DrumBeat: June 5, 2006

Now for some wise words from the readers of The Oil Drum...
Is Condoleezza Rice aware of the basics of supply-and-demand?

Yesterday, in response to Iran's talking about decreasing its oil production, she said:

"We shouldn't place too much emphasis on a threat of this kind," Rice said on "Fox News Sunday," referring to comments today by Ayatollah Ali Khamenei, Iran's supreme leader. "I think something like 80 percent of Iran's budget comes from oil revenue, and so obviously it would be a very serious problem for Iran if oil were disrupted."
In the 1979 oil crisis, a response to the Iranian revolution, oil supply decreased by only 4%, but the price more than doubled from $15.85 to $39.50. So I'd say Iran would be a perfectly rational actor to curb supply, or even just talk about doing so. They could get more money and produce less oil. In fact, they'd be fools not to do that (unless they're afraid of U.S. military intervention, which is perhaps the real point of Rice's comments).

I'm actually surprised that a lot of oil exporting countries don't voluntarily reduce production in order to "save some for later" when prices are inevitably a lot higher.

And I keep hearing how intelligent she is.  I guess she missed the Econ courses.

I was reading John Mauldin's letter and noticed an interesting snippet.

So when the poor jobs report came in today, the bond market immediately moved huge on the news, as the assumption is "How can the Fed raise rates with a slowing job market, not to mention all the other problems noted above?" Ten-year interest rates dropped to 4.99%. The yield curve once again starts to flatten.


To point out how we're stuck with a no win situation:

  • The bond market has decided that the rate cuts won't happen.  They have repriced bonds accordingly and the yield curve has flattened back out from inversion.

  • With Paulson as the new Trez Sec., he has stated he wants to vigoursly defend the dollar.

Ok, so who wins?  Is the bond market right and FED is stopping, or does Paulson get with Bernanke (yeah right) and demand to defend the dollar in the face of mounting inflation?  Oh yeh, inflation is the number one enemy of the Fed, according to policy.

I think the bond markets are premature.  The Fed has no choice but to raise rates.

Here's a snippet of a rant about new Treasury Sec. Paulson & his environmental record.

In Thursday's Wall Street Journal, columnist David Wessel raised some interesting points when he wrote, "...given [Paulson's] record in using Goldman's power and money toward environmental ends, he just might use his clout to push the administration toward dealing with climate change or even - don't mention it before the elections - considering an energy tax."

If you want the whole thing check out:

The Fed has no choice but to raise rates.

Absolutely. The dollar has been on such pressure recently that I am quite worried what may follow if the FED decides to pause. Hope I'm not wrong...

If Bernanke pauses now, it's a major humiliation for him in the macho world of central bankers. Like a prizefighter squaring up to his opponent at the start of a bout, then running away and diving back outside the ropes.
Great analogy!  Not to mention he testified to the Senate that he would vigorously fight inflation.  Efficient markets are not real, they exist in a classroom.

Look at this article about the love of full service gasoline and the FIGHT to keep it LAW!

http://www.chicagotribune.com/business/chi-0606050179jun05,1,2029021.story?coll=chi-business-hed& ;ctrack=1&cset=true

Here's how it's framed:

None of the states offering self-service seems to have fallen prey to the perils that the New Jersey law associates with pumping one's own gas. These range from "the fire hazards directly associated with dispensing fuel" to "exposure to toxic gasoline fumes" to "the fact that customers who leave their vehicles . . . face significant inconveniences and dangers, including the risks of crime and fall-related personal injury."

I thought these were a thing of the past!

Or maybe this is exactly what the FED wants us to think, while in the meantime is happy with inflating the internal debt and with the weak dollar. Personally I don't believe so, but I'd rather not put all my chips on a single square.
Can someone explain the relationship between the money supply and interest rates.

Can you pretend to fight inflation with higher interest rates whilst secretly printing lots of inflationary dollars (now M3 is not being published) ?

Yep. There are methods but if you discuss them people accuse you of being a conspiracy nut. There are lots of books written on this subject. A recent theory is this is why they are bringing Paulson on board. Listen to the financialsense broadcast from Sat.Good luck with your research.
First about not putting all your chips on one square....if you make your living in the financial markets, that's what you get paid to do.  No balls...no blue chips.  So buck up.

When the MSM says interest rates are going up it's really the federal funds rate, or the rate that banks charge each other to loan funds deposited at the federal reserve.  This is a paper transaction in most cases, but can be stemmed from a cash crunch which would require the cash to be deposited to actual banks.  

What the FED does is they do not "set" the rate, it is determined by Supply & demand, but for money.  They know they can control the SUPPLY of money.  They can print more(more on that in a sec) or they can take money out of circulation.  When they raise rates they are suppose to be taking cash out of the system.  This ine effect reduces the supply of money and therefore the new "price" of money is the new FF rate.  That rate sets many other prime rates etc.  

I think this is BS, because it's far easier to set a rate by telling everyone it costs 25bp more today, than yesterday.  They don't need to reduce anything, but instead charge more.  I say this because you bring up M3 which is the broadest measure of money.

I have no confidence in the Fed's compilation of banking system "net" repurchase agreement positions, and that it generally excludes Wall Street "repos" makes this quite worthwhile number worthless. There are also issues with "eurodollar deposits." Additionally, any broad measure of "money-like" instruments today must at the minimum include CP [commercial paper], some ABS [asset backed securities] and should include some "structured products." [derivatives?]

What all this means is that the Fed can "print" money in ingenous ways that may or may not inflate the monetary base.  Basically M3 includes all the games that the finance community has come up with to make money on something.

Pulled from Wiki: According to the last published data from 16 March, 2005, M3 has been growing at an annual rate of over 8.22%. As of 16th March 2006 M3 was $10'336.3 billion. One year earlier, on 14th March 2005 the M3 was $9'550.5 billion.  

CPI & GDP are easy numbers to alter and they've done that quite well.  M3 isn't nearly as easy to fudge.  One last note about M3 from http://www.capitalspectator.com/archives/2005/11/does_m3_matter.html

Superficially, at least, it looks a bit suspicious when the Fed says it'll soon bury a series of money supply numbers that contradicts the central bank's public relations effort to convince the world that it's squeezing the monetary system and thereby taking a hawkish view on fighting any and all future inflation. Of course, as Cosgrove observed, the Fed has relatively lesser influence on M3 vs. M2, or certainly the monetary base. Nonetheless, the Fed's only explanation for the planned demise for M3 boils down to sparse interest in the series and the allure of saving money by discontinuing its publication. The former is a reasonable, but ultimately unpersuasive point. After all, the Fed publishes a massive amount of data, and much of it is obscure for all but a few economics geeks. As for the bit about saving money, well, that one just rings hollow from the outset. How much could the termination of M3 save the Fed? Measured against its annual budget, it's barely a rounding error, if that.
>Pulled from Wiki: According to the last published data from 16 March, 2005, M3 has been growing at an annual rate of over 8.22%. As of 16th March 2006 M3 was $10'336.3 billion. One year earlier, on 14th March 2005 the M3 was $9'550.5 billion.  

The expansion is largely caused by the Huge trade deficits. Virtually all major US trading partners have High USD reserves. Some of the foriegn trade surpluses are reinvested in US bonds (Treasury, CP, and Mortgage Debt) which has prevented bond rates from rising significantly.

>What all this means is that the Fed can "print" money in ingenous ways that may or may not inflate the monetary base.

I doubt the Fed is Printing money to manipulate the economy, not when there there are Asian countries dumping goods and providing easy credit for them. I suspect that the reason that the Fed has decided not to publish M3 (Its still calculated by the Fed, just not released) is related to the surging trade imbalances which presents a systemic risk. In the past, large trade imbalances always end in a financial crisis.  

The Feds biggest mistake was to lower short term rates to 1%, which kicked off the housing bubble, which will only end in suffering. The Fed failed to enact laws to prevent excessive bad loans (ie low income borrowers using ARMs, insufficient background checks, insufficient regulation with credit swaps, etc) that might have dampened the hardship Americans will face in the future.

One item of interest that may signal bad times ahead is the large number of Fed banking officials resigning and few replacements can be found to fill the vacant positions.

>The expansion is largely caused by the Huge trade deficits. Virtually all major US trading partners have High USD reserves. Some of the foriegn trade surpluses are reinvested in US bonds (Treasury, CP, and Mortgage Debt) which has prevented bond rates from rising significantly.

While this may have been true a long time ago, please read some more on this.

The surprise here is that China and Japan are doing what they said they would do, even selling off some of their holdings. If Japan and China are not buying the government debt, who is buying? The little islands of the Caribbean stand out. Obviously, they are not wealthy nations with the wherewithal to by such quantities for their own natives who are harvesting coconuts. They are acting on behalf of investors from other nations who are passing money through the banks of the Caribbean to make their purchases. Unfortunately, the US Treasury is unable to capture the true source of this money since they only know the first party of their transactions. The most cynical observers offer a theory that the US government itself might be behind these off shore operations to prop up the dollar. They have no evidence, and we are unlikely to ever know.


If you want the whole story look at this website.  It's got plenty of graphs to back this data up.

>Fed has decided not to publish M3 (Its still calculated by the Fed, just not released)

Really?  So when the Fed said it was ending the release of the M3 data, what was their reasoning?  I could have swore they said something like, "the costs to prepare the data does not justify the information it provides."  M2 is sufficient according to them, however M2 data does not include repurchase agreements.  What don't you understand about liquidity?  It doesn't take bills being "printed."  Money is created everywhere through various financial instruments.  There are securities for sale that base their value on an underlying security.  There are securities of those securities.

So if this is the reasoning and now you're telling me they are still data mining.  While I would agree that this could go on, if we agree that it is going on, itt would be proof that the FED is lying.  Who cares what they are doing THEN. Do you trust a private bank (proxy for gov't) that lies to the American Public?

>While this may have been true a long time ago, please read some more on this.

China is still accululating dollar reserves. Back in Jan 2006, China held about $800 Billion, Today its approaching on $900 Billion.

Below is an ability.com/Reserves.htm&w=china+reserves&d=Y7bpOzmtM4Pv&icp=1&.intl=us

>The surprise here is that China and Japan are doing what they said they would do, even selling off some of their holdings. If Japan and China are not buying the government debt, who is buying?

China diversifaction was from US treasuries into the US mortgage debt market. If I recall correctly 1/3 to 1/2 of all new mortgage debt after 2003 is held by China. This is why the mortgage rates didn't rise in step with treasuries.

>I could have swore they said something like, "the costs to prepare the data does not justify the information it provides."  

The cost for public consumption was the issue. However. All large financial institutions are still required to collect and provide the data to the Fed. Perhaps the data isn't been used to calculate an "M3" figure, its still used by the fed. I suspect that the reason for discontinuing publication is hide how fast the money supply is growing and prevent it from spooking the bond markets.

>Unfortunately, the US Treasury is unable to capture the true source of this money since they only know the first party of their transactions.

The source is mostly large hedge funds, using carry trades to make money. The Caribbean are relatively small. If I recall correctly, back in early 2005 it was about $70 billion, where as Japan had over $550 Billion and China was somewhere between $300 and $400 Billion in Treasury withholdings. If the gov't wanted to secretly expand the money supply, why bother using a front? They could just buy and hold treasuries with out any paper trail. Why would the gov't bother expanding the treasury bond market by creating new debt. Why not just fictiously deposit funds in electronic banking accounts instead of raising funds through the treasury market?

>What don't you understand about liquidity?  It doesn't take bills being "printed."  Money is created everywhere through various financial instruments.  There are securities for sale that base their value on an underlying security.  There are securities of those securities.

I think your missing the point. The money supply is expanding just fine with all of the various capital inputs. For instance, we have the $600+ billion trade deficit, Easy credit fueled by the housing bubble and comsumer debt growth, bond carry trades, Federal deficit spending and so on. With all these sources of input capital there is no need for secret gov't transactions to further inflate the money supply. All the fed needed to do is drop the rates by ~550 bps to kick it off. If they wanted to accelerate it further, they just need to lower the rates again.

this isn't some theory...this is exactly what the fed has been doing for quite some time...looking like fierce inflation fighters with interest rate increases (of course, after lowering short term rates to a ridiculous 1%), then inflating money supply by 10% plus...and that was before they did away with M3! ...and all the time blathering about core rates being 2%...what bullshit! ....discounting those volatile food and energy costs!...oh! we can't include them!...they're volatile!
The Fed has started to prepare everyone....


Fed policy-makers pay close attention to "core" inflation figures to get a better sense of how prices of lots of other goods and services are behaving. As these core measures have marched higher, economists have worried that surging energy prices are feeding into higher price tags for more and more items.

Although consumers, who account for two-thirds of all economic activity, are showing signs of moderating their buying appetite, businesses on the other hand are spending and investing at a robust clip, Bernanke noted.

So we know they are targeting inflation.  So there should be a 25bp increase.  In addition for those of you who wonder why things "on paper" seem great, it's due to massive corporate profits (in fact the largest ever) and they are spending a lot of it.  This funnels through the economy and is keeping things afloat on paper.

Funny, but when I first read he had a worrying 'environmental record', I immediately visualised him authorising the manufacturing and dumping of some kind of toxic waste into American rivers...

Quite surprised at the reality though, I hope he achieves the position within the administration.

Here's a scary thought...

Third, the concentration of power is starting to look unhealthy. A clan of former senior Goldman staffers is now in a position to help steer the dollar, the euro and the pound. There needn't be anything sinister about that -- though financial conspiracy theorists could have a field day with some of the connections. The issue is that they are likely to have a uniform set of preconceptions and prejudices. In any area of endeavor, it is healthy to have a wide diversity of views. Global monetary policy is no exception.


"And I keep hearing how intelligent she is.  I guess she missed the Econ courses."

I think you misunderstand. She knows perfectly well what the situation is. Instead she is counting on the vast majority of players in the global markets not knowing and accepting her statements at face value. This is yet another form of "jawboning" - where she is trying to make the case that Iran cannot impact the global economy badly. She's doing this to reduce the scare factor that Iran has at its convenience, and help jawbone down the price of oil (and other commodities as well). Unfortunately, and I am sure she knows this, if Iran calls her bluff and cut production for one month by 10%, there'd be immediate and visible reaction.

What's interesting is that she appears to believe that Iran values its current income greater than the leverage that playing off that income provides. I am not at all convinced that this is a valid analysis but I am also not the Secretary of State.

Hugo has been trying to convince them to do this. The rest of them might be concerned about the US military might (just a guess).
Only a handful of producers are so large that cutting back may affect prices to such extent that they could win.

What is often overlooked is that if you cut production prices indeed rise and in the short term you can reap some profits. In the longer run the market adapts one way or the other (and there is always some way, see Cuba). So, if you decide to ramp up production in the longer run prices will fall and you lose. So, what is your incentitive to cut production then? You lose reputation, your immediate cash flow decreases you scare off customers etc etc. For what? A little more profits for some time and then nothing again. What producers are interested in are stable profits in the long run. Especially considering that most of them have huge investments to repay or are government organisations.

Simply put, cutting back as a market strategy is not an option for anybody.

Cutting back to defend prices is opec's raison d'etre. They are happy to produce all they can at today's prices, but this cartel is by far the most successful in history, with only the internal squabble in 1998 (when they overproduced and oil dropped to 10) as a blot on their record.
I think the reason for OPEC to exist is not "cutting back" per se but defneding the common interests of the oil producers.

At these prices cutting back is clearly not in their interests, and they are behaving much as expected - pumping as much as they could and urging everyone in the cartel to do the same thing.

OPEC is shivering at the thought it may cause a oil-price induced recession accompanied with a world-wide effort of conservation and mitigation. They will do all they can to keep business as usual goining on. In this situation if a member country chooses to back-off without a reason it will be considered a traitor and will have the whole cartel (and the whole world actually) against it.

The addiction works both ways. We may be 'addicted to oil' but you could also say the rulers of the OPEC nations are addicted to oil money.
I'm actually surprised that a lot of oil exporting countries don't voluntarily reduce production in order to "save some for later" when prices are inevitably a lot higher.

Interloafer you make a very good point. M. King Hubbard was fond of making that exact same point:

Were we a rational society, a virtue of which we have rarely
been accused, we would husband our oil and gas resources.
- M. King Hubbard

I have tried to make that point many times before. When many exporting countries realize that we have actually reached peak oil, they will do exactly that. Countries like Mexico, Russia and all other countries that use a lot of oil for domestic purposes will start to husband their oil, saving it for themselves. I fully expect them to dramatically cut back on oil exports when they realize their oil is in decline right along with the rest of the world. They would be damn fools not to do this.

This will greatly exacerbate the peak oil problem. It will make the decline much steeper than previously estimated, at least for all importing nations. All gradual decline scenarios are actually based on everything being business as usual. But in a world of obviously declining oil resources it will not be business as usual anywhere on this planet.

I remember seeing an announcement out of Russia, probably a year ago now, that they would stop exporting ALL energy resources by 2010.  We should send Europe a few extra sweaters...
M. King Hubbert  Hub - bert (not as in Old Mother Hubbard).
"OPEC linchpin Saudi Arabia said it cut output to 9.1 million barrels a day in April due to a drop in refinery demand, not a desire to lower stock levels, the Wall Street Journal quoted Oil Minister Ali al-Naimi as saying."

from the last paragraph of this WaPo article:

Frankly, I'm skeptical of the stated 'reason' for the output cuts.  They may be at or passing peak output and are about to pay the high price of excessive water injection, and are starting to realize it.

My first post here at TOD.

I also believe that when Nations and States realize fully that Oil Production and Discoveries have reached their "Peak", then they will begin to slow down or halt exports. It would be self-destructive not to pursue such a Policy.

