The Debate is Over
In case you missed it, this was front page today on MSNBC.com:
“While the political debate over global warming continues, top executives at many of the nation's largest energy companies have accepted the scientific consensus about climate change and see federal regulation to cut greenhouse gas emissions as inevitable.
The Democratic takeover of Congress makes it more likely that the federal government will attempt to regulate emissions. The companies have been hiring new lobbyists who they hope can help fashion a national approach that would avert a patchwork of state plans now in the works. They are also working to change some company practices in anticipation of the regulation.
"We have to deal with greenhouse gases," John Hofmeister, president of Shell Oil Co., said in a recent speech at the National Press Club. "From Shell's point of view, the debate is over. When 98 percent of scientists agree, who is Shell to say, 'Let's debate the science'?”
It would appear that CO2 caused Global Warming (“GW”) is no longer a political sideshow. I am still in awe of the various political interests’ ability to manipulate the opinions of the public of this scientific phenomenon. Finally, we have one of the largest Oil companies in the world throwing in the towel on the GW issue. “98 %”, Mr. Hofmeister? Try 99.99 % - but who’s counting? You can bet you life that laws and regulations on CO2 emissions are coming. As I stated in recent posts, there was a fair number of local, city, county, and state regulators at the Boston University Peak Oil conference – and they were there to do what the needs to be done, even if the Feds won’t, but the Feds are not about to let the states steal their thunder.
This is going to affect the markets, and consequently, your net worth. Don't let your politics cloud your investment judgment.
Greg Jeffers
Sunday, November 26, 2006
Friday, November 24, 2006
All Oil is NOT created equal
I continue to receive email from people who continue to believe that the Tar Sands of Canada and the U.S. Shale deposits hold salvation for the U.S. and its petroleum demand. Nothing could be further from the truth.
"Unconventional petroleum resources (Canada's tar sands, Venezuela's bitumen and U.S. oil shales) are very large and very misunderstood. All oil is not created equal. Although they total trillions of barrels in the aggregate, expanding unconventional production is expensive, technically arduous and slow. Because these resources can not be produced at high rates, they can do little to postpone the peak in global production. For example, at forecast 2015 rates of production, it will take more than a century to produce Canada's 175 billion barrels of tar sand reserves. (A financial analogy: Imagine having $100,000,000 in your IRA, but being forbidden to withdraw more than $100,000 per year. You are rich, sort of.) With tens of billions of investment dollars, Venezuela could expand its bitumen production, but Chavez is in no rush to do so, nor are the importing countries showing any indication of readiness to make the investments in refinery modifications which would be required to deal with the increased proportion of very heavy oil. As for oil shale, global production has never exceeded 25,000 barrels a day, has fallen by half since 1990, and now provides just 1/10,000th of global energy. Typical oil shales have the energy density of a baked potato. (In Colorado, Shell hopes to pull the sword from the stone using electricity: a dedicated 1,200 MW powerplant will be needed to produce 100,000 b/d, making this project the world's largest electricity consumer.) Other oft-heralded types of unconventional liquids, such as gas-to-liquids and coal-to-liquids, are very capital intensive and offer abysmal energy returns. Biofuels, particularly Brazilian ethanol, will make an important contribution but only regionally. A breakthrough in the production of cellulosic ethanol is unlikely to occur before oil production peaks." - Randy Udall, Energy Analyst, Co-Founder ASPO-USA
Jeremy Gilbert, Former Chief Petroleum Engineer, BP
Steve Andrews, Co-Founder ASPO-USA
The best analagy to describe our energy predicament I have seen follows here:
"Oil production can be best understood by comparison with something such as wood. Imagine an island where there is one carpenter. The R/P ratio basis of oil usage revolves around the assumption that oil production works like a woodpile in the carpenter's backyard. Whenever he needs woods, he walks out to the pile and takes however much he requires. If things get busy and he needs more wood, he simply takes more wood from the pile. There is always enough to satisfy his needs until that fateful day when he removes the last plank and it is then all gone. The only factor in its price is demand - if fewer people want wooden things, the carpenter lowers the price to stimulate demand. If he has plenty of work on, he can increase the price and get the benefit.
Comparing this with oil, if the world has 1,050 Gb of oil remaining and we use 27 Gb a year, then dividing one by the other means that we will be able to use 27 Gb of the woodpile for another 39 years. Then the yard will suddenly turn out to be empty.
But oil does not sit in one huge whole in the ground, constantly being pumped out. Rather an oil field is a set of wells of different sizes, with new wells being set up as old ones dry out. The R/P ratio takes the view that the oil has already been found and is sitting patiently in the backyard. In reality, it is more like woodland than a woodpile.
If we imagine instead that our carpenter had to chop down a tree every time he needed to make something, the problems become more evident. Trees vary in their size, proximity and quality. Initially our man would pick those that were large, good quality and nearby. As this was relatively easy, his prices could be kept low. But, as time went on, he would have to cut more trees of smaller sizes, travel further to find them and use wood of a lower standard. This extra work would take longer and naturally result in higher prices. Eventually, unless the trees were managed and replaced, he would find himself unable to find enough wood to satisfy his customers.
But couldn't he cut the trees quicker to keep production up? He certainly could employ someone to help him (which would be like drilling more wells) but that would result in depletion occurring more quickly, and the quicker you cut away the large and nearby trees, the quicker you have to resort to the small and distant ones. New technology can only help so much; no matter what circular saw or four-wheeled vehicle you have, there's always a certain minimum time needed to cut down and drag a tree to the workshop. Production still falls, the best you can do is change the angle of the slope on the chart. Any increase in production means a gentler initial decline and a steeper subsequent one.
Oil production works in a similar way with the important distinction that, unlike trees, we cannot replace the oil we use. It is as if every tree the carpenter cut down was gone forever." - The Wolf at the Door.com (Author's name unkown)
If, in your strategic planning you are counting on the world's Oil supply to grow in endless abundance, you need a new plan.
mentatt (at) yahoo (dot) com
I continue to receive email from people who continue to believe that the Tar Sands of Canada and the U.S. Shale deposits hold salvation for the U.S. and its petroleum demand. Nothing could be further from the truth.
