Our Economy - Please Give Me Good News

I was driving back from the LA area this past Sunday. The time was approximately 5:30PM. Traffic was very light on southbound 405 and 5. However traffic was extremely light coming out of San Diego. Normally there's a steady stream of head lights headed north even if the Border Patrol checkpoint at San Onofre were closed. But this time traffic was spotty. I'm not sure if it's the time of year, schools are in session, people taking less vacations into San Diego and Mexico, etc. I thought to myself perhaps people are starting to feel the gas pinch and have decided to stay local? Did I deduce incorrectly?

Heating prices this winter will be much higher. This means less money for disposable spending, and coupled with high gasoline prices we could see a drop in consumer spending. Ah that word, disposable...

The article below follows what I read in "The Dollar Crisis: Causes, Consequences, Cures" by Richard Duncan. The book's theme is that the global economy has been destabilized by the United State's enormous trade deficit, which now exceeds $50 million - AN HOUR. That trade imbalance, financed through debt, has created tremendous disequilibrium in the global economy and an economic bubble in the United States. When that bubble pops and the global economic disequilibrium unwinds, the world will not be able to avoid a very serious economic slump.

On a side note: There is a Petrocollapse Conference in New York this 5th of October. This shows the growing concern over peak oil. http://www.petrocollapse.org/

We can do this the nice way ... or the nasty way

Larry Elliott,
Economics editor
Tuesday September 27, 2005
The Guardian
http://www.guardian.co.uk/business/story/0,3604,1579037,00.html

Two hurricanes in a month, petrol prices at $3 a gallon, a current account deficit of enormous proportions, a housing market that defies gravity: little wonder that the mood in the United States is a little edgy.

The International Monetary Fund made it clear last week that it saw the world's largest economy as an accident waiting to happen. The US could not continue to live beyond its means indefinitely, and there were only two ways to deal with the unsustainable imbalances in the global economy: the nice way or the nasty way.

The nice way, according to simulations by IMF staff, would involve a gradual slowdown in the pace of consumption in the US, accompanied by slightly higher real interest rates and a modest 15% devaluation in the dollar over a few years.

The US current account would decline from 6% of GDP to 3.5% of GDP by 2010 and to 3% over the long run. The other main component of the soft-landing scenario would see a 15% appreciation of currencies in the developing countries of Asia - China, for the most part - which would result in their current account surpluses shrinking to 2% of GDP.

The nasty way involves a much sharper contraction in US activity. Under this scenario, the overseas investors who have been funding the American trade deficit by buying US assets decide they have had enough. The result is a large and sudden devaluation of the dollar, which adds to inflationary pressure and forces the Federal Reserve to raise short-term interest rates aggressively. Protectionist pressures mount and this, together with the big appreciation of China's currency, leads to much slower growth. With both the world's two big growth engines - the US and China - faltering, Europe and Japan also suffer. Financial markets suffer hefty losses, adding to the gloom.

The IMF does not know how this will pan out - nor, to be honest, does anybody else. On the plus side, it points to the fact that the past year has seen some progress on the agenda it has proposed for each key part of the global economy: the US budget deficit has been reduced, the Chinese have taken the first steps towards a more flexible exchange rate regime, the Japanese and the Europeans have committed themselves to structural reforms of their economies. On the negative side, however, there has been no evidence thus far that the moves have been accompanied by an improvement in the global imbalances. On the contrary, they appear to have got worse.

The communique issued by the G7 at the weekend aptly summed up the mood of uncertainty. Although the global economy has continued to expand and the outlook was "positive for further growth", it stressed that higher energy prices, growing global imbalances and rising protectionist pressures "have increased the risks to the outlook".

Inflation

Oil prices are a real concern, despite relief that Hurricane Rita caused less damage than feared. Prices have now remained higher for longer than policymakers expected, and the futures markets suggest they are going to stay high. Demand is expected to remain strong and it will take years for investment in new fields and refineries to increase supply.

The inflationary impact of dearer energy is already becoming evident, with consumer confidence dented by falling disposable incomes and policymakers fretting about the effects on inflation. Central banks will only take a relaxed view of higher oil prices when they can be really confident that activity will not be impaired. Some analysts believe that it will not be long before the economy is affected. Janet Henry of HSBC said that if petrol prices stayed at pre-hurricane levels, American consumers would spend an extra 1% of disposable income just on fuel in the final quarter of 2005, compared with the fourth quarter of 2004. She said: "The current bout of high oil could finally spell the end of the US consumer-leveraged expansion and a near-term end to the Fed tightening."

It has certainly been the consumer that has kept the US afloat over the past few years. As the IMF put it: "Fiscal and monetary policies in the United States became sharply expansionary - both absolutely and relative to other countries - thus sustaining domestic demand."
America 's spending habit has been fed by exports from the rest of the world, with China playing an increasingly important role. The forces of globalisation have given both sides of the transaction what they want: the US has been able to suck in low-cost goods while the developing countries of Asia have been able to enjoy export-led growth. In the process, they have built up a huge stock of US assets, while the US has increased its stock of liabilities.

"Looking forward, the global imbalances are clearly unsustainable in the long term. If the US external current account balance excluding investment income remained at its current level of more than 5% of GDP, there would be an unbounded accumulation of external liabilities," the IMF said. It noted that so far the US had experienced little difficulty in financing imbalances but that there was no guarantee that this benign state of affairs would persist. It is right to be wary. On any reasonable assessment, a central part of any unwinding of the global imbalances will be a considerable devaluation of the dollar, which would leave those holding US assets nursing substantial losses.

Vacuum

To trigger a crisis, holders of US assets don't necessarily need to sell them; all they need to do is to stop buying more. To be sure, the US can be allowed to continue along its current path, with the cooperation of the central banks of China, Japan and other Asian countries, but this would mean an even bigger adjustment in exchange rates when the day of reckoning finally arrived, and an even bigger haircut for those awash with US assets.

