Wednesday, April 20, 2005

 

Peak oil paranoia (rather long)

The man who wrote this is a bit of a paranoid with an apocalyse syndrome. The piece is intriguing if read with a critical eye. As a note, I cut some of the more useless bits from the article.


Thanks Jean Francois for sending me the link.

Jax

PS Peak means pek oil production.

As the evidence grows stronger that we are at Peak now (or very close to it), there is a distinct correlation between oil price hikes and military budget increases, weapons deployment, warfare and covert operations around the world. Economists don't consider such things so they don't report on them. Their orthodoxy scorns any integrated view of world developments outside their own discipline.

For long-time readers of FTW I need do little more than discuss a few recent developments to put this in perspective. For the rest I will provide you with some of a great many available dots you can connect if you care to. Most people find themselves unable to tolerate the sight of the pattern which the connected dots reveal. After this, FTW will no longer try to detail the dots of Peak Oil. What we have published over the last seven years is proof enough. We had it right. I refuse to go over it again. Those who get it now, get it. Those who do not may possibly be beyond saving, because their own choices have deprived them of critical months of preparation for the crisis - especially since most of this "preparation" is psychological in nature. It is very hard and very painful to get one's mind to accept this reality.

Nature does not grant time outs.

THE CIA

I recently had a conversation with someone who spent 17 years in the CIA's Directorate of Operations. Thinking of the purge and power shift that has - over the course of the last nine months - decimated the Central Intelligence Agency (long my Bête Noir) and shifted much of its power to the Pentagon, I asked the following question.

"Look, the agency does many things in many roles from raw intelligence gathering, to economic warfare, to satellite recon, to paramilitary operations requiring cover and deniability, to drug smuggling. But since its inception it was always focused in large part on medium and long-term intelligence gathering and covert operations through the costly, patient, expensive means of placing NOCs (non-official covers) or assets in missions where it might take five, ten or fifteen years to bear fruit. These programs were always centered on "what if" contingencies which inherently implied that multiple outcomes were possible; that there were alternative futures to be influenced and shaped.

"Battlefield intelligence is a different critter. It presupposes that there is nothing more important than the battle that has been joined at this moment. If the battle is not won, there are no future choices. Hence nothing matters other than the war that is being fought today. No Yaltas or Potsdams; no future deep cover moles will be needed.

"Every country in the world is betting everything it has on this one hand knowing that after 2007 or 2008 the game ends. The map of the future after that is unknowable and, to large extent, irrelevant. That's why Rumsfeld has won the battle to control American intelligence operations and why the new National Intelligence Director John Negroponte is getting the job.

"Is that right?"

Without the slightest hesitation the former CIA employee answered, "Yes."

It is the ultimate testimony to the madness of Donald Rumsfeld, Paul Wolfowitz and Dick Cheney that there are no more tomorrows left to fix anything. Since 9/11, and especially since a second presidential election was stolen four months ago, the setting for a real Armageddon has been locked in place. It may well have been for years before that.

GASOLINE PRICES

A recent USA TODAY story, giving us the new word "Petronoia," warned that gasoline prices could jump by 25 cents per gallon within the next few days. That increase, it said, would take $90 million per day out of a consumer economy that relies on profligate spending to sustain already bursting bubbles. How are we getting the money to sustain these bubbles? We are, according to Bill Fleckenstein of MSN, using our houses as ATMs just to keep up, even as the housing bubble has already begun to burst.1 Our paychecks certainly aren't increasing.

OIL PRICES

Oil has topped $54 a barrel. It's gone up more than 25% in less than three months and fifty per cent over the last year; 400% since 1999. This amid strong signs that global oil production may have already peaked, as declines around the world are not being offset by new production. New fields may come online but the respite will be very short-lived. There may be a few "mega" projects (about a six-day supply for the planet in each) which may produce momentary price declines but the trend is irreversible. Official bodies like the International Energy Administration (IEA) are openly wishing that demand growth might slow in 2005, when actual figures already prove this wish utterly fanciful. China's oil demand is expected to grow by 33% this year. Industrialized and developing nations are expanding their economies as fast as possible to generate cash and liquidity as a means of securing more oil.

