Rohm Emanuel’s famous quote regarding the current financial crisis, "Never let a serious crisis go to waste...it's an opportunity to do things you couldn't do before." was ignored last summer when oil prices reached $147 a barrel. The Obama administration has taken advantage of the financial crisis to ram through their socialist agenda which will add trillions to the National Debt. It will stimulate unions, bureaucrats, government employees, and defense contractors. It will do nothing to address the looming energy crisis which will sweep over the country shortly. Again, politicians and pundits will be shocked and astonished when oil soars. They will vilify oil companies, OPEC, and the dreaded speculators. They ignore the old fashioned supply and demand equation that even a dimwitted Congressman should be able to comprehend.
Instead of addressing the crucial issues that have led to the U.S. being dependent on foreign oil to the tune of $500 billion per year, Congress decided to spend your tax dollars on the following vital items (compliments of Casey Research):
· $200,000 for tattoo removal for gang members in California.
· $98 million for a Coast Guard ice breaker closing an ice-breaking gap. (what about global warming)
· $950,000 for a bikeway in Kentucky.
· $2 million for astronomy awareness in Hawaii.
· $190,000 for a Buffalo Bill Historical Center.
· $650 million for the digital to analog converter box program.
· $1.8 million to study the effect of swine odor on the environment. (rumor has it the study will be conducted in the halls of Congress)
When oil prices collapsed from $147 a barrel in the summer of 2008 to $35 a barrel in January, American drivers, Congress, government bureaucrats, and the mainstream media refocused on other more pressing issues like executive bonuses, Michele Obama’s wardrobe, and the tax law knowledge of Obama’s cabinet. The attention span of the average American is shorter than a gnat’s. As they text and twitter through life, the energy infrastructure continues to rust away, decades old wells are closer to depletion, and alternative energy projects have been scrapped by the thousands. Peak oil likely occurred between 2005 and 2009. The production of oil will now embark on a long slow decline. The world is not prepared.
The history of energy in the United States is really only 160 years old, with coal being utilized starting in 1850 and oil only becoming a viable fuel beginning in 1900. Essentially, the world has found lakes of oil under the crust of the earth. If you pump 82 million barrels of oil from a lake per day, the lake will eventually go empty. New lakes are found every year, but the easy to get to lakes have all been found. The new lakes are deep under the sea or in tar sands and shale deposits. These sources take as long as a decade to reach and billions of infrastructure investment. With petroleum in permanent decline, the U.S. needed to have a plan 20 years ago.
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Source: Department of Energy
Matt Simmons, the brilliant energy analyst and author of Twilight in the Desert, recently told Reuters, "We are three, six, maybe nine months away from a price shock. We are not talking about three to five years away -- it will be much sooner. These prices now are dangerously low. The lower prices fall, the less oil will be produced and the greater the chance of an oil spike."
In this scenario, low oil prices will continue to take oil fields out of production and reduce exploration. Once prices recover, companies will have trouble gearing back up due to the credit crunch, resulting in production increase delays.
Simmons describes what will happen. "Unless oil demand falls by 10 or 15 percent per annum, which it is not going to do, then we don't need to wait for oil demand to come back before we have a supply crunch." This is on no one’s radar.
Peak Oil
When pundits on CNBC speak authoritatively about peak oil being a fallacy, their misleading blather is believed by supposedly intelligent people. They expound that we are not running out of oil. There are billions of barrels left inside the earth. Peak oil does not mean that we are in imminent danger of running out of oil. Peak oil is the point in time when the maximum rate of global petroleum extraction was reached, after which the rate of production enters terminal decline. The aggregate production rate from an oil field over time usually grows exponentially until the rate peaks and then declines—sometimes rapidly—until the field is depleted. This concept is derived from the Hubbert curve, and has been shown to be applicable to the sum of a nation’s domestic production rate, and is similarly applied to the global rate of petroleum production. M. King Hubbert created and first used the models behind peak oil in 1956 to accurately predict that United States oil production would peak between 1965 and 1970.
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Source: Department of Energy
The depletion of existing sources is more rapid than any new sources that can be brought online. Production in the United States is in relentless decline. The view of Alaskan oil production from 1975 until today clearly shows how rapidly oil fields can decline. What has happened in the United States is now happening on a worldwide basis. The U.S. Department of Energy published a report from some of the top energy minds in the world in 2005. The lead author Robert Hirsch produced a comprehensive report on the peak oil issue called, Peaking of World Oil Production: Impacts, Mitigation, and Risk Management. The conclusions were frightening. What has the U.S, government done in response? NOTHING
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The overwhelming majority of industry petroleum geologists, scientists, and economists who worked on the report projected global peak production being reached between 2005 and 2010. The report’s disturbing conclusions are as follows:
- World oil peaking is going to happen, and will likely be abrupt.
- Oil peaking will adversely affect global economies, particularly those most dependent on oil.
- Oil peaking presents a unique challenge (“it will be abrupt and revolutionary”).
- The problem is liquid fuels (growth in demand mainly from transportation sector).
- Mitigation efforts will require substantial time.
- 20 years is required to transition without substantial impacts
- A 10 year rush transition with moderate impacts is possible with extraordinary efforts from governments, industry, and consumers
- Late initiation of mitigation may result in severe consequences.
- Both supply and demand will require attention.
- It is a matter of risk management (mitigating action must come before the peak).
- Government intervention will be required.
- Economic upheaval is not inevitable (“given enough lead-time, the problems are soluble with existing technologies.”)
Source: Hirsch Report
Considering that global oil production peaked or is peaking between 2005 and 2010, we are destined for the 3rd scenario of severe consequences. Economic upheaval is now inevitable. It is the American way to not do anything until it is too late. The Hirsch Report urges a crash program of new technologies and changes in manners and attitudes in the US and as well implying more research and development. The urging has gone unheeded. The worldwide global recession is the only reason you are not paying $5.00 a gallon for gasoline today. Supply did not increase, demand leveled off.
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World demand “plummeted” from 87 million barrels per in early 2008 to 84 million barrels per day in early 2009, a full 3.5% decline. If the world economy levels off and resumes growth, demand will immediately surpass previous levels. The problem is that production has peaked and will likely drop below 80 million barrels in 2010. When demand is rising and supply is declining, only one thing can happen – higher prices.
The peaking of hydrocarbon supply is vital not just to our country’s future, it is enormously critical to our global economic conduct. Optimists argue that oil has not peaked, and will not peak for decades. They base this on widely held beliefs, including the extent of the world’s energy resource endowment, the ability of technology to recover larger amounts of oil once left behind, the lag time between high oil prices and the ramped-up drilling they kindle, the remarkable amount of unconventional oil that has become commercially feasible because of high prices, and undetermined technology advancements. Those who ridicule peak oil, think the term means "running out of oil" instead of the true definition: "oil production can no longer grow."
