256 comments on DrumBeat: December 7, 2006
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256 comments on DrumBeat: December 7, 2006
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Put in simple words he states that KSA (who 2003 warned the USA not to expel Saddam Hussein from Iraq) now does not want the US troops to withdraw since that would open hells gates towards civil war, provoking Saudi measures in favour of the iraqi sunnites. Among three possible options for KSA he sees one called "oil".
Whipple asks why KSA hasn't yet cut half of its production, sending up oil prices to "over $100", thus still earning enough money and leaving more oil left for their grand children.
To me Whipple seems to overestimate these 4 or 5 million barrels. Sounds much, but still is just roughly five per cent of daily world production. Currently this would not bring crude prices over $100.
There aren't 4 or 5 million barrels of excess capacity in the world. If that was taken off the market, I think we would be lucky if oil only went to $100/bbl. There really is no telling how high it would go.
I would think it would be edging higher, but low and behold, it's the opposite.
Any thoughts?
Inventories are crashing, and demand is up. So, what are the options? Do you 1). Raise prices and have people cry conspiracy; 2). Keep prices steady and start rationing gasoline; or 3). Just risk having lower inventories?
In my opinion, higher prices are inevitable (and they have been trending higher). But I would have thought after yesterday's surprising inventory draw, gasoline futures would have spiked.
The last page of the perpetual inventories thread at PO.com has some interesting discussion.
However, gasoline doesn't get into the system as soon as refineries come up. So, next week may be a better indicator. If refining capacity stays above 90% and gasoline inventories are still falling, buy gasoline futures.
One thing they could do would be to run an advertising campaign calling for increased conservation. (Chevron is already doing this to some extent via http://www.willyoujoin.com). Think they'd every do that on a large scale?
But how could they "allow" these spot shortages, given the transparency of the refinery utilization number? That has been one of my main points in this argument. Refinery utilization, and the demand numbers are publicly available. They show that demand for this time of year is at record levels. Refinery capacity is pretty much maxed out as it is, and then you have huge demand in turnaround season. I certainly don't need to appeal to any shady business to explain what's going on.
Having said that, as Robert knows (and has acknowledged), I have been predicting for some time a renewed bidding war for declining exports in the fourth quarter.
I think that we are in the very early stages of an epic collision between expectations of exponentially declining imports into the US with the hard cold reality of exponentially declining world exports.
US total petroleum imports have been increasing faster than consumption because of the combined effects of declining domestic production and increasing domestic consumption.
At this precise point in time, 12/06, I estimate that Saudi oil exports are declining at about twice the rate that their oil production is declining--13% versus about 7%.
So, the world's largest importer is expecting an exponential increase in imports, while the world's largest exporter is showing an exponential decline--as the HL model predicted--in exports.
Did you mean rising imports?
Should be:
"I think that we are in the very early stages of an epic collision between expectations of exponentially increasing imports into the US with the hard cold reality of exponentially declining world exports."
Weren't you speaking about oil imports? (and not gasoline ones)
I wasn't suggesting they restrain production. I was suggesting that they simply refrain from raising the retail price of gasoline. This would stoke demand, put downward pressure on gasoline inventories, and in the extreme, could result in spot shortages. Then they could say, "look, we are running maxed out and we still can't adequately supply the market, therefore we must be allowed to raise prices to restrain demand and prevent shortages." I'm assuming here that oil companies have a fair amount of control over the price that their gas stations charge their customers.
A few spot shortages here and there would probably go a long way into softening up the public into accepting higher prices.
Another way to look at this is that the oil companies view raising prices (to restrain demand) as a last resort because of public outrage, political scrutiny, charges of gouging, etc. Under that scenario, they're still holding out hope of the supply-demand imbalance correcting itself without the need for higher prices, and they are willing to take the risk that comes with running the gasoline system at lower inventory levels.
The sales of gasoline are divided between too many companies-about 60% is at convenience stores, 40% at the integrated oil gas stations. If they all "conspired" causing shortages it would be illegal as well as illadvised..It would be a violation of the antitrust laws.
So please, lets keep this conspiracy theory quiet. Karl Rove might get a job in the oil patch!
Do you mean that 10% of our 9.x mbd capacity could not cover the draws or that for some reason that 10% is inaccessible presently?
It just seems odd to me that RU is not climbing back to its usual 9x% rate. If refineries are back normal as much as possible as you are suggesting, then there is about a (93 - 90=) 3% reduction (in very simple terms) in what the EIA figures should imply in the next couple of months. From being just able to cover gasoline and distillate supply in the US with ordinary import levels, it looks like the US will have to import more than average or suffer small but persistant stock withdrawals.