I am old enough to remember the Arab "Oil Embargo" and when Leaders in such States such as Texas and Oklahoma publically commented that they were under "no obligation" to export their oil to other States. This did result in some grumblings from DC. I just don't recall what was said exactly.

As an aside, I do enjoy TOB and especially the scientific and possible societal change comments. However, I think some of the political comments should be in another Forum. I personally hold both Parties of the Duopoly responsible for the lack of preparation and for being reactive instead of proactive. There is more than enough blame to be shared by our past and present National Leadership.

'some of the political comments should be in another Forum..'

You might be right, but the question of politics in this issue is hard to separate even from the technical science of oil acquisition, of natural-resource economics, or the inevitable relationship between oil and war, especially since the energy predicament hinges so intimately between all of the above and Politics, which is all about Power and Resource management, in the long run.  In fact, more than it just being 'hard' to separate, I think it is unrealistic to separate them .. sounds like our 'Age of Reason' desire to evaluate phenomena each in their own petri dishes.

I do agree that both parties, AND we normal citizens all bear some responsibility for our situation, but the grain of salt there has to be that those who have been trying to move the ball forward on energy, conservation, fuel efficiency, etc.. they get tarred along with their opposition by the broad brush of 'nobody has moved this forward', because they've been pushing in the right direction, but againt vested interests pushing back the other way.. ie Exxon hiring scientists specifically to refute Climate Change arguments, etc, not to 'find what they find'..  Granted, those who push one way or another don't fall precisely on party lines.. closely but not exactly..

Maybe if we hedged and called it 'Political SCIENCE', it would be more palatable..

Welcome aboard!

I see all of these topics of science, politics, psychology, sociology, economics as deeply intertwined. We can't all just sit in an ivory tower and just talk about energy EROEI ratios without considering the political feasibility or consumer acceptance of technology. We also shouldn't BS about political intrigue that's not related to energy issues.

We should talk about the intersection of all these issues.

I agree.  In the end, politics is about the allocation of resources.  It's a big part of the peak oil issue, if not the biggest.
It's funny you say allocation of resources, but isn't that a defining principle of economics?  Scarcity and the allocation of resources is all econ is about.  However Politics is simply who has the power to change the allocation.  Nevermind...I'll go back in my tower.  
Economics is certainly on-topic here as well.  
I think it is partially a political time-horizon issue.  Many producing countries, the top politicians need to create results that ensure their continued election NOW, even if sacrifice today would make much rational sense.  Many of the Middle-Eastern potentates, however, are semi-insulated from this.  But even Saudi Arabia, with their increasing demographic problems and recent stock market tumble, has to balance the rationality of near-term cuts with the danger of near term revolution (or at least the increase in support for al-Qa'ida in the kingdom).

Austerity measures of all types--though often the most rational course of action, and particularly important to the Peak Oil issue--are fundamentally incompatible with the short-term cycles of modern politics.  At least partly because of our miserable general education in fields like economics.  What a different world this would be if politicians could put out TV ads that say:  Sure, life is a bit tougher today, but look at what I've done for the yield curve...

Interloafer, you said,
"I'm actually surprised that a lot of oil exporting countries don't voluntarily reduce production in order to "save some for later" when prices are inevitably a lot higher"

Because they need the money NOW.  To use an old Southernism, saving it for later don't put no taters on the plate!

 Saudi Arabia has a growing population that has gotten more and more used to living well, and bills to pay.  Matthew Simmons has done a great job of pointing out that Saudi internal energy consuption has actually  put them on a year to year problem with natural gas supply (!!!), Astounding!

Iran has a massive youth population that will soon want to start living better.
Many reports have shown the Iranian "disaffected" youth, engaged in sex and ecstasy parties, they are becoming notorious as the beatnics of the Middle East...the reason Iran needs the bomb is because soon, that will be the only power the Iranian government will have...brute force, internal and external.

Dubai and Qatar are on building and spending binges that are astounding...behind China, Dubai is the construction capital of the world!

Wait "for later" to sell oil?  The oil exporting countries can't afford to.  They are married to the "expansion" boom just like the rest of us.  (by the way, this is why conservation and efficiency could be such a HUGE TOOL.  If we could bring down consumption even a percent or two, the alarm bells in the Middle East would be deafening!)

Condi Rice blows it on a lot of things, but this time, the facts are with her.

Roger Conner  known to you as ThatsItImout

Roger, excellent points and I appreciate the descriptions of the binds these countries are in.  But my vastly oversimplified reading of history is that they could reduce output by 4% and watch as prices double. So they'd produce less but receive more for it (not just more per barrel but more overall).  Doesn't that seem like a no-brainer?  I guess they tend to think more highly of energy alternatives than I do.
I wanted to repost something that Mainer put at the end of yesterday's Drumbeat. It deserves a bit of attention. From the WSJ:

Kingdom Denies Any Effort
To Curb Global Oil Supply;
Stores Are Near Capacity


June 5, 2006; Page A3

CARACAS, Venezuela -- Saudi Arabia's oil minister confirmed that his country's massive crude-oil output has declined in recent months, but he attributed the trend to a drop in demand and denied the kingdom is aiming to limit supply.

In an interview after a meeting here of the Organization of Petroleum Exporting Countries, Ali Naimi said other cartel members are having trouble finding buyers for all the crude they are producing, at a time when global stores are near full and many refiners have closed facilities for routine maintenance. One Saudi official said an estimated three million barrels a day of refining capacity is out of action and unable to process crude, at a time when the world is using some 84 million barrels a day of oil products like gasoline and jet fuel.

"It's not just heavy oil. Even light oil is having problems" finding buyers, Mr. Naimi said, referring to premium grades of crude known as light crude that are highly prized by refiners because they have high gasoline yields.

The rest of the article is in Mainer's original post here.

My $0.02, there is probably truth to this. Inventories are very full, which means buyers are having to slow down a bit.


If there is a worldwide glut of crude oil, why are the prices approaching record levels again?  If refinery capacity was really the issue here, then refined products should be high, but crude sitting in storage shouldn't command over $70/bl.  This is just another SA/US lie to lull us into complacency for as long as possible.  Keep shopping!!
If you are watching the prices recently I think you can not escape the conclusion that they we are in an overshoot, supported solely by the Iranian uncertainty. The price cripples 1-2 dollars upwards each time "the Iranian president says something scare", then retreats to around $70 which currently looks like the new "safety point".

If you believe (like me) that nothing particular will happen around Iran and if you are long on oil, maybe it would be a good idea to unload, at least for the short term.

The price cripples 1-2 dollars upwards each time "the Iranian president says something scare", then retreats to around $70 which currently looks like the new "safety point".

Which, as I have noted, I believe is the sole reason he is saying these things. He knows that every time he says something like this, he generates revenue for Iran. I think he feels the risk of a U.S. attack is low, so what does he have to lose by keeping the oil markets running scared? Not much to lose, but a lot of revenues to gain.


Completely agreed. Actually becoming self-evident with time going by...

On the other hand I think it is becoming harder for the market to buy the empty rethoric and therefore the rethoric becomes more acute. Couple of months ago "we" did not have any intention to disrupt oil supplies in the Persion Gulf, today we are putting it back on the list. And why not, if I may ask? It costs 0 dollars to say something, which you can always twist back if needed, but it obviously brings quite a lot of $$$ in the treasury (along with a nice little ace in the game with Washington).

I think it is a matter of time for the market to get weary of seeing lots of words and no action and I just hope that the price will not then "undershoot" which will not be a very good thing in the longer run.

If there is a worldwide glut of crude oil, why are the prices approaching record levels again?

From the AP this morning:

Oil Prices Jump on Iranian Leader's Threat
Source: Associated Press/AP Online
Publication date: 2006-06-05

LONDON - Oil prices jumped above $73 a barrel Monday after Iran's supreme leader threatened that his nation could jeopardize the world's oil supply if the West punishes Tehran over its nuclear program.

Iran's supreme leader Ayatollah Ali Khamenei - who has the final say on all state matters - told Western nations in a speech Sunday that "If you make any mistake (punish or attack Iran), definitely shipment of energy from this region will be seriously jeopardized."

Khamenei said the United States and its allies would be unable to secure oil shipments passing out of the Persian Gulf through the strategic Strait of Hormuz to the Indian Ocean.

There is a significant fear premium in the oil market. I have said for long time that the market is a bit dysfunctional at the moment.

You are correct, we should be seeing oil prices ease as gasoline prices stay high or increase if there is excess oil available. That's what should happen, since oil inventories are at or near 8 year highs and gasoline inventories are near the low end of their range for this time of year. But investor psychology plays a big part here, and if speculators in general think we are near a peak, or think that we may attack Iran, that's enough to keep oil prices up.

I have spoken to some people about the odd behavior of the market, and they think that oil producers are going to hold out for high prices as long as end product prices are high. The quote I got from an insider is "Gasoline prices are propping up oil prices", which admittedly seems a bit odd.

I personally don't think the Saudis are lying about this situation. What do they have to gain by lying? Wouldn't they be better off to say "Our oil has peaked" and then let the price rise to over $100/bbl? Don't they risk destroying their credibility by lying about this issue? Aren't there buyers out there who can contradict their story, by coming out and saying they couldn't secure the oil they need from SA?


I don't know what they have to gain by lying, but they consistently stick to the story that SA reserves are gigantic beyond comprehension. What you are saying makes sense, but something must be motivating their BS. Maybe they want to overstate their geopolitical importance, by overstating their oil production capacity-"We are still the true swing producers".
What do they have to gain by telling the truth? That would only be an admission that they'd been lying before.
What to the gov't=media=corporations gain by denying Peak Oil???  They keep everybody investing in our doomed economic system for as long as possible.  You are completely failing to see the clear and obvious relationship between energy and worldwide economics.  The Saudis are puppets of the US and have been for decades.
When you make self-contradictory statements, presumably you still hurt your own credibility.
As long as buyers can get the oil they want from somewhere, KSA are not put on the spot anyway.
By self-contradictory statements, I mean those of al-Naimi and his colleagues, most recently that Saudi production has declined but that they are not decreasing supply (!)
I think SA has an incentive to lie and to overstate their reserves because this would put the nail in the coffin for those who don't believe in peak oil.  Once SA admits there is peak oil, we will get really serious about alternative energy and conservation which will be a threat to SA's perceived future revenue streams. They want to keep the price high but no so high that nations will seriously attempt to move away from their dependence upon oil.  

Admission that their is peak oil would signal to the market that high oil prices are permanent. Their is still a substantial body of thought that the latest oil prices are just cyclical.  

If I am investing in, say solar water or heating  and I am  convinced that oil prices will continue to rise in the indefinite future, this does wonderful thing for the expected return on my investment.  It also does wonderful things for my investment in my Prius.  

If the Saudi's oil had peaked they would have to lie, because by admitting to a peak, they would risk provoking internal unrest....
I don't think so. If they admit they have peaked, oil prices will go much higher and they will be rolling in more cash than they are now. Peak Oil will be very, very good for the Saudis for a long time. They will be incredibly powerful.


They'll only be more powerful if they aren't more threatened.  The US could easily take over SA (and a sufficiently angry US public would sanction it), and a sufficiently motivated US public would move to programs like the PNGV with a vengeance.  The longer this fails to happen, the longer SA can ride this gravy train; once opinion shifts, there are many ways the gravy train can end.
I would agree that SA has plenty of potential motivation to deny that they have peaked.  If they can still claim to increase production and even potentially flood the market they increase their potential value as a "political sweetheart" that can be coddled and protected by the west( and coddling is cheaper than resource wars).  If, however, they admit they have no such power or potential, they become useless as a spigot controller and they could quickley find themselves in the cross hairs of hungry, and now panicked (PO becomes actualized), and powerful military machines.
The public debt of Saudi Arabia is over $150 billion. The kingdom has $110 billion assets abroad. They are now inviting foreign investments in the country, especially in the nergy sector, refining, chemicals etc. All this rests on the assumption of their "inexhaustible" oil reserves. They do have very good reasons to keep telling us that there are "no problems". The Saudis are in fact moving quietly towards a less oil-dependent economy. Telling the truth would destroy these plans.
The vast majority of responses here seem to misunderstand my point. I am not suggesting that SA is being upfront about their reserves. But it is a bit harder to claim to have oil for sale, when any oil trader can call them up to verify. If I was a betting man, I would bet they are telling the truth about this. Their oil reserves, on the other hand, can't be verified in the same way.


But the Saudis say that they have only long-term contracts, and don't do spot trading. So no one without a contract cannot call and ask if they have oil for sale. Only the prices are partly determined by the market, not the volume.
Didn't take long for Westexas to be proved right! (Yesterday I was maintaining in conversation with him that Saudi officialdom had not yet owned up to a <voluntary> production cut.)
Maintenance has to take place, sometimes out of schedule.
So this isn't necssarily the start of a major trend.
But still one has to be suspicious. Saudi claims of excess capacity have been dubious for a while.
Looks like Petrologistics know something others don't.
And what about JODI, the only source to claim Saudi production actually ticked up recently!
It should also be noted that al-Naimi cannot speak a line without self-contradiction. He says KSA is "not trying to decrease supply" but "there are no buyers for heavy oil nor even for light now" and the kingdom is producing 400kb less.
I see no reason to believe that the decline is voluntary. Some think it is. Ali al-Naimi's position is that it both is and isn't.
...Saudi officialdom had not yet owned up to a <voluntary> production cut.

Forget Naimi. What are you trying to say? The first sentence of the article posted says the Saudis have decreased production in recent months. The source is Naimi.

If it isn't voluntary, then what is it? I'm guessing the other possibility is that the 400,000 bpd is peak-oil depletion. Is this correct? Is this what you are saying?

I think it is 100% voluntary. They made these cuts starting two months ago and the price of oil has barely changed. Clearly demand is being met with production at $70/barrel.

OPEC, in Caracas last week, said they would NOT cut production. Yet Saudi Arabia is saying they ARE cutting production. Which is it?

Everything is just a guess because one can place no credence in anything that comes out of OPEC or Saudi Arabia. But one thing is for sure, if there were an oil glut then prices would be falling. I know stocks are at their highest level in several years but we are told that this is to make up for the lack of excess production capacity.

At any rate oil is trading around $73 a barrel this morning. If Saudi Arabia does indeed have more oil than they can sell then they are cutting production in order to keep prices above $70 a barrel. If this is the case then they are lying about saying that prices should be lower.

My guess is, and it is just a guess, is that Saudi Arabia is having serious problems keeping production at 9.5 mb/d so they are just making up this story in order to save face. I believe Matt Simmons is correct. I think Saudi Arabia is actually well past peak in total production. I believe Saudi has between 60 and 70 billion barrels of recoverable oil still in the ground.

By the way, I lived in Saudi Arabia and worked for Aramco from 1980 until 1984. I am fully aware of the great lengths they will go to in order to save face. That is another factor behind their claim to be able to supply the world with oil for many years to come. They are currently the king of oil producers and they have no desire to be dethroned, to be shown to be much less than what they are currently perceived by the rest of the world to be. They will go to great lengths to keep the West thinking that they are and will continue to be the saviors of the world as far as oil supply is concerned.

I agree with much of what you say. Careful observation will show that the price of oil has been falling. If you look at a 4-week moving average, which I use for the short term, rather than getting lost in the day-to-day swings - you will see this 4-week average has been falling for the last 3 weeks.
Careful observation will show that the price of oil has been falling. If you look at a 4-week moving average, which I use for the short term, rather than getting lost in the day-to-day swings - you will see this 4-week average has been falling for the last 3 weeks.

Actually prices closed Friday at a six week high when looking at the weekly closing price. Seven weeks ago prices closed at an all time weekly high. And that is the ONLY week in history where they closed higher than they did last Friday.


The above URL points to a chart of WEEKLY oil prices for the close in contract. But the point is, prices have held pretty well stedy for the last seven weeks. Today they are just a little above the average for that seven week period. Prices are definitely NOT falling, thouhg they might in the very near future. If I could tell exactly what they are going to do I would be rich.

What is misleading about this is, and the reason I use moving averages of the daily closing price, is that people are not just buying oil on Friday afternoons.

Not to split hairs, but - On April 21st(Friday) oil closed at $75.17 (All time nominal high). They are lower than that now. Logically the price has to have fallen in the last 7 weeks.

I sometimes wonder about the turbulent market activities in the days that surround the termination dates for a particular delivery month. The day you cite, April 21st, falls the day after the May delivery month futures expired, and a Friday (weekend price risk) to boot. (Shrug)

There are some others here who know more about that termination-date, switch-over day dynamic. As I recall, there was some UN deadline about Iran that pushed it up that week, in addition to everything else.
Well, you at any rate seem to have no problems with reading comprehension.
How to use sarcasm as an offensive tool. Writing skills help somewhat. I give free pointers. Just ask. As long as you try to rag on me, you're gonna get beaten on - is that so hard to understand? Cherenkov hasn't learn't this lesson yet.
Saudi decreased production Dec->Jan by 100,000 bpd. They raised it back to 9.5 mbpd in February. The "official" EIA numbers for March should be released in the next couple days. The 9.1 mbpd figure is for a preliminary release for April coming straight from the Saudi oil ministry. I have no reason to doubt it.

While there are plenty of people here accusing Saudi Arabia of lying and other forms of obfuscation, until we actually see the Kingdom miss its stated production-expansion goals in the next few years as the worldwide price skyrockets, it is only so much speculation.

I'm curious, where do you get your 60-70 Billion-barrel figure?

They're already missing their targets. Haradh was supposed to be adding another 300 kb from late March.
300 kb of what? Actual production or potential capacity? These differences are not insignificant. Can you please source this stuff? When I talk about stated goals, I'm talking about the meeting Abdullah and Bush had in April 2005, where the Saudis agreed to invest in expanding capacity to 12mbpd by the end of 2008. I don't know what is going on in Haradh and don't expect to for a few months(at least). You apparently have better information.