The optimists dismissed the fact that oil prices reaching $147 a barrel had anything to do with constricting market fundamentals. Instead, they argued that lofty crude prices were merely a by-product of a weak dollar, hedge fund speculation, geopolitical trepidation, downstream log jams, the Iraq war, Nigerian political turmoil and the craving for high prices within OPEC, which kept enormous spare capacity shut in. When prices skyrocket again, these optimists will produce new excuses. Facts are facts. Easily found cheap sources of energy are in terminal decline.
Matt Simmons explains the long and winding road to our current predicament:
- Between 1970 and 1979, world oil demand grew from 47 million barrels per day to 65 million barrels per day, a jump in 10 years of an astonishing 18 million barrels per day. This is how we ate up the world’s spare capacity and at the same time caused U.S. supply to peak. Thus, the price of oil skyrocketed.
- From 1979 through 1983, demand fell four straight years, retreating back to 59 million barrels per day. Most of this change came as oil ended its role as a prime feedstock for power generation. This probably would have happened even if oil prices had not gone so high, as the world was finally rolling out nuclear fuel.
- Once demand hit bottom in 1983, it quietly began to grow again, though the growth was masked by the beginning of a prolonged collapse of oil use throughout the USSR. Nevertheless, total world demand grew from the 59 million base in 1983 to 69 million in 1994, an increase of 10 million barrels per day. This increase, interestingly, came at a time when most of the oil pundits were wringing their hands, declaring that oil demand was so stagnant that low oil prices were the new world order.
- In 1995, global oil demand finally edged over 70 million barrels per day for the first time in history. Between 1994 (the last time it was under 70 million barrels per day) and the end of 2008, demand grew to 86 million barrels per day – a jump of 16 million barrels per day in 13 years. This explains why we used up every last pocket of spare productive capacity and ran out of drilling rigs.
Saudi Arabia is Lying
Saudi Arabia has been claiming that they are capable of ramping up oil production from its many oil fields. The chart below tells a different story. The largest Saudi fields have entered permanent decline. The largest field in the world, Ghawar, was discovered in 1948 and peaked at 5.6 million barrels per day in 1980. It now produces 5.0 million barrels per day. The 3rd largest field in the world, Safaniyah, was discovered in 1951 and peaked at 2.1 million barrels in 1998. It now produces 1.3 million barrels per day. One third of global oil supply comes from 20 large fields discovered prior to 1970. They have all peaked. 94% of global supply comes from 1,500 wells. If Saudi Arabia had the ability to ramp up production, they most certainly would have in 2008 when prices rose over $100 a barrel. They did not, because they could not.
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Source: Oil Drum
“World reserves are confused and in fact inflated. Many of the so-called reserves are in fact resources. They’re not delineated, they’re not accessible, and they’re not available for production.”
Sadad I. Al Husseini, former VP of Aramco, October 2007.
Worldwide reserves peaked in 1980, when production first surpassed new discoveries. Total worldwide reserves are reported to be 1,200 billion barrels. Much of the increases in reserves since 1980 are lies. Al Husseini argues that 25% of the proven reserves in the world are speculative and not accessible. The following chart tells a fascinating story. Amazingly, each of these OPEC countries had dramatic leaps in their proven reserves, with Saudi Arabia having a 50% increase in one year with no major new discoveries. These self reported figures are not audited or verified in any way. Since production quotas are based on total reserves, the higher your reserves, the bigger your piece of the pie. Since 1988, Saudi Arabia has pumped at least 44 billion barrels of oil, but still has proven reserves of 264 billion with no major new discoveries. If you believe that, I have a package of 1,000 subprime mortgages that is rated AAA I’d like to sell you.
|
Declared reserves of major OPEC Producers (billion of barrels) |
||||||||
|
Year |
||||||||
|
1980 |
58.3 |
30.0 |
67.9 |
168.0 |
30.4 |
19.5 |
20.3 |
16.7 |
|
1981 |
57.0 |
32.0 |
67.7 |
167.9 |
32.2 |
19.9 |
22.6 |
16.5 |
|
1982 |
56.1 |
59.0 |
67.2 |
165.5 |
32.4 |
24.9 |
22.2 |
16.8 |
|
1983 |
55.3 |
65.0 |
67.0 |
168.8 |
32.3 |
25.9 |
21.8 |
16.6 |
|
1984 |
58.9 |
65.0 |
92.7 |
171.7 |
32.5 |
28.0 |
21.4 |
16.7 |
|
1985 |
59.0 |
65.0 |
92.5 |
171.5 |
33.0 |
54.5 |
21.3 |
16.6 |
|
1986 |
92.9 |
72.0 |
94.5 |
169.7 |
97.2 |
55.5 |
22.8 |
16.1 |
|
1987 |
92.9 |
100.0 |
94.5 |
169.6 |
98.1 |
58.1 |
22.8 |
16.0 |
|
1988 |
92.9 |
100.0 |
94.5 |
255.0 |
98.1 |
58.5 |
22.8 |
16.0 |
|
1989 |
92.9 |
100.0 |
97.1 |
260.1 |
98.1 |
59.0 |
22.8 |
16.0 |
|
1990 |
92.9 |
100.0 |
97.0 |
260.3 |
98.1 |
60.1 |
22.8 |
17.1 |
|
1991 |
92.9 |
100.0 |
96.5 |
260.9 |
98.1 |
62.6 |
22.8 |
20.0 |
|
1992 |
92.9 |
100.0 |
96.5 |
261.2 |
98.1 |
63.3 |
22.8 |
21.0 |
|
1993 |
92.9 |
100.0 |
96.5 |
261.4 |
98.1 |
64.4 |
22.8 |
21.0 |
|
1994 |
94.3 |
100.0 |
96.5 |
261.4 |
98.1 |
64.9 |
22.8 |
21.0 |
|
1995 |
93.7 |
100.0 |
96.5 |
261.5 |
98.1 |
66.3 |
29.5 |
20.8 |
|
1996 |
92.6 |
112.0 |
96.5 |
261.4 |
97.8 |
72.7 |
29.5 |
20.8 |
|
1997 |
92.6 |
112.5 |
96.5 |
261.5 |
97.8 |
74.9 |
29.5 |
20.8 |
|
1998 |
93.7 |
112.5 |
96.5 |
261.5 |
97.8 |
76.1 |
29.5 |
22.5 |
|
1999 |
93.1 |
112.5 |
96.5 |
262.8 |
97.8 |
76.8 |
29.5 |
29.0 |
|
2000 |
99.5 |
112.5 |
96.5 |
262.8 |
97.8 |
76.8 |
36.0 |
29.0 |
|
2001 |
99.1 |
115.0 |
96.5 |
262.7 |
97.8 |
77.7 |
36.0 |
31.5 |
|
2002 |
130.7 |
115.0 |
96.5 |
262.8 |
97.8 |
77.3 |
36.0 |
34.3 |
|
2003 |
133.3 |
115.0 |
99.0 |
262.7 |
97.8 |
77.2 |
39.1 |
35.3 |
|
2004 |
132.7 |
115.0 |
101.5 |
264.3 |
97.8 |
79.7 |
39.1 |
35.9 |
|
2005 |
137.5 |
115.0 |
101.5 |
264.2 |
97.8 |
80.0 |
41.5 |
36.2 |
|
2006 |
138.4 |
115.0 |
101.5 |
264.3 |
97.8 |
87.0 |
41.5 |
36.2 |
|
2007 |
138.4 |
115.0 |
101.5 |
264.2 |
97.8 |
87.0 |
41.5 |
36.2 |
Dr. Ali Samsam Bakhtiari a former senior expert of the National Iranian oil Company, has estimated that Iran, Iraq, Kuwait, Saudi Arabia and the United Arab Emirates have overstated reserves by a combined 320-390 billion barrels, and "As for Iran, the usually accepted official 132 billion barrels is almost one hundred billion over any realistic estimate". Petroleum Intelligence Weekly reported that official confidential Kuwaiti documents estimate reserves of Kuwait were only 48 billion barrels, half as much as their reported 101 billion barrels. Essentially, the amount of oil reserves in the world is much lower than people think. The good news is that OPEC may have less clout in the future than they have had for the last 40 years.
