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Countdown to $100 oil (50) - it's no longer 'oil', it's 'liquids'

by Jerome a Paris Sun Oct 28th, 2007 at 08:46:28 AM EST

See also DoDo's Oil price in euros

We reach opus 50 of this series looking back to a week where new record highs were set almost every day for both oil prices (above $92) and the euro (almost $1.44) against the dollar. On this round number juncture, we can note that we're less than 10% away from the other symbolic line I chose in June 2005 as a target to be reached inexorably, and that it's pretty likely that this $100 figure will be reached before opus 100 is written (and I expect to continue to stick to writing just under 2 opuses per month as from the beginning).

But rather than focusing on the most recent prices, I'd like to flag a distinction that Michael Klare, in an excellent article over at the Nation (Beyond the Age of Petroleum) makes:


This past May, in an unheralded and almost unnoticed move, the Energy Department signaled a fundamental, near epochal shift in US and indeed world history: we are nearing the end of the Petroleum Age and have entered the Age of Insufficiency. The department stopped talking about "oil" in its projections of future petroleum availability and began speaking of "liquids."


One of the arguments that the cornucopians (or peak oil deniers) have used to dismiss the "peak oil" theory is that oil has been increasingly supplanted by new sources with equivalent or quasi-equivalent use.

The first category of "unconventional" oil usually includes production form other processes of the oil industry: condensates (high quality oil produced from natural gas reservoirs), NGPL (natural gas plant liquids - other liquid byproducts from gas production) or "refinery gain" (the volumes remaining after oil has been processed into refined goods). It then adds oil sands (like those in Albberta, Canada), bitumens (extra-heavy oil, the biggest source being in the Orinoco belt in Venezuela) and oil shale (as found in large quantities in Colorado). Next come gas-to-liquids and coal-to-liquids - ie other hydrocarbons which require an additional processing step to be usable as an oil substitute in the existing infrastructure (GTL is a way to produce high quality diesel fuel from natural gas). Deep offshore oil is also often counted in that "unconventional" category, as are the potential volumes in the Artic and Antartcic areas.

A recent summary of the production of each category can be found over at the Oil Drum in this post summarizing recent statistical data.

Then there are completely new sources like biofuels, produced from crops or agricultural leftovers - ethanols and biodiesel, notably.


"Liquids," the [Energy] department explains in its International Energy Outlook for 2007, encompasses "conventional" petroleum as well as "unconventional" liquids--notably tar sands (bitumen), oil shale, biofuels, coal-to-liquids and gas-to-liquids. Once a relatively insignificant component of the energy business, these fuels have come to assume much greater importance as the output of conventional petroleum has faltered. Indeed, the Energy Department projects that unconventional liquids production will jump from a mere 2.4 mboe per day in 2005 to 10.5 in 2030, a fourfold increase.

One of the main arguments of peak oil skeptics is to say that peak oil is irrelevant, because we keep on finding new sources to complement old ones. Thus, peak "oil" is not relevant because other liquids are successfully taking up the slack and are boosting overall production numbers. Some of the early prognoses of peak oil did not take into account such new sources, and when they did update their work to incorporate them, they were dismissed as ddomsayers, always promising the peak a few years from now - whereas the reality is that production is increasing as needed.

In fact, the reality is that production IS stagnating, even taking into account all new kinds of liquids (see the graphs at the above link, in particular this one) and, moreover, that the predictions of peak oil, using traditional definitions of oil, are correct. Oil production has peaked in the vast majority of countries it has been produced, it has peaked for the non-OPEC world, it seems to have peaked for light crudes - the high-quality kind - already.

It all hinges, then, on whether new substitutes can be found for oil (nobody yet amongst "deciders" seems to be considering seriously that we might want to significantly reduce our consumption, and overall demand is still growing briskly around the world, with the US and Europe more or less stagnant). And each of these new sources of liquids has massive drawbacks, and is extremely costly, as Klare nicely summarises:


(The United States already produces large quantities of ethanol by cooking and fermenting corn kernels, a process that consumes vast amounts of energy and squanders a valuable food crop while supplanting only a small share of our petroleum usage; the proposed cellulosic plants would use nonfood biomass as a feedstock and consume far less energy.)

