Oops! or a thought for a Wednesday
Posted by Heading Out on April 19, 2006 - 9:57am
Well there we were, Dave and I, trying to point out the advantages of ensuring supplies of fuel for the future, by recommending the benefits of long-term supply contracts. There was some evidence (vide Korea and the UK) of the cost and access assurances that these can provide. However that is, apparently, frowned upon in high places. From today's NYT.
The competition for access to oil is emerging high on the agenda for President Hu Jintao's visit to the White House this week. President Bush has called China's growing demand for oil one reason for rising prices, and has warned Beijing against trying to "lock up" global supplies.Perhaps you might wish to talk about the relative merits of prudence, but then perhaps not . . .
“This order [i.e. capitalism] is now bound to the technical and economic conditions of machine production which today determine the lives of all the individuals who are born into this mechanism, not only those directly concerned with the economic acquisition, with irresistible force. Perhaps it will so determine them until the last ton of fossilized coal is burnt.”
—Max Weber, 1905
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Having followed that strategy for the past three years, since I became aware of peak oil, I can say that I am much better prepared to face the future than if I had invested my money in rural land, etc.
I think we all recognize that oil and gas are still relatively cheap now, and that Wall Street does not appropriately value oil and gas. North American oil and gas companies are still being sold as if oil were $45/barrel, not $70 and climbing. I wish that I had the access to the oil industry the way West Texas did, but anybody can open an account at Vanguard, for example, and buy oil and gas on the cheap, just like China is doing.
While buying stock in oil companies and royalty trusts may improve your future net worth, just keep in mind that you can't heat your home or run your car on stock certificates. You may have more money to buy the more expensive oil or gas, but in a really serious energy shortage possibly combined with social chaos you are not going to be much better off than anyone else.
I think it is a mistake to look at this whole Peak Oil subject purely in financial terms.
(Correction: If you have a wood stove, you CAN heat your home with stock certificates, but you better have an awful lot of them! )
There was not so much of an alternate fuel push because the US was the world's swing producer of oil and most of the carpooling and gas rationing was to save on TIRES rather than gas, so using hemp for fuel etc would have had people driving more and using up their tires.
In line with westexas advise, to live you need water, food shelter and clothes. Stock certificates will work to light your wood stove.
You have mentioned this a few times and I'm very curious for your further thoughts on the subject. What is the underlying mechanism for the falling stocks? I know it is that we are using more than we're getting, sure. But on a basic level, are fewer orders being placed, or what? The consumption has not changed, but the imports to replenish the consumption has fallen--is that right? How are the decisions being made?
-Matt, dc
This is not sustainable.
China has no need to buy American cars; it can buy all the made in China cars it requires. A big concern in the auto industry is increasing Chinese auto exports. They already export to Europe and North America is next.
Note that Chinese auto production includes a mix of both domestic and foreign firms. While GM lays off in NA it is expanding its operations (and employment) in China.
Higher oil prices should have less impact on Chinese consumers. In China it is the top 25% of the earners (say 328,493,428 people) who are buying cars. Since they are riding an economic boom with year over year growth of around 10%, they can easily afford higher fuel prices. In the US, the bottom 50% of the population (around 14,7867,067 people) are already burdened with stagnant incomes and high levels of debt. This group will feel increasingly squeezed as prices rise. You only need to look at the relative numbers involved to get a sense of the size and scope of the problem.
With regard to the energy used in production, these costs will be passed through to the consumer in the form of higher prices. Who buys all these cheap Chinese goods? Walmart. Who buys from Walmart? The same folks who are getting squeezed on variable rate mortgages, increasing credit card debt (need gas? Chanrge it.), higher heating and cooling costs, and higher transport costs, will be paying more for everything else as well.
What is the ultimate outcome? Not sure at this point apart from the fact that it is not going to be pretty.