The vicious cycle is in full swing. And yet, according to economist Andrew McKillop…

We then move on to actual declines in production. For the majority of non-OPEC producers - (in fact nearly all except Russia and some Central Asian producers) rates of decline are stubbornly high, despite vaunted technology improvements…

One of the biggest problems facing the IEA [a UN sponsored agency], the EIA [a US government agency] and a host of analysts and 'experts' who claim that 'high prices cut demand', either directly or through damping oil economic growth, is that this does not happen in the real world. Since early 1999 oil prices have risen about 400%. Oil demand growth in 2004 at nearly 4% was the highest in 25 years. In each year since 1999 world oil demand growth has been higher than the previous year - as prices rise.2

McKillop's analysis, which essentially says that rising oil prices are either good or of no consequence, falls way short for two reasons. Energy investment banker Matt Simmons a year ago in Berlin stated that he saw the actual point at which price would curb demand at around $180 per barrel. The consumers are bearing most of the costs of these increases. Is this the consumers' choice, or is it simply the point beyond which "the American way of life" will become impossible, regardless of how many incremental cuts people accept?

Go ahead; try to choose to use less oil of your own volition. What reductions are available to you are minimal because the world in which you must make your house payments, feed your family, drive to work and pay your bills is leaving you little choice but to consume more and get less for your money. Only at around $180 a barrel will the consumer no longer be able to subsidize the corporate and economic superstructure on his/her shoulders. This is essentially what Simmons was saying.

The poor will be the first to suffer and they will suffer the most. They will be the first to die.

Secondly, McKillop assumes a "trickle down" benefit to consumers from high prices. International capital flows and your own checkbook should be enough to dispel this belief. Need I say more? Didn't we hear enough about trickle-down from Ronald Reagan?

PRODUCTION

Oil industry guru Jan Lundberg - who seems to be getting a lot less air time than he used to - recently wrote the following brilliant assessment for (ironically of all places) Electric Vehicle (EV) Magazine. Lundberg got it right.

The end of abundant, affordable oil is in sight, and the implications are colossal. About now in our hydrocarbon phase of human history, we have pulled out of the Earth approximately half of the available petroleum (crude oil and natural gas). The other half still in the ground is harder to extract and may not - as assumed - fuel the global economy or even provide a transition to another phase…

This means that the next tough oil shortage, even if it is not acknowledged as a post-peak oil extraction phenomenon of diminishing supply, will cripple the globalized economy. Understanding of both the economics and social dynamics of collapse is rare, and even when it is present there is an absence of taking into account the "market factor" in ushering in collapse…

Despite the need to be prepared for imminent, final energy shortage - which could happen now or in several years at the latest - people persist in focusing too much on the likely date of the passing of the peak. It is already clear that the oil industry and OPEC numbers on oil reserves are suspect.

The scenario I foresee is that market-based panic will, within a few days, drive prices up skyward. And as supplies can no longer slake daily world demand of over 80 million barrels a day, the market will become paralyzed at prices too high for the wheels of commerce and even daily living in "advanced" societies. There may be an event that appears to trigger this final energy crash, but the overall cause will be the huge consumption on a finite planet.

The trucks will no longer pull into Wal-Mart. Or Safeway or other food stores. The freighters bringing packaged techno-toys and whatnot from China will have no fuel. There will be fuel in many places, but hoarding and uncertainty will trigger outages, violence and chaos. For only a short time will the police and military be able to maintain order, if at all. The damage that several days' oil shortage and outage will do will soon wreak permanent damage that starts with companies and consumers not paying their bills and not going to work.

After an almost instant depression seizes the modern industrialized world, and nation-states break down, the frantic attempts of people to feed themselves, stay warm and obtain fresh water (pumped presently via petroleum to a great extent), there will be no rescue. Die-off begins. The least petroleum-dependent communities will survive best. These "backward" nations will be emulated by the scrounging survivors of the U.S. and the rest of the "developed" world, as far as local food production will be tried - in a paved-over, toxic landscape by people who have lost touch with the land...

