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November 24, 2007

In the Realm of the Dying Dollar

Source: Newsweek

The plunging greenback threatens to cripple U.S. power. Why are the candidates ignoring this critical issue?
Nov 23, 2007 | Updated: 3:50 p.m. ET Nov 23, 2007

Great powers die slowly. It took years before the world realized that Great Britain was an imperial corpse, sapped of its strength by two world wars. The funeral finally occurred on Feb. 21, 1947, a freezing winter day in bomb-torn, bedraggled London, when the British wrote their own epitaph. That was the day that London cabled Washington: "His Majesty's Government, in view of their own situation, find it impossible to grant further financial assistance to Greece," amounting to a half billion dollars a year and a garrison of 40,000 troops. The British also announced the same day that they were withdrawing from Turkey. "The British are finished," remarked a stunned Dean Acheson, who was soon to be Harry Truman's secretary of State. And so they were. It was the early cold war. With the Soviet Union threatening to extend its influence over Greece and Turkey, there was no time for elegies. Instead, a quick passing of the baton took place: the United States would now fill Britain's role and become the central, stabilizing power in the West. This was the moment of "creation" of the U.S.-led world order, Acheson later realized.

One has to wonder now whether the American superpower is also experiencing a terminal illness, with its decline marked by the dollar's downward drift. The one difference being that there is no successor on the horizon (the Chinese have a long, long way to go), and the currency that is replacing the dollar, the euro, is backed not by an emerging superpower but by the feeble cacophony of voices that is the European Union. Yet the signs of imperial decadence are unmistakable. The world is losing confidence in the dollar, in no small part because it has lost confidence in America's strategic judgment and in its sustainability as a great power in the face of record budget and trade deficits, which are forcing the United States to borrow ever more money from future rivals like China and Russia.

Even as the Bush administration savors the calming news out of Iraq, and prepares for a major Mideast peace conference in Annapolis on Tuesday that will look and feel like grand American gestures of the past, finance ministries and central banks around the world--especially in places like Beijing and the wealthy Persian Gulf states--are making decisions that will further undermine U.S. power, perhaps permanently. The irony for George W. Bush, of course, is that more than anything else he began as a president who wanted to build up American power, which he presumed to have been frittered away by Bill Clinton. Bush believed that enemies such as Osama bin Laden and Saddam Hussein perceived America as soft. "It was clear," he said after 9/11, "that bin Laden felt emboldened and didn't feel threatened by the United States." Bush vowed to reverse that image.

Instead, the world monetary system now is making unfavorable comparisons to America at the height of the Clinton years. And bin Laden seems to be achieving his publicly avowed goal of provoking the United States into overextending itself and draining its economy. In a blistering essay in the current Vanity Fair, Nobel laureate Joseph Stiglitz, a former World Bank economist, notes that Bush took a nation with a budget surplus upon assuming office and turned it into a global debtor, and he has underinvested in education and alternative energy. "In breathtaking disregard for the most basic rules of fiscal propriety, the administration continued to cut taxes even as it undertook expensive new spending programs and embarked on a financially ruinous 'war of choice' in Iraq. A budget surplus of 2.4 percent of gross domestic product (GDP), which greeted Bush as he took office, turned into a deficit of 3.6 percent in the space of four years. The United States had not experienced a turnaround of this magnitude since the global crisis of World War II," Stiglitz writes. "Up to now, the conventional wisdom has been that Herbert Hoover, whose policies aggravated the Great Depression, is the odds-on claimant for the mantle 'worst president' when it comes to stewardship of the American economy. The economic effects of Bush's presidency are more insidious than those of Hoover, harder to reverse, and likely to be longer-lasting. There is no threat of America's being displaced from its position as the world's richest economy. But our grandchildren will still be living with, and struggling with, the economic consequences of Mr. Bush."

If the passing of American hegemony happens, it will occur very slowly--death by a thousand cuts of credit. One reason why it's so hard for Americans to contemplate their loss of prestige, symbolized by the fall of the once-almighty dollar, is that politicians and pundits tend to cast the issue as all-or-nothing. What would happen, they say, if China suddenly decided to dump the trillion dollars of U.S. debt it holds in reserves? This, however, will almost certainly never occur. While China and other big dollar-holding countries such as Singapore, Russia and the Persian Gulf states are very worried about the erosion in value of their dollar-denominated holdings and inflationary pressure, they also know that an abrupt move to cut their pegs to the dollar or to sell off in large amounts would force a run on the currency. That would leave them even poorer. Instead these countries are pursuing careful reallocations of their investment holdings, shifting slowly to the euro or a "basket" of currencies that will allow them to hedge against the dollar's decline. Credit will become more expensive, the U.S. economy will find itself increasingly crimped, and America's ability and willingness to act as the defense umbrella to the world will gradually peter out. The effect will be more like a slow-acting poison: drip, drip, drip.

But the financial world order is such a precarious house of cards today that the markets are getting increasingly jittery. Markets operate on confidence. And today's markets seem to have little confidence that the Bush administration can emerge from its economic never-never land, one in which as Dick Cheney's first-term pronouncement that "deficits don't matter" was allowed to stand unchallenged, in which zero-saving Americans continue their profligate spending habits and descent into deeper indebtedness by simply assuming the rest of the world will continue to fund those habits. "The American consumer is dramatically overleveraged," says Bob Hormats a vice chairman of Goldman Sachs International. That "means we have to borrow roughly $3 billion a day from rest of world. That inflow is now slowing down. Foreigners will say 'we're concerned about lending in dollars, so we're going to be more cautious about lending money to you.' At some point, if we get a lot less money, the dollar will plunge and interest rates will go up." Even wealthy Americans, Hormats notes, are beginning to ship their money abroad, to Europe and Asia, to hedge the dollar.

We should be careful, of course, not too pronounce the death of Pax Americana too quickly. That has been done before. The illness need not be terminal: deficits can be cured, and foreigners still crowd cargo containers and the backs of trucks to sneak into the land of opportunity. (China, by contrast, is not undergoing an immigration debate.) But the country is in such a fiscal hole right now that, as David Walker, the comptroller general of the United States, told my colleague Jeff Bartholet last week, "You could decide not to renew the Bush tax cuts, you could eliminate all foreign aid, eliminate all earmarks, eliminate NASA, eliminate the National Endowment for Humanities and eliminate the entire Defense Department tomorrow, and you still wouldn't solve the problem." This most critical of issues has barely made it into the presidential debates. The drooping dollar is driving it to the public's attention, particularly as gas, oil and other essentials continue to go up in price. Perhaps the next president, whoever he or she is, ought to pay more attention, too.

© 2007 Newsweek, Inc.

November 09, 2007

Inflation Calculator

Source: http://www.moneychimp.com/articles/econ/inflation_calculator.htm

November 06, 2007

The Corn Ethanol Effect

Source: Mother Jones

Click image for full size:
the-ethanol-effect-470Diminish.jpg
Click image for full size

October 05, 2007

As the World Burns

Source: LifeAfterTheOilCrash.net

By Richard Heinberg for Museletter

September is an equinoctial mont, a time of momentary balance, instability, and change. Day and night are of equal length; however, the rate of change in the relative lengths of day and night is at its peak.

It’s been an unusually busy and stressful month for me personally. Leonardo Dicaprio’s enviro-doc “11th Hour” hit the theaters, featuring yours truly on screen for a few seconds (though the producer and director decided against including a mention of Peak Oil). Early in September I gave a presentation at the UN at the behest of two organic agriculture organizations (the Soil Association of Britain and the Shumei Foundation of Japan). On Thursday the 13th, a CNN Money reporter called wanting information about Peak Oil; his story appeared the next day. The very first copies of my new book, Peak Everything, shipped during the last week of the month. A few days ago a Korean TV crew stopped by and filmed me at home for a three-part documentary to air in November. And a family emergency (aging parent) sent me off to the Midwest for a week. As the saying goes, there’s no rest for the wicked.

The month was no less eventful for the rest of the world—though of course the scale of significance of the following items is approximately 6.7 billion times greater than for the preceding ones.

Maybe the best place to start is with a general comment. It’s getting pretty damn obvious that the world is sliding head-first into the abyss at an accelerating rate, with most Americans as oblivious as ever. The latest indication of impending doom is a festering credit crunch brought on by the inevitable puncturing of a bubble puffed up over the past few years through the issuance of thousands of patently idiotic subprime, adjustable-rate, and interest-only mortgage loans.

The deeper story is that this is just the last of a series of bubbles that the US Federal Reserve has inflated in order to sustain for as long as was humanly possible a fundamentally unsound national financial condition.

As I explained in Chapter 2 of The Party’s Over, the US got rich exploiting its own resources and labor. Its most valuable resource—oil—went into decline forty years ago; since then, we Americans have tried to stay rich by exploiting other nations’ labor and resources, using leveraged trade rules, dollar hegemony, and military threats. All this time, we congratulated ourselves: we were living in a post-industrial information economy; they were doing the dreary, obsolete work of actually making things. They sweated and saved; it was up to us to spend and borrow. We served an indispensable function in the global economy as the consumer of last resort, as the engine of new debt creation (more debt equals more money in circulation—i.e., more GDP growth), and as the global cop keeping order in an unruly world (while also sneaking donuts and taking bribes). The Chinese burned their coal and poisoned their workers and environment to make our stuff, enabling us to enjoy a cleaner environment by keeping our coal in the ground, while they loaned us the money to buy cheap Chinese stuff with. Such a deal!

Life in bubble world was grand while it lasted. First there was the Third World debt bubble of the ’80s; then came the tech bubbles of the ’90s; and finally the real estate bubble of the ’00s. Along the way, Wall Street hoped for a little extra hot air from the privatization of Social Security, but even Americans weren’t stupid enough to sign onto that particular leveraged buyout. All during this time, suburbanites got used to having more gadgets and bigger cars and houses, even if they couldn’t actually afford them.

But now we’re at the end of the line. At last the rest of the world is coming to realize that it doesn’t really need Americans: the Chinese can consume, too, after all. And the Asians can’t really justify loaning us more money; we’re not going to pay it back—or if we do, it will be in devalued dollars. But those loans can also be looked at as investments: other nations have in effect bought US assets, which means that the wealth created from those assets will flow to the new overseas owners, not to Americans. What’s left to buy—other than a lot of soon-to-be-foreclosed real estate? And how much wealth will those assets produce once the bubble deflates?

It’s also clear now that there are alternatives to the dollar, including the euro, the yen, and the yuan. Not that the dollar won’t be missed; when it tanks, there will be as many financial casualties in Mumbai as Manhattan. But currency traders are clearly heading for the exits, and the last one out gets the booby prize—a bag of wooden nickels.

Yes, the rest of the world still must fear America’s awesome weapons of mass destruction: this mighty nation can certainly create an unholy mess when it means to, as it is demonstrating in Mesopotamia. But that doesn’t mean that other nations actually have to obey it any more. The US can bomb to smithereens any country it chooses, but it can’t always count on forcing that country to hand over its resources at gunpoint.

The dollar is hitting record lows. Gold and silver are hot commodities—always a bad sign for the reigning paper currency. There are rumors of possible bank failures (following a run on one British bank). If the Federal Reserve tries to solve the liquidity crisis by lowering interest rates, that just worsens inflation and exacerbates the dollar’s problems. If the Fed raises rates to prop up the dollar, that forces the banks and hedge funds to confront their mountains of worthless paper and leads ultimately to defaults, bank runs, and bank failures. Clearly the Fed fears the latter scenario more than the former, so by lowering interest rates this month it effectively pulled the plug on the dollar. The Saudis are now preparing to de-link their economy from the US currency, while China is quietly selling off dollar-denominated assets. One way or another, Americans are going to soon see a rapid decline in their real standard of living.

Of course, another big event this month was oil’s nose-bleed ascent to record-high prices, over $82US per barrel. Part of the price hike resulted from the dollar’s weakness, but—as Goldman Sachs has pointed out—the main reason was simply that demand is up while supply is down. The May 2005 peak for the rate of production of regular crude and the July 2006 peak for all liquids are still holding. It may be that the technical maximum global rate of flow for liquid fuels is still a couple of years away, but in effect the peak is here now.

As for Iran, “all options” are still on the table, and the pretext for a broad-scale air attack is apparently being patiently laid. Bush has vowed that he will not leave office with the Iran question unresolved, and France’s new neocon leaders are running defense for Bush/Cheney, calling for “the most severe sanctions possible” and for war if those “don’t work.” Meanwhile, when Tehran actually complies with the International Atomic Energy Agency’s requests, this is viewed as a provocation. This month, Newsweek revealed that Vice President Dick Cheney at one point considered asking Israel to launch air strikes on an Iranian nuclear site, so as to provoke Iran to lash out, thus giving Washington a pretext for more extensive attacks (a scenario I discussed in MuseLetter for April 2007, “Iran: We Will Know Soon”). Iranian President Ahmedinejad’s appearances in New York (at the UN and Columbia University) seemed only to give the US media an opportunity to whip up further anti-Iranian public sentiment, while the Senate’s passage of the Lieberman-Kyl amendment (which Hilary Clinton supported) provided a stamp of approval for any future military actions by the current administration.

But surely the single most important event of the month was the revelation that arctic sea ice is melting faster than even the most dire forecasts had predicted. This is significant because it shows the power of reinforcing feedback loops: as sunlight-reflecting ice melts, it leaves dark water in its place—which absorbs more heat, causing more ice to melt, and so on. This year’s minimum extent of ice was about one million square miles (as of September 16); the previous record low was 1.5 million in 2005. The rate of melting this year was 10 times the recent annual average. This month the Northwest Passage was ice-free for the first time in untold millennia. At this rate, the north polar region could be ice-free in summer by 2015.

Altogether, it was an extraordinary 30 days. Yet so far there’s been no instantaneous economic implosion, and there’s not much blood in the streets (except perhaps in Myanmar), and so the mainstream media can safely focus on the truly vital issues like O.J. Simpson’s current legal scrapes and Britney Spears’s performance at the MTV awards.

Many writers who discuss the sort of stuff that interests me (“reality” I think it’s called) wrap the unutterable sadness of it all in a crisp cellophane of cynicism. I’m guilty of that, too, from time to time—certainly in this little monthly summary. How else to make it somehow bearable?

September 26, 2007

To Grandmother's House We Go: Peak Oil Is Here

Source: The Oil Drum

Posted by Prof. Goose on September 26, 2007 - 10:00am

I have intentionally paraphrased this wonderful Christmas song because it has much to say about the future after peak oil which I am now ready to say has already happened. As energy declines, we will indeed go to our grandmother's house--one without electricity and running water, sewer or septic and deep, mechanically pumped water wells. At least that was MY grandmother's house. She lived on the Kansas prairies of the 1890s. In the 1960s I asked my grandmother what the greatest invention of her life had been. She said electricity because before they had lights, everyone went to bed shortly after sun down because it was simply too dark to do to much. There was no air conditioning, so the summers were very hot. In the winter, trips to the outhouse were cold (and brutally awakening if during the middle of the night). While she had wood where she lived, about 100 miles west of her home, people had to burn dung as is done in Tibet today. See the picture below of the dung plastered against the house. When one wants to cook, one retrieves a patty.

Without cheap energy, we go back to my grandmother's house or one quite like it...

Yes, folks, peak oil is here, that thing that politicians don't speak of; that event which cornucopians (those who believe that we will not run out of energy) believe is a fraud or misunderstanding is here. The cornucopians believe we are wrong because many have predicted that we would run out of energy before and have been wrong. What they lacked was the 20-20 that hindsight gives one. Today, we can see the peak behind us.

First, how do we recognize when peak oil is about to happen or has happened? The first thing is that it always comes with a gradual decline in production. Steep changes in production curves are due to political or economic decisions. Let's look at Saudi production from 2001 to the present. (NB: Click all graphics throughout this post to expand them to full size.)

The first thing we notice is that it is declining from January 2001 to January 2002. That is the recession resulting from the collapse of the tech stock bubble, causing a worldwide reduction in oil demand. The world then began to recover. In January, 2003 political events in Venezuela shut in that country's oil. We find this

"January 12, 2003: OPEC held its 123rd meeting to review oil markets in Vienna, Austria. OPEC decided to raise its production quotas from 23 million barrels per day to 24.5 million barrels per day, effective February 1, 2003, in order to ensure adequate supplies of crude in response to the oil supply shortfall in Venezuela" http://www.eia.doe.gov/cabs/opec.html

This was a short-lived, very steep increase in production, followed a couple of months later by a nearly equivalent sharp drop in production. This is not a sign of peak oil; it is a sign of political manipulation of production. The next thing we notice is the sharp rise in production in April, 2004. This was due to the rise of price above $40/bbl, a level which OPEC had previously thought would cause a recession. They opened the taps to try to damp down the price. What they didn't count on was that China's and India's consumption had taken off like a rocket because of their economic growth. The price continued to rise, showing that scarcity of oil had come.

After a year and a half of all out production, we see the first signs of decline, normal natural decline in the Saudi production. The plateau of production is followed by a gradual decline in output. One might be tempted to say that the decline in production was due to declining prices, but this isn't true for the period from Oct. 2005 until July 2006. The price rose but the production declined. The gradualistic tail on Saudi production is what an oil field decline looks like.

Just as I was finishing writing this page, I saw this report.

Nicosia, Sept 8: Saudi Aramco in its Annual Review 2006 said that last year the company's crude oil production declined by 1.7 percent, while exports declined by 3.1 percent, compared with the previous year.

Crude oil production in 2006 averaged 8.9 million barrels of oil a day (b/d) and exports 6.9 million b/d. (http://www.dailyindia.com/show/172345.php/Saudi-Aramco-reports-oil-outpu... ) To me, the interesting thing about this is that with a 3.1 decrease in exports, this means that there is a reduction of 266,000 barrels per day available to the rest of the world. Production doesn't really matter to the rest of the world. Only exports matter. If the Saudi's used all of their oil, there would be nothing left for us to use. This data confirms that their exports are decreasing faster than their production is decreasing.

Let's take another example, the United Kingdom.

From 1995 until 1999, the UK production was a plateau. But in mid-1999, the monthly production began to gradually decline. I moved to the UK in August 2001, looked at the curves and told a colleague and fine geologist, Steve Daines, that the UK had peaked production. He disagreed. We made a bet for a lunch that at the end of 2000, the UK would produce no more than 130,000 tonnes of oil. I took below that figure, he took above. Instead of a lunch, he and his wife had me and my wife over for a wonderful Malaysian dinner cooked by his beautiful Malay wife. We ate that meal with gusto along with a Turkish couple, that they knew. The sad thing was that the UK production decline has continued even into this year. When I left the UK, I told one young geologist that if she wanted to have a career in the oil business, she was going to have to leave the UK. While that day hasn't come for her yet, it will. No one will pay geologists to manage fields that aren't producing. The above curve is what peak oil looks like for a country--a plateau followed by a gradual decline that is inexorable.

Now that we know what peak oil looks like, lets look at the current global production of both black oil (crude) and Total Liquids (crude plus condensate--a liquid that comes out of natural gas wells which is usually clear).

What we see here is that following the post-911 recession, there is the ramp up of production to supply the increasing demand from China and India. By late 2004, the rate of increase in world crude production (blue curve) slowed, reaching a peak of 74.3 million barrels per day in May 2004, marked by an arrow. The trend from that time has been down, gradually I would admit, but down none the less.

So, why do I call this the peak of world crude production? Isn't it possible that new production will come on line and lift that number above the 74.3 million bbl/day? Possible, barely, probable, no. Why? All the world's biggest fields are in decline, and they produce a large percentage of the world's oil. We saw Saudi Arabia's production, and that represents 10% of world oil. So, we know that 10% of the world's oil in in decline. But the Saudi's are the second largest producer. Russia, the largest producer of oil, is, at best, flat in production now. The U.S. is the third largest producer of oil (something that surprises everyone) and we have been declining in oil production for 30 years. These three countries account for 28% of the world's production, all in decline.

Mexico has the 3rd largest oil field and that one field represents 2/3 of its crude production. It is in decline, plummeting 20% last year. The UK, Norway, Indonesia, Oman and China are all in production declines. The only places on earth that are undergoing significant increases in crude production are Angola, Kazakhstan and Brazil. Kazakhstan will always be limited to the size of the pipeline it has available. Pipelines have fixed capacity.

Given all this, it is hard to see how the future is going to bring forth vast new quantities of daily production.

Another objection: Above I said that peak oil was a plateau followed by a decline. Could we be in the plateau of world production? Yes, that is certainly possible but for the reasons I list above, the current levels of production simply can't be maintained. Annually, the world loses 5 million bbl/day of productive capacity. The curve above shows that we are not adding to world productivity rates even 5 million bbl/day per year of productive capacity since 2005, which would have keep us absolutely flat.

Now, one other thing makes me think that this is the peak of world crude production. The price response in relation to the supply. Usually if price is going to bring forth new supplies from OPEC (who supposedly has all these vast untapped oil fields just waiting to be turned on), it would happen in sharp steps. The Saudi's have not increased production since late 2004 or early 2005. Yet, because the price has gone up from that time, if they had the oil, they could have made lots and lots of money. But they don't seem to be able to take additional advantage of the oil price. In spite of high prices, indeed, increasing prices, no one on earth seems to have the excess capacity sell more oil into this rising price environment. Given the past history of cheating on the part of the OPEC members, the lack of new supplies coming to market must say something important about its availability

Another interesting feature is the total liquids curve (the red curve). This is both black oil plus the clear condensate from natural gas wells. This curve also seems to have peaked, but peaked a year later, in July 2006. Thus, we are 2 years out from peak crude oil, but only one year out from a probable peak liquids.

What are the implications?

The most important thing we need to know is the rate of decline, which of course, we don't know and won't know for a while. We can delimit it a bit. a 1 million bbl/day decline from May 2005 until May 2007 represents approximately a .75% decline per year. Hardly something to worry about right? The first year of UK decline was only about .5%. The second year of decline was 9%, but then, the UK is a much smaller place than the world, so it is unrealistic to expect the world to follow precisely the UK pattern of decline. We can expect the world crude production to decline much faster in the next few years than it is right now. How fast remains to be seen, but even a 5% decline will mean that in 10 years we will be producing only 60% of what we do today! Instead of having 85 million barrels per day of total liquids, we would only have access to 50 million barrels per day.

Driving

Clearly that kind of restriction in oil supply means that either mass transit must come to America as it is in China, or we must only go to work 3 days per week. In 10 years, having only 60% of the oil we have today means 40% less driving for everyone. Going to work only 3 days per week, would mean the destruction of the economy. Most jobs can't be handled across the internet. How does one do the job of grocery store stocker by telecommuting? Even today though, the relatively mild oil prices we have experienced have altered the driving habits of the American public. I sent this chart to a friend last summer. The chart shows the change in mileage driven on US highways from last year. If we drive more this year than last year, the number will be positive; if we drive less, then the number is negative. As you can see, the response to the rise in the price of oil (green curve) has been that for the first time in 27 years Americans are driving less than the previous year. The last time this happened was during the Iranian hostage crisis!

Expect more of this in the future.

Another implication is that automakers shouldn't make gas guzzlers. Those old enough to remember the Iranian hostage crisis, when everyone had to take turns getting gasoline on alternate days, knows a bit of what it will feel like. Back then, people stopped buying big cars. The V8 went out of style in the 1970s; it was too expensive. I expect the Hummer will meet a similar fate.

Suburban sprawl won't work

American cities will need to restructure to be more like European cities, where one can walk to the stores. In Aberdeen, Scotland, most Aberdonians shopped daily because they had tiny refrigerators. But that didn't matter, if they forgot something, they could walk to the store in about the same time it takes me to drive to the store here.

Flying

Flying will become like it was when I was a child--the province of the rich. I did not get on a commercial jet until I was 25 years old. My children grew up with flying and have seen far more of the world than I have at an equivalent age. But, as oil prices rise, fuel costs will bury many airlines. As far as I know, I own no airline stocks either directly or indirectly through mutual funds. They are not going to have a growing clientele as energy costs go up. We have already seen one of the impacts of the energy costs to this sector. Years ago, I was speaking with my wife's brother-in-law who used to work with Boeing. Boeing had made the choice to go energy efficient with their planes, while Airbus had decided to go BIG. I told my wife's brother-in-law that Boeing had made the correct choice. This is from a Business Week web site:

"Instead, the show could highlight a growing list of woes at the company, based in Toulouse, France. On June 1, Airbus acknowledged that the first deliveries of the A380 will be delayed up to six months, from mid-2006 until early 2007, due to unspecified production difficulties. Then Emirates airlines, which had been expected to announce a big order for the A350 at the air show, said it was not ready to make a decision. Airbus sales chief John J. Leahy, who said earlier that he might announce more than 100 orders for the A350 in Paris, now says big orders could come "a week or two after."

