Monday's Open Thread
Posted by Heading Out on December 26, 2005 - 12:14pm
Topic: Miscellaneous
In this season of annual reviews, and predictions for next year, the floor is yours . . . .
79 comments on Monday's Open Thread
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My thoughts are fourfold. 1) in the long term oil will increase in price as we hit the peak. I agree with the Danes that it will be out in 2020. With shale oil and other sources and with the Big Oil companies pouring money into drilling rigs this next year, production should see an uptick. BUT, I do not think they can get any real return on their investments for a couple of few years just with everything involved (permits, site issues, set-up, shipping, etc.). So I would conclude that in 2006-08 production should not increase too much but than some new wells, etc. will come on line which will temporarily ease rising demand over that same period.
- Global warming, if the world's governments get serious about it, would impact my point #1, by discouraging the use of oil based energy. But there again it would take several years to see any real impact.
- There are wildcards out there. If Iran is bombed for three days by Israel or USA or both over the Nuke issue, figure the Persian Gulf will be shut down for sometime. No tankers leaving those waters for weeks would smash up the Far East, and Europe economies to a degree. Iran's new President is not helping this option go away, that is for sure. If a world wide recession results from this or some other economic/terror event, and there are a lot of potential triggers out there, oil prices would plummet.
- the other event this past year and going on worldwide is that the world's economies absorbed the higher priced oil much much better in 2005 than in the 1970's. It still hurts the poorest of every nation the most, but petro-dollars in the Middle East mean more fancy car sales, and more buying of the latest military equipment, which keeps economies moving ahead. Places like Nigeria, Canada, and Venezuela all get a big kick in their economies and that means more stuff is bought and sold.
P.S. I do a local radio show in Central California from time to time and have a "Rush is Wrong" segment. This week it is how wrong Rush is about the "expensive" (his words, not mine) Prius! He echoed the President of GMC (boy I am glad I do not own any stock in that turkey) who last year said that hybrids were a fad.Then, if possible, the world needs to increase production even more for the actual increase in demand.
Rick
amount of stuff sold = amount of stuff bought?
Is there more to it? Have I got the definitions wrong?
When an economist uses "supply" or "demand," they're usually talking about the whole curve--the whole range of quantities that would be supplied (or demanded) at the whole range of possible prices. Normally, those functions a graphed, and the two graph lines cross at a single point--the market clearing price--and give you the quantity supplied and the quantity demanded.
If there's a lack of a free market (such as, if there are price supports or import restrictions), you can get into a situation where you don't clear the market. For example, if there's a price ceiling making it illegal to sell gasoline for more than $2 a gallon, but the market clearing price would be $2.50, you'll see shortages. Contrariwise, if the market clearing price of corn was $4 a bushel, but price supports hold the price at $5 a bushel, you'll see surpluses.
All of which is a bit off the point the previous poster was making, which I read the same way you did: in a free market, the price will move as high as necessary to prevent there from being a "shortage" of some good. Of course, that's what most people call a shortage--when there's so little of a widely used good that the price moves so high that ordinary people can't afford to use as much as they're used to using.
Talking about $100 oil in 2010 needs to be in the context of which dollars you are measuring with. In particular as a lot of us expect inflation to accelerate.
Agric and I talk about it some, but mostly engineers post here, so they are not all that interested in economic issues.
Inflation is out of control all over the world right now, kinda of the "hush hush", in these economic "boom times". All that money must go somewhere and the housing bubble has hid most of it since 2001. When people start pulling their money out of housing, they must put it somewhere, if it goes into oil.....look out. A bad hurricane season could put the speculators at the edge of their seat. The price of oil has much more to do with inflation than anything else, as long as the supply stays somewhat stable.
Oilmen in particular are playing poker with all sorts of variables.And by nature they hold their cards covered to their chests!I have spent my last 33 years living in an oil field in North Texas and have to deal with them because I have oil under my HomeStead!
Have worked on triple deep hole rigs.
The old fields are still producing 75 yrs after discovery
New oil is still found in Texas
Shut in oil/gas is rarely discussed,but it is a fact that Texas is not producing near what it could if real crisis appears
But how big is the overall impact?
