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A Thursday Open Thread
Posted by Heading Out on January 19, 2006 - 12:01pm
It is getting even colder in Moscow . . . . .
“So one may almost say that the theory of universal suffrage assumes that the Average Citizen is an active, instructed, intelligent ruler of his country. The facts contradict this assumption.”
—James Bryce (1909, 35)
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http://www.nytimes.com/2006/01/18/business/worldbusiness/18diesel.html?pagewanted=print
Someone probably has better numbers than I do, but in round numbers I think that to convert a gas field to liquid fuel takes about 40% of the energy content of the recoverable gas reserves in the field, while it takes about 20% to deliver the gas to the U.S. via LNG.
As I outlined elsewhere, fossil fuels can be viewed as a continuum, from natural gas, to NGL's, to condensate, to light sweet crude, to heavy sour crude to bitumen to coal--basically a transition from gas, to liquids to solids. As Thom Hartmann pointed out, these are all various forms of "Ancient Sunlight."
Obtaining liquid transportation fuels from light, sweet crude requires the least energy and money. As light sweet crude becomes increasingly scarce, we will move to the endpoints--toward the light, more gas prone end and toward the heavier, more solid end. In doing so, we will spend more energy and more money to get the highly desired liquid transportation fuels.
Still, you've got to think that with the advantages involved with being able to store the GTL and the amount of NG that is still flared off for lack of processing facilities, it might have potential. We'll have to wait for some input from our resident EROEI experts.
Taking in a miriad of factors, the author concludes:
"When the efficiencies of integrating GTL with refining of heavy crude, enhanced oil recovery, power generation, and water desalination are all considered, the price needed to favor LNG production over GTL is upped considerably. If crude remains in the vicinity of $55 a barrel, it's likely that LNG will need to fetch $10 / MMBtu or more to justify investments in LNG production over GTL. Producers will no doubt want to hedge their bets by building some of both, but a quick boom in LNG at today's prices appears most unlikely."
Given the looming crisis in North American natural gas production, I think a closer look at LNG and GTL technologies in due.
Investment bank Goldman Sachs raised its forecast for 2006 U.S. oil prices by $4.50 to $68.50 a barrel Thursday and said risks in Iran and Nigeria could push the cost above $70 long before the fourth quarter.
Goldman said in a research note it expects oil to breach $70 a barrel by the fourth quarter in any case because of strong demand.
"While we anticipate that WTI prices will move above $70/bbl by the fourth quarter of this year on the strength of demand alone, ongoing civil unrest in Nigeria and tensions surrounding the resumption of Iran's nuclear research raise the near-term risk that significant supply disruptions could move WTI prices above $70/bbl much sooner," the note said.
(Actually it's closing in on $67 /bbl)
There is a part of this I never understand.
The stock market (Dow Jones)is soaring up up and away as if energy prices mean nothing. I heard one chicken squawker opine yesterday that "the market" has gotten used to --accustomed to-- these high oil prices and therefore they are no longer a problem.
There appears to be a huge disconnect.
Heard from one friend that they shut off heat to their home and just freeze & grin & bear it cause the heating bills are too high.
At same time, David Brooks of NY Times crows in today's editorial about how much wonderful "growth" is going to be happening in the deserts by 2025 as 75 million more prosperous Americans add on to our population rolls. Hooray for suburbia he writes. Has he bounced off the rubber pads in his room or what?
The more you try to piece the puzzle pieces together, the less it makes sense.
Remember the dot-com boom? Everyone was making money hands over fists. The Juno glass company saw its stock jump a shocking amount in a few hours - until traders realized they weren't Juno, the free e-mail service. A few people warned that this couldn't continue forever - that the base of the economy was still natural resources. But the boom continued for a year or two after the first warnings were sounded, and many truly believed we had a "new economy," where what counted wasn't widgets made or sold, but clicks on a Web page.
