Less oil, less credit: Forecasts 2009, Part II
We’ll turn around early in 2009 and discover that we are a much poorer nation than we thought because from now on credit will be extremely hard to get for anyone for anything. The businesses that survive will have to keep going on the basis of accounts receivable. This is the area where the crash of giants will be heard. I’ve been saying since publication of The Long Emergency that comprehensive downscaling in all our activities, from farming to business to schooling to governance, will be the categorical imperative of the years ahead. Giant enterprises requiring giant loans to get from quarter to quarter will tend to not make it. Borrowing from the future will become a practical impossibility as past bad debts from previous borrowings continue to unwind, cease performing, and get written off. This argument implies that the federal government will tend to flounder just as General Motors, Citicorp, Target Stores and other gigantic enterprises will tend to flounder. It would be sad to see a President Obama so hamstrung and helpless, and it is largely why I see his role as largely symbolic — as a reassuring presence encouraging the distressed public to bravely bear their hardships, and to be kind and helpful among their neighbors.
Households, like businesses, will have to pay as they go from earned income. The house as ATM is over. Credit cards are maxed out and credit ceilings are lowering like the ceiling in “The Pit and the Pendulum,” preparing to slice-and-dice the old “normal” of family life in America. Bankruptcy will be the new Nascar. A lot of families will lose everything. They will sift and disperse into the housing owned by other family members — parents, siblings — and a strange new not-altogether comfortable kind of togetherness will become common. Over time, a lot of people will go looking for casual work “under-the-table” (and probably low-paying). To some degree, these workers will begin to look and act like a new servant class, and before too long they may be absorbed into the households of people who employ them. There will be plenty of room for them there.
Counties, municipalities, and states will join in the bankruptcy fiesta. It would be reasonable to expect collapsing services as a result. This would be a situation fraught with danger — of rising crime, of public health emergencies as water systems are not kept up and sewage treatment becomes unaffordable. I don’t imagine the federal government stepping into every Podunk or Metropolis from sea to shining sea and propping up these services. People will have to cope with danger and deprivation.
2009 may be the point where we begin to understand what kinds of places will be more hospitable to human society further ahead. I maintain that our giant urban metroplexes have way overshot their sustainable scale and will contract severely. With all the economic hardship, we ought to expect a lot of demographic churning, people leaving hopeless places and moving on to something more promising. I believe we will see them move to smaller towns and smaller cities. The reorganization of the rural landscape into smaller-scaled farms has not begun to occur — though 2009 might be very hard on agribusiness, given the shortage of capital and if oil begins to march up in price by late winter. Eventually, the rural landscape will require the labor of many more people than is currently the case. Whatever else happens, 2009 will surely see a massive return to home gardening as budgets become strained to the extreme. As the New Urbanist Andres Duany said recently, “Gardening is the new Golf!”
The Oil Scene
Many were stunned this year to witness the parabolic rise and fall of oil prices up to nearly $150 and then back around $36 by Christmas time. Quite a ride. I said in The Long Emergency that volatility would be the hallmark of post peak oil because it was obvious that advanced economies could not absorb super high prices and would crash in response; that at some point after crashing, these economies would respond to the new lower oil price, resume their cheap oil habits, and build to another price rise. . . and crash again. . . in a declension of ever-lower industrial activity.
What I probably didn’t realize at the time was how destructive this cycling between low-high-and-low oil prices would actually be in the first instance of it, and what a toll it would take right off the bat. We can see now that our first journey through the cycle took out the most fragile of the complex systems we depend on: capital finance. As a result, a huge amount of capital (say $14 trillion) has evaporated out of the system, never to be seen again (and never to be deployed for productive purposes). It will be harder for the USA to rebound from the grievous injury to this crucial part of the overall system, and Europe has foundered similarly — though the European nations are not burdened to the same degree by the awful liabilities of suburbia.