Mexican Hat Dance
I’m sure that not many people in the U.S. realize that we get more oil from Mexico than Saudi Arabia. We are dependent on Mexico to supply us with 600 million barrels of oil per year. Without this supply, there would be shortages and much higher prices. Tijuana, we have a problem. Within five years, we will be getting ZERO barrels of oil per day from our neighbor to the south. Mexico has the distinguished honor of having a government more inept and short-sighted than our own. Hard to do.
Source: Perotcharts.com
Virtually all of the oil supplied from Mexico comes from the 2nd largest oil field in the world, Cantarell. It was discovered in the shallow waters of the Gulf of Mexico in 1977. It is run by the state owned oil company, Pemex. It held 17 billion barrels of oil. The Mexican government took the oil revenues and funded their wish list of programs in the country. Pemex has provided 40% of all revenues for the state. The state became so dependent they had Pemex build a nitrogen injection project on top of the well to push the oil out faster. It worked. In 2004, the well was providing 2.5 million barrels per day. It is now in irreversible decline at a rate of 15% per year. By 2012, it will only be producing 500,000 barrels per day.
Mexico has ridden this pony hard. They have not done any serious exploration in the Gulf of Mexico in 30 years. A newly discovered deep water well takes 10 years and billions of investment to bring on line. There is no doubt that Mexico’s oil output will collapse in the next five years. They will not be capable of exporting any oil to the U.S. With the rest of the world having no spare capacity and demand higher than 2008, prices for gasoline in the U.S. will soar. In the meantime, we will ponder higher gas mileage requirements, not allow offshore drilling, and make no effort to convert our transportation fleet to natural gas. Congressmen will be outraged and indignant at the oil companies, when the writing was on the wall for a decade.
Crisis Part II
The flowchart below gives an extremely clear picture of what happened in the last year and what will happen in the next few years. The financial crisis and the energy crisis were intertwined and will continue to feed upon each other. Worldwide oil production peaked between 2005 and 2009. This, along with refinery shutdowns, hurricane related issues, and hedge fund speculation led to oil reaching $147 a barrel. This was the straw that broke the camels back and helped accelerate a downward spiral for consumers. The combination of plunging home values, retirement savings being cut in half and gas prices doubling led to the worst recession since the 1930’s. The dramatic worldwide slowing caused by American consumers not going to Malls reduced demand enough to make the speculators go running for the hills. Oil prices plummeted 76% in a couple months to $35 a barrel. Now we are about to enter phase two of this comedy of errors. Again, the clueless leaders of our country will be taken by surprise. They’ve learned nothing.
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It may sound like sacrilege, but prices below $50 a barrel are dangerously low. The crash in gasoline prices to below $2.00 a gallon has led to demand in the U.S. rising 6% above the demand in September 2008. Our American twitter society has already forgotten the $4.00 a gallon prices. Hybrids are rotting on car dealership lots. Everything that has happened since the price collapse will contribute to Crisis Part 2:
- OPEC cut supply by 4.2 million barrels per day from levels in September
- Projects that were viable at $80 a barrel have been scrapped. Ethanol and Tar Sands are only profitable above this level. Natural gas wells are being capped as prices plunged from $13 to $4.
- Worldwide rig counts have plunged from 3,500 to 2,700 in a matter of months.
- Existing wells throughout the world continue to decline at ever increasing rates.
- The Obama administration will restrict the expansion of coal powered plants, construction of new refineries and new drilling in the U.S.
- The enormous stimulus being rolled out throughout the world will generate increased energy demand as supply remains restricted.
- The banking crisis has resulted in no financing for energy projects that could relieve the long-term supply issues.
- Energy companies have been laying off skilled workers as their business has plummeted. When demand resumes, these workers won’t be there.
Most people do not understand that all prices are set at the margin. There are 75 million houses in America. Only 4 to 5 million homes are sold per year. Therefore, 5% to 6% of the homes in the U.S. set the price for the other 70 million homes. This same concept applies to the last barrel of oil. When worldwide demand exceeded worldwide supply in late 2007 and early 2008, those last barrels of oil set the price. This explains why those last barrels of oil set the price above $100 a barrel. It wasn’t greedy speculators and evil oil companies.
.gif)
Source: International Energy Agency
It is clear that supply has stayed in the range of 86 million barrels per day while demand has dropped to the range of 84 to 85 million barrels per day. If oil demand rises by 3%, demand will outstrip supply again.
Source: International Energy Agency
$200 Oil Will Arrive
When I was ten years old my parents told me to never touch our stainless steel sink and the electric light switch above the sink at the same time. I couldn’t resist. I tried it and got knocked on my ass. I never did it again. Americans are a different lot. Last year we got knocked on our ass by $4.00 gasoline. Instead of learning, we have sauntered back to the kitchen sink and we’re reaching up for the electric light switch. I wonder what is going to happen this time.
Americans are used to making tough choices. They have made choices between the Hummer H3 (13 mpg) and the Hummer H2 (8 mpg). They’ve made choices between a BMW 650i (16 mpg) and a Mercedes S600 (13 mpg). The coming energy crisis will lead to choices between food or fuel for many people. The coming crisis is as clear as the housing bubble. Anyone with half a brain could see that home prices would need to fall 30% to 50% to get back to equilibrium. Therefore, no one in Congress, Wall Street, or CNBC saw it coming. Total world oil supply is in a permanent decline. Oil demand will continue to rise. Only a half wit would argue that prices will not rise dramatically in the coming years. Turn on CNBC to get the half wit view of oil prices.
Now the bad news for Americans; we make up 4.3% of the world’s population and consume 26% of the world’s oil. Europe makes up 6.8% of the world’s population and consumes 11% of the world’s oil. After the oil shock of the 1970’s Europe decided to dramatically increase taxes on gasoline. The high cost of gasoline forced people to buy smaller fuel efficient cars. Today in Germany, their cars average 44 mpg, while in the U.S. our cars average 22 mpg. Whether Europe spent the taxes wisely is another question, but they did change behavior. No crude oil refineries have been built in the United States since 1976. During that time, hundreds of ethanol refineries have been built. It requires more energy to produce ethanol than ethanol produces. The United States has between 250 and 300 years of a coal supply. That is more than the amount of recoverable oil contained in the entire world. We will not utilize this resource because environmentalists say it is bad. Congressman Gary Miller describes the U.S. response to the 1970’s oil shock.
