Wednesday, August 1, 2012

"Economy Permanently Stuck in Slow Growth Mode"

"Economy permanently stuck in slow growth mode"?

No kidding.

Look at the graphs of Oil supply into California, Spain, and Italy in my 2 previous posts. Notice that the decline in Oil supplies into these regions came before the summer 2008 meltdown (the same meltdown that is still slowly melting despite the world's Central Banks printing and the government's "stimulus" spending). Some may see this as a chicken and the egg problem. I see this as declining Oil availability to these markets resulting in severe strains for their economies. That circumstance is the new condition and is not a problem to be "solved".

The never ending propaganda of the Main Stream Media and The Powers That Be will not be able to mask the fact that Peak Oil Exports are here; Peak Crude and Condensate is most likely here, and; Peak Liquids may or may not be here - but what the hell are we going to do with all of that Ethane (which at standard temps and pressures is a gas, but is calculated into the NGPL's production formula and which has little chance of contributing to transportation fuels), anyway?

The rate of change has not, to date, satisfied anyone. The doomers were hoping for societal collapse and the cornucopians just can't understand why the current Zero Interest Rate Policy is not working.

Dear Cornucopians: It IS working. This is what working looks like. We are in the beginning stages of energy "descent". The entire world doesn't have to end for this to make things very, very different from anything Westerners have come to call normal. Ethanol and "tight oil" have done wonders for the American economy, as presently constructed (making no accommodation for poor people and food). Now take a look at Europe. They don't have Shale Gas, Tight Oil, and Ethanol. Ironically, their dependence on imported Oil led them to force efficiency via taxation - and now all of the low hanging fruit in Europe has been picked. Declining Oil imports into Europe is cutting into bone and muscle.

No battle plan survives contact with the enemy. The Peak Oil community was somewhat shrill in their assessments, while the Peak Oil Light guys are looking rather smart at the moment. I look forward to seeing how this all works out. By the way... as of right now, as bad as it is... things are far better than I thought would have been the case, say, back in 2006. Back then, I thought that total transportation fuel supply to the U.S. economy would be down 30% peak to trough by the end of 2014. Given the incredible market response with Tight Oil, Oil Sands, and Ethanol, that prediction is likely off by half - perhaps it will be a 15% decline for U.S. transport fuels by end of 2014. However, my prediction might be somewhat closer for Europe. Time will tell.

Peak Oil Light is well under way. Unfortunately, peak sovereign debt has not yet arrived. The response from governments and central banks to all of this might have felt good in the short term. But as Rick Santelli of CNBC fame recently quiped - "What's the difference between Europe and the U.S.? About 6 years".

I think Rick is an optimist.




16 comments:

Anonymous said...

The world will adjust to less oil via prices -- I'd say half of all oil products are wasted anyway. But a bigger issue is the world economy as a whole, and one word describes its illness: debt. Debt, debt, debt, debt and more debt. That is the problem. But you wont hear anything about that in the media, who don't want to alienate the audience. Nor from the politicians, who don't want to alienate the voters. Because it requires laying blame -- on all of us, and our out-of-control debt.

Greg T. Jeffers said...

Of course the "world" will adjust to less and less oil - there is no other option.

How the ECONOMY, fractional reserve banking, geo-politics, currencies, etc... adjust to less and less oil is going to be far more interesting.

Anonymous said...

Anonymous,

The debt was manageable as long as growth in GDP kept pace. We could lay the payments on our children. Now that growth has stopped, neither we nor our kids can make the payments. Ever.

Regards,

Coal Guy

Anonymous said...

Any one who compares the US to Europe has absolutely no concept of what is going on in either country and should not be listened to. Its not even like comparing apples and oranges its like comparing two animals of a different species. Rick Santelli just does and says what the owners of CNBC tell him to say

Greg T. Jeffers said...

Absolutely.

I don't want to sound shrill, but IMHO a currency crisis is absolutely inevitable - and not that far off in the distance.

Greg T. Jeffers said...

But I am still in the deflation camp - even though it has been a rough camp to be in (unless you were long the long bond) for some time.

Greg T. Jeffers said...

Other than Chinda, I think the U.S. has, so far, had the best experience with peak oil exports world wide. And I think that will continue... relatively.

That won't prevent deflation or the currency crisis.

Anonymous said...

Jeffers,

Nice to read your stuff again, keep up the hard work. I was missing you and the comment section!!


Coal guy,

Hope life is treating you well.

