Fuel Prices As We Go over the Top...?

The first question asked by those hearing about fuel depletion is usually: "How high will prices go?". The attitude is almost always that one will just have to pay up, as the fuel is essential. This is of course a recipe for extremely high prices, but just how prices will vary as the depletion process unfolds remains to be seen.

We already have an example of a (nearly) isolated market that has definitely gone over the top of production, and that is the North American natural gas market. Production peaked several years ago, and a slow decline has begun, in spite of record drilling. This phenomenon has occurred at very close to the same time for almost all the major basins on the continent. If we look at the NYMEX wellhead gas price for the last 75 years, we can see that the price was very low indeed until about the time of the first production peak in 1970, and then rose to an reasonably steady $2US per thousand cubic feet, which held until about 1999. During this period, it was relatively easy to meet any production shortfall by drilling new deposits. (One thousand cubic feet of gas has very close to one million BTU of heating energy, which is also close to one gigaJoule.)

Since 1999, the price has risen by a factor of about four. It should come as no surprise that this has occurred as the limits to gas production became impossible to ignore. Drilling rates rose dramatically, while production reached a plateau and began to decline slowly.

Gas prices

What the year-by-year graph does not show is the shorter-term variation, which has been extreme over the last year. The all-time (so far) maximum of over $15US per million BTU, achieved in December 2005, has been followed by a minimum of barely over $4 in September of this year, and some large players paid dearly for betting on high prices. This has led some people to think that the "crisis" is over.

Gas prices
Nevertheless, the president of the Americal Chemistry Council said recently: "Make no mistake, the natural gas crisis hasn't gone anywhere.", and the bets are on increasing prices once again.

The question that arises is why the price has fallen so far in an era of dwindling supply. The answer lies partly in the mild winter of 2005/6 and moderate summer of 2006, but the steady shutting down of industry has a large and on-going influence on consumption and on price. Industrial users of gas pay the lowest prices, and are the first to shut down or move their production facilities overseas as the price rises. This acts as a brake on the rise. U.S. industrial consumption of gas fell 22% between 1997 and 2005, and the U.S. has lost three million manufacturing jobs since 2000. Canada will not have been immune to this type of change. The deindustrialisation of North America is already under way, even though "Peak Oil" (and gas) is only just beginning to enter mainstream public debate.

Industrial consumption is still very large, so there yet remains a considerable fraction of the gas demand that can gradually be destroyed at relatively low prices. Will this allow production to decline by say twenty per cent without the price going any higher than it already has? Adding to this effect may be a decrease in gas consumed to make electricity, as deindustrialisation destroys electricity demand too. Will the result be that gas depletion remains partially hidden from public view by the economic downturn that it has helped cause? A collapse of the debt bubble and hence of the US dollar would no doubt cause a major reduction of consumption by all sectors. It is not too difficult to envisage a situation in which real prices do nor rise much, or even fall, while a major decline in gas production is officially explained by economic factors, rather than depletion.

Great post.  I have been wondering about this and think that you are right prices may not rise as fast as you would think considering we are at peak in natural gas.  Global warming will likely reduce winter demand and with deindustrialzation we may have the spare electrical capacity for hot summers. The real problems in pricing will occur on those rare cold winters we still could see followed by hot summers . A couple of those in a row and we could be in serious trouble.
What do you think the reaction in Canada would be to shortages when we are exporting 50+% of our natural gas to the states and can't reduce our exports thanks to NAFTA?
I have heard rumors that natural gas drillers in the States including Chesapeake Energy have cut production in order to put up the price. Is there any substance to this??
No Rumors. They did cut their unhedged production (or rather stopped it completely). 2 other producers announced similiar cuts.
Chesapeake and a few other producers shut-in a small per cent of their NG production a few weeks or so ago.

I am not sure if that prodcution is still shut in or not.

when storage gets full nearly everyone cuts back  as pipeline pressures rise and production declines
Let's see if T boone is right or not

Oct. 16 (Bloomberg) -- Citadel Investment Group LLC, the $12 billion hedge fund manager, T. Boone Pickens and the Merchant Commodity fund expect natural gas to rebound from a historic losing streak.
Hedge funds amassed a $3 billion wager on rising prices in New York futures markets as gas plunged 74 percent in the past 10 months, the biggest drop of any commodity. Chicago-based Citadel added to its bet in September by taking over trades from Amaranth Advisers LLC, the hedge fund that's closing after losing $6.5 billion in the gas market.

Demand for gas, used for furnaces and power plants, will outstrip supply as production from U.S. wells declines in 2007, say the chief executive officers of energy producers Devon Energy Corp. and EOG Resources Inc. Natural gas will average $9 per million British thermal units over the next 12 months, says EOG's chief, Mark Papa, up from less than $6 last week.

``If you told me I had to go long or short today, I would go long,'' betting on higher prices, said Pickens, whose Dallas hedge fund is up 120 percent this year. Gas may reach $10 this winter if cold weather depletes inventories, he said on Oct. 11 in New York. He declined to predict when his fund might get back into the gas market after exiting earlier this year.

Natural gas may rise as high as $12 per million Btu by March, said Michael Coleman, founder of Singapore-based Aisling Analytics Pte Ltd., which runs the $386 million Merchant Commodity hedge fund.

Falling Supply

While demand for gas to run power plants is increasing in North America, supply isn't growing, said Michael Morris, chief executive of Columbus, Ohio-based American Electric Power Co., the second-biggest U.S. electricity producer. Prices fell earlier this year after the fifth-warmest winter on record and a cool summer that reduced demand for electricity to run air conditioners.

The amount of gas pumped from U.S. wells is likely to decrease 1 percent this year, and supplies from new wells are declining at a faster rate than five years ago, said David Khani, an oil and gas analyst at Friedman, Billings, Ramsey & Co. analyst in Arlington, Virginia.

Daily U.S. production of natural gas fell to a 12-year low of 49.8 billion cubic feet in 2005 because of damage to plants from hurricanes, according to the U.S. Energy Department.

``The critical part is the production capacity of natural gas wells, and that is flat at best from the past winter,'' Devon Chief Executive Larry Nichols said in a telephone interview. Prices may rise ``dramatically,'' especially if winter is colder than normal, he said. Devon, based in Oklahoma City, is the second-largest independent U.S. natural gas producer.



Not sure why this is supposed to be a great post. The facts about the natural gas market are probably correct but the conclusions about a decline in the US manufacturing base are pure nonsense. The US is earning plenty of money with manufacturing. It just happens to make rather high priced goods like computer chips which simply do not require as much energy to make as steel. If you look at your cell phone, the largest earnings from that product come from the DSP and RF chips which are made in USA (or by US companies in Taiwan etc.), then are shipped to China where they mold a piece of plastics around it that is worth a few cents. Actually... I correct myself. The largest earnings on that product come from your cell phone bill, i.e. the service to keep the infrastructure (base stations, call centers) running.

Is there a decline in jobs that require pure manpower as in "lifting" and "forging"? Yes. Do we suffer collectively from that decline? No.

We do have a growing number of poorly educated people who are being made obsolete in the changing workforce of the 21st century. That is a problem of education, though, not one that is driven by limited and declining natural gas resources. If you want to keep the US ahead of the world, take care of better schools for everyone instead of sending hundreds of billions of dollars into a war that should not have been fought in the first place. And if you need to employ millions of people in jobs that require relatively low levels of education, have them install solar panels on your roof. Everyone who can climb a ladder can do that kind of work AND it solves the energy problems of the future.

Education and skill in general are really important as you say.  Although the only jobs that are safe (won't go somewhere else) are those that require you to physically be here.  Like surgeon, gardener or exotic dancer.  Much of our software and tech design work and support is being sent to India and eventually China where they work hard (in school and after) and for a lot less.  Point being that its not just 'lifting' and 'forging'.  Learn to climb a ladder is good advice.  
In today's world jobs move around and sometime people have to follow them. In the US some 40% of all engineers and scientists are Europeans and Asians. If you go to Singapore, Honkong, Shanghai, you can find growing communities of British, German and American expats. Soon you will find them in Beijing and Bangalore...

I agree... the only jobs that will definitely stay here are those which require physical presence. And the people doing them will be the only ones without any means to ever leave their communities. Everyone else in the future will be able to choose where they want to work... on snowy planes or in buzzing Asian cities or on tropical islands.

