Sunday night/Monday morning Open Thread...

Because there's a lot to talk about.  Ideas for things we need to cover on Monday, things we haven't thought of, links to articles and/or local coverage, etc.  Or, if you just want to drop a prayer or a thought off, feel free to do that as well.

Also, note the new Red Cross box in the upper right hand corner.  We will all have to do without the pithy quotes for the time being.  That cause is much more important.

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Just wanted to echo a point I made on another entry: this tragic event doesn't really have anything to do with Peak Oil.

Even if the peak were 30 years away it would not make any difference. The problem here is that we (the U.S.) are bringing in so much of our oil, both domestic and international, through this one small area near New Orleans. That doesn't have anything to do with how much oil Saudi Arabia has. Even if they can supply oil to the world for decades to come we will still be in trouble if Katrina seriously damages our gulf oil facilities.

So I don't expect this to draw public attention to the Peak Oil problem, rather people are likely to focus more on the specific issues of single points of failure and vulnerability to catastrophic events. The likeliest outcome IMO is that we would try to build more oil unloading ports, refineries and similar facilities, spread out so there is more redundancy and robustness in the system.

Katrina is of course mainly a Climate Change matter, not a Peak Oil matter. Steeply rising oil prices in a situation like this are only temporary. The petroleum reserves are for these kind of disruptions. This price spike could trigger a recession in a situation when the demand is already driven the overall price level up. But this is not the Peak Oil.

The connection to oil depletion is through offshore and deepwater drilling. The depletion has driven the production to more difficult environments.

But the picture of the Peak Oil as a sudden supply disruption is misleading. Katrina is just a local and temporary phenomenon. The Peak Oil means a global and permanent production maximum and steadily declining production after that. The Peak Oil is an absolute phenomenon: the production is at its absolute maximum. Now we have relative supply constraints: production still goes up but not as fast as demand.

By the way, we should look at Russia: it seems to be again in decline. In a couple of months we will see how steep the decline is. Russia is as big an oil producer as Saudi-Arabia so this is really important and could mean the global oil production peaking.  

Geopolitical Diary: Monday, Aug. 29, 2005
August 29, 2005 06 17  GMT

Things are proceeding as expected in Iraq: the Sunnis have not signed off on the constitution yet. There was a suicide bombing in Israel. Jesse Jackson has offered his support to Hugo Chavez. However, these are not the main geopolitical stories at the moment. Hurricane Katrina is. We normally do not deal with natural disasters, but this one has massive geopolitical implications that must be considered carefully because New Orleans is one of the key points in North America.

The importance of New Orleans isn't Bourbon Street; rather, it is the river complex that drains the United States between the Appalachians and the Rockies. These rivers all eventually flow into the Mississippi, and the last major city on the way to the Gulf and Europe and Asia is New Orleans. If the Mississippi became impossible to navigate for any extended period of time, the consequences for the U.S. economy become incalculable.

The Port of South Louisiana, which runs along the river north and south from New Orleans, handles more cargo than any other port in the United States. It is the fifth-largest port in the world, larger than Nagoya. Much of the port and river are protected by huge levees. If those levees fail, one potential outcome is that the Mississippi, which is notorious for rerouting itself, could do so again -- and do so in such a way that it becomes impassable without massive engineering.

Now, the consensus is that the levees on the river will hold, even if the levees on Lake Pontchartrain do not. In other words, New Orleans might be devastated, but the river will remain open. But there are two dangers. The first is cross-currents, which the levees are not built to contain; however, water levels are low enough that this probably won't happen. The second is the possibility that a large ship -- and there are some big ones on the river -- could hit a levee, breaking through it. Katrina will be ripping ships from their moorings, and this is a real threat.

There is a danger south of the city, near the mouth of the Mississippi. Those exits could shift or silt up quickly. It is assumed that if that were to happen, equipment would rapidly clear up the problem. But consider: If the hurricane hits hard, what will be the condition of the equipment and its operators? What would take a matter of days in normal circumstances could become a matter of weeks or longer.

