DrumBeat: July 16, 2009
Posted by Leanan on July 16, 2009 - 10:15am
Twenty Dollars Per Gallon: How the rising price of oil will change our lives
What does it mean to be middle-class? It means to have a home, to have a regular income, to have consumer freedom, to drive a gas-burning vehicle, and in general, to consume. And when people consume, they consume oil.Excerpts here.It takes oil to power your car, to produce your plastic yogurt cup, to harvest the grain that makes your bread, to transport the livestock that will be your meat. It takes fuel to ship the clothes, gadgets, and items middle-class people buy and use. It takes petroleum to create the chemicals and compounds that go into so many things we use today, including computers, cars, homes and infrastructure.
Middle-class life runs on oil. So we should pay rapt attention to things that could cause the price of oil to increase. As the price increases, our lives will indelibly change--and there are plenty of reasons to think that the price of oil will, in the long term, steadily increase.
U.S. June oil demand down 5.4 percent from year ago
WASHINGTON (Reuters) - U.S. demand for crude oil and petroleum products declined 5.4 percent during June as the weak economy continued to take a toll on energy consumption, the American Petroleum Institute said on Thursday.June's total petroleum product deliveries, excluding exports, averaged 18.607 million barrels per day, down 1.071 million bpd from a year ago, the API said in its monthly oil report.
Climate of 2009 June in Historical Perspective
Based on preliminary data, the globally averaged combined land and sea surface temperature was the second warmest on record for June and the January-June year-to-date tied with 2004 as the fifth warmest on record.
World Dependent On Fossil Fuels For A Century
LONDON - The world will remain heavily dependent on fossil fuels such as oil, gas and coal for the rest of this century, despite the best efforts of governments to move toward renewable energy, an energy economist said on Wednesday.Peter Odell, professor of international energy studies at Erasmus University, Rotterdam, and author of the bestselling World and Oil Power, said the drive to limit greenhouse gases was likely to be held back by both technology and economics.
Painting a gloomy picture of the short-term outlook for renewables, Odell told Reuters that even with a growing global effort to limit carbon dioxide emissions, the world would still be relying on hydrocarbons by 2100.
"Oil use won't peak until 2050," Odell said in an interview. "It will decline thereafter but even by 2100 oil supplies will be 20 percent higher than they were in 2000."
Denmark plans forces for Arctic
Denmark plans to set up an Arctic military command and task force because the melting of the ice cap is opening up access to the region's resources.
Embrace Hugo Chávez's ideas or be fired, Venezuelan oil workers told
Employees of oil companies in Venezuela have protested against an ultimatum by President Hugo Chávez's government to embrace the socialist revolution or face the sack.Hundreds of workers picketed a refinery yesterday and said they would mobilise next week to challenge the politicisation of the state oil company, PDVSA.
The unrest followed a government warning this week that employees would be suspected of subversion unless they joined pro-Chávez trade unions and community groups.
China maps out troubled waters
The People's Republic of China (PRC) may have strengthened its claim to areas of the East China Sea with the submission in May of its preliminary survey findings on the outer limits of its continental shelf to the UN Commission on the Limits of the Continental Shelf (CLCS). The submission, however, may also serve to exacerbate rather than resolve territorial conflicts in the area.
China Warns Some Oil Companies on Work With Vietnam, U.S. Says
(Bloomberg) -- China told some international oil and gas companies to halt exploration in offshore areas that Vietnam considers part of its territory, an American government official told the U.S. Congress.
Total force majeure on Nigeria Amenam crude-trade
LONDON (Reuters) - French oil major Total SA has declared force majeure on cargoes of Nigerian Amenam crude oil loading in the second half of July, trade sources said on Thursday.A trade source said the force majeure was a result of technical problems and not militant activity that has affected tens of thousands of barrels of Nigerian crude from the Niger Delta this year.
Steve LeVine - Exxon: Late, But Always the Bride
Exxon was late getting onto the Caspian in the 1990s, but it still ended up with pieces of prime real estate. On the Baku side, deputy Energy Secretary Bill White interceded to get it a piece of the offshore after Exxon stood on the sidelines while its rivals slugged it out. In Kazakhstan, even GOP heavyweight Jim Baker couldn't persuade Kazakh President Nursultan Nazarbayev to grant Exxon a piece of the ultra-supergiant Kashagan oilfield; Nazarbayev told Exxon the bidding was over. So Exxon simply bought Mobil Oil, which itself was one of the best old-fashioned horse traders on the Caspian and had grabbed huge slices of both Kashagan and Tengiz.Yet none of that meant that Exxon had drunk the Kool-Aid on the Caspian.
CHINA'S attempt to control the lucrative iron ore market in Australia may have floundered, but it still hopes to begin drilling its own oil and gas wells off the West Australian coast within weeks.In documents lodged with the Federal Government, China's largest oil producer, CNOOC, has applied to drill three wells in the Timor Sea, 350 kilometres off the coast of WA.
Brazil's state development bank BNDES will lend 25 billion reais ($12.8 billion) to Petrobras denominated in local Treasury notes, the first loan of its kind in Latin America's largest economy, daily newspaper Valor Economico said today.Under the transaction, the National Treasury will issue the notes and transfer them to BNDES, which will, in turn, lend them to Petrobras, Valor said, citing the state-controlled oil giant's chief financial officer Almir Barbassa.
He who pays for the pipelines calls the tune
Nabucco and other new gas pipelines may make Europe’s energy more secure, but market liberalisation matters too.
Groups plan pedal power for the homeless
Under the new program, the Community Kitchen will evaluate and approve applications for bicycles. Outdoor Chattanooga will collect the bikes, provide training and give a helmet and a bike lock to the homeless person.Bikes will come from donations from the public and will be repaired with money from Mayor Ron Littlefield's Art of Change program, Mr. Pugliese said.
For most researchers, any mention of cold fusion brings back memories of a shameful period in modern science. Now, 20 years after Martin Fleischmann instigated this field, he tells Jon Cartwright that he could not have done anything differently, and that if we cannot get fusion of some sort to work on a large scale soon, we're doomed.
Can Wind Farms Change the Weather?
The efficiency, effectiveness and economic value of wind power clearly depends critically on the weather, along with factors such as terrain, vegetation and building structures, which affect the speed, direction and variability of the wind striking the blades of wind turbines. But can wind farms, in turn, affect the weather? (Do you really think I'd be writing this post if the answer was "no"?)
EU biodiesel output up 35 percent, capacity growing
PARIS (Reuters) - Production of biodiesel in the European Union rose by more than 35 percent in 2008 and capacity will grow again this year although half the plants are idle due to poor demand, the EU producers group said on Wednesday.The Brussels-based European Biodiesel Board (EBB) said the European production of biodiesel, by far the main biofuel made in the bloc, had reached 7.76 million tonnes last year putting the EU's global market share close to 65 percent.
New geothermal heat extraction process to deliver clean power generation
PNNL's conversion system will take advantage of the rapid expansion and contraction capabilities of a new liquid developed by PNNL researchers called biphasic fluid. When exposed to heat brought to the surface from water circulating in moderately hot, underground rock, the thermal-cycling of the biphasic fluid will power a turbine to generate electricity.To aid in efficiency, scientists have added nanostructured metal-organic heat carriers, or MOHCs, which boost the power generation capacity to near that of a conventional steam cycle. McGrail cited PNNL's nanotechnology and molecular engineering expertise as an important factor in the development, noting that the advancement was an outgrowth of research already underway at the lab.
Has John McCain Gone Cool on Global Warming Legislation?
Sources following McCain offer a number of explanations for his recent behavior. Some say this is just McCain being himself, voicing his opposition to specifics in the House bill that look like earmarks or policies that disrupt free trade. Others see a lawmaker struggling to find a voice on the issue now that Bush is out of office, especially since the Republican Party sees the legislation as political red meat. It could also be that McCain sees others taking away the spotlight on an issue he had long been associated with.
James Hansen on Climate Tipping Points and Political Leadership
In my opinion, it is still feasible to solve the global warming problem before we pass tipping points that would guarantee disastrous irreversible climate change. But urgent strong actions are needed.It is clear that the required course is technically feasible, and it would have great benefits to the public in developing and developed countries. The geophysical facts practically dictate the way.
Unfortunately, knowledge and understanding of the situation are not widespread. In addition, there is a minority of people, termed “fossil interests,” who benefit from business-as-usual. These fossil interests have enormous influence on governments worldwide, far outside their fair role in democracies.
ANALYSIS - Gulf Arab states cooperate to ease power crunch
DUBAI (Reuters) - Gulf countries have taken a step towards easing a regional power crunch and supplying the flow of electricity needed by their increasingly affluent societies by linking up their grids.Economic growth has strained the infrastructure of the world's largest oil exporters, and left them struggling to supply enough power. The downturn has slowed growth, but power supplies remain tight.
"It's an extremely important milestone for power security," said Johannes Benigni, managing director at Vienna-based consultancy JBC Energy. "Especially when the market is short, this is very powerful."
Pakistan: Textile makers warn of closing units
ISLAMABAD: While the government seems unwilling to avert the looming energy crisis for industry, textile manufacturers have warned of closing down their units.‘There is even no plan in the pipeline where the government could seriously pursue to avoid the power outages for the textile industry,’ All Pakistan Textile Mills Association (Aptma) Chairman Tariq Mahmood told Dawn on Wednesday after attending a high-level meeting on energy crisis with Textile Industry Minister Rana Farooq Saeed Khan.
India: Loss in power generation due to drying up of coal stocks
New Delhi - Deficient rainfall and shortage of coal have crippled the electricity generation in the country, with some power stations running on fuel stocks of just couple of days which is termed"supercritical"."Some plants are running at two days coal stock and there is a loss in power generation due to lesser coal supply," Central Electricity Authority (CEA) Chairman Rakesh Nath told reporters here.
“It is not too much to expect that our children will enjoy in their homes electrical energy too cheap to meter.” So said Lewis Strauss, the head of the Atomic Energy Commission. Back in 1954. Needless to say, that vision of a nuclear-powered future hasn’t come to pass. Turned off by exorbitant capital costs and paralyzed by the Three Mile Island scare, utilities cooled to nuclear pretty quickly.But there’s been something of a “nuclear renaissance” of late (at least in debate—the last plant to come online did so over a generation ago). With all the calls for greater supplies of carbon-free electricity, and as Americans demand energy independence, many are again holding up nuclear power as the way forward: clean, safe, too cheap to meter.
John Michael Greer: Nature, Wealth, and Money
What sets money apart from other systems is not its convenience – quite the contrary, as such alternatives as household production of goods and services, or traditional economies of gift and customary exchange, are quite a bit more convenient for most purposes, since the extra steps imposed by the need to bring money into the situation can be done without. Rather, money has three distinctive features relevant to the present discussion. First, to the extent that it can replace other forms of distribution and exchange, it draws all economic activity into its own ambit. That can (and very often is) used for political control, but this is a side effect. The principal effect of this property of money is to turn a society into an economic monoculture.
Tropical storm forms off Mexico's Pacific coast
MEXICO CITY (Reuters) - Tropical Storm Dolores formed off Mexico's Pacific coast on Wednesday but it was expected to move further west out to sea later this week, the U.S. National Hurricane Center said on Wednesday.Dolores was located 660 miles (1,065 km) southwest of the tip of the Baja California peninsula with maximum sustained winds near 40 mph (65 kph), occasionally gusting higher.
The End of the Age of Oil: Will It Be a Soft or Hard Landing?
$20 PER GALLON: HOW THE INEVITABLE RISE IN THE PRICE OF GASOLINE WILL CHANGE OUR LIVES FOR THE BETTERBy Christopher Steiner
Grand Central, 276 pages. $24.99Forbes magazine writer Christopher Steiner has set up a useful heuristic device--the escalation of the price of oil in two-dollar increments, from $4 to $20--to speculate about the changes in our lifestyle we might see at each stage of the price increase. At $4, some of the tougher choices might still be unpalatable, but with the continuing increase in price, more radical changes will become necessities, if we are to survive as a civilization at all.
Verleger Sees $20 Oil This Year on ‘Devastating’ Glut
(Bloomberg) -- Crude oil will collapse to $20 a barrel this year as the recession takes a deeper toll on fuel demand, according to academic and former U.S. government adviser Philip Verleger.A crude surplus of 100 million barrels will accumulate by the end of the year, straining global storage capacity and sending prices to a seven-year low, said Verleger, who correctly predicted in 2007 that prices were set to exceed $100. Supply is outpacing demand by about 1 million barrels a day, he said.
Perenco to halt Ecuador oil output in tax fight
QUITO (Reuters) - French oil company Perenco will temporarily halt operations in Ecuador from Thursday over a fight with the government concerning taxes, a top company executive told Reuters on Wednesday.Ecuador has seized the bulk of Perenco's production since March in a bid to collect more than $350 million it says the company owes in windfall taxes.
Pickens on natural gas: You can't beat it
NEW YORK (Fortune) -- Texas oil magnate T. Boone Pickens may have postponed his plans to build the world's largest wind farm in Texas, but he's come closer to accomplishing another goal: Pickens visited the nation's capitol last week to help Senate Majority Leader Harry Reid (D-Nev.), Senator Orrin Hatch (R-Utah), and Senator Robert Menendez (D-N.J.) introduce a bipartisan bill designed to bring natural gas vehicles to the mainstream American market.Pickens's Washington, D.C., trip marked the conclusion of his "Pickens Plan" -- a much-discussed yearlong crusade to end America's dependence on foreign oil. Now convinced that natural gas's low price makes it more viable than expensive wind technology, Pickens stopped by Fortune's offices to reflect on his $60 million campaign to promote alternative sources of energy. The takeaway message: Natural gas must replace petroleum. "It's cleaner, it's cheaper, it's ours, and it's abundant," Pickens told Fortune staffers. "And boy, you can't beat that."
EU calls for more natural as storage
The European Union called today on member nations to ramp up natural gas storage and build more pipelines to cope with any future cutoff in energy supplies from Russia.In January, thousands of homes went without heating and some power plants shut down when gas stopped flowing through pipelines from Russia due to a payment dispute with its neighbor Ukraine.
EU officials complained that Europeans were held hostage by the row and are seeking new routes and sources for energy — something that will take years to realize.
Oil Producers Face Choice on Output Growth, Dividends
(Bloomberg) -- Global integrated oil companies face a choice between maintaining dividends and investing in production and reserves if crude prices remain at current levels, according to Sanford C. Bernstein & Co.Oil prices “do not allow the majors to continue to grow the business and pay substantial shareholder returns,” Neil McMahon, an analyst at Bernstein, said today in a report. Current output growth stems mainly from acquisitions, he said.
Iraq June oil exports at 1.925 mil b/d highest in a year
Amman (Platts) - Iraq's total oil exports in June rose to 1.925 million b/d, up 19,000 b/d from May and the highest rate since June 2008 as exports from northern fields registered the highest level since the 2003 US-led war, oil ministry figures obtained by Platts Thursday showed.Exports from northern fields rose to 528,000 b/d in June, a post-war record and 7,000 b/d higher than May exports.
