Scenario:
The U.S. has a 9.8% official unemployment rate. Anybody with any financial sophistication (that leaves out the media and the Sheeple) knows that the U6 rate, the REAL rate, is closer to 18%.
This administration, in an effort to survive into a second term, is willing to search for "an ass to kick". They cause B.P's liquidation. "Yay!" Says the Sheeple and the Left. "Yay! We killed one of th bad guys!" They prosecute a number of folks on the Horizon and in BP. They extend the drilling moratorium for 12 and then 24 months. 75,000 very high paying jobs in the oil services industry go kaput in the GOM region.
The rigs move to Asia, Africa, Russia, Brazil, et al...
The GOM is responsible for 15% to 18% of U.S. Nat Gas supplies, and a larger piece of the Oil pie.
Oil imports into the U.S. continue to decline at .7% per month, as they have for the past 48 months or so.
OK. There it is. You are an analyst for the CIA. What are the likely and possible outcomes?
Intelligent commentary is requested.
19 comments:
You still are ignoring two things ..
1) We are awash in everything, including energy (oil, gasoline, diesel, natgas, ethanol, etc.)After all our handwringing, the EIA charts STILL have not fallen under their 5-year ranges, and that is partly because of ...
2) Peak oil is about supply (plateauing at present), but it is also about demand. And while gasoline still seems to be in demand (though where the drivers are getting the money from to buy the gas, I have no idea), most oil products are NOT in demand, and are falling in use (industrial, specifically).
Whatever world-shaking environmental shortage situation you are alluding to, it can't happen when we have supplies of everything up to our ears! Asset bubbles produce all this surplus every time, and we've been thru the largest asset bubble in human history.
Wake me when we start running out of something.
law & order from the keys to La. will deteriorate quickly. First, non-violent crimes increase. Then robberies. Finally, homicides. Overseas, there will be more attacks on pipelines, rigs, and tanker trucks & ships. Especially tankers, since if they can't be taken intact, they could be easier to destroy.
I think your observation that the price of gasoline trumps all still holds. At $5 per gallon, drilling will recommence.
On another note, residents of Rhode Island are balking at paying $.24 per kilowatt hour for electricity generated by a proposed offshore wind farm. That's well over twice the market rate for electricity. Of course, most of that $.24 will go to debt service on the long term bonds that fund it. Interesting how the financial gods prosper from the green revolution while the common man takes another hit.
Regards,
Coal Guy
My guess is that BP is going to be at risk for takeover by the end of this year, perhaps a new name will emerge. Clearly prices will be going up, although I might not be significant until summer 2011 or so. All this is taking place amidst economic woe--massive debt creation, and state budget's self-destructing and likely creating the impetus for another "stimulus-bailout" this time of the states to help stem the loss of state employee jobs/teachers etc. Also, if this wasn't enough the combo of poor investments and some unfunded matches on many state pensions will cause many school districts to face millions in shortfalls to their retiree's. The public at large faced with grim employment stats, flat or deflated wages, aren't going to be real happy with higher tax rates for pensions that only the minority in this country receive.
Bur probably won't have to wake up for another couple years, frito's will be delivered and gas will be as well. I predict he continues to ignore Mr. Jeffer's "what if's" and post blog entries basically saying things are fine, move along, I work the government, everything will be OK, we will just transition to 1920's lifestyle's no worries and then illegal immigrants will be our 'saviors' as they breed and create another ponzi entitlement scheme. Oh yeah, resource depletion, no worries just live in Chicago, its really great there, just hope that your child isn't shot during a show of force raid, hmm I think that turned out poorly in Waco didn't it?
I also predict frito's and gas will still be available for another few years anyway, might be an even more dangerous job being a clerk at such a place though.
-Meiyo
"Worra Worra" based on no facts at all. You just like being a gloomy Gus about the future. You and all your "gold, guns and drillbabydrill" crowd. I do like to see the sunshine every once in awhile. Look up on a clear day. Give it a try. :)
We would be LUCKY to get back to the 1920s. All the oil would still be in the ground, and debt-to-GDP was around 176% just before the stock market tanked, as opposed to the 375% we have now.
BP is the largest player in the Gulf, and I don't think they'll pull out voluntarily, but if Obama continues this game of political kick-ass the Administration can't be seen to give them any more licences for a while.
So other oil companies aren't going to been too keen to step into the breach; everyone knows that this could've happenned to any one of them, and few are as rich or as willing to step up to the plate as BP.If it was an American company with lesser means or ethics, would Obama be paying for the clean-up? Of course he would.
Meanwhile Obama and the US media seem to be ignoring that 39% of BP shares are held by Americans; I wonder how those shareholders will feel as their one performing shareholding is prevented from paying dividends!
Personally I'd like to see some retrospective laws enacted to fine BP for their dangerous practices - then maybe the Rest of the World could use it to sue the American banks, rating agencies, insurance companies and even the Fed for their culpable fuck-up of subprime!
They don't seem to care too much about the older people still, after 18 months, getting 1% on their CDs, so why would they care if a few thousand don't get their BP dividend payments?