There is plenty of evidence that the domestic real estate market has peaked for now, properties for sale are at the highest level since 1986. Australia and UK seem to be ahead of the US on the property market cycle. Based on their experience the slow down should be mild and manageable, but one can never be sure...
2 It is often said that high oil prices might drive the world into a recession, and that the recession would than cause prices to crash. There were three recessions during the seventies, not least the one that followed the Iranian oil embargo. Oil prices climbed 9x during the period, and never declined yoy. Recessions sometimes stop prices from climbing further, but have not so far actually induced any decline at all.
1 War,with Israel trying to takeing out Irans nuke capacity.
2 Peak oil becomes a mainstream topic.
The crystal ball gets a bit cloudy at that point.The political consequence of the various scandles,and unhappiness
of the public with the administrations wiretapping will affect how the public reacts to price shocks from war in the
middle east
The two wild cards I see are china and russia...who both got a dog in this fight...
all bets off at that point....
Dec 31 2006 - Year-end Henry Hub Nat'l gas Spot Price (WRTG) - $9
Dec 31 2006 - Year-end USA avg Contract Price (EIA) - $45
2006 - Annual Avg Supply (IEA) - 85.5-mbd
Expect the unexpected. I wont bother with oil price forecast -too many variables - if we have upheaval or terrorist attacks in middle east - triple digits almost overnight - if we have worldwide stock mkt sell off - then $30bbl due to demand destruction - so $30-$120 sounds reasonable - anyone 'betting' on a detailed prediction doesnt understand markets or chaos theory - the trend is your friend with market prices.
Another prediction: in North America, Peak Oil will ultimately be secondary in importance to the natural gas cliff. I have no idea how in 5 years time we will get close to the amount of gas we are pumping now. Numbers of rigs and wells have doubled in last 5 years source yet our production is down source. Canadas new wells have tripled in last 5 years and their reserves are down 12%. source. How can we change the heating structure of everyone in the northern states (5.1 quads out of national total of 7.1 from heating are from NG)quickly? TOD showed a graph earlier that our new wells have decline rates of 30-40% annually! TOD link here
NatGas is different than oil - we cant just invade a country with excess firepower and ascertain a steady flow of energy to our shores. LNG ports need time, political and public approval, and even then are fraught with difficulty. My prediction is that nat gas in north america will our gordian knot here. Who, among 6.6 billion is Alexander?
(Some traders must have read my prediction...;)
Interestingly, last weeks price drop was only in the near contracts - mid 2008 and beyond made new highs.
One possibility is to go back to heating with coal. Not the old, dirty stoves, but with syngas taken from the gasifier trains of IGCC plants. This could be piped to the point of use (commercial or industrial customers, probably too dangerous for domestic use) and used either in furnaces or in small gas-turbine cogenerators.
The last two lines do not match with each other. You can have an insight on World Oil Demand here.
IEA predicts an overall demand growth of 1.5 MDB for 2006. At least in 2006 1Q and 4Q Demand will be over your projected production. How can that lower prices?
Moreover, from this we can easily expect demand to go beyond 88 MDB in 2007 1Q. How can such demand be matched with production?
P.S.: Freddy although you might get the feeling of being bashed all the time, I mean no hostility against you, I just divert from your opinion.
Welcome to the Meltdown Millenium !!!
Story at:http://www.adn.com/front/story/7312139p-7223885c.html
Note that when you check this story out that it is saying this will all happen by 2100 - just a few years off geologically but long last all of us NOW.
The melting of the permafrost in Alaska has been news in places like the NYTimes for almost a decade now, certainly the past five years. I think you have too much faith in human nature responding to this and not what guides many who run our nation - economic reality. As it was once said, "America's business is business" and that means many decisions, often wrong in the long run, will be made strictly on economics. Thus I would argue $40 -$45 - $60 or even $100 a barrel will be what people will be worried about and not Alaska melting, at least not quite yet.