Has Airbus lost its mojo? The past few months have been rough. Boeing, after trailing Airbus on orders for the past three years, has racked up 255 orders as of the end of May, compared with only 196 for Airbus. Even more worrisome, Boeing's new 787, which boasts better fuel efficiency thanks to lightweight composite materials and next-generation engine design, is proving a hit with airlines. They have placed orders and commitments for 266 of the jets, while Airbus has yet to announce a major deal for the competing A350. Meanwhile, the A380's order book has been stuck at 154 since last year." Why Airbus is Losing Altitude," June 20, 2005, http://www.businessweek.com/magazine/content/05_25/b3938069_mz054.htm

And a more recent news source notes that Boeing has won 706 orders for its Dreamliner while Airbuss has only 154 for the A350. Energy is king in the airline industry, even if a government run airplane manufacturer thinks they can change the laws, both of the land and of physics.

Food

One percent of world energy use goes to fertilizers. High energy prices will affect fertilizer use. Indeed, we can see that now. This is a plot of inflation adjusted oil price divided by 100 (so it will fit on the same chart) with the barrels of oil equivalent energy of fertilizer applied per acre of wheat. One can see that when oil prices are high, fertilizer use is low; and vice versa.

Few city people know that an acre of wheat has 1.3 million wheat plants--a density hard to achieve if one is throwing seed by hand. Corn is sown at 30,000 plants per acre. Such densities require mechanical sowers. To sow corn at these densities by hand would require 42 hours (5 seconds per seed). This kind of puts into perspective the utility of energy for our tractors. If the price of oil goes up, there will be fewer bushels per acre because of the combined effects of less mechanization and less fertilizer. Now clearly for a while efficiencies will help. People will figure out how to apply fertilizer more effectively; but eventually not having fertilizer will come into play.

I am fond of citing a little known fact I got from a Walter Youngquist article. Mechanization allows a farmer to spend 4 hours per acre and produce 160 bushels of corn per acre. Back in the 19th century, it was 500 hours per acre an 30 bushels of corn per acre. This of course brings an interesting conundrum to those expecting corn-based ethanol to fuel the world. Without petroleum-based fertilizers, there won't be enough corn to feed us much less fuel the world. A five fold drop in corn yields would leave many in the world starving.

It is unlikely that we will be able to have air-shipped strawberries from Argentina in the winter, so food will once again become seasonal, like it was in my childhood before globalization.

Water

Water and food are entirely linked. Without water, many crops won't grow, but we also need water to drink. A few weeks back the Wall Street Journal gave a couple of interesting facts about farming in India.

"Since the 1990s, India has been a major net exporter of rice, shipping nearly 4.5 million tons last year.
"But annual yield increases began to slow over the past decade. Farmers cranked up fertilizer and water use, draining the water table. Many began planting two crops a year, taxing the soil. Punjabi area officials discouraged farmers from planting two crops and in some places outlawed it, but many farmers ignored them."
"I'm doing mischief against the government,' concedes Kanwar Singh, a second rice crop recently on a stretch of flooded land near the northern India city of Karnal. He says he now has to pump water from 300 feet below the surface, compared with 70 feet 10 years ago." 'In a year or two, maybe it will be finished,' he says." Patrick Barta, "Feeding Billions, A Grain at a Time," Wall Street Journal, Saturday/Sunday July 28-29, 2007, p. A10

and

"Lakhbir Singh, 35, this year planted aerobic rice for the first time. He says his costs have tripled over the past decade. His well was about 60 feet deep 10 years ago; now, it's down to 450 feet, and he has to use a special submersible engine to help haul the water to surface. The health of his soil has deteriorated, so he's using more fertilizer." Patrick Barta, "Feeding Billions, A Grain at a Time," Wall Street Journal, Saturday/Sunday July 28-29, 2007, p.A10

One simply MUST have energy to pull that water up from depths of 300 to 450 feet. Without it, there will be no water. Which raises the question, what will these poor guys do when the electricity isn't there to run their pumps?

But this isn't a problem for poor Indian farmers. When the electricity is off, the water pumps, which pump water out of deep wells will not be running. That means that agricultural irrigation will be interrupted. That means that city water supplies won't flow either. Both wells and surface water systems require electricity to move the water from source to your favorite drinking fountain.

Energy source

Another implication is that coal will have to play a larger role in the US energy budget over the near term. We can use coal to make diesel, electricity and thus mitigate, for a while, the coming problems. Coal can be used to manufacture fertilizer and avoid the problems (for a while) cited immediately above. We will use coal or our economy will not function. We will simply have to lose our aversion to coal and the CO2 it produces. I have asked many greens this question: If it comes to a choice between your child freezing in the dark or burning coal, which would you choose. I have yet find one so pure to their principles that they tell me they would let their kid freeze in the dark of a winter night. They all will burn coal to keep warm. Having lived in a society (China) where coal is the major source of energy, the smog is almost unbearable. There were days I could taste the sulfur in my mouth as I walked to work in Beijing. But we are no different than they. Their choice is also one of burn oil or have no heat in the winter or cooked food. The only alternative would be to chop down all the trees (which has almost been done in wide areas of China).

Yesterday there was an article in the Wall Street Journal talking about the coming electricity problems for Texas. Due to the success of the Greens at stopping TXU from building coal-fired power plants, in 3-4 years, Texas will probably start having similar problems to those California is having. California, and now Texas, stupidly decided that we would rather freeze in the dark rather than burn coal. We get 60% of our electricity from fossil fuels, coal, oil and natural gas! The decisions we make today will have immense impacts on your ability to go to work (how is your computer going to function without electricity? Do you really want to be able to drink water from the fountain on your 27th story office? Won't you just love walking those 27 stories each morning to get to work, which will put you in great shape if you don't have a heart attack during that first month of climbing). I suppose deodorant sales will increase in such a situation.

Conclusion

I will finish with personal story from my life overseas. When I lived in the UK, I saw what happens when the oil is shut off. In Sept 2000, the lorry drivers blockaded the refineries. My wife and I were brand new in the UK and driving back from a play in Aberdeen one night, we saw huge lines at the petrol stations. We wondered what was going on, but we drove on home not wanting to be in such long lines anyway. Unfortunately, those people in line, knew that the refineries had been blockaded, I didn't. By the time we realized it, the petrol was gone. That led to many interesting experiences. In one week, the food on the store shelves was gone. By two weeks, police and fire and ambulance were having trouble responding. Farmers were about to have to slaughter chickens because they couldn't get feed after only 2.5 weeks. Construction sites shut down. I learned through that experience that a society has about 3 weeks after the oil is shut off. Food ceases to moveinto the cities.

How can economic growth continue if each day into the future we have less energy than we had the day before??? This is a historic moment in human history. For the first time in 10,000 years, we have less energy than we had yesterday. And that will continue into the foreseeable future.

Roger Duncan, Plug-in Partners

Source: Treehugger.com

by Eckhart Beatty
San Francisco on 11.23.06

Roger Duncan serves as the Campaign Coordinator for Plug-in Partners, a national campaign for plug-in electric vehicles (PHEVs) striving to demonstrate clearly the viability of this market by doing the following: garnering support in the form of online petitions and endorsements by city governments across the country; procuring "soft" fleet orders; and developing rebates and incentives. TreeHugger's Eckhart Beatty recently had the chance to chat with Mr. Duncan about plug-ins and the future of automotive transportation.

TreeHugger: Why was Plug-in Partners founded in Austin, Texas?

Roger Duncan: As one of the more progressive utilities in the nation, Austin Energy has long led the nation in energy conservation. I was asked to see what else we could be doing in the area of clean energy, and I told the City Council we should start a new initiative in the transportation sector since I saw an eventual convergence between the electric and transportation industries. In my capacity as a manager we might be able to take advantage of the abundance of wind and solar potential to power cars. Soon we began seeing a convergence between the electric and transportation industries.

So in August of 2005, we founded Plug-In Austin. We realized from the beginning what we really had to do was to link similar ongoing efforts taking place across the country. We started by targeting the 50 largest cities in the U.S. Now we have members from utilities, environmental groups, businesses, as well as many other federal, state, and local organizations.

I had originally heard of the efforts of Felix Kramer and CalCars, Electric Power Research Institute EPRI, and Andy Frank, a UC Davis professor at who invented the plug-in technology some 30 years ago.

TH: What's the most important thing you want the average individual to know about plug-ins?

RD: They are very energy efficient, cleaner, and cheaper to operate.

TH: What’s the most efficient way of getting the most people to understand their importance in the shortest possible time?

RD: Invite folks to visit the website Plug-In Partners and recommend they sign up for the newsletter. Consider working with the media, as well getting promotions for us.

TH: If Proposition 87 had passed in CA, what would it have meant for the future of PHEVs?

RD: I really don’t know much about it. I’m not a big fan of initiatives. This one could only stand to help, though. It could well stand to buttress the campaigns of lots of alternative energy technologies—as well as ours.

TH: What would you recommend that everyone who doesn't live in California do in this regard? For instance, would similar initiatives be feasible in other states like Texas, as well?

RD: It (an initiative like California’s 87 ballot measure) probably wouldn’t occur in TX. I’m less interested in (proposing) legislation than in demonstrating a market for PHEVs.

TH: Are all hybrid designs the same—or are some different?

RD: There are different varieties. There’s the serial, the parallel—and then the hydraulic (a protoype still). Although, principal variations in designs relate to battery design such as Nickel-Metal Hydride versus Lithium Ion, there are other differences in the size of the battery compared to the engine (with some new ones proposing smaller gas engines and larger electric motors).

Andy Frank: "Just as in the case of any emerging product or technology, there are many ways to implement PHEV technology, optimize for various factors and conditions. We’re looking forward to sorting this out when car-makers begin building PHEVs." [Mr. Frank is the inventor of the PHEV.]*

TH: What is the longevity of battery systems compared to 100% electric cars?

RD: They may be more powerful per unit mass than the batteries in non-hybrids, but less powerful than pure electric cars. Also, plug-ins require a deep discharge of their batteries, whereas fully electric cars don’t need to discharge the batteries as much.

AF: "While the price/performance ratio of pure electric cars may match or exceed that of PHEVs, it’s not likely. I'll bet on the PHEV staying as the ultimate end game for the remainder of the century," he said. "Lithium is coming up fast and will definitely take over the Metal Hydride in power, weight, life, size, and costs," he concluded.*

TH: By their nature, cars are somewhat "disposable," to be replaced by a new model on average every seven years—or less! Is “planned obsolescence” addressed better by plug-ins, in addition to their superior efficiency?

RD: Not really. Cars stay on the road an average of 16 years. It’s unlikely this figure will decline sharply any time soon.*

TH: Could factory-built plug-ins be made to be "upgradable" with respect to engine designs (for a few years going forward so they won’t become outdated like the first generation Prius did)?

AF: "Not really. As cars become more computer-oriented and more telemetric, possibilities for upgraded systems increase. Most products get better over time—no surprise there."

According to Dr. Frank, although "upgrading is always possible," with upgraded parts becoming interchangeable, "you may be flogging a dead horse for a long time." He concludes by predicting, "The technology of these systems will change very fast and may not stabilize for many years—if ever!"

TH: Bush has backed plug-ins. How helpful has all the political rhetoric been so far?

RD: He "gets it," and his support has been helpful. The Department of Energy is now conducting serious discussions, and a new initiative has been launched within its R&D arm.

TH: What are some ways the Partnership could be strengthened?

RD: It’s actually moving faster than we can keep up with.

TH: Does the association have growth plans?

RD: Yes. We’re starting to approach more corporations. Some notable examples of these and other large organizations are P.G.&E., Edison Electric Institute, the U.S. Conference of Mayors, and the National Consumer Federation of America (with over 100 million members)..

TH: What’s the minimum number of cars in a fleet needed for a "soft order"?

RD: We consider four to five as the minimum, but may consider fewer. It’s called a "soft" order to signify simply an intent to built, since they haven’t been mass-produced yet; it is not an actual purchase order--yet. Also, they can’t be built on speculation, due to the matter of expense.

TH: With all the good news that came regarding PHEVs this year, what are the biggest hurdles in our way to getting them mass-produced?

RD: Only certain kinds of cars manufactures would seriously consider it for particular models.

TH: What’s the latest word on the largest car manufacturers warming up to the idea of producing PHEVs?

RD: Ford and GM have both begun focusing on PHEV initiatives. Initially, they had expressed resistance and uncertainty. The bottom line is they are still researching them. Nissan will develop one—perhaps by 2010.

TH: What does Google really intend to do when it says it "wants to build a plug-in"? Would it support CalCars, Edrive Systems, Energy, CS etc. to do this—or exactly what?

RD: It’s true we’re engaged in discussions with Google, but I’m not at liberty to offer any details today.

TH: What are the largest companies and associations involved with the organization?

RD: P.G.&E., Edison Electric Institute, the U.S. Conference of Mayors, and the National Consumer Federation of America (with over 100 million members).

TH: Who are some of the most noteworthy spokespersons of this idea?

RD: Hillary Clinton, Lester Brown, Orin Hatch, Jr., Barack Obama, George Pataki (Gov. NY), George Schulz, R. James Woolsey (former Director of CIA). Plug-in Partners maintains a list of partners.

TH: What can we do as consumers to get them to do so?

RD: They should visit the Plug-In Partners website: sign up, spread the word, and put in a fleet order if applicable to their business.

TH: What about the notion of the PHEV plugging into a grid concept? Where is that idea today?

RD: True, it’s an interesting idea, and I believe it will happen, but it will be years before it will have significant import, since millions of cars are needed to make an impact.

TH: If you lived in remote area, could you set up your PHEV to power your home during blackouts?

RD: Yes. Toyota recently built a prototype that would allow people to generate electricity at 13kW and 120 volts. This would be especially useful for those living off the grid.

TH: What is your impression of companies’ individual commitments to grappling with the issues of PHEVs?

RD: Yes, I think they will remain committed for the long haul.

TH: If everyone who reads this interview could do just one thing a week to help promote the future of plug-ins as a proven viable alternative to fossil fuels, what should it be?

RD: They should visit the website, sign up, and consider getting involved in our work.::

*Note: I am grateful to Felix Kramer, founder of CalCars and Dr. Andy Frank for help with some of these answers.::

September 19, 2007

The High Costs of Ethanol

Source: The New York Times

Published: September 19, 2007

Backed by the White House, corn-state governors and solid blocks on both sides of Congress’s partisan divide, the politics of biofuels could hardly look sunnier. The economics of the American drive to increase ethanol in the energy supply are more discouraging.

American corn-based ethanol is expensive. And while it can help cut oil imports and provide modest reductions in greenhouse gases compared to conventional gasoline, corn ethanol also carries considerable risks. Even now as Europe and China join the United States in ramping up production, world food prices are rising, threatening misery for the poorest countries.

The European Union has announced that it wants to replace 10 percent of its transport fuel with biofuels by 2020. China is aiming for a 15 percent share. The United States is already on track to exceed Congress’s 2005 goal of doubling the amount of ethanol used in motor fuels to 7.5 billion gallons by 2012. In his State of the Union speech in January, President Bush set a new goal of 35 billion gallons of biofuels by 2017. In June, the Senate raised it to 36 billion gallons by 2022. Of that, Congress said that 15 billion gallons should come from corn and 21 billion from advanced biofuels that are nowhere near commercial production.

The distortions in agricultural production are startling. Corn prices are up about 50 percent from last year, while soybean prices are projected to rise up to 30 percent in the coming year, as farmers have replaced soy with corn in their fields. The increasing cost of animal feed is raising the prices of dairy and poultry products.

The news from the rest of the world is little better. Ethanol production in the United States and other countries, combined with bad weather and rising demand for animal feed in China, has helped push global grain prices to their highest levels in at least a decade. Earlier this year, rising prices of corn imports from the United States triggered mass protests in Mexico. The chief of the United Nations Food and Agriculture Organization has warned that rising food prices around the world have threatened social unrest in developing countries.

A recent report by the Organization for Economic Cooperation and Development, an economic forum of rich nations, called on the United States and other industrialized nations to eliminate subsidies for the production of ethanol which, the report said, is driving up food costs, threatening natural habitats and imposing other environmental costs. “The overall environmental impacts of ethanol and biodiesel can very easily exceed those of petrol and mineral diesel,” it said.

The economics of corn ethanol have never made much sense. Rather than importing cheap Brazilian ethanol made from sugar cane, the United States slaps a tariff of 54 cents a gallon on ethanol from Brazil. Then the government provides a tax break of 51 cents a gallon to American ethanol producers — on top of the generous subsidies that corn growers already receive under the farm program.

Corn-based ethanol also requires a lot of land. An O.E.C.D. report two years ago suggested that replacing 10 percent of America’s motor fuel with biofuels would require about a third of the total cropland devoted to cereals, oilseeds and sugar crops.

Meanwhile, the environmental benefits are modest. A study published last year by scientists at the University of California, Berkeley, estimated that after accounting for the energy used to grow the corn and turn it into ethanol, corn ethanol lowers emissions of greenhouse gases by only 13 percent.

The United States will not meet the dual challenges of reducing global warming and its dependence on foreign suppliers of energy until it manages to reduce energy consumption. That should be its main goal.

There is nothing wrong with developing alternative fuels, and there is high hope among environmentalists and even venture capitalists that more advanced biofuels — like cellulosic ethanol — can eventually play a constructive role in reducing oil dependency and greenhouse gases. What’s wrong is letting politics — the kind that leads to unnecessary subsidies, the invasion of natural landscapes best left alone and soaring food prices that hurt the poor — rather than sound science and sound economics drive America’s energy policy.

September 17, 2007

Canada's Tar Sands

Source: AlterNet

How Canada Went from 21st to 2nd in World's Oil Reserves

By Dan Woynillowicz
World Watch. Posted September 17, 2007.

The United States has its hopes pinned on Canada's "tar sands" for North American security in the oil market. But their "black gold" is an environmental nightmare.

It's well-known that the United States consumes more oil per capita than any other country in the world, absorbing two-thirds of global oil production. This heavy dependence has often, and aptly, been described as an addiction; even U.S. President George W. Bush trotted out the metaphor in his 2006 State of the Union address ("America is addicted to oil").

Most of us regard addictions (to anything) as inherently unhealthy and admission of the problem as the first step toward getting clean. In this case, however, U.S. policy has simply been to seek increased oil imports from more reliable sources closer to home, in effect, to replace distant and unstable dealers with one from the neighborhood -- specifically, Canada, already the kingpin dealer of oil to the United States. In 2005 Canada exported almost 1.5 million barrels per day to the United States, about 7 percent of U.S. daily consumption. Canada exports 66 percent of its domestic crude oil production, and since 1995 the United States has received 99 percent of these exports. At first glance, it would seem that Canada wouldn't be able to boost oil production to fill the gap; production of conventional light and heavy oil in Canada was predicted to peak in 2006 and then rapidly decline. But that's where Canada's "unconventional" tar sands come in.

Production

The vast bulk of Canada's tar sands is found in the province of Alberta, the country's most prolific producer of fossil fuels. The tar sands deposits underlie more than 140,000 square kilometers of relatively pristine boreal forest, an area larger than the state of Florida. It's estimated that the tar sands hold approximately 1.7 trillion barrels of crude bitumen (the technical term for the fossil fuel extracted from the tar sands). But most of this bitumen will never be recovered and only a fraction, 174 billion barrels, is estimated to be recoverable with today's technology and under current and anticipated economic conditions.

When the U.S. Department of Energy formally acknowledged these reserves in 2003, it vaulted Canada's oil reserves from 21st to 2nd in the world, behind only Saudi Arabia. It's little wonder then that the U.S. Energy Policy Development Group has described the tar sands as "a pillar of sustained North American energy and economic security." Canada's so-called "black gold" has come to be regarded as an abundant, secure, and affordable source of crude oil. But development of this unconventional fossil fuel comes with unconventional risks and consequences. Everything about the tar sands is big, most significantly its global warming and environmental implications -- leading some to now describe the tar sands as "Canada's dirty secret."

Producing oil from the tar sands is scraping the bottom of the oil barrel. Tar sands consist of a mixture of 85 percent sand, clay, and silt; 5 percent water; and 10 percent crude bitumen, the tarlike substance that can be converted to oil. Bitumen doesn't flow like crude oil, and getting it out of the tar sands is a messy job. The current technology, which has evolved relatively little since it was first developed in the early 20th century, is a hot water-based separation process that requires huge quantities of water and energy (see diagram). Imagine mixing a bucket of roofing tar into a child's sandbox. Then boil some water, pour it into the sandbox, and try to wash the tar out of the sand.

Most tar sands production takes place in vast open-pit mines, some as large as 150 square kilometers and as deep as 90 meters. Before strip-mining can begin, the boreal forest must be clear-cut, rivers and streams diverted, and wetlands drained. The overburden (the soil, rocks, and clay overlying the tar sands deposit) must be stripped away and stockpiled to reach the bitumen. Four tons of material are moved to produce every barrel of bitumen.

At current production rates, with just three mines operating, enough material is moved every two days to fill a 60,000-seat stadium. But only a small fraction of the bitumen deposits is close enough to the surface to be strip-mined. Over 80 percent of the established tar sands reserves are deeper and must be extracted in situ (in place) by injecting high-pressure steam into the ground to soften the bitumen so it can be pumped to the surface.

Once separated from the sand, the bitumen is still a low-grade, heavy fossil fuel that must undergo an energy-intensive process to upgrade it into a synthetic crude oil more like conventional crude, either by adding hydrogen or removing carbon. Upgrading the bitumen usually occurs before it is shipped to refineries, but sometimes raw bitumen is diluted (e.g., with naphtha) and pipelined to a refinery where it is both upgraded and refined. In the United States about three-quarters of the oil is refined into transportation fuels.

But even then not just any refinery will do. A certain amount of reconfiguring must occur at refineries more accustomed to handling conventional crude oil. Some American refineries, primarily in the Midwest and the Rocky Mountain region, already accept some synthetic crude oil from the tar sands. But with growing reliance on this source of oil, numerous American refineries are converting or expanding in order to handle tar sands-derived synthetic crude oil or raw bitumen.

Impacts

The environmental consequences of oil production from tar sands are major, beginning with its effect on climate change. North America's transition to oil from the tar sands not only perpetuates, but actually worsens, emissions of greenhouse gas pollution from oil consumption.

While the end products from conventional oil and tar sands are the same (mostly transportation fuels), producing a barrel of synthetic crude oil from the tar sands releases up to three times more greenhouse gas pollution than conventional oil. This is a result of the huge amount of energy (primarily from burning natural gas) required to generate the heat needed to extract bitumen from the tar sands and upgrade it into synthetic crude. The energy equivalent of one barrel of oil is required to produce just three barrels of oil from the tar sands.

In 2002 the Canadian government ratified the Kyoto Protocol on global warming, legally committing to a target of reducing the country's greenhouse gas pollution by 6 percent below 1990 levels by 2012. But the rapid growth of tar sands development and oil industry lobbying have undermined efforts to reduce greenhouse gas pollution for over a decade.

Since 1990, Canada's total emissions have risen 25.3 percent, a pace far exceeding the 16.3 percent increase in the United States, the second-fastest-rising nation, according to United Nations data. Regulations introduced in early 2007 are so fraught with loopholes and gaps that greenhouse gas pollution from tar sands is predicted to triple by 2020. Canada's greenhouse gas emissions in 2020 are projected to be 2 percent above 1990 levels. The environmental consequences of tar sands development hardly stop with climate change. Nowhere in the world is there a form of oil extraction and processing with more intense impacts on forests and wildlife, freshwater resources and air quality.

Forests. The tar sands are found beneath boreal forest, a complex ecosystem that comprises a unique mosaic of forest, wetlands and lakes. Canada's boreal forest is globally significant, representing one-quarter of the world's remaining intact forests. Beyond the ecosystem services it provides (cleansing water, producing oxygen and storing carbon), it is home to a wide variety of wildlife, including bears, wolves, lynx and some of the largest populations of woodland caribou left in the world. Its wetlands and lakes provide critical habitat for 30 percent of North America's songbirds and 40 percent of its waterfowl.

If currently planned tar sands development projects unfold as expected, approximately 3,000 square kilometers of boreal forest could be cleared, drained and strip-mined to access tar sands deposits close to the surface, while the remaining 137,000 square kilometers could be fragmented into a spider's web of seismic lines, roads, pipelines and well pads from in situ drilling projects. Studies suggest that this scale of industrial development could push the boreal ecosystem over its ecological tipping point, leading to irreversible ecological damage and loss of biodiversity.