Ooops. The figure above for 50% of US Pop should be 147,867,067. No need to make things worse than they are :-)
This is the threat behind the "lockup" issue. China can afford to pay people in yuan, which can then be used to buy Chinese goods. For many nations this is a good deal, far better than dealing with constantly inflating dollars from an America that refuses to let you spend those dollars on American goods and property. The yuan may be a bigger danger to the dollar than the euro, precisely as the dollar was a danger to the pound in the first half of the 20th century.
The Russian currency, rubels, may as well be the new world currency, with Russia being (one of) the largest oil producer(s), and moderate but steady econ. growth.
is sanctions followed by a military strike. We could nuke
them... right in the living room.
(nothing like a good middle-class-living-room bunker buster, eh? that'd teach them not to try enrichment without OUR permission)
I wonder if we are seeing the same thing in regard petroleum imports.
Anyone remember this happening in the oil crisis movie last year?
Spooky ...
This is eerily close to Jared Diamond's description of the Norse starving and dying out in Greenland because they'd not eat fish etc - they'd not learn from the Eskimos.
(In the book The Netsilik Eskimo, well worth reading if you can get ahold of it, the Eskimos mention to the author that they learned a lot of their skills long long ago from a race of larger, hairy, gentle, humans who basically taught 'em all they know about living in the snow, hunting, etc. So, could the Netsilik be a race of Inuit who were not true arctic-living people, as some "strains" are, who migrated north, met the remains of the Norse who HAD split off and lived the true northern way, and who had taught the future Netsilik the ropes?)
There are so many questions. Whilst we bleed to death in a lost war and occupation in Iraq, China is strorming ahead! Britain and France needed a number of military defeats, before they ran out of both money and men, and were forced to abandon 'Empire': has the United States really embarked on this same dreadful, course -- with the same end result?
The profound question is, how will the United States react to the rise of China as a world economic and eventually a military super-power? Are we 'confident' that the current political leadership in the United States has the vision and ability to really understand the challanges we face and the momentus decisions that need to be taken?
Do we regard China as 'partner' or a 'rival.'
Will American policies towards China be shaped by the 'merchants' or the 'militarists'?
Can we learn anything from history? How did Britain react to the rise of German economic and military power at the beginning of the twentieth century? Are there any useful paralells here for us? Can we learn what not to do?
How will the United States react to China shredding the Monrow Doctrine? Is the United States 'losing' control of South America?
Instead the US seems to be persuing (continuing) a free market approach. As I've said before, there will be a move towards seeing energy more as a component of national security and less as a economic commodity. The forward-thinking thing for consuming nations to do is to lock up supplies (and cap prices) through strategic deals, parnerships, and joint development.
The oil bought in the open market will only get more and more expensive. Evidently, the US believes that they are most able to afford oil on the free market. Maybe it is because of the relative wealth of the country, or maybe it is because they have the printing presses that make the dollars...
(and of course future contracts are free market. and arguing against them, as the President is apparently doing, is a market intervention!)
I think the US is, quite literally, locking up energy supplies. In Iraq, that is. This is a military approach exactly in the name of national security, instead of the market approach endorsed by China. Next energy supplies to be locked up are in Iran, thus bypassing China's deals there.
I have posted the following, including my speculation Iran's next, here http://www.theoildrum.com/comments/2006/4/3/184927/4733/87#87, :
The IAEA has repeatedly stated that there is no prove of Iran trying to build a nuclear weapon. Iran has been extremely cooperative in recent years with this organisation. Ayatollah Khameini issued a fatwa against producing a Nuclear weapon; it's against Islamic religion. Iran is at least 10 years from acquiring a nuclear weapon. They have several dozens of centrifuges for uranium enrichment; to produce a nuclear weapon you need hundreds.
The US has systematically sabotaged Iran's willingness to cooperate with the international community. For example the Russian proposal to enrich uranium for the Iranians on Russian soil. Every claim by the US pointing to a so called Weapon Program has been debunked. For example the weapongrade plutonium traces found by the IAEA in centrifuges. The centrifuges as well as the traces originated in Pakistan. And so on.
