An explanation, a summary and a joke

The forced hiatus of The Energy Standard has been caused by the relentless stream of necktie damage flowing our way from New York and London financial centers.

Being forced to understand the alphabet soup and where the world is headed has not left much time for energy analysis not to mention writing energy posts.

That's the explanation. Now for the summary:

• Peak Oil is not dead - geological fundamentals do not change because world finance throws a fit.
  
  
• World consumption of oil will decrease for the first time in eons, say the forecasts. If this is true, buckle up, it's really going to be an ugly economic scenario unfolding next year and after. If that much wasn't clear to you by now.
  
  
• Oil prices? Yes, there was a speculative premium and yes, there's now a speculative depression in the price. It could go down to $40, but it won't stay there for long unless the whole world economy melts down completely. Lesson: do not use price alone to predict anything about geological availability of oil.

The joke?

I hear there is a new edition out of a risk management bible for the financial industry, 'Value & Risk Management - A Guide to Best practice'. Here's a summary of the contents in the update edition:

Past performance is not a guarantee of future profits.

Not laughing? Us neither.

Finance crash 2009, Energy after 2011, Food after 2015, Ecological after that?

We just love the good news. So, turn away, browse elsewhere.

Here goes - a series of meltdowns

Marc Faber (investor):

"In the January of 2009 the world economy will be imploding. You gotta get out. I repeat: imploding."

Jeroen van der Veer (CEO, Shell)

"[We] had better make speed, or else the lights would go out. A sense of urgency is needed.
...
The energy challenge will be a problem for at least 50 years
...

Second, oil and gas alone will not be able to provide this fuel.

...
And third, CO2 levels will go up in concentration higher than the levels recommended by the scientists."

Oh yes, he forgot to mention the agricultural crash due to lack of fertile topsoil, competition from biofuels, lack of fossil fertilizers and the fact that we have been eating major grains from the stockpile for few years already (read: eating more than producing).

Bring it on, we say. Bring it on.

Only by wiping the slate clean can one really even imagine starting anew.

IEA predicts oil price to rebound to $100 - $200

Well that didn't take long. FT reports again:

“While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over [.] Current global trends in energy supply and consumption are patently unsustainable [.]

Oil prices will rebound to more than $100 a barrel as soon as the world economy recovers, and will exceed $200 by 2030."

So much for going back to the good old days. The funny bit is of course the $200 by 2030. Sure, but we are going to be seeing that a lot sooner than that. I could have made an equally useless prediction: $300 oil by 2100. How's that. Base inflation alone will drive oil to $200 by 2030, not to mention all the shortages in availability. $200 might well be reality by 2011-2015, depending on how recession lasts.

This is our last wake up call. The final recession before the big one to do any meaningful infrastructure work, if any.

Now the markets know. The message has been hammered in. If anybody still believes oil futures prices on their own are a solid indicator of peak oil or lack of peaking, they are sorely mistaken.

We a bit of bad luck we might even get a price rise before we get out of this recession. Stagflation after stagdeflation, anyone?

Anarchy in the UK

UK is in dire straits.

North Sea oil production is falling, causing a growing double deficit, both in falling exports and increasing energy imports. In addition, natural gas production is coming off a cliff. Almost all of UK's heroic climate change mitigation has been achieved by a switch from coal to natural gas. Oh well, they can always go back to coal.

Now Peak Oil Group (UK) has assessed that peaking of UK's own production and that of the world at whole is a much greater threat than terrorism. No surprise there, considering that terrorism still kills less people in UK than cars do.

"When they fail to meet demand, many countries will experience this as an energy crisis. Some will experience it as an energy famine, as producers start to withhold exports."
- Jeremy Leggett, chairman, Peak Oil Group (UK)

Add to this the fact that UK banks are extremely over-leveraged through debt which is now crumbling worldwide. The residential housing bubble is among the biggest in the whole of OECD and clearly worse than in the faltering US. As a final icing on the cake, the country produces very little, it's financial center role is now in serious doubt and it has a consumer base that is up to it's neck in debt - unable to consume anymore. Oh yes, let's not forget the recent turn into isolationism and immigration hostility.

Ingredients for a really disastrous recipe are all here. The fall of the UK in the coming two decades could be something not seen since the heydays of the 60s and the ensuing fall of the 70s.

