Fortune: Are You Ready for $262/bbl Oil?
Posted by Prof. Goose on January 28, 2006 - 1:41pm
Topic: Supply/Production
Tags: george soros, oil, oil prices, peak oil [list all tags]
"Be afraid. Be very afraid." That's the message from two of the world's most successful investors on the topic of high oil prices. One of them, Hermitage Capital's Bill Browder, has outlined six scenarios that could take oil up to a downright terrifying $262 a barrel. The other, billionaire investor George Soros, wouldn't make any specific predictions about prices. But as a legendary commodities player, it's worth paying heed to the words of the man who once took on the Bank of England -- and won. "I'm very worried about the supply-demand balance, which is very tight," Soros says.(link)
I guess we won't see the regulars here poking fun at Kunstler for a while will we?
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The S&P had a measly return of 4.9 percent. Securities firms gave out a record $21.5 billion in year-end bonuses. That's fair.
If I were a bettin man, I'd say the security firms made most of that bonus money trading oil futures, or oil company stocks. Even though Exxons' bonuses are chump change compared to $21.5 billion. Why are they (securities firms) not being hauled off to see the principal?
comparing apples to oranges? i suppose, but i bet the security firms made their most money from oil related trades.
i feel better now
Sigh!
In short, the kinds of predictions they're talking about are so completely at the mercy of things beyond the scope of the model that the prices they arrive at are useless.
The worst scenario they came up with, the $262/barrel one, was related to the fall of the House of Saud. Trying to map that kind of geopolitical event to a precise price level is beyond silly. Anyone here could easily cook up a sets circumstances under which that same central event results in a price substantially higher or lower than $262.
But golly gee, it sure makes for some nifty headlines, doesn't it? I'm beginning to think that this kind of prediction and the resulting breathless articles are nothing more than the econometric and media equivalents of the movie SAW--a cheap thrill that no one uses as a basis for real action, and that makes you feel good that it hasn't happened (at least not yet).
When I was in economics graduate school, I had a professor who liked to say some times you can make up a totally convincing, precise argument based on econometrics that's laughably wrong.
I'm an economist by training and I have great respect for people who work with statistics and economic modeling; whether they're explaining relationships between factors in the past or trying to predict the future, they provide a very useful service. But I also think that one of the main things we all should keep in mind is the limits of such analysis, and how incredibly easy it is to step over the line from reasonable conclusion into utter gibberish without even realizing it.
Goes with the job, doesn't it?
Sorry, thousand apologies, but I just had to say that. grin
Rainwater is worth about $2.5 billion, and he is putting in greenhouses, storing diesel fuel and drilling water wells in his farm in the Carolinas. The article is at: http://www.energybulletin.net/11695.html
Richard Rainwater has an uncanny knack for accurately picking future trends. He took the Bass Family's fortune of about $50 million and turned it into $5 billion. He said that making money off Peak Oil is a no-brainer, but he is deeply concerned about the survival of the human race. BTW, one of his favorite websites is TOD.
From the article:
<<"This is a nonrecurring event," he says. "The 100-year flood in Houston real estate was one, the ability to buy oil and gas really cheap was another, and now there's the opportunity to do something based on a shortage of natural resources. Can you make money? Well, yeah. One way is to just stay long domestic oil. But there may be something more important than making money. This is the first scenario I've seen where I question the survivability of mankind. I don't want the world to wake up one day and say, 'How come some doofus billionaire in Texas made all this money by being aware of this, and why didn't someone tell us?'" >>
Can anyone comment on the source of this article. Obviously it came out of Davos. But what is the context? Was this reporter simply asking the opinion of high-fliers in the crowd and chose Browder and Soros as the focus, due to their "numbers" ?
Soros doesn't give a figure and Browder's are obviously extremely high.
What is the news? Simply the $262 figure. What the hell is that? If I were in Davos and said 263, would you be reading my name now in place of Browder's?
Was this a joint statement? Was this a joint speech? What is this? The article doesn't give any clues. The obvious conclusion would be that it was neither - but I'm not going to draw that conclusion. I await further input.
Was this the consensus of some round table and Soros and Browder were chosen as the spokespeople? Who knows.
No mention of peak oil.
This is the best Soros can do. That is what this is. This is all about Soros.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
==================I believe that is one reason they want nuclear power. They cannot support their current population on exports of figs and rugs alone.
The same goes for all countries. The adoption of ASPO's Energy Depletion Protocols is going nowhere because the world PTB have decided that fighting it out is the best path ahead. Transnational summative carrying capacity will inevitably shrink with decreasing net energy, look to the problems already with Russian natgas exports.
