A Thursday Open Thread

It is getting even colder in Moscow . . . . .
Interesting article from NYT on turning NatGas into Diesel.


Last year, I asked the president of Exxon Production (one of the subsidiaries) about GTL versus LNG.  He was much more enthusiastic about LNG than GTL.  

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.

Yeah, I was wondering about that. The 40%-20% thing makes sense. I guess there is a feeling that that 20% difference is the price you pay to avoid the hassle and safety issues surrounding LNG. If the GTL was cheaper they would have been making alot more of it awhile ago.

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.

Here's an interesting analysis that, to the contrary, concludes that in most situations GTL has an economic advantage over LNG.  http://www.energypulse.net/centers/article/article_display.cfm?a_id=1087

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.

Thanks Westexas. That's a really neat summary of a lot of information!
Goldman Sachs sees oil above $70 by 4Q

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.

It really doesn't seem like they're going out on much of a limb with that one. $70 by October?  It's $66 now!
This is the same Goldman Sachs whose Arjun Murti made the famous $105 price-spike forecast last year and maintains a $70-$105 target as far as I know. But yeah, $70 from $66 - I guess that's why they get paid the big bucks. They must be reading this web-site to be coming up with bold predictions like that.
Split the difference and we have $88 bbl which is in line with yoy increases since 2000.
Speaking of $66 /bbl today
(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.

Eventually, reality will set it.

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.  

But not for David Brooks, evidentally, because he is intellectually dishonest and a compulsive and congenital suck-up to people in power. So he will continue to distract sensible people by bouncing off his rubber pads in his room.
The market tends to look ahead only a few years at most, because things get so uncertain beyond that point. Oil prices are not expected by traders to increase much over the next few years, and so far today's prices have not been enough of a burden to significantly hurt the overall economy. Put these together and there are reasonable prospects for continued economic growth over the next year or two.
My phone was ringing:

"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."


Sterling Newberry is one economist who agrees with you.  He thinks the numbers are signalling a recession:


Bravo! Well Done! (insert clapping here)  You are gonna get quoted somewhere and live off the millions in royalties.
Just kidding about the royalties, but i bet this shows up in print somewhere.
I've done a comparison of the US markets to the price of oil. Thanks for reminding me, I'll update it and post it. It shows what I think is a definite downward pressure of oil on the market.
I understand your take on the disconnect, Step Back, there are some fundamental reasons:
  • 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.

I agree with everything you said - I would add that valuation is always trumped by supply and demand in the short term. If there are dollars needing a financial home, (foreign banks, mutual funds etc) they will end up in stocks when they are going up, irrespective of the fundamentals. When this happens and persists IN THE FACE of fundamentals, a) it will continue longer and higher than most can imagine because people short,lose, then cover, short, lose, then cover etc and b) when it reverses it will be uglier than most imagine (1999 and 2000 come to mind in US equities).
How many TOD readers are long term bullish on US stocks? i would bet close to none, except maybe for JD. Time will tell.
Regarding price prognosis; take a look at www.tecson.de.They show a price developement chart based on a 50 / 50 mix of Brent and Saudi Arabian oil.
The curves of 2004 were with only slight deviations repeated on a higher level in 2005.It seems this is continued in 2006.
- Stop the comming Iran war -
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 -

Personally, I view anyone foolish enough to believe that Iran does NOT want nuclear weapons as to be not worthy of further discussion. The question then becomes one of nuclear proliferation - why is this bad (or good)?

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.

Threatening Iran with total destruction for first use of a nuclear weapon may deter them from directly using a nuke, but what if they simply provide radioactive material to "others" who use it in a dirty bomb campaign against the infidel west? Does a dirty bomb attack against London or Tel Aviv justify total annihilation of 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?