Anyway, you still have the conservative right, which has much of the power in this nation, arguing that "yes it is warming but has nothing to do with 7 billion people doing what people do." It will take more to prove this point to them and it may mean we will have to wait for them to lose power or die off.
Probably two things that hurt us the most is 1) fear of a new Ice Age predicted in the 1970's and 2) The same fear expressed back then that we were about to run out of copper, zinc, other minerals in 10- 20 years time. The fact that we were WRONG on these two items hurts our credibility today. I get that thrown in my face all the time and have to agree we screwed up on those predictions.
With the minerals we were just off by a few decades though ocean mining is coming in the future.
Saw that hopeful sign about maybe it won't happen until next century.
Then again, many a traditionally cold places on Christmas 2005 were enjoying summer weather:
from http://wwwa.accuweather.com/adcbin/public/community_blog.asp
It's Christmas,
Got Snow?
A friend called from Tahoe here in California. Normally they ski the week away. But heard it just rained and rained. My, what a 1 degree change of temeperature can mean (0 deg C versus 1 deg C). Rain in December translates into drought in August because the Sierra Mountains don't pack the moisture away as snow.
2005 Was the Second Warmest Year on Record
There is clearly enough data from the past decade to indicate that a warming event is occurring and I would certainly argue it is due in large part to human activity.
I think Alaska (and most every place else, though we do not fully understand some of the corrections Mother Nature may make for us) will get that much hotter much sooner.
But knowing something and seeing govts. doing adequate stuff about it are two different things.
Here in California we can not get homes to be oriented for passive solar and building more and more suburbs out there and with longer and longer distances to drive is still happening and we are supposed to be leaders at this. What about Alabama or some other red states (like Texas)?
As an aside about Tahoe, if snow melt is poor and stays that way for several more years on average, how will and what will California do if people continue to flow into the state at 6 million every decade? Desal plants? Shut down more and more agriculture (which will probably happen anyway with the population pressure?)
Right now, about 500 trillion grams of methane is released into the air every year. This release results in an increase in the greenhouse effect comparable to the one from carbon dioxide. It is estimated that over 30,000,000 trillion grams of methane are locked up as frozen hydrates in the Arctic. If just 0.01% of that hydrate is thawed yearly, methane release would be 3,500 Tg/year, seven times what it is now. Methane would then probably be more signficant than carbon dioxide for climate change.
You raise a concern voiced before that is very valid. I understand that the methane hydrates in Siberia are even more extensive and that Japan is starting to try off shore mining of it.
It has been well argued that it may be part of the reason for heat spikes in the distant past that humans can not possibly have any claim to.
Infrastructure rebuilding? What are you referring to? Looks to me like we're stuck with what we have now in the near term (no new LNG, refineries). If we get back to where we were, prices were still high before the hurricanes and have been rising 20%/year since 1999. "Content purchases" from the Gulf? -- I assume you mean the Persian Gulf? The Gulf of Mexico?
Wise up a bit. Don't believe what you read. Be skeptical. Follow the data like Stuart and the rest of us do. Peak oil is a theory that will be borne out by the data going forward, not some toady agency's self-serving prophecies.
But why do you (and some other TOD contributors) have such a need to cling to optimistic scenarios when there is ample evidence that the situation is at best ambiguous, if not downright threatening? This is the question you (and some others) need to ask yourselves.
Is there no room for any opinion other than yours?
The recent exchanges between Stuart and Freddy have been among the most educational that I have read on this (or any other) site. A theory can not be kept alive without exposure to opposing points.
While I tend to agree with Stuart a bit more than Freddy, their fact and analysis-based discussion moves us all closer to the truth.
Commentors on this site has a huge tolerance for people eager for the immediate end of the capitalist/industrial society as we know it, but little for JD or Freddy who dare to challenge the gospel.
The peak oil movement needs more challenging analysis and less conspiracy theories. This is the only way to dispel the (currently fairly accurate) assertion that peak oil is in part a doomday cult.
How did you read that into my remarks? I said The IEA is not independent--I think you know that. I would call O&GJ an independent source. A call to "be skeptical" is a call to openmindedness, not a closed opinion. I said "will be borne out by the data". That's a call to wait & see what the 2006 numbers bring, again not a closed opinion.