Ask yourself one question. If you were pumping oil and having no problem selling it at $70, would you be in any hurry to pump more so that the price would go down?

Now ask yourself another question. Once you knew that the world had accepted $70 oil, would you be advertising that you could easily flood the market and bring the price back to $50?

That is exactly what SA reps are trying to advertise (that they could flood the market if they wanted). I assume Smekhovo gave up in utter frustation. You can't force feed knowledge (or insight).  
Let's try to keep this a fact based discussion. And let's be serious, you have no idea what "SA reps" are trying to advertise. They seem to be advertising anything that fits into your particular worldview at at any given time.
You're just begging the question about the price going down.
I hope you can see that according to your logic, there's nothing that could possibly suggest any Saudi claim is false.
As opposed to your logic that suggests anything uttered by a Saudi is a lie. Please.

If I were to guess, I would say the Saudis are manipulating their own production(because they can) to keep world production balanced with demand at as high a price as possible  without crossing the unknown line that separates merely high prices from recession-causing/demand-destructing high prices.

That's all I'm trying to say. I don't think that it needs to get much more complicated than that.

I am not making a case for Saudi credibility either way. I have as many doubts as anybody regarding their situation. I'm just not willing to convict on speculation and rumour.

Oil CEO asked:

I'm curious, where do you get your 60-70 Billion-barrel figure?

I get it from analyzing several sources starting with Matt Simmon's book "Twilight in the Desert" and lastly from the Hubbert Linearization of Saudi Arabia.


Basically if all Saudi's giant fields are post peak, which I strongly believe they are, then Saudi has already produced more oil than they will ever produce in the future. By holding back on production in the past they were able to prevent a steep decline until now, well past the half-way point of total production. However it now appears that the chickens have finally come home to roost.

So you don't believe they will ever attain even 10 mbpd?

No, I do not believe they will. Not "crude only" anyway. If you count Natural Gas Liquids they might come close however.

By the way, Simmons does not give any definite figure for what he belives Saudi Reserves to be. However 60 to 70 billion barrels can be gleaned from the data he does give.

Well, here we go again. Oil demand will die out: Saudi Minister
Saudi Oil Minister Ali Naimi has said that industrialized countries were studying intensely the use of alternative forms of energy, which would lead to limiting world demand for oil and reliance on Arab oil.

Addressing the 8th Arab Energy Conference in Amman on May 14, he said that Arab petroleum producers should take note of developments such as talks on the future of nuclear power, increased use of coal, energy-efficient vehicles, enactment of regulations on energy efficiency and the expansion of non -conventional oil development.

Why am I looking freaked out?

Would that be because the esteemed and beloved Al-Naimi is worried about alternatives because he really believes this nonsense or maybe, perhaps, his production levels are peaking? Only the shadow knows.

To compare the current situation with that of the 1980s, as al-Naimi does, would be misleading even if we were not running up against geological constraints.
Then we were in the early stages of a secular slowing in worldwide manufacturing growth. Now we are in the early stages of a secular acceleration in such growth.
This is also the lead Business & Finance story in today's Wall Street Journal (online article here - paid subscription required).

Saudi Arabia's oil minister confirmed that his country's crude output has fallen, but said it was due to a drop in demand and denied the kingdom aims to limit supply.  Other OPEC members are having trouble finding buyers for all their production, Ali Naimi said, as global stores are near full and refineries have closed for further maintenance.

The market is going to have to decide what it thinks about this explanation.  So far, it's not buying it, as the July contract is up about $1 to over $73.

Saudi Arabia's oil minister confirmed that his country's crude output has fallen (by 5% year over year) but said it was due to a drop in demand


Texas and US Lower 48 oil production as a model for Saudi Arabia and the world
Jeffrey J. Brown & "Khebab", GraphOilogy
Based on the Hubbert Linearization (HL) method and based on our historical models, we believe that Saudi Arabia and the world are now on the verge of irreversible declines in conventional oil production.

first published May 26, 2006.

Question:  how many Texas oilmen, in 1973, would have admitted that Texas had just started a permanent and irreversible decline in production?

The Energy Bulletin article has a link to our prior story.  

Using only production data through 1970 to predict post-1970 US Lower 48 oil production, Khebab generated a predicted production profile.  

Actual cumulative post-1970 Lower 48 oil produciton, through 2004, was 99% of what the HL model predicted that it would be.  (Russian post-1984 cumulative produciton was 95% of the HL prediction.)  

Remember, these future production estimates were made only with produciton data through 1970 for the Lower 48 and through 1984 for Russia.  

Most recently, the North Sea is also following the predicted downward trend (after peaking at 52% of Qt in 1999), despite conventional wisdom that the North Sea peak would not peak until 2010.  The same "conventional wisdom" guys are now assuring us that the Saudi and world peaks are years away.

I'm sure the TX oilmen didn't actually believe they were at/past peak. Neither did the Norwegian or British oilmen. They just don't see it coming and don't believe it when it does. They never have. I don't think we have to accuse SA of lying, I think they, like all other oil producers, simply don't see it and won't until it's well past.

I disagree with RR's position that oversupply accounts for the SA decline. Iranian threats may make a few dollars difference, but not keep it at $70. Only supply concerns could keep the price here, and obviously people are buying the oil.

Also, the world isn't clearly oversupplied. If you look at the oil inventory curve closely, you see that the curve has simply followed the annual average change since December. Inventories are high because winter was record warm and Dec had record production. Since then there has been no build in excess of the average pattern - that is supply/demand balance has been normal since that time.

Hello everyone. First post, greetings from Norway.

Peakerl, you state that Norway was surprised by peaking oil production.

I've read several times claims from Matt Simmons about assessments on north sea predicting a peak round 2010. I'm not sure it's true that such predictions was the mainstream attitude. They pretty much predicted a peak round 2001, given a uncertainty that could result in a later peak.

Read for yourself what the Norwegian petrolium department reported in 1997 (in english):


It's enough to look into the last graph. Take notice this report only apply to norwegian production, not north sea as whole.

It could be that Simmons are referring to some over-optimistic social circles within the oil community. I've been visiting some university academics that works on oil related stuff, and yes - they often seem to have a pretty optimistic attitude.

I'd be happy to get more links to reports from guvermental assessments on oil production on request.

Great blog. I've been reading it for a year now, been learning a lot. Pardon my english, i'm not used to write in this strange language.

Great blog. I've been reading it for a year now, been learning a lot. Pardon my english, i'm not used to write in this strange language.

Welcome to TOD. Your English is great. I have spent some time in Norway, and I have found that you all seem to speak excellent English. I remember asking someone once in a restaurant in Bergen if they spoke English, and they looked at me like I was crazy and said "Of course I speak English".



I don't necessarily take the 2010 figure as valid because I don't know where it came from, so I never make that explicit claim.

My personal comments regarding Norway come primarily from the 2001-2002 period when I was watching oil production, quotas, etc very closely. In Dec 2001, oil was about $20/bl and OPEC was panicking. They made a 6% further quota reduction and asked for help from other exporting countries to cut back supplies. Norway, Russia, Mexico and others offered voluntary cutbacks.

Norway instituted cutbacks for the first half of 2002, but abandoned them in June 2002 because, to their surprise, their NCS fields were not even producing up to the level they had planned to cut back to. They ended the year with ever reducing production such that 2002 was less than 2001, when they had anticipated a gain even in their production cutback scenario. Production has continued to decline since, but the writings at the time clearly indicated this was unexpected (apologies:I would have to spend more time than I have this moment digging out all the sources - but you can Google it. This is the way I'm describing their surprise.

In an interview in Barron's, Matt Simmons stated that the top 10 major oil companies working the North Sea were predicting a peak in 2010.

However, the key point is that the North Sea peaked in the vicinity of 50% of Qt, like the other large producing provinces.  

We have seen three key regions peak in the vicinty of 50% of Qt.

Texas/Lower 48/Total US in the Seventies.

Russia in the Eighties.

North Sea in the Nineties.

To expect Saudi Arabia to show increasing production from the 58% of Qt mark is to expect to see that which has never happened before.   The HL method (using Texas a model) indicated that the Saudis were poised for a decline, and we have a 5% decline year over year.   We can argue why, but my bet is on the quantitative model.    

In regard to market conditions, they are not really relevant.  It's entirely possible that markets are temporarily well supplied right now and that the Saudis can't sustain 9.5 mbpd.

I disagree with RR's position that oversupply accounts for the SA decline.

But there are many, many buyers who could come out and say "I tried to buy some oil from SA, and they couldn't supply it". There are far too many people involved to be able to pull off such a conspiracy. You will know SA has peaked when oil purchasers are being put on allocation, or being told to look elsewhere. SA says they have had buyers turn down offers of crude. If they were just making this up, you would have buyers contradicting them.

Inventories are high because winter was record warm and Dec had record production. Since then there has been no build in excess of the average pattern - that is supply/demand balance has been normal since that time.

But high inventories are going to keep some buyers from purchasing as much crude. They simply aren't purchasing at the rate they were when inventories were building. When inventories start getting too high, you slow down your purchases. If you have too much inventory in the tanks, that's money setting there doing nothing for you. Right now, due to the geopolitical risks, I think refiners have decided to raise their inventory levels. But once they start to fill up, they have to slow down their purchases.


RR wrote:

SA says they have had buyers turn down offers of crude. If they were just making this up, you would have buyers contradicting them.

I don't recall reading any comments by buyers, ever. At any rate your statement makes no sense whatsoever. There must be hundreds of buyers who were NOT offered crude by Saudi Arabia. Why should they say anything? The fact that you hear nothing from buyers proves absolutely nothing. Buyers are not likely to be in the habit of proclaiming "Saudi Arabia did not offer me any oil!"

There must be hundreds of buyers who were NOT offered crude by Saudi Arabia. Why should they say anything?

When someone has crude for sale, the buyers know about it - especially those short on the crude they need. It would be common knowledge that Saudi has crude available. Now, SA has come out and said that they have crude available. They are telling the world - if you need crude, we have some. How long would it take for someone to come out and contradict their claims? All someone has to do is be turned away, and then Saudi's claim of excess capacity can be put to rest.

After all, people don't just sit around and wait for Saudi to offer them crude. It's a 2-way street. If Saudi doesn't really have crude, but are claiming they do, then it would be known in short order.


Well, sellers do not just offer oil for sale, they offer it at a price. Or, someone makes a query to Saudi and they quote their price. They ALWAYS have a price! So Saudi when Saudi says they have no takers for their oil, they are really saying they have no takers at their quoted price.

All Saudi would have to to in order to get takers for their oil, light or heavy, would be to quote a price lower than others.

Saying we have oil for sale but no one wants it makes no sense. It would be like the local Ford dealer saying I have cars for sale but no one wants them. If he makes the price right the cars will disappear from his lot in one afternoon.

Surely by now you must realize that Saudi, or any other OPEC nation for that matter, is never really up front with their reserves, their production, or their spare capacity. That is all a closly guarded secret. NOTHING they say can be taken at face value. I know because I worked and lived with them for five years (80-84) and I have a son who has worked for ARAMCO for the last 15 years.

All Saudi would have to to in order to get takers for their oil, light or heavy, would be to quote a price lower than others.

But why would they discount the oil, and risk the price falling? According to the article:

But he ruled out the idea of Saudi Arabia discounting its oil to sell more barrels. "We will not leave money on the table" for others, Mr. Naimi said.

I certainly see the logic of that. The price they are getting is good. Why start a price war? Or why let refiners fatten their margins? What I read them as saying is that at current market prices, they have more crude than they have buyers for it. If they were lying about it, crude traders would be aware of it. Having spare crude but no buyers is just not something that I think they can lie about in a worldwide, open market like the oil and gas industry.

Overstating their reserves? Sure, I can believe that they have overstated their reserves. But lying about having spare barrels for sale? They could only hide that until traders started calling them up.


It seems to me there are all sorts of ways in which the statement "we have oil for sale which nobody wants" could be misleading and unverifiable. Small amounts, short periods, wrong location ... the list is long.
Not to mention that it would be foolish for any buyer to come out in public and give the Saudis the lie direct.
Not to mention you would think refiners would want to fill up as much as possible since we are in the hurrican season.  Once those start taking pot shots at the coast, we're gonna need all the built up capacity.

It's interesting to read about building up inventories when CIO.com just had a 10 page article about how JIT inventory has created a highly leveraged overly complex supply chain that will collapse when sudden events happen.

They cite an earthquake in the late 90's that single handedly drove certain computer components up over 60% in under 6 mos.  It's telling that CIO.com would be urging the CIO's of the world to rethink how you operate.  I think this comes down to a tax issue.  If companies weren't taxed on inventory, they would at least not have a tax bill hanging over there head for planning.


In the past, OPEC has used its quotas to support prices. This has been challenging to maintain when prices were high, but they were able to pull it off. However, OPEC has always done this as a body, with announced quotas and some percentage "cheating." Even with quotas in place, countries have tried to cash in on high prices, and tried to spread the load to others when cutting back. It would be absolutely out of character (although granted not impossible) for one OPEC nation to unilaterally and silently cut back their own production in order to support world prices, especially given that quotas have been abandoned and prices are so high. You would see SA pushing for OPEC as a body to reinstate cutbacks as a group in any prior circumstance of oversupply. In 2001, OPEC nations even stepped out of OPEC to beg Norway, Mexico and Russia to share in the burden of supporting prices by also reducing production (with limited success).

I can't claim to know what's happening - none of us know for sure - but the concept of one nation voluntarily limiting its output to support high world prices, while all others produce full out, sell every drop and cash in big time is absolutely contrary to any practice followed before now. This is especially true considering the billions SA is putting into their fields - they need cash to continue to support these endeavors.

I do agree with you, RR, in that the world does seem adequately supplied right now, and that if a SA reduction in production (for whatever reason) led to buyers not getting necessary oil we would expect to hear about it. But I don't understand why this would come entirely out of SA supply, or why they would accept that.
Interesting article in yesterday's LA Times:

Running on Empty

Rising prices can force independent gas stations to sell fuel at a loss -- or lose business. Consumer advocates fear California's unbranded dealers could be wiped out, weakening competition.

It has some info on how the retail gas system works.  Surprisingly, among the "independent" dealers taking a bath are Wal-Mart and CostCo.  It's getting to the point where you have to be affiliated with a big oil company, or you're toast.

A suburban grandmom and her H1, from today's Washington Post

Colossus of Roads

If we are what we drive, then Mary Williams is a 3 1/2 -ton, 42-gallon, 6.5-liter turbo-diesel grandmom who wears pale pink sweater sets and houndstooth trousers from Brooks Brothers. If our vehicles are our defense against the world, she is armed and ready.

Definitely the epitome of what's wrong with the American consumer. Nevertheless, I feel sorry for her.
There's certainly a lot wrong with that particular consumer, but PLEASE don't generalize about all Americans based on one person's actions.

In fact, that article also makes it clear that many other people are offended by the sight of an H1, which is about the best evidence you could want that a significant segment of the American public has their heads on straight.

Honestly, I detest these "man bites dog" energy stories that focus on the people who persist in insanely irrational behavior but ignore the much larger number of consumers buying hybrids or simply abandoning trucks for more fuel efficient cars.

It's perfectly rational to generalize about Americans: we have 5% of the world's population but we use 25% of the world's energy resources.  And a great deal of that is sheerly unnecessary waste having nothing to do with survival.  We are greedy and arrogant and we will pay for that I'm sure.
I love all the talk about "we should do things like Brazil and become energy independent".  If we used as little energy per capita as they do in Brazil we WOULD BE energy independent!
You can generalize all you want, but if you only generalize, you miss the cultures and sub-cultures within the generalizatoin.

We have a distribution of lifestyles within the broad American context.  I think Lou's saying don't take the extreme for the mean.  And I'd add that when the middle moves they can follow the patterns established by early adopters.

... maybe the first hybrid buyer in the US was a enviro-techno-freak ... but once they saw it work more mainstream types followed on.

Don't forget that in America we have no shortage of fools. I wonder if she has borrowed money against her home to pay off her credit card bills? She is very likely going to pay for those $90.00 tanks of gas for the next 30 years. Maybe she'll get lucky and hyper infation will bail her out before the foreclosure.
As long as her wages hyperinflate (not too likely).
At the other end we've got the flexcar guys (nuts?) prototyping the opposite lifestyle.


Gas prices go down, she gets exonerated and the flexcar guys look silly.  Gas prices go up enough, and the guy with a bike and a flexcar membership looks pretty smart.

Look, I've enjoyed being an energy-sucking American as much as anybody.  I lived full-time in a motorhome for a while!  I commute 90 miles a day now, which is getting expensive, but is for now not negotiable.  Living closer to work would be inadvisable when the collapse comes, I'm in the best spot that I can manage with my limited $$ resources.
But the point is that we have made a tragic mistake by setting up our lifestyles in a way that is simply unsustainable.  We require too much energy to keep it all going, whether we drive hybrids or not.  Getting a few more MPG in a very small percentage of the vehicles on our roads will do absolutely nothing to slow the energy crisis.
I'll try again with what I, and others (Campbell, Heinberg, Kunstler, etc) see as the BIG PROBLEM.  Here it is again, please explain how this is wrong.
Our economic system, capitalism, requires growth.  Economic growth requires INCREASING energy supplies.  All the time.  So when energy growth stops, which is sometime right around NOW, our economic system MUST collapse.  At some point...
Do me a favor.  If you want to reply to this post, attend to this issue.  Or ignore the point I'm trying to make and go off on your own thing.  The point of my previous post was that 5% use 25% and that was, of course, ignored.  Let's discuss the important issues!
Why do you keep saying "our lifestyles" when I've got a Prius, and don't drive it most days ... I walk or take my bike.