(...)

But while attractive from a geopolitical perspective, extracting Canadian tar sands is environmentally destructive. It takes vast quantities of energy to recover the bitumen and convert it into a usable liquid, releasing three times as much greenhouse gases as conventional oil production; the resulting process leaves toxic water supplies and empty moonscapes in its wake.

(...)

Government geologists claim that shale rock in the United States holds the equivalent of 2.1 trillion barrels of oil--the same as the original world supply of conventional petroleum. However, the only way to recover this alleged treasure is to strip-mine a vast wilderness area and heat the rock to 500 degrees Celsius, creating mountains of waste material in the process. Here too, opposition is growing to this massively destructive assault on the environment.

One thing that has struck me over the past few years is how the price level that people say will allow for a real boost in these technologies seems to always be $10 from current oil prices. It used to be $25/bl a few years back, it was then put at 40-50$/bl, and now people say that $75 will allow them to come online. What this suggests is that these new sources "embed" a lot of oil - i.e. they need a lot of oil or oil equivalent (convenient energy, in the form of gas or electricity) to be produced, and thus their cost of production goes up with the price of oil. in technical terms, their ERoEI (Energy Return on Energy Invested) is low - lower than that of oil anyway.

Klare gets this impression too:


But the real story is not the impressive growth in unconventional fuels but the stagnation in conventional oil output. Looked at from this perspective, it is hard to escape the conclusion that the switch from "oil" to "liquids" in the department's terminology is a not so subtle attempt to disguise the fact that worldwide oil production is at or near its peak capacity and that we can soon expect a downturn in the global availability of conventional petroleum.

We are now stuck with costly alternatives, which promise to be massively damaging to the environment, as our best chance to keep production going. And oil prices simply reflect that reality, with an additional premium to reflect the urge by so many of our politicians to solve by force problems that they can no longer solve by bluster and intimidation (as noted in this WaPo article the premium for the "small" chance of a war with Iran is "$3 to $15", which means that if "small" is interpreted as a 10% chance, prices are expected to increase by $30 to $150 in the case of war, the current premium reflecting the expected increase in the event, multiplied by the probability expectation of it happening).

Or, to keep it simple: oil is gettign scarcer, the other "liquids" are dirty and expensive, and the White House would rather go to war to solve that rather than focus on demand reduction.

Yep, $100 oil is just around the corner.

:: ::