Again, this is my own opinion here and others will certainly see things differently, but I see even indirect military action as equivalent to military action. So yes, using terrorists who employ dirty bombs as proxies should be considered the same as a direct attack from the state that supplied the material, unless that state admits material was stolen and takes part in any serious effort to catch and stop such actions. But in the economic realm, I see choosing trading partners or even whether to trade or not trade as decisions that we cannot force upon another nation. If they want to stop trading with us (or everyone) then they have that right. If we are damned fools enough to make ourselves so dependent on them then that's our own fault and we have no right to attack them because they change their minds about trading partners or even whether to trade.
I read a book a few months ago I think was titled Radiation in the Modern World. The author, a nuclear physicist, stated the dirty bomb threat is entirely bogus. Such a device would need highly concentrated radioactive materials to achieve its stated purpose. To be moved to an intended target it could not have enough shielding to prevent the quick death of anyone trying to transport it.  On the other hand the Little boy bomb dropped on Hiroshima was simply a cannon with a closed muzzle and weighed only 4 tons. All you need is a heavy pipe, some high explosive like C4, and enriched uranium.
If you inhale the particles from the dirty bomb, you get cancer and die twenty years later. If you are near the dirty bomb for an hour, you get cancer and die twenty years later. Neither is going to help much in detecting the dirty bomb.
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.
Every country wants nukes or wants to be a close ally of whoever has nukes.
Has anyone tried to run some scenarios on how peak oil will affect them personally, using different dates for the peak?  For example, for a 25 yr. old man, I suppose the peak would affect him differently if it comes this year as opposed to 10 years from now, 20 years, etc.  Are there differences in how a 25 yr. old should prepare vs. a 45 yr. old or 65 yr. old?  What about career choices, marriage, children, education, living arrangement, etc.  has this kind of information been brought together in one place somewhere?

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.

There's an entire "Planning for the future" forum at PeakOil.com which you might find useful.

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.  

People who think they can mitigate the landing are fooling themselves. If it goes belly up its ALL going belly up.
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.
Speaking of when the whole thing becomes unglued...somebody posted a bunch of stuff from this guy in Argentina yesterday. It's wildly amusing.


If you make it through the exploding interest rates and hyperinflation... from there goto pre-steam era.

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.

Please, could you leave the religious "suffering is good for you" stuff at home?
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.
In my Peak Oil presentations, I recommend that everyone (regardless of age):  (1) aim toward trying to live on 50% (or less) of your current income; (2) move to smaller, more energy efficient housing and (3)  try to reduce your commute between home and office to as close as possible to zero.   Start thinking about intensive organic permaculture, so that you can at least grow part of your own food.

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.

w.tex. 1. is great. it will feel like we lost 1/2 our salary with the added costs, even if our job stays.  Also my wife at times goes to a simple living forum , and i did not at quick perusal see anything about peak oil, what a match that is. i think becoming a jack of all trades will become a necessity.  
learning manual skills, carpentry, plumbing, start to understand the wiring procedures for 12v systems.

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)


has a database of 7000 edible wild plants for the usa and europe

Good question. In the prior open thread I asked it a somewhat different way by asking what people were doing now.

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.

I agree with you about things deteriorating slowly for a while after the peak.  For example, if I read the EIA data for oil use in the US correctly, consumption declined by about 20% from the late 1970's to the early 1980's.  Times were hard for a lot of people, but the country didn't collapse.  These times seemn like the place to start looking for ideas about what will happen.

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!

"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."

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.

It not only implies rational behavior, it implies that we are actually capable of mitigating the event. I'm not at all certain that this is true, though I certainly hope that it is true and generally believe that it is true. But no one has given absolute proof that even if we all agreed today that this problem required immediate action that anything we do would actually successfully mitigate the effects of peak oil. I define successful mitigation as one that does not involve the collapse of civilization in such a way that massive knowledge is lost and/or large numbers of lives are lost. I firmly believe that mitigation is possible but no such proof can be made, thus we cannot be sure of anything. We can't even be sure of the results of inaction, though I think we'd all agree that inaction has an extremely high probability of being bad for large numbers of human beings.
I would be buying a nice little piece of land in some remote area

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.

I have a farmer friend in central ND who has informed me that strangers/out of staters have been buying land "as an investment" and driving up the price of farmland.

Maybe some are thinking about the possibility of homesteading again like my grandparents a century ago?

I think that has more to do with expectation of higher grain prices and cropland rentals. North Dakota is not the dream homestead state - no trees, very cold and funny accents.

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...
Some readers may remember that I have a fondness for prediction markets as a guide to the future. While no institution is perfect, I see markets as a place where people have the strongest and most direct incentive to be honest in taking positions about likely future events.

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.

that is pretty cool Halfin. But again, the definition  of "Peak" will become murkier once we include Coal-to-liquids and biofuels. In the futures market case, it is NOT all liquids which is represented, but the best of the best, WTI Sweet crude.

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?  