Russian Urals attractive to Asia oil refiners
SINGAPORE - Asian refiners are expected to extend imports of Russian Urals crude despite its unusual rise to premiums to the European benchmark, due to limited supplies of costlier Middle East grades, industry sources said on Thursday.Flows of Urals to Asia are estimated to have risen to at least 5 million barrels a month since May, versus negligible volumes last year, as it becomes an increasingly attractive alternative to sour crudes from Gulf OPEC producers, traders said.
Nigerian gov't rejects militants' conditions to ceasefire
LAGOS (Xinhua) -- The Nigerian federal government on Thursday rejected all the preconditions canvassed by Nigeria's major militant group in the oil-rich Niger Delta region the Movement for the Emancipation of the Niger Delta (MEND) before peace talks can commence.
US 'concerned' on China-Vietnam sea tensions
WASHINGTON (AFP) – A US official voiced concern Wednesday about tensions between China and Vietnam over the resource-rich South China Sea and pledged to defend US oil companies operating in the region.But State Department official Scot Marciel said the United States would not take sides on the myriad island disputes involving China and its neighbors including Japan, the Philippines and Vietnam.
B.C. paper receives 2nd pipeline bombing letter
DAWSON CREEK, B.C. -- Staff at the Dawson Creek Daily News opened the morning mail on Wednesday and found what appeared to be the second letter from someone connected to a series of bombings targeting EnCana operations in northeastern British Columbia.
China body proposes curbs on Shell's coal-gas tech
BEIJING (Reuters) - A China industry body has proposed limiting any further purchase of Royal Dutch Shell's coal gasification technology after teething problems at half the plants, but Shell said the glitches were not its fault.
Override on energy tax fails: A bill to fund food and renewable energy projects is left to die
A major environmental and energy conservation bill died yesterday when the state Legislature failed to override Gov. Linda Lingle's veto of the measure.The so-called barrel tax bill (House Bill 1271) would have raised the price of gasoline by two to three cents per gallon by increasing the state tax on a barrel of oil from five cents to $1.05.
The bill was opposed by Hawaii's small and vulnerable airline industry, according to Senate President Colleen Hanabusa.
"We can't afford to have another airline go down," Hanabusa (D, Nanakuli-Makua) told reporters after the special legislative session called to override Lingle's vetoes.
Iran Spurns Engagement on Nuclear, Thwarting Obama
(Bloomberg) -- Iranian leaders are turning inward and rejecting engagement with the West as they blame outsiders for street protests, even as President Barack Obama’s administration pushes for curbs on Iran’s nuclear program.The leadership has denounced foreign governments as “enemies” for encouraging demonstrations over last month’s presidential election and plans to put a British Embassy employee on trial for inciting the protests, which were violently suppressed. A French student also has been detained on spy charges.
Stimulus money will fix leaky underground petroleum storage tanks
South Carolina will use $3.3 million in federal stimulus money to assess and clean up 66 of its approximately 3,000 confirmed underground petroleum storage tank leaks that threaten groundwater and could threaten drinking water.
Wal-Mart to rate environmental impact
SAN FRANCISCO (Reuters) -- Wal-Mart Stores Inc., the world's biggest retailer, will announce Thursday the development of an index that will be used to measure the social and environmental impact of the products it sells in its discount stores.The information could be used to one day provide consumers a label assessing how "green" or "sustainable" a product is.
Renewable Energy Costs And FUD
Renewable energy options such as solar power have certainly captured the public's imagination, with many more people around the world now demanding a clean and sustainable energy future.However, there's a lot at stake in the current energy status quo and for parties wishing to discredit renewable energy, the most effective way to do so during these tough financial times is to exaggerate the costs to be borne by consumers.
Sen. Alexander unveils blueprint for 100 nuclear power plants in 20 years
U.S. Sen. Lamar Alexander (R-Tenn.), chairman of the Senate Republican Conference, unveiled a blueprint for building 100 new nuclear power plants in 20 years on Monday.He said it was his own blueprint in support of “the four-step” low-cost clean energy plan supported by the Senate GOP, which also calls for electric vehicles, offshore exploration for natural gas and oil and doubling energy research to make renewable energy cost-competitive.
Alexander said the Republican plan would “create jobs, lower utility bills and put the United States within the goals of the Kyoto Protocol on global warming by 2030 without the expensive cap-and-trade and renewable mandates passed by the House of Representatives two weeks ago.”
What is a negawatt and what role does energy efficiency play in slowing climate change?
Melting ice threatens polar life
The Canadian Arctic is facing another year of open water with the summer break-up of sea ice ahead of schedule in many key parts of the northern archipelago.The early break-up of ice underlines the growing impact of climate change in the Poles where temperatures have risen much more rapidly than in the rest of the world.
As a result, September 2007 was the first time in living memory the entire Northwest Passage was open water from east to west. Despite slightly more ice, a record six private yachts transited the historic waterway last year, and this year’s traffic could beat that number.
Top US officials to meet China PM on climate
BEIJING (AFP) – Top US trade and energy officials were set to meet with Chinese Prime Minister Wen Jiabao as the world's biggest emitters of greenhouse gases sought to step up cooperation on climate change.US Trade Secretary Gary Locke and Energy Secretary Steven Chu, both ethnic Chinese, arrived here seeking to open China's markets to US green technology while urging Beijing to set hard targets on gas emissions.
China carbon capture costs worth paying: U.S. energy sec
The huge costs required to capture CO2 emitted by China's vast coal-fired power sector is a price worth paying to cut greenhouse gases to reasonable levels, U.S. energy secretary Steven Chu said. Skip related contentCarbon capture and storage (CCS) technology is seen by many as the only way forward in a country still heavily dependent on burning coal to meet its energy needs, but scientists say it will actually require more energy consumption, not less.
But this "energy penalty" -- which includes the power required to drive the CCS facilities as well as transport and store the captured carbon -- is nothing compared to the environmental costs of doing nothing to curb emissions, or "business as usual," Chu told Reuters.
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Asian Nations Could Outpace U.S. in Developing Clean Energy
more cheerful news from the East, Economy in China Regains Robust Pace of Growth
Meanwhile, outside of government subsidized banking, the US economy continues to contract...
I'm not persuaded that the threshold for high oil prices causing damage to the economy is the same for China and the US. They seem to be rapidly developing an internal market.
Its dangerous times we live in but maybe this example could help.
Consider two balloons one blown up almost to the bursting point and one about two thirds inflated but being blown up fairly rapidly.
Both are stuck with a pin. The one still being blown up does not burst but say has a small hole that starts causing a leak even as more air is added while the one that was at its maximum bursts.
Thats the difference between China and the US. High resource prices are causing "leaks" in the expanding chinese economy while the US economy exploded.
Actually we now have a "soft" chinese like balloon and further pin pricks from rising oil prices will have little effect. What really happened to the US economy was a bit of slack if you will was forcefully added.
The balloon exploded and was duct taped together with less air.
I am in violent disagreement with people that claim that the future response to rising oil prices will match what happened in 2008. Its a fundamentally different economy in the US if anything its closer now to China.
What people don't realize is whats important is the cash flow and willingness to default to ensure cash flow or ample reserves cause similar economic effects. We have plenty of money now because we defaulted on our debts and are printing money as needed the Chinese because of reserves same difference as far as the flexibility of the economy however our situation makes renewed rapid growth difficult to impossible.
Some (Denninger et al) think that we have not even started to default on enough debt to solve anything. I tend to agree. Right here in Reno in addition to a few thousand forclosures, I am seeing homes in our neighborhood where more is owed than the property is worth. In stead of an asset, it is really a virtual debt that won't be cleared until the house is sold and the mortgage is not paid off or the people just walk. Fortunately, ours is paid off but if we wanted an equity loan, it would of necessity be much smaller than was available two years ago.
I find it amazing the disconnect between the stock market with relatively low volumn and reality in unemployment, real estate, business, etc. At least around here. Nevada is in the toilet for income because discretionary income is down, and 10+% unemployment. Mining is holding OK but the tourist business is way down; especially since California now has Indian casinos.
For the stock market I'd suggest that the large amount of pension fund and other "dumb" money that is taking the buy and hold approach is probably playing a large role in keeping a bottom in stocks.
Also obviously we still have a incredibly huge amount of cash in the world this can be seen in the bond markets where plenty of money is still around for "safe" investments. Lots and lots of money still sloshing around and this tends to keep liquid investments over valued basically a glorified juggling act.
We have more than enough money in the world to keep investments that are close to cash and liquid elevated.
Now illiquid or any other investment i.e housing CRE, Business etc etc etc etc is a whole nother ball game.
Small wonder that liquid investments remain elevated with any "real" investment shunned.
And yes we have a mind boggling amount of debt to default on. From credit cards to state bonds. The amount of debt that can be defaulted on is almost impossible to understand and all of this will drive even more money into liquid investments keeping the juggling act going until it fails.
We have in my opinion two critical stats to watch rents and VMT or mileage driven. Only after rents have fallen close to zero will we in my opinion see significant declines in VMT. Falling rents have just barely started to happen and they are far more important then mortgages.
Most of the so called wealthy people in the US that have a paper value of between 200k and 20 million are highly leveraged in real estate I think we have just entered the period when all these people are going to lose
everything. In general this group also owns two or more pieces of trophy real estate the big house in the nice neighborhood and the vacation home. And they have fantastic credit ratings and service large debt loads. Age wise its the 50-70 group. They are going to be simply wiped out over the next year or so.
However as rents fall for both residential and commercial real estate any remaining business thats not caught by falling rents will actually far fairly well and rapidly falling rental rates offset lower business volume.
Certainly you have fixed costs esp for business that are forced to move to take advantage of falling rental rates and this slows the process but regardless this is the next pool of leveraged wealth that will evaporate and its a huge pool.
Until this rental economy is fully busted I really don't expect other major economy changes to happen given the huge size of the pool. Its the biggest piece of fat left and its actually one of the largest ones in the world economy.
Its a safe bet that Banks will continue to get bailouts one way or another as this implosion takes place so I actually tend to think that this implosion will be confined to the decimation of a good bit of the upper middle class.
If you read you will see this happened during the depression with most of the leveraged lower end "wealthy" getting wiped out for the exact same reasons they will be now.
The rapid surge in prime loan defaults we are seeing is just the start.
And of course I think this implosion will also begin to take out the medical industrial complex as performing unwarranted medical procedures on these rich farts is the bread and butter of the American medical industry but thats a bit down the road.
Its amazing actually when you look at how much notational wealth needs to evaporate its so friggin big.
You might think so, but I must report that what I am seeing locally does not support this. I am near a small resort town with maybe about 600 or so homes, all most all of them could be classified as vacation homes, and almost all of them belonging to the demographic you have described. There have been no foreclosures, no distress sales, no indication that there has been any decline in housing values at all. Prices are no longer going up as they used to be, but they are not declining. These people might be hurting a lot financially, but so far they are keeping a brave face on, and they are hanging on to their properties.
Things might be very different in other places around the country, I just don't know.
I can toss in my 2 cents on this one. There is a resort town much like this that we visit. Lots of expensive homes with prices >1M$. Many were bought as investments, and they pay part of the mortgage by doing weekly rentals. We have friends who have such a house (they have owned it for years) - it would have gone for $4000/week for the week of July 4th, and 3500$/wk for the balance of July and August.
While this income doesn't cover all of the mortgage (off season rentals are *far* cheaper), it could make a big dent in it.
But this year things are different. People aren't renting these houses - most weeks they sit empty. People can stay in a motel for a *lot* less. Or they can come down for fewer days, or not come at all. In the end, if you have a big mortgage on one of these things and your rental income takes a huge hit, then your cash flow is going to be all messed up as well.
Yes, people in that income bracket aren't being driven to foreclosure. But they are feeling it, in dropping prices:
A Cold Season in the Hamptons
Renting or Buying, Hamptons Feel Pinch
I would just give it more time. There is always a lag in the system...their buffer may be larger than the average but as this drags out the people who were waiting for the "recession to be over" will eventually need to consolidate their assets.
Bingo !
Some rich idiot has spent over a hundred grand just excavating a basement out of the solid stone spine of the ridge above out place and he isn't even half finished yet.
But the woods is full of houses half finished too.
The damage inflicted to a national economy by high oil prices will depend in large part upon that nation's reliance upon imported oil vs. other energy sources. There is no need to resort to metaphors or opinions when the data very clearly explain the difference between the Chinese and US dependence upon imported oil.
Here is the story as told with charts from the Energy Export Databrowser:
1) China is powered by coal
The recent huge increases in Chinese economic output have been powered primarily by increased consumption of coal. Yes, Chinese consumption of other fossil fuels has increased but those amounts pale in comparison to their gargantuan appetite for coal.
If you click on the "Show Options" button on the "All Fuels" plot type you can choose the "percent" option and will see that coal accounts for 70% of primary energy consumption in China while oil accounts for only about 20%. China gets more energy from coal than from all other sources combined.
2) The US is powered by oil
If you look at the same "All Fuels" plots for the US you will see that coal accounts for only 25% of our primary energy consumption while oil accounts for just under 40%. The US gets more energy from oil than from any other single source.
3) China is almost entirely self sufficient in coal
Increased Chinese consumption of coal is almost exactly matched by increased Chinese production. The "Import/Export" plot for coal speaks for itself:
4) The US imports 2/3 of the oil it uses
Looking at the "Import/Export" plots for the US and oil you will see that the US imports around 2/3 of the oil it uses.
The bottom line is that imported oil accounts for a much larger portion of energy use in the United States than it does in China. It should not be surprising then that high oil prices affect the US economy more than the Chinese economy.
The data tell a very clear story that should make sense to anyone. No hand-waving explanations are needed.
Happy Exploring!
-- Jon
Jon has a very good point. Other energy sources can let a country manufacture goods to pay for expensive oil.
Lets ignore $'s for a moment and consider the economy as a trade of energy for energy. An economy like Japan imports oil and turns some of that energy into goods and services which it sells to get more oil. The Japanese economy exists on the differential between the energy in the oil it imports (lots of energy per $) and the goods it sells. If the energy it must pay to get a barrel of oil ever rises to the amount of energy in the barrel, then the Japanese economy will stop existing.
In money terms, this would be the same thing as if a manufacturing plant had to pay as much for parts as it could get for selling the final good.
In the Chinese and US economy, there are lots of other energy sources that can subsidize the purchase of oil by being much cheaper per BTU. So the US economy could convert natural gas into manufactured goods for a fraction of the input cost compared to making the same goods out of oil. (Japan cannot do this because the prices it pays for imported NG are nearly the same as oil).
However in the US our alternative energy supplies have been rising in cost. So the ability to subsidize is becoming more limited. Look at this EIA diagram of cost per BTU. NG is rising to match oil. And once it does, we will only have coal to subsidize.