If I wanted to, I could go to Singapore tomorrow. Or Australia. Or back to Europe. All I have to do is to apply for a job in any of these places or to open a business of my own. Granted, not everyone has the desire to move and to live on foreign shores. But those who have, usually value the experience. And often they come back to home and bring what they have learned with them.

What I am trying to say is that a world open to everyone who has set their mind to exploring it (quite literally) is not a bad thing.

Ummm... you make it sound like more than a small percentage of the worlds population has the options you refer to, you don't really belive that do you?
You are probably asking the wrong person... my Dad is a professional musician and so we HAD to move around more than we wanted to. It was not by choice but by necessity.

And I would also think that among the tens of millions of Mexican immigrants in the US there are many who are homesick and who would rather like to live with their families rather than spend their lives on the run from one minimum wage job to the other or one farmer's field to the other.

I met a guy from the Philippines who works in the US to support his kids. He gets to see them once every year, at most. Do you think he is doing it because he has a choice? The man's heart brakes every time he talks about his kids and how he is afraid that his brother's family where they live is not treating them like their own. On the upside: his janitor's salary allows him to send his son to college to become a white collar worker... and the son will probably send his son to university to become a doctor or let his daughter be an attorney...

If you go to Singapore, you will see thousands of laborers from Malaysia work on construction sites...

I could go on. The short version is that people move to where the work is. Desperate people move further and endure more hardships than fat people with homes and social security checks. I don't mean that in a derogatory way, it is simply the result of the survival pressure that people are under. Hunger is a cruel mistress. When she talks, you listen.

I move to where I like because I can and because it is fun. I have made myself a home on three continents and maybe I will make that four by the time I retire... No, I do not think that the reasons I move for are typical. But I do think that moving is essential part of humanity. We were nomads and we can always be nomads if we have to.

One of the problems with moving to "where the jobs are" (when the jobs have moved to an area because of lower wages) is that you will have to take the lower wages yourself. While you can make a nice life on the wages in such areas (due to low cost of living), good luck if you want to go home again someday.

Of course, we're not talking about moving among First World nations where the populations all have comparable incomes. But then that's not where the jobs are being outsourced to anyway.

You can look at this as an equilibrium phenomenon on a constantly rising background slope. While wealth is being shared, the richest and most advanced nations keep getting richer and more advanced. They shed the industries that are not compatible with their average wealth any longer and these  are being picked up by less wealthy nations that can support them. The now relatively small earnings of these industries make little of an effect on the richest of nation's GDPs but can greatly enhance that of the poor.

There is abolutely nothing wrong with this picture, unless your economic credo is that you can only profit if someone else starves. I think the world as a whole has reduced such 18th century thinking to rubble. We all profit from China and India taking over the industries that we can't run profitably any longer.

Infinite: We all profit. We are the world. We are the children. We are all in this together. The only difference between a billionaire in Manhattan (or Palm Beach) and a chronically underemployed 20 something in Cleveland or Buffalo is the size of the bank account. We are all one.
The difference between a billionaire anywhere and an unemployed 20 something in Cleveland or Buffalo is first of all smarts. If you take a person with the potential of a billionaire and let him or her start out unemployed, he or she will probably have a hundred bucks by end of day one. By end of the week they will have a bank account, a cell phone and three employees. They will recruit the smartest of the unemployed 20 somethings and make them work 24/7 for next to nothing... until they are billionaires, again...

Now, I take it from your post that you are probably not a billionaire...?

Infinite:It is relatively subtle, but I assume you are implying that your sycophant posturing makes it clear that you have been more financially successful than anyone who would dare to question such nonsense. Don't bet on it.
What do you mean by financially succesful? I would call myself lower middle class. I have (to have) a dayjob and I have to financially support my parents who have limited retirement income. I can assure you that I do not represent any of the people who have profited greatly from the president's tax cuts.

I also represent a growing fraction of the world's population that understands the necessity to move around. My point was that there are many reasons to be mobile. Being part of the jetset is the unlikeliest one, though. It is much more likely that either you are starving or that your level of education is needed somewhere else. In my case it is the latter. In the case of my parents it was the former. We did not make the world this way, we just adapted to it.

Jesus Christ you are on a high horse... I guess that makes two of us!

Infinite, I do see your points as being valueable, but I think you've read one too many Thomas Friedman articles on the wonders of cinnabons. I guess you have a positive outlook on "globalization", you seem to have a romantic vision of efficiency, profit and order for all... Whereas I see globalization simply as labor arbitrage and squeezing the last few bucks out of an industrial system that is bound to collapse (in any form, whether run by global capitalism or so called "marxist socialism".)

First off, sure, you have to be smart to be a billionaire (at least a self made one, if you look at the Forbe 400 list you will find that although many are self made, there are quite a few that inherited.) On the other hand, becoming filthy rich is way less a function of "smarts", than it is of hard work, taking advantage of every opportunity and, of course, greed. I would put way more stress on greed than "smarts"... In fact, I would bet that you could be a total fucktard and still become a billionaire simply by pure greed (of course, I'm not saying a greedy mentally deficient individual could achieve such a feat--there is obviously a nominal base of intelligence to make money). My point is simply that I think you're wrong to stress "smarts", since there are millions upon millions of people that are way more smart then the vast majority of billionaires. In fact, billionaires usually employ people that are far moer intelligent than them.

You misunderstood BrianT. Perhaps you need to get down from the saddle and actually discuss things as opposed to stating your opinions as facts from high atop hi-ho silver. My understanding of what BrianT was saying is that we are all on the same boat. We are all homo sapiens, we are all related and we all live on "spaceship earth". Our space ship may be easy to get around right now, and may have enough resources for everyone to plow around in military vechicles in urban environments, but eventually this free for all will end. Just because people have been crying wolf since whale oil, doesn't mean that resources are infinite and that prognosticators will forever be wrong.  In case you didn't notice, this blog's focus is energy depletion and our "future".

BrianT's point was that once TSHTF billionaires and the unemployed will both have problems, albeit different ones. For instance, billionaires will be concerned with having even tighter security, contingents of body guards and militarized homes then they already do... They will be afraid of the masses of enraged Americans who were told by Reagan in the 80s that it was Morning in America... When people find out it is actually Dusk in America, the public will want to eat the upper class alive.

Perhaps you disagree with my perspective on this, since you obviously seem joyfully optimistic about our future (despite massive, never before experienced challenges for our species on the very near horizon...) To go down the list briefly with no depth:

  1. spiraling wars in the middle east (already in progress)

  2. global oil production depletion (no one knows--not a good thing)

  3. global warming (again, no one knows--not a good thing)

  4. unprecendent debt levels (growing rapidly monthly)

  5. overpopulation (approaching 7 billion--more people have been alive in the last 200 years than cumultively in all of human history)

  6. mass extinction

  7. ecological degradation (rainforests all around the world be burned and chopped down, coral reefs dying, etc.)

I could go on but you get the jist of it.

While you seem to enjoy doing the "hey look how stupid feckless unemployed 20 somethings are compared to our brilliant billionaires!" I would rather side with BrianT and simply agree that we are products of only two things... Our environments and genetic dispositions. (Not to mention millions of years of natural selection.)

"potential of a billionaire"?????

So I assume you are saying that essentially there is a billionaire gene? Or there must be a rearing technique to enhance the "billionaire potential"?

Those are rhetorical questions, because obviously both have to be true. In order to get a billionaire you need A) the disposition to become one B) the environmental know how to function in the world to impress people, network, makes deals, etc with all the other BS required. Plus, the obvious desire to do so...

Again, I'm just writing this to make it known to all that I agree with BrianT, and think your arrogance is now apparent to anyone to see.

BrianT tries to say we're all in this together and you go out and write that he must not be a billionaire and that billionaires are smart? Wow.


Yes, indeed. You might add that various accidents of birth and timing, location, also contribute mightily to wealth.
Who is Thomas Friedman?

"Whereas I see globalization simply as labor arbitrage and squeezing the last few bucks out of an industrial system that is bound to collapse (in any form, whether run by global capitalism or so called "marxist socialism".)"

Labor arbitrage existed everywhere at all times. It is not limited to moving jobs across borders in the late 20th century. Labor intense industries always moved to where the cheapest labor was and they always created high concentrations of low earners. What seems misguided to me is that some people in these posts complained that they can't be the low earners. I always ask myself why someone who has reasonable chances to move up to the middle class would want to hang on to the bottom of the system kinds of jobs. The Chinese who are taking these will certainly encourage their children NOT to follow Mom and Dad to the factory but go to school, then college and become an engineer or better.