... oh I see, when you generalize you can get mad at me too ... as if I was in a Hummer.  I get it.

You still use electricity that is generated in part by fossil fuels.  You still eat food which is grown by fossil fuels, much of it transported thousands of miles.
It's what I call "the myth of personal resposibility".  What we do individually will make no difference to the big picture.  Humans consume.  That's the way it is.  The only way to stop consuming and polluting the planet in the process is to die.  But people die all the time, and it makes no difference, there are more people replacing them and then some.
The problem is, of course, overpopulation.
And once again thanks for addressing the important points of my posts.  (That was sarcasm)  And thanks for saving the world by driving a hybrid....
I think you've set yourself up in a contradiction.

You say that we should worry about the 25% energy we consume, but also that there is nothing we can do about the 25% energy we consume.


You sound almost nilhistic.  The easiest way out of your delemia is to join the Hansonite Dieoff school of belief.  If you aren't familiar with Jay, check out his old site
http://www.dieoff.com  or his forum


(I hope the URL is correct for that)

I agree with you in many ways vis-a-vis growth and overpopulation. In fact, I anticipate societal collpase.  Having said that, I also believe it will be individuals who take personal action who will do the best with a bad situation.  I live in the boondocks and am doing what I wish society as a whole would do, eg., PV power, solar hot water, produce much of my food, heat with my own wood, etc.  However, because I do this stuff, I recognize:  First, the limitations of these actions. Second, the capital cost.  Third, that it required accepting a different reality and lifestyle. And, fourth, that I am still tied to fossil fuels.  Yes, I could live fossil fuel free but at more of a cost then I am willing to pay unless I absolutely have to.  I'm not really to hot to convert all my equipment and vehicles to run on wood gas nor am I thrilled about the time it would take to brain-tan deerskins for buckskin clothing.

I am not interested in trying to save a society I believe cannot be saved.  But, I sure as hell am going to take whatever action is necessary to save my own ass if I can.

Incidentally, it isn't that I haven't tried to save society.  For many years, I've written, posted and circulated any number of papers. I even did a tour of our place last year.  What I've found is that about 0.01% of people take the future seriously.  Now I usually only share new information and insights with one old buddy.
So what if "we" (to continue with your generalization) used only 15% or 20% of the world's energy, rather than 25%.  What if "we" reduced our liquid fuel consumption by driving only high-mileage vehicles (when we had to drive at all), and only consumed foods produced within 100 miles of where we lived, and maximized our household efficiency and consumption.  A lot of Americans do this already, but most don't.  There's a lot of fat to be cut.  If enough individuals did these things, it would make a difference.  But feel free to justify if it makes you feel better.

By the way, thanks for raising fuel prices and screwing up the atmosphere by commuting 90 miles per day.

This perfect coorelation between increasing energy usage and economic growth that you are promoting is an economic theory. Take it with a grain of salt. Look, global oil consumption grew dramatically for a long time. It has been on a gently rising plateau for the last 20-25 years (unlike the previous periods). Globally, economic growth has been strong. For the rich, the last 20-25 years have been outstanding. This period has been hard on the American working and middle class.Now we are entering a period of gently declining oil consumption. You are convinced that the sky will fall, because of your perfect economic theory. If you go by the trends, the sky is not going to fall but the American worker is going to feel like it fell.    
As profits have increased as a share of national income, the return going to workers has been in decline, falling from 58.6 per cent in the middle of 2001 to 56.2 per cent in the first quarter of 2006. Paul Donovan, a global economist at UBS, believes the negotiating position of US workers may have been weakened by globalisation, giving companies the upper hand.
"The US labour market may be tightening, but there is still an ample supply of workers worldwide, and this may be capping what domestic workers can demand," he said.


If you wonder why you don't feel like you make more money, aside from the inflation.

Oil is not same as all energy. The long range economic growth trend is dependent on the total energy use, the energy mix, efficiency and like. This is not a 1:1 relation between growt and energy.
Why do you say that Capitalism "requires" growth?  I've seen that stated a couple of times on this board (as if it is accepted fact), yet I don't see a logical backing for the statement.

Capitalism encourages the growth of enterprises (through capital investment), but is typically offset by the atrophy of less competative enterprises.  For example Toyota grows, GM shrinks.  textbook Capitalism, whether the number of cars beign sold increases, decreases, or remains static.

Why do you say that Capitalism "requires" growth?

Because it does.  :-)

Capitalism is a pyramid scheme.  That's the only way you can pay the interest - if the economy grows. More people have to keep coming in at the bottom to support those in the middle and at the top.

Debt-based money explained

The World's Biggest Ponzi Scheme

When in doubt bring out Ponzi eh? ;-)

Seriously, I think James Hamilton at Econbrowser has a pretty good answer:

Stormy, a while back you asked whether a market economy could be consistent with an absence of growth. I see absolutely no reason why not. Indeed, when we teach economic growth models, most of us start with the base case of an economy with no growth because that is an easier one to understand.

A zero-growth economy would of course allocate its productive resources differently than a growing economy, so many people would end up doing different kinds of work than they currently do. If the transition occurred very suddenly, no doubt it would cause significant economic disruption.

From this stream of comments

Who's in doubt?  Not me.  ;-)

Do not confuse the free market with capitalism.  They are not the same thing.

Capitalism is dead and gone.  The handfull of traditional capitalists in the world (gates, soros, ...) don't control much.

People just use the obsolete term when they want to pass on the complexity of a world managed by salarymen.

BTW, an economy in which generates nothing more than web pages and ring-tones may be a 'growth' economy, if people will pay for the product.
How will they pay for it?  Someone has to produce physical goods: food, shelter, raw materals to make servers and cell phones, the manufacturing equipment required to produce them.  

That is what many of us are oblivious about.  We think food comes from the grocery store, clothes come from Wal-Mart, cell phones and computers come from the electronics fairy.  

We are in fact dependent on the labor of those beneath us in the pyramid.  This is justified by the Ponzi scheme: eventually, the ones on the bottom will rise to the middle, at least, if not the top.  That makes its "okay" to exploit them.

But with a steady-state or shrinking pie, we cannot keep the Ponzi scheme going.  We cannot give someone a bigger piece without giving someone else a smaller one.  That's a seachange in the economy as we've known it.  

If I read you correctly you are going beyond a "no growth" to a "zero energy" economy.

It is true, when the sun stops shining, we are in big trouble, Ponzi or no.

If I read you correctly you are going beyond a "no growth" to a "zero energy" economy.

Not at all.

It is true, when the sun stops shining, we are in big trouble, Ponzi or no.

I don't think anyone would argue that.  But I'm not expecting the sun to stop shining.

However, our economy has been solar-powered for most of human history, and it did not allow us to live at  anywhere near the standard to which we are accustomed...even when there were a lot fewer of us.

Then we are back to timelines.  We have a very long time before we reduce ourselves to solar-only, and before we get there consumers can mass consume (increasingly energy-empty products).
A non-capitalist society can grow culturally in the sense that while cultural fashions shift (some styles going up, some going down) the residue of the past, the heap of cuneiform tablets containing Great Songs of the Hurrite People, can grow as long as there's room for clay tablets.  Artistic traditions to some extent trump thermodynamics.  (One might say that capitalists are artists that got out of hand, and peak oil will drive them back properly into the realm of imagination).
I sort of agree, but look at it from my post-capitalist perspective:  Every summer the discount clothing chains (Old Navy, Target) run dancing commercials to tell everyone what the acceptable style is for the year.  You wouldn't want to be out of sync in our post-caplitalist consumer society, so down to the store you go.  Pick up some consumer electronics while you're there.  It's all fun, everybody has a good summer, and the factories keep humming.

That is a mass-production, mass-consumption, market economy, but without the capitalists.

There's vast amounts of archaeological and anthropological evidence that humans living in absolute zero-growth society will put considerable energy into dance, song, music, decoration, storytelling, ritual - forever.  We're creative people, even in a non-fossil-fuel environment of evolutionary expectedness milieu.  There's no evidence these people were bored - even if a revolutionary generation of graphics chips wasn't being introduced by ATI and Nvidia every six months.
Yes, I agree with you there.  Once you're past the base of Maslow's hierarchy of needs, material goods do not equal happiness.  Indeed, there is growing evidence that the opposite is true: people who have a lot of money are less happy than those who do not.  Nigerians are the happiest people in the world, while Americans guzzle Prozac.
I don't set much store by those happiness surveys. In some cultures, like Russia, it's just not done to admit that you're happy. So Russians always come last. In Nigeria, by contrast, it's a terrible thing to admit that you're <not> happy.
I think he has the point that capitalism does not require growth per se. It can handle shrinkage, where some businesses will die out and some people will lose jobs, but the capitalism as a system will survive that.

The important point is that the free enterprise which (at least theoretically) is the basement of capitalism would allow some enterprises to die, while others that are more adaptive to current situation will thrive.

I see one of the reasons we are in for a quite rough landing is that we don't really leave in that free-enterprise utopia that we are supposed to be having. Our reality is in fact dominated by huge corporations and a government which acts as a little more than a service company for those same corporations. The mass of the people are reduced to "consumers" and "wage-earners", the adaptive fundament of our whole society is simply gone and lost probably somewhere in those full of hope 50-s and 60-s.

I disagree.  The essence of capitalism is not the free market.  It's the existence of capitalists - that is, people who make a living off charging interest on loans.  Money-changers, if you will.  

Islam permits commerce, but does not permit usury.  They make the distinction between the free market and capitalism, and, IMO, it's a useful distinction.

The ancient world frowned on usury because it was "unearned money."  You did not do any work or produce anything to get it, and a steady-state economy really can't support a lot of parasites.  And it would be extremely difficult for people living in a steady-state economy to pay back the loan plus interest.  Hence, usury was seen as evil - as bad as murder, according to Cato.

You are right about the distinction between capitalism and free market. What you are forgetting is that capitalists also live by the rules of the free market and are a subject of competition.

Yes, it is true that in a steady-state or shrinking economy the "parasites" will suffer mostly because they will not be able to divert that much of the value added by the "real sector". That's why I think the coming times will be particularly hard for the US economy which is turning more and more into a paper recycling machine each day. But what would this mean? When the economy goes into recession the lenders will be forced to lower interest rates, some of them (or most) will go out of business. If history is an example the economic activities will be "reordered" - the most necessary ones (food, energy) will survive and may even rise, the less necessary (services) will die out. Yes, capitalists will lose billions (maybe trillions) as most of the value they have jist on paper evaporates. But what is the problem? The system will not collapse irreversably. In the end the real economy will adjust (probably with government help finally) and the capitalists will follow for the next boom and bust cycle.

Of course if we learn our lessons we might reform the system to adapt better to a steady-state economy but I don't really see any TEOWAKI revolution throwing us from capitalism to something totally different and untested. Hope I'm not mixing expectations with hopes :)

In the long term, I have no idea what to expect.  It could be nasty.  High levels of civil unrest are bad for business, y'know?

In the short run, I'm expecting something like the Great Depression.  Everyone will suffer, but the poor will suffer the worst.  The wealthy will be able to buy up land, gold, etc., at pennies on the dollar as many are forced to sell but few can afford to buy.

That is if the free market reigns.  It may not.  The last oil crisis provoked a GOP president to enact wage and price controls.  It could be worse this time.

As Michael Moore has noted, Americans support capitalism because we think one day we'll be rich.  Once it becomes clear that the Ponzi scheme has collapsed irrevocably, they may swing left in a big way.

OTOH, if there's a slow squeeze, we may end up with a roughly steady-state economy.  I suspect it would closely resemble feudalism.

I suppose we will be lucky if we peacfully "swing left" in US. At least IMO the mixed capitalism-socialism model as implemented in Western Europe is much more sustainable in the longer run - providing for growth ($$$) in the good times and for social security (as well as for other "non-capitalistic" values) in less than good times.

The really nasty scenarios for the US downturn evolve around the theme of the government joining the corporate elites for defending the priviliges of the rich against the impoverishing populace (aka fascism). I'm still up in the sky about this - I see some worrisome trends but I see the oposite trends too. What really troubles me is the lack of real politic pluralism in this country - we are only having two (far right indeed) parties whose greatest difference is the ban on gay marriages.

As for the economic system - I don't think we're going to feodalism. There must be an enormous loss of human knowledge (nuclear war?) for this to happen. There is still plenty of energy around, and even using wind mills (forget nukes, which are my favs) in every economic arrangement there will be much more return on investment than from sole human labour.

When I say "feudalism," I don't mean we'll be dependent solely on human labor.  I mean upward mobility will cease, or nearly so.  It will become very easy to fall down the economic ladder, and very hard to climb up.  And it will be birth that largely  determines where you end up in life.
But what you describe is solely result of the need of cheap human labor. People were stranded to the means of production just because an upward or horizontal mobility would mean that the feodal would have to compete with others for human labor (and pay more for it). Then came the cheap machines and capitalism with it.

To some extent upward mobility is limited today too; as long as you can not become a doctor/lawyer unless you are able to afford the education. And after that you are being bound to pay off education loans, then mortages, probably child support etc. I think we are already bound enough in a more subtle way; for them to ask us being bound in a legal way (what feodalism stands for) would simply not be needed. But I would agree that this trend is set to harden.

But what you describe is solely result of the need of cheap human labor.

I disagree.  It's the result of a steady-state economy.  When the size of the pie is not increasing, you cannot get a bigger piece unless someone else gets a smaller one.  Which means the have-nots tend to remain have-nots.  

To some extent upward mobility is limited today too; as long as you can not become a doctor/lawyer unless you are able to afford the education.

Yes, and that is becoming increasingly out of reach for many.  The cost of college is increasing faster than wages, and there's much less government aid available.  Moreover, even if you do get the degree, it's no longer a ticket to the good life.  Doctors, for example, are being squeezed by HMOs, and no longer live the good life that caused every mother to want her son to be a doctor and her daughter to marry one.

There are all kinds of theories for why this is, but I think it comes down to the end of cheap oil.  Things changed at the end of the '60s/beginning of the '70s - peak oil USA.

I agree with that assessment, but will add this. Our population has been growing at just about exactly the same rate of GDP. The result is that for any one person it is a zero-sum game like a steady-state economy with steady-state population. It is effectively the same thing. The two congruent growing things merely obfuscates the fact.

That obfuscating fact along with mass media propaganda keeps most people bamboozled. With or without PO, the 1965 immigration law that opened the valve wide open was the change that effectively created the "new feudalism" of a lack of upward mobility - even with a degree to become a doctor. It boils down to the old saying of choose your parents wisely!

Capitalism could survive the end of growth...for a while. But I dont think it could withstand the perceived end of growth...too many people would walk away (and hoard, etc)
Do you have any money earning interest?  Are you a capitalist?
By the way, this is the mildest definition of "capitalist" that I've ever heard

It's the existence of capitalists - that is, people who make a living off charging interest on loans.  Money-changers, if you will.

In the good old days capitalists held the means of production, and used those to oppress the workers.  Now "capitalists" just buy stock or CDs, and let the salarymen run things ...

About half of American households own stock either directly or through a mutual fund.

I think the answer to both questions is yes for most of us.
Ponzi schemes can be very profitable if you get in early.  ;-)
Yes and yes.  Indeed, capitalism has been very good to me.  As has the Age of Oil.  I just don't think either is sustainable.  
Good thing that not all energy, nor all capitalism, comes from oil, eh?
total net energy per capita is what we need be concerned with.

total net energy is all energy left for society after the energy producers use their chunk

per is the demand per person alive

capita is how many people are alive

if net energy per capita globally has a meaningful decline (see Richard Duncan, Joseph Tainter), then capitalism is in trouble

You may remember that I ask people for their timelines, when they try to scare me like this.  It really does make a difference, not least because our ability to forecast our own culture and technology does not extend beyond a few decades.

Now, I'm quite ready to make and support the changes we need in the next 20, 30, 50 years .... but you get beyond that and you are writing science fiction.

Or worse, you are staying awake worrying about science fiction.

next 5 years, sooner if westexas is right
You said just above:

if net energy per capita globally has a meaningful decline (see Richard Duncan, Joseph Tainter), then capitalism is in trouble

For that kind of net energy decline to happen in just 5 years, I think you'd need not only every current energy development project in the world to fail, but also every current energy source to enter steep decline.  That's not reasonable.  Our energy sources are too varied and "asynchronous" for that.

   I can tell you the deepwater projects are not missing...

I don't entertain dor a minute they'll save the world but there is lots of it out there thats harder to find. These wells will produce for years and with higher prices they are profitable.

I don't understand why capitalism would be in trouble and not communism or another form?  When people are cold/hot/hungry/thirsty/pissed they want answers and the gov has to answer.  I agree odo five years is too short (and I don't want it so it must not be so :)


Islam permits commerce, but does not permit usury.  They make the distinction between the free market and capitalism, and, IMO, it's a useful distinction.

The ancient world frowned on usury because it was "unearned money."  You did not do any work or produce anything to get it, and a steady-state economy really can't support a lot of parasites.  And it would be extremely difficult for people living in a steady-state economy to pay back the loan plus interest.  Hence, usury was seen as evil - as bad as murder, according to Cato.

So what.  They still make money. From Wiki:  

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the fact that it is profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or Land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabaha. Another approach is Ijara wa Iqtina, which is similar to real estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).

So they don't call it interest, it doesn't matter what we call IT, I make a profit for letting you use my money for a time.  Funny how they still manage to get around their ideals in the Koran to make money.  Good ol greed.

