Scary Stuff

The stickiness of gas prices above $4/gallon and the proximity of the July4 holiday and peak driving season has sparked a plethora of nonsense from the usual suspects. The clowns in Washington are advocating a policy of drill,drill drill, offering that as a way to gain energy independence. After all, there is so much untapped oil right here in the USA. Combine that lunacy with the usual media blowhards that are hammering "speculators" and the Saudi's and pretty soon it's easy to miss an important story. I found the EIA Net Export #'s inside of a post by Westexas, on TheOildrum.com. Take a look. ( click on chart for sharper image)






Here's the deal. What we are seeing is a net decline in exports over the past couple years. I'm sure the circumstances are different in each particular country, ranging from more domestic use ( maybe Iran and Venezuela) to depletion ala Norway and Mexico. It's interesting that Russia is at the top of the list as far as net positive goes. I see a big comeback for the Russian bear. What is not getting factored into any mainstream conversation is that this decline in net exports might not be a one off event. There is a school of thought that says that as many of these export countries see more and more oil revenue, their societies will grow economically and they will end up using more and more of their crude oil production domestically. If that ends up being the case we here in the US are really up the creek.

The Long Emergency-- American Style

In his book The Long Emergency, James Howard Kunstler paints a picture of what he sees as our societal future post peak-oil. One of his themes is the potential unravelling of the social structure as the have-nots are priced out the gasoline market and now truly face a future on the economic fringes. He believes mob violence is a possibility.

It's funny but because Kunstler offers this vision he is sometimes criticized as an alarmist and a wacko. Well, it was with interest that I read this story this morning in the NY Times Rural U.S. Takes Worst Hit as Gas Tops $4 Average :

"Here in the Mississippi Delta, some farm workers are borrowing money from their bosses so they can fill their tanks and get to work. Some are switching jobs for shorter commutes.
People are giving up meat so they can buy fuel. Gasoline theft is rising. And drivers are running out of gas more often, leaving their cars by the side of the road until they can scrape together gas money.
The disparity between rural America and the rest of the country is a matter of simple home economics. Nationwide, Americans are now spending about 4 percent of their take-home income on gasoline. By contrast, in some counties in the Mississippi Delta, that figure has surpassed 13 percent.
As a result, gasoline expenses are rivaling what families spend on food and housing."

I don't want to be unsympathetic to the economic pain being felt right now, but this is happening at $4 a gallon. What's the story at $5 or $6?

Peak Oil-- Are We There Yet?

I have to give props to the inimitable James Howard Kunstler who pretty much hit it out of the ball park in his weekly column this week. Classic Kunstler:

What makes matters truly eerie is that the "bubble" in suburban houses has occurred at exactly the moment in history when the chief enabling resource for suburban life -- oil -- has entered its scarcity stage. The logical conclusion of all this is not what the American public wants to hear: we have become a much poorer society and are now faced with the unavoidable task of making major changes in how we live. All the three-card-monte moves at the highest level of finance lately amount to an effort to avoid the unavoidable, acknowledging our losses. Certainly the political fallout of all this will be awesome. But it's not about politics, really. It's about the entire society's inability to form a workable new consensus of reality.

Fellow Colgate alum Kevin Phillips has a new book "Bad Money: Reckless Finance, Failed Politics & the Crisis of American Capitalism , detailing the various scams the "Powers that Be" have laid on us --oh going back at least to the Kennedy years. It's a sad tale. The Government Numbers racket is the term I believe is used to describe the "Powers That Be" that lead us in America.

On top of all that T. Boone Pickens was on CNBC this am. He pretty much simplifies it all-- the world produces 85 million barrels of oil a day and currently needs 87. Prices are going higher. Worth watching

South of the Border

Just got back from a glorious week in Cabo San Lucas. It was one of those weeks spent on the beach with very little contact with the outside world. I guess I missed quite a week in the financial markets. We'll now see how closely coupled Wall Street and Main Street are.

One thing for sure, Cabo is still experiencing huge growth. Developments were going up everywhere. Granted Cabo is a playground for the rather well to do ( and I guess that now includes the Spring-breakers) but to me there are some clouds gathering on the distant horizon . Ponder this tid-bit I came across in the 10 page mini-newspaper that was dropped off at our door in the mornings there.

Pemex profits decline, product imports increase

That's a headline that screamed at me as I drank my morning coffee. WOW--$105 a barrel crude oil and the Mexican National Oil Company lost a billion and a half dollars last year. When I asked some of the locals about the story they all assumed I was mistaken. No way my story was true--- remember Pemex is the major source of revenue for the Mexican Government and a tremendous amount of social spending is tied to this oil revenue. I have a suspicion that we will be hearing more about this in the not too distant future and I'm betting that the news South of the Border will not be good.

