DrumBeat: May 21, 2009

Robert Bryce - There Will Be Many Barnetts: A Q&A with Roberto Aguilera

I mean that by using creativity the industry is finding keys to unlock the North American unconventional natural gas endowment which is, simply put, gigantic. The first shale well was drilled in 1821 in Chautauqua County, New York, and probably produced gas for local uses through natural fractures. It is significant that the very first shale well already introduces the key element of natural fractures, created by Mother Nature, for successful production of natural gas. The Big Sandy gas field is eastern Kentucky, which started production from Devonian shales in 1921 is a classic example of a naturally fractured reservoir. In my opinion, the same key elements hold true today and are partially responsible for the revolution in gas production. The addition of hydraulic fractures to these already naturally micro-fractured reservoirs leads to the monsters we are pursuing today with horizontal wells that will dominate the North American energy landscape for decades to come. John A. Masters of Canadian Hunter indicated in the foreword of our book “Horizontal wells, Formation Evaluation, Drilling and Production” (1991) that the well design should be approached from the point of view that drilling the target formation is a completion operation as there are many subtleties that can be addressed easily in the preplanning stages that may be virtually impossible to correct once the well is drilled. This drilling-completion vision by a new breed of geologists and engineers working as a team with a common goal in mind has been pursued by many in North America with outstanding results.

Economics: Peak-nik

Another round of triple-digit oil prices, Rubin warns, will see a relocalization of manufacturing to Hamilton from Guangdong. Western access to cheap Asian labour will decline as energy prices rise — and that’s going to increase the price of basic goods, like food, by as much as 40%. Also in Rubin’s crystal ball: $7-a-gallon gasoline in the United States, along with a crash in the greenback that will make driving so expensive that many poorer Americans will realize they can no longer afford it. One-fifth of all cars on the road will be gone in a decade.

Rubin doesn’t flinch as he sets forth his vision: “I think the economy of the future is going to be more like the ’60s or the ’70s. Because of cheap oil, we got used to plentiful blueberries in Canada in the winter. But in the ’60s, the only blueberries you would have got were canned or frozen. We’re going to go back to that to some extent. For the people in this mall, it’s going to be a big change.”

It’s a frightening scenario, especially for anyone who kind of likes things the way they are. Do we really have to prepare ourselves for a world without easily available fresh sushi (at least if you live far from the ocean), with less travel, fewer consumer choices, smaller energy footprints, reduced lifestyles — an overall contraction of civilization?

Bust and boom

Despite this growing glut, however, the price of oil has been rising steadily in recent weeks (see chart 2). On May 20th it closed above $60 a barrel for the first time in more than six months. That marks an increase of more than 75% since February 12th, when it sank below $34—the fourth-biggest three-month rise on record, according to Mr Currie. The price of futures contracts suggests that energy traders see the price rising higher still in the coming months and years.

The explanation is simple. Oilmen are worried because they believe that many of the factors behind the record-breaking ascent last year remain in place. Much of the world’s “easy” oil has already been extracted, or is in the hands of nationalist governments that will not allow foreigners to exploit it. That leaves firms to hunt for new reserves in ever more inhospitable and inaccessible places, such as the deep waters off Africa or the frozen oceans of the Arctic. Such fields take a long time and a lot of expensive technology to develop. Worse, new discoveries tend to be smaller than in the past and to run dry faster.

With Oil Prices Poised to Jump as Much as 70%, Every Investor Needs an Energy Strategy

The U.S. news media has convinced many investors that oil consumption is falling because of the global recession. While that may be true, it’s a disservice to millions of investors because production is declining at a pace that’s actually three times faster.

And that suggests higher oil and gasoline prices in coming months - perhaps as much as 50% - 70% higher, or more - particularly if a U.S. economic recovery is truly in the offing.

Oil Industry Braces for U.S. Trial on Rights Abuses

The execution of the Nigerian author and advocate Ken Saro-Wiwa in 1995 left lingering questions in the minds of many about the relationship between the oil giant Royal Dutch Shell and Nigeria’s repressive former regime. Now, 14 years later, Shell will appear before a federal court in New York to answer charges of crimes against humanity in connection with Mr. Saro-Wiwa’s death.

The landmark trial is the latest in a series of cases aiming at some of the world’s biggest oil companies, claiming misdeeds in developing countries where they were once seen as unassailable. Oil companies are being sued on charges of environmental damage, collusion with repressive governments and contributing to human rights abuses, among others.

Chevron, for example, could face up to $27 billion in liability in Ecuador for pollution of the jungle.

Exxon Mobil is being sued by Indonesian villagers from the province of Aceh who allege human rights violations committed by soldiers hired to guard a natural gas plant.

And these legal challenges are just the latest tests for an industry increasingly hard pressed to find new sources of petroleum.

OPEC malcontents challenge oil output targets

LONDON (Reuters) - A near-doubling of oil prices since the end of last year should give OPEC the chance to take a bow next week for its disciplined output cuts, but there will discontent in the wings of the producer group's meeting.

Are Wall Street speculators driving up gasoline prices?

Oil and gasoline prices are rising fast as Memorial Day weekend approaches, but not because supplies are tight or demand is high.

U.S. crude oil inventories are at their highest levels in almost two decades, and demand has fallen to a 10-year low, but crude oil prices have climbed more than 70 percent since mid-January to a six-month high of $62.04 on Wednesday.

Meanwhile, although refiners are operating at less than 85 percent of capacity, leaving them plenty of room to churn out more gasoline if demand rises during the summer driving season, the price of gasoline at the pump has climbed 28 cents a gallon from a month earlier to $2.33.

This time, Wall Street speculators - some of them recipients of billions of dollars in taxpayers' bailout money - may be to blame.

Pulitzer Prize-winner Daniel Yergin: We think by next year we certainly will have an average prize of oil well above 50 dollar per barrel

We really don’t publish any specific forecast. But we think that as the world economy covers, it is expected that oil price recovers. We have two key questions now: first, how many oil and gas projects are postponed and secondly, how strong the timing of global economic recovery. Global GDP will be the prime determinant of the oil price. You can’t predict oil price independently of the economy and I think right now people feel more optimistic that they were few months ago. Probably by 2010 we will be in recovery. I mean all stimulus money will start to impact on the economy. We think by next year we certainly will have an average prize of oil well above 50 dollar per barrel.

Oil tanker market to stay in doldrums in 2009

LONDON (Reuters) - A crude oil rally above $60 will not provide much comfort for the oil tanker market as weak global demand and a growing fleet of vessels will dog hopes of a recovery in seaborne freight rates.

The International Energy Agency (IEA), energy adviser to 28 industrialised countries, forecast this month that world oil demand this year will post the sharpest annual fall since 1981.

Pledges by the Organization of the Petroleum Exporting Countries to cut production has also taken its toll.

"With oil demand contracting this year and with a lot of the associated reduction in oil production coming from OPEC countries which support seaborne crude trade, the tanker market is getting hit from both sides," said Tim Smith, shipping analyst with consultants Maritime Strategies International (MSI).

New find may add to Mexico's biggest oil field-Pemex

MEXICO CITY (Reuters) - An exploration well drilled near the offshore Ku Maloob Zaap heavy oil field, Mexico's most prolific producer, appears to show reserves at the complex that could be more than previously thought, the head of Mexico's state oil company said on Wednesday.

The Tekel-1 well, drilled 6 kilometers away from another well known as Ayatsil, flowed at 6,000 barrels per day when completed in February.

"This well alone brought 100 million barrels of oil equivalent of new reserves and confirmed the extension of the Ayatsil field," Pemex Chief Executive Jesus Reyes Heroles told reporters.

Chevron says Nigeria oil pipe back

US supermajor Chevron said today that oil transport had resumed on one of its pipelines in Nigeria, which was damaged in March.

The Makaraba-Utonana pipeline in southern Nigeria's Niger Delta was attacked on 13 March, which led to a shut in of 11,500 barrels per day of crude oil.

Russia, Ukraine on verge of new gas row - source

ASTANA (Reuters) - Russia and Ukraine are on the verge of a new gas dispute, a Russian government source said on Thursday, adding the row was now centred around gas stocks in Ukraine to ensure smooth Russian gas transit to Europe.

..."If Ukraine cannot solve the problem of stockpiling gas in the summer, it would mean that Naftogaz won't be able to meet its transit obligations to European customers this winter." the source said.

Weak economy helps New York avoid power problems

NEW YORK (Reuters) - New York's power grid operator does not expect any reliability problems during the next 10 years as efficiency gains and the recession take a toll on demand, the New York Independent System Operator (NYISO) said in a report this week.

Summer's here. So are higher gas prices

NEW YORK (CNNMoney.com) -- With the Memorial Day weekend and summer driving season approaching, motorists are facing a familiar trend -- surging gasoline prices.

But while pump prices have increased more than 15% over the last 23 days, and are likely to go even higher over the coming weeks, experts don't foresee anything like the record levels of 2008.

Renewables: America's next heavy industry

How three manufacturers in three Midwest states are picking up where the auto sector is laying off.

Ignore the spin: Coal gasification is a stupid idea

For anyone lured by the prospect of "clean coal" - the process of pumping huge amounts of energy into a solid fuel simply to change it into a gas or liquid before burning it - take note.

The US National Academy of Sciences (NAS) just released a comprehensive study on coal gasification that came to the following conclusions:

● Without geologic storage of the CO2 produced in the conversion process, the greenhouse gas emissions from coal-based fuel would be about twice that of oil.

● With geologic storage, CO2 emissions would be nearly equivalent to those from oil.

Oilsands the wrong whipping boy

While the oilsands do have their environmental challenges, Greenpeace would be better served by acknowledging the real problem isn't the oil produced from the oilsands--it's the emissions from coal-fired electricity, not to mention the dinitrous oxide that is generated as part of the fertilizer production process.

IEA warns of slide in energy investment

The economic downturn is cutting investment in energy supply, raising the risk of higher prices in future that could hamper any recovery, the chief economist of the International Energy Agency said yesterday.

Fatih Birol, The IEA's advisor to 28 industrialized countries, said in an interview he expected oil and gas upstream investment to fall 21%, or about US$100-billion ($113.8-billion), in 2009 from 2008 due to the global recession.

"Energy investment is plunging," Mr. Birol said. "If these two come together --a further cut down in the investment and a quick and strong recovery in the economy -- we may have difficulties in the oil market in a few years' time."

IEA Says Cuts in Oil Spending May Lead to Price Jump

(Bloomberg) -- Oil prices may jump in four to five years because energy companies, fighting the worst recession in more than six decades, are cutting investment in new projects, International Energy Agency Chief Economist Fatih Birol said.

Traders look to unload crude stored offshore in U.S.

NEW YORK/MEXICO CITY (Reuters) - Trading firms are offering to sell large volumes of foreign crude into the United States in what could be the first steps to unload their large offshore storage positions as the crude futures curve flattens.

Front-month crude oil futures are trading near their lowest discount to second-month futures since late 2008. The spread between July and August WTI futures fell as low as 40 cents a barrel on Wednesday. As recently as mid-April, the spread was wider than $2 a barrel.

The narrowing spread means that trading firms cannot profit from storing oil offshore as they have in recent months, to reap the benefits of discounts for prompt oil prices.

U.S. crude oil and gasoline stocks fall sharply: EIA

NEW YORK (Reuters) - U.S. crude inventories fell last week for the second straight time as imports remained low while gasoline supplies dropped much more than expected, the Energy Information Administration said in weekly data released Wednesday.

U.S. crude futures rose $2 to more than $62 a barrel after the EIA issued its weekly oil data. The gasoline supply draw in the world's top energy consumer comes as millions of Americans gear up to take to the road for the May 23-25 Memorial Day holiday weekend, seen as the start of the summer driving season.

Energy firm warns prices to fluctuate

RAPIDLY fluctuating energy prices like those experienced throughout 2008 are likely to become the norm in the future, a leading British energy company warned today.

Scottish and Southern Energy said last year was a "foretaste of what is likely to happen as the supply of finite resources like oil and gas begins to struggle to keep pace with the demand".

CNPC, Sinopec assure refined oil supply

China's State-owned oil giants China National Petroleum Corporation (CNPC) and China Petroleum and Chemical Corporation (Sinopec) yesterday refuted earlier media reports that they had halted refined oil wholesaling operations in some areas in China, according to Xinhua News Agency.

The two companies also claimed that in order to support reconstruction work, they have adopted measures to ease the refined oil supply shortages in Chengdu, Sichuan province, caused by strain on railway transportation.

The master’s voice

Yergin has an interesting observation to make on the current attempts to revive the US economy. “People seem to have forgotten,” he says, “that one of the factors leading in to this deep recession was the impact of very high oil prices over seven consecutive years. Detroit was not knocked on its back by the collapse of Lehman Brothers, but by what happened at the gasoline pump.”

Oil’s Open Interest Slump Signals Prices May Drop, BNP Says

(Bloomberg) -- A slump in the number of outstanding crude oil futures to the lowest in seven months signals that this year’s rally is about to fizzle out, BNP Paribas SA said.

Russian Delegation Unlikely to Attend OPEC Meeting, RIA Says

(Bloomberg) -- Russian Deputy Prime Minister Igor Sechin said a Russian delegation probably won’t attend a May 28 meeting of the Organization of Petroleum Exporting Countries, RIA Novosti reported.

Needing cash, Calif. rethinks offshore oil ban

LOS ANGELES - With California facing a huge budget deficit, officials at the state Department of Finance saw an opportunity to resurrect a controversial proposal for oil drilling off the coast of Santa Barbara as a way to boost revenue and potentially bring $1.8 billion into state coffers over time.

Leeb: Oil Above $60/Barrel: Still Cheaper than a Cup of Coffee

Crude oil prices are once again above $60 a barrel and local television newscasts have returned to that old chestnut, consumers grousing about the high cost of gasoline, to fill airtime. Never mind the fact that despite the great lengths we go to extract, transport and refine it, ounce-for-ounce petrol is still far cheaper than a cup of coffee or bottled water.

It’s curious that the gains in oil (which is up approximately 75 percent from its lows) and gasoline (up more than 50 percent) have occurred amid the greatest oversupply in a generation.

The financial crisis and subsequent economic contraction has pushed peak oil—the point at which the world is unable to increase oil production—from the public’s psyche. But it will not meaningfully delay the inevitable decline in output.

Nigeria’s Oil Output Drops to Less Than Half Capacity

(Bloomberg) -- Nigeria’s oil output has fallen to less than half capacity because of militant attacks in the main producing region over the past three years, Petroleum Minister of State Odein Ajumogobia said.

Saudi begins pumping oil from Nuayyim field

KHOBAR, Saudi Arabia: Top oil exporter Saudi Arabia began pumping from its 100,000 barrels per day Nuayyim oilfield this week, a Saudi industry source said yesterday. Nuayyim is one of three oilfield projects due for completion by the end of June to take Saudi total production capacity to 12.5 million barrels per day (bpd). The project was close to full completion, with potential to pump nearly 100,000 bpd, the source said. State oil firm Saudi Aramco was ramping up production slowly, he added, declining to estimate output.

Petrobras eyes $300m Black Sea spend

Brazilian giant Petrobras sees its investments in the Black Sea totalling $300 million over the next two years, its international director Jorge Zelada said.

Petrobras agreed this year to drill two exploration wells with Turkish player TPAO in Turkey's sector of the Black Sea. .

Memorial Day Weekend Will Lure More Travelers With Gas at $2.33

(Bloomberg) -- More Americans may take road trips this Memorial Day weekend than they did last year to take advantage of discounted hotel rooms and a 39 percent decline in gas prices.

Shell to announce '09 hurricane updates on Twitter

HOUSTON (Reuters) - Shell Oil Co (RDSa.L) said Wednesday it will use instant messaging system Twitter to announce hurricane updates during the 2009 storm season.

The innovation is aimed at the news media in an effort to keep journalists quickly informed of storm developments, but the service will be available to the public, Shell said.

US charges 2 with defrauding Venezuela company

NEW YORK, May 20 (Reuters) - An executive and an employee of a broker-dealer firm were charged with defrauding Citgo Petroleum Corp, a subsidiary of PDV Holding Inc owned by Venezuelan state oil company PDVSA [PDVSAC.UL], court documents released on Wednesday show.

In a purported fraud possibly involving hundreds of millions of dollars, FTC Capital Markets Inc Chairman Guillermo Clamens and Nazly Cucunuba Lopez, also known as Lina Lopez, were criminally charged with conspiracy, securities fraud and wire fraud.

Venezuela seizes 35 oil contractors under new law

CARACAS, Venezuela - Venezuela's state oil company is seizing control of 35 oil contractors under a new law, President Hugo Chavez's government said Wednesday.

The takeovers will affect dozens of local companies that provide transport and other services to Venezuela's state oil company on western Lake Maracaibo -- including Alloys CA, Brucciani & Paltrinieri CA, and Flag Instalaciones SA. The order took effect upon its publication in the Official Gazette issued Wednesday.

Also named is SIMCO consortium, which injects water into oil fields to improve recovery.

Barter clubs expose Argentina's weakness

BUENOS AIRES, Argentina -- They line up early every Saturday morning at the decrepit gymnasium that houses the La Matanza Barter Club.

Club members shuffle in carrying sacks stuffed with everything from homemade clothing to homegrown vegetables, set up their stands and begin a day of bartering.

The La Matanza Barter Club in the working-class Buenos Aires neighborhood of Isidro Casanova is one of more than 100 that now function throughout Argentina. They provide a vital service for people who are short on cash by helping them make ends meet.