"Unconventional petroleum resources (Canada's tar sands, Venezuela's bitumen and U.S. oil shales) are very large and very misunderstood. All oil is not created equal. Although they total trillions of barrels in the aggregate, expanding unconventional production is expensive, technically arduous and slow. Because these resources can not be produced at high rates, they can do little to postpone the peak in global production. For example, at forecast 2015 rates of production, it will take more than a century to produce Canada's 175 billion barrels of tar sand reserves. (A financial analogy: Imagine having $100,000,000 in your IRA, but being forbidden to withdraw more than $100,000 per year. You are rich, sort of.) With tens of billions of investment dollars, Venezuela could expand its bitumen production, but Chavez is in no rush to do so, nor are the importing countries showing any indication of readiness to make the investments in refinery modifications which would be required to deal with the increased proportion of very heavy oil. As for oil shale, global production has never exceeded 25,000 barrels a day, has fallen by half since 1990, and now provides just 1/10,000th of global energy. Typical oil shales have the energy density of a baked potato. (In Colorado, Shell hopes to pull the sword from the stone using electricity: a dedicated 1,200 MW powerplant will be needed to produce 100,000 b/d, making this project the world's largest electricity consumer.) Other oft-heralded types of unconventional liquids, such as gas-to-liquids and coal-to-liquids, are very capital intensive and offer abysmal energy returns. Biofuels, particularly Brazilian ethanol, will make an important contribution but only regionally. A breakthrough in the production of cellulosic ethanol is unlikely to occur before oil production peaks." - Randy Udall, Energy Analyst, Co-Founder ASPO-USA
Jeremy Gilbert, Former Chief Petroleum Engineer, BP
Steve Andrews, Co-Founder ASPO-USA
The best analagy to describe our energy predicament I have seen follows here:
"Oil production can be best understood by comparison with something such as wood. Imagine an island where there is one carpenter. The R/P ratio basis of oil usage revolves around the assumption that oil production works like a woodpile in the carpenter's backyard. Whenever he needs woods, he walks out to the pile and takes however much he requires. If things get busy and he needs more wood, he simply takes more wood from the pile. There is always enough to satisfy his needs until that fateful day when he removes the last plank and it is then all gone. The only factor in its price is demand - if fewer people want wooden things, the carpenter lowers the price to stimulate demand. If he has plenty of work on, he can increase the price and get the benefit.
Comparing this with oil, if the world has 1,050 Gb of oil remaining and we use 27 Gb a year, then dividing one by the other means that we will be able to use 27 Gb of the woodpile for another 39 years. Then the yard will suddenly turn out to be empty.
But oil does not sit in one huge whole in the ground, constantly being pumped out. Rather an oil field is a set of wells of different sizes, with new wells being set up as old ones dry out. The R/P ratio takes the view that the oil has already been found and is sitting patiently in the backyard. In reality, it is more like woodland than a woodpile.
If we imagine instead that our carpenter had to chop down a tree every time he needed to make something, the problems become more evident. Trees vary in their size, proximity and quality. Initially our man would pick those that were large, good quality and nearby. As this was relatively easy, his prices could be kept low. But, as time went on, he would have to cut more trees of smaller sizes, travel further to find them and use wood of a lower standard. This extra work would take longer and naturally result in higher prices. Eventually, unless the trees were managed and replaced, he would find himself unable to find enough wood to satisfy his customers.
But couldn't he cut the trees quicker to keep production up? He certainly could employ someone to help him (which would be like drilling more wells) but that would result in depletion occurring more quickly, and the quicker you cut away the large and nearby trees, the quicker you have to resort to the small and distant ones. New technology can only help so much; no matter what circular saw or four-wheeled vehicle you have, there's always a certain minimum time needed to cut down and drag a tree to the workshop. Production still falls, the best you can do is change the angle of the slope on the chart. Any increase in production means a gentler initial decline and a steeper subsequent one.
Oil production works in a similar way with the important distinction that, unlike trees, we cannot replace the oil we use. It is as if every tree the carpenter cut down was gone forever." - The Wolf at the Door.com (Author's name unkown)
If, in your strategic planning you are counting on the world's Oil supply to grow in endless abundance, you need a new plan.
mentatt (at) yahoo (dot) com
Oil, Food, the U.S. Dollar, and the “Global” Drought
On November 7th, 2006, the International Energy Agency (IEA) released its World Energy Outlook 2006. At a press conference announcing the new report, the agency's Executive Director was quoted as follows:
"The key word is urgency," IEA director Claude Mandil told a press conference in London following release of the study. "Urgency for immediate policies and measures to promote energy efficiency and facilitate technology development...
"On current trends, we are on course for an expensive and dirty energy system that will go from crisis to crisis. It can mean more supply disruptions, meteorological disasters or both. This energy future is not only unsustainable, but it is doomed to failure.
"Governments can either accept such a future, or they can decide to come together to change course." - The Oil Drum, November 24, 2006
Now read that again. The IEA, a government agency, and by extension, a political organization that normally would temper its commentary resulting in mealy mouthed, useless BS, is resorting to words such as “crisis”, “doomed”, “failure” and “unsustainable” to describe the world’s energy delivery system. The IEA, along with the U.S. EIA, are the 2 government-sponsored repositories of reserve, production, and distribution data for world energy supply and demand.
Venezuela and Bolivia are nationalizing their oil fields. Russia is “renegotiating” their oil contracts with the International Oil Companies (“IOC”). Iraq has disintegrated into civil war. Iran continues to jerk the world’s chain. The U.K. has passed from Oil exporter to Oil importer. Mexico’s production is declining. Nigeria has no ability to nationalize its fields, instead it resorts to kidnapping and blackmail – but isn’t that the same thing, really? The federal government and the financial media would have you believe that this is all a coincidence? Would anyone really care about the above countries if the Canadian Tar Sands and the U.S. Shale deposits really held a “trillion” barrels of Oil?