I agree with Darwinian's position. There are upper limits on the inflation adjusted price of oil. Each inflation adjusted $ represents a certain amount of unspent energy. An economy that must trade more energy (in the form of $s) than a barrel contains will soon grind to a stop. I think we can all agree on that.
The more oil we import, and the greater the cost of domestic NG production, the more the remaining US economy will be squeezed to give up energy needed to pay for those trades.
Only economies with huge surplus energy from other sources will ever be able to pay more than $250 per barrel of oil.
Utterly and completely wrong.
You have no clue what the price of oil can go to.
On the economic side we can consider a range of economic models from a large middle class driving SUV's and living in McMansions to your typical third world country with a small elite and most people living poor to the edge of starvation. The oil usage for these two extremes is well documented.
http://en.wikipedia.org/wiki/World_energy_resources_and_consumption
http://www.nationmaster.com/graph/ene_oil_con_percap-energy-oil-consumpt...
The world average is 31.7 bbl/day per 1,000 people and the US is 68.672 bbl/day per 1,000 people and the big loser or bottom is Chad at 0.135 bbl/day per 1,000 people.
68.672/0.135 = 508.
So in our modern world depending on the economic model oil usage varies by 500 fold. Thats a huge range.
If you include the oil rich small nations the extremes are even larger for Qatar its 131.596 bbl/day per 1,000 people. Or a variance of 131.596/0.135 ~= 970 or almost 1000 i.e 1 person from Qatar equals 1000 Chadians.
This is a huge range of economic models GDP per barrel and absolute GDP per capita. Depending on the price of oil and the absolute amount available the world economy has plenty of room to reduce its oil usage towards the levels found in Chad. In between the extremes we have a number of first world economies with substantially lower per capita oil usage than in the US. This suggests that if forced US per capita consumption could readily fall by 50% and still be considered a first world economy. If you assume a more third world like economic model it can be substantially less.
Thats the demand side and given the breath its difficult to ascertain if any maximum price exists for oil.
In fact its effectively impossible. Instead it makes a lot more sense to consider if a certain price would lead to economic changes that resulted in oil demand declining in line with supply. For this we can make all kinds of assumptions from a economy that transitions to renewable EV's to say one that chooses CTL and the resulting environmental damage. Again a rich set of possible alternatives present themselves. Maybe they are viable maybe not thats and open question. However a transition to a third world Chad like economy is certainly not the only choice.
You and Darwinian and anyone else that even begins to think that they can confidently state that 50,70,250,500 is the "top" price for oil are simply wrong even a basic review of the world economy shows that a rich set of economic models are possible which can readily be adopted to accommodate practically any price for oil espcially when coupled with possible substitution.
Outside of say a rapid expansion of nuclear power and coal usage in the US almost all result in a lower standard of living with lower disposable incomes the worst case substantially lower. And I'd argue that its doubtful that even a rapid switch to nuclear would result in significant increases in per capita income. If it did then France would be immensely wealthy.
Have we hit the limits of growth in per capita energy usage esp oil almost certainly. Is the world going to become increasingly poorer highly probable.
Are claims that their is some relatively low limit to the price of oil bogus ?
Thats trivially false given the 1000 fold variance in per capita oil usage depending on the economic structure of a given region.
And as oil becomes relatively dearer and economies gradually transition to alternatives (some of which include lifestyle changes), the amount of constant dollar GDP per barrel will go up. So as the transition progresses, the limit on the sustained oil price due to dear-oil grashing economies will gradually increase. Of course some countries have been smart enough to make substantial progress before it became a huge issue, and some such as the good old United Stupids of America haven't. The difficulties of making the transition will vary, but eventually oil will be a small specialize niche product -at which point its price will have little impact on the overall economy.
The problem is really one of rates. Will we transition at a fast enough rate to avoid dour consequences? I suspect on this side of the ponf the answer will be no.
I see it the same way. Neil1947 made the point about oil being about 9% of total GDP before it causes a crash. If total cost = volume * price then as long as volume is declining, price can rise.
And I expect price will slowly rise as less efficient uses are slowly priced out of existence. But I now see oil prices as a wave sloshing back and forth in a wave tank. As prices go up it lifts the oil industry into a drilling boom and shrinks the rest of the economy, just like the early 80s. That crashes prices and starves the oil industry, just like the late 80s. The wave will just keep rocking back and forth.
What I fear this means is that peak oil will mostly show up as growing unemployment driven by price spikes on a multi year cycle. Prices won't stay so high that those who survive the spikes will feel especially compelled to conserve. Alternatives will have difficulty gaining traction.
Well I'd be careful comparing the future to the 1980's. Its different this time around.
I think its fairly obvious now that the initial start of the situation has pretty much followed something similar to the 1980's but thats primarily because at the start the conditions are fairly similar. Although severe I'd argue up till now and probably for the next six months or so we are still in a traditional recession.
There is a chance for a sort of W type recession. Where we could have a bit of recovery followed by a price spike in contraction say 2010 or not. I'd argue instead that we are actually leaving a traditional recession and entering a true depression which I define as massive overcapacity for production and high unemployment with debt deflation/default. This is quite different from a recession. During the last depression oil prices only fell the first year and rose thereafter so the one example we have of a fairly modern depression does not predict much change in oil demand. Given the large amount of excess industrial capacity it becomes difficult to split this out of the real economy. By this I mean you have a lot of idled equipment yet you still have some base level of demand just not near enough to cause prices or wages to increase.
For example over on PeakOil.com in Pup55's thread one of the topics of interest is that as the absolute volume of oil production declines all the upstream oil businesses will be in a massive depression from overcapacity regardless of the price of oil. We have too many refineries too many ships too many pipelines too many gas stations etc etc etc.
Everyone so confident of cheap oil are not even considering the ramifications of a lot of our upstream companies simply failing potentially to the point that the glut in capacity becomes a sharp shortage. Who knows ?
Short term i.e over the next several months say 6-18 I think this looming depression in the upstream oil industry is going to have the largest impact on finished product prices.
Volatile or rising prices coupled with falling volumes is already starting to cause some very interesting things to happen in the upstream industry.
At this moment in time the volume of oil coupled with who is getting it and who is not is driving the oil industry along with the overcapacity problem. One thing is certain the upstream industry will not produce finished products for free so something has to happen. The wheels are already starting to fall off from volume effects alone.
do you think sarah palin gets it ?
"The 'Cap And Tax' Dead End"
http://www.washingtonpost.com/wp-dyn/content/article/2009/07/13/AR200907...
let her words do the talkin':
“She said the answer is to "responsibly tap the resources that God created right underfoot on American soil" while at the same time protecting the environment.”
“We can safely drill for U.S. oil offshore and in a tiny, 2,000-acre corner of the Arctic National Wildlife Refuge if ever given the go-ahead by Washington"
No, she speaks the code words of the religious dominionist. There is nothing to "get" there, only blind faith.
She's a politician.?You can never be sure what she believes judging from what she says.
But I don't necessarily disagree with you.
No matter what she believes,all public statements will made to conform to the world view of her core constituency,real or imagined.
Until near election time when as Nixon said"You run to the right as hard as you can to gert nominated and ten for the canetr as hard as you can to get elected."
Personally I don't think she is ever going anywhere nationally,but she might get into congress if she pulls a Hillary and moves to the right district.
clearly she doesn't understand (or chooses to mislead) about the oil industry she claims to be an expert on.
exhibit a) the 2000 acre "corner" .
bush with lipstick. lipstick applied with a putty knife,imo.
I have no use for Palin or either Bush but the whole Anwr thing has become a political football.
Suppose we decided to be RATIONAL and drill there(and it can be done w/o appreciably degrading the local environment imo) and spend the lease money buying up other environmentally significant land that can be had in many other locations?
Lots of places in dire need of protection,with many more endangered /rare species,could be bought with that much money.
This could be a win win for every body.
This would also send a message that we are getting real about our problems both energy and environment.
I an perfectly well aware that neither we Merkuns nor the rest of the world can drill our way out of the energy problem, but every year we gain before tshtf for real is another year for the existing renewables industries to grow and for somebody in a lab somewhere to come up with a viable new renewable technology.
Namoni Klein in a commonwealth club talk was claiming that the ppl handing Sarah's PR efforts were the same ones behind 8-year Bush.
reading the wp article, i wonder who chose the words ? her name is at the top, so they are hers.
What people aren't seeing is China's massive increase in natural gas consumption. Even though it's only ~3% of China's energy consumption, it's been growing at ~16% per year for the past 10 years, compared to oil, which is only ~7%. Which is why China's building gas pipelines to central Asia and building 10 LNG terminals.
Did anyone watch (?)"Modern Marvels"(?) on The History Channel yesterday?
I didn't see it but am told that they discussed oil depletion and the related collapse of modern agriculture and the pharmacutical industries. The supposed date was circa (?)2019(?).
If anyone can provide further info I am interested.
Sounds more like Megadisasters.
Could it have been this show?
On an unrelated note, there was an episode of "World's Toughest Fixes", where they were building a CSP plant in California, and they needed to hoist a pair of 50 ton boilers on top of 160 foot towers. Episode description here.
From this book review article linked in today's DB:
The End of the Age of Oil: Will It Be a Soft or Hard Landing?
Has TOD discussed Steiner's book yet? Did I miss it?
From Shivani's review of it the book sounds like some of us could have wrote pieces of it :-)
The incremental changes in how our society functions being tied to the price of gasoline is an interesting way of helping people grasp the complexity and the driving force. Though using actual dollar amounts may come back to bite Steiner in the butt as the value of the dollar shifts with deflation and inflation waves.
Thought these predictions from his article were interesting:
I can't help thinking it is fun that the top two stories in DrumBeat quote twenty bucks. One for a barrel and the other for a gallon.
Forecast future prices varying 42-fold.
I could live with $20 gas. I have already put up with $10 gas here in the UK.
From the link: Verleger Sees $20 Oil This Year on ‘Devastating’ Glut(emphasis mine).
That is the point. People who see $20 oil do not see the depletion and people who see $20 a gallon gasoline do not see the deepening recession. The truth will likely be somewhere in between. Well, not between $20 a gallon gasoline but between $70 oil and $30 oil.
The $20 a gallon article does not mention the word "recession" even once and mentions the word "economy" only once but only as "Kunstler's small-scale, local, manual economy". Not a word as to the effect $20 a gallon gasoline would have on the economy of the nation or the world. It just assumes that everything will be business as usual, virtually no effect on the economy, as the price of gasoline climbs higher and higher.
Is that a logical assumption?
Ron P.
The Chinese economy is still on pace to double in size in less than a decade. The Chinese people may have a better sense of the work-value of a barrel of oil, and despite their massive population, $20 for a gallon of gasoline might be a bargain in China circa 2030.
Ron what happens if your wrong ?
I'm not saying that both might not happen but your economic model sucks big time.
Try to consider the three major outcomes.
1.) 20 dollar a barrel oil.
2.) Recession sufficient to wipe out oil prices
3.) Strong price increase because of intrinsic demand followed by a resource induced depression with high prices
all the way down.
The problem is you don't really understand 2 and you don't understand fractional banking and leverage.
Your claiming that 2 is the future yet fail to explain how we can keep the fiat currency system running along wit h a series of oil price spikes and recessions. If you look deep enough then you will see we already killed our currency.
What pissed me off is how wrong and close minded you are on this issue and how you don't understand the differences between recessions and depressions and monetary policy.
First explain how we can even have another recession ?
I'd argue we can't or monetary system is simply already to broken.
So before we even talk about oil prices think hard about the status of the economy.
That has happened already. I, like most everyone else on this list, thought oil prices would continue higher and higher until they passed $200 a barrel without a pause. I wuz wrong!
I think I understand banking and leverage as well as anyone. Fractional banking and over leveraging is partially, and perhaps largely, what got us into this mess. But banks don't buy oil, consumers do. When people are getting laid off every day, and the average salary of those still working is dropping also, they buy less. It cannot possibly be otherwise.
Well I do not believe it is quite dead. I am on a fixed income and have noticed very little change in my buying power. But that is not the point. I have said that everything must be based on dollars adjusted for inflation. If a ham sandwich goes for $200 then I expect the price of oil to be way above that figure.
Okay a depression is just a very deep, deep recession. There is really no difference except in matter of degrees. 10% unemployment is a recession, 25% unemployment is a depression. I think I understand monetary policy. However people with little or money cannot bid up the price of oil.
Also a closed minded person is a person that never changes his position even when new evidence emerges to prove him wrong. I have already admitted I was wrong about oil prices. Obviously you have not even though prices fell from over. $140 a barrel to well below $40 a barrel. The reason, in hindsight, is obvious. And that same reason is why oil prices will stay below last year's prices. Why are you so closed minded that you cannot see something so obvious?
We likely won't have another recession, we already got one! We will either recover from the current recession or it will get worse. My money is on the latter. But even if we do recover, somewhat, we could still have another recession just as we have had many in the past. There is no law of economics that states that two recessions cannot come very close together.
However I don't understand why you think this somehow means higher oil prices.. We are currently in a very deep recession and it is very likely to get worse. I expect it to be a depression within two years. Consumption will drop, manufacturing will drop, unemployment will rise and all this will dramatically affect the price of oil.
That Memmel, is the state of the economy. You should think long and hard about that before you predict oil prices will go through the roof. We learned that lesson last year. Well, at least some of us did.
Ron P.
It's not quite as simple as have less money, buy less oil. Gasoline is cheap compared to other household expenses, so VMT and gas purchases depend on:
1. Do you travel by car?
2. Do you have somewhere to go?
As long as people are still employed, they'll pay any price to get to work if there's any net gain over travel expenses. For almost everyone, the switching costs of finding another vehicle or finding closer housing were both more expensive than paying $4.50 for fuel.
Spare capacity used to be what set prices, but you're correct that you can't bid up high prices without money or credit. Shortages and rationing are just as likely.
I think you have to look beyond gasoline. We also consume oil in products we buy, that are created with the help of oil, and delivered via ship, truck, etc. A lot of those may turn out to be expendable.
True, and what we're seeing in the low price of diesel (less than regular unleaded) is just how depressed the market is for commercial deliveries. Last summer diesel was almost $1 higher than gasoline. Gasoline is overwhelmingly used for personal passenger vehicles.
Leanan,
I believe you have arrived at the nut in the middle of this debate.As prices rise,more and more products and services dependent upon oil will become unprofitable and cease to be marketed.
So the real question may be "can demand destruction outpace depletion and cartel pricing,and if so ,for how long?"
It seems to be a fact that the less oil we use,given our current economy,the more critical every barrel becomes,and the less important the price,IF it is possible to pay it.
Memmel may be right- if something severely constricts the supply before we can reorganize our economy-paricularly the transport sector.
I can state without a shadow of a doubt that diesel fuel needed to farm and transport food is cheaper at even fifty bucks per gallon than starvation,civil war and anarchy.Now as to whether demand could fall off enough to prevent the price from ever rising so high,I think that most likely it would fall that fast,as the grass grows up around the parked cars and the houses too far from town to live in anymore,unless maybe you are either a farmer,a farm hand, or retiree.
