DrumBeat: June 21, 2006

Peak Oil = Urban Ruin?

George Orwel, an oil analyst and writer for both the Oil Daily and Petroleum Intelligence Weekly, has written a book about peak oil called Black Gold. You can read an excerpt at Energy Bulletin.

I have often been reminded of a Chinese saying that basically translates into something like this: Long is not forever. In other words, everything comes to an end; it doesn't matter how long it takes. I've been covering the oil industry for a long time and I often talk with many economists about the status of the market. They are a very optimistic lot. That's good because they deal with issues of wealth creation, except that when they let unreasonable optimism color their thinking in such a sway that their only concern is the short-term financial benefit, they run the risk of losing their credibility.
Update [2006-6-21 9:53:27 by Leanan]: The NY Times reviews a book called Big Coal, by Jeff Goodell.
"We may not like to admit it," Mr. Goodell writes, "but our shiny white iPod economy is propped up by dirty black rocks."
The Times also notes that the Scent of Ballots Is in Air, and Energy Bills Are Blooming. Dick Durbin (D-IL), Dianne Feinstein (D-CA), Olympia Snowe (R-ME) and Lincoln Chafee (R-RI) are pushing the Ten-in-Ten Fuel Economy Act, which will raise the CAFE standards from 25 mpg to 35 mpg by 2017. And Congress wants the oil industry to pay royalties that error let it avoid.

Internationally:

China cuts Saudi oil imports. Their refineries are having trouble with the new high-sulfur crude. This may explain the second quarter drop in Saudi production.

In Zimbabwe, Fuel Prices Skyrocket As Supplies Dwindle. Despite the high prices, lines are long and many gas stations have run dry.

And the invisible hand, at work in the U.S.:

As gas costs rise, so does use of public transit. Ridership is surging, with low-income people most likely to give up their cars.

DuPont and BP partnering to produce biofuels. Their first product will be biobutanol, a gasoline component made out of sugar beets.

The world's largest factory for making solar power cells will be built in the Bay Area. Seed money was provided by the founders of Google.

And Bob will be happy to know that poop is a hot new trend. Yes, including "humanure."

Check out this link....Ford already knows they're screwed all the way till at least 2008.  How sad is it when they know they know they won't make money for two more years at least.  Sad.

http://www.bloomberg.com/apps/news?pid=10000103&sid=a0Uif4sdYWQY&refer=us

Ford Motor Co. may fail to meet its goal of returning to profit in North America by 2008 because of declining sales of sport-utility vehicles, according to officials at the world's third-largest automaker.
And Ford's rival..

GM Debt Slips Further Into Junk Status

Credit rating agencies are upset with General Motors again after it unveiled changes to a 5.6 billion-dollar loan package. They say the changes put bondholders at a disadvantage.

Both Standard and Poor's and Moody's Investors Service lowered the automaker's debt deeper into junk territory. Wall Street rating agencies kicked GM and Ford's credit out of investment grade last year on worries about labor costs and slumping car sales.

The credit agencies acted after GM announced that it would offer lenders collateral, better pricing and other perks in exchange for extending the maturity of the loans.

I came across this sobering point...

More major American auto plants are closing and set to close over 2006-08, than in the previous three decades.

Well, they have painted themselves into the corner "so to speak"  

Very sobering indeed.

-C.

What the market giveth, the market taketh away.

I feel sorry for the workers. Once again management screws up and it's the worker who pays the price.

So it was management who demanded to get paid while not working in what is known as the job banks?  I think not. I can't say I've heard Toyota paying their workers when they don't work.  Seems obvious and counterintuitive to running a businees, but alas what do I know.
Management made the decisions to offer crappy products no one wants to buy. Perhaps that's what GM and Ford should have done, instead of blaming their woes on union pension plans they should have fully funded anyway.
You didn't answer my question.  I agree that management screwed up, they did.  So again, tell me why unions should not be blamed when 10000 parasites suck the money out of the company without performing thir job?  It's called laziness.  