The US measures with double standards towards Iran. Iran signed the NPT and complies with the conditions. Pakistan, India, and last but not least Israel, did not sign the NPT, but have the US's full support. "all animals are equal, but some animals are more equal then others" comes to mind.
The US acts like international treaties, like the NPT, only applies if they aprove, like they are the policemen of the world deciding who can do what, thus denying Iran the right to enrich uranium for peacefull purposes. It is quite clear, and it is to Iran, what the US aims at. No wonder Iran is showing its' teeth. Even without the 233 mph torpedo they have significant military strength.
I'm affraid Iran is toast, no matter what they do. Even if they cancel the entire nuclear program, the US will probably keep hammering on the WMD's (Words of Mass Deception)thing.
The ultimate goal of attacking Iran, except for the Military-Industrial complex' wet dream, IS to take all that oil of the market and plunge the world into depression, thus keeping the oil in the ground for the future. Comparable to the present Balkanisation of Iraq.
The last paragraph of this post is speculation and I will not give a time line for the events to unfold, but to me it looks like this is the strategy of this fanatic religous apocalyptic morons responsible for US foreign policy. "
I agree with your assertion that US military action in Iraq & Iran is oil (not WMD) driven, but I don't see the evidence to support some of your other assertions.
Particualrly, that US bombing of Iran would be intended to get Iran's oil off the market. The US doesn't want to commit economic suicide, quite the opposite. The US wants as much oil on the market as possible. I feel that was the urgency behind regime change in Iraq. The idea was that Iraqi oil exports were limited by the UN sanctions, and after invasion, the spigots would open up. Hasn't exactly worked out that way, but I don't see anything to convince me that the Americans intended the exports to drop.
Nevertheless, if they attack Iran, there is a good chance that exports will drop. Not just Iranian exports, but Iraqi, Saudi, Kuwaiti... anybody who depends on the Gulf for shipment.
What confuses me a bit is that the US gets very little short-term upside to attacking Iran. They're already exporting at their maximum rate. And the short-term downside is quite scary. I suppose in the longer term the US my feel that foreign investment would increase exports, but Japan and China are already engaged...
Maybe the long term US plan is to "lock up" Iraqi and Iranian oil only for the US (and their allies). But if so, they haven't tipped their hand yet. The Iraqis haven't awarded development contracts, they're waiting for the new government to make those decisions. And for now there is no new government. If we, eventually, see those contracts go to XOM and BP, I guess we'll have our answer.
http://www.hackworth.com/dt018.html
The "No Oil Bidness Left Behind" Act
25 October 2002
U.S. intentions in Iraq have been criticized for a lot of reasons. Chickenhawks fit to be deep-fried, a Zionist political cult that has lassoed the E-Ring and parts of Washington, general disrespect for Texan traditions of leading by example instead of by force, constitutional concerns and using war to resolve years of piss-poor U.S. energy policies.
Let's take a moment to clear something up about Iraq and the oil bidness, as they say in Texas.
Even though we bomb Iraq just about every day, and would like to hit Baghdad like a Texas tornado, we love Iraqi oil as much as chili, BBQ and pecan pie! Five percent of our oil imports come from Saddam, 566,000 barrels a day for the first half of this year. At $30 a barrel, that is about $17 million a day, $510 million a month, and close to $5 billion worth so far in 2002.
We buy up about 18% of every drop of oil Iraq exports, and most of it is sanction-clean, not smuggled product from resellers, meaning we pay full market prices, plus the odd surcharge.
Prior to Desert Storm, Iraq sent 2.8 million barrels a day (of 3 million produced) through pipelines in Turkey and Saudi Arabia. Back in 1990, 93% of Iraqi oil flowed to market directly through the back forty of folks who later supported the U.S. in the first Gulf War.
But Saddam's mama didn't raise no stupid cowboys. By 1995, Iraq started transforming its energy sector. It offered energy development contracts for 25 new oilfields, and started fixing up alternates to the Turkey and Saudi Arabian pipelines. China, Russia, France, Italy, Ireland, Malaysia, Australia, Canada, Brazil and South Korea sprinted faster than quarter horses heading for the barn at the end of the day.