If Iran flares off all their oil and gas so that nobody has a reason to attack them it will preserve more of their infrastructure and biodiversity than trying to eak out a few more multi-billions from exports. The Carbon Age is coming to an end, those countries that are early movers to get past this addiction will be the leaders in the next phase. But Jay Hanson suggests that we are not that smart and will go down like every other civilization since time immemorial.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
It's likely to get quite nasty in the Middle East, even without nuclear war. It's a desert. They're all dependent on imported food.
If the Iranian government does decide they need a dieoff, it will not be via mass starvation. I think they're far more likely to declare war on one of their neighbors. Israel, or perhaps Iraq. That would generate a large dieoff, and also a lot of glory by their "cultural traditions."
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
I don't think we're genetically inclined to party on. There are some societies that have been sustainable for thousands of years.
But one thing about all of them - they are all isolated. Mostly, they are island nations. I think this is because unsustainable societies have an advantage in any conflict, if only in numbers. The sustainable societies get overrun, unless they are somehow isolated from greedy neighbors.
If Iran doesn't have nuclear weapons, their neighbors will overrun them. If not for their oil, then for their food and water.
Our basic difference here is that I am talking in terms of a much longer, almost geologic timeframe, while I think you are talking within the timeframe of one or two generations. Humans need to move past this short-term orientation once and for all.
This is exactly the problem-- our willingness to overrun others to take their resources. Basic, fundamental competition, no different than yeast in a bottle. Humans need to move past this modus operandi.
I am sure you have heard of the example of the bacteria in a petri dish doubling every minute starting at 11:00...at 11:58 [1/4 full],11:59 [1/2 full], 12:00 [full & everything starts dying]. This Overshoot and Dieoff occurs all the time in Nature, try googling it for yourself.
Some Historians think the human race experienced a 90% plus dieoff when the Toba volcano blew up about 78,000 years ago. But our starting numbers were so small, and our detritovore use so insignificant [just woodfires], that it had no measurable effect upon the planet. Think 11:03 in time.
It happened before in the Americas when the first Spanish explorers spread the European diseases among the natives back in the 1500s. North America was basically depopulated of 90% of the former native population when the white man started colonizing America in the late 1600s & early 1700s. So even human dieoffs are not unusual. Think 11:15 in time.
But this will be the first time for a Global Dieoff of immense magnitude because our fossil fuel detritus usage has allowed us to reach, for the first time, a supermassive Overshoot of almost seven billion. Now think of 11:59 in time. Or maybe it is actually closer to 11:59.99?
So now the human population needs to unwind again to roughly 100 million, but tragically it won't been done in the early stages by a 'pure' survival of the fittest fashion. You can be a combined genius and a world class athlete, but that won't do you much good in defending yourself against a bullet, a death camp, a bomb, a BioWMD, starvation, pollution, or radiation. Much less a machete blow from your neighborhood mob trying to steal the last of your family's food and water.
We would actually be better off if we could all get naked and reduce our numbers in pure, unarmed tooth and fingernail wrestling battles to the death without any exosomatic weaponry from 'stick and stones' on up. But this is not likely to happen even though all other lifeforms utilize this bare 'fang & claw' method to equilibrate their numbers.
The next best step is for each country to decline on their own by whatever method they decide is best in keeping with their native traditions, with no interference from outside powers. Armies facing in, if you will, than armies facing out. Instead of one global petri dish using every resource at its disposal to whittle us down, break the world up into discrete petri dishes and leave them alone. Create hundreds of Easter Islands from one planet.
By actively being proactive in our desire to decline and Powerdown it will eliminate much of the destruction to infrastructure and other biodiversity. By doing nothing till we have to react to a crisis, we might be at 9 or 10 billion and there is no other choice but to go down by full scale nuclear war. Just my two cents, but humans generally choose the worst case scenario. Maybe we will get lucky this time.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
You might want to read Jared Diamond's Collapse, if you haven't. He talks about what it takes to succeed as a sustainable society. People do it, so obviously, it's possible. We can be smarter than yeast, under certain conditions.
One interesting thing that's come out of anthropology research...size matters. Societies that succeed in becoming sustainable are either small, with "grassroots" control, or large, with strong "top-down" control. Medium-size societies (and large societies with weak central control) cannot be sustainable.
Very small societies are small enough that everyone can see the problems, and everyone has a stake in fixing them. With very large societies, individuals can no longer see all the problems their society is facing. But the king can. And he has a stake in protecting his entire kingdom, because he derives his wealth from the entire kingdom. And he wants his heirs to inherit said wealth and kingdom.
But medium-sized societies suffer Easter Island-like collapses. They are too large for individuals to understand what is going on throughout the society. But they are not large enough for a central government to arise. People may have a stake in their own valley, but not in the one next door. So they collapse in internecine conflict.