And the hits keep coming…
“The dollar fell to its lowest level in 19 months against the euro on speculation the Federal Reserve will lower interest rates early next year as central banks in Europe increase them.” Bloomberg News, November 24, 2006
The Dollar’s value versus the Euro in the above statement is certainly true; the part about why? Don’t you believe it. The media, in their never-ending inability to engage in abstract thought will report an indisputable fact – and then posture a completely plausible, but for the most part specious conclusion, yet simple enough for the average American college graduate’s 8th grade level of science and math skills to comprehend.
Here is my thought on the subject: The Dollar is going to keep falling, irrespective of what the U.S. and their trading partners do with interest rates, until the U.S. budget and trade deficits are brought under control. Since that is not going to happen in the absence of a crisis…
And coming…
Notice how I did not mention Saudi Arabia in my blow-by-blow country description? I am no diplomat; I have never worked in any foreign policy capacity. But, I will make a bet with you: Flip a coin as to what comes first – the peak in world Oil production or the collapse of the House of Saud. These 2 events are inevitable, and each event by itself will have a similar effect. Together, the compounded effect would be… well, disconcerting.
And coming
“Wheat prices rose to a four-week high in Chicago on speculation demand for U.S. grain is increasing while global inventories decline. U.S. exporters sold 361,400 metric tons of wheat in the week ended Nov. 16, up 12 percent from a week earlier, the U.S. Department of Agriculture said today in a report. Global inventories on May 31 will fall to 118.8 million tons, the lowest since 1982, after drought hurt crops in Australia, the U.S. and Ukraine. Prices are up 73 percent in the past year.
Australia will produce 10.5 million tons, 57 percent than last year, because of a 10-month drought. The U.S. will produce 14 percent less than last year and Ukraine's grain exports were down 10 percent this year because of drought.
Global production is expected to be 586.8 million tons in the crop season that started June 1, down from 618.9 million the previous season, and the world will use 615.1 million tons this year, the USDA said in a Nov. 9 report.” Bloomberg News November 24, 2006
Wheat prices are up 73% in the past year, the top 3 producers are all experiencing drought (coincidence or climate change? I have no idea but food is so important, it is worth considering) and the world consumed 615.1 million tons while producing only 586.8 million tons, a nearly 30 billion ton deficit. World population continues to grow (presumably the new arrivals will want to eat), and the automobile industry wants to pave over more farmland for roads, parking lots, and shopping centers the world over. Meanwhile, the oil industry has not been able to increase world oil production for over 20 months, and the U.S. Dollar is in a clear decline trend.
There are no coincidences in all of this. These systems are not independent of one another. Keeping your eye on the ball is really going to pay off.
Mentatt (at) yahoo (dot) com
On November 7th, 2006, the International Energy Agency (IEA) released its World Energy Outlook 2006. At a press conference announcing the new report, the agency's Executive Director was quoted as follows:
"The key word is urgency," IEA director Claude Mandil told a press conference in London following release of the study. "Urgency for immediate policies and measures to promote energy efficiency and facilitate technology development...
"On current trends, we are on course for an expensive and dirty energy system that will go from crisis to crisis. It can mean more supply disruptions, meteorological disasters or both. This energy future is not only unsustainable, but it is doomed to failure.
"Governments can either accept such a future, or they can decide to come together to change course." - The Oil Drum, November 24, 2006
Now read that again. The IEA, a government agency, and by extension, a political organization that normally would temper its commentary resulting in mealy mouthed, useless BS, is resorting to words such as “crisis”, “doomed”, “failure” and “unsustainable” to describe the world’s energy delivery system. The IEA, along with the U.S. EIA, are the 2 government-sponsored repositories of reserve, production, and distribution data for world energy supply and demand.
Venezuela and Bolivia are nationalizing their oil fields. Russia is “renegotiating” their oil contracts with the International Oil Companies (“IOC”). Iraq has disintegrated into civil war. Iran continues to jerk the world’s chain. The U.K. has passed from Oil exporter to Oil importer. Mexico’s production is declining. Nigeria has no ability to nationalize its fields, instead it resorts to kidnapping and blackmail – but isn’t that the same thing, really? The federal government and the financial media would have you believe that this is all a coincidence? Would anyone really care about the above countries if the Canadian Tar Sands and the U.S. Shale deposits really held a “trillion” barrels of Oil?
And the hits keep coming…
“The dollar fell to its lowest level in 19 months against the euro on speculation the Federal Reserve will lower interest rates early next year as central banks in Europe increase them.” Bloomberg News, November 24, 2006
The Dollar’s value versus the Euro in the above statement is certainly true; the part about why? Don’t you believe it. The media, in their never-ending inability to engage in abstract thought will report an indisputable fact – and then posture a completely plausible, but for the most part specious conclusion, yet simple enough for the average American college graduate’s 8th grade level of science and math skills to comprehend.
Here is my thought on the subject: The Dollar is going to keep falling, irrespective of what the U.S. and their trading partners do with interest rates, until the U.S. budget and trade deficits are brought under control. Since that is not going to happen in the absence of a crisis…
And coming…
Notice how I did not mention Saudi Arabia in my blow-by-blow country description? I am no diplomat; I have never worked in any foreign policy capacity. But, I will make a bet with you: Flip a coin as to what comes first – the peak in world Oil production or the collapse of the House of Saud. These 2 events are inevitable, and each event by itself will have a similar effect. Together, the compounded effect would be… well, disconcerting.
And coming
“Wheat prices rose to a four-week high in Chicago on speculation demand for U.S. grain is increasing while global inventories decline. U.S. exporters sold 361,400 metric tons of wheat in the week ended Nov. 16, up 12 percent from a week earlier, the U.S. Department of Agriculture said today in a report. Global inventories on May 31 will fall to 118.8 million tons, the lowest since 1982, after drought hurt crops in Australia, the U.S. and Ukraine. Prices are up 73 percent in the past year.