I am not too worried about the individual investors in BP as I am the pension plans that are.
If BP goes under it could have a significant impact on some pensions which will only increase the unfunded liabilities.
Outside of that I agree with Coalguy that Greg's price trumps all theory will get us drilling again. Unless we get too far behind China and need to reserves in which case price be damned we will drill everywhere we can.
I doubt the moratorium will last beyond 6 months. Several oil service companies are already developing better containment equipment. I work for a subsea equipment provider and we've already been asked to quote on a few different proposals.
The idea is that the first company to get government approval for their design will be the supplier of choice for the drillers.
The drillers will be required to carry a lot more safety equipment but they'll be back to work within a year. Too many people are looking to get rich in O&G. There not going to sit idle; they're going to push and push until they find a way back to the pay zone.
As for electricity prices; I just signed a 1 year electricity contract for a commercial space; $0.057 per KWH. That's less than half of what I got for my house just 8 months ago.
It is like a race between declining energy supplies and declining wealth. If people get poor faster than energy can get scarce we may never see ultra-high oil prices. Deflation and conservation will rule the day; $2 gasoline will be too expensive for the average family.
I don’t see where fines are going to do anything. As long as execs can earn boost earnings, and thus their salary, by cutting corners the will. It’s not like they pay the fine IF they get caught, the govt. fleeces the shareholders for that.
Bur,
Ya ever read The Ant and the Grasshopper?
There won't be enough of an economy left in one year to restart drilling in GOM. What are the odds the oil spill will be capped within a year? I am just waiting to see what the impact is when the GOM gets major rain. Will it contain oil and toxic chemicals? What will that do to the farms and water supplies? Good luck getting ANY drilling in GOM if this mess is not contained really quickly....
s4r
III
My states payroll tax receipts have been trending down since FY 1996, as far back as the online records go. The fiscal year is July to June. I just compared the YOY May YTD payroll tax receipts so I would capture all the independent contractors, etc. that pay quarterly, or annually and the trend looks like a negative exponential function. I seriously doubt U6 is capturing what’s really going on because the decline in tax receipts looks nothing like what the BLS is reporting for the state.
s4r,
I have been wondering about rain myself. I am also wondering if this is related to the GOM fiasco.
An additional thought; the US military published their Peak Oil scenario earlier this year. With reduced GOM production, fewer coastal licenses and the consequent reduction in US energy security, I wonder if that increases the risk of increased US beligerence towards producer nations; Iran, Venezuela, etc, perhaps even a pre-emptive US assault to try to secure further supplies.
We'd probably see an increase in rhetoric regarding Iran's supposed nuclear proliferation, for example, leading to increasing sanctions and the threat of further action if .....
Hmmm, sounds familiar. I wonder if the US Govt can getaway with the WMD excuse a second time?
Any suspension of Gulf deep drilling will be short (6 months or less). The Gulf has a third of our oil production, and the people will demand $4/gallon gasoline for as long as we can. All those workers need to keep working. They won't stop drilling for long.
Donal,
The Democrats in Congress would prefer it to be a US Oil company that screwed up. They are looking for an excuse to nationalize the oil companies. They want the revenue. They've been blustering about that for a while.
Other Greg,
Your price for electricity validates my problem with the offshore wind farm proposal here. Electricity from coal costs about 2c per kWh, Nuclear 6c/kWh, wind in a good area 6c/kWh. The malinvestment and soaking of the people serves only the government and Wall Street. Electric utilities are pretty much regulated monopolies. We pay what they convince the regulators to charge us.
Now that higher prices are a GOOD thing we can expect to see much more of this monkey business. Four times the capacity could be added for the same investment if the money were invested somewhere else. Bend over and grab your ankles.
Regards,
Coal Guy
Dan, ever heard the saying "In the long run, we are all dead?" :) Or, investing in real estate is a sure winner, cause "They aren't making any more land, are they?"
Good or bad, long term or short term, in anything, comes to a question of time and timing.
Coal Guy
I agree with you on the wind farms. The technology is cool and I'd like to have my own wind turbine but I'm not going to pay extra for wind electricity when coal and NG electricity is so cheap.
Last year I drove through Sweetwater TX which is one of the biggest wind farms in the US. Mile after mile as far as you could see were cotton fields and wind turbines. It's an impressive sight. Unfortunately, 2/3 of them were shut down & locked in place. The wind was howling so they could have been producing. I guess there wasn't enough demand to cover the maintenance cost of operating the turbines.
Just a quick FYI on utility deregulation; Texas completely deregulated the electric utilities a few years back. Three years ago when we moved from Florida to TX we couldn't find a provider for less than $0.145 a KWH. In Florida we were paying $0.09 to $0.10 a KWH with the regulated FPL. Needless to say I wasn't very impressed with deregulation. Now the tables have turned, the economy has changed direction and the providers are desperate to get new customers.
I think we are going to see several more years of energy deflation before scarcity becomes a problem.
Matt Simmons speaks (from June 9 -- Wednesday) ...
http://money.cnn.com/
2010/06/09/news/companies/
simmons_gulf_oil_
spill.fortune/
Post a Comment