Apart from the dire consequences for the global economy that would result from a disorderly unwinding of the imbalances, there are two additional causes for concern. One is that while the IMF has analysed the dilemma with aplomb, neither it nor any other body involved in global economic governance seems to have the clout to do anything about preventing a meltdown. There is a vacuum that needs to be filled and urgently.

The second concern is this: underlying the policy recommendations of just about every global analyst is the belief that the rest of the world needs to emulate the economic model of the US. The calls for structural reform in Japan and Europe stem from the belief that the Americans and the other "Anglo-Saxon" economies have the sort of flexibility that breeds success. Yet that hardly squares with the IMF's notion that the US economy could be going down the pan at any moment. As Mark Weisbrot of the Centre for Economic and Policy Research, a Washington-based thinktank, points out, nor does it square with the long-term needs of sustainability. Europe's energy consumption per head is half that of the US: Weisbrot says the idea that the Europeans should work longer so that they can buy more things is dangerous and he's right.
Perhaps the Germans were a lot smarter than they've been given credit for in their scepticism about the need for neo-liberal structural reform.

Russia left out in the cold

All sorts of rumours were swirling around in Washington at the weekend when it was announced that Gordon Brown was to chair yet another meeting of the G7 in London in December. One theory was that it was to give political impetus to the world trade talks in Hong Kong, which start two days later. Another was that it was a special send-off to Alan Greenspan, who retires from the US Federal Reserve in January. The neatest explanation, however, was that the G7 wanted to shaft Russia.

At the moment, Russia's political clout means it is a member of the G8, which last met at Gleneagles in July, but it is not deemed an important enough economy to join the finance ministers and central bank governors of the US, Britain, Germany, France, Italy, Canada and Japan at G7 meetings.

For the first time next year Russia will hold the presidency of the G8. Since meetings of the G7 are by tradition held in the country that is hosting the G8, the Russians thought this was a chance to get into the rich man's club by the back door. But instead of holding the next meeting in February, the G7 has cunningly brought it forward to December in the UK, making it possible to leave the Russians out in the cold. In reality that's a sensible decision. There is a strong case for membership of the G7 to be expanded, but China and India have a stronger case than Russia.

Microgrids as Peer-to-Peer Energy

The folks across the Atlantic continue to move forward with renewable energy technologies.
This article is on the BBC web site.

http://news.bbc.co.uk/1/hi/sci/tech/4245584.stm

Alternative energy technologies are falling in priceSmall networks of power generators in "microgrids" could transform the electricity network in the way that the net changed distributed communication.

That is one of the conclusions of a Southampton University project scoping out the feasibility of microgrids for power generation and distribution.
Microgrids are small community networks that supply electricity and heat.
They could make substantial savings, and emissions cuts with no major changes to lifestyles, researchers say.

Electricity suppliers are aiming to meet the UK government's Renewables Obligation, requiring them to generate 15% of electricity from renewable sources by 2015.
Microgrids, say the researchers, could easily integrate alternative energy production, such as wind or solar, into the electricity network.

They could also make substantial savings and cuts to emissions without major changes to lifestyles, according to lead researcher, Dr Tom Markvart. We wanted to look at what kind of energy system we would ideally construct today, in the 21st Century, in response to current pressures for higher energy use Dr Tom Markvart, Southampton University"This would save something like 20 to 30% of our emissions with hardly anyone knowing it," he told the BBC News website.

"A microgrid is a collection of small generators for a collection of users in close proximity," explained Dr Markvart, whose research appears in the Royal Academy of Engineering's Ingenia magazine.

"It supplies heat through the household, but you already have cables in the ground, so it is easy to construct an electricity network. Then you create some sort of control network." That network could be made into a smart grid using more sophisticated software and grid computing technologies.

As an analogy, the microgrids could work like peer-to-peer file-sharing technologies, such as BitTorrents, where demand is split up and shared around the network of "users".
Microgrids could exist as stand alone power networks within small communities, or be owned and operated by existing power suppliers.

Campaign groups such as the Green Alliance have been pushing for micropower generation technologies, such as micro-CHP (combined heat and power) boilers - a vital part of microgrids - mini-wind turbines and photovoltaic (PV) solar arrays.

Micro-CHP units work by turning heat which would normally escape through flues into electricity. Homeowners then sell any surplus heat back to the national grid.
The Green Alliance says the government should take micro-generation more seriously.
Putting just six panels of solar PVs on a typical new three-bedroom house would reduce that household's carbon emissions by over 20%, according to the group. Power pressures Microgrids are designed for a smallish community - a typical UK housing estate for example. They deal much more efficiently with fluctuating power demands which the national grid is not flexible enough to cope with. Dr Markvart's project was initiated in recognition that the UK's current electricity distribution system was built around the availability of fossil fuels.

Solar arrays could integrate into the electricity network via microgridsBut the 21st Century throws up some pressing questions about the use of fossil fuels. "We wanted to look at what kind of energy system we would ideally construct today, in the 21st Century, in response to current pressures for higher energy use," Dr Markvart said. "We looked at something to which the technology energy sector could evolve in response to the need to reduce emissions." Dr Markvart and his team at Southampton University built a computer model to test out the viability of such small scale networks, combining micro-CHP units with PV solar arrays to convert sunlight into electricity.

"It is a little bit like comparing the old style telephone network with the network today," said Dr Markvart. Installing a microgrid would not need an entirely new network to be built, as some broadband networks have dictated. For developing countries, buildings could provide electricity without the need for vast infrastructures to be put in place.

Close to home

As the cost of alternative technologies falls and their efficiencies rise, they become much more of a viable option.

