The Oil Drum | Thursday open thread

143 comments on Thursday open thread

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louGrinzo on May 4, 2006 - 11:26pm

I don't wonder about the death of the 'burbs at all--I'm convinced it won't happen.

The economics of the situation very strongly favor keeping the 'burbs alive and adjusting our transportation capital and patterns to match. If the 'burbs "collapse", as Kunstler and many others keep saying, what exactly does that mean? People just walk away from their homes? If they sell, who would buy if things were that bad? About the only buyers I could imagine would be farmers, who wouldn't pay anything near what the current owners would want for the property.

Right now, a lot of people who live far from their jobs are hurting because of high gasoline costs. But they've barely begun to exploit the first-order conservation measures: Trading in (one of) their current vehicle(s) for something with much higher fuel efficiency, car pooling, reducing non-work driving, etc. They don't need a Prius--trading in an SUV or mid-size car for a Yaris or Fit would yield a big drop in monthly gasoline bills.

Those steps will make a huge difference, and will buy the people in the 'burbs several years, very likely enough to stretch until electric cars go mainstream, around 2010, possibly sooner, depending on gasoline prices. Once that happens, expect many people in the 'burbs to take the next step and adopt EV's in droves for their commuting cars, and the 'burbs are effectively saved.

If hydrogen fuel cells pan out down the road, fine. If not, people in the 'burbs, who very often have more than one car/household, can limp along for quite a long time using 150-to-200-mile/charge EV's (and that's a pretty conservative estimate on the range, given recent battery advances) for most driving and a gasoline car for those rare, long trips.

Frankly, I don't think that people like Kunstler realize just how far society in general will have to collapse before we see the widespread disappearance of 'burbs.

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rwmcalister on May 4, 2006 - 11:59pm

Just a quick thought on cars--the people in the suburbs are facing increased gas costs, increased mortgage costs where they have ARMs, increased heating costs, and increased food costs. They owe money on their SUVs; the SUVs will be worth zilch on trade-in or for sale, so they can't get out of the payment. How are they going to be able to add a new car payment on top of all these costs to make this smooth transition?

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Kohesion on May 5, 2006 - 12:34am

Yes, this is particularly scary.

I believe that high inflation is the answer:

High inflation would do the following:

Reduce government debt
Reduce consumer debt
Fix the housing bubble
boost sales of US exports
jumpstart domestic manufacturing (imports would be more expensive, exports would be in demand)

Maybe it is time to buy gold and silver.

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ericy on May 5, 2006 - 12:51am

It won't reduce all consumer debt. Credit cards will just boost the interest rate. The only way you come out ahead is with fixed-rate debt.

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Twilight on May 5, 2006 - 7:13am

Yes - one of the questions is just how far over-extended are most of the people who live in the exurbs? I often have the impression of people working 2 jobs long distances away, and leveraged up the wazoo with variable rate debit. But I don't know how much of this is really true.

Also, if we run electric light rail lines to these communities, they will remain viable to some extent. I would expect them to eveolve into actual towns if they are to survive.

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wkwillis on May 5, 2006 - 10:40am

If the dollar collapses overnight you don't need to worry about credit card debt. We are in completely uncharted territory.
The most dangerous words in financial booms are "This time it's different!". But the bust after the boom is always different. Compare 1900+, 1929+, 1966+, and 2001+. Each was different.

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Elizaphanian on May 5, 2006 - 7:12am

I think that is what will happen, but the big downside is that it will mean the US becomes much weaker internationally (ie other countries can buy up US industry very cheaply). I would expect the administration to resist that by putting in some form of control on purchasing (whether ad hoc, as with Unocal recently, or more systematically). But we then get the worldwide abandonment of free trade, and the re-run of the 1930s....

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BrianT on May 5, 2006 - 7:55am

Don't expect to have an administration that would do anything like that. If something hits the media in a big way (like the Ports story or China buying an oil company)they will block it for PR gain but basically the days are long past when the USA was concerned about where the money comes from. In fact, with the exception of some tax havens like the Caymans, the global elite have more control over the USA than any other first world country and they have no intention of giving it up.

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oaksmoke on May 5, 2006 - 8:00am

I think TPTB will eventally choose to cut the credit fueling the American way of life. I think we will face conditions much like the collapse of other unsustainable frauds like the UUSSR and Argentina. I think a depression and loss of confidence in the currency are almost guaranteed. I think energy is the new standard for measuring wealth.