Of course, we know how that ended. The doomsayers were right, just not immediately.
"Hello?"
"It's me, The Economy."
"How ya doing?"
"If you want to know the truth, I'm hurting."
"What ya mean? All the analysts say you're doing great!"
"They don't feel my pains. Only I do.
My joints are aching.
The grease and oil that makes my body parts move isn't flowing as freely and abundantly as it used to.
Sure my heart is pumping money and my lungs are breathing in the fumes of ambition and greed. But that aint't good enough."
"I thought money was everything?"
"No. It's not. Economies like me don't live on moola alone. We need to be constantly fed with innovation, energy and real, hard core improvements of life style, not just the massaging of reserve numbers. The numbers game only goes so far and then someone realizes it was just hot air."
"So where are you hurting most?"
"My infrastructure is killing me.
I feel as if billions of new creatures are having an exploding population party game inside of me. It's stressing me out. They need to be fed. They need to be housed. They need health services. But the cost of doing all that is getting to be too much for me. My joints are aching just as my tentacles grow to span the globe. The lubricants aren't getting to all the parts anymore. Those analysts don't feel my pain."
"Sorry to hear. Hope you feel better soon."
"Thanks for hearing me out buddy."
Click.
http://www.bopnews.com/archives/005823.html
Just kidding about the royalties, but i bet this shows up in print somewhere.
- there is a lot of liquidity (spare money) sloshing around: firstly the Fed has been 'printing' it at about twice its normal rate for the last month and more, secondly some corporations have repatriated overseas profits at a massive tax discount over the last year
- stocks recently made new 4 year highs, traders read this as being a bullish sign
- US economic numbers still look reasonably good
- nothing too worrying in corporations quarterly results so far
- there are no signs of serious economic trouble (like house price crash, inflation, run on $, sharp drop off in consumer spend...)
- traders expect shares to go up in 2006, I saw a survey of 63 where only 7 expected the DJIA to end 2006 below 11,000
Yes, there are some very big fundamental problems with the US economy but nothing new so the markets will tend to disregard them until something breaks. Besides, most market traders are somewhat disconnected from fundamental reality.Things will begin to go downhill for US stocks soon enough, but they could remain at current levels for another 2 or 3 months, might even stage a bit of a rally higher in that time.
How many TOD readers are long term bullish on US stocks? i would bet close to none, except maybe for JD. Time will tell.
The curves of 2004 were with only slight deviations repeated on a higher level in 2005.It seems this is continued in 2006.
Ok, let's be serious, Iran does not have nukes (weapons of mass destruction [gee, I wonder why the administration isn't using that term this time]). They may be capable of producing nuclear weapons, but I'd give them a marginally better chance than what I'd have. Ok, someone finds a slightly radioactive centerfuge buried in a former scientist's backyard and now Iran is aggressively seeking to develop nuclear weapons.
If above rant was not convincing enough, I ask this: Let's say Iran does have nuclear weapons, right now, ready to go. Who gave the U.S. the right to take them away? By the way, I think the U.S. having nuclear weapons represents a more serious problem to world stability than Iran having them.
- Stop the comming Iran war -
If Iran joins the nuclear weapons club what is it that other states fear? Israel appears to have a good beef in this case since almost all of the highest political figures in Iran want Israel "wiped off the face of the earth" or otherwise destroyed. However, by the same token, China has threatened to nuke Los Angeles, Hawaii, and other US targets multiple times in the last 10 years yet the US government does not treat them as an imminent nuclear threat. Yes, they are a potential threat but not imminent this minute. Thus it is hard to determine what is just political rhetoric from real threat.
Additionally, I am not sure that the US or Europe has any moral authority to deny Iran nuclear weapons. They do, however, have the moral authority to turn the entire state of Iran into glowing radioactive green glass if the idiots there use such weapons first. And frankly, in my opinion, the rest of the world would have the same moral authority against the US if we used such weapons first against Iran.