(My personal opinion is that the economy will recover-after a fashion-and that oil demand and depletion together will force a long term rise in prices of oil as well as all other nonrenewables
so growth will be very slow.Inflation imo is a given,can't say exactly when but sooner than most are willing to consider.Eventually the shtf as a result of depletion /population growth.Permanent or decades long troubles,war and turmoil, at that point.I don't think we are at there yet.)
Bottled water might simply be outlawed and coke and pepsi and potato chips taxed out of existence.
Schools could run three days and the mail once a week,etc.
Commercial aviation could be relegated to the history books.
Books could be distributed only on discs.
But if something suddenly interrupts the supply,I cannot see a top price for oil ,at least in the short run.
There is not enough soybean oil and palm oil and ethanol and biodiesel capacity in existence to shoulder even a small part of the ESSENTIAL transportation load,and ramping up production enough to really matter would take quite some time,years at least.
Given the fact that our little farm is "up and running" I can grow enough food,haul in our firewood,etc for four annually with no more than thirty to fifty gallons of diesel,without draft animals and without days on end of killing labor such as spading large gardens by hand. And we would still have several hundered bushels of apples to sell-maybe not such pretty apples as usual,but edible,and in many cases protein enhanced-no extra charge for the worms either!
Jus how much I would pay for that fifty gallons depends on how much
I could beg,borrow, or steal-once I have burned thru my stash ,which will last long enough to get some oil flowing again,hopefully, if the unthinkable happens.
If the oil is for some reason suddenly NOT THERE you couldn't buy a horse or mule with less than a very large gold brick and a very good looking virgin daughter as boot.Maybe not even two bricks and a couple of virgins,both knockouts.
The world would be full of attractive women and handsome men looking for a good match-meaning one with regular meals as part of the deal.
If the oil is for some reason suddenly NOT THERE you couldn't buy a horse or mule with less than a very large gold brick and a very good looking virgin daughter as boot
So what would a used Tesla be worth?
OTOH, if you have millions of jobless people, maybe it will be cheaper to move them to the farms and let them work, rather than use diesel to farm and transport food.
Yes, I know it's less efficient...but only if you don't consider unemployed and starving people as part of the equation.
I think the market could take care of that. People wouldn't be able to afford it. Or it would be cheaper to make their own, and they'll have plenty of time to do it.
"Short run" being the key. We've already suffered disruptions in supply. The Arab oil embargo, Katrina, last year's hurricanes that resulted in shortages in the southeast. We know what happens in that situation.
Leanan,
You are right on,the market will take care of bottled water,etc.I was thinking in terms of the things govt would do in a hurry to ease the pain and create the appearance of "doing something"when I typed that.
The grassed in cars and mcnansions would of course be several orders of magnitude more significant.
And your are right about moving the people to the farms,in principle.
But in practice,I don't see how it could be done on short notice.
One thing is for sure-if it ever happens,tent manufacturers are going to be in the tall cotton if they can get thier input materials.
I do expect to see a large scale movement of this sort before I die (if my luck holds for a couple of decades) as living standards fall and employment opportunities dry up.
An oil supply catastrophe could be a positive Black Swan for somebody like me-I could probably get a couple of tough young guys to work for next to nothing-the right to live in our large barn which has wood heat and running water for thier wife and kids,plus a couple of acres to garden on thier own.
But if things get really tough ,blood counts more, and we would feel compelled to take in ingrate relatives who won't visit thier bedriddden grandmother who made numerous sacrifices for them,depriving herself of little luxuries so they could have nicer bicycles and new coats every year instead of hand me downs,etc.
We could find ourselves trying to survive on domestic production plus whatever we could get from Mexico and Canada for an extended period of time before breakfast tomorrow if war broke out and somebody decided to take out the export facilities in the middle east.
Somebody more into modeling might run that scenario thru thier computer,but I doubt the answers would really mean anything.
My guess is that it will be a government program. They'll have to do something with all the unemployed. Food stamps only go so far.
Govermnent obviously would have to play the leading role.
Even so,the infighting and backstabbing and maneuvering for advantage would be beyond belief.
Every body from the local health department to the Spca would try to be in charge,and the people in the more desirable areas-the well watered parts of the deep south -would be up in arms over the invasion.
The situation would probably degenerate to the point that military police would be authorized to shoot on sight to deal with looters,etc,and martial law would be a foregone conclusion for quite some time.
We might even have to bring our troops home from overseas and do a little fast constitutional tinkering,possibly via the Supreme Court,in order to put enough hopefully rational people with guns on the street to keep the Mad Max scenarios in the movie theaters.
Now that you have gotten me thinking along these lines,I guess I should put more ammo on my shopping list.
If droves of people move to the country to get work doesnt mean they will all be hired. My grandpa told me a story about when he was young during the depression. He went to the edge of town to work in the fields. People looking for work would line up on one side of a fence. The ones looking for workers were on the other side. The employers would have everyone put their hands on the fence. They would then walk down the row picking people at apparently random. The picked people would have work for the day, the rest would not. The employers were looking at callouses on peoples hands. If they didnt have rough hands, they were not working. All this for a job picking weeds in onion fields. The ones sent home, WELL-the employers didnt care if they had mouths to feed or not. They wanted hard workers, simple as that. All it takes is one easy look at Americans today. Most are too lazy (obese) to want to do a manual labor job. I am not saying that there are no big guys out there that dont do manual labor or dont have the ability to do so. It is just that with our airconditioned, drive to the mail box society. Most will just sit around waiting to the government to give out a big handout without lifting a finger of effort even if reality tells them they should do otherwise.
Well to be clear what I'm blasting is the concept that economic contraction is certain to outpace the drop in oil supply such that there is some sort of magic top price thats fairly low say under 250 a barrel.
This is a myth. Certainly contraction can go fast enough such that we can have a temporary oil glut. We have just seen this happen. And it came close to collapsing our economy how close we may never no but close enough to scare the hell out of people. Can it happen again sure. Can we survive a second fast collapse doubtful. Would extraordinary measures be taken to stop a rapid economic contraction at the expense of causing other major problems shortly thereafter certainly. Also of course like you say every time demand contracts it gets more difficult to reduce it further. I could of course go on forever on why there is no magic number.
Certainly the economic rate and the oil supply are coupled and certainly depending on how the system behaves you can get a situation where a temporary glut develops but its no different from any to systems changing at different rates having times when position change. Now looking at the recent past we had a fast almost collapse and oil prices fell for about six months before starting to rise again. A year later we are already back to almost half the previous price.
But whats wrong is to proclaim with certainty that this fairly unique event was a fundamental economic situation. And far more important as debt deflation continues and more and more people reach the point of having to decide to service debt esp on underwater homes or buy gas and food the decision to default becomes much easier. And of course as the economy remains poor more and more people will also use up all available credit then default. The entire economy will increasingly prefer to default on debt and take the long term credit hit to pay to live today. Only after debt deflation has run its course and it has a long way to go will we reach the point that people can no longer increase cash flow via using credit with no intent to repay the defaulting.
I'm pretty sure our leaders understand this.
This is perhaps overstating things. Once travel costs get to half of net income, travel plus other costs of employment (child care, clothing, etc.) push most people in the direction of seeking work closer to home, or giving up work entirely.
Long before then, when travel costs are about a quarter of net income, many people will be cutting costs by car-pooling or using smaller vehicles. Demand destruction occurs at all price levels for reasons like this.
Of course people don't immediately change their behavior in response to every spike in prices, so gasoline could go to $20/gal, but only for a very brief time.
It could go to 40 50 or 100. I'd argue that at some price point the absolute size of remaining demand could be met using vegetable oils. A good example would be demand for aircraft which don't have a viable substitute for liquid hydrocarbon fuels. Just a review of the cost of vegetable oil per gallon in the supermarket and assuming it could rise 4x as input costs increased points to about 20-30 a gallon as a probable upper bound before substitution is both cost effective and the remaining demand small enough to make effective substitution viable.
http://www.tian.cc/2005/09/testing-biodiesel-bandwagon.html
Note its not really cost thats the factor for vegetable oil even assuming higher input costs but the absolute volume that can be produced as a substitute. Its a bit of a paradox in that prices would probably have to rise much higher to lower overall demand to the point that reasonable volumes of vegetable oils can act as a true substitute for oil.
Certainly substitution could result at lower price points putting a cap on oil prices but its hard to say what these would be. A fairly good guess at a upper bound is quit possible. I personally can't see any reason for oil to go over 500-800 a barrel before alternatives and substitution resulted in and effective price cap.
A lower bound is tough to guess but I'd say that in the 150-300 dollar price range for oil that our current lifestyle is probably simply not viable long term and you would see a significant movement away from oil.
As you drop closer to the current price I'd say 50-70 would probably not have any real effect on oil consumption or start a significant trend to moving off of oil. 70-150 is a sort of transition region where the economic response or supply and demand equation seems highly volatile. Indeed we have seen some incredible volatility already when we hit this price range. Its a sort of gray region where the old lifestyle is not quite viable yet a commitment to substitution is also not really viable.
I tend to think we will probably have to bust through this price range and have peak oil publicly acknowledged before we see really attempts at changing. Now if we can pull it off before oil reach a price point that only critical needs for fossil fuel are met is a open question its very much a race against time at that point.
In any case its one of those problems where its fairly simple to come up with very reasonable upper bounds but very hard to determine if any sort of lower bounds exist. Way to many other factors with the largest being the fiat currency system and large debt loads come into play at lower price point and in fact probably swamp and simple price driven demand supply response to the price of oil below say about 150 a barrel. And of course as you get into the higher price points where peak oil would be accepted one also hit price points where political problems esp in the poorer countries become critical. There does not seem to be any real region where a simple price demand model makes much sense in the real world give the social/economic structure of the modern world.
Just having the world fiat reserve currency issued by a nation mired in enormous debt is sufficient to make the problem intractable as far as simple supply/demand/price assumptions go so even what I've posted is highly questionable but it does at least make some sense using basic and reasonable substitution estimates.
You seem to be talking about the very long run -- biofuels for planes -- and the short run -- oil at $50-70 -- at the same time. This might be the source of the confusion in your models.
Fuel demand is reasonably price-inelastic in the short run, but reasonably elastic in the long run. Oil at $70, sustained for 10 or 20 years, is quite enough to moderate demand, as it makes plug-in hybrids and CNG/LPG-fueled vehicles cost-competitive, and that is long enough to initiate behavioral changes - telecommuting from a "neighborhood work center", living closer to work, getting your shopping delivered, etc.
The point is, people don't adapt overnight in response to price, but they do adapt.
It's not necessary for any public figure to "acknowledge peak oil," as long as a high-ish price can be sustained. Hmmm... sounds familiar ... what have the Russians, OPEC and the IEA (i.e. the OECD) been saying...? Oh yeah, a price around $60 - $80 is "fair". Sounds like they're trying to nudge people in the direction of HEVs, EVs, and CNG/LPG vehicles, to get an early start on what the market will do anyway.
(This is on the assumption that governments believe in a slow initial decline rate, post-peak - an assumption they will be pushed towards by their advisors and by their own wishes.)
Yep I agree with what your saying. In the sense that this is pretty much what the main stream press seems to be heading for.
However :)
First the EIA's own data shows global production right now is down only about 2mbd and the price of oil is already climbing despite the fact that the overall economic situation is worse today than it has been.
I'm not saying that the b anks are worse off they are better but unemployment is higher than ever etc.
Right now the situation fits my fast decline model which is troublesome. Next I watched the recent market downswing with extreme interest since it contained a lot of information if you knew what to look for.
A five dollar or so price differential for oil if post peak fast crash pressure was intense would have generated a powerful floor as it became effective to buy and store oil. This floor is based on fundamentals.
The technical floor price is 60 or was 60 were basically on a new trend right now. Whats important is that the price fell slightly through the technical floor and it looks like its probably recovered. This opened up a huge contango situation if you felt like oil was heading at least to 100 or more this year. Smart players may have made a killing while obviously most of the market is playing the technicals. Of course the tight coupling with the stock market is also indicative of the oil market moving in concert with the the technical moves of other markets.
So the fundamental signal seems to be present in the elevated prices and contango and the fact the price seems to have turned but its still weak i.e the market is saying we are not swimming in oil but also its not expecting any sort of super strong surge anytime soon.
Of course the market is fickle and can and will adjust but so far at least I'd say the current price and the way the market is moving is not yet being pushed hard from the underlying fundamental situation. There is pressure but its not strong. Right now it can be best described as a sort of split decision between ample supply and constrained supply. So we are from the market still sitting on a fence. The fact it returned to fence sitting instead of falling to 50 is in favor of a longer term constrained market but it can still go either way. If the market is really closer to well supplied one would expect that this rally will fail and next time oil will go towards 50.
Given I think we are on a fast decline path we basically have almost no signal as far as what the actual price would be in this case. I just simply don't see much that indicates the current prices are representative of a constrained supply world with falling supplies and fairly inelastic demand. The "actual" price signal just is not there.
After thinking about it, it's better to say "for a reasonable net gain over travel expenses". There's problems with switching to smaller vehicles in response to high prices, though. Vehicle purchase prices and depreciation are still much more expensive than fuel. Resale values for trucks plummeted last summer which made it nearly impossible to trade in a gas guzzler.
You can still buy older second hand high mpg vehicles for a few months wages. Those who need to travel can bid up the price of these vehicles, or continue driving newer gas guzzlers and grumbling at the pumps.
My brother-in-law rode a Kawasaki 90cc motorbike, which he bought used, for several years. It paid for itself in under a year -- and his "big" vehicle, that it replaced for commuting purposes, was a BLMC Mini.
It was safe enough in the (ironically named, I am sure) "rush hour" traffic.
Push bikes cost even less than a small motorbike, in both capital and operating costs.
At some point, price wins over comfort for every individual - a different point for each, perhaps.
If you can't afford $x00.00 (or the damage to your ego) for a used "egg beater" motorcycle, I guess you're left with car-pooling.
(I didn't mention the primary source of demand destruction: losing your job, because people aren't eating out/flying to Vegas/buying shoes or life insurance/learning Spanish/whatever any more, due to high fuel prices.
Aggregate job losses have a much bigger effect on total demand, and therefore on holding down fuel price, than aggregate behaviour change -- in the short term.)
For a person with no money in their pockets, it really makes no difference whether the price of gasoline is $2/gal, or $20/gal, or $2 billion/gal. Even $0.02/gal is too expensive for them.
I'd say he read a Kunstler article or two and picked it up (sort of) for his book. What in the world, however would cause him to think that if asphalt was too expensive, why wouldn't concrete (very energy intensive) become too expensive too?
because you can make concrete using coal or natural gas.