As for the collapse of the system... I have yet to see any signs of that. Capitalism is happily producing one record result after the other everywhere in the world. One can argue that some of it is ecologically not sustainable. I would agree with that, but then, there is no law of physics that I know (and I am a physicist) which states that similar gains can not be had with less waste of energy and resources. America is 50% less efficient than Europe and Europe is probably 50% less efficient than it could be according to the laws of physics. We have plenty of solar radiation to satisfy our children's and grandchildren's hunger for energy. Real limits exist, but we aren't even close, yet.

My billionaire story was meant to be hyperbole... apologies that people misunderstood my sense of humor. Since I don't dine with billionaires, I know nothing about them first hand. But the fact that they are billionaires and most people are not kind of leads me to believe that they are doing something differently... :-)

Don't forget luck.  Everyone who makes it likes to think they did it all on their own, but anyone who is honest will see that luck played a part as well.  
why the hell does a billionaire need a cellphone ?
To call mom ?
The difference between a billionaire and someone who is only modestly successful has a lot to do with luck.  Your average billionaire is not a super genius who could find himself lost in the wilds of Africa and build an airplane out of leaves in order to fly himself to civilization and start an industrial empire.  I wouldn't go so far as to say billionaires get where they do based only on luck, but it's a lot more luck than skill.  They are lucky to be in the right place, at the right time, with the right idea.  Others who are equally qualified just don't end up in the right place at the right time to get the big break.  
please a pound of whatever your smoking.
The stuff is called "reality", costs next to nothing and is not restricted by either federal or state drug laws.


surgery is being outsourced.  Expect to see more and more insurance companies requiring their insureds to travel to places like India where first class heart surgery and hip replacements and the like can be done for a fraction of the cost of the USA
Yeah, I'm sure that round-trip plane ticket will really help the margins.
Plane tickets are a lot cheaper than what they charge for medical procedures in the USA (and other industrialized countries) these days.  There already are many such "tour and cure" packages being sold.
couldnt you just check yourself in to the local veterary hospital ?
appologies to the spelling police academy
Per "Outsourcing Surgery" TomPeters!

Medical Tourism World Wide
Discover a world of care, safely and affordably.

I'm aware of many people doing this on their own, but I'm not aware of ANY insurance companies requiring or even promoting this.

Are you aware of any examples of insurance companies getting involved with this?

The industrial production that is moving offshore is the energy intense version, eg fertilizer and plastic precursor production.  US manufacturers can't compete with overseas competitors with access to $3/mcf ng.
Hadn't thought about job prospects for exotic dancers in this era of globalization! Now if you're talking about watching you are wrong - plenty available on the internet. If you are talking about lap dances you are correct!
"We do have a growing number of poorly educated people who are being made obsolete in the changing workforce of the 21st century"

In fact we have a growing number of EDUCATED people who are also being made obsolete.

Good posting although I disagree with your assesment about education.  I took and eventually passed the CPA exam in the early eighties and we were allowed 2 sheets of paper and one pencil that were collected before you could leave. Now you are allowed a calculator and unlimited supplies.

Nowdays with all the accounting and technical software any "idiot" can replace jobs that took greater understandings and education.

We need more technical programs like I had, in public schools. Technical arts from grade 6 through 12 gave me my welding and foundry abilities, and now pay me almost as much as being a CPA, with less hours of work.

People making less in this economy are forced to pay higher gas prices they can ill afford.

"In fact we have a growing number of EDUCATED people who are also being made obsolete."

I would like to disagree. We sometimes have an oversupply of people with the wrong skills. Educated people can compensate for that by changing professions, albeit it is very rare that a PhD chemist or physicists has to change fields. He or she might have to move somewhere else to find work, though.

Obviously CPA jobs can be outsourced, but a friend of ours who is a physical chemist who joined a bank, got a CPA on the job and specialized on market analysis (because of her mathematical skills in stochastics) and is now a high-earner in a large European Bank. Her job is not only safe but will probably take her soon to New York, Tokio or anywhere else she wants to go. All she has to do is to ask...

Congrats about you decision to go into welding and foundry work. Especially if you can do specialty welds (UHV) or artistic pieces, that sounds like a safe job to me. It is safe because it is specialized and if you add the experience, you are hard to replace.

That is a general statement about job security: if you can do something that only a few thousand people in the world can do, your job is usually safe. If you sell hamburger... well, then you can be replaced rather easily, if necessary with a machine.  

Always fun to read the idiocies of a dyed-in-the-wool dreamer.  They provide such a laugh.  In fact, to get a job overseas requires skills and youth, or exceptional skills, as host governments don't want the health care burdens of older workers, nor the fewer years of contribution to the treasury.  Several youngsters I knew have moved to Britain, Australia, etc., where they can get jobs, but I'm too old for jobs in anything but my profession, according to these governments.  Besides, how do you know that North Americans can get jobs overseas?  One example, a woman at that, doesn't prove a thing!
"In fact, to get a job overseas requires skills and youth, or exceptional skills"

Skills and even "exceptional skills" can be had easily. All they require is supportive parents, good teachers and ten years of continuous learning in college and university. The easier way to get into the US, Europe and most other countries, though, is by doing the janitorial jobs that the locals are not willing to do. Generations of foreign workers everywhere can tell tales. And because they had to do all these awfull jobs they tend to save their money and send their kids to schools of higher education to spare them the dirt. That is, at least, what my parents did...

"Besides, how do you know that North Americans can get jobs overseas?"

Singapore, for one thing, is inviting and supporting foreign researchers with grants. They have tons of foreign companies set shop up there and bring their employees over. They do get their construction site laborers from Malaysia, though. I doubt you want one of those jobs, anyway.

It is by no means "easy" to get into the US. Getting a greencard is a major hassle. In return the Europeans make it really hard for US citizens to get in, too. But just because something is hard does not mean it is impossible. You just have to want it and do the things it takes to get there, not all of which are pleasant.  

"The easier way to get into the US, Europe and most other countries, though, is by doing the janitorial jobs that the locals are not willing to do."

Can you give me a link to where I could read about the US giving preferential treatment to immigration applicants who say they are willing to be janitors?

They don't actually give you a green card. You have to buy them on the corner of San Antonio and Middlefield. It's 25$ each.
That's to be a janitor. Now if you are like the two mothers of my nephew and niece (long, complicated story, but interesting), you can't get a middle class job paying decent wages and have to move back to Sweden. Plenty of janitor jobs, fast food jobs, street labor jobs, but nothing that will buy a house or even pay for more than a cot in a garage without a documented history, and that costs far more than 25$.
Unless you are willing to indenture yourself to a company and make half what you would make in Sweden, or marry an American and wait a year or so for your work permit to kick in, you can't get a middle class job in America as a legal or illegal immigrant. In my lifetime we let in thirty million unskilled immigrants and maybe three million skilled (which means college diploma bearing) immigrants.
This has made most Americans better off, on average. It's just the poor people who get it in the shorts.
"In my lifetime we let in thirty million unskilled immigrants and maybe three million skilled (which means college diploma bearing) immigrants.
This has made most Americans better off, on average. It's just the poor people who get it in the shorts."

30 million more people hits everyone in the shorts. Their is almost no problem in our society that is not made worse by 30 million more people.

It is rare when a PhD physicist is actually employed as a physicist. Almost none of my employment since graduate school has had much of anything to do with my studies. My impression is that most of the people in my program are in a similar situation.
That is also true in my case. But because I can cope with experimental physics, do the job of a EE and are a reasonable software developer for embedded systems, I have a lot of opportunities that other people do not have. I think this is true for physics PhDs in general. Many physicists I know are generalists. And many of the life scientists among my friends  are now working on the business side and in management positions. A really capable mathematician I used to know went into banking and had a really good time because his creativity got instantaneously translated into a great salary. I am not sure any of us would be any more happy had we stayed in pure science.  
""In fact we have a growing number of EDUCATED people who are also being made obsolete."

I would like to disagree. We sometimes have an oversupply of people with the wrong skills. Educated people can compensate for that by changing professions, albeit it is very rare that a PhD chemist or physicists has to change fields. He or she might have to move somewhere else to find work, though.

Saying that a PhD chemist or physicist will never be without a job does absolutely nothing to refute the statement that "a growing number of EDUCATED people who are also being made obsolete". In fact, it appears to support it. You named only two fields of study and limited study to the PhD level.

"That is a general statement about job security: if you can do something that only a few thousand people in the world can do, your job is usually safe."