John Michael Greer: The economics of decline

The post in question pointed out that today’s much-hyped "information superhighway," far from being the wave of the future so many of its promoters claim it to be, was a temporary product of the last hurrah of the age of cheap energy and can't be expected to survive for long as that age winds down. Instead, as the economic burden of the internet's immense energy usage begins to bear down, other technologies less dependent on huge energy inputs will become more economical, driving a spiral in which rising costs and restricted access will cut into internet service while simpler technologies absorb a growing range of its current economic roles. Finally, when economic contraction and social disintegration have proceeded far enough, the internet will simply drop out of use altogether because the economic basis for its operation will have gone away.

Most of those who objected to this sketch of the future, in turn, relied on a very curious logic. The internet will remain viable and widely accessible, they claimed, because the economic advantages of keeping it are so great. Those few who addressed the issue of costs at all simply insisted that technological progress would allow the internet to use less power than it does at present, and left it at that. The same arguments, interestingly enough, were deployed in earlier discussions about railroad technology: most critics simply insisted that railroads were efficient and economically advantageous, while a few suggested that they could be run more efficiently than they are now.

All this is true, but it misses the central issue I've tried to raise in the last few posts – the impact of energy and resource scarcity on the relative costs and benefits of different technologies – and it also dismisses the even broader issue of whether such energy-intensive technologies are sustainable at all in the future ahead of us. It's a dizzying departure from reason to insist that the advantages conferred by the internet mean that the internet must continue to exist. The fact that something is an advantage does not guarantee that it is possible.

Carolyn Baker: Simplicity on the outside, complexity on the inside

As I dialog with readers of Truth to Power and countless numbers of other individuals around the world who are collapse-aware and are consciously navigating it, I am profoundly moved by their stories of the internal preparation that has occurred and continues to flourish as they hunker down for some of the most dramatic transitions in the history of life on earth.

Healing Mother Earth: E.O. Wilson

Renowned scientist E.O. Wilson delivers a plea for a new human ethic based on a wiser, more careful stewardship of our vanishing natural world while sharing his optimism that we still have an opportunity to save the living things and wild places that sustain us.

Obama says U.S. must get in front on green energy

(CNN) -- President Obama said Wednesday the United States must take the lead on energy, citing the "enormous job creation potential that exists."

Stricter mpg rules may be boon for automakers

President Barack Obama is trying to shove U.S. automakers toward the future, a high-stakes wager that could help revive the industry in the long run, experts say.

By issuing rules aimed at sharply boosting vehicle gasoline mileage and slashing greenhouse gas emissions, experts say the Obama plan is just what carmakers need given the prospect of higher gas prices and worries about global warming.

Talking Gearheads: Electric Vehicles and the Future of Cars

As promised, Jim Motavalli of the New York Times' Wheels blog and I engaged in spirited discussion today about the future of electric vehicles. Jim has posted the debate at Mother Nature Network, where he regularly blogs about environmental issues.

Getting Out From Behind the Wheel

NEW YORK — Nate Silver, a baseball statistician who last year turned his number-crunching craft to political and social matters at the Web site FiveThirtyEight.com (it refers to the number of electors who choose the president of the United States), recently asked this question in a column for Esquire magazine: “Is America Still a Car Culture?”

Follow the Science on Yucca

The administration’s budget for the Energy Department raises a disturbing question. Is President Obama, who has pledged to restore science to its rightful place in decision making, now prepared to curtail the scientific analyses needed to determine whether a proposed nuclear waste repository at Yucca Mountain in Nevada would be safe to build?

Chinese Premier Wen Jiabao halts construction of power plant on Nu river

The Prime Minister of China has ordered a halt to construction of a hydroelectric plant on one of the country’s most remote and beautiful rivers. He has demanded an in-depth study of the likely impact on the local ecology and communities.

The decision, which will enrage power companies as well as local vested interests, was welcomed by China’s increasingly vocal environmental campaigners.

UAE nuclear energy plant seen ready in 2015-IAEA

DUBAI (Reuters) - The United Arab Emirates has told the International Atomic Energy Agency it plans to have its first nuclear power plant ready in 2015, an IAEA official said on Thursday, although the body believes this is optimistic.

"The UAE government told us that the plant would be ready and generating power by 2015," Ali Boussaha, a director at the IAEA, told Reuters on the sidelines of a conference in Dubai.

U.S. lawmakers reject nuclear in renewable power goal

WASHINGTON (Reuters) - U.S. lawmakers pushing to include greater recognition for existing nuclear power in a national renewable energy standard failed to win new breaks for the industry when a U.S. congressional panel on Wednesday voted down an amendment to a controversial climate change bill.

Fresh Wind Blows Through Brazil's Energy Sector

PARACURU - Nearly 50 years spent fishing from tiny sailboats have taught Manuel de Oliveira the power of the wind, but he was mystified when white windmills began springing up along the coast near his town.

"I did think they were pretty strange," he said as he shook his net out on a beach in Brazil's northeastern state of Ceara. "But the wind is the wind, and it works for everyone. Thankfully for us, it's free."

The strong, consistent winds that for centuries have powered the colorful wooden "jangada" fishing boats off Brazil's northern coast are now making the area the center of the country's fastest-growing energy sector.

The dirty secret about clean coal: It doesn't exist

“Clean coal” is a brilliant marketing slogan.

Unfortunately, it is, at best, a distant dream. At worst, an oxymoron.

True clean coal technology does not yet exist. Touting coal as clean is a bit like pushing potato chips as a diet food, or a couch as an exercise device.

China to Boost Clean-Energy Use on Climate Change

(Bloomberg) -- China, the world’s second-biggest oil user, will boost its ability to produce power from clean energy sources to 35 percent of total capacity by 2020 to counter climate change, State Grid Corp. said.

China calls for 20pc emissions cut

The pact must ensure wealthy nations "take on quantified targets to drastically reduce emissions", the statement said, issued by China's National Development and Reform Commission, which steers Chinese climate change policy.

Union of Concerned Scientists - Climate 2030: A National Blueprint for a Clean Energy Economy

Reducing oil dependence. Strengthening energy security. Creating jobs. Tackling global warming. Addressing air pollution. Improving our health. The United States has many reasons to make the transition to a clean energy economy. What we need is a comprehensive set of smart policies to jump-start this transition without delay and maximize the benefits to our environment and economy. Climate 2030: A National Blueprint for a Clean Energy Economy (“the Blueprint”) answers that need.

California Budget Crisis -

When they get hungry and have no school teachers, police, and other govt services left, running out of money and food, then they will start cutting those big trees again, eating animals, and drilling for oil. Good bye to the tree huggers, and environmentalists in CA. Even the Terminator cannot fix this mess.

That makes sense. Morals, ethics, principles etc are luxuries we can afford during times of plenty.

I wonder when/if slavery will make a comeback in the US (or in some former states of the future, defunct US of A)?

Nothing to do with morals or ethics. I was pointing out that priorities and decisions change based on needs. There is nothing wrong with cutting a tree as long as you have one to cut that you own. When you need something to survive, it becomes less sacred.....
This is not a joyful situation, but a change in policy will be required for people to survive in California.

There is nothing wrong with cutting a tree as long as you have one to cut that you own.

According to this philosophy, cutting down the last tree on Easter Island was OK, as long as the tree-cutter was the owner? Maybe the complete deforestation of Easter Island points out a slight shortcoming in the real-world consequences of this belief system?

But it is a nice summation of the Bush/Cheney world view. What happens to future generations and the public at large is immaterial as long as sacred property rights are honored.

Maybe the change in policy that California requires includes giving up on immature and short-sighted "tax rebellions" such as Proposition 13. California has plenty of wealth to meet its' public funding needs, but stupid policies, especially right-wing initiatives such as Prop 13, have crippled state government. Once again, the right wing cripples government and then screams that "government does not work" in a head-in-the-sand self-fulfilling prophecy.

The notion that Easter Island died due to the cutting of the trees is only partially correct. According to Jared Diamond, the problem was more subtle than that. Somewhere along the way, the islanders brought rats onto the island and the rats liked to eat the nuts from the main tree species on the island. As a result, the rats eventually grew into a population such that no new trees could grow back, once cut down. Even if the islanders had not cut a single tree, once the rats arrived, the trees were going to disappear as they lived out their life cycles and no young were able grow and replace them. Cutting the trees only sped up the process.

As for Prop 13, I'm one of the casualties as I had applied for a job with the State, meeting all the requirements, and after Prop 13 the hiring freeze killed the job. So much for a shot at a career and a "normal" life. I've experienced mostly unemployment since then...

E. Swanson

That sounds like a convenient escape clause for the Lumberers. I have to wonder if these people weren't also killing off those animals that might have thrived as the predators to the juicy Rat Population.

We have a definite knack for throwing natural systems out of whack. Maybe it's our ability to envision 'un-natural' things. Deforestation also did in the people up on the fertile plains of Mesa Verde, so I've heard.. the soils wore out, water tables evaporated and the erosion capped it all off. And the people left.

Why would there have been predators of rats? It was maybe the most isolated ecosystem on the planet, and a very tiny one at that. There were no rats for any such predators to co-evolve with.

Exactly, the people of California will soon become like Easter Island. There are too many people and not enough resources. They talk of conservation, but when it comes down to survival, all bets are off. When we have to make the choice to cut the tree or watch another starve, the tree loses the bet. State gov't wastes more money than any other business. Corruption abounds and taxes do not go to support the services needed by the citizens.

You still have a way of vastly oversimplifying the equation, though.

It's more like 'Killing the goose that laid the golden eggs'.. That metaphorical Tree may also be what you need alive, to stay alive. Some people will go 'Drill, Cut and Burn'.. but not everyone is so shortsighted, even in a severe crisis.

I'll try to do a web-search to see how many people have given their lives for their kid or their town or a principle. There are Black Swans, and also White Swans..

Slavery still exists in the US, it has simply changed form. Slaves to the debt based society. You must work to repay your creditors who own your hind quarters. Pay up, or we will take your home.

Don't forget prison labor.

I'd be careful about schadenfreude. Remember Gail_the_Actuary's posts? We'll all be pot-lickers soon.


I did not detect any joy in nowhere's post.

I do agree we will all be "pot-lickers" soon enough.

As we continue to collapse, we will not be able to afford climate or energy transition plans. And most people will lose interest in them - being preoccupied with finding food, shelter and work.

And our politicians, including Mr. Charisma Obama, will have their hands full dealing with the masses of angry, adult-sized children.

Good-bye silly pie-eyed, sci-fi Transition Planz.

Ironically, this deep recession has done more to help the environment than what the environmental movement has achieved. It's not whether people care about the environment or not, it's what they actually do or don't do that matters.

It's interesting how things change in such little amount of time. Back when Bush, Jr. was still prez and Peak Oil was imminent, many thought the west coast would be the place to go for refuge. Nowadays, I fear for what's to come in the immediate future for my Californian relatives. I'm feeling more and more confident that my decision to stick to the Midwest was a good one since it is buffered from the extreme excesses of either coast.

California was never a good place to ride out The End of the World. Too many people, not enough water. The Northwest should be fine.

I often internally debate that Northern California would be a fairly decent place, not simply because it has a mild climate which can grow a wide variety of food, but it is also attempting to develop an infrastructure to replace the outgoing non-sustainable system. I think Northern California has plenty of water, if it wasn't being diverted to the central valley and the south, or being squandered through waste and swimming pools and the like. But the question I have for you is, what is to stop the millions in California from simply walking up to Oregon and Washington and B.C.? You gonna stop them? I still think N.Z. is best for a bleaker scenario, since it's harder to swim and sail then to walk. But if it gets to that point, nowhere is really safe, it's just a matter of less bad.

I currently live in North Dakota, and while it has deep topsoil and an intense growing season, the winters
are brutal to say the least, but it's a natural defense against anyone simply walking up there at the wrong time of year. I'd imagine that most buildings would have to be put underground if winter heating became a very serious issue. And if there were no way to bring up fruits and vegetables in winter from warmer areas, one would get sick of dried apples in a hurry.


Distance and terrain? It's almost 400 mi from San Francisco to the Oregon border and very remote, meaning no places to resupply. I suppose hikers could feed themselves along the way if they're good at foraging. At least drinking water won't be as much of a problem as hiking from LA to SF. Either way, a tiny fraction of Americans have the fitness to make that trip on foot, no matter how desperate they were. At least that's what I'd be counting on if I lived up there.

Has anyone here read "Parable Of The Sower"? It basically describes what this south-to-north pilgrimage might be like. Great book...

Yes, a very memorable book, along with its sequel, "Parable Of The Talents". Extremely plausible scenario of migration on foot.

Good points. but, 'What'll keep the southern Californians from walking up there?..' Well its the Walking part, I'd say. (Call it 'Hiking' and you'd get maybe 1/30 of them, though.)

There's a story of a fella whose farm was just past Fryeburg, and a state surveyor come through one day, and soon he gets a letter saying that there'd been a mistake and he was actually located in New Hampshire!
"Thank GOD!" He exclaimed, "I couldn'ta stood another one of them Maine Winters!~"


jokuhl, you and dwcal make a good point about people's relative fitness and their ability to walk and also to forage, but couldn't we also see a sort of displacement effect, like happened with many native american tribes, pushing other tribes westward, as europeans pushed them off their lands? I'm part Lakota, and I know their ancestral lands are near the boundary waters in MN and further east and they were fishers and hunters, and didn't go out onto the plains and start riding horses until they got pushed out. (or so my relatives told me)

I did forget about the heavily armed and paranoid pot plantations in far northern CA that could act like a buffer for Oregonians. heh.

Ahh, New Hampshire,I went to school there, and their winters can be cold. At least they have some trees and hills between them and the arctic circle to slow the winds down a bit. ;)


I was kind of just funnin' about Angelinos doing ANY walking, ever. It was mean, one of my best buds is there, and has gout right now, so he can barely stand..

Coastal Maine hit 90 today. Didn't expect that!


I think you might all be missing the part when tens of thousands of Californians, Nevadas, Arizonans, Mexicans make the trip up north by car, bus, whatever, BEFORE the point is reached when you can only make the journey on foot. Plenty and I mean plenty of people will decide to get out 'while the gettins' good' so be prepared for a lot less elbow room in the NW before the walking distance becomes the limiting factor.

what is to stop the millions in California from simply walking up to Oregon and Washington and B.C.?

Thoughts like that will get Tom McCall to rise from his grave.

Come visit us again and again. This is a state of excitement. But for heaven's sake, don't come here to live.

Hmmm ...

The current problem is not the supply of trees but a shortage of customers for the trees.

Drilling for oil is fine except that California has been drilled and drilled some more. The available oil ... offshore ... would certainly wind up being too expensive ... a shortage of customers for the expensive offshort oil.

California's problem is rooted in believing real estate values could never decline, that its massive immigration from Mexico could support increasing real estate values and that government expenses could also never decline.

There is a long road between our current affordability crisis and a Haitian style existential crisis. Not that we won't get there if we aren't careful.

There is a long road between our current affordability crisis and a Haitian style existential crisis.

For the Haitian, it's not an existential crisis, just normal life. The crisis would exist only in the transition--not in the destination.

Things are tough all over...

Faltering country clubs invite the public inside

Last month, Uniontown Country Club opened its dining room to the public for the first time -- a change that has blurred the social hierarchy in this mountain town south of Pittsburgh. The economic crisis and shifting demographics have left Uniontown, population 13,000, without enough wealthy residents to sustain a private club, so now UCC caters to the everymen it was created to exclude. Instead of handpicking its members from a waiting list, UCC advertises in the local paper, has relaxed its dress code and features a menu designed for what the new chef calls "budget-conscious eating." Out: the filet mignon for $30. In: super nachos for $7.95.

"We've gone from chichi to Chi-Chi's," one member says.

The National Golf Foundation has identified more than 500 clubs at serious risk of closing, and a recent survey of club managers showed that twice as many members resigned during the past 12 months than during a typical year.

Here's a chance to buy prime farmland cheap. You could sub-divide the land into small plots and rent them out to urban dwellers who want to grow their own food.

But beware many courses over 30 years old have high levels of arsenic.

We've got several of these eyesores in Central Florida (and more coming soon, no doubt). I've seen a few problems with redevelopment...zoning, for one. Can't have a 'farm' in some zones. The soil might suck, but at least there should be irrigation infrastructure. Sometimes the surrounding neighborhood was promised or deeded golf access, so even though it's not open and won't reopen, people won't admit it. Then there's NIMBYism, where people don't want dirty farmers or whatnot running around near their backyard.

I've always been partial to George Carlin's description of golf...you hit the tiny ball once, if you find it, you win! Now go home and have a beer.

So, I have to spend money to drive out to my little plot and back, costing probably a lot more than I'd save by growing my own...Not a good idea there, Mac.

Yergin once again proves himself to be out of touch with reality:

Detroit was not knocked on its back by the collapse of Lehman Brothers, but by what happened at the gasoline pump.”

If you turn your currency into Monopoly money and decree that everyone with a tarpaper shack has the right to refinance and pull equity at values well above market, if you throw money at people and encourage them to buy houses and SUVs, cheap crap from China, and take month long island vacations what will happen?

Building all those houses will require gas, transporting all those building materials will require gas, getting yourself to and from your remote house will require gas for your new gas sucking prickup truck, buying cheap Chinese crap will require the Chinese to buy gas to move raw materials to China and gas to move finished goods to your local crapstore, the island vacation resort will need even more gas to move every modern convenience and comestible to the island and move the crapola away, not to mention all the gas required to move you off and on the island via airfreight.

