might help my grandchildren go to school, or get Medical Care.

And, something else, I feel better about myself.

No Kids Died for my Fuel.


Now listen carefully "I shall say this only once" , the thing is that ,,,,,,,, ohhhh never mind Mr kdolliso - TOD's "own"(/snark) ethanol lobbyist from the Corn-belt !
BTW "nice and round" 20 million-number you coughed up there, is it fossil-fuel subtracted & EROEI compensated for?

No, you can subtract 3 Million for less efficiency if you want to. Whether it's 17 Million, or 20 Million hardly seems extremely important to my point.

Ethanol is powering Millions of cars, Now.

The 5 or fewer million cars, trucks and SUVs powered by ethanol is a terrible waste of tax subsidies, MUCH better invested elsewhere !

It only done to subsidize those welfare queens, corn growers.


Otherwise known as Opportunity Cost.


The existing pipeline cannot transport oil products & ethanol. One or other. And, as you said addition work is required to modify it.

So no "conspiracy" to keep ethanol from using existing pipeline network.

Ethanol is transporting the equivalent of 20 Million People right now.

BS !!!

That is on a volumetric basis. E!0 & E85 are watered down, diluted gasoline. Less energy per gallon. Fewer mpg. And all the fuel to raise the corn, transport the ethanol, NG to distill it. Maybe 4 or 5 million people net (if I am generous).

How many people are conducting their work on a bicycle?

3% are getting to work on a bicycle in New Orleans and it could easily be 20% here and in many other places in town.

Or how many people are carrying their produce to town by electrified rail?

In Russia and other former Soviet Union, a few million. Elektrichkas wander the countryside, picking up people (mushroom hunters jump off at a good spot and then flag a later one down).

This makes elektrichka a crucial life element for the dachniks and peasants trading their harvest on the city markets.


Transported with 100% Russian electricity.

How does that "Urban rail" do when you need to spin up to Wichita, or Sioux Falls?

Take the elektrichka, or "interurban".

I see wasted gov't tax dollars, MINE !, every time you fill up with ethanol (I never use any).

And the growing Dead Zone in the Gulf of Mexico you create growing corn (soybeans are MUCH better !)

No Kids Died for my Fuel

Yes they did, they just were not American kids.

One tank of ethanol is enough tortillas for a one Mexican for a year. remember THAT next time you fill up.


After allowing for DDGS we'll get about 50 gallons of ethanol for every 1 gallon of diesel used in farming and transportation of same this year.

If you can show me One Mexican Kid who died because his family couldn't afford $0.07/lb Yellow Field Corn (btw, tortillas are made with "Mexican-grown" White Field Corn) this year I'll change my post. BTW, our Carryover is about 1.8 BILLION BUSHELS.

Edit: Oops, should have been "Mexican-Grown, White Sweet Corn.

I doubt your statistics (and 50 gallons of ethanol has the energy value of only 29 gallons of diesel).

Petro-diesel = 130,500 Btu/gallon
ethanol energy content (LHV) = 75,700 Btu/gallon


Then there is the natural gas used to make fertilizer to kill the Gulf of Mexico to grow excessive amounts of corn (soybeans use MUCH less) and to dry the distilled ethanol (180 proof to 200 proof) and dry the leftover grains (the the market for DDGS is about saturated, cows, chickens and pigs can only take so much before getting sick).

Corn is fungible, the 60% rise on the basic food in Mexico is DIRECTLY related to the welfare subsidies to US corn growers to burn food via ethanol. If you think a 60% rise in their basic food, source of half their calories often times, does not kill poor people, the you do not understand life of the poor (but you are are a corn farmer, rich off the tax subsidies of everyone else).

About 40 million Mexicans live on $5 a day, or less.


some mass-produced tortillas are made from yellow corn.
... Mexico also said it will import 650,000 tons of white corn, mainly from the United States


So Mexicans do eat yellow corn and white US corn (US welfare queens corn farmers can grow either white or yellow in some climatic areas). White & Yellow corn are fungible within one crop year, and Mexicans do eat some yellow corn tortillas.

So you do need to retract your statement.

You are burning a years worth of food with every tankful of E95.


BTW, I did answer your question about how to get produce to market via electrified rail, with NO LIQUID FUELS BURNED, not less, NONE ! And relatively little wind driven electricity.

While Obama performs for the cameras on GM, the money keeps going out the back door http://market-ticker.denninger.net/

Hello TODers,

As evidenced in my prior weblinks: the USA has 16,000 golf courses, but since 2006 more courses have closed than new have opened. I would also venture a guess that most of the new courses are running into extreme financial difficulty as it seems logical to expect a higher foreclosure rate in these new golf communities versus golf communities long ago established.

In an earlier post: I guessed maybe 5-10% of these golf courses will fold this year. We will have to wait for the PGA year end report that will come out sometime in 2010. Of course, they might suppress this info just as the US Census Bureau suppresses crucial data too. Who knows?