Are you being sarcastic with this?  Making a case that a growing number of educated people aren't being made obsolete by talking about people with highly specialized skills?

"Obviously CPA jobs can be outsourced, but a friend of ours who is a physical chemist who joined a bank, got a CPA on the job and specialized on market analysis (because of her mathematical skills in stochastics) and is now a high-earner in a large European Bank. Her job is not only safe but will probably take her soon to New York, Tokio or anywhere else she wants to go. All she has to do is to ask.."

Well there is a good example of a person who's job cannot be off-shored. Oh wait, you just said she could work anywhere she wants.

Well, it's clear what the guy is talking about when he says EDUCATED is a PhD level education.  That's a bit more educated than your average person, that's a highly specialized degree.  And yet at the same time he admits that many people he knows aren't even employed in the field they studied, which calls into question just how much practical value their studies actually had.  When you're a chemist and end up working at a bank, that is not a sign of an extremely efficient system.  

In my opinion the most important thing to consider is this: it used to be that a high school diploma meant you were decently educated, and a bachelors degree meant you were well educated, if not a specialist.  Today a high school diploma has no value greater than toilet paper.  A bachelors degree is the new high school diploma-- so many people have them now that they mean almost nothing, and rather are expected.  

How long until master's degrees are nothing special?  How long until PhDs are a dime a dozen?  What we're seeing is degree inflation.  We're spending a lot more time and money training people in stuff that they're not going to use, rather than the skills they actually need.  In the end, an Indian or Chinese person with the same degree will still do the job for a much lower salary.  

We have a problem in this country and it's not one that can easily be solved by more education.  

Your argument is incorrect. Even though a lot of US manufacturing companies still make a lot of money the actual manufacturing (the big user of gas) is moving offshore (computer chips is a perfect example). This is what effects gas usage not a bunch of paper pushers/CAD operators in head offices in the US.
The point is that the US economy still leads the world, despite all the alleged problems. And if, as you say, energy is going to be the restricting factor (which it won't), is it not logical for an economy to shed the energy demanding jobs and to replace them with more profitable white collar industries?

Just a thought...

Parents are well advised to teach their children the skills that will be required in the future and not the ones they were taught by their own parents.

the US economy still leads the world

Leads the world to what ends?

How does that solve anything?  Just because we "shed" manufacturing doesn't mean it magically takes no energy to create the goods we need.  It still takes energy, just over in China instead of here.  When the price of energy goes up, the cost of those goods is going to go up too.  In fact, the cost of transporting them halfway across the globe means they may be more expensive than ever.  Just because they're not made here anymore doesn't mean we don't still need those goods!  

Allowing all our manufacturing to leave this country has not really solved any of our problems, if anything it has potentially put us in a more difficult situation.  

dont forger all those "manufacturing" jobs in fast food   and dont forget burger king  flame broils their burgers    that will burn off a lot of gas   our manufacturing jobs havent gone overseas you're just not looking hard enough    and the media is not reporting the good news and tony snow said something today about "stay the course" just didnt reflect the dynamasism of what is happening ( and i said something about what an unmitigated pile of horseshit)  and on and on  balh blah blah
With all the hot air around here, maybe we should consider revitalizing our zepplin industry!  
What do you think the reaction in Canada would be to shortages when we are exporting 50+% of our natural gas to the states and can't reduce our exports thanks to NAFTA?

NAFTA's export rules do allow for reductions in the quantity, and even the historic proportion, of gas exports from Canada to the US. Some commentary from the OAS Foreign Trade Information System:

Article 605 applies only when a government invokes one of four following GATT exceptions as a basis for imposing export restrictions. These reasons are to: prevent or relieve critical shortages on a temporary basis; conserve exhaustible natural resources provided domestic production or consumption is also restricted; ensure essential supplies to a domestic processing industry as part of a domestic stabilization plan; or acquire or distribute products in general or local short supply. If either the Canadian or US government imposes an export restriction for one of these four reasons, Canadian or US customers (as a group) would be assured of continued access, on commercial terms, to a proportion of the total available supply. This proportion would be based on the average share supplied during the 36-month period immediately prior to the imposition of the export restriction.

The government imposing such a restriction is not required to deliver a specific quantity of a commodity at the border; it is only obliged to refrain from imposing restrictions which would directly reduce the proportion of supply commercially accessible to customers in the other country below the 36-month average representative level. Nothing in this provision precludes domestic customers from also bidding for and obtaining that proportion of supply, so that the amount actually exported could be below the historical proportion.

It's difficult to imagine that a Canadian government would believe it practical to adopt a policy restricting the flow of energy commodities, but it's possible.

NAFTA as it relates to NatGas exports is a non-issue for the reason posted by porsena plus the following:

1 - Canada's NEB allocates exports based on having met Canadian needs first.

2 - NAFTA can be abrogated with 6 months notice.

A far more pressing question will be whether or not Canadians continue to use declining supplies of NatGas for tar sand production as opposed to heating homes.  

I some ways peak natural gas is more scary than peak oil especially in cold countries such as Canada. So many people rely on it to stay a live. Sure we can go the imported liquefied natural gas route but that would take some scaling up and I am sure the cost will be significantly more. In this respect it doesn't help having a big sucking hole called the tar sands that will in the future consume every bit of gas you can throw at them.

You have basically got three options when peak NA gas hits  a) switch to oil, b) switch to electric heating, c) burn bio mass or d) super insulate your house.

a) Is highly undesirable given the peak oil problem

b) Would kill the grid (especially in Ontario where I live).

c) Would work but I doubt how scaleable or environmently friendly it would be.

d) seems like the most sensible long term option and I have seen houses that are livable in -40c temperatures with little or no additional heating. The problem is that most houses aren't built like that for cost reasons. It isn't feasible to rebuild all the houses from scratch.

What I am interested in is trying to retro fit existing housing stock to these levels of insulation/solar gain potential. Next year I will be starting somewhat of an experiment when I move houses. I plan on doing some serious energy efficiency improvements to my new (14 year old) house with the aim of getting as close to super insulation levels as is practical. I doubt it will provide a financial payback at current gas prices but I am betting in the next 10 to 20 years it will be a good investment. If not, I will put it down as my bit to help the environment.

I have also been thinking that peak natural gas will be the bigger problem.  Heating homes will become very expensive or nearly impossible.
What ideas do you have for super-insulating an existing home, besides the usual attic insulation and better windows? It is really tough to add much insulation to walls, even older, better construction is usually with 2x4s.  Injecting insulation will only go so far.
 This is going to be a really big thing as the crisis starts.  Helping people drastically reduce their heating fuel needs will go a long way to help keeping things going.
One idea I had would be to build a shell completely around the existing structure, and insulate that really well.  A "house within a house" would really keep the elements out.
Robert Waldrup, manager of the yahoo group runningonempty2 and also the originator for a food cooperative in Oklahoma City, has superinsulated his older house. The details of his work are in the archives of the ROE2 group.  Anyone can join the yahoo group to read the archives.

To add insulation to the walls, he built out the walls on the inside of the house rather than the outside (so he lost a little floor space), and he added insulation in the space between the new wall and the old, all around the house.  

He reports that his insulating adventure has paid off in dramatically reduced energy costs.

-Amy W.

Try building with 2X6 walls instead of 2X4's. Better yet Stagger the 2X6's so that the walls are 10 inches thick.
All of this is very important. I thought (but can't swear to it) that new homes in Minnesota when I lived there had to have 2x6 exterior walls to accomodate sufficient required insulation. As long as you do this you have the structure to build 2 stories anyway, which is also more efficient per square feet.

The problem was indooor pollution. With such well sealed houses (plastic vapor wrap, tight windows, etc), interior pollutants - whether from the kitchen, degassing of new home materials, or other sources, was becoming a serious problem due to lack of turnover of fresh air.  Furnaces and fireplaces would use a sealed exterior air supply.

Just commenting on these issues in case anyone has other good information about this issue.

10 inch side walls ?   and how much insulation in the attic    48 "  ??
I'm building a small cabin with 16" walls. The thickness being necessary for insulation. I tend to think in terms of R-value rather than wall thickness. My aim is R-40 (average) walls and R-80 roof. With blown cellulose, this isn't that hard to achieve.

From an insulation point-of-view, the windows will be the weak point. But the windows are the primary heat source in my design (as well as making the space seem bigger than it is). There are decent quality honeycomb window blinds that get you an additional R-5 (or so) on your windows when they are drawn. These are actually a really good option for just about anybody that lives in a cold climate.