Since every product and good in a modern western economy contains a high FF component, every increase in spending will result in an increased demand for FF and since nobody is making FF any more there is a good likelihood the price will rise as a result.

Like yeast in a vat slowly stewing in the increasing concentration of alcohol which eventually kills them and halts fermentation, the human yeast stewed in an environment of rising prices until this killed off the economy. But the chain of cause and effect is not the short and simplistic one proposed by Gail, or Yergin. The root cause was an incredible wash of liquidity, a tsunami of money too cheap to meter, an environment where even the destitute could afford the McMansion of their dreams by virtue of liar loans and tar paper shacks assessed for millions.

Like the Royals at Versailles the USA has been living in an alternate dream universe, a dream way of life declared to be non-negotiable.

Explain that non-negotiable way of life to the rising army of the unemployed. I think it gets worse before it gets worse. After downgrading the UK sovereign debt rating it will not be long before they downgrade the US sovereign debt rating. Going to be difficult to support that non-negotiable way of life when you have to borrow trillions from those Muslims you have been busy killing, or from the former supporters of Mao who, in the guise of smart capitalists, now turn out to posses all of your money.

Like FM said, don't insult yeast by comparing them to humanoids.

I don't know, Yergin seems to have grasped the essence. Average oil prices have increased 400% since 1998. That increase has to come out of the difference between the total cost of a good such as a car ... and what a customer will pay for it.

If the price of something is both high enough to cover costs and allow a profit but is higher than what buyers will (or can) pay, the company that makes the thing will fail.

To compensate for higher costs companies have cut corners, shipped labor costs overseas, turned to robotics and automation, utilized 'just in time' parts management, increased spare parts' prices 300 -400%, switched to cheaper materials where possible, shifted from cash financing to exotic credit and accounting strategies ... as well as other expedients. The rise in energy prices has overcome the benefits of these expedients. In the auto business, that 400% has come out of profits. This is true for Chrysler and GM ... it's also true for Tata and Toyota.

When profit disappears, the company also disappears

The 400% is pushing jobs out the door, too. The result of joblessness is a cut in fuel demand ... not enough to bring prices back to 'normal' of $15 a barrel or so ... but enough to keep increases from 800% or 1200%. Think about it: the price to be paid to keep oil prices reasonable is for the overall US economy to shed 6 million jobs or more per year and for the energy business to shed its number one customer.

Similar to the only thing that keeps energy prices at bay is an economic collapse. That is a tough way to regulate prices.

Currency exchange is certainly a faotor but the benefits and costs of currency trends tend to even out over time. What Yergin acknowledges is decreased availability.

I agree with Steve. The decline in availability and the run-up in oil prices spanned seven years. It was not just a sudden event. As Yergin said

“People seem to have forgotten,” he says, “that one of the factors leading in to this deep recession was the impact of very high oil prices over seven consecutive years. Detroit was not knocked on its back by the collapse of Lehman Brothers, but by what happened at the gasoline pump.”

The impact was really a double one - that of much higher oil and gasoline prices, and the cutback in available credit, resulting from Federal Reserve Open Market Committee actions based on the higher oil prices.

Back in 2002, interest rates were at historically low levels, post 9/11. The as oil prices rose, the FOMC raised interest rates, each time mentioning specifically that inflationary impact of rising oil prices was the issue, as Steve from Virginia has documented. The higher interest contributed to the financial difficulties of banks (because their margin between lending long and borrowing short was less). The resulting reduction in credit availability contributed to the problems of the auto industry.

The decline in availability and the run-up in oil prices spanned seven years. It was not just a sudden event

IMO, any system with a big time lag between a control signal and a physical response to the signal (like increasing oil price, 5 years investment before inapropriate extra production finally arrives) is likely to be very unstable and unpredictable - in fly-by-wire aircraft it frequently has fatal consequences!

When oil spare production capacity becomes tight always expect non-linearity - it is unwise to expect anything else.

The speculators are starting to wind up and it seems as if the whole cycle of $140 is about to repeat itself. The price correction mechanism that was in place during the late 20th century is not working and the Obama adminstration STILL HAS NO ENERGY POLICY!


on the nat gas front,Rune was updating european storage #,i found very helpful in figuring out wether gas from gazprom were being curtailed due to depletion or was self induced.periodic updates would be appreciated.thanks.....r.m.

Look on the bright side. "No policy" is better than "Invade Iraq!" ;-)

Clearly someone understands font size, but I googled Obama's energy policy in 30 seconds. You may not agree with the policy but it certainly exists, including increased CAFE standards, building energy efficiency standards (which the Republicans have bitterly opposed), a carbon cap-and-trade system, massive increases in federal funding for renewables and efficiency, big investment in smart grid R&D, etc.,etc.)

Font size does not impact reality.

From http://www.whitehouse.gov/issues/energy_and_environment/
Energy & Environment

"So we have a choice to make. We can remain one of the world's leading importers of foreign oil, or we can make the investments that would allow us to become the world's leading exporter of renewable energy. We can let climate change continue to go unchecked, or we can help stop it. We can let the jobs of tomorrow be created abroad, or we can create those jobs right here in America and lay the foundation for lasting prosperity."

-President Obama, March 19, 2009

* The American Recovery and Reinvestment Act included more than $60 billion in clean energy investments that will jump-start our economy and build the clean energy jobs of tomorrow:
o $11 billion for a bigger, better, and smarter grid that will move renewable energy from the rural places it is produced to the cities where it is mostly used, as well as for 40 million smart meters to be deployed in American homes.
o $5 billion for low-income home weatherization projects.
o $4.5 billion to green federal buildings and cut our energy bill, saving taxpayers billions of dollars.
o $6.3 billion for state and local renewable energy and energy efficiency efforts.
o $600 million in green job training programs – $100 million to expand line worker training programs and $500 million for green workforce training.
o $2 billion in competitive grants to develop the next generation of batteries to store energy.
* Increasing, for the first time in more than a decade, the fuel economy standards for Model Year 2011 for cars and trucks so they will get better mileage, saving drivers money and spurring companies to develop more innovative products.
* The President issued a memorandum to the Department of Energy to implement more aggressive efficiency standards for common household appliances, like dishwashers and refrigerators. Through this step, over the next three decades, we’ll save twice the amount of energy produced by all the coal-fired power plants in America in any given year.
* Supporting the first steps of a legally-binding treaty to reduce mercury emissions worldwide.
* On Earth Day 2009, the President unveiled a program to develop the renewable energy projects on the waters of our Outer Continental Shelf that produce electricity from wind, wave, and ocean currents. These regulations will enable, for the first time ever, the nation to tap into our ocean’s vast sustainable resources to generate clean energy in an environmentally sound and safe manner.

To take this country in a new direction, the President is working with Congress to pass comprehensive legislation to protect our nation from the serious economic and strategic risks associated with our reliance on foreign oil and the destabilizing effects of a changing climate. Policies to advance energy and climate security should promote economic recovery efforts, accelerate job creation, and drive clean energy manufacturing by:
Investing in the Clean Energy Jobs of the Future

President Obama does not accept a future in which the jobs and industries of tomorrow take root beyond our borders. It is time for the United States to lead again. Under President Obama, we will lead again, by developing an American clean energy industry, a 21st century economy that flourishes within our borders.

* Creating new Jobs in the Clean Energy Economy. Drive the development of new, green jobs that pay well and cannot be outsourced.
* Investing in the Next Generation of Energy Technologies. Invest $150 billion over ten years in energy research and development to transition to a clean energy economy.

Securing our Energy Future

Our reliance on oil poses a threat to our economic security. Over the last few decades, we have watched our economy rise and fall along with the price of a barrel of oil. We must commit ourselves to an economic future in which the strength of our economy is not tied to the unpredictability of oil markets. We must make the investments in clean energy sources that will curb our dependence on fossil fuels and make America energy independent.

* Breaking Dependence on Oil. Promote the next generation of cars and trucks and the fuels they run on.
* Producing More Energy at Home. Enhance U.S. energy supplies through responsible development of domestic renewable energy, fossil fuels, advanced biofuels and nuclear energy.
* Promoting Energy Efficiency. Promote investments that reducing energy bills in the transportation, electricity, industrial, building and agricultural sectors.

Closing the Carbon Loophole and Cracking Down on Polluters

We must take immediate action to reduce the carbon pollution that threatens our climate and sustains our dependence on fossil fuels. We have had limits in place on pollutants like sulfur dioxide, nitrogen dioxide, and other harmful emissions for some time. After decades of inaction, we will finally close the carbon pollution loophole by limiting the amount of carbon polluters are allowed to pump into the atmosphere.

* Closing the Carbon Loophole. By stemming carbon pollution through a market-based cap, we can address in a systematic way all the energy challenges that we face: curbing our dependence on foreign oil, reducing our use of fossil fuels, and promoting new industries right here in America.
* Protecting American Consumers. Revenues generated by closing the carbon loophole will be returned to the people, especially vulnerable families, communities, and businesses.
* Promoting U.S. Competitiveness. Ensure a level playing field for domestic manufacturing and secure significant actions to combat climate change by our trading partners."

Thanks Tommy.

Some parts of 'hopelessness' are a choice, and I'm glad to see you choosing otherwise.

DC is a mess.. but there are actually SOME positive signs, and I think we'd do well to show them which ones we support and encourage.


This is a list that adds up to zero.

The only energy policy that matters is one that cuts energy consumption, rather than spending borrowed money. An energy policy is something that allocates (!) energy to priority sectors such as food supplies and first providers in the event the 'Market' breaks down. Basically everything on the pretend presidency laundry list is pork barrel spending. There is not one mandate to cut energy use.

Even the useless Carter had 'odd- even days'. The Pretend President offers the 'next generation of cars and trucks' as if business as usual is merrily taking place right outside the door! Hello! The automobile industry is imploding. The 'bankruptcy charade' and the Potemkin villages are not even pointed in the direction of reducing fuel use. What is offered is third- derivative 'hope' Hope that energy use will decline all by itself and the Pretend President can take credit.

Hope is well placed, ironically. Energy use will decline; it will decline the hard way. Not one thing the Pretend President has offered or pretended to offer will directly cut energy consumption. Shortages and high relative prices will be left to do that job.

This is a non- policy masquerading as a policy.

How many barrels with the Pretend President's Empty Words Plan save? fifty? A hundred? Would you use this as a plan to save YOUR country from energy starvation?

Point by point:

* Creating new Jobs in the Clean Energy Economy. Drive the development of new, green jobs that pay well and cannot be outsourced. What specific energy jobs? The alt- energy businesses in the US are shutting down for lack of investment and most alt energy hardware is imported from Japan (solar cells) or Europe (wind turbines). What green jobs? What ANYKIND jobs?

* Investing in the Next Generation of Energy Technologies. Invest $150 billion over ten years in energy research and development to transition to a clean energy economy. More buzzwords. What does this warm- fuzzy actually mean? How much of that investment will bear fruit? If the past is any guide, the amount will be zero. I defy the government or anyone esle to show any government direct investment or private- public investment in anything over the past twenty years that has generated any positive economic benefit to anyone other than business tycoons. Twenty years. Come up with anything; the economic zeitgeist of that time has been to outsource millions of US jobs and cut US wages. What is the outcome? China holds billions in US currency and securities and our economy is collapsing because Americans have no money! What else? Iraq and Afghanistan ... great investments for those looking to start militant training camps! How about NAFTA? Billions worth of farm products exported to Latin America/Mexico which puts farmers out of business. These millions become the undocumented immigrants come to the US to take the remaining jobs that cannot be sent to China. I hate to see what the establishment's 'Clean Energy Technologies' will bring. Fusion in a bottle for $15 billion a year ... courtesy of Goldman- Sachs, no doubt!

The government mandates and subsidizes ethanol, the corn crop is diverted from food and millions go hungry around the world; add food riots and governments overthrown. Tell me how the taxpayer investment in biofuels is paying off!

* Breaking Dependence on Oil. Promote the next generation of cars and trucks and the fuels they run on. Hello! The next generation of what ...? Chinese- made Hummers? The auto industry is going down the toilet. Why? Because fuel efficient cars aren't profitable. Because auto customers are broke. What 'next generation?' The cars of the future will be the same cars that people are driving now, just a whole lot fewer of them. Those that can be fixed in peoples' back yards. The US government is broke. So is the auto industry! Nobody has the trillions to create a replacement fleet for what exists. Government policy doesn't mandate cutting the current fleet in half. Circumstances will be left to do that ... the motoring enthusiasts are going to really love this!

* Producing More Energy at Home. Enhance U.S. energy supplies through responsible development of domestic renewable energy, fossil fuels, advanced biofuels and nuclear energy. More payoffs for the well- connected business as usual types. Howcum this is a policy? Guess what? There is no hidden Saudi Arabia in the US backyard. What's left? The current energy titans are fighting over the scraps; stripper wells and exhausted coal fields. The auto industry looks hungrily at the corn crop and the tightening natural gas supply. (Is it really 'massive'?) It's too late to develop alternatives, except for conservation.

Where is the policy to keep the voracious autos from diverting food from peoples' tables and natural gas from peoples' furnaces?

* Promoting Energy Efficiency. Promote investments that reducing energy bills in the transportation, electricity, industrial, building and agricultural sectors. REDUCING THE ENERGY BILLS IS EXACTLY THE WRONG THING TO DO!!!. How can encouraging consumption be the official policy? Is this the 'unofficial policy' or is this a joke by an Oil Drum poster? I don't get the joke! How can anyone take a mandate to reduce costs for consumption and thereby encourage consumption as an appropriate policy for a period when fossil fuel energy is declining? Where is the critical thinking?

I can go on - the carbon initiatives are equally hollow - this so- called policy is a pile of steaming, stinking horse shit. When the so- called President gets on TV and tells Americans to use less I will accept that he and his clueless business stooges have a plan.

It won't be until the next president. This one is hopeless.

Explain that non-negotiable way of life to the rising army of the unemployed. I think it gets worse before it gets worse.

I have to agree with that assessment. I also believe that the official unemployment numbers are being severely understated and manipulated.

Last night I went to a fundraiser for the American Cancer Society sponsored by my dive club. It was a real eye opener to find out how many of the attendees had recently been laid off or were expecting to be soon.

These are your typical solidly middle class Americans. The conversation, jokingly, (maybe not so funny), turned to concocting a plan to recruit our members as a band of pirates that would hold wealthy local yacht owners hostage and demand ransoms if they wanted to continue to have their yachts floating above the water line.

I really believe that I'm beginning to sense a profound change in attitude, especially against the obscenely wealthy.

It could be a healthy attitude change if it gets them to invest their wealth in productive enterprises. But do the local populations understand what needs to be done and will they appriciate it?


While I like to think that I am probably a bit more aware of peak oil and it's consequences than the vast majority of the populace, it would still be rather disingenuous of me to say that I understand what needs to be done or how to go about doing it. Sure, I'm doing what I think I can do in my own life, but is that what everyone else needs to do? Time will tell.

John Michael Greer's gloomy forecast about the future of the internet seems to be based on some wildly inaccurate figures for internet energy usage thrown around a few years ago. This included 588kWh per year average power consumption for a PC. This is 68 watts, 24 hours per day, 365 days per year.

Four of the computers included in the wildly inflated count of computers live at my house. Two of them are retired, and, while they are operational, have not been used for over a year. My desktop computer probably uses about 100 watts when it is turned on, but it is only turned on about ten hours per week, or 6% of the time. My laptop is probably used twice as much, but its power consumption is less than 50 watts with 100% CPU usage, and probably less than 20 watts most of the time I'm using it. And it goes to sleep in ten minutes if I don't touch the keyboard or mouse.

The smallest component of the so-called internet power usage is the part used by the actual network: the cables, optical fibers, microwave links, routers, etc., which are the heart of the internet.

As energy becomes more expensive, I expect keeping the internet operational will move up in society's priorities, because its easy communications will allow a lot of business travel to be avoided. Email is also much lower in energy cost than "snail mail".

I found his take to be a bit extreme as usual, but of course there are two core aspects of the internet that you didn't address. Porn and ServerFarms.

I use 'Porn' loosely to describe all of the unnecessary and server-intensive activity that allows the system to keep the Bucks rolling in. Video, Advertising, Gaming, not just 'Shopping' but 'SHOPAHOLICing', scads of jobs and businesses and processes buzzing around buying, selling and getting thrilled about vapors.

The ideal facts and potentials about the internet are enticing, but the facts on the ground are a shadowy reflection of our energy and our money problems.. IE, mostly noise. If you can sweep away the noise to find the essentials, it's too hard to tell through such filtering whether those essentials would support a web at all. Or an Auto industry, a Highway System, Computer chip manufacturing..

Greer thinks not. I don't pretend to know, but I'm a little worried.

I don't pretend to know the future of the internet either.

But one thing I notice a lot during international travel is the "future-primitive" hybrid and my uneducated guess is that the energy and materials efficient aspects of new technology may survive while hybridized with low-tech low-energy semi-traditional technologies.

In Latin America, people who primarily travel by foot, horse, and bike still own and use cell phones to great advantage to communicate and make their daily activities more efficient. Most of these people will never live the SUV, McMansion, fast-food life, but bits of modern technology dropped into near subsistence life have made a big impact. A village of poor people might still be able to outbid an individual US suburbanite for the gas to run a daily bus, some PVs in the school, and a shared cellphone or two (many poor owners of cell phones sell time to their neighbors, spreading the expense around). As the dollar drops, the economic equation between individual first-world consumers and aggregates of less-wealthy world inhabitants changes.