So maybe the best thing here is to negotiate an inspection system of Iranian nuclear weapons the way that the US did with the USSR? And for other nations to let Iran know that a first use of nuclear weapons means the absolute and total destruction of Iran. That would be my response to Iran - go ahead and build them but if you use them first, your entire nation will be a radioactive dead zone for a thousand years. And yes, that is harsh, but that might be the necessary message to send to the leadership in Iran.
Finally, I simply disagree, light299, with your statement that US nuclear weapons are a greater destabilizing effect than Iranian nuclear weapons would be. US (and USSR) nuclear weapons have given all the great powers considerable pause over the last 61 years and events that might have otherwise burst into full scale warfare have been handled differently. There is simply no way to predict how destabilizing or stabilizing Iranian nuclear weapons would be. I can assure you though that multiple other states in the Middle East, not just Israel, look with great concern at a nuclear armed Iran.
Also, a nuclear arsenal would give Iran a atrategic shield behind which they could engage in economic warfare against the west. They could for example choose to shut down Persian Gulf oil shipments, sending the west (and east) into economic chaos. Would that kind of indirect attack justify an all-out nuclear strike against them?
How long is a dock worker going to be standing near the dirty bomb? It takes days for people to even get sick with an exray source on their mantlepiece, much less out back in the garage or in a shipping container thirty feet high and two hundred feet back in the stack.
Dirty bombs are terror weapons, they make you afraid of what you can't see. People will only go into any area near where a dirty bomb went off if they trust the government not to lie to them, and after what happened in New York City during the 9/11 cleanup, they don't trust the government not to lie to them about toxic danger.
I was offered a chance to go to New Orleans with overtime and perdiem, and I turned it down because I can't trust the government not to lie to me about the toxin danger there. I would have been in a destroyed oil refinery.
It seems that a lot of what's written about peak oil deals with the effects on society. But how should I as an individual be preparing? And not just to soften the blow, but maybe even benefit. I imagine that when the peak comes, society will not just collapse. Some people will be prepared better than others, and some will fare better than others. I'm certainly willing to do my part to make society a better place if I can, but of course at some point I also have to think of my own interests and the interests of my family.
I think the main difficulty is that we have no way of knowing what's coming. That trumps small details like your age or career choice.
There are some people who do think society will collapse overnight. That the whole U.S. will be like New Orleans after Katrina. There are others who think we will transition to solar or nuclear or wind power seamlessly. Probably most people are somewhere in between.
So people are doing a lot of different things to prepare, depending on what they expect the future to be like. Some are learning skills like organic farming or spinning, on the assumption that we'll all be forced to grow our own food or make our own clothes. Others are investing in alternative energy, expecting to get rich by owning stock in windfarms and such. Some people are buying farms out in the boonies, others are buying homes in cities along commuter train lines. Some are investing in gold, some in land, some in solar panels. Some are just trying to pay off their debt.
Me, I'm keeping my options open. I don't want to be tied down to a piece of land or to things - not yet. The future is likely to be very unpredictable.
There wont be any of this small energy efficent, food growing, bicycle riding nonsense. If it goes bad for 5% or less of the population, the whole thing is going to become unglued.
http://www.clairewolfe.com/wolfesblog/arg.html
Obviously, locally based production and distribution economies could see considerable redevelopment trends if transportation cost or time of journey becomes excessive. Delivery time by sailing vessle is likely to stop a lotta bananas dead in their tracks.
Export economies dry up, central city population densities increasing along with real estate prices. Maybe a lot of small, dense and widely scattered satellite cities forming up. Reduction in fertilizer usage, medicines, general use of plastics, large scale farming breaking up into smaller tracts to meet only the demands of the local markets, migration towards more temperate climates (excluding Hawaii), families living in the same territories for generations, internet boom <again> .... yes of course... solar, wind and water power taxes. General increase in happiness quotiant.