Earlier Countdown diaries:
Countdown to $100 oil (49) - peak oil and libertarians
Countdown to $100 oil (48) - 85, 86, 87, 88, ...
Countdown to $100 oil (47) - Malthus, Mein Kampf and ostriches
Countdown to $100 oil (46) - what's a dollar worth?
Countdown to $100 oil (45) - time to bet again (eurotrib)
Countdown to $100 oil (45) - time to bet again (DailyKos)
Countdown to $100 oil (44) - oil industry admits it cannot save us
Countdown to $100 oil (43) - IEA boss denies and confirms peak oil in same breath
Countdown to $100 oil (42) - IEA predicts shortages within 5 years
Countdown to $100 oil (41) - oil more expensive than it appears
Countdown to $100 oil (40) - Undulating plateau
Countdown to $100 oil (39) - BigOil running out of oil
Countdown to $100 oil (38) - Who gets Champagne edition
Countdown to $100 oil (37) - OPEC says peak oil (and $100 oil) is near
Countdown to $100 oil (36) - Free game! win champagne! no risk! (eurotrib)
Countdown to $100 oil (36) - Free game! win champagne! no risk! (DailyKos)
Countdown to $100 oil (35) - peak oil: the last skeptics capitulate (CERA)
Countdown to $100 oil (34) - Oil major CEO calls for demand reduction
Countdown to $100 oil (33) - Below zero
Countdown to $100 oil (32) - peak oil is, like, so over. Not!
Countdown to $100 oil (31) - $15 oil? The cornucopians are fighting back
Countdown to $100 oil (30) - senior politico fears looming oil wars
Countdown to $100 oil (29) - Alaska joins axis of evil (unreliable oil suppliers)
Countdown to $100 oil (28) - New records suggest more to come
Countdown to $100 oil (27) - 'Mission Accomplished' - High oil prices are here to stay
Countdown to $100 oil (26) - Time to bet again (eurotrib)
Countdown to $100 oil (26) - Time to bet again (dKos)
Countdown to $100 oil (25) - Iran vows that oil prices will not go down
Countdown to $100 oil (24) - What markets are telling us about future energy prices
Countdown to $100 oil (23) - Running out of natural gas in North America
Countdown to 100$ oil (22) - gas shortages in the UK - 240$/boe
Countdown to $100 oil (21A) - The 4 biggest oil fields in the world are in decline
Countdown to 100$ oil (21bis) - long term vs short term worries (dKos)
Countdown to 100$ oil (21) - 8-page extravaganza in the Independent: 'we're doomed'
Countdown to 100$ oil (20) - Meteor Blades is Da Man in 2005
Countdown to 100$ oil (19) - Your bets for 2006 (Eurotrib)
Countdown to 100$ oil (19) - Your bets for 2006 (DailyKos)
Countdown to 100$ oil (18) - OPEC happy with oil above 50$
Countdown to 100$ oil (17) - Does it matter politically? A naked appeal for your support
Countdown to 100$ oil (16) - We'll know on Monday
Countdown to 100$ oil (15) - the impact on your electricity bill
Countdown to 100$ oil (14) - Greenspan acknoweldges peak oil
Countdown to 100$ oil (13) - Katrina strikes / refinery crisis
Countdown to 100$ oil (12) - Al-Qaeda, oil and Asian financial centers
Countdown to 100$ oil (11) - it's Greenspan's fault!
Countdown to 100$ oil (10) - Simmons says 300$ soon - and more
Countdown to 100$ oil (9) - I am taking bets (eurotrib)
Countdown to 100$ oil (9) - I am taking bets (dKos)
Countdown to 100$ oil (8) - just raw data
Countdown to 100$ oil (7) - a smart solution: the bike
Countdown to 100$ oil (6) - and the loser is ... Africa
Countdown to 100$ oil (5) - OPEC inexorably raises floor price
Countdown to 100$ oil (4) - WSJ wingnuts vs China
Countdown to 100$ oil (3) - industry is beginning to suffer
Countdown to 100$ oil (2) - the views of the elites on peak oil
Countdown to 100$ oil (1) (eurotrib)
Countdown to 100$ oil (1) (dKos)
added to the series after the fact

Display:
http://www.dailykos.com/story/2007/10/27/184855/16

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sat Oct 27th, 2007 at 06:51:48 PM EST
  • the Oil Report from the (German) Energy Watch Group which says that peak oil was last year.
  • the monthly OilWatch posted by Rembrandt over at the Oil Drum.


In September world production of total liquids increased by 450,000 barrels per day from August according to the latest figures of the International Energy Agency (IEA). Resulting in total world liquids production of 85.10 million b/d, which is 1.03 million b/d lower than the all time maximum liquids production of 86.13 million b/d reached in July 2006.

Latest available figures from the Energy Information Administration (EIA) show that crude oil production including lease condensates increased by 455,000 b/d from June to July. Total production in July was estimated at 73.28 million b/d, which is 1.01 million b/d lower than the all time high crude oil production of 74.30 million b/d reached in May 2005.




In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Oct 28th, 2007 at 05:18:35 AM EST
[ Parent ]
and the White House would rather go to war to solve that rather than focus on demand reduction.

The White House did go to war to solve that.

They failed.

And I don't think anyone in their right mind thinks that bombing Iran is likely to secure more oil.

The question is: are they are in their right mind?

Many on ET think not: my take is that they are and that what we are seeing is sabre rattling.

But then, as an Optimist, the only surprises I get are unpleasant ones....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Oct 27th, 2007 at 07:05:30 PM EST
All through-out last century the entire economy of the US has been predicated on cheap and convenient energy from oil, especially for transportation.  This dependence accelerated during and after WW 2.  Nothing was unaffected.  Americans are wedded to our cars.  As much as 1/6th of the entire US workforce is based directly or indirectly on the mass ownership of things that go vroom.  All real estate built after WW 2 is based on the car.  Land use patterns are based on the car.  

