The No. 1 energy fund's wild (but energizing) ride

Mr. Rice: ...It's like we're driving down the road, and eventually we are going to fall off the cliff as we reach peak oil production in the world. We don't know if it will happen in three or 10 years, but we do know that the situation in Nigeria, Venezuela, Iraq and Iran could have a big impact on supply that shoves the car off the road at any point. It's a point that has to be factored in by investors. The best of all worlds for me is if oil sits around $60 or $70 a barrel until we fall off the cliff and peak oil is reached.

WSJ: So you think the peak could be hit in as few as three years? How would we know we're at the peak, and what do you mean by "fall off the cliff"?

Mr. Rice: The timing depends on when several of the world's largest oil fields begin to roll over. Unfortunately, information on most of these fields is guarded as a "state secret" and is difficult to obtain and analyze. Suffice to say that the average age of the Mideast fields in question (is) over 50 years old, and when they start to decline, the decline will be over 10 percent a year. That would be "peak oil," as the world probably couldn't add enough new production to offset declines of that magnitude from the giant fields.

However, I suspect that the price effect on oil would be somewhat muted by new coal-to-liquids production and additional liquid natural gas. As long as peak oil occurs post 2012, the world (would have) a chance to develop these alternative supply sources. If some of these fields start to decline prior to 2012, and the world hasn't developed the coal-to-liquids or LNG infrastructure, oil prices will rise substantially.

 May 1, 2006 -- The region of the tropical Atlantic where many hurricanes originate has warmed by several tenths of a degree Celsius over the 20th century, and new climate model simulations suggest that human activity, such as increasing greenhouse gas emissions into the atmosphere, may contribute significantly to this warming. This new finding is one of several conclusions reported in a study by scientists at the NOAA Geophysical Fluid Dynamics Laboratory in Princeton, N.J., published today in the Journal of Climate.

Exxon posted profits of $36.13 billion for last year (2005). According to a dipchip, ExxonMobil produced 2.5 mbpd in 9/05. Total production is/was around 85 mbdp, so that's 3pct of total. Just say the avg price was $55/bbl.

This would mean that EM profits were a little over 2pct the of the TOTAL value of production in 2005 OR 66 pct of its own 3 pct share! Well, clearly EM derives its profits from gas and chemicals as well as oil -- so not all of this profit is attributable to oil.

On the other hand, the profits do not include the hefty compensation of the top level execs, plus the generous compensation of even the midlevel management. So the $33.16 is understated from one point of view (mine).

And EM is only one of the majors, although a biggie and probably the most profitable. It seems to me that either EM's profits are staggering for a 3 pct share of the market OR the 3pct share is misleading, i.e. they are somehow involved in profitting from a much larger share than just the 3 pct that is ascribed to them.

I still maintain, that while peak oil is here or near, we cannot exculpate the oil companies. They are a big part of the problem, though perhaps not in quite the way the public imagines. There is no good solution to the problem that is going to make the oil companies happy.

http://tinyurl.com/ee8w6

==AC

Computing the commute

With gas prices up, commuters who sought more house for their money in the outer suburbs are concerned about increasing costs.

..."Sometimes I sit in bed at night and think, 'Oh my gosh, what if it goes to $3.50 a gallon?'" said Molly LaVigne, a 25-year-old law student who lives with her fiancé in New Richmond, Wis., and commutes to downtown Minneapolis.

A new study of the Twin Cities area commissioned by the Brookings Institution shows that transportation costs -- including the need for more cars -- can be twice as high in outer-ring suburban communities than in the city, where buses and light rail are available.

...Home buyers are starting to understand in a rough sort of way, experts agree.

"The old maxim, 'Drive till we can afford it,' may be softening," said Michael Noonan, division president for one of the top national home builders operating in the Twin Cities area and a vice president of the Builders Association of the Twin Cities. "The rising cost of gas is adding a dimension that people didn't used to consider as carefully as they do today."

http://www.truthout.org/docs_2006/050106S.shtml

http://www.raisethehammer.org/blog.asp?id=220

Bio-Butanol

RR

I'm puzzled by the lead story (60 Gb). How did this rumour get started? And it's being repeated elsewhere, though not much. Since the reserves figure couldn't have come from Cathles, who fabricated it?