We are not going to forget how to build electric cars, and electric cars are much less suffering intensive than horses.
Ask the next ten people you see whether they would like to muck out a stall or plug in a car.
Today, the majority of Americans live off the discretionary income of other Americans. A vast amount of energy is spend on this discretionary spending--think of the millions of Americans driving to and from jobs every day that are related to discretionary spending (e.g., Las Vegas & Orlando). These jobs will tend to be the first to disappear. In general, one should focus on employment and investment in industries that are needed--energy; energy conservation; food; clean water; basic shelter; basic transportation; basic health care; repair & maintenance, etc.
A crucial question in the years ahead will be careers paths for high school students, especially since we are supposed to have a record number of high school graduates around 2008 or so. I would recommend that parents direct their children toward something related to the above needs. I would not want to go into debt in order to pay for a degree in Anthropology for example.
learning indigenous edible foods is useful in any times of shortage, better to eat food you know is not poisonous, understanding indigenous flora also helps when choosing which plants you are going to propogate.
as one person pointed out tieing yourself down to one place could have disadvantages, once again if you have abundant "greenery" moving around can be easy and saves a LOT of money
non local food can only increase in cost, business lunch on the bbc recently said increasing energy costs would mean that the avocado's that we get from peru in november will be too expensive too fly here..
apart from rising transportation costs, fertilizers and pesticides will also go up in price due to there link to oil & gas in there production (good riddance in my opinion)
www.pfaf.org
has a database of 7000 edible wild plants for the usa and europe
I am actually not sure what to think. I think for a while things will deteriorate slowly. However I do think there is a good chance at some point society could suddenly collapse. That point is when everyone looses confidence in the system. When that is I don't know.
If oil is at $100, then how many people will stop buying cars and homes and other stuff. Once they stop, then how many people lose thier jobs? It turns into a cycle. At some point people realize there is no way out of that cycle
My confusion is knowing 'how much to bet' right now. If 'collapse was tomorrow' and I had a bunch of money, I would be buying a nice little piece of land in some remote area and living off the grid. Of course I don't think 'collapse is tomorrow', so how much time to I have? That I think is the big question. I certainly don't want to be living in a major city living the suburban life style when the trouble starts. For now I concentrate on paying off debt, saving money, learning new skills and staying informed.
My guess is that after the peak, things will deteriorate over several years or more, and during this time it will become much clearer what we have to do. Once the situation becomes clearer, then people will adapt to it. Maybe at a lower standard of living, but I don't buy the idea of a sudden collapse. I just don't think it would be in the majority's interests to let the world fall apart.
Incidentally, it really surprises me how quickly 2020 will roll around. Even if the more optimistic forecasters are right, that's not much time!
I agree with you that it isn't in the best interest to let the world fall apart. But doesn't that imply that people will be 'rational' and take the longer term view of things? I think people are more proned to choose what will solve thier immediate security and survival needs. I think New Orleans might be a good case study.
I really don't understand this belief that rural areas will be safer. If TSHTF, rural areas run a large risk of being infested with bandits, wandering thugs and warlords looking to loot and plunder your rural retreat. If you think large urban areas will be dangerous (which they probably will be) your best bet would be to move to some smallish county seat anchoring a larger argricultural region. A town large enough to have citizens with a wide variety of usefull skills, but compact enough to be defendable.
Maybe some are thinking about the possibility of homesteading again like my grandparents a century ago?
I once had a conversation with a young woman who was from South Carolina. She was telling me about how the folks in the movie "Fargo" had funny accents. Well, I grew up in that part of the country, and as a kid it sounded pretty normal to me. It did strike me as pretty funny to have someone with a thick southern accent making fun of other regional accents...
The financial markets provide us with a lot of information but it is relatively indirect in terms of guidance about peak oil. Let me tell you about a long-running prediction market with more direct information.
