Oil trader: "There is no growth"

SUBHEAD: World's largest oil trader has a stunning warning for OPEC pricing strategies. 

By Tyler Durden on 10 May 2017 for Zero Hedge -
(http://www.zerohedge.com/news/2017-05-10/there%E2%80%99s-no-growth-worlds-largest-oil-trader-has-stunning-warning-opec)


Image above: Oil price cartoon "Diminishing Returns" by David Simonds for the Observer. From (http://www.execreview.com/2017/04/as-wind-wave-and-shale-power-converge-could-this-be-the-end-for-opec/).

When it comes to the oil market, the narrative over the past year, ever since OPEC's first aborted meeting last April, has been just one: limit crude supply in hopes of rebelancing the oil market, reducing excess inventories, in the process sending the price of oil higher.

However, echoing what we have warned for many months, overnight the world’s biggest independent oil trader said OPEC's efforts could be in vain because the oil producing cartel is seeking to control the wrong thing:

"It's not a matter of supply, but global demand which is simply not there."

According to Vitol Group, the world's biggest independent oil trader demand isn’t expanding as much as expected, and U.S. shale output is growing faster than forecast, Bloomberg reports.

As a logical outcome, that’s increasing the burden on the world’s biggest producers, who need to stick to their pledges to cut supply just to keep prices from falling, said Kho Hui Meng, the head of the company’s Asian arm.

Meanwhile, shale continues to capture OPEC, and mostly Saudi, market share as do countries such as Iran and Libya which are not bound by the Vienna agreement production quotas.

But the biggest variable is demand, of which there is simply not enough: “What we need is real demand growth, faster demand growth,” Kho, the president of Vitol Asia Pte., said in an interview in Kuala Lumpur. “Growth is there, but not fast enough.”

The problem in a nutshell: originally, oil consumption, or demand, was forecast to expand this year by about 1.3 million barrels a day, growth has been limited to about 800,000 barrels a day so far in 2017, Vitol's Kho said, adding that meanwhile U.S. output had grown 400,000-500,000 barrels a day more than expected.

“If demand goes back to where it should, where it’s forecast, then it’ll help, but my gut feel tells me it is still a bit long,” he said. Vitol's dour demand outlook has been shared by the International Energy Agency itself, which trimmed its forecasts for global oil demand growth this year by about 100,000 barrels a day to 1.3 million a day as a result of weaker consumption in OECD member countries and an abrupt slowdown in economic activity in India and Russia, according to a report released last month.

As a result, the Paris-based IEA cut its estimate for India’s 2017 oil-demand growth by 11% . It's not just India: there’s also concern that consumption may slow in China, the world’s second-biggest oil user. As we reported in March, China's independent refiners or "teapots", which account for a third of the nation’s capacity, have received lower crude import quotas compared with a year earlier, prompting speculation their purchases could slow.

“The oil market is looking for growth but there’s no growth,” Vitol’s Kho said, adding that the refiners may only get approval for the same volume of imports as last year. And while U.S. gasoline consumption is expected to hit its seasonal summer peak soon, demand growth “is not there yet,” he said.

Yet, in what may be the third law of oil price (dis)information, for every bearish oil trader, there is an equally bullish oil producerm, in this case Saudi Arabia. And indeed, the world’s biggest crude exporter is quite optimistic on oil's prospects.

According to Bloomberg, Saudi Arabia expects 2017 global consumption to grow at a rate close to that of 2016, Energy Minister Khalid Al-Falih said on Monday.

“We look for China’s oil demand growth to match last year’s, on the back of a robust transport sector, while India’s anticipated annual economic growth of more than seven percent will continue to drive healthy growth,” he said in Kuala Lumpur.

While some fear a slowdown in Chinese oil demand, Sanford C. Bernstein & Co. doesn’t see any cause for concern. Growth in the nation’s car fleet will support gasoline demand, with increasing truck sales and air travel also helping fuel consumption, it said in a report dated May 9.

Saudi Arabia and Russia, the world’s largest crude producers, signaled this week they could extend production cuts into 2018, doubling down on an effort to eliminate a surplus.

It was the first time they said they would consider prolonging their output reductions for longer than the six-month extension that’s widely expected to be agreed at an OPEC meeting on May 25.

And then there is shale.

“We’ve always talked about the call on OPEC, how much OPEC oil is needed to satisfy world demand,” said Nawaf Al-Sabah, chief executive officer of Kufpec, a unit of state-run Kuwait Petroleum Corporation:

“Now, in this new paradigm, it’s really becoming the call on shale. And the market is setting itself at the marginal cost of a shale barrel.”

As Bloomberg points out, U.S. output has jumped for 11 weeks through the end of April to 9.29 million barrels a day, the most since August 2015, Energy Information Administration data show.

Furthermore, according to an EIA forecast released on Monday, US crude output for 2017 is expected to rise again, from 9.22MMbpd to 9.31MMBpd, and jump in 2018 from 9.9MMbpd to an all time high 9.96MMpbd.

That may prove optimistic.

According to a separate Bloomberg report, U.S. shale explorers are boosting drilling budgets 10 times faster than the rest of the world to harvest fields that register fat profits even with the recent drop in oil prices.

Flush with cash from a short-lived OPEC-led crude rally, North American drillers plan to lift their 2017 outlays by 32 percent to $84 billion, compared with just 3 percent for international projects, according to analysts at Barclays Plc.

Much of the increase in spending is flowing into the Permian Basin, a sprawling, mile-thick accumulation of crude beneath Texas and New Mexico, where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014.

Needless to say, that’s very bad news for OPEC and non-OPEC in the ongoing, and failing, global campaign to crimp supplies and elevate prices. Wood Mackenzie Ltd. estimates that new spending will add 800,000 barrels of North American crude this year, equivalent to 44 percent of the reductions announced by the Saudi- and Russia-led group.

Drilling budgets around the world collapsed in 2016 as the worst crude market collapse in a generation erased cash flows, forcing explorers to cancel expansion projects, cut jobs and sell oil and natural gas fields to raise cash.

The pain also swept across the Organization of Petroleum Exporting Countries, which in November relented by agreeing with several non-OPEC nations to curb output by 1.8 million barrels a day. So far, independent American explorers such as EOG Resources Inc. and Pioneer Natural Resources Co. are holding fast to their ambitious growth plans.

Some recently finished wells in the Permian region yielded 70 percent returns at first-quarter prices, EOG Chief Executive Officer Bill Thomas told investors and analysts during a conference call on Tuesday.

But the worst news for OPEC is that a new flood of oil may be imminent: "U.S. oil production is already swelling, even though output from the new wells being drilled won’t materialize above ground for months." In other words, "in a few months" expects a whole new wave of shale oil to hit markets.

It is unclear how long the shale strategy can continue: drillers can afford to be sanguine despite oil’s recent tumble because they’ve cushioned themselves with hedges, Martin said. Hedges are financial instruments that lock in prices for future output and shield producers from volatile market movements.

“There is some price malaise creeping in,” Martin said. “But the aristocracy of the U.S. independents have insulated themselves” through hedging.

At the end of the day, however, the biggest culprit for OPEC's failed strategy may be none other than the Fed and its peer central banks, who have made access to cheap money virtually problematic, money which shale companies that were near bankruptcy a year ago, are now using to pump record amounts in hopes of stealing Saudi market share.

“The specter of American supply is real,” Roy Martin, a Wood Mackenzie research analyst in Houston, said in a telephone interview. “The level of capital budget increases really surprised us.”

If Riyadh really want the price of oil to go up, perhaps it should send a letter to Janet Yellen to make it more difficult for shale companies to get the funding they need to produce any amount of oil with virtually no capital limitations.

Finally, we go back to Vitol’s Kho, who tried to end on an optimistic note.

He failed:

“I am still watching the U.S. summer gasoline demand,” he said. “OPEC has said it will try and extend its output cuts beyond June. So if that happens, and the discipline is good, and if the U.S. lack of growth in demand changes into summer, then we may see oil go back to the low $50s, but the prevailing mood today is not.”

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Big Oil in Retreat?

SUBHEAD: Could we, in fact, be witnessing a fundamental shift in the energy industry? 

By Michael T. Klare on 13 August 2015 for Tom Dispatch -
(http://www.tomdispatch.com/post/176035/tomgram:_michael_klare,_big_oil_in_retreat/)


Image above: Pump jacks and wells are seen in an oil field on the Monterey Shale formation where gas and oil extraction using hydraulic fracturing, or fracking, is taking place near McKittrick, California. photo by David McNew/Getty Images. From (https://www.washingtonpost.com/opinions/the-retreat-of-peak-oil/2015/06/14/76a24ae4-1124-11e5-9726-49d6fa26a8c6_story.html).