Greenhouse gas emissions could also be reduced if micro generators were powered by hydrogen, sunlight or small wind turbines, said Dr Markvart. Having generators close to demand also cuts down the cost of getting power from a remote power station to the household. Generator sizes are similar to loads - which is very different to traditional systems with huge power stations serving lots of small users.

Smaller networks mean ways to store unused power can be introduced, something that does not happen in large networks. "In a traditional system, you have the power station and electricity flows from power station to users - it is unidirectional. The whole network is constructed around that unidirectional power flow. "There is also a tremendous amount of heat generated during the process. The heat is just waste and it is disposed of," explained Dr Markvart.
The huge "chimneys" that have become a familiar part of many areas of the UK are the towers that cool down and then expel the heat waste.

"Only about 30 to 40% of the primary energy ends up as electricity; 60 to 70% goes up the chimney. You don't have any use for it because there is no one located around the station that needs heat."

Increasingly, micro-CHP units are being tested out in small communities to potentially replace conventional central-heating boiler units. According to estimates, eight million micro-CHP units could be in homes by 2020, supplying a third of a household's power.

But renewable power groups have called for clearer government policy targets for alternative power strategies. "We could have microgrids tomorrow; it can be done now. The technology is there," said Dr Markvart.

The main barriers however, are institutional and regulatory. There are some moves afoot by regulators Ofgem, which is working on a registered power zones concept to convince the electricity boards of their potential.

The cost of renewable energy devices has been recognised by the government, according to the Department of Trade and Industry (DTI). It wants to excite the industry so that the cost of individual units falls.

Rita Equals Pain

Not again? We can't say exactly what Hurricane Rita's ramifications will be until the storm passes. But if Katrina is any indication of what a category 5 storm can do to oil wells, we can safely assume higher gas prices. I believe this storm will have greater consequences to our shaky economy. Read what my credible colleague has to say.

RITA: Storm May Be the Coup de Grace for the American Economy and Many of Us As Well
by Michael C. Ruppert

© Copyright 2005, From The Wilderness Publications, www.fromthewilderness.com. All Rights Reserved. May be reprinted, distributed or posted on an Internet web site for non-profit purposes only.

September 21st, 2005 1530 PST (FTW) – As I pack my bags to head to Washington for Congressional Black Caucus hearings on the September 11th attacks (to be conducted this Friday and Saturday) my inbox is being progressively flooded with emails from inside sources in the energy industry about what Hurricane Rita is now likely to accomplish – the near-complete destruction of an already teetering US economy.

Fully 30% of all US refining capacity is in the target zone. Perhaps most importantly, almost every refinery capable of producing diesel fuel is in immediate danger. This promises (especially in the wake of Katrina) a devastating and irreplaceable shortage of the diesel fuel needed to power America’s harvest of grain and food crops this month and next. Without diesel fuel to power the harvesters and combines, crops may be left to rot in the ground presenting a double whammy: food shortages (with prices that may treble or quadruple) and export defaults negatively impacting the financial markets and trade deficit.

Even before Rita strikes, fully 30% of all domestic natural gas production is shut in. The US cannot import natural gas from overseas like it can both crude and refined products. Repair work on infrastructure damaged by Katrina has been halted as crews have been evacuated. The remaining half of Gulf energy production undamaged by Katrina is directly in Rita’s crosshairs.

Natural gas prices are up over 110% and home heating oil futures are up almost 70% before Rita even gets here. Since Katrina, US domestic oil production is down one million barrels per day (from 5Mbpd to 4 Mbpd). We were producing 9 Mbpd less than a decade ago.
Peak Oil has made replacement of losses almost impossible even as Saudi heavy-sour is being spurned as useless around the world, even with discounts of up to $10 and $12 per barrel.

A Bloomberg article today contains a quotation from a Wall Street energy expert as saying, “‘Rita is developing into our worst-case scenario,’ said John Kilduff, vice president of risk management at Fimat USA in New York. ‘This is headed right into our other major refining center just after all the damage done to facilities in Louisiana. From an energy perspective it doesn't get any worse than this.’”

The Chairman of Valero Energy agrees with the Bloomberg assessment calling Rita a potentially national disaster. His opinion is important because Valero operates more refineries in the US than any other company.

CNN is now predicting $5 per gallon gasoline and this will not likely go away with market manipulations. We had not yet experienced the permanent spikes resulting from Katrina, and the emergency reserves of the United States’ Strategic Petroleum Reserve and the International Energy Agency have already been tapped once and not refilled.

The South Texas Project nuclear plant – one of the largest in the country – is being completely shut down in preparation for Rita’s landfall. It is only 12 miles from the Texas coast and almost dead center in the hurricane’s projected path. Texas has its own power grid but catastrophic electricity shortages could easily ripple throughout the country in a short time. Electricity lost from that that facility will only be added to what is lost from other facilities powered by now critically short supplies of natural gas.

For those of you who expect FEMA to behave any differently in Texas than it did in New Orleans you are in for a crude awakening. FEMA will do what it must now do to preserve even a functioning part of America’s governing and economic infrastructure. Saving lives will be one of the least important functions in its mandate. While I had serious doubts about America’s ability to recover from Katrina, I am certain that – barring divine intervention – the United States is finished; not only as a superpower, but possibly even as a single, unified nation with the arrival of Hurricane Rita.

Nervous Laughter

Optimism is good. After researching this topic since last spring, I have been looking for positive stories that may counter the doomsday scenario of many Peak Oil writers. Since the future is uncertain and since the oil issue is missing from public debate, we have to search for our own valid analysis-explanations-solutions.