Satellite images readily illustrate the magnitude of boreal forest impacts from tar sands mining operations. The United Nations Environment Program has identified Alberta's tar sands mines as one of 100 key global "hotspots" of environmental degradation. According to Environment Canada (the Canadian equivalent to the U.S. Environmental Protection Agency), development of the tar sands presents "staggering challenges for forest conservation and reclamation."

Very little of the area directly affected by mining operations has been reclaimed, and after 40 years of mining, not a single operation has received a reclamation certificate from the government of Alberta. Suncor Energy's operation, the longest-operating tar sands mine, says it has reclaimed 858 hectares of land since starting operations in 1967, less than 9 percent of the land its operations have disturbed to date. Syncrude Canada, the largest daily producer of tar sands, says its operations have disturbed 18,653 hectares since 1978, with just 4,055 hectares of land reclaimed. None of this reclaimed land has been certified as such. At best, reclamation of the tar sands region will be a large-scale experiment that is unlikely to restore a self-sustaining boreal forest ecosystem within the next century.

Waters. The Athabasca River winds nearly 1,500 kilometers from its source at the Athabasca Glacier in Jasper National Park to Lake Athabasca in Wood Buffalo National Park. It is Alberta's longest river and one of North America's longest undammed rivers. It enters Lake Athabasca at the Peace-Athabasca Delta, the largest boreal delta in the world, a World Heritage Site, and one of the most important waterfowl nesting and staging areas in North America.

It also passes directly through the boreal forest being cleared and strip-mined, and serves as the primary source of water used to separate the bitumen from the mined tar sands. Water withdrawals for tar sands surface mining operations pose threats to both the sustainability of fish populations in the Athabasca River and to the sustainability of the Peace-Athabasca Delta, jeopardizing the subsistence and commercial fisheries of local aboriginals.

Tar sands mining operations withdraw 2-4.5 barrels of fresh water from the river for every barrel of oil they produce. Current operations are permitted to withdraw more than 349 million cubic meters of water per year, a volume equivalent to the amount required by a city of 2 million people. But unlike city effluent waters, which are treated and released back into the river, tar sands mining effluent becomes so contaminated that it must be impounded.

Historically it was believed that the Athabasca River had sufficient water flows to meet the needs of tar sands operations. But it is becoming clearer that this might not be the case, particularly during the winter months, when river flows are naturally lower and growing demand for water withdrawals could lead to long-term ecological impacts. The sustainability of fish populations in the Athabasca River is threatened by continuous tar sands water withdrawals during the winter months in years when low precipitation rates in the Athabasca River basin lead to low flow conditions. Nonetheless, the government has failed to implement regulations that would require tar sands withdrawals to stop when the health of the river is at risk. In fact, the government explicitly allows the tar sands industry to continue withdrawing water no matter how low the river flows become.

For certain in situ drilling operations, significant amounts of water are required to create steam to be injected underground. Because the steam condenses into water and is pumped up with the bitumen, the water can be recycled. However, because some water remains underground, a continuous source of additional water (about half a barrel of water per barrel of bitumen) is required.

These operations are located much farther from the river and, as a result, rely mainly upon groundwater. Where shallower freshwater aquifers are used, the continuous pumping of water can lower the water table in the region. Because these groundwater aquifers are connected to lakes, rivers and wetlands, reducing their levels can cause lakes to shrink and wetlands to dry out. As a result, some operators have switched to deeper sources of salty groundwater. But because they require fresh water, the salty water must be treated, which produces large amounts of waste sludge that must be disposed of.

Both tar sands mining and in situ operations produce large volumes of waste as a result of their water use. For in situ operations, the primary waste stream, a result of treating salt water and the water that is pumped up with the bitumen, is disposed of in landfills or injected underground. Tar sands mining operations present a much more significant risk, because they produce large volumes of waste in the form of mine tailings (six barrels of tailings per barrel of bitumen extracted). These tailings, a slurry of water, sand, fine clay and residual bitumen, are stored in vast wastewater reservoirs.

The industry misleadingly refers to them as "tailings ponds," but collectively these pools of waste cover more than 50 square kilometers and are so extensive that they can be seen from space. One tailings pond at Syncrude's mining operation is held in check by the third-largest dam in the world. These tailings dumps pose an environmental threat resulting from the migration of pollutants through the groundwater system and the risk of leaks to the surrounding soil and surface water.

The high concentrations of pollutants such as naphthenic acids, which are found at concentrations 100 times greater than in the natural environment, are acutely toxic to aquatic life, yet the government has no water-quality regulations for these substances. Migratory birds fare slightly better: To prevent them from landing, propane cannon go off at random intervals and scarecrows stand guard on floating barrels. How this tailings waste, and its grave risks, might be dealt with in the long term remains unknown.

Air. Tar sands air pollution, both provincial and transboundary, is rapidly increasing. Since 2003 Alberta has been the industrial air pollution capital of Canada. Criteria Air Contaminants (CACs) are the most common air pollutants released by heavy industry burning fossil fuels. CACs are defined as "air pollutants that affect our health and contribute to air pollution problems" and include such things as nitrogen oxides (NOX), sulfur dioxide (SO2), volatile organic compounds and particulate matter, all of which are emitted in large volumes by tar sands operations.

Modeling of the impacts of approved tar sands development, which includes three operating mines and three operations at various stages of planning and construction, shows that maximum predicted ambient air concentrations of NOX and SO2 would exceed provincial, national and international guidelines. Emissions of volatile organic compounds such as benzene are also on the rise because of both emissions from burning fossil fuels (e.g., natural gas, diesel, coke) and the growing number of tailings ponds. The costs of such air pollution have not been considered.

The coming tar sands rush

Major global powers are positioning themselves to ensure access to oil from tar sands. To date, four of the five largest publicly traded oil companies in the world (Royal Dutch/Shell, ExxonMobil, ChevronTexaco, and TotalFina) have invested or committed themselves to invest billions of dollars in tar sands development. National oil companies have also staked their claim, ranging from Norway's Statoil to China's Sinopec.

Tar sands speculation, investment and development has grown dramatically. The oil industry's production target of 1 million barrels per day was achieved in 2004, 16 years ahead of the ambitious schedule for growth it laid out in 1995. That year the industry invested almost US$9 billion in Alberta's tar sands. More than US$100 billion of investment has been announced for development between 2006 and 2015.

The tar sands industry is now focused on quintupling production as quickly as possible. It is projected that tar sands production will reach 3-4 million barrels per day by 2015 and could grow to 5 million barrels per day by 2030, if not sooner. It is the prospect of this growth that has led Canadian Prime Minister Stephen Harper to label Canada an "emerging energy superpower."

The magnitude of the environmental risks and liabilities arising from Canada's tar sands rush is unprecedented in the history of North American energy production. Growing awareness about the global warming and environmental consequences of relying upon growth in tar sands production throws into sharp relief the perils of our addiction to oil in the 21st century. All North Americans, including future generations, have a stake in the outcome.

To address the impacts of tar sands production, a novel suite of government policies and innovative technologies must be deployed that drastically reduce the environmental impacts by achieving "carbon neutral" (no net greenhouse gas pollution) production, ensuring that development doesn't proceed any faster than reclamation of the boreal forest and reducing dependence on scarce freshwater resources.

The most immediate opportunity to begin our rehabilitation lies in the more efficient use of transportation fuels. To do so requires tackling another sacred cow: the flagging North American auto industry, which is in trouble partly because it is producing the wrong vehicles for the times. The abysmal fuel-efficiency of North America's SUVs, trucks and cars has actually declined since 1986.

The governments of the United States and Canada must collectively commit to implementing regulations that will make North America a global leader in fuel efficiency. By deploying more efficient technologies today, we can begin to ease the demand for transportation fuels and slow the headlong rush into extracting oil from the tar sands. This will afford policymakers and the private sector the time needed to drive investment toward low-carbon and no-carbon fuels, and to evolve our transportation systems and urban design into a state that is compatible with a carbon-free future. North America stands at a critical juncture in its transportation fuel future.

As conventional oil sources disappear, we face a stark choice: We can develop new, even dirtier sources of transportation fuels derived from fossil fuels like the tar sands, or we can set a course for a more sustainable energy future by improving the efficiency of our oil consumption while aggressively transitioning to clean and renewable transportation fuels and sustainable transportation systems.

The environmental and global warming consequences of even 1 million barrels per day of tar sands production must serve as a wake-up call, and we must acknowledge that increased reliance upon this unconventional, high-impact fossil fuel is not a viable path forward.

Dan Woynillowicz is a senior policy analyst with the Pembina Institute, based in Calgary, Alberta.

September 12, 2007

Oil Hits $80 a Barrel for First Time

Source: AP Writer via Yahoo

Wednesday September 12, 3:09 pm ET
By John Wilen, AP Business Writer

Oil Prices Reach $80 a Barrel for First Time After Government Reports Decline in Inventories

NEW YORK (AP) -- Oil futures prices rose sharply Wednesday, briefly climbing above a record $80 a barrel after the government reported a surprisingly large drop in crude inventories and declines in gasoline supplies and refinery activity.

The report from the Energy Department's Energy Information Administration suggested oil supplies are tightening as demand remains strong. That's why oil prices are rising despite OPEC's decision on Tuesday to boost crude production by 500,000 barrels per day this fall, analysts said.

Despite Wednesday's jump, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Oil's recent advance has been largely due to speculative buying by big investment funds, who are responding to a price structure in which oil contracts for delivery in future months are cheaper than the current front-month contract, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

That kind of structure signifies tight demand in the immediate future, and is a buying incentive. Investors who buy now will end up with more oil contracts later, when October futures roll over to cheaper contracts for delivery in later months, Ritterbusch said.

"This is a market that wants to run up on the slightest bit of information," Ritterbusch said.

Prices were also being supported by worries a tropical depression that formed in the western Atlantic on Wednesday will become a hurricane and hit critical Gulf of Mexico oil and gas infrastructure.

"The National Hurricane Center says there's a good chance that could get into the Gulf," Ritterbusch said.

Light, sweet crude for October delivery rose $1.68 to settle at a record $79.91 on the New York Mercantile Exchange after rising as high as $80.18 earlier. October gasoline rose 3.49 cents to settle at $2.016 a gallon.

Nymex heating oil futures rose 3.64 cents to settle at $2.2191 a gallon, while natural gas futures jumped 50.4 cents to settle at $6.438 per 1,000 cubic feet. Natural gas prices typically react strongly to news of tropical weather due to the concentration of gas infrastructure in the Gulf.

At the pump, meanwhile, the average national price of a gallon of gas inched higher by 0.1 cent overnight to $2.815, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in late May.

In its weekly report on petroleum inventories, the EIA said crude oil supplies fell by 7.1 million barrels in the week ended Sept. 7, more than twice the 2.7 million-barrel decline analysts surveyed by Dow Jones Newswires, on average, had expected.

Gasoline inventories fell by 700,000 barrels, slightly more than the expected 500,000 barrel decline.

Refinery utilization fell by 1.6 percentage points to 90.5 percent of capacity. Analysts had expected a 0.1 percentage point decline. And inventories of distillates, which include heating oil and diesel fuel, grew by 1.8 million barrels, more than the 1.4 million-barrel increase analysts had expected.

Crude imports fell by 674,000 barrels a day on average last week to 9.56 million barrels, while gasoline imports fell an average of 298,000 barrels a day to 1.02 million barrels a day.

Demand for gasoline averaged about 9.6 million barrels a day over the last four weeks, about 0.9 percent above last year, EIA said.

Oil's run-up has perplexed some analysts, who expect demand for oil and petroleum products to cool this fall.

"We're at records, but it doesn't appear to be sustainable," said Chip Hodge, energy portfolio manager at John Hancock Financial Securities in Boston.

Indeed, the Paris-based International Energy Agency on Wednesday slightly lowered oil demand forecasts for this year and next.

September 10, 2007

Battery-like device could power electric cars

Source: CNN.com

AUSTIN, Texas (AP) -- Millions of inventions pass quietly through the U.S. patent office each year. Patent No. 7,033,406 did, too, until energy insiders spotted six words in the filing that sounded like a death knell for the internal combustion engine.

An Austin-based startup called EEStor promised "technologies for replacement of electrochemical batteries," meaning a motorist could plug in a car for five minutes and drive 500 miles roundtrip between Dallas and Houston without gasoline.

By contrast, some plug-in hybrids on the horizon would require motorists to charge their cars in a wall outlet overnight and promise only 50 miles of gasoline-free commute. And the popular hybrids on the road today still depend heavily on fossil fuels.

"It's a paradigm shift," said Ian Clifford, chief executive of Toronto-based ZENN Motor Co., which has licensed EEStor's invention. "The Achilles' heel to the electric car industry has been energy storage. By all rights, this would make internal combustion engines unnecessary."

Clifford's company bought rights to EEStor's technology in August 2005 and expects EEStor to start shipping the battery replacement later this year for use in ZENN Motor's short-range, low-speed vehicles.

The technology also could help invigorate the renewable-energy sector by providing efficient, lightning-fast storage for solar power, or, on a small scale, a flash-charge for cell phones and laptops.

Skeptics, though, fear the claims stretch the bounds of existing technology to the point of alchemy.

"We've been trying to make this type of thing for 20 years and no one has been able to do it," said Robert Hebner, director of the University of Texas Center for Electromechanics. "Depending on who you believe, they're at or beyond the limit of what is possible."

EEStor's secret ingredient is a material sandwiched between thousands of wafer-thin metal sheets, like a series of foil-and-paper gum wrappers stacked on top of each other. Charged particles stick to the metal sheets and move quickly across EEStor's proprietary material.

The result is an ultracapacitor, a battery-like device that stores and releases energy quickly.

Batteries rely on chemical reactions to store energy but can take hours to charge and release energy. The simplest capacitors found in computers and radios hold less energy but can charge or discharge instantly. Ultracapacitors take the best of both, stacking capacitors to increase capacity while maintaining the speed of simple capacitors.

Hebner said vehicles require bursts of energy to accelerate, a task better suited for capacitors than batteries.

"The idea of getting rid of the batteries and putting in capacitors is to get more power back and get it back faster," Hebner said.

But he said nothing close to EEStor's claim exists today.

For years, EEStor has tried to fly beneath the radar in the competitive industry for alternative energy, content with a phone-book listing and a handful of cryptic press releases.

Yet the speculation and skepticism have continued, fueled by the company's original assertion of making batteries obsolete -- a claim that still resonates loudly for a company that rarely speaks, including declining an interview with The Associated Press.

The deal with ZENN Motor and a $3 million investment by the venture capital group Kleiner Perkins Caufield & Byers, which made big-payoff early bets on companies like Google Inc. and Amazon.com Inc., hint that EEStor may be on the edge of a breakthrough technology, a "game changer" as Clifford put it.

ZENN Motor's public reports show that it so far has invested $3.8 million in and has promised another $1.2 million if the ultracapacitor company meets a third-party testing standard and then delivers a product.

Clifford said his company consulted experts and did a "tremendous amount of due diligence" on EEStor's innovation.

EEStor's founders have a track record. Richard D. Weir and Carl Nelson worked on disk-storage technology at IBM Corp. in the 1990s before forming EEStor in 2001. The two have acquired dozens of patents over two decades.

Neil Dikeman of Jane Capital Partners, an investor in clean technologies, said the nearly $7 million investment in EEStor pales compared with other energy storage endeavors, where investment has averaged $50 million to $100 million.

Yet curiosity is unusually high, Dikeman said, thanks to the investment by a prominent venture capital group and EEStor's secretive nature.

"The EEStor claims are around a process that would be quite revolutionary if they can make it work," Dikeman said.

Previous attempts to improve ultracapacitors have focused on improving the metal sheets by increasing the surface area where charges can attach.

EEStor is instead creating better nonconductive material for use between the metal sheets, using a chemical compound called barium titanate. The question is whether the company can mass-produce it.

ZENN Motor pays EEStor for passing milestones in the production process, and chemical researchers say the strength and functionality of this material is the only thing standing between EEStor and the holy grail of energy-storage technology.

Joseph Perry and the other researchers he oversees at Georgia Tech have used the same material to double the amount of energy a capacitor can hold. Perry says EEstor seems to be claiming an improvement of more than 400-fold, yet increasing a capacitor's retention ability often results in decreased strength of the materials.

"They're not saying a lot about how they're making these things," Perry said. "With these materials (described in the patent), that is a challenging process to carry out in a defect-free fashion."

Perry is not alone in his doubts. An ultracapacitor industry leader, Maxwell Technologies Inc., has kept a wary eye on EEStor's claims and offers a laundry list of things that could go wrong.

Among other things, the ultracapacitors described in EEStor's patent operate at extremely high voltage, 10 times greater than those Maxwell manufactures, and won't work with regular wall outlets, said Maxwell spokesman Mike Sund. He said capacitors could crack while bouncing down the road, or slowly discharge after a dayslong stint in the airport parking lot, leaving the driver stranded.

Until EEStor produces a final product, Perry said he joins energy professionals and enthusiasts alike in waiting to see if the company can own up to its six-word promise and banish the battery to recycling bins around the world.

"I am skeptical but I'd be very happy to be proved wrong," Perry said.

America's Imperial Crisis

Source: Daily Koz

by FMArouet
Sat Apr 28, 2007 at 08:11:53 AM PDT

The deaths this week of former Russian President Boris Yeltsin and renowned Russian cellist and conductor Mstislav Rostropovich reminded us all of the heady days of the collapse of the Soviet Union and its empire. With astonishing abruptness the West had won the Cold War by the end of 1991.

But recalling those exhilarating days also raises a more introspective question: is America in turn now experiencing its own systemic crisis, and is it lurching toward an imminent imperial collapse?

Perhaps some insights from Soviet dissident Andrei Amalrik, French demographer Emmanuel Todd, and Yale historian Paul Kennedy can guide us to an answer below the break.

In 1969 Soviet dissident Andrei Amalrik smuggled to the West his prescient essay, "Will the Soviet Union Survive until 1984?"

Amalrik predicted that a collapse of the Soviet system would result from an explosion of suppressed national sentiment in the republics, a moribund economy, the incompetence of a self-selecting leadership, governance based on obedience and adherence to the Party line by loyal apparatchiks unable to cope with reality or to innovate, and an eventual Sino-Soviet war. Of course, it turned out to be the Soviet invasion and occupation of Afghanistan, not a Sino-Soviet war, which served as the catalyst to overwhelm the Soviet economy and ultimately the Soviet Empire. Amalrik was off in his prediction by seven years, but his overall analysis was uncannily accurate.

In 1976 Emmanuel Todd, a French historian, anthropologist, and demographer, scrutinized demographic data on the decline of birth rates in the Soviet Union, on a rise in infant mortality, and on a striking decline in life expectancy among Soviet males to write "The Final Fall: An Essay on the Decomposition of the Soviet Sphere" (1976, Editions Robert Laffont; 1979, Kary Publishers).

When Gorbachev inherited power from the senile Old Guard (the rigid and doddering Brezhnev, followed by the intelligent but doddering Andropov, followed in turn by the clueless and doddering Chernenko), he submitted to political pressure to feed what Khrushchev had called the Soviet Union's "steel-eaters," i.e., the military-industrial complex, and to try to suppress the Afghan insurgency.

At the same time Gorbachev launched a moral crusade against alcoholism, curtailed the state monopoly's production of vodka, limited vodka sales, greatly reduced liquor tax revenues, and increased the central budget deficit, thereby hastening financial and economic collapse. (Oddly enough, during World War I the Tsarist government had done the same thing with vodka production and the national budget, and had suffered the same economic result: collapse.)

Toward the Soviet Empire's end, whether in the outlying satellites and provinces or in the Russian heartland, even lifelong, loyal Communist Party members had stopped believing the lies, the deceptions, and the obvious delusions of their feckless, incompetent, self-serving, utterly corrupt, out-of-touch leadership. The Old Guard's clumsy anti-Gorbachev coup attempt in 1991 proved to be the blunder too far--the mortal wound to the system. Boris Yeltsin stood on a tank outside Parliament to rally Russian democrats to resist the coup, and Mstislav Rostropovich immediately flew to Moscow to camp out at Parliament and show his solidarity with Yeltsin. The coup collapsed, but by then Gorbachev himself had become discredited and irrelevant, and the Soviet Union rapidly disintegrated into its constituent republics.

Todd later turned his gaze to the U.S. in "After the Empire: The Breakdown of the American Order" (2002, Editions Gallimard; 2003 Columbia University Press). In this second book Todd's demographic arguments are weak (though recent surges in infant morality in the Deep South give Todd's early demographic data retrospective weight), but his economic and historical analysis seems trenchant, and he predicts that in the relatively near term America's financial indiscipline and runaway consumption habits will result in a crash leading to a necessary 15 to 20 percent reduction in American living standards. Todd reasons that the U.S., despite its military prowess, simply lacks the power to enforce its hegemony everywhere it wishes and that its increasingly fragile, debt-dependent economy cannot sustain for long such an overreaching imperial policy.

Todd describes the U.S. as a "superpower living hand to mouth," led by a ruling class "even more rudderless and clueless than its European counterparts," and incapable of achieving its global aims through repeated applications of "theatrical micromilitarism." Todd argues that the disintegration of American hegemony already is in full swing, and he predicts that the Bush American Administration and its neocon theorists "will go down in history as the gravediggers of the American empire."

In "The Rise and Fall of the Great Powers: Economic Change and military conflict from 1500 to 2000" (1987, Random House), Yale historian Paul Kennedy presented a compelling argument that eerily paralleled Todd's. Kennedy detected an oft-repeated standard formula for great power decline and collapse. Great powers (such as the Habsburg, French, Turkish, Dutch, Spanish, Russian, British, Japanese, Soviet, and eventually American Empires) get in the habit of using military force to protect what they view as their broad economic interests, but in doing so, they divert investment from productive social and economic purposes into nonproductive military ends.

Inevitably, more dynamic, productive economies position themselves to replace the aging great power when its military overspending inexorably leads to its relative economic and social decline, whether gradual or sudden.

Apparently, American neocon ideologues at the turn of the twenty-first century, like Soviet ideologues in the 1980's, "don't know much about his-to-ry." Or perhaps they merely misinterpreted Paul Kennedy and took his paradigm as a tragic Greek template that must be blindly followed.

The more the U.S. seeks to assert its will through diktat and unilateral military force, the more it ensures that the other major players will find it increasingly in their best interests to collaborate more closely with one another to deflect and frustrate the American imperium.

Note the increasing collaboration between rising Asian giants China and India as one canary in the mineshaft. In the past week newly published data showed that China has replaced the U.S. as Japan's major trading partner. Note the deepening commercial relationships between China and Europe. Note the rapidly increasing economic and political collaboration between China and Saudi Arabia. Note the accelerating drift away from the U.S. dollar as the world's reserve currency. In the past week the dollar fell to historical lows against the euro. Note the robust military collaboration between China and Russia. Note the recent decision by China and Japan to establish a military "hot line." China will hold military exercises with several ASEAN states in the coming year. Note the increasing disinclination of Europeans, notably the Germans, French, Spanish, and Italians, to support--much less finance--American imperial misadventures, such as the rapidly imploding debacle in Iraq. Note the disinclination of the Europeans to continue to tolerate the tenure of American neocon ideologue Paul Wolfowitz at the World Bank.

Where and when will the reality-challenged Bush Administration commit its blunder too far? Perhaps that blunder will turn out to be the invasion and failed occupation of Iraq. Or perhaps the ultimate catalytic blunder will occur in Iran, which remains on the neocon wish list as a target for destabilization, intervention, "liberation," and regime change.

The collapse of the American Empire is not over the horizon--an event lurking around a distant corner a few decades down the road. We are already in the very midst of it. It is like a staged train wreck unfolding frame-by-frame as we reflect in head-shaking disbelief on each day's news and on each new blunder by the Bush Administration.

Can the U.S. navigate its way to become a post-imperial, normal country--working responsibly as one great power among several rather than quixotically striving to be the sole global hegemon? Can it do so while avoiding further military disasters and a debilitating financial and economic collapse?

Or will the decline be precipitous and disorderly, accelerated by corrupt, clueless, inept, and rigid leadership, as was the Soviet Empire's collapse?