The internet protocol is actually quite flexible and somewhat self-healing, so IP can be used on a local network scale without requiring the current global internet to function, so islands of networks might function despite many disruptions in global connectivity.

These are good examples of what anthropologist Marshall Sahlins calls the "indigenization of modernity" - the selective appropriation of what works and doesn't work. Seems to me this captures much of what's been going on in the "developing" world for some time now, and what's increasingly going on in the USofA.

There is where my hopes rest, as well.

Digital signal processing is extremely versatile, even at a fraction of the throughput we use today.. just having something like an old Sinclair or TRS-80 and a Packet-HAM radio Modem system that allows an Ad-Hoc network to keep towns, cities outposts and continents connected would provide a level of communication that is still far above the abilities available to us anytime before probably 1960 or so. We had Morse and Teletype, but the availability of file-types and applications common to us now, makes those prior digital forms really weak by comparison.

I don't see any scenario that convinces me that these well-reproduced and globally-spread forms will be lost. There are too many places that should be able to survive well in the Post PO times where such information will survive and resurface if it falters on us now.

Two points.

1. It's interesting that Tommyvee supports an assertion about the internet with an example about cellphones. They're not the same thing, and I suspect people would give up the Web and email before giving up phones.

2. The key point, the hinge, is whether we (the world) will be able to continue to support a semiconductor (very large scale integrated circuit, VLSI chip) industry. Semiconductors are the highest of high tech, requiring air cleaned to parts per billion, manufacturing tolerances of one nanometre, and many complicated processes using exotic chemicals. Direct investment in microprocessor (CPU) fabrication plants currently runs at $10 billion - $100 billion per plant. Add in factories for the support equipment and materials, and you could probably double the direct investment. And those factories, in turn, require yet other exotic materials in their machinery.

As with so many things, the visible part is just the tip of the iceberg.

Archdruid Greer clearly believes that at some point, some part of the complex network of products needed will disappear. Yes, we will still know how to build everything we need - I don't think he denies that - but, for some reason, we won't be able to actually do it.

With convergence, new cellphones are all essentially web-enabled computers. Although we carry them in our hands, cellphones have internet bandwidth and computational power greater than the desktop PCs of a few years ago. And we can buy them for less than $100, which gives some very rough measure of the materials and energy invested in their manufacture.

I recognize that plenty of events could make chip manufacture difficult or impossible, but the return on investment of internet communication is high enough that I think many other aspects of modern technology would fall by the wayside long before communication networks.

I can assure that the web browsing sucks on 100 dollar mobile phones I wrote the code for a few of them :)

Now they are getting there don't get me wrong. I've tried a few time to convince people to support Bluetooth keyboards and either a dedicated video out VGA/DVI etc or VGA over USB dongle wireless is possible. A lot of devices also have built in wireless networking.


Its almost off the shelf and if you add a descent high speed SD card your on a roll.

Also heads up eyeglasses like displays.


With a good OS (Linux :) And the right software you can also do a good job of paritition cpu intensive task off to a server.

Turning your mobile phone into a real portable computer can be done with off the shelf components today and done well with just a very small effort on the part of mobile phone manufactures.

Also the latest displays with white LED back lights promise significantly lower energy footprint.
Larger organic LED and flexible displays are also getting close to market.


I use these little computers for development.


I'd argue that the technology for energy sensitive computing is pretty much ready now.
Some products nearing the market would make the experience even better you can buy them now.

As long as Moore's Law is going strong, we can make technology that is a must buy in a consumer society. $10B or $100B upfront development costs with a 5 yesr or less pay back are a no-brainer at present...

but when we hit PO or some other limit to economic growth, the world goes into recession and companies like Sony suddenly find nobody is buying. They post a big loss in year one, a massive loss in year two and bankrupt in year three. Three more years and computer boards start failing thanks to tin whiskers. Two more years and no internet to speak of...

I'm not predicting, but it is a possible future.

That beagle-board is pretty! You've had good experiences with them? 2 watts is pretty impressive!


Yes I love it.

You need a late model LCD with digital DVI. And I suggest you but the little kit they have with the case its worth it. I think about another 40 dollars or so.
The next rev is coming out soon so you may want to hold off.

The openembedded build system has a bit of a steep learning curve but I've become and expert at it. It ranks with sendmail cf files, fortran and autoconf as things you learn but don't talk about :)

Its not that bad once you grok how it works and its powerful and its documented.

We pretty much don't use dev boards anymore and just do the final port to the manufactures devices.

Gumstix is another one I've worked with.


I prefer the beagleboard but both have and active developer community. The gumstix is closer to something you might use in a real product with minor changes.

All of these are reasonably capable of running a modern web browser. It really depends on the gpu capability and how well gpu hardware acceleration is used.

Obviously all of these can be run off a renewable energy source they are not the problem. The LCD panel and networking gear is the real problem. But the latest networking chips have dropped substantially in their power drain.

Assuming the LCD power problem is fixed soon and its very close to being solved there is no reason why people can't have full internet connectivity with a very small renewable energy source a few PV panels and small wind turbine etc. Even a steam generator.

I'm a bit weird in the sense that I believe that if we can keep our internet as times get tough people can use it to retrain themselves and learn how to live in a renewable world. I think keeping the internet for remote education, medical and even plain old entertainment will be invaluable to us and our children I hope it stays and the technology for a "renewable" internet is now effectively off the shelf.

I'm a bit weird in the sense that I believe that if we can keep our internet as times get tough people can use it to retrain themselves and learn how to live in a renewable world. I think keeping the internet for remote education, medical and even plain old entertainment will be invaluable to us and our children I hope it stays and the technology for a "renewable" internet is now effectively off the shelf.

One reason I have some hope for the above scenario in the future is that I have seen it already operating many places in less-developed countries, where PV and/or gensets power LED/CF lights, a shared computer, and cell phone chargers. These remote locations may never develop wired power or communication, but people living on 1/100 of the US average income are prioritizing and maintaining communication, while doing without much of the modern consumption system.

When we try to extrapolate what choices first world consumers might make when energy is much more scarce and expensive, the choices that people in other countries who already live a very energy and resource constrained life seem at least a relevant as the archdruid's speculations.

"many other aspects of modern technology would fall by the wayside long before communication networks."

I think that was part of the Archdruid's purpose: to get people to think "what will the world be like when industry declines to the point where we can't make cellphones and internet routers any more?"

My own opinion is that the more I learn, the less I know. We could make the transition off fossil fuels in an orderly way, given the political will...

Being able to manufacture eqipment for communication, information handling and technical control systems is more vital for prosperity and political and military power then oil. Electronics is an enabling technology for efficient energy use and efficient weapons and military. I have a hard time imagining it being abandoned, there are lots of things that can be deprioritized before electronics and even if I am wrong we could lose an order or magnitude in efficiency withouth loosing the momentum in lots of key cultural and scientific uses.

Former thirld world countries are industrilizing rapidly including establishing advanced electronics industries. Investing in vertical integration in old industrilized countries with good infrastructure ought to be easier than expanding the industrilized part of the world. I suspect that uncertanities in the supply chain for chip manufacturing etc could result in supply industries moving closer to the chip foundries.

The tcp/ip protocol is, all be it on paper. The infrastructure that the protocol runs on IS NOT.

It seems like the most likely bottlenecks are in Electronics MFG. Strung Wire and FiberOptic cable are nice, but wireless is also an option..

Has anyone seen any really good analyses of the infrastructural vulnerabilities of the Electronics Industry? Trace Materials, Economics, Energy?

How many Transistors were in an 8088, or 80286 chip? I guess I'm chewing on the MOL of a barebones digital communications system. (ie, Survival Level.. not today's assumptions..)

Hi Bob,

As I understand it, the 8088 contained 29,000 transistors whereas the 80286 came in at 134,000. The former is rated at 0.64 VAX MIPS (million instructions per second) and the latter is good for 2.66 MIPS (a VAX 11/780 = 1.0 MIPS). Quite impressive in their day, but these numbers pale next to Intel's Core i7 Extreme 965EE which packs some 731 million transistors and can spit through over 76,000 MIPS.

BTW, the 8088 drew roughly 1.3-watts and the original 4MHz 808286 approximately 3.3-watts. Intel's Core i7 Extreme 965EE can consume upwards of 130-watts but, obviously, gives you far greater performance per watt; i.e., up to 590 VAX MIPS/watt versus 0.5, almost a twelve hundred fold improvement.


OK, they were horrible energy pigs, but the the 11/780 and its successors will always hold a special place in my heart and it saddens me to think most have been turned into "scrap iron". However, one man came up with this brilliant idea:


As a former Phoenix, Az DECie, I remember the Vax line quite well as we assembled, tested, and burned them in, plus installed them at the customer's site. It is now amazing to think back to those heady days.

Toto, I had no idea you had the same job as I. I worked for Dec for 10 years, from 1970 until 1980. I was also a Vax specialists. I started on 10s. They were called the PDP 10 when I started with them. The first ones I worked on were entirely transistorized, no ICs. Then the first IC systems were called DecSystem 10s. Then they were DecSystem 20s, slightly smaller than the DecSystem 10s, and then the VAX. I also installed them and worked for awhile out of Atlanta in VAX support. I had a four digit badge number but I don't remember what it was, meaning I was one of the early ones with the company. My first 10 school was in Maynard, Mass, for six months.

Ahh those were the days.

Ron P.

Hello Darwinian,

I remember one of my first DEC jobs was following a process sheet to program a machine-tool by flipping lots of DEC-equip. panel switches to initialize the boot, then feeding a punched paper [yes, paper] tape for the rest of the instructions. But this tech was on the way out to be replaced by hard drives the size of big pizza plates. Most of our plant back then was for making printer terminals, ink-ribbon, not print-jet until much, much later. We killed lots of trees on our MTBF testing lines--truckload after truckload of paper reams.

Much later, of course, I recall the VAX Nautilus memory boards were about the size & thickness of my 20-inch LCD monitor, but so expensive that you did not dare drop them.

We also built the Rainbow and other ill-fated PCs in Phx for awhile,too. I was one of the last Phx employees to leave as they kept me around to palletize everything for surplus sales. I remember driving an electric cart and making huge aimless circles on the vast expanses of empty factory and office floor at the Union Hills & I-17 plant. I forgot my badge number too.

I'll have to dig out my "How to Program the PDP-8" for kicks. This is kinda silly, but you might enjoy this: http://www.youtube.com/watch?v=XV-7J5y1TQc&feature=related


The first computer I used that had a real operating system were a DEC 2020 running TOPS-20 at the university computer club Lysator, I still use the same email adress.

I dont miss TOPS-20 but I realy miss usenet news from before the never ending september and email were much more usefull before it got overrun by spam. (Heck, I would advocate email taxation if it could get rid of spam... )

I was a sysadmin on PDP-10. We ran about 60 simultaneous users on 256K of 36-bit mem (1.25Mb) with good response. The switch to VAXes was painful. I installed an e-mail system from a DECUS tape on the PDP-10, but management made me take it down: E-mail, what a silly idea.

I started out on PDP-11 with 64k of RAM!
Happy days!

Just down the hall from me sits a group supporting Alpha/VAX. Customer called in the other week looking for support on a PDP-8. They didn't know what it was %-). The kids these days. No sense of history. They think the world began with the i486.

My Apple ][+ has a serial number lower than the one on display in the Smithsonian... It makes me feel old thinking about it. To get it to run, I have to take each chip out of its socket and "erase" the oxide on each leg, reseat them, and keep a fan going on the CPU because it overheats. I was planning on keeping it and later selling it as an antique but Peak Oil may make such a venture moot. I think I should have collected horse drawn plows and seeders!!

Those early Vaxes were quite an eye opener for many of us. The first time computers were cheap enough to be shared with few enough users to actually be responsive.

Later, I worked marketting big Iron (CRAYs) against them. Our customers could have one percent of one of our monsters, or a vax -for roughly the same budget. Back then 1% of a CRAY was much more than a vax. Now, a single Intel chip would run circles around those behemoths. The one constant about our behemoths, they consumed 200 kilowatts, and weighed 2-3 tons, those numbers never changed going from model to model.

Still true for manny cluster supercomputers.

Talk about a blast from the past!

For those not so long in the tooth, I was a busy lad in the late 70's installing Intel memory in 780s (yes, Intel started out as a memory company).

They made a memory card which plugged right in and was a whopping 1 MB, whereas all DEC had were 256K. The price tag was around $5k and the OEM price was double that. Yes, that's $10,000 per megabyte.

A little more perspective: Since I started buying rotating storage, the prices have dropped 7 orders of magnitude, not including any inflation adjustment.


I worked on a VAX 11/750 for a while. The Boss got the thing from the Alaska School system and had it shipped to Atlant, so we used it to run one program. I suggested that the Boss get the FORTRAN code and re-compile it for a PC, as we were running 486 machines at the time. That's what happened, as I recall.

Along the way, I went to a state auction where old computers were available. There was a VAX 11/780 in the auction, but the thing was sitting outside the warehouse in the weather. I bought disc drive cabinets which used removable disc packs. For a while, I used them for end tables in my living room until I talked the Boss into hooking one up to the 11/750. They never could get it to work. I remember the documentation which came with the 11/750 that took up several feet of shelf space...

E. Swanson

I think any declines in the internet will be due to lack of advertising dollars generated to maintain certain sites more than energy used.

I agree. It actually is an energy problem, but it will look like an advertising problem. How do we pay for the content that makes people think the Internet is worth its cost? For a lot of people, no YouTube, no Amazon, no World of Warcraft, mean no reason to pay for Internet access.

This is already an issue in developing nations. Some sites block access from Asia and Africa, because people there suck up the content but don't generate any ad revenue.

The great advantage of using somatic powered flag semaphore for postPeak text messaging is that nobody will have the time to send advertising.

EDIT: Does anyone know if the Boy Scouts still require flag semaphore? Or have they since replaced it with a Merit Badge for cellphone proficiency?

The same for navigation by topographical map & magnetic compass? Has it been replaced by a Merit Badge for using a GPS Garmin or Tom-Tom device?

EDIT2: How many 'Murkan kids even know what S-O-S means, much less the various ways to signal it? I picture an old fart trying to get the message out and the youngsters ignorantly just laughing at what they perceive as a deranged fool.

And also the Internet takes a lot of time, which is better spent doing other things. As food costs go up with oil, what work I do in the garden will become ever more valuable to me. It is hard work, by the way, and repetitive. I like it OK but farming is definitely something people go to as a last resort. The heat, the dirt.....!!

Meanwhile, peak oil news can be quickly gotten anywhere by now: the shut-down shops nearby, the price of oil on TV, the newspaper with reports of losses...

Electricity costs are another factor: I try to use the Internet at work and keep the time spent short also just for Mother Nature.

For me the Internet has "peaked" in terms of its usefulness and my time spent on it is on the downward slope. But it is still a great tool of course. And the Oil Drum is the best site IMO!!

"As food costs go up with oil"
Just look at Jason's post yesterday, growing and transporting food only uses 3% of US energy consumption, not a big energy user, even if you include the processing industry(another 2%). Think about the demise of incandescent lights and the old beer fridge in the basement now they are big energy users.

The problem with the internet is what we put on it. It's growth is based on the economics of cheap energy. It costs almost nothing for a spammer to send a million emails, and only needs 0.01% of clickthroughs to turn a profit. Most of the energy cost of those emails is lost in the energy overheads of the ISP and the recipients.

The big money spinners on the internet are of course sex, fraud and intellectual property theft. (The latter are money spinners for the ISPs. As long as they offer their punters access to free music, games etc. they will keep the punters. As soon as they start cracking down, the punters will chose a less honest ISP ) Advertising also takes a lot of bandwidth. Only a few very large commercial companies like Amazon make money using the Internet as the primary medium, but it does cut overheads enormously for many organisations like airlines. These use only a tiny percentage of the bandwidth and energy consumed.

I would estimate 99.9% of the value of the internet to society (academic sites, TOD , news sites, etc.) consume 0.1% of the energy in operation. If 99% of the content was removed, the cost of Google searches would fall precipitously as well.

The internet will die, not because of it's operational costs, but because the technology it employs (computer chips) will become unavailable when the major chip producers go bankrupt. That could happen very suddenly....

Indeed. See this article:

The fragility of microprocessors
by Alice Friedemann



The article in you link doesn't actually give an information on energy use; 10%, 1% 0.1% or 0.01% of US electrical consumption? care to guess?

In the long term, that is true. In the medium term it would not be a problem, because of all the currently manufactured products computer chips are probably the most reliable. Computers manufactured in the last fifteen years are not discarded because the chips in them die: they are mostly discarded because they are obsolete, occasionally because another component, often a disk drive, has failed, and repairs do not make sense.

I have a computer fifteen years old which still works just about as well as it did when new, though that is not very well by today's standards.

When the chip industry dies, there will be enough supplies in the pipeline to keep computers going for a few years (the failure of the manufacturers will most likely be caused by output being much larger than market), and I'm sure cottage industries will spring up cannibalizing old systems to repair other systems. That will keep things going another decade or so.

I have several older computers that are very reliable. Newer electronics is often crap, for a couple of reasons:

1. Lead free solder. It can be made to work, but it is far more difficult and the metallurgy is less stable. Lowest cost manufacturing + lead free is a formula for failure.