The result is tens of trillions of bucks mis-invested - from a PO POV.  

Any politician coming out and saying, "The most costly items you own: cars and home, are worth somewhere in the neighborhood of 27 cents" would be crucified.  


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat Oct 27th, 2007 at 07:52:08 PM EST
[ Parent ]
well summed up AT...

The result is tens of trillions of bucks mis-invested - from a PO POV.

the biggest planetary 'oops' ever so far...

All real estate built after WW 2 is based on the car.  Land use patterns are based on the car.

yup... lousy car-ma....  

Any politician coming out and saying, "The most costly items you own: cars and home, are worth somewhere in the neighborhood of 27 cents" would be crucified.

...and then worshipped for 2000 years?

by a couple dozen hairy apes in caves, muttering about the great lesson we must remember, so not to have to repeat it?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sat Oct 27th, 2007 at 11:27:55 PM EST
[ Parent ]
The result is tens of trillions of bucks mis-invested - from a PO POV.  

Any politician coming out and saying, "The most costly items you own: cars and home, are worth somewhere in the neighborhood of 27 cents" would be crucified.

While I strongly agree that land use patterns are based on the car and that it will prove very difficult to adapt to peak oil, I think you may be painting an unecessarily hopeless picture of the situation. Most americans don't travel so much on a daily basis that a combination of electric cars and public transit couldn't fullfil most people transportation needs. Developping higher density urban areas should of course be a priority, but adapting the existing infrastructure doesn't seem completely out of the realm of possibilities, not so much anyway that it'd be worth taking the gamble of completely bankrupting the nation through continual warfare just to keep control of the last oil reserves. Now, it is true the picture looks bleaker the longer we waste time instead of preparing for a soft landing.

by Fete des fous on Sun Oct 28th, 2007 at 09:07:33 PM EST
[ Parent ]
Yes, I've sketched some ideas along these lines ...

Energy Independence: Retrofitting Outer Suburbia, The Transport Corridor

Energy Independence: Retrofitting Outer Suburbia, The Sketch

High Speed Rail: The Recruiters

... outside the inner suburbs, Transit Oriented Development is still possible with suburban villages around public transport stops on fixed transport corridors, with the existing suburban housing (presumably with substantially more truck gardening) oriented to the closest TOD village.

15 minutes to the station at 48kph (a sedate NEV speed) is a radius of 12km ... resulting, assuming stops within the suburb of less than 12km spacing, of a continuous band along the corridor and, in an environment of repeated crude oil price shocks with progressively higher peaks, ongoing pressure to provide supplementary fixed transport corridors intersecting with the main fixed transport corridors.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 28th, 2007 at 10:13:54 PM EST
[ Parent ]
In the medium term the "misinvestment" is largely a quality of life issue. We've got a looong ways to go before any sort of energy related die-off hits the first world.

you are the media you consume.

by MillMan (millguy at gmail) on Mon Oct 29th, 2007 at 05:34:38 PM EST
[ Parent ]
I think you're right--and I think this fact explains "terrorism".  There are a loooooootttta folks who'd be happy to see a few millions in the first world die--also horribly--to wake them up to their privileged position.

And there are a loooooooooottta folks in the first world who would be (and are) happy to kill a lotta poor folks to make sure that they (the rich, who feel "normal", not rich) stay more or less where they are (top o' the heap.)

I think Marx banged on about this.

Not so depressing if one is "somewhere in the middle" of the richer classes.  Pretty depressing--viscerally, I mean--if one is in the group of "not first world".

but yeah, I think you're right, unless the weather wipes out major major crop systems--don't they say we're all four meals (or is it eight?) from revolution?

Don't fight forces, use them R. Buckminster Fuller.

by rg (leopold dot lepster at google mail dot com) on Mon Oct 29th, 2007 at 06:19:27 PM EST
[ Parent ]
Somehow I've gotten the idea there isn't a liquid fuel replacement for oil when considered gallon for gallon.  So measured in dollars-for-ergs any replacement is necessarily more expensive and less efficient.