As most already here know: I am a strong supporter of Kunstlerization and Alan's RR & TOD ideas for postPeak mitigation; wheelbarrows are better than machetes, etc. Thus, I am hopeful others will join the cause to turn golf courses into veggie plots or return them back to Nature as biosolar habitats. Then these can be gradually enlarged in area over time to help protect even more species under Earthmarine protection. Time will tell..

It sure would be interesting for a reporter to ask Tiger Woods, and other golf professionals, for their postPeak golf outlooks. My guess is that Tiger, who has a golf course design business, would probably say that business has never look better.

It is that old saying, "Where you get your money prevents you from modifying your outlook". If I was Tiger's financial advisor: this would be the first thing I seek to change.

From a brief google search on golf course closing:

Why Golf Clubs Have Hit the Bunker

..So we shouldn't be too surprised to learn that some of the UK's 2,500-odd courses are now going into administration - 19 since the start of the year, according to the English Golf Union, with 130 more facing "significant problems".

..The average 18-hole golf course - at 50 or so hectares - just happens to be the same size as a small farm, so they could be grubbed up for growing food. In more buoyant times, property speculators would be quick to throw up a gated community or two on the land. But perhaps the most popular use would be to return the land for unfettered access by the local community.

A Fairfield Harbour residents' committee is in negotiations with its amenities provider to try to reopen one of the golfing community's two defunct fairways by late spring.

..Along with the golf courses, Midsouth LLC owns two swimming pools, two clubhouses, four tennis courts and two marinas in Fairfield Harbour.
Notice that Midsouth is trying to unload this mess upon the area residents; Midsouth is hoping for one last chance at the 'greater golfing fools' to financially extract themselves. I would suggest the area residents give up on the idea of future golf and instead: 'get real', then investigate turning this land into veggie & livestock areas as detailed in an earlier posting.

They could wind-sail, from the marinas, the harvested goods out to nearby markets like is being done in other areas [see prior weblinks by other TODers].

Will Sharp Park Golf Course become a nature preserve?

..Disagreement over the future of the golf course, located in Pacifica but owned and maintained by San Francisco, ruptured into a public schism last week when two members of the San Francisco Board of Supervisors offered differing visions for managing the property — including an option to close the golf course and transform it into a wildlife preserve to protect two threatened species, the California red-legged frog and the San Francisco garter snake.

The Center for Biological Diversity has threatened to sue the city over what they call abuses to both species, but it agreed this winter to hold its fire if the city would negotiate a phased solution.

..San Francisco has been studying how to divest itself of many of its golf courses, most of which are losing money.
Let's hope that plowing golf courses can become an 'avalanche trend' to help minimize the default Zimbabwe trend of bad land & resource management.

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

Any idea how food may be affected by growing it on a former golf course? Could the ground may be contaminated by a mixture of chemical cocktails sprayed on the course?

Monsanto produces RR grass for golf courses and tops it with Certainty® Turf Herbicide

I reckon little or nothing else can grow there for some long years .. but what do I know really?

Here in Reno last Saturday there were 40 or so golf carts auctioned off. They went for ~$850 with usable batteries and charger. The batteries in new condition would be worth ~$720, charger ~$150 so the cart hardware didn't sell for much. BTW: If you are going to get a golf cart, get the 48VDC variety as solar is somewhat easier to hook up and a little more total power than the 36VDC variety.

I don't know what will happen to the land for the two 18 hole golf courses that resently closed.

This area has a water shortage so closing the golf courses will be a little relief on the water. There is no building to speak of here for the last year or so. All the construction people went back to Mexico.

Around here, the golf courses are built on top of old landfills. Where the zoning rightly disallows growing food.

Ah, urban mines of the future.

Hello TODers,

Potash speculation gets new legs
Andrew Willis, today at 2:52 PM EDT

Rumours of BHP Billiton's interest in acquiring a major potash company just won't go away, as JP Morgan picked up on theme on Tuesday.

Speculation on a blockbuster acquisition in the fertilizer sector by the world's largest miner began last week, when BHP raised more than $6-billion (U.S.) by selling bonds, without giving a clear purpose for the financing. Reporters abhor a vacuum, as The Australian newspaper pumped out an article with a laundry list of potential targets that featured Potash Corp. of Saskatchewan.
IMO, this is a fascinating story that will eventually have geo-strategic effects. Recall my earlier posting that speculatively suggested this BHP move might be encouraged by TPTB to head off a potential takeover by a giant Sovereign Investment Fund [SIV]. China, KSA, or some other country holding lots of US Treasuries would logically be seeking to turn these soon-to-be 'toilet paper assets' into potential postPeak control of 'real assets'.