The plunge of global oil prices began in June 2014, when benchmark Brent crude was selling at $114 per barrel. It hit bottom at $46 this January, a near-collapse widely viewed as a major but temporary calamity for the energy industry.

Such low prices were expected to force many high-cost operators, especially American shale oil producers, out of the market, while stoking fresh demand and so pushing those numbers back up again.

When Brent rose to $66 per barrel this May, many oil industry executives breathed a sigh of relief.  The worst was over.  The price had “reached a bottom” and it “doesn’t look like it is going back,” a senior Saudi official observed at the time.

Skip ahead three months and that springtime of optimism has evaporated.  Major producers continue to pump out record levels of crude and world demand remains essentially flat. The result: a global oil glut that is again driving prices toward the energy subbasement.  In the first week of August, Brent fell to $49, and West Texas Intermediate, the benchmark for U.S. crude, sank to $45.

 On top of last winter’s rout, this second round of price declines has played havoc with the profits of the major oil companies, put tens of thousands of people out of work, and obliterated billions of dollars of investments in future projects.

While most oil-company executives continue to insist that a turnaround is sure to occur in the near future, some analysts are beginning to wonder if what’s underway doesn’t actually signal a fundamental transformation of the industry.

Recently, as if to underscore the magnitude of the current rout, ExxonMobil and Chevron, the top two U.S. oil producers, announced their worst quarterly returns in many years.  Exxon, America’s largest oil company and normally one of its most profitable, reported a 52% drop in earnings for the second quarter of 2015.

Chevron suffered an even deeper plunge, with net income falling 90% from the second quarter of 2014.  In response, both companies have cut spending on exploration and production (“upstream” operations, in oil industry lingo).  Chevron also announced plans to eliminate 1,500 jobs.

Painful as the short-term consequences of the current price rout may be, the long-term ones are likely to prove far more significant.  To conserve funds and ensure continuing profitability, the major companies are cancelling or postponing investments in new production ventures, especially complex, costly projects like the exploitation of Canadian tar sands and deep-offshore fields that only turn a profit when oil is selling at $80 to $100 or more per barrel.

According to Wood Mackenzie, an oil-industry consultancy, the top firms have already shelved $200 billion worth of spending on new projects, including 46 major oil and natural gas ventures containing an estimated 20 billion barrels of oil or its equivalent.

 Most of these are in Canada’s Athabasca tar sands (also called oil sands) or in deep waters off the west coast of Africa.  Royal Dutch Shell has postponed its Bonga South West project, a proposed $12 billion development in the Atlantic Ocean off the coast of Nigeria, while the French company Total has delayed a final investment decision on Zinia 2, a field it had planned to exploit off the coast of Angola.  “The upstream industry is winding back its investment in big pre-final investment decision developments as fast as it can,” Wood Mackenzie reported in July.

As the price of oil continues on its downward course, the cancellation or postponement of such mega-projects has been sending powerful shock waves through the energy industry, and also ancillary industries, communities, and countries that depend on oil extraction for the bulk of their revenues.

Consider it a straw in the wind that, in February, Halliburton, a major oil-services provider, announced layoffs of 7% of its work force, or about 6,000 people.  Other firms have announced equivalent reductions.

Such layoffs are, of course, impacting whole communities.  For instance, Fort McMurray in Alberta, Canada, the epicenter of the tar sands industry and not so long ago a boom town, has seen its unemployment rate double over the past year and public spending slashed.

Families that once enjoyed six-digit annual incomes are now turning to community food banks for essential supplies.  “In a very short time our world has changed, and changed dramatically,” observes Rich Kruger, chief executive of Imperial Oil, an Exxon subsidiary and major investor in Alberta’s tar sands.

A similar effect can be seen on a far larger scale when it comes to oil-centric countries like Russia, Nigeria, and Venezuela.

All three are highly dependent on oil exports for government operations.  Russia’s government relies on its oil and gas industry for 50% of its budget revenues, Nigeria for 75%, and Venezuela for 45%.  All three have experienced sharp drops in oil income.  The resulting diminished government spending has meant economic hardship, especially for the poor and marginalized, and prompted increased civil unrest.

In Russia, President Vladimir Putin has clearly sought to deflect attention from the social impact of reduced oil revenue by ­whipping up patriotic fervor about the country’s military involvement in Ukraine.  Russia's actions have, however, provoked Western economic sanctions, only adding to its economic and social woes.

No Relief in Sight
What are we to make of this unexpected second fall in oil prices?  Could we, in fact, be witnessing a fundamental shift in the energy industry?  To answer either of these questions, consider why prices first fell in 2014 and why, at the time, analysts believed they would rebound by the middle of this year.

The initial collapse was widely attributed to three critical factors: an extraordinary surge in production from shale formations in the United States, continued high output by members of the Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia, and a slackening of demand from major consuming nations, especially China.

According to the Energy Information Administration of the Department of Energy, crude oil production in the United States took a leap from 5.6 million barrels per day in June 2011 to 8.7 million barrels in June 2014, a mind-boggling increase of 55% in just three years.

The addition of so much new oil to global markets -- thanks in large part to the introduction of fracking technology in America’s western energy fields -- occurred just as China’s economy (and so its demand for oil) was slowing, undoubtedly provoking the initial price slide.  Brent crude went from $114 to $84 per barrel, a drop of 36% between June and October 2014.

Historically, OPEC has responded to such declines by scaling back production by its member states, and so effectively shoring up prices.  This time, however, the organization, which met in Vienna last November, elected to maintain production at current levels, ensuring a global oil glut.  Not surprisingly, in the weeks after the meeting, Brent prices went into free fall, ending up at $55 per barrel on the last day of 2014.

Most industry analysts assumed that the Persian Gulf states, led by Saudi Arabia, were simply willing to absorb a temporary loss of income to force the collapse of U.S. shale operators and other emerging competitors, including tar sands operations in Canada and deep-offshore ventures in Africa and Brazil.

A senior Saudi official seemed to confirm this in May, telling the Financial Times, “There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including U.S. shale, deep offshore, and heavy oils.”

Believing that the Saudi strategy had succeeded and noting signs of increasing energy demand in China, Europe, and the United States, many analysts concluded that prices would soon begin to rise again, as indeed they briefly did.  It now appears, however, that these assumptions were off the mark.  While numerous high-cost projects in Canada and Africa were delayed or cancelled, the U.S. shale industry has found ways to weather the downturn in prices.

Some less-productive wells have indeed been abandoned, but drillers also developed techniques to extract more oil less expensively from their remaining wells and kept right on pumping.  “We can’t control commodity prices, but we can control the efficiency of our wells,” said one operator in the Eagle Ford region of Texas.  “The industry has taken this as a wake-up call to get more efficient or get out.”

Responding to the challenge, the Saudis ramped up production, achieving a record 10.3 million barrels per day in May 2014.  Other OPEC members similarly increased their output and, to the surprise of many, the Iraqi oil industry achieved unexpected production highs, despite the country’s growing internal disorder.

Meanwhile, with economic sanctions on Iran expected to ease in the wake of its nuclear deal with the U.S., China, France, Russia, England, and Germany, that country’s energy industry is soon likely to begin gearing up to add to global supply in a significant way.

With ever more oil entering the market and a future seeded with yet more of the same, only an unlikely major boost in demand could halt a further price drop.  Although American consumers are driving more and buying bigger vehicles in response to lower gas prices, Europe shows few signs of recovery from its present austerity moment, and China, following a catastrophic stock market contraction in June, is in no position to take up the slack.  Put it all together and the prognosis seems inescapable: low oil prices for the foreseeable future.

A Whole New Ballgame?
Big Energy is doing its best to remain optimistic about the situation, believing a turnaround is inevitable. “Globally in the industry $130 billion of projects have been delayed, deferred, or cancelled,” Bod Dudley, chief executive of BP, commented in June.  “That’s going to have an impact down the road.”

But what if we’ve entered a new period in which supply just keeps expanding while demand fails to take off?  For one thing, there’s no evidence that the shale and fracking revolution that has turned the U.S. into “Saudi America” will collapse any time soon.  Although some smaller operators may be driven out of business, those capable of embracing the newest cost-cutting technologies are likely to keep pumping out shale oil even in a low-price environment.

Meanwhile, there’s Iran and Iraq to take into account.  Those two countries are desperate for infusions of new income and possess some of the planet’s largest reserves of untapped petroleum.  Over the decades, both have been ravaged by war and sanctions, but their energy industries are now poised for significant growth.  To the surprise of analysts, Iraqi production rose from 2.4 million barrels per day in 2010 to 4 million barrels this summer.

