Heads in the Sand

I was driving to work this morning listening to MPR and the Marketplace segment featured an interview with a director from the NGO Global Witness that promoted their new report “Heads in the Sand” talking about the coming global oil supply crunch.   “Hey!” I thought to myself, “oil prices have plummeted and gas is cheap again.  What in the hell is this guy talking about?”  Well, not really, but it sounds good and is probably reflective of the thinking (what there is of it) of the American public.

While not coming right out and stating that the global oil supply is finite and that we’re moving into the “lower quality and harder to extract” part of the inventory, the report is pretty stark in what it does lay out:

Governments have not taken on board the four underlying oil production factors which clearly show there is a problem.  Heads in the Sand outlines these factors – declining output, declining discoveries, increasing demand and insufficient projects in the pipeline – which clearly show that the world is facing an imminent oil supply crunch.  Some of these factors have been apparent for many years. [1]

Governments and multi-lateral agencies have failed to recognise the imminence and scale of the global oil supply crunch, and most of them remain completely unprepared for its consequences. The report calls for governments to officially acknowledge the crunch and to shift urgently into safe sustainable energy alternatives.

“The world’s governments have been asleep at the wheel. Their collective failure to recognise the imminent end of the oil age means we have lost a decade in which action could have been taken to develop alternatives and avert the worst outcomes of a dramatic drop off in the supply of oil…”

As the gentleman on the radio pointed out this morning, the $147/barrel oil price we saw in 2008 was possible taster of things to come.   We still had some wiggle room in supply then.  What will happen in the future when we are all trying to bid for oil output that only covers 90% of global demand, or 50%?

I’ve taken a necessary break from this blog to focus on other things (work, family, etc) and to recharge my blogging enthusiasm.  No promises on how often I’ll be posting in the future, but please know that this blog is not dead.  There’s too many signs popping up about what the future may bring, and most of it ain’t pretty.

Ten Years

That’s what we’ve got until there is ‘significant risk’ of a decline in global oil production according to the UK Energy Research Council.   We’ve seen lower oil production recently, of course, but the argument can be made (and it’s a good one) that it has more to do with the global economic slowdown versus inability to keep total production numbers up.

The report said the world had used less than half of the planet’s conventional oil, but the remaining resources would be more difficult and expensive to extract.

With exploitation of the world’s reserves running at more than 80 million barrels a day, even major new discoveries, such as in the Gulf of Mexico, would delay a peak by only a few days or weeks.

Robert Gross, of UKERC, said: “The age of easy and cheap oil is coming to an end. It doesn’t suddenly come to an end, but we’re moving to increasingly difficult and expensive oil.”

He said the public should expect to see higher and more volatile petrol costs in the future, with long-distance travel also becoming more expensive.

By 2020 my oldest child will be 18.  By the time he turns 30 he (and all of us) could be living in a radically different world.   The end of cheap petroleum and the end of the global dollar hegemony are just a few of the forces that will reshape the planet in the 21st century.

In the meantime, if you can manage to hold on to your job things won’t be too bad for some time to come.  The economic slowdown has led to less inflationary pressure in the cost of living from what I’m seeing here in the great white north.  Long-term, though, I think inflation is inevitable.  The US government (and most of its citizens) have racked up huge debts that will be very, very hard to pay off, and if you pay attention to what the Fed is doing on Wall Street, it looks to be trying to monetize the debt as much as possible without triggering inflation and/or panic.  The fact that oil prices are not in freefall and gold is showing strength are both votes of no confidence in the dollar.  Combine this with the news reports and rumors floating around about the Gulf states not wanting to deal oil for dollars and stories about having a new global reserve currency and you can see that change is coming… just not the sort that Obama or anyone else promised.

The US standard of living has been based in large part on the ability to offload our debt obligations on other countries that need dollars for global trade.  Once that comes to an end, there will be many debts that will be impossible to repay.  This is a very bad thing in any fiat currency system, which relies on incessant expansion of the money supply to keep going.

The Hidden Hand of Peak Oil?

Gail the Actuary has another short overview of peak oil at The Oil Drum today.  Great stuff as always from her.  The summary section has the good stuff, and I agree with her assessment that the global peak in oil production helped trigger the financial crisis we’re in currently and that low oil prices reflect a temporary glut in supply due to demand destruction, not a permanent state of cornucopian bliss due to magical new supplies of light sweet crude making it to the market.