Writer’s warnings of Peak Oil may appear to be cataloged in the Chicken Little, “The Sky is Falling” section of your public library. Library? Remember those?! Economic collapse, resource wars, famine, cannibalism, lawlessness, armed gangs are some of the festering pleasantries we will witness when our supply of oil runs out. The system will convulse, go into shock similar to that of a heroin junkie kicking the habit.

Will it get this bad? The recent images from New Orleans shows how people will behave when the system nearly collapses. Will the system collapse rapidly or gradually? Will we see something similar to a Great Depression? Will human ingenuity save us from calamity?

What we do know is that a major war has been launched for oil and our gas prices have more than doubled since 2003. It's quite possible that if Iraq or the Middle East exported olive oil, our military industrial complex would not be conquering nor profiteering from the region. To say that oil is not the chore issue or that it’s a minimal factor to perpetual conflict is to obfuscate reality.

Currently oil is to our economy as support beams are to a bridge. (I’m using this analogy because I can’t think of a better one) The challenge will be to replace the shaky support beams without a portion of the bridge or the entire bridge falling. We will need the help of many intelligent and caring engineers (individuals).

It’s important to explore the myriad of possibilities how our future will shake out as resources diminish. The idea is to be able to mitigate a possible collapse or a strong recession.

In the next post I will analyze how inflation from rising oil prices can damage our economy, and at the same time, pop that infamous real estate bubble. A note on bubbles: While blowing bubbles as a kid, it was tougher to create larger ones, but when successful, I would be impressed by the size relative to the smaller ones and I was fixated on all neat swirly colors on the surface; however, the bubble usually didn’t last long. So I would try it again until I was out of soapy water…

The articel below is a synopsis of The Long Emergency:Surviving the Converging Catastrophes of the Twenty-First Century By James Howard Kunstler.

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Technology Review
By Bryant Urstadt

We will run out of cheap oil, either now or later. The most pessimistic disciples of the late geologist M. King Hubbert believe that production will peak somewhere between 2000 and 2010. Others suggest that production may top out a few decades after that.What will happen next is unknown, but an increasing number of the peak-oil handicappers share the dark beliefs of James Howard Kunstler, who predicts that alternative energy sources will never meet our needs and that we are in for a "rough ride through uncharted territory," which will take us "off the edge of a cliff" and thence into "an abyss of economic and political disorder on a scale that no one has ever seen before." The sprawl of metaphors is characteristic of Kunstler, who in The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century adds a relentless, scary, and entertaining voice to the rising alarm about life after the cheap oil is gone.

Prophets have been warning Americans of the terrible things in store for decades, but Kunstler joins a fresh corps whose numbers seem to have been increasing as quickly as the price of gas. The past two years have seen books with titles like Paul Roberts's The End of Oil: On the Edge of a Perilous New World, Richard Heinberg's The Party's Over, Tom Mast's Over a Barrel: A Simple Guide to the Oil Shortage, and David Goodstein's Out of Gas: The End of the Age Of Oiland a film called The End of Suburbia by Gregory Greene, to name a few, and to leave out their long and unsettling subtitles, most of which approximate Roberts's choice, which is The End of Oil: On the Edge of a Perilous New World. These authors may someday join the ranks of the dated alarmists--Jeremy Rifkin, among countless others, issued similar warnings in Entropy in 1980--but then again, they may be right. One may demonstrate that the alarm rings too often and too soon, but that does not mean that danger will never come.Kunstler's predictions may seem excessively dire to many, but a significant number of people are paying attention and getting ready. His book has been hovering in the top 1,000 on Amazon.com for months, and the topic of peak oil has gained traction beyond the encouraging environment of the Internet. In the past 18 months, 82 groups with about 2,000 registered members in cities around the world have been organized through Meetup.com to discuss the issue. At a recent meeting of the 100-member New York forum, participants were quoting Kunstler repeatedly--during, for instance, a discussion of where to move after the crash.

Our particular problem, Kunstler and his colleagues continually remind us, is that we have built a world based on the ready availability of cheap energy. The apocalyptic catch, though, in their view, is that oil was a "one-shot deal," and there will never be another power source as easy to extract, as portable, and as powerful. When the oil dries up, writes Kunstler, "all bets are off against civilization's future."The internal logic of the argument is persuasive, and one reads all the books with white knuckles. Oil has seeped into every nook of our existence. At the most basic level, we need oil to grow our food, particularly as we have moved to large-scale, fertilizer-dependent agriculture, and we need oil to get that food to our communities.Things might be simpler if our appetites were limited to food. But the range of our activities has broadened considerably, and oil supports almost all of them. We need oil to make most of the things we use every day--from plastic to the roads we drive on--and, more importantly, to get them from the hands of cheap laborers and into our big box stores, to which we drive in large cars, of course. Oil now satisfies about 40 percent of our energy needs, and about two-thirds of it we burn in motors, going places and moving things or sitting in traffic.

Kunstler does not believe the United States will survive as we know it but will instead break down into autonomous, isolated regions. The fun is certainly over in the desert United States. According to Kunstler, cities like Las Vegas--dependent on cheap air conditioning, air travel, and good highways--will wither into dust. Around the country, a trip to town will become a day's excursion, a trip to the nearest large city a journey of several days, and a trip across the country nearly unthinkable.The suburbs--which Kunstler calls "the greatest misallocation of resources in the history of the world," and for which he seems to reserve a special contempt--will become particularly miserable places, devolving into wastelands of abandoned McMansions, empty Wal-Marts, and disintegrating asphalt. We will not be able to heat our 5,000-square-foot houses, if we can get to them, and we will not be able to fill the box stores with Chinese goods, or to resurface the roads, which we won't be using much in any case.