Some experts are convinced that by 2020 total output, including from the country’s semiautonomous Kurdistan region, could more than double to 9 million barrels.  Of course, continued fighting in Iraq, which has already lost major cities in the north to the Islamic State and its new “caliphate,” could quickly undermine such expectations.  Still, through years of chaos, civil war, and insurgency, the Iraqi energy industry has proven remarkably resilient and adept first at sustaining and then boosting its output.

Iran’s once mighty oil industry, crippled by fierce economic sanctions, has suffered from a lack of access to advanced Western drilling technology.  At about 2.8 million barrels per day in 2014, its crude oil production remains far below levels experts believe would be easily attainable if modern technology were brought to bear.

Once the Iran nuclear deal is approved -- by the Europeans, Russians, and Chinese, even if the U.S. Congress shoots it down -- and most sanctions lifted, Western companies are likely to flock back into the country, providing the necessary new oil technology and knowhow in return for access to its massive energy reserves.

While this wouldn’t happen overnight -- it takes time to restore a dilapidated energy infrastructure -- output could rise by one million barrels per day within a year, and considerably more after that.

All in all, then, global oil production remains on an upward trajectory.  What, then, of demand?  On this score, the situation in China will prove critical.   That country has, after all, been the main source of new oil demand since the start of this century.  According to BP, oil consumption in China rose from 6.7 million barrels per day in 2004 to 11.1 million barrels in 2014.

As domestic production only amounts to about 4 million barrels per day, all of those additional barrels represented imported energy.  If you want a major explanation for the pre-2014 rise in the price of oil, rapid Chinese growth -- and expectations that its spurt in consumption would continue into the indefinite future -- is it.

Woe, then, to the $100 barrel of oil, since that country’s economy has been cooling off since 2014 and its growth is projected to fall below 7% this year, the lowest rate in decades.  This means, in turn, less demand for extra oil.

China’s consumption rose only 300,000 barrels per day in 2014 and is expected to remain sluggish for years to come.  “[T]he likelihood now is that import growth will be minimal for the next two or three years,” energy expert Nick Butler of the Financial Times observed.  “That in turn will compound and extend the existing surplus of supply over demand.”

Finally, don’t forget the Paris climate summit this December.  Although no one yet knows what, if anything, it will accomplish, dozens of countries have already submitted preliminary plans for the steps they will pledge to take to reduce their carbon emissions.

These include, for example, tax breaks and other incentives for those acquiring hybrid and electric-powered cars, along with increased taxes on oil and other forms of carbon consumption.  Should such measures begin to kick in, demand for oil will take another hit and conceivably its use will actually drop years before supplies become scarce.

Winners and Losers
The initial near collapse of oil prices caused considerable pain and disarray in the oil industry.  If this second rout continues for any length of time, it will undoubtedly produce even more severe and unpredictable consequences. Some outcomes already appear likely: energy companies that cannot lower their costs will be driven out of business or absorbed by other firms, while investment in costly, “unconventional” projects like Canadian tar sands, ultra-deep Atlantic fields, and Arctic oil will largely disappear.  Most of the giant oil companies will undoubtedly survive, but possibly in downsized form or as part of merged enterprises.

All of this is bad news for Big Energy, but unexpectedly good news for the planet. As a start, those “unconventional” projects like tar sands require more energy to extract oil than conventional fields, which means a greater release of carbon dioxide into the atmosphere.

Heavier oils like tar sands and Venezuelan extra-heavy crude also contain more carbon than do lighter fuels and so emit more carbon dioxide when consumed. If, in addition, global oil consumption slows or begins to contract, that, too, would obviously reduce carbon dioxide emissions, slowing the present daunting pace of climate change.

Most of us are used to following the ups and downs of the Dow Jones Industrial Average as a shorthand gauge for the state of the world economy.  However, following the ups and downs of the price of Brent crude may, in the end, tell us far more about world affairs on our endangered planet.

• Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation. Follow him on Twitter at @mklare1.

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Return on Energy Invested

SUBHEAD: Why future energy from fossil fuel may be abundant but too expensive to be of much use.

By Charles Hugh Smith on 29 October 2012 for Of Two Minds -
(http://www.oftwominds.com/blogoct12/oil-abundant-costly10-12.html)


Image above: Cartoon of men running out of gas while building alternative source of energy. From (http://www-personal.umich.edu/~rdeyoung/cartoons.html).

It doesn’t matter how abundant liquid fossil fuels might be; it’s their cost that impacts the economy.

Many people think “peak oil” is about the world is “running out of oil."

Actually, “peak oil” is about the world running out of cheap, easy-to-get oil. That means fossil fuels might be abundant (supply exceeds demand) for a time but still remain expensive.

The abundance or scarcity of energy is only one factor in its price. As the cost of extraction, transport, refining, and taxes rise, so does the “cost basis” or the total cost of production from the field to the pump. Anyone selling oil below its cost basis will lose money and go out of business.

We are trained to expect that anything that is abundant will be cheap, but energy is a special case: it can be abundant but costly, because it’s become costly to produce.

EROEI (energy returned on energy invested) helps illuminate this point. In the good old days, one barrel of oil invested might yield 100 barrels of oil extracted and refined for delivery. Now it takes one barrel of oil to extract and refine 5 barrels of oil, or perhaps as little as 3 barrels of unconventional or deep sea oil.

In the old days, oil would shoot out of the ground once a hole was drilled down to the deposit. All the easy-to-find, easy-to-get oil has been consumed; now even Saudi Arabia must pump millions of gallons of water into its wells to push the oil up out of the ground. Recent discoveries of oil are in costly locales deep offshore or in extreme conditions. It takes billions of dollars to erect the platforms and wells to reach the oil, so the cost basis of this new oil is high.

It doesn’t matter how abundant liquid fossil fuels might be; it’s their cost that impacts the economy. High energy costs mean households must spend more of their income on energy, leaving less for savings and consumption. High energy costs act as a hidden “tax” on the economy, raising the price of everything that uses energy.

As household incomes drop and vehicles become more efficient, demand for gasoline declines. Normally, we would expect lower demand to lead to lower prices. But since the production costs of oil have risen, there is a “floor” for the price of gasoline. As EROEI drops, the price floor rises, regardless of demand.

This decrease in real incomes and ratcheting-higher energy costs could lead to a situation where energy is abundant but few can afford to buy much of it.

The relative abundance of fracked natural gas and low-energy density fossil fuels like tar sands and shale has led to a media frenzy that confuses abundance with low cost. This article (via correspondent Steve K.) illustrates the tone and breezy selection of data to back up the "no worries, Mate" forecast of abundant cheap liquid fuels: An economy awash in oil. (MacLeans)

Not so fast, reports Rex Weyler of the Deep Green Blog. Here is Rex's response to the above article.

Fair point about the volume of unconventional – deepwater, shale gas & oil, tar sands, etc. – hydrocarbons. These reserves may even produce peakies and/or sustain the plateau longer than some observers believe. However, biophysical restraints remain real; peak oil remains real; peak net energy appears imminent, and the impact on economies is already being felt globally. Points to consider: =

The dregs: In spite of huge shale & tar reserve discoveries, peak discoveries remain well behind us, in the 1960s. My father, a petroleum geologist his entire life (and still, in Houston, Kazakstan...), knew about shale and tar deposits when I was a teenager in the 1960s. He called them "the dregs." These deposits are not really news within the oil industry. And they are the dregs because of high cost, low EROI and rapid depletion.
EROI: The volume of these low-net-energy reserves could extend peak oil production for decades, but at fast-declining net energy returned to society. We high-graded Earth’s hydrocarbons, just as we high-graded the forests, fish, copper, tin, water, and so forth. We’ve taken the best, highest EROI hydrocarbons, the 100:1 free-flowing wells of the 1930s and 40s. We’re now into the 3:1 and 2:1 tar sands.

For example: damming rivers in Northern BC, to send electricity to the fracking fields, to send shale gas to Alberta, to cook the boreal substrate, and mix the black sludge with gas condensate shipped in from California and by pipeline from Kitimat to Fort McMurray, to mix with the bitumen, to pipe to Vancouver Harbour, to ship to China, to burn in a power plant, to supply electricity to their manufacturing empire.

By the time any of this energy gets used to actually make something useful to someone in society, and by the time that user puts that usefulness to work to feed, clothe, house, or heal anyone, there is no net-energy left.

