Re-Posted From the NYT
Re: Energy and money and Utility Bills and the ever changing landscape of our collective livelihood.Before you read the article below and my additions and reflections of it, I just want to point out a few things. First, oil is the bread and butter of commerce, construction, manufacturing (especially chemical), medical, and transportation industries. It also has a large share in the American utility and heating bill, and on top of all that, how much money we spend at the levy every Wednesday. Drastic humps in prices should either concern you for your own welfare, worry you as an indicator of the economies welfare, or make you downright paranoid; any of these would be an appropriate response to ubiquitous fluctuations.
Second: the Grand Earth-is-a-Garage Analogy. Pretend the wind stopped blowing. Air stopped moving, except where we pushed it or plants and animals breathed it. The air in your home would largely stay in your home. The air in your street and next to your park would stay put. Every car would leave a line of unbreatheable air. To understand this effect on our health, picture next that the entire Earth were a garage, with just enough room for however many billions of people are on it now. Would we choose to turn on millions of cars and likely commit a slow suicide with a chemical more addictive than tobacco, more liberating than LSD, and more party oriented that clean cocaine? Oil and gas have built a revolution of industry. The sooner we find the next revolution, the less like a Dinasaur atmosphered planet we'll live in.
Also (third), you talk about U.S. image worlwide, and how important restoring our credibility is - how about the country that still uses more oil per kapita than anyone else by far actually giving a shit about the whole Earth's environment enough to sign the Kyoto protcalls. Or is that to God-Damned Socialist for your punk-patriotic-fuck-you-a-thon called Military/Industrial/Media/Commercial/Lobbyist-central/non-progressive bi-partisanism...sorry, I didn't mean to yell.
Big Oil Projects Put in Jeopardy by Fall in Prices
A 76 gas station in La Jolla, Calif., in December, left, and May, right.
From the plains of North Dakota to the deep waters of Brazil, dozens of major oil and gas projects have been suspended or canceled in recent weeks as companies scramble to adjust to the collapse in energy markets.
Just as a reminder, the "collapse" in the energy markets was caused in large part by a simultaneous stock, real-estate, oil, auto, and credit bubble bursting. In fact, energy markets have been collapsing here and there for many years. My theory is that lots of people talk about energy markets collapsing because they are paid to...politicians for example. In the recent Illinois governor media/U.S. Attorney farce, one of the best quotes I read was about how the U.S. Secretary of Energy was the most lucrative of all Cabinet posting positions. Could be there is a lot of inner-workings of energy markets that don't see the light of day and are thus not accurately reported on in print.
In the short run, falling oil prices are leading to welcome relief at the pump for American families ahead of the holidays, with gasoline down from its summer record of just over $4 to an average of $1.66 a gallon, and still falling.
-demand gets Happy.
But the project delays are likely to reduce future energy supplies — and analysts believe they may set the stage for another surge in oil prices once the global economy recovers.
-supply Strikes Back.
Oil markets have had their sharpest-ever spikes and their steepest drops this year, all within a few months. Now, with a global recession at hand and oil consumption falling, the market’s extreme volatility is making it harder for energy executives to plan ahead. As a result, exploration spending, which had risen to a record this year, is being slashed.
Hang on with that first sentance there. Before you suppose it is an unanswerable contention or a real sentence, lets break it down. Oil markets - afore mentioned, transport/manufacturing/chemical/energy/heating/commerce in general are taking predicted hits as middle class incomes go down, commodity prices are going up, yadda yadda, things look dim for Joe Carpenter and Plumber alike. Meanwhile Alaska companies, and Oil companies make record, record, record profits like nobody's business; world demand has been soaring with the industrialization/McDonaldization/Americanization of India, China, Russia, and a host of others. This is common knowledge and enough to make a sane man crazy. Yet, as economics go, the more demand something is in, the more it is worth - hence record profits. But, the afore mentioned bubbles were blindly telling everyone that money was growing on trees at a reliably fast rate. That is, until the forest-fire-sale when the chips were counted at last and most of the players lost their shirts (picture mortgage derivatives, ambitious home-buyers, and pause a moment to remember the Bush changes to Bankrupcy law). That all these jumping guppies flew out of the tank in one fiscal year is just a sign of the danger of the computerized-24-hour world we've stepped into. Neo would know what to do. Exploration spending rates are a silly/tiny slice of the pie to discuss. Furthermore, Energy Executives are a dubious lot whose stress levels are no doubt concerned with money, not energy.