In 1973, America imported 30 percent of its crude oil needs. Today, that number has doubled to more than 70 percent. Gas prices are as high as they are now in part because we've had no comprehensive national energy policy for the past few decades.
The peak oil shock that is coming will affect the United States more dramatically than any other country. Are you prepared for $5.00 a gallon gasoline? We are 20 years too late to stop this from happening. The American way of kicking all tough issues down the road is about to kick us in the ass, and no one is preparing Americans for the result. Happy talk and confidence building exercises will not solve the problem. We are not in control of our destiny. Our supply is drying up. More drilling will not work. Higher fuel efficiency standards will not work. Congressmen and TV pundits will posture, expound, skewer oil executives on TV, and get red in the face, but they have failed the American public again. The social upheaval that could occur from fuel shortages and outrageous prices will be ugly. Most Americans live in suburbs far from work. Our food supply requires trucks to deliver to our stores. The U.S. military consumes 400,000 barrels of oil per day and spends $13 billion of your tax dollars per year to keep their machines functioning. War for oil becomes more likely in that environment. Is that a farfetched scenario?
The population of the world will continue to rise. The United States has no control over that fact. Developing countries will grow more prosperous. People utilize more fossil fuels as they become more prosperous. $2,500 cars are now becoming available in China and India and the rest of Asia. In a Chinese car ownership survey, 96% of respondents said they paid cash for their cars. How un-American like. Imagine if GMAC could gain a foothold in China. More than 20,000 new cars per day are being sold to Chinese citizens who have never owned an automobile before. This is massive new demand being created for gasoline. China now has a middle class estimated at nearly 300 million people. 37% of people driving in China today did not know how to drive 3 years ago.
Oil will continue to be discovered, just not enough to keep up with demand. The pie chart below paints a disturbing picture. Only 30% of total oil reserves are light sweet crude. The other 70% is difficult and costly to bring to market. Few U.S. refineries can convert heavy crude into gasoline. Oil sands require massive amounts of water and natural gas to convert it into usable oil. The oil remaining to be discovered will be in deepwater wells. It takes at least 10 years to bring a deepwater well online. We are losing the race with time.
Source: Wikipedia
The only two people sounding the alarm have been Matt Simmons and T. Boone Pickens. Mr. Simmons warns that the best energy geologists and engineers are now retiring, with no one to take their place. The global oil and gas system infrastructure is rusting away and falling apart. The cost to rebuild our global energy infrastructure would be close to $100 trillion and would require 10 to 20 million workers. This would not be wasted money. Mr. Pickens argues that by investing $1 trillion to build wind facilities in the corridor from Texas to North Dakota we could produce 20% of the nation’s electricity by 2020. This would free up our vast natural gas resources to be used as fuel for truck fleets and ultimately automobiles. The ideas of both men would create jobs in America and make us less dependent on Middle East oil.
None of these ideas will avert $5 gasoline in our near future. They may avert $10 gasoline and potentially a resource instigated World War 3. The choice is ours.
72 Comments
JasonRines
Another fantastic article Jim and dead on. Pickens plan would good for light trucks and other utility vehicles. Coal for heating oil. Build 45 nuke plants supplying much needed jobs and permanent replacement of 70% of all petroleum using electric cars. That's my wish list. You can see the double-speak in Washington. Last year, coal was dirty and NASTY! This year Obama has commercials about clean coal.
A year ago I joked online with people about when hydrogen vehicles become mass produced how all of a sudden we will have 'water shortages'. I knew that those whom control the perverted lending model known as Central Banking/Fractional Reserve lending alongside our corrupt politicians be the culprit of such shortages. I was a little taken back when I saw and article by Goldman Sachs that stated the U.S. would have a water shortage sometime in the future. Peak oil meaning easy to extract oil is here. It will only be massive pain that gets the U.S. citizen off the couch to vote out the gatekeepers keeping our broken monetary, fiscal and energy policies intact. The politicians have there direct paws into the wind plan from Pickens as well (despite the great merits of the plan) . See this article I wrote back in the summer of 2008. This will quantify a lot of the problem and what Jim is really speaking of: http://ragingdebate.com/article1.php
Forest Gump
Follow the money. Watch what the Investment Banks do in regards to oil speculation. Like 2008, this will greatly amplify the effect of the PPB. Investors as a whole know the dollar is being destroyed. Matt Simmons is correct, it won't take five years to get to $200 oil, it will happen in less then two years. Gasoline will be more in the line of $6 a gallon and heating oil $5.50 at it's heights. Just what the American people need during a depression.
John Lounsbury
Jim - - -
If we don't solve the energy problem, nothing much else matters. There is no one individual solution, but the whatever the solutions they must have the same characteristic: they must build capacity faster than oil production fades.
One factor that is not much discussed is the value of oil as a chemical. Every barrel we burn is another barrel of raw material for tars, asphalt, polymers, plastics, composites and petrochemicals that is gone forever. Yes, we can get carbon raw material from coal, but at a great deal larger cost and environmental impact.
You have written about the energy problem before and you should keep making the case for action. Too many people are arguing that we shouldn't put effort into developing alternative energy sources because current costs (for alternatives) are 2x, 3x, 4x (I have even heard arguments of 10x) current coal and oil costs. To me, these arguments have as much merit as saying the roof leak doesn't have to be repaired because it isn't raining. We're going to start when oil is $150 again? Or when it is $200 or $300 or even higher?
Environmental factors may be important, but, in my mind, they are trumped by the economic issues. If climate factors are mitigated and polution is diminished, that is a bonus to keeping a viable socio-economic model working.
Anonymous
With all this talk about oil, is anyone considering playing it, or at least hedging yourself against higher gas prices?
Fuzzy
Haven't read through the entire article yet, busy at wort, but I'll comment again when I thoroughly read it. I just want to say that the solution to the inevitable energy crisis we will experience sooner than most people think involves two sides: SUPPLY and DEMAND.
Most people are already aware of the SUPPLY side, this means new and alternative energies. What makes petroluem based energy so difficult to replace is that it has the best energy ouput and the most compact form. With today's technology and processes, no other energy ressource we have comes anywhere close. As far as we know, there is no magic bullet solution to this, the only possibility I see is a mix of diverse energy source which depends on the local ressources.
And then there is part two, which VERY, VERY FEW are talking about, the DEMAND side which involves ENERGY CONSERVATION. The waste in energy created by our social structure and habits is nauseating. Huge McMansions with air-conditioners on full blast and windows open, located 30+ miles from city centers, and SUVs in the driveway. This cannot and certainly will not go on much longer. Correcting this seems obvious but this is barely scratching the surface. Energy affects everything in our modern lives, everything from food supply to clothing.
We have to be ready to give up certain standards in our lives (i.e Ceasar Salad year with lettuce flown in from California) or else $200/barrel of oil will look like a bargain. Most people are not ready for this sacrifice, even though some of those changes are so trivial.