For all of the hacks (both political and ‘journalistic’) that are calling bottoms to the equity and housing markets, all I can say is bullshit.  Banks are keeping large numbers of foreclosed homes off the market to avoid further scuppering house pricing.   Likewise, the largest banks are being intentionally opaque with regards to their balance sheets to avoid having to show what levels of toxic crap they’re still holding on to.   It is impossible to truly call a bottom until all of these assets are ‘marked to market‘ and cleared off the books.    That is unlikely to happen willingly anytime soon, so we’ll continue to bumble along in what looks to be a prolonged, jobless ‘recovery.’

Our entire economic and monetary models are based on perpetual growth, therefore we cannot have economic growth without energy supply growth.  Without a real economic recovery starting, we’re stuck in a holding pattern at best.    For those people that can hold on to their jobs, there will be deals to be had in the retail sector as the pool of willing shoppers contracts.   Like everything else happening right now this will be a temporary phenomena.  Eventually we’ll hit some tipping point where we’ll be forced to adapt to the new market conditions.    Whether this will be an immediate result of decreasing oil production or some other trigger remains to be seen.

Looking at 2009

Time again for another predictions post looking at what I see ahead for the new year that’s approaching rapidly.   I do these posts more for my own amusement rather than to engage in any serious attempt at prognostication.    For a more in-depth listing of doomer-ific predictions, please check out Kunstler’s latest post.  Lots of good stuff in there.

I’m picking up on a number of the same vibes that Kunstler and others are and think that 2009 will indeed bring in change, although it will not necessarily be the type that people voted in favor of when they elected Barack Obama to the presidency.   I’m thinking more along the lines of the old intro tagline for the fourth season of Babylon 5… the year “everything changed.”

SUV Sales Rise Due to Cheap Gas

What’s that old quote about those who fail to learn the lessons of history are doomed to repeat them?

Trucks and SUVs will outsell cars in December, according to researchers at the automotive Website Edmunds.com, something that hasn’t happened since February.

Meanwhile the forecast finds that sales of hybrid vehicles are expected to be way down.

link

Anyone who had any doubts about the short memories of the American public can use this news as Exhibt A.   I guess the time to get that Prius you’ve had your eyes on is now.

As I mentioned in a comment recently, the global economy swirling the drain will cause lower demand for many commodities, including oil.   Most of the countries that export oil rely on the income from those sales so heavily that they will continue to pump out plenty of the stuff for the time being.  When the choice is pump oil or have the poor, unfed masses rioting in the streets, the calculus regarding how much oil to pump in a falling market gets a hell of a lot easier.   This will cause a glut for a while most likely.  It will also kill off or delay some of the proposed or planned production that was relying on $60-$80 oil to be profitable.

Some pundits are expecting low oil prices to be around for a while.  We may enjoy lower gas prices for some time to come, but keep in the back of your mind that those low prices are caused by the global economic crisis.   If the economy comes roaring back in a few years’ time and in the meantime we have consumed more cheap oil while simultaneously delaying exploration and production of ‘non-conventional’ plays, where do you think we’ll end up?

So… How About Peak Oil Now?

One of the interesting things about blogging is that it’s a public record of your thinking over a period of time.  Ever so often people find old posts while searching and then comment on them.   That happened to me again today, as someone posted a comment about a peak oil-related post from last summer.

Here’s the pertinent parts of the comment:

We are awash in oil. Supply currently far outstripping demand and we are in a mild recession, not a depression. Gasoline is down to $1.65 — what it was in 2004.

And if you follow the news, you will see more and more reserves are being found. Yes, we may run out of oil some day but it won’t be in my lifetime, my children’s lifetime, or even in the lifeime of my grandchildren. And by that time we will have moved on to other energy sources.

A few comments on this.  First, peak oil is not about the end of oil.  It’s about production flows.  Yes, there is plenty of oil available, and we are finding reserves all the time.   The issue is that we are finding smaller fields, usually of lesser quality, and they are harder to extract oil from.   Combine smaller, lower quality fields with the depletion of many of the larger, high-quality fields and it is obvious that there can be a supply problem at some point down the road.    We will be extracting oil from the ground hundreds of years from now… just not in large enough quantities to keep our current petroleum-driven way of life going.    People who have put way more research into this than I have disagree about when we will or maybe already have already reached the ‘peak’ of oil production.   We won’t know for sure until the peak is past, so for now we just watch and wait.

