Peak Oil News: 07/01/2008 - 08/01/2008

Sunday, July 27, 2008

Stagflation and Peak Oil: How Related Are They? (Part I)

Seeking Alpha

By Larry Bellehumeur

Two terms that definitely scare investors (at least those who don't know what implications both have on their portfolio) are Stagflation and Peak Oil. One (Stagflation) might be happening soon but could be avoided, while the other (Peak Oil) might not happen soon, but cannot be avoided.

I'll leave the exact definition up to someone smarter than I, but Stagflation basically means a sustained period of slower than normal growth, combined with a period of higher than normal inflation. While there are a few ways that it could be caused (I'm sure that a war would do it), an extreme spike in the price of a vital commodity would be the most likely reason. The disruption of oil in 1973 (causing an extreme spike in the price of crude) caused Stagflation for much of the decade, resulting in an extreme hike in the price of almost everything, while salaries weren't going up to match. This was repeated in the early part of the 1980s. Since then, inflation has been very much in check.

Peak Oil is a term which has caused much confusion. If you simply based our consumption rate of oil on what is in the ground, we'd have enough oil for the next 500 years. However, not all of the oil is in fact recoverable (although the percentage is going up with improved drilling techniques, such as horizontal drilling). There is a limitation on how fast we can get oil out of the ground for two reasons. One, if you were to pump out oil too fast early on in a well's life, it will reduce the pressure that forced the oil to come out of the ground in the first place. While such techniques as pumping in large volumes of water (aquifiers) has worked to sustain the pressure on many of the Saudi's fields, engineers are cautious to keep the flow at a sustainable rate. The second part is that many of Todays largest fields have been producing for decades. Hubbert's Peak refers to the fact that most wells begin to reduce the amount of oil that can be produced (daily) from a well once the field reaches 50% of its recoverable oil. Many of the superfields that provide much of today's oil (Ghawar in Saudi, Cattarell in Mexico) are either at this stage or are close to it.

So, are the two items linked? Undoubtedly!

The world's oil consumption has increased dramatically in the past few years, driven by not only Emerging markets, but by the increasing consumption of many products that use a large amount of oil to produce (computers are a big user of oil, which most people are not aware of, as there is a lot of components which use a lot of oil in their manufacturing process).

Are we in Peak Oil today? Not sure that anyone knows for sure, but it seems obvious that we are getting close. Techniques to increase the volume of liquids in the refining process have helped to cover up the fact that the world's oil production is near the top, if not already there.

The price of oil seems to have reflected this. Despite the recent demand reduction in the past few weeks, oil consumption has continued to rise faster than production for years, despite prices rising many times over.

It is now becoming apparent that the high price of crude has creeped its way into many aspects of life. Transportation companies have started to charge large fuel surcharges on their deliveries. The costs of many goods that are imported from overseas is starting to rise. And, for anyone that has taken a flight recently, the fuel surcharge seems to be more than the cost of the flight. This is starting to make its way into everyday life, with companies no longer being able to absorb the extra costs and being forced to raise prices.

Can the situation get any better?

Logic says...not anytime soon. Despite recent oil finds in Brazil, and the recent confirmation of massive deposits of crude in the Arctic, none of these recent discoveries will be online this decade. Even when they do come online, the cost per barrel will be extraordinary, compared to the easy flowing crude from the Middle East. And, if many of the large oil field go into decline, we'll need this new oil just to keep up with current production.

How will this play out?

Ben Bernanke and other heads of the Central Banks will definitely earn this keep in the next few years. Bernanke, in particular, might have to choose completely between propping up a failing economy with more cheap money (lowering interest rates) or facing inflation head on (raising rates) sooner than later.

Lowering interest rates will certainly spur economic activity, at least at first. However, if you thought that the US dollar was low now, imagine if he cuts rates by 50-100 basis points. It would make the greenback one of the worst currencies on the planet. This may also spur some further talk of pricing crude in a currency other than the US dollar. It would also cause a lot less investment in the US Treasuries by foreign entities. Finally, inflation would absolutely go ballistic, pushing well over 10% in no time...

Raising interest rates will certainly kill some economic activity, at least at first. However, it would help to stabilize inflation, at least slow it down. The problem is going to be...housing. Many Americans (and their homes) are highly leveraged. I'm not sure how much Bernanke could raise rates before the rate of people walking away from their home sky-rocketed. The amount of debt is much greater than at any time in history in the US, and even 2-3% rate hikes would be devastating (imagine if we had 15-18+% rates like in the late 70s / early 80s!)

When you balance out the two, it appears that Bernanke may try to walk the line (keep rates a bit higher, to ward off inflation, but not too high as to cause a further credit crisis). Will he succeed? I'm not sure, but I would plan on making your portfolio more adaptable to this environment (see my next article for more ideas).

Remember another important factor. If we are really at Peak Oil, this is going to make the problems much, much worse. Oil may have no choice but to hit $200 a barrel just to crimp demand. Combining this with escalating food costs, it will definitely put us in a prolonged recession...

Stagflation and Peak Oil: How Related Are They? (Part II)

Seeking Alpha

By Larry Bellehumeur

Investing in a Stagflation environment reminds me of a game that we used to play when we were kids. You would think of two disgusting scenarios, and have to pick the lesser of two evils. Stagflation reminds me of that. Quick, choose between slow growth and high inflation. Unlike when we were kids, however, you get to be stuck with both.

So, what does well during a period of Stagflation? Not much - but, you can at least protect (and gain somewhat) by changing your portfolio to reflect the times. Earnings will rise dramatically, so at first glance, things don't look that bad. However, when you strip out the rise in earnings that is directed attributed to inflation, the generic growth of companies slows to a halt, which does a nice job on P/E ratios. Consumer discretionary stocks normally take a beating, as people can barely afford to eat, heat their homes and put gas in the tank...

So, what might work? No one knows for sure, but here are some ideas:

Invest in what is going up

This one makes sense, but it is often overlooked. What does well during a time of Stagflation:

1. Interest rates. In order to combat the inflation spike, rates go up accordingly. One play on this is Treasury Inflation Protected Securities [TIPS]. These are tied to inflation, and provide a little bit more return than the inflation rate. You won't get rich, but you'll keep up your buying power. One way to play them is through Lehman's ETF (TIP).
2. Gold. In past bouts of hyper-inflation, Gold has been a great hedge. No one knows for sure if this will still be the case, but the odds are good. Two ways to play this are the commodity itself and its producers. The commodity takes out the risk of exploration and high costs of production, but also takes out any extra leverage. If you like to sleep at night, look at an ETF such as streetTracks Gold (GLD), which gives you a straight relationship to the price of bullion, minus a small management fee. If you like the extra leverage of a gold producer, now is not the time to look for a small fry - think big. Two great plays at Barrick (ABX) and Newmont (NEM). A third player (still large, but with a bit more of a growth pattern) is GoldCorp (GG).
3. Real Estate. Most homeowners will see a rise in home prices inline with inflation. So, if you own a home, you might be able to skip this part. If you don't, I'd look for a REIT ETF. Unless you follow the actual REITs themselves, this is an easier way to play it.
4. Oil Producers. The inflation is likely going to be directly related to the higher price of Crude. One way to play this is to own those who own the Oil. There are two types of companies that you can look at. Either way, think big cap here too. First, some of the State owned companies are listed on the various markets, and they tend to have a more consistent reserve base. Two to look at are Statoil (STO) and PetroBras (BZE). A third one, if it continues to come back to a more reasonable evaluation, is PetroChina (PTR). The second type of companies are the Publicly traded ones. Again, think big, but also think those who have a decent reserve life. I personally like Devon Energy (DVN) and Conoco-Philips (COP). Devon has a great growth profile, and just seem to know how to effectively and cheaply raise their reserves. COP is relatively average in performance, but always trades at rock bottom prices.
5. Oil Service companies. A more leveraged way to play the price of the crude. These stocks tend to swing at a much more leveraged rate to the price of Oil than Producers. There are three that stand-out in my mind. First, Schlumberger (SLB) has a dominant stance in this field. It is an expensive stock, so wait for a pull back. My value play is Baker Hughes (BHI), who does tend to disappoint investors once in a while, so be forewarned. Finally, my third play is to provide leverage to the increasing drilling happening off shore, and that is Transocean (RIG).
6. Companies that can easily raise prices. Here, you want to look for companies that have little trouble passing on costs. I tend to like companies with very strong presence/brands and those with an international scope (to better play the shrinking Greenback). Two that I like are Coca-Cola (KO) and Intel (INTC). Even if the cost of Coke were to double, it is unlikely that people would change their habits too much. Their strong distribution network also protects them from lower cost alternatives. As for Intel, their dominance in the growing Processor market is one that isn't likely to end soon. There is a large movement to push all of the world to a Digital Age, and Intel is a great way to play this. They will also benefit from a shrinking greenback.
7. Companies with a low P/E now. These companies, especially ones that are well financed, can often weather the storm well. One that comes to mind is Pfizer (PFE).
8. Areas that will benefit from what is causing the inflation. In this case, those who can help us kick the reliance on Oil. One easy play is General Electric (GE), with their strong stance in the Green space. The next two may shock you at first: Honda (HMC) and Toyota (TM). I mean, aren't they part of the problem? Yes, but people will still need to get around, even in booming oil times. These two companies are the leaders in low-energy cars, and this isn't likely to change (Sorry, Rick Wagoner!).