The precipitous drop in oil prices since the summer, coming on the heels of a dizzying seven-year rise, was a reminder that the oil business, like those of most commodities, is cyclical. When demand drops and prices fall, companies curb their investments, leading to lower supplies. When demand recovers, prices rise again and companies start to invest in new production, starting another cycle.
New production is constantly invested in, and everything and nothing in the universe is cyclical - so what. The current market, from Oil Shales to Oil Sheiks, from Porsches to fertilizers, has been subject to rampant de-regulation and instability ever since a certain Legacy Fundamentalist and dare I say Rapture-Right-Leaning Plutocrat's son was most dubiously elected into office. Let us not forget that the modus operandi of the "cycle" of economics in America is the Game - who's who in power politicos - who's who in fortune's five-hundred - Benjamin's C-notes - and the pennies of the poor. How many times does the Times have to say Trickle-Down is a joke before the number of times the Times talks about problems facing Big Oil goes down.
As familiar as the pattern may be, the changes this time are taking place at record speed. In June, some analysts were forecasting oil at $200 a barrel and companies were scouring the earth for new places to drill; now, no one knows how low prices may fall.
World demand for oil will continue to rise, despite the way it's value spiked in this nation during the Double-You Administration. People will always scour the Earth for new places to drill because we've all watched Beverly Hillbillies.
“It’s a classic — if extraordinarily dramatic — cycle,” said Daniel Yergin, chairman of Cambridge Energy Research Associates and author of “The Prize,” a history of the oil business. “Prices have come down so far and so fast, it’s become a shock to the supply system.”
Anything that mitigates the windfall heroin-drip of cash into the Oil Titan's veins will cause much rumbling in the clockwork flappings of a corporate newspaper whose entire spasm of growth history was based on the Oil News. The supply system and myself are both shocked by the fields of un-ordered cars, the raise in energy bills, and our own conscious telling us we have a lot of work to do to shut down wal-mart while no longer over-packaging, over-buying, over-eating, and most of all, over-compensating with our vehicle choices.
The list of projects delayed is growing by the week. Wells are being shut down across the United States; new refineries have been postponed in Saudi Arabia, Kuwait and India; and ambitious plans for drilling off the coast of Africa are being reconsidered.
I'd like to know if the growing list of delayed projects is in any way related to the growing list of companies who were tantilized into business models based on bubble-high-inflato-prices of oil. They should have spent all the drafting-plan-money on buying solar panels and fresh water stills for poor African farmers and herders who practice sustainable Trickle-Up economies.
Investment in alternative energy sources like biofuels that had flourished in recent years could dry up if prices stay low for the next few years, analysts said. Banks have become reluctant lenders, especially to renewable energy projects that may prove unprofitable in an era of low oil and gas prices.
Again, world oil prices will continue to rise. Banks will lend, or other banks will lend in place of those banks, which will now be called stupid banks. What is desperately needed in terms of investment in alternative energy is the kind of subsidies big Oil has been getting for millenia (given the rapid pace of today's information age, I thought some hyperbole was in order). Carter was about to make some good decisions for Energy Consumers of America when a sudden wool of GOP politics was thrown over the Executive Branch's Eyes. Since then we've paid for, as Taxpayers, stamped and collected: two Wars over oil, plenty of unmentioned (unmentionable according to Manufactured Consent) behind-the-scenes skullduggery regarding oil resources (Mexico, Venezuela, Isreal, to hint at a few), untold billions in tax subsidies/land grants/etc., and a national debt completely funded and fueled on the idea that America will some day be worth enough money to pay off all that national debt. When oil prices start kangaroo-hopping we start to wonder if that national debt number is going to punch us in the eye someday because we assumed it would never catch up with us.
These delays could curb future global fuel supplies by the equivalent of four million barrels a day within the next five years, according to Peter Jackson, an energy analyst at Cambridge Energy Research Associates. That is equal to 5 percent of current oil supplies.
Well, according to Peter Jackson of New Zealand where Lord Of The Rings was filmed, in the next five years the Kingdom of Men could overcome greed to launch an all-out campaign to rid the world of it's economic dependancy on the global oil trade. Shirefolk could touch the very heart of power in the world and teach us all that living active stress-free lives based on pastoral organic agriculture and handicrafts could lead to fabulous kegger parties and breakthroughs in song and dance. Once again, I wonder if the money spent on the 'delayed' activity and the money they plan to spend could build enough solar panels to provide hundreds of years of free "equal to 5 percent". It may not add up in the final analysis, especially depending on whose calculator you use to add the total costs, but so long as we're talking about 5 percent I think it is highly worth mentioning.