Even if these advanced economies — throw in Japan too — remain moribund, the price and supply prospects for oil look ominous. My own guess is that the price of oil has overshot on the low end just as it overshot on the high end, and that, when all is said and done, we’ll still see an upwardly trending price line over the long haul. The plunge, which began right after the $147 peak in July 2008, was as much the result of banks, hedge funds, and individuals dumping oil investments and positions to raise cash as it was a matter of the markets predicting a sharp fall-off in economic activity (and supposedly oil consumption). The truth is that demand destruction for oil in the USA has been surprising mild compared to the drop in price. Jim Hansen’s Master Resource Report says that gasoline consumption dropped from 9.29 million barrels a day in 2007 to 8.99 million barrels a day for 2008. That’s not much of a fall-off, especially compared to the price drop.
As Julian Darley of the Post Carbon Institute put it recently: “There won’t be any energy bail-out.” And, as many other people have noted, the recent plunge in oil prices strongly implies future supply destruction, since so many planned oil projects have been suspended or cancelled because they are economic losers at $40-a-barrel (or even $70). Even projects well underway, such as Canadian tar sand production, have been scaled back or shut down because they don’t make sense at current prices. Some of these other newer projects will now never get underway — they have missed their window of opportunity with so much capital leaving the system — and so the hope of offsetting very-near-future depletions in old giant oil fields looks dimmer and dimmer.
Those depletions are very serious. For instance, Mexico’s super-giant Cantarell oil field, the second-largest ever discovered after Saudi Arabia’s Ghawar field, has shown a 30 percent depletion rate in the past year alone. (Pemex had forecast a 15 percent rate entering the year.) Cantarell provides over 60 percent of Mexico’s total production, and Mexico is America’s third largest source of imports — just after Saudi Arabia (#2) and Canada (#1). Obviously, Mexico soon will lose its ability to export oil, and as that occurs, America is going to feel more than pinch — more like a two-by-four upside the head. In short, remorseless depletion is underway and we are less likely now than even a year ago, to make up for it.
At some point, then, demand, even if slightly lower, will catch up with declining supply. My prediction for 2009 is that we will see two things occur, possibly at the same time: a resumption of rising prices, and spot shortages. I say this because the global economic fiasco is sure to produce geopolitical friction, and inasmuch as America has to import almost three-quarters of the oil we use, the prospect for trouble is great.
The tragic part of all this, of course, is that the temporary plunge in oil prices has prompted an incurious American public to assume, once again, that the global oil predicament is some kind of a fraud. Given the flood tide of fraud they have been subject to in banking and investment matters, I suppose you can’t blame them from thinking that everything is some kind of a scam. Given feeble car sales this season, there are reports that an increasing percentage of those sold now are trucks and SUVs.
Though I give Boone Pickens high marks for stepping up to the leadership plate, I’m not altogether on board with his energy proposal for swapping natural gas for gasoline in motor fuels while we swap out wind power for natural gas in electric power generation. I don’t believe that the ballyhooed shale-gas-plays of the last few years will prove-out long-term, as some huckster’s claim. They are expensive to drill and run, and they all tend to deplete very quickly — around one year. I’m not convinced we have the capital or the resources even to come up with the steel necessary to drill for it. Anyway, the last thing we need is a way to prolong our car-dependency.
In the meantime, there are still those who hope (as described above) that various alt.energy systems will insure the continuation of Happy Motoring. This is an idle hope, and 2009 will be very sobering for those who imagine that hybrid cars, or electric cars, or “air” cars, or any other kind of car technology are going to save the day. Even if President Obama mounts an “infrastructure stimulus” program, it will not keep up with all the necessary routine road repair that our highway system requires. The extreme financial hardship faced by localities and states insures that they will have to postpone a lot of expensive highway maintenance — even if the federal government fixes a big bunch of bridges and tunnels — and so we face the interesting prospect that our roadway systems will enter their own deadly zone of systemic failure even before the whole car issue is settled.
I am waiting to see whether Mr. Obama will undertake a restoration of passenger railroad service. I’ve said enough about this in the past, but it’s worth reiterating that a failure to get comprehensive passenger rail service going will be a sign of how fundamentally unserious we are as a nation.