August 01, 2007

World Stock Markets Fall Sharply

Source: The New York Times

By WAYNE ARNOLD
Published: August 1, 2007

SINGAPORE, Aug. 1 — Stock markets in Asia fell sharply today on concerns about widening mortgage woes in the United States and the threats they pose: that investors are being forced to sell Asian assets to cover losses in the United States, and that hard-pressed American homeowners will scale back their demand for Asian exports.

The Nikkei 225 stock average, the benchmark for the Japanese market, fell by more than 2 percent, erasing the gains it had made so far this year. Widely watched indexes in Hong Kong and Australia fell by more than 3 percent each. South Korea’s key index slid by 4 percent.

European stock markets followed the declines in Asia in their morning trading, and were generally down by 1 to 2 percent at midday there.

The FTSE 100 index in Britain was off 1.4 percent, the DAX in Germany dropped 0.9 percent and the CAC 40 in France slid nearly 1.8 percent.

In the United States, stock-index futures moved lower as well, presaging a lower opening for the American markets when the trading day begins at 9:30 a.m. Eastern time.

Despite broad consensus that the outlook for Asian economic and corporate profit growth remains bright, global investors have been scaling back their holdings in Asia and other emerging markets recently.

Analysts predict that markets there are likely to remain uncertain until a clearer picture emerges of how widespread the fallout will be from problems in the United States mortgage market.

“The whole world is depending on investors in U.S. markets to get a little conviction that things are not that bad,” said Tim Condon, head of financial markets research at ING Financial Markets in Singapore. “The markets don’t care that the rest of the world is booming.”

The trigger for today’s drop was a warning from American Home Mortgage Investment that increasing demands from its own creditors could force it to liquidate.

Fanning the flames was an announcement by Standard & Poor’s, the credit rating agency, that it was considering lowering its ratings of several major funds dealing in mortgage-backed securities or other kinds of collateralized debt obligations.

The most sanguine assessment of today’s turmoil came from analysts and traders who saw it as an inevitable and perhaps even welcome correction after a rally that has been lifting Asian stocks since the spring.

Similarly sharp declines — one last summer and another in February — proved to be brief setbacks in a three-year rally in Asian stocks.

But the latest retreat by global investors has been underway for two weeks now, according to data from Nomura Securities. After net buying of more than $27 billion in Asian equities this year, investors were net sellers by roughly $5 billion in the past fortnight.

“Fund managers are having to raise cash levels against potential redemptions, and others are taking profits to shore up against losses in the credit markets,” said Sean Darby, head of regional strategy at Nomura International in Hong Kong.

Analysts said the reaction in Asia raised important questions about the nature of Asia’s economic boom and the composition of its stock-market rallies.

The knee-jerk response to signs of weakness in the United States housing market threw into sharper relief a growing debate among economists in Asia over whether the rise of China and India are ending the region’s lockstep economic reliance on the United States.

“That is the thesis that will be tested in the next year or two, whether a slowdown in the U.S. can be offset by Asian consumer spending.” said Amar Gill, head of thematic research at CLSA Emerging Markets in Hong Kong.

A report by the Asian Development Bank earlier this year appeared to throw cold water on hopes that Asia could stop worrying so much about the economic health of the United States and the world’s other major regional economies, the European Union and Japan.

That report has buttressed economists who argue that rising intra-Asian trade, particularly with China, is largely based on the trade of goods and services that are ultimately destined for consumers in the United States.

“This myth has been perpetuated that Asia has been decoupled, which is a truckload of baloney in my view,” said Venkatraman Anantha-Nageswaran, head of research at Bank Julius Baer in Singapore.

Graham Bowley contributed reporting from New York.

July 31, 2007

Ethanol Scam: Ethanol Hurts the Environment And Is One of America's Biggest Political Boondoggles

Source: Rolling Stone

From Issue 1032

JEFF GOODELL
Posted Jul 24, 2007 1:36 PM

The great danger of confronting peak oil and global warming isn't that we will sit on our collective asses and do nothing while civilization collapses, but that we will plunge after "solutions" that will make our problems even worse. Like believing we can replace gasoline with ethanol, the much-hyped biofuel that we make from corn.

Ethanol, of course, is nothing new. American refiners will produce nearly 6 billion gallons of corn ethanol this year, mostly for use as a gasoline additive to make engines burn cleaner. But in June, the Senate all but announced that America's future is going to be powered by biofuels, mandating the production of 36 billion gallons of ethanol by 2022. According to ethanol boosters, this is the beginning of a much larger revolution that could entirely replace our 21-million-barrel-a-day oil addiction. Midwest farmers will get rich, the air will be cleaner, the planet will be cooler, and, best of all, we can tell those greedy sheiks to fuck off. As the king of ethanol hype, Sen. Chuck Grassley of Iowa, put it recently, "Everything about ethanol is good, good, good."

This is not just hype -- it's dangerous, delusional bullshit. Ethanol doesn't burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption -- yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World. And the increasing acreage devoted to corn for ethanol means less land for other staple crops, giving farmers in South America an incentive to carve fields out of tropical forests that help to cool the planet and stave off global warming.

So why bother? Because the whole point of corn ethanol is not to solve America's energy crisis, but to generate one of the great political boondoggles of our time. Corn is already the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 -- twice as much as wheat subsidies and four times as much as soybeans. Ethanol itself is propped up by hefty subsidies, including a fifty-one-cent-per-gallon tax allowance for refiners. And a study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon -- about half of ethanol's wholesale market price.

Three factors are driving the ethanol hype. The first is panic: Many energy experts believe that the world's oil supplies have already peaked or will peak within the next decade. The second is election-year politics. With the first vote to be held in Iowa, the largest corn-producing state in the nation, former skeptics like Sens. Hillary Clinton and John McCain now pay tribute to the wonders of ethanol. Earlier this year, Sen. Barack Obama pleased his agricultural backers in Illinois by co-authoring legislation to raise production of biofuels to 60 billion gallons by 2030. A few weeks later, rival Democrat John Edwards, who is staking his campaign on a victory in the Iowa caucus, upped the ante to 65 billion gallons by 2025.

The third factor stoking the ethanol frenzy is the war in Iraq, which has made energy independence a universal political slogan. Unlike coal, another heavily subsidized energy source, ethanol has the added political benefit of elevating the American farmer to national hero. As former CIA director James Woolsey, an outspoken ethanol evangelist, puts it, "American farmers, by making the commitment to grow more corn for ethanol, are at the top of the spear on the war against terrorism." If you love America, how can you not love ethanol?

Ethanol is nothing more than 180-proof grain alcohol. To avoid the prospect of drunks sucking on gas pumps, fuel ethanol is "denatured" with chemical additives (if you drink it, you'll end up dead or, at best, in the hospital). It can be distilled from a variety of plants, including sugar cane and switch- grass. Most vehicles can't run on pure ethanol, but E85, a mix of eighty-five percent ethanol and fifteen percent gasoline, requires only slight engine modifications.

But as a gasoline substitute, ethanol has big problems: Its energy density is one-third less than gasoline, which means you have to burn more of it to get the same amount of power. It also has a nasty tendency to absorb water, so it can't be transported in existing pipelines and must be distributed by truck or rail, which is tremendously inefficient.

Nor is all ethanol created equal. In Brazil, ethanol made from sugar cane has an energy balance of 8-to-1 -- that is, when you add up the fossil fuels used to irrigate, fertilize, grow, transport and refine sugar cane into ethanol, the energy output is eight times higher than the energy inputs. That's a better deal than gasoline, which has an energy balance of 5-to-1. In contrast, the energy balance of corn ethanol is only 1.3-to-1 - making it practically worthless as an energy source. "Corn ethanol is essentially a way of recycling natural gas," says Robert Rapier, an oil-industry engineer who runs the R-Squared Energy Blog.

The ethanol boondoggle is largely a tribute to the political muscle of a single company: agribusiness giant Archer Daniels Midland. In the 1970s, looking for new ways to profit from corn, ADM began pushing ethanol as a fuel additive. By the early 1980s, ADM was producing 175 million gallons of ethanol a year. The company's then-chairman, Dwayne Andreas, struck up a close relationship with Sen. Bob Dole of Kansas, a.k.a. "Senator Ethanol." During the 1992 election, ADM gave $1 million to Dole and his friends in the GOP (compared with $455,000 to the Democrats). In return, Dole helped the company secure billions of dollars in subsidies and tax breaks. In 1995, the conservative Cato Institute, estimating that nearly half of ADM's profits came from products either subsidized or protected by the federal government, called the company "the most prominent recipient of corporate welfare in recent U.S. history."

Today, ADM is the leading producer of ethanol, supplying more than 1 billion gallons of the fuel additive last year. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year. And ADM continues to give back: Since 2000, the company has contributed $3.7 million to state and federal politicians.

The Iraq War has also been a boon for ADM and other ethanol producers. The Energy Policy Act of 2005, which was pushed by Corn Belt politicians, mandated the consumption of 7.5 billion gallons of biofuels by 2012. After Democrats took over Congress last year, they too vowed to "do something" about America's addiction to foreign oil. By the time Sen. Jeff Bingaman, chair of the Committee on Energy and Natural Resources, proposed new energy legislation this spring, the only real question was how big the ethanol mandate would be. According to one lobbyist, 36 billion gallons became "the Goldilocks number -- not too big to be impractical, not too small to satisfy corn growers."

Under the Senate bill, only 15 billion gallons of ethanol will come from corn, in part because even corn growers admit that turning more grain into fuel would disrupt global food supplies. The remaining 21 billion gallons will have to come from advanced biofuels, most of which are currently brewed only in small-scale lab experiments. "It's like trying to solve a traffic problem by mandating hovercraft," says Dave Juday, an independent commodities consultant. "Except we don't have hovercraft."

The most seductive myth about ethanol is that it will free us from our dependence on foreign oil. But even if ethanol producers manage to hit the mandate of 36 billion gallons of ethanol by 2022, that will replace a paltry 1.5 million barrels of oil per day -- only seven percent of current oil needs. Even if the entire U.S. corn crop were used to make ethanol, the fuel would replace only twelve percent of current gasoline use.

Another misconception is that ethanol is green. In fact, corn production depends on huge amounts of fossil fuel -- not just the diesel needed to plow fields and transport crops, but also the vast quantities of natural gas used to produce fertilizers. Runoff from industrial-scale cornfields also silts up the Mississippi River and creates a vast dead zone in the Gulf of Mexico every summer. What's more, when corn ethanol is burned in vehicles, it is as dirty as conventional gasoline and does little to solve global warming: E85 reduces carbon dioxide emissions by a modest fifteen percent at best, while fueling the destruction of tropical forests.

But the biggest problem with ethanol is that it steals vast swaths of land that might be better used for growing food. In a recent article in Foreign Affairs titled "How Biofuels Could Starve the Poor," University of Minnesota economists C. Ford Runge and Benjamin Senauer point out that filling the gas tank of an SUV with pure ethanol requires more than 450 pounds of corn -- roughly enough calories to feed one person for a year.

Thanks in large part to the ethanol craze, the price of beef, poultry and pork in the United States rose more than three percent during the first five months of this year. In some parts of the country, hog farmers now find it cheaper to fatten their animals on trail mix, french fries and chocolate bars. And since America provides two-thirds of all global corn exports, the impact is being felt around the world. In Mexico, tortilla prices have jumped sixty percent, leading to food riots. In Europe, butter prices have spiked forty percent, and pork prices in China are up twenty percent. By 2025, according to Runge and Senauer, rising food prices caused by the demand for ethanol and other biofuels could cause as many as 600 million more people to go hungry worldwide.

Despite the serious drawbacks of ethanol, some technological visionaries believe that the fuel can be done right. "Corn ethanol is just a platform, the first step in a much larger transition we are undergoing from a hydrocarbon-based economy to a carbohydrate-based economy," says Vinod Khosla, a pioneering venture capitalist in Silicon Valley. Next-generation corn- ethanol plants, he argues, will be much more efficient and environmentally friendly. He points to a company called E3 BioFuels that just opened an ethanol plant in Mead, Nebraska. The facility runs largely on biogas made from cow manure, and feeds leftover grain back to the cows, making it a "closed-loop system" -- one that requires very few fossil fuels to create ethanol.

Khosla is even higher on the prospects for cellulosic ethanol, a biofuel that can be made from almost any plant matter, including wood waste and perennial grasses like miscanthus and switchgrass. Like other high-tech ethanol evangelists, Khosla imagines a future in which such so-called "energy crops" are fed into giant refineries that use genetically engineered enzymes to break down the cellulose in plants and create fuel for a fraction of the cost of today's gasoline. Among other virtues, cellulosic ethanol would not cut into the global food supply (nobody eats miscanthus or switchgrass), and it could significantly cut global-warming pollution. Even more important, it could provide a gateway to a much larger biotech revolution, including synthetic microbes that could one day be engineered to gobble up carbon dioxide or other pollutants.

Unfortunately, no commercial-scale cellulosic ethanol plants exist today. In one venture backed by Khosla, a $225 million plant in central Georgia is currently being built to make ethanol out of wood chips. Mitch Mandich, a former Apple Computer executive who is now the CEO of the operation, calls it "the beginning of a real transformation in the way we think about energy in America."

Maybe. But oil-industry engineer Robert Rapier, who has spent years studying cellulosic ethanol, says that the difference between ethanol from corn and ethanol from cellulose is "like the difference between traveling to the moon and traveling to Mars." And even if the engineering hurdles can be overcome, there's still the problem of land use: According to Rapier, replacing fifty percent of our current gasoline consumption with cellulosic ethanol would consume thirteen percent of the land in the United States - about seven times the land currently utilized for corn production.

Increasing the production of cellulosic ethanol will also require solving huge logistical problems, including delivering vast quantities of feedstock to production plants. According to one plant manager in the Midwest, fueling an ethanol plant with switchgrass would require delivering a semi-truckload of the grass every six minutes, twenty-four hours a day. Finally, there is the challenge of wrestling the future away from Big Corn. "It's pretty clear to me that the corn guys will use all their lobbying muscle and political power to stall, thwart and sidetrack this revolution," says economist C. Ford Runge.

In the end, the ethanol boom is another manifestation of America's blind faith that technology will solve all our problems. Thirty years ago, nuclear power was the answer. Then it was hydrogen. Biofuels may work out better, especially if mandates are coupled with tough caps on greenhouse-gas emissions. Still, biofuels are, at best, a huge gamble. They may help cushion the fall when cheap oil vanishes, but if we rely on ethanol to save the day, we could soon find ourselves forced to make a choice between feeding our SUVs and feeding children in the Third World. And we all know how that decision will go.

July 18, 2007

Report: Corn Ethanol Not A Viable Energy Option

Source: The Daily Green

If Every Field Were Planted With Corn, U.S. Would Only Offset 15% Of Fuel

In a new report released at noon today, three environmental and research organizations raise serious questions about the future of corn ethanol, a fuel that Congress has invested subsidies in already, and which is often viewed as a silver bullet solution to the nation’s energy and environmental problems.

Corn-based ethanol would, contrary to that belief, add pollution and contribute to other environmental problems — including the Gulf of Mexico dead zone that a separate report released yesterday showed could reach its largest size ever, due in part to the record acreage of corn planted in the Midwest this year, and the attendant runoff of fertilizer.

The “The Rush to Ethanol” was released by Food & Water Watch, the Network for New Energy Choices and the Vermont Law School Environmental Law Center.

The key findings from the report, as defined by the groups releasing it:

  • Not all bio-fuels are equal. Corn, which is the source 95% of ethanol in the U.S., is among the least efficient, least sustainable biofuels. Cellulosic ethanol, while not yet ready for market, has more favorable energy ratios than corn and presents more room for productivity gains, making it appealing to investors, farmers, and refiners. Yet, most biofuels policies being debated in Congress would primarily benefit corn ethanol refiners in the near future.
  • Corn ethanol has little promise of reducing U.S. fossil fuel emissions. Even if the entire U.S. corn crop was dedicated to ethanol, it would displace less than 15 percent of national gasoline use. But a modest increase in auto fuel efficiency standards, such as those passed by the Senate last month, would cut petroleum consumption by more than all alternative fuels and replacement fuels combined.
  • The current path of corn-ethanol based biofuels is unsustainable. Using coal to power ethanol refineries can increase emissions in comparison to the gasoline fuel replaced. And since corn production uses more than twice the amount of pesticides than any other major U.S. crop, uncontrolled ethanol industry growth could exponentially increase environmental toxins.
  • Even large-scale development of cellulosic ethanol is plagued by potential environmental problems. Turning cellulose into fuel, for instance, would require a huge expenditure of increasingly scarce water resources and the mass production of cellulosic ethanol would likely impact soil quality and convert land currently in conservation programs.
  • Ethanol is not the solution to revitalizing rural America. While higher commodity prices and cooperatively owned ethanol refineries could be a boon to independent farmers, unregulated ethanol industry growth will further concentrate agribusiness, threatening the livelihood of rural communities.

May 21, 2007

Polymers Are Forever

Source: Orion Magazine

Alarming tales of a most prevalent and problematic substance
by Alan Weisman
(Published in the May/June 2007 issue of Orion magazine)

THE PORT OF PLYMOUTH in southwestern England is no longer listed among the scenic towns of the British Isles, although prior to World War II it would have qualified. During six nights of March and April 1941, Nazi bombs destroyed seventy-five thousand buildings in what is remembered as the Plymouth Blitz. When the annihilated city center was rebuilt, a modern concrete grid was superimposed on Plymouth’s crooked cobbled lanes, burying its medieval past in memory.

But the main history of Plymouth lies at its edge, in the natural harbor formed at the confluence of two rivers, the Plym and the Tamar, where they join the English Channel and the Atlantic Ocean. This is the Plymouth from which the Pilgrims departed; they named their American landfall across the sea in its honor. All three of Captain Cook’s Pacific expeditions began here, as did Sir Francis Drake’s circumnavigation of the globe. And, on December 27, 1831, H.M.S. Beagle set sail from Plymouth Harbor, with twenty-two-year-old Charles Darwin aboard.

University of Plymouth marine biologist Richard Thompson spends a lot of time pacing Plymouth’s historic edge. He especially goes in winter, when the beaches along the harbor’s estuaries are empty—a tall man in jeans, boots, blue windbreaker, and zippered fleece sweater, his bald pate hatless, his long fingers gloveless as he bends to probe the sand. Thompson’s doctoral study was on slimy stuff that mollusks such as limpets and winkles like to eat: diatoms, cyanobacteria, algae, and tiny plants that cling to seaweed. What he’s now known for, however, has less to do with marine life than with the growing presence of things in the ocean that have never been alive at all.

Although he didn’t realize it at the time, what has dominated his life’s work began when he was still an undergraduate in the 1980s, spending autumn weekends organizing the Liverpool contingent of Great Britain’s national beach cleanup. In his final year, he had 170 teammates amassing metric tons of rubbish along eighty-five miles of shoreline. Apart from items that apparently had dropped from boats, such as Greek salt boxes and Italian oil cruets, from the labels he could see that most debris was blowing east from Ireland. In turn, Sweden’s shores were the receptacles for trash from England. Any packaging that trapped enough air to protrude from the water seemed to obey the wind currents, which in these latitudes are easterly.

Smaller, lower-profile fragments, however, were apparently controlled by currents in the water. Each year, as he compiled the team’s annual reports, Thompson noticed more and more garbage that was smaller and smaller amid the usual bottles and automobile tires. He and another student began collecting sand samples along beach strand lines. They sieved the tiniest particles of whatever appeared unnatural, and tried to identify them under a microscope. This proved tricky. Their subjects were usually too small to allow them to pinpoint the bottles, toys, or appliances from which they sprang.

He continued working the annual cleanup during graduate studies at Newcastle. Once he completed his PhD and began teaching at Plymouth, his department acquired a Fourier Transform Infrared Spectrometer, a device that passes a microbeam through a substance, then compares its infrared spectrum to a database of known material. Now he could know what he was looking at, which only deepened his concern.

“Any idea what these are?” Thompson is guiding a visitor along the shore of the Plym River estuary, near where it joins the sea. With a full moonrise just a few hours off, the tide is out nearly two hundred meters, exposing a sandy flat scattered with bladderwrack and cockle shells. A breeze skims the tidal pools, shivering rows of reflected hillside housing projects. Thompson bends over the strand line of detritus left by the forward edge of waves lapping the shore, looking for anything recognizable: hunks of nylon rope, syringes, topless plastic food containers, half a ship’s float, pebbled remains of polystyrene packaging, and a rainbow of assorted bottle caps. Most plentiful of all are multicolored plastic shafts of cotton ear-swabs. But there are also the odd little uniform shapes he challenges people to identify. Among twigs and seaweed fibers in his fistful of sand are a couple dozen blue and green plastic cylinders about two millimeters high.
“They’re called nurdles. They’re the raw materials of plastic production. They melt these down to make all kinds of things.” He walks a little farther, then scoops up another handful. It contains more of the same plastic bits: pale blue ones, greens, reds, and tans. Each handful, he calculates, is about 20 percent plastic, and each holds at least thirty pellets.

“You find these things on virtually every beach these days. Obviously they are from some factory.”

However, there is no plastic manufacturing anywhere nearby. The pellets have ridden some current over a great distance until they were deposited here—collected and sized by the wind and tide.

IN THOMPSON’S LABORATORY AT THE UNIVERSITY of Plymouth, graduate student Mark Browne unpacks foil-wrapped beach samples that arrive in clear zip-lock bags sent by an international network of colleagues. He transfers these to a glass separating funnel, filled with a concentrated solution of sea salt to float off the plastic particles. He filters out some he thinks he recognizes, such as pieces of the ubiquitous colored ear-swab shafts—to check under the microscope. Anything really unusual goes to the FTIR Spectrometer.

Each takes more than an hour to identify. About one-third turn out to be natural fibers such as seaweed, another third are plastic, and another third are unknown—meaning that they haven’t found a match in their polymer database, or that the particle has been in the water so long its color has degraded, or that it’s too small for their machine, which analyzes fragments only to twenty microns—slightly thinner than a human hair.

“That means we’re underestimating the amount of plastic that we’re finding. The true answer is we just don’t know how much is out there.”

What they do know is that there’s much more than ever before. During the early twentieth century, Plymouth marine biologist Alistair Hardy developed an apparatus that could be towed behind an Antarctic expedition boat, ten meters below the surface, to sample krill—the ant-sized, shrimplike invertebrate on which much of the planet’s food chain rests. In the 1930s, he modified it to measure even smaller plankton. It employed an impeller to turn a moving band of silk, similar to how a dispenser in a public lavatory moves cloth towels. As the silk passed over an opening, it filtered plankton from water passing through it. Each band of silk had a sampling capacity of five hundred nautical miles. Hardy was able to convince English merchant vessels using commercial shipping lanes throughout the North Atlantic to drag his Continuous Plankton Recorder for several decades, amassing a database so valuable he was eventually knighted for his contributions to marine science.

He took so many samples from around the British Isles that only every second one was analyzed. Decades later, Richard Thompson realized that the ones that remained stored in a climate-controlled Plymouth warehouse were a time capsule containing a record of growing contamination. He picked two routes out of northern Scotland that had been sampled regularly: one to Iceland, one to the Shetland Islands. His team pored over rolls of silk reeking of chemical preservative, looking for old plastic. There was no reason to examine years prior to World War II because until then plastic barely existed, except for the Bakelite used in telephones and radios, appliances so durable they had yet to enter the waste chain. Disposable plastic packaging hadn’t yet been invented.

By the 1960s, however, they were seeing increasing numbers of increasing kinds of plastic particles. By the 1990s, the samples were flecked with triple the amount of acrylic, polyester, and crumbs of other synthetic polymers than had been present three decades earlier. Especially troubling was that Hardy’s plankton recorder had trapped all this plastic ten meters below the surface, suspended in the water. Since plastic mostly floats, that meant they were seeing just a fraction of what was actually there. Not only was the amount of plastic in the ocean increasing, but ever smaller bits of it were appearing—small enough to ride global sea currents.

Thompson’s team realized that slow mechanical action—waves and tides that grind against shorelines, turning rocks into beaches—were now doing the same to plastics. The largest, most conspicuous items bobbing in the surf were slowly getting smaller. At the same time, there was no sign that any of the plastic was biodegrading, even when reduced to tiny fragments.

“We imagined it was being ground down smaller and smaller, into a kind of powder. And we realized that smaller and smaller could lead to bigger and bigger problems.”

He knew the terrible tales of sea otters choking on poly-ethylene rings from beer six-packs; of swans and gulls strangled by nylon nets and fishing lines; of a green sea turtle in Hawai’i dead with a pocket comb, a foot of nylon rope, and a toy truck wheel lodged in its gut. His personal worst was a study on fulmar carcasses washed ashore on North Sea coastlines. Ninety-five percent had plastic in their stomachs—an average of forty-four pieces per bird. A proportional amount in a human being would weigh nearly five pounds.