As for the rest of the world, Europe may fare slightly better, having to some extent preserved the small, agriculture-friendly, locally focused communities that Kunstler believes will dominate the post-oil world. But overall, the strife will be biblical: "Australia and New Zealand may fall victim to desperate Chinese adventuring....The coastlines of all nations may become prey to a new species of stateless freebooting raiders....The Pacific coast of North America will be especially vulnerable to raids emanating from the disintegrating nations of Asia." Poor nations will never develop but will seem unexceptional among "the hardship and chaos that will become common elsewhere."These predictions of collapse all presuppose that we cannot be saved by alternative energy sources. Kunstler dismisses alternative energy as a "mirage" and belief in it as "a holdover from the techno-miracle cavalcade of the twentieth century." He does his best to demolish any hope for natural gas, solar and wind power, coal, hydroelectric power, biomass, or nuclear power. Though he succeeds in provoking thought, he does not quite convince the optimist that we are doomed.

He discounts natural gas as a long-term solution, and with good reason, for it suffers from most of the same reserve problems as oil, compounded by problems of getting it from the field to the user. But he does undervalue it as a "bridge" supply, a form of energy that might be used to help us make the transition to the next source. And the scarcity of bridge power is crucial to many of his assumptions about whether we will have enough energy to build the next generation of sources.He is doubtful about solar power, too, pointing out that the infrastructure to obtain it, as it exists today, relies on the petroleum economy in a number of ways, not least for the plastic that goes into batteries and photovoltaic-cell arrays. Ditto for wind turbines, which require a fair amount of machinery, currently petroleum based, for their installation. Objections like this--where Kunstler asks, could we survive on the output of this source alone?--are raised frequently and are certainly the weakest point in his argument.

Meanwhile, many knowledgeable optimists have yet to dismiss the potential of either solar or wind: companies like GE and Boeing have been making major investments in solar energies for years, even renewing interest in and work on once marginalized technologies like the Stirling engine, which could run on concentrated solar heat. Wind, too, has turned some corporate heads: Goldman Sachs, for instance, recently acquired Houston-based Zilkha Renewable Energy, which builds wind farms. Still, as Kunstler points out, solar and wind are very inefficient compared with burning petroleum products and possibly unsuited to running a public transportation network, much less the car-based system we have now.

Coal is already producing about half of our electricity, and though most agree that it is in good supply, Kunstler is dubious about the numbers. The environmental cost of burning it is also, as Kunstler notes, extreme: beyond coal's contribution to global warming and other, more local forms of air pollution, it is hard to dismiss the large-scale leveling of landscapes. As for synthesizing oil from coal or, for that matter, extracting it from shale and tar sands, it can happen; but the high cost and the limited return on the energy invested are not likely to allow anything like the enormous economic expansion of the last century. Nor, given the likely outcome of continued global warming, should we be overly encouraging of coal conversion. But neither does this mean that the slow-moving work on clean coal will never bear fruit.Kunstler is skeptical, too, about hydroelectric power--which is much cleaner--on the grounds that we will not be able to maintain the infrastructure for building dams without our cheap oil. And though hydroelectric power meets about 10 percent of our electricity needs today, Kunstler believes that room for growth is limited, as many of the best dam sites are already taken. Again, Kunstler is assuming the worst case. It is quite possible, for instance, that we will build and maintain dams with equipment that runs on expensive oil, if we can, or with some kind of coal-powered steam shovel, if we must.

Kunstler's argument against biomass is that making it in useful quantities requires massive industrial farming powered by...cheap oil. There is some truth here. But biomass advocates are more sanguine, arguing that fuel could be produced from naturally fecund prairie grasses, among other things. And as former assistant secretary of energy Dan Reicher has pointed out, biomass production inherently reduces the concentration of greenhouse gases in the atmosphere: plant life, after all, consumes carbon dioxide.

Kunstler is slightly bullish on the usefulness of one form of biomass, wood--with a chilling caveat. He expects it will heat our homes nicely in the absence of cheap oil and that, consequently, the "future deforestation of North America (and Europe) could be as rapid and dramatic as the extermination of the American bison in the decades after the Civil War."That leaves nuclear, as Kunstler and so many others have been noticing lately (see Stewart Brand's "Environmental Heresies" in our May 2005 issue). Still, Kunstler accepts nuclear power's ascension reluctantly, unsure as in other cases that we will be able to maintain a nuclear infrastructure using nuclear power alone and doubtful that we will be able to convert that power into a transportation system anywhere near as massive as the one we now have. But even if the large four-wheel-drive truck may someday be an obsolete method of picking up milk, that does not mean we will be back on horses: even the mass-transit-averse U.S. has had reasonable success with electric trains.Overall, Kunstler's tapestry of destruction assumes a race of much more limited flexibility and creativity than history shows humanity to be. He could be right, of course; and given our behavior in the past hundred years, there may be a perverse satisfaction in agreeing with his assessments of our capabilities and our future. But more likely we will muddle through as we almost always have, flourishing here, waning there, and surprising ourselves, perhaps undeservedly.

It seems more realistic to assume that as the price of oil continues to rise, rather than focusing myopically on oil technology, we will try a number of other options at once, looking with our usual expediency for an easy solution that does not kill us, at least for the moment. We may end up with inefficient solar panels on our roofs, kicking electricity back in to the grid in a trickle; a somewhat more efficient biomass plant at the end of the block; and a transportation system running on fuel cells charged with electricity from nuclear plants. Las Vegas may even get off the hook, harnessing the geothermal resources of the West. And none of this takes into consideration improvements in how efficiently we consume energy.