I said the situation is at best ambiguous, if not downright threatening. This means that multiple outcomes are possible. Again, I did not say the case is closed. But I was also trying to make a more important point. When Yergin, IEA, ExxonMobil & the rest cling to their rosy scenarios, they are telling the people what they want to hear. Usually, they back these remarks up with talk about huge reserves numbers--trillions of bbls out there waiting for the taking. These numbers sound impressive but don't increase incremental yields from declining megafields or put new small fields into production because the economics don't justify their development. What's going to happen to Russian production this year? Mexico has tipped--how bad is that? Is the Burgan Complex going to see large decline rates? Will West Africa meet projected numbers?
My personal view of TOD is that this is a place where questioning mainstream authority is the right thing to do. Stuart's post using the IEA numbers still showed a flattening out of production in 2005. Meanwhile, US demand last month was the highest ever. Here's what Stuart actually said earlier There's nothing controversial in this. We've been discussing this all year. If the IEA can just come along and say "everything's fine", what are we supposed to do, just believe them?
And, i "cling to optimistic scenarios" 'cuz they have been the "most" right since 1991 in global short/medium and long term prediction. It is easy to cherry pick their data and say they got this or that country wrong but in what matters most, the global supply, they are always right within their perameters and caveats. There was no levelling in non-opec supply capability in 2005 that some are gloating about. It was a stat based on the GOM impact. Take that out and all was fine. And we saw how quick gasoline exports were diverted to the usa (with IEA guidance).
As i challenged last week, when y'all have someone that u want me to add to my Scenarios that is representative of the EOTWAWKI cause, i will add their data to the graph and we'll watch how they do over the next ten years...
In my mind Colin and Rembrandt fulfill your quest. We know Colin's record. It's graphed at my site. And Rembrandt Koppelaar is not predicting the dire picture that is painted by some here.
Real GDP growth in the usa. Just compare the last ten years: Global
extraction went down in 1999 & 2002 while USA Real GDP went up. In fact,
there is no correlation with global GDP either.
Can the US economy continue to grow at around 4%? No. OK, how about 3%? Possibly, but the odds are against it. For US growth to stay at or above 3% almost everything has to go right. US consumers must continue to spend money they don't have and further increase borrowing beyond current record levels despite interest rate increases. There must be no significant drop in US property prices. Foreigners must continue to increase investment in US treasuries. There must be no major financial market problems like hedge fund or derivatives domino style collapse. US stock prices need to remain near present levels. I find it difficult to believe that all of these will come true.
I expect US GDP (as currently measured) to drop to 2% growth for the first half of 2006 and be flat in the second half of 2006.
http://online.barrons.com/article_email/SB113538486213031006-lMyQjAxMDE1MzI1NDMyODQ0Wj.html
"Now he makes the case that natural gas isn't expensive at current levels, and that it one day could be worth more than oil."
Now THAT is bullish on nat gas.
http://online.barrons.com/article_email/SB113538484383231004-lMyQjAxMDE1MzI1NDMyODQ0Wj.html
http://www.livejournal.com/users/dpodbori/3590.html
The first part talks about xurbia, and the second part talks about the Solar energy farms proposed by SES.
It brings to light the issue of energy is not money. I have to have energy to make more energy available, but I don't need money to make more money available. Which seems to be the factor that most people get confused about when they compare energy with economics.
The listed link is a very interesting read.
.... or a movie star who buys a Prius as their tenth car.
Even so, it's darn close. If the Cuban family has one child and drives a 13-MPG guzzler, the Prius driver is still going to beat them. Two people in an Insight will probably whoop everything except fraternity-contest packing of an old Chevy.
And the public is blaming the big mean oil companies for fixing prices anyway. So I don't think the public really cares anyway, they are only thinking 20 minutes ahead! Ok, maybe an hour.