True?  False?  Half-truth?


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat Oct 27th, 2007 at 07:38:43 PM EST
My impression is it's a truth.

But then we will hear the argument that says it doesn't matter if liquid this or liquid that is cost/energy less efficient than oil, we can pay a premium for the fact that liquid fuels are useful and indeed necessary...

To go on running a civilisation that... needs liquid fuels...

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Oct 28th, 2007 at 07:08:50 AM EST
[ Parent ]
biodeisel is pretty close -- 7-9% lower per this source:

http://www.biodiesel.org/pdf_files/Biodiesel_Blends_Above%20_20_Final.pdf

I'd be willing to bet if energy/gallon were critical, they're be a few PhD ChE's who'd develop ways to close that gap.  But I'd guess the real issue is energy/mass since how much mass you have to haul around hits your econs more than stretching a fuel tank's size a bit.

by HiD on Sun Oct 28th, 2007 at 11:13:54 PM EST
[ Parent ]
... a gallon of biodiesel, not the net energy yield of a gallon of biodiesel.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Oct 29th, 2007 at 04:32:28 PM EST
[ Parent ]
In terms of net energy yield... synthetic liquid fuels from nuclear might have a shot.

We have met the enemy, and it is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 1st, 2007 at 11:44:51 AM EST
[ Parent ]
did you guys play a game as kids where you'd all boogie around, and on teacher's command would all have to 'freeze', stop in mid movement?

i have the same feelings these days, like a giant teacher is about to give the command.

like this whole oil era, nasty brutish and short as it is, and more specifically what it has meant for motility, is the equivalent of most of the human race whizzed in a blender, culturally speaking.

among the many ills it has benighted us with, i count this as a blessing, as although it has also uprooted and decimated much tradition and wisdom, it has also allowed us to see and feel just how differently centenary cultures have evolved, what they have in common, and what they don't.

this has been a dodgy but effective antidote to the poisons of stagnation that have accumulated as by-products of millennia of limited circulation, and has detoxed many petty and parochial mindsets.

it seems we are probably destined to be content with a digital equivalent in the future, if we're lucky enough to keep global communication going, (costs a lot less to fly electrons around than people), and to return to living with our roots actually in (what's left of) the earth, instead of stretching them to snapping point and beyond, on our mission-to-know through the badlands of hubris.

fine with me, though certainly cheap travel was a thrill, the reality is that it only seemed cheap.

and i'd rather see healthy children where i am, rather than go and stare at them abroad, especially when doing so imperils their future.

we really need to get consciously creative regarding our future food supply, really getting italian here, lol! cuz while we eat such a huge majority of foods that we won't have around PO, we don't want to go back to regular famines, etc...

and while you can't eat oil, you can't eat electricity either, we run (mostly) out of one, we may create access to much of the latter, if we get smarter faster...

electric tractors, an idea whose time has come...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sat Oct 27th, 2007 at 11:54:04 PM EST
... grain driers and renewable energy cycle fertilizers to be more likely first steps down from petroleum fed agriculture than electric tractors ... while we certainly can't produce enough biodiesel to replace the current gasoline fired commute in the US, there is no reason to doubt we can produce enough biodiesel to fuel tractors.

Of course, that means that its a Net Energy Yield versus Labor Productivity race between tractors and horses, in terms of which will lead to the least increase in cost of food, but the US has a massive increase in food productivity up our sleeve due to our absurd over-production and over-consumption of meat, and in any event I prefer two options to one in this kind of situation.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 28th, 2007 at 12:31:04 PM EST
[ Parent ]
yup, planting winter rye and buckwheat, vetch and clover.

yes again, these are first steps that do not require such radical change to have immediate benefits.

i agree that biodiesel will be abundant enough to keep old tractors going, but i still thin we should plan the next-gen of farm tools to be electric...much lower maintenance.

the US has a massive increase in food productivity up our sleeve due to our absurd over-production and over-consumption of meat,

 just splitting up the meat production into smaller units should do wonders for pollution, not to mention the smaller travel distances and the lowering of medical bills.