Our food in North America is already negative net energy by1:10 at best, up to 1:17 or worse for much of the crap we eat. This matters. EROI at well-head, EROI at the consumer pump, and EROI at the point of society’s actual service all matter.
Well-head EROI, counting all public subsidies, is now in the 5:1 to 1:1 range for all these “non-conventional” (meaning the dregs) hydrocarbon deposits. Money can be made. Some energy can be delivered to Society, but this is already way below the well-head EROI that could likely run the current complexity of the human society, much less “grow” economies.

The degrading reserves take us down along the EROI curve, in which Net Energy returned to society falls off a cliff around 6:1, and is in freefall by 3:1. Net-energy alone kills the idea of much economic growth from a booming hydrocarbon bonanza (other than some great stock plays along the way). Furthermore, depletion renders the idea ever more unlikely:

Depletion: Depletion rates on these gas fields have arrived quickly and appear drastic by historic industry standards. The fracking fields peak early and decline swiftly. In the Bakken shale field – one of the great North American saviour fields – the average well has produced ~ 85k barrels in its first year and then declined at about 40% per year. The newer average wells peak earlier and decline faster, so the overall trend is down.

The depletion moves the production process along a function that approaches zero net energy... Down we go along the EROI curve... 5:1 .. 4:1 .. 3 .. 2 ... and then really complex society breaks down. An Amish farmer gets 10:1.

The Bakken break-even oil price is $85, so there is no profit in any of this right now, but of course there will be if global depletion exceeds demand from crashing economies.
Depletion – both in volume and quality – and depletion for all industrial materials and energy stores, EROI, and economic stagnation all work as feedback loops. No one knows the bifurcation points in this complex system. We try to predict those, but miss by a longshot sometimes. Complex societies crash in this manner, declining returns on investments in complexity, from Babylon to London and Washington. See J. Tainter, H. Odum, N. Georgescu-Roegen, Hall, Cleveland, et al.

Here are some depletion data on The Oil Drum: Is Shale Oil Production from Bakken Headed for a Run with “The Red Queen”?.

See A Review of the Past and Current State of EROI Data (PDF) by Hall, Cleveland, et al. (source: www.mdpi.com)

There is a lot of EROI data here: Obstacles Facing US Wind Energy.

Below is the EROI curve updated to 2012. The new conventional stuff is coming in lower and and the enhanced recovery, shale and tar fields are already over the falls at 6 or 5:1 for the better stuff (best dregs), and 3:1 to 1:1 for the dregs of the dregs, the deeper shale and tar sands.

Image above: Graph of usable energy (blue) versus energy needed to obtain it (red) . From (http://www.drmillslmu.com/peakoil-2.htm).

So yes, our friends are correct about the great volume of tar, shale, deep, heavy hydrocarbons, but increasing production of world liquid hydrocarbons much beyond the current 85mb/d is not likely, and increasing net production is even less likely. As you may know, net production per capita peaked in 1979. Actual net production is peaking now. This is the figure that counts: Actual current Net Production Delivered to Society.

Growing this figure is technically possible, and may happen with some massive production bonanzas, i.e. we may see actual production push above 90mb/day, or higher, and may even see net production increase, but a major glut of hydrocarbons? No. Not remotely.

When settlers first came to North America, they found copper nuggets the size of horses exposed in river beds. China just bought the best known, last, huge, moderate-to-low-grade, strip-minable, high-cost copper field in the world, in Afghanistan, for $billions over the western bids. There will be others, but rest assured: They will be lower grade, higher cost, and the competition will be more intense. When was the last time you bought a “copper” fitting at the hardware store. They’re crap. The alloys are crap.

Because the ore quality is in decline and the costs of extraction are rising. Same with oil, trees, tin, coal....
Make no mistake: The war for the dwindling materials and energy flow is well underway.

Thank you, Rex, for this commentary on EROI and the quality and cost of hydrocarbon resources. Complex systems like economies are nonlinear, and so history does not necessarily track linear extrapolations of present trends. With that caveat in mind, the preponderance of evidence supports the notion that fossil fuel energy may remain abundant in the sense that supply meets or exceeds demand in a global recession, but the price of liquid fuels may remain high enough to create a drag on growth, employment, tax revenues and all the other economic metrics impacted by high energy costs.

See also:
Ea O Ka Aina: Over the Falls with ERoEI 2/2/09

HEI afraid of Solar Power

SUBHEAD: Why the Hawaii Electric Industries (HEI) is afraid of and fighting solar power.

By Robert Petricci on 19 June 2012 for I Aloha Molokai - 
  (http://ialohamolokai.com/2012/06/19/why-helco-is-scared-of-and-fighting-solar/)


Image above:Detail of graphic for plan by HECO and General Electric to bleed Molokai and Lanai for power. From (http://www.hnei.hawaii.edu/content/o%E2%80%98ahu-wind-integration-study-shows-heco-can-use-wind-and-solar-power-supply-25-o%E2%80%98ahu%E2%80%99s-elect).

Contrary to what we are being force fed, geothermal is not the best answer for our energy future, it is a huge mistake that will cost us billions in lost economic activity and set us back at least ten years. The same corporations that have been robbing us blind for decades need this to slow solar down so they can stay in business. And I might add continue to rob us. Our energy policy should be about what is best for Hawaii residents not bailing out HEI and/or their subsidiaries outdated corporate business models.

This is to important to our overall economic well being to allow this to happen without all our options being objectively evaluated. Everyone that is setting energy policy needs to really understand all the issues, the impacts and implications, the big picture. HELCO understands this all to well as we see in their maneuvering at the state level with the PUC, and sitting on every energy advisory, panel, commission, or working group. They have there own interest at heart, not the people of Hawaii.

This is information put together by Henry Curtis.
Distributed_Generation/Wayfinding_Navigating_Hawaii_Energy_Future  (9.5 mb PDF file)

Thomas Edison believed that electric generators should be located near where the power is needed (Distributed Generation). The local electric grid should be based on Direct Current (DC).
 
George Westinghouse and Nikola Tesla developed the alternative paradigm. Large centralized generation facilities should be located far away from where the power is needed (Central Generation). The grid should be based on Alternating Current (AC).

For a century the Westinghouse/Telsa paradigm held sway. Economies of scale led to bigger, cheaper and more distant electric generators and larger and longer transmission lines.
 
Three types of events forced a re-thinking of the existing energy paradigm. 

• First, the isolated disturbances on the grid.
• Second, the use of fossil fuel and nuclear energy has some very bad impacts.
• Third, oil wars became very expensive and very deadly.

HECO has already started to experience a decline (in the number of people on the grid) and has to be acutely aware that it could escalate. In the past few years the rate of solar installations within Hawai`i has doubled each year.  The number of renewable energy developers who have made proposals to the utility for large-scale grid-connected renewable energy projects has gone up ten-fold. The increasing use of various energy efficiency systems is also driving down the demand for electricity.

HECO, and its subsidiaries Maui Electric (MECO) and Hawaii Electric Light (HELCO), experienced peak energy use in 2004. Since then the demand for electricity has been dropping.

In anticipation of this dim future, the utility wrote the Hawai`i Clean Energy Initiative (HCEI) in 2008. The document calls for the Legislature and the Hawaii Public Utilities Commission (PUC) to adopt policies to shield HECO from this impending doomsday scenario. One such policy or concept is called “Decoupling.” This mechanism states that the utility is entitled to a certain level of revenue, and as sales drop they can automatically increase rates to keep their revenue on target. The PUC has already approved this mechanism.

An additional centerpiece of the HCEI is the development of industrial scale renewable power plants that would require extensive cabling to send large amounts of power to the primary load center, O`ahu. In February 2012 the parent company of HECO, MECO and HELCO, the Hawaiian Electric Industries Inc. (HEI) included this in its annual 10-K report with the U.S. Securities and Exchange Commission:

“Increasing competition and technological advances could cause HEI’s businesses to lose customers or render their operations obsolete. …HECO and its subsidiaries face competition from IPPs [Independent Power Producers] and customer self−generation, with or without cogeneration…. The electric utilities cannot predict the future impact of competition from IPPs and customer self−generation, or the rate at which technological developments facilitating non−utility generation of electricity will occur. New technological developments, such as the commercial development of energy storage, may render the operations of HEI’s electric utility subsidiaries less competitive or outdated.”

“Cascading natural deregulation” means that as the cost of renewable systems trend downward and electric rates go up, those who can leave the grid, will leave the grid, by building or installing on-site generation. The fixed costs associated with energy production, transmission and distribution will then have to be absorbed by the remaining (smaller) rate base. Thus, those who remain will see their rates go up even more, causing more people to opt out of a centralized grid, driving the rates for those who remain even higher. Under this scenario, companies such as HECO would be sucked down into a bottomless vortex and ultimately fail as a viable investor-owned corporation.