Australia will produce 10.5 million tons, 57 percent than last year, because of a 10-month drought. The U.S. will produce 14 percent less than last year and Ukraine's grain exports were down 10 percent this year because of drought.
Global production is expected to be 586.8 million tons in the crop season that started June 1, down from 618.9 million the previous season, and the world will use 615.1 million tons this year, the USDA said in a Nov. 9 report.” Bloomberg News November 24, 2006
Wheat prices are up 73% in the past year, the top 3 producers are all experiencing drought (coincidence or climate change? I have no idea but food is so important, it is worth considering) and the world consumed 615.1 million tons while producing only 586.8 million tons, a nearly 30 billion ton deficit. World population continues to grow (presumably the new arrivals will want to eat), and the automobile industry wants to pave over more farmland for roads, parking lots, and shopping centers the world over. Meanwhile, the oil industry has not been able to increase world oil production for over 20 months, and the U.S. Dollar is in a clear decline trend.
There are no coincidences in all of this. These systems are not independent of one another. Keeping your eye on the ball is really going to pay off.
Mentatt (at) yahoo (dot) com
Thursday, November 23, 2006
Manipulated
The level of denial at the top, and a people only too willing to believe what they want to hear, has left us in a most unsavory position.
Here are some of my personal favorites:
“Denmark had a 50% increase in its economy with a zero percent increase in energy consumption.” Bill Clinton, Newsweek, 11.27.06
All true – and completely irrelevant.
• Norway has fewer people than South Florida (4,610,820 (July 2006 est. CIA FACT BOOK), and population growth of .38%
• Norway has more oil per capita, and exports far more oil per capita, than any other nation. Russia and Saudi Arabia, numbers 1 and 2, aren’t even close
• Norway is the largest welfare nation on earth. Why not? They have the greatest Oil wealth. Of course they have no economic growth! They don’t need GDP growth in order to trade with the world!
• Japan is an example of an anti-Norway. With no domestic energy supplies, they must trade product (the P in GDP) for energy
In the speech, the former President insinuated that the Norwegians accomplished this feat by, among other things, replacing incandescent light bulbs with fluorescent bulbs – and the media ate it up. If the world had as much Oil on a per capita basis as Norway this might have some relevance - alas, it does not.
Let’s move on to some corporate manipulation of the public through our scientifically and mathematically challenged media.
We all know that if you pay somebody enough money, they will say anything. Have you ever followed, or worse, been involved in a large civil trial? Each side has their “expert” witness’s. Great system. These guys advertise a particular view point from which they will never waiver, no matter what new data become of available, and then claim credibility for their bought and paid for testimony because some formal educational establishment admits that they received a couple of years of part time training there several decades ago. Hell of a thing… Listen to this:
"Although annual global production has exceeded annual discoveries since the early 1980s, annual global reserve additions still exceed annual production because of reserve growth in existing fields.” - Dr Richard Vierbuchen, vice president, Caspian/Middle East region, Exxon Mobil.
I am embarrassed for Dr. Vierbuchen. Not for maintaining the company line, but for not obfuscating that statement more. The general public might have no idea what he is saying, but there are countless geology geeks buzzing around the web taking silly statements like that one apart. If you are going to speak an absurdity, well, you know the old saying “if you can’t dazzle ‘em with facts, baffle ‘em with Bulls—t.”
Allow me to explain. It is a simple matter to credit ALL of the reserve growth in a particular field back to the date the first well was drilled (the date of discovery) for a single aggregate number (and by the way, the “reserve growth” that he is speaking of is phenomena of the 50’s, 60’s and early 70’s; technology has improved on the estimation front, too. So much so that there was little if any “reserve growth” in fields discovered and developed after 1975 – If you doubt this, just email me and I will send you the data for Alaska’s North Slope and the U.K.’s North Sea.). When this is done for all fields, and it has been done COUNTLESS times (so there is no shot the good Doctor is unaware of these data points) we see that the peak discovery year was 1964, and that discovery has been trending down EVER SINCE. Also, that since the mid 1980’s or so, we have discovered less oil than we have been using, and our usage grows exponentially.
Lest you think I am Clinton bashing, let me work on the current occupant of the White House and his “Hydrogen Economy” and “Ethanol Economy”.
“Tonight I’m proposing $1.2 billion in research funding so that America can lead the world in clean, hydrogen-powered automobiles,” President George W. Bush, 2003 State of the Union address to Congress
“It better be” – President George W. Bush when asked if ethanol was the solution to our Oil addiction
Yes, we have cars that run on Hydrogen, and yes, we have cars that run on ethanol – and by the way, we also have cars that run on liquid petroleum products. Designing cars that run on different energy sources is not the problem – THE ENERGY SOURCE IS THE PROBLEM.
Unencumbered Hydrogen does not exist any place on earth. Hydrogen is a lonely element and only exists on this planet in the company of another element, such as Oxygen or Carbon (let’s forget Hydrogen and Carbons, the liquid form of which is the stuff we are in need of, and it certainly makes no sense to remove Hydrogen from Natural Gas such as Methane, CH4, when we could just burn the Methane). It follows that we would need to separate the H from the O in water. Problem is, we need an energy source to do this, and the energy we consume is greater than the energy stored in the resultant Hydrogen. You know, the old Energy Returned on Energy Invested (ERoEI) issue.
Could this be softened using Nuclear Energy? Maybe, but certainly not until we produce 100% of the world’s electricity needs with Nuclear and use the excess capacity to produce Hydrogen. Obviously, the use of ANY hydrocarbon to produce electricity so that some Nuclear power generation can be diverted to Hydrogen production is a loser in the ERoEI department. It would only make sense for excess capacity. Now, when do you think we will have that much Nuclear power? Not in my grandchildren’s lifetime, and my oldest is 13.
Ethanol is in the same ERoEI boat. It takes more energy to produce than it provides, more or less.
The President knows all of this. If the U.S. thought this was not the case our interest and commitment in Iraq and the rest of the Middle East would not extend to lives lost and trillions of dollars spent.
And the media ate it up - and spoon fed it to the pubic.