People should be responsible for their own retirement.  However if pensions were promised they should be honored.  But let's stop promising them and take some personal responsibility for a flippin change.  I know it's hard when people want everyone else to give them the silver platter they never had.

You didn't answer my question.  I agree that management screwed up, they did.  So again, tell me why unions should not be blamed when 10000 parasites suck the money out of the company without performing thir job?  It'It's called laziness.  s called laziness.

(Yawn)

This is what is known as a 'straw-man' argument. Unions are simply doing what capital is doing in trying to secure the best possible deal for itself. For every 'lazy union worker' story you can trot out I can trot out 'worthless exectuive' stories. Words like 'results' and 'efficiency' doesn't seem to get talked about much when executive pay packages get discussed. Look at the correlation between executive pay and company performance. Oh, wait, there is none.

The management, however, is ultimately responsible to the shareholders who actually own the company. Workers don't make decisions on cars to produce or how marketing will work. Indeed, only the threat of a strike compells management to take worker concerns seriously.

People should be responsible for their own retirement.  However if pensions were promised they should be honored.  But let's stop promising them and take some personal responsibility for a flippin change.  

While you may wish this to be so, reality points out that most individuals know far too little about investing to make the amount of money they need in their investment portfolios to get them through retirement. This is a well known fact. This, however, isn't what we're discussing.

I know it's hard when people want everyone else to give them the silver platter they never had.

Laughable. So, when workers make a good deal for themselves its called 'laziness' but when corporate exectuives get
golden parachutes and immense pay packages unrelated to performance that's called 'the market'. How very Orwellian.

The management, however, is ultimately responsible to the shareholders who actually own the company. Workers don't make decisions on cars to produce or how marketing will work.

I don't see any straws.  I am not defending management.  If you would actually look at the first parts of almost all these posts I admit they screwed up!  You're not listening.  Just as complicit as mangement has been, so is the union.  It's a bed that both made and will now wallow in.  Stop focusing on management for one whole second, well maybe a few more.  For a human being to believe they are entitled to receive compensation for not working is backwards and scores at the basic misunderstanding of how business works.  Management accepting these demands are even dumber.  I don't dodge that, but seriously as a person you can't expect something for nothing.  That's all I'm trying to say.

While you may wish this to be so, reality points out that most individuals know far too little about investing to make the amount of money they need in their investment portfolios to get them through retirement. This is a well known fact. This, however, isn't what we're discussing.

So what.  Why don't people take the time to give a shit about how they're going to live 50 years from now and stop bitching that they don't get it.  It's not that hard.  if people put their flippin machine down and step away from the box, they might have the time to care about their future.  The US doesn't save any money anyway, so what money are they going to fund ANY retirement with anyway?  Oh yeah that refi money will work.

Laughable. So, when workers make a good deal for themselves its called 'laziness' but when corporate exectuives get golden parachutes and immense pay packages unrelated to performance that's called 'the market'. How very Orwellian.

I never said a word about executive pay or "the market". If I did, please point it out since I'm not in that camp. Since you brought it up though, I'll speak on it.  For one I don't disagree with you here.  I'm a reasonable person and I enjoy playing moderator.  I negotiate for a living.  I'm not on the executive side per se, but I tend to look for discrepancies or anything that doesn't fit in an argument.  

Strictly speaking from an ECON POV....there is an upside to this fat pay packages and that is it increases competition beneath them for the job.  Corporate boards are the only ones who will change that and since they are populated by former execs, current ones, and generally those in power - the small shareholders have little say.  I suppose the gov't could step in, but check out this article from Tim Harford as to WHY they make so much more than you and I.

http://www.forbes.com/2006/05/20/executive-compensation-tournament_cx_th_06work_0523pay.html