There was no way of knowing if the plastic had killed them, although it was a safe bet that, in many, chunks of indigestible plastic had blocked their intestines. Thompson reasoned that if larger plastic pieces were breaking down into smaller particles, smaller organisms would likely be consuming them. He devised an aquarium experiment, using bottom-feeding lugworms that live on organic sediments, barnacles that filter organic matter suspended in water, and sand fleas that eat beach detritus. In the experiment, plastic particles and fibers were provided in proportionately bite-sized quantities. Each creature promptly ingested them.

When the particles lodged in their intestines, the resulting constipation was terminal. But if the pieces were small enough, they passed through the invertebrates’ digestive tracts and emerged, seemingly harmlessly, out the other end. Did that mean that plastics were so stable that they weren’t toxic? At what point would they start to naturally break down—and when they did, would they release some fearful chemicals that would endanger organisms some time far in the future?

Richard Thompson didn’t know. Nobody did, because plastics haven’t been around long enough for us to know how long they’ll last or what will happen to them. His team had identified nine different kinds in the sea so far, varieties of acrylic, nylon, polyester, polyethylene, polypropylene, and polyvinyl chloride. All he knew was that soon everything alive would be eating them.

“When they get as small as powder, even zooplankton will swallow them.”

TWO SOURCES OF TINY PLASTIC PARTICLES hadn’t before occurred to Thompson. Plastic bags clog everything from sewer drains to the gullets of sea turtles that mistake them for jellyfish. Increasingly, purportedly biodegradable versions were available. Thompson’s team tried them. Most turned out to be just a mixture of cellulose and polymers. After the cellulose starch broke down, thousands of clear, nearly invisible plastic particles remained.

Some bags were advertised to degrade in compost piles as heat generated by decaying organic garbage rises past one hundred degrees Fahrenheit. “Maybe they do. But that doesn’t happen on a beach, or in salt water.” He’d learned that after they tied plastic produce bags to moorings in Plymouth Harbor. “A year later you could still carry groceries in them.”

Even more exasperating was what his PhD student Mark Browne had discovered while shopping in a pharmacy. Browne pulls open the top drawer of a laboratory cabinet. Inside is a cornucopia of feminine beauty aids: shower massage creams, body scrubs, and hand cleaners. Several are by boutique labels: Neova Body Smoother, SkinCeuticals Body Polish, and DDF Strawberry Almond Body Polish. Others are international name brands: Neutrogena, Clearasil, Pond’s Fresh Start, even a tube of Colgate Icy Blast toothpaste. Some are available in the United States, others only in the United Kingdom. But all have one thing in common.

“Exfoliants: little granules that massage you as you bathe.” He selects a peach-colored tube of St. Ives Apricot Scrub; its label reads: 100% natural exfoliants. “This stuff is okay. The granules are actually chunks of ground-up jojoba seeds and walnut shells.” Other natural brands use grape seeds, apricot hulls, coarse sugar, or sea salt. “The rest of them,” he says, with a sweep of his hand, “have all gone to plastic.”

On each, listed among the ingredients are “micro-fine polyethylene granules,” or “polyethylene micro-spheres,” or “polyethylene beads.” Or just polyethylene.

“Can you believe it?” Richard Thompson demands of no one in particular, loud enough that faces bent over microscopes rise to look at him. “They’re selling plastic meant to go right down the drain, into the sewers, into the rivers, right into the ocean. Bite-sized pieces of plastic to be swallowed by little sea creatures.”

Plastic bits are also increasingly used to scour paint from boats and aircraft. Thompson shudders. “One wonders where plastic beads laden with paint are disposed. It would be di;cult to contain them on a windy day. But even if they’re contained, there’s no filter in any sewage works for material that small. It’s inevitable. They end up in the environment.”

He peers into Browne’s microscope at a sample from Finland. A lone green fiber, probably from a plant, lies across three bright blue threads that probably aren’t. He perches on the countertop, hooking his hiking boots around a lab stool. “Think of it this way. Suppose all human activity ceased tomorrow, and suddenly there’s no one to produce plastic anymore. Just from what’s already present, given how we see it fragmenting, organisms will be dealing with this stuff indefinitely. Thousands of years, possibly. Or more.”

IN ONE SENSE, PLASTICS HAVE BEEN AROUND for millions of years. Plastics are polymers: simple molecular configurations of carbon and hydrogen atoms that link together repeatedly to form chains. Spiders have been spinning polymer fibers called silk since before the Carboniferous Age, whereupon trees appeared and started making cellulose and lignin, also natural polymers. Cotton and rubber are polymers, and we make the stuff ourselves, too, in the form of collagen that comprises, among other things, our fingernails.

Another natural, moldable polymer that closely fits our idea of plastics is the secretion from an Asian scale beetle that we know as shellac. It was the search for an artificial shellac substitute that one day led chemist Leo Baekeland to mix tarry carbolic acid –- phenol—with formaldehyde in his garage in Yonkers, New York. Until then, shellac was the only coating available for electric wires and connections. The moldable result became Bakelite. Baekeland became very wealthy, and the world became a very different place.

Chemists were soon busy cracking long hydrocarbon chain molecules of crude petroleum into smaller ones, and mixing these fractionates to see what variations on Baekeland’s first man-made plastic they could produce. Adding chlorine yielded a strong, hardy polymer unlike anything in nature, known today as PVC. Blowing gas into another polymer as it formed created tough, linked bubbles called polystyrene, often known by the brand name Styrofoam. And the continual quest for an artificial silk led to nylon. Sheer nylon stockings revolutionized the apparel industry and helped to drive acceptance of plastic as a defining achievement of modern life. The intercession of World War II, which diverted most nylon and plastic to the war effort, only made people desire them more.

After 1945, a torrent of products the world had never seen roared into general consumption: acrylic textiles, Plexiglass, polyethylene bottles, polypropylene containers, and “foam rubber” polyurethane toys. Most world-changing of all was transparent packaging, including self-clinging wraps of polyvinyl chloride and polyethylene, which let us see the foods wrapped inside them and kept them preserved longer than ever before.

Within ten years, the downside to this wonder substance was apparent. In 1955, Life magazine coined the term “throwaway society.” However, Stanford archaeologist William Rathje, who has made a career of studying garbage in America, finds himself continually disabusing waste management officials and the general public of what he deems a myth: that plastic is responsible for overflowing landfills across the country. Rathje’s decades-long Garbage Project, wherein students weighed and measured weeks’ worth of residential waste, reported during the 1980s that, contrary to popular belief, plastic accounts for less than 20 percent by volume of buried wastes, in part because it can be compressed more tightly than other refuse. Although increasingly higher percentages of plastic items have been produced since then, Rathje doesn’t expect the proportions to change, because improved manufacturing uses less plastic per soda bottle or disposable wrapper.

The bulk of what’s in landfills, he says, is construction debris and paper products. Newspapers, he claims, again belying a common assumption, don’t biodegrade when buried away from air and water. “That’s why we have three-thousand-year-old papyrus scrolls from Egypt. We pull perfectly readable newspapers out of landfills from the 1930s. They’ll be down there for ten thousand years.”

He agrees, though, that plastic embodies our collective guilt over trashing the environment. Something about plastic feels uneasily permanent. The difference may have to do with what happens outside landfills, where a newspaper gets shredded by wind, cracks in sunlight, and dissolves in rain—if it doesn’t burn first.

What happens to plastic, however, can be seen most vividly in places where trash is never collected. Humans have continuously inhabited the Hopi Indian Reservation in northern Arizona since AD1000—longer than any other site in today’s United States. The principal Hopi villages sit atop three mesas with 360-degree views of the surrounding desert. For centuries, the Hopis simply threw their garbage, consisting of food scraps and broken ceramic, over the sides of the mesas. Coyotes and vultures took care of the food wastes, and the pottery sherds blended back into the ground they came from.

That worked fine until the mid-twentieth century. Then, the garbage tossed over the side stopped going away. The Hopis were visibly surrounded by a rising pile of a new, nature-proof kind of trash. The only way it disappeared was by being blown across the desert. But it was still there, stuck to sage and mesquite branches, impaled on cactus spines.

SOUTH OF THE HOPI MESAS rise the 12,500-foot San Francisco Peaks; east of the peaks are the even taller Rockies; and to their west are the Sierra Madres, whose volcanic summits are higher still. Impossible as it is for us to fathom, all these colossal mountains will one day erode to the sea—every boulder, outcrop, saddle, spire, and canyon wall. Every massive uplift will pulverize, their minerals dissolving to keep the oceans salted, the plume of nutrients in their soils nourishing a new marine biological age even as the previous one disappears beneath their sediments.

Long before that, however, these deposits will have been preceded by a substance far lighter and more easily carried seaward than rocks or even grains of silt.

Captain Charles Moore of Long Beach, California, learned this one day in 1997 when, sailing out of Honolulu, he steered his aluminum-hulled catamaran into a part of the western Pacific he’d always avoided. Sometimes known as the Horse Latitudes, it is a Texas-sized span of ocean between Hawai’i and California rarely plied by sailors because of a perennial, slowly rotating high-pressure vortex of hot equatorial air that inhales wind and never gives it back. Beneath it, the water describes lazy, clockwise whorls toward a depression at the center.

Its correct name is the North Pacific Subtropical Gyre, though Moore soon learned that oceanographers had another label for it: the Great Pacific Garbage Patch. Captain Moore had wandered into a sump where nearly everything that blows into the water from half the Pacific Rim eventually ends up, spiraling slowly toward a widening horror of industrial excretion. For a week, Moore and his crew found themselves crossing a sea the size of a small continent, covered with floating refuse. It was not unlike an Arctic vessel pushing through chunks of brash ice, except what was bobbing around them was a fright of cups, bottle caps, tangles of fish netting and monofilament line, bits of polystyrene packaging, six-pack rings, spent balloons, filmy scraps of sandwich wrap, and limp plastic bags that defied counting.

Just two years earlier, Moore had retired from his wood-furniture-finishing business. A lifelong surfer, his hair still ungrayed, he’d built himself a boat and settled into what he planned to be a stimulating young retirement. Raised by a sailing father and certified as a captain by the U.S. Coast Guard, he started a volunteer marine environmental-monitoring group. After his hellish mid-Pacific encounter with the Great Pacific Garbage Patch, his group ballooned into what is now the Algita Marine Research Foundation, devoted to confronting the flotsam of a half century, since 90 percent of the junk he was seeing was plastic.

What stunned Charles Moore most was learning where it came from. In 1975, the U.S. National Academy of Sciences had estimated that all oceangoing vessels together dumped 8 million pounds of plastic annually. More recent research showed the world’s merchant fleet alone shamelessly tossing around 639,000 plastic containers every day. But littering by all the commercial ships and navies, Moore discovered, amounted to mere polymer crumbs in the ocean compared to what was pouring from the shore.

The real reason that the world’s landfills weren’t overflowing with plastic, he found, was because most of it ends up in an ocean-fill. After a few years of sampling the North Pacific gyre, Moore concluded that 80 percent of mid-ocean flotsam had originally been discarded on land. It had blown off garbage trucks or out of landfills, spilled from railroad shipping containers and washed down storm drains, sailed down rivers or wafted on the wind, and found its way to this widening gyre.

“This,” Captain Moore tells his passengers, “is where all the things end up that flow down rivers to the sea.” It is the same phrase the geologists have uttered to students since the beginning of science. However, what Moore refers to is a type of runoff and sedimentation that the Earth had hitherto never known in 5 billion years of geologic time-but likely will henceforth.

DURING HIS FIRST THOUSAND-MILE CROSSING of the gyre, Moore calculated half a pound for every one hundred square meters of debris on the surface, and arrived at 3 million tons of plastic. His estimate, it turned out, was corroborated by U.S. Navy calculations. It was the first of many staggering figures he would encounter. And it only represented visible plastic: an indeterminate amount of larger fragments get fouled by enough algae and barnacles to sink. In 1998, Moore returned with a trawling device, such as Sir Alistair Hardy had employed to sample krill, and found, incredibly, more plastic by weight than plankton on the ocean’s surface.

In fact, it wasn’t even close: six times as much.

When he sampled near the mouths of Los Angeles creeks that emptied into the Pacific, the numbers rose by a factor of one hundred, and kept rising every year. By now he was comparing data with University of Plymouth marine biologist Richard Thompson. Like Thompson, what especially shocked him were plastic bags and the ubiquitous little raw plastic pellets. In India alone, five thousand processing plants were producing plastic bags. Kenya was churning out four thousand tons of bags a month, with no potential for recycling.

As for the little pellets known as nurdles, 5.5 quadrillion—about 250 billion pounds—were manufactured annually. Not only was Moore finding them everywhere, but he was unmistakably seeing the plastic resin bits trapped inside the transparent bodies of jellyfish and salps, the ocean’s most prolific and widely distributed filter feeders. Like seabirds, they’d mistaken brightly colored pellets for fish eggs, and tan ones for krill. And now God-knows-how-many quadrillion little pieces more, coated in body-scrub chemicals and perfectly bite-sized for the little creatures that bigger creatures eat, were being flushed seaward.

What did this mean for the ocean, the ecosystem, the future? All this plastic had appeared in barely more than fifty years. Would its chemical constituents or additives—for instance, colorants such as metallic copper—concentrate as they ascended the food chain, and alter evolution? Would it last long enough to enter the fossil record? Would geologists millions of years hence find Barbie doll parts imbedded in conglomerates formed in seabed depositions? Would they be intact enough to be pieced together like dinosaur bones? Or would they decompose first, expelling hydrocarbons that would seep out of a vast plastic Neptune’s graveyard for eons to come, leaving fossilized imprints of Barbie and Ken hardened in stone for eons beyond?

MOORE AND THOMPSON BEGAN consulting materials experts. Tokyo University geochemist Hideshige Takada, who specialized in EDCs—endocrine-disrupting chemicals, or “gender benders”—had been on a gruesome mission to personally research exactly what evils were leaching from garbage dumps all around Southeast Asia. Now he was examining plastic pulled from the Sea of Japan and Tokyo Bay. He reported that in the sea, nurdles and other plastic fragments acted both as magnets and as sponges for resilient poisons like DDT and PCBs.

The use of aggressively toxic polychlorinated biphenyls—PCBs—to make plastics more pliable had been banned since 1970; among other hazards, PCBs were known to promote hormonal havoc such as hermaphroditic fish and polar bears. Like time-release capsules, pre-1970 plastic flotsam will gradually leak PCBs into the ocean for centuries. But, as Takada also discovered, free-floating toxins from all kinds of sources—copy paper, automobile grease, coolant fluids, old fluorescent tubes, and infamous discharges by General Electric and Monsanto plants directly into streams and rivers—readily stick to the surfaces of free-floating plastic.

One study directly correlated ingested plastics with PCBs in the fat tissue of puffins. The astonishing part was the amount. Takada and his colleagues found that the plastic pellets eaten by the birds concentrated poisons to levels as high as 1 million times their normal occurrence in seawater.

By 2005, Moore was referring to the gyrating Pacific dump as 10 million square miles—nearly the size of Africa. It wasn’t the only one: the planet has six other major tropical oceanic gyres, all of them swirling with ugly debris. It was as if plastic exploded upon the world from a tiny seed after World War II and, like the Big Bang, was still expanding. Even if all production suddenly ceased, an astounding amount of the astoundingly durable stuff was already out there. Plastic debris, Moore believed, was now the most common surface feature of the world’s oceans. How long would it last? Were there any benign, less-immortal substitutes that civilization could convert to, lest the world be plastic-wrapped evermore?

THAT FALL, MOORE, THOMPSON, AND TAKADA convened at a marine plastic summit in Los Angeles with Dr. Anthony Andrady. A senior research scientist at North Carolina’s Research Triangle, Andrady is from Sri Lanka, one of South Asia’s rubber-producing powers. While studying polymer science in graduate school, he was distracted from a career in rubber by the surging plastics industry. An eight-hundred-page tome he eventually compiled, Plastics in the Environment, won him acclaim from the industry and environmentalists alike as the oracle on its subject.

The long-term prognosis for plastic, Andrady told assembled marine scientists, is exactly that: long term. It’s no surprise that plastics have made an enduring mess in the oceans, he explained. Their elasticity, versatility (they can either sink or float), near invisibility in water, durability, and superior strength were exactly why net and fishing line manufacturers had abandoned natural fibers for synthetics such as nylon and polyethylene. In time, the former disintegrate; the latter, even when torn and lost, continue “ghost fishing.” As a result, virtually every marine species, including whales, is in danger of being snared by great tangles of nylon loose in the oceans.

Like any hydrocarbon, Andrady said, even plastics “inevitably must biodegrade, but at such a slow rate that it is of little practical consequence. They can, however, photodegrade in a meaningful time frame.”

He explained: When hydrocarbons biodegrade, their polymer molecules are disassembled into the parts that originally combined to create them-carbon dioxide and water. When they photodegrade, ultraviolet solar radiation weakens plastic’s tensile strength by breaking its long, chainlike polymer molecules into shorter segments. Since the strength of plastics depends on the length of their intertwined polymer chains, as the UV rays snap them, the plastic starts to decompose.

Everyone has seen polyethylene and other plastics turn yellow and brittle and start to flake in sunlight. Often, plastics are treated with additives to make them more UV-resistant; other additives can make them more UV-sensitive. Using the latter for six-pack rings, Andrady suggested, might save the lives of many sea creatures.

However, there are two problems. For one, plastic takes much longer to photodegrade in water. On land, plastic left in the sun absorbs infrared heat, and is soon much hotter than the surrounding air. In the ocean, not only does it stay cooled by water, but fouling algae shield it from sunlight.

The other hitch is that even though a ghost fishnet made from photodegradable plastic might disintegrate before it drowns any dolphins, its chemical nature will not change for hundreds, perhaps thousands of years.

“Plastic is still plastic. The material still remains a polymer. Polyethylene is not biodegraded in any practical time scale. There is no mechanism in the marine environment to biodegrade that long a molecule.” Even if photodegradable nets help marine mammals live, he concluded, their powdery residue remains in the sea, where the filter feeders will find it.

“EXCEPT FOR A SMALL AMOUNT that’s been incinerated,” says Tony Andrady the oracle, “every bit of plastic manufactured in the world for the last fifty years or so still remains. It’s somewhere in the environment.”

That half century’s total production now surpasses 1 billion tons. It includes hundreds of different plastics, with untold permutations involving added plasticizers, opacifiers, colors, fillers, strengtheners, and light stabilizers. The longevity of each can vary enormously. Thus far, none has disappeared. Researchers have attempted to find out how long it will take polyethylene to biodegrade by incubating a sample in a live bacteria culture. A year later, less than 1 percent was gone.

“And that’s under the best controlled laboratory conditions. That’s not what you will find in real life,” says Tony Andrady. “Plastics haven’t been around long enough for microbes to develop the enzymes to handle it, so they can only biodegrade the very-low-molecular-weight part of the plastic”—meaning, the smallest, already broken polymer chains. Although truly biodegradable plastics derived from natural plant sugars have appeared, as well as biodegradable polyester made from bacteria, the chances of them replacing the petroleum-based originals aren’t great.

“Since the idea of packaging is to protect food from bacteria,” Andrady observes, “wrapping leftovers in plastic that encourages microbes to eat it may not be the smartest thing to do.”

But even if it worked, or even if humans were gone and never produced another nurdle, all the plastic already produced would remain—how long?

“Egyptian pyramids have preserved corn, seeds, and even human parts such as hair because they were sealed away from sunlight with little oxygen or moisture,” says Andrady, a mild, precise man with a broad face and a clipped, persuasively reasonable voice. “Our waste dumps are somewhat like that. Plastic buried where there’s little water, sun, or oxygen will stay intact a long time. That is also true if it is sunk in the ocean, covered with sediment. At the bottom of the sea, there’s no oxygen, and it’s very cold.”

He gives a clipped little laugh. “Of course,” he adds, “we don’t know much about microbiology at those depths. Possibly anaerobic organisms there can biodegrade it. It’s not inconceivable. But no one’s taken a submersible down to check. Based on our observations, it’s unlikely. So we expect much-slower degradation at the sea bottom. Many times longer. Even an order of magnitude longer.”

An order of magnitude—that’s ten times—longer than what? One thousand years? Ten thousand?

No one knows, because no plastic has died a natural death yet. It took today’s microbes that break hydrocarbons down to their building blocks a long time after plants appeared to learn to eat lignin and cellulose. More recently, they’ve even learned to eat oil. None can digest plastic yet, because fifty years is too short a time for evolution to develop the necessary biochemistry.

“But give it a hundred thousand years,” says Andrady the optimist—he was in his native Sri Lanka when the Christmas 2004 tsunami hit, and even there, after those apocalyptic waters struck, people found reason to hope. “I’m sure you’ll find many species of microbes whose genes will let them do this tremendously advantageous thing, so that their numbers will grow and prosper. Today’s amount of plastic will take hundreds of thousands of years to consume, but, eventually, it will all biodegrade. Lignin is far more complex, and it biodegrades. It’s just a matter of waiting for evolution to catch up with the materials we are making.”

And should biologic time run out and some plastics remain?

“The upheavals and pressure will change it into something else. Just like trees buried in bogs a long time ago—the geologic process, not biodegradation, changed them into oil and coal. Maybe high concentrations of plastics will turn into something like that. Eventually, they will change. Change is the hallmark of nature. Nothing remains the same.”

[Alan Weisman's article in this issue is an abridged excerpt from his book The World Without Us, published by St. Martin's Press in July, 2007 and used by permission. He lives in Tucson and teaches at the University of Arizona.]

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April 04, 2007

We Must Imagine a Future Without Cars

Source: AlterNet

By James Howard Kunstler
Posted April 4, 2007

The following is James Howard Kunstler' recent speech to the Commonwealth Club of California. An audio stream of the speech is available.

Two years ago in my book The Long Emergency I wrote that our nation was sleepwalking into an era of unprecedented hardship and disorder -- largely due to the end of reliably cheap and abundant oil. We're still blindly following that path into a dangerous future, lost in dark raptures of infotainment, diverted by inane preoccupations with sex and celebrity, made frantic by incessant motoring.

The coming age of energy scarcity will change everything about how we live in this country. It will ignite more desperate contests between nations for the remaining oil and natural gas around the world. It will alter the fundamental terms of industrial economies. It will ramify and amplify many of the problems presented by climate change. It will require us to behave differently. But we are not paying attention.

As the American public continues sleepwalking into a future of energy scarcity, climate change, and geopolitical turmoil, we have also continued dreaming. Our collective dream is one of those super-vivid ones people have just before awakening, as the fantastic transports of the unconscious begin to merge with the demands of waking reality. The dream is a particularly American dream on an American theme: how to keep all the cars running by some other means than gasoline. We'll run them on ethanol! We'll run them on biodiesel, on synthesized coal liquids, on hydrogen, on methane gas, on electricity, on used French-fry oil... !

The dream goes around in fevered circles as each gasoline-replacement is examined and found to be inadequate. But the wish to keep the cars going is so powerful that round and round the dream goes. Ethanol! Biodiesel! Coal Liquids. ...

And a harsh reality indeed awaits us as the full scope of the permanent energy crisis unfolds. The global oil production peak is not a cult theory, it's a fact. The earth does not have a creamy nougat center of petroleum. The supply in finite, and we have ample evidence that all-time global production has peaked.

Of course, the issue is not about running out of oil, and never has been. There will always be some oil left underground -- it just might take more than a barrel-of-oil's worth of energy to pump each barrel out, so it won't be worth doing.

The issue is not about running out -- it's about what happens when you head over the all-time production peak down the slippery slope of depletion. And what happens is that the complex systems we depend on for everyday life in advanced societies begin to falter, wobble, and fail -- and the failures in each system will in turn weaken the others. By complex systems I mean the way we produce our food, the way we conduct manufacture and trade, the way we operate banking and finance, the way we move people and things from one place to another, and the way we inhabit the landscape.

I'll try not to dwell excessively on the statistics since I am more concerned here with the implications for everyday life in our nation. But it is probably helpful to understand a few of the numbers.

Oil production in the US peaked in 1970. We're now producing about half of what we did then, and our own production continues to run down steadily at the rate of a few percentage points of recoverable reserves each year. It adds up. In 1970, we were producing about 10 million barrels a day. Now we're down to less than five -- and we consume over 20 million barrels a day. We have compensated for that since 1970 by importing oil from other nations. Today we import about two-thirds of all the oil we use. Today, the world is consuming all the oil it can produce. As global production passes its own peak, the world will not be able to compensate for its shortfall by importing oil from other planets.