As the Rocky Mountain Institute noted:

“The electric industry once again finds itself at a crossroads,
confronting it with three basic choices: the supply-side path, the distributed path, or the status quo. Distributed generation poses four primary threats to the existing distribution utility business model. First, distributed generation results in the loss of revenue under traditional tariff structures; the customer simply is purchasing fewer kilowatt-hours or fewer distribution services. Second, more substantial market capture by distributed generation can create a new class of stranded asset within the distribution system-grid capacity no longer needed. Third, the ability of distributed generation to enter more rapidly than centralized generation or transmission upgrades can partially strand new capacity additions. Fourth, the combination of the first three threats can create a “death cycle” in which the higher prices to remaining customers induce more of them to leave this system, creating a self-reinforcing cycle of ever-increasing unit prices.

There would be many winners from the distributed resource path. Society at large would prosper because electric service could be provided at lower cost with higher reliability. The environment will benefit from lower air pollution more than it would with centralized generation. Generation companies would  suffer major losses, since the penetration of distributed resources acting as virtual peakers will significantly reduce peak power prices. It is the fear of these losses that creates resistance from the incumbent players to widespread adoption of distributed power.”

Hawaii county not only has the highest utility rates in the nation, it has held that record for decades, in spite of 20% of our power coming from geothermal. Make any excuse you want, what rate payers are billed determines if geothermal is cheap not somebody just telling us it’s cheap. We pay over 4 times the national average that is by no measure cheap power.

We have to look at the all of the cost of maintaining the grid to understand why. How much of our monthly bill is simply to maintain this 18th century technology, outdated, inefficient, and ugly system? Poles, wires, transformers, trucks, shipping, financing, labor, even tree trimming. No expense is spared and it is all passed on to the ratepayers. The reality is the world is decentralizing, moving away from grid in favor of 21rst century technology. Producing the power were you use it. Eliminating the grid, and using the latest and cheapest solar power and batteries must be seriously considered now. That is the future and it is the real cheap power source going forward.

On page 17 of the geothermal working group final report they say:

The evaluation concluded that for a 50 MW expansion on the East Rift zone, an additional transmission line from the new facility to Hilo, and an additional cross-island transmission line from the East side of the island to the West side would be required. For a 50 MW expansion near Hualalai, transmission lines from the new facility to existing transmission facilities on the West side of the island would be required but another cross-island transmission line would not be required…..

Imagine how many new lines will need to be built for a thousand megawatts….And the cost of the cable?….Ten billion?….We could put a solar system on every house in Hawaii for just the cost of the cable……Not counting the power plants….

The governor wants us (tax payers) to pay for that cable…..Listen to his state of the state speech…..This is economic suicide in this economy to benefit private corporations at the expense of the people of Hawaii….The future is decentralized power and a lot more solar, not geothermal.

Geothermal is a scam, that we can not afford….The governor says if we don’t like it we should vote him out. With an attitude like that, and after this ill advised plan to further hurt Hawaii tax payers and rate payers, we should do exactly that…..

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Peakonomic's Slippery Slope

SUBHEAD: Technology and exploitation of unconventional sources can't defer the decline in global oil production. By David Strahan on 20 August 2012 for New Scientist - (http://www.newscientist.com/article/mg21528786.300-were-still-on-the-slippery-slope-to-peak-oil.html) Image above: Photo titled "The last Fill Up" by Mark Epstein. From (http://www.markepsteinphoto.com/blog/travel/the-last-fill-up). In 2007 former US energy secretary James Schlesinger claimed the arguments in favour of peak oil - the key theory that global production must peak and then decline - had been won. With production flat and prices surging towards an all-time high of $147 per barrel, he declared, "we are all peakists now".

Five years on and production has risen by 2.7 million barrels per day to 93 mb/d, prices have recently slumped to around $100 a barrel and those who dismissed the idea that the rate we extract oil from the ground must inevitably decline jeer in delight.

In June a much-touted report by Leonardo Maugeri - an Italian oil executive now at the Geopolitics of Energy Project, based at Harvard University and part-funded by BP - forecast that far from running out of oil, this decade will see the strongest growth in production capacity since the 1980s and a "significant, stable dip of oil prices".

So is that it, panic over, as some commentators who once agreed with the peak view have declared on the basis of Maugeri's report? Ironically, such shifts come just as some economists - traditionally hostile to peak theory - were coming round to it. Peakonomics, if you will. Unfortunately, any reasonable reading suggests Maugeri is wide of the mark.

The recent hysteria rests heavily on the rise of shale oil in the US, which was unforeseen and is significant. After four decades of decline, US oil production turned in 2005 and has generated the bulk of the global supply growth since then. But to brand this a "paradigm-shifter", as Maugeri does, is wrong.

He forecast that this boom will lead to an astonishing 4 mb/d of additional US shale production capacity by 2020. By contrast, the US Department of Energy, usually optimistic, predicts total US shale oil production will peak at just 1.3 mb/d in 2027.

One reason Maugeri's forecast is so high is that he assumes production from existing shale wells will decline by just 15 per cent per year.

Industry consultant Art Berman puts decline rates at around 40 per cent. Analysis by Bob Bracket of US market analysts Bernstein Research shows similarly steep declines, and also that the average shale well takes just six years to become a "stripper well" - producing just 10 to 15 barrels a day. Such declines are far higher than for conventional wells, effectively meaning the industry must drill furiously just to stand still. It is this factor that will limit future production growth.

It is distressing that Maugeri's report - which appears to contain glaring mathematical mistakes - got so much attention, but he insists the gist of his report is right. In contrast, an excellent International Monetary Fund working paper in May received much less attention.

The IMF's paper sets out to test the idea that the recent 10-year rise in the oil price - it hit a low of $10 a barrel in the late 1990s - can be explained by geological constraints. The team took an approach which expresses mathematically the idea that oil becomes harder to produce, the less there remains to be produced - the basis of peak oil theory. This is clearly right: why would we be scraping out tar sands if there were easy oil left?

When they combined this with the impact of global GDP and oil price, the results were striking. By testing their model against historical data, they found their production forecasts were more accurate than those of both peak oilers, who are traditionally too pessimistic, and authorities such as the US Energy Information Administration, which is generally far too optimistic.

Their price forecasts were also far more accurate than traditional economic models that take no account of oil depletion, predicting a strong upward trend that closely fits what has happened since 2003. "When you look at the oil price [over the past decade], the trend is almost entirely explained by the geological view," said Michael Kumhof, one of the authors, when I interviewed him earlier this year.

The IMF paper also slays the belief that rising oil prices will liberate vast new supplies and vanquish peak oil. The team found that production growth has halved since 2005, and forecast that even the lower rate of growth will only be sustained if the oil price soars to $180 by 2020. "Our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade," write the authors. In this context, shale oil is not a "game-changer" but a sign of desperation. "We have to do these really expensive and really environmentally messy things just in order to stand still or grow a little," says Kumhof.

It is true that global oil production has not yet peaked, but that is almost beside the point. The people who fixate on this need to wake up and smell the fumes we are reduced to running on. The IMF paper shows clearly we are supply-constrained. The oil price itself ought to be a clue: persistently above $100 per barrel, 10 times higher than it was at the eve of the 21st century.

Price spikes in recent years and recessions are the inevitable outcome of rising competition from fast-growing developing economies for limited supplies. Domestic consumption among major producers such as Saudi Arabia is also soaring, reducing supply to others. While global production rose in the five years to 2010, global net exports fell by 3 mb/d, according to independent US geologist Jeff Brown. How much worse would you like it?

In the film No Country for Old Men, two lawmen find the aftermath of a drug deal gone bad, with corpses strewn about the desert. The deputy remarks, "It's a mess, ain't it, sheriff?", to which the sheriff replies: "Well, if it ain't, it'll do til the mess gets here."

Likewise, if peak oil has not yet arrived, what I call the last oil shock certainly has. It'll do til the peak gets here.

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2004 - Peak Auto Year

SUBHEAD: Global car ownership per capita peaked in 2004 - Are we breaking our auto addiction? By Matthew McDermott on 12 May 2011 for TreeHugger - (http://www.treehugger.com/files/2011/05/global-car-ownership-peaked-2004.php) Image above: Source lost.