I expect coal to remain relatively cheap, and maybe nat gas as well. Asphalt IS oil - it is the gluey stuff left over when you have extracted the more profitable fractions. As such it is currently cheaper than concrete (and a far better material for roads, and by locking it up in roads, you are not burning it as a fuel. Far better for the environment than concrete, which not only requires lots of (usually fossil) energy to make, but emits large amounts of extra CO2 as well. A disaster for the environment).
As oil gets scarce, more of the goo will be cracked to usable fuels for burning. Asphalt will get very expensive.
Alternative fuels, everything from waste tires to shale oil, has been used to manufacture cement itself.
Search for 'alternative fuel cement'. Although coal and gas are certainly more common here in the US.
Coal is the best energy source for cement since the fly ash improves the quality of the cement.
fly ash can improve the quality of concrete(which is what i think you meant), but quality control is more crucial.
Used motor oil and other lubricants plus old tires are major sources of cement process heat today (someone pays you to take fuel :-)
Sources likely to shrink in future years.
Several brick kilns use landfill gas today (landfill gas is too poor quality to use with natural gas; other option is run it in a diesel generator or flare it).
I live two blocks from Felicity Street, one of the few streets with cobblestones (many have an asphalt overlay on cobblestone).
Perfectly serviceable and quite durable.
Best Hopes for paved bicycle routes,
Alan
I worked on a project a few years ago that cleaned up gas extracted from a landfill near Cincinnati and sold it to the local gas company as high pressure clean nat. gas. It was pretty small - wish I could remember more. The idea was to use their existing co-gen facility to generate electricity on site in summer and sell the gas in the winter. It was scaled up from an already working prototype and I think it went into operation successfully. The gas could be flared in the event of an emergency. No idea whether it is still operating.
Apparently the gas quality varies widely from landfill to landfill. Our problem was sulfur if I recall. A subsequent project in New Jersey was canceled, maybe due to operating costs, or maybe because our project manager seemed to be a self server, frequently representing himself rather than our engineering company.
He was a young fellow, I found him unpleasant to work for. He was constantly doing odd stuff like occasionally coming to work drunk, or trying to raise the capital to buy the gas generating company (a spun off division of Duquesne Light I think) for himself. He was a "high roller" with connections. He was eventually fired. But the Process Department he was also manager of was highly competent so not all bad.
But the follow on project might have had gas quality issues. I seem to recall that govt. subsidies were required for most of these gas recovery schemes to be economical.
JB
Landfills are just a starter app. What all municipalities will eventually have to do is to direct their sewage stream into anaerobic generators in order to produce biogas on a much larger scale. Ditto with manure from livestock. We need to capture every bit of methane that we can for our own use, and as a huge bonus it will keep a powerful GHG out of the atmosphere!
I wonder if CSP might be a feasible energy source for cemment manufacture?
Actually, I have visions of teams of people wielding pick axes, sledge hammers, shovels, and wheelbarrows, mining asphalt from highways and parking lots. It may actually come to that, some day.
But, how long does the bitumin in old roadways last? I suspect that being semi-volatile it gradually evaporates away. Maybe some oxidizes, and is lost that way. In either case there may be less and less, as the roadway deteriorates. Otherwise why would people be coating older pavement with new asphalt based sealcoats etc?
A properly built and maintainted concrete/paver road or plaza could last a very long time indeed. Asphalt will have to be sealed, milled and repaved, or rebuilt entirely within a short number of years.
The link up top is very interesting: The End of the Age of Oil: Will It Be a Soft or Hard Landing?
The author steps us up through the rise in gas prices and informs us of the very important things that will happen at each step of higher gas prices.
But it ain't gonna happen that way! At each rise in the price of oil and gasoline prices, people consume less of other products. This decline in consumption is generally referred to as a recession. This is because when people consume less then the people who used to produce these goods not being bought lose their jobs. This means more people who buy less as well as more people who cannot afford higher gasoline. This means more people who buy less. This means the recession gets deeper and deeper as oil becomes scarcer.
The point is, people's ability to pay higher energy prices will drop faster than the supply of oil. This has already happened. Oil peaked, or plateaued in 2005. And because certain segments of the economy still tried to grow, they bid the price higher and higher until the economy could no longer absorb more expensive prices. At this point the price of oil collapsed.
OPEC has had to cut production by over 3 million barrels per day in order to keep oil prices above $60 a barrel. But the economy is suffering. If the economy recovers enough then OPEC can increase production to the level of 2008 production, or very near that level. Then if the oil supply drops by 2.5% every year thereafter, the economy will suffer even more. Millions more will be laid off. In some countries hunger and misery will be commonplace. These people will have nothing and certainly cannot bid up the price of gasoline.
Again, the economy and people's buying power will drop faster than the supply of oil regardless of whatever that percentage drop may be. The idea that we can get from here to the end of the oil age without suffering very sever consequences is just magical thinking.
Ron P.
Edit: Sorry Greg, I was typing this post while you were posting yours, else I would have posted it as a reply to your post.
Ron,
I agree but I go much further. There is an underlying assumption that some form of BAU will continue. That is a lot of BS. Does anyone seriously believe that a "service-based" economy has any future? I think not. So, what are all those people who flock to high density cities actually going to do? Shuffle paper and sell knick-knacks?
No, we're going to build new manufacturing plants where people will produce what? that people can afford to buy? And, of course, there will be lots and lots of capital to build the plants.
I think the reality is that a lot of people are going to spend their lives looking at the rear end of a horse or mule or working the fields and they will be the lucky ones.
Todd
Well stated, I agree.
So, what are all those people who flock to high density cities actually going to do?
Food manufacturing and port activities will be part of the future in New Orleans. Ship building is nearby. Some education will continue (doctors (2 schools) and dentists (1 school) at least).
The buildings are still left from many former manufacturing plants. Twiropa (once world's largest twine & rope maker), another was once world's largest cotton mill, American Can, Southern Copper, paint, breweries and many, many more.
The advantages of the past may return in the future.
Best Hopes for Urban Manufacturing,
Alan
To some extent, yes. However, I doubt that the largest scale operations of the past will be operating on such a large scale in the future. To the extent that such manufacturing exists, it is going to be on a much smaller scale than it was during its peak days.
I'm not so sure about that. When thinking about the core products people need to survive the advantage of manufacturing automation (economies of scale) and the ability to gather capital will still mean large operations can provide products cheaper than smaller operations.
There is simply no guarantee we will go entirely back to the period when artisans and small manufacturers made everything (though to some degree I think we will). We could still end up with really big factories that don't employ many people and the rest of the populace simply has trouble finding a way to make (much) money.
This could be the endgame of industrialization. The "excess workers" were supposed to (in theory) take their newfound spare time and use it for leisure. If they do, I don't think they will have a very materially rich life (though they will get to know their neighbors better).
Aangel, Have you read the book Player Piano by Kurt Vonnegut ? Your post described the book pretty well.
It's written differently from Vonnegut's later books, not as surreal. I enjoy reading it and used to keep it on the book shelf in my office when I was doing Engineering work. Started a few good conversations with those who recognized it...
There will probably be some repatriation of manufacturing to make the most essential things, but this will be a very small percentage of what has been offshored so far. The vast majority of it will never be coming back - we'll just have to learn to live without that stuff once we can no longer afford to import it. So much of it is useless crap, that might not really be all that difficult.
I wonder why OPEC assumes that the world's economy can actually afford $60 a barrel and still grow?
Oil peaked early 2005, the peaking was caused by the world's booming economy not being able to afford to consume $50 a barrel(let alone $150!)
One would assume that even $50 oil is unaffordable in the current economic climate.
Even $100 a barrel oil is incredibly cheap, if we can't afford that I'm not so sure we can afford to invest in adequate alternatives, they have a lot of upfront costs which oil currently doesn't have. I don't see people throwing away good ICE vehicles because they can't afford a few gallons of gasoline and then investing huge amounts of money in EVs.
I think (?) $50/barrel is now the average global cost for producing a barrel of oil. As the older fields deplete we're going to have to go for the smaller and deeper fields that will average a higher cost per barrel. Drilling a well costs about $500,000/day ... add in infrastructure costs, drilling rights, fees, etc..
We seriously need to conserve-
Sigh look if your going to keep posting this flawed argument then make it a keypost and lets discuss it.
Thats a completely unprovable and simply bogus statement yet your entire thesis rests on it being true.
Its complete crap to use as your core thesis and unprovable statement.
You logic is simply complete and utter crap. I'm sorry to be and ass but I've seen where you claim to be and engineer and to claim you can predict the relative rates of change of to complex systems is simply completely stupid and makes you look foolish.
Keep posting and I'll keep attacking until I'm banned I'm tired of this drivel you spread every day.
Well, to be honest all theories of economics stated daily in the media are unprovable. All Keynesian economics is unprovable, that is why it is often called Keynesian Theory. But Keynes did explain his theory with logic. Which is exactly what I tried to do.
Of course it is unprovable. All predictions of future events are unprovable.
While my job title for most of my career was "Computer Field Service Engineer" I was never truly an engineer. That title is just a fancy handle for "Computer Repairman". (Large mainframe computers, not PCs.) I have never claimed to have been something I never was.
I don't claim to know what the price of oil will be but I do believe that the world economy will totally collapse within one decade. People's buying power will likely decrease much faster than oil can be produced. After all, no one that I know of expects oil production to drop by half in the next ten years. However I do expect people's buying power to drop by far more than half in the next ten years.
That is what I meant and I think that is a logical conclusion if one expects the economy to continue to decline until it no longer exists as we currently know it.
And about predicting oil prices. We all make predictions, including you. Should I be banned from stating my beliefs as to future oil prices while you are free to make yours? Your logic here Memmel, leaves something to be desired.
I am not the only one posting such. TODs own Rune Likvern has argued my point very strongly in this post.
Euan Mearns, in a post just three comments down from Rune's post also shows support for this position. Many others on TOD supports this position also. So why are so vile, mean and hateful concerning my posts?
Ron P.
Ron, this is admirably stated, and your tone wins me over.
It's true--most of us thought post-peak = ever-higher prices; but, DUH, there comes a point where people just can't afford it, hence demand destruction, hence price drops. Then demand picks up, and prices rise until people can't afford it.... Rinse, repeat.
The price that people can't afford now is something like 150 dollars a barrel, or 4 dollars a gallon gasoline. 2008 saw that breaking point.
And as the Depression worsens, I wouldn't surprise me to see that "breaking point" continually drop lower: 50 cent gasoline is expensive if you can't even afford to keep a car.
As you have said, Matt Simmons' prediction of $200/barrel oil is most likely toast.
Who knows--$20 a barrel oil might end up feeling like $200/barrel oil!
Well I'll blast you both. While I'm at it. Price means nothing when you have a fiat currency backed by debt.
What we have seen historically is what one would expect for such and economic system the purchasing power of the currency is steadily eroded via inflation. Thats the intrinsic nature of our monetary system. Right now its facing and will continue to face massive debt defaults and thus classic debt deflation. Along with this as credit is withdrawn the economy itself will face massive overcapacity in most industries and thus strong price deflation and wage pressures.
Certainly resource restraints can and will prevent us from doing what we want to do to escape which is inflate the hell out of the currency until we overcome deflation.
Thats the only argument thats save to make and its pretty obvious that if resources are declining it prevents a inflationary escape from deflation.
The argument your making and Darwinian is making is simply garbage.
There is a permanent cap on the economy due to oil.
Forget using dollars as the yardstick it is all relative............... look at it this way.
Oil/fuel costs will continue taking a bigger and bigger percentage of the costs.
It is like a tax.
I think, Memmel is right in the end. Darwinian is also right, but his theorie stops in the middle of the case.
Now step by step:
1. We all agree, that peak oil is behind us and we rely on the data of the IEA, which predicts OFFICIALLY (November 08 report), that global oil suppies will fall by 8,5% y/y excluding new finds and 6,3% including new fields.
2. 147 $ crude knocked the US economy to the bottom, because this country is built on oil use like no other country in the world (apart from the middle east of course)
3. Then came in "demand destruction" albeit globally only around 1,5%. It should be in the area of 6% plus in order to be a price neutral event (IEA).
4. The case, that the debt loaden (like NO other country in the world) US (consumer) economy, which consumes more oil per GDP output unit than any other country in world cannot afford 60$ or even a ridiculous 20$ oil, as mentioned above results in in the collaps of the US$, also known as Petro$ or world reserve currency.
5. And this leads ultimately, I guess it will be around 2012 to oil prices well above 300 US$. I repeat US$ or petro Dollars. Those paper pieces, which will be nothing worth by 2012 the latest.
I don't think this is true. The US uses oil for transportation. But manufacturing uses NG and Coal which are much cheaper. I think that countries like Pakistan or Japan that import oil (or natural gas at nearly the same cost as oil) to burn to power manufacturing are much more "built on" oil. They exist on the marginal difference between the cost of imported oil and the price they can charge for goods. As oil prices rise, those economies are going to get squeezed much harder than an economy with large and cheap domestic energy supplies.
As far as prices in nominal $, that is impossible to predict because we don't know monetary policy of all the different countries with $ in reserve (or the US gov). But in inflation adjusted $ we can make some predictions about what will happen cost wise.
Oil will keep making runs up against that $100 - $200 price barrier. And as it does it will wipe out sectors of the economy and crash the prices back down. And so it will go until the most dependent countries/economic sectors are wiped out. It won't be able to climb much above that until oil is a smaller part of the world energy supply (and prices are subsidized by other energy sources).
Well that is hardly constructive criticism.
Actually it is very complicated and several have made the argument recently that oil can only go so high, as a percentage of GDP, before all hell breaks loose. Well, I really mean a sever recession. Euan Mearns makes that case here: The financial return on energy invested
Thanks Anne for the kind words.
Ron P.
Darwinian,
Actually it is very complicated and several have made the argument recently that oil can only go so high, as a percentage of GDP, before all hell breaks loose. Well, I really mean a sever recession
What a number of people seem to be forgetting is that there are 3 ways real oil prices can rise;
1)same consumption, oil becomes a higher % GDP( max probably 8-9%, other energy 4%).
2)Oil consumption declines due to higher CAFE, EV and PHEV replacing cars and light trucks, the economy can tolerate considerably higher oil prices but still <9% GDP
3)The economy grows faster than oil use, oil represents a lower portion of the economy even though prices rise.
All of these take time, after 1979-80 price rises about 10 years( when we had plenty of oil and poor leadership not interested in conservation. The electric vehicles (mainly PHEV's)are going to be game changers because fuel economy goes from 25mpg to >100 mpg.
In 10 years we could have half the oil consumption a higher real GDP and oil prices >$200/barrel in real terms. Oil prices about $100/barrel will ensure conservation and a rapid move away from oil providing the economy grows even modestly(1-2%).
Since China is back to 8% growth rate(predicting 10% by year end), they will be using more and more of the world surplus, even if US consumption does not recover.
Well hell, that's what the debate is all about isn't it. That is the higher the percentage of the GDP oil becomes, the more the devestating effect it has on the economy. More spent on oil means less spent on other consumer goods. This is okay up to a given point. At that point the fewer dollars spent on other consumer goods causes the economy to crash.