Talk about grasping at straws.

I didn't make the connection when Yankee introduced herself. I just smiled and shook her hand thinking, "oh my God there are crazed obsessed New York Yankee baseball fans showing up here." Then she mentioned TOD and I understood.

Best,

Matt

Is any skyscraper or other multi-story building in America doing anything like this, or are we too fat and lazy?

Japanese Workers Urged To Ditch Elevators, Take The Stairs

http://www.allheadlinenews.com/articles/7003387496

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

CHATTANOOGA, Tenn. -- The high price of diesel fuel for school buses meant children in one Tennessee school system got a holiday Monday - their second in a row.

Some 3,800 youngsters got Friday and Monday off because of the action taken by Dallas Smith, superintendent of Rhea County schools in east Tennessee, to ease transportation spending.

Crucial to understanding detritus entropy and Malthusian effects is how it affects others around the world who cannot afford the detritus essentials we here in America take for granted.  Consider this Yahoo article and how easily you and your children will can adapt to this lifestyle in ten, fifteen, twenty years:

http://hotzone.yahoo.com/b/hotzone/20060501/hz_haiti_0506/blogs4010

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

The media are good at getting their microphones in front of the grumpiest among us, but the truth is: Americans are at work and increasingly prosperous. Three-dollar gas is not slowing us down. ... However, lower regulations, additional tax-induced exploration and production, and incentives for innovation and substitution will all work to alleviate a potential real energy crisis farther down the road.

Maybe $3.25/gal is not eating your wallet inside out buddy. The rest of us are starting to feel the pain.

(When and oil closes at or above $76 ($38 times two), for the near term price--I think prices farther out have already been there, I recommend that we proclaim it Daniel Yergin Day, in honor of his prediction that oil prices would be at $38 barrel on 11/1/05, and in honor of his numerous predictions that we were facing a glut of crude oil.  IMO, these guys that have, in effect, been encouraging Americans to continue buying large SUV's to drive to and from large mortgages, deserve every bit of scorn and ridicule that we can dump on them--just my opinion, anyway.)

The following column was published on 11/1/04:

Digital Rules
Capitalism's Amazing Resilience
Rich Karlgaard, 11.01.04, 12:00 AM ET

Excerpt:

Energy is one of the two leading risks in the global economy. (Terrorism, of course, is the other.) Just take a look at one industry already suffering from oil shock--U.S.-based airlines will lose $5 billion this year. That loss matches the bump in fuel prices. Ouch. Then there's China, which has climbed to the world's number two spot in oil consumption. China uses most of its oil wildly inefficiently to generate electricity. Oil consumption by cars barely registers--now. But during the next four years, China's oil imports will double as the Chinese give up their bicycles. Biting your nails yet? Here's one more sobering oil fact: The world has only a 1% short-term cushion. This makes for a very volatile market.

Given these facts, where will oil prices be a year from now--$75 a barrel? $100?

Wrong numbers, says Daniel Yergin. Wrong direction, too. Try $38. Yergin knows oil. He is a founder and the chairman of Cambridge Energy Research Associates, a consultancy that has 230 employees, with offices worldwide. He is also a recipient of the United States Energy Award and a member of the Secretary of Energy's Advisory Board. A former Harvard professor, Yergin is best known for his Pulitzer Prize-winning book on oil, The Prize: The Epic Quest for Oil, Money and Power.

Yergin's prediction of cheaper oil prices is noteworthy because he doesn't dispute any of the alarming facts cited in my opening paragraph. Not that he would. The facts came straight from Yergin's own mouth at the recent Forbes Global CEO Conference in Hong Kong. I jotted down Yergin's comments while listening to him speak at a dinner. Then he gave a formal speech the next morning and, fueled this time by highly caffeinated tea, I again took notes, just to be sure. Yergin is pretty clear about his predictions. He says oil demand will rise, yet prices will drop. How can this be?