great points, bruce, thanks.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Oct 28th, 2007 at 01:30:41 PM EST
[ Parent ]
Good points, Bruce and melo. Smaller, less fuel-dependent processes and somewhat decentralized (regional) production centers will be important features of more sustainable systems.

melo - was your reference to "winter rye ... clover" concerning green compost for gardens? If so, consider leaves for winter cover. They are my main humus (no hummus, thanks) sources. Earthworms love them, too. By Spring the leaves are quite fragile and are ready to spade in. Just have to be a little careful as to type. Oak leaves and black walnut leaves are essentially somewhat poisonous to a lot of plants. In the Pacific Northwest I use Western Maple and Alder leaves, which are ubiquitous.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Sun Oct 28th, 2007 at 11:21:48 PM EST
[ Parent ]
yeah, what some call 'green manure'.

leaves work well, here i use chestnut and oak mostly, some hedge maple.

if i followed your method, i think most would be carried off by winter winds here....

composting them and digging in the compost before planting works best in this region. i recently bought a machine that renders up to 1" branches into mulch, but i'm not using it till my panels are installed, as it sucks a lot of wattage, and my electric bill is over the moon, even being hyperfrugal.
i tried it out though and it works really well, fluffs up the pile and helps it all break down aerobically.

thanks for the info paul, how about a gardening diary or two?

with pix!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Oct 29th, 2007 at 04:00:10 AM EST
[ Parent ]
Excellent diary, Jérôme.

Two current biofuels diaries:

Socratic Biofuels by Colman.

Changing History: From Poison Gas to Corn Ethanol by JohnnyRook despite appearances.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Oct 28th, 2007 at 07:03:52 AM EST
Let me throw out an idea: the US will "succeed" in Iraq. The war, of course, is lost, but this is, perhaps, the wrong measure.

From a liquid fuel context, all we have seen is that full Iraqi oil production has been kept off the market for many years. If I were holding an asset that was appreciating as fast as oil, and I could afford to wait to sell, then I would hold back.

At some point in the next few years, the hot war in Iraq will stop. This doesn't mean that all will be well, but it does mean that oil companies will be able to move in. They are used to operating in relatively unstable situations, Nigeria is a good example.

When the Iraqi oil production reaches the levels expected, the current situation will moderate, and the world will get some more time to postpone the hard choices. It would be interesting to see how the two trillion dollars the war is projected to cost will compare with the savings in future oil costs as the Iraqi oil starts to flow.

(I'm, of course, ignoring all the human and ecological costs of the war and militarism, but this is what economists do, so I'm following their lead.)

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Sun Oct 28th, 2007 at 12:07:53 PM EST
it seems clear to me that rdf is essentially correct concerning the U.S. ruling class' strategy in Iraq. They intend to stay there, despite everyone and anyone. The gauntlet is down, pick it up whomever, and however many.

Several trillion U.S. dollars, thousands of U.S. soldiers, and a few million camel-jockeys mean less to the powers-that-be than even their own working class - which ain't much. In current dollars and prices, the prize may be on the order of $30 trillion in gross sales (U.S. DOE estimates on oil deposits in western Iraq included), if they can keep Iran out of the southeastern section of Iraq. If their sweetheart production agreements are ever accepted by the Iraqis, then they will pocket over 30% of that amount for essentially no cost - so $10 trillion given the idea that they just collect their "dividends" on the war.

However, as Robert points out, and as Jerome has been pointing out for months, conditions are changing. The actual price for Iraqi oil will be much higher than implied by the current market. So - a helluva return on investment right there.

But wait, there's more - with every barrel of oil you will get additional fees for shipping. And if you call in your bid tonight, we'll throw in some cracking and catalysis followed by some distillation. Now, unfortunately, we cannot make this offer on-line, so you will have to come down to our retail outlets, where we will add another layer of costs. Point being that there's a whole lot of additional profit after the oil is high-jacked - I mean extracted.