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GeoPoet on May 5, 2006 - 9:31am

Kohesion -

You should have gotten in to silver and gold last year - the price for each has almost doubled this year....and oil companies have also done really well...

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Kohesion on May 5, 2006 - 10:12am

I actually did start last year. I wish I had started in 2001 when my paranoid (I thought) economist friends told me to.

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turbosaab on May 5, 2006 - 5:16pm

I got in last year as well. My savings portfolio is split between precious metals (gold/silver mainly) and energy (oil sands, coal, and "big oil").

I think this up cycle still has a long way to go.

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Nate Hagens on May 5, 2006 - 7:16pm

i dont think big oil is good investment - too many risks of overspending with declining net energy and being nationalized - small- medium north american plays are better

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Jack Greene on May 5, 2006 - 8:40am

rwmcalister,

One of the replies to this situation that is starting to occur here, though I am not sure at what scale, and does require you not being up to your neck in debt - i.e. some disposable income that you can maneuver with is:

Buying a third car. I spoke with a couple yesterday in which both used their vehicles for work (not just to commute). Hers was a good Toyota, his a Silverado. He needs his to make deliveries occasionally. That is the operative word - occasionally. So he is thinking of a Prius for his regular work car and call on the Silverado when he needs it (1 day a week?).

To haul your boat or trailer, you need the gas guzzler, so maybe we just up the number of vehicles at home.

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Will on May 5, 2006 - 7:30am

Lou... your answer to Kunstler is buy another car. He must be rolling on the floor laughing.

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wisco on May 5, 2006 - 9:33am

"If they sell, who would buy if things were that bad? About the only buyers I could imagine would be farmers, who wouldn't pay anything near what the current owners would want for the property."

Selling is not the only option. You can default on your mortgage and walk away from the home. It's an economically rational thing to do anytime the value of your home falls far below the mortgage amount. Lenders spend a great deal of effort figuring out exactly when, why, and how people "choose" to default.

The "suburban wipeout" theory posits that many defaults would occur simultaneously, flooding the markets with repossesed homes and further depressing prices, leading to still more rational defaults. With their paper equity lost, and their credit scores in the garbage, home "owners" would need to seek alternative living arrangements (renting) and would likely have far less spending power for things like riding lawn mowers, plasma tvs, H-3s, etc. Voila, demand destruction.

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john milton on May 5, 2006 - 1:28pm

"Flooding the market": There is an assumption there that the McMansion will be fit for sale...

If I've lost my service job, or likly to, maxed out my credit cards, and staring down the barrel of Repo. on the house with no equity build up why not "strip" the asset I "own" for cash rather than just give it back to the bank "as is"?

Gut out the water pipes and electrical wires for the copper scrap, sell off the high end bath and lighting fixtures to a "dont ask dont tell" contractor for reuse, same with that high end kitchen stuff like the granite countertops and Stainless dishwasher and cooktop.

Next to go is that "floating floor" system thats wall to wall in the whole place (hardwood plywood strips) they can be removed without destroying them, and sold off.

At this point its pretty much a shell, but you'd never know from the outside...

Now I'm down to the "dive bar" and sell the front door keys to a local hood looking to site his pot "grow" house or crystal meth lab (make sure to leave the main breaker panel in place for him to hook up his sodium lights to he'll pay more that way).

It'll be at least 90 days post default untill "they" send someone around to actually check the house, maybe longer if you get the demand letters fwd'd to a mail "dead drop" and spin them a line of bullsh*t, by which time I'm long gone out of state.

Maybe drug guy has burned it down by then and the fire insurance may actually pay off the bank, "who cares", I'm broke...

We really don't know what "big bad" looks like, but this story goes on now below the radar of main stream media in small quantity, no reason to think it won't scale up" in my opinion.

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fallout on May 5, 2006 - 3:23pm

I've actually seen just what you describe, on several houses that were reposessed in the next cracker-box neighborhood over. The family dissappeared, the grass grew to be thigh high, the house was gutted, local kids broke in and vandalized everything, you name it. Even the kitchen cabinets, A/C unit, and toilets were gone.

When the bank finally found buyers, they had to renovate before they could even move in.

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Oil CEO on May 6, 2006 - 4:18am

Can you send photos? C'mon. We love you. Or at least send me the photos. You know I never publish what is not my own. I totally protect sources on anything. I have armies of tanks protecting my flanks and your flanks. And you know I love tanks.

