Saturday, July 30, 2005

Timely Oil Refinery Fires

MSNBC has a feature about multiple small fires impeding production at oil refineries and offshore production platforms:
Refinery fires push oil prices back above $60.
This sure reminds me of all the well timed problems that west coast power generating plants were having during the California electricity crisis.

Wednesday, July 13, 2005

Trade Deficit Narrows? Really?

WASHINGTON (MarketWatch) -- Stronger demand for U.S. products overseas and lower energy costs at home helped to reduce the trade deficit in May, the Commerce Department said Wednesday. The trade deficit narrowed 2.8% in May to $55.3 billion, and was below the consensus forecast of Wall Street economists of $57.0 billion

This is interesting news, and, if true, is a contradiction of my bearish view of the US economy and the UD dollar. But how do we know if it is true? We do know that the Bush administration has been leaning on all federal agencies to publish whatever figures and news suit their political ends. Global warming is denied, the Consumer Price Index is a farce (read this page by Jim Puplava's for the details). Economic projections, the various rationales for waging war, all of it is simply made up to suit the Republican agenda.
Is there any way to verify the commerce department's trade deficit numbers? Trillions of dollars trade on the FX markets on the basis if this information.

Thursday, July 07, 2005

Will Unconventional Oil Make Up The Shortage?

Such sources [from unconventional fields] will account for 30% of all supplies in 2010, up from just 10% in 1990, according to CERA. ExxonMobil figures the world contains some 7 trillion bbl. of heavy oil, oil sands, and shale-oil reserves alone, an amount roughly equal to those of all conventional reserves. If just 20% of those were recovered, ExxonMobil figures that would top the 1 trillion bbl. of conventional oil produced on the planet to date. If numbers like that prove to be accurate, today's worries over oil supplies could seem like a distant memory in just a few short years.
Original here at Businessweek

The above optimistic picture is painted by Daniel Yergin's Cambridge Energy Research Associates. I am very skeptical. Heavy oil, it is true, has a future, but we'll have to invest billions in a whole new refinery infrastructure. Ditto for the new Liquid Natural Gas freighter terminals I keep hearing about. Even if we could build all this stuff, our economy as we know it won't run on unconventional oil, it requires cheap, abundant oil.

As for oil (tar) sands, yes the fuel is there, but it is vastly more expensive to extract than oil conveniently gushing out of the earth. Shale oil is even harder to extract than tar sand. There will be energy available, but only at prices that we have not yet begun to see. This is because much of the cost of producing these fuels (sand and shale) goes to energy. for example, to liquify the tar in Canadian tar sands, they need to heat the sand with steam. The steam is made by boiling water with natural gas. If the cost of gas goes up faster than the price they get for the synthetic oil, then the tar sands will simply be unprofitable, and production will shut down. Roberts, in the End Of Oil, and Heinberg in The Party's Over, make this point repeatedly: a nation's energy infrastructure must be profitable for it to work. Only Nazi Germany has been able to make much synthetic oil in the past, and it was made possible by using slave labor. Note that this oil did not really drive Germany's economy; only its military got the fuel.

But we won't be able to build all that infrastructure stuff anyway. The amounts of capital needed will not be so easy to get when the supply of dollars finally starts to dry up. If we do get some of it built it will be very hard to pay off.

Parallel to oil, dollars will "peak" very soon, sending this country, and much of the globe with it, into inflationary depression. (Or deflationary depression, depending on the reaction of nations' central banks.) A tsunami of bankruptcies and defaults will sweep the globe. The world's economy is dependent on a supply of cheap abundant dollars just as much as cheap abundant oil. Note that the S&P 500 has negative equity: long term corporate debt is 110% of the value all outstanding shares. Personal debt, government, municipal debt, real estate values, these are pretty much the same story; an unsustainable house of cards that keeps growing taller. The Fed will not be able to flood the world with credit forever. When the money runs out and debts have to be paid, not just re-financed, we will not be able to raise the vast amounts of capital necessary to build the new LNG freighter temminals, heavy oil refineries, nukes, methane hydrate rigs, etc. The idea that we can, at this last minute, re-build our energy infrastructure from scratch is a fantasy. It is too late!

That’s why I think we'll have mules and oxen, and wood-burning tractors, powering our farms in 20 or even 10 years: they don't require a centralized infrastructure.

As for transportaion, the best we'll be able to afford, and run, will be a railroad system. For overseas travel, we'll be going by ship. Freighters will improve their finances by carrying passengers as well as cargo, and some cruise ships may be able to convert to ocean liners.

By the way, you really can run your car, or tractor, on wood chips! And reasonably cleanly, too. During WWII, in Scandinavia and Australia, and other places that had no fuel at all, that’s how vehicles ran. Look up producer gas on google.

In the future, because fuel will be so much more expensive and capital hard to come by, our economy will contract. This is the hardest thing, as Americans, that we need to face. Growth is over.

Tuesday, July 05, 2005

US vs China business war

MSNBC published, from the Washington Post, an story about just how pissed China is about the US congress not wanting to Unocal to be sold to a Chinese oil company.
This sounds like pretty strong language for diplomacy. If the US government persists in trying to block the sale of Unocal's energy assets, especially the 70% of Unocal's properties located in Asia, expect China to retaliate in spectacular fashion. China holds a winning hand in this business war. All they need to do is start dumping some of their vast treasury bill holdings. Then watch the credit markets panic and interest rates leap.
Probably, this will not happen. A little backroom diplomacy - and congress will realize that 'free trade' is more important than energy independance. One way or another, China will aquire Unocal, or at least the Asian oil and gas holdings.