Most of all, despite its urgency, Kunstler's book reminds us how modern man is scared by his own inventions. We've been expecting to die by our own hand at least since Hiroshima, and even younger readers may share relief at having somehow escaped the ravages of a nuclear winter, a homemade dirty bomb, and a world-destroying clerical error in January 2000.In My Life and Hard Times, James Thurber describes a citizen in his childhood town of Columbus, OH: the Get-Ready Man. The Get-Ready Man drove a car with a door in the back and liked to shout at people as he drove, using a megaphone. His warning was always the same: "Get Ready! Get read-y...! The worllld is coming to an End!" Kunstler and the others may join the Get-Ready Man in the annals of doomsday prophets, and the Peak Oil Apocalypse may get filed along with Y2K under "false alarms and other diversions." Even now, it may be dismissed by some with laughter. But it ought to be nervous laughter.

Scary StuffThe Long Emergency:Surviving the Converging Catastrophes of the Twenty-First Century By James Howard KunstlerAtlantic Monthly Press 2005, $23.00

What do You Think of an Oil Panic?

Keep your eye on the oil market and the overall political spectrum these next few months...

Some analysts predict oil wars between China, Russia, Iran, and the US. These oil wars could take place in theatres of S. America, Africa, the Middle East (under way - Iraq and Afghanistan), and central Asia (another one under way – Chechnya).

I'm not sure we can confidently say that the powers that be will engage in thoughtful, reciprocal solutions. It may develop into a twisted game of interantional survivor and the strongest cave man gets the meat, bread, and rights to the harem.

Currently China, Russia and Iran are protecting their economic interested by forming trade partnerships that revolve around natural resources and military assets. China and Russia have been engaged in joint military maneuvers the last year and a half. This should not be a surprise since international actors will allign themselves, especially when there is a power vacuum, to counter a dominant entity - the USA.

Chevron has admitted to the era of cheap oil being over. The Saudis have admitted for the first time they will not meet global demand, and they have begun exploration outside their region. President Hugo Chavez has warned that there is an energy crisis around the corner but the mainstream corporate press refuse to take him seriously and have tended to label his warnings as either banal or scaremongering. What’s more the main stream media has a blazay way brushing aside the critical issues.

By Sean Brodrick
Author of The Energy Crisis Report

• Hurricane Katrina smashes "Energy Alley," a concentrated area of oil production in Gulf of Mexico that supplies about 35% of America's domestic oil.
  
• White House says oil will get cheaper, but makes hush- hush plans to increase the Strategic Petroleum Reserve by 42% to ONE BILLION barrels of crude. Why are they so eager to add to the SPR when oil prices are high?
  
• Saudis reveal they won't be able to meet oil demand - first time EVER they've admitted the awful truthHurricane Katrina delivered a devastating blow to America even before it slammed into Louisiana. The Massive storm smashed through "Energy Alley," a concentrated area of oil rigs off the coast that supply about 35% of America's domestic oil production and 20% of its natural gas. It damaged much of our nation's oil production.

At the same time, workers rushed to shut down the offshore Louisiana Offshore Oil Port, which processes loads from tankers too large for mainland ports. The LOOP is the nation's largest oil import terminal, handling 11% of U.S. imports. And refiners shut down more than a million barrels a day of production as they braced for the impact from the monster storm. T

hose refineries will probably be out for at least two weeks, setting the stage for a potential gasoline shortage.Panicked oil traders are pushing oil prices over $70 per barrel. And now for the really scary part. A devastating hurricane strike at America's oil and gas operations in the Gulf of Mexico is just one of the major forces that could send oil to $80 ... $100 ... $150 a barrel.

Other forces that could send oil prices surging are potentially much more serious...and permanent!The Saudis are the "central bank of oil," right?

So how come the central bank is scrounging for loose change under the couch cushions?Earlier this month came news that Saudi Arabia hired five Rowan jackup oil rigs for drilling offshore oil wells on a three year contract. Those rigs are currently under contract in the Gulf of Mexico, so that means Saudi Arabia outbid somebody to get those rigs - and rig rates have already run up to obscenely high levels - 30% to 50% more than a year ago.

Drilling for oil underwater is very expensive. You'd expect the Saudis to be drilling out their cheapest oil first. Don't they have a desert full of this stuff? So why are they suddenly digging deep for underwater oil, and willing to pay a premium to do it?Unless... maybe the Saudis don't have as much oil as they say they do.We already know that the Saudis have confessed that OPEC won't be able to meet western oil demand in 10 to 15 years.

I'm starting to think they might come up short a lot sooner than that.Are the Saudis lying? Well, at least it seems like they're not telling the whole truth. What's more, I believe there's a whole lot our own government isn't telling us. I'll get to that in a moment.

First, some ugly facts...

• The world uses a BILLION barrels of oil every 12 days. Do we find a billion barrels of oil every 12 days? NO! In fact, if everything goes perfectly, we'll find just 30 million barrels of oil in the same time period. If things go badly, we'll find less. Much less.
  
• The global depletion rate runs at least 5% a year, perhaps much higher , as once-reliable sources of oil are in serious decline. Oil production in Britain fell the steepest of any country last year, with production in the once-prolific North Sea falling by 10% (230,000 barrels per day) last year... Production in Alaska's Prudhoe Bay has fallen 75% from its peak in 1987... Iraq's oil production is still half of what it was before the war...Mexico's production is declining so quickly it will have to start importing oil in the next 10 years!
  
• The U.S. Energy Information Agency has fallen in line with the International Energy Agency and admits that oil demand will exceed supply starting in the fourth quarter of this year. Total world demand is expected to be 86.4 million barrels per day, according to the EIA, while total world supply is expected to be 85.4 million barrels per day.

The EIA ups the ante by saying there will be a shortfall in the first quarter of 2006 as well.Publicly, the White House urges calm and predicts that oil prices will retreat from their current high levels. But privately, the U.S. government is quietly planning to add to existing oil reserves at a furious pace.

Squirreled away in new energy legislation is a directive to increase the Strategic Petroleum Reserve from 700 million barrels (70 days' supply of imports) to ONE BILLION BARRELS. They're adding to the SPR when oil prices are sky- high. What are they afraid of?