Regards,
James Howard Kunstler
January 2, 2009
James Howard Kunstler
James Howard Kunstler is perhaps best known for The Long Emergency, which predicted the financial meltdown and the implications of the peak oil problem. The Geography of Nowhere , about the fiasco of suburbia, is a campus cult classic among the architecture and urban planning students. It was followed by a sequel, Home From Nowhere and The City in Mind: Notes on the Urban Condition . Mr. Kunstler has also authored 10 novels including World Made By Hand, a story set in America's post-oil future. His articles have appeared in The New York Times, The Washington Post, Rolling Stone and The Atlantic Monthly.
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Usury laws have been in existence since banking began almost predating the Constitution & contrary to Elizabeth Warren’s comment “they disappeared” in 1970′s; then she finally admitted the TRUTH: which was some folks figured that they could make a great deal more $ in interest by NOT going with long term fixed low interest housing loans; EVERYONE from low income, to middle, to high QUALIFIED for one; but were PUT into these “riskier” & EXTREMELY HIGH interest rates with PENALTIES if prepaid off ahead of time: CONGRESS & all “political” figures, including bankers KNEW this: the LAW is that the people have to pay back 5 xs the amount originally borrowed, PLUS all the “interest” & additional bogus fees put on there; THIS is not “democracy” at all but DICTATORSHIP cleverly disguised with both parties in reality in total agreement as long as it is AGAINST the people of the USA; it is CRIMINAL & it is CROOKS: this continued down the road into the credit card companies: who escalated it into PREDATORY & now DISASTER capitalism; interestingly enough, the RICO LAWS also apply here: cuz they CANNOT PROFIT from illegally gotten funds! WHOOO HOOO! now, if we had COURTS who did not CALL the “president” & CONGRESS to have them tell them HOW TO RULE in this instance! & THAT interestingly enough runs from FED, to STATE, to COUNTY, to CITY: kangaroo courts, lawbreakers instead of lawmakers, bribe honey & I will do anything! & this has run so welll for CENTURIES that they have SO MUCH $ they are bribing the heads of other countries to “do it their way”; yet want the “public perception” to be that they are a “force for good” instead of a farce of anything decent!
I would DEARLY like to know WHY other than BRIBERY our nation wants OIL to be KING! Google brown gas & you will see that even in the 1930′s multiple choices besides OIL was available; in fact, the 1st auto’s ran on GRAIN ALCOHOL & got 26 MPG with NO POLLUTION! C’on now! 95% of the PEOPLE objected to PLASTIC being used in milk, & other containers as GLASS can be melted down & reused endlessly; the DICTATORSHIP trying to disguise itself as “democracy” FORCED it down our throats; & in reality they BURY technology that would have done away with “electricity” which is used to force folks to pay higher prices: & technology for better cars, better gas mileage & no need for oil; FEED up with TYRANTS? & SLAVERY? Resistence to tyrants is obedience to God: Thomas Jefferson: to KNOW to protest & fail to do so is a sin: Abraham Lincoln; Woodrow Wilson, Pres during WW1: lamented the fact that we were NO LONGER a land of the free, nor even of majority vote; but rather under the DICTATES & RULES of a handful of dominent men. Who better than the PRESIDENT of the land to know exactly & precisely HOW this “nation” was being run? Still thinking Prohibition had ANYTHING at all to do with TEMPERANCE? Better start checking the MENTALITY of THIS nation: which is run just like a plantation as one senator stated in 1950′s; the PEOPLE must pay! WHICH is SLAVERY to criminals; who try & say the deliberate cold blooded premeditated poisoning & murdering of millions is “the way democracy works”; it is the way of dictatorships, criminals & crooks; NEVER has there been a nation with a justice system who condoned not condemned the deliberate harmful acts for “rich” men except for THIS: no wonder they are hoping for “global dominion!” and want to shove it down everyone elses throats for THEIR “good” which is evil personified.
Definitely less oil.
The top story of the year is that global crude oil production peaked in 2008.
The media, governments, world leaders, and public should focus on this issue.
Global crude oil production had been rising briskly until 2004, then plateaued for four years. Because oil producers were extracting at maximum effort to profit from high oil prices, this plateau is a clear indication of Peak Oil.
Then in July and August of 2008 while oil prices were still very high, global crude oil production fell nearly one million barrels per day, clear evidence of Peak Oil (See Rembrandt Koppelaar, Editor of “Oil Watch Monthly,” December 2008, page 1) http://www.peakoil.nl/wp-conte.....onthly.pdf.