The Foresight Exchange (FX) is an on-line prediction market game which I have been participating in since its inception in 1994. It is based on the ideas of Robin Hanson, an economist and polymath who first conceived what he calls Idea Futures, prediction markets where people can bet on virtually any sort of future event. FX has had hundreds of player-created claims on social, political, scientific and economic topics, with active markets on each claim that provide information about possible outcomes. While a play-money game does not provide as direct incentives as financial futures markets, research has shown that players generally do strive to do well and so the same kinds of incentives are present.
Several FX claims have been created in the past year regarding Peak Oil. The trading prices of these claims can be interpreted directly as probabilities, to wit:
POIL06 - Peak Oil before 2006 (i.e. peak in 2005 or sooner) - trading at 13% probability.
POIL08 - Peak Oil before 2008 (i.e. peak in 2007 or sooner) - trading at 22% probability.
POIL10 - Peak Oil before 2010 (i.e. peak in 2009 or sooner) - trading at 39% probability.
pkol20 - Peak Oil before 2020 (i.e. peak in 2019 or sooner) - trading at 85% probability.
There is also a "scaled" claim whose value is based on the exact year that the peak happens: pkyr20 predicts a peak around 2010 or a little later.
Keep in mind that the people betting here are not experts on the topic, although as I said they do have incentive to get the best information they can and to interpret it objectively. I'm not sure these results are fully consistent with the oil futures markets, which are predicting 2010 oil prices about the same as today, although some have argued that we could see a peak in conjunction with a recession and not have prices climb too high, so maybe something like this is what these markets are predicting.
Slightly off topic, but does anyone know of an ASPO type liquids graph, that instead of stacking Barrel of oil equivalents, does so on a net EROI basis?
Meaning that of the 1 trillion +/- barrels left according to Hubbert methods, that trillion is more sulfurous, deeper, sourer, etc and after extraction/refining might only represent 600gb of the type of oil our system is used to getting?
The oil problems/food problems probably will result in less population growth than forecast, but I believe the Hotelling theory of resource extraction, combined with exogenous military/climate events will cause the depletion and EROI impacts to be greater than your baseline assumptions. This stuff was all looked at 25 years ago when there was an oil crisis by Cleveland/Costanza/Hall then submerged for the past 2 decades - top down umbrella research on energy systems and integrating EROI and depletion with plug-n-play of alt energies should be our local/national/international governments/private business top concern.
Quoting Tess's comment from this thread:
http://www.powerswitch.org.uk/forum/viewtopic.php?t=1532:
And the 'storage' arguments holds for most commodities but not as well in the energies - i cant easily store gasolone or natural gas for delivery in 3 years unless i spend alot of money keeping it viable.
The gist of it was that there are two views of how futures prices work. One is that they do predict future (spot) prices - Dec 2006 oil at $70 today means that the market thinks that is what the price will be at that time. The other is the view you quoted, that futures market prices are essentially today's prices with some corrections due to storage costs, interest rates, and other factors.
So which is right? My answer is that they both are! Futures prices predict future prices, but they are also based on today's prices. How can this be?
The reason is that today's prices predict future prices. Prices for a storable commodity like oil are not based just on today's supply and demand, they also reflect expectations of future events. When people think oil is going to be much more valuable in the future (as many do right now), the price of today's oil goes up. The economics principle that prices are based on supply and demand is only correct if you realize that it applies to both present and future supply and demand.
So the analysis you quoted does not contradict the general principle that futures prices predict future prices. If futures market prices ever disagree with the consensus about what future spot prices will be, then it is possible to take an arbitrage position and make a risk-free profit. If everyone believed that oil was actually going to be, say, $90 in December, they could buy a contract today which will obligate the seller to deliver oil at $70 at that time, and immediately resell it for $90. These contract purchases would drive up the futures price until it reached approximately $90. There is no way that futures prices can disagree significantly with consensus estimates of future prices because people will take positions to eliminate these kinds of arbitrage opportunities.