Someone brought up ventilation being a problem in super-insulated homes. Because it's such crap, I've come to the conclusion that the construction industry is spreading this around to stear people from alternative construction. Ventilation is the job of your ventilation system and not the job of your walls. You've got serious problems if your primary means of ventilation is leaky construction.

"celulose"   doesnt that mean recycled newspapers   i would think you would want better quality insulation   in my experience they really need to find another use for recycled newspapers    bird cage liner for example   and vinyl siding    dont even get me started on vinyl siding
True, it is mostly (about 80%) recycled newspaper fiber that is treated with borates for fire- and rot-resistance. However, blown cellulose is the flagship green insulation. Not only is it energy-cheap to produce, money-cheap to buy/install, but it is also a really effective insulation. With an R-value of between 3 and 3.5 per inch, it is more effective than traditional fiberglass insulation. And this isn't cutting edge stuff. It's been used for decades to insulate attics in conventionally constructed homes and has been used in walls for super-insulated homes for nearly as long.

Honestly, blown cellulose is really good stuff.

You might want to consider laminated glass.  This is especially useful for fixed windows.  Very good for both sound and heat insulation.
laminated glass   that's real cutting edge
Thanks.  It works pretty well.  

We added 1/2" lami to thermopane fixed windows and 3/8" to moveable windows, and don't need heat until it's below freezing out.

Thanks.  It works pretty well.  

We added 1/2" lami to thermopane fixed windows and 3/8" to moveable windows, and don't need heat until it's below freezing out.

It always struck me as odd that people try to heat/cool their ENTIRE homes at the same time.  Why not just get a space heater or a window unit and baracade yourself in a 'work room' when your home.

Call me crazy...

That is the English way, where houses are (almost) uninsulated.

If things get tough, it will come to that.  You will find that poor Americans already do that.

One problem with a lot of central AC/heating systems, I think, is that they lack room-specific controls.  My father used to have a trick of leaving an incandescent light on next to the thermostat in the winter.

(a source of great family humour.  For 23 years I complained my bedroom was cold in winter-- last one on the heating circuit .  I was told to use more blankets.)

Now my father uses my bedroom on occasion.  He complains that it is very cold at night ;-).

We use a portable, wireless thermostat.  We carry it with us, and we're always comfortable in our room, or floor.
Just to give you an idea of what super insulation is here are some typical R-values

Walls R28 -> R50
Attic R50 -> R80
Basement R20 -> R28

There are two basic approaches i.e. add insulation on the outside or the inside.

The outside approach would involve adding extra footings and framing a new outside wall. You will have to re-frame for windows and maybe modify the roof to increase the overhand and adjust the soffits. The approach is a lot of work but doesn't reduce interior living space.

There are a few ways to tackle the interior approach. One way is to frame another interior 2x4 or 2x3 stud wall and then add insulation and drywall.Ideally there needs to be a space between both walls to avoid thermal bridging. An alternative approach is to remove the drywall from the exterior walls, add horizontal 2x4 or 2x3 strapping. You then fill the new wall with insulation. To get maximum R-value you can use polyurethane spray foam which is R 6 per inch. So for a 2x6 + 2x3 strapped wall you can get R 48. The only problem with this approach is the cost of spray foam which is about $3.00 per sq/ft per 6" deep. It is however a very good way of air sealing the structure and will give a higher effective R-value than bat insulation. You can of cause use say 4" of spray foam and 4" of cheaper insulation.

The one thing that is VERY important is to air seal the house to the maximum extent possible. Without doing this all the extra insulation will be a waste of time. Now this does introduce other problems such as poor air quality and condensation build up. You would be amazed at how much water vapour we humans expel on a daily basis. To avoid the problems with such a tight air seal you then have to introduce mechanical air ventilation. To avoid sending all the heat out of the house you will need to use either a heat recovery or energy recovery ventilator. This is especially important in very cold climates as you can't just open the windows.

I could go on about energy efficient windows, solar heat gain etc. However, I don't want to bore people. I hope to create a web site documenting all the changes I plan including solar hot water heating, water capture system...

you seem to be obsessed with insulation (owi)  and while that may be an option for new construction it has been my experience with older homes  is that better return is obtained from other measures   like closing up cracks    reglazing windows   installing storm windows where there are none   and insulating (yes insulation)  the attic   i doubt that many homes are actually candidates for the type of rebuilding you describe  
The reason I am obsessed with insulation is because it works. I know a person with a super insulated house and his heating/cooling bill for the whole year is around $100. My current new house (six years old, 2500 sq/ft bungalow) by comparison is around $1900 a year. It suffers from the modern problem of having way too large windows, especially on the north side.

I agree the best bang for the buck is to do what you suggested. However, on older houses this will get you to lower levels than current new housing (which still isn't great). To really fix a lot of the air sealing problems you need to take the dry wall off. If you are doing this, the extra work isn't that much. The approaches I described could be retrofitted to just about any wooden frame built house. Plus you could do it one room at a time if required. In the future I could easily see gas prices doubling or tripling. If this is the case, payback would probably be in the 5 to 10 year period.

The big benefit I see with forced ventilation is improved health. Most houses are pretty bad places to live from an air quality perspective. This is especially bad when you have long winters and spend a lot of time inside.

In my case, I am combining these modifications with some other major renovations. I will do the framing work myself so the overall cost will be lower.

Insulating the attic and the walls is worth it even in existing homes.  It makes a BIG difference.  Even if you can't expand your walls, insulating what you have is still definitely worthwhile!  
Hi Stock,

You needn't worry about boring people - we're all interested in energy issues here. You seem to know a lot about renovations to improve energy efficiency. If you'd like to write one or more good articles on this topic, we could probably host them for you as guest posts.

I'd certainy be interested - my home is about a hundred years old and could definitely do with some more insulation. Right now firewood isn't too expensive or labour-intensive, but that might not always be the case. If I have to split firewood myself at some point, I'd be happier if I lived in a home that didn't require too much of it.

There are times that I look enviously at ICF (insulated concrete form) homes and wish I could have afforded to build one...

After I put some of my theories into practise I will publish my findings. I am a little reluctant offering solid suggestions until I can prove the benefits. The big question mark it how close to super-insulated you can get an existing house without ripping the entire interior out.

I would suggest people interested take a look at http://www.buildermanual.com/

This details a lot of the R2000 approaches, which can be adapted to existing housing.

Why not just remove the sheet rock, add two inches or more of rigid foam, then redo the sheet rock?  Seems like you could get good results without adding any more framing.  Isn't wood about R-1 per inch?
I definitely thought about this. The only problem is that foam expands/contracts with heat. The end result could be cracking in the drywall joints. Some foam board has slots in it for adding furring strips. That way you can leave a small space for expansion. The foam under the furring strips will be well trapped limiting movement.

Lots of different possibilities. To get maximum value requires attention to detail, especially for air sealing.

My house and several other houses have stucco and styrofoam "outsulation". In my case installed in 1990 and reducing heating bills ever since.

So retrofitting existing houses is totally possible. In addition to retrofitting the house my family lives in, we also added ceiling/wall insulation, high R windows, etc. to the 3 rental properties we own.

Retrofitting existing houses for energy efficiency is not that big a deal.

Take a look at Ground Source Heat Pumps.

http://oee.nrcan.gc.ca/publications/infosource/pub/home/Heating_and_Cooling_with_a_Heat_Pump_Section 4.cfm

(the Yanks have taking to calling them 'geoexchange heat pumps' if you google US sites)

The downside is you need to dig a significant horizontal trench or a vertical bore about 50'.

The particular advantage is a fantastic payback, especially if you are also an air conditioning user.  My aunt originally installed one on her farm with a 10 year planned payback, with the price of electricity now in Ontario the payback has been much quicker than that.  (she did keep the electric baseboard heaters as a backup, in practice they survive almost entirely with the HP and one airtight wood stove).

There are also air source heat pumps. Air source HP don't work, unaided, in a Canadian climate I don't think.  AFAIK You would need an electric heating booster for cold days.

http://r2000.chba.ca/ is a pretty good guide to what is achievable (new build) in highly insulated homes.  A side benefit is they are very quiet.

OTOH, air source heat pumps are more economic in New Orleans (ground water temp 77F from memory).