Areas to avoid (in no particular order):

* Auto (except Toyota and Honda)
* Airlines
* Transportation
* Travel
* Durable Goods / Consumer Discretionary

Friday, July 25, 2008

Eating Less Meat And Junk Food Could Cut Fossil Energy Fuel Use Almost In Half

Study finds a healthier diet and a return to traditional farming can help reduce energy consumption in US food system by 50 percent.

An estimated 19 percent of total energy used in the USA is taken up in the production and supply of food. Currently, this mostly comes from non-renewable energy sources which are in short supply. It is therefore of paramount importance that ways of reducing this significant fuel consumption in the US food system are found.

David Pimentel and his colleagues at Cornell University in New York set out a number of strategies which could potentially cut fossil energy fuel use in the food system by as much as 50 percent.

The first, and very astute suggestion they put forward is that individuals eat less, especially considering that the average American consumes an estimated 3,747 calories a day, a staggering 1200-1500 calories over recommendations. Traditional American diets are high in animal products, and junk and processed foods in particular, which by their nature use more energy than that used to produce staple foods such as potatoes, rice, fruits and vegetables. By just reducing junk food intake and converting to diets lower in meat, the average American could have a massive impact on fuel consumption as well as improving his or her health.

Further savings are possible in the food production industry. The authors suggest that moving towards more traditional, organic farming methods would help because conventional meat and dairy production is extremely energy intensive. Similarly, in crop production, reduced pesticide use, increased use of manure, cover crops and crop rotations improve energy efficiency.

Finally, changes to methods of food processing, packaging and distribution could also help to reduce fuel consumption. Although well-established energy-saving considerations in lighting, heating and packaging materials all have their part to play, the authors again highlight individual responsibility as having the biggest impact. They contend that the most dramatic reduction in energy used for food processing would come about if consumers reduced their demand for highly processed foods. This would also help cut down food miles and its related fuel cost as US food travels an average of 2,400 km before it is consumed.

This study argues strongly that the consumer is in the strongest position to contribute to a reduction in energy use. As individuals embrace a ‘greener’ lifestyle, an awareness of the influence their food choices have on energy resources might be added encouragement for them to buy good, local produce and avoid highly processed, heavily packaged and nutritionally inferior food. As well as leading to a cleaner environment, this would also lead to better health.

Journal reference:
1. Pimentel et al. Reducing Energy Inputs in the US Food System. Human Ecology, 2008; DOI: 10.1007/s10745-008-9184-3

Wednesday, July 23, 2008

Why the oil crunch may grow worse --

The fear is that all the easy-to-reach crude has been found. These may be 'the good old days,' one expert says.

By Elizabeth Douglass

With gasoline and oil costing once-unthinkable barrels of cash, the notion that things in our petroleum-addicted world soon will get worse -- maybe much, much worse -- is spreading fast.

Fear pushed oil to $131.04 a barrel in New York futures trading Monday, closing $2.16 higher after tumbling more than $16 last week. Supply concerns drove the increase as the market fretted about the potential for Tropical Storm Dolly to harm Gulf of Mexico oil operations.

But behind today's oil mania lies a deeper dread: that the world has found all the easy-to-reach oil, and the daily supply of the essential black goo will fall further and further behind escalating global demand.

"As much as you're uncomfortable with today's oil prices, these are going to be the good old days," oil expert Robert L. Hirsch told a recent Santa Barbara gathering of policymakers and environmentalists. "We're talking about pain here that is unimaginable."

The day-to-day cost of oil reflects a sharply weaker dollar, market speculation and geopolitical events such as unrest in Nigeria and other oil-exporting countries. At the same time, producers are barely slaking the world's energy thirst, and the market increasingly is fixated on the long-term supply picture.

Adding to the angst, several industry heavyweights caution that above-ground issues -- including instability among oil-producing nations and shortages of drilling rigs and engineers -- threaten to impose a "practical peak" on oil output that could be just as wrenching as the geologic peak envisioned by Hirsch and others.

"There are more and more people who believe that oil supply prospects are not very optimistic," said Fatih Birol, chief economist at the Paris-based International Energy Agency, a watchdog for industrialized nations.

Some argue that drilling in off-limits areas would buy the U.S. time in the race to develop oil substitutes, cut imports and ease economic pain. To that end, President Bush on July 14 lifted a White House ban on new offshore drilling for oil and natural gas and urged lawmakers to rescind the congressional ban.

Still, Birol counts himself among those who believe the world has reached at least "a peak of easily accessible oil." That alone is cause for worry, because many economies are built around the assumption that oil would continue to be cheap and plentiful.

Birol is leading a groundbreaking reassessment of the worldwide outlook for oil supplies, investment and production that many believe will deliver bad news when it is released in November.

"We are very concerned about future oil supplies," he said. "We may have difficult days to come in the oil markets."

In five years, demand for oil may exceed 94 million barrels a day and continue rising, spurred by growth in China and India, the International Energy Agency estimates. Experts put daily global production at between 82 million and 86 million barrels, and even the most optimistic oil authorities can't see production keeping up with demand without a big boost from unconventional sources such as Canada's vast oil sands or U.S. oil shale. Getting crude from such sources is more difficult, expensive and environmentally harmful.

"Unconventional oil includes all these things like tar sands . . . and some people count all that stuff as oil," said Texas oil investor Jim Baldauf, who in 2005 helped found the U.S. chapter of the Assn. for the Study of Peak Oil & Gas, which has affiliates in 22 countries. "If you do that, then you have a much rosier picture to look at."

Worries that oil production soon will fall short of demand or begin a steep dive aren't supported by the data his company has compiled, said consultant Daniel Yergin, chairman of Massachusetts-based Cambridge Energy Research Associates and author of "The Prize," a Pulitzer-winning oil history. But anxiety about long-term supply, he said, has "contributed to this very fevered psychology in the oil market."

Cambridge researchers acknowledge that the Earth's oil production eventually will max out. But Cambridge Energy Research Associates director Peter Jackson said that day is continually being pushed back because sizable oil reserves still are being found and technologies are boosting yields and paving the way for deep-sea drilling and other options not previously contemplated.

California's 108-year-old Kern River oil field, for instance, was read its last rites several times over the years. But the field recently produced its 2 billionth barrel and is still going, thanks to ever-evolving recovery techniques.

Jackson's conclusion: Don't panic.

He expects worldwide output -- including the unconventional variety -- to continue rising and satisfying demand until at least 2020. Once production peaks, he believes it will level off in an "undulating plateau" before an irreversible decline sets in.

"The equation is still a little bit tight, but demand is softening," Jackson said. "We just have to wait and see how those factors play out."

Hirsch, author of a widely cited 2005 Energy Department report on peaking oil output, sees a more urgent situation.

When he spoke at last month's energy summit, Hirsch said that large oil fields were emptying faster than expected, remaining reserves were overestimated and new finds and technology would offer only incremental additions.

"There's no question in my mind that we're likely to see oil production go into decline somewhere between 2010 and 2012," said Hirsch, senior energy advisor to Management Information Services Inc., an Alexandria, Va., consultancy.

His views reflect the core principle of "peak oil," a decades-old doctrine that holds that global crude production will crest sooner than expected and then begin a precipitous decline. Predictions about the timing vary: Some say we've already hit the peak, while others posit that it won't arrive for another decade or more.

Forecasting is a perilous business. Earlier peak oil predictions, including some from the 1970s supply crisis, missed the mark. Non-peakists have erred in production estimates. And nearly everyone failed to predict the leap in oil prices over the last year.

Geologists and others in the oil industry hotly dispute peak oil predictions, but an increasingly alarmed public has injected fresh momentum into the movement.

"Peak oil is percolating all over the place," a seismic shift from when peak oilists were considered the petro-world's "lunatic fringe," Hirsch said.

Websites devoted to the subject, such as the Oil Drum, have been proliferating. You can buy peak oil boxer shorts at one site and laugh at peak oil jokes on another.

Consultant Matthew Simmons, known in some circles as Mr. Peak Oil, said he is flooded with speaking requests and gets up to 30 Google alerts a day when his name pops up in a new item.

The boiling debate, in which peakists and their critics flay one another's conclusions and intelligence, is fed by imprecise terminology and oil-field data that are questionable or incomplete. For starters, views vary wildly on how much oil remains in Saudi Arabia -- crucial information for projecting worldwide supplies.

Birol, of the international energy group, hopes his November report will "move this debate from having fights in the Internet and e-mail domain, and from a personal domain, to a more objective and data basis."

Tyson Slocum, director of the energy program at Public Citizen, a Washington-based consumer group, doesn't care when the peak will come.

"We should be planning as though we're there," he said, "because from a national interest standpoint, from an economic standpoint and from an environmental standpoint, our dependence on oil, whether it comes from California or Saudi Arabia, is unsustainable."

Peak oil a myth, claims geoscientist

Predictions that oil production will peak in a few years' time and then taper off have been dismissed by a leading geoscientist.

Dr Peter McCabe, from the CSIRO, says predictions of a peak oil phenomenon date back to the 1920s but are no more relevant today than they were then.

He claims it's geopolitical problems in oil-producing countries such as Nigeria and Venezuela that's pushing up oil prices, rather than dwindling supply.

Dr McCabe was a member of the US Geological Survey Assessment of global oil supplies, and says the figures show oil will last for many decades to come.

"We have produced about 35 per cent of the world's conventional oil, and we are producing about one per cent of that oil per year, so we have about 65 years left of producing at the current level of world production."

Tuesday, July 15, 2008

Oil Will Fall to Disastrous Levels in 30 Years

Middle East Online

With the arrival of peak oil production, the oil coming out of the oilfields is of lesser quality and costs more energy to obtain, says Pedro Prieto.