The solution to this crisis will involve a major cultural change at the entire society, but I look forward to be a part of that change.
Please read "The Party's Over" by Richard Heinburg, one of the most devastatingly eye-opening books I have ever read about the imminent energy crisis. He has a more recent one called "Peak Everything".
later ...
Robmu1
I am looking forward to this pending disaster more than the prior 10 that Jim has helpfully previewed for us. Thinking this through, when oil hits $500 a barrell and gas hits $20 a gallon, my employer will be forced to allow me to work from home in order to remain competitive with the other companies in the area that will allow their employees to do so, assuming that there are any companies left. Now, I will save at least an hour a day without the commute, which I will immediately put to use by sleeping in. Once I wake, I will move right to the coffee machine, bypassing the shower and shave, which will save water and the energy to heat it, not to mention soap and shampoo and shaving cream (I will continue to brush my teeth for obvious reasons). With my coffee I will move to my office, where I will begin checking my personal email, which really won't make me any more productive since I spend a lot of time today doing personal stuff at the office like the rest of you, led by Jim, whose productivity has plunged as The Burning Platform's popularity has soared. I will glance at my work email and answer stuff from people who are able to affect my position at the office. The others can wait (read: from sub-Director level) until after I am able to attend to the things around the house that I am usually not able to get to due to the pesky requirements of my company - cutting the grass, cleaning up, caulking around the garage doors, etc. Also, I will also be able to exercise more with the time I would normally devote to walking around the office and chatting up the aforementioned important people to ensure that I am in the loop on things. I will be healthier even though it won't appear so since I won't be showered or shaven. Perhaps others will notice and think that I have fallen on hard times and be nicer to me, yet another benefit from the impending energy cataclysm. Finally, I will meet my children at the bus stop during the mid-afternoon sugar search, which will provide a double-benefit: I will be exercising during the time I would normally be scouring the candy dishes at the office. So, in summary, I will be more rested, have more money, be healthier, have the peace of mind that comes from having accomplished things at home, be closer to my children and will have people being nicer to me. What's not to like about this scenario? Here's hoping for Peak Oil!
robocopone
In the days of Peak Oil, there is a lot of talk about alternative energy such as wind, solar, nuclear, coal, natural gas, etc. but little is mentioned about how most of these won't fill the needs caused by depleted oil in time to do any good. Pickens' plan calls for getting 20% of our energy from wind by 2020. Yikes! By 2020 oil will be priceless and the economies running off of it, bankrupt. There are other similar projections out there on the other "popular" methods, none of which have a whole lot of chance of making it in time.
What is ignored is the research being done in what many call the "fringe" energies: over-unity, zero-point energy, anti-gravity (recently disclosed as having been kept a government secret for 3 decades) etc. Today much of the work of Tesla has been replicated on the bench all over the world, yet is ignored as "science fiction" or at best misunderstood. Type any one of the above mentioned energies into a search engine and you will find much garbage, yet also serious men and women working on this stuff without funding, ignored, ridiculed, but conscious of the impending doom of oil dependency. If we are going to fund anything, why not gather these guys up, sit down with them, go over their discoveries, see which actually work and may be viable and put some money into them. If Tesla and others are right, there is practically infinite energy all around us, and it just needs to be tapped. Tesla's big problem with JP Morgan financing his stuff was Morgan turned it off when he found no way to make money from free energy. But in the national interest this would be less a factor and worth the investigation.
And for all the scientists who pooh-pooh this stuff, stand in the back of the room and shut up. Or get on board and go take a serious look at it - get out of your ivory towers and armchairs. History is fraught with new ideas and inventions being denigrated by the "establishment", until they finally arrive, so what else is new? We don't have a lot of time, let's entertain a bit of "thinking outside the box" on this subject.
Some links for you skeptics or those interested in the possibilities:
http://www.cheniere.org/
http://www.youtube.com/watch?v=kGlUZg2pC0Q
Daniel
I fully agree that we have serious problems to address in the future with oil. However, there are two ways to look at this:
1) Glass half empty: High oil is a disaster for the US and we will be left to a Mad Max existence where your feral wolf child will fend of neighbors with a steel boomerang.
2) Glass half full: Oil will go up, but the worse it becomes the faster alternatives become economically viable. This is where America shines - our innovation to real problems (currently these problems are still perceived as hypothetical or future problems). For example, imagine wind and solar are viable at $100 barrel oil. In a short period of time alternatives can step in and Boon Pickens can buy his shirt back.
Problem is, even with a rosy outlook, the time to market for alternatives might take too long to market to stop pain and suffering. As my father once said, “Boy, you need to learn to expand your comfort zone.”
Anonymous
None of this will matter if there is a depopulation event. Just like the financial crisis was planned, so is depopulation. Watch the movie Endgame to learn more.
OldManOnFire
Let's see...less oil each day...more industrialization...about 2 billion people in China and India starting to consume more oil, 50% population growth during next fifty years...USA and it's citizens are dependent on oil...the crap hit the fan last year with only $4/gallon gasoline...the US economy teetering on the brink...this in my opinion is a recipe for horrific disaster!!
It's quite easy to envision the scenario, or maybe I should say panic, that might develop if terrorists destroy a couple of oil refineries, or a natural occurrence disrupts a pipeline, or one or more large oil fields goes dry, or China and India gain more market share of oil leaving the USA wanting or without, or a regional war (perhaps nuclear) anywhere in the Middle East.
And I don't see a single sign of citizens and business in the USA slowing oil consumption. We are not prepared for minor disruptions never mind large scale problems. Oil and potable water are the two largest factors to sustain what we have worked so hard to achieve...and to survive the next couple of decades...
Novista
I read James Kunsler's "The Long Emergency" a year ago, so this fine article was no surprise. Still, the visual aspects should be a wake-up call to those who don't like to read words because it makes their lips hurt ...
The Oracle
Jim..I disagree this time. I believe that there is more untapped oil in the Alaskan ranges than all of the Middle East. Peak Oil is a reality but it's done via market manipulation.
StevenHansen
peak oil needs to be expanded to include oil not recoverable at current pricing.
at $200 per barrel, a lot of alternative sources of energy become viable.
Anonymous
Unfortunately there is a "VERY BIG" hole in this article!
If we believe that there is only a limited supply of Oil, and if we believe that the demand for Oil cannot be severely reduced,
then how did the Crude Oil market suffer the worst plunge in the history of Crude Oil?
Someone is very wrong here!
As the Market is very rarely wrong, the Crude Oil market says the Experts are just good bs artists.
Remember the Experts also created the Sub-Prime Derivatives market that has just broken the financial system of the world!
That's Two out of Two Wrong for the Experts!
Oh, and they also told us Real Estate couldn't fall in price!
That goes along with Buy And Hold for your 401!k/IRAs
Why does anyone even listen to these clowns?