Mentatt (at) yahoo (dot) com
The level of denial at the top, and a people only too willing to believe what they want to hear, has left us in a most unsavory position.
Here are some of my personal favorites:
“Denmark had a 50% increase in its economy with a zero percent increase in energy consumption.” Bill Clinton, Newsweek, 11.27.06
All true – and completely irrelevant.
• Norway has fewer people than South Florida (4,610,820 (July 2006 est. CIA FACT BOOK), and population growth of .38%
• Norway has more oil per capita, and exports far more oil per capita, than any other nation. Russia and Saudi Arabia, numbers 1 and 2, aren’t even close
• Norway is the largest welfare nation on earth. Why not? They have the greatest Oil wealth. Of course they have no economic growth! They don’t need GDP growth in order to trade with the world!
• Japan is an example of an anti-Norway. With no domestic energy supplies, they must trade product (the P in GDP) for energy
In the speech, the former President insinuated that the Norwegians accomplished this feat by, among other things, replacing incandescent light bulbs with fluorescent bulbs – and the media ate it up. If the world had as much Oil on a per capita basis as Norway this might have some relevance - alas, it does not.
Let’s move on to some corporate manipulation of the public through our scientifically and mathematically challenged media.
We all know that if you pay somebody enough money, they will say anything. Have you ever followed, or worse, been involved in a large civil trial? Each side has their “expert” witness’s. Great system. These guys advertise a particular view point from which they will never waiver, no matter what new data become of available, and then claim credibility for their bought and paid for testimony because some formal educational establishment admits that they received a couple of years of part time training there several decades ago. Hell of a thing… Listen to this:
"Although annual global production has exceeded annual discoveries since the early 1980s, annual global reserve additions still exceed annual production because of reserve growth in existing fields.” - Dr Richard Vierbuchen, vice president, Caspian/Middle East region, Exxon Mobil.
I am embarrassed for Dr. Vierbuchen. Not for maintaining the company line, but for not obfuscating that statement more. The general public might have no idea what he is saying, but there are countless geology geeks buzzing around the web taking silly statements like that one apart. If you are going to speak an absurdity, well, you know the old saying “if you can’t dazzle ‘em with facts, baffle ‘em with Bulls—t.”
Allow me to explain. It is a simple matter to credit ALL of the reserve growth in a particular field back to the date the first well was drilled (the date of discovery) for a single aggregate number (and by the way, the “reserve growth” that he is speaking of is phenomena of the 50’s, 60’s and early 70’s; technology has improved on the estimation front, too. So much so that there was little if any “reserve growth” in fields discovered and developed after 1975 – If you doubt this, just email me and I will send you the data for Alaska’s North Slope and the U.K.’s North Sea.). When this is done for all fields, and it has been done COUNTLESS times (so there is no shot the good Doctor is unaware of these data points) we see that the peak discovery year was 1964, and that discovery has been trending down EVER SINCE. Also, that since the mid 1980’s or so, we have discovered less oil than we have been using, and our usage grows exponentially.
Lest you think I am Clinton bashing, let me work on the current occupant of the White House and his “Hydrogen Economy” and “Ethanol Economy”.
“Tonight I’m proposing $1.2 billion in research funding so that America can lead the world in clean, hydrogen-powered automobiles,” President George W. Bush, 2003 State of the Union address to Congress
“It better be” – President George W. Bush when asked if ethanol was the solution to our Oil addiction
Yes, we have cars that run on Hydrogen, and yes, we have cars that run on ethanol – and by the way, we also have cars that run on liquid petroleum products. Designing cars that run on different energy sources is not the problem – THE ENERGY SOURCE IS THE PROBLEM.
Unencumbered Hydrogen does not exist any place on earth. Hydrogen is a lonely element and only exists on this planet in the company of another element, such as Oxygen or Carbon (let’s forget Hydrogen and Carbons, the liquid form of which is the stuff we are in need of, and it certainly makes no sense to remove Hydrogen from Natural Gas such as Methane, CH4, when we could just burn the Methane). It follows that we would need to separate the H from the O in water. Problem is, we need an energy source to do this, and the energy we consume is greater than the energy stored in the resultant Hydrogen. You know, the old Energy Returned on Energy Invested (ERoEI) issue.
Could this be softened using Nuclear Energy? Maybe, but certainly not until we produce 100% of the world’s electricity needs with Nuclear and use the excess capacity to produce Hydrogen. Obviously, the use of ANY hydrocarbon to produce electricity so that some Nuclear power generation can be diverted to Hydrogen production is a loser in the ERoEI department. It would only make sense for excess capacity. Now, when do you think we will have that much Nuclear power? Not in my grandchildren’s lifetime, and my oldest is 13.
Ethanol is in the same ERoEI boat. It takes more energy to produce than it provides, more or less.
The President knows all of this. If the U.S. thought this was not the case our interest and commitment in Iraq and the rest of the Middle East would not extend to lives lost and trillions of dollars spent.
And the media ate it up - and spoon fed it to the pubic.
Mentatt (at) yahoo (dot) com
Monday, November 20, 2006
Look out for the Supremes
No, not the 1960’s R & B group. 12 U.S. states, several environmental organizations, and 2 science Nobel Laureates will have their case on Global Warming (GW) heard before the U.S. Supreme Court. The case is Massachusetts v. United States Environmental Protection Agency, 05-1120, and it has every opportunity to be “the shot heard round the world” (or not).
The evidence is ``so compelling that it has crystallized a remarkable consensus within the scientific community: Climate warming is happening, and human activities are very likely a significant causal factor,'' the scientists tell the justices. – Bloomberg News, 11.20.06
From some of my previous posts I received a number of emails from people who thought I had a political axe to grind. Sorry, no axe here - I am a realist capitalist. Legislation, regulation, and court decisions on GW are coming, and they must be factored into your expectations.