Yes, I encourage everyone to read Whipple's article. Unless the US starts massive conservation, the Saudis might further leverage the force to make us enlarge the 'Economic Draft' whereby we continue to send our soldiers into harm's way for the sake of FF, or else, a full-on Draft for the '3 Days of the Condor' scenario. Americans fighting and dying to help preserve the flow of fuel from, and the flow of funds to a monarchy-- imagine George Washington and the Founding Fathers switching sides to support Britain's King George.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
The Saudis couldn't cut production within a few days; so maybe other producers partially would fill the gap, and consuming nations would have some time to adapt.
If that was taken off the market, I think we would be lucky if oil only went to $100/bbl. There really is no telling how high it would go.
If so, wouldn't that mainly be due to psychological reasons?
Given there were such an announcement from officials in KSA, they will cut production of 4 mbl within, say, a year. That would cause a sharp rise of oil prices, sure.
But what if they just did it in a discreet way? I'm not so sure about the ramifications then.
Partially, but not all. It depends on how badly people really need oil. If the Saudis took 4 million bpd off the market, other suppliers might make up half of that at best. Then, you have to have demand destruction of the other 2 million barrels. How high do prices have to go in order to destroy 2 million bpd of demand? That depends on where you are trying to destroy the demand. If the incremental demand ever comes down to the U.S., Europe, and Japan bidding on that last million bpd, you are going to see prices go very high.
Now given those basic facts, how can you say that oil would not reach $100 per barrel. As Robert states, we just don't know how high it would go because we would have to outbid at least enough other global consumers to ensure access to 3-4 mbpd OR we do without (shut down 15-20% of total US energy use daily) which cannot happen suddenly overnight without a disastrous total collapse of the US economy. We could migrate lower over time via conservation but that requires investment, by both individuals and institutions (corporations and government), in more energy efficient tools, appliances, vehicles, etc. Such investment cannot be switched on overnight but the oil production can nearly be shut off overnight.
And as a historical point of note, Saudi Arabia removed less than 5% of global production from the market in 1973. Oil went up about 1000% total in the following years before it finally stabilized, rising from $3 per barrel to $30 per barrel before then settling back down around $20 per barrel. That entire process took over a decade to run through and the US economy went through its greatest recession since the Great Depression during the late 1970s and early 1980s. This is what history tells us happens when just 5% of global production goes offline when supplies are tight.
Given the above facts and history, it boggles the imagination how you could come to the conclusion that oil could not reach $100 per barrel.
I've been wondering what that percentage was for quite some time now, but I always remember it when I don't have the information around to figure it out. That really tells you just how fragile the system is.
If that is so you and Robert must be right. I didn't know that.
However, in 1973 oil export cuts were performed as a kind of declaration of war, connected with quite a hostile attitude towards the west, especially the USA who supported Israel.
So there was also a threat of more possible cuts - how much could hardly be foreseen. People say that economy is 50 per cent psychology.
So I still wonder about the effects of 'silent' export reductions, without admitting "we don't have more" (peak oil), without hostility.
A lot of that had to do with the decision by the Federal Reserve to make inflation-fighting a much higher priority than in the past. There was already some inflation built into the economy (what the Fed calls "inflation expectations"), so the Fed raised the Prime rate rate to around 18%.
Oil was part of it, but this process of "squeezing" inflation expectations out of the economy was also a big part of it.
Yes, that's what I meant. The difference was that previous Fed boards hadn't raised their rates in reaction to inflation - they made interest rate stability their goal, instead of inflation fighting.
More importantly, Volcker didn't care what happened to the economy growthwise, at least in the short-term. He made choking inflation the first goal, choked the economy doing it, and assumed that in the longterm it would be good for the economy. Unfortunately, presidential elections don't happen in the long-term, and so Carter got killed in the elections.
For some reason most people don't remember this history, and blame Carter's loss on his energy policies, or bad foreign policy, or somesuch.
Money and those who have it don't like inflation, which is why the Fed considers inflation enemy #1. The combination of oil spike and a war fought on credit got inflation roaring. Actually from '73 to 80, the Fed only tripled prime, while since 2001 to 2006, the Fed has now quadrupled the prime -- we'll see what happens.
ExxonMobil estimates that production from existing wellbores worldwide is dropping at a rate of between 4% and 6%, or at about 3 mbpd to 4.4 mbpd per year (crude + condensate). So we need to add production from new wellbores, workovers, secondary/tertiary recovery, etc. of 3 to 4.4 mbpd just to keep production flat.
Historically, regions that have crossed the 50% of Qt mark have not been able to to show continued exponential increases in production for this very reason--increasing production from new smaller fields could not match the declines from the older, larger fields.
As I have said about 10 zillion times, we have had several critical "coincidences" as the world crossed the 50% of Qt (C+C) mark: (1) World C+C production started falling; (2) Oil prices traded in the highest nominal range in history; (3) It's a near certainty that all four of the current super giant fields are in decline or crashing.