You raise an excellent point, which leads into this. There are several convergent factors that I never see discussed together that should be.  First is decline rate, and what it really means.  Most are familiar with compound interest.  Decline rates work the same in reverse, so to use Hirsch's range, a 13% decline rate would cut supply in half in just 4 years, 7% would cut it in half in less than 9 years, even the rosiest 3% cuts supply in half in 22 years.  Using this mildest decline rate, and assuming 2005 was the peak, at 31Gby, by 2027 production will be only 15.5 Gby.  Yikes.  That's the same as it was in about 1945, when the population was only 3.4 billion.  But in 2027, the median UN projection is for population to be about 8 billion.  So whereas in 1945, there were 4.56 barrels per capita, in 2027 there will only be 1.94 b/c.  Double yikes.  Then there's EROEI.  Whatever it is today, it was more in 1945, and will be less in 2027.  Let's just say in 1945 it was 50:1, today it's 25:1 and in 2027 will be 10:1.  I like to use easy math to make the point.  That means in 1945, there was actually 15.19 Gb net, or 4.47 b/c.  Today, we have 4.58 b/c ((31*.96)/6.5), and in 2027 there will be only 13.95 Gb net, or 1.74 b/c.  Triple yikes.  It's this confluence of declining production, increasing population and declining EROEI that seems generally overlooked.  I know my assumptions are simplistic, but I don't think wildly out of line, and I hope they make the point.  And I did use the mildest decline rate that Hirsch found per region.  If the world declines at anything greater... well, you do the math.
I agree. This (among other things) needs to be modeled - care to take a stab at graphing your analysis Clifman?

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.

After further thought, a decrease in EROI on oil will actually show up in the demand side of the equation - the quoted supply will be whatever it is, but the 'demand destruction' of higher oil prices will be muted because a larger % of the demand will be for exploring, drilling, refining, etc.
Would that I could.  But I'm too much of a Luddite to manipulate the data graphically (or even to post it here in tabular form, which I've tried before).  But the data & assumptions are pretty basic.  Perhaps a more technically capable Drummer will pick up the ball...
Halfin, Over on powerswitch there has been a discussion about the predictive power of the futures market. Those in the know say that it shouldn't be regarded as a simple prediction of the future price - which might explain the divergence in results from your Idea Futures market.

Quoting Tess's comment from this thread:

"Oil futures aren't predictive as such. While the futures prices do kinda suggest that the market expects spot prices to be $x in y months, traders dont think of it in these terms. For a trader there is really only one value for oil, and the rest of the futures prices are thought of as differentials to the One True Price. These monthly differentials are affected by criteria such as:

  • The cost of holding oil in inventory for x months
  • A news-driven risk premium (e.g. niggling worries about Iran raise the back of the curve whereas immediate bombs in Nigera raise the front)
  • The impact of current and future freight costs (if freight is going to be expensive in June due to lack of shipping, you may need to sell your crude more cheaply in June to keep the overall price for moving it around the world stable).
  • The cost of money (ie interest),
  • All of which are magnified if inventory is low, or less important if inventory is high.

Therefore there are limits to how much higher the December 06 contract could be relative to February 06. If December rises too high relative to Feb, then ever more crude goes into storage, because it becomes worth waiting to sell later in the year.

In other words, you'd never see Crude oil at $66 today but showing December futures at $100, because all the crude available today would immediately go into storage for the rest of the year, or even be dumped on tankers at anchor, thus causing the prompt price and the Dec futures prices to come much closer together, usually within a few dollars.

So really if traders thought that crude would be $100 in December, the price today would have to be at least $95 due to the economics of storage.

I'm sorry if I'm making no sense. Just trying to give a view of the way traders look at crude oil forward curves. The disappointing thing is you have to have rather a lot of capital on hand to trade futures beyond 2 or 3 months because there's just no liquidity except in the OTC market between the major banks. Inevitably, the easiest place to make money is by trading the spreads between prompt months (eg Feb-06, Mar-06) and more long-dated contracts (Feb-07, Feb-08 etc) (which you and I don't have access to, unless we make a market among ourselves. I may have to set up a website to do that sometime...).

I'm hoping to do my MBA thesis on the trading of crude oil futures so I've been hovering around the crude oil traders at the office recently

"You and I " absoultely do have access to long dated futures contracts - anyone with a futures acct and some margin can but futures on nat gas and crude oil out to december 2011 - beyond 2006 the liquidity certainly drops so one wouldnt want to 'trade' them but would hold them long or short for an investment or hedge. You can look at the 'futures strip' for free at the NYMEX

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.