With the ongoing news of rising gas prices in the US--even if they still are half that of Europe--and the shocking stat that the average American works two hours a day just to afford their car, here's a rather hopeful stat on automobile dependency to attempt to balance that out: A new radio interview from Australia's The Science Show reveals that even with growing car ownership in many so-called emerging economies, on a global basis car ownership per capita has peaked. It peaked back in 2004 in fact.

Peter Newman explains:

It's a bit like peak oil; we are not noticing the big impacts yet but we have gone over the top. And that peak in car use per capita began in 2004 across the world. I don't know what was in the water that year but it started then. And US cities are now showing absolute declines in many cases, but the per capita peak happened in 2004 in Australian cities as well.

It's not as though the car is disappearing but there is an end to the car dependence that we began to build from the Second World War where we essentially expanded our cities outwards, making car use absolutely necessary and increasing amounts of it every year. That has changed, that's stopped.

And what about India and China? Newman notes that new regulations in Shanghai and Beijing make it very difficult to actually buy a car, and traffic in urban areas in both nations make getting around by car slow at best. Both nations are in the beginning stages of responding, not like was done in North America, by expanding public transit. 82 cities in China and 14 in India are building their first metro systems.

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Japan's Electric Bottleneck

SUBHEAD: Brownouts will continue. It is unlikely TEPCO can meet the power demand for Tokyo for several years. By John Ydstie on 24 March 2011 for National Public Radio - (http://www.npr.org/2011/03/24/134828205/a-country-divided-japans-electric-bottleneck) Image above: Buildings are seen without illumination in Tokyo's Shibuya district. Rolling blackouts are crippling the town. From original article. Even on a slow day, Tsukiji market, the largest fish market in the world, is a beehive of activity. Motorized carts buzz down narrow aisles carrying tuna carcasses. They're sawed into chunks and shipped to restaurants in Tokyo and around the world. Normally, these aisles would be jammed with buyers. But on a recent day, they're nearly empty. Mr. Kaoru, a wholesaler, blames the blackouts. "I predict one-third of the wholesalers in the market will close the shop, the business," he says. "[The] main reason is the power source." Rolling blackouts continue in the Tokyo area following the loss of power generation at the damaged nuclear plants in Fukushima. Tokyo Electric Power Co., the giant utility that serves the region, has lost 20 percent of its power capacity. Blackouts are crippling businesses from auto producers to fishmongers. The rolling blackouts are also reducing train service, making commuting unpredictable. So people don't stay downtown eating and drinking after work. The result is that fish sales at Tsukiji fish market are down about 50 percent. In the morning, the blackouts mean some rail commuters can't get to work on time. That's a problem for big auto manufacturer Nissan. "Electricity going down creates its own damage," says Andrew Palmer, a senior vice president at Nissan. He's trying to get the company's auto plants up and running. But he's plagued by power outages that shut down production lines and damage equipment. "Certainly the power outages are something we have to work with," Palmer says. "Obviously, it's partially a negotiation with the local authorities." But so far TEPCO, one of the biggest privately owned power companies in the world, says it can't guarantee power to anyone. "When blackouts are required we do not discriminate among our customers, whether industrial or residential," the company says. Blackouts That Could Continue For Years The problem is these rolling blackouts could continue for many months — even years. "This is a real problem for those factories which need uninterrupted supplies," says professor Tatsuo Hatta, president of the National Graduate Institute for Policy Studies in Tokyo. He says the situation might cause some companies to move. "It's clear that from their viewpoint they'd better move their plant to the western part of Japan where electricity is plenty." It might seem much easier to send the surplus power from one side of Japan to the other to ease the blackouts. But that's harder than you might think, Hatta says. "One major problem is that the east and west of Japan have different electric cycles and the capacity of the connectors are very much limited," he says. That's partly an accident of history. Eastern Japan followed the German model and has a 50-cycle electrical power grid. The western part of Japan used the American model and has a 60-cycle grid. Transferring power from one grid to another requires a very expensive facility. And there are only three connections between eastern and western Japan. That bottleneck means the power transfer is just a trickle, even during this national emergency. Creating more capacity would take years. Fear Of A Monopoly Hatta says, up until now, Japan's big utility companies, including TEPCO, liked the arrangement, because it protected their monopoly pricing and made them very powerful politically. "The users of electricity like Japan Steel wouldn't say anything against electric utility companies — they are so afraid," he says. "And also many politicians wouldn't touch those electric utility companies." Hatta says the situation must change to reduce the stranglehold the utilities have on the country's energy users. "One possibility is that on this occasion [the] Japanese government nationalize TEPCO," he says. The government could keep TEPCO's transmission lines and sell off its power plants to smaller producers who would compete to sell power to customers. For the time being, TEPCO says it's doing everything it can to secure more power. The stakes are incredibly high. Power consumption normally doubles during the heat of the summer. Right now it seems unlikely TEPCO will be able to meet the demand, threatening more disruption for Japanese companies and workers, and greater damage to Japan's fragile economy. .

The happiest guy in America

SUBHEAD: Meet Alvin Wong, a oriental, senior, self-employed, jewish, Hawaiian.  

By Kim Corollo on 8 March 2011 for ABC News -  
(http://abcnews.go.com/Health/happiest-person-america-hawaiian-alvin-wong-fits-gallup/story?id=13087258)

 
Image above: Alvin Wong and his wife Trudy Schandler-Wong at East-West Center in Honolulu. From (http://www.nytimes.com/imagepages/2011/03/06/HAPPY.html).



Alvin Wong always considered himself a happy guy.

"I get up in the morning and say, 'I'm very fortunate. I'm living in Hawaii, doing what I want to do,'" Wong said.

But when Wong, 69, learned he is the exact statistical composite of the happiest person in America, he wasn't sure what to think.

"When The New York Times called and read off all the information about who this person is, I asked if it was a practical joke."

According to the Gallup-Healthways Well-Being Index, the happiest person in America is a tall, Asian-American male 65 or older, a resident of Hawaii who's married with children, religious (observant Jews score highest), owns a business and earns more than $120,000 a year -- in other words, it's Alvin Wong to a tee.

"A person fitting the happiest profile is likely to have high optimism, good emotional health with little anger, depression, and stress, and no underlying chronic illnesses. This person is likely to eating right and exercise regularly, while working in a supportive environment with good access to affordable fresh fruits and vegetables, a safe place to exercise, and good access to health care. The person is also likely to be older and better established with enough money to live comfortably," said John Harris, vice president of Innovations at Healthways.

Wong, who owns a health care management firm, and said owning his own business has different stresses, such as not knowing whether clients will stick with him, but overall, it's very satisfying.

"I enjoy doing stuff for myself and seeing the fruits of my labor," he said.

Back in 2008, Gallup, a firm known for its research polls; and Healthways, a company focusing on research aimed at improving overall health and lowering associated costs, started calling thousands of Americans a night. They asked questions about six different dimensions of well-being: a basic evaluation of life, emotional and physical health, work environment, engaging in a healthy lifestyle and whether access to basic health services is available.

They then developed a well-being index for each state and each congressional district.

Data from the 2010 index show that Hawaii had the highest well-being score and West Virginia had the lowest.

After ABC News requested a statistical profile of the saddest person in America, Healthways found just about the polar opposite of Alvin Wong in every way: a woman between the ages of 45 and 64 who lives in the Huntington, West Virginia area, has an annual household income of less than $1,000 a month and is likely unemployed and looking for work. She is of "other" ethnicity, meaning a Pacific Islander, a native Hawaiian, a Native American or a person of mixed race. She is also separated with no children.

"West Virginia ranks at the bottom in almost every domain," said Nikki Duggan, Director of Well-Being Operations and Analytics at Healthways.

"Our goal was to measure health in a way that's very different than what's historically done," said Healthways Chief Executive Officer Ben Leedle. "Along with Gallup, we saw a more holistic definition, including not just the physical dimension of health, but the emotional and social dimension of health."

Among the most notable trends the data show is that satisfaction at work decreased between 2008 and 2010.

"We're very concerned about that domain," said Harris. "With the economy and other factors, people are becoming less happy at work, and that can have a very big effect on communities and the global market."

In addition to the economy, Healthways hopes the data bring help bring about major changes in policy in other areas, like education and health.

"These are causal data. These are the things that cause disease," said Leedle. "We believe that healthier people cost less and perform better."

The vast majority of Americans fall somewhere between the two emotional extremes. For people who want to move a bit closer to the happy side, Wong has some simple advice.

"There are always tough times. You get through it by realizing it's happened, laughing at the situation and finding a way to fix it. I've lived my whole life with humor in it."