Nor is there any real likelihood that new discoveries will be adequate to compensate. Discovery precedes production, of course, because you can't pump oil that you haven't discovered. Discovery of oil in the US peaked in the 1930s -- and production started declining roughly 30 years later. Discovery of oil peaked worldwide in the 1960s, and now the signs suggest the world has peaked. Discovery of new oil worldwide in recent years has amounted to a tiny fraction of replacement levels. In fact, we may be burning more oil just in our exploration efforts than we will get from the oil we're discovering.

The oil industry has been dominated by what are called supergiant fields. The four reigning supergiant fields of oil our time were discovered decades ago and are now in decline. The Burgan field of Kuwait, the Daqing of China, Cantarell of Mexico, and Ghawar of Saudi Arabia. Together in recent decades they were responsible for 14 percent of the world's oil production, and they are now in decline. All except Ghawar of Saudi Arabia have been declared officially past peak by their own governments and Ghawar is showing clear signs of trouble -- though Aramco itself won't say so. Ghawar has provided 60 percent of Saudi Arabia's production. Saudi Arabia's total production is down 8 percent in the year past, despite a massive increase in drilling rigs, and the incentive of high prices.

Last year, the Mexican national oil company, Pemex, declared its supergiant field, Cantarell, to be officially past peak and in decline. As in the case with Ghawar and Saudi Arabia, Cantarell has been responsible for 60 percent of Mexico's oil production. Cantarell is now crashing at an official decline rate of at least 15 percent a year -- perhaps steeper. Mexico has been our No. 3 source of oil imports (after Canada and Saudi Arabia). The crash of Cantarell means in just a few years Mexico, our No. 3 source of imports, will have no surplus oil to sell to the US. It also means that the Mexican government will be strapped for operating revenue -- and you can draw your own conclusions about the political implications.

The North Sea and Alaska's North Slope were some of the last great discoveries of the oil era. Plentiful North Sea and Alaskan production took away OPEC's leverage over the oil markets. This led to the oil glut of the 1990s, driving oil prices down finally to $10 a barrel. It is also what induced the American public to fall asleep on energy issues. It seemed as if cheap oil was here to stay. Forever.

Both The North Sea and Alaska are now past peak and in depletion. Prudhoe Bay proved to be Alaska's only super giant oil field. Several other key fields were discovered. None were even 1/6th the size of Prudhoe Bay.

North Sea oil was produced using the latest-and-greatest new technology for drilling and guess what: it only allowed the region to be drained more rapidly and efficiently. Now 57 of Norway's 69 oil fields are past peak and the average post-peak decline rates average 17 percent a year. The UK's share of the North Sea has declined to the extent that England is now a net energy importer.

Russia, despite current high levels of post-Soviet-era production, peaked in the 1980s, and may now be past 70 percent of its ultimate recoverable reserves. Iran is past peak. Indonesia, an OPEC member, is so far past peak it became a net oil importer last year. Venezuela is past peak. Iraq and Nigeria are consumed by political insurrection. The companies developing Canada's tar sands have announced this past year that their costs will double original estimates -- in other words, whatever comes out of the ground there will be very expensive.

Meanwhile, in the background, completely ignored by the US media, an additional problem is developing on the oil scene. Net world production is going down by just under 3 percent a year, but total exports from the top ten exporters are going down at an even steeper rate. Geologist Jeffrey Brown, among the excellent technicians at TheOilDrum.com website, writes that the top ten exporters are showing a net export decline rate of 7 percent the past year, trending toward a 50 percent export decline over the coming ten years. Why? Because on top of production decline rates, nations like Saudi Arabia, Iran, and Venezuela are using more of their own oil at home with rising populations and more automobiles.

A few additional background items. Most of the easy-to-get, light and sweet crude oil is gone. We got that out of the ground in the run-up to peak [oil]. We found that high quality oil in temperate places onshore, like Texas, where it was easy and pleasant to work, and the stuff was relatively close to the surface. The remaining oil is, each year, proportionally made up more of heavy and sour crudes that are hard to refine and yield less gasoline. Most of the refinery capacity in the world cannot process these heavy and sour crudes and there is no world-class industrial effort to build new ones -- and on top of that, existing world refinery infrastructure is old and rusty. Finally, most of the remaining oil in the world exists either in geographically forbidding places where it is extremely difficult and expensive to work, like deep water out in the ocean or in frozen regions, or else it belongs to people who are indisposed to be friendly to us.

The natural gas situation is at least equally ominous, with some differences in the technical details -- and by the way, I'm referring here not to gasoline but to methane gas (CH4), the stuff we run in kitchen stoves and home furnaces. Natural gas doesn't deplete slowly like oil, following a predictable bell curve pattern; it simply stops coming out of the ground very suddenly, and then that particular gas well is played out. You get your gas from the continent you're on. Natural gas is moved to customers in the US, Canada, and Mexico in an extensive pipeline network. To import natural gas from overseas, it has to be liquefied, loaded in a special kind of expensive-to-build-and-operate tanker ship, and then offloaded at specialized marine terminal, all adding layers of cost. The process also obviously affords us poor control over not-always-friendly foreign suppliers.

Half the homes in America are heated with gas furnaces and about 16 percent of our electricity is made with it. Industry uses natural gas as the main ingredient in fertilizer, plastics, ink, glue, paint, laundry detergent, insect repellents and many other common household necessities. Synthetic rubber and man-made fibers like nylon could not be made without the chemicals derived from natural gas. In North America, natural gas production peaked in 1973. We are drilling as fast as we can to keep the air conditioners and furnaces running.

That's the background on our energy predicament. Against this background is the whole question of how we live in the United States. I wrote three books previously about the fiasco of suburbia. There are many ways of describing it, but lately I refer to it as the greatest misallocation of resources in the history of the world. Why? Because it is a living arrangement with no future. Why doesn't it have a future? Because it was designed to run on cheap oil and gas, and in just a few years we won't have those things anymore.

Having made these choices, we are now hobbled by a tragic psychology of previous investment -- that is, having poured so much of our late-20th century wealth into this living arrangement -- this Happy Motoring utopia -- we can't imagine letting go of it, or substantially reforming it.

We have compounded the problem lately by making the building of suburban sprawl the basis of our economy. Insidiously, we have replaced America's manufacturing capacity with an economy based on building evermore suburban houses and the accessories and furnishings that go with them -- the highway strips, the big box shopping pods, et cetera -- meaning that our economy is now largely based on building more and more stuff with no future -- on a continued misallocation of resources. Roughly 40 percent of the new jobs created between 2001 last year were in housing bubble related fields -- the builders, the real estate agents, the mortgage brokers, the installers of granite countertops. If you subtracted the housing bubble from the rest of the economy in recent years, there wouldn't be much left besides hair-styling, fried chicken, and open heart surgery. Much of this housing bubble itself was promulgated by an equally unprecedented lapse in standards and norms of finance -- a tragedy-in-the-making that has now begun to unwind. What are we going to do about our extreme oil dependence and the living arrangement that goes with it?

There's a widespread wish across America these days that some combination of alternative fuels will rescue us; will allow us to continue enjoying by some other means what has been called "the non-negotiable American way of life." The wish is perhaps understandable given the psychology of previous investment.

But the truth is that no combination of alternative fuels or systems for using them will allow us to continue running America the way we have been, or even a substantial fraction of it. We are not going to run Wal Mart, Walt Disney World, Monsanto, and the interstate highway system on any combination of solar or wind energy, hydrogen, nuclear, ethanol, tar sands, oil shale, methane hydrates, thermal depolymerization, zero-point energy, used french-fry oil, or anything else you can name. We will desperately use many of these things in many ways, but we are likely to be disappointed by what they can actually do for us, particularly in terms of scale -- apart from the fact that most or all of them are probably net energy losers in economic terms.

For instance, we are much more likely to use wind power on a household or neighborhood basis rather than in deployments of Godzilla-sized turbines in so-called wind farms.

The key to understanding what we face is that we have to comprehensively make other arrangements for all the normal activities of everyday life. It is a long, detailed "to do" list that we can't afford to ignore. The public discussion of these issues is impressively incoherent. This failure of the collective imagination is reflected in the especially poor job being done by the mainstream media covering this story -- in particular, The New York Times, which does little besides publish feel-good press releases from Cambridge Energy Research Associates, the oil industry's chief public relations consultant.

These days, the only aspect of these issues that we are willing to talk about at all is how we might keep all our cars running by other means. We have to get beyond this obsession with running the cars by other means. The future is not just about motoring. We have to make other arrangements comprehensively for all the major activities of daily life in this nation.

We'll have to grow our food differently. The ADM/Monsanto/Cargill model of industrial-scale agribusiness will not survive the discontinuities of the Long Emergency -- the system of pouring oil-and-gas-based fertilizers and herbicides on the ground to grow all the cheez doodles and hamburgers. As oil and gas deplete, we will be left with sterile soils and farming organized at an unworkable scale. Many lives will depend on our ability to fix this.

We will find out the hard way that we can't afford to dedicate our crop lands to growing grains and soybeans for ethanol and biodiesel. A Pennsylvania farmer put it this way to me last month: "It looks like we're going to take the last six inches of Midwest topsoil and burn it in our gas tanks." The disruptions to world grain supplies by the ethanol mania are just beginning to thunder through the system. Last months there were riots in Mexico City because so much Mexican corn is now being already being diverted to American ethanol production that poor people living on the economic margins cannot afford to pay for their food staples.

You can see, by the way, how this is a tragic extension of our obsession with running all the cars.

In the years ahead, farming will come back much closer to the center of American economic life. It will necessarily have to be done more locally, at a smaller-and-finer scale, and will require more human attention. Many of the value-added activities associated with farming -- making products like cheese, wine, oils -- will also have to be done much more locally. This situation presents excellent business and vocational opportunities for America's young people. It also presents huge problems in land-use reform. Not to mention the fact that the knowledge and skill for doing these things has to be painstakingly retrieved from the dumpster of history.

We're going to have to move people and things from place to place differently. It is imperative that we restore the US passenger railroad system. No other project we could do right away would have such a positive impact on our oil consumption. We used to have a railroad system that was the envy of the world. Now we have a system that the Bulgarians would be ashamed of.

The infrastructure for this great task is lying out there rusting in the rain. This project would put scores of thousands of people to work at meaningful jobs, at every level, from labor to management. It would benefit all ranks of society. Fixing the US passenger rail system doesn't require any great technological leaps into the unknown. The technology is thoroughly understood. The fact that from end-to-end of the political spectrum there is no public discussion about fixing the US passenger rail system shows how un-serious we are.

There's another compelling reason we should undertake the great project of repairing the US passenger rail system: it is something that would restore our confidence, a way we could demonstrate to ourselves that we are competent and capable of meeting the difficult challenges of this energy-scarce future. ... And it might inspire us to get on with the other great tasks that we will have to face.

By the way, it is important that we electrify our railroad system. All the other advanced nations have electric rail systems which allow them to run on something other than fossil fuel or to control the source point of the carbon emissions and pollution in the case of coal-fired power generation. Electric motors are far simpler and way more efficient even than diesel engines. The US was well underway with the project of electrifying our railroad system, but we just gave up after the Second World War as we directed all our investment to the interstate highway system instead.

We're going to have to move things by boat. But we've just finished a 50-year effort in taking apart most of the infrastructure for maritime trade in America. Our harbors and riverfronts have been almost completely de-activated. The public now thinks that harbors and riverfronts should only be used for condo sites, parks, bikeways, band shells and festival marketplaces. Guess what: We're going to have to put back the piers and warehouses and even the crummy accommodations for sailors.

We're going to have to move a lot more stuff by water or our ability to do commerce will suffer. Meanwhile, if we use trucks, it will be for the very last local increment of the journey. Leaders in business and municipal politics will have to wrap their minds around this new reality.

We are probably in the twilight of Happy Motoring -- as we have known it. The automobile will be a diminished presence in our lives. I'm not saying that cars will disappear, but it will become self-evident that our extreme dependency will have to end. It is possible, but not likely, that affordable electric cars will come on the market before we get into serious trouble with oil. More likely, we'll be facing an entirely new political problem with cars as motoring becomes increasingly only something that the economic elite can enjoy.

For decades, motoring has been absolutely democratic. Everybody from the lowliest hamburger flipper to the richest Microsoft millionaire could participate in the American motoring program. Right now, let's say six percent of adults in this nation can't drive, for one reason or another: They're blind, too old, too poor, et cetera. What if that number rose to 13 percent, or 26 percent of Americans because either the price of fuel or the cost of a vehicle rose beyond their means. Do you suppose that a whole new mood of grievance and resentment might arise against those who were still driving cars? And how would the large new class of non-drivers feel about paying taxes to maintain the very expensive interstate highway systems?

Back to the task list:

We're going to have to make other arrangements for commerce and manufacturing. The national chain discount stores that took over American retail in recent decades will not survive the discontinuities of the Long Emergency. Their business equations and methods of operations will fail, in particular their remorseless cancer-like drive toward replication and expansion. They will lack the resilience to adapt due to their gigantic scale of operations -- a scale that will no longer be appropriate to the contracting available energy "nutrients."

The so-called "warehouse on wheels" composed of thousands of trucks circulating incessantly around the interstate highways will not work economically in a new era of scarcer and expensive oil. Not to mention the 12,000-mile supply line to the factories of Asia which we have tragically come to depend on for so many of our household goods.

We have to check all our assumptions at the door about how things will work in the years ahead. Lately, thanks to Tom Friedman and other cheerleaders for the global economy, we've adopted the notion that globalism is a permanent condition of life. I think we will be disappointed to learn the truth -- that globalism was a set of transient economic relations made possible at a particular time by very special conditions, namely half a century of cheap energy and half a century of relative peace between the great powers.

Those conditions are about to end, and with them, I predict, will go many of the far-flung economic relations that we've come to rely on. When the US and China are contesting for the world's remaining oil resources, do you think it's possible that our trade relations might be affected? These are things we had better be prepared to think about it. China has way outstripped its own dwindling oil supply. China has gone all over the world in recent years systematically making contracts for future delivery of oil with other nations, including Canada, as that nation ramps up production of the tar sands in Alberta.

I want to remind you that there is such a thing as the Monroe Doctrine, an American foreign policy position that essentially forbids nations outside the western hemisphere from intruding in or exploiting affairs in this part of the world. It may be an old and perhaps an arrogant policy -- but I predict the time will come when the United States will invoke it in order to preserve our access to Canadian oil supplies. And if-and-when that occurs, what do you suppose that will mean to our trade relations with China? How many plastic wading pools and salad shooters will Wal-Mart be ordering then?

These are the kinds of things we are not thinking about at all, and which leave us woefully unprepared to face a very uncertain future.

Getting back to retail trade in the US -- it is important to recognize the damage that the national discount chain stores have already done in systematically destroying local commercial economies. If you travel around the main street towns of this nation, as I do, you see places in Pennsylvania, and Michigan, and Alabama, and Oklahoma, and Connecticut, and in my region of the upper Hudson Valley in New York that look like former soviet backwaters. The destruction, the abandonment and desolation in the fabric of our towns is just out of this world.

This era of chain store supremacy will not continue far into the future, and as it wobbles and falls we will be faced with a tremendous task of rebuilding the fine-grained, multi-layered local networks of economic interdependency that the chain stores destroyed. As that rebuilding occurs we will restore social roles as well as economic roles that have long been absent in our home places.

In destroying local retail infrastructures, the chain stores wiped out a whole mercantile middle class. These were the people ran local businesses, who sat on the library and hospital boards, who sponsored the little league baseball, who employed their neighbors and had to behave decently toward them, as well as treating their neighbors decently in matters of trade. They were people who uniformly had to take care of at least two buildings in town -- the place where they did business and the place where they lived. These were the people who were the caretakers of our communities, and the extermination of this class of citizens has been devastating.

We don't know how we are going to make things again in America, for instance, ordinary household products. We're not going to re-live the 20th century, when the US was on a great upswing of energy resources and we made everything for ourselves from toasters to record players. Where I live, in the upper Hudson and Mohawk Valley region of New York, most of the factories have actually been knocked down in the past 20 years. The water power is still there in many of these places, but the buildings are gone. Among all our other wishes, there is a wish that we will innovate stunning new methods for making things, such as nanotechnology. I'd repeat that we'd better check all our assumptions at the door and that we are liable to be disappointed by what these wishes will eventually lead to.

I think the truth is, we are going to have fewer things to buy. The Blue-Light-Special retail orgy of recent decades will fade into history, and shopping will retreat into the background of daily life. Consuming things will not be our sole reason for living.

The role of finance as we know it today will be severely challenged by the Long Emergency. Declining energy supplies have one particular grave implication for industrial societies: that they can no longer take for granted the 3 to 7 percent annual growth in gross domestic product that has been assumed to be normal throughout recent history. In fact, the energy picture -- the dwindling of a particular, extraordinary, one-time, very special resource -- implies a general contraction of productive activity.

Our expectations for growth are vested in tradable paper certificates -- currencies, stocks, bonds, and other instruments that represent our confidence that society will produce more wealth, and that this increase can be enjoyed in the form of profits and dividends. What happens when that consensus about reliable increase falls apart? What happens to the entire edifice of finance when these abstract certificates are no longer backed by the faith of people who have been trading them?

We can see the beginning of this process right now in the unwinding of the home mortgage sector. This recent experiment in the abolition of moral hazard, in the suspension of norms-and-standards in lending, in the fobbing off of risk, is climaxing in one of the great debacles of modern economics. It was based on the idea that immense numbers of promises for future payment could be bundled into bonds, resold, and parlayed to leverage evermore abstract casino-like bets masquerading as investments. This is anything but investment in future productive activity.

It is now being discovered that at the foundation of all this jive-finance activity lie bundles of broken promises, "non-performing loans," as they're called. It remains to be seen how this mortgage-and-housing bubble fiasco will play out, but I think it will be one of the major events leading to an overall loss of presumed wealth for American society. And is likely, as well, to infect the jury-rigged structures of global finance to a disastrous degree.

The key to all our everyday activities in the future is scale. We will probably have to live more locally than has been the case in recent decades. I think we can state categorically that anything organized on the gigantic scale, whether it is an agricultural system, or a finance system, or a corporation, or a chain of stores, or a school, or a government, is going to run into trouble.

School is another item on our "to do" list of things that we have to make other arrangements for. The gigantic centralized public school systems all over America that depend on the massive fleets of yellow school buses for collecting the students every morning around the 50-mile-radius 'pupil sheds' -- this way of doing things will probably encounter failure. Not to mention that we used the same kind of sprawling, one-story, flat-roofed buildings in Florida as in Minnesota -- and given the situation with natural gas we'll have trouble heating these buildings in the colder states. Of course there are plenty of reasons to suspect that schools this large, designed like medium security prisons, are not optimum settings for learning even if oil and gas were plentiful.

Complicating the issue is the fact that our school systems are at the center of the psychology of previous investment. We have put so much of our collective wealth in these sprawling, oversized, vehicle-dependent institutions -- with all their fabulous amenities of swimming pools, video labs, and free parking -- that it will be very difficult for us to let go of them -- even after it is self-evident that they are no longer working. What will replace our giant centralized public schools? School districts will be starved for cash in the Long Emergency. I doubt that we will be able to replace the centralized schools with a whole new system of smaller buildings distributed more equitably around the places where people live. If anything, I suppose a replacement may arise out of home schooling, especially as home schools aggregate into larger neighborhood units so that every parent doesn't have to duplicate the vocational role of teacher (and of course not all parents would even be capable of acting in that role).

The destiny of higher education ought to be especially troubling. The giant universities are exactly the kinds of institutions that will prove unwieldy and unsupportable in the Long Emergency. College will cease to be the mass consumer activity it became in the cheap energy heyday. If it survives at all, it is likely to be -- as earlier in history -- an activity for a much smaller economic elite.

The question of class relations per se will be affected by our energy situation, since it is necessarily linked to our economy. The Long Emergency is going to produce a lot of economic losers -- a whole new group I call the formerly middle class. They will lose jobs, vocations, and incomes that they will never get back. They are going to be full of grievance, anger, resentment, and bewilderment at the loss of their entitlements to the "non-negotiable" American way of life, including home ownership and affordable happy motoring. They are likely to express these feelings politically. We will be lucky if they do not turn to demagogues who promise to mount one sort of campaign or another to restore the entitlements of suburbia.

Such a campaign would be an enormous exercise in futility and a gross waste of our scarce remaining resources. But it is the kind of thing that happens when a society comes under extreme stress, and we had better be prepared for it. Social friction may also be prompted as agriculture comes closer to the center of our economic life, and we're faced with conflict between those who retain wealth in productive land and those who must resort to working in agriculture to make a living. In history, this typically sets the stage for the radical redistribution of property, seizure of land, in short, for political revolution. It could happen here. We are certain to experience epochal demographic shifts in any case. The 200-year-long trend of people leaving the rural places and the small towns to go to the big cities will very likely go into reverse.

Our hyper-gigantic cities and so-called metroplexes are a pure product of the 200-year-long upward arc of cheap energy. Like other things of gigantic scale, our cities will get into trouble. They are going to contract substantially. The cities that are composed overwhelmingly of suburban fabric will be most susceptible to failure. Orlando, Houston, Atlanta. The cities that are overburdened with skyscrapers will face an additional layer of trouble -- the skyscraper, like the mega-city, was a product of cheap energy, and we are going to have trouble running them, especially heating them without cheap natural gas.

As our cities contract, I think they will re-densify at their centers and around their waterfronts, if they are located favorably on water, and depending on how (or if) rising ocean levels might affect them. The process of contraction in our cities is likely to be difficult, disorderly and unequal. Some cities will do better than others. In my opinion, Phoenix and Tucson will be substantially depopulated. They will face additional problems with their ability to produce food locally and with water.

In Las Vegas, the excitement will be over. That will be a good thing since it has become the holy shrine of America's new chief religion: the worship of unearned riches -- based on the belief that it is possible to get something for nothing -- a belief that underlies, by the way, a great deal of the delusional thinking abroad in this land about the ability of alternative fuels and energy schemes to rescue our current mode of living.

It is hard to be optimistic about the destiny of our suburbs. My referring to them as the greatest misallocation of resources in the history of the world pretty much says it all. There will be a wish to rescue them, of course, but it is unlikely to go beyond the wishing stage. We will be a less affluent society in the years ahead than we were when we built the suburbs in the first place, and we will have fewer resources to fix them or retrofit them. The Jolly Green Giant is not going to come and move the houses closer to the shopping -- to undo the vast absurdities of single-use-zoning.

We could reform our codes and regulations which have virtually mandated a suburban sprawl outcome in every American locality -- but it's a little late for that. The horse is out of the barn on that one. And anyway, I believe the mortgage-and-housing bubble fiasco will mark the end of the whole project of suburbanization per se. I don't believe the production home builders will ever recover from it in our lifetimes; we certainly don't need a single additional WalMart or fried food joint; and the energy problems we face will eventually overcome all our wishes to keep that system going, whether we like it or not.

Realistically, I think we will have to return to a set of traditional ways of inhabiting the terrain -- towns, smaller-scaled cities composed of walkable neighborhoods, and a productive rural landscape with more of a human presence than we see in today's countryside. We have thousands of smaller towns and cities waiting to be re-inhabited and re-activated. Most of them occupy geographically important or valuable sites, especially the ones near fresh running water.

For the past two decades I have been associated with the New Urbanist movement. The New Urbanists were architects, planners, and developers who recognized the tremendous weaknesses and liabilities of the suburban pattern and have been campaigning to reform the way we build things in this country. Their methods are consistent with what we are going to need in the decades ahead to refashion human habitats that have a future and which are worth caring about.

The great achievement of the New Urbanists was not in the projects and new towns that they designed and caused to get built in recent years, but in their heroic act of retrieving lost knowledge from the dumpster of history -- a whole body of principles, methods, and skills necessary to design places worth living in. This was knowledge and principle that we had thrown away in our mad rush to become a drive-in utopia. We threw it away thinking that we could replace urban design and artistry with mere traffic engineering and statistical analysis. The result of that is now visible for all to see in the tragic landscape of the highway strips and the single-income housing pods. What we managed to do was build a land full of scary places that turned us into a nation of scary people. But this was the final tragedy of suburbia: we put up thousands of places that aren't worth caring about, not understanding that when we had enough of them, we might be left with a nation not worth defending.