Interview with Pedro Prieto by Alex Fernandez Muerza

Since 2006, Spain's membership in ASPO has been represented by AEREN, the Association for the Study of Energy Resources. ASPO (Association for the Study of Peak Oil) is a network of organizations in more than 20 countries dedicated to the study of peak oil - the moment at which maximum oil production is reached and afterwards begins its decline. Its Vice President, Pedro Prieto (Madrid, 1950), doesn't mince words: he stresses that no more than three decades worth of oil remain, insists that the energy situation in Spain is dire, that the days of gas and nuclear power are numbered as well, and insists that the defenders of renewable energy are well removed from reality. In his opinion, without a reduction in the consumption of energy and a radical change in the present development model, it's impossible to tackle the approaching energy and social crisis. In October, ASPO will hold its 7th annual conference in Barcelona.

Is the strike by the truckers and fishing fleets over higher fuel costs a symptom of the end of oil?

It's one more episode that will happen more often as it's confirmed that worldwide oil production has reached its peak, without a predictable substitute on the horizon for oil (and no time to think of one), which is being consumed at the rate of 85 million barrels a day and on which 95% of transportation is based, worldwide.

What is Spain's energy situation?

Dire, since Spain's dependence on foreign produced energy and fuel is overwhelming. In 2007, according to British Petroleum (BP), we consumed some 150 million tons of oil's equivalent (MTEP). The government says that we are "dependent" on foreign sources for 87% of that, but that's because it considers nuclear energy "independent." However, a hundred percent of the fuel for nuclear plants is imported; Spain does not control the enrichment process, nor is it the owner of important parts of the basic technology. For me then, nuclear energy is energy which is "dependent" on others.

Renewables don't help somewhat?

If we look at wind, in 2007, according to the Spanish Electrical Network, it produced 27 million megawatt hours (MWh), and that was for hydroelectric generation. Therefore, hydraulics plus wind reached approximately 10% of the total of primary energy and something more than 20% of total production. So we "only" depend on foreign sources for 90% of the rest of our primary energy needs.

When will oil be unacceptably expensive for consumers?

The vital cost is already unacceptable for hundreds of millions, who were very marginalized beforehand, and now cannot even manage to cook the meager food they have. In the West, it's difficult to predict when the costs will wreck the system. As is logical, the problems will begin in the weakest links of the chain.

When will peak oil be reached?

It's not easy to guess. It will probably be seen, to our disgrace, when it's clearly reflected in history's rearview mirror. Oil production has fallen 0.2% in 2007 in respect to the previous year, and although it's still not a sure sign, the peak doesn't appear to be very far away. From that vantage, in historical terms, we're at the top of the curve.

Can you give any kind of predictable date?

From the International Energy Agency (IEA), to the large privately held oil companies, to the industrial ministers and state oil entities for the oil producing and consuming countries, all agree that there are some 40 years remaining, at current rates of consumption.

However, if the tendency in the coming years is an increasing consumption of energy, couldn't this 40 year figure be less?

Obviously. There are two paradoxes against which this data must be considered: on the one hand, this society's unsustainable form demands annual cumulative growth that would shorten the duration of the reserves. On the other, much more serious, the oilfields are not gasoline deposits that can be consumed at whatever rate one wishes, but rather, their exploitation and production follow a bell curve. And the manner of today's consumption means that the curve will fall to disastrous levels for society in some 30 years or less (a fall of 30% from the present level is considered disastrous). That, and facts such as wars, embargoes, or social collapses cause the bell curve to be not absolutely symmetrical.

In other words, if there are 40 years of oil remaining, according to these gentlemen, in reality there is oil for many more, but at a diminishing rate. And therefore, for far fewer, so that society as we know it today, collapses.

Furthermore, there are two key aspects that are being intentionally ignored. The first is that the important thing is not that oil is running out, because that moment will never arrive, but when the peak is reached and the decline begins. Humanity will not have geographic alternatives for new fields to which it can resort, as it has up until now. The second is that with the arrival of peak oil production, the oil coming out of the oilfields is of lesser quality and costs more energy to obtain.

What should be done to avoid this problem?

Containment, a voluntary reduction of consumption and a global awareness, not just individual awareness, that "the party's over," as the Californian professor Richard Heinberg put it, is the guideline that must be followed. And of course this must begin in the West: in North America consumption is at 20 barrels per person annually, and in Europe it's around 10, while the Chinese struggle to get to three and the Indians are at one and a half. And on top of everything, the West accuses them of provoking the crisis for wanting to be how we told them they ought to be. Ignoring it or denying it will bring on fratricidal world wars that no-one will win and only accelerate the consumption of resources in the confrontation, instead of looking for alternatives.

Aren't these kinds of messages a bit apocalyptic? It sounds strange that our development should be the greatest in history and yet, it seems that we're on the point of returning to the caves...

It's exactly because we are at the summit of "development," which as it exists today, implies greater economic activity and greater consumption of energy. The planet has reached its limits, because without energy, no other goods and services are possible. If very conservative groups such as the IEA, which are reluctant to accept harsh realities, are already admitting that we're touching the ceiling, we'd better prepare ourselves.

With regard to natural gas, it would seem to go against the grain.

According to BP, gas production has increased to 2.4% in 2007 in respect to the prior year. Gas, practically unnoticed, has gone about replacing oil in recent years, through liquefied natural gas. In fact, of the 85 million barrels consumed daily, 66 million come from "conventional" or more easily extracted oil, and 7.7 million from transformed gas; a titanic effort that grows every year so that oil doesn't slip. The rest comes from other unconventional oil sources: 6.7% from oil in deep water (from a seabed more than 500 meters below the ocean's surface); 3.9% from oil extracted from tar sands and oil shale; and 1.2% from polar oil. The less conventional the oil, the less net (useful) energy remains after extraction.

The gas producers are even selling it now as an ecological energy for multiple uses, including as vehicle fuel...

Gas is less contaminating than oil, and much less so than coal, because of the energy unit it offers, but that's no cause for rejoicing. Gas only accounts for 24% of primary energy, against 36% provided by oil (until recently, the relationship was more or less 20 - 40). Furthermore, gas cannot always substitute for oil, and in it's transportable form it's much more fragile and expensive. Although the expensive ships and port terminals for liquefaction and re-gasification have grown considerably in recent years, only 28% of gas is being exported this way.

Finally, gas has proven reserves for 60 years at current rates of consumption, but if it has to substitute for oil and continue making society grow, for far fewer: its peak is expected a decade after that of oil. Given the times and costs, it will be a question of very careful accounting. Moreover, the declines in the gas fields happen even more quickly and less predictably than those of oil. Therefore, yes, it's growing, but it can't be a complete substitute for oil.

In your article "A Ghost Stalks Europe: The Ghost of Ecology", you criticize the advertising campaigns of the large multinational corporations with an ecological bent. Do you really think they're risking exposing themselves?

Yes, although he who controls the media can work wonders. However, soon they'll have to surrender to the evidence. However, I don't see many messages coming from the European and North American left and the ecologists (with honorable and few exceptions) that simply ask them to stop their activities or to take responsibility for the costs of their activities, when it is the responsibility of the entire industrial society, and without proposing a drastic change in the model.

Then what should be criticized is the present model...

The model is unsustainable, and the multinationals, the financial powers and the communications media are spearheading a society where all (non-marginalized) Western citizens are profiting at the expense of razing the planet's resources.

What can be done to solve this problem?

The solution escapes reason and scientific logic. We're trapped in an alley with a very difficult exit. Knowing this, it's enough to try to change the model, something that on the other hand is very difficult to achieve under present circumstances.

Are renewable energies the solution? In Spain, for example, some studies say that they could cover a hundred percent of our energy needs...

These studies are full of good intentions, but lacking in reality. They don't foresee, although they insist that they do, the real cost of energy and the cost of raw materials that goes into this effort. And the most worrisome is that they don't question the model of infinite growth of present society, nor the mobility models, although they may bet somewhat weakly on public transport. And they don't calculate that so-called renewable energies are in reality achieved through non-renewable systems (wind and sun are captured through manufactured wind turbines and solar panels) and their extreme dependency on a society based on fossil fuels that only works with oil and gas.

So renewables should not be promoted?

If anything can be done, it is with renewable energy. My main criticism is toward those who stubbornly continue to support a model of infinite growth at any cost. However, the best bet should be to change the model of growing consumption and reduce by several orders of magnitude our energy consumption, both personally, and as a whole. It's not easy, because it will imply the bankruptcy of a system that we believed to be eternal and unlimited.

Other news that has come to be known recently is that in 2007, renewables surpassed nuclear generated electricity generation in Spain.

It's true, now that nuclear energy, with its seven nuclear reactors provides 20% of the electricity consumed by Spaniards through traditional hydraulics, the new energies such as wind, and to a much lesser degree, others such as solar or the burning of biomass to produce electricity have surpassed nuclear. However, it should be pointed out that certain publications state this about wind, without distinguishing that when it generates energy, it does it at a very specific point in time, not on a steady annual basis. Considered annually, wind accounts for 10% of all electric consumption. These mentions show how the partisans of so-called renewables have learned the same fallacies and show the same lack of scientific seriousness that various large multinationals do in order to promote their policies. We should get away from these kinds of simplifications.

What do you think about nuclear energy?