FWIW Jesus Christ also preached to expel the commercants from the church (sp?), but the supposedly most Christian nation in the world (ours) happens to be the most commercialised too.

I think we are much better than they are in twisting values (more experience I guess).

It's not a question of capitalism.  I think it's more accurate to say that the global financial system in its present form requires growth.

Capitalist or socialist matters not, as long as followers of both philosophies use a fractional reserve banking system that depends on interest being made in the process.  If interest can no longer be made (i.e. in the face of global economic cotraction) the whole edifice comes crashing down.  I don't see any reason socialist or command economies of any stripe wouldn't be affected - they use the global financial system just as capitalists do.

Very true.  But even without the problem of the global financial system, capitalism is not sustainable.  There's a reason why, in the steady-state economies of the ancient world, charging interest on a loan was a sin.  
Absolutely! In an economy without significant long-term growth, there's a natural control on the devlopment of the financial system. When there is significant long-term growth, that control is disabled.
The Swiss domestic financial system can adapt (has adapted) quite well to a low/no growth situation. Utility bonds are a big item, IPOs are not. They went through WW II and a six year, 100% oil embargo without financial collapse. When I looked at the details of their financial markets, they seemed quite "quaint" and conservative. I do believe that capitalism can adjust to a no growth scenario. It will look different in details.
Good point. I was using much more stringent definitions of "significant " and "long-term".

This raises a basic question: with the E-ROI of wind at around 80:1, and solar around 10:1, and with plenty of wind and solar (US with around 3 TW of potential wind capacity, the world getting 10,000 human energy usage from the sun), why do you feel peak oil is peak energy?

Well, if "peak stuff" is true, wouldn't the increasing valuation of increasingly rare "stuff" represent "growth" in the strict economic sense?

Also, would Bill Gates growth rate have been appreciably different with a 10x increase in energy prices?

(The answer is no, hardware would have taken a more energy efficient path, but the software money (growth) would have been made.)

Thanks. Finally someone acknowledges the huge difference between energy consumption and economic growth. Look, Germany is down like 28% from their oil consumption of 1973. People are attributing to energy a lot of economic problems the USA is facing that have nothing to do with energy.  
I'm no economist, but it seems to me that increased valuation due to scarcity only represents growth of any sort if the "rare stuff" is a small proportion og the overall economy.  If that's the case, the increased value of the rare good can be transformed into an increased amount of general goods.  If the rare good underpins all others (the first-apprioximation case with oil) then any scarcity-driven increase in its value is reflected throughout the rest of the economy, thus negating any "real" growth.

Real economists may now feel free to roll their eyes :-)

If it was a small proportion of the economy, we wouldn't be worried.

Maybe it's big enough that the adaptation to a new energy economy will be a growth generator.

(I think that growth in a market economy ultimately comes from consumer confidence.  If everyone believed the Ponzi bogeyman we'd be stalled already.)

Good discussion, thanks!  But here's the kicker:  MONEY ISN'T REAL.  ENERGY IS.  Money is a totally fictional system where there is only percieved value, not real value.  The system works because everyone BELIEVES in it.  But energy is much more important.  And all the money in the world won't put more oil or natural gas or coal or uranium or water or copper etc. etc. etc. in the ground for us.  The good times we've had are BECAUSE of the enormous amounts of energy we've had available.  And water and copper etc.  It's all finite, and we must have the energy to get the other stuff out of the ground to make the stuff we need.  We're "running out" of the energy resources first.
A few words about my, and other's, "pessimism", or nihilism, whatever.  I think optimism is hoping for the best possible outcome.  But "possible" is the important word.  I'd like to see a wonderful future for the human race.  And perhaps some can emerge through the hard times to come and make that better future.  I don't claim to know what is going to happen.  But I am, at heart, a scientist, and I will believe in the "solution" as a scientist does, when the problem has been successfully solved.  Like Peak Oil, a "solution" can only be determined in the rear-view mirror, AFTER the problem has been solved.
"real" is a tricky word.

Money is 'artificial', it is a construct, it is an idea, a placeholder.  Political systems are 'ideas'.  Religions and Mythologies are ideas.  Are they real?  Moreover, are they important?

Money is real enough.  It represents labor value, material value, time value (ie, rentals), energy value..  somehow we decide and vary how each of these 'concrete-abstractions' gets weighed into a common monetary idea, and yes, these we allow to be part of our reality by accepting this structure in a communal pact, so we can all contribute, and we can all consume. 'From each by their ability, to each for their need'..give or take, and then.. 'Some are more equal than others', of course..

As with Politics and Religion and Science, Economics is its own culture of ideas that is built on top of a real and moving world, and needs to be adjusted to fit the changes every now and then.  So what is the difference between a cult and a culture? A community and a commune?  An idea and an ideology?  An author, an authority, and an authoritarian?

It would seem to me to be it's level of flexibility, how hard versus how soft, whether it's written in stone or in pencil?  Is it so adored or clung to that it will not get the breathing room to be able to change when it needs to?

Bob Fiske

..if I failed to address your more central question of the 'Hard Assets' like metals, energy, minerals, etc..  I guess I would just want to mention that, like hardware and software, the prevalent 'Ideas' of economics are 'what we are looking at', like I am looking at 'text and frames' on this screen. Virtual, but essential.  The ideas are what we have to organize and make sense of the hardware, and both will have to be understood and orchestrated throughout this transition.
Well, if "peak stuff" is true, wouldn't the increasing valuation of increasingly rare "stuff" represent "growth" in the strict economic sense?

I vote "no."  It would only increase in value if people could afford to pay for it.  And if most of the world can no longer afford to pay for it, there's no growth.

Also, would Bill Gates growth rate have been appreciably different with a 10x increase in energy prices?

Yes.  Because most of his customers would not be able to pay for hardware or software.  People would lose jobs, companies would go belly-up, few would be investing in computers.

Funny, I think a society structured for 10x more expensive energy wouldn't have a problem.  The problem isn't the energy level, it's the transition.

And given a comfortable timeline, the transition can be made.

(The computer industry would have just gone with slower clock speeds, more timesharing, and less moving parts.)

Perhaps we can adjust to higher costs, but it will be much more difficult to adjust to shortages.  How much will you be willing to pay for gasoline when you can't get any?  The price doesn't matter anymore, does it?
How much of a shortage and how soon?

That's where the rubber meets the road.

If somebody bombs Iran and they close the Straits of Hormuz somehow (easily, I'm afraid), I'm calling my oil heat guy for a fillup and filling my two 5-gallon gasoline cans immediately.
How soon would it be, without a political disruption, if we just waited for depletion and peak oil to make shortages?
Impossible to say.  The most likely is a continuation of higher prices, causing some demand destruction (mostly in the poorer nations), which leads to somewhat lower prices, then we use more, etc. etc.  Depletion will win in the "long run" of course.
I'm always suspicious when people demand a prediction.  I suspect it's because, when this percieved "prediction" doesn't pan out, it becomes an excuse to reject whatever the predictor says about anything.  I've observed this little human interaction many times.  Sad, really.
Gotta go burn fossil fuel so I can get to work and use lots of electricity!  Wheeeeeeeee....
I'm suspicious when people try to scare me:

Perhaps we can adjust to higher costs, but it will be much more difficult to adjust to shortages.  How much will you be willing to pay for gasoline when you can't get any?  The price doesn't matter anymore, does it

And then tell me it is really a vague future worry thing ...

If we are going to keep talking about growth, let's TRY to define a unit of measurement.  How about the craptacular GDP?  I know it's not accurate. Growth can be accounted for as a measure of income.  The reason we know the GDP numbers are so off is if you sell something and GDP increases, someone has to be paid.  So their is income.  Who tracks all the income in the country?  Yep, the IRS.  The IRS numbers do not jive with the GDP figures.

While GDP has been growing the taxes paid on the income made do not balance.  GDP = GNI (gross national income)  So how is this?  Either the IRS is wrong (hardly), or the Fed is lying.  Either way, someone's nose is far longer.

Who tracks all the income in the country?  Yep, the IRS.

I lost my copy of this year's directory. Can you remind me what they have for cocaine/crystal/heroin/weed-dealing, illegal-handgun sales, prostitution(that one is probably under "services"), payoffs-to-politicians, oh, and don't let me forget gambling. I don't need it all broken out, just gimme what they got for a total.

addendum: Drug companies to doctors. What do you think that runs?

Funny....Like I said, aside from all the problems.  We could go on and on about problems with ALL the financial numbers we are massaged with.
OK. I'll attend to the issue. Consider...

Case one. We build an extensive streetcar system in X. It costs $800 million. Employs hundreds. Changes the real estate market. Spurs renovation and renewal.

Case two. We build a sports multiplex for the football franchise in X. It costs $800 million. Employs hundreds. Changes the real estate market. Spurs renovation and renewal.

Case one is growth with a negative energy profile.

It seems simple enough to me. Redirect "growth" in public investment towards mass transportation. The capitalists will follow. We created the sprawl monster with the interstate. We can undo it with mass transit.

The first words in both of your cases are "we build".  Building things requires lots of energy from fossil fuels.  I'd love to see us try to build a mass-transit system in X, or Y, or anywhere using only the energy from corn ethanol and windmills.  Post-Peak we'll have enough trouble just building our outhouses...
"Peak Streetcar" happened between 1897 & the start of WW I. Some before and after, of course. Peak Streetcar was built with coal, horses and sweat as main inputs, just before the Age of Oil.
'Building things requires lots of energy...'

Sure it does, but right now, pretty much everything we do requires lots of energy from FF..  The question there is, can we start to use some of the Fuels available to us now, such that getting to work, getting materials shipped will, in the future require enough LESS of those fuels that we can continue using a (theoretically) dwindling or at least far more expensive supply to Continue to build more effective infrastructure?   Part of that build-out would naturally be developing systems to do the next generations of building using electricity, maybe biofuels.. IE, road maintenance equipment, excavation, demolition...>> and the wind, tide, solar.. whatever generation means we'd be getting it from.

When the doubters say how 'unrealistic' I'm being believing in things like this, I feel like the guy who's being told 'you'll never walk again'...  Oh yeah??

Years ago I watched a local skyscraper being built with electric cranes. A large percentage of construction power could come directly from the grid or from quick swap battery packs. Materials could be produced in electric induction furnaces, shaped using electric-hydraulic equipment, and transported on electrified railways.
"I'd love to see us try to build a mass-transit system in X, or Y, or anywhere using only the energy from corn ethanol and windmills."

A standard Hubbert analysis predicts that the depletion downslope will look pretty similar to the growth curve before the peak.  In other words, if we had 75% of peak oil production 25 years ago, we'll have it 25 years from now.

That means that there will be plenty of FF for critical functions, like investing in greater efficiency, between now and 25 years from now.  There may not be enough for lower income people to commute to work (which will involve very painful temporary job losses, relocation etc), but there will be enough for the essentials.

For the most part all said on this topic seems correct in theory.
Unless I missed it being said???
What happens when you want to eat? As energy depletes, so do the food supplies. After the depression (during as well) there will be a die-off of population. With the rise of anarchy groups will form for safety. We will wind up in a feudal system. Those in the US should have noticed by now that we have a KING and the LORDS that support him. They are dividing us with fear and it is working.

Food for the masses grows on land. That land is owned. Those that own the largest tracks of land are part of the ruling class. The ruling class has started their plan in motion and it will be complete when the global population is 10% of what it is now.

For those that are poor you will be killed one way or the other. Those in the middle will be the surfs. That is how group-think works. Simply repeat your mantra 5 times and most believes it.

Why do you think Halliburton is building camps all over the US?? Why are they building 14 bases in Iraq?? To dominate you need surfs. If you control most of the farmland (Monsanto) and your corporate attorneys have seats in the House and Senate all you have to do is wait. If you happen to be wandering around see how long it takes for you to be arrested! This whole thing has been going on since the beginning. Generation ally removed subjects in a class system and history constantly repeats itself.

Millions died over oil in WW1 then millions died over oil in WW2. Millions died over resources (land control and locomotives) in the Civil War. So with out listing all wars it is safe that they were played out over resources. Once you have less oil the basic fight comes down to food. If you don't own land you will not be able to grow food. Those in apartments, condos, town-houses and the like are the majority and they will starve.

See what I'm saying?

Is that so you can feel superior?
...And this from London, Englandland:

http://newsbox.msn.co.uk/article.aspx?as=adimarticle&ae=windows-1252&f=uk_-_olgbtopnews& t=4023&id=2955587&d=20060605&do=http://newsbox.msn.co.uk&i=http://newsbox.msn.co.uk/ mediaexportlive&ks=0&mc=5&ml=ma&lc=en

Spoof Parking tickets for SUV drivers.

However click on it and read the text. Nobody appears in a rush to give them up and an 'automotive arms race' appears to be happening.

What is worth noting is that in UK the price of gas is above $6/gallon and this doesn't seem to affet the SUV boom even slightly. This should ring some bell for the people that think that when gas hits $4 the world will end, suburbia will collapse etc. etc.

I have often thought that unless we get shortages or prices many times like these we will not get any significant change in the consumer behaviour.

Diesel SUV's are much more common here (UK) and thus fuel consumption of 30 mp(US)g is not unusual.  Even at current average price of $6.50 /US gallon fuel costs probably only represent around 25% of total cost of vehicle ownership.
Well, at $6.50/gallon, 30mpg (a little optimistic for an average IMO) and 200K lifetime miles the cost of fuel will be some $43K. For US this would be more like 35-40% of the lifetime cost of an average SUV, though I suspect insurance and maintainance would be higher in UK, driving it around 30%.

What matters more I think is that gasoline is dispersed over the whole lifetime of the vehicle and also people have the option of controlling it to some extent (by driving less for instance), unlike the cost of insurance which is fixed. Therefore IMO the cost of gas even at $6.50 has less weight than the price tag, the insurance and maintainance costs for the initial choice of the vehicle.

Average gas price here in the UK is now $6.80 per US gallon. Also 30mpg (UK) is 25mpg (US). (calculated here). Our gallons are bigger and better :)
LOL, didn't know that... my mind is still stuck in the metric system :) thanx
What exactly is an SUV "boom" over there?

Here's the US picture:

For model year 2005, light trucks are projected to account for 50 percent of all light-duty vehicles. After over two decades of steady growth, the market share for light trucks has been about half of the overall light-duty vehicle market since 2002. Most of this growth in the light truck market has been led by the increase in the popularity of sport utility vehicles (SUVs), which now account for more than one-fourth of all new light-duty vehicles.


Ethanol advocate Joseph Miglietta seems to changing his position lately. He is now making a pitch for "M85" - 85% methanol:

E85, M85, or Gasoline?


Perhaps he finally realized what a non-starter the E85 ethanol  scam really is, and is trying to changed his tune accordingly.
Yeah, his position has definitely evolved as a result of our recent debate. You could see him changing a bit with each succeeding post. But, now he has come to the conclusion that we have coal as far as the eye can see, so coal-based methanol makes sense. The one thing I pointed out in the comments was that the capital costs of coal-based fuels are up to 6 times higher than those from a conventional refinery.


Maybe we should all just snort meth and run down the freeways...  But seriously, folks, I work with Methanol and it is a poison.  Can be easily absorbed through the skin.  OK, gasoline isn't exactly good for us either, but there may be health considerations with having lots of methanol around.
Hello everyone,

I just spent the weekend in Minneapolis and thought I would share some thoughts in the light of PO and TOD discussions.

I rode the light rail from the airport into downtown. I was very impressed with it; nice, new and clean. It even had bike racks inside the train. I would certainly ride it. But one problem, the same I saw when I lived in Denver, it needs to be more pervasive. A single route from the airport to downtown only serves a small portion of people. Not the daily commuters. But over all, I was impressed and would like to see more.

I ended up talking with someone who had his masters in economics. I could not get him to say that there was a "finite amount of oil" in the ground. We need more geologist.

I spent Saturday night in the Uptown area. Great area. Plenty of nice places to live, and most all you could want or need in walking distance. I imagine I could catch a bus into downtown if I worked there. It's too bad we don't design our communities like this anymore.

I am still amazed at how expensive housing is. A small condo in the Uptown area was $200k. A house in that area would certainly be over $500k if not more. I have a good education and good job, but can not fathom spending this much for a 'normal' home. So if I moved there I would be forced to look out in the suburbs for some place I could afford and then drive to work. In that context one can understand why the burbs get built and people drive. It becomes about affordability any more.

Just some thoughts. Have a good day.

I ended up talking with someone who had his masters in economics. I could not get him to say that there was a "finite amount of oil" in the ground. We need more geologist.

This is funny. I'm sure he explained his logic, but just understand that he is talking in an Econ theory frame of mind.  We don't really know in all honesty, it's never happened.  But we've got all types of graphs to prove that oil will never run out in an "Economic Capacity."

Funny, I had a conversation recently with a geologist, and I couldn't get him to say that markets can allocate resources efficiently, promote technological advances, develop alternatives, etc.  We need more economists.

Sound stupid?  Of course it does.  Can we, for the love of all that is good in the world, stop painting with such a freakin' broad brush?  PLEASE???

I took the train-riding-economist to be an amusing point case.  And yeah, sure, if there are some fraction of real-world economists who miss that the globe has finite volume .. that's funny.

There are subtler distinctions of course, like the long list of possible hydrocarbon fuels, and the possibilities for getting each "on-line" in a convenient timeframe.

My appologies if that was too broad of a generalization. I'm not trying to offend. My only point was that it I experienced in person what I have read here many times, that many economist won't admit there is a finite supply.
No apologies needed. I think Lou was responding to Tate, not your original comment. Your post sparked this comment line, so you must be doing something right. I personally found it very relaxing, I'm not sure why. Poetic. Staring out the window of a train always does it to me.
I'd be happy if people didn't paint all of us that are concerned about PO as Doomers that hope for a massive die-off.
And I'd be even happier if people didn't characterize Doomers as "hoping" for a dieoff.  There's a not-insignificant difference betwen "expecting" one and hoping for it.
I'd be happier if posters didn't gleefully rush to put up every bit of bad news, giving it credit whatever the source or if they didn't say "I am looking forward to the end".