So your idea of "small petri dishes" might work...if all the petri dishes agree that sustainability is the goal. My worry is that some will try to maintain their standard of living. For example, Ohio could burn tons of coal, not caring that it causes acid rain that kills all the crops in New England. Canada could dump pollution from tar sands and other mining into rivers that flow through the U.S., not caring that they're poisoning people downstream.
Technology today has global consequences; that being the case, I really don't think "grassroots" will work. Eventually, we will return to small petri dishes. We won't have the energy to do otherwise. But the powerdown has to be managed by a strong central authority.
Sounds like a new Fox reality show.
In the short term we're all dead.
Every pop forecast gaussian curve puts humanity at less than a billion by 2100.
Back up via Game theory along the Gaussian and 40
years from now we have maybe 3 B.
Backup 70 years and pop is down by a billion or maybe stabilized at current levels.
Just stabilization means 325,000 humans must be
removed over and above the current rate of dieoff.
You're talking major human relocation and readjustment.
Meanwhile today-
By Paul Craig Roberts
01/29/06 "ICH" -- -- Two recent polls, a Los Angeles Times/Bloomberg poll and a New York Times/CBS News poll, indicate why Bush is getting away with impeachable offenses. Half of the US population is incapable of acquiring, processing and understanding information.
America has become a rogue nation, flying blind, guided only by ignorance and hubris. A terrible catastrophe awaits.
Finally "fat tail"s (think inverted Gaussians at asymptote)
are prime breeding grounds for Self Organizing Criticality. Think sand piles and which falling grain of sand will cause the certain avalanche.
We have not seen the greatest event to occur in our lifetimes.
But I feel a need to say that 'short term' to 'medium term' should be considered as less than 5 years in current human society, probably related to our political cycles. Our eyes need to see a generation and more ahead, seems we have lost that ability lately.
My best guess at global population 25 years hence is 3 billion, it could be a bit more, it could be a lot less. If we made a significant rational shift it could be a sustainable 5 billion, but that is almost certainly beyond the bounds of rational probability.
Yes, the US is the major 'rogue nation'. "Half of the US population is incapable of acquiring, processing and understanding information." now that is another example of blind optimism, lol.
"relocation and adjustment"? More optimism. Very many are going to die.
True, the coming events will probably be more seismic than any ever experienced by humankind, the global wars of the 20th century will seem trivial.
"
Yeast in a bottle are not subject to competition with other organisms - there is no other yeast (or anything) trying to eat their limited food.
It appears to me that many groups who never adopted our cursed modus operandi lived near other groups that did. The short term disparity usually involved the eradication and/or absorption of the former by the latter.
The earth is not a bottle and we don't all behave the same. Yeast do not kill each other for limited resources and bottles do not have renewable resources. We kill each other regularly for things that sustain us - allowing the limited but renewing sustenance to better sustain the survivors. It ain't pretty but it is smarter.
Why the geological timescale? If we must consider our actions in that frame, why stop there? Let's work on preventing the eventual cooling off of the earth's core or the death of our sun (whichever comes first).
One that was particularly friendly even came into my house a couple of summers ago, had a good look round all the downstairs rooms, perched on my computer screen while I surfed, spent an hour inside.
BTW, british blackbirds REALLY like sultanas (other soft dried fruit too but especially sultanas), so please put a handful out on your bird table every day.
We have wimpy American Robins here and they just sit about all day reading the news and surfing the web.
What are sultanas?
I agree with the premise of Guns, Germs, and Steel. I think he was arguing, not that we are genetically programmed to invent computers and cars, but that circumstances are what drove that invention. Not racial superiority, not the inherent superiority of Christianity or democracy or free market capitalism, but accidents of geography.
IMO, Diamond's work does not imply that complex technology is inevitable. The underlying premise of his work is that humans are all the same. We can develop very different cultures in different circumstances, including sustainable ones. We can also suffer the fate of the Easter Islanders, despite our fancy technology.
I think (theoretically) it would be much more wise to contaminate the oil and gas fields with short lived radiation making it useless for say 50 years. The children would probably know how to use the energy better. If I were a mighty dictator of Iran and I did not have 70mln of people to feed I'd do exactly this same thing. But if I had 70 mln. ppl to feed I'd be researching nuclear power like mad. Got to keep on living, being hungry or dead is not very pleasant they say.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
This morning on ABC Chuck Hagel (Nebraska Senator) said that a new energy "Manhattan Project" was "the most important priority besides the preservation of the rule of law." It was sort of a throwaway line in the middle of other topics, but still.
i am now leaning towards the latter