My wildcard item is the revealing of Iran's secret defense pact with both Russia and China putting the former under the latters' nuclear umberella. This deters the rabid Likudniks attack and preserves the peace while starting a rush to monetize O&G in Euros that will ultimately precipitate US financial crisis in 2007-08.
For a positive outcome to emerge from 2006, a great rising of participatory democracy is needed in the USA for its direction--and by extension that of the world--to be reversed. Like yoda, one can sense that the future will be dark, but just how thick the darkness and its details remains too cloudy to see.
I don't have option pricing handy tonight, the markets have been closed for the long weekend. So I can't give a confidence interval for this. I'll try to post tomorrow some kind of 25%/75% range based on option prices.
Of course no "expert" is going to get paid to just read off the futures prices, is he! Any fool could do that. And yet fools do even better than experts in making predictions, in part precisely because "experts" are forced to diverge from the consensus opinion in order to be interesting and to justify getting paid for their work. My recent reference to this topic:
http://www.newyorker.com/critics/books/articles/051205crbo_books1
Tetlock's book you refer to looks very interesting and I think I will go read it. But I don't think you should overstate the conclusion; it looks like he asked questions of "political and economic" analysis, though the review doesn't mention any economic ones specifically (I assume they're things like "will GDP growth next quarter be negative, below 2%, or above 2%?").
But there are obviously places where expert analysis wins out. If you ask "will Nigeria have more people than Pakistan in 2025?", I am positive that experts will easily surpass either laymen or chance. Not to mention silly things like "will there be a total solar eclipse in 2008"? There's a big range of how easy it is to predict things in different fields, and I don't think we should try to group them together.
Personally I think specific political forecasting is very hard and I'm not surprised that personal biases and well-known human frailties show up in predictions. This doesn't mean experts are useless for political prognostication either; I imagine experts are still better at doing things like fleshing out realms of contingent probability (what would the world look like if X happened vs. if Y happened). And there are probably political (and economic!) predictions that are easier and harder to make accurately, though I'll have to think about that. But I'll have to read the book to find out.
As far as I can tell this book also doesn't try to make the case that markets as a whole are better at predicting things in their regime than (any, or all) individual experts. I certainly know there are other books making that claim, though, along with plenty of counter claims.
In the end it's probably best to look at the specific realm of predictions rather than trying to lump them all together. There are strong reasons to believe your (and e.g. James Hamilton's) point of view that futures markets, bad as they are at prediction, are better predictors than any one person. The profit motive is powerful.
But there are entrance barriers to all markets, particularly futures markets, and so the market players do not include the broadest spectrum they might. And I'm far from convinced that the "smart money" is always available in enough quantity to crowd out herd behavior.
A cure for AIDs could double the birth rate in Nigeria twenty years from now.
Excuse my ignorance but where did you get that option/commodity quote?
Jack Greene
- The new minimum on American credit card payments will begin next month. This doubles the amount the average American is going to be paying each month to pay off their debt. Due to this, American consumer spending will drop quite a bit. This will have an affect on China, primarily, and India, second. This is not a bad thing, if you live in America.
- Energy conservation has become "cool". Hybrid cars are the envy of the "Gold Collar" crowd. Hummers and Esaclates are looked at as jokes now. Homeowners and landlords are looking to make things more energy frugle.
- The housing market has slowed and housing prices are flat or declining. This makes Americans who thought they were "house rich" think twice about buying the new "made somewhere in Asia by cheap labour" Plasma big TV for $4000.
These three factors add up to demand destruction. My prediction is that crude will only touch $70 again (if at all) during the 2006 hurricane season. It will hover around $50 for most of the year. Dropping into the high $40s in spring. Natural Gas has peaked this year - speculators are dumping and getting into something new. Winter is 1/3 over and the end of the tunnel is in sight. Look for $15 again in peak of hurricane season 2006... But $10 most of the year otherwise.Best investments are Solar and Wind power (GE and other specialty companies like ESLR). GM and Ford are "dead men walking" (especially GM - Mr. Ford does talk a good game about future investments in hybrids). Major Oil Companies will be flat investments.
This demand destruction will last about 4-5 years. When Americans are out of debt again and housing prices begin to rise, look for demand to increase again - towards the end of the decade.