Its days are numbered, despite the terrible insistence of its lobby, especially lately. It has four Achilles heels: lack of fuel (there are 60 years of uranium reserves for the 440 nuclear reactors presently in existence); its waste, extremely dangerous and of unsolveable latency, and without using the principle of precaution; it contributes to nuclear proliferation, as we've seen in the case of Iran; and finally, the growing risk of terrorist attacks on nuclear installations.

As if its supply were endless, France already uses 44% of its freshwater river flows to cool its 59 plants. Spain already uses 22% of its freshwater river flows for its seven plants. Where are those who are planning between 1,000 and 5,000 new plants planning to get water for these plants that only produce electricity in a society whose main energy consumption is not electricity, but liquid fuel?

Jeremy Rifkin claims the future is in hydrogen, which would allow for an economy where consumers could generate their own energy.

Rifkin's a good magic carpet salesman. Hydrogen is an "energy vector," an intermediary which takes electricity and combines it with liquid or gas fuel at very high pressure. Where is the energy to "fabricate" it or produce it going to come from? Rifkin says it'll come from renewables, but doesn't give details; he only sells faith in the future.

Isn't a future with hydrogen and renewables a possibility?

Let me give you some data that show the magnitude of the problem: in 2007 all the solar installations in the world combined, produced a hundred times less electricity than the increase in electricity consumption from the prior year. Spain, a world power in terms of renewables, barely reached 11% of its electric consumption (not of primary energy, that which it could be supposed that Rifkin wants to substitute and is six or seven times that) between wind and solar power. Augmenting Spanish solar power installations by 2 Gigawatts, through preferential tariffs, would take care of around 1% of national electricity needs, at the cost of a 4% increase in the present electric tariff. This production would be eaten up by any economic ministry in barely a trimester of normal economic growth. And if the tariff increases to more than 5% of an economic, productive or industrial system, the ship threatens to sink, as we've seen recently. It's a fish biting its own tail.

Is a consumer who fills their car with biocombustibles really "ecological"? The criticism they've received lately doesn't seem like it...

A large national Spanish business has invested a lot in advertising and reports in order to defend its production of biofuels, saying that by 2020, at the very modest level of 20% of European fuel, this will "only" cause the price of food to increase by between 3% and 6%. And what will happen when a substitute must be found for 100% of fossil fuel, in barely 2 or 3 generations across the world?

Who is behind this change in attitude toward biofuels?

Common sense, and its previous defenders have done some simple calculations. According to the Encyclopedia Britannica's Annual Statistics, there are 800 million private vehicles and 200 million motorized vehicles of any type throughout the world; very badly distributed, for sure, that total the energy needs required for between approximately 60 and 300 billion human beings. Are we going to give the food to machines or to people and animals? Its a perfect Matrix, human beings at the service of the machines that in theory were created to serve them.

Some experts also defend the future of "clean coal," especially in countries like China...

At ASPO's last meeting, the representatives of China's Oil University said that they were abandoning one of the largest "Coal to Liquid" (coal transformed into liquid fuel) plants in the world. At the same time, they announced that China, one of the countries with the largest proven coal reserves in the world, had begun to import coal for the first time in its history. The costs of production are enormous, above all from the point of view of energy: they leave less net energy available for society and a huge amount of very contaminated residue.

Pedro Prieto is the Vice President of the Association for the Study of Energy Resources (AEREN). Alex Fernandez Muerza is journalist specialized in Science and Technology. This interview originally appeared in It was translated from Spanish to English by Machetera, a member of Tlaxcala.

A Peak Oil Prophet Imagines Life in America After Wal-Mart


By Michelle Nijhuis

James Howard Kunstler's new novel describes a small town in upstate NY where a chain of global crises has forced the community to fend for itself.

Author and social critic James Howard Kunstler, known for predicting our post-peak-oil future in nonfiction works such as The Long Emergency, has also brought his forecasts to life through fiction.

His newest novel, World Made By Hand, describes the near future in a small town in upstate New York -- not unlike the place Kunstler himself lives today -- where a chain of global crises has forced the community to fend for itself.

Despite the tragedy and violence that surround his characters, Kunstler says his vision of the future isn't nearly as grim as it might seem. "I resent the idea that I'm an apocalyptarian," he says. "I'm describing changes that we face, but I'm hardly proposing that it's the end of the world. It may be the end of the Wal-Mart experience, it may be the end of see-the-USA-in-your-Chevrolet -- but that ain't the end of the world." Grist recently spoke with Kunstler about prophesying -- and preparing for -- life after Wal-Mart.

Michelle Nijhuis: So you've wrestled with peak oil, climate change, and disease in nonfiction books. Why did you decide to address them in a novel?

James Howard Kunstler: I wanted to present a very vivid experience for readers, so they could feel what it might be like, sense what it might be like, to live in this post-oil world -- a world in which the tyranny of automobiles is over with, and people are living very directly with the planet and each other. The whole issue of farming and food production comes closer to the center of life, with all of its practical requirements and ceremonies. When you're living in that kind of economy, your society tends to follow the seasons, and a lot of the social content of everyday life is geared to planting, harvesting, and tending -- it's very different from the electronically mediated world of cubicle work.

Many of the characters have transitioned from the everyday world we know today -- so they certainly have a vivid memory of what they call the old times, and they're making the necessary adjustments to the new times.

MN: Did you have this world fully imagined from the start, or did it change in the process of writing?

JHK: There were a lot of things I knew about this world I was going to create, but I discovered a lot of things along the way. For example, it became apparent to me fairly early on that my characters would not all be riding bicycles as in some kind of ecotopia, because they would have trouble getting the materials necessary to make them.

I also realized in the first chapters that the fact that the pavement was so broken up on the roads would have a big effect on how people did things and moved around on the landscape. As far as characters, I'd originally thought that the evangelicals would be the bad guys, but they behaved rather valiantly. I also became very fond of their leader, Brother Job, who's kind of a combination of Boss Hogg and Captain Ahab. He's kind of a darkly comic buffoon, with a deep air of mystery about him. I like that.

MN: The world in World Made By Hand is very grim, but there's some beauty in it, too.

JHK: I'd contest the idea that I'm presenting a wholly grim world. It's a world that's very different, a world in which there are quite a few challenges and quite a few losses, but I'm not at all convinced that the people are necessarily more miserable. Their medical care has become much more primitive, and they work harder, but they're working very directly with their neighbors on things that matter to them. Their ceremonies are much more direct and social in nature -- in other words, they party a lot.

They're also continuing to go through a transition. Their way of life is not settled -- they've left behind the world of happy motoring and consumerism and cheese doodles and Pepsi-Cola, but they've entered a world in which the terrain of everyday life is once again very beautiful. Their best friends are no longer made-up characters on TV shows, they're eating food that they've raised themselves and requires some skill to process, and they're making their own music. So what I'm describing is a world of social riches that we've left behind -- left behind in our eagerness to become the slaves of our electronic gadgets.

MN: It sounds almost like you'd welcome this world.

JHK: Let's say there are elements that I'm not fearful about.

MN: You've described this book as funny, and complained that people don't notice the humor.

JHK: This drives me up the fucking wall! My books are always funny -- even The Long Emergency had some funny moments. Brother Job is a very funny character -- half the things that come out of his mouth are hilarious. A lot of the dialogue is funny, even in the places where there's a lot at stake. I don't know, maybe it's too subtle. In college I was a theater student, and I was very caught up in Samuel Beckett and Harold Pinter. Beckett was always chagrined that the critics didn't regard Waiting for Godot as a laugh riot, but it is -- it's a form of vaudeville.

MN: This novel is set in small-town America, and some of the characters are escaping from greater chaos in and around cities. You've written a lot about the unsustainability of suburbs. But do you see a future for urban life?

JHK: I see it differently from many commentators, who just assume that cities are going to get bigger and that people will flee the suburbs for the cities. I think we're going to see something completely different -- I think we'll see a reversal of the 200-year-long trend of people leaving rural places and small towns for big cities and metroplexes.

I think that the big cities of America -- Houston, Atlanta, Dallas, Washington, D.C., Boston -- these places have attained a scale that is simply not suited for the energy diet of the future, and in my opinion they are going to contract substantially, even while they densify at their centers and around their waterfronts, if they have them.

If there is a huge demographic movement -- and I think there will be -- out of suburbia, eventually it will resolve into people moving into smaller towns, smaller cities, that are scaled appropriately to our energy diet -- and to places that exist in a meaningful relationship with productive land. We're simply going to have to do agriculture differently, no question about it, and the places where this is impossible, like Tucson and Las Vegas, are really going to dry up and blow away. In the Northeast, where I live, many of the small towns and cities have about reached their nadir -- but they have many virtues that are going to become apparent in the years ahead, not least that they have a relationship with water, both for navigation and for drinking.

MN: Are you making changes in your own life to prepare for what you see coming?

JHK: The short answer is yes, I am, but not in any kind of peculiar way. I've been gardening for decades, so that's not new for me, though I might do it in a somewhat different way in the future. I don't work for "da man," so I don't have to escape a cubicle. I've had experience writing books in every method from scribbling in a notebook to composing on a Mac, so I'm confident I could continue to communicate one way or another. I've even put out a local newsletter at times over the past 10 years, so I have experience running a kind of local news bureau.

Most of all, I have a pretty rich and deep social network where I live. I've noticed that American life, for many people, is shockingly lonely. It certainly seems no wonder that people take so much Prozac and Xanax -- the American way of life seems to have become one of the greatest anxiety and depression generators in the history of the world.

MN: What effect do you hope to have on your readers? It doesn't sound like you want them to fight to head off this future.