The dig about following the news goes both ways.   Yes, more reserves are being found.  At the same time several major producers are seeing their oil production drop… sometimes fast.    Will new production coming online be able to replace if not surpass depleting fields?

Gas prices have indeed dropped precipitously in the last few months, as have most commodities.   I personally wouldn’t associate this with a return to business as usual.   The global economic crisis will reduce demand for oil worldwide, which will have an effect both production and consumption for some time… extending the plateau for some time possibly.

As to whether we are in a mild recession or something worse, a lot of it depends on your personal perspective.   Like the old saw goes, when your friend loses his job, we’re in a recession; when you lose your job, it’s a depression.   I think we are still in the opening phase of a longer economic shakeout that is looking to be deflationary at least for now.   Prices on lots of things are dropping.  The question is how far will they drop, and how much economic damage will be done by the time this cycle ends?

Reasonable people can disagree.  If the commenter truly thinks that we are awash in oil, might I suggest posting his thesis on The Oil Drum and see how the statistical nerds, oil industry insiders and other knowledgeable folk respond.

Not Throwing Fuel on the Fire

Interesting open memo by Hirsch Report author Robert Hirsch, in which he more or less tells peak oil proponents to shut up… at least for a while:

TO THE PEAK OIL COMMUNITY:

The world is in the midst of the most severe financial crisis in most of our lifetimes. The economic damage that has already been wrought is considerable, and we have yet to see the bottom or the turnaround. Against this background, I suggest that the peak oil community minimize its efforts to awaken the world to the near-term dangers of world oil supply. The motivation is simple: By minimizing our efforts in the near term, we may not add fuel to the economic fires that are already burning so fiercely.

We are all aware of how disoriented governments and business are right now. Our leaders, leaders-to-be, and best minds are disoriented and seeking pathways out of the current morass. The public is in a quiet panic mode — those who were reasonably well off are less well of, and their options for action are limited. Those that have lost their jobs and/or homes are desperate. Businesses and the markets are in what might be called a free fall. If the realization of peak oil along with its disastrous financial implications was added to the existing mix of troubles, the added trauma could be unthinkable.

Like many of you, I’ve devoted my recent efforts to trying to wake the public and governments to the impending horrors of peak oil. As much as that awaking is urgently needed, continuing to press forward now is almost certainly not in the broader interest.

Many may be tempted to directly challenge the recent IEA World Energy Outlook. I am among those who were very disappointed. Pressing those concerns at this time might further the peak oil “cause,” but it could well do much more damage than any of us really intend.

Please keep up your studies and thinking, because helping the world realize the dangers of peak oil is an absolute must. In the near term, keeping relatively quiet is likely the better part of valor.

Mr. Hirsch has a point… many people are freaking out right now about losing their jobs, houses and means to secure food & other essentials for their family.   Hammering home the point about declining output of global oil production is only going to make those people freak out even more.

An imperfect analogy would be to go back to the last time the world’s economies simultaneously went into the shitter… back in the 1929-39 timeframe.   One of the things that dragged the world out of its prolonged economic slump was the breakout of World War II.  Global war is at least part of the ‘added trauma’ Mr. Hirsch is referring to.   War can be a very effective way to jump-start the economy, mobilize the populace and also thin out the number mouths to feed somewhat.  Our modern forms of warfare are particularly effective at this.

I have no desire to see the globe plunged into another cycle of global warfare if it can be avoided.  I usually limit my peak oil screeds to this site and a few other online fora… so I’ll just continue to do that.  There will be plenty of time for illuminating others down the road.

HT:  Energy Bulletin

IEA Publishes World Energy Outlook 2008

The IEA has put out their World Energy Outlook for 2008.  The whole document can be had for about 150 Euros if you like, or there will be plenty of in-depth analysis at places like The Oil Drum and elsewhere.

Here are a few key points to ponder…

Per excerpts from the Guardian:

The agency says there is enough oil to support rising demand and output, with proven reserves of up to 1.3tn barrels – or enough for 40 years – and potential reserves of as much as 3.5tn barrels. But it says the increased output “hinges on adequate and timely investment”.

I’m sure that will be no big deal in our current financial dilemma…

And another:

Up to 64m barrels a day of extra gross capacity – the equivalent to almost six times that of Saudi Arabia today – needs to come on stream between 2007 and 2030. Almost half of that is required by 2015, with an extra 7m barrels a day over current plans approved within the next two years “to avoid a fall in spare capacity towards the middle of the next decade”.