The risks to the economy of any meaningful action taken to reduce Greenhouse Gases (“GHG”) are quite real. The risks to the economy of no action taken are just as real. Irrespective of what the Supremes do, and I think they will side with the Environmentalists because of Justice Scalia and Thomas judicial history of being strict constructionists of the Law, the issue gains momentum daily and will overwhelm its resistors in the near future. What form the laws and regulations take I have no idea, but their impact on the economy and markets will not be positive under any circumstance.
-----------------------------------------------------
Housing, Energy and the 2007 economy
In case you had any doubt, Housing is still in free fall. The pitch from the various bank economists presenting themselves as “independent experts” was that there was no bubble in asset prices. Now the pitch is housing’s troubles will not spill into the rest of the economy because energy prices have come down. Thank heaven these guys don’t work as traders on any Oil desk with my money working. These guys have not made 1 correct call on energy prices that I can remember. They should come with a warning like the one on cigarette packs.
My crystal ball is broken and I have NO IDEA about energy prices in the short term so I will hedge my bets: Follow energy prices AND aggregate supplies; if prices trend up – look out – coupled with Housing's pain I cannot see how the economy can expand. If energy prices trend flat to down, but supplies REMAIN flat to down, we will have the same outcome, in my opinion. Only if energy supplies rise AND prices fall is their a possibility of an expanding economy.
The odds of energy availability increasing for the U.S. is Slim and None, and Slim left town.
Mentatt (at) yahoo (dot) com
No, not the 1960’s R & B group. 12 U.S. states, several environmental organizations, and 2 science Nobel Laureates will have their case on Global Warming (GW) heard before the U.S. Supreme Court. The case is Massachusetts v. United States Environmental Protection Agency, 05-1120, and it has every opportunity to be “the shot heard round the world” (or not).
The evidence is ``so compelling that it has crystallized a remarkable consensus within the scientific community: Climate warming is happening, and human activities are very likely a significant causal factor,'' the scientists tell the justices. – Bloomberg News, 11.20.06
From some of my previous posts I received a number of emails from people who thought I had a political axe to grind. Sorry, no axe here - I am a realist capitalist. Legislation, regulation, and court decisions on GW are coming, and they must be factored into your expectations.
The risks to the economy of any meaningful action taken to reduce Greenhouse Gases (“GHG”) are quite real. The risks to the economy of no action taken are just as real. Irrespective of what the Supremes do, and I think they will side with the Environmentalists because of Justice Scalia and Thomas judicial history of being strict constructionists of the Law, the issue gains momentum daily and will overwhelm its resistors in the near future. What form the laws and regulations take I have no idea, but their impact on the economy and markets will not be positive under any circumstance.
-----------------------------------------------------
Housing, Energy and the 2007 economy
In case you had any doubt, Housing is still in free fall. The pitch from the various bank economists presenting themselves as “independent experts” was that there was no bubble in asset prices. Now the pitch is housing’s troubles will not spill into the rest of the economy because energy prices have come down. Thank heaven these guys don’t work as traders on any Oil desk with my money working. These guys have not made 1 correct call on energy prices that I can remember. They should come with a warning like the one on cigarette packs.
My crystal ball is broken and I have NO IDEA about energy prices in the short term so I will hedge my bets: Follow energy prices AND aggregate supplies; if prices trend up – look out – coupled with Housing's pain I cannot see how the economy can expand. If energy prices trend flat to down, but supplies REMAIN flat to down, we will have the same outcome, in my opinion. Only if energy supplies rise AND prices fall is their a possibility of an expanding economy.
The odds of energy availability increasing for the U.S. is Slim and None, and Slim left town.
Mentatt (at) yahoo (dot) com
Sunday, November 19, 2006
"Last week, Cambridge Energy Research Associates (CERA) released a report saying that there was no imminent global oil problem and that enough new oil would come on-line to permit current levels of consumption -- and beyond! -- for more than a hundred years into the future. CERA's stunningly disingenuous report flies in the face of everything that is known about the current world oil situation.
CERA is fronted by Daniel Yergin, author of the Pulitzer Prize-winning history of the oil industry, The Prize. Apparently, Yergin has parlayed his legitimacy as an historian into running a disinformation service wholly owned by the IHS Corporation, a lobbying and public relations firm serving the defense, oil, and automotive industries. Apart from making a lot of money as executive vice-president of a company with about $300 million in net annual profits over about $500 million in gross revenues, it is a little hard to discern what Yergin's motives might be in shoveling so much bad information into the public arena.
Much of CERA's "story" hinges on the supposition that snazzy technology will allow the recovery of "oil" (liquid hydrocarbons) from solids that require costly mining and processing operations to covert them to liquids. In effect, CERA says that tar sands, kerogen shales, coal-to-liquids, plus super-deep ocean drilling will not only make up for currently depleting fields of easily-acessed liquid sweet crudes, but actually surpass current total production. This would seem, on the face of it, to violate everything that is known about Energy Returns on Energy Invested (ERoRI). And, in fact, the very companies working the tar sands in Alberta, Canada, have just this year steeply raised their dollar estimates of what it will take to convert that stuff into usable liquids -- it ain't a pretty story.
CERA does not acknowledge some of the fundamental facts of the current situation, for instance that the world's four super-giant fields responsible for at least 15 percent of total global production since 1980 (Ghawar in Saudi Arabia, Burgan in Kuwait, Daqing in China, and Cantarell in Mexico) have all passed peak and turned down into depletion. CERA doesn't acknowledge that discovery of new oil peaked worldwide in the 1960s with more than 40 years of steady decline since then. Or that there has been almost no provable meaningful discovery the past several years (and Chevron's as yet unproved deepwater "Jack" claim of 3 to 15 billion barrels total is not significant in the context of a world that now burns through 30 billion barrels a year.) CERA doesn't acknowledge that the predicted US peak of 1970 was absolutely on target and that our domestic production of regular crude has fallen from around 10 million-barrels-a-day in 1970 to under 5 m/b/d now (still declining yearly, including the Alaska North Slope fields). CERA doesn't acknowledge that current total global oil production through 2006 is at least absolutely flat and more likely falling (depending on whose numbers you look at), which would tend to indicate that the world has bumped up against the ceiling of its all-time total capacity. CERA doesn't acknowledge that exports are down nine percent this year because the nations with export capacity have growing populations and economies that require more and more of their own oil.