Sure there is a difference between thinking the future will be bad and hoping it will be, but there is a lot of overlap too. I think it is accurate to claim that many commenters are hoping for doom and see it as fair retribution for our evil lifestyles.

   Yes Positive Mental Attitude. I maintain no matter how bad it gets, I will still brew my own beer.  Didn't we bust some guy the other day with no response for praying for dieoff?


Yes. I'll take a beer and a smile over gloom and doom any day - even if it is the last one on earth. Fortunately, I think there will be a lot more days.
We non-doomers need a name. How about 'sane?'
A Lot More Days
It's much like the statistician who drowned in that lake with an average depth of 0,85 cm.
Oil will never run out. It will just get really expensive.
A small correction perhaps?

Hydrocarbons will never run out. Converting them to useable liquids will just get really expensive.

oil will never run out, but the ability for humans to refine it, buy it, anywhere any time at any price will end and in our lifetimes. (im 40)
I'm reminded of the old joke about economists:

A physicist, architect, and an economist are marooned on a desert island with a can of beans. The question was how to open the can. The physicist observed that the can could be placed on the fire. Eventually the heating of the can would create so much pressure that the can would explode and the beans could be retrieved. The architect thought that this would be a rather messy solution to the problem and suggested building a small enclosure around the fire. Then, when the can exploded, the beans would splatter on the walls of the enclosure, from which they could then be scraped. The economist had a better solution. First, he said, "Assume that we have a can opener ..."

There's also a variant joke about an economist lying on his deathbed and his last words are "Assume that all agents are infinitely lived ..."

Perhaps when a particularly silly free-market utopianism is suggested as a solution to PO one should post this:

in response.

:-) Long time lurker, first-time poster.

Economists mean well and I will agree with people who have problems with assuming things.  However it's just an effort to define what econmoists want to talk about and include as many variable as possible.

Think about it though.  There are good and bad doctors.  Economists that have the best assumptions and incorporate the best variable data will have more accurate results.  The challenge is to identify those people and when you don't agree figure out if you have the data to prove them wrong.

Don't get me wrong, I totally agree. I'm a student of political-economy myself and I think the assumptions of economic modelling have been a boon to social science. Economics is the queen of the social sciences for a reason.

But, like all scientific endeavors, what often happens is that these models get tacked on to political agendas with out any real thought as to whether they apply or not. Shock therapy, for instance, seemed to work well in Poland, yet was a dismal failure in Russia. Why? Because the conditions in Russia didn't warrant it.

Economics needs to be practicised like medicine -- broad theories, but policies tailored to what we see in each patient. If we gave chemo to every person with the flu and cough syrup to cancer patients doctors would be as well regarded as economists are today.

Peak Oil is one of these situations where the general assumptions of neo-classical economics might not work so well, suggesting some form of government intervention is appropriate. I don't know what those interventions might be, nor do I think intervention is devoid of evil consequences either, but relying on a model that is built on faulty assumptions to confront soemthing as big as the potential crisis Peak Oil could be is like betting against the House at Vegas. You make get away with it for awhile in the short run...but in the long run the House always, ALWAYS wins.  

Shock therapy was successful <for those who introduced it> both in Poland and in Russia. It had different aims. In Russia the aim was theft.
I was just an ignorant English major in school, but it has always baffled me why some Economist's graphs defie common sense. My best guess as to this example (an infinite supply of oil) is that (a) no one actually knows and (b) his model makes no accounting of earned return on investment and therefore he would rather ignore you or put you down than admit that no one knows and his modeling is imperfect. I just wish this wasn't so crucial an issue to the long term survival of our civilization.
Infinite supplies are assumed because economists think that as prices goes higher substitutes are developed and used instead of more of the good whose price has gone up. Thus the good in question never technically 'runs out' -- it simply becomes too expensive to use in any quantity.

This is all well and good, but the Walrasian free-market utopia that underlies all the simple neo-classical economic models you learn in Econ 101 and 102 are gross, almost criminally naive models that completely rest on heroic assumptions on what given markets actually look like. They completely disregard things like market failures, imperfect and asymmetric information, imperfect markets, and how government affects literally everything.

The world free-marketeers believe in doesn't exist because it depends on heroic assumptions. Thus the can opener.

Economists will never let reality get in the way of a good theory.
Unless they are guaranteed bailouts by the federal government of course.


Economics is indistinguishable from religion.  Just more numbers...
Well said, Prodigal Son, and welcome to TOD.
Assuming in b) you are referring to Energy return on energy invested, this refers to the assumption that someone will not use more energy to get oil than the energy in the oil. An example is the tar sands that require something like 2 Barrel of Oil Equivalent (BOE) for every barrel of production, so their EROEI is 0.5.

However many think this is a spurious concept as it ignores energy quality and its relation to economics- people are willing to pay more for higher quality energy. Thus if the energy required to process tar sands was supplied with, say, nuclear thermal heating (a waste product of electricity generation) it may be very cheap indeed, and yet the EROEI on paper would still be below parity.

SHifTY -

This question of whether EROEI is really the sole factor that should be used in evaluating various energy supplies has come up at TOD again and again.  

You are correct in that it is often the case that it is acceptable to suffer a lower EROEI, or even an EROEI of less than unity, in the interest of producing a fuel with a high 'form value', such as liquids capable of being used in an internal combustion engine.

However, having said that, it is also  my view that any energy source supply, or whatever you want to call it, cannot legitimately be considered a primary energy source if it's EROEI is at or less than unity.

Thus, in your example of nuclear thermal heating to facilitate the production of oil from tar sands, I would consider the enriched uranium in the nuclear reactor to be the 'primary energy source', and the liquid fuel extracted from the tar sands to be merely a 'product' produced by using the primary energy source.

 Or to take an extreme example, a AAA flashlight battery stores energy but it can hardly be considered a primary energy source or energy supply, for it is merely a product of energy expenditure far upstream of the battery itself.  

This may seem like semantical nit-picking on my part, but I think the distinction is an important one.
I will say it again: a primary energy source must have an EROEI of at least unity, preferably far greater than unity.


I think you are exactly correct (which may surprise you, given our prior discussions on this, more explanation in a sec'), and we should hope for a "double your money" that is, 2 to 1 on the energy returned for energy invested would be considered the absolute minimum with prospects for improvement at least being mathamatically demonstrable in the out front years on any newer alternative technology.

That last sentence is important:  The alternatives, many still early in the development phase, are at the front end of their EROEI curve, and should improve, while oil is now on the backside of it's EROEI curve, and will only get worse if all projections we are accepting are correct.  This is why it is very sad to see many promising alternatives dismissed and even put down by those engaged in EROEI frenzy.  

The other big thing that causes me to always be leery of EROEI numbers:

I don't think crude oil has EVER been correctly billed on the EROEI count if you take in all of the costs in energy associated with it's discovery, production, transportation, refining, and retailing.  People seem to see oil as some type of divinity fuel, and attribute EROEI stats to it that are debatable at best and outright misleading at worst.  

If you compare improving return alternatives with deminishing return crude oil which has never been slapped with all of it's associated costs anyway, the alternatives don't look so bad, and will only look better with each passing year.  

Roger Conner  known to you as ThatsItImout

You left out the substantial military costs (to the USA taxpayer).
BrianT -

Oh, I agree 100% about the substantial military costs. The amount of money we've already pissed away in Iraq (and with the meter showing no sign of slowing down) will probably never show a decent return in terms of the oil we HOPE we will secure.

However, these are primarily financial costs, rather than costs in terms of energy expenditure. It's bad enough, but I think it's best to count all the apples separate from all the oranges.

Not arguing prowar for wars sake, but even for all that expenditure is war not good for the economy? What is the ROI of Iraq...all the spending drives the economy doesn't it?  I know after every war we have a recession but for the now it is good somewhat?  I don't "get" economics I find it boring, someone with experience chime in please.
There is a PR machine putting out that argument but it doesn't fly. With this Iraq trip, I think the total so far is 500 BILL (I might be way off on this number). That would pay for railroads, etc. that would be a long term investment in the post-peak economy.
500 bill/300 mill americans

$1,666 each and much of the 500 bill is recycled into the economy.  More things purchased from american companies by gov. etc.  Not questioning tight wrong about the war just the economic impact.

For example ignore Iraq.  Lets say th 500 bill was on research for a mars expedition.  All that money spent breathes life into the economy.  $20 billion worth of widgets means x new jobs and x more hours overtime for employees at widget companies.  Share holders get dividends and increased confidence.  All those people spend more money.  Waitresses who get tipped more, spend more.  Explain to me how this is not common sense?  Again I know just enough economics to be vulnerable to "prpoganda"

mispelled propoganda sorry
More or less based on Keynes ideas. There are some discussions about Keynes. For some time already.

Let me give you a small tip: Suppose I buy a house for 100 k$. Next thing I do, I set it on fire. Then build a new one, for 100 k$.

Question: How much work has the economy done?

- About 100 k$

Question: How much wealth has the economy created?

- About 0 $

Something like that.

Ok I'll but that,

but how much wealth is created by anything people make or buy?  "They don't make'em like they used to...."

I only buy quality stuff...I have 10k worth of swiss carving tools and I can sell them for more than I have in them.  But clothes from abercrompie, plastic crap from walmart, food. what keeps its value other than a non burning house?  You can stimulate the economy by paying a whole bunch of workers to build roads we don't need or other large works.  They did that in the depression.  

You are making the assumption conquest/paccification of Iraq would hold no value.  I am not implying "mission accomplished" or that the value is there but a zero value tag is a bold statement.

And a house built for 100k has a greater value than 100k that is how builders make a profit, and why people burn their own houses.

So if I take an arab country, shock and awe it, then build a new one, Have I created any wealth?

You are correct in that the money doesn't vanish, so there is a positive spin-off effect. However, it is likely not the wisest use of the money as preparations for the post-peak economy will require a lot of guv funding (IMO).
Consumer spending is 2/3 economic growth.  No I can't site articles...it's called college textbooks.  I can't remember how gove't spending or business spending is divided between the remaining 33%.  

MASSIVE gov't spending will PULL the economy.  Even if they have a smaller piece of the input, they will spend so much money(500B) and it has to find pockets.  In pure economic terms the last five years have been spectacular expecially when we were in the beginning of a bear market downtrend.  Then 9/11, blah blah blah.  In the end gov't spending is good speaking purely economic.

ThatsItImout -

I too have always held that the true cost of crude oil has never been fully accounted for in its apparent price. So much sunk infrastructure has been accumulated over the last hundred years that much of it has been taken for granted and has become more or less invisible to the general public.

Arguably, a large chunk of the cost of our Iraq debacle should be allocated to the cost of crude oil, for if we didn't need to secure more oil, there would be no rational reason for us to undertake such a costly adventure. One could also argue that a certain not insignificant chunk of our military expenditures over the last four or five decades should have been allocated to the cost of crude oil.

I also firmly believe that the financial and energy returns on renewables can only improve, while that for fossil fuels can only get worse. Once much of the renewables production and installation infrastructure becomes better established and absorbed into the mainstream of commerce, I think we are going to see unit costs for renewables come down.

"..to see unit costs for renewables come down."

That's where I am pretty concerned.  I do believe we can and eventually will see a radical ramping up of Renewable MFG capacity.. right now PV is stalled on a Polysilicon bottleneck and a historical challenge to make appropriate long-term contracts for it.. but even as production grows and improvements surface, the demand will also likely be rising astronomically, and also, of course, the energy costs of making it.  Even if it's a hefty investment today, I think the sticker-shock can only get worse from here on in, depending, of course partly on whether oil does a 'plateau' or a 'dropoff'.  If that's the case, it might be a useful investment to grab some now, while it's still 'low', and if you have anything to 'grab' with..

PV's came steadily down from the 80's to 2004, and then the dip inflected and has been rising since.  (sorry, couldn't find the link to support that, but I'm pretty sure of it.)

..and China may be where your new panels will be coming from..

I just got a decent deal on a small PV backup package for under $4.40/watt (HarborFreight Tools, 45watts @ $199.00 incl chg controller and 2 5-watt CFL's).. and just remembered that this hardware had 'China' stickers on it.  Spice trade lives on..

Shawnott, I used to live in the uptown neighborhood of Minneapolis. The lakes and great environment make it expensive - there is no way around it. I avoided that problem by renting and having roommates. I loved living there. I was just one block from Lake Calhoun.

Anyway, you may want to consider St. Louis Park, just off to the west a few miles. Biking into uptown is easy, and it's a quick drive if you want to do that.

To be honest though, if those prices make you balk, you will have to go quite a long ways out into the exurbs to get something significantly cheaper.

Were you there for an interview? If so where is the job located?

I was there for an interview and the job would be downtown. I am still just amazed at how people are affording such expensive homes. I have an MBA and work in corporate America yet I am still looking at the lower end prices. I was looking at renting a small studio or 1 bedroom in that area.
You'll probably get a few replies on how people "afford" such homes. Beyond the 20 somethings, though, uptown really is a wealthy neighborhood. Lakefront property on Lake Harriet and Calhoun is the premier urban space in the Twin Cities.

Bus service from uptown to downtown is pretty good, you zoom right in on Hennepin Ave. If you're into theoildrum "community" perhaps a smallish space is what you are looking for anyway. Personally I'm glad that I can fit into a 400 sqr foot space if I need to and I wouldn't mind it at all. With 3 roommates and dividing up the square footage of the apartment my share is about 250 sqr feet.

If you think Minneapolis has expensive housing, try Chicago. Half a million for a single family home would be CHEAP! And a quarter-million for a condo is also dirt-cheap. But to get a 30 year fixed rate mortgage you would have to be making BIG bucks. Who is buying this stuff?

More and more people are resorting to increasingly dangerous mortgages to buy anything. The latest abomination is the interest-only fixed rate mortgage. It's an attempt to keep it from blowing up in the homeowner's face like an ARM. But after some time like 5 years, now you get to start paying principal - and unless your income climbed, you must sell or move, lest that invisible car bomb the bank parks in the garage explodes in a foreclosure. These crazy mortgages is damn near like letting al Quaeda park a ticking car bomb in the garage. Those crazy mortgages should have been made illegal in the first place. Now, a weapon of mass foreclosure is ticking away with all those ARM bombs.

Slightly off topic from the above comments.. but
Was wondering about heavy and light oil. What's rougly the difference in the amount of usable fractions that result from fractional distillation/cracking heavy and light oil.
Quick question:

What plants are good at tying carbon back into the soil, or failing that, at least removing it from the air?

My gut feeling would be trees.


(I ask because I'd like to do a little more to offset carbon pollution/depletion that will definitely rise due to coal power plants and/or ethanol production)

There are lots of links out there on "carbon sequestration"

Basically a tree is a good carbon sink as long as it stands.  When it falls it may rot and return to the air.  That depends on the environment it falls in.  Bogs and swamps are great for preserving dead wood, arid environments are much less so.

... and of course if someone burns it, you are back to ground zero.

Ah, that's the term I was looking for, thanks!
Trees used for lumber & fine furniture can sequester carbon for several centuries. The rough estimate is that a fine black walnut tree (they use chemical warfare against others) will take alomst a century to be harvested (producing nuts in the meantime) and half of the carbon will end up in a high value use for another 200 years give or take. I am a member of the American Chestnut Foundation (two Nobel Peace Prize winners on the board) that is gettiung close to reintroducing a fast growing, high value tree with excellent nuts. There is little that you could do to reduce GW more than helping TACF. http://www.acf.org/
Large, fast-growing plants, I'd say.

More important is what you do with them. Once fully vegetated, carbon just keeps cycling. Wood can be stockpiled or used as building material, sequestrating carbon for decades and even centuries for a well-built house.

Certain mosses in swamp also build up peat if the conditions are right. That can be used as fuel as well, should that be opportune within a few centuries.

I am suddenly smitten by a REALLY great idea, the kind that jolts me upright in the middle of the night.  How about sequstering carbon for not just hundreds but for hundreds of millions of years-- by leavng the coal in the ground.  Wow! Nobel prize, here I come.------No? Gee, don't see why not.
See, that's what the dinosours thought, when they started sequestering all that coal ... maybe they started too late.
Report by Professor Kemp on impact of additional taxation on future oil / gas development prospects in UK N Sea: http://www.thisisnorthscotland.co.uk/displayNode.jsp?nodeId=149212&command=displayContent&so urceNode=150624&contentPK=14589965&folderPk=85744

Prof Kemp also said that, if the oil price were to fall significantly from its current level of more than 70 a barrel, then he would push for tax changes to prevent a steeper-than-predicted drop in production in the coming decades. He feared that many tiny fields may never be developed if tax rates were high at a time of lower oil prices.

Even at $70/bbl operators are reported to be having second thoughts re developing increasingly marginal UK fields - I suspect that energy economics are playing a part here given high embodied energy required for major infrastructure projects in the corrosive N Sea environment needed to support such new developments.

The size of a typical new field is likely to be quite small - less than 20million barrels of oil equivalent. To develop this number of fields will require cultural and behavioural changes by operators and contractors, said the authors.

Again yet another reference as to just how far discoveries in N Sea have slipped from the peak discovery year in 1973.  Forties (2.8 Gbbls) was discovered in 1970 but there's only been 1 discovery over 500m bbls in past decade (Buzzard at 550m bbls).  And yet, even with size of discoveries now sub 20m bbls there are still some who believe the downward trend can be reversed.
This morning the WSJ has an ABSURD article about Saudi production (as someone mentioned earlier)...