And how did you arrive at this 9% figure? I think that figure is way too high but perhaps not. But the point is thatif oil consumption declines due to any cause then products produced by oil consumption must also decline. And that is virtually everything! Products are produced by people. When they do not produce they are laid off. And the less the consumption, the higher the unemployment rate. And the feedback causes even more to be laid off....and so on.
So the bottom line is if oil consumption declines for any reason then the economy declines then the economy declines and.... errr... wait a minute.... I think I already made that point didn't I.
No, that cannot possibly happen. That is like saying that your car goes faster than gasoline is consumed. You speed up while letting up on the accelerator. Fat chance of that ever happening. Growth depends on the available energy for growth. Sure, you can grow by increasing coal consumption and perhaps natural gas. But that can carry us only so far. Basically our growth depends on liquid fuel first and coal and natural gas secondarily. If liquid fuel declines then growth declines as a result.
Ron P.
And how did you arrive at this 9% figure?
Other energy is now 4-5% of GDP, if total energy is above 14% of GDP we would expect a growth contraction( based on 1979-80 when there was no financial/sub-prime effect).
But the point is that if oil consumption declines due to any cause then products produced by oil consumption must also decline. And that is virtually everything!
More than half oil consumption is from car and light trucks, so how does a 50mpg car replacing a 25mpg car cause a decline in any consumption apart from oil? Plastic bottle production doesn't have to decline, food production, refrigerators, computers?
No, that cannot possibly happen
Are you saying an economy cannot have a different boe/$GDP that exists today in the US in 2009? What about 1970? So when there is no oil remaining the US GDP will be zero? What about energy substitution?
Growth depends on the available energy for growth. Sure, you can grow by increasing coal consumption and perhaps natural gas. But that can carry us only so far.
Why not completely replace oil with other energy( wind , solar nuclear)? Already 33% of US electricity is generated by non FF( oil, NG, coal).
If liquid fuel declines then growth declines as a result.
Only when all transport depends upon liquid fuels, that's about to change in a very big way, with gasoline and diesel being replaced by much less electrical energy (about 1/5th on a MJ basis). The US economy may depend on VMT certainly not on gasoline gallons consumed.
I know oil is presently 40% of US energy consumption, it wasn't in the past and doesn't have to be in the future, it's not a law of nature!
Great, let's do that. If we start a Manhattan project to do that tomorrow then we should have it accomplished in about 20 years. But we are not going to get started tomorrow and in no way will we ever run our transportation fleet on renewable energy. And anyway we don't have 20 years.
All this talk about completely replacing oil with other energy is just another "technology will save us" scheme.
Ron P.
But we are not going to get started tomorrow and in no way will we ever run our transportation fleet on renewable energy. And anyway we don't have 20 years.
We have already started, we don't need 20 years we have considerable electrical generation surplus already, we are adding 0.6% additional electricity from new wind every year, and we only have to replace the decline in oil as it occurs not the entire oil transport system in 20 years. EV production capacity is being built.
Yes it could be "technology will save us" or just old fashioned resource replacement as we replaced most oil used in heating and for generating electricity in the 1980's.
Replacing the entire 240 Million light ICE vehicles using approx 10million boe/day will require about 15kWh /vehicle/ day or 3600 GWh/day or 36GW/hr over 10 hr off-peak. The US has 950 GW electricity capacity, 600 GW surplus off-peak capacity. The limitations will be the time replacing the vehicle fleet at 10-15 million vehicles per year.
It is also completely inevitable.
The world is not out of whale oil, yet we do not use it anymore.
We won't run out of petroleum before we stop using it as a fuel, since it is far more valuable as a chemical feedstock. That doesn't mean that anything will replace it at current usage levels.
A side note: I caught some of the discussion on the NPR $20/gallon broadcast. There was a caller who complained about the effects of such "policies" on poor rural folk.
This reminded me that there are an awful lot of people out there who really believe, deep in their guts, that there is some person or group that actually controls everything. Follow the consequences of that only a couple of steps and you get some really scary answers.
I'll have to take your word for it, because your response is an illiterate diatribe.
I think I'll go back to reading instead of commenting.
Anna, please keep posting. Do not let the mean and nasty comments of one person influence your posting. In the past there have been several others who simply spouted vile verbiage when their arguments were logically refuted. Most of them are gone now.
I am reminded of a comment by Elbert Hubbard:
Or, you can just call their argument garbage, that should suffice.
Ron P.
I'll have to take your word for it, because your response is an illiterate diatribe.
Thats fine call it what ever you want. I could care less. I just think this concept that the oil price will never rise beyond a certain fairly low price because of its impact on the American lifestyle is ridiculous.
I just don't think geology gives a rip what Americans can afford.
It is a World market, not just an American market. And if geology were the only factor involved then you would be correct. But a lot of things are involved other than geology. The higher the price of oil gets, the less of it the people of the World can afford. At $60 a barrel the World can afford to buy about 72 million barrels per day. If the price went to $150 a barrel the world could probably afford to buy about 60 million barrels per day. Well, for awhile anyway. The deep recession or depression this would cause would probably drop the affordability much lower after a few months.
Ron P.
well, the Chinese economy seems to have an immunity to recession caused by oil at $60 to $150. Not only has their economy not contracted, it has continued to grow at what is, in an historical context, a stunning rate. Why do you assume that at $150 world consumption would fall by 15% when the historical precedent is that the world's third largest economy will still be expanding?
Recession Slams Chinese Exports Again
Of course that was in March. A huge stimulus plan and oil at only $60 has since boosted the Chinese economy. $140 oil drove China into a recession just as it did everyone else. But China is not out of the woods yet. Their exports are still way down. However if oil stays low it will definitely help their economy.
Chinese growth was 13 percent in 2007 then dropped to 6.1 percent last year and is now back up to 7.9%. This kind of growth is clearly not sustainable. And the banks are lending like crazy. That is not sustainable either. They are overdue for the bubble to burst.
Economy in China Regains Robust Pace of Growth
That may sound good to a lot of people but it scares the hell out of me. If the Chinese bubble burst it will have repercussions around the world. The robust Chinese economy may be all that is keeping the world economy afloat.
Ron P.
Did you just argue that the Chinese were driven into a recession of 6-8% growth? I'd like to have a recession like that.
For a while... Consider:
The first and third points are temporary, and the second item (government control) is likely to reduce as per-capita income rises in China to the point where people start to worry about their environment -- in other countries this has been at around $8,000 - $10,000 per capita.
The Chinese economy may become self-sustaining, but this would require that the Chinese (as consumers) lose habits of thrift that have served them well for millenia. That change is going to take a while. They have seen what happened to the Japanese when they went on a borrow-and-spend binge in the 1980s, and again when the Anglo world did the same from 1997 - 2007. Their own recent history, and their lack of a social security net, would also incline mainland Chinese towards prudence.
I think it more likely that if, when the Chinese stimulus wears off, demand in the OECD has not picked up, the Chinese will be joining the rest of us. I imagine the Chinese are hoping that the US and European stimuluses start working, and soon.
Firstly I don't trust official Chinese government economics statistics. They probably deliberately skew the results. Secondly I don't know how sustainable (in a weak world economy), their current apparent growth rate is. They are getting it via heavy stimulus spending. But, stimulus (via large scale deficit spending), is supposed to be something you do for a few years to get past a temporary tough spot. If you instead discover the tough patch isn't just a short term crisis, but a new longterm reality, then things can get dicey.
I really hate to bring this up again because so many on TOD are in the happy business of forecasting nearly anything and everything. Most don't have a clue what will happen tomorrow nor next year nor 10 years from now. If you know what will happen tomorrow, why are you wasting your time on TOD and not in the stock market? Most any negative Black Swan will kill most forecasts very fast and there are so many interconnected Black Swans on the horizon it is beyond belief. How many times does one have to say, "My forecast was wrong" before they stop trying to forecast anything and just admit they don't know anything about the future? Perhaps like all Zen Masters know … there is no future (or past), only here and now.
So what is your forecast for yourself and family? A greater question about the economy or peak oil or banksters or politicians or war is: How big is your garden? Can you support yourself and family if TSHTF big time? No, … why not? What if the grid goes down hard forever? Never happen you think ... what about a serious war in the Middle East that closes the gulf. Will the world’s grids last 90 days or more or less? I don't know but I am just trying to get ready for some badness if it happens and hope (not forecast) that it won't happen. Todd and some others are way ahead of us here in the high desert but we are working on it.
The concept, "Hope for the best but plan for the worst" has nothing to do with forecasting ... just (not too) common sense.
BTW: I noticed that the G8 declared that the temperature in the atmosphere can only gain two degrees centigrade. Now tell me, why they didn't declare that it must decrease 2 degrees? Same reason people forecast or model without complete understanding of all the variables (good and negative swans).
Have fun ... do your thing ... even if it is silly.
Probability (I eventually die) = 1.
Probability (I require air, water, food, shelter | I'm not dead) = 1.
Probability (something happens tomorrow) = 1.
Prediction is very easy, when you do it right.
We've all, every single one of us including me, been doing it wrong.
Nobody knows what the future will be - what I want to know is what it can't be.
If I eliminate the the things that can't be, then the future must be some mixture of what remains - from what I can see the future is nothing like BAU, even in the short term. Because the future IMO isn't status quo then my plans for the future shouldn't be status quo either (and aren't!)
Things I expect (for good reasons) to fail at some stage include:
Adequate essential inports to the UK economy - food, oil, natural gas, coal, uranium, phosphorus, steel, copper, wood, credit from other nations etc etc.
Intensive farming - but like most people in the UK I don't have enough land so we will still have to rely on our 'less intensive' organic farmers.
Final salary pensions
Fractional reserve currencies
The US$ as world reserve currency
Holidays
Antibiotics
Health service
Sea defences
Sea fisheries
My life
That is not an exhaustive list, but clearly as an individual there is little I can do mitigate most of these failing things - 'live for today', and 'do different' are my prime strategies.
Of course there are things you can do to mitigate the many failings. The UK is a death trap, leaving it would be a good start.
:) memmel, the actual definition of Ron's reasoning would be "suspiciously misleading" ... there seems to be more to it than simple intellectual challenge. Well, just saying...there are indeed a few guys from the industry commenting over here...
Steiner's scenario, structured in $2/gal price increments for gasoline, makes some sense - if each of those increments is spaced out by, say, a decade or so. Unfortunately, we are not going to have that much time. For example, were gasoline to hit $18/gal tomorrow, then high speed passenger rail would NOT connect America's cities TOMORROW. It would take decades to put that in place. What do we do in the meantime? And that assumes that gasoline stays at $18/gal, which in turns implies that the economy is still able to function well enough to undertake the massive effort of building a nationwide intercity high-speed rail network. I wonder how well the economy will do, and how able it will be to support the construction project, if gasoline prices continue rising rapidly?
Unfortunately, I'm afraid that once we begin to move seriously down the slide (or cliff!) on the right hand side of the depletion curve, it is going to become pretty much of a "come as you are party" as far as any infrastructure or other systemic investments are concerned. Thus, a somewhat more accurate scenario might have included things like this:
At $18, high-speed rail is needed to connect America's cities. Unfortunately, it doesn't exist and America can no longer afford to build it. Why? Because of the pernicious effects of policies biased in favor of the heavily subsidized auto industry. These ceased far too late, allowing far too little to be done in a timely manner.
Fed: Expect 10% unemployment
Hmmm... 5-6 years. That's interesting- aren't we facing the back end of Peak Oil about then...? Hubbert's downslope could start looking brutal by 2015...
The one thing that bothers me about these forecasts is that rarely do they come with the reasoning for the given prediction. . . . "... it believes the end of the recession could be in sight."
It could be in sight... or it could not... it could be a mirage... or it could be an optical illusion... it could be, it could be.
(I can make forecasts too. Get a forecast before my prices go up.)
8*)
Why do they even put out such garbage.
If they ever stopped counting beans and came out of their ivory towers to walk around in the real world reality would hit them in the face faster than an unemployed autoworker.
What a crock. The true employment picture is terrible with probably close to 20% being the real rate and then factor in the crap jobs that many have taken in the butt wipe economy.
Then again, they could just be lying.
Bob Herbert argues that Obama just doesn't get it:
The Human Equation
I wasn't one who thought peak oil meant oil prices would have to go up forever. (Though I thought that was a possibility.) I thought the "Greater Depression" scenario was possible as well. The one where the bad economy becomes the issue, to the point that peak oil is never even noticed.
I'm not sure why Obama isn't out in front of this thing more. Does he want to do more, and just knows that he can't get it by congress, or is he content with the "recovery" package that he has passed. For that matter, why are the "liberal" Democrats not pushing for a real stimulus plan?
I think it's a combination of thinking what they have done is enough, and not wanting to seem loony by pushing for more.
I don't think it's wise to assume that Obama and the Democrats mean well, simply because Obama's speeches sound nice. If you look at policies, Bush and Obama are nearly identical. In practice, they are both figureheads for a single establishment.
For example, Obama is now implementing Bush's plan to leave a permanent force of 50,000 troops in Iraq - roughly as many as we left behind in Korea. Obama spins this as if it were a complete troop withdrawal, and few dare challenge him, even on the Internet.
Practically speaking, the difference between Obama and Bush is that Obama can spin facts backwards to the satisfaction of the American media and people.
Obama's race is a facet of this ability to spin - those who challenge Obama can be efficiently painted as racists. The Republicans contribute, too - any criticism of Obama can be spun as praise for Republicans.
Obama is a machine that taps into Americans' collective guilt. When Bush was president and America went off to go destroy something, one could say that Bush was clumsy or stupid. Now that Obama is president, when America destroys something, one can wonder aloud how such a wonderful man with the best of intentions could make an honest mistake.
There is only so much the government can do. Push through a several times larger stimulus (can you imagine getting that though politically), and what happens to the dollar. How would future citizens handle the increased debt burden. I think there are real limitations on what a democratic government can be expected to do. Now, if we had a totalitarian command and control system, we could mandate full employment tomorrow -but then we'd have other problems.
Enemy.
Bcmcnett is onto something,there is not really ,measuring at the most basic level,all that much difference between the current administaration and the last one.
Noboby here,myself excepted,seems to try keep up with the news from the right wing pov.Or at least no one says so very often,or comments as if they ever read a conservative columnist,etc.
Most of the so called"stimulus package" is a handout to traditional liberal constituencies,and only a small portion has been spent.It is so designed that it will keep thier jobs safe and thier votes bought for quite some time.
Anyone who doubts this is free to go to the library and spend a few hours reading any conservative publication,if they can find one on the shelves.Most librarys I've been in seem to limit the space alloted to conservative pubs to about five percent of that allowed for liberal pubs.
If you really want to know what's going on,you MUST hear both sides of the story.
Even Rush Limbaugh gets a few things right from time to time.
O Bama and company are first and foremost politicians,and politicians first and foremost look after thier buddies.