Our high humidity increases both air conditioning & heating air source efficiency. When the electricity for water pumping is added, the slightly higher compressor efficiencies of water vs. air exchange disappear in many cases.  On the hottest days, water source a/c beats air source a/c; but of the shoulder days & nights, air source can do better.  Heating is much less concern than cooling in New Orelans

Air source benefits from better engineering due to the higher volume.  They are better optimized, better technology.

Add the capital costs & complexity and I have recommended against water source even for the most conservation minded in New Orleans.  Someone with LOTS of capital and VERY conservation minded could install both air source air conditioning & water source heat pump and switch in the summer between them !

Best Hopes,


I looked at heat pumps but the problem is they are more expensive then doing the retrofit insulation. This is especially true where you don't have much land and require vertical bores. The other downside is given the dire state of the Ontario grid I am expecting electricity prices to perhaps double in the next 5 to 10 years. By 2015 85% of the power generation in Ontario will need replacing. The current dept payback we are paying doesn't even cover the interest on the last loan that was given to perform a mass replacement of generation capacity.

On a side note, I have a friend who has a geothermal system and she went away for 3 weeks in the winter. When she returned, she was greeted with a electricity bill for over $1000. The compressor had failed 6 weeks prior and the auxiliary heating coils where in full time use. There was no indication of the fault on the system. She was none too impressed as you could imagine.

Of course one should do the insulation first!

My aunt has been very happy with hers, but there was a problem with maintenance (they used the wrong fluid).  I think they finally agreed to settle without going to court.

Agree with you re the challenges of the Ontario grid and likely prospect for future prices.  For reasons which are too complex to explain here, my parents heat and cool with electric only (although gas is an option) and their bills are frightening.

Thanks, great post, really. My conclusions have been basically the same: industry and industrial investments will give up first and even before the Peak. Energy influences the economy mainly through investment and production decisions, not primarily through price mechanism, at least not through spot prices, but rather through price trends.

So I have not predicted sky high oil prices as we are nearing the Peak. Prices may actually get somewhat lower, but volatility will be high, as we move near the capacity limits. My opinion is that a recession will anticipate the actual Peak, that economy will react even before the Peak is reached. This would mean that oil prices could be lower at the Peak and after it than before it. It is even possible that $77 was already the price peak. Well, real problems in the Middle East could trigger some top prices in the near future.

De-industrialization in the US (and Europe) is almost entirely caused by the extreme low wages in China, which has become manufacturing capital of the world. It is not caused by higher fuel prices at home.

On a related tangent: What is China's manufacturing sector energy efficiency vs. the US/EU? If they are relying on low labor costs alone, then under Peak Oil conditions they will be  at a major disadvantage. We could even witness the rapid re-industrialization of US/EU?

While speaking of China, we should consider that when we import manufactured items from China we are also importing the energy (and water) that went into it's manufacture.

Therefore, when Americans denounce China's skyrocketing use of energy, which is supposedly competing with our own, we should keep in mind that whether used in China or here, (both of whom are probably owned by the same multinational corp.), most of the energy used is for our own benefit.

Exactly right, plus the energy to transport raw materials to China (those it does not already have locally) and then the mfinished ites to US and EU...and China is far, too. One of the reasons why shipping rates went up so much in recent years.
Look at the Chinese energy production numbers. It is not the wages, it is the coal. The Chinese primary energy production has risen about 10% every year since the end of the '70s. The Chines make now 400 million tons of steel every year - the US only 100 million tons. Do some calculations: it would be impossible for the US to get to the same production level. The energy demand is so huge.

Spend some time with the BP Energy Charting tool and you will understand.

what the chinese are making can hardly be called steel    they rely heavily on recycling of scrap  and what does that mean    car bodies    i have never found anything made of made in china steel that was worth a shit  but maybe i just havent looked hard enough   i admit i gave up long ago
yes, no doubt at significantly reduced wages.  American industrial might was initially built on pre-unionized low wages, long hours, etc.
Certainly the lower wages elsewhere were the major cause of the decline, but they have also made remaining industry that much more vulnerable to increased fuel prices.  The closing or moving of industry is only partly the result of gas depletion, but it has made it possible for the peak to occur without even bigger price increases than we have so far seen.  Industry is the sector that gives up first.

China already has its own gas problems, but as they bite into industrial activity there, it will scarcely be possible for reindustrialisation of North America to occur - we don't have the fuel for it.

But as far as the natural gas issue, some industries that left North America in the last year were low-labor, high-material-throughput ones that left to seek lower priced natural gas.  Namely, manufacturing of ammonia fertilizer and of some kinds of plastics.
Libelle, first of all congratulations on a post of only 531 words - I like it a lot!

This concept of demand being destroyed and falling ahead of the natural decline curve is an interesting one (applied to world oil also) but my feeling is that with respect to oil we are just seeing a demand correction following rapid rise in demand in recent years.  And I don't think that $70 is enough to hurt the OECD economies on its own - the feed through to inflation, interest rates and the property bubble is another matter.  I think N American nat gas and world oil are in a period of limbo following 27 hurricanes last year followed by the absence of hurricanes this year.  Lower prices now will ease inflationary and interest rate pressures and I think we will see demand picking up again.

I still think that peak oil - and peak N American nat gas will be marked by sky high prices, shortages, queues at gas stations, blackouts, chaos and a break down in law and order.

It would be nice to see some charts of Canadian and US nat gas production.


Because of law and order issues and because we have elected officials, I expect that in the case of gasoline there will be rationing by quotas, instead of only price rationing, if supplies get very tight.  

In the case of natural gas, I would expect there would be an attempt by elected officials to protect homeowners at the expense of commercial use. It is possible this might include some rationing also.

I know current thinking is only in terms of price rationing - but if times get tough, thinking may change.

Rationing by quotas is actually a great idea as it would strongly encourage folks to buy small engine cars - and to think before driving - drive less.
Yes I agree quotas will come fast.  I am old enough to remember in 1974, in the middle of an oil crisis, a very cold winter and dwindling NG supplies, businesses, public buildings, and even shopping malls were ordered by the US government to reduce weekend and night hours of operation.  Plus we had 'double daylight savings time' (clocks were shifted by two hours through the winter - instead of the standard one hour daylight savings time most states use now in the winter).  
the most famous example was perhaps the much-hated 'double nickle', 55mph speed limit.

President Carter was derided for a lot of his talk about conservation.  I am told that the solar water heating unit he installed on the roof of the White House (that Ronald Reagan ordered removed) is still working away at a college in Maine, 26 years later.

in practice, in a world of global warming and/or peak oil, Carter may be seen by historians to have been well ahead of his time.  Since he was a nuclear engineer by naval training, perhaps this is not surprising.

(interestingly the challenge in the 70s was the world was going through a cold spell, at least in the northern hemisphere.  I think the winter of 76-77 was the coldest in over 50 years.  How we will respond to the 'hot cycle' we are going through now will be interesting*.  Here in the UK we had power outs because the grid couldn't handle the local air conditioning load).

* assuming, for the sake of argument, that the recent hottest summers ever recorded are part of a 'hot' oscillation, not global warming

Tradable quotas appeal to me. Those who drive few miles or who drive fuel efficient cars can make money by selling their quotas, creating a price incentive for economy other than the pain of simple high prices.

It might also be politically acceptable, since conservatives like market mechanisms, though the suggestion here on theoildrum evoked howls of rage a couple months ago.

It seems odd to me that progressives oppose tradable quotas and prefer regulation. Sorry if I generalize too much; I am thinking specifically about the President of the California Senate in today's LA Times releases a letter objecting to the governor studying the use of tradable quotas as an alternative to simple regulation to implement the new greenhouse gas law.

If you have straight quotas that are not tradeable then people will trade the fuel after buying it.  Same difference...

Or perhaps by "regulation" you mean things like higher CAFE standards.  Those will take years to have much impact (even if and when they are passed), and thus are not an answer in case of sudden shortages.

I was referring to the current controversy here in California over whether to regulate greenhouse gases by decreeing thou shalt not exceed... or by setting quotas that can be traded. An operation that produces a lot of CO2 would buy quota from a company that uses none. Nobody knows how this would work yet. Schwartzenegger is getting criticism for authorizing a study of how it might work.

Not a Schwartzeneger fan, but I'm on his side on this.

By the way, while you're partially right that people could trade the fuel instead of the quota, it's a much clumsier market. Consider the bicycle rider who doesn't even own a motor vehicle. Why do we want to make him buy a gasoline can and hawk it along the road instead of getting a check or a deposit to his bank via internet trading of his quota?