Praxeologue
'As the market is very rarely wrong'... bwahahaha... mwhahahaha... stop it, surely you jest
JimQ
All prices are set at the margin. This concept is beyond many people. If the world market was seen as 2 people who each need 50 gallons of gas per day to get to work, then demand is 100 gallons per day at $2.00 a gallon. If the supply drops to 95 gallons per day, these people still need to get to work. A bidding war erupts for those last 5 gallons, driving the price up for all 100 gallons. The worldwide recession has temporarily reduced demand enough to drive prices lower. That supply demand equation won't last.
JohnGalt
A very thought provoking read. Thank you.
Since this is inevitable, would it be wise to shift some cash to the energy sector, IYO?
As a aside, has anyone read a follow up to the solar energy breathrough at M.I.T.?
Olivier
totally agree.....crude oil is going to jump for several reasons
here my article (translated by google): http://translate.google.ch/translate?u=http%3A%2F%2Fblog.crottaz-finance.ch%2F%3Fp%3D313&sl=fr&tl=en&hl=fr&ie=UTF-8
and also commodities after crisis
http://translate.google.ch/translate?u=http%3A%2F%2Fblog.crottaz-finance.ch%2F%3Fp%3D1768&sl=fr&tl=en&hl=fr&ie=UTF-8
fasten your seat belts
JimQ
Daniel
There is no glut. Our oil inventories are at the same levels as 2007. Based on everything I've read, the prices we are experiencing today will be short-lived. CNBC had the former CEO of Shell on this morning. His view was exactly the same as mine. The next 10 years will be ugly. The morons interviewing him had no clue what he was saying.
I would highly recommend reading through Matt Simmons' powerpoint presentations at this link.
http://www.simmonsco-intl.com/research.aspx?Type=msspeeches
Anonymous
Eventually we need to address the population problem. Oil is only one resource in limited supply. Next is water and after that will be topsoil.
Unless we want to have the collective intelligence of bacteria in a petri dish we need to start addressing population growth.
scott
One aspect of our problem that may have been omitted in your article that may help explain the U.S.'s unbalanced consumption levels--USD hegemony. The dollar being the worlds reserve currency helps to subsidize U.S. consumption. Foreigners buying U.S. debt because the dollar is the worlds reserve currency has incrementally allowed our government to go from the worlds top creditor nation to worlds leading debtor nation. It appears that our government plans to inflate/depreciate our way out of debt causing the world to back away from the dollar at the same time that this capacity for growth in producing energy unfolds.
mulligan
Some say we are running out. Some say we are not. My take. Oil is being used as a political football. And at least two solutions are hoped for. Some want a go ahead to drill, and drill, now and anywhere. (I hope for this). Some want huge investments in wind, solar and other green's. (I do not hope for this). If as and when oil becomes scarce, investment in alternate energy souces will happen automatically, if free enterprise is left alone. In the interim, and the green's should not be opposed to this, approval should be given for construction of many nuclear facilities. This is a no brainer and would solve our energy problem relatively quickly. In summary, oil drilling and nuclear programs should go ahead full steam. Green programs should be secondary at this time. Why? They are expensive, require taxpayer subsidies and accomplish very little is the short term.
JimQ
Mulligan
New nuclear plants would be welcome, but you can't fillup your SUV at a nuclear facility. I don't think wind turbines need subsidies from the government. What we do need from the government is quick approvals to build the damn things. This we won't get because we will need to protect the 3 yellow bellyed double breasted warblers that might be harmed in the construction of the wind turbines. Greenies hate nuclear too, because of the waste that we can't put into the underground caverns that were built with billions of our tax dollars and now won't be used.
If we did everything starting today: drill, nuclear, wind, solar, higher gas mileage requirements, cap and trade - it will still not avert $200 oil in the next 10 years. We've ignored the problem for 30 years, and now we'll pay the price.
Greg
Mr. Quinn,
Great summary of the issues
What is your opinion of building a $4 billion, 19-mile toll road these days when the financing is based on issuing roughlly $2.8 billion in debt, plus interest?
Of that debt, $750 million in GARVEE bonds to be retired with future federal transportation appropriations, and $2 billion is toll-revenue debt.
The financing, use and revenue forecasts are based on cheap oil until 2045.
Do you anyone who could critique this project and the underlying financing and risk?
Thanks.
Phil
Great article as always, JIm. I guess we still need to save the Escalade and the Jeep Cherokee. People don't have a clue as we follow the herd as it keeps getting closer to the abyss. I think we should copy the design of
www.flytheroad.com and mass produce them in America with whats left over from GM. Everyone seems to love a motorcycle and this seems like it's a lot of fun.
basehitz
Jim, thanks for the instructive article. I recently read Simmon's book and found the arguments persuasive. The history of US citizens and politicians acting pre-emptively to head off a crisis is not encouraging. And endless opposition from special interest groups to stall seemingly every solution suggests that only after the disaster is severe will enough sheeple pull themselves away from American Idol to force their elected politicians to listen to someone other than their special interest groups. And if this gets further compounded by middle east conflict (say Israel takes out Irans reactors), or China stops buying our debt, well this could be catastrophic.
WayneS
GM can only make vehicles people will buy.
If there really was global warming and an oil crisis, racing and tractor pulls would be outlawed, gasoline and diesal would be taxed to $4+/gal, major highways would become toll roads and there would be zero tolerance for speeding.
We, the consumers, are the problem. We could reduce our energy waste enough to forego any crisis. But, there is no money in conservation. Last year with $4 gasoline 1700 lives and billions in health care (bodily accident repair) was saved.
Alternative energy projects are designed to make money, not clean energy. They have all been around for 50 or more years. Nothing I have seen is new or innovative.
kraut
The lack of exploration efforts - due to current low prices - is indeed rather frightening. The EU commissioner in charge of energy affairs already had been criticizing Russia's Gazprom for using up their profits to purchase other companies rather than exploration efforts. It looks like nuclear power - like it or not - will see a renaissance and wind parks still need gas turbine generators as back-ups.
As the article correctly points out gasoline tax has motivated European car builders to develop low-consumption cars.
In case of the USA, a kind of gasoline tax should be considered as a means to artificially create a somewhat stable and reliable gas price. Have a higher tax in times were the oil price is low and lower the tax progressively as oil prices climb.
While this is an unpopular measure, the alternative - quite simply - is another oil price shock that is bound to happen sooner or later.
WayneS
Kraut - XOM et al developed a gas field in Alaska. They developed a high-strength steel pipeline necessary to transport said gas safely and to protect the environment. Alaska won't let them build the pipeline and if they don't pay for Alaska's pipeline, they will sell XOM leases to someone else so Alaska doesn't have to fulfill their end of the contract.
American car builders are making vehicles that get 40-70 mpg and selling them in Europe. The US will not let them sell them here even though Europe's emission standards are higher.
People could conserve energy greater than all alternative energies combined without oppressive taxes, but they won't.