In 1996, the sanctions against Iraq had weakened, and oil field capacity grew and grew, like a tall tale out of Amarillo, with technical support from many of the countries named above.
By 2001, Iraq was back to producing 3million barrels a day - with sanctions. I guess it's true! What doesn't kill you makes you stronger!
By 2005, Deutchebank forecasts OPEC will expand 2001 oil production capacity by 5.1 million barrels a day. 33% of this increase is from Iraqi fields. And that's with continued sanctions.
Sanctions keep crumbling, like armadillo carcasses in the hot Texas sun. U.S. companies have been shut out of sanction-era growth. They are sure to be left at the altar in the post-sanctions energy sector surge in Iraq, as sure as Texas has yellow roses.
When you add the $5 million a day we spend to watch the Northern and Southern no-fly zone to the $17 million a day we pay for every 500,000 barrels of oil - we're spending $22 million every day on Iraq!
$22 million a day just means we are paying over $40 a barrel or 135-140% of market prices for Iraqi oil. And Iraqis aren't buying a heck of a lot of products from us. Especially since Halliburton ended their sales in 2000. Now any Texan'll tell you that just ain't good bidness!!
Nobody likes a Texas-sized trade deficit. But we must be OK with it, a good friend even, to pay such a premium to buy almost one-fifth of Saddam's sole cash export. If I didn't know better, I'd say we kinda like old boy. Maybe we didn't really break up with him after all back in 1991! Maybe that's why we needed him to stay in Baghdad, but you'll have to ask Pops about that.
Now - we could lift sanctions, allow free trade and free movement of people to change the regime the old fashioned way (from within) plus get our boys in on oil deals immediately and save at least $3 million on the daily bombing bill.
Some of you non-Texans might want to put your money down on a plan like that.
But that's too laissez-faire and uncontrollable. Rodeo clown stuff. Instead, a far better solution is get this war going, spend between $100 and $200 billion plus rebuilding fees (Afghanistan monthly bill times 10) - and then we can get to the same exact place, a few thousand dead bodies later. But the important difference is, in this preferred scenario, we can be absolutely sure no U.S. oil bidness is left behind! Sounds good, huh?
A true son of Texas, also named George, sings a song about wanting something you can't stand to admit so bad you can't stand it, so all you can do is lie about it. A great song, and timeless too.
Sing with me now.....I've got some oceanfront property in Arizona. From the front porch you can see the sea...or is that Baghdad?"
I think that basically we do not disagree. I meant to say the US is locking up those supplies for themselves. And I assume no time line; I would like to emphasize that. LindaG's reply is also not particulary reasuring...
I'm not so sure, given the present decimation of the American middle class, that the US wants as much oil on the market as possible. Divide and concer is a proven strategy. Internally and externally. Taking oil of the market (not just from Iran) may as well serve some powerfull long term interests.
http://money.cnn.com/2006/04/19/markets/eia_oil/index.htm
RR
Meanwhile, our pal Mahmoud Ahmadinejad just announced that oil prices are still below their "real value" and that developed countries are unfairly benefitting.
And in Nigeria, MEND has announced the truce is off, and warns that oil companies should leave now, while they have the chance.
Oil hits new record on inventory report
72/50 = 1.44
100/72 = 1`.39
First the IEA March Oil Market Report said this about refinery capacity:
Anyone know the current status of these three damaged refineries?Second: today's report showed that it's the East Coast (PADD I) where gasoline production has been weakening most:
W/e 03/24/06 - 1.243mbdW/e 03/31/06 - 1.156mbd
W/e 04/07/06 - 1.072mbd
W/e 04/14/06 - 1.071mbd
Is this just maintenance, or are there other reasons?
(note, this summary normally doesn't match the EIA's detailed numbers but these are not available as we go to press).
The common connection? Texas then, and the world now had both passed the 50% of Qt mark, based on (crude + condensate) HL.