This is extremely interesting and I was going to take a flutter, but it looks like the structure of the thing is such that the contracts wouldn't pay out till 2020 when the pkyr20 contract will get judged. No? Volume is very thin on some contracts, so the estimates are probably pretty volatile at this point.
Even if the judge doesn't close it right away, the claim price will go to 99 and you can sell out for only a penny or two loss on the dollar.
As far as the liquidity, it is sometimes a problem but generally if you are patient and leave a bid in place, you can get your price within a few days. The claims are not as volatile as the lack of liquidity might suggest - if you try to move a price you will find it pretty quickly comes back to the consensus as people see that it is wrong.
"Iran threatens oil crisis in nuclear standoff"
(From Yahoo)
"In case of sanctions, other countries will suffer as well as Iran," Oil Minister Davoud Danesh-Jafari said, according to the official news agency, IRNA.
"One of the consequences will be the unleashing of a crisis in the oil sector and particularly a price hike."
Great.
But it gets better. . .
(also from Yahoo)
France hints at nuclear riposte to terrorism attack:
France said on Thursday it would be ready to use nuclear weapons against any state that carried out a terrorist attack or used weapons of mass destruction against it.
No, Iran, you may not have nuclear technology. Oh yeah, by the way, if any of your state sponsored terrorists try any funny business, we'll nuke ya. Have a nice day.
Its gonna be a glooomy Spring.
Concerning the oil inventory numbers today, the numbers were positive. I just read this on CBS Marketwatch: "Crude supply up 12% vs. year ago"
If some of the US Gulf production is still shut in and much of it was since Katrina, how are inventory levels building? Is it purely a matter of a warm winter and lack of use?
It's entirely possible that growing heavy sour crude inventories are masking falling light sweet inventories. That is certainly what the price spread between light sweet and heavy sour suggests.
Probably the only reason that we show any increase in refined products year over year is because of the release of emergency refined product reserves from Europe.
http://www.spr.doe.gov/
- Iran backpedals massively and says "Sorry, our Arab brethren have convinced us that pursuing nukes is wrong, we hereby renounce all nuke research and invite the IAEA in for full inspections."
- Iran launchs the bourse and offers discounts for purchases in Euro.
I figure no way the US can invade/bomb at that point, not with IAEA inspectors all over the country.But if Iran waits too long, you know how the cowboy US is: "Ooop, sorry, shouldn't have pushed us, the bombing has already begun, sorry!"
Dropped in strategic locations, ie around oil fields, airfields, miltary bases etc.. Thus secured oil fields. No fly zone is instantaneously secured. Drop a few in Tehran to create chaos for shits and giggles. They sign surrender documents in the persian gulf on USS COLE.
Game over!
Next?
According to CNN, Nigerian rebels hold an American oil man and threaten to end his life as well as that of other hostages:
Story: Nigeria oil hostage 'gravely ill'
So what is the true price of oil?
Sometimes its much more than dollars.
And speaking of energy in the land of King Coal:
there is a possibility of more miners trapped in W. Virginia
On the plus side, I rented a Ford Fiesta diesel 5door. What a nice car! I'm ready for a small diesel like that. Definitely an excellent and practical vehicle.
And in these modern times, if you can not touch are you then speaking with an image or a person? Is it view graphs and manipulated images or a real product? How do you know that I exicst? How to you know that anything I refer to excist? How do you ge a feeling for the worth of my promises?
Solve 1% of this problem and you save the world millions of tons of oil.
This is also a proven technique for pig farm waste treatment. Disadvantage is it still doesn't eliminate the nitrates from the solid residue. I've modeled a number of scenarios that pay out in 6 to 9 years, depending on the price difference between what you pay for electricity you take from the grid and the price the grid will pay for your sale back of any excess kWH back into the grid. Many US states have financial assistance programs which may get the payback down to as little as 4 years.