I consider myself a liberal (also now called "Progressive") but I don't get the passion to make "the rich" suffer by denying them the opportunity to buy extra gas. As you point out, they'd do it illegally if we don't provide legal mechanisms.

When rationing is of a non-necessity, or supply is not particularly tight, I think that you can get away with 'tradable' ration coupons.

It's when you get to necessities, like food in a famine, or the advantage of having and not having something is particularly visible, that you get resistance to the principle of trading.

So for example in a drought, allowing someone rich to buy coupons and fill their swimming pool or water their lawn or wash their car, unlike everyone else, just isn't going to play.

A lot depends on how 'essential' Americans see gasoline, and how much of a change in lifestyles gasoline rationing would require (ie how tight is the system-- 20% reduction, or 70% reduction?).

Oh, wow! That may explain the intensity of the opposition to tradeable rations. (I don't agree with the conclusion that gasoline fits the water or food analogies, but I can understand that some people might conclude that.)
There is another effect. If poor people can't afford enough gas to get to work, they will send one person to work and the other will stay home. The higher salary person will go to work and the lower salary person will stay home. Essentially, you have the lowest fifteen percent of America on strike for higher wages to buy gas. It's cheaper for the middle class to give them more gas than more money, because it is a more targetted subsidy.
It's started.  We have such a scheme in Europe, and it is being progressively extended to various industries.

Power production is already in.  Aviation is due to come in sometime 2008-2012.  that is the first time an industry which deals directly with consumers will be charged.  The British and the French want that now (Tony Blair thinks global warming is the greatest challenge ever faced by mankind), the Germans want to delay.

The price of the permits has oscillated massively, from as little as 10 euros ($13) per tonne of CO2, to as much as 30 euros.

however it appears that what some governments did was issue more permits to their heavy industry as a starting endowment, than those industries actually needed.  They have been selling those permits, and the price crashed (from 30 down to below 20).

So the judgement is so far that the scheme is a success in terms of how it works, but not a success in the sense that the constituent governments gamed the system.

An earlier example, highly successful, is the trading of SO2 permits by US power producers.  SO2 production has halved since this was first introduced, at a very great savings in cost over straight pollution control regulation.

(there is also a voluntary carbon exchange already trading in Chicago)

Cry wolf -- good points.

One difference between NG and oil, is that North America is a stranded market, while oil is truly global. Thus, NG reliant industry (such as fertilizers and chemicals) can move to where the NG is, and where the prices are lower; but oil prices are relatively the same everywhere. Thus, oil prices should bite more or less equally everywhere (with the exception of subsidized energy in oil producing countries...)

When NG peaks and declines in the middle east, then the international manufacturers who are reliant on NG will face escalating prices, and their products should start to inflate in price at that point.

Thus, NG and oil may follow quite different trajectories.

Data from the BP workbook:

Thank you for that data!

Peak Gas is in many ways more frightening than Peak Oil:

  • gas substitutes for oil in a number of applications

  • there are few or no good alternatives for home heating with gas (electricity means de facto more coal, which means far more CO2)

The big surprise to me was how small Mexican gas production is.  I would have thought with all that oil, there would be lots of gas.
"electricity means de facto more coal"

Kind've.  As it is, wind is expanding much faster than coal, and it wouldn't take much commitment to move more towards wind.

As it is, I think wind and coal will share the market for new generation about 50/50.

I think there's a critical mass building on energy policy, which might break more quickly than we generally expect.  Look at Schwarzenegger's comments recently....

The one year graph and the historical graph are obviously on different scales.  The historical graph looks like $/MCl, but I can't figure out what that unit means.  My first thought was "million cubic liters", but then I realized I was being dumb.

Any insight?

Based upon the numbers, I suspect it should be Mcf, which is thousand cubic feet, and a standard NG measure in the US.
The graphs' axes aren't all that clear, I agree.  I did put the information in the text, but not obviously enough, it seems.  The units for the first graph's y axis are US$ per MCF (thousand cubic feet).  For the second graph, the y axis units are US$ per MMBTU (million British Thermal Units).  It's pretty close to the same.
Right.  OK, that's what I would have assumed you meant, except there is such a difference between the 2005 price on the first graph ($7.5/MCF) and the price for late 2005 on the second graph (averaging around $12.5/MMBTU).  I guess the price didn't start really climbing until late in the year, but even so, I was surprised by the degree of the disconnect.
Hi Libelle --

Nice to see someone writing about natural gas in North America. Your timely observation of the 22% decrease in industrial gas consumption would seem to explain a lot about the price regardless of seasonal adjustments based largely on the weather.

This caused me to look at the other sectors, where I note that there is no real trend since and including the year 2000 in residential, commercial and electric power -- these are all relatively flat with some large year-to-year volatility for electric power.

This being TOD Canada, a very welcome addition to the TOD family -- I must start off by giving you a hard time -- and so I need to inquire, since you are North Of The Border --

What exactly did you mean when you said moderate summer of 2006?  

July 31st, 2006
St. Paul, Minn. -- (AP) - It was so hot Monday that a local swim team cut short its morning practice because the water in the pool was too warm, and construction workers were drinking water by the gallon.

The state climatology office called Monday's heat the capper to the most sweltering July since the Dust Bowl era, while a Twin Cities power company pleaded with residents to conserve energy for a power grid straining to provide enough juice to keep fans spinning and air conditioners humming.

"It's been hot all around," said Peter Boulay, assistant state climatologist.

The National Weather Service was predicting highs near 100 in central and south Minnesota, and about 90 in the northwest. The heat index, a measure of temperature plus humidity, was expected to approach 105 to 110 in the Twin Cities.

Corn turning brown in Minnesota

Welcome Aboard! -- Dave

Thanks for the welcome!

As for the summer, it got pretty hot at times, but I think that overall it wasn't too much of a strain on the gas supply.  Here, north of the border but at 45.5 degrees N, south of more than half of Minnesota, it wasn't too bad for very long.  Mind you, we had some "humidex" readings of well over 40C.    :)

I vacationed to Canada on several occassions.  Very beautiful in general.  One thing struck me as odd was a 'heat wave' they were experiencing when I was there once:  It reached about 75-80 F!!  Having lived my entire life in Texas, I couldnt help but laugh at the poor Canadians dieing in the outrageous 'heat'.

I guess a good thing about living in Texas is that we know how to deal with the heat even without a working AC unit: 9 years at summer camp with no electricity works wonders ~_~


Toronto gets into the 90s, and stays there.  And it has Texas (ish) humidity.  It even has periods in the 100s (such as this summer).

Maybe because of the urban heat island effect, I would say Toronto is one of the hottest places in Canada, and competitive with Chicago in that regard.

It's obviously not like a Texas summer, because it has breaks, usually 2-3 weeks in the 90s, then drops back down to the 80s.

We even have hurricanes (who knew?).  Hurricane Hazel led to massive changes in the way the city was engineered (basically the 2 main spillways became conservation protected areas).


It always amazes people here (London) to be told that:

  • Toronto is on the same latitude as Aix-en-Provence in southern France, ie far south of London
  • Toronto gets as hot in summer as New York (which is on the same latitude as Madrid)

Only in the last few years have we had London days anything like Toronto summer ones.
2 (contradictory) points on that:

  • when I was growing up (Canada, 1970s) it was actually Americans who had air conditioning in their cars and houses.  We never did.  So in that sense we were 'better adapted'.  I am sure central air is pretty universal in Canada now, except on the East and West coasts

  • one of the hottest places I have ever been was Baltimore in July (it gets thermostat hotter in Europe and I've been in the Chinese and Egyptian deserts in 110 fahrenheit, but the humidity in North America is almost unknown in Europe, and is found more in Africa and South East Asia).

Yet the family had no airconditioning!  They had a grand old house, with a fan in the attic, and it worked a trick.

One of the great challenges with North American energy consumption is, I think, that humidity.  You can actually cope pretty well when it's hot by doing as the Italians, Spanish and Greeks do and staying indoors in mid day, building houses with thick walls and lots of shade, etc.  The whole Arab Middle Eastern way of life is built around the fact that you don't do anything from 10am to 4pm in summer -- they've lived this way for thousands of years.

But the humidity is killing and makes people want air conditioning.

Excellent points - very interesting, although the last paragraph makes several huge, and in my view, wrong assumptions.

It would certainly be interesting to know the elasticities of demand for gas over time. However, how gas consumption relates to an economic downturn, or a debt bubble I find perplexing.