How can this fact be hidden so well from most people?
There are either great magicians at work here or we are not quite there yet. Perhaps stored crude is being depleted to hide the fact, but it is coming from somewhere off the books if this is the case.
http://www.eia.doe.gov/emeu/aer/pdf/pages/sec5_5.pdf
These are links to production records for Texas and the Lower 48 (both crude + condensate). Note that the initial declines were quite subtle, but since Texas peaked later (relative to Qt), Texas (now down 73% from the 1972 peak) has fallen faster than the Lower 48 (now down 55% from the 1970 peak).
As I have now said ten zillion time plus one, KSA and the world are now at the same stage of depletion that Texas and the Lower 48 started declining.
Guess what? KSA and the world are both showing lower crude + condensate production.
(1) KSA could be up and the world up.
(2) KSA could be up and the world down.
(3) KSA could be down the world up.
(4) KSA could be down and the world down.
Anyone else find it compelling that both KSA and the world are performing as predicted by the HL models?
If I had a dollar form every one who has said to me - yes Peak Oil is probably perfectly true, but I don't have time / won't / can't / not interested in thinking about it now, I would be able to buy a [small] oil well.
I know nobody who denies it and almost nobody who takes it on board intellectually. Like Mr Micawber, they expect that something will turn up and that PO will go away - or will only happen in the distant future.
You won't find anyone more receptive to PO than the people at TOD, myself included.
Yet I gotta admit, I can't process this. Cognitive dissonance at work.
I understand academically what WT is saying. I understand academically what the numbers mean, but I just can't process that into reality.
What am I supposed to do? I have to get up and go to work anyway. I have to interact with people completely oblivious to the problem everyday. PO is just getting drowned out in the noise of life and honestly I don't try too hard to stop it.
Sure I have made plans for PO. I've followed ELP as far as my income will allow. I've educated my immediate family (at least my father and wife (somewhat) believe me).
When the SHTF I'm emigrating back to the US and moving onto my father's farm which we hope to make somewhat self sufficient.
But that's all academic. I don't want to live on a friggin farm while the world falls apart around me! I love living in Tokyo! I love modern life! Screw you PO!
sorry for the rant.
Rage, rage against the dying of the Electric light
Do not go gentle into that good Peak night
Welcome to the Dim Ages.
For your solace,
I offer the Talking Heads's song lyrics for;
Nothing But Flowers
Somes up the feeling you may have after you....
Peace
Fare Thee Well
John
Just for an example: When the subject of home heating comes up on this page I reply with notes on work I did a quarter century ago. I insulated a number of strucures which have had no need whatsoever for heating through the coldest of Chicago winters. It's much easier to apply the product these days and you can even get it with good fire ratings, which was not the case in the old days. Need for air conditioning nearly disappears too. I don't get replies to those posts. I assume readers here just don't believe me.
The owners of those buildings of course told their friends. Who don't believe them. When giving tours and saying "This is where the boiler used to be. The building isn't being heated anymore" visitors either don't hear or respond by shivering and pulling up their collars.
Hard core skeptics will not believe in peak oil until production is down to 20mbpd. Or ten or five mbpd. There will always be an alternative explanation which many will find more palatable. Please look at the populations that still believe in George W Bush. Look at those who still listen to and believe Rush Limbaugh.
Back in '03 it was the 50th anniversary of Josef Stalin's death. Polls taken in Russia at the time had over 50% of people saying that Stalin had been a 'great' man.
Put it this way: Stalin oversaw the industrialization of Russia and the defeat of Nazi Germany. That's pretty impressive. Great, even - either one, on its own.
(Before we get any comments about how many people he killed, 'great' does not actually mean the same as 'nice'. My old left-wing history teacher once asked us if we thought Hitler was a great man. Of course everyone said no. 'I didn't say "good",' he said, 'I said "great."' He left it at that, point made.)
But Bonaparte created the Code Napoleon, a jurisdictional framework that is valid and broadly respected until today.
This is not the case as of Hitler (who only destroyed and never created anything, as Sebastian Haffner has remarked) or Stalin who obviously suffered from a persecution mania (and didn't create anything of value either).
What if the powers that had defeated Napoleon had then proceeded to get rid of the Code Napoleon? In this alternate universe, could Napoleon be considered great? Quite definitely, although not by your measure.
Like I made clear in the first post, being great and actually achieving anything remotely positive are not connected. Great people manage to do extraordinarily difficult things - positive or negative. Industrializing Russia. Defeating Hitler. Becoming dictator of Germany when you started off as some sort of laughable foreign outcast. Conquering the known world when you're still an adolscent. Being the greatest general known. And so on.
And Stalin did do something positive, that is, he oversaw the extremely rapid industrialization of the Soviet Union. Why is something like that of less worth than the Code Napoleon? (And please, no non sequiturs about all the people that got killed, because exactly the same argument applies about the Code Napoleon).