EO Barlow
As someone who is in the O&G business, drilling in the Western Rockies, I have first hand knowledge of the idiocy of our government, it's political leadership [both parties] and the illogical underpinnings of the EPA and the radical environmentalists who surround it and profit greatly through it. The media being just as radical as the worst of them. We watch in amazement as a college student disrupts an open bid BLM lease sale in Utah, forcing competing bidders to pay exorbitant prices for leases they did win. This 'student activist' even won close to $2 million in leases which of course he defaulted on. The entire lease sale was cancelled, forcing bidders to lose all properties purchased, even those that were bought 'fair and square'. Then, to top it all off, the prosecuting attorney tells the press that this guy will not have to serve the allotted time for this type of fraud. Lord, oh Lord, what is this country coming too? If this guy had been a 'hard assed' rancher or oilman or gun lover the press would have demanded that he be 'strung up', as they would have proceeded to devastate his life and privacy, all the while asking prosecutors to 'throw the book' at him. The 'lefties' and the press, along with nearly all academicians and government workers are empty headed fools who have no idea 'where things come from', nor do they understand the effort and risk, let alone the money it takes to wrestle the resources they love in finished form out of the bowels of mother earth. All real wealth comes out of the ground. This is a concept that none of them nor their professors understood.....we are going to pay one helluva price for allowing this corruption of our educational system to become the mantra of the day.
With all this said, in the final analysis, the major problems we have in this country stem from a basic flaw in our system. A flaw so great, so misunderstood, so mystifying and hidden that some of the best of minds overlook the importance of such a fatal flaw. Of which I speak is none other than the Federal Reserve Bank and the corrupt monopolizing of our nation's currency for the sole purpose of 'skimming' profits that would normally go to 'the people' diverting them into their own pockets under a cloak of secrecy and utmost deceit.
As Jim so aptly points out; our politicians are blind to mammoth problems on the horizon, they've just shown us how blind they are during the last two years. Why are they so blind? Because they are compromised by the money powers who help get them into the offices they now hold for the benefit of themselves and those who put them there....now don't go getting any strange notions like; 'the people put them there'. Far from it....when both parties have sold their soul to the 'boyz', we have no choice in the matter.....we only have the 'appearance' of choice. The laziness and lack of education in our country..[lots of PhD's, MBA's, MD's even Nobel Prize winners are essentially lacking in education, just like the Wal-Mart workers, nail girls and 'student activists'] has reached such staggering proportions that any issue of substance is beyond their understanding let alone mustering any ability to articulate it has allowed the media and politicians to 'have their way' with 'them' and along with that, 'we' are dragged along, fighting what seems a losing battle as we watch the 'producing class' shrink and get dumber by the day, while the 'parasitic class' grows and develops more sophisticated and surreptitious methods by the minute.
One other issue that Jim mentions in his article that most of us always assume to be correct, as our entire lives have been shaped by it. Namely, never ending growth. The assumption that this is set in stone could lead many of us to make some serious judgment errors in the future. This idea is extremely prevalent in the minds of all of us but, it could be as flawed a thinking as one could possess. An entire thesis could be written on this subject at present, as it is sorely needed. Not some polemic like Kunstler's, "Long Emergency", but something of substance with some serious philosophical and mathematical constructs supporting a serious questioning of the premise. Jim seems qualified for such an undertaking.
Fuzzy
Great Article Jim, as always full of data, references and facts. Some comments on my part
OIL is only for cars Myth
=========================
I believe the mass majority considerably underestimate the far reaching consequences of an oil shortage. Most people think oil (petroleum) is only affected by cars or SUVs. This could not be further from the truth. As I commented earlier, oil affects nearly EVERYTHING in our modern day lives:
- Plastics
- Synthetic cloth which is in 90% of all clothing
- Urban sanitation systems
- Food (those strawberries from California did not walk themselves to the supermarket aisle)
- Construction
- There are others I just can't think of them at the top of my head.
Hence the entire economy and our way of life currently depends on oil, not just the car we drive. IF there is a sudden oil shortage, the results will be devastating and ugly.
Nuclear Energy 'alternative'
============================
Alternative energy sources have jumped into the public conscience the last couple of years. One of the more popular ideas is the resurgence of nuclear power. Despite advances of safety and efficiency, nuclear energy still remains a very environmentaly dangerous alternative. People love nuclear, until they find out that a plant will be built nearby, or waste is stored down the street. Nuclear waste can't be recycled as easily as the French are trying to make it sound (they have a stake in this industry). I think I'll believe one of the most reknowned academics in ecology, David Suzuki:
http://www.straight.com/article-148255/david-suzuki-a-nuclear-reaction
The costs, both financial and environmental, of nuclear energy far outway its benefits. No one is even mentioning the biggest cost of building nuclear plants: INSURANCE. The chances of an accident are reduced, but an accident will still be devastating and unforgiving.
Even though they are less efficient, Wind and solar are better alternatives. I would rather have billions spent in the next 10 years promoting research and development on improving these technologies than spending it on bringing nuclear plants on line.
"Can't fill up your car on wind power"
======================================
I'm afraid you're wrong in this one Jim. An Electrical car can easily be "filled up" by any form of electical power including real clean and real reusable energies such as solar or wind. Long haul and air travel remain problematic and dependant on petroleum based energy. However, 90% of our trips involve short distances within 100 miles, distances electrical cars of today can cover between recharges. That would take a nice dent out of oil demand.
Long Term Solutions
===================
Long term solutions won't be easy, it will involve the funding and support of clean reusable energies like wind, solar and if available Hydo. There is a political gain out of these energies as well, because they are all in nature localised sources, it increases the independance of a nation on energy ressources. Libertarians will LOVE that. But these technologies will take time, easily 20 to 30 years, we have to start somewhere.
If we harnessed just 0.6% of the solar energy available on our planet's surface (Google: Ray Kruzweil solar energy), we would be able to meet ALL our energy needs. As low as that number sounds, we are no-where near that number with the solar technology of today. There is mass room for improvement and benefit.
Computer chips, computer systems, the internet, all these did not develop overnight but were the fruits of decades of development. Can you imagine the world today without this technology? So patience is needed which segueways to my next point.
Short Term Solutions
====================
Summed up in 3 words: CONSERVATION, CONSERVATION, CONSERVATION. Our modern way of life is such that everything we do involves some sort of energy consumption. WE have to rethink EVERYTHING to see how can we conserve energy. Everything from the production and use of our products, to where our food we eat is produced, to how our cities are planned for most efficient distribution.
The little things are easy and can already bring results. The big things like urban planning (which massively lacks in North America), will take more time. But it provides a worke-able bridge until the long term solutions become more viable.
If enough people get involved in these short term solutions, they may actually help us avert a WWIII.
bleemo
the best option is to start reducing our overall population now, until nature does it for us, like yeast in a wine barrel.
as someone says over at theoildrum.com, "are humans smarter than yeast?"