Along with potable water & FFs, my definition of another perfect real asset is I-NPK. Since we had earlier wars for O-NPK [guano & Atacama nitrates], let's hope I-NPK wars don't break out anytime soon.

My feeble two cents is that whomever eventually controls mined P & K will eventually control the world [think Frank Herbert's Dune Spice.] In a postPeak world: high tech versions of wind-powered Clipperships would be ideal, but nuke aircraft carriers globally ferrying I-NPK will work too.

Have you hugged your bag of NPK today?

What do you reckon to 'mining' the Oceans for fertilizer?

-I have a work colleague who uses sea-weed on his farmland...


Hello AlanfromBigEasy,

Great link--thxs! IMO, the article does a pretty good job pointing out how Govts, companies, SIFs, and other investors are all starting to grapple with wanting to turn their paper assets into real assets.

Lots and lots of thorny issues that will need to be resolved by diplomatic, regulatory, and financial negotiation. Much better than military forces meeting head-on to determine the outcome.

"War doesn't determine who is right. War just decides who is left."

Hello TODers,

Huge Kudos to PCI & EB:

The food and farming transition: toward a post carbon food system
by Richard Heinberg and Michael Bomford, Ph.D.
I hope all TODers can find the time to study this included PDF as it covers many of the topics that I have been flogging. I was hoping that it would have included detailed scenarios for converting golf courses, but maybe Heinberg et al need to study this topic more before publishing specific info.

From Heinberg, etc.

Ultimately, there is no solution to the phosphorus supply problem
other than full-system nutrient recycling. This will entail a complete redesign
of sewage systems and animal feedlots to recapture nutrients so they can
be returned to the soil—as farmers in Europe, China, Japan and elsewhere
did centuries ago.

In the early pages (I haven't got far) it recommends moving away from meat, and "A Farm for the Future" did also. Two points:

  • At a pinch cattle are self-transporting, and they can deliver a lot of nutrient to go with the backyard veggies.
  • I'd like to see a lot more food stockpiling. The efficient way to do this [as recommended in some doomer tracts on home food supplies] is to always eat the oldest stuff. This doesn't appeal to me. Stockpiles can be stuff we wouldn't normally choose to eat, and the easy way to keep cycling it through is to feed the old stuff to livestock (including birds and fish).

DOOMERS going mainstream (advisor to Clinton) http://news.bbc.co.uk/2/hi/science/nature/7974995.stm

And their answer is genetically modified organisms

Doom! it's all Doom!
Cannibal hordes are advancing on my redoubt, we can't hold much them back much longer! As we speak I am smearing my torso with A1 Steak Sauce to hasten the inevitable fate that looms before me.....

My advice to you all is to lighten up just a little bit. Go walk the dog or something.

Obama Said to Conclude Bankruptcy Best Option for GM, Chrysler
March 31 (Bloomberg)

-- President Barack Obama has determined that a prepackaged bankruptcy is the best way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.

Obama also is prepared to let Chrysler LLC go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can’t form an alliance with Fiat SpA, said members of Congress who have been briefed on the subject and two other people familiar with the administration’s deliberations

Whats interesting is this is technically a good thing. GM was in a impossible position. Much of is own making but thats besides the point.

However I think people may underestimate the psychological hit this will cause to older generations say 65+ that grew up with GM bing a power house. I know most have bitched about it for years but it will still cause many to take stock of how they view the world. I suspect more than one person who was bullish my start looking around a bit more.

And next of course given my views of the matter if you expect that US wages will fall closer to global averages and that these former autoworkers will eventually be willing to work for five bucks and hour buying up idled GM factories for pennies is a good investment. Worst case you can sell the equipment and probably make back your investment.

Also in general if your doing and asset sweep I'd say that gaining control of some manufacturing capacity cheap is a good move.

The new interim GM CEO, Fritz Henderson, was just on CNN-world echoing the Obama message. He stated that "it" will not even have to take 60 days .

Who is first outta GM/Wallstreet tomorrow ? ... swooooooshhhhh.... they win !. Bondholders are stuck in the quagmire, I suppose ..

But what will happen to all those 400 000 (?) GM-pensioners ?

I have to agree with you memmel, Bankrupcy Chapter 11 w/technicalities is probably the only logical path.

A friend is a 35 year GM pensioner but he says his retirement is insured up to $50K/yr. (???) His may be involved with the class action smoking gun suit above.

According to the press, Wilson told the Senators: "What's good for General Motors is good for the country." What he actually said: "For years I thought that what was good for our country was good for General Motors, and vice versa."


Will Obama be so sure about the answer for the 'vice versa' part when all our money is gone and the creditors are knocking?

Good grief, I had to laugh out loud!

Kunstler's pants came off and I think I hurt myself:


He yammers on about how the good ol' USA is going down the path to Ecuadorian poverty ... then complains because his flight from Aspen was cancelled and he had to ride a bus.

Nothing serious, just too ironic had to share.