The CERA story also tragically gives aid and comfort to those who deny that climate change needs to be taken seriously, since it is saying, in essence, that we can easily continue pumping carbon dioxide into the atmosphere -- by burning as much coal as we can. The CERA report amounts to "don't worry, be happy." Perhaps most tragically, there is no corrective for this mendacious PR. It's not against the law to spread lies about a business venture -- which is what the oil industry is -- even if its truthful condition is critical to the functioning of our society. There's no oversight committee or agency authorized to investigate public relations activity. It's a basic case of buyer beware. Unfortunately, the buyers in this case are America's political leaders and the news media responsible for informing the public.
The mainstream media last week swallowed CERA's PR hook, line, and sinker, without a single reflective burp. It even drove the prices on oil futures markets down a few dollars a barrel -- though the price was back up by Friday. The only cogent analysis of the CERA report took place on the Internet, and for the most part on a single site: TheOilDrum.com, which is the best-informed forum of debate on these issues operating in the United States.You can go directly to their initial response, composed by Dave Cohen by clicking on this link. It's worth taking the trouble to read.”
James H. Kuntsler
Since I could not have said it better myself – I didn’t. Much thanks to JHK for this.
mentatt (at) yahoo (dot) com
CERA is fronted by Daniel Yergin, author of the Pulitzer Prize-winning history of the oil industry, The Prize. Apparently, Yergin has parlayed his legitimacy as an historian into running a disinformation service wholly owned by the IHS Corporation, a lobbying and public relations firm serving the defense, oil, and automotive industries. Apart from making a lot of money as executive vice-president of a company with about $300 million in net annual profits over about $500 million in gross revenues, it is a little hard to discern what Yergin's motives might be in shoveling so much bad information into the public arena.
Much of CERA's "story" hinges on the supposition that snazzy technology will allow the recovery of "oil" (liquid hydrocarbons) from solids that require costly mining and processing operations to covert them to liquids. In effect, CERA says that tar sands, kerogen shales, coal-to-liquids, plus super-deep ocean drilling will not only make up for currently depleting fields of easily-acessed liquid sweet crudes, but actually surpass current total production. This would seem, on the face of it, to violate everything that is known about Energy Returns on Energy Invested (ERoRI). And, in fact, the very companies working the tar sands in Alberta, Canada, have just this year steeply raised their dollar estimates of what it will take to convert that stuff into usable liquids -- it ain't a pretty story.
CERA does not acknowledge some of the fundamental facts of the current situation, for instance that the world's four super-giant fields responsible for at least 15 percent of total global production since 1980 (Ghawar in Saudi Arabia, Burgan in Kuwait, Daqing in China, and Cantarell in Mexico) have all passed peak and turned down into depletion. CERA doesn't acknowledge that discovery of new oil peaked worldwide in the 1960s with more than 40 years of steady decline since then. Or that there has been almost no provable meaningful discovery the past several years (and Chevron's as yet unproved deepwater "Jack" claim of 3 to 15 billion barrels total is not significant in the context of a world that now burns through 30 billion barrels a year.) CERA doesn't acknowledge that the predicted US peak of 1970 was absolutely on target and that our domestic production of regular crude has fallen from around 10 million-barrels-a-day in 1970 to under 5 m/b/d now (still declining yearly, including the Alaska North Slope fields). CERA doesn't acknowledge that current total global oil production through 2006 is at least absolutely flat and more likely falling (depending on whose numbers you look at), which would tend to indicate that the world has bumped up against the ceiling of its all-time total capacity. CERA doesn't acknowledge that exports are down nine percent this year because the nations with export capacity have growing populations and economies that require more and more of their own oil.
The CERA story also tragically gives aid and comfort to those who deny that climate change needs to be taken seriously, since it is saying, in essence, that we can easily continue pumping carbon dioxide into the atmosphere -- by burning as much coal as we can. The CERA report amounts to "don't worry, be happy." Perhaps most tragically, there is no corrective for this mendacious PR. It's not against the law to spread lies about a business venture -- which is what the oil industry is -- even if its truthful condition is critical to the functioning of our society. There's no oversight committee or agency authorized to investigate public relations activity. It's a basic case of buyer beware. Unfortunately, the buyers in this case are America's political leaders and the news media responsible for informing the public.
The mainstream media last week swallowed CERA's PR hook, line, and sinker, without a single reflective burp. It even drove the prices on oil futures markets down a few dollars a barrel -- though the price was back up by Friday. The only cogent analysis of the CERA report took place on the Internet, and for the most part on a single site: TheOilDrum.com, which is the best-informed forum of debate on these issues operating in the United States.You can go directly to their initial response, composed by Dave Cohen by clicking on this link. It's worth taking the trouble to read.”
James H. Kuntsler
Since I could not have said it better myself – I didn’t. Much thanks to JHK for this.
mentatt (at) yahoo (dot) com
Saturday, November 18, 2006
The Third Deficit
In my previous posts I laid out the risks to the U.S. Dollar from the Federal Budget Deficit and the Trade Deficit. - “Twin Deficits”. We might have to change the name to “The Triplets”. You see, there is another government debt lurking out there – and it is growing every day. As of today, it is estimated at $2 trillion dollars, and by some estimates, it is growing at about 7% per year. That means it will be up to $4 trillion in the middle of the next decade.
“States and municipalities are looking at a gap that has been estimated at something like $2 trillion, with pension shortfalls of $700 billion and health-care costs -- also known as ``other post-employment benefits,'' or OPEB, as the analysts so felicitously put it -- of $1.4 trillion.” Bloomberg News, November 16, 2006
The implications of this trend on the municipal bond market are ominous. The City of San Diego settled FRAUD charges with the United States Securities and Exchange Commission just this week for issuing bonds to investors without disclosing their problematic pension and healthcare liabilities. Sounds a lot like the Social Security (pensions) and Medicare (healthcare) issues at the Federal level. It is too bad that the SEC can’t do something with the U.S. Congress and the U.S. Treasury Department.