I think that both sides failed to understand the long term.
I think there is plenty of blame to go around at GM, Ford, etc. Americans had a lot of disposable income to spend on cars, so management, union leadership and workers were all happy to feed at the trough. While I think workers need some sort of collective bargaining power, it is disheartening to see how quickly powerful unions can become as bad as management.
I still blame management more than the unions. My father-in-law retired as a VP of CONOCO many years ago and we've discussed this several times. He worked in the coal side and came up with Consol (Consolidated Coal, which got bought out back then by CONOCO which then got bought out by Dupont - all of which is now ancient history from the early 1980s). Anyway, he pointed out that the coal companies bargained hard but he felt fairly with coal unions and the unions got good contracts but reasonable ones as well. In his opinion, the automotive companies just rolled over and gave the unions whatever they demanded and never said no. So I laugh when I see people trying to play the pity card for GM and Ford management. It doesn't wash. They could have stood fast against unreasonable demands but instead they gave into them so they wouldn't have to confront the unions and force the unions to really think about what was good for themselves and the company for whom they worked. And the net result is the pension/medical care mess we see today that is eating away at GM and Ford. GM's management took the easy way out in the 1960s and 1970s and figured someone else could deal with the subsequent problems. Well, those birds have come home to roost. And they are still management's birds.
You're right.  Management did roll.  I acknowledged their complicitness.  But for PEOPLE, forget that it's a union, to think they should get paid to not work is  not logical.  Why?  Why should I pay you because you aren't working?  When it comes to Auto, I do blame both sides but you can't logically argue that because I'm on the payroll I should get paid NO MATTER WHAT.  Do people think out the long term impact of that?  Take some personal responsibility or accoutability or whatever you want to call it.  As an able adult you should take care of your own problems rather than making someone else resposible for it.  I just laugh at it.  Matter of fact, I try and just laugh at the irony of everything happening around me.  
to think they should get paid to not work is  not logical.  Why?  Why should I pay you because you aren't working?

Because that was the deal that was made. If you pay me to do nothing and you agree to it, who is the bigger fool, you or me?  

Let's turn this argument around. I am an executive. I get paid an immense amount. Company performance in fact diminishes. I demand and receive a substantial bonus. The company's future gets even dimmer. I demand, and receive once again, a golden parachute. The company folds. I go on to a similar job but before I do so I was able to pocket millions in stock options before the company tanked.

Tell me what the moral difference is between this and the above.

See above comments.  I don't agree with either demand and never claimed to so you are preaching to the choir.  Oh and I agreed that when promises are made, they should be kept, please see above posts.  However both income arrangements need to stop.
My understanding is that CEO's to Toyota and other Japanese companies make in the hundred thousands, not millions.  And when salary cuts occur, it's the CEO who gets a pay cut first as punishment.   Team is everything and the management style is more like a union really, rather than a manic seperation as it is here in North America.
You are absolutely right.  I've taken Japanese management in college and it's phenomenal.  Out in Indian or Ohio, I never remember where, the Honda plants have been courted by the UAW and sent home packing on many occasions and the employees were voting like 90% to say no.  Honda takes care of the team and makes sure everyone is appreciated.
This guy only posts infrequently, but I like his stuff:

http://detroitvstheworld.blogspot.com/2006/06/eating-dead-horse.html

Re: Biobutanol

This morning's Wilmington (Delaware) News Journal reported that the DuPont Co. and BP have formed a partnership to develop, produce, and market biobutanol for gasoline blending.

The first step will be to convert an existing ethanol plant in Wissington, England to enable the production of biobutanol from sugar beets. The plant is expected to become operational in 2007 and will produce some 30,000 tons per year of biobutanol.

The article indicated that biobutanol has several advantages over ethanol, namely i) higher energy content, and therefore little or no reduction in gas mileage, and ii) does not absorb water and therefore can be blended right at the refinery and transported via pipeline.

DuPont also indicated that biobutanol can be made not only from sugar beets, but also from corn, wheat, or even straw and corn stalks.

I believe it was Robert Rapier who indicated a while back that biobutanol requires far less energy to produce because  it does not require energy-intensive distillation to separate the butanol from the fermentation broth.