2. Progressive outsourcing of both design and manufacture. Now even the old low cost manufacturers must outsource to even lower cost countries. When the designs are also contracted, there is often no continuity and designs do not evolve and improve. A product is contracted out to the lowest bidder, and the next one has nothing in common with it.

I design electronics for a company that still designs and manufactures in the US, and these are things that several of us have noticed while we attempted to understand why the quality of consumer electronics seems to have taken such a sharp decline lately.

As far as the internet, I don't give it a bright future. The electronics industry has one of the most complex and distributed supply chains imaginable, with resources and manufacturing and packaging happening all over the globe. Even a small geopolitical problem involving Asia would be a disaster. Further, it involves a lot of special materials and in some stages very clean and reliable power.

Ultimately it will be a victim of excessive complexity.

Yeah, the chips themselves are very reliable. Besides hard drives, the parts that fail most often are relatively low-tech like solder joints, electrolytic capacitors, and cooling fans. Those can be easily repaired at the cottage industry level.

Provided you have the components. We don't make almost any of these things in the US anymore - semiconductors, passives, etc. A very long and complex supply chain.

You are a military superpower, that ought to include having an independant but not nesecerrily efficient supply chain for components.

Sweden seems to having given up that in the late 60:s or 70:s but we still have some odd surviving niche manufacturers. You have had the $ to keep the whole supply chain, have you done that?

If the major chip producers go bankrupt, somebody else will buy the fabs and keep using them.
Minus all the debt-service of the original owners,, the chip price would go down a lot.

Plenty of black swans could halt chip manufacturing, but I do not think simple bankruptcy would do it.

The two big expenses are running the chip fab and engineering the next generation of better and faster chips. If we accept that current chips and good enough and fast enough, that's another huge expense could be cut back. I'd worry more about the complex supply chains to keep a chip fab running.

I have a hard time imagining computer chip manufacturing ceasing for a mere monetary problem when the ability to make them is crucial part of almost everything and thus worth more then a pile of gold. I expect them to restart immediatey after a bankruptcy clears the debt.

I have a hard time imagining computer chip manufacturing ceasing

I don't see it stopping. I also don't see the improving technology stopping, albet the rate of change is likely to decrease. This is more a result of a saturation of scale -we will end up with a single chip designer manufacturer supplying the whole world -the scale of effort/cost needed to remain competitive just keeps going up. The european commision reportedly doesn't get it -and penalizes Intel because they don't think a single vendor should ever be allowed to have more than 50% of a market.

The chip/computer manufacturers have been slow to recognize a change in ownership of computer economics. It used to be that the capital cost of computers dominated ownership costs. But now computers are getting so cheap, that the power to run them is going to dominate. That means that chip designers should be optimizing for results/joule, rather than raw speed. But I think they are behind that curve. If they are like the executives I had when I was in the computer industry -they won't recognize a paradigm change, until it has already rendered their business model impossible (by which point it is too late).

Bot optimizing for results/joule and raw speed has been major trends for manny years. Results/joule has been critical for the enourmous mobile phone industry and raw speed has been nececerry to get into the high margin per unit niches. Raw speed has been a major motivator for large scale investments in RnD and manufacturing and the financing for those investments.

Now might the electricity bill for the server farms and public interest in power savings give a convergence of these trends wich would be a good thing. But I still hope there will be a sizable raw speed niche since there allways is some research that benefits from the ability, I hope we still will have lots of gamers with unsatable appetite for cycles and good paying day jobs...

Bingo. This is the kind of reasoning I like to see in these discussions. We see far too many examples of linear projections based on an implicit assumption that they way we do things now will always be the way we do things in the future, i.e. that human beings won't change in response to changing circumstances. If we really were that dumb then Y2k would have indeed been a nightmare. But in that case the doomers were dead wrong because they grossly underestimated our ability to fix that particular situation. (Which is not to say that I think peak oil or climate chaos will in any way be as easy to fix as Y2k was. They'll both be much tougher to deal with, and they'll deliver a lot more surprises, both positive and negative, than Y2k did.)

As for IT in general, I expect to see a lot more efficiency, from power consumption at the chip and drive level to far better management of server farms. Just better cooling techniques and management practices will save a lot; I've seen studies that say it takes 1.0 to 1.5 watts to cool every watt spent on raw computing power and storage. And many data centers are horribly run, making them much worse than they could be today. As with so many other aspects of our energy and environmental messes, we need the right incentives to get people to overcome inertia and pick that low-hanging fruit.

It's amazing to see how quickly chip and PC manufacturers have improved the energy efficiency of their products. For example, some of Intel's recently introduced Atom processors use as little as 0.6 watts, which is really quite remarkable(*). Likewise, their Quad-Core Xeon L5400 processor, which is geared for data centres, draws roughly 50-watts (by comparison, its predecessors could easily scarfed-down 120-watts). Six and eight core processors will be available shortly (see: http://www.eweek.com/c/a/IT-Infrastructure/Intel-AMD-Prep-for-More-Cores...) and this combined with greater virtualization will dramatically reduce the amount of iron (and energy) required to provide web services.


(*) I never thought the Atom would ever find its way into the data centre, but I'm was wrong.

See: http://www.eweek.com/c/a/IT-Infrastructure/Supermicro-Launches-AtomBased...

You know the world's economic health is bad when we start downgrading an entire country's credit outlook...

Stocks belted by British downgrade

"The downgrade of Great Britain by S&P certainly damped enthusiasm," said Peter Cardillo, chief market economist at Avalon Partners.

S&P said it lowered its outlook for the U.K. to "negative" from "stable." The ratings agency said its revision was based on the possibility that the country's debt burden could reach 100% of its gross domestic product, despite the U.K. government's "further fiscal tightening."

George Soros was saying in April of the possible default by the British government. If our (US) spending and future budget deficit are any kind of indication, I don't see the British can do much to control their debt level to GDP for at least a few years. If they keep putting more money into speculators (banksters) then watch out for what to come.

When is S&P going to downgrade all California debts and bonds? The next avalanche is just an echo away.

Traders look to unload crude stored offshore in U.S.

As recently as April, several industry sources estimated that at least 100 million barrels of crude were being stored on supertankers worldwide, largely in the Gulf of Mexico off the U.S. coast.

Oh really? Conducting a quick survey of any and all tankers I can see on the maps at vesseltracker.com I get 790.57 total DWT for tankers off of Galveston, in the HSC, around Freeport, in the LA Delta. Morgan Downey says as a rough approximation multiply DWT by 7.5 to get barrels. That gives...5.93 mb in the Gulf, not counting a few I just now notice are around Tampa; but I was pretty exhaustive about checking everything I could in Houston/south LA, and there just ain't that many ships showing up. Where is this oil we're supposedly drowning in?

Of course vesseltracker's data could be incomplete, there were an awful lot of "Vessel type unknowns" that showed up. But they're using an automated system:

What is AIS ?

AIS stands for Automatic Identification System. It was introduced by the IMO (International Maritime Organization) to improve safety in the maritime traffic. All ships equipped with AIS transponders exchange their current movement data such as position, course and speed as well as other additional information via the VHF channels 87B and 88B. In professional shipping, the system is already part of the equipment requirements for SOLAS (Safety of Life at Sea).
Do all ships transmit AIS data ?

For vessels on international voyages AIS is mandatory from the registered tonnage (RT) of 300. For vessels on national voyages it is mandatory from 500 RT.

I derived the DWT from the pages for each individual ship, and am compiling them into an Open Office .ods file - easily converted to .xls, if anyone else wants to monkey about with this data email's in my profile.

Automatic Identification System - Wikipedia, the free encyclopedia

I see a few more tankers around Corpus Christi too. Other theories: AIS doesn't apply to ships in berth (but these news stories are all about ships moored offshore); or doesn't register with ships far out to sea (but if your crew's sitting on its collective butt and twiddling thumbs en masse shouldn't you be close to shore?).

Some of these ships are listed as "Oil Products Tanker" which I'm interpreting as non-crude carriers. Hmm, incorrectly apparently, for instance the SPT Champion is a tanker - but a lightering vessel, according to that link, should that count? Well, let's fold in their tonnage - and some are big vessels, Suezmax class. 1072.51
more DWT at Morgan's formula gives 8043.81 gives 13.97 mb total.

Will write to Morgan about this. Maybe these reporters are just picking up local news reports from Houston where bubbleheads in traffic choppers fly over this gaggle of anchored tankers and babble about "As you can see Dave, we're truly drowning in oil! And now back to Sally who'll tell us about a grandma with a mincemeat pie recipe that her ancestors brought over on the Mayflower!"

There seemed to be some tankers hanging around Nigeria that could have been for storage.

And maybe some in Dubai that looked suspicious.

I'd suggest if your willing that you repeat your survey every week if you see the same tanker two weeks in a a row and not moving then its probably storage.

But yes the total amount claimed to still be at see probably can't be true since you would expect at least 10-20 million barrels of it to be hanging out somewhere in the GOM.

We import 8-9 million barrels a day I forget how much comes via GOM 6 million at least.
You can figure at least 4-5 days supply at see heading in so 24 million barrels or so should be reasonably floating around the GOM somewhere on any given day.

This suggests that you might have under counted some but makes any large amount of long term storage in the GOM difficult to believe.

Hi Dude, I have sent reply to your email.

Re: Talking Gearheads,

Matthew DeBord said we would run out of easy to extract oil by 2050, and would need to rely on other unconventional after that.

This is the same person that said;

And America needs the Hummer to remind us of what has always made our automobiles stand out, from the tailfin 1950s to the muscle car 1960s and '70s: swagger. Americans don't just drive their cars -- they proclaim something about themselves by driving them.

It takes a certain kind of man -- it's almost always the owner of a Y chromosome -- to take a gander at the Hummer, in all its broad, burly, paramilitary gas-guzzling glory, and see himself behind the wheel

With automotive pundits like this, who needs terrorists? We're shooting ourselves in both feet.

His email address is not very visible, but he is on twitter; http://twitter.com/mattdebord

RE: Shooting ourselves in the feet.

To paraphrase Dr. Emmett Brown.. "Feet? Where we're going, we don't NEED feet!"

As predicted by actually looking at historical data VMT seems to be leveling off.


I suspect people will claim that this is because oil is cheap even though the price has steadily increased sigh.

What we have done is bounced off the structural demand for oil in the US. Further declines much below this point will in my opinion require fairly high prices.

I'm not saying that oil demand won't decline in the future but it will be a lagging response to high oil prices.

On the economic front stopping construction of uneeded housing was one of the few large businesses that could be wound down quickly along with slowing orders for consumer goods from china.

As the recession is now diffuse across the entire economy if oil prices continue to increase strongly economic response will be diffuse with little chance of a coordinated drop resulting in a temporary glut like we saw in 2008. You have to have a fast crash and large industries that can be rapidly wound down to accomplish a economic change fast enough to leave demand below production.

Now whats interesting is VMT has been first slowing then flat then declining basically during the entire time of high oil prices yet prices increased steadily.

If we have indeed hit the structural bottom then we are moving towards a world with flat to very slowly declining demand and probably accelerated decline in production. The gap between implict demand and supply should widen rapidly.

I think we are entering and era where oil price will both be very high and persistantly high. Given we reached close to 150 in the past once can expect the public to only become seriously concerned when oil reaches the 150-200 price area and stays or goes higher. I suspect you will find that everyone expects the price to drop any moment like it did in 2008 and that it could take 12 months or longer of very high oil prices before anyone really considers that the situation is different.

How high can oil go ?

Well we have not actually seen the situation we have now in the past I don't see any real limit on prices one can assume they will go high enough to cause demand destruction in the third world and amongst the poor but the problem is the poor are not the biggest users of oil so demand destruction of the poor does not result in large quantities of oil becoming available at a higher price.

Thus the price of oil would have to climb high enough to seriously impact the middle class of the wealthy nations before demand destruction can slow the increase in prices.

My opinion is this is in the 300-500 dollar a barrel range or gasoline prices in the 5-8 dollar range. At this level middle class demand should decline fast enough to slow the rate of increase in prices.

Given that one can readily expect if we are post peak for oil production to probably decline at least at 3% per year and if we hit a structural floor its hard to see demand declining at this rate. If you consider higher rates of production decline its even harder. My best guess is we could expect demand to decline at 1-2% per year.
Obviously if oil production is declining at even higer rates say 4-5% per year then the effect of demand destruction on price will be minimal.

Now obviously demand and supply have to be equal so how is this problem solved.

In the US demand from those that are still able to use the existing infrastructure is fairly constant i.e those with jobs therefore further demand drop in the US will probably be met by the formation of a growing class of people that are permanently unemployed or working odd jobs. Although its often been suggested that we can cut demand by car pooling for example we can also easily cut demand by having every other worker lose his job and eventually give up looking for work and simply sit around all day.

For those that continue to be employed it makes sense that they will pull back even more on other expenses in particular buying homes and yes even cars. These two industries are hit even harder since they require long term loans and those with jobs are not going to be secure in their employment prospects. You will have additional pullbacks in spending across a wide range of industries this of course leads to exactly the high unemployment rate needed to balance supply and demand.

Sure you will see some conservation but I argue it will be small vs what can initially be gained by slowing spending on homes, cars, eating out etc etc. At first choosing to rent vs taking on a mortgage thats several hundred dollars more a month in expenses is easy. If your renting renting a smaller/cheaper place or moving in with friends family again offers a way to cut expenses by several hundred dollars a month. If you have a care and its paid off it makes more sense to not take on and additional care payment over the short term even if it increases fuel economy since you can adjust your car usage to your cash flow but a car payment is a constant bill.

This sort of general economic shrinkage with a ever larger class of permanently unemployed will allow the remaining middle class to function using a infrastructure designed for cheap oil. However obviously its setting up serious social strain and at some point one can expect social disorder to increase.

One can expect belated attempts to solve this problem with electric cars, trains buses etc but given the relentless nature of the problem significant loss of tax revenue etc I don't see that reactions to the problem will have any real effect.

Here is where the past deficit spending and pork barrel politics of the last decades begins to really bite. We can't readily expand the deficit without causing high inflation and high inflation just forces this process to run even faster.

I think we will continue to print money but it will simply make matters worse given oil is imported. Obviously real wages will be falling regardless of how much we print because of rising unemployment and slowing consumption of non core goods and services.

In general whats happening is we are exiting a traditional recession economic activity has pulled back from growth excess workers have been shed and at least for a short time leaner meaner companies will report better profit margins or lower losses. The rate of layoffs will slow as employers asses the economic landscape. Briefly we are hanging like Wiley Coyote over the edge of a cliff. However I think this period is measured in months rising oil prices should fairly quickly cause consumer spending to pull back and cause costs to increase this will cause a new more basic contraction and new round of layoffs and we are then in the scenario I outlined.

Although I don't believe the US storage numbers one can use them to illustrate what lies ahead.

Currently US storage levels are claimed to be at 368 million barrels last year they where at 320. For prices this year its 56 vs 120. So one can make a quick guess that a decline of 48 million barrels will lead to a price of 120 a barrel.

Lately storage draw downs seem to be at least 2million barrels a week this give 24 weeks or six months to hit 120.

Now my own estimate is that storage levels are not close to historic highs but closer to
340-350 million barrels are in the top of the five year range. This brings the current price and storage levels into agreement. The market is well supplied at the moment but not insanely well supplied.

Now if we have draw downs of even 2 million barrels a week things get interesting fast.
Guessing stock are really at the lower end of my estimate of 340 with a 20 million barrel stock draw down your in the same conditions as 2008 i.e at 320 closer to the bottom of the range. This would be reached in 2.5 months. Next given they way the data is heading we could even expect a higher draw down closer to 4 million barrels a week.

This would put what I call real stocks in the same range that gave 120 dollar in just five weeks. Even more interesting unless stocks are adjusted dramatically we would see real storage drop lower into the danger zone within a month after this even though stock claims would show us now closer to the top of the range.

If I'm right then the price of oil should increase strongly and rapidly over the next few months and within just four months we would be in a situation thats effectively worse than we saw in 2008. If US stocks are overstated and we actually correct them then it adds even more fuel to the fire. We would be running on empty even though the tank is showing 1/4 full. Obviously at some point continued stock draws even if they are fictional would finally bring the numbers in line but its really difficult to even guess oil prices four months out if I've guess correctly about the stock situation.

And finally if stocks are overstated then they suppressed prices and kept them to low for to long once can expect that the market will punish us for this offense.

How high can oil go ? .....

My opinion is this is in the 300-500 dollar a barrel range or gasoline prices in the 5-8 dollar range. At this level middle class demand should decline fast enough to slow the rate of increase in prices.

You are way off here Memmel. The price of oil cannot go that high unless there is a shortage of oil. A shortage of oil, combined with higher price of oil, causes a recession. The two combined causes the recession which in turn causes demand destruction, not the price of oil alone.

The important thing to remember is that the price of oil, the supply of oil and the economic health of the country/world are not separate entities, they are all parts of the same thing. The price of oil does not exist in isolation of the oil supply or the health of economy. When the price of oil is very high it means that the supply is very low and the economy is suffering from both low oil supply and high oil prices.

So the question really is at what price will oil reach before high price and low supply makes the economy sick enough to kill demand. I would say about $150 bucks a barrel or somewhere near there. But if the economy is already sick then the figure could be much lower.

Ron P.

So the question really is at what price will oil reach before high price and low supply makes the economy sick enough to kill demand. I would say about $150 bucks a barrel or somewhere near there. But if the economy is already sick then the figure could be much lower.