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odograph on May 5, 2006 - 9:55am

i get you, lou. that all makes sense assuming a downward slope in oil production. it makes even more sense if people get scared into action bt some geopolitical high prices before the true peak.

this "roving bands" stuff is maybe an exciting idea, but depends on a real production drop-off.

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mshortridge on May 5, 2006 - 10:22am

Re: Kunstler. He has a range of predictions regarding suburbs in various regions. Phoenix, Vegas, Albuquerque and other big soutwest sprawls have double and triple threats of commuting+water issues+greater dependance on air conditioning. K is more optimistic about smaller cities that have better water situations.
The post-carbon institute/Richard Heinberg vision of re-localization imo is the most realistic future. Either as a conscious choice or even as the end result of simply allowing greater pressure to force us into a shift.
I think there will be "refugees"--not unlike the people who lost so much in Louisiana and fled not realizing that they would never return--who will find that life just isn't working in the SW desert metroplexes. It won't happen overnight, just as Detroit didn't die overnight, but it is basically dead now.
Matt, DC

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tom deplume on May 5, 2006 - 4:20pm

The Detroit suburbs though are very much alive. Southfield, MI is on a par with Beverly Hills, CA in per capita income. It is home to two owners of NFL franchises, the Lions and that other dead rustbelt city Buffalo.
What does Kuntzler say about enclaves of the super rich?

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vtpeaknik on May 5, 2006 - 10:49am

EVs are not "free energy". In particular, batteries are very expensive both in money and in energy terms. The batteries in a Prius are about $4000 to replace. And they are relatively small. Let's assume that a pure EV with decent range is developed with batteries that cost "only" $20,000. And assume those batteries last 10 years. That's $2000 per year, which at today's prices buys one 600+ gallons of gasoline, or enough to drive well over 20,000 miles in an economical ICE-based car. And that's just the cost of the batteries, not the electricity to charge them etc etc. And as energy costs will increase, so will the cost of batteries, since their cost is largely a result of the energy of manufacture. (And if the environmental costs of handling all those chemicals were ever truly internalized, the price would be higher yet.)

Another point: EVs, like PVs, even if they pay off eventually, are a method of putting up a large investment up front, for savings years later. People who are in dire economic straits, struggling in an unsustainable exurb, or in a national or worldwide depression, will not be able to make such investments.

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pondlife on May 5, 2006 - 11:46am

I also don't understand where people think the power for all electric vehicles is going to come from. Electric grids everywhere would need 10 times the capacity. WE already have a looming electicity supply crisis before running electric milkfloats everywhere.
As for those people who think Prius batteries etc. will become cheap - not a chance. Powered pallet trucks are used worldwide for loading/unloading 2 ton pallets in warehousing. An old fashioned lead/acid battery for one of those suckers is £1000 - 2000

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LevinK on May 5, 2006 - 2:41pm

Electric grids everywhere would need 10 times the capacity.

This is simply not true. Even in gas-guzzling US we can replace all our light vehicle fleet with only a moderate expansion of the electric grid.

US gasoline usage ~ 9.5 mln.bpd = 665 GW x 15% (gasoline-to wheels efficieny) ~ 100 GW net power

So, if electric cars are 70% efficient (including recharging losses etc.) we will need additionally 100 / 70% = 143 GW to power them.

Currently the US electricity grid has 700GW peak capacity and is providing 450GW on average yearround. We will need to expand it by only 32% to handle the electric cars. Sounds too far from impossible, IMO.

Regarding battery costs you are both assuming that they will stay the same after batteries become mass produced by millions and after every car producer in the world starts investing billions in researching and improving them.

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fallout on May 5, 2006 - 3:24pm

Unfortunately, EV's are not anywhere near 70% efficient. Try 30%-40%.

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LevinK on May 5, 2006 - 4:04pm

A link? A typical DC electric motor efficiency is around ~90% and the cycle efficiency in a lead-acid battery is 85-95%. Lithium-Ion batteries should perform even better. Yes there would be also losses in the charger, the transmission etc., but they will be less significant and the overall efficiency should be no less than 50-60%, IMO.

But even if we take the 30-40% as a worst case, it will translate in 250-333 GW needed additionaly. By building some additional power plants and utilising the current grid (recharging the cars at night etc.) the task would be well within reach. And of course we will have to learn to conserve - not such a pain to do, or a thing that would force you out of your home.

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tom deplume on May 5, 2006 - 4:29pm

Perhaps you are equating fuel cells with storage batteries. 3-phase motors are over 90% efficient and batteries give back over 80% of charge. Coal plants are 30-40% efficient which is twice that of most car engines.

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