JHK: I'm really rather worried that we're going to squander our remaining resources on a campaign to sustain the unsustainable. I'm inclined to think that we might be better off yielding to some of these realities that are going to assert themselves, whether we like it or not. That's why I get so annoyed when I go to environmental conferences and the only thing people talk about is how they're going to run cars on chicken fat or French fried potato oil. To me, maintaining the happy motoring system is a waste of our resources, and hugely destructive anyway. I want people to be prepared to accept the changes that really are unavoidable.

Texas oilman T. Boone Pickens wants to supplant oil with wind

By Dan Reed

Get ready, America, T. Boone Pickens is coming to your living room.

The legendary Texas oilman, corporate raider, shareholder-rights crusader, philanthropist and deep-pocketed moneyman for conservative politicians and causes, wants to drive the USA's political and economic agenda.

"We're paying $700 billion a year for foreign oil. It's breaking us as a nation, and I want to elevate that question to the presidential debate, to make it the No. 1 issue of the campaign this year," Pickens says.

Today, Pickens will take the wraps off what he's calling the Pickens Plan for cutting the USA's demand for foreign oil by more than a third in less than a decade. To promote it, he is bankrolling what his aides say will be the biggest public policy ad campaign ever. The website,, goes live today.

Jay Rosser, Pickens' ever-present public relations man, promises that Pickens' face will be seen on Americans' televisions this fall almost as frequently as John McCain's and Barack Obama's.
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"Neither presidential candidate is talking about solving the oil problem. So we're going to make 'em talk about it," Pickens says.

"Nixon said in 1970 that we were importing 20% of our oil and that by 1980 it would be 0%. That didn't happen," Pickens says. "It went to 42% in 1991 with the Gulf War. It's just under 70% now. Where do you think we're going to be in 10 years when our economy is busted and we're importing 80% of our oil?"

Finding solutions to other major issues, including health care, are important, he concedes. But "If you don't solve the energy problem, it's going to break us before we even get to solving health care and some of these other important issues." And it has to be done with the same sense of urgency that President Eisenhower had when he pushed the rapid development of the interstate highway system during the Cold War.

Of course, Pickens also has a particular solution in mind.

Wind. And natural gas.

Last week, Pickens loaded up his $60 million, top-of-the-line Gulfstream G550 corporate jet with reporters and a few associates from his Dallas-based BP Capital energy hedge fund and related companies and flew here to illustrate just how big — and achievable — his vision is.

There's not much to Sweetwater except for wild grasses, scraggy mesquite trees and rattlesnakes (Sweetwater hosts its famous Rattlesnake Roundup each spring). The gently rolling terrain and vegetation make it ideal for raising cattle, which is what its first settlers did in the 19th century, and what their descendants do today. A regional oil boom in the 1950s and 1960s poured money into the area's economy, as have two oil revivals since: one in the 1980s and one now.

But the exciting new industry in town is wind energy. You can drive for 150 miles along Interstate 20 and never be out of sight of a giant wind turbine, claims Sweetwater Mayor Greg Wortham, who does double duty as executive director of the West Texas Wind Energy Consortium.

Were it a country all by itself, Nolan County, Texas, would rank sixth on the list of wind-energy-producing nations, says Wortham. Year-round wind conditions, the terrain, low land prices and a small population make it an ideal location for wind farms. It already produces more wind-generated electricity in a year than all of California. And the business is growing so fast that he struggles to define it by numbers. By year's end, there'll be more than 1,500 turbines in Nolan County, representing a $5 billion investment. In the multicounty Rolling Plains region, there are already 2,000 operating turbines.

Add those operating further west, the Permian Basin region around Midland and Odessa, and the entire area has more than 3,000 turbines operating, producing about 6,000 megawatts of electricity — about equal to the power produced by two to three nuclear power plants.

Growth potential

The growth potential is, well, electrifying.

New turbine towers are going up at a rate of three to four a day in the Sweetwater area, Wortham says. "It depends on the (Texas) Public Utility Commission, but the number could be 20,000 ultimately," Wortham says.

Pickens, who over the past two years has become the USA's biggest wind-power booster, is quick to note that "there could be lots of Sweetwaters out there," especially in the nation's midsection, where winds are ideal for power generation.

Indeed, though Sweetwater is a windy place, plenty of locations farther north in the Great Plains are even better suited to wind farming. One is about 250 miles north of Sweetwater, near Pampa, northeast of Amarillo in the Texas Panhandle. That's where Pickens is building what would be the world's largest wind farm, four times larger than the current titleholder near here. So far, he has spent $2 billion on the project, including a record purchase of nearly 700 wind turbines this year from General Electric. He expects to spend up to $10 billion on the project and to begin generating electricity in 2011.

Though Pickens doesn't own a single wind turbine in the Sweetwater area, Wortham was eager to play host to the oil baron and the reporters traveling with him. Sweetwater, he says, is proof that wind power has much more potential than its many skeptics believe.

"People hear about the 8-foot-tall wind turbines at Logan airport in Boston or the five turbines at Atlantic City and think 'interesting,' " Wortham says. "But they don't see how we can get to the 300,000-megawatt-production level" established by the Bush administration as a national goal for 2030. "Once you come to Sweetwater, you see that it can be done, and be done pretty easily, not only here, but … anywhere there are prime wind conditions. None of this existed seven years ago. Now, we produce enough electricity in this one county to power a large city, and we do it cheaply and cleanly."

Getting lots more electricity with wind is only half of the Pickens Plan. Increasing wind-power production by itself won't reduce U.S. dependence on foreign oil because most of that oil is consumed as gasoline.

The key, Pickens says, is that wind energy can be used as a substitute for natural gas now burned to generate electricity. That, in turn, will make far more natural gas available for use as a transportation fuel. Pickens' plan is to produce enough wind power within 10 years to divert 20% of the natural gas now used to fuel power plants for use in cars and trucks. That's much more aggressive a growth plan for the development of wind energy than envisioned by the Department of Energy, which doesn't expect the USA to be getting 20% of its total energy needs from wind until at least 2030.

Pickens foresees as many as a third of the vehicles running on natural gas within only a few years. Julius Pretterebner, director of the Global Oil Group at Cambridge Energy Research Associates, says getting 15% to 20% of the USA's cars to run on natural gas — in some cases, in mixtures with other fuels in dual-fuel vehicles — by 2020 would be an outstanding achievement, and doing that will require federal support to expand the necessary infrastructure.

Powering vehicles with compressed or liquefied natural gas, CNG or LNG, has been Pickens' pet project since the late 1980s.Yet the concept has been very slow to catch on.

Distribution is a major problem. CNG drivers can, like Pickens, install inexpensive equipment to fill up at their homes. But with fewer than 800 natural gas filling stations around the USA, drivers can't count on being able to fill up wherever they go. So, for the most part, CNG, or LNG, has remained limited to fleet operators, such as local bus companies or big-city police departments.

And that's where David Friedman, research director in the vehicles program at the Union of Concerned Scientists, says most natural-gas-powered vehicles will continue to be operated because of the distribution problem, the lack of vehicles made specifically to run on CNG, and the cost of converting conventional vehicles to run on CNG.

"I honestly think (natural gas') role will be in medium- to heavy-duty vehicles and fleets — and as a stepping stone to hydrogen fuel-cell-powered vehicles in the future," Friedman says. Only one car, a version of the Honda Civic, is available from the factory ready for CNG fuel, he says, and only at a significant premium over the price of a conventionally fueled version.

If you build it …

Pickens aims to shout down the skeptics by taking his case to the people via his TV ad campaign. If the nation is to break its addiction to foreign oil, a network of CNG stations could be built along interstates and in major cities for a relatively small investment, he says. Some gasoline retailers have told him they would add CNG pumps to their stations once they're certain there'll be enough vehicles capable of running on natural gas to justify costs.

Washington, Pickens adds, can encourage the move to natural-gas-powered vehicles by providing modest economic incentives for fuel retailers to invest in CNG pumps at their stations, for automakers to build CNG-powered cars and for individuals to convert their existing vehicles to CNG use. And it should continue to provide tax incentives for another 10 years to encourage wind energy's rapid development as part of an overall plan to wean the nation from foreign oil, he says.

"It certainly would be cheaper than what they're doing already for nuclear," Pickens adds. But he's also in favor of developing more nuclear energy, and every form of alternative energy to reduce oil imports. "Try everything. Do everything. Nuclear. Biomass. Coal. Solar. You name it. I support them all," he says. "But there's only one energy source that can dramatically reduce the amount of oil we have to import each year, and that's (natural) gas."

Pickens is an outspoken believer in the so-called peak oil theory that holds that maximum world production has peaked at about 85 million barrels a day — vs. current demand of about 86 million barrels a day — and will never rise much above that even with lots of new drilling and production.

"Even people who continue driving gasoline-powered cars and trucks will benefit" from his plan, he says.

Critics could easily accuse Pickens of advocating a major new public policy initiative that will line his own pockets. He is, after all, a big player in both the wind power and natural gas businesses. Pickens says while his hedge fund will earn money for its investors, earning more money personally is meaningless: "I'm 80 years old and have $4 billion. I don't need any more money."

He's more concerned that his efforts to make reducing foreign oil dependency the No. 1 issue on the national agenda will be dismissed by the public and, therefore, by Washington. So he says he's carefully steering his plan clear of partisan bickering.

He's already enlisted an unlikely supporter: the Sierra Club. "I will be in the front row of the chorus cheering" him on, says Carl Pope, its executive director, who flew with Pickens to Sweetwater.