Hi Ron.

I wonder just how well-examined this assumption is. Many others here have stated this or something like it, but I'm not sure it's the case.

I realize that $147 oil preceded the deflationary episode we've had, but that seemingly had a lot more to do with a flight to liquidity to cover overleveraged positions around the world.

Just as an asteroid impact of a given size will sometimes cause a mass extinction and sometimes only cause local damage, the context of different kinds and states of connectivity/criticality is crucial.

The hypothesis I've seen here (not necessarily from you) - that oil will probably never go above $120/barrel or so because that will automatically cause a return to recession - implies a much more stable situation than I think exists.

I wouldn't be surprised to see prices get into the ranges memmel describes before governments cap it, nationalize it, and go to rationing. Just my guess.

The hypothesis I've seen here (not necessarily from you) - that oil will probably never go above $120/barrel or so because that will automatically cause a return to recession - implies a much more stable situation than I think exists.

Huh? If high oil prices, combined with a shortage of oil, causes a return to recession, or more correctly causes the current recession to worsen, then this implies a very unstable situation to my way of thinking. The greater the fragility of the economy, the greater high oil prices and less available oil will affect it.

A scarcity of oil and high oil prices are a global phenomenon, there is nothing local about it. And we live in a global economy. If we stop buying goods from China because of our recession, there is a recession in China also. The Great Depression affected the entire world even though globalization then was only a fraction of what it is today.

Regardless of why you think oil prices reached $140 a barrel you cannot deny that the oil supply stopped growing in 2005. That, along with the rising price of oil, eventually caused the GDP to stop growing. (Could it possibly have been otherwise?)

I once agreed with Simmons and others such as Memmel, that the price of oil could reach $500 a barrel. But have we learned nothing from our mistakes of the past? The oil supply stopped growing and this caused higher oil prices. These two factors combined, eventually, caused the economy to stop growing. Nothing, to my way of thinking, could be plainer than this. If we stubbornly think oil prices could still hit $500 a barrel, and think that what happened last year could not, or would not, happen again...then we have learned absolutely nothing from our past mistakes.

Ron P.

I'm a big fan of your rational posts and worldview, Ron. And you may well be right about this.

But I think it's possible that the high oil price was only part of a unique context (every context is unique) which preceded the deflationary fiscal deleveraging. And that we have a weakness for simple retroactive narratives which don't really capture the behavior of the complex systems we're describing.

I'm not sure there is really explanatory or predictive power to this, although of course I agree about geological and thermodynamic limits, and that oil is past peak, etc. I used the word "stable" in that sense: predictable results from a given input. Rather, I think we'll see more chaotic behavior.

Guess we'll see.

Well one thing is fairly obviously different now vs during the first price runnup we have no housing bubble to pop its popped. We have no debt bubble to pop. Excess labor added for growth has been shed. Not to say that the economy cannot continue to contract but I don't see any real way for continued contraction work such that some particular price is a sort of limit. If the price goes up then the economy contracts a bit if it goes higher it contracts some more. Its in my opinion a big mistake to take a situation where and obvious ponzi scheme is collapsing and assume the next time prices reach a similar level we will get a similar collapse.

Its one of the reasons I've often said that what just happened was not the end and we have not even started down the real downslope.

All thats happened so far is the ability to blow bubbles has pretty much been removed. From here on out economic contraction will increasingly be facing intrinsic limits.

As and example corn production obviously cannot decrease by 75% or people will literally starve. It can readily decrease by say 5% without undue hardship. Somewhere between this 75% reduction and a 5% reduction one would expect that the price will rise strongly and people would devote all of their income to food. I.e they would eventually pay 100%.
Past this even this is not enough is the absolute supply is simply not there.

Gasoline is certainly more elastic than food but this is a real end game scenario.

Losing the ability to keep ponzi schemes going is fluff. Losing a lot of the expensive consumer goods is fluff etc etc. We have plenty of waste to eliminate before we actually give up on basic transportation. My example is trying to show that if a good is considered a necessity then no price is to high. You run out of supply well before you run out of customers. Certainly this does not prevent the rapid collapse of large multi decade ponzi schemes from briefly resulting in supply greater than demand for all kinds of goods and services and the ponzi players suddenly go broke and their demand drops rapidly to zero but this says a lot more about the nature of ponzi schemes then anything else. I'm sure most Maddoff investors are no longer in the market for Multi-Million dollar Mansions leading to and oversupply. But this just means part of the demand was unstable and from a ponzi sheme. If the supply of mansions was decreasing then depending on rates the prices would then increase.

I think you are wrong about the elasticity of food prices, if maize becomes more expensive, less will go into animals, people will buy less meat eat more cereal products such as bread, maize products with a little ground beef and beans, pasta, potatoes. These foods are all very inexpensive on a Kg basis unless in convenience packaging.
Oil comes in just 4 flavors, gasoline, diesel, heating oil and jet fuel. Short term its difficult to reduce consumption of any, long term easy to dramatically reduce heating oil and gasoline by switching fuels or vehicles. Most jet travel is non-essential, that leaves trucking that will have to raise prices but commercial transport costs are not a very large component of the economy in comparison with private vehicle transport.

Darwinian :

Thats fine then show me why you think this price range is enough.

The historical record indicates that 150 dollar oil is sufficient to cut demand for 500k McMansions in the US. I'd argue this is a long way from to high. Simply looking at take home income and expenses shows most Americans have ample disposable income. If you do what I do and assume if expenses increase that they won't be willing or able to pay outrageous prices for houses or buy new cars on a whim then their balance sheet is even better.
If they have a job.

My experience in Europe shows that much higher prices are possible.

If your paying 10 dollars or so for lunch and 2-3 dollars for a cup of coffee at starbucks etc just cutting back on these expenses alone is enough to cover higher fuel costs.

You average American if forced could spend 10-15 dollars a day on gasoline if they have a job.

In the third world the demographics are interesting most of the fuel use is either for infrastructure i.e commercial use or used by people that have incomes similar to first world countries and can afford a modern lifestyle. The poor use very very little.

Can people keep buying expensive houses and new cars no and this has already fallen but any detailed look at the housing market considering the low percapita density in the US indicates Americans have plenty of room to save on housing costs. They are already in oversupply and the trend in hard times is to move back with parents take room mates etc.
Given our high unemployment rates the oversupply of housing is immense. The chances of housing continuing to demand a premium price as oil prices increase is zero.

As housing costs fall the cash flow of Americans with jobs increase. Many may have to default on their mortgage or other debt to realize this but so what ?
In California for example most people can still increase their monthly cash flow by at least one thousand a month if not more by moving from paying a mortgage to renting a equivalent house. Cable TV bills are often 100 a month land line plus mobile phones often top 100 a month. Running the AC is often a few hundred. Heating in other climates the same.

The point is American with jobs can easily absorb 300-500 more a month in fuel costs if forced. During the Depression many people went years without paying rent eventually they repaid it but landlords chose to keep the houses occupied rather then kick someone out who was trustworthy than leave the house empty or get another renter that did not pay.
And oil usage actually increased during most of the Depression.

Even assuming housing prices return to historical norms of 3X income or below of 2X income would result in the average American gaining 200-300 a month cash flow.

The median house price for the US right now



The median income



3*50 = 150k

169 - 150 = 20k.

A 20k mortgage for 30 years is 155 a month.

If we go 2X median given the oversupply of houses.

169 - 100 = 69k

A 69k mortgage is 533 a month !

So if housing dropped to be in line with 2X median income the homeowner would have over 500 a month to spend on other expenses.

If median household income falls then housing could and probably will continue to fall.

Just assuming that housing cost fall to 2X income which is not uncommon during deep recession or lower indicates that those with jobs can readily afford higher expenses.
Of course rents have no choice but to follow but probably lead falling housing prices.

What this means is that Americans can readily absorb higher fuel costs by rejecting long term debt. We are a long long way from not being able to afford expensive gasoline.

Of course this pullback will certainly result in lower consumption of all kinds of luxury goods leading to layoffs and as I said a growing class of effectively permanently unemployed but the average consumer has plenty of disposable income and via rejection of long term debt can effectively HELOC the equity out of all the homes in America.

There is nothing you can do to prevent your equity evaporating when the consumer has to decide between making a mortgage payment and not being able to drive to work and get fired its a no brainer.

As with equity in any joint stock company people that have built up equity in housing are going to get wiped out in exchange for paying rising daily living costs.

Only after this happens will I argue that oil becomes unfordable as lowering housing costs can no longer free more cash flow. Only and finally at this point with median incomes falling do we reach the point that the price of oil is really to high.

Given the amount of cash flow that can be freed via the mechanisms I've outlined this number is indeed in the 300-500 dollar range. Only past this point does the consumer really begin to not be able to afford oil.

And thats just the start of a situation where whats left of the middle class is finally unable to continue. From this point on out your looking at absolute shrinkage i.e people simply not making enough money day to day to continue living anything close to a middle class lifestyle. They have to change.

Memmel, you are arguing what individual Americans can do, what Americans with jobs can do. In a shrinking economy more and more people do not have jobs. Less consumer goods are purchased, fewer services are purchased. This causes the demand for fuel to drop keeping the price down.

Falling home prices only help those who are looking to purchase a home. It does nothing for those who already own a home except decrease their equity. It causes foreclosures, it causes loan money to dry up, and home equity loans to disappear entirely. These things have a devastating effect on the economy, causing less oil demand and driving the price of oil down.

Memmel, what certain individuals may or may not be able to do is not the point. There are always some people who could pay higher and higher prices for energy. But as the price gets higher and higher, fewer and fewer people can afford to buy it. This eventually creates what is called a recession. It is the recession that causes the price of oil to collapse, the fact that some individuals could still afford to pay higher prices is entirely beside the point.

Also, the fact that Europeans pay more for oil therefore we could just as easily do the same is not a valid argument. If we had twenty years to turn over our car fleet to smaller more energy efficient cars and...if we had free medical care and all the free social services Europeans have, then we could afford to pay a lot more taxes on gasoline just as they do.

And I simply must comment on this statement of yours:

If your paying 10 dollars or so for lunch and 2-3 dollars for a cup of coffee at starbucks etc just cutting back on these expenses alone is enough to cover higher fuel costs.

Don't you understand that is exactly what is happening! You have just described the type of behavior that triggers recessions. Starbucks, Awaiting Recovery, Says Profit Fell 77% Starbucks is closing stores like they are going out of style. Their customers are going to McDonalds instead. Starbucks has laid off thousands. And as the unemployment rate rises, less driving is done, less gasoline is purchased, hell less everything is purchased.

The more people try to save money by not buying this or that more people are laid off because of their efforts and the worse the economy gets. If they pay more for gasoline and other petroleum products, the less they have to buy something else.

Again, it is the recession, that is the economy, that puts the ceiling on oil prices not what individuals with good jobs can afford to pay.

Ron P.

...if we had free medical care and all the free social services Europeans have,

huh? Europeans have no such thing. Somehow they've figured out how to pay for them through higher taxes yet still have a standard of living, worker productivity and educational quality similar to that of the US with more leisure time and less energy usage per capita.

The more people try to save money by not buying this or that more people are laid off because of their efforts and the worse the economy gets. If they pay more for gasoline and other petroleum products, the less they have to buy something else.

Again, it is the recession, that is the economy, that puts the ceiling on oil prices not what individuals with good jobs can afford to pay.

Ron it does not your mistaken. As prices increase those with lower incomes either because of low wages or job loss will simply do without oil if its priced higher than they can afford. Certainly this starts in the third world but its a continuous process it does not stop until the system itself fails.

If oil hits say 200 a barrel I'd argue that some taxi drivers in Bangladesh may lose their jobs as their customers can no longer afford taxi rides and use rickashaws or walks. I'd argue at some price point the same happens in the US. Certainly some poor people that live in a cheap trailer in the country with a pickup will find they can simply no longer afford gasoline period.

This is called demand destruction and there is no magic price cap the price will go up until supply meets demand. Certainly at some point the overall system will fail but looking at the third world shows that 90% of the population can readily live in abject poverty and you still have a quite functional society. Not a nice place to live but still functional.

Look I'm a computer programmer if I'm lucky I will keep my job and continue to be able to work its not important if this means 50 others are out of work and gasoline is 15 buck a gallon I'll buy what I can afford and from time to time drop a few quarters into the cups of former programmers less fortunate then me begging on the side of the road.
If I lose my job or society does not want to pay me enough to survive then I join them.

There is no magic limit to demand destruction. Certainly at some point the society could readily collapse because of the strain causing other problems to explode but the direct effect of falling oil supplies is to simply ensure that supply and demand are met at some price.

Certainly many will be forced into a new lifestyle often its one of starvation fear homelessness etc. But so what that does not create some magic price point where the price of oil can't go higher.

And yes it does come down to the individual I've done my best to ensure I'm not dependent on oil and that my usage level is low enough that if I can maintain anything close to my current salary then I can afford oil well beyond when many will have to change. I'm not being a bastard just I'm doing everything I can to try and limit as much as I can the effects of oil on my lifestyle. I won't move anywhere near San Francisco because I don't want a employer to try and force me to commute its practically a death sentence. You will run out of money and be toast if you lose your job. If at some point I can't work remotely then I'll aggressively seek local employment in some critical industry say agriculture maybe even if the pay is low. My opinion is that many of the people that try and play the mortgage and commute game are going to eventually run down their savings lose their jobs and join the ranks of desperately poor as they try and maintain that lifestyle against rising energy and food prices.

Ron one of the most important things about peak oil is eventually its not just a individual problem but a personal one. I've tried to mitigate and maybe I'll succeed or fail who knows but certainly I won't go over the cliff blind like many will.
Its not clear if thats good or bad :)

Many Jews in Germany realized the implications of what was happening in the 1930's and fled the country often at great personal costs. Others did not and eventually died.

Peak oil is not the same in the sense its impersonal but each individual will face his/her own personal tragedy from peak oil regardless of how much they have prepared. At the minimum they will have a relative or friend in dire straits.

The economy can and probably will eventually collapse until is a very small group of wealthy and a large population of poor so overall there is no intrinsic reason economic contraction cannot go until a few are able to maintain there position even if it means a tyrannical government. So you economic argument is not correct it does not stop the effects of peak oil. And at the individual level its a serious of decisions you make and pure blind fate that will determine how much and how severely your affected.

And last but not least given the way our civilization works the most probable outcome is the the pressure from rising oil prices will cause other parts of the system to crack then collapse leading to a global collapse well before the price of oil itself actually forces countries like the US into a third world like economy directly. Just because there are excellent reasons why it will probably blow sooner rather than later does not mean that there is some magic cap on oil prices or the world cannot effectively become a place with only third world nations and worse. It can and probably will and all peak oil does is ensure that if something else does not crack first dwindling energy reserves will eventually force the matter.

Many Jews in Germany realized the implications of what was happening in the 1930's and fled the country often at great personal costs. Others did not and eventually died.

Somehow Memmel, I think you got off track on this thread. Either that or you are way over my head here because I haven't a clue as to how this relates to the subject being discussed.

Seriously Memmel, you ramble on and on digressing into areas not even remotely related to the subject being discussed and you never once addressed the points I brought up in my post.

I try to make my posts short and to the point, answering those I disagree with point by point. But you choose a different method of debate, rambling on and on and never addressing anything point by point but drifting instead into areas not even related to the subject being discussed.

My point was that extremely high oil prices combined with a scarcity of oil will eventually lead to a recession. Past recessions, especially the one we are experiencing right now, have this as at least a large contributing factor if not an outright cause. And even higher oil prices and scarcer oil supplies could not help but have an even worse effect on the economy.

If you do not think this to be the case then please explain why without referring to German Jews during the 1930s or Rickshaws in Bangladesh.

Ron P.

If you do not think this to be the case then please explain why without referring to German Jews during the 1930s or Rickshaws in Bangladesh.

Actually that is my point if I can't get it across than I've failed.
Its not some abstract concept its simple human response each individual will deal with declining energy in their own way. The vast majority will use as much energy as they can for as long as they can especially if its required for them to earn a living.

My point was that extremely high oil prices combined with a scarcity of oil will eventually lead to a recession. Past recessions, especially the one we are experiencing right now, have this as at least a large contributing factor if not an outright cause. And even higher oil prices and scarcer oil supplies could not help but have an even worse effect on the economy.

But this does not mean we will see lower oil prices as overall energy availability declines the amount of work that can be done declines thus the economy declines.
I keep saying your making a big mistake comparing what lies ahead with a recession just like I've repeatedly said that this recession is not "the big one" if you will. Right now we are beyond a doubt in and ordinary recession and high oil prices certainly played a role in popping the insane credit bubble but other than the scale of the bubble and the fact its a fairly bad recession at this very moment its and ordinary recession.

However the problem is your claiming that from now on out it will be similar i.e if oil prices go up we go into your standard recession.

I think the problem is your so used to recessions caused by monetary policy that sometimes interacts badly with rising oil prices that your not realizing that whats coming is a fundamentally different situation. Oil prices and recessions and recessions without high oil prices and everything in between have been covered here at the Oildrum and across the Web in mind numbing detail I'm not going to get into it except to say that a normal recession is curable via eventually allowing the economy the purge itself of bad investments and eventually more credit worth borrowers will exist and the economy begins to grow. High prices for oil have not persisted long enough in the past to even have and example where expensive oil played a role in the evolution of the economy after a recessionary crash.