Answer: capitalism's amazing resiliency. Oil prices rise--oilmen become innovative. They work, they invest, they put their heads to the task, they apply technology, and pretty soon they'll discover how to extract oil profitably from oil sand. Or open wells in deeper water. Or scour the planet for new sources using scanners thousands of miles in space. As Yergin reminds us, oil output is 60% higher today than it was in the 1970s. Not many sages from the 1970s would have bet their reputations on this development. The opposite sentiment prevailed back then; experts said the planet was running out of oil. Wrong.

Yergin says he's always asked when oil will run out for good. He shrugs. He's willing to say the world will need 40% more oil in 2025. Hard work and technology probably will find a way to meet the demand. The funniest thing--and I saw this happen--is that many people who ask Yergin this question are disappointed with his answer. It's as if they want oil to run out.

I think they call your technique good old journalism.

As Gasoline Prices Soar, Americans Resist Major Cuts in Consumption

Some excerpts (quoted paragraphs are not all contiguous in the original article):

High prices do have some effect, but prices would have to be higher than they are today -- and would have to stay high for a long time -- to meaningfully curb gasoline consumption by the nation's massive fleet of cars and trucks, which accounts for about 10% of global oil use.

At the margins, there are some signs that high gasoline prices may be starting to alter consumer behavior. Traditionally, gasoline use in the U.S. rises about 1.5% each year. But in three of the six months from September -- immediately following the Gulf Coast hurricanes -- through February, gasoline consumption fell compared with a year earlier, according to data from the U.S. Energy Information Administration. In the three months in which it grew, it never rose by more than 0.4%. Yet in March, as gasoline prices soared, demand appeared to return to more-robust levels, growing by 1%, according to preliminary data.

Research suggests it takes years for higher gas prices to meaningfully damp consumption. Opinions differ, but many experts say that, in the short term, the "price elasticity" of U.S. gasoline use is as low as 0.1. That means gas prices have to rise 10% to produce an initial 1% drop in demand.

The oil industry also is betting that a change is under way. Exxon Mobil Corp. says it believes that, by 2030, hybrid gasoline-and-electric cars and light trucks will account for nearly 30% of new-vehicle sales in the U.S. and Canada. That surge is part of a broader shift toward fuel efficiency that Exxon thinks will cause fuel consumption by North American cars and light trucks to peak around 2020 -- and then start to fall.

"For that reason, we wouldn't build a grassroots refinery" in the U.S., Rex Tillerson, Exxon's chairman and chief executive, said in a recent interview. Exxon has continued to expand the capacity of its existing refineries. But building a new refinery from scratch, Exxon believes, would be bad for long-term business.

Unfortanately, a paid subscription is required, but the article will probably be at http://www.post-gazette.com/businessnews tomorrow or Wednesday.

High Gas Prices Will Last Years, Bush Aides Say

http://www.latimes.com/news/printedition/la-na-gas1may01,1,3546019.story

"WASHINGTON -- Gasoline prices will remain high for years to come and will be largely unaffected by a new White House plan to bring them down, Bush administration officials said Sunday.

"Energy Secretary Samuel W. Bodman said the United States faced an oil price 'crisis' because surging demand from such countries as China and India had outstripped supply, and he predicted that it would be 'two to three years before suppliers are in a position to meet the demands.'"

I've noticed this story line appearing more often lately. Gas prices are high and are going to stay there, but only for a couple of years. New supplies are in the pipeline but it will take a while for them to get into production and make a difference. Starting around 2008 we will see major increases in production and get back into an "oil glut", with markedly lower prices.

I don't know how much these projections are wishful thinking versus being based on credible scenarios, but I guess we'll find out in about three years.

HARARE, Zimbabwe, April 25 -- How bad is inflation in Zimbabwe? Well, consider this: at a supermarket near the center of this tatterdemalion capital, toilet paper costs $417.

No, not per roll. Four hundred seventeen Zimbabwean dollars is the value of a single two-ply sheet. A roll costs $145,750 -- in American currency, about 69 cents.

The price of toilet paper, like everything else here, soars almost daily, spawning jokes about an impending better use for Zimbabwe's $500 bill, now the smallest in circulation.