Granted, there is some uncertainty, but the two "cleanest" HL case histories were the Lower 48 and the North Sea. Based on crude + condensate, the Lower 48 peaked at slightly less than 50%, and the North Sea peaked at slightly more than 50%.
Taking into account transportation delays, the peak in world exports should lag the world production peak, and as Khebab and I predicted, net export capacity will probably fall at a rate faster than world production falls.
Since peaking in the week ending 2/10/06, total net US petroleum imports are now down 14.8%, close to two mbpd.
A copy of one of my posts:
Exporters can export: domestic production less domestic consumption
Importers want to import: domestic consumption less domestic production
There are four factors: production in the exporting and importing countries and consumption in the exporting and importing countries.
As Khebab and I showed, the top net oil exporters are, based on the HL analysis, farther down the depletion curve than the world is overall.
The top importers are farther down the depletion curve than the world is overall (or don't have any significant oil supplies).
As whirlwinds of cash descent upon the net oil exporters, their economies are going to expand at a faster rate, especially in Russia (car sales up 15%) and Saudi Arabia (average of seven kids per family--consider the consumption predictions based on that number).
So, production in the top exporting countries and the top importing countries (with production, e.g., the US and China) will, in my opinion, be falling faster than world production overall.
Consumption in the exporting counties will, in my opinion, by and large be increasing faster than the world consumption overall.
Therefore, if export capacity has fallen short of demand, markets will respond initially by drawing down inventories and increasing prices. However, before too long, someone has to cut their demand, and it is going to be in the importing countries. As I have repeatedly said, I think that we are looking at a 50% reduction in net export capacity a heck of a lot sooner than most of us anticipated.
I still think that an energy tax, offset by cuts to the Payroll Tax, could be sold to the American public--if they are told the truth. I suspect that Daniel Yergin, Steve Forbes and Peter Huber will still be telling us that $38 oil is right around the corner when oil is trading at $200.
Total product inventories, you have to do some subtraction to get the numbers, are now down very slighly year over year. In any case, the trend is clear. We are burning through inventories at a rapid rate.
I used to think that China getting oil from Venezuela didn't make much relative since. But apparently no distance is too great.
I've often wondered about Busch and Co. and what they know. Looking at this from a commander in chief point of view the following deductions make a bit of sence.
- The president's job is to protect the US, its citizens and way of life including the resources our economy needs to prosper.
- If trying to get the US to powerdown is political sucide (look at Carter), then the only other option is maintaining supplies and the status quo.
- If the world consumes 84MMBL of oil a day, the US only needs about 20+/- MMBL which from a warped point of view means there is no shortage for the US, we just need to take care of our needs first - the rest of the world be damned.
Once the president realized this, he would look around for places to get more oil... Iraq fits the bill because ole Saddam was an international bad guy and if we left him alone with exploding oil prices, he could have become a very serious threat once sanctions were lifted. So why not kill two birds with one stone by invading to remove a potential problem and secure more oil. From their point of view, its a win/win situation. Once Saddam was gone and the oil fields secured "mission accomplished" would have been correct from their POV.By the way, how much of Iraq's oil finds its way to the US now?
Plan 'B' is probably a simple calculation that the US economy can afford more expensive oil that most emerging nations. So we outbid enough other countries and crash their economies to secure the oil we need.
In regards to China, of course we would oppose their signing long term fixed contracts as it would make it harder for us to outbid them.
I know that many here don't like the president, and I dont either. But maybe his actions become more understandable if we look at things from the other side of the coin. It's even more understandable when you read that he has insulated himself with a bunch of yes-men who generally have a vested interest in seeing the economy continue as is.
It seems to me that if we can better understand why actions have been taken, we just might be able to influnce future decisions a bit better.
Anyway, I'd welcome your thoughts.
thomas
But strategy is about weighing costs and benefits too. Is the military solution to securing oil supplies the most effective in the long run? Is the Iraq debacle really the greatest strategic military and political blunder in American history? A truly defining moment of imperial overreach, that one can compare to the Russians in Afghanistan? A defeat of almost uncalculable proportions? Or is there a slim possiblilty of a way out? Does that possible way out lead through Iran?