Dump Chinese and Indian stocks - without Americans buying cheap plastic toys and Big Electronics, the factories over there will be hurting.
The rest of the decade will be a "hunker down" period. Americans needed to do this in 2000, when the stock market melted down - but housing prices kept the bubble going. Work hard and save money is the new way...
Best Regards!
"Don't Educate them, Entertain them!"
I agree that there will be an effect, but disagree that it will necessarily fall on imports from China and India. Domestic services may take the bigger hit: less eating out, less domestic travel, defer having the house painted, etc. But Junior will still get new shoes and the broken DVD player will get replaced. Spending on luxeries — however that's defined for a particular household — goes first in tough times, not spending on necessities.
This is a nice article for the people predicting the end of the world in 2006, it might just not happend.
Campbell forecast 52-mbd. What did Porter project? The track records are
quite evident...
Medium term, I think we'll see increasing climate related damage. I don't think the GOM will completely recover - at least not until oil is a whole lot higher. It only has to get smacked hard every 2-3yrs to make it look like an increasingly lousy investment. And long term, a violent and unstable climate will only increase our energy requirements.
And through it all, I expect there will be no major proactive steps taken by our government to mitigate either the energy or environmental impacts. Further, most individuals will lack the means (either financially or otherwise) to do much on their own to prepare. We'll be left with whatever the market can instigate, and I don't believe that will be adequate.
source
note the info is current as of 5 days ago.
meanwhile hurricane season starts in about 5 months. Just in time to start dodging them again. Geopolitocal unrest will certainly be the other wildcard.
Many people don't seem to realize the amount of production still affected.
Stocks spooked by recession worries
Yield curve inverts for first time in 5 years; nat. gas slides
MarketWatch
This is my first post. I've been reading this site for a while, but didn't bother to create an account because I didn't have much to add.
Not anymore.
This is the thorn in my side that got me to join:
http://www.chron.com/disp/story.mpl/ap/business/3549248.html
Interesting how people don't like direct deposit because:
- they like to go to a financial institution to deposit their checks
- they don't trust direct deposit
- they like receiving a paper check
What's wrong with this picture?
#1 probably requires you to drive to a bank
#3 if you get a check in the mail, a mail truck has to deliver it to you
What does everyone think? Should direct deposit be mandatory? Or will this not help us conserve in a significant way?
The support the poster gave for this claim is that during Gulf War I Iraq was not able to prevent shipments out of the Gulf. Well, the only reason they could not was that i) Iraq is situated at the opposite end of the Persian Gulf from the Straits of Hormuz and ii) had no military capability to materially interfere with such shipments, i.e., no navy to speak of and essentially zero control of the air space. However, Iran is a whole other story.
Super tankers going through the narrow (roughly 40 miles wide) Straits of Hormuz do have to pass by the Iranian coast, whose rugged topography is perfect for hiding mobile anti-ship cruise missiles. While the US would have control over the air space, it still would not be able to seek out and destroy all of the cruise missile locations.
Iran also has a number of modern diesel subs. Such subs are taken VERY seriously by the US Navy, and I am told that in war games involving subs against a carrier battle group, the subs usually come out on top. That is why our Navy is highly vulnerable in the relatively confined waters of the Gulf and would likely pull out of the Gulf altogether as part of the plan to attack Iran.
Thus, Iran IS quite capable of interferring with tanker traffic leaving the Gulf. A super tanker makes a pretty easy target, and for its size is not particularly robustly built. Just one single sunk or badly damaged tanker would instantly throw the world oil markets into total panic.
Iran would also very likely halt all its oil shipments, thus immediately removing roughly 4 million barrels per day from the world oil market. Sure, it would stand to loose billions in revenues, but war is wa,r and countries have gone to far more extreme self-damaging measures to hurt the enemy (the US embargo of oil to Japan prior to Pearl Harbor being one notable example).
No, military action against Iran would have a catastrophic effect on the world oil situation, not to mention also possibly triggering a global war should Russia and/or China stick their nose into the situation.