So there you have a comprehensive "to do" list of efforts we can make to meet the challenges of the permanent global energy crisis, things we can do to mount an intelligent response to these circumstances that reality is sending our way. Growing more of our food locally; restoring our railroads and other forms of public transit; rebuilding local networks of commerce and economic interdependency; reorganizing education at an appropriate scale for the future.

We cannot assume a seamless transition between where we are today and where we're going. It maybe turbulent and disorderly.

We cannot assume that technology alone will rescue us. In fact, one of the major obstacles to clear thinking these days is the mistaken belief that technology and energy are the same thing; that they are interchangeable; that if you run out of one, you can just plug in the other.

Energy and technology are related to each other but they are not the same. Technology may help us get energy resources, or use energy resources, but it is not an energy resource itself. We assume magical properties for technology largely because, in our lifetimes, the energy has always been there behind it, steady, dependable, and cheap.

What's more energy and technology both entail very insidious side effects. Energy throws off entropy, a protean force of disorder and loss that manifests in everything from the wasted heat coming out of an engine tailpipe to the immersive ugliness of the American commercial highway strip -- which is entropy-made-visible.

Technology throws off diminishing returns, in the sense that the more complex you make things, often the worse the effect on society as a whole. My favorite example is the telephone system. For more than two decades we have invested billions in computerizing every phone system in the land. The net result, after all that investment and effort, is that it is practically impossible to reach a live human being on a telephone -- not to mention the monumental ten-times-a-day aggravation of getting booted into a computerized phone menu leading to the purgatory of terminal "hold."

I hope we can overcome our tendencies to try to get something for nothing and to engage in wishful thinking. The subject of hope itself is an interesting one. College kids on the lecture circuit always ask me if I can give them some hope. Apparently, they find this view of the future to be discouraging. It may mean fewer hours playing Grand Theft Auto with a side order of Domino's pepperoni pizza, but there are many positive implications for our lives in the future. We may once again live in places worth caring about, where beauty and grace are considered everybody's birthright. We may work side-by-side with our neighbors, on things that are meaningful. Instead of canned entertainments, we may hear the sounds of our own voices making music, see the works of our own dramatists and dancers.

Hope is something we really have to supply for ourselves. We are our own generators of hope, and we do it by demonstrating to ourselves that we are capable of facing the circumstances of our time, of working competently to meet these challenges, and of learning the difference between wishing and doing. In fact, what we need is not so much hope, but confidence in our inherent abilities and the will to act.

We've got a lot to do. We've got to put down the iPods and get busy. There's no time for hand-wringing and whining. As Yogi Berra said, our whole future's ahead of us.

December 25, 2006

The second largest oil field in the world is exhausted

Source: Kuwait Times

By Peter J. Cooper
December 25, 2006

KUWAIT: It was an incredible revelation last week that the second largest oil field in the world is exhausted and past its peak output. Yet that is what the Kuwait Oil Company revealed about its Burgan field. The peak output of the Burgan oil field will now be around 1.7 million barrels per day, and not the two million barrels per day forecast for the rest of the field's 30 to 40 years of life, Chairman Farouk Al-Zanki told Bloomberg. He said that engineers had tried to maintain 1.9 million barrels per day but that 1.7 million is the optimum rate. Kuwait will now spend some $3 million a year for the next year to boost output and exports from other fields.

However, it is surely a landmark moment when the world's second largest oil field begins to run dry. For Burgan has been pumping oil for almost 60 years and accounts for more than half of Kuwait's proven oil reserves. This is also not what forecasters are currently assuming.

Last week the International Energy Agency's report said output from the Greater Burgan area will be 1.64 million barrels a day in 2020 and 1.53 million barrels per day in 2030. Is this now a realistic scenario?

The news about the Burgan oil field also lends credence to the controversial opinions of investment banker and geologist Matthew Simmons. His book 'Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy' claims that ageing Saudi oil fields also face serious production falls.

The implications for the global economy are indeed serious. If the world oil supply begins to run dry then the upward pressure on oil prices will be inexorable. For the oil producers this will come as a compensation for declining output, and cushion them against an economic collapse.

However, the oil consumers then face a major energy crisis. Industrialized economies are still far too dependent on oil. And the pricing mechanism of declining oil reserves will press them into further diversification of energy supplies, particularly nuclear, wind and solar power.

All this was foreshadowed in the energy crisis of the late 1970s when a serious inflection in oil supply by the year 2000 was clearly forecast. How ironic that those earlier forecasts now look correct, while more modern and recent forecasts begin to look over optimistic and out-of-date with geological reality.

Nobody can change the geology, and forces of nature that laid down reserves of oil and gas over millions and millions of years. Could it be that we have been blinded by technological advances into thinking that there is some way to beat nature?

The natural world has an uncanny ability to hit back at the arrogance of man, and perhaps a reassessment of reality at this point is called for, rather than a reliance on oil statistics that may owe more to political manoeuvring than geological facts. - AME Info FZ LLC.

December 23, 2006

Running on Fumes

Source: NRDC.org

December 10, 2006

How bad is the current energy crisis? Really, really bad, says oil expert Charley Maxwell.

After half a century in the oil business, Charles Maxwell is widely referred to as the dean of energy analysts. As a Marshall Scholar at Oxford he specialized in Arabic and Persian language and history before joining Mobil in 1957. He spent a decade with the oil giant, scheduling tanker shipments, working in a field office in Nigeria, and negotiating Middle East production agreements. When the Arab oil embargo hit in 1973, he was already being hailed by Institutional Investor as Wall Street's number-one oil analyst. Today he is a senior energy analyst with Weeden & Co., which provides proprietary research to institutional investors.

Charley Maxwell is not your classic environmentalist -- he favors further development of coal and nuclear energy and sits on the board of a coal-bed methane company in Denver. But in this late-September conversation with Sonia Shah, author of Crude: The Story of Oil, Maxwell urges a new conservation ethic that may -- or may not -- save us from the worst energy crisis we have yet faced.

You are famous for coining the term "energy crisis" in the 1970s. Do you think that we're entering another crisis now?

I do. In the first energy crisis, we tried to keep prices low and ration the physical gasoline. People sat in these long queues and it was a huge loss of time and money. When the second energy crisis hit, in the late seventies and early eighties, we just allowed the price to rise. And that's what we're doing now -- rationing by price. The fact that gasoline recently hit $3.20 a gallon would suggest that we are in crisis. I would say even $2.50, which is where it is now, represents some form of crisis.

What are the underlying reasons?

There are four, I think. First and foremost, there was a lot of oil that could have been discovered that wasn't, because the national oil companies such as Saudi Aramco didn't invest enough in exploration. Second, the big oil companies didn't exercise much vision. When prices went up in 2000, they basically pocketed the money. Of course, if you're an executive and you have stock options, you start to think that the whole world depends on your stock price rather than on getting more oil. And who's to say that we should have more oil? If it means that everyone is going to work harder and longer to make possible the greater use of SUVs, is that a worthy end in the world of God?

And the other two reasons?

The third is political instability around the world. And the fourth is that we are now approaching the 50 percent mark of recoverable oil. Global oil production will reach a maximum rate and then it will inexorably start to go down. I predict that will be between 2015 and 2020. When that happens it will be the single biggest problem that we face.

And we're using more oil all the time.

Yes, as the world economic system grows, we're needing about 1.5 percent to 2 percent more oil every year. Right now the non-OPEC countries are providing about half of that. But those proportions are changing fast. In 2010 that door slams shut, and we will have to call on OPEC for all the new oil we need. So they will have complete control over its availability and its price.

How much more oil is still waiting to be discovered?

There is still a lot of oil out there. But if it takes 30 years rather than 10 to discover it, then we're not going to be producing enough each year to meet our needs. What's happened is that the search has slowed dramatically. So we're in deep trouble.

Exxon has said there could be up to 4.8 trillion barrels of oil still recoverable. And there are other industry estimates that go as high as 7 trillion.

I read that stuff and it's good background humor, you know what I mean? But I really hope they don't think anyone takes them seriously.

So is it just a PR thing?

No, I think Exxon actually believes it, which is really sad.

What's the outlook for new sources of oil, so-called unconventional sources?

Most of that is actually gas. There's coal-bed methane, which is the gas from coal deposits. There's the gas from so-called tight sands, which are geologic formations on the way to becoming sandstone. And then there's shale, which gives up the gas very slowly. That makes it uneconomic when [natural] gas costs $2 [per million Btu], but in a world of $7 gas, you'd accept the slow production and you'd still be happy to get it.

Do you think price levels are high enough at the moment to start triggering changes in our behavior?

Even with $3 gas, nobody's saying, "I can't take Johnny to the soccer match." But there's no doubt we're going to have to change our habits. We're going to have to design our cities differently. We're going to need greater population densities and more public transportation. We're going to have to build our houses to different building codes. But the system can't change overnight. We can change our habits in two or three years and the next generation of equipment will be developed with energy conservation in mind, but people will have to go on with their present equipment for a time.

Even so, I think we're already triggering some favorable changes at $3, like the decline in SUV sales and the increased sales of smaller sedans. I read the other day that in 10 years, 10 percent of the country will be using hybrids -- which isn't that much. So there's got to be more than hybrids, and I think Honda is on to it with a new small diesel with a very efficient engine. One advantage of diesel is that the engine lasts longer than the gasoline engine.

But doesn't our whole model of economic growth depend on throwing things out and getting new ones?

Yes, but I think this new conservation ethic is going to come in. It will be hard on General Motors and Ford and Chrysler, and it may take some subsidies. I don't think the government can afford to put any of those companies into bankruptcy.

Do you see any prospect of a gasoline tax? Or is that still a taboo?

I think it's changing. But there are lots of ways to do it. You don't have to have a gasoline tax; you can have a tax on horsepower and thus give a huge lift to lighter cars with less powerful engines. There's a recognition that we have to decrease the weight of vehicles. We can now make cars with traditional engines that are half the weight of the cars today. There are some marvelous new plastics that give us this very light weight with great strength, so we'll be able to hold on to these cars for much longer.

Where's the political leadership on all this? I mean, when the president talks about our being "addicted to oil" and needing more ethanol...

Well, he's just being told what to say by his minions, you know. Ethanol, for the moment -- meaning ethanol from corn -- is a stupid investment, as people are discovering. Pretty close to 100 percent of the savings [in oil consumption] that you get on ethanol is consumed by the hydrocarbon fuel that has to be used to grow the corn. You do save something in national security terms -- it's not from the Middle East, and you're not putting dollars out into the wider world. But if they can convert cellulose to sugar, and sugar to alcohol, then we will really have something.

They're using sugarcane in Brazil, of course. But you mean other crops, like switchgrass?

Yes, that's right, and that would give you maybe a 40 percent savings. That's coming, but probably not for six or seven years.

What about solar and wind and other alternatives?

I'm very keen on solar, because it works and it's getting more efficient every year. But the problem is that today it represents maybe one-tenth of 1 percent of the energy we produce. In 10 years it may be half a percent. So it won't solve the problem. Wind will be a little better, a little bigger. And I do believe that when the problem is solved, it will be solved by a host of small contributions like this, from different directions.

And that will take a lot of technological innovation.

Yes. You know, entrepreneurs are doing all kinds of things -- racing to design new types of wiring for electric motors, new types of batteries for cars. In garages around the country, the inventive geniuses are being let loose. I think it's going to become an American jamboree, in a way, because what we do best is innovate.

Does that make you an optimist?

I think we'll get through this problem by about 2020 to 2025. My worry is how we get there. We have a time when oil is winding down before anything is able to slide over and solve the problem. A lot of nuclear development is being brought along by the incipient shortage of future oil, and it's putting people into a proliferation mode. The whole world could come under this threat, and it's a terrible one. We could also be in deep trouble as a social system. How do we achieve fairness [in rationing scarce energy supplies] when the gridlock between rich and poor already stops us from having an energy policy in this country? We could see democracy entering its death throes.

December 12, 2006

Economic storm brewing in America

Source: Telegraph.co.uk

By Ambrose Evans-Pritchard
Last Updated: 12:01am GMT 07/12/2006

America's stock markets typically start crumbling four months before each recession, anticipating the crunch in profits. Shares then grind relentlessly down for 10 months or so until they have on average knocked 26 per cent off the S&P 500 index, Wall Street's listing of top companies.

So if you think the US property slump is looking scary after October's 9.7 per cent drop in new home prices, it may be time to take a little money off the table. It has been a lucrative autumn rally, but the four-year bull market is long in the tooth by any standards.

As we report today, the rate of insider stock sales by company directors on both sides of the Atlantic is the highest since records began 20 years ago, with sales outnumbering purchases by 60:1.

It makes scant difference whether your shares are on Wall Street or the London Stock Exchange. The FTSE 100 index is a global play these days. The lion's share of profits come from overseas, while London's AIM market has become a bet on Chinese and Russian companies nesting there by the dozens.

The world economy is what matters, and I don't like the smell of it. Nor, apparently, does Hank Paulson, who made $700 million at Goldman Sachs before taking over the US Treasury this year. He has reactivated a crisis team with a command centre in Washington to cope with the "systemic risk" in a market melt-down. His worry? 8,000 unregulated hedge funds with $1.3 trillion at hand, and derivative contracts now worth $370 trillion. "We need to be very careful here," he said.

A well-sourced article in Washington's Weekly Standard says Mr Paulson fears a "serious crisis that would be a body-blow to the US economy".

Yes, China is booming – for now – but it accounts for just 4 per cent of world consumption. The great US shopping extravaganza is six times bigger, and remains the anchor of the international system. It is slowing fast, unsurprising after 17 interest rate rises from 1 per cent in June 2004 to the current 5.25 per cent. "Big ticket" orders for cars, aircraft, computers and such plummeted 8.2 per cent in October.

Average house prices have fallen from $244,000 in April to $221,000 last month, with more violent corrections in Florida, Arizona, and New England. Builders have warned of a "death spiral" as they slash prices to off-load a glut of unsold homes.

The "happy handover" orthodoxy of the International Monetary Fund is that America will escape with a shallow slowdown. Asia and Europe will pick up the growth baton. The world will march on without missing a step.

Nice if you can get it. The more ominous possibility is that America fails to recover quickly, and takes the world with it. Japan already shows signs of stalling. Retail sales have fallen for two months. Far from bursting back to life as expected, it is still teetering on the edge of deflation.

France ground to a halt in the last quarter as the surging euro ate into the country's industrial core. Airbus was humming when the euro was worth 90 US cents. Now it must compete at $1.33, with wage costs in euros set against delivery contracts in dollars. Currency hedges protect for a while, then reality hits.

German industry says $1.40 is the pain limit. It is hard to see what can stop the dollar sliding that far as funds bet on US rate cuts next year. The yield premium that kept the currency aloft earlier this year is about to narrow, perhaps sharply. The central banks of Asia and Russia are sated on dollar reserves. They may not slash their US holdings, but they are unlikely to add either. So who will fund America's deficits?

"The US needs a trillion dollars a year just to stand still," says David Bloom, currency guru at HSBC. Modern financial crises have always begun on the peripheries of global economy, setting off a chain reaction. Mr Bloom says the seizure this time will be at the heart of the system as the dollar buckles, pressing down on the "aorta of capitalism".

So we have a world where the ageing economies of Europe and Japan are too fragile to withstand a dollar slide, yet America needs a weak dollar to cushion its own downturn. Meanwhile, China is holding its currency far below equilibrium. Nobody is doing much to break this impasse. The 1930s come to mind.

The consensus is that America will rebound quickly, averting a sticky end. But it takes two years for rate rises to feed through an economy, so Americans have not yet faced the worst. Nobody knows how US households with record debt will cope with the squeeze. Borrowings rose 8.1 per cent in 2000, 8.6 per cent in 2001, 9.7 per cent in 2002, 11.4 per cent in 2003, 11.1 per cent in 2004, 11.7 per cent in 2005, with no let-up in 2006. Debt payments have reached an all-time high of 13.9 per cent of personal income.

Americans extracted 6 per cent of GDP from their homes last year in equity withdrawals (ie, more debt), mostly to subsidise their lifestyles. This game is up. Professor Nouriel Roubini from New York University says recession is inevitable. "People have been using their homes as their ATM machine, but many are now facing negative equity so there will be a lot of foreclosures. As the housing recession spreads to manufacturing, this is going to lead to a much harder landing than people think."

The bonds markets are alert, even if equities are not. Interest rates on 10-year Treasury bonds (4.46 per cent) have dropped below short-term rates (5.25 per cent) for five months. This is the "inverted yield curve" of satanic fame, flag of recession. Ignore that at your peril.

Whatever happens, the Federal Reserve will come to the rescue. But how soon? The Fed minutes from December 2000 show some governors fretting about inflation long after the danger had shifted to slump. That wily old bird Alan Greenspan silenced them, knowing in his bones that the economy was going over a cliff.

His untested sucessor, Ben Bernanke – burdened with inflationist baggage – does not yet have the credibility to pull off that stunt. Whatever he really thinks, he will have to play by the book. So batten down the hatches for a long storm.

September 22, 2006

Rob Newman's History of Oil

Fantastic explantion of the history of oil, oil's influence in war, Peak Oil and US Dollar currency hegemony. All done with humor, amusing analogies and in lay person's terms.

http://video.google.com/videoplay?docid=7374585792978336967

August 31, 2006

U.S. crude imports near record on West Coast surge

Source: Reuters

NEW YORK, Aug 30 [2006] (Reuters) - U.S. crude oil imports hit their second-highest level on record last week, averaging 11.2 million barrels per day, as shipments to the West Coast peaked due to output problems in Alaska, the U.S. Energy Information Administration said Wednesday.

Refiners on the West Coast imported an average of 1.577 million bpd of crude oil over the week ending Aug. 25, the highest level ever recorded by the EIA since it began breaking down import data into regional districts in 1990.

The record for total crude imports was 11.324 million bpd for the week ending July 23, 2004.

News that BP Plc (BP.L: Quote, Profile, Research) was shutting down half of its 400,000 bpd Prudhoe Bay oil field earlier this month spurred fears of crude oil shortages on the West Coast, which relies heavily on crude supplies from Alaska.

The shutdown prompted refiners to scramble to purchase replacement crude cargoes in Asia, as well as to divert incoming shipments to the West Coast.

Analysts had expected a decline in West Coast crude stocks owing to the anticipated lag between the purchase of replacement supplies and their arrival in the United States.

"It seems we are getting a lot of supplies on the West Coast from places on the west coast of South America such as Ecuador," said EIA analyst John Duff.

"Because of the distance between Ecuador and California, they were able to step in pretty quickly and provide incremental supplies," he added.

Imports elsewhere in the United States were strong as imports into the Midwest surged by nearly 300,000 bpd to 1.276 million bpd after several weeks of below-normal levels.

On the U.S. Gulf Coast, home to nearly half of the refining capacity in the United States, imports held steady above 6.3 million bpd last week, according to the EIA, the statistical arm of the Department of Energy.

Average crude oil imports into the United States surpassed 10 million bpd in 2004 as domestic output continued to decline.

Peak Oil Forecasters Win Converts on Wall Street to $200 Crude

Source: Bloomberg.com

Peak Oil Forecasters Win Converts on Wall Street to $200 Crude

By Deepak Gopinath

Aug. 31 (Bloomberg) -- On a sweltering Tuesday in mid-July, in the fields outside Pisa, Italy, Willem Kadijk scribbles notes as a ragtag troupe of doomsayers predict the end of the Oil Age.

With his shaved head, jeans and sandals, Kadijk, 48, blends into a crowd gathered under a white tent to hear of the coming calamity. The death of cheap, abundant crude, the forecasters warn, might unleash war and plunge the world into a second Great Depression.

That's not the prophecy of some apocalyptic cult. Kadijk, a hedge fund adviser, had flown from Amsterdam to attend a conference on a geologic theory known as peak oil.

Proponents of this controversial idea say global oil production is now at or near its zenith. Once the flow crests and starts to decline -- and some geologists say it already has -- oil will no longer be able to slake the world's growing thirst for energy. The result will be the oil shock to end all oil shocks. The price of a barrel of crude will spiral to $200 -- and keep rising. To the peaksters, today's energy crunch is nothing next to the pain that will follow.

"Peak oil is a reality," says Kadijk, a senior equity salesman at Kepler Equities, an Amsterdam-based brokerage. He plans to start a fund to capitalize on what he sees as a looming crisis for the world's fossil fuel-based economy and the ultimate bull market in oil.

As energy prices soar and violence convulses the Middle East, the peak-oil movement -- an unlikely alliance of geologists, physicists, oil industry consultants and environmental activists -- is winning converts. Peak-oil ideas are bubbling up from scientific journals and offbeat Web sites, much the way warnings of global warming did a decade ago. For the first time, the peaksters have begun to grab the attention of Washington and Wall Street.

Congressional Caucus

U.S. Energy Secretary Samuel Bodman, former boss of Boston- based Cabot Corp., an oil and chemicals company, has asked the National Petroleum Council, which advises him, to investigate whether oil supplies can keep pace with demand. The U.S. Government Accountability Office, the nonpartisan congressional watchdog, is due to release a study on peak oil this November. Rep. Roscoe Bartlett, a Maryland Republican, has formed the Congressional Peak Oil Caucus to sound the alarm.

"The world has never faced a problem like this," Bartlett says.

Everyone agrees we'll run out of crude eventually. Oil, after all, is a finite resource: The Earth holds only so much of it. The controversial issue is when a global peak will occur -- and what will happen then.

Colin Campbell, a British geologist who popularized the peak- oil theory in his book "The Coming Oil Crisis" (Multi-Science Publishing Co. and Petroconsultants SA, 1997, 210 pages) says world production of conventional oil, the kind that comes from gushing wells, is reaching its apex.

End of Oil Age

Society isn't prepared for the consequences, Campbell, 75, says. It's too late to develop alternative sources of power, such as solar cells, nuclear reactors and windmills, to fill the oil gap before energy prices soar, says Campbell, who has a doctorate in geology from the University of Oxford and more than 40 years of experience in the oil industry.

"We have come to the end of the first half of the Oil Age," Campbell says.

Nonsense, says Russ Roberts, a spokesman for Exxon Mobil Corp., the world's largest oil company. Exxon Mobil, which has reaped record profits as the price of oil has surged, has taken out ads dismissing peak oil in U.S. newspapers such as the New York Times.

The Irving, Texas-based oil giant says the peaksters are being alarmist. In all, the world probably has 4 trillion barrels of oil left, four times the amount we have used so far, the ad says.

Time to Think

"The world is nowhere near running out of oil," Roberts says. Exxon Mobil geologists believe global oil production will keep rising through 2030, he says.

Cambridge Energy Research Associates, whose chairman, Daniel Yergin, is a leading peak-oil critic, says production will reach an "undulating plateau" sometime in the future.

"Our outlook goes to 2020, and we see no evidence of a peak," CERA geologist Peter Jackson says. "Eventually, we will start to see a decline. There is still time to think about alternatives."

Predictions of an imminent oil famine are as old as the industry itself. When production at the first U.S. wells, located in western Pennsylvania, began to decline in the late 19th century, some people predicted the country would soon run out of oil. Then crude was discovered in east Texas, whose oil fields yielded so much black gold that the Texas Railroad Commission capped production to support prices.

Peak Moment

In the past, Campbell or his disciples have forecast the oil peak down to the year or even the day only to push back the fateful moment. In 1997, Campbell said it would occur in 2001. Now, he says total production, which includes oil from deep-water wells and fuel derived from natural gases, will reach its height sometime after 2010.

Kenneth Deffeyes, a geologist and professor emeritus at Princeton University, first pinpointed Nov. 24, 2005, as the peak- oil date and then revised it to Dec. 16, 2005.

Campbell says the exact day or year isn't important. What matters is that peak oil is coming, and soon. Almost a century and a half after the first U.S. wells were drilled in Titusville, Pennsylvania, production has begun to decline in more than a dozen countries, including the U.S., according to the BP Statistical Review of World Energy. Production at the giant Cantarell oil field in Mexico is likely to decline 8 percent this year, according to Mexican state oil monopoly Petroleos Mexicanos.

U.S. Addiction

At a time when U.S. President George W. Bush has urged the country to break its addiction to foreign oil, the fact is, the U.S. is becoming ever more dependent on overseas crude. U.S. oil production peaked 36 years ago, in 1970, at 11.3 million barrels a day. Since then, output has fallen 39 percent, to 6.8 million barrels a day, or 8 percent of the world total, in 2005, according to BP.

Investors have started to listen to the peaksters. Billionaire Boone Pickens says he's a peak believer. So does Peter Thiel, who co-founded PayPal Inc. and now runs Clarium Capital Management LLC, a $2.1 billion hedge fund firm. Pickens, Thiel and other investors are positioning themselves to profit from what they say will be the biggest oil squeeze of all time.