A confidential source in the Department of Energy gave me the scoop on the addition to the SPR. This stunning new directive was placed inside the 1,724-page Energy Policy Act of 2005 without any fanfare whatsoever - it's hidden in plain sight. And the mainstream media is too busy going to beltway cocktail parties to notice.

This 42% jump in reserves is so huge, the government doesn't even have a place to put it all - yet. The plan is to fill the SPR to capacity with a minimum of market disruption or undue influence on the market, blah-blah. If you're planning to fill the SPR when oil is over $60 per barrel, you aren't planning on getting that oil on the cheap.

I don't know what is motivating the Bush administration to boost petroleum reserves. But I do know that two oil men are in the White House right now. They probably have access to raw data on America's oil fields - including depletion rates - that the rest of us don't. Again, what are they afraid of? I'm certainly not going to buy the "don't' worry, be happy," line peddled by the White House.

Still, there are plenty of people still willing to push the government line. An analyst recently quoted in a Bloomberg story tried to push the idea that oil is still cheap, explaining: "A barrel of Starbucks latte would cost you $1,500, compared to a barrel of crude, even at $66 a barrel."Ri-i-i-i-i-ight! Starbucks coffee is a luxury - that's why they can charge so much for it. Is oil a luxury? Not right now. But it might be down the road.

I believe we're careening toward a good ol' fashioned oil panic. I believe the government knows a lot more than it's letting on. And I believe anyone who doesn't invest for the coming energy emergency is a bloody fool.The time to take action is now. Today's energy crisis is transforming the world - from geopolitics to the financial markets to the gas pump to the production cost of almost every product we consume on a daily basis.

That's why I've just created an in-depth Energy Crisis Report. I outline the FOUR FORCES bearing down on energy- dependent America, forces that could wash over our economy like a tsunami. I lay out the six likely consequences of the next oil shock. And you'll learn about the ten energy companies you should add to your portfolio immediately - plus, a popular stock you should sell or avoid at all costs.

http://dailyreckoning.com/RudeAwake/Articles/RA083105.html[Ed. Note: Sean Brodrick is the Investment Director of the Sovereign Society and the author of the most important report you'll read this year...the 'Energy Crisis Report.' C

lick here to learn more:Energy Crisis Report
http://www.agora-inc.com/reports/190SENGY/W190F8A5/

National Embarrassment

I wish to echo the frustration many Americans feel; although, those who are most frustrated are still awaiting evacuation. FEMA has turned back Walmart trucks full of water and other emergency aid. Why? I thought they were doing evereything they can to assist the victims? A colleague of mine sent me this message and with his permission I’m posting it.
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Bush has waged an unjust war on Iraq based on lies and fabrications in order to "protect the national security of the United States". Ironically, Bush has diverted resources from fortifying the levees in New Orleans in order to fund this unjust war, and the effect is quite clear. Bush cannot protect the national security from a hurricane because of his misguided priorities.

It is quite interesting that in this video he talks about deploying the marines and National Guard as if he is waging a military campaign against our fellow citizens in New Orleans, who are poor, black and homeless.

It is quite disgusting to hear Bush condemn the looters in New Orleans, who have no homes, no food and are trying to meet their basic survival needs; yet he does not discuss how he will deploy immediate humanitarian and medical relief operations to rescue these people from hunger, disease and death.

The war on New Orleans is the twin image of the war on Iraq. It is a war of the rich, white and powerful against the poor, colored and weak. The New Orleans disaster exposed all the fault lines in the American political scene – the politics of race and class designed to serve the rich, white, neo-conservative (it should be neo-fascist), and the extreme religious right at the expense of everyone else.

The images coming out of New Orleans cannot be distinguished from the images we saw in Baghdad for the past two years, a city under siege, surrounded by military troops, who are protecting private property while not providing the basic necessities of life for its citizen -- food, water, electricity and security. New Orleans has truly become Baghdad's twin city.

New Orleans has brought Baghdad to America, exposing the corrupt and bankrupt policies of the neo-fascist cronies.

An echo from the New York Times: "Falluja Floods the Superdome" (I hope this link works)
http://www.nytimes.com/2005/09/04/opinion/04rich.html?ex=1126497600&en=f82bd551a873fefe&ei=5070&emc=eta1

Katrina: A Catalyst for Insight

Katrina could be a tipping point for our nation. I'm certain a "peak oil" ripple affect will be felt within the next few months, but we can't say how it will shake. We should expect higher fuel prices and talk about conservation at the least.

It should be interesting to see if our shaky economy will withstand Katrina’s body blow. Over one million people are currently unemployed, and one of the largest commercial ports in the world, the largest in the US, is silent.

What impact will this storm have on our economy and is it a sign for us to re-evaluate our paradigm of unlimited resources?

The new government juggernaut known as Home Land Security seems a little slow in responding. However, people should have evacuated as instructed. I figured cities would have had plans to address a major calamity within its borders and have a game plan, with FEMA, to channel resources from other parts of the country. Perhaps this is too much to ask of our civic and federal leaders. Or perhaps it’s just a sign as to how short cited and ill prepared we actually are to address such a major crisis. We’ll have to address it now, and in the same time, we need to address the resource shortage.

Please donate money. Lots of people need help. The BBC has a list of donation centers.
http://news.bbc.co.uk/1/hi/world/americas/4204066.stm

This article begins to address Katrinas impact: Please read on. Thanks.

Ideas about the Future of Energy in the US (from our Industry Insider and Prof. Goose)

Posted by Prof. Goose in Supply/Production Thu Sep 01 at 7:48 AM EST

We are approaching a time when the American people will be paying more attention to energy and the problems we face than ever before. The time to ponder the short- and medium-term future of energy supply in the United States is here.