There is also the issue of Louisiana's oil industry. The offshore platforms are shut down, and most will ride out the storm without problems. But Louisiana has a vulnerable point -- the Louisiana Offshore Oil Port, or LOOP. It is the only facility in the United States where supertankers can dock. There is a real threat, if there are 30-foot surges in that area, that the LOOP could be damaged significantly. That, along with a refinery in Louisiana and one in Mississippi that are both vulnerable to major flooding, could seriously affect global oil markets.

There is a final consideration. If New Orleans is underwater for weeks or months, and most of its people are evacuated or killed or hurt, who will man the ports, warehouses and refineries -- assuming these facilities are functioning? New Orleans is home for the work force that runs these facilities. Grain flows down the Mississippi on barges. It is offloaded into giant storage facilities and loaded onto ships for the world markets. Even assuming that the river can be navigated, those storage facilities may not be available -- and if they are, their employees will be unable to return for work.

These are all speculations at this moment, but they are not outrageous ones. Consider just two. The harvest is just starting in the Midwest. Much of the produce goes down the Mississippi to Europe, Asia and Latin America. If the river is blocked, it isn't going anywhere. Consider the consequences to the food industry supply chain globally. Or consider this: If the United States involuntarily cuts oil purchases, the price of oil will surge in the United States, but globally it will decline. You wind up with almost two markets. Some of this oil can be shuffled around from one port to another, but not for weeks on end.

The consequences of a breakdown in the Port of South Louisiana and the LOOP would have economic consequences far in excess of those from the Sept. 11 attacks, which hit pretty hard. This would affect global food and oil markets. The problems could be solved in days, or may take months to fix. The unknowns at this point are enormous. Katrina may have no effect whatever on trade -- but if its only effect is to displace the population of New Orleans for a few weeks, that will be effect enough on the global economy.

Definitely going to drop a $100 into the Red Cross bucket later today. Thanks for posting that!

We are going to have a classic short term supply disruption. As absolute supply tightens, you are going to have a situation where a 5-10% decrease in supply could mean a much higher increase in prices due to the lack of elasticity. This could be a good chance to actually measure how elastic demand is to price? How high does price have to go to destroy demand?

Alternatively the cleanest solution to this situation is to have leaders at all levels of government, businesses, etc to cut back gas consumption by 10%. If people were asked to sacrifice, I think they would do it. As a relative optimist, I truly believe that if people thought it would help the nation get through this crisis, they would drive less. All it takes is the right leadership, which we so sorely lack these days.

Love the thought, but expect to hear something more like.  "well we've seen the catastrophe of Katrina, the best way to support our American brothers and sisters is to go about our normal way of life, and not to curtail spending or trips that we planned on taking [please PLEASE do NOT stop spending!].  The US economy is strong, despite this calamity.  We have the SPR, but at this time we will not be tapping into it. [for fear that oil prices will rise further, and it will cost more to refill it.]"

I haven't heard one breathe of conservation out of this administration, I think that they will spin it into the need to push ahead with ANWR more quickly, or something like that, despite the obvious solution that you proposed.

Exactly, ask people to just keep spending until they go bankrupt! Insane logic. The economy is dependent on consumer spending and consumers will need to drive to spend! Consume more in a time of short supply. Churchill would be disgusted.
that attitude ... Please keep spending... is wrong on so many levels that I can't even decide where I want to start my rebuttal so I think I'll pass.

It is not the patriotic duty of citizens to spend themselves into oblivion.

Always, always, always remember how critical timing is in assessing the elasticity of demand.

As we saw in the early 1980's, many people in the US made sizable adjustments--they traded in large American cars for diesel VW Rabbits, car pooled, etc.  But that level of change took some time.  

Our current situation could resolve itself before consumers have a chance to respond beyond minor adjustments.  If we're lucky and the damage from Katrina isn't as bad as feared, then we have to be careful not to misjudge the adaptability of consumers.

This lag in consumer response is partially due to economic reasons--most people don't have the resources to instantly trade in a car for something more fuel efficient, etc.  But it's also due to psychological factors, as people need to be convinced that the higher prices will last long enough to justify making significant changes.

If Katrina isn't as bad as feared - if the energy infrastructure gets off lightly, crude prices will tank for a while as traders guess that the odds of a second catastrophic level event this year now go way down.

If energy starts to head lower consumers will do their bit and start buying big cars again with a vengence, given the sales continuing to be offered.

no doubt it will all contribute to a perfect storm at some later point.