Pope sees wind and solar energy as inexpensive sources of power that, along with other non-carbon forms, can be pooled to greatly reduce the need for oil- and coal-fired electric-generating plants.

"When it's cloudy in Dallas and the wind's not blowing in Sweetwater, but the sun's blazing in the (Western) deserts, solar energy can run all those air conditioners in Dallas. When it's windy in Sweetwater and cloudy in the desert, wind energy from Sweetwater can heat homes in Chicago.

"Mr. Pickens and I probably don't see eye-to-eye on some other matters," Pope concedes. "But he's right on this one."

Setting goals, clearing roadblocks

Washington's role, Pope said, should be in setting the goal and clearing roadblocks such as the patchwork of state, regional and federal regulations that block the creation of a true national grid that can shift electricity from anywhere in the country to anywhere that it's needed.

Getting support from groups and people not ordinarily aligned with his conservative political views is important to Pickens. A lifelong Republican, he'll vote for McCain. But he's not involved with McCain's campaign, largely to keep his plan from being dismissed as mere campaign rhetoric.

"This has to be a bipartisan effort," says the man who four years ago offered $1 million to anyone who could disprove the charges made against Democrat nomine Sen. John Kerry by the Swift Boat Veterans for Truth.

"This is not about Republicans vs. Democrats," Pickens says. "This is about saving our country from the ruination of spending $700 billion a year on oil imports. Ninety days after the oil hits our shores, it's all burned up, and we've got nothing to show for it. But they (foreign oil producers) still have our money. It's killing our economy."

Peak Oil: Crisis alters lifestyles

By Morgan Josey Glover

Aaron Newton has a foot in two worlds.

Four days a week, the 33-year-old husband and father of two works as a land planner in Concord.

In his free time, Newton prepares for a time when energy could become unreliable or too expensive for his family.

“I don’t know exactly what is going to happen because I don’t know what that future is going to look like,” Newton said. “It’s important to be flexible.”

Opinions differ among economists, petroleum industry experts and grassroots activists about the challenges that declining oil supplies could present to the American way of life. But across the country, people who believe global oil production will soon peak and go into permanent decline are pushing for a transformation in how we grow food, transport people and build homes.

Newton represents a segment of Americans who now envision their lives in a post-peak world. Below, the Newton family and other North Carolinians share their stories:

Straddling the ages

Jennifer Newton never imagined that at age 35 she would eat out of a dorm-size refrigerator, grow unfamiliar produce in her backyard or discuss electricity-free kitchens with her husband. But now, much of the Newton household revolves around making it less dependent on fossil fuels, especially when it comes to diet.

“I’m not in denial, but I guess part of me thinks it’s not going to be as bad as he thinks it is,” said Jennifer, who has 2-year-old and 4-month-old daughters.

Her husband, Aaron, learned of peak oil from a co-worker about four years ago and grieved the loss of a materially comfortable future as someone grieves the death of a loved one.

Aaron said he even went through a period of depression where he drank more beer than usual and told his wife he “found out how the world is going to end.”

After much research, Aaron gradually accepted the need to change. He insulated his 78-year-old three-bedroom house and now gardens and raises chickens (against city codes). He cooks vegetables in a solar oven and sautés in butter the thick leaves of the lambs quarter weeds growing in his front yard.

“I like it better than spinach,” he said.

Aaron Newton rides his bicycle about 100 miles to and from work during the week and cut his 1988 Toyota Camry’s gasoline consumption by 90 percent from January to October 2007. He also completed a book he co-wrote called “A Nation of Farmers” set for release next year.

Newton longs for the time when the general public acknowledges peak oil, when he can chat about it with a friend at a bar and with art, civic and religious institutions.

“I think that point is a long way off where it’s just matter of fact,” he said. “The idea of just in general being able to talk about doing more with less or having alternative energy sources available ... I think that is happening now.”

Fretting in Greensboro

Ask Peter Kauber if he thinks Greensboro has the social and political will to restructure its business, transportation and living patterns and the white-bearded man gives a firm no. In fact, Kauber, 67, can’t explain why the grass-roots sustainability movement he’s been involved with for years has not borne more fruit.

“I’ve been at a loss for the last couple of years,” said Kauber, who coordinates the Guilford Solar Communities program. “I’m doing my own stuff, but I’m not really seeing myself as part of a viable movement that’s actually going to make a difference.”

Kauber gives an example: Four years ago a member of Guilford Solar Communities surveyed more than 100 people who had participated in workshops since 1990 and asked them what they had done in response, such as installing solar panels.

“You know how many people had implemented anything at all?” Kauber said. “Zero. What does that tell you? What does that tell all those poor bastards who organized those presentations and all that stuff for 15 years? It really makes you sit back and say talk really is cheap and there is a huge difference between having a huge curiosity in something and going home and doing something about it.”

Kauber has contemplated Greensboro’s response to peak oil since learning about it five years ago at an expo in western North Carolina. The concept resonated with him because he helped update an accounting system for Marathon Oil in Ohio in 1979, during a second oil shock caused by the Iran hostage crisis. He remembers the price of oil both rising and falling.

“If you had asked me in 1980 or 1981 whether there was going to be an oil shortage I would have said obviously not. All that has to happen is the price has to keep going up and when the price goes up we’ll start attacking sources of oil that up to now have not been economic to develop. Now if you ask me the question, I say there’s no guarantee that throwing money at the problem is going to solve the problem.”

Neither does Kauber believe that biofuels and ethanol as alternative fuels are the answer.

“There’s always the possibility that algae are gonna work and we could have a breakthrough and I could be dead wrong,” said Kauber, who drives a Honda Civic hybrid and powers his lawn equipment through solar energy. “But I don’t want to sit here and put my nickel on technologies that are way out there. If they come through then thank God, we’re lucky, we’re saved.”

Kauber said he thinks Greensboro leaders would be “crazy” to revive the city as a transportation hub based on airplanes and trucks, rather than rail.

He also would like to see residents produce and consume most of their food and goods within the region, instead of importing from thousands of miles away.

“For me, the things that I would do if peak oil were true are the things that should be done anyway,” he said.

Kauber said his wife tells him she’s tired of hearing about the Guilford Solar survey and that “sometimes you plant a seed and maybe it takes 20 or 30 years for that seed to germinate.”

After all, Kauber read his first issue of “Mother Earth News” in 1970 and didn’t do anything significant for decades.

“Problem is, we don’t have 30 years,” he said.

Reshaping education

Gerald Cecil tried to run. To Australia. There, the 54-year-old physics professor at UNC-Chapel Hill planned to watch from a safe distance as the United States began its descent down the slope of declining global oil production.

Cecil, of Carrboro, weighed a job offer at a national observatory in Sydney last year, he said, but found the move too inconvenient for his family — and he found that Australians were not that much better prepared than Americans.

So, Cecil changed his plan. He now wants to make peak oil the central theme of education at the university he has taught at since 1989.

“With few exceptions, no one is looking at this, at the scope of the problem and the changes that need to take place,” he said.

Cecil stumbled upon the concept in 2001 while preparing an introductory astrophysics course. At the time, he figured NASA would continue to have a demand for new technologies and equipment to be used in space exploration.

Cecil started to doubt Americans would continue to support NASA’s multibillion dollar budget while struggling to put gasoline in their tanks. So he changed course and began introducing peak oil to his students.

“We are completely unprepared for this transition,” Cecil said. “It takes a long time for people to appreciate the level of change that needs to occur.”

But Cecil sees an opportunity to make higher education more relevant to students who will need a sound understanding of peak oil’s implications so that they can become part of the solution.

He plans to write an energy textbook and meets with five professors to brainstorm a freshman course he hopes will start in the fall of 2009.

He still needs clearance from Chancellor Holden Thorp.

“The basic idea is to blow the hair off the back of the students’ heads and say, 'Bam! You have no idea,’ ” Cecil said about the course.

As Cecil did, fellow professors might learn they teach in an obsolete field. Cecil expects research funding to dry up in most academic areas as the federal government focuses on practical solutions.

“This is a problem now,” he said. “We have to figure out how to fix this with what we can build now and produce in mass quantities.”

Meanwhile, Cecil mulls a Plan B. He invested money from an inheritance in alternative energy stocks after questioning the viability of the university’s retirement system. He’s exploring secondary career options through start-up companies nearby.

In many ways, Cecil turned on a dime to orient himself to a new future. So must his employer, he said: “If it continues to teach 20th-century thoughts to people, then I don’t think its future is guaranteed.”

Roosting Chickens

By Charley Reese

Once again, I suspect we are stuck with $4-a-gallon gasoline for the foreseeable future. That's $4 and more, I should say. I see nothing on the horizon that would lower the price. Certainly the political rhetoric coming from both Democrats and Republicans will not do it.

There are several roosting chickens that are the cause of the high price. First, there is the devalued U.S. dollar. Our dollar is just piece of paper, backed by or tied to nothing. Therefore, its purchasing power depends in a large part on how many dollars are in circulation. When lots of dollars chase relatively fewer goods, prices go up. We call that inflation. When there are more goods than dollars to buy them, prices go down. We call that deflation.

For many years now, Congress has been spending more than it takes in. That excess is borrowed from the Federal Reserve, which creates its money out of thin air with a keystroke. The borrowed dollars are then spent into the economy, along with all the borrowed dollars spent by the private sector. While the money supply can be increased with a keystroke and a vote in Congress, goods and services have to be created by labor and capital. It's no surprise that there is soon more money than there are goods and services.