Again, we might just have to consider that the current popularity of Stalin in Russia might have something to do with the man's achievements. But we won't, because of exactly the habits of mind that were commented on in the start of this thread. But the joke is that we are the ones who are demonstrating the point - not the Russians.
You mention Mother Theresa. She was great. As was Martin Luther King. As was Ghandi. As were Hitler, Stalin, Genghis Khan, Empress Wu, Augustus ... you get the idea. Great relates to your personal potential for action at a particular historical juncture. Whether it goes for good or ill is nothing to do with it. And let's face it, it will often go for ill.
Who are we to judge the Russians for thinking Stalin was great? We have had a half-century of Stalin as official Goldstein, second only to Hitler in our pantheon of official demons. (When he was actually fighting Hitler, he was a great guy, of course). Russians might be less susceptible to propaganda than we are (this is the conclusion of some Western observers). So I am not at all comfortable with the idea that we can use the opinions of a large segment of the Russian population about Stalin as evidence of them all simply believing what they want to believe. He saved their asses from the Nazis and made them a nuclear power and the first nation in space. This from being an agrarian nation considered the most backward in Europe - indeed, not even part of Europe. He outflanked both Lenin and Trotsky - no slouches either. Great? If Stalin isn't, no one is, and the term means nothing.
"Stalin's government financed industrialization by both restraining consumption on the part of ordinary Soviet citizens, to ensure that capital went for re-investment into industry, and by ruthless extraction of wealth from the kulaks". (From the paragraph Industrialization in Wikipedia.)
We needn't argue about Stalin being a "great" historical figure or not. Winston Churchill regarded him as an "outstanding personality", so you may be with Churchill.
I tend to put it the way Josip B. Tito did:
"No crime was unthinkable with Stalin since there was no crime he hadn't committed. No matter how we want to judge about him, the fame having been the worst criminal in entire history will be his."
Yes, good vs bad is obviously a different, but not unrelated continuum than great vs non-great(?). In historical hindsight, most people who give it more than cursory thought would try to roughly balance the bad a person has done with the good and make a rough judgement as to whether 'we' would have been better off had this person never existed. Obviously an academic excercise, but we do it nevertheless.
Small example: I would put FDR in the 'great' category and, although you can dredge up plenty of 'bad' things he did, my opinion is that the good he did far outweighed the bad. I'm sure creating such an index would give a fairly accurate picture of someone's politics.
Perhaps I went to bed. I would not have stiffed you knowingly.
Try www.biobased.net.
The original point of all this was that people will stick with what is familiar and not even see the new. Doing backflips to try to cover up the shortcomings of the familiar is pretty normal.
With spray foam you transport 2 55-gallon drums, resin and catalyst, and the spray unit fits any small van. With rigid board there's truckloads of material to do a house. The foil paper serves no purpose except to ease handling, pure waste. The trims from fitting the rigid board can eat a good size dumpster, a half-good foam crew wil waste much under 1%. Cutting the boards takes time, then you tape seams or if you wish, cement them. And when it's over you still have an inferior job. And it's still done the familiar way because it's so easy to understand the process of cutting board with a knife and driving screws.
Way up there Dragonfly thought it would need a magician politician to make anyone not see peak oil. I'm surprised when anyone ever gets out of their own way.
very large advantages when used throughout:
The one thing it needs is a system to produce panels at a local factory from primed skins and foam beads. That would eliminate most of the shipping issues.
I don't get replies to those posts. I assume readers here just don't believe me.
You get responses from people who will listen to you and respond after you gave them a certain amount of courtesy. For fucks's sake. I just gave you that. Why? Because you did previously for me. Duh.
Here's my list of cool people on TOD. If you are not on this list - YOU SUCK. You can petition me for forgiveness.
(There is a chance you should be on this, but I missed you)
Let's Go.
Let's see how good I do. I'm taking misses in my mailbox now. I need a little help from my friends to make this work.
Jack
Halfin
Lou Grinzo
Cherenkov
(the first four)
I have no good idea on how to sell insulation + heat recovery ventilation + using waste heat if visiting a such a house isent good enough.
no it would not.
the vast majority of people figure they would be dead or will die if anything like this happens so they put it out of their minds.
Well, if they took 4mbd off the market, that would create quite a political hornets nest. You would probably see massive support for alternative energies from US Politicians. Subsidies, Tariffs, etc...
It would also most likely cause a recession, which would decrease demand for oil.
Garth
The Saudi princes are not interested in "looking forward for the next generations". They are interested in staying in power and enriching themseves. After oil output starts to run out they will most likely collectively resign and leave to some Carrebean islands.
But clearly Nawaf Obaid has looked at that scenario and his superiors must find a real chance of the worst coming to pass.