I think this is a very interesting development which, hopefully, might force some rethinking about the attractiveness of ethanol-from-corn and maybe slow down the ethanol-from-corn bandwagon, as least a little.  (Though of course it must be recognized that the energy inputs for the growing of the crop feedstock upstream of the biobutanol process will not change one iota.)

I wrote an essay on biobutanol a while back:

Bio-butanol

It is potentially a much better option than ethanol, but still won't make a large dent in our oil consumption. There is just now way we can make enough of it. And, the ethanol lobby is firmly entrenched. Even if butanol is a better option, it is going to have a tough fight to displace ethanol.

RR

Is there really any liquid alternative  out there that will meet our "needs" and not destroy us with global warming?  We are desperately trying to find a way to fit a status quo transportation paradigm into an alternative fuel box that can only get us the volume we claim we need through a policy that is already leading us down the road to a scorched earth.

What use to be called cool, colorful Colorado, is currently being transformed into a desert.  I fear the weather patterns and the climate have already been permanently transformed. This June was another radical departure from past temperature patterns.  It used to be that several days of 90 plus weather in July was considered hot. Now June makes the old July seem cool.  Combine this with a drowth of epic proportions and we may be saying bye to agriculture.  I know. One region doesn't necesssarily describe the world. But the patterns here are so radically different that history, I can't help but think it means something very, very bad for the future of the planet.

Sorry to be a bit parochial here, but perhaps someone out there can feel my pain.  Clinton?

The U.S. has something like 135 new coal plants in the planning stages.  Bush acts like being addicted to oil is the only problem.  How about being addicted to coal?   Stop the insanity.  

Turn off your electricity service - then we won't need as many power plants.
Or reduce your demand by half.  Quite doable in most cases.
pointless

Your cut in demand will merely be consumed by others not willing to do so. This is a classic market failure in action -- all the more so because there are significant distribution issues involved.

Why should the poor cut their consumption when the rich do not?

...race to the bottom....
Hell yeah! Consume More!!!
It's not just individual consumers. Think about this: the copper industry is largely going with solvent extraction/electrowinning, which means pulverizing huge masses of ore bearing rock, leaching it with sulphuric acid, then using massive amounts of electricity to cause the copper to electroplate the cathode (or is it the anode?). As long as coal is cheap, why smelt?

Aluminum is very similiar. Even the servers that service this web site use amazing amounts of juice.

My wife and I live off grid on one solar panel and use less than a kilowatt hour per day; but we have no illusions that we're going to offset the industrial uses I just described.

not to mention that copper thefts have increased.
the most recent one happened here and to a daycare center, they took the copper tubing from the air conditioner as well as some electrical wiring.
A single kWh per day sounds incredible, almost absurd. Care to describe your setup? Or do you perhaps have a website about it? I'd love to know.
It's not pointless. Remember the sum total of good in this world is the result of many persons trying to be good over the whole course of human history. And, the best way to beat high energy prices on a personal level is to conserve. And finally, people will follow a good example but totally ignore anyone who says "Do what I say, not what I do."
  So don't lose hope or faith that things will turn out o.k. for humanity, Try to conserve. My electric bill has averaged about $35.00 a month for the last year and I use Green Mountain.
Don't get me wrong, I'm all for personal conservation; but my point is that unless there are credible ways to get everyone to conserve there are very, very serious fairness issues that come into play. Unless they are resolved conflict will be the result. That's just the way people are.

Suppose, for instance, we rely only on the price system with no major changes in policy. Who is going to get screwed here? Of course, those least able to pay. This will provoke resentment. In many places that resentment already promotes violence. Americans accept economic inequality only because of the notion that they've got a 'shot at making it big.' Peak Oil holds the potential to  hurt everyone, but, more than that, change psychology such that people believe things will get worse, not better. Under such conditions will the 'poor' simply sit by, see all they've worked for slip away, while the rich are seen to be consuming as much as before?

In experiments chimpanzees who were trained to trade two tokens for a cup of fruit juice become enraged and turned violent when they saw a chimpanzee trade in two tokens and receive more than one cup of fruit juice. If a newly impoverished John Q sees Thomas Fatcat motoring around merrily in a world of increasingly scarce fuel...