[IB Editor's note: This may only be true if Honolulu continues to be assisted by a "Marshal Plan" of support from mainland America. Once the banks are closed, shelves are empty, and pumps are dry, Alvin may not be so happy.]
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Non-Peaking Energy Demand

SUBHEAD: The non-peaking of energy demand is part of our energy ponzi scheme. By Steve Ludlum on 27 January 2011 in Economic Undertow - (http://economic-undertow.blogspot.com/2011/01/looking-at-non-peaking-of-demand.html) Image above: "Modernity is stoking a hot furnace stranded on an ice flow." Mashup by Juan Wilson. Here are some 'first principles' of Economic Undertow:

The 'First Law' of economics is that with all surpluses, management costs rise faster and become greater than the value of the surplus itself. Inflation (and deflation) in the general sense is the inverse value relationship between commerce and the money that leverages it. The road crude oil travels between worthless and worthless is very short.

Oil is worthless in the ground waiting to be pumped away and worthless after it is burned, where its residues loll about in the atmosphere poisoning everything alive. Oil has only days to gain its fleeting value made upon the promise of still more oil pumped out of the ground a few days hence. Its value is continuously 'born anew' days or weeks into an always uncertain future. Much of what billions of humanoids have done over the past 100 years has been to rationalize in the best meaning of that word the value- birthing process. By means of massive public and private works we attempt to convince ourselves that falling forward as we have done for decades is as perpetual and timeless as the Earth itself. Finance requires demand be brought forward into the present. The institutional demands of the throughput mechanism requires the past be brought forward continuously at the same time. Stasis rules: just as we never escape the dead hand of future's onrushing debts we can never put aside the shadowy, twilight illusions of a comforting past. Today's energy use is conceptually identical to 'beneficial' energy use in 1945: making this so gives the energy regime an inexpensive validity it could not otherwise afford. What oil buys with its evanescent value is nothing: a spider's web has more permanence than that 'drive around town'. What endures is oceans filled with unmeasurable masses of ground up plastic and fractious weather. Our stupendous works are monuments to- and enablers of pointless waste. This is the energy ponzi scheme. It can only function with ongoing 'inputs': both the fuel in hand along with the promise of more fuel in the future. At the same time the (increasing) management costs must be amortized. Flows are 'rented' from the future: without the guarantee of future flows at a price low enough to service flows in hand the ponzi breaks down. The people who are leading the unrest in the oil-producing regions are university educated youths who face a non-future. A world economy that orbits around the car-waste of resources is facing the cost consequences of that waste. University educations are implied aggregate claims against resources. The cost the claims represent is now greater than the value of the available resources: this is self-evident. If there were more resources at hand than claims outstanding there would be no disturbances! As resource cost rises the number of payable claims shrinks by way of supply and demand. Right now the claims of expanding modernity are greater than what the shrinking resource base can support. Those holding the claims realize this and are now making a 'run' on the 'modernity bank'. Modernity is in existential conflict with itself. University educations and political liberalism are means to access both resources and the tools to waste them. Attempts to exercise this access push resource costs higher because they render inefficient the flows of both energy and the funds necessary to effect the flows. Modernity cannot conjure resources out of thin air. All modernity can do is pretend to increase throughput claims on resources. It's been able to do this so far because there has been up to now a surplus of energy available at artificially low cost. Highly touted oil and gas production technologies do not create new reserves which have existed for tens of millions of years. Technologies can only extract existing reserves faster at a greater cost. Deciding which reserves are 'recoverable' or not is semantics. The suggestion that reserves are being expanded in some way or another is a fraud. The way to manage the energy surplus costs has been to ration energy demand by policy. Policy doesn't have to work too hard as both commercial and non-commercial economies are not native demand creation engines. Modern commercial economies swap machines for labor (demand) which is then arbitraged against itself. The energy cost of machines is presumed less than the energy costs of human labor. For labor to become energy demand it must first obtain credit, either from its bosses or from the bosses' agents, the banks. Because of inefficiencies in credit throughput the bosses suggest that the demand for energy has 'peaked'. This is even as they suggest the reason for the demand peak is 'greater efficiency'! Efficiency becomes the Establishment's version of Schrodinger's cat, dead and alive at the same time. The non commercial economies do not create many energy-dependent jobs. Large percentages of the populations are unemployed. Policy renders these unfortunates more or less permanently unemployable. This leaves energy balances available for export in return for 'hard' currency. Al Jazeera flirts with making the connections between the endless and pointless Cairo traffic and the current troubles in that country. What is taking place in Egypt and elsewhere is the conflicting claims of humans and their tools which both have large and growing energy appetites. The energy costs of the tools is reaching the level that cannot support both tools and humans efficiently. Here's more on disturbances in Egypt: Video above: Al Jazeera covers Egyptian protests. From (http://www.youtube.com/watch?v=IaxTGZtM3L0) Egypt is an American client as is Saudi Arabia and was Tunisia. The purpose of the relationship is to support the American Way of guzzling waste and a bankrupt business economy that is dependent upon that waste. Fuel prices as 'loss leader' of US commerce treats citizens of producing countries as externalities. The region's governments have had an interest in 'rationing' modernity bought and paid for by returns on Americans' resource waste. The energy demands of modernity come not only from America but also Europe, now China and other developing countries as well as the clients' own citizens. Contrary to petroleum industry apologists, demand is far from peaking. Rather, it has been rationed and the rationing process is in the process of breaking down. The cost implications of this are profound. Energy prices must either rise in consuming nations to pay for 'modernity rationing' at higher cost levels in energy- producing countries or the resulting throughput disruptions caused by newly- militant demand will make fuel unavailable. Modernists in Cairo, Tunis and elsewhere demand their right to waste the same way as the Communist Chinese. That the demand is blatant and paid for with violence bankrupts the notion of 'peak demand'. The demand is everywhere, just confused about how to express itself. There is no organic reason why the Middle East could not have industrialized the same as China, Japan or S. Korea. The obstacles were policy choices by governments which diverted a small fraction of oil revenues to buy off what would otherwise be restive populations. Politicians calculated bribes and foreign controversies were cheaper than the structural changes needed to support commercial economies. Politicians also could not plan a way to merge their anti-modern cultures to the hegemonic American-style anti-culture modernity. The Middle Eastern country with the greatest potential for commercial growth -- Iraq -- was destroyed by wars first with its neighbors then with the US. All were alarmed by Iraqi leadership's stumbling attempts toward modernity which were perceived as existentially threatening. Industrial growth in the Middle East would have increased domestic demand for fuel as it has in China:

Image above: Chart by Jonathan Callahan and Mazama Science. From (http://www.theoildrum.com/node/6276#comment-597084). Producer countries are now confounded by their modernity-rationing policies. On one hand, their OECD patrons require limits on modernity so as to maintain their monopoly access to cheap(er) energy. The depletion-driven rise in energy costs makes it too expensive for producers to keep the lid on their restive populations. There really is no way out of the consumption trap: countries seeking to deliver more modernity to their citizens -- after regime changes -- will see increased fuel demand driving energy costs higher still. This makes modernity even more expensive in a self-amplifying vicious cycle. Costs increase faster than the means to meet them which requires large and expensive structural changes to increase employment and aggregate labor returns. Even the hyper- modern US cannot grasp the fundamental structural reforms required to regain full employment. It cannot do so because the only structural reforms that can pay for themselves are fundamentally anti- modern. The historical verdict is the Luddites were right. It's not the romanticism of their human rights' demands but simple cost-benefit analysis. Modernity has reached the point where it cannot produce promised benefits to any sector other than its energy supply. Meanwhile, there is risk piled on risk: the attempt to change the modernity-rationing process is as risky as a new rationing process would be by itself. Upheaval in Egypt, Oman and Yemen threatens oil supply routes. Disruption increases prices without allowing any greater access to modernity or allowing transition out of it. The process of changing the process has a risk of compounding failure and descent into non-productive chaos. In all directions are feedback loops that trends energy costs higher. Modernity is a stoking hot furnace stranded on an ice flow. One outcome of disruption is a crude price spike caused by massively increased 'Panic' demand along with funds appearing into foreign exchange circulation at once. Some of this panic is being seen already in food markets; its appearance in crude would be reflected in even greater food price increases in yet another self-amplifying cycle. The instant surge in f/X liquidity in fuel markets would cause the same thing excess liquidity caused in 2008: a spike-n-crash 'Volatility Event'. The 'greater' oil market from wellhead to end user's business is in the process of becoming a liquidity/currency trap. Oil prices increase at the expense of profits elsewhere in the energy ambit (circuit) reaching back toward the energy throughput mechanism. Throughput loses the ability to support its own costs. This is fatal ... loss of throughput renders large swaths of modernity pretenders largely penniless. This has happened over and over again beginning in 1973 and the OPEC oil embargo. Every drop of oil pumped is destroyed wastefully at the end of oil's very short road. All money spent on it is also wasted just as it has been wasted since the beginning of the oil age. This is so even as the 'money' still exists post-petroleum as excess claims on nothing. All the newly materializing demand worldwide represents more claims that are impossible to satisfy. The endgame of 'falling forward' is falling on your face. Short of reaching that painful point the reasonable one is to reconcile costs and demand and do so over a meaningful period. This means twenty to fifty years of sharply decreasing energy use until the non-returning wasteful activities are permanently stripped out of economies. It may be too late for that as frustrated citizens throw away their outmoded governments in their frenzy to waste like Americans while they still have the chance. Good grief! .