I think that they have pushed all of the chips into the center of the table. And, what the hell, why not?
They're using my chips and your chips, not their own. It's no lose all the way for them, as far as they see it.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Sun Oct 28th, 2007 at 11:08:27 PM EST
[ Parent ]
and the longer it takes to reach that stability, the more delayed the pumping of that oil is, well, the higher the profit from pumping it ultimately gets.

hellova bet. wish i could fold and take the rest of my chips off the table.

by wu ming on Mon Oct 29th, 2007 at 02:40:46 AM EST
[ Parent ]
It is a helluva bet.

But it presupposes that there isn't anyone else at the table with a stronger hand.

What is the US going to buy this oil with? The US $ is rapidly becoming a "toilet currency" - to re-use the traders' phrase re the early Euro.

Its productive economy is being misdirected to wasted expenditure, largely military, and much of its "wealth" creation is a financial mirage, founded on a land price bubble of cosmic proportions.

We are seeing the end of dollar hegemony, IMHO. Some say the Euro will replace it as a global reserve currency but my take is we need to revisit Bretton Woods and start with a new, and "asset-based", approach.

The US simply does not have the financial resources to maintain its hegemony by conventional force - particularly the astronomic energy costs - nor does it have a nuclear monopoly.

I never thought I would be pleased that Russia maintained its nuclear arsenal, but MAD is the only thing that keeps the current crew - and those who follow - from what would essentially be a gargantuan global corporate Imperial kleptocracy.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Oct 29th, 2007 at 05:56:44 AM EST
[ Parent ]
that bet can only be won in a situation of worldwide war, in which military control of the assets matters, and investment can be imposed from the top - a command economy.

There is no conceivable peacetime scenario under which Americans or Western companies get to keep any meaningful chunk of the Iraqi oil rent.

So it's a really a bet on the long - hot - war - WWiv. It's a bleak 'win'.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Oct 29th, 2007 at 06:15:53 AM EST
[ Parent ]
I agree completely.

But, as they say: Possession is nine tenths' of the Law.

I do not see the US ever leaving Iraq entirely while there is significant oil.

This need not be a problem - eg they're still in Cuba - but they are going to have to realise that the only Iraq settlement will be a multilateral one and not on terms they dictate.

But the $64 trillion question is what sort of settlement it will be...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Oct 29th, 2007 at 06:28:32 AM EST
[ Parent ]
I trust that my characterization of the U.S. ruling class' strategy is understood to be clinical and contemporaneous. In my old-style Marxist rhetoric - I think that the 'contradictions' will just about bury them. Despite the paranoia that simmers here in the left community concerning takeover by a mercenary army (Blackwater, of course), I doubt that their gamble will be sustained domestically, let alone in the wider world.

Of course, WW IV is possible, but, so far, it looks like Russia and China are just playing the U.S. like a crawdad on a piece of bacon. The stupid crawdad just won't let go of the bacon, as long as you haul him in sorta slow-like.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Oct 29th, 2007 at 10:58:17 AM EST
[ Parent ]
Bush appears to be another monkey caught in a "Gumption Trap" by "value rigidity".

All kinds of examples from cycle maintenance could be given, but the most striking example of value rigidity I can think of is the old South Indian Monkey Trap, which depends on value rigidity for its effectiveness.

The trap consists of a hollowed-out coconut chained to a stake. The coconut has some rice inside which can be grabbed through a small hole. The hole is big enough so that the monkey's hand can go in, but too small for his fist with rice in it to come out. The monkey reaches in and is suddenly trapped...by nothing more than his own value rigidity.

He can't revalue the rice. He cannot see that freedom without rice is more valuable than capture with it. The villagers are coming to get him and take him away. They're coming closer -- closer! -- now!

What general advice...not specific advice...but what general advice would you give the poor monkey in circumstances like this?

From "Zen and the Art of Motorcycle Maintenance", of course, if you hadn't guessed...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Oct 29th, 2007 at 11:07:51 AM EST
[ Parent ]
my original estimate was 2009.  Looking to be too optimistic.  From Nigeria in turmoil to the disaster in Iraq to troubles in Venzezuela and now saber rattling at Iran everything is breaking wrong.  C'est la vie.