Even some oil companies and industry veterans sound nervous. Chevron Corp. has run a series of full-page ads in U.S. newspapers that highlight surging oil consumption and declare, "The era of easy oil is over."

Chicken Littles

Thierry Desmarest, chief executive officer of Paris-based Total SA, told the World Gas Conference in Amsterdam in June that global oil production would peak in 2020. Matthew Simmons, whose Houston-based investment bank, Simmons & Co., trades oil and gas stocks, says Saudi Arabia's production may decline soon.

Alex Cranberg, chairman of Denver-based independent oil company Aspect Energy LLC, calls the peaksters Chicken Littles -- misguided souls who think the sky is falling.

In fact, Cranberg hired two people to dress in chicken costumes and hand out fliers dismissing peak oil at the conference Kadijk attended in July.

Like many oil-industry vets, Cranberg, 51, says market forces and technological advances will ultimately cure our energy ills. As oil prices rise, companies will be more willing to hunt for crude and extract it. They'll invest in expensive deep-water wells and new technologies to wring more oil from existing fields. Consumers will start conserving energy. Even now, stock market investors and Silicon Valley venture capitalists are pouring billions of dollars into companies developing ethanol, solar power and other alternative sources of energy.

$3-a-Gallon Gas

More and more, however, the peaksters are drowning out everyone else, Cranberg says. "You can't turn around without seeing or hearing these ideas," he says. "I think they are gaining."

You don't have to be a geologist to understand why. The price of crude has tripled since 2000. In the U.S., $3-a-gallon gasoline has sapped consumers' confidence. Nearly half of Americans believe the economy is doing poorly, according to a July 28-Aug. 1 Bloomberg/Los Angeles Times poll. Fifty-nine percent of Americans expressed a negative view of Bush's handling of the economy.

"If oil was still at $20, no one would be talking about peak oil," says Manouchehr Takin, senior petroleum upstream analyst at the Centre for Global Energy Studies, a London-based consulting firm.

High oil prices are only part of the story, however. The world is straining to feed its energy habit. Today, we consume 85 million barrels of oil a day, according to the U.S. Energy Information Administration (EIA). By 2030, the world will devour 118 million barrels a day, as China and India emerge as economic superpowers.

Big Question Mark

No one knows for sure how much oil the world has. That's a big question mark because the peaksters say production will max out once half of the oil has been pumped. So far, we've extracted about 1 trillion barrels in all. In 2000, the U.S. Geological Survey estimated global resources at 3 trillion barrels, enough to push peak production out to 2037, according to the EIA. Campbell puts the total lower, at 2.5 trillion barrels.

Oil is certainly getting harder -- and more expensive -- to find and extract. Oil discoveries plummeted to 5 billion barrels in 2005 from 90 billion barrels in 1964, according to Campbell.

"Discovery is in long-term decline, and spending more money won't increase it," says Chris Skrebowski, editor of the London- based Petroleum Review, an industry journal.

OPEC's Stash

Oil companies have to find enough crude to offset dwindling production at existing fields, which can decline by more than 8 percent a year, and to keep pace with rising demand. Most of that increase will have to come from members of the Organization of Petroleum Exporting Countries, which are often cauldrons of discontent, war and terror.

The cartel's members -- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela -- together sit atop 75 percent of the world's reserves and account for about 42 percent of total production, according to BP.

OPEC countries are hardly paragons of economic and political stability. Most of the terrorists who attacked the U.S. on Sept. 11, 2001, came from Saudi Arabia. The war in Iraq has hurt that country's ability to pump oil. Bush says Iran is trying to develop nuclear weapons. In Venezuela, President Hugo Chavez has said he wants to diversify oil exports away from the U.S.

In its 2005 Energy Outlook, Exxon Mobil says the combined production of non-OPEC countries will peak sometime from 2010 to 2020. OPEC will be able to fill the gap, the report says. OPEC produced about 30 million barrels a day in 2005; by 2030, OPEC would have to churn out 47 million barrels a day -- almost 57 percent more than it did last year -- to satisfy the world's needs, the report says.

Meeting the Call

"We believe the resource base will support this increase, assuming that investments in development are made in a timely fashion," the report says.

OPEC countries will invest a combined $100 billion in the five years through 2010 so they can increase output, OPEC spokesman Omar Ibrahim says. "We are set to meet the extra call on OPEC to 2030," Ibrahim says.

Yet even now, OPEC nations are struggling to keep up. Since 2000, OPEC has gradually lost the spare pumping capacity its members can use as an emergency reserve to moderate prices. The cushion has dwindled to about 1.5 million barrels a day from 6 million barrels a day, Takin says.

What's more, neither the peaksters nor oil industry executives know for sure how much oil OPEC has and how much it can actually produce. OPEC countries haven't been transparent about their reserves or production capacity, says Mike Rodgers, a partner at PFC Energy, a Washington-based oil industry consulting firm. "OPEC is the big unknown," he says.

Overstated Reserves

Many energy analysts believe OPEC nations began overstating their resources in the 1980s, when the cartel linked members' production quotas to the size of their reserves, says Mamdouh Salameh, an independent oil economist. In the late '80s, cartel members raised their reserve estimates by a combined 300 billion barrels even though none of them had actually found much more oil.

In his 2005 book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy" (John Wiley & Sons, 448 pages, $24.95), Simmons says the Saudis have pumped so much oil so fast that the country's biggest oilfields face declining output.

"Saudi Arabia is keeping everything in the dark," Simmons, 63, says.

Saudi officials have dismissed peak-oil theorists and suggestions that their country is running on empty.

Saudi Assurances

"We currently manage approximately 260 billion barrels of oil," Abdallah Jum'ah, CEO of Saudi Aramco, the government-owned oil giant, said at an oil and gas conference in June. "We continue to expand our reserve base, and conservatively estimate our additional potential of recoverable oil to be in the range of 200 billion barrels. At Saudi Aramco's present production levels, that means we will have well over a century's worth of oil to produce."

Herman Franssen, former chief economist at the Paris-based International Energy Agency, says some OPEC members, such as Iran, Iraq, Kuwait and Venezuela, may be reluctant or unable to produce more oil even as prices soar, largely for political reasons.

"We may never see the volumes of conventional oil production that we see in official forecasts," says Franssen, who's now an oil industry consultant in Chevy Chase, Maryland.

Sadad al-Husseini, who spent 35 years working for Saudi Aramco, says Saudi Arabia's reserves are sound but that Kuwait, which says it has reserves of 101.5 billion barrels, probably has half that much. Iran, with official reserves of 132.5 billion barrels, has likewise overstated its reserves, says Husseini, who was an executive vice president at Saudi Aramco before retiring in 2004.

Assume the Worst

"Even with high prices, it will be very difficult for world production of conventional oil to exceed 90 million barrels per day within the next 10 years," he says. That's millions of barrels a day short of what the EIA says the world will need in 2015.

Political leaders, business executives and investors should assume OPEC won't be able to satisfy future demand, Rodgers says. "From an energy-security point of view, if you believe in a non- OPEC peak and OPEC is not being transparent, we have to assume they don't have it," he says.

The precarious balance of supply and demand in the oil markets became even clearer in early August when London-based BP Plc announced it would temporarily shut down its Prudhoe Bay oil field on the North Slope of Alaska because of pipeline corrosion. The news drove already-high oil prices up more than $2 to almost $77.

Alaskan Decline

Prudhoe Bay, the largest oil field in the U.S., is part of the peak-oil story. The field was discovered in 1968 and came onstream in 1977. Since then, it has yielded more than 11 billion barrels of oil.

Yet even before the August mishap, this vast field had begun to die. Its output has fallen 73 percent to 400,000 barrels a day from a height of 1.5 million barrels a day in 1989.

Prudhoe Bay is following the life cycle of oil fields across the U.S. and around the world, a phenomenon known as the Hubbert Curve, which takes its name from M. King Hubbert.

Fifty years ago, Hubbert, then a geologist at Shell Oil Co.'s research lab in Houston, postulated that U.S. oil production would follow a bell-shaped curve.

At the 1956 meeting of the American Petroleum Institute in San Antonio, Hubbert predicted that total annual U.S. output would climb steadily, level off sometime between 1965 and '70 and then decline after about half of the country's reserves had been depleted.

Hubbert's Peak

The U.S. reached what geologists now refer to as Hubbert's Peak in 1970. Hubbert died in 1989 at the age of 86.

It wasn't until the late 1990s when Hubbert's ideas, which had percolated for decades in academia and oil circles, began to reach a wide audience via Campbell, the British geologist.

Now in his eighth decade, Campbell is a grandfatherly man with a shock of gray hair. He hardly comes across as a doom- monger. He works out of a two-story house in Ballydehob, a village on the western edge of Ireland.

Campbell spent 40 years exploring for oil for Amoco Corp. and other companies. He helped Amoco search for oil in Ecuador and then, during the 1980s, led its exploration in Norway. He later joined PetroFina SA, the oil exploration company now owned by Total.

After retiring from PetroFina in 1990, Campbell joined forces with Jean Laherrere, a retired French geophysicist who had spent 25 years working at Total, to analyze production profiles for the world's countries.

Campbell says he and Laherrere, now 75, looked at their data and concluded global oil production was approaching its zenith. In 1998, they co-wrote an article for Scientific American magazine titled "The End of Cheap Oil" that helped popularize their cause.

Coming Crunch

"The world is not running out of oil -- at least not yet," Campbell and Laherrere wrote. "What our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend."

In 2000, Campbell founded the Association for the Study of Peak Oil and Gas, an informal organization for fellow travelers. Now known as ASPO International, the group has sponsored five annual conferences, including the one in Pisa in July, which drew more than 230 people. It's now run by Kjell Aleklett, a physics professor at Uppsala University in Sweden. Twenty independent national ASPO groups have sprung up around the world, from Australia to France, to the U.S.

Many peaksters are driven by a moral imperative to spread the word. Campbell says he's a scientist, not a social or environmental crusader. Even so, he says he's worried that oil has harmed human society and the planet. Since the Oil Age dawned, nearly 150 years ago, the Earth's population has soared six-fold, he says.

Man Alone

"Man is the only animal that uses external energy," Campbell says.

Asked why he has championed the peak-oil theory, Laherrere quotes Antoine de Saint-Exupery, author of "The Little Prince": "We don't inherit the Earth from our ancestors; we borrow it from our children."

Activists have jumped on the peak-oil bandwagon and added their own, often strident, voices to the debate over the future of oil.

Jim Kunstler, a writer-activist who lives in Saratoga Springs, New York, says peak oil will ultimately destroy suburbia and plunge the U.S. into a violent dark age of feudalism.

"The question is, Can we run our shit the way we are running our shit?" Kunstler, 57, says. In 2005, Kunstler wrote "The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century" (Atlantic Monthly Press, 320 pages, $23), which warns of the havoc to come.

Dieoff.com

Lifeaftertheoilcrash.net, a Web site run by lawyer and peak- oil entrepreneur Matt Savinar, warns, "Civilization as we know it is coming to an end soon." The site sells peak-inspired books and products, including an investor's guide to peak oil.

Another site, dieoff.com, says wars over oil and other natural resources will eventually erupt and millions of people will be wiped out.

Stephen Andrews, a Denver-based energy consultant who founded ASPO-USA in June 2005, says the alarmists have hurt the peak-oil movement.

"The peak-oil tent has different voices -- some shrill, some more sober -- reaching different conclusions from the same facts," Andrews, 59, says.

Andrews has attracted more-sober voices to the movement. Last November, Denver Mayor John Hickenlooper helped co-sponsor a two- day peak-oil conference organized by Andrews.

"I think the people most exuberant about peak oil underestimate how much unconventional sources of oil will help flatten the peak, but to say that there is no peak is shortsighted," Hickenlooper says.

Crash Program

The world would have to embark on a crash mitigation program 20 years in advance to prevent peak oil from hobbling the global economy, says Robert Hirsch, a senior energy program adviser at San Diego-based research and engineering firm Science Applications International Corp. "And I consider myself an optimist," says Hirsch, 71, who included his findings in a 2005 study on peak oil for the U.S. Department of Energy and estimates such a program would cost the world $1 trillion a year.

Some investors and analysts see lots of opportunities in a post-peak world.

Charles Maxwell, senior energy analyst at Weeden & Co., an independent research firm based in Greenwich, Connecticut, says high oil prices will spur companies to invest in unconventional sources. Few people, however, realize how much such projects will cost or how long they will take to come onstream, he says.

Take the Canadian oil sands. This region in Alberta holds 175 billion barrels of oil, according to the Canadian Association of Petroleum Producers (CAPP), the world's second-largest reserves.

`Really Big'

"It's big. It's really big," Neil Camarta, senior vice president for oil sands at Calgary-based Petro-Canada, says of the region. "It can keep America going for 25 years."

The oil sands hold vast stores of bitumen, a tarlike substance that is mined, rather than pumped, and then processed into oil that can be refined. The process is expensive -- and getting more so. Rising operating and capital costs have driven the price of mining and upgrading bitumen to as much as $40 a barrel, Camarta says.

By 2020, Canada's oil sands will yield 4 million barrels a day, almost four times what they do now, according to CAPP. That sounds like a lot until you realize that 4 million barrels is just over a third of what Saudi Arabia produced per day in 2005.

Pickens, who built Mesa Petroleum Co. into one of the world's largest independent oil and gas producers, says he sees trouble -- and opportunity -- in peak oil. Pickens, who collected a degree in geology from Oklahoma State University in 1951, has called for the construction of more nuclear power plants and the promotion of alternative energy. He says he's invested in the Canadian oil sands.

Pickens's Picks

"I'm a disciple of Hubbert," Pickens, 77, says. "I think we've peaked and we are going to see an undersupply of oil."

Clarium Capital's Thiel says he began thinking about peak oil in 1999. As the Internet bubble grew that year, Thiel, 38, says he started to wonder about other risks that investors might be ignoring and seized on the uncertain future of oil.

"Energy will be systematically undervalued until peak oil is priced in," Thiel says. He's bought shares of Calgary-based EnCana Corp., which has invested in exploration and new production, and of oil services companies like New York-based Schlumberger Ltd. and Houston-based Weatherford International Ltd., which stand to profit as explorers hunt for oil and drill wells. Thiel says he's leery of U.S. oil majors, such as Exxon Mobil, because they may become targets of new taxes once the government wakes up to peak oil.

Thiel himself says the peak will come by 2008 -- if it hasn't already. "Geology will trump technology," he says.

Coal, Uranium

Eric Sprott, CEO of Toronto-based Sprott Asset Management Inc., says he became a peak-oil convert after hearing Campbell speak in 2004. Sprott, who helps manage 3.6 billion Canadian dollars (US$3.2 billion), says the bull market in energy has only just begun. He's invested 36 percent of his firm's assets in a variety of areas that could benefit from peak oil. His flagship hedge fund returned 41 percent in 12 months ended July 31, he says.

Sprott's investments include St. Louis-based Arch Coal Inc. and Brisbane, Australia-based Macarthur Coal Ltd. His oil and gas picks include Halifax, Nova Scotia-based Corridor Resources Inc.; Denver- based Delta Petroleum Corp.; and Houston-based Ultra Petroleum Corp. He has also invested in Australian uranium companies Energy Resources of Australia Ltd. and Paladin Resources Ltd.

Midnight Ride

Meanwhile, the peaksters aren't about to let up. They'll convene in Boston on Oct. 25-27 to sound their alarm at a conference called "Time for Action: A Midnight Ride for Peak Oil." The title is a reference to the American patriot Paul Revere, whose horse ride in 1775 warned Massachusetts colonists that British soldiers were advancing. The battle that followed, at Lexington and Concord, marked the beginning of the American Revolution.

It was just 84 years after Revere took his ride, on Aug. 27, 1859, that Edwin Drake struck oil in Titusville, ushering in the Oil Age. Exxon Mobil says the era of oil isn't about to end. In one of its ads, the company says, "Oil is a finite resource, but because it is so incredibly large, a peak will not occur this year, next year or for decades to come." The ad depicts a man looking through binoculars at a snowcapped mountain whose summit is hidden by clouds.

Campbell says the illustration actually drives home the point Exxon Mobil is trying to avoid. "Even though it is obscured by clouds, we know there is a peak," Campbell says. His investor followers are betting he's right.

Venezuela to Reduce U.S. Oil Sales

Source: TheTrumpet.com

In a move that could end up hurting the pocketbooks of millions of Americans, Venezuela’s president announced August 23 that his nation will triple its oil exports to China over the next three years.

The outspoken, anti-American Hugo Chavez added that by 2019, Venezuela’s current flow of 150,000 barrels per day to China will have increased more than six-fold. “In 2009, we’ll reach half a million barrels a day, and in the decade after that we’ll see a million barrels,” he said during a visit to China (International Herald Tribune, August 24).

Oil-hungry Beijing is ecstatic, and appears ready and willing to reward Venezuela handsomely. To facilitate the increased oil flow, China is building 18 tankers for Venezuela’s fleet. The day after Chavez announced the move, he revealed that the Chinese premier had privately promised to support Venezuela’s bid for a seat on the United Nations Security Council.

Where will Venezuela get all this additional oil for China? Although it is one of the world’s largest oil producers, its exports are dropping. The fact that Chavez is nationalizing its oil and gas industry, while concurrently levying higher royalty payments on foreign-owned oil companies still operating in Venezuela, portends further strains on national production. How will Chavez keep his promise to Beijing?

The answer, in short, may well be to cut the United States off.

Currently, the U.S.-Venezuela oil relationship is symbiotic: Venezuela is America’s fourth-largest oil supplier; and the U.S. buys up 68 percent of Venezuelan crude exports. Chavez has stated that he wants to reduce Venezuela’s dependence on American oil consumption.

He recently made a worrying move in this direction when he sold more than 1,800 of Venezuela’s American-based Citgo gas stations and one of its refineries. Citgo is the Venezuelan subsidiary that processes and distributes most of Venezuela’s oil in the U.S. Although the gas stations Chavez sold represent only 14 percent of Citgo’s U.S. network, the worry is that this could foreshadow a major trend of Venezuelan sell-offs. Citgo has also previously announced plans to sell two U.S. asphalt refineries and its interests in two large American refined-petroleum pipelines.

If Venezuela were to continue selling Citgo’s American facilities, exporting oil to American consumers would become a far less lucrative venture; shipping to alternative customers would become a more attractive possibility.

For the U.S. to lose its fourth-largest supplier of crude oil would have serious ramifications—one being strained supply and/or higher gas prices.

For Americans, many of whose financial positions are characterized by high debt levels and falling real wages (when adjusted for inflation), higher fuel costs are the last thing needed or wanted.

August 14, 2006

Oil-addicted America finds a temporary fix in Africa

Source: The Seattle Times

Excerpts:

Fifty-eighty percent of all petroleum burned in the United States comes from abroad, the U.S. Energy Information Administration says in its 2005 annual report. That stark dependency on outsiders, analysts say, will grow even if the last pockets of oil in America are drilled.

Oil and anger in Nigeria

Back in Nigeria, Felicia, Beatrice and Comfort were running through their village of Itak Abasi. They clutched packets of rehydration salts.

The medicine was free, distributed by health officials. The village wells were tainted with fecal matter. And people were dying of acute gastric infections, possibly cholera. Two children had succumbed that day. Another two would die the next week. The doctors were angry.

Itak Abasi — "Foundation of God" in the local Ibibio language — is a rural slum festering atop a sandbar at the mouth of the Akwa Ibom River. Its hovels squat half a mile from the Exxon Mobil oil-export terminal that supplied the bulk of African crude purchased by Marathon and sold in South Elgin. Since 1971, the facility has funneled billions of dollars' worth of petroleum to the United States. Itak Abasi seethes next door with neither plumbing nor electricity.

"The oil companies are no good," said villager Sunday Jeremiah, 40. "We are crying daily."

He is a fisherman. And the young girls — ages 10, 11 and 13 — are three of his seven children. Exxon Mobil's local subsidiary, Mobile Producing Nigeria, pumps the local oil fields in a joint venture with the Nigerian National Petroleum Corp. The U.S. oil giant has a complex relationship with its destitute neighbors. It helped renovate the village's schoolhouse, but it also spilled at least 40,000 barrels of crude into the sea in 1998. Fishermen say the spill permanently destroyed the village's traditional livelihood.

The Texas-based giant is both courted and reviled by the Ibibio people. The Nigerian central government for the most part is invisible. Asked why villagers didn't dig latrines — a simple way to blunt fatal gastrointestinal epidemics — Itak Abasi's old, bald-headed chief snapped, "That's the oil company's job!"

Seeking new sources

Few Americans realize it, but they have hitched their wagon — or rather their 210 million cars and trucks — to Africa's troubled star.

The planet's only remaining superpower is rattling its half-empty oilcan at the poorest continent in the world.

This state of affairs has come about because two-thirds of the world's oil is controlled by the Organization of the Petroleum Exporting Countries (OPEC), and most of it is pooled in the Middle East. Chronic instability in that region — today stoked by the U.S. intervention in Iraq and Israel's battle with Hezbollah — has further encouraged the United States to hedge its oil bets elsewhere.

U.S. companies have trudged to Central Asia looking for low-quality oil. They are punching wells into the ecologically fragile shallows of the Caspian Sea. And they are investing billions in upgrading huge but risky oil fields in business-hostile Russia.

Nigeria, Africa's oil heavyweight with 36 billion barrels of reserves, boasts one-seventh of Saudi Arabia's bounty. Still, African crude has its advantages. It is light and low in sulfur — well-suited to pollutant-sensitive U.S. refineries. Its reservoirs are closer.

Americans already get more oil from Africa than from Saudi Arabia. By 2015, oil experts say, African states will supply one-quarter of U.S. imports, up from 15 percent today. The United States quietly signaled this shift in 2002, when the State Department declared African oil a "strategic national interest," meaning in diplomatic code that U.S. troops may intervene to protect it.

"I think the U.S. military would find our swamps worse than Iraq," snorted Austin Onuoha, a Nigerian human-rights activist who specializes in oil issues. "But at least they might build some infrastructure after they invade. Americans always do this, right?"

Onuoha's sarcasm was well-earned. He was talking from his blacked-out house in the oil-rich Niger Delta. The electricity in Africa's petro-giant had winked out again. And this fit sourly into his main thesis: Oil is rotting Africa's frail democracies.

According to the World Bank, 80 percent of Nigeria's $340 billion in oil revenue has been pocketed by 1 percent of the population — a cast of thugs who include the world's most venal politicians and generals. In short, geysers of easy petrodollars corrupt weak African institutions. They unleash reckless government spending. And they usually stoke internecine fighting.

Port Harcourt, the decaying commercial center of the Niger Delta, should be the booming capital of a tropical oil kingdom that spouts as much crude as three Alaskas. Instead, it's a handmade slum. Foreign oil workers zip around in curtained minivans, hoping to avert kidnapping by criminal gangs and ethnic militias. The hotels are guarded by men sporting aviator sunglasses and Kalashnikovs.

Rounding out the picture is world-class pollution (at least 4,800 oil spills over 20 years), "bunkerers" (oil thieves who drill into pipelines, often incinerating themselves and hundreds of others), and brutish military tactics (Nigerian troops torching thatched villages and strafing oil smugglers' barges with helicopter gunships). Nobody knows the death toll in the delta.

The tightest crude market in 30 years is turning Nigeria's obscure swamp skirmishes into a global energy flash point. Nigerian insurgents announce their next attack on a Shell platform — and crude futures quiver in Tokyo and New York. Oil first hit the $50-a-barrel mark in 2005 when an SUV-driving warlord named Mujahid Dokubo-Asari threatened "all-out war" in the delta.

"We know the world covets Nigerian oil more than ever," said Onengiya Erekosima, a Bible-quoting spokesman for the Niger Delta People's Volunteer Force, one of many militias in the lawless squalor of Nigeria's oil patch.

About one-quarter of Nigeria's 2.3 million-barrel-a-day crude flow is regularly choked off by the likes of Erekosima.

"We will force the international community to respond to our suffering," he said, "because we can cut off their crude at any time."

Exxon Mobil says it paid coastal communities millions of dollars in restitution after the huge 1998 spill. Company spokeswoman Susan Reeves said Exxon Mobil's subsidiary, in cooperation with the Nigerian national oil company, also spends $10 million to $12 million a year on community development, most of it on education, health, roads, micro-enterprises and agricultural assistance. Little of such money is evident in Itak Abasi, however.

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