I paste it in its entirety here because it is a totally ridiculous, contradictory article and want to see what the peanut gallery thinks about what this disengenious item... My question is if crude prices are 70+ bucks, that means high demand right?! How the hell can this article state with a straight face, without questioning, that Saudi is lowering production because of "lack of demand". Do they think we're all fools? I guess they're hoping people on Wall Street are...

"Saudis Cite Market Forces
For Lower Crude Output
Kingdom Denies Any Effort
To Curb Global Oil Supply;
Stores Are Near Capacity
June 5, 2006; Page A3

CARACAS, Venezuela -- Saudi Arabia's oil minister confirmed that his country's massive crude-oil output has declined in recent months, but he attributed the trend to a drop in demand and denied the kingdom is aiming to limit supply.

In an interview after a meeting here of the Organization of Petroleum Exporting Countries, Ali Naimi said other cartel members are having trouble finding buyers for all the crude they are producing, at a time when global stores are near full and many refiners have closed facilities for routine maintenance. One Saudi official said an estimated three million barrels a day of refining capacity is out of action and unable to process crude, at a time when the world is using some 84 million barrels a day of oil products like gasoline and jet fuel.
[Ali Al-Naimi]

"It's not just heavy oil. Even light oil is having problems" finding buyers, Mr. Naimi said, referring to premium grades of crude known as light crude that are highly prized by refiners because they have high gasoline yields.

Asked if the kingdom was easing up on supply because of concern about the buildup of inventories in the U.S. and other importing countries, Mr. Naimi rejected such a motive, replying: "At $70 a barrel?" Mr. Naimi suggested that producers will sell all the oil they can at such high prices.

The implication of Mr. Naimi's remarks is that Saudi Arabia would again open its oil spigots when buyers ask for more oil. For the past two years, the Saudis say, their policy has been to sell as much oil as buyers want, to the limit of the kingdom's production capacity.

U.S. benchmark crude for July delivery settled at $72.33 a barrel, up $1.99, on the New York Mercantile Exchange Friday. So far in 2006, crude oil is up $11.29 a barrel, or 18%, and the price has more than doubled since the end of 2003 due to rising global demand and supply constraints.

The Saudi minister said the kingdom's oil output fell to 9.1 million barrels a day in April, the most recent figures available. Saudi output averaged nearly 9.5 million barrels a day in the first quarter, according to data compiled by the International Energy Agency.

The Saudi oil czar shrugged off concerns about large inventories, a trend that some in OPEC have cited as warranting a cutback in production. Mr. Naimi said producers must focus not only on stockpiles but also on spare oil-pumping capacity world-wide. Because there is little extra oil that exporters can produce, oil held in inventories can act as a cushion against supply disruptions.

But he ruled out the idea of Saudi Arabia discounting its oil to sell more barrels. "We will not leave money on the table" for others, Mr. Naimi said.

Saudi Arabia prices its oil according to a formula that takes into account prevailing prices on futures markets and on refinery margins -- or the difference between the price of crude and the price of crude-based fuels -- in different regions. It adjusts prices monthly for America, Europe and Asia. Many other exporting countries follow the kingdom's lead. OPEC's members assert that by basing prices on futures markets and on refining margins, they in effect let markets set the price of their oil.

With prices near a nominal high -- though still shy of highs reached in the early 1980s when adjusted for inflation -- OPEC's ministers on Thursday brushed aside a proposal by Venezuela to trim output and decided to maintain current output quotas totaling 28 million barrels a day, excluding Iraq.

OPEC and industry officials say the cartel's output is currently below that. In part that is because of supply shortfalls in Nigeria, whose production has been hobbled by political violence. But cartel officials say the production shortfall is also because Saudi Arabia and others in the cartel are encountering problems selling oil. Buyers have cut back purchases from other exporters, including Iran and the United Arab Emirates.

Iran's response has been to keep pumping oil and storing it, some of it in tankers, while it looks for buyers on the spot market. Some industry estimates put the oil Iran has stored in the past six weeks or so at more than 20 million barrels.

A senior Iranian oil official attending the OPEC meeting confirmed that his country, OPEC's second-largest oil producer after Saudi Arabia, was having trouble selling heavy oil and was storing it. But he didn't specify the volumes involved.

In contrast, Saudi Arabia has reduced output to match demand for its crude. Saudi Arabia sells oil exclusively under long-term contracts with buyers that have some latitude in deciding how much crude to take every month at the prices specified by the kingdom. "We don't sell on the spot market," Mr. Naimi said."

mr f
I couldn't resist, after hearing that the WSJ, one of the few respected business press organs left, was publishing an article described as
"ABSURD, a totally ridiculous, contradictory article".  That was news in and of itself...you then asked for imput from  "the peanut gallery" as to what we think about what this "disengenious item..".

Despite your cool headed and unbiased portrayal of the article in question, I wanted to read it for myself, so thanks for the full extraction.

 So I read it.  I must say, I may differ with it on some points, but....."ABSURD, a totally ridiculous, contradictory" article, in viewing does not describe the article I read.

This to me, is the problem with assuming the world is coming to an end, and then further assuming that anyone who does not share that view are "fools".
Despite the belief by many here on TOD, the rest of the world still considers "Peak Oil" an open question, and even more so, the belief that the U.S. and the world are due for an immediate and total meltdown and cultural/economic/social collapse is greatly doubted by many.

It is imperative when becomeing "Peak Oil Aware" not to become "world unaware".  The Wall Street Journal is not dieoff.org.

Now to touch a few other points...in your intro you say...
"My question is if crude prices are 70+ bucks, that means high demand right?!

Possibly, but not always.  The price and the demand can become divorced, with fear acting as a motivation.  The Iranian situation, the Nigerian situation, the Iraqi situation, are all causing prices to rise, whether or not demand is rising.  Worldwide, the OPEC ministers, experienced as they are, know that price increases do cause demand destruction.  Since OPEC HAS NEVER said that they are having any problem on the supply side, to suddenly say now that they are cutting supply because they simply can't make the production would be contradictory.  Only one other reason would exist to cut supply at these prices, and that would be to drive prices even higher.  The conspiracy theorists may see that as the real story, and of course, the Saudi's would deny it, whether it were true or not.  Of course, with the higher price, demand destruction would set in all the more, so that has limits.

Remember, Saudi Arabia does not accept "Peak" oil in any near term scenario.
If they are lying, then one would expect them to keep lying.  If they are being honest, but are ignorant, one would assume them to remain ignorant until the facts hit them in the face.  If they are telling the truth and know what they are talking about, then TOD will become like one of those "Y2K panic sites" of 1999, the prices and supply of crude oil will return to balance, and we will only have to worry about global warming from the massive trucks and SUV's which will rebuond in popularity.

It is IMPERATIVE to remember that it IS ALWAYS POSSIBLE TO BE WRONG.  Peak oil may already have occured and we just don't know it yet.  It may be just occuring 15 minutes ago or, with only a small adjustment in the numbers we premise the count on, it may not be here until after 2020 or 2030.  We really just don't know.  

Several paragraphs in the article had the absolute ring of truth because they comported exactly with human nature:
"Asked if the kingdom was easing up on supply because of concern about the buildup of inventories in the U.S. and other importing countries, Mr. Naimi rejected such a motive, replying: "At $70 a barrel?" Mr. Naimi suggested that producers will sell all the oil they can at such high prices.

I had to love this line:
But he ruled out the idea of Saudi Arabia discounting its oil to sell more barrels. "We will not leave money on the table" for others, Mr. Naimi said.

But your implied question still stands:  If there is plenty of supply, (as the article implies) and softening demand (as the article seems to imply) why is the price still holding at $70 bucks plus?

It must be one of the below:
(a) Fear
(b) Rampant market speculation
(c)  The energy yield on oil is declining
(d) Mr. Naimi is wrong, demand is not softening, and he and OPEC have miscalled the situation
(e)  Mr. Naimi is wrong, and supply is not able to increase to match growth, and either Mr. Naim and OPEC doesn't know it yet, or can't say it.

Which is your bet?  Some combination of the above?   It's your money.

My bet?  a and b are contributing factors, but my guess is that demand really is softening more than many people realize, and a certain amount of "fuel switching is already underway (to natural gas and propane) where it can be done, (much more readily available for transportation in Europe and Asia)
and the OPEC gang see a great deal more of it in the  coming in the wings  (ala 1980-1982 period) and scared to death of a price collapse.

Natural gas and Propane have remained surprisingly cheap.  The weather and the hurricane season will mean everything on that.

Crude oil price has remained surprisingly high.  Only two factors really explains why there has not been a correction in price, at least temporarily:
1. FEAR. 2.  And the production decline in the North Sea.

  Just as OPEC was caught off guard by the rise in North Sea production in the 1980's, they may be underestimating the effect of the decline of the North Sea this time, and leaving us all short.  Europe will soon be storming the gates of the world oil market.  Is OPEC ready to fill the giant North Sea gap, or do they think the Brits and Norwegians are blustering when they say they are peaked?  Time will tell.

I have said before, and will say it again:  About $120 dollars a barrel for crude oil is the absolute top, and that is not sustainable for long.  At that price, the efficiency/conservation/alternative methods make sense and kick in all over the world.  Sustainable top, given the technology we have now and the economic structure we have, is not much over $100 per barrel.

This means that at $75 dollars a barrel, we are closer to my projected top than we are to the historical mean line.  In other words, anyone buying oil futures at above $75 dollars are buying the foam on top of the beer.  The big money has already been made in this cycle.

But, as we said above:  I could be wrong. :-)

Roger Conner  ThatsItImout

When the hurrican'(thats pronounced hur-ih-cun) comes, none of a,b,c,d will matter.  Then again that has nothing to do with SA, but everything to do with PRICE.

thanx for the reality check, I always appreciate when someone takes on this rather unpopular task. I also have that gut feeling (because of the lack of sufficient hard data) that demand is softening. We have a little US-centric view, but 70$/barrel seem to be already much too much for developing countries like China, India etc. and seems to be also a clear sign where things are headed for everyone else but US.

I suspect that especially China with its stunningly controllable economy now is being able to restrict its demand and has acted as a "swing consumer". The other sources of demand softening I see in Europe and East Asia, which (without ever openly admitting about PO) have been investing in fuel diversification for many years - biodiesel, NG, propane - all of these are significant on these markets and are bound to grow. Obviously we are seeing the first fruits of this policy now.

What I think we should actually fear is a sudden glut on the market, which may reverse this trend which is great even only from a climate change perspective. IMO sustained high prices is the best thing we can hope for. Luckily here OPEC's and our long-term interests are intersecting. Therefore I also accept the article (ok, for the most of its part), even only because of the fact that a geologically driven decline of 400 kbd. in the course of several month seems too unlikely.

Sure. These high oil prices are just kicking the crap out of China. Keep telling yourself that.
I don't need to repeat this to myself, as it is obviously a truth. It is enough to take a look at what China does on almost any direction that would promote its energy security - CTL, renewables, nuclear, long-term contracts with places all around the world etc. etc.

China is obviously not in the comfortable position of US just to borrow (or print) the money it needs for its energy imports. Another often forgotten point is that its internal fuel consumption is heavily subsidised (by some 80% AFAIK), which on 6 mln.bpd. (and growing) would present a rather unpleasant bill to its government (about $10 bln. each month). I would hardly call this money "peanuts" for a country that has still 1 bln. people below poverty level.

I think Brian's point was that with 10%+ growth in GDP and household income, 18% in value-added of industry, and $900 billion in reserves just sitting around, China aint hurtin'.
If $120 is the absolute top (personally I think this is nonsense), then the global economy has no long-term worries. The USA economy (mainly working and middle class) has some major problems up ahead. Hopefully you are correct in your optimistic forecast (I have no idea how you arrived at these numbers).
Personally I agree with him - not necessarry with the exact price tag but that there will be a cap for a sustained price - yes and yes.

Consider what a sustained price above $120 would mean (in 2006 dollars, let's put aside dollar collapse scenarios in which $1200/barrel is perfectly OK).

First of all the whole third world, and half of those in between will be bankrupt. Countries with weak economies will be in a total anarchy not being able to pay for the oil and will start collapsing much like Cuba did.

The rich guys (us) will be just a little better off descending into a stagflation induced depression, thus dampening demand to some extent. They will also need to fight the crowds of people now overwhelmingly pressuring their borders, as well as their internal upheaval.

After some extent there is simply that much that you can pay. If all landlords in your country raise the rents above $1000, and you earn just $1100 and no better job is available you either have to go on the street or stop eating. So after some price the alternatives, whatever they are are becoming more attractive (staying homeless in this case).

in 2006 dollars, let's put aside dollar collapse scenarios in which $1200/barrel is perfectly OK).

Gotta love an Econ POV with all the assumptions.

You should reread Roger's post. He was advising against buying oil futures when the price is $75 as he feels it is close to the ultimate high of $120. In the futures market, the relevant values are nominal values. Obviously one of the main reasons I and others feel $120 is low is because of the structural problems of the US dollar. In this case, "real 2006" dollars are irrelevant.
Now, there's a good question, "peak oil price". When a resource peaks, price takes off like a rocket plane, but it can't go to infinite becuse either substitution occurs (normal theory) or hardship just shuts down the economy. I guess it would have to be measured in either inflation adjusted money or unit calories of food - the mother of all modes of measuring value.
Be careful here, mr. f.

Saudi Arabia may very well be able to say, with a straight face, that demand is down. The problem is what demand? Saudi Arabia has a significant amount of light sweet crude but they are also saddled with a large amount of heavy sour crude that they can't sell because so few countries have the facilities to refine it.

Thus, when they say demand is down. Note that they started the article trying to throw sand in your eyes about the light sweet vs. heavy sour issue. Light sweet demand is not down and the proof is in the consumption numbers elsewhere. But having issued this obfuscatory message, they can then delve into other aspects of lowered demand without ever directly answering what it is they are reducing in production. I would bet that if they actually published numbers of light sweet vs. heavy sour, we'd see declines in heavy sour first and perhaps exclusively.

Never thought I'd be hoping for a good El Nino...
Thanks for the web site address I had lost it, however be aware these are surface temperatures. They are not total ocean energy per area. A few days of calm seas and clear skies can raise the surface temperature considerably and also a few days overcast with high sea state can reduce the SST all though it does add to the overall ocean energy. Tropical storm intensity depends on total ocean energy among other things and not just SST's. BTW the white areas are overcast and the surface temp's are not available. The true ocean energy cannot be measured for an area accurately by satellite IR.
Someone has rated US cities for "sustainability" if anyone is interested.http://www.sustainlane.com/article/895/
I've heard that the current price of oil in the commodities futures markets is less than the future price of oil, a condition referred to as 'contango'.  Further this is a recent development as oil has historicaly been in 'backwardization', the opposite of contango.  In backwardization, oil in a tank is a declining asset.  It then makes economic sense to keep that tank empty.  In contango it is an appreciating asset and it makes economic sense to keep it full.  Perhaps the reported high inventories in crude oil and petroleum products  are just reflecting this shift in the futures market rather than any supply/demand situation.  Does this make any sense?
Perhaps Westexas can chime in on this topic.  I have heard of contango before but don't fully understand the concept.  It sounds very important to the debate since the early period of peak oil is mainly one of how financial market react to the peak, plateau and then early decline.  We are seeing some new, seesaw action in the markets and having a good grasp of the financial ramifications of this period of oil production would be very interesting.
its not as simple as that. if you look at the nymex website you will see that there are monthly futures prices for each month from july 2006 through december 2012. the futures price gradually increases until a peak in April 2007 (contango) and then declines from May 2007 until 2012 (backwardation).

There isnt a meaningful spread between these prices - its not like it used to be when forward prices were $20 and spot were 10 or 40 depending on the circumstances. Now pretty much everythin is between $70-$75 so I wouldnt read much into the disparity. Whats MOST important is that 5 years out prices are still this high. What will be the biggest signal that the big boys understand and agree with peak oil is if 5 year out futures are higher in price than current prices plus interest.

But from the point of view of someone with tank storage, would not just the near term contango be relevant on the pressures to move current inventory?
yes - but only a small % of ultimate purchases/sales are with people that have long term tank storage capacity.
A wise person once told me that everything one says should either be intelligent or funny.

This post by Matt Savinar (known here as AlphaMaleProphetofDoom) is both intelligent AND funny.

And very relevant.

oops. doing too many things. here is the correct link to Matts post on relative fitness on LATOC. I am quite sure he didnt come up with all those NYMEX prices.
Even though I your link took me to the wrong site I was looking over the Nymex numbers for 2012 contracts.  I'm not very familiar with the futures market and ALL the implications, but is it correct that for a delivery of Dec 2012 I can purchase the contract @$66.48?
yes, you can. you will need to post in $2,500 in margin and will control 1,000 barrels of light sweet crude oil.

In my opinion this is a great INVESTMENT, but will be (significantly?) under water at some point between now and expiration due to demand destruction at the marginal barrel. However, I am long these contracts and have been for some time because I am not smart enough (yet) to know when this point will be.

Essentially, if you are comfortable ponying up more margin if the price does go down at times during the intervening 6 years, then its a good investment. But what if there is large earthquake, war, bird flu, etc that crashes world demand?/? oil could go to $20 even if its peaking.

I know many here have heard of Blackwater USA.  This article is facsinating and details how in this country, New Orleans, we had a private army running around.


MAASS: YOU'VE WRITTEN that the Department of Homeland Security plans to keep its contract with Blackwater for two to five years. What are they supposed to be doing?