You can't use past recessions as a guide to whats going to happen next because we have never had oil prices increase while we where already in a deep recession.

The problem is and I think it will become painfully obvious over the coming months is that we don't have any bubbles left to pop to cause a quick drop in economic activity that would allow the economy to shrink faster than the oil supply. If you then look deeper at individual behavior and back up to the collective you see no intrinsic reason for people to willingly give up using oil until they are forced out of the market either because they simply cannot afford it.

I've argued many times that we don't need a recovery for oil prices to start increasing the current demand level is becoming very inelastic i.e I have many times stated that I don't expect US demand to vary much from its current levels effectively regardless of the price of oil. In fact as far as I can tell US demand will probably change by less than 5%-10% if oil approached 300 a barrel. I actually expect that when oil hits 300 a barrel US demand would have fallen by less than 5% of its current value.

Whats happening is a far more fundamental shift its the end of leverage i.e debt and associated fractional reserve system. Our basic economic system is no longer able to blow bubbles. At the moment we have crash the macro economic bubble ala a traditional recession but its not going to stop there. Next highly leverage companies that are sensitive to energy prices are going to be taken out (Airlines!) then over time any type of leverage. Equity of all kinds from home equity to stocks and even bonds are going to drop in value. The financial games we play will fail nothing anybody can do about it and underneath all of this the cost of staying alive will increase daily with oil prices.
And it will also pop individual debt bubbles with a vengeance thus my focus on the individual. People will routinely be wiped out with little prospect of future employment.

Whats coming has absolutely nothing to do with a recession your completely wrong in making a claim that we are going to have a recession. We are in our last recession right now we will never have another one for the foreseeable future. The good news is periodic recession are over the bad news is its because they have been replaced with something far worse.

I'm sorry to hammer you on this but your wrong your concept is incorrect and your making assumptions that simply don't hold. And I don't have a problem bringing up Jews in Nazi Germany in the 1930's periodically during history very fundamental changes occur which can have a very bad outcome if you don't recognize that a titanic shift has occurred.
It will take out a lot of people and if your willing to read the oildrum then you have a right to be warned.

Now I could of course always be wrong but we can certainly watch for signs that I'm correct. One of the symptoms that this time is different is if we have a steady rise in oil prices and demand remains flat or slowly declining say less than 2% a year I expect it to actually be less. Another aspect is as oil prices increase we will continue to see housing prices headed downwards and credit card defaults increase and unemployment remain persistently high and heading upwards. These are not the symptoms of a bubble popping but and economy getting squeezed hard by a fundamental change from cheap energy to expensive energy and its impact on our financial system.

You can choose to believe me at any point along the curve or not. Or conditions could somehow change and this threat could still pass. I doubt it if so then I'd be happy to revisit your claim maybe for some reason this is not "the big one" and we will have a recovery and recession maybe several who knows. Obviously I've seen enough data to believe this is not the case and we are leaving a traditional recession for a energy lead depression and thence collapse.

And I'm sorry to get personal but as far as I can tell we might have only two more years where its easy to change your personal situation if this is correct then I have no choice but to warn people even if it means I eventually will be shown to be a fool. I'd argue that as long as you don't go crazy and move into a cave making prudent moves now are not harmful and its a better lifestyle anyway.

My suggestions have been relatively mild move out of the huge metropolitan regions. Try and find a place with enough rainfall that crops can be grown naturally or at least with simple irrigation schemes. Try to find a smaller town or city but be a bit leary about a place that might be to small. My suggestion is 20-100k is probably a good number. This gives you a good mix of skill sets and if its surrounded by enough arable land it should be able to feed itself locally. I'm not even suggesting becoming a farmer unless thats what you want but try to get enough room for a garden. If you want consider purchasing land that in easy walking distance outside of town you may have to wait till it becomes affordable. Next and this is painful for many be careful with debt esp mortgage debt think about living on minimum wage and plan accordingly. My work indicates that housing prices will drop substantially i.e everywhere will be Detroit keep your powder dry and save you money and you probably will see housing prices drop to the point you can pay cash for a livable house. Depending on your financial state seriously consider alternatives such as a trailer or old RV and maybe buy more land. Eventually you can build a house yourself or take over and abandoned one or take apart abandoned homes and build your own. If you can buy then rent something that allows you to save a decent amount of money each month and wait.

As far as cars go if you own your home and can pay cash then by one if not then you need to work first on housing then consider a car. If you picked a town the size I mentioned and are working locally or have can ride rail to work then you should be able to use a bicyle or walk most days. If you seldom drive then you don't really need to worry about gas prices. By the time they get high enough to be a issue then other problems will probably be more of and issue.

If I'm wrong and you decide to live this way then I'd argue you still come out ahead its not a bad way to live and I suspect you will find not stressing over the mortgage and car payments and credit card bill is worth giving up buying leveraged assets.

If things do get better and you decide you can take on some leverage then your going to be a savvy borrower.

Its time to start thinking and watching and understanding whats going on. As you know I really think EV's are a joke and I'm not all that keen on wind power are any other alternative energy. Its not that I don't think they will have a place even some type of EV could one day prove practical its just that if I'm even close to being right about the nature and magnitude of the change we are entering its to late to do anything but take care of yourself and your loved ones and hold on for the ride. Later once we are out the backside we can see whats left pick up the pieces and try and build a better life. That certainly does not preclude getting involved with alternative energy now its always useful and will be useful on the way down and on the way up it just means its not going to stop us from going down and only then growing in a renewable way. We are not going to transition sideways and we are not going to see our current economy enter another boom bust cycle.

Another long post but what the heck :)

My suggestion is 20-100k is probably a good number. This gives you a good mix of skill sets and if its surrounded by enough arable land it should be able to feed itself locally.
... If you want consider purchasing land that in easy walking distance outside of town you may have to wait till it becomes affordable.

Arable land with enough acreage to sustain oneself within walking distance of a town with a population of 20 - 100K becoming affordable by cash payment within 2 years? I would argue that there is no such place that exists in the US given the suburban expansion much less finding one that is affordable within the next 2 years.

Another aspect is as oil prices increase we will continue to see housing prices headed downwards and credit card defaults increase and unemployment remain persistently high and heading upwards.

The effect that rising unemployment and diminishing globalisation will have on oilprices depends also of course on the percentage that oilexports decline past (geological,geopolitical)peak. One can argue about how high oilprices could go and I agree that the 2008 event is incomparable with the future. If oilinventories drop fast the price could go until $200-300/barrel or more and stay there some time because a significant demand destruction don't happen from one day to the other. If oilexports drop further with time, as is to be expected, oilprices can go sky high and drop again. With oilprices of $300/barrel I expect more than 5% demand destruction. Rising unemployment, much less road miles, airmiles and much less seamiles (rapidly diminishing globalisation) could drop oil demand much more than 5%. Apart from oilprices the opinions from memmel and Ron are not much different, both (like many on TOD)foreseeing a deep depression with finally a possible or problable collapse of civilisation resulting in efforts to prevent social unrest, riots and starvation.

Your points are very valid.

The most important point still remains that economic policies i.e playing games with fiat currencies will become increasingly ineffective. Thus its not a traditional recession but a core economic change.

I've got a lot of faith in my review of RustBelt oil usage which remained surprisingly flat despite the steady economic decline. We shall see if this faith is unfounded.
I find that when oil usage hits the intrinsic structural limits of the underlying infrastructure system that further declines are effectively impossible without dismantling the system. Effectively all you can do is remove leverage from the system from that point on. Which translates into steadily falling home values. Indeed this is exactly what you have seen in the rust belt area of the US oil consumption go flat and home values fall effectively to zero.

With anything I could be wrong but at least I have real data to support my claims.

One way to look at it is in your typical rust belt city real wages fell dramatically which is effectively the same as people seeing a significant increase in the price of oil. They did not respond by dramatically cutting consumption beyond pulling back in recreational use. I don't see that it makes any difference if a consumer is seeing more expensive oil because his wages are falling or because the price of oil itself is rising. Economically they are equivalent.


You've made lots of good points. There are some areas that need to be included that I haven't seen you cover yet.

1) Businesses that collapse because they were running with no margins already. From the big guys like Circuit City, to the little ones like the 20% of Advanta small business credit card customers defaulting. With 70% of the economy being consumer driven, this leads to a lot of economic contraction. How much? I don't know, but you haven't convinced me you've got this covered.

2) Hefty tax burdens or worse, government collapses. The latter will increase security costs beyond the tax burden. With people dropping off the tax roles, those left will have to pay a far higher share of the burden. Things are already bad now in many places, what happens when the govt workers no longer believe their pensions will exist? CA voted down tax increases, MA voted for them. Both will cost consumers more.

3) Food costs will rise and take a bigger chunk of money.

There are probably other areas as well. It is the cascading effects beyond the "fill the tank" consumption that need to be worked out. I don't think anyone has a good handle on them, thus I see a lot of disagreement.

I suppose one thing we can do is to look at the historic times when oil was this high, adjusting for inflation. The last time we didn't feel it because of an economic bubble expansion. That's over. What were the other times like?

Right now were undergoing an economic contraction that's probably still got a ways to drop regardless of the price of oil. There are many economic pundits who are predicting a complete collapse independent of any energy price increases.

There are numerous areas that will suffer min collapses similar to the tremors you see before a big quake. State and local government will be forced to cut back. Eventually as sort of a side benefit I suspect the US will be forced to only incarcerate people that are a true menace to society.

Pensions will go unfunded. Your correct food prices will increase.

There are all kinds of secondary problems that will arise. The recent price hike played a role in collapsing the biggest credit bubble in history going forward in time your talking not about bubble collapse but real systematic failure. Some like pensions are really a bubble in the sense they are funded via bubble expectations same for state and local governments. But eventually it will pass from being just more bubble deflation to the point that services are really cut to low. A town will lose its fire department then simply not have enough money to maintain a volunteer one for example.

Whats important is outside of financial collapse most of these collapses will occur disjoint in time they won't be concentrated enough to cause wide spread systematic collapse until one day the thing just goes down. I just don't see any intrinsic reason for any sort of widespread failure in the short term i.e next two maybe three years.

This also means I don't see any real limit on oil prices as they increase they will simply force some random part of the system to contract or collapse but not enough to collapse the entire system. Lets say globally 5% of the worlds population is locked out in any given year from access to oil this weighted on population implies that say 1% of the US population will be unable to use oil products nearly as much as the used to.

Each year its more of the same. Eventually of course countries like Eygpt and Pakistan and parts of India will reach the point of regional or national collapse but other regions and nations will continue until they to one day just collapse probably with no real reason visible.

This by no means prevents one of the many issues we face causing the system to blow up early and it could even last for years ten or more. I can't really see more than ten before it would collapse. If we make it ten years then one could imagine that somehow we managed to bring alternatives online fast enough to prevent collapse. Its not improbable but then nothing is really improbable :)

To be clear this is just peak oil as far as the overall system goes I also think that the worlds governments will get away with playing financial games for at least two years before something really blows up. However as you look 3-4 years out and even further it becomes increasingly difficult to be convinced that some part of the system won't fail taking everything down.

The way I look at it is we have two years more of effectively a recession as anything related to debt and fiat fractional reserve lending is forced out of the economy and it become increasingly one focused for the most part on survival and a few personal consumer items. For better or worse I think mobile phones and flat screen TVs will make it to the bitter end and beyond. So a few consumer electronics are now effectively luxury items and food and gas and finding ever cheaper housing etc. More or less most people in the first world who are middle class will be in this boat.

Say about two years from now the persistent unemployment and probably riots and some outright local collapses will make some cities in the the first world become very unstable. This could spread or not. But now things really don't look good. People are not starving but bread lines are finally really noticeable. In general even the biggest bull and idiot is finally starting to worry about their future. Slowly I think it will begin to dawn on people that things won't get better.

Once this has set in then its simply a race to see when this understanding turns to anger it will. And who really knows what the outcome will be but I suggest this is as good a place as any to mark the true start of the end of our civilization and its basically the real slide from a recession into a true depression.

This might be meta stable for two or even up to four years but even my crystal ball fades at this point :) It really depends on to many factors although almost all are negative.

Now to reply to people worried about Californians heading north to the PNW.

Even during the Depression we had people driving from Oklahoma to California looking for work. I think the dispersion out of problem areas will be similarly broad across the entire nation as long as travel is not restricted and yes they will go by car.

I don't expect the PNW to look all that appealing to most in fact although I'm moving there myself and have high hopes for its long term sustainable living capability short term I fully expect its economy to be one of the worst in the nations. In fact Oregon already has one of the top unemployment rates. I expect similar to some extent for northern California. For quite some time people will be leaving to look for jobs not food and the PNW will not be a good place to look for work. I actually expect a lot to head for Texas :)

Once the migration for work ends you may eventually see migration for people looking for food but even this is doubtful if the coastal cities empty out and the irrigation remains relatively intact the central valley of California is itself a rich agricultural region. I see no real reason why any immigration looking for food/farm work won't for the most part stop here. I don't see Oregon and Washington becoming large farming states in this sense give the isolation from the rest of the nation I'd argue that farming will probably become more focused on supplying the local population. Thats not to say it won't see a influx into the region but its not clear that it will be large.

But I also see just as large a outflux from the PNW of people looking for work as you see going out of California if not larger. The region could readily lose half its population as people leave looking for work only to eventually gain some of it back later as farm laborer returning to the newly labor intensive farms.

Once this sets in the Rustbelt for example will also probably be repopulated.

And to be clear I don't see any intrinsic shortage of food in the US for a long time from lack of ability to grow food. I do see that the expense of food could become crippling i.e your working to eat but that does not make it unavailable. Gardening will make good monetary sense and provide a bit of excess food helping keep food prices in check. That does not mean we won't have famines given the circumstance famines could happen at any time but in the US at least we have enough agricultural land and just plain land capable of growing food that a intrinsic shortage in the near term is unlikely for natural reasons. This says nothing about a riot or something disrupting the food supply to the point that people begin to starve but thats a different issue.

In general for the US the best place to live is along the Ohio/Mississippi/Missouri river system some of the eastern costal regions generally towards the southern parts of the eastern seaboard. By this I mean its the largest contigious fertile area with excellent water transport. Other regions like the PNW and even the upstate New York/Maine region are a bit more isolated depending on how well we can use the Great Lakes region and the climate is tougher that far north.

Its a very wealthy country and for the most part I actually expect the western half to be basically abandoned as people move to regions with both excellent water transport and agricultural land.

We will see :)

Wow, I've been reading for ages, a combination of posts tonight finally drove the point home enough that I had to reply to this particular one.

While no one has had the balls to say it, you're already more spot on then you realize. I entered the workforce in roughly 2000. I've gone from one dead end job to the next searching for something with enough future that would allow me to follow my parents footsteps. So far, I've done nothing more then jump from dead end McJob to the next.

My parents entered the workforce with High School Diplomas. It took until the late 80s for my mom to re enter the education system (the same time my father did, both with Gov help), it wasn't until after completing that did she rejoin the workforce. In 1979, my father was working as an "Inside Wireman" for the IBEW, working mostly the north range port upgrades in Northern MN. He was not an apprentice, nor a journeyman. He made 22k that year. It was enough that even with a young son, at the age of 24 he was able to purchase a brand new 1979 Toyota Celica (2 door, import, sports car) for about $5400. Not on a loan. Early into the 80s, the economy in the northmidwest took a huge hit. The family got by on welfare for a half dozen years.

While my parents managed with the help of the gov to improve the situation enough to help us kids enough to get past childhood, that's about as far as it got. Both parents have technically been loosing every year. There were no savings for College educations for us 3 kids. All of us managed to at least get out of High School. That seems to be a rarity these days. We all also managed to avoid any serious Felonies. But thats that. (It really doesn't seem to make a difference these days in the job market.)

After leaving the northern midwest twice, and traveled out to Los Angeles (where my Mom currently is), I'm still no where close to where my Dad was in 1979. I own (no payments) a 1996 Ford Windstar. Its not great on gas, but there is no car payment. When Grandpa died, part of the sale of their house allowed Grandma to buy it for me ($3k, in 05, I covered the taxes, registration, etc, roughly $500). I was LUCKY to get that.

Ever since late 06 once Oil started to spike. I drive it about once a week, if that. Mostly I drove it just to change the parking space it was in to prevent it from getting towed for abandonment. In the entire 2008 year, my Van traveled less then 300mi. Hard to justify quarterly oil changes with that kinda usage.

Last year I made the most in a single year I ever have. And by paying 30% of my income for rent, I paid more for rent then what it had in any year cost my father for his house before it got foreclosed on in 2007--in the northern Midwest. Even with that, to have had my own place (a studio and not a room @ my mom's apt), would have cost me more in southern cal.

I don't have kids. I haven't at any point seen a bright enough future to think about affording one.

This is the future some of us coming up in the US have been facing already for the past 2 decades (ish). There is really nothing to say. 30 years ago when peak oil happened here, the Rothschild's of this world moved to take advantage of it, and have totally screwed the rest of us.

What this has all made me realize, is some of the rumors I've been reading about on marketoracle... That the middle east wants to come together and create a new currency. A non-fiat currency. What I've been hearing is a 50/50 split between gold/oil. I didn't understand the energy side until just now. That's really IT. Wages for those of us starting in the workforce recently are not at all taking into account energy prices AT ALL. I can't purchase a 20 acre plot to farm on somewhere.... That's a pipe dream. The best I can hope for is to have enough "treated to store" gas saved up to get far enough from LA to survive the riots that WILL occur here when the true tipping point really happens. And I think we're closer then many think to that.