---------------------------------------------------------------------------------------
The Great American Ponzi Scheme
In order to avoid China’s 4-2-1 problem – 4 grandparents and 2 parents supported by 1 worker – the U.S. immigration policy, the “Great American Ponzi Scheme”, has imported enough young people to continue to fund the Social Security and Medicare trust funds. For a number of reasons, that is coming to a close in the near future.
Had we not had the benefit of these immigrants over the past 20 years (legal or otherwise) the Social Security and Medicare trust funds would now be in default. Still, we grow our entitlement programs at an exponential rate – but future immigration will not be there to hold up its end of the Ponzi Scheme.
A “pay as you go” system means that today’s young workers pay for today’s retirees. What happens when you have too many retirees and not enough young workers? Nothing good.
----------------------------------------------------------
What Housing Bubble?
How many reports have you read from the National Association of Realtors over the past year telling you first that housing is solid, then that housing was a little soft, then that there was a “correction” going on… If the Real Estate industry keeps it up, they might overtake Religion in the exagerated claims and false promises competition.
Housing starts in the U.S. fell October to the lowest level in more than six years. Building starts were 1.486 million, down 14.6 % from September, according to the Commerce Department. Building permits experienced their 9th straight monthly decline, to 1.535 million, the lowest since December, 1997.
``This is a shocking number.” said Phillip Neuhart, an economist at Wachovia Corp. Oh, yea? Shocking to who. In the Winter and Spring of 2005 we published extensively on the coming problems for housing (and we are Real Estate Brokers, among other things).
The beauty of numbers – housing starts, oil production, auto sales – is that they are empirical. Forget “bubbles, “corrections”, “weakness”… these cannot be measured. The old carpenter’s ditty, “measure twice, cut once”, says it all.
Energy companies paid millions to certain groups to sow disbelief on the data about global warming, and now deny that there is any energy supply problem developing.
Housing is just as energy intensive as autos. Should be interesting to see how the industry makes it in an environment of decling supply.
Why would anybody believe the press from any vested interest? Sometimes we don’t know the press came from/was manipulated by a vested interest. Still, as my late father used to say: “Believe nothing what you hear and only half of what you see – and you won’t get yourself into too much trouble”. When I read these manipulations parading as news I remember some of Dad’s more amusing wisdom: “I don’t know, it may be so, but it sounds like s--t to me.”
Mentatt (at) yahoo (dot) com
In my previous posts I laid out the risks to the U.S. Dollar from the Federal Budget Deficit and the Trade Deficit. - “Twin Deficits”. We might have to change the name to “The Triplets”. You see, there is another government debt lurking out there – and it is growing every day. As of today, it is estimated at $2 trillion dollars, and by some estimates, it is growing at about 7% per year. That means it will be up to $4 trillion in the middle of the next decade.
“States and municipalities are looking at a gap that has been estimated at something like $2 trillion, with pension shortfalls of $700 billion and health-care costs -- also known as ``other post-employment benefits,'' or OPEB, as the analysts so felicitously put it -- of $1.4 trillion.” Bloomberg News, November 16, 2006
The implications of this trend on the municipal bond market are ominous. The City of San Diego settled FRAUD charges with the United States Securities and Exchange Commission just this week for issuing bonds to investors without disclosing their problematic pension and healthcare liabilities. Sounds a lot like the Social Security (pensions) and Medicare (healthcare) issues at the Federal level. It is too bad that the SEC can’t do something with the U.S. Congress and the U.S. Treasury Department.
---------------------------------------------------------------------------------------
The Great American Ponzi Scheme
In order to avoid China’s 4-2-1 problem – 4 grandparents and 2 parents supported by 1 worker – the U.S. immigration policy, the “Great American Ponzi Scheme”, has imported enough young people to continue to fund the Social Security and Medicare trust funds. For a number of reasons, that is coming to a close in the near future.
Had we not had the benefit of these immigrants over the past 20 years (legal or otherwise) the Social Security and Medicare trust funds would now be in default. Still, we grow our entitlement programs at an exponential rate – but future immigration will not be there to hold up its end of the Ponzi Scheme.
A “pay as you go” system means that today’s young workers pay for today’s retirees. What happens when you have too many retirees and not enough young workers? Nothing good.
----------------------------------------------------------
What Housing Bubble?
How many reports have you read from the National Association of Realtors over the past year telling you first that housing is solid, then that housing was a little soft, then that there was a “correction” going on… If the Real Estate industry keeps it up, they might overtake Religion in the exagerated claims and false promises competition.
Housing starts in the U.S. fell October to the lowest level in more than six years. Building starts were 1.486 million, down 14.6 % from September, according to the Commerce Department. Building permits experienced their 9th straight monthly decline, to 1.535 million, the lowest since December, 1997.
``This is a shocking number.” said Phillip Neuhart, an economist at Wachovia Corp. Oh, yea? Shocking to who. In the Winter and Spring of 2005 we published extensively on the coming problems for housing (and we are Real Estate Brokers, among other things).
The beauty of numbers – housing starts, oil production, auto sales – is that they are empirical. Forget “bubbles, “corrections”, “weakness”… these cannot be measured. The old carpenter’s ditty, “measure twice, cut once”, says it all.
Energy companies paid millions to certain groups to sow disbelief on the data about global warming, and now deny that there is any energy supply problem developing.
Housing is just as energy intensive as autos. Should be interesting to see how the industry makes it in an environment of decling supply.
Why would anybody believe the press from any vested interest? Sometimes we don’t know the press came from/was manipulated by a vested interest. Still, as my late father used to say: “Believe nothing what you hear and only half of what you see – and you won’t get yourself into too much trouble”. When I read these manipulations parading as news I remember some of Dad’s more amusing wisdom: “I don’t know, it may be so, but it sounds like s--t to me.”
Mentatt (at) yahoo (dot) com
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