I think we also have the problem of 'discontinuity' which you've clearly been thinking of, as have so many others. By 'discontinuity' I mean the apparent lack of a truly adequate explanation for why we ever got into the mess in Iraq in the first place! Clearly the publicly stated reasons were not only false and nonsense, they didn't really make any sense even one accepted the logic and premisses behind the arguments. It's this 'discontinuity' between the stated aims and reasons for invading Iraq and what appears to be the 'real and secret' strategy behind the invasion, that puzzles us. Will we ever really know what lay behind the decission to invade Iraq? Was there ever a grand and logical strategy? Or was it almost an ad hoc decision?
This of course has more than an academic interest among historians. The war is still going on. One of the big questions for me is, how do soldiers react when the reasons they were given for a war, turn out to be lies? What does that do for moral? How does one feel about dying for a lie? Can an army win a war that they feel is wrong? Will Iraq eventually break the US Army? How can a few thousand dedicated, insurgents, with small-arms and car bombs, 'defeat' the US Army? What does that tell us about the future of warfare? The American Army can win on the battlefield, but not in the cities, not without destroying the cities. But already we've killed probably over two hundred thousand Iraqi civilians since the occupation started, historically when an occupying army adopts such a strategy, isn't it always doomed to failure?
Does anyone know what is going on with energybulletin.net? From my (college) connection it is down [DB: connect error] is all I get. Any illumination? I fear I've replaced one addiction (oil) with another, at least partially.
Their tech guy is out camping in the Outback Down Under.
Your contributions are very, very valuable. Thank you!
Including the last one.
Where does the F stands for in "ELF", Economize, Localize, and..? (become a net food/energy producer)?
All of the importers are going to be bidding against each other for available net export capacity, and of course the UK has become a net oil importer. Notice that Brent crude has recently been consistently higher than WTI--kind of sounds like a bidding war.
The interplay is going to be between:
Exporters--who can (if they wish) export production equal to domestic production less domestic consumption (currently this margin appears to be narrowing, especially in Saudi Arabia and Russia)
and the
Importers--who want (if they can) to import production equal to domestic consumption less domestic production (currently, this margin appears to be widening especially in the US and China)
So, it looks like the two biggest exporters probably now have, or will shortly have falling exports, while the top two importers probably have more need for imports.
It appears that most of the large net exporters are at or beyond 50% of Qt. It looks like there are three principal sources of export growth: Caspian Sea; Canadian tar sands and Venezuela very heavy oil. IMO, there is no way that these areas are going to offset the export declines from the top exporters.
Don't forget the ticking time bomb at our back door: Cantarell.
It should be ELP:
Economize
Localize
Produce
Where can I find the price history and current price of Heavy Sour Crude? I can find Light Sweet and Brent as well as West Texas. Is the cost of Heavy Sour associated with Light Sweet? Since the spare capacity seems to be increasingly Heavy Sour it would be interesting to see how its price reacts as it slowly gathers demand.
Thanks,
Tom
It's here:
http://www.onpointradio.org/shows/2006/04/20060419_a_main.asp
http://www.alertnet.org/thenews/newsdesk/PEK197835.htm
Recently it has emerged in the UK that the British government has been blocking a Russian energy company from acquiring a british gas supplier. This wasn't an 'economic' decission, but a 'stratgic' one, according to newspaper reports.
This is an interesting story, because the UK has been one of the most open economies in the world and foreigners were actively encouraged to invest in Britain, without any restrictions.
Clealy Russia like China don't just want more 'paper' for their exports, they want something 'concrete' like infrastructure and investment agreements in capital projects. What the United States calls 'locking-up.' This would also appear to be a way of diversifying out of dollars and a sensible strategy from their perspective.
Russian is apparently awash with dollars and needs to find something to do with all this paper. Clealy one needs to think long and hard about our attitudes to Russia and China in our strategic assests. What is the best strategy to adopt, especially when we are becoming increasingly reliant on imported energy supplies?