As far as the question of whether futures prices predict, um, future prices, I wrote a long explanation of this here a few weeks ago, but unfortunately I don't have a way to easily find my old postings.

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.

Yes, there's been some discussion about when the payout would occur, but generally the judges are reasonable people. If we do see declines from 2005-2006-2007 then the judge might wait a few months to see if anything gets revised, but at that point all of the Peak Oil claims can be judged.

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.

What is the trading probability that the judge can be bribed?
. . .and away we Go. . . . .

"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."


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.

Everyone here seems to have a good grasp on the numbers, so maybe someone can answer this question for me.

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?

A key problem with the inventory data is that no one tracks inventories on the basis of quality--light sweet versus heavy sour.  

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.

Note that total refined products are up less than 1%, comparing December 2005 to December 2004, while crude oil inventories are up 12.6%.   I think that this quirk in the inventory data is obscuring a growing light, sweet crude oil shortage.

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.

I have wondered about this also. I also am wondering about why there has been zero refilling of the SPR despite an expressed desire not only to refill it but to enlarge it to 1 billion. They have had an opportunity for several weeks now as inventories have developed. In view of your comments, I wonder (no info) if they only want a quality sweet crude in the SPR?
I should have checked first: according to the government SPR site, they are concerned with sweet & sour and segregated the oils, but no information related to my point above.


No heavies go in there.  I have no reason to believe they reject crudes with some reasonable sulfur content, as they could be diluted with better quality streams until the total sulfur content of the mix meets the quality spec.
Thinking about Iran and nukes and their upcoming petroleum bourse, I have a brilliant strategy for them, and I'd love to hear comment.

  1. 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."

  2. 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!"

No need for invasion or conventional bombing, consider this idea (now i'm thinking outside the box) Operation Piggy Drop, whereby C-130's or C-17's loaded with lots of pigs are dropped at altitudes of 10K ft. (or higher) The higher the alt. the bigger the splatt.
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!
i feel demand destruction coming , but it won't be in gas consumption, i think. oil is down 5% from it's high, wheareas gas prices are 30% below their highs of last sept....hmmmm...so gas prices will probably catch up with oil , rising to ~$2.50/gal locally (presently $2.15/gal)...now, after $3 /gal. last fall...i think people will digest $2.50/gal. o .k. ..but i bet low end retail takes it in the ear (attention, walmartians)
Here in Eastern Maine we've already crept up to $2.49/gal from around $2.15 (or lower) just before Thanksgiving.  Oil companies and convenience stores will continue to press higher testing how high customers will pay, following the post-Katrina howling about price gauging.  I expect $2.79 - $3.00/gal come Memorial Day, unless there are exceptional events or circumstances: e.g., Bush comes unglued on Iran or an early tropical storm.  
Price of Oil in more than Dollars.

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

<RANT ON>  So this week I went to the UK for a 6hr meeting.  15hrs of flying, 6hrs of driving, 2 night stay over, plus all the time waiting around.  Sure, I met with other people to make the most of it, but still it cost $1300.  And think of the fuel used.  I will probably have to do this 10-12 times this year.  I mean, it was a useful meeting, but it did not require my physical presence.  ARGH! <RANT OFF>

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.

Its a cultural and communication problem. Business often require face to face communication.

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.

You didn't use anymore fuel than you would have in 21 hours of driving. Unless you were using a private jet.
More info on Sacramento's sanitation district.  According to information provided today on a facility tour, Sacramento Regional County Sanitation District (SRCSD) produces enough methane to completely power their facility.  However, they sell the methane to a privately owned co-generation plant on SRCSD premises that generates electricity for the local utility, SMUD.  SRCSD buys electricty from SMUD to run their facility, claiming it is cheaper to buy it from SMUD than the co-generator!  Question is why they don't own the co-generation plant?  SMUD bill is $20,000/month, and SRCSD is SMUD's largest customer.  Also during methane production, intense cold is generated which is used to make ice sold by another private company, Glacier.  SRCSD sells sludge to another private company which makes fertilizer pellets.
I suspect the same reason that private electric utility companies exist; city benefits and business practices would make it more expensive to operate if the facility was owned by the city.

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.