Pemex profits decline, product imports increase
Eric WatkinsSenior Correspondent
LOS ANGELES, Mar. 6 -- Petroleos Mexicanos saw a decline in profits during 2007, reporting a decrease of some 16.13 billion pesos ($1.51 billion) after posting a net profit of $4.26 billion in 2006, according to media reports.
El Financiero, citing company figures, said Pemex posted the loss even though its total sales increased 2.9% over 2006 and hit an all-time high of $110 billion in 2007.
Pemex explained the loss as due primarily to purchases of imports such as gasoline, natural gas, LPG, and petrochemicals—all of which came to $16.97 billion.
Pemex also paid $63.15 billion in taxes to the federal government, up 11.8% from its 2006 tax total. Before taxes, the company posted profits of $61.63 billion.
In its 2007 financial report, Pemex said imports of oil products increased to 494,000 b/d from 431,000 b/d. The main import was gasoline, with the amount rising to 307,700 b/d in 2007 from 204,700 b/d in 2006.
These imports were up because fuel demand was higher and domestic production lower. Production averaged 1.511 million b/d in 2007, a decline of 34,000 b/d from 2006.
By contrast, natural gas imports averaged 397 bcfd, down 12% from 2006, mainly as a result of higher domestic gas production—up 13.1% over 2006 at 6.058 bcfd on average.
The country's oil production in 2007, however, dropped 5.3% from 2006, to 3.082 million b/d, due to the decline of Cantarell, to deferred output because of Hurricane Dean, and to several bouts of cold weather during the year.
Exports of oil averaged 1.686 million b/d in 2007, down 5.9% from 2006. The value of oil and condensate exports hit $44.39 billion, as the average price of the Mexican mix on the international market was $61.60/bbl.
El Financiero, quoting Pemex, said the drop in production was partially offset by an increase in the extraction of superlight oil from the Tabasco "Activo Litoral" and record output from Ku-Maloob-Zaap field.
Pemex also attributed higher output from the Lankahuasa, Burgos, and Veracruz projects, and gas extraction from the Marine light crude and Ixtal-Manik projects in the Southwest Marine region and higher output from wells in the Northeast Marine region.

Peak Oil-- No April Fool's Joke

The political airwaves have been filled over the last month with buzz about Global Warming and Al Gore's An Inconvenient Truth. It seems like the commentary breaks down almost on political grounds. Many on the left hail Gore as a prophet, while the right-wingers ( Limbaugh,Hannity etc) excoriate Gore as a hypocrite and generally soft-petal any potential threat.

Bring up the subject of Peak Oil to these same cast of characters and you are likely to get a look of total befuddlement. Not only is Peak Oil largely ignored but it is often incorrectly described when it is addressed. Often a Peak Oil story will refer to "running out of crude oil," which when put on those terms, immediatly places anyone in the Peak Oil camp in conspriacy theory wacko territory. A better way to describe Peak Oil might be with an example of a full jar of jelly. When you first open the jar the jelly is very easy to extract and comes out in big spoon fulls. As more and more jelly is removed , much of it slides up the sides of the jar. It doesn't come out in full spoon fulls anymore. It is more and more difficult to get it out. There is still plenty of jelly left in the jar, it is just not coming out like it used to. Yes , there is still plenty of oil in the ground, but the fact is that is is going to be much more difficult to get out and much more expensive. Maybe alot more expensive than we can even contemplate. Combine that scenario with a growing energy appetite in China and India and now we have a major issue to discuss.

It's interesting to note that lately the voices that warn of impending Peak Oil speak loudly from both the left and the right. This posting on theoildrum.com is fascinating in that Boone Pickens, Matt Simmons, and James Howard Kunstler all address the Peak Oil situation and emphasize the urgency of the matter. Okay, Kunstler won't be mistaken for a George W. Bush confidant anytime soon, but Matt Simmons is a member of Mitt Romney's Texas Finance Committee and I don't think anyone is going to accuse Boone Pickens of being a Liberal Weenie. For a real mind blowing experience Richard Rainwater is worth a read on the subject.

Here's the point. On a day when Tommy Thompson has decided to run for President and Hillary Clinton's campaign has announced that they have raised more than three times the record of any previous Democratic candidate at this stage of the process, we the people hear nothing from these alleged leaders on what very well could be the defining issue of our age. If you want an example of how a typical politician deals with this kind of issue look at my Senator, Charles Schumer. He has been calling for the release of the Strategic Petroleum Reserve since 1999 when crude was $25 a barrell. Maybe energy policy isn't the Senator's forte.

There is a long time to go before the first primary votes are cast. Let's demand answers from these gum-flappers.