It's interesting though that you can still buy 2010 (Dec WTI) at $78.5 or so.  And pretty flat from there out to 2015.  

I wouldn't be at all shocked if some news event led the bulls to try to hit $100 just to trigger stops and general panic.  There's a lot of profit in panic.  But just the same, I wouldn't be shocked if we have a warm Dec and get a puke like last year when we dropped from $70 to $50 in a couple of weeks.

by HiD on Sun Oct 28th, 2007 at 11:18:49 PM EST
I think the market is not thinking much about LT prices - the curve seems to target the price where oil was a few months or weeks back, from wherever the spot is. So it's essentially flat, a sign of cluelessness more than anything.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Oct 29th, 2007 at 05:29:25 AM EST
[ Parent ]
suspect producers are more eager to lock in forward prices at these levels than consumers. People still expect a reversion to mean.
by HiD on Tue Oct 30th, 2007 at 05:15:48 AM EST
[ Parent ]
I wouldn't be at all shocked if some news event led the bulls to try to hit $100 just to trigger stops and general panic.

They're on the way... $93.80 reached today, and Brent is now beyond $90, too.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Oct 29th, 2007 at 03:34:13 PM EST
[ Parent ]

Crude oil price likely to hit peak

Crude oil prices appear increasingly likely to hit a record in real terms reached during the second oil crisis in 1979, as nominal prices on Monday continued rising well above $90 a barrel.

West Texas Intermediate crude hit a fresh nominal all-time high of $93.20 a barrel on Monday on a combination of renewed geopolitical tension over Iran's nuclear programme, weakness of the US dollar and low inventories.

(...)

In real terms, adjusted for inflation, oil is at its highest price since the early 1980s but still below its modern historical peak - equivalent to about $100-$110 a barrel in today's money - reached in late 1979 after the Iranian revolution.

(...)

There are also discrepancies among energy economists on which level represents the true adjusted record, as WTI futures did not exist in the early stages of the second oil crisis in 1979. That obliges to use for the calculation other crude oils streams that are not exactly comparable.

There is also disagreement about which inflation measure should be used to adjust the price - world inflation or US inflation. But most agree that $100-$110 a barrel will represent roughly the real terms record.

A measure taking account of the evolution over time of the rich countries' per capita income has crude oil prices well below the adjusted record. G7 per capita income is now sufficient to buy 456 barrels of crude oil, well above the 320 to 350 barrels between 1980 and 1982.

To bring G7 purchasing power down to this level would require oil prices rising to between $120-$130 a barrel, according to Deutsche Bank.




In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Oct 29th, 2007 at 06:09:34 AM EST
still below its modern historical peak

Trust my words, when we pass the 70's record, they are going to bring up the ol' 1862 price.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Oct 29th, 2007 at 10:20:36 AM EST
[ Parent ]
A measure taking account of the evolution over time of the rich countries' per capita income has crude oil prices well below the adjusted record. G7 per capita income is now sufficient to buy 456 barrels of crude oil, well above the 320 to 350 barrels between 1980 and 1982.

Huh!? What sense does this make? If you look at GDP, shouldn't change in per capita oil use also be taken into account? As in, driving larger cars and getting more stuff transported on trucks and ocean-going ships?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Oct 29th, 2007 at 03:28:13 PM EST
[ Parent ]
Then have a look at the share of GDP spent on oil. That's pretty easy to do with Sweden, as all oil is imported.

You only have to know the price of oil, the amount of imports and the GDP at any given time.

Speaking very roughly nad back-of-the-hand, the share of GDP spent on oil imports in Sweden should be somewhere between 1/8 and 1/4 compared to back in the 70's.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Oct 29th, 2007 at 04:47:09 PM EST
[ Parent ]
... it presumes that buying oil is the purpose of the economy.

By the US GDP deflator, we are already past the 1979 peak of about $86 in current US dollars.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Oct 29th, 2007 at 04:26:30 PM EST
[ Parent ]
Too bad #51 is already on the Front Page. It means I can't promote this one...

We have met the enemy, and it is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 1st, 2007 at 11:53:08 AM EST


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