Milton! I think thy spirit hath passed away
From these white cliffs and high-embattled towers;
This gorgeous fiery-coloured world of ours
Seems fallen into ashes dull and grey,
And the age changed unto a mimic play
Wherein we waste our else too-crowded hours:
For all our pomp and pageantry and powers
We are but fit to delve the common clay,
Seeing this little isle on which we stand,
This England, this sea-lion of the sea,
By ignorant demagogues is held in fee,
Who love her not: Dear God! is this the land
Which bare a triple empire in her hand
When Cromwell spake the word Democracy!

Curiouser and curiouser!

After yesterday's FT leak, IEA responds with a rebuttal:

"The Financial Times carried a cover page article this morning and a second article on page 4 allegedly reporting on the findings of the forthcoming WEO 2008. This article was drafted without any consultation with the IEA. It appears to be based on an early version of a draft from several months ago that was subsequently revised and updated. The numbers in the article can be misleading and should not be quoted or considered to be official IEA results. We are dismayed that such a comprehensive and important IEA report was made public without our input and verification."

Now this is getting really interesting.

I find it hard to believe IEA pulled the numbers out of their hats for the draft and now entered the real numbers in the final report. Sounds more like political pressure. I wonder how they even felt they had to reply.

Time will tell, but for sure near oil future is still looking muddled to politicians and "experts" who have not studied the production development data.

Oil went up a measly $4 yesterday and it is impossible to say if it was due to Fed rate cuts, FT news or something else.

However, one thing looks to be fairly certain. The coming real economy recession will be long, hard and markets are discounting that factor in oil prices.

All hope abandon ye who enter here

The November IEA oil report has leaked out. FT has a copy. It's does not make pretty reading:

"The natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, the Financial Times reported. "

That means halving of the existing oil production available within a bit more than seven years. By 2015.

"Even with investment, output will slide by 6.4 percent a year, it said. "

That means halving of the all existing and planned oil production capacity within 11 years or so, assuming a normal oil sector planning horizon of c. 5-7 years forward.

This is radical.

If you do not understand how grave this is, there is nothing we can do for you.

The only glimmer of hope is the financial crisis and the global recession now unfolding:

"The IEA expected oil consumption in 2030 to reach 106.4 million barrels a day, down from last year's forecast of 116.3 million, said the newspaper.

It said the projections could yet be revised lower because the draft report was written a month ago, before the global financial crisis deepened"

Anything beyond 110Mbpd is a fool's dream and I'm sure even IEA knows this. Projected oil demand growth has been pushed down by the recession. Let's hope it's a long and severe one, that makes us think hard and long about energy decision and the near future.

Be prepared and good luck.

Through me you pass into the city of woe:
Through me you pass into eternal pain:
Through me among the people lost for aye.

Justice the founder of my fabric mov'd:
To rear me was the task of power divine,
Supremest wisdom, and primeval love.

Before me things create were none, save things
Eternal, and eternal I endure.
All hope abandon ye who enter here.

Such characters in colour dim I mark'd
Over a portal's lofty arch inscrib'd:
Whereat I thus: Master, these words import.

The Crash Course

Chris Martenson's Crash Course on Environment, Economy and Energy is now complete.

The Crash Course is a remarkable set of videos with incredible explanatory power of various interlinked concepts of money, inflation, debt, energy, peak oil, consumption, economic growth, environment, raw materials, climate change, etc.

If you don't have time to watch all of them, and want the exec summary, just watch episodes 19 and 20.

Even if you don't agree with or believe in everything in the videos you will learn new and important things.

Which one should be the next president of the USA?

We rest our case.

We love/hate Americans

They can imagine and produce 'call to arms' type adverts like this (even if a little silly and completely propagandist):



But then they can't run the advert on major broadcast networks and in the end they actually do nothing about it, except maybe bitch.

You think running ads or writing blog posts is going to change the world?

Us neither.

The world is about doing. Do something. That changes the world.

We are doing, thus less blogging.

The Financial Crisis - Summing it up

Although, in due fairness that should be extended to the Main Street as well.

Then again, maybe a more responsible advice would sound more like this:

"You blew it up, so now you should clean it up like responsible adults."

Fat chance. So we vote for "Jump!"