People with oil to sell want to compensate for the lost purchasing power of the dollar, so that's part of the price increase. That's chicken No. 1.

Demand is chicken No. 2. When demand exceeds supply, the price will be bid up. Right now, supply meets demand, but not by a large margin. This makes buyers of oil nervous. When American and Israeli war nuts yak about bombing Iran, the price of oil tends to be bid up. Ditto when rebels in Nigeria sabotage or attempt to sabotage oil production in that country. With the narrow margin between supply and demand, any political instability that threatens to disrupt supply will affect the price.

Also pressuring the demand side is the growing industrialization of countries like India, China, Brazil and Russia.

Chicken No. 3 is a shortage of refining capacity. This is due mainly to environmental laws, especially those that encourage lawsuits, and to the not-in-my-backyard mind-set. It is such an expensive hassle to build a refinery that not enough have been built.

In my childhood, I lived a short walk from the world's largest refineries. The air stunk, but we got used to it. People in Port Arthur, Texas, used to say it was just the smell of money. A basic fact is that you cannot have both a pristine environment and an industrialized economy. A compromise has to be struck. When America was largely a pristine wilderness, it was a dirt-poor country.

The final chicken is a concept called peak oil. Peak oil is when you've found all the oil there is to find, and production begins an inevitable decline. That's when the bidding war will really get hot – possibly hot enough to ignite real wars. Nobody knows for sure when the world will reach peak oil, but more and more people are beginning to see it in the relatively near future. That's probably the true reason for the U.S.'s heavy military presence in the Middle East.

I call all these factors chickens that have come home to roost because they have all been known for decades. For you young folks, let me tell you that politicians in Washington have been talking about the energy crisis, energy independence, etc., since the 1970s, and their talk has produced nothing. Vibrating one's vocal chords does not turn a shovel of dirt or drill a half-inch.

So I will make one prediction: As the cost of energy continues to rise, the influence of extreme environmentalists will decline. If Americans can't have both, they'll choose the smell of money over fresh air.

Charley Reese has been a journalist for 49 years.

Is oil independence an illusion?

Rutland Herald Online

By Carl Etnier

The newly seceded United States took seven year to move from the 1776 Declaration of Independence to the Treaty of Paris, in which Great Britain ceded control of the land east of the Mississippi to the young country. In 1973, Richard Nixon set another seven-year challenge: the U.S. would achieve independence from foreign sources of energy by the end of the decade.

Thirty five years later, the U.S. energy dependence has dramatically increased. Crude oil imports, for example, have more than tripled.

In a new book, journalist and author Robert Bryce argues that the hope for energy independence is fraught with “dangerous delusions.” Bryce’s arguments in “Gusher of Lies” provide a refreshing counterpoint to many simplistic, political discussions about energy, but in the end, his blithe optimism about fossil fuel availability, U.S. financial resources, and global warming’s consequences leaves his arguments as dangerously deluded as those he criticizes.

Bryce pulls no punches in criticizing dreams of energy independence: “Energy independence is hogwash. From nearly any standpoint — economic, military, political, environmental — energy independence makes no sense. Worse yet, the inane obsession with the idea of energy independence is preventing the U.S. from having an honest and effective discussion about the energy challenges it now faces…

“Regardless of the ongoing fears about oil shortages, global warming, conflict in the Persian Gulf, and terrorism, the plain, unavoidable truth is that the U.S., along with nearly every other country on the planet, is married to fossil fuels. And that fact will not change in the foreseeable future, meaning the next 30 to 50 years.”

Bryce contends that commonly touted paths to energy independence just don’t cut the mustard. Efficiency, he says, won’t reduce U.S. energy consumption; we will just do more with the energy we have.

Corn ethanol, Bryce points out, has little or no net energy gain, is produced only with huge government subsidies, worsens global warming, and uses prodigious amounts of cropland and scarce water. Cellulosic ethanol, made from grass or wood, has never been produced commercially. Bryce calls it “vaporware,” a software industry term for a program that is promised but never actually put together.

Conventional natural gas production is dropping in both the U.S. and our chief foreign supplier, Canada, so gas imports will need to increase to meet demand. U.S. nuclear power plants rely on imported uranium for over 80% of their fuel, which means that nuclear power doesn’t increase energy independence, either (whatever you think about its risks and high cost).

Even coal, which many advocates of energy independence say the U.S. has in abundance, is too limited for projected growth in energy demand. The Department of Energy expects the U.S. to become a net coal importer as soon as 2015.

Solar and wind-generated electricity cannot be ramped up fast enough to create energy independence, Bryce says, and they don’t produce liquid fuels to displace oil use.

Increasing U.S. oil production by drilling more offshore or in an Alaskan wildlife refuge, according to Bryce, requires so much foreign expertise and equipment that they cannot be seen as true energy independence.

Bryce envisions a world in which the U.S. continues to consume large amounts of fossil fuel and lives comfortably with international interdependence. He sees a role for increased use of solar, wind, nuclear power, and efficiency, but none of them leads to independence.

While Bryce accurately describes limits to many energy sources, I see three major problems with his future vision. He doesn’t specify 1) where all the fossil fuel will come from or 2) how the U.S. is going to pay for continued large-scale imports. And 3), Bryce summarily dismisses any hope of adequately responding to global climate change.

On climate change, leading climate scientists like NASA’s James Hansen have concluded that the world has eight years to bend the curve of increasing greenhouse gases downward, before global feedback systems trigger out-of-control climate change that potentially makes the planet uninhabitable for humans. Bryce ignores this urgency; he simply throws up his hands and says that “curbing carbon dioxide emissions to any significant degree appears hopeless.”

Bryce has given up hope that humans will make a concerted effort to reduce carbon emissions, and so he basically says, “don’t bother.” Prominent experts in the climate debate counsel that throwing up our hands on curbing carbon emissions can, within eight years, trigger runaway global warming that could extinguish human life on the planet. Bryce ignores that point of view, rather than honestly pointing out that some really smart and knowledgeable people think his “don’t bother” recommendation spells curtains for us mortals.

Bryce admits we’ll face peak oil and the subsequent permanent decline of world oil production at some point, but he ventures no guesses on when that might occur. A growing number of experts think that we’re there: the current plateau in world oil production represents a flattish peak.

Even the optimists at the Paris-based International Energy Agency (of which the U.S. is a member), who foresee continued growth in oil production, are busily reducing their estimates of future supplies. Last summer they sounded the warning of tight oil availability relative to demand through at least 2012, and last Tuesday they released their annual “Medium-Term Oil Market Forecast,” which further reduced projections of future supply. What’s more, they noted that existing oil fields are depleting so fast that almost all the new production they anticipate outside of OPEC countries will be needed just to keep overall non-OPEC production constant.

By Bryce’s implicit criteria, it seems that peak oil has arrived. He approvingly quotes energy analyst Charlie Maxwell as saying that oil will go to $100 or $150 per barrel after peak. Though the manuscript was probably completed in 2007, the book was released in early March, two months after oil first closed at over $100 per barrel, and about the same time that it started being traded permanently in the triple digits. Four months later, we’re almost at $150 oil.

When peak oil approaches and is passed, Bryce says, shortages will manifest themselves through rationing of oil by price. That is, oil is available on the market, but there is a shortage of affordable oil for many people. Rather smugly, Bryce anticipates that price rationing will apply primarily to less wealthy countries.

Tell that to Vermonters who don’t know how they’ll afford to fill their oil tanks this winter.

Finally, there’s the question of continuing to pay for all the energy the U.S. imports. At today’s prices, the annual outflow of wealth for oil and refined petroleum products like gasoline alone is $700 billion dollars, almost as much as the entire 2007 trade deficit. What is the U.S. going to export to pay for that? How long will the rest of the world continue to lend money to the U.S. to import so much of an economic staple?

At the close of the Constitutional Convention, a woman famously asked Ben Franklin whether the founders had created a monarchy or republic. “A republic,” he replied, “if you can keep it.” The problem of oil imports and other economic recklessness is vexing enough that sober, establishment voices are saying that even our ability to keep a republic is at risk.

David Walker, chief of the non-partisan Government Accountability Office until earlier this year, warns that economic imbalances in the U.S. risk leading the country to a fate similar to Rome’s: “The Roman Empire lasted a thousand years, but only about half that time as a republic. The Roman Republic fell for many reasons, but three reasons are worth remembering: declining moral values and political civility at home, an overconfident and overextended military in distant lands, and fiscal irresponsibility by the central government. Sound familiar?”

Retired CIA analyst Chalmers Johnson, whose job included preparing National Intelligence Estimates on many countries, has drafted his version of an NIE on the U.S., which similarly concludes, “Confronted by the limits of its own vast but nonetheless finite financial resources and lacking the political check on spending provided by a functioning democracy, the United States will within a very short time face financial or even political collapse at home and a significantly diminished ability to project force abroad.”

The U.S. was largely energy independent a hundred years ago, and it’s likely to be roughly independent again in 2108. By that time, given present trends, fossil fuels and nuclear power will be such a tiny portion of the world energy mix that what’s left will be local, renewable energy sources and little more.

Financial collapse or a catastrophic decline in fossil fuel available for import could lead to involuntary and unpleasant independence long before 2108. If no country will export oil, or no oil exporter will accept U.S. dollars in return for oil, we’ll have achieved a type of oil independence. Janice Joplin was at least partially right when she sang, “Freedom is just another word for nothing left to lose,” but I don’t think it’s what advocates of energy independence really have in mind.