At least Obama has increasd research and development money quite a bit in the energy and environmental fields.
For what it's worth,I'm leaning left these days.
But I don't think anyone who came of age in Chicago politics is descended from heaven.
The only sustainable growth rate is zero. Somehow, I don't think this is what they had in mind. . .
First round up Goldman Sachs and these guys are on deck.
Trolleybuses and other hardwired ways of getting hither and yon
Found this trolleybus article over at Energy Bulletin, but since we talk about public transit so often here I thought it worth sharing.
Lots of great pictures of systems used around the world. Also some discussion of ways of simplifying trolleybuses and making them more flexible by including small battery systems to allow them to leave the overhead wires occasionally for things like getting through wireless intersections or moving around obstructions in their paths.
This insight is interesting:
The online magazine that published it is called Low-Tech Magazine and it does have a lot of other interesting articles on simpler ways of doing difficult things. Enjoy!
This statement is highly misleading. Trolley buses may have their energy advantages, but those advantages do not automatically derive from being "public transport."
It would doubtless be correct to say that they use less energy per seat-mile than cars, but whether they use less energy per passenger-mile would depend largely on load factor. I am sure that a trolley bus carrying only one passenger, via a circuitous route, is not a particularly energy-efficient way of getting that passenger from Point A to Point B.
You have a point, that superior per-passenger efficiency of larger vehicles requires actually having passengers. I disagree, however, that the original statement is "highly misleading", because in this case the break-even point is very low. Trolley buses are vastly more efficient than cars powered by internal combustion engines.
Sample computation: the new trolley buses in Vancouver, B.C. are said to average 2.14 kWh/vehicle-km. That's a gasoline energy equivalent of 9.8 miles per US gallon. The bus need only average 2 or 3 passengers to be break-even relative to most urban car traffic.
Then, of course, there is the fact that these buses are used far more often and yet last longer. How many cars can withstand 12 hours of use per day, most days, for over 20 years?
One addition to their list of cities: Dayton, OH. 5 fixed route trolley bus lines managed by the Greater Dayton Regional Transit Authority. http://www.greaterdaytonrta.org/
Greg,
Thanks for this link. I enjoyed it immensely, especially the extra stuff on Electric Road trains
http://www.lowtechmagazine.com/2009/07/electric-road-trains-in-germany-1...
Last year I had an interesting ride in on a trolleybus in Pireaus, Greece during torrential rain that knocked out the power. It just started up its emergency diesel generator at the back and kept going.
BobE
Ron, I think Henry Groppe longtime oil analyst made your point a few years ago. When while acknowledging Peak Oil maintained $100 a barrel as a top price due to the ability of the economy to absorb the cost. I would assume you are couching all your forecasts based on current dollars and not on the basis of losing the U.S. dollar as the reserve currency or hyper inflation degrading the buying power.
While I think you make solid points I don't agree with a $30-70 range on the other hand I don't think the $500 a barrel crew is probably correct either because of your observations. Your forecast assumes we remain the main hegemon in the world and I think that is increaslingly more unlikely. It also assumes supply will not become constrained due to lower prices I still think it will. It also assumes the level of consumption in the U.S. is parallel with the rest of the world and the value of oil will mean the same to all users. I maintain that yes consumption is elastic with price to a point and becomes increasingly more inelastic. So at some point yes the economy will remain constrained in its growth but even today with high unemployment and a negative growth economy we are still consuming 83-84 million barrels of liquids at $60-70. Your forecast assumes we will not exchange other fluff factors in our consumption profile to continue to obtain petroleum based products and I don't agree. I maintain we will continually evaluate and re-ration our personal spending. I see people downsizing their entertainment expenditures as a offset to decreasing their petroleum spend. May see the $10 million dollar a movie payout for a lot of Hollies go down along with the $12 movie ticket, or the $15 million baseball player and the $200 game ticket. Sure I believe some parts of our current economy are probably toast, I am not quite ready to throw in the towel on another strong spurt of growth. I think the natty gas situation may buy us some time and if we put a strong effort against nuclear, conservation, and alternatives we can get a lot of momentum going for the forseeable future albiet with a lot of sacrifice by our country. For your forecast to work we would already be fast approaching the Kunstler version of post peak life and I don't think we are crashing that fast. Are we dancing on the fulcrum ah yeah.
KC, I have stated many times that any prediction of oil prices must be made in dollars adjusted for inflation. That always goes without saying.
No, you are simply mistaken when you imply that I am making my predictions based on the US economy. They are always based on the World economy. Right now oil prices would be a lot lower if they were based on US consumption. Oil in China, as well as a few other place in the world, is still in high demand and that is currently the main support of oil prices.
No we are not. There is no per barrel price for liquids. You are quoting the crude oil price and the world is currently consuming about 72 million barrels per day of crude. I don't mean to nitpick but crude oil and natural gas liquids, (bottled gas), are two entirely different things.
Well you are partially correct. I am assuming that conversion to other fuels, such as electric cars and plastics from something else, whatever that might be, will be very expensive and take at least two decades. It will happen about as fast as it is happening right now, which is hardly anything at all. I know you and others may quote anecdotal examples here and there but all of them combined count for almost nothing.
You must be joking! What percentage of the people in the world spend more than a tiny fraction of their income on entertainment? Remember we are talking about a world economy here. But even in the US money spent on entertainment is but a tiny fraction of money spent on oil products such as gasoline, plastics, roads, tires, automobiles, etc. etc.
But golly KC you make my point and apparently don't realize it. Cutting back on consumption in order to afford the increasing higher price of gasoline and other oil based products, is the very definition of a recession. Cutting back is what causes unemployment.
You seem to believe that your version of cutting back is not the same thing as the cutting back that causes unemployment and hence the recession.
Ron P.
OMG Ron you are starting to sound delusional. Ok 72-74 million barrels of OIL, the demand has shown much less erosion than the demand for discretionary products. I would say we have lost some discretionary oil demand (jet fuel) as well as demand due to the unemployment, and decreased commerce. I have the feeling you are drawing the entertainment circle to small. I view entertainment as pretty much anything that is not an essential purchase. Even then the entertainment value of food, clothing , and housing is not effectively counted.(Perhaps I could have used better examples). I also think you are stretching a bit here as Oil as a component in a product does not render the value of the entire product as a oil expenditure. i.e. a drop of an oil derivative in my brides $40 an ounce eye cream does not designate that value all to oil. Therefore, I truly disagree that most people do not spend more on entertainment than they do on OIL based products certainly in the OECD countries, and by the middle and upper classes in a lot of and NON OECD countries. Holy cow 4 tickets for Wicked is costing me $350 thats over 2 months of gas purchases for my family of 4.
Well of course I think we will cut back on consumption we already have. I think a growing number of the business people I deal with think that the new paradigm is at least (X - 10 to 20%). Where X is the pre-crash economy. I would guess given the drop in high $$$ vacations we are already giving up some of our OIL based entertainment dollar. I don't think however when push comes to shove that we will choose to lose our energy slaves. They will be the last to go. So as long as we maintain demand even at todays depressed level the idea that oil will remain in a $30-70 range seems naive. In fact I can see a growth economy with those levels of price especially in Asia where most of us humans live. Unless we are able to lower the cost of new production to be profitable in that range and I just don't see that happening for any extended period of time the price will have to exceed those levels to ration demand. Thanks for clarifying the current dollars that softens your comments immensely. For first time readers or those with failing memories like mine it might be wise to caveat the comment in your text.
I appreciate the debate its always good to have your opinion challenged, ego aside of course LOL
No, it 72 million barrels of oil, not 72-74. You don't have 2 million barrels to play with here. Actually the average C+C production for the first four months of this year is 71,944,000 barrels per day. EIA International Petroleum Monthly spreadsheet 1.1d. And no, I think you are wrong in the second half of your sentence also. Demand for all petroleum products is down about 10%, probably about the same as discretionary products. EIA U.S. Product Supplied of Crude Oil and Petroleum Products But the point is made, 10% is a whopper, a lot more than the natural decline in oil production will be for several years yet.
Are you serious or are you just trying to be funny? What percentage of the population sees "Wicked", whatever that is? Are they a rock band? And I clearly stated that we are talking about the world economy! What percentage of the people in the world spends more on entertainment than petrol or public transportation that burns oil, or other oil based products. I spend more on tires for my car than I spend on entertainment. And tires are an oil based product you know. Then there is gasoline, and the transportation markup on every item you buy.
Also, when enough people give up entertainment you are costing a lot of people jobs.
You don't understand. You simply cannot talk about the price of oil separate from the supply of oil. They are joined at the hip. The economy cannot grow unless the supply of oil grows. And when the supply cannot grow then the price is bid higher. And this in turn causes people to have less money to spend on other products and the economy gets knocked back down again. It is a catch 22.
And as for current dollars, as I said, that always goes without saying. If inflation (or deflation) is not mentioned specifically then it is always inferred. That is it is impossible to make future predictions about the price of anything when you have no idea what is going to happen to the value of the currency.
And I also appreciate the debate.
Ron P.
I agree with Ron's argument. My father was a farmer in central ND during the 30's. He once sold a 300 pound hog for $5.00. It would have cost more to ship the hog to a city market than the hog was worth.
The same was true for wheat. There was a joke about a farmer that shipped a carload of wheat to Minneapolis that cost more in transportation than he got for the wheat, so he sent another carload to pay for the transportation.
If people can afford to buy food, they will. Billions of people are unable to buy needed food.
The same is true for oil, if they cannot afford it they will not buy it. It costs the producers more to produce and market than what many are able to pay.
Can we agree to keep the terms of the discussion constant? First you disallow my comments on Petroleum products and then now you use sources that contain the same Petroleum definition data. Ok I'm good with 72 MBD of conventional oil.
Well try this one on for size, released by the EIA on July 9th a Worldwide S/D
http://www.eia.doe.gov/emeu/ipsr/t21.xls
According to this link PETROLEUM products DEMAND as defined by the EIA stood at 83.35 MBD at the end of the first qtr. vs the average in 2008 of 85.33 that's a decrease of 2.3% not the 10% you are trying to generalize to the world from U.S. data. That's hardly a demand crash and I would have to agree with Memmel that the market is already assuming a worse case for demand and doesn't truly reflect S/D. So since demand is really only down by this report 2.3% not 10% then maybe we are taking about is depletion still being greater than the demand destruction.
Also, when enough people give up entertainment you are costing a lot of people jobs.
You're really picking and choosing the points here yeah I was trying to be a bit cute. Actually when I pulled the charge card bills the tickets would cover closer to 3x our monthly petroleum bill. You continue to define entertainment as concert tickets and movies. Thats rediculous entertainment is the cable bill, a H.S. football game or play, the rodeo, the trip to Baskin Robins, A CD, the Ipod, the Kindle a book. To name a few. Most things that are not necessities, and as I indicated earlier some necessities provide entertainment in addition to the survival utility. Yes eliminating them does reduce employment but the market will react and profit margins will be squeezed a bit and that's what is already reflected in the stock market values. Do you honestly believe people will drastically reduce their oil demand to nothing rather than cut back on some of these goodies? My point is those entertainment dollars will be rationed and sellers of those products will have to cut prices to survive.
There is no way I am buying that people spend less than 5% (With 5% being the supposed GDP petroleum terminator) of their income in OECD countries on entertainment. If that's the case then by your own points huge numbers of people are already out of work and all we are doing is subsistence living. We are already at the bottom cause we are spending +95% of our income on necessities. I concede that currently upwards to 10% of our population may be having to live and struggle that way.
You really lost me here! You are the one arguing that prices will trade in a $30-70 range due to the economy not being able to function at prices above that. So if the economy is working then we will increase demand and that's why the price will have to go above your range in order to ration demand. I am arguing that basis your price ranges the economy will grow and that growth will increase price. Yeah its a catch 22 and that's why your price range will be violated and my guess is by a significant level, inflation or not.
PLEASE tell me this make a shred of sense in anything but a parallel Bizarro World.
Obama Administration Approves First Roadless Logging Contract In Alaska's Tongass National Forest
Sustainable logging (change you can believe in).
They just pull the trees out by helicopter. Real sustainable.
Just saw this on CNN, re: Utilities Scrambling to meet power needs of electric cars
http://www.time.com/time/business/article/0,8599,1910444,00.html?cnn=yes
My house has a 200A circuit with no provisos saying "except when your neighbor is using a lot of power". I am pretty sure my oven and each A/C unit uses about as much power as the car charger would.....and with one car per house I don't think my neighborhood utility would care at all.
Right, cause they guy in the quote, Theodore Craver Jr., chief executive officer of Southern California Edison, wouldn't know anything about this.
Indeed, I happen to know quite a few people who have set up extensive wood/metal shops in residential areas. Once they hit the point where they need an upgrade to their house power I have frequently seen a new transformer pop up nearby.
I don't know exactly what's going on with that, but I suspect it is splitting the neighborhood so the additional draw doesn't crash everything.
If electric vehicles become more common there are going to need to be a lot of (expensive) upgrades to peripheral distribution if the current generation model is maintained.
The only way around that I can see is distributed generation (micro-wind and solar), which will require significant changes to grid architecture as well, but I would hope that those changes would be more procedural and thus less expensive.
SanDiegoObserver,
The article "Utilities scramble to meet needs of electric cars" doesn't make sense, the numbers don't add up.
30,000 vehicles re-charging ( even using 220v circuits, which is unlikely when 110v will do the job at no extra cost), amounts to 120MW in a state using 50,000MW. California probably has 10 million 220volt cloths dryers, let alone A/C drawing the same current.
Even when 1.6 million vehicles are being charged this will be only a small fraction of overnight capacity that could handle charging 16 million EV's at night.
"Two or 3 charges on a local circuit", what happens when 2-3 homes turn on A/C? What's wrong with "slow charge" taking 8 hours ? most of us sleep for 8 hours certainly vehicles are parked for >8 hours per night.
I think this must be paid or unpaid oil industry miss-information.
The guy in the quote is Theodore Craver Jr., chief executive officer of Southern California Edison. Maybe you can explain why he'd be in the oil company's pocket?
US GAS: Futures Climb On EIA Storage Data
From the above top link: World dependent on Fossil fuels for a century.
This professor from Rotterdam predicts:
"Oil use won't peak until 2050," Odell said in an interview. "It will decline thereafter but even by 2100 oil supplies will be 20 percent higher than they were in 2000."
What a wise and lucky man! He even knows, that in roughly 100 years, oil supplies will be higher than in 2000. I suspect, he can even tell the world how the oil supplies shall be in 1000 years.
This is absolut crap and bogus. This guy isnot serious. But typically, the mainstream press offers him an audience.
He is forecasting that total oil & natural gas production will increase at +1.5%/year from 2000 to 2070.
At Saudi Arabia's current rate of increase in consumption, in 2070 Saudi Arabia would be consuming 50% more than current world total liquids production.
Hmmm... replace "vaccine" with the word "oil".