(emphasis mine)

Say what?   We are jumping up and down when we find fields capable of punching out 100,000 barrels per day, but to keep up we will need to find multiple fields capable of putting out over one million barrels of high-quality (read: relatively light & sweet crude) per day?   How is this possible?  Does anyone truly believe that the outer US continental shelf or the Arctic will produce enough oil to meet this expected demand?

Enjoy Lower Gas Prices While They Last

The one silver lining I’ve seen in the current economic crisis is that oil prices have dropped like a stone, taking gasoline prices with it.   I gassed up my 4-cylinder sedan for $26.88 earlier this week… gas was $2.19 per gallon.   Tonight there are stations in the Twin Cities area that are advertising $1.97 per gallon.  Crazy, eh?

The last time prices were this low was in early 2007, and I honestly thought we’d never see prices that low again.  I guess I didn’t consider what a global financial crisis and associated commodity deflation would do.   A lot of the current pricing is due to forced selling by hedge funds and other large investors who have been facing margin calls and other fun stuff like that.  It gives us a picture of how much of oil’s $100-plus pricing was due to speculation.

It is interesting that diesel pricing has not fallen as far.  I couldn’t begin to explain why that is the case.  Other commentators out there can.  The main takeaway I get from this is that the prices we pay for food & other goods will not fall much until diesel prices go down.

For those of us who drive or otherwise use a fair bit of gasoline can revel for the moment in the return of lower gas prices.   I would caution against thinking that we are ‘reverting to the norm’ with regard to gas prices.

For your consideration:

Output from the world’s oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows.

Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.

Emphasis mine.  The original story is here.

The article continues in saying that even with additional investment, the annual decline rate is in the neighborhood of 6.4 percent.   We won’t feel this for a while, especially if the developing world’s ability to import oil is compromised due to the global financial contagion that has been sweeping around the world.   Eventually, though, the impact of declining supply will be felt.

Enjoy the lower prices while they last… just don’t be surprised when they start heading north again.

Hurricane Ike

Holy Crap, does this one look big.  I’m seeing reports that there are still thousands of people on Galveston Island, which may be completely flooded by the incoming storm surge.  I’m offsite right now so no links, but they should be easy enough to find.   God help those folks still stuck in the coastal areas.

Ike is only a cat 2 right now, but it’s huge, and the storm surge is predicted to be very high.   The Nat. Weather Service told people on coastal areas that they may face ‘certain death’ if they don’t flee.   Can’t get much stronger wording than that.

Will also be interesting to see how gas prices react, since they have been steadily dropping for weeks now.  Lots of refineries in the general vicinity of Houston.

EDIT:  Here’s the NWS warning… (added emphasis)

LIFE THREATENING INUNDATION LIKELY NEAR THE IMMEDIATE COAST AND
BAYSHORE AREAS!

NEIGHBORHOODS THAT ARE AFFECTED BY THE STORM SURGE…AND POSSIBLY
ENTIRE COASTAL COMMUNITIES… WILL BE INUNDATED DURING THE PERIOD
OF PEAK STORM TIDE. PERSONS NOT HEEDING EVACUATION ORDERS IN
SINGLE FAMILY ONE OR TWO STORY HOMES MAY FACE CERTAIN DEATH. MANY
RESIDENCES OF AVERAGE CONSTRUCTION DIRECTLY ON THE COAST WILL BE
DESTROYED. WIDESPREAD AND DEVASTATING PERSONAL PROPERTY DAMAGE IS
LIKELY ELSEWHERE. VEHICLES LEFT BEHIND WILL LIKELY BE SWEPT AWAY.
NUMEROUS ROADS WILL BE SWAMPED…SOME MAY BE WASHED AWAY BY THE
WATER. ENTIRE FLOOD PRONE COASTAL COMMUNITIES WILL BE CUTOFF.
WATER LEVELS MAY EXCEED 9 FEET FOR MORE THAN A MILE INLAND.
COASTAL RESIDENTS IN MULTI-STORY FACILITIES RISK BEING CUTOFF.
CONDITIONS WILL BE WORSENED BY BATTERING WAVES CLOSER TO THE
COAST. SUCH WAVES WILL EXACERBATE PROPERTY DAMAGE…WITH MASSIVE
DESTRUCTION OF HOMES…INCLUDING THOSE OF BLOCK CONSTRUCTION.
DAMAGE FROM BEACH EROSION COULD TAKE YEARS TO REPAIR