On the contary, I would expect a reduced use of gas to lead to a rise in general economic activity because as gas becomes too expensive to generate electricity with, large capital investments in coal, wind or nuclear plants etc. will have to made to satisfy the demand which remains at the higher price level. Alternatively perhaps it is cheaper to bring the gas from elsewhere, in which case that also requires further infrastructure investments.

I remember someone posted a great story about sasquatchs (I think?) on this website - and over time as energy in the society became scarce, the portion of society engaged in gathering energy grew. Assuming they were paid by the hour, they made out like bandits!

I strongly believe that contary to what many assume on this BB, that peak oil and gas will lead to a huge boom in the energy industry, as we invest in all sorts of alternatives. Many alternatives will fail.  I also believe that ultimately nuclear will prevail, and will ultimately allow us to consume more energy per capita globally than we do now - although there maybe a decade or two of energy related shortages in between before new infrastructure comes on line.

I remember someone posted a great story about sasquatchs (I think?) on this website - and over time as energy in the society became scarce, the portion of society engaged in gathering energy grew. Assuming they were paid by the hour, they made out like bandits!

Yes, the post by Nate Hagens ("thelastsasquatch").  Pretty good expose of the societal effect of EROI.  But you should read that one again, since it seems like you didn't get it.  As EROI declines, there will be a smaller pie (of net energy) to divide among the population.  No doubt a few well-positioned people will "make out like bandits", but the average person will be poorer.  When we say that "energy will be more expensive" it means more expensive in some absolute sense, not just in the effect on making some "alternatives" viable.  That price will mean that the average person's purchasing power, as measured in miles of transport, hours of lighting, or loaves of bread, will diminish.

Are you assuming that EROI will necessarily decline?

Would you agree that wind and solar have acceptably high EROI?

My purpose in writing this was to put forward some ideas about what might happen, rather than be dogmatic about what is going to happen.  I wanted to stimulate thought on the possibilities.

The point about the debt bubble is that if a crash occurs, gas demand is likely to drop considerably in all sectors.  It would also make the "huge boom in the energy industry" less feasible.

I think we shall learn to use a lot less energy, that being the easiest option.

One of the key points here is that there are a wide range of uses in society for any given commodity. Some uses can be eliminated or substituted relatively easily, while others are much more difficult.

Often when we think of oil supply decrease we only consider the uses that are hard to cut back. If someone's main usage of oil is to drive to work and back, there's not much he can do. But looking at the larger picture, there are always uses where reductions are much easier. That is what we have seen with the natural gas situation.

It happens automatically in a market environment that there are uses that only just barely make economic sense, at a given oil price. The profit of making that trip or using that heating oil only just barely covers the costs. If the price rises, those usages will be eliminated, or other ways will be found of achieving them. The negative impact on society of these changes will be relatively small since the uses were just barely profitable to start with.

It is these uses, what economists call "marginal" uses, which will be eliminated first if we enter an era of shortages. If we do get into a Peak Oil situation where oil supply is on a permanent downward trend, I suspect we will see that there is much more marginal usage than we have perceived in the past. This should allow accommodating to oil supply reductions without major impact on the rest of society, just as we have seen with natural gas.

I Think the crisis is here already. We have had 18 successive weeks of lower injections versus last year in canada.  The demand supply balance has changed fundamentally. Canadian storage is now 8% lower than last year.
and i hear that alberta is not going to allow nat gas to leave province as it needs it for tar sands down the road.

whats gonna happen to NAFTA? Canada will (should) demand that US get extra gas from LNG markets from Qatar and elsewhere. Then US will (should) tell Canada to sell their Ontario manufacturing products to Qatar.

It all has the potential to become quite nasty.

p.s. regarding injections - some of that was market as opposed to geologically induced - many canadian nat gas companies shut in production as prices dropped - that injection story may or may not hold true through winter and next year

Arctic Gas will be important.  The Mackenzie Delta and other pipelines will get built.

It's 0.8mcf gas barrel of Great Canadian Oil Sands Oil.

So 1m b/d would be 800k mcf per day of gas.  Now 'mcf' means thousand cubic feet of gas, I believe (reading it off the GCOS Sedar stock market filing).

If oil sands were 5m b/d, 4m mcf.  So about 1.46bn cubic feet pa in 2030 say (oil sands less than 1m b/d now, 5m b/d by then).

Canada is not particularly geographically united.  Alberta will go its way, and Ontario will go its.

In practice this means gas-using industries will migrate out of Ontario, and Ontario will have more nuclear and more renewables (and perhaps more coal) in its electric power mix.  Heat pumps can displace gas heating to some extent.  Ontario may come to rely on East Coast LNG (Irving is building Canaport at St. John NB to fuel the New England market, a 1bn cu ft/day facility, so there is at least the potential to bring gas to Eastern Canadian markets).

Gas is measured in cubic feet at atmospheric pressure at sea level-approximately 14 PSI. The common U.S. industry measurements are mcf=1,000 cubic ft., mmcf=1,000,000 cubic ft., BCF=billion cubic ft, being the US billion=1,000 million.  The standard for gas is1,000,000 BTU per 1,000 cubic feet, and richness is part of the price paid by a pipeline.Natural gas is considered to be 6 mcf=1 bbl of oil. fo reserve equivalencies when reading annual reports. A barrel of oil holds 42 US gallons.

I hope this is a little help for our friends on the metric system and those who are unfamiliar with the terminology..  

Thank you.

I find the sources hop between the two.  The industry uses Imperial (barrel, mcf etc.).  Governments use Kilojoules etc.

Of course we use a different gallon than the Americans...

The 0.8mcf/barrel gives a nice feel for how much gas Canada will consume, producing tar sands.

On 5m b/d, about 1.46bn cubic feet of gas per annum.

My gas company uses Therms (which I've never been able to figure out) which are somehow related to BTUs.  For installation reasons (a botched installation when the house was partitioned into flats in the 1980s leaving too low gas pressure) I have no options on boiler choice, etc.  So I ignore the whole issue.

Canadian storage is now 8% lower than last year

Could you provide a link for that data point? As of July 2006, Cdn natgas storage was 2% higher than 2005, which appears to be the maximum storage level since 2002.

See Canadian Gas Association and Centre for Energy

The slow uptake in injections doesn't seem unusual.

Click on above link and then on NG update.
In april canadian storage was 80 bcf above last year.34 BCF was revised out later as some storage facility was no longer included. So that gives it an adjusted 46 BCF above 2005 in april. Over the next 26 weeks this changed to a 35 BCF deficit. That is 3 BCF change per week in demand /supply balance. The weather was actually more favourable this year ( less cooling) so that makes things worse.
One person's "marginal use" is another person's livelihood.
Naively, it looks to me like the post has got the facts right, but the interpretation wrong. The implication seems to be that the Natural Gas market in North America is isolated from the rest of the world. In fact, it is connected by substitution of other fuels and re-optimization of production location to take into account differential energy costs.

Natural gas prices declined when prices got high enough for large users to start to substitute other energy resources and production of natural gas was ramped up. It didn't hurt that the production environment this year was about as benign as could be hoped for (no hurricane damage etc.)

Right now it looks like production will be shut in because storage facilities are pretty close to full. Eventually, demand will return, there will be production shocks, alternate fuels (eg heating oil) will become scarce and expensive, or producers will not invest to increase production. The results are predictable. NG prices will go back up.

How do you get the columns wide enough on this site to see all of the graphs?  Some of them have a link to blow them up, and some don't.
click right, then View Image
I've heard that many times here, but "view image" is not a choice I get by right clicking.  Manually expanding the margins of the window usually lets me see the whole thing, but not always.  Must one have a certain program for right click to work?
Hitting the icon for "edit with microsoft word" works, but it is slow.  It reads the whole thread into a full page word document with no ads.
Thanks, sf.  Where does this icon show itself?
On the "standard buttons" toolbar.  It is a square enclosing a W.  You might have to edit your internet options.  The two choices, on my computer at least, are notepad and word.  I have XP home edition.  
Also, save picture as __ works.  I now have a peak oil folder in My Pictures.
I've been told that View Image works only with FireFox (what I use).

Have any of you played with HotKey scripts?
Is there a sequence in IE for viewing the whole image?

I use Hot Keys to jump to the next [new] twice and then back to previous (IOW ALT-N, ALT-N, ALT-P) That frames the next new comment without having to scroll down to see it. Saves you from scroll wheel arthritis.

Anybody doing similar crazy things?

but when someone puts [new] in a comment it screws you up!
Sure does. So what else is [gnu] ?