After reading various sites today, peakoil.com, The Energy Bulletin, FTD, and many of the other sites in the peak oil webring (see link in right sidebar), let me try to put together some of my thoughts. (There's so much to get a handle on, as always, with the peak oil situation--it really is like squeezing dry sand at times, isn't it?).

(a long, hopefully useful post after the fold, including some thoughts from our anonymous industry source...)

My point since we started this project has been that "peak oil" changes the rules of the domestic and geopolitical games. There is no more immediate supply of cheap oil to call upon than what we already extract daily: refining more-sour crude, exploration and retrieval only becomes more and more costly from here on in, and ergo, behaviors and lives will have to change to adapt.

Because of our crippling dependence on petroleum (which will become more obvious each day that passes in the coming weeks), one terrorist attack, one malevolent world leader with oil, or, unfortunately one event like Katrina that disrupts "the Spice" (Frank Herbert's Dune reference) can bring a country, especially one that uses a quarter of the world's daily supply of oil, to its knees.

Don't get me wrong. Ceteris paribus, Katrina would have desperately hurt the US had it happened 10 years ago. However, in the era of peak oil (when there's just no wiggle room to find cheap supply to put into the system), the turmoil that Katrina hath wrought may hurt us in ways we haven't even fathomed yet because of the way our lifestyles will have to change in order to adjust to less available energy.

I mentioned last week, during Katrina's ill-fated approach to NOLA, that this whole scenario resembled The Oil Storm from F/X (check your schedules, I think they are reairing it). So far, this situation has followed the script, almost to a tee. (By the way, in case you're curious, in the show the next thing to happen is that extremists in SA saw this time of geopolitical weakness as a perfect opportunity to overthrow their government, then took control of the oil in SA.)

Matt Simmons was quoted as saying "this [Katrina] is the trigger event that will drive energy prices way, way higher." Well, duh...but for how long? Is this a permanent change?
And then here's Simmons from another story:

My guess is that over the course of the next nine months, a lot of the major oil and gas companies are going to come to the awful realization that all of the production plans that they have are going to fall by the wayside because they can't find a rig," Simmons said.
But what exactly will Katrina be a trigger event for exactly? A problem with infrastructure? A logistic clusterfuck? (forgive me, JHK.)

Another set of thoughts I've been having is that the short- and medium-term impacts of Katrina will drastically reduce consumption (due to recession/depression) and therefore give us some time to soften the blow of Hubbert's Peak of oil supply.

My anonymous source in the industry provided evidence for this notion, and here's what she said (it is a compelling case):

Consider that awareness of Peak Oil has just begun debate within media circles. The federal government has taken the position that "all is normal." Demand/supply is as tight as a drum, with gas prices inching upwards, and consumers grumbling about "oil company gouging". Even within the PO community, there are those who believe that the invisible "market demand" will always make things right, and prices rocking along slowly rising supports their view.

Along comes a single weather event, in an area KNOWN for these events, and it does what hurricanes always do - it destroys manmade stuff, knocks over trees, remakes the coastline, and vanishes into the wind. This has happened in exactly this area since we began recording these events, and well before that. It is definitely nothing new under the sun. We knew this could happen, but it wasn't cost effective to try to prevent it from happening!

The ramifications of this are at first not apparent, as we are concerned with saving lives and then property. But once this has ended, what has changed for the immediate future?

1. Domestic oil production is reduced for a relatively decent amount of time (12-24 months) by, hmmmm, say 15% (note from PG, this is well above the 10% reduction for greater than 90 days that was described as a "nightmare scenario" a few posts back by experts...and these numbers are in line with the GOMEX oil supply outage predictions.)

2. 1,000,000+ people are out of work. They may not be placed on the unemployment rolls due to bureaucratic magic, but they are nonetheless out of work, and most without somewhere to live.

3. The primary shipping point for goods delivered to the central part of the country is likely out of commission for 12-24 months.

4. Traffic to the affected area is restricted due to roads, especially the interstates like I-10, being destroyed for 24-36 months, WITH rapid rebuilding. (Note from PG, this is especially true of the LOOP/Fourchon areas...getting supplies in there via ground to fix anything will not happen for a long while).

5. Oil company exploration plans are extended for a few months due to sorting out hurricane damage.

6. Refinery output looks like it will be curtailed by 20% or more for several weeks because of power outages and infrastructural damage.

7. Shipbuilding (including naval boats, oil rigs, platforms, etc.) is hampered by the loss of multiple shipbuilding facilities in the affected area.

8. In a very tight steel market, demand begins to surge as rebuilding of the infrastructure begins.

9. The same thing happens in the cement market.

10. Grain exports are reduced as the other international ports cannot take up the slack caused by the loss of New Orleans, or the costs incurred shipping by truck instead of via the river are much higher.

11. Gasoline, diesel and heating oil distribution to areas via the Port of New Orleans have ceased for the foreseaable future. This is especially true until the power can be restored so we can see if the pipelines are functional. Without power, we cannot tell anything, as they have to be pressured up.

What does the loss of GNO, Pascagoula and the oil platforms do to things like the economy, gasoline prices, US oil demand and the world supply? What does 1,000,000+ unemployed do to the economy? How about 1.5M homeless? What kind of a burden does that put on what little safety net the government offers people?

And where does the lack of sufficient oil supply figure into each of these items? You need energy to find solutions and other alternative sources of energy!

So much to think about, isn't there?

In sum, these are the questions we need to answer, as a nation, in order to understand the (perhaps very) tough road ahead we all face with regard to energy. Whether Katrina gives us a respite to regroup (because of destroyed demand due to a recession/depression) and solve our problems or not, we still face serious, serious energy problems.

The solutions? There are myriad policy options, we just have to motivate the people who represent us to make the right ones.