One reason projects are being shut down so fast is that costs throughout the industry, which had surged in recent years, are still elevated despite the drop in oil prices. Many companies are waiting for those costs to come down before deciding whether to go forward with new projects.
Ahhh, but that is the trouble with scarcity when it comes to 'business as usual'. As costs rise, so do expectations for returns. Welcome to inflation; you've arrived at the first floor: perception. The afore mentioned 'Game' of Wall Street and Main Street and it's backbone in Military/Industrial Spending is fueled by willingness to gamble on one axis and permissability of gambling on the other axis. One is the level of risk one is accostumed to and the other is the fuzzy maximums and minimums of risk the government and the banks will allow you to risk (the denominator of which is the insurance companies, which is why so much of the tendencies come from and are duly or dourly noted by the actuaries). Many of the companies the Times is talking about aren't the same companies that are poised to find their way through innovation to growth despite oil's fluctuational behaviors.
“The global market has been turned upside down since the summer,” the International Energy Agency, a leading energy forecaster, said in a recent report.
The global demand market has gone up and down as has the global supply market (maybe I'm making that up) but profits continue to soar. Big news. Things change, yet things always stay the same.
In today’s uncertain environment, a slowdown in spending is inevitable, according to energy executives who are devising their budgets for next year. Last year, spending on exploration and production amounted to $329 billion, according to PFC Energy, a consulting firm. That figure is certain to fall.
An increase in saving is definitely warranted. What little spending will go on will have to be carefully picked: bombs? or hospitals?, imported goods? or made-in-Americans?, burger joint? or CSA boxes?, efficiency?(organic - Welcome to the Super-Green revolution of Socialism, coming to a school and a homeless shelter near YOU! if you dare) or expansion?(fattening, status quo, enter Zoloft ad and defunct HMO full of doctor bills)
“We’re in remission right now,” said Marvin E. Odum, the vice president for exploration and production for Royal Dutch Shell in the Americas. But once the economy picks up, he said, “the energy challenge will come back with a vengeance.”
Wrong, Mr. Odum. You're in remission right now. By the time you 'come back' to feed on the mono-theism of Energy Policy in the U.S., we'll have a hydra of pro-active oversight to block you from being able to exploit resources cheaply or have more closed-door access to my wallet. That's right, we'll have a government Bailout for homeowners funded by Barack Obamas promises for change. We'll have German style smart and sexy socialism to help make doing business in America a hell of a lot cleaner, and a hell of a lot cheaper. You'll regret that you ever loosened your strangle hold on us - we've gotten smarter than that. What do you expect when the car manufacturers are giving low emissions and high fuel efficiency to Europeans and Asians and and...whoever the hell else their giving it to.
Oil demand growth has weakened throughout the industrial world. The International Energy Agency projects that worldwide demand will actually fall this year, for the first time since 1983.
Shit happens.
So much surplus oil is sloshing around the world right now that some companies, including Shell, are using oil tankers for storage.
Could this have anything to do with the new cars piling up in Long Beach and other Ports?
Oil prices have declined by more than $100 a barrel since July, returning to levels last seen more than four years ago. They settled at $44.51 a barrel, down $1.77, on Monday in New York, as concerns about the economy outweighed efforts by oil producers to stem the slide in prices.
Maybe the world is becoming more efficient.
Prices could drop below $30 a barrel, according to Merrill Lynch and other forecasters, if the Chinese economy slows drastically next year, which looks increasingly likely.
In case you haven't heard, OPEC won't let that happen. I bet Venezuela is going to make out well in the coming years.
Different companies have different price thresholds for going forward with drilling projects. But across the industry, a price drop this big has “a dampening effect,” according to Mr. Odum of Shell. “The big uncertainty is how long this economic environment is going to last.”
The biggest cutbacks so far have been in heavy oil projects in Canada, where some of the world’s highest-cost production is concentrated. Some operators there need oil prices above $90 a barrel to turn a profit.
Oil sands, eh?
StatoilHydro, a large Norwegian company, recently pulled out of a $12 billion project in Canada because of falling prices. Similarly, Shell, Nexen and Petro-Canada have all canceled or postponed new ventures in the province of Alberta in recent weeks.
Producers are bracing for a painful contraction, and the drop in prices could crimp investments even in places where production costs are low. The Saudi monarch, King Abdullah, recently said he considered $75 a barrel to be a “fair price.”
Well, King Abdullah is knee deep in politics - fair enough, he should be. Interesting thing about a King is that they can be fair if they want to, or unfair if it suits them better. Either way, their subjects have to deal with the consequences. If "fair" is higher than status quo, then really someone is just trying to say, 'the price is going to go up'.