Why There Will Be No Recovery

SOURCE: Bratticus (Blogspot commenter)
SUBHEAD: The peak demand argument is a good one–but not for the nice reasons.

By Chris Nelder on 5 March 2010 for Get Real List - 
(http://www.getreallist.com/peak-demand-yes-but-not-the-nice-kind.html)

 
Image above: Old time craft work in Appalachia. From (http://www.berea.edu/bereadigital/gstr210/appalachiaessay.asp).

When oil crossed $120 a barrel for the first time in May 2008, oil cornucopians knew they were in trouble. Prices had quadrupled in just five years, yet had failed to bring new production online. Regular crude had flatlined around 74 million barrels per day (mbpd). The case for peak oil was looking stronger with every new uptick in crude futures.

The following month, prominent peak oil critic and cornucopian Daniel Yergin of IHS-CERA changed his stance: The peak oil threat would be neutralized by peak demand. Gasoline consumption had peaked in the U.S. and Europe, he argued, due to the combined effects of increasing efficiency, biofuels, and the recession.

In 2009 the peak demand story seemed confirmed, as prices stabilized around $70 in June, and U.S. consumption remained well off its previous high. Most people thought the nearly 2 mbpd decline in U.S. petroleum demand from 2007 through 2009 owed to efficiency and people driving less.

In reality, only about 15% owed to reduced gasoline demand. The other 85% was lost in the commercial and industrial sector: jet fuel, distillates (including diesel), kerosene, petrochemical feedstocks, lubricants, waxes, petroleum coke, asphalt and road oil, and other miscellaneous products.
Very simply, when oil got to $120 a barrel it cut into real productivity, and forced the world’s most developed economies to shrink. At $147, it wreaked serious damage.

As I explained in “Investment Themes for the Next Decade,” the new normal will be cycles of bumping our heads against the supply ceiling, falling dazed to the floor, rising back to our knees, then finally standing, only to bump our heads against the ceiling once more.

Scooters Will Kill SUVsTwo interesting news stories crossed the wire this week, which portend badly for the world’s #1 net importer, the U.S.

The first was a Reuters report that the last quarter of 2009 had “wiped out” the equity of Mexican state oil monopoly Pemex, leaving it $1.4 billion in the negative. Falling crude output, falling refining margins and a burgeoning dependency of the state on its revenues had squeezed it to death.

Not only did the report offer further confirmation that the oil export crisis has arrived, but it also confirmed my growing suspicion that the oil production everyone has assumed will come online in five to ten years might, in fact, fail to materialize. Negative equity companies have a hard time raising capital for new exploration.

The second was a Bloomberg report that Saudi Arabia had agreed to double its oil exports to India, to some 866,000 barrels per day. India indicated separately that its onshore production of oil may peak this year.

This adds to the pressure on Saudi Arabia’s exports, whose oil shipments to China have been growing at a rate of 11-12% per year and now stand at roughly 1 million barrels per day (mbpd). China has eclipsed the U.S. as the primary bidder for Saudi oil, while U.S. imports from the Persian Gulf nation have fallen to a 22-year low.

The last two years have seen the marginal buyers of oil shift decisively to the non-OECD countries. A gallon of fuel delivers so much value in China and India–think peasants on scooters–that even at $120 a barrel, remarkable economic growth rates are possible. In major oil exporting countries like Saudi Arabia and Venezuela, where subsidized gasoline still sells for under 25 cents a gallon, the appetite for fuel grows steadily every year with little thought given to efficiency.

It’s a different story in the U.S. For debt-laden consumers, an extra $50 or $75 to fill up the tank on an SUV every month sharply reduced discretionary income and starved the economy of its most fundamental driver, consumer demand.

The Real Meaning of Peak DemandThe most promising effort I’ve seen to quantify the role of efficiency in peak demand was a report in October of last year by Paul Sankey of Deutsche Bank entitled, “The Peak Oil Market.” My initial excitement quickly gave way to disappointment as dug into it, however, as I realized that its confident assertions were unsupported by the data.

I applauded the effort enthusiastically–and I hope to see more serious work along the same lines–but it fell far short of proving that energy transition can be accomplished under the status quo of economic growth, let alone its optimistic twist on “The end is nigh for the age of oil.”

The fact is that peak demand in the OECD is not merely a function of efficiency gains and biofuels substitution, aided by a temporary recession.

Instead, peak demand will be the result of a permanent state of increasing depression in which non-OECD countries not only more than make up for the loss of OECD demand, but outbid them for the marginal barrel.

As we enter the post-peak phase of global oil supply sometime around 2012-2014, the price that heavily import-dependent countries like the U.S. would have to pay for that marginal barrel will become increasingly intolerable. In a weakened economy, $100 a barrel (or less) could be the new $120.

The true import of peak oil, therefore, may not be sustained high prices, but economic shrinkage. Demand will be destroyed long before oil gets to $200 a barrel, but it will not be destroyed by improved efficiency.

From where we stand today, it’s hard to make an argument for economic recovery. Persistently high unemployment rates, broken state and federal balance sheets, and an inflationary depression will continue to cut into petroleum demand. We spent the last several decades offshoring the fundamental value-adding sectors like energy production and manufacturing, and now our FIRE economy (finance, insurance, and real estate) rests entirely on real value created elsewhere.

The reason is simple: Energy is the only real currency. Every dollar of fiat currency or GDP was ultimately derived from cheap energy. Trying to print your way out of energy decline is like prescribing ever-higher doses of aspirin for a headache caused by a brain tumor. Yet those at the levers of monetary policy are, by all appearances, completely ignorant (or in willful denial) of this fundamental fact.

The vogue prescription for the sovereign debtors at greatest risk of default (see a Top 10 list here) is “austerity measures.” The theory is that a period of belt-tightening will stanch the fiscal bleeding until economic recovery puts everyone into the black again.

Yet, if primary energy supply is declining, and the rising star of developing economies is inexorably cutting into the supply available to developed and indebted economies, then there can be no recovery.
I have joked on Twitter that I’m expecting an “M-shaped recovery,” where we’re now on the second hump. A more accurate image is slow strangulation.

Two Questions for RecoveryistasThose who would argue for economic recovery must answer two intractable questions.
The first is: Where will the energy come from, as more of the world’s net exporters become net importers?

Britain, Argentina, Indonesia, and others have become net importers in recent years. Mexico and Columbia are expected to follow suit within a decade. Clearly, we can’t all be net energy importers.
There is also the obstinate fact that aggregate net energy–the energy you get in return for investing energy in its production–has been dropping steadily.

Oil net energy dropped from 100 in the early 1930s to 11 or less today. Net energy for natural gas is now in decline. We don’t have adequate data to know yet, but coal’s net energy is probably in decline too. Meanwhile, the net energy of all substitutes is low: wind, 18; solar, 6.8; nuclear, 5-15; all biofuels, under 2.

It is not surprising that a study of the Herold database (Gagnon, Hall, and Brinker, 2009) showed the amount of oil and gas produced per dollar spent declined between 1999 and 2006.

The second question is: If the creeping infection of sovereign default continues to spread to more countries, where will the money come from to bail them out? The answer has been, and continues to be, more aspirin. Without more cheap energy, monetary tactics to play the game into overtime will not only be futile, they will only draw us closer to the edge of the net energy cliff.

All of which begs a final question: If the answers are transition to renewables, and rebuilding our infrastructure for high efficiency, then where will the money and energy to do it all come from? And how long will it hold out?

Without cheap energy to fuel the growth that is hoped to pay off the accumulated debt, austerity will become an everyday reality, not a short-term fix. A reality that slowly sinks in for the rest of our lives, as net importers become progressively poorer.

The peak demand argument is a good one–but not for the nice reasons.

See slso:
Ea O Ka Aina: The End of The End 1/2/11

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