Scahill: THAT'S A very good question. We don't know at this point, and one of the reasons that we don't know is that not even members of Congress can see these contracts. We were able to get about four months of Blackwater's contracts, but that's only because of the uproar that was created by the presence of mercenaries on the streets of a U.S. city.

Does anyone else get irked by the blatant abuse of power?

Prisons is another area that is increasingly privatized in the USA. So far law enforcement (FBI, local cops) is still run by the guv. So far.
Don't get me started on the prisons...
You have not seen the rude "Blackwater" thugs we have in New Orleans ! Where a big chunk of our FEMA "help" is going to. I understand that they contribute well to the Rs.
I figured I could name drop your town and you would have some info.  Have you any experience with these "thugs."  In the article it made is schockingly clear...in N.O. they have been DEPUTIZED!  They are in affect the deputy, only they don't answer to the Sheriff.  How screwed up is that?
I posted my remark before noting yours. My personal experience with Blackwater ? I was attending a planning conference at one of the downtown hotels on Canal. Took the bus down and was entering as I normally do through the driveway entrance (saves walking around the block). I was accosted by one of the Blackwater employees. "Hey You, you can't walk here. It is closed". "I am going to the conference in the hotel" and gestured towards the entrance perhaps 30 feet away. "This is closed for security reasons" As he got in my face. "OK, but I don't see any cops". As I continued onward towards the other entrance. "We ARE the cops" as he pulled by arm and shoved me back the way that I came. "Go that way". Menawhile all sorts of cars & SUVs were dropping people off at the entrance that I was denied. "Little Nazi" was what I thought as I went out of my way. Meaningless "security". A waste of money. To keep people from walking in the driveway entrance or even walking through the driveway. Our tax $ at work !

AlfromBigEasy -

I did not have a ringside seat to Katrina, as you had. But one of the things that really struck me regarding FEMA's response to Katrina was that it appeared to be more of an exercise in imposing de facto marshall law rather than an honest effort to help disaster victims.

FEMA  first 'secured' the streets, and then (this is the part that I found most curious and quite chilling) they attempted to control all communications into and out of the disaster area.  As I recall - and correct me if I'm wrong - FEMA attempted to commandeer one of the local communications systems, but the local sheriff posted guards around it to prevent them. What this action tells me is that FEMA has been well rehearsed in taking complete control of a trouble spot. And I strongly suspect that the 'trouble' they have in mind is civil unrest and insurection. It appears that disaster relief is a distant second in their field of interest.

So, if and when the proverbial shit hits the fan, we should have a pretty good idea of what FEMA, either directly, or through it's mercenaries, such as Blackwell, has in store for us.  Frightening!

This business of having mercenary security firms doing the government's dirty work and having privatized, for-profit prisons are truly evil things and must be done away with if we are to  preserve any vestige at all of a democratic society.

What Joule said.



I don't know what would be worse - mercenaries, or a bunch of disgruntled, worn out, underpaid, and traumatized National Guard Iraqi war veterans accustomed to shooting first and asking questions later.
The National Guard, some shipped almost directly from Iraq/Afghanistan, by a factor of x100 to x1000 !!

They are still "citizen-soldiers".  Fundamentally decent people, not wanna-be Nazis.

AlfromBigEasy -

Coming to a neighborhood near you: Young local cops recruited from disgruntled, stressed out, and traumatized Iraqi war vets accustomed to shooting first and asking questions a distant second. For them, a domestic perp will be nothing more than a raghead in American clothes.

And by the way, notice how almost any cop under the age of 40 almost invariably has a military style short crew cut. Why IS that?  And also notice that any town the size of Mayberry now has a fully equipped SWAT team, generously funded by Uncle Sam.

Do we see a trend here, or is my paranoia getting the best of me?

No, your paranoia is screaming at you to get your attention - effectively it would seem!  These are corporate security forces to protect corporate interests.  They have no vested interest in your rights as a citizen - you don't pay their salary.  They are mercenaries, and they turn my stomach - what a crying shame to see the US using these scum.
Anyone a "24" fan?  What joule describes sounds just like one of the subplots of "24" this year.  The Los Angeles counter-terrorism unit is severely crippled by a nerve gas attack, so the Department of Homeland Security comes in and takes over, running roughshod over Jack Bauer and his colleagues.  Sounds just like FEMA taking over from the local authorities in Katrina.  Who knows, maybe the writers got the plot from what happened in New Orleans.
I obviously misspoke on law enforcement. Wow. Jeez, all you need now is Blackwater judges.No wonder they hate your freedoms!
More protests over power outages.  In South Africa:

Infant deaths spark protests

Johannesburg - Cecelia Makiwane Hospital in East London was again the scene of anger and protest on Tuesday, following the death of four babies at the hospital last week, the SABC reported.

The incubators and ventilators that had kept the babies alive shut down during a power outage last weekend, and a stand-by generator did not kick in.

In Pakistan:

`Today I threw a stone, tomorrow I'll use a bullet'

KARACHI: As the authorities in Islamabad try to come up with a solution to the city's power crisis, there was a shortage of 350MW of electricity from Hubco early Tuesday morning, prompting riots in three areas near SITE: Gulbahar, Liaquatabad and Pak Colony.

The riots took place after a 12 hour breakdown after the Haroonabad feeder tripped at about 4:30 a.m. This is not the first time that the residents, who live in severely cramped and airless houses, have protested the blackouts. No damage to property was reported and people only set tires on fire and threw stones.

The police said that when such riots erupt they do not attempt to stop them as this only tends to make the situation worse. However, if the riots disrupt a major artery that could affect the city's traffic, they do step in.

Hello Leanan,

I expect this to be the postPeak norm.  Last night our power went out for about 3 hours [11:30pm-2:30 am] when it was 93 degrees F.  I immediately went out front to see if it was just my house or the neighborhood that was experiencing the outage: it was the neighborhood.  

One of my neighbors was outside [I had asked him to study Peakoil about three years ago, he never did], and he immediately started ranting how the outages were just bullshit staged events to justify higher rates and profits for the utilities.

I patiently explained to him that many cities in Africa experience outages daily for eight hours or more continuously because of the Olduvai Gorge Theory, and that the best thing for a utility to do is to rapidly raise prices so that brownouts and blackouts do not occur for those willing & able to pay.  The rapid shedding of poor and/or middle-class customers off the Grid, and rigid enforcement against those stealing juice or copper wire is the best method to sustain the grid infrastructure.

I patiently explained to him that most of human history was without fossil fuels and electricity, and the future loss of juice for most postPeak is a forgone conclusion: it is only an unresolved social issue that will be worked out by TPTB. It is far better to gracefully adapt to using less energy than to protest the electric utilities.  I pointed out the energy savings of going back to swamp-cooling his house vs. using his air-conditioner unit.

He said he hated the humidity levels of swamp-cooling, and that he felt he was entitled to use his A/C unit as long as he could afford it.  At that point, he left.  He and his spouse a few minutes later climbed into their SUV and ran the engine to power the vehicle's A/C unit as I guess their house's interior temperature had gotten too hot.

The interior of my house was still quite bearable, but I chose a more contemplative alternative:  I was very comfortably cooled by sitting in my backyard in a swimsuit, periodically wetted by a moistened washcloth, sipping a few beers, and enjoying the stars.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

The rapid shedding of poor and/or middle-class customers off the Grid, and rigid enforcement against those stealing juice or copper wire is the best method to sustain the grid infrastructure.

I prefer an analysis of why a part of the grid went down followed by apropriate changes of procedures and control systems and if needed to keep the margins in the system investments in new power lines and power production.

What is going on right now here in Sweden regarding this is a campaign to replace old electricity meters with remotely read meters wich probably will give us rates that changes by the hour to even out loads.  A massive rural cablification is being done since we had a near hurricane storm Gudrun 1.5 years ago that knocked down distribution lines leaving some people withouth power for weeks. We had a large grid failure 3 years ago prompting replacement of a lot of switchyard equipment in the 400 kV net and it started the slow process to build a few more 400 kV and HVDC lines to get more redundancy and better electricity trading capacity. This is also done to keep the grid within spec when our Finnish neighbours starts their new 1600 MW PWR. We had embarrasing failures due to fire in non redundant cable tunnels in Stockholm a few years ago wich resulted in a analysis of the whole grid structure in our capital and a long term grid modernization plan. The first cables were ordered recently but it will take years to complete the plan. Most of it could be paid by building houses in overahead line right of ways when new cables are laid but those budgets are not directly connected. Two nuclear reactors have been closed by greens but about $3G is being invested in life lenght extensions and uprating in the 10 we have left replacing the lost capacity. Lots of about 10 MW and few about 100 MW combined electricity and district heating plants are being built, most fire low grade biomass or garbage and a few natural gas. Control systems for house turbine running and icelanding in case of grid failures are being added but they are not tested untill there is a natural break down.

Most of the investments could be made quicker, only the rural cablifictaion is a real crash program. My personal local experience is that the grid have become better after every failure. But the emergency organization in case we have major failures have had a very large weakening and is more or less being rebuilt.

There have been embarrasing systems failures such as all mobile telephone antenna sites are required to have some kind of emergency power and the plan were to use mobile generators but those cant reach the sites when the roads are full of storm felled timber from the Gudrun storm who took out the electricity and the clearing of the roads go slower when telecommunications are out. Fortunately our fools in government had not scrapped the fortified military telephone network togeather with the scrapping if the rest of our cold war defences wich made it possible to wire up a few critical telephones. The reaction here is stricter recommendations for emergency power and the civilian restricted emergency Tetra mobile network for police use etc will follow them and I hope the area covering non restricted 450 MHz network also will do that but I am not sure if it will.

My point is that when things break it is physically possible to fix them, we will even have plenty of energy for doing that since even half of todays oil is an enourmous ammount
of energy.

This debate is quite often like someone crying that life is meaningles and everybody will die since dessert is to expensive.

Hello Magnus,

Thxs for responding.  I am glad to see that Sweden is doing what they can to enhance their electrical grid--good for them!  Please read my follow up Zimbabwe posting below in this thread, and also these links:



Is Sweden running into greater difficulties in collecting for energy or water already used?  I would expect remotely-read power metering systems would allow utilities to auto-debit your checking account on a daily basis at some future postPeak inflection point so that consumers will not be allowed to mooch free energy.  It probably can remotely shutoff the power too.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

The number of people who do not pay their bills have increased but I have not heard it talked about as a big problem. This might have to do with our local government aid-to-the-poor system that pays for basic necessities for people who are totaly broke. This works fairly well if the problem isent drug addiction or some kinds of mental ilnesses.

Our biggest problem is unemployment and a part of that problem is numerous subsidy systems added thru the years by or socialists doing strange things with our economy including negative incentives when going from living on subsidies to workning. There are massive ammounts of money circulating between taxes and subsidies that could be left to work in the economy or be redirected to aid-to-the-realy-poor and infrastructure building if times get tough. These aid and subsidy systems also lacks "emergency brakes" such as the one our government pension system has wich is set to lower pensions if there isent enough money. We have a risk for a run away break down of the more socialistic part of our economy if we get a quick increase in unemployment.

Our government have very few checks and ballances and could legally change most systems overnight but it is politically hard to do that. But it has handled a 95+% sure 10-30 years into the future crisis in the pension system with an agreement with all parties and I think there is a very good chance the the realy essential things will be done if there is a big crisis.

One innovative way to turn of water were used a few years ago but I do not know if it still is in use. The water line were plugged but with a tiny hole letting thru enough water to flush a toilet a few times per day and wash yourself with a cloth but no showering etc.

The biggest unsolved problem in the grid is who will pay for the +30 years old and idle oil powered condencing powerplants that are used during years with little rainfall some 10 years apart and some realy cold days or weeks some years apart. They have a few percent duty cycle and are thus money sinks. The current solution is that the government organization who owns and runs the major grid lines add a small fee to every kWh transmitted and uses those funds to contract for spare capacity to the lowest bidder who either have a powerplant they normally dont run or an industrial process they allways run but can stop for a few days. More combined heat and power production should ease this problem and also tarif changes during the day and night.

EIA numbers out for March.

Most interesting is that March 2006 total liquids slightly less than March 2005.

Worldwide production down 400,000 bpd in March to 84,047,000 barrels per day.

Go nuts, peaksters. The end is here.

The EIA just released its monthly numbers. That's 700,000 barrels less than December, for those of you keeping track.

Sorry to be redundant, but all I can do is to refer you to the quantitative plots that Khebab did in our article on the Energy Bulletin, in which we predicted that Saudi Arabia and the world were both on the verge of production declines.  
BTW, if we are correct, which remains to be seen, all we have done is to apply methods that Hubbert and Deffeyes outlined.  

However, in my opinion we are correct, and I think that we are on the downslope of Hubbert's Peak.

You don't have to tell me. I follow your guys' work. I'm still on the fence.

On a side note, I haven't met a single person here yet who thought they were incorrect :)

I thought I was wrong once, but I was incorrect.  How's that?  
If it was the time I remember, it was the only time you've been right. But I could be wrong.
This article in Schlumberger seems to be a more lengthy discussion of Ali Naimi's comments published today:


In the U.S., refiners are expected to sharply boost operations in coming weeks as the peak summer demand season for gasoline approaches. Medley's Elguindi believes that as U.S. refiners increase their appetite for crude, Saudi output will also rise.

"They'll be back at 9.4 to 9.5 (million b/d) in the not-too-distant future," he said.

I guess the proof will be in the pudding.  If we see a succession of two or three months of production below 9.4 million a day from SA when we know the US refiners need more crude to satisfy demand, I think you can call it.

Will we see you on the street with a "the end is near" sign?
He's all set, he's got a raincoat. I hope he can swim.
Barron's cover story this week:

Bow-Tied Commodity Bull

Jim Rogers has some interesting things to say about commodities. If you've heard or read him before, not much new here, but if you haven't, check it out. Confounded subscription wall... gives you yet another reason to head on down to the local library...

Here's a free article that appeared in the New York Times last Friday.  Since it appeared at about the same time as the Barron's article, it probably says about the same thing.

A Commodities Bull Can Find No Reason to Pull In His Horns

He points to academic studies that show bull markets lasting anywhere from 15 to 23 years; given those figures, the commodities bull run that started in 1999 should last until 2022.

And more important, he says, commodities producers have failed to develop new sources of production.

Demand for lead has exploded, but the last new smelter built in the United States was opened in 1969. Oil companies have not opened significant new oil fields in more than 25 years. The story is the same with copper.

"I was with a couple of copper mining C.E.O.'s recently, and they said they were having a hard time finding labor, saying, 'We can't find engineers, we can't even find miners,' " Mr. Rogers said. "And I asked them if they even know the level of their reserves. And no one knew."

Mr. Rogers has great faith in China as the bull to which the commodities market is yoked. He says he believes that China will fully float its currency, the yuan, in time for the 2008 Summer Olympics in Beijing, and that China's growing capitalist class will displace the Communist Party.

Mr. Rogers is bearish on the United States. To him, America's time has passed, with its $8.36 trillion in debt, a weak dollar and its dependence on imported oil. He recommends selling United States dollars.

Hello TODers,

I have posted before on Googling Africa to find comparisons on how our systems can suboptimally postPeak unwind.  Consider the latest from Zimbabwe: the lack of revenue from unpaid water or theft is crippling the utilities' ability to provide water to those that are willing to pay.

I believe this phenomena will postPeak ripple worldwide unless water, food, and energy converts to a prepaid cash basis so that adequate funds accrue upfront to those companies providing these vital goods.  This 'tightening of the feedback loop' makes it much better to earlier identify and shed those that have passed the point of affording general access to essential goods/services.  Additionally, this shift in financing will provide a clear consumer signal that conservation is by far the best way to extend postPeak supplies.

Here is the tragic Zimbabwe link:


I think that any corporation's basic obligation to stockholders is the ability to collect the funds for goods and/or services provided.  Converting to a prepaid or pay-as-you-go basis is the best method to insure against corporate cash flow problems.  Perhaps your electric and/or water utility will require a $1000-$5000 upfront security deposit as another method to weed out those consumers most likely to run into future personal cash flow problems.

I wonder what people's reaction will be when WAL-MART or your local grocer wants a $1000 upfront fee for the continued privilege of shopping?

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

Yesterday's Opus

Hello TODers,

I have posted before on Hans Selye's auto-collapse mechanism called [GAS] General Adaptation Syndrome.  For those new to this concept: please google GAS or read Reg Morrison excellent article: "HYDROGEN: Humanity's Maker and Breaker (PDF 1.82mb) at his website-- http://www.regmorrison.id.au/

I recently discovered more evidence of abnormal behavior: these estimated 16 million Americans will not be amenable to easily accepting the inherent stress of the coming Hubbert Depletion downslope.  It is called Intermittent Explosive Disorder [IED]. Here is the Yahoo link:


To you, that angry, horn-blasting tailgater is suffering from road rage. But doctors have another name for it -- intermittent explosive disorder -- and a new study suggests it is far more common than they realized, affecting up to 16 million Americans.

By definition, intermittent explosive disorder involves multiple outbursts that are way out of proportion to the situation. These angry outbursts often include threats or aggressive actions and property damage. The disorder typically first appears in adolescence; in the study, the average age of onset was 14.
Please be aware of these people as we go postPeak.  These will be the people that will beat you senseless in a future gasoline queue, or fight you for the bread in a grocery store as postPeak stress levels mount.  Utility employees, whose job is to shut off water or electricity for unpaid bills, need to be especially trained to recognize IED.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

I saw that with IED in the Chicago Tribune today. That's 5 percent of Americans. Any one in the upcoming hard times can become a suicide gunman or suicide bomber using, you guessed it, IEDs. Ironic name for a new disorder to have the acronym used for Iraq's suicide car bombers and the weapon! Watch out for IED people getting a bang out of using IEDs...