Thanks for what you had to say, you made me understand more then I had thought possible.

memmel darwinian

oil (resource) price goes up to point where it exerts pressure on economy / market, sudden retreat of price gains, system adjusts, price climbs till it stresses system ..... 5 or 6 cycles.

your discussion gives an impression of linearity, wondering what happens if we add in the simple harmonics (fundamentals tones). The critical timing required to pick their turning points.

The critical timing required to pick their turning points.

You left out a word needed to make that sentence complete. It should go: Critical timing is required to pick their turning points. And in fact you completely left out the first half of the sentence. It should have went: On a totally unrelated subject, if you wish to make a lot of money trading oil futures critical timing is required to pick the turning points.

Ron P.

It was shorthand and I don't do investing Darwinian, research on herding behaviour actually. :}

Actually as far as the actual price movements go we may well see a fairly linear price increase but not because its exactly inherent in the system by default. Two months ago I would have argued that we could see large price swings similar to the peak whale bone graphs floating around. Price can behave very erratically with fairly wild swings even if the meta trend is upwards.

Large price swings going forward would almost naturally ensure that we are on a path that would take years to play out simply because of the nature of the oil market its not a completely liquid market underlying the futures market is a fairly large finite time for oil to move from well to tank say 8-10 weeks or so. I like to use three months as my sort of natural timescale for anything to do with oil. I've found that looking at it in three month blocks gives a clearer picture at least for me.

However we did get a very interesting development during the last price crash it looks like speculators have managed to take control of a substantial amount of real physical oil anywhere from 50 million -100 million is a number I comfortable with and of course if you believe everything you read a lot more. I'm pretty sure they control 50 million barrels world wide.

This is not chump change if they decided to drain it down they would be a major source of oil for a few months and certainly be able to effectively flood the system and crash prices.

But I don't think thats their intention instead it look like the plan is pretty much a traditional hoard play. Sell a little bit each month and try and buy more further out the futures curve for later delivery the expectation is that the futures market will underestimate the future price of oil effectively for quite some time.

I call this a oil bank.

Now whats interesting is if it does exist then given that the contango is now closer to normal then its now operational. Given that oil storage costs are fairly constant lets say between 1-3 dollars a barrel a month. As long as oil prices increase faster than this they make money. If oil prices fall by about five dollars or so they will jump in and start buying on the front month and stop selling putting a very hard floor under prices.

So what happens is because we have this oil bank formed we won't get into a panic situation with super rapid price increases but on the same hand we will see steady and relentless price increases as the hoarders adjust their selling and buying to continue to leverage the market swings. In exchange for ensuring that outright shortages are probably not going to happen in the short term we should see a surprisingly linear increase in price.

Who knows when this oil bank will end however even with my estimate it would take them probably six months or more to unwind this position without losing money. They would have to back out fairly slowly. However as long as its around as I said I think we will see price increases be very steady. This does not exactly prevent them from also increasing rapidly all the Oil Bank is betting on is that the market will underestimate the price of oil three months or so into the future by a substantial margin to make it worth while I'd have to say at least five dollars a barrel given the nature of the game and how bit a bet it its more like 10-15 is more realistic. For example right now crude oil for Sept is 63. I'd argue if I'm right about this oil bank then they bought Sept futures a few months back and they expect it to probably be at least 83 by the time this front month rolls around. Basically they are betting on a minimum of a 5-10 dollar a month increase in oil prices for the foreseeable future and maybe larger increases.

I'd have to think that this oil bank if I'm right is going to be around for the next 12-18 months or so. I can't see them winding it down soon given it just got running and when they do it takes six months to exit. For example this implies that the oil bank probably expects oil prices to be at least 180 dollars a barrel 12 months from now.

One of the reasons I'm actually concerned I may be right is if I'm right about this oil bank then it means some really big players have also come to the same consensus I have which enforces my position. Or I could be really wrong.

And of course what really interesting is the games needed to get this oil bank up and running where fairly drastic. Obtaining 50-100 million barrels of oil is not trivial.
Esp if you doing it because the market really does not have much oil and you have a short window of opportunity to set up your position.

With the luxury of looking back at the past six months and the concept of the oil bank you can now see how it was set up and how actions where taken to accomplish it. And before people accuse me of being crazy if you grabbed 50-100 million barrels of the oil market you by definition must take actions that cause big moves in the market happen. In fact as far as I know this is the largest speculative position that has ever existed recently. Pup55 over on peakoil.com mentioned that this happened once before back in the 1990's. Darwinian will like that last time they tried it they got wiped out and their head handed to them on a platter when prices crashed :)

In any event I expect this speculative position to have and undue influence on the market for the foreseeable future so it may be quite a while before we see "normal" market dynamics. So we will see this oil bank just became open for business and left its setup stage so now we can see the game they are playing. I may be right or a may be wrong but they are certainly in the drivers seat over the short term.

"sort of general economic shrinkage with a ever larger class of permanently unemployed"

I agree with the expanding class of un and underemployed, and with your ideas on oil prices. The idea that the current economic situation is close to what is claimed or predicted is phooey. Just not there.

Far from the end, it's barely a blip thus far. I was at a big box retailer this last weekend, finally going to make a large (>$1500) purchase I'd debated back and forth for months. Compared prices, models, my long term need, quality, etc. The Friday before, the retailer had 7 in stock, when I entered Sunday morning, the last one was being taken out the door. It was the same over the city-traffic, congestion, shoppers, shoppers everywhere.

We have a more or less permanent class of under and unemployed, not sure if that will be be resolved and it seems to be increasing. But the overall depression level gloom and doom is a long ways from what is here now.

You can track the current unemployment and foreclosures here:


Look at the hard numbers, compare them to the Oct 07 figures. Examine the US by county numbers, not how they color a map, and the economic times don't seem that bad at all. In my county where it's hard to even discern a recession, it is colored dark and foreboding. Due to our 16 % unemployment, which we all know here is timber related, and cyclic as can be. There is little new or special. Hard to predict when the forest products industries are down or up, but down and up is their nature. High unemployment across the US seems timber related to me-note how it's northern tier counties. Unemployment in urban areas is often low. Across most of the US, foreclosures vary little from 07, save some CA and FL counties. Rural areas are often show less foreclosures than "normal" times.

There no doubt has been a tightening, we have more "unfunctional" people than before, but it seems that trend just upped a notch along its trajectory, not a cliff hanger. As energy becomes more expensive, that'll increase. But at present, it seems we've been sold another bill of goods. Another war for democracy and purple fingers, another big check to Wall Street.

It is what is called a employer's market, they can be extremely picky as to who they hire.
In this environment there will always be a group of people who will not find work till the situation improves and company's need to fill jobs with living people. The problem is that this environment won't get better and there will be heck to pay once these same people realize they will never be hired again.

Exactly !

I work at home and make and excellent salary I could personally afford god knows how much for gasoline. I figure given my own personal usage rate 20 dollars a gallon would be the number that would make me blink.

Lots of people could easily work more from home if gasoline prices increased dramatically.
Others could go to a four day work week etc.

And all the other aspects I mentioned in my post to Darwainian.

I absolutely do not believe the claim that there is some price for oil even close to the current price that would cause people to conserve and result in lower prices for oil.

However this does not mean that we don't have a large number of ways to minimize oil expenses as prices increase i.e as prices go higher we can change our lifestyles to readily reduce the personal impact i.e if Gasoline goes from 2.50 to 5.00 a gallon and you go from a 5 day work week to a 4 day week then your only seeing the equivalent of 4 dollars a gallon. If you say start to car pool when gasoline hits 5.00 with one other person then the change has zero effect.

Now I don't see any reason why this behavior will result in lower prices. Any softening and then these temporary changes would be rapidly reversed. And given that this is a dispersive decision i.e the decision to carpool will be made randomly at scattered times at different prices points I fail to see that it would readily result in demand falling dramatically below supply.

Given that practically any scenario I come up with indicates that if needed Americans can readily absorb far higher gasoline prices I fail to see how pundits that claim that 50, 100, 150, 200 or whatever price for oil is the max.

Running a number of realistic cash flow issues readily kick out 300-500 practically no matter how you do it or Gasoline in the 8+ a gallon range to cause problems.

And whats interesting is this is exactly the same range that makes Europeans uncomfortable.

"I absolutely do not believe the claim that there is some price for oil even close to the current price that would cause people to conserve and result in lower prices for oil."

Did you not notice what happened last year? The price of oil moved ever upward until consumption decreased. Some of the decrease was involuntary but it "conserved" the resource nonetheless.

The end of easy oil will act as a regulator on future growth. This is not temporary; we are entering a long economic downturn. So the much higher prices will not be reached due to deflation.

Gasoline demand has still be recently running down only 1% less than last year, which is kind of surprising since new housing starts are at virtual record lows. It's almost as if demand is insensitive to price.

If you look a little closer with last year's 'drop' in gasoline demand, you will see it was closely associated with local and regional shortages. Remember prices were very high only for a short time, and probably not long enough to make a permanent behavioral change - except at the margin where some could no longer afford gasoline at all at that price.

Therefore I completely agree with memmel that the coming price rise for oil products will be entirely demand driven - that is demand will fall more slowly than the coming drop in supplies. Is there a price where the whole transportation system fails? I don't see that happening until gasoline and diesel get to about $10 in terms of today's value of the dollar.

However the US economic system has become destabilized - with larger waves of destabilization coming over time. It's probably more likely that the financial system will 'break' before we hit that $500 in terms of early 2009 dollars. Those financial breaks will be financial earthquakes that will serve to adjust energy use abruptly downward.

So I say reduced energy supplies are the straw that broke the back of the complex US economic system, but possibly a year or two from now with 15% unemployment and soaring inflation we will still be debating whether it is the financial system or falling oil supplies that are leading us into economic depression.

I am not convinced that VMT is really leveling off. There is little discretionary travel in Jan - April, so there is little drop in travel. This graph is an approximation to gasoline sales by month, combining monthly and weekly EIA data. (I posted the graph yesterday in Drumbeat) May is very partial, so it is likely to change. Data through February is monthly.

The time one would expect to see most of the drop off in travel is in the summer. SInce 2008 is already down a lot, the drop-off will be from the much lower base.

I wonder if there is any of this scenario going on: "I'm going to make this trip to do/see such and such now, since it might be the last time for a long time I will be able to do so."

Just anecdotally I know several people that are going on "vacation" or traveling soon, and this reason was vocally voiced.


I think we lost most of our discretionary travel last summer.

Also I'd not be surprised to see people practice a bit of false economy instead of one big family vacation they will take many mini weekend vacations generally to free or cheap local places such as the local beach or lake or parks etc.

I say its false because the total miles drive will probably be about the same but spread out over several months and easier to do in any given month.

So I'm expecting it to be pretty much the same as last year this summer it could well prove to be slightly higher.

Also this is the start of the new jingle mail season as people turn in their keys and move while the kids are out of school. I'd not be surprised if we don't see and upswing in VMT. And jingle mail season will effectively replace summer driving season so this could very well lead to and upturn.

And last but not least many regions of the US where flooded leading to a late planting season this year so the agricultural traffic will be a bit distorted. This is primarily distillates but I think we will finally see a draw down of distillates as the late planting season gets underway.

Think like this is why I tends toward not having a problem claiming that from now on out VMT will be effectively flat as people decide to use fuel for different reasons many like the jingle mail forced to effectively sacrifice and increase fuel usage.

Outside of the people unemployed and not attempting to look for work the various factors effecting fuel usage become scattered and thus VMT tends towards a constant. There is no general trend forcing it downwards like we had with prices rising and the housing bubble collapsing. During the Great Depression for example oil usage increased after the first year. I'm not suggesting that it will increase if it does it will be slight but more probably effectively flat. We might see it head towards a slow decline of say 1% a year but like I said there are just as many forces causing some people to decide to use more oil as there causing others to conserve. And last but not least at the moment you certainly have people eating ramen noodles doing nothing but going to work trying to save their house more and more of these will give up get rid of their house and get on with their lives.

The difference between now and the 1930's is that families often have 2 vehicles so more regularly have option to trade the low mpg vehicle for a better mpg vehicle and in the meantime use the higher mpg vehicle more often. Stuart Stanifords post in Feb11, 2007 showed that VMT didn't change much after 1982 but mpg increases greatly( fuel use/VMT declined).

I would agree with your argument that most people have jobs and can afford to pay $10 a gallon. If by 2016, we are driving vehicles with 50% higher fuel economy that $10 can be $15/gallon, and when PHEV's getting >100mpg, account for >50% of vehicles the sky the limit for fuel prices, people will just be more careful to keep them charged up, so what if they by a gallon at $100 every few months, the second older ICE will stay in the driveway.

Every time we go on a longish trip, i.e. > 200 miles, I do the sums and figure out the gas costs as a percentage of the total trip cost. The gas cost is almost always completely insignificant when compared with lodging, food, ski tickets, etc. Basically gas would have to rise by a factor of 10 before it became significant. [I know that would cause the other costs to rise also but not by the same factor.]

So I think people will keep driving for quite some time (provided they have jobs).


CA financial crisis
There is the possibility, remote as it may seem, that we will put an end to the age of something-for-nothing and find a way to pay for the services we want

From the WSJ Blog:

With U.K. AAA Rating In Jeopardy, Is U.S. Next?

Brows are furrowing and told-ya-so’s reverberating on both sides of the pond this morning, after S&P issued a formal warning that the United Kingdom could lose its cherished triple-A if the government doesn’t move to rein in yawning deficits.

So far, the rating agencies have been looking the other way with all of the additional governmental debt, but it looks like this may be coming to a halt.

This is change I cannot believe in.

I love it. Someone is finally going to put an end to all this excessive gov't debt. Cut the ratings, and stop the addition of debt. IT will take 100 years to pay back the debt we have already. Maybe the gov't will go bankrupt and we can start over and just cancel the debts? IMO China would come looking for their cash.

I always wondered what a repossesion by China would look like. Do they pack up our bridges, buildings & roads and haul them away? Do they just pick the best houses and move their furniture in? What?

Don't forget that American companies own large percentages of factories and equipment in China itself. They could simply seize these assets, and if we're lucky maybe pay us some compensation in worthless American dollars.
I of course don't know what the value of said factories and equipment might be, but it could be quite a bit.


Have anyone put in the number of falling GDP w/respect to US debt level?

If Japan GDP fell by 15.2%, Germany by 14.4%, and Mexico by 21.5%, I just don't trust our US government number of 6.3% GDP drop.

World Economies Plummet

If we have a 15% GDP drop, then our debt level will be 100% of GDP (about 12 Trillion) by the end of the year. This debt level will keep going up for the next 10 years!!! Falling GDP and increasing debt -- hmmm we're are heading to another cliff beside peak-oil.

The UK, like the US, borrows in its own currency, which it can and does print when it feels like it. So to default on its debt would be a government decision: that it was better to suffer the ill effects of defaulting than the ill effects of printing. Has any country in that position ever made that decision? (Of course printing is a form of defaulting, as the Chinese have recently complained, but probably if you look in the fine print of the bonds it says "We promise to repay these pounds/dollars, we don't promise they'll be worth anything then".)

Wind farm 'kills Taiwanese goats'

A farmer on an outlying island told the BBC he had lost more than 400 animals after eight giant wind turbines were installed close to his grazing land.

The Ministry of Agriculture says it suspects that noise may have caused the goats' demise through lack of sleep.

Turns out it was indigestion. Goats really WILL try to eat anything!

(Alright.. that's not funny. I'm sorry)

Wasn't there something going on with bats and windfarms, where the windmills were depressurizing the area and causing the bats lungs to explode or something? Maybe it's the noise, maybe its something with the depressurization as well. A little ominous either way.



Wind farms do not cause 'depressurization' and cause bats lungs to explode. Utter nonsense. Bats and birds being whacked by the blades, yes...the sound of the blades swooshing through the air and the sound of the generator set machinery affecting said flying creatures...maybe.

Actually the depressurization happens when the birds/bats have a near miss with the blades. I don't think pressure changes at ground level would be great enough.

Maybe I didn't word it correctly, but this is what I was referring to:


"The damage from rapidly expanding air in the lungs caused by the sudden drop in pressure was clear. Ninety percent of the bat deaths at the southern Alberta site involved internal hemorrhaging consistent with such damage, called barotrauma, while only 50 percent showed signs of collision with turbine blades."

To view a demonstration of GE's next generation of smart grid appliances, see: http://earth2tech.com/2009/05/21/video-ge-demos-smart-appliances/


Do we really have to prepare ourselves for a world without easily available fresh sushi (at least if you live far from the ocean), with less travel, fewer consumer choices, smaller energy footprints, reduced lifestyles — an overall contraction of civilization?

Are the things you mention a contraction of civilization or a contraction of barbarism? The assumption that what we have--BAU--is civilization is presumptuous at best. So, I guess the writer must have been sarcastic here because I would think that going back to the 1960's would be going back to civilization rather than away from it, though even the 1960's could be regarded as barbarous.

You should have read the whole article before commenting on it. Ha WAS sarcastic.

Hello TODers,

This award-winning video is right down with the new urbanism of JHKunstler and the RR & TOD ideas of Alan Drake:

Built to Last [2:55]
For those on dial-up: it basically says suburban Cul-de-Sacs are the greatest threat to modern life--we need to move to walkable lifestyles. [Hat-tip to LATOCer Cualcrees for first posting on LATOC].