Dex

PioneerPreppy said...

Circumstances have dictated that peak oil remained light even if it caused it like some kind of yin/yang effect. Reducing it's own demand gave it some breathing room.

This first round is just the surface adjustments and I agree Greg the social/political etc adjustments are going to be the interesting part.

Even this drought in a sense has lessened the peak oil demands as 65% (depending on where you read) of the country's farmers use significantly less oil this harvest season.

Anonymous said...

Pioneer, now that you mention it, there is another link between drought and oil, namely oil production. Now that hydraulic fracturing demands so much water, there is a growing competition between farmers and oil and gas drillers for water: http://www.wcvb.com/news/money/Drought-strains-U-S-oil-production/-/9848680/15864272/-/83gk1s/-/index.html

Stephen B.

westexas said...

GNE/CNI Vs. Total Global Public Debt

GNE = Global Net Oil Exports*
CNI = Chindia's Combined Net Oil Imports

*Top 33 net oil exporters in 2005, total petroleum liquids, BP Data + Minor EIA data

In my opinion, oil importing OECD countries are trying desperately to maintain their "Wants" based economies, when a more likely scenario in my opinion is that we will be lucky to maintain a "Needs" based economy.  Note that from 2002 to 2011, the absolute value of the rate of increase in Total Global Public Debt (8.5%/year) is about the same as the absolute value of the rate of decline in the GNE/CNI ratio (8.1%/year). 

If the GNE to CNI ratio were to hit 1.0, China & India would be consuming 100% of Global Net Exports of oil.

At the 2005 to 2011 rate of decline in the GNE/CNI ratio, in the year 2030, 18 years from now, the ratio would hit 1.0.

The decline in the GNE/CNI ratio, which is an indication of the percentage of GNE that will be available to importers other than China & India, will of course make it increasingly difficult, and probably impossible, to repay, at least with currencies with close to current values, the debts incurred trying to keep some semblance of Business As Usual going in oil importing OECD countries.

Following is a graph of the GNE/CNI ratio versus total global public debt:

http://i1095.photobucket.com/albums/i475/westexas/GNEvsDebt.jpg

Debt Data:
http://www.economist.com/content/global_debt_clock

Anonymous said...

I'm suspicious of the presumption that Chindia will be able to outbid the rest of the world forever. Today, they run trade surpluses and have the ability to outbid us. The parts of their economy the produce the goods that we buy are just as dependent on oil there as here. The well will run dry. That is, our ability to buy Chindian products will diminish and their trade surplus and ability to bid for oil will go with it. China is not bullet proof and their internal oil production is considerably less than ours.

Regards,

Coal Guy

westexas said...

Here is a chart showing normalized oil consumption for China, India, Top 33 net oil exporters in 2005 and the US from 2002 to 2010. The trends continued in 2011.

http://i1095.photobucket.com/albums/i475/westexas/Slide1-22.jpg

Of course, the question is, what happens as head toward 2020, and later?

However, note that net export declines tend to show an accelerating rate of decline, so the volume of ANE, what I call Available Net Exports, or GNE less Chindia's Net Imports, will be impacted, in my opinion, both by declining GNE and increasing CNI.

ANE fell from 40 mbpd in 2005 to 35 mbpd in 2011.

westexas said...

Incidentally, at the 2005 to 2011 rate of decline in the GNE/CNI ratio, I estimate that perhaps as much as half of the total post-2005 Cumulative supply of ANE may have already been consumed.

This would be the total post-2005 cumulative supply of net exported oil that will be available to about 155 net oil importing countries, i.e., net importers other than China & India.

Anonymous said...

I'm just thinking, the tail on imports to the US may be a bit longer that we might first think. However, the final number is zero no matter how you slice it.

It is a pleasant surprise how much $100/BBl oil is being found. It may be another pleasant surprise how little $200/BBl oil China can afford.

Of all places, North America seems to be the place to be. Glad I'm here!

Regards,

Coal Guy

westexas said...

My analysis of the increase in US oil production* in the context of declining net oil exports:

http://www.energybulletin.net/stories/2012-06-25/commentary-america’s-new-energy-reality-bidding-war-declining-global-net-oil-expo

*If we use Texas RRC data for Texas production, and EIA estimates for other regions, there was virtually no increase in US crude oil production from 2010 to 2011. The current gap between the RRC and the EIA for Texas crude oil production for January, 2012 is 450,000 bpd.