Peak Oil is now.
Credit for accurate Peak Oil predictions (within a few years) goes to the following (projected year for peak given in parentheses):
* Association for the Study of Peak Oil (2007)
* Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008)
* Tony Eriksen, Oil stock analyst and Samuel Foucher, oil analyst (2008)
* Matthew Simmons, Energy investment banker, (2007)
* T. Boone Pickens, Oil and gas investor (2007)
* U.S. Army Corps of Engineers (2005)
* Kenneth S. Deffeyes, Princeton professor and retired shell geologist (2005)
* Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)
* Chris Skrebowski, Editor of “Petroleum Review” (2010)
* Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)
* Energy Watch Group in Germany (2006)
Oil production will now begin to decline terminally.
Within a year or two, it is likely that oil prices will skyrocket as supply falls below demand. OPEC cuts could exacerbate the gap between supply and demand and drive prices even higher.
Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.
Alternatives will not even begin to fill the gap. There is no plan nor capital for a so-called electric economy. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”
“By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame.”
With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.
It is time to focus on Peak Oil preparation and surviving Peak Oil.
http://survivingpeakoil.blogspot.com/
http://www.peakoilassociates.com/POAnalysis.html
http://www.democracynow.org is an independent media not the Corp run media that is run by Corps working with the Gov for “public perception”; if you SEE it on TV, READ it in print, it must be true RIGHT? WRONG! ever hear of “perception management?” military term: to bury the truth under a barrage of false reports: Howard Zinn: author, History of the People: states it so incredibly well: the AGENDA of the Gov is totally & completely different than that of the people; youtube “power of nightmares” shows HOW the “force for good” was concocted from fabricated lies to deliberately deceive & mislead the PUBLIC; the PEOPLE of the USA; that’s us folks! *********were you aware that there are over 100 military bases around the world of the USA? that other countries view us as enslaved? that “key words” which the people want to hear are given in seminars & used frequently but they are NOT meaning what WE think of them as meaning? That constitutional law is not even taught in law schools any longer? that the role of the Gov of the USA has been tyranny, extortion, bullying & torture? That the “impassioned speech” I hate war! by “Roosevelt was made by a speech writer & the whole agenda of the Gov was to go to war, that Day of Deceit & many more including report by Sec of ST showed that Roosevelt told him Fri b/4 12/7 (Pearl Harbor) I hope that they don’t hit us to hard? It was all provocked & set up & fed information for them to hit us then & our Gov was totally behind it cuz they knew that they had atomic power & wanted to demonstate it to everyone? Truman dropped it, but it had been decided & deliberate provocation on the USA Gov side to have Japan attack the USA? Were you aware that Bush gave $473 to rush illegals thru citizenship illegally so they could vote for democrats? Radical changes in public perception needs to be done immediately!
Adding to JHK’s passenger rail plea, freight is requisite part of the “Societal & Commercial Cohesion” descriptor. Strategic planners call rail “Second Dimension Surface Transport Logistics Platform”.
Cut to essentials for planners: “Electric Water” by Christopher C. Swan, (New Society Press, 2007); Rail Transport And The Winning Of Wars” by James A. Van Fleet, Association of American Railroads (202-639-2100), and ASPO Articles 374 & 1037 (peakoil.net)
Railways are featured in massive undertakings in China, Russia, EU, South American and African projects. Apolitical nature of railways, their STRATEGIC utility is the rationale. Planners need copies of US Railway Map Atlas Volumes from “spv.co.uk”. US National Guard Units must re-commission their Railroad Operating And Maintenance Batallions, assuring rail-savvy personnel for private sector railway rehab & expansion. This mus be done with all due haste to protect essential transport in manmade/natural disaster scenarios.
Boone Pickens needs to spend a few hours talking to Richard Heinberg about branchline railway rehabs in America! Maybe Eliott Sloane, Mr. Picken’s publicist, can arrange a meeting…
I graduated from law school 2 years ago and now teach in law school part time. Believe me, you spend an entire year on nothing but constitutional law.
Now we know who the siesnble one is here. Great post!
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