The kingdom, which has invested tens of billions of dollars in recent years to increase production, recently announced that two new refineries, with ConocoPhillips and Total of France, were being frozen until costs go down. In neighboring Kuwait, the government recently shelved a $15 billion project to build the country’s fourth refinery because of concerns about slowing growth in oil demand.
Sometimes the Times has the job of stating the damn blasted truth of everyday fleecing; supply goes down, demand goes up. Chinese people and Indian people get cars from their manufacturing, service, and tech jobs, oil prices go vroom vroom, ConocoPhillips and Total of France go wee wee wee all the way home. Fitting they should be able to boldly display their manuvering to stay on top - after all, they're on top, so that's where they deserve to be right?
The list goes on: South Africa’s national oil company, PetroSA, on Thursday dropped plans to build a plant that would have converted coal to liquid fuel. The British-Russian giant TNK-BP slashed its capital expenditure budget for next year by $1 billion, for a 25 percent reduction from this year.
Hmmm...sounds like a green technology. I bet the Chinese or the Bill Clinton/Gates initiative funds it instead, and makes money while improving the local economy, thereby strengthening the global economy.
In North Dakota, oil drillers are scaling back exploration of the Bakken Shale, a geological formation recently seen as promising, where production is more expensive than in conventional fields.
Sorry, we're not desperate enough for oil yet to be making a bunch of money off such a non-gushing-out-of-the-ground resource. Don't worry, we'll get to them soon enough.
“People are dropping rigs up there in a pretty significant way already,” Mark G. Papa, the chief executive of EOG Resources, a small natural gas producer, recently told an energy conference.
Another domestic producer, Callon Petroleum, suspended a major deepwater project in the Gulf of Mexico, called Entrada, weeks before completion because of what it described as a “serious decline in project economics.”
Further evidence of the top-heaviness of the Global Supply Chain.
According to research analysts at the brokerage firm Raymond James, domestic drilling could drop by 41 percent next year as companies scale back.
-which changes what will amount to a percentage point of our total over the course of ten years or so I imagine.
“We expect operators to significantly cut their activity in the coming weeks due to the holiday season, and many of these rigs will not come back to work,” the report said.
Jobs have been unfortunately lost lately, but the economic forces surrounding the U.S. have dictated that old jobs will be lost due to global competition. Sadly, we did not prepare for this day by devaluing our currency and increasing exports like China. Instead we limited our options by enjoying the high cost of low prices; our own manufacturing base has been undercut by our shopping choices so more money is flowing out of the country instead of in.
As scores of small wells are shut down, analysts at Bernstein Research have calculated that oil production in North America could decline by 1.3 million barrels a day through 2010, or 17 percent, to 6.14 million barrels a day. This decline, rather than cuts by members of the Organization of the Petroleum Exporting Countries, “will be the catalyst needed for oil prices to rebound,” Neil McMahon, an analyst at Bernstein Research, said in a conference call this month. The United States remains the world’s largest oil consumer.
As the largest oil consumer, will we just allow the price of oil to "rebound" from reasonable rates to overvalued rates because the analysts at Bernstein Research say that's probably what the market will force on the owners of relevant Capital.
The drop in energy consumption could afford some breathing room for producers, which had been straining in recent years to match fast-rising demand. But analysts warn the world can ill afford a lengthy drop in investment in energy supplies. To meet the growth in global population and the rising affluence expected in the future, the world will need to invest $12 trillion in order to increase its oil and natural gas supplies, according to the International Energy Agency.
...I'd like to know the reasoning behind the last $12 trillion figure there - is that assuming the highest profit or current profit rates and rate increases. Analysts are really just warning that the relative increase increase in energy output has trended slower than it has before for the first time since it had before. What? Yeah, analysts sometimes forget that less can be more if we share it better and distribute it more cheaply. Maybe once shrinking resources is crossed with growing demand, the inefficient distribution systems of the past will be thrown down in favor of socialized over privatized systems. Investing $ 12 trillion in systems that will only absorb large swaths of that investment in profit would be inefficient; efficiency dictates that we invest in a system with high sustainability rates, high rates of return in reducing the cost of living - peace, health, education, and infrastructure - oh my. Spend your bonus on that.
For the economy to recover, we'll need to see more people getting good jobs next year than we had this year. In order to do that we need to make the wisest of investments today to make sure tomorrow sees investments' value blossom bigger than ever. Those investments will come in the form of sacrifices, and those that blossom will be hidden among the ones that don't. How fast we get there depends entirely on how much we sacrifice, how closely we participate in our own affairs, and how much we're willing to risk losing to get there.