The prospects of mitigating peak oil or avoiding collapse are almost nil. U.S. petroleum demand in 2004 grew at its strongest rate in five years. In December the daily consumption of refined oil was 21 million barrels in the U.S, a quarter of world use. The U.S. leads the industrialized world in population growth, part of a domestic policy to assure more car and oil sales…

… The Earth cannot, as of the world oil peak in extraction, give up ever greater quantities of black gold. Most of the world exporting companies are now reducing extraction rates due to fewer discoveries and depleted fields. Oil production in 18 producer countries has passed its peak and is declining faster than previously thought: at about 1.14 million barrels a day.

"International Energy Agency figures put the total spare capacity of all 11 countries in OPEC at just 330,000 bpd (down from 6 million bpd in 2002). Conventional Saudi spare capacity is zero... An IEA report from August 2004 indicates Saudi Arabia needs up to 800,000 bpd of newly discovered oil each year just to offset declining fields and maintain its current production level." [Al-jazeera] - This can't happen, so watch for the ensuing energy crisis.

The world needs to produce another 2,723,530.2 barrels per day by the end of 2005 just in order to stand still…

Petroleum is the Great Leveler, in the sense of "leveling" or flattening oil civilization. But petroleum will also be the Great Leveler in terms of equalizing everyone: People will go through a final, grasping petroleum grab with whatever funds and connections they have, before the attempt fails for good. Then all people will have no choice but to work together or perish. Until then, we have skewed values: for example, when a kindly old lady drives to a shop and has her charitable concerns, the use of oil makes her a killer of the planet and she is not pursuing a sustainable form of transportation. Meanwhile, a mean old man who scowls at little children who walks to the shop might be a much more valuable citizen in a practical fashion that matters to the world.3

THE MOST EVIL STATEMENT I HAVE EVER HEARD

Detroit News columnist Thomas Bray recently described an interview with two "experts"; authors who come from the corporate/industrial/Neocon camp. The aberration of his thinking is symptomatic of the guilt we all share and the consequences we all seem to be begging for.

"We will never stop craving more," say Huber and Mills, "nor should we ever wish to. Energy is what brings light out of dark, civilization out of disorder, prosperity out of poverty."4

What was the title of the book that Bray was so jazzed about? The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy.

Contrast all of the above with the following February 28 quotation from China's Xinhuanet news agency:

Global demand may average 84 million barrels a day in 2005, while daily production in January was only 83.6 million barrels, according to the International Energy Agency. Oil prices have risen 11 per cent in the past three weeks in New York on growing concern that OPEC and other exporters will fail to keep up with demand this year.5

That all of these factors are forming a perfect storm is now clear.

Marshall Auerback, a brilliant economist (www.prudentbear.com) who dares to see the world whole, notes:

"At the time of the 1929 stock market crash, total US credit was 176 percent of Gross Domestic Product. In 1933 with GDP imploding and the real value of debt rising even faster, total credit rose to 287 percent of what was left of GDP…In 2000 at the top of the late bull market, total credit was 269 of GDP. An extraordinary statistic to be sure but dwarfed by today's figure, in which total credit stands at a whopping 304 percent of GDP, according to a recent study by fund manager Trey Reik of Clapboard Hill Partners.

The title of Auerback's essay was, "Last Orders for the US Dollar."6

Auerback opened his treatise with a recent quote from former Federal Reserve Chair Paul Volcker that should have sent politicians (all of us) feverishly to work on a survival plan.

Below the favorable surface [of the economy], there are as dangerous and intractable circumstances as I can remember…. Nothing in our experience is comparable… But no one is willing to understand this and do anything about it… We are consuming… about six per cent more than we are producing. What holds the world together is a massive flow of capital from abroad… it's what feeds our consumption binge… the United States economy is growing on the savings of the poor… A big adjustment will inevitably become necessary, long before the social security surpluses disappear and the deficit explodes… We are skating on increasingly thin ice."7

SOME DOTS

ENERGY

MILITARY AND POLITICAL

ECONOMICS



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