Fight for swine flu vaccine could get ugly
Yes that pesky oil vaccine is hard to come by, these days :-)
I was just going to post that link, glad I checked first, you beat me to it.
Interesting dynamic, a harbinger of resource constraints once it's about life and death as opposed to luxuries.
I idly wonder if I should find someone who currently has H1N1 and get them to spit into an ice cube tray. Being able to contract the current low-lethality version might come to seem like a useful option if it mutates.
Kunstler is talking about doomers on his pod cast today.
Great 8 minute video clip currently featured on zero hedge blog.
original youtube link to the video:
http://www.youtube.com/watch?v=VSwWy4E6I04&eurl=http%3A%2F%2Fzerohedge%2...
I see Economist magazine has as its cover story this week
What went wrong with economics: And how the discipline should change to avoid the mistakes of the past.
This monetarist rag is scrambling to find a fig leaf. It should be noted that The Economist was one of the main media propaganda outlets promoting the economics model "that was spectacularly useless" (except for the select few who ripped the whole world off).
Interesting.
Just as I always suspected. They don't have a clue. ;-)
I just renewed my subscription to the Economist after doing without it for 3 months.
If you hang around here at TOD for too long you start to forget what the rest of the world is thinking. The Economist is absolutely the best source of well written, unapologetically capitalist, BAU thinking.
Know your enemy
One of the quotes at the top of The Oil Drum sums it up: "economics is a kind of brain damage", IIRC.
To me economics is a tragedy, a philosophy of enslavement and its indoctrinated zealots the overseers of ruin of all that's decent. Hopefully one day, people will wake up and destroy the system that enslaves them, pile up the teachings of economists and burn them. But, I doubt it, economics is far to useful to those in power to be let go. Even revolutionaries adopt those elements of the over-thrown regime which are useful in maintaining State control over their citizens.
Interesting to note in the article that the banks trawled the universities for those with expertise in "games theory". Which emphasises how the modern economy has moved even further away from honest production and into the mendacious world of simply gaming the system. Extracting the previously accumulated wealth of the Country from its rightful owners through an unending stream of scams and ponzi schemes. Signs that civilisation is already in the midst of a systemic collapse.
In the Roman Empire the farmers simply joined the barbarians while the elite in Rome played their power games. Maybe that's what will happen with us, we will quietly leave the system and do our own thing :)
Rather than "The Dismal Science" I would dub economics "The Autistic Science".
Failure to check one's theories against reality and accept that reality can invalidate your theories makes it not a science. It could be. There are economists who pay attention to reality. By my understanding they get short shrift (at best) in "real" economics circles.
The irony is that it was because of Malthus that economics was called the "Dismal science". Yet most economists would deny that Malthus had anything relevant to teach us today.
Economics is a religion:
http://www.patang.org/blog/2008/05/economics-is-religion.html
It is interesting that there was no mention of fraud of which many economists were either prime or accessory to the crime. See most any Denninger post for the last couple years. Does it take an economist to understand that low income family can't afford a half million dollar McMansion? If so, I are one.
The Ascent of Money
4 part series on PBS
http://www.pbs.org/video/video/1170821435/program/1155680272
Hello TODers,
I think it would be interesting to have a thread discussion on hypothetical TOD postings 10-20 years from now.
Fast-crash Thermo-Gene Doomer:
----------------------------------
If most of us regular TODers become the Destitute Poor and have long given up on the WWWeb [TODer Fleam for example], would it mostly be rich warlords blogging TOD on their highly successful kill ratios and geography recently conquered? Live-Human tonnage amounts run through powerful wood-chippers for fast surface composting and subsequent topsoil addition? Discussion of control techniques and bidding on human-slaves?
Discussion of Asymmetric Strategies and Tactics [AST] such as purposely directing sewage overflows into poorer neighborhoods to maximize illness and out-migration? Purposely and methodically reducing tapwater pressure and water cleanliness in designated neighborhoods or towns to foster rioting and tribal-level machete' moshpits? Then, pre-placed Merc-snipers to easily pick them off the remaining stragglers? AST for quickly shutting off fuel shipments, food shipments, electricity, and natgas simultaneously for targeted areas?
Will Tiger Woods and Justin Timberlake post on how they can quickly and easily golf Augusta National faster, on their A/Cond. golf cart [with built-in food & liquor bar], than the starving can wheelbarrow their dead family member around the outside perimeter?
Hunters bragging on who killed the last Zoo animal or wild specie? Ex: "My house is made from the Very Last Giant Sequoia Tree, and stocked with the Very Last Horse Jerky--I win, you lose suckers!"
PostPeak dating websites where women seek the men with a .50 cal night-scoped sniper rifle and pickup with rack-mounted machine gun and RPG?
---------------------------
Optimal Overshoot Decline:
------------------------------
Highly technical discussions on Kunstlerization, Permaculture, Alan Drake's RR & TOD, SpiderWebRiding and full-on O-NPK recycling, Triple System best design practices and tooling, Asimov's List & Foundations, political orgs based on watershed boundaries, Earthmarines for extinction reduction and biosolar habitat protection/enlargement, reforestation and aquifer recharge rates, easy techniques to turn a car-fender into a replacement wheelbarrow bed?
Discussion of Minimal water usage strategies, solar-powered community bathrooms, cooking & laundry facilities? Lamenting how the Peak Outreach classes are now so crowded? Proclaiming that they now hear the 'Peakoil Shoutout' in every pub? Complaining how slowly the long lines are moving for all the young adults queued up for voluntary sterilization?
PostPeak dating websites where women seek to meet the "Rock Star of Corn" [google earlier weblink please], or tomatoes, apples, broccoli, composting, etc. TOD parents bragging on how many miles their pre-teen rail-bike pedaled a heavy cargo load through the nightly darkness?
Tiger Woods and Justin Timberlake [gotta love those eco-names] globally recognized as international heroes for plowing up over 10,000 golf courses apiece and leading the charge from Master Golfers to Master Gardeners.
Worldwide recognition of Asimov's List and widespread political encouragement for FF-producers to hoard recovered-[S]ulfur to force expensive I-NPKS [plus fast decline of nonsense consumer products] and a fast ramp of O-NPKS recycling?
--------------------------
Cornucopian Dreams:
----------------------
Everybody blogging on about their personal jet, yacht,
and McMansion [8-car garage, of course], plus a Quiverfull of offspring. Drywall replaced by wall-to-wall HDTVs and bragging on how their kids excel at videogaming for countless hours.
Dubai and Beverly Hills considered old-style slums compared to the newly built lavish Megaburbs everywhere. Electricity and even high end foods like lobster, chocolate, and off-season distant fruit like bananas are to cheap to even charge the consumer, but human-induced extinction of any possible specie is now impossible because of science advancement in eliminating pollution, climate change, and other planetary geo-engineering. Even devastating earthquakes and volcanoes now controlled by Earth's Crust/Mantle geo-techniques.
PostPeak dating websites are mostly women seeking men, who can create on their home supercomputers newly exotic hallucinogens that create endless mind-blowing extravaganzas and prolonged multi-day orgasms for both. Any task requiring any human effort is now done by robot. Average lifespan is now projected to be 200 years and human pop expected to rapidly grow to 30 billion. Vacationing on the Moon & Mars is commonplace for even the inhabitants of Haiti or Bangladesh.
-----------------------------
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
From this link:
It is taboo to mention why: lobsters were obscenely plentiful in colonial times. We then ate them and destroyed their habitat. That is why they are scarce ("high end") today.
If the cornucopians are right about the future, nothing will be high-end, because we'll have enough energy to produce anything cheaply? If that's so, will every luxury food be considered a "mark of poverty?" Brain asplode.
Yes, lobster used to be poor people's food. They washed up in piles on the beach, and so were among the cheapest foods available. People were embarrassed to admit to eating it. They would hide their pots of lobster stew behind the kitchen door when visitors dropped by unexpectedly, because they didn't want others to know how poor they were. They buried the shells in their backyards rather than put them in the trash where the neighbors might see them. Lobsters were even used as fertilizer.
The reason that changed was transportation. When it became possible to transport live lobsters to urban centers, they became a luxury food: expensive not because they cost a lot to harvest, but because they had to be transported long distances, and only the wealthy would pay.
If that were so, you'd expect lobster to retain lowly status near where it's caught, which never happened. In reality, oysters and caviar enjoyed the same fate as lobsters. Near 1900, bars didn't give away free peanuts - they gave away free caviar.
Have you ever been to Maine and NH? Lobster is not "poor food" anymore, but it isn't the luxury item that it is elsewhere either.
Periodically, I like to offer examples of how we help clients reduce their electricity needs. Some victories are admittedly small, but all taste equally sweet.
A couple weeks ago I mentioned that we had audited a storage building with twenty-one F96T12 fixtures; each fixture draws 138-watts for a total connected load of 2.9 kW. There's very little activity within this space and it generally occurs in relatively short bursts. Unfortunately, the lights were turned on early in the morning and left on all day, and sometimes overnight if the staff forgot to turn them off before locking up.
Earlier this week, we replaced these twenty-one fixtures with eight 4-lamp F32T8 industrial tandems, which dropped the new load to just 0.86 kW, a 70 per cent reduction. By repositioning these fixtures so that the light is distributed where needed (and not above racking where it is not), light levels within the work zone remained about the same. In addition, the lights are now controlled by an occupancy sensor so that they automatically turn on when someone enters the area and off five minutes after they leave; if our estimates are correct, we expect to reduce their overall lighting load by 95 per cent.
Sometime ago, I had also mentioned a truck service building that had the worst lighting I've witnessed to date; everything was coated in diesel particulate and two-thirds or more of the lamps and ballasts had failed.
Here, we reduced the lighting load from 8.1 kW to 3.6 kW, a 56 per cent reduction. More importantly, light levels increased more than ten-fold! We installed occupancy sensors in one of the smaller truck bays that is seldom used and in the staff lunch room, and we hope this will shave an additional three to five per cent from their total energy demand. (BTW, those ceiling at one time were white!)
Lighting retrofits such as this are simple and highly cost-effective compared to new coal or nuclear generation. There are literally tens of thousands of similar opportunities waiting to be tapped.
Cheers,
Paul
http://www.google.com/hostednews/ap/article/ALeqM5ia7QhphmiuLhl-9VCKawRW...
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Pentagon eyes plan to increase Army by 30,000
By LOLITA C. BALDOR (AP) – 3 hours ago
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As long as the economy keeps tanking: the Pentagon will probably have no problem getting sufficient numbers of fresh, young, unemployed recruits; an 'Economic Draft' success.
If the economy rebounds strongly [unlikely?], then the Pentagon could have real problems finding enough combat replacements--would they re-institute the Military Draft?
Would the wealthy Goldman Sachs 'Bonus Boyz' be willing to see their kids shipped off to the combat deserts overseas? Or are they more likely to want to continue their wealth accumulation trend, plus decrease the wealth of the average 'Murkan, so that it continues to compell Your Kids to see battle first?
I wonder if the Pentagon has any future plans to sell 'Draft Exemptions' as a way to immediately cash-finance the military if the economy keeps tanking? For a mere $25 million, your kid gets off scot free...$5 million guarantees him a cushy stateside assignment far from any combat..and so on.
Ontario pushes electric cars as auto-sector boost
Electric cars will become part of the Ontario government's fleet and consumers will get up to $10,000 in rebates to buy one of the experimental vehicles, Premier Dalton McGuinty said Wednesday.
[...]
The province will buy 500 of the new cars for government use.
See: http://www.cbc.ca/money/story/2009/07/15/ont-electric-cars511.html?ref=rss
Cheers,
Paul
concerning Fleischmann and his Cold Fusion legacy:
Serves the old coot right. Fleischmann was very intolerant of other theories in his heyday. Payback is sometimes a bitch. His stuff was wrong and lots of stuff he criticized turned out correct.
Regarding the argument above, mostly between Darwinian and memmel, re: price of oil in an uncertain future, may I suggest that talking about any of this in dollar terms is completely meaningless. GDP, dollar value, etc. are all worthless terms at this point when it comes to thinking about energy and real work. What something costs at any given moment or will cost in the future is undecidable because the value of fiat currency (as a measuring unit) and real wealth got uncoupled a long time ago.
The only thing that counts is energy used and energy gained with respect to real work (as in the production of real wealth). Everything else is speculation and likely wrong for any number of reasons. If you want to measure something and do trend analysis use units of measurement that are definable and fixed.
In the future there are two numbers that will have any real meaning for economic forecasting: Energy return on energy invested (EROEI) and net exergy (energy available and in a form coupled with our capacity to do meaningful work -- like growing food). All attempts to make meaning out of cost and price in dollars will be hopeless.
Of course if your intent is to game the dollar-denominated market to have the pleasure of aggregating large numbers of fiat currencies, have at it.
Question Everything
George
Lets just say I agree with you. One of the problems with Darwinians approach is it treats dollars as a store of wealth simply because the expectation is that wages won't rise. Its correct that we probably won't see rising wages and in fact wages are falling but that does not make the dollar a store of wealth.
Maybe a way to put it is that what you just described is the real economy but you left out the scale i.e the absolute value of the number of players involved in the transition or far far more importantly the number that want to be involved. Amongst many mistakes Darwinian is making a big one is treating unemployed people as having left this economy of the transition of oil into goods. They have not left and in fact are clamoring to get back into the game as they get more desperate they will do anything to become a player again. This includes burning as much oil is they can for marginal or no net profit. And of course even if they are not playing and not driving as much their own basic needs continue in terms of food shelter transportation to look for work etc.
Next of course the fiat currencies actually behave as reverse stores of wealth for all intents and purposes vs declining oil supplies i.e oil is a fantastic hedge against a devalued fiat currency. Attempts to contain the debt deflation probably won't result in inflation anytime soon but they still devalue the currency against critical goods and services. Basically your injecting money into and economy that already has way way to much money. In a post peak world we need a fraction of the current real money supply and and even smaller fraction of the current debt levels. Simply slowing the contraction is sufficient to devalue the fiat currencies vs oil.
As and example the US probably needs to loose at least 100-200 trillion dollars before its economy is right sized for peak oil. Think about that number if you can get your head around it. More importantly try and figure out how I came up with it :) One hint Social Security will never be paid for with a currency of value.
But if you do follow the route your saying which your right is the correct one your talking about something close to a 75-90% economic contraction in the US to right size the US economy for a renewable future.
The price points of oil needed to crush the US economy like this are not even close to 60-70 a barrel.
Since we need a convenient tokenization of wealth (money) to facilitate transactions, a rational monetary policy would be to link the currency to an energy standard (joules of 'exergy') and set the volume of money in the economy to just that provable exergy ready to power our economic work. Using exergy instead of raw joules takes into account the quality issues that have plagued other schemes (e.g. the Technocrats) of this kind.
Lots more descriptions of this idea in my blog in the category Biophysical Economics. I am planning to work on this idea some more this fall quarter.
George
Recessions concentrate wealth. The latest and greatest example:
http://www.nytimes.com/2009/07/17/business/global/17bank.html?hp