Trombonehead
Very interesting article. You've left out a very important point in this discussion about oil prices,however. What happens if Israel decides to knock out Iran's nuclear capabilities in the very near future? Everybody is tiptoeing around this issue, and Obama's policy of dialogue with Iran is a good idea, but doesn't solve the problem. Iran is steadfastly going ahead with its nuclear program in the face of all international objections. Their capability to produce nuclear weapons becomes stronger by the day. At what point does Israel decide enough is enough, when the reality of even a single nuclear missile reaching Tel Aviv spells catastrophe? What happens when the Strait of Hormuz is closed in such an event? How much will oil cost then? If anything concerns me about oil prices, it's not peak oil but the very real threat of this confrontation occuring in the near future. Don't forget that Benjamin Netanyahu is now the leader of Israel. I've seen him several times being interviewed about the threat from Iran, and this guy is deadly serious. It would be easy to dismiss all this as fear-mongering and hope that good sense will prevail, if it wasn't for one major problem: the Iranian fundamentalists are not listening. They see nuclear development as their fundamental right. Israel sees this as an extremely major threat to their existence. God help us if this escalates into a major shooting war and half the world's oil supply is cut off overnight. Anyway, thanks for the opportunity to share my thoughts. By the way, one thing I didn't agree with: putting the Buffalo Bill Historical Center in your list of wasted taxpayer dollars. This is probably some kind of grant to support one of the great museums of America. The Buffalo Bill is a treasure of American history and deserves all the support it can get, so I don't see why you think a small amount like $190,000 is objectionable. You'd be better off to list the incredible waste of taxpayer dollars on the war in Iraq.
Fuzzy
Bleemo,
Good luck forcing populations to reduce their numbers via policy, its not going to go down well. But the point is moot because it's backwards. If you take a look at petroleum (oil) production curves and population growth curves, you will notice that both of them overlap. When the effects of peak oil and post-peak persist (hence energy and the many petroleum derived products become very expensive) you will see it will have a major adverse effect on world population. Another factor that 'naturally' reduces population growth is education and industrialization (India anyone?).
Trombone,
If a nation become self-sufficient in its energy sources, it would not have to entangle itself with the business of other nations. Not only is the US forced to get involved in the events in the middle east because of its oil addiction, but it will expose itself to the harmful consequences of such entanglement. Dr Paul explains it very well here:
http://www.youtube.com/watch?v=08gTWqWrI4M
On a bit of a tangeant: Don't believe President Netanyahu, he is one of the most right-wing governments in power today. The ideas and policies pushed forward by the new Isreali Foreign Minister Lieberman are absolutely frightening and in no way be accepted by any libertarian. (http://www.independent.co.uk/opinion/commentators/fisk/robert-fisk-why-avigdor-lieberman-is-the-worst-thing-that-could-happen-to-the-middle-east-1647370.html).
Back to Netanyahu, his claims about Iran contradict what the CIA reported in 2007 and what the UN's IAEA have been saying for years: Iran have no nuclear weapons program. Can't you remember how the US and Isreal were so sure that there were weapons of mass destruction in Iraq under Hussein? It's all nothing but hot air.
But all of that is hot air, again, the best for the US is to follow policies that promote energy independance, clear from any of that foreign bickering.
Skyprince
Hmmmmm...well, if you can't beat 'em, join 'em. I'm buying as much oil (mostly futures) as I can afford. It seems a much better investment than US corporations right now.
Anonymous
"Oil Industry Braces for Drop in Gas Demand"
http://online.wsj.com/article/SB123957686061311925.html#mod=whats_news_free?mod=igoogle_wsj_gadgv1
Keopele
Hi Jim,
Wow!! You are almost as cynical as I am!
I read some of your posts and I agree with you on most of what you have written. I have done a lot of research and try to remain objective in my conclusions about oil, the economy national debt etc...
The thing to remember about Human behavior that explains others who don't agree with the obvious. People are biased by there own best interests and that fear and greed polarize common sense. Human beavior is such that, we want to believe in what is in our best interests. We tend to "hang on the facts" that support the reality that we want and "diminish" those facts that don't. This behavior creates a very skewed perspective of reality and one that will eventually need to reconcile. I have seen this behavior on a large scale as a mortgage broker. My clients didn't really want to truth, they wanted someone to tell them what they wanted to hear. I never told clients what they wanted to hear, which is why I lost clients to liars who did!
This behavior is typical as to what is fundamentally wrong with our society. This behavior will lead to our destruction! People's inablity to remain objective is seeded in the need for self preservation and disconnect with the whole.
JB
pipefitter
Have to disagree on the price forecast. Currently, the oil to natural gas ratio is about 14:1 ($52 to $3.70). In other words, on a btu equivalent basis, crude oil is overpriced by double, at $52/bbl. If the natural gas price is correct, then eventually, oil should drop to $26/bbl. And with the world's economy contracting sharply, look for natural gas to drop even more, probably below $3/mmbtu this summer, unless it is a scorcher. And there is so much gas out there already discovered. Any kind of price spike will bring a lot of it on to market fairly quickly.
The main problem with the analysis is the assumption that world's demand for crude oil will stay flat. But why would it stay flat if the world's GDP drops 10% or 15% from here over the next year or two? We're in the 2nd inning of another great depression of 9 innings in length, and a modest oil price spike will turn it into an 18 inning affair.
On the supply side, OPEC has been cutting production like mad for six months. There's a massive amount of spare capacity out there.
Anonymous
Hey Jim... There is a guy by the name of Ziad from Blackhawk Partners in New York out there plagiarizing you. He is sending this out verbatim in a newsletter. Great article... Would hate for someone else to take the credit.
ptownman
You think the American economy does not run well without abudant credit, well just wait til the oil cirsis hits.......
"Should have stayed on the farm, shoulda listened to my old man".......
Elton John
Trombonehead
Hey Jim...Still think that the list of supposedly wasted tax dollars is unfair to the Buffalo Bill Historical Center. When you consider the war in Iraq has cost a trillion dollars, giving one of America's greatest historical museums a measly $190,000 is peanuts. It's definitely okay with me. PS to Fuzzy re Iran: Latest news reports on Iran's nuclear weapons capacity from the IAEA says Iran is reaching "breakout" capacity. This is the moment when fissionable materials from their thousands of centrifuges can be converted to nuclear weapons. If Iran does not back down, and remains committed to building weapons, an attack on their facilities will become inevitable within 6 months according to some reports. Israel is being backed into a corner and it can only be pushed so far. Iran has world's 3rd largest reserves of oil and natural gas, I believe---so do the math about what's going to happen to the price of oil and the world economy when the shit hits the fan.
so cal oil
re: business travel by air long distance only
city travel by bike, ox carts, soon/ in the future.
see vehicles: persons ratios, West 1 car : 2 people.
How do developing nations manage with fewer cars?
Anonymous
Jim or anyone else out there - can you name one commodity that has sustained a real increase in selling price?
kraut
At least 'they' are aware of the problem (postponing exploration projects during current market weakness will drastically increase shortages of oil after Depression is over):
http://www.bloomberg.com/apps/news?pid=20601087&sid=ax.WSljkhssw&refer=home
GeithnerCrook
would highly recommend reading through Matt Simmons' powerpoint presentations at this link.
http://is.gd/HGYt
GeithnerCrook
http://is.gd/HGYt
uju
http://is.gd/HGYt
http://is.gd/HGYt
uuuu
http://theburningplatform.com/story/805/editcomment/4631
http://is.gd/HGyt
http://theburningplatform.com/story/805/editcomment/4631