I agree with Bryce’s notion of energy interdependence, although my version includes more planning and less laissez faire than his. Let’s declare common cause with all other industrialized countries (i.e., almost all of the world) and cooperatively research, develop, and support local, renewable sources of energy, especially efficiency. And let’s acknowledge that we’re all in this together, with everyone working to make sure no one goes without adequate food or heat this winter, and rich countries pledging that everyone will have enough to eat before we turn food into fuel.

Rather than focus on energy independence, let’s focus on living within our means, energetically and financially. The U.S. is the third largest oil producer in the world (after Saudi Arabia and Russia), with only 5% of the world population. As a medium-term goal, we could live off our own oil, reducing consumption by two thirds, and still have almost as much oil to burn per capita as Italy.

After U.S. independence from Britain came the century of the pioneers. In Vermont, we have all around us people who have pioneered reducing their energy use to one third or less of the national average. Let’s identify them, learn from them, celebrate their successes, and do likewise. As we plan for the upcoming winter and the years ahead, living within our means will help us both to keep warm and keep our republic.

Carl Etnier, director of Peak Oil Awareness, blogs at and hosts radio shows on WGDR, 91.1 FM Plainfield and WDEV 96.1 FM/550 AM, Waterbury. He can be reached at EnergyMattersVermont(at)

Friday, July 04, 2008

Secret report: biofuel caused food crisis

The Guardian

Internal World Bank study delivers blow to plant energy drive

By Aditya Chakrabortty

Biofuels have forced global food prices up by 75% - far more than previously estimated - according to a confidential World Bank report obtained by the Guardian.

The damning unpublished assessment is based on the most detailed analysis of the crisis so far, carried out by an internationally respected economist at global financial body.

The figure emphatically contradicts the US government's claims that plant-derived fuels contribute less than 3% to food-price rises. It will add to pressure on governments in Washington and across Europe, which have turned to plant-derived fuels to reduce emissions of greenhouse gases and reduce their dependence on imported oil.

Senior development sources believe the report, completed in April, has not been published to avoid embarrassing President George Bush.

"It would put the World Bank in a political hot-spot with the White House," said one yesterday.

The news comes at a critical point in the world's negotiations on biofuels policy. Leaders of the G8 industrialised countries meet next week in Hokkaido, Japan, where they will discuss the food crisis and come under intense lobbying from campaigners calling for a moratorium on the use of plant-derived fuels.

It will also put pressure on the British government, which is due to release its own report on the impact of biofuels, the Gallagher Report. The Guardian has previously reported that the British study will state that plant fuels have played a "significant" part in pushing up food prices to record levels. Although it was expected last week, the report has still not been released.

"Political leaders seem intent on suppressing and ignoring the strong evidence that biofuels are a major factor in recent food price rises," said Robert Bailey, policy adviser at Oxfam. "It is imperative that we have the full picture. While politicians concentrate on keeping industry lobbies happy, people in poor countries cannot afford enough to eat."

Rising food prices have pushed 100m people worldwide below the poverty line, estimates the World Bank, and have sparked riots from Bangladesh to Egypt. Government ministers here have described higher food and fuel prices as "the first real economic crisis of globalisation".

President Bush has linked higher food prices to higher demand from India and China, but the leaked World Bank study disputes that: "Rapid income growth in developing countries has not led to large increases in global grain consumption and was not a major factor responsible for the large price increases."

Even successive droughts in Australia, calculates the report, have had a marginal impact. Instead, it argues that the EU and US drive for biofuels has had by far the biggest impact on food supply and prices.

Since April, all petrol and diesel in Britain has had to include 2.5% from biofuels. The EU has been considering raising that target to 10% by 2020, but is faced with mounting evidence that that will only push food prices higher.

"Without the increase in biofuels, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate," says the report. The basket of food prices examined in the study rose by 140% between 2002 and this February. The report estimates that higher energy and fertiliser prices accounted for an increase of only 15%, while biofuels have been responsible for a 75% jump over that period.

It argues that production of biofuels has distorted food markets in three main ways. First, it has diverted grain away from food for fuel, with over a third of US corn now used to produce ethanol and about half of vegetable oils in the EU going towards the production of biodiesel. Second, farmers have been encouraged to set land aside for biofuel production. Third, it has sparked financial speculation in grains, driving prices up higher.

Other reviews of the food crisis looked at it over a much longer period, or have not linked these three factors, and so arrived at smaller estimates of the impact from biofuels. But the report author, Don Mitchell, is a senior economist at the Bank and has done a detailed, month-by-month analysis of the surge in food prices, which allows much closer examination of the link between biofuels and food supply.

The report points out biofuels derived from sugarcane, which Brazil specializes in, have not had such a dramatic impact.

Supporters of biofuels argue that they are a greener alternative to relying on oil and other fossil fuels, but even that claim has been disputed by some experts, who argue that it does not apply to US production of ethanol from plants.

"It is clear that some biofuels have huge impacts on food prices," said Dr David King, the government's former chief scientific adviser, last night. "All we are doing by supporting these is subsidising higher food prices, while doing nothing to tackle climate change."

Thursday, July 03, 2008

The Peak Oil Crisis: Assesing $200 Oil

Falls Church News-Press

By Tom Whipple

Three months ago anyone talking about $200 oil was considered a fear monger, or worse, but things happen fast these days. In the intervening period, oil prices have risen by nearly $40 a barrel and show no signs of stopping. All of a sudden it has become fashionable to start talking about much higher prices and to start thinking about the implications of multi-hundred dollar oil.

Among the many debates going on over oil is one holding that crude will never get much beyond $200 a barrel because at such an extreme price, demand for oil products will drop so much that prices will fall back to more affordable levels. Countering this argument are those who point out that nearly half the world's population can buy oil products subsidized by their governments or national oil companies, will never be subjected to the high world prices and will go merrily along increasing their consumption for a while longer. While demand for oil products in the U.S., Europe and other OECD countries is starting to slip, this drop in consumption is more than being made up in the subsidized societies of Russia, the Middle East, India and China.

If oil prices move from $140 to $200 the impact is going to be felt more harshly than during the climb from $20 to $140 that has taken place in the last few years. To the surprise of many, oil consumption in the U.S. did not begin to drop noticeably until the price moved beyond $100 a barrel and even then it is only in the last few months as gasoline approached $4 a gallon that a significant drop in consumption was noted.

As oil approaches $200 a barrel, the impact will be distributed unevenly, depending on one's circumstances, job, lifestyle, geographical location and a host of other factors. It may be easy to say that consumers will simply cut back on discretionary spending, but in the U.S.'s "service economy," a large share of the jobs currently depend on discretionary spending. As a larger share of disposable income goes for the essentials of life - food, shelter, clothing, medical services and of course transportation to places of employment - discretionary spending on vacations, recreation, entertainment, eating out and "stuff" is bound to fall sharply.

It is easy to conclude that the mix of essential/discretionary spending will shift, but to quantify just how bad things will get is far more difficult. The situation of course is muddled by the current financial crisis that shows every sign of becoming much worse with each passing day.

Last week the Los Angeles Times ran a story entitled "Envisioning a World of $200-a-Barrel Oil" which was sort of a tour d'horizone of all the bad things that are going to happen when oil reaches $200 a barrel. The story was replete with quotes such as "You'd have massive changes going on throughout the economy," and "Some activities are just plain going to be shut down." Other quotes were apocalyptic "The American people would be kicked in the teeth so darned hard by $200-a-barrel oil that they won't have the ability to buy much of anything."

The authors recognize that nearly every aspect of our current lifestyles will be affected from simply having a job to getting to work. Naturally, costs of nearly everything made from oil will increase and even shipping stuff from China will increase its costs by 15 percent. Major declines in the stock market will create havoc with pensions and personal wealth. There will, however, be a few upsides to $200 oil such as less traffic and more opportunity for local manufacturing and agriculture.

It is well enough to point out that a myriad of problems will come with $200 oil, but so far few have attempted to quantify just what might happen in the next few years. One recent effort to assess $200 oil was undertaken by Canada's CIBC bank. Starting with the well publicized decline in auto sales, the bank concludes that U.S. light vehicle (cars, trucks, SUV, and vans) sales will be down to 11 million by 2012 from 17 million a few years ago. The share of SUVs and light trucks is expected to be less that half that of their banner years. Increased scrapping of light vehicles combined with lower sales leads the bank to conclude that there will be roughly 10 million fewer registered vehicles on U.S. roads by 2012.

While this may sound like an impressive number, Americans are currently driving around 230 million light vehicles so 10 million less is not too significant. The more important question is how much the remaining vehicles are going to be used. Here the bank foresees a 15 percent drop in the average miles driven by 2012. Presumably an increasing share of these miles will be driven in newer, more efficient vehicles so that that the drop in U.S. gasoline consumption would be greater than 15 percent.

The CIBC study, which deals primarily with transportation, certainly anticipates a relatively benign world in which we scrap our old cars, don't buy SUVs and those households earning less than $25,000 a year and have access to public transportation, take the bus. The people interviewed by the Los Angeles Times seem to have a much darker view of the immediate future.

There are simply too many unknowns out there to form a conclusion as to just how bad it may get. The Bank's $200 oil in 2010 could easily prove to be optimistic for some are talking about $200 before the year is out even without a major supply disruption. Then we have the hurricane season. And many are convinced that the Bush administration will not leave office with an Iranian nuclear program still in place.

While some sort of quantitative evaluation of our future would be nice, $200 oil easily could be here before anyone can crunch the numbers.