Maybe this is a US problem. We are a divided nation with a lot of people looking out for #1.
Many nations have good plans addressing energy consumption, conservation and  even global warming.

Japan is a conservation-driven nation (for good reason -- no FF) http://energytrends.pnl.gov/japan/ja004.htm

Poland has a plan http://www.kape.gov.pl/EN/About/

Sweeden -- cevre.cu.edu.tr/annex14/sweeden.PDF

Germans -- cevre.cu.edu.tr/annex14/sweeden.PDF and they lead the world in solar cell production

French, even with all their nuke power have a plan --http://www.pinr.com/report.php?ac=view_report&report_id=353

The Dutch have wind power and the Finns are going at the problem full blast. Norway is confronting the drastic decline of domestic production.

Are we Americans a strange lot? Would things be different if John McCain had beaten Bush in the 2000 primaries? Are we the only major industrial power not doing something about the combined oil/GW/national security/current-account deficit problem?
Stuart is betting the plateau will give us time? We may need it if Colorado is turning into a non-productive desert.  
 

Yes there is a method! It will work with any thing that you can deliver by meter! The wealthy stand against it even here. The reject it like a plague since there goal is to have the poor suffer for them. The method is RATIONING!!! Your service will be interrupted if you exceed y(amt) per  t(time. You are only allowed to purchase X number of gallons each month. If that were enforced the price would even be able to fall. Wealthy will attempt owning 7 different cars (one per day) to get around it. Then the gallons would be tracked through licenses. Rationing would be ethical, fair and encourage energy efficiency.
Actually what you are arguing against is "unilateral" conservation.  If you work any kind of multilateral change, driven by prices or mandate, then you don't get that rebound effect.

The "multi" in "multilateral" scales nicely.  I pay less energy bills if everyone in my house conserves.  I get lower utility rates if everyone in my region conserves.  I get a better economy and national security if everyone in my nation conserves ... and of course I get a better environment if everyone on the planet conserves.

I'm starting now, with individual conservation, but I don't think it's wrong for folks to push for international agreements, etc., that will broaden the multilateral effort.

(BTW, I might spring for a high efficiency washer (after talking about it for a while and hearing my old washer get louder and louder as it ages) ... isn't it neat that something as meaningless as style and conspicuous consumption has created this big selection of front-loaders?  They're even coming down in price a bit.)

I'm not arguing against 'unilateral' conservation at all. I'm just pointing out that in the end it may well be pointless unless action is taken collectively. There may have been a few people on Easter Island reducing consumption ahead of the last tree being felled, but they were reduced to cannibalism just the same.

We're part of larger collectives. If those collectives fail then we do too.

Those front loaders will pay for themselves in under 3 yrs.  My mom bought one when the first became available.  She used 1/4 the detergent.  It uses 1/10 the water per wash, and it washes like 14 jeans with no problems.  And they come out DRYER, so if you still use a dryer it takes less time to dry.  They will get even cheaper when the mandate takes a firm hold.  I don't know if you knew, but starting at the end of this or next year in the US you will not be able to manufacturer top load washers.  They will be available for a short time, but like I said when the mandate takes hold the competition will increase and prices will fall.
Your cut in demand will merely be consumed by others not willing to do so. This is a classic market failure in action...

Jevons' Paradox assumes that your cut in demand will be sufficient to lower the price, leading to increased consumption by others.  Real electricity prices, however, have been on a steady upwards climb, driven most recently by increases in natural gas prices.  Given that there are additional factors that seem likely to cause continued problems on the supply side -- for example, all existing nuke licenses, accounting for 20% of current generation, are scheduled to expire between about 2010 and 2035 -- it seems likely that the trend of increasing retail electricity prices will continue.  Unless your cut in demand is sufficient to reverse this trend, Jevons' Paradox shouldn't come into play.

This isn't Jervon's paradox. This is simply the dynamics of market failure akin to Hardin's 'Tragedy of the Commons'.