There may be a light at the end of the tunnel for PEMEX. A tax cut is in the works. Mexico is considering a flat tax, and the proposal for PEMEX is included in the bill. Now for the part I am having a problem with:
Pemex, the third-largest oil supplier to the U.S., has set a goal of maintaining crude-oil production at 3.1 million barrels per day and add proven reserves equivalent to 100 percent of production over the next six years.
That is a goal that is beyond ambitious. If I am reading this correctly, PEMEX wants to find and develop enough new oil reserves to essentially replace what has been produced. Given the time lag on finding and proving new reserves, I don't see how they can do it. Looks like happy talk to me.
Our cousins across the pond have done an assessment of Peak Oil's impact on rural communities (PDF Warning). Ya gotta love it. The Brits are wide awake and contemplating the impact while we alternately snooze and pimp Chicago as a site for the Olympics. Has anyone considered the possibility that we'll be feeling the pain from Peak Oil at about that time?
If Peak Oil doesn't get us our lack of discipline will. Dave Walker has been sounding financial warnings for some time, and no one is listening. I won't blame him if he says "I told you so" later.
Finally, we are in peak hurricane season and TS Dean and an unnamed TD in the Gulf have resulted in the evacuation of some platforms. Royal Dutch Shell must be having some deja vu
Showing posts with label Chicago. Show all posts
Showing posts with label Chicago. Show all posts
Tuesday, August 14, 2007
Sunday, August 12, 2007
I'll Say It Again
I keep pushing the issue of a peak oil risk analyis. Richard Heinberg looks over the current state of affairs regarding Peak Oil and offers the following, which should make the need for a risk analysis crystal clear:
The global transport system is almost entirely dependent on oil—not just private passenger automobiles, but trucks, ships, diesel locomotives, and the entire passenger and freight airline industry. High fuel prices will thus impact entire economies as travel becomes more expensive and manufacturers and retailers are forced to absorb higher transport costs.
Conventional industrial agriculture is also overwhelmingly dependent on fossil fuels. Artificial ammonia-based nitrogenous fertilizers use natural gas as a raw material; modern farm machinery runs on petroleum products; and oil provides the feedstock for making cheap pesticides. According to one study, approximately ten calories of fossil fuel energy are needed to produce each calorie of food energy in modern industrial agriculture.17 With the global proliferation of the industrial-chemical agriculture system, the products of that system are now also traded globally, enabling regions to host human populations larger than local resources alone could support. Those systems of global distribution and trade also rely on oil. Within the US, the mean distance for food transport is now estimated at 1,546 miles.18 High fuel prices and fuel shortages will therefore translate to higher food prices and could even cause food shortages.
A small but crucial portion of oil consumed globally goes into the making of plastics and chemicals. Some of the more common petrochemical building blocks of our industrial world are ethylene, propylene, and butadiene. Further processing of just these three chemicals produces products as common, diverse, and important as disinfectants, solvents, antifreezes, coolants, lubricants, heat transfer fluids, and of course plastics, which are used in everything from building construction materials to packaging, clothing, and toys. Future oil supply problems will affect the entire chain of industrial products that incorporate petrochemicals.
You don't need a degree to "get" it. This shouldn't be over anyone's head to comprehend, not the least being our fearless Alderman. Heinberg also tells us what is going on now to address Peak Oil, and it isn't going to be enough:
In 1998, policy makers had virtually no awareness of Peak Oil as an issue. Now there are Peak Oil groups within the US Congress and the British Parliament, and individual members of government in many other countries are keenly aware of the situation. Government reports have been issued in several nations.19 Sweden has made a national commitment to drastically reduce its petroleum dependence by 2020.20 Cities such as Portland, Oregon, and Oakland, California have undertaken assessments of petroleum supply vulnerabilities and begun efforts to reduce their exposure.21 A few Non-Governmental Organizations (NGOs) have been formed for the purpose of alerting government at all levels to the problem and helping develop sensible policy responses—notably, the Association for the Study of Peak Oil and Gas (ASPO), and Post Carbon Institute.22 On a smaller scale, grass-roots efforts in several countries (especially the US, Canada, Australia, and Great Britain) have resulted in the creation of “Relocalization Networks” and “Transition Towns” wherein ordinary citizens participate in the development of local strategies to deal with the likely consequences of Peak Oil.23
Think Globally, Act Locally is at work in those efforts, but they lack the scale needed to deal with Peak Oil on a national scale. It's better than nothing and those communities will be better off when it hits the fan. Will Chicago ever join them?
The global transport system is almost entirely dependent on oil—not just private passenger automobiles, but trucks, ships, diesel locomotives, and the entire passenger and freight airline industry. High fuel prices will thus impact entire economies as travel becomes more expensive and manufacturers and retailers are forced to absorb higher transport costs.
Conventional industrial agriculture is also overwhelmingly dependent on fossil fuels. Artificial ammonia-based nitrogenous fertilizers use natural gas as a raw material; modern farm machinery runs on petroleum products; and oil provides the feedstock for making cheap pesticides. According to one study, approximately ten calories of fossil fuel energy are needed to produce each calorie of food energy in modern industrial agriculture.17 With the global proliferation of the industrial-chemical agriculture system, the products of that system are now also traded globally, enabling regions to host human populations larger than local resources alone could support. Those systems of global distribution and trade also rely on oil. Within the US, the mean distance for food transport is now estimated at 1,546 miles.18 High fuel prices and fuel shortages will therefore translate to higher food prices and could even cause food shortages.
A small but crucial portion of oil consumed globally goes into the making of plastics and chemicals. Some of the more common petrochemical building blocks of our industrial world are ethylene, propylene, and butadiene. Further processing of just these three chemicals produces products as common, diverse, and important as disinfectants, solvents, antifreezes, coolants, lubricants, heat transfer fluids, and of course plastics, which are used in everything from building construction materials to packaging, clothing, and toys. Future oil supply problems will affect the entire chain of industrial products that incorporate petrochemicals.
You don't need a degree to "get" it. This shouldn't be over anyone's head to comprehend, not the least being our fearless Alderman. Heinberg also tells us what is going on now to address Peak Oil, and it isn't going to be enough:
In 1998, policy makers had virtually no awareness of Peak Oil as an issue. Now there are Peak Oil groups within the US Congress and the British Parliament, and individual members of government in many other countries are keenly aware of the situation. Government reports have been issued in several nations.19 Sweden has made a national commitment to drastically reduce its petroleum dependence by 2020.20 Cities such as Portland, Oregon, and Oakland, California have undertaken assessments of petroleum supply vulnerabilities and begun efforts to reduce their exposure.21 A few Non-Governmental Organizations (NGOs) have been formed for the purpose of alerting government at all levels to the problem and helping develop sensible policy responses—notably, the Association for the Study of Peak Oil and Gas (ASPO), and Post Carbon Institute.22 On a smaller scale, grass-roots efforts in several countries (especially the US, Canada, Australia, and Great Britain) have resulted in the creation of “Relocalization Networks” and “Transition Towns” wherein ordinary citizens participate in the development of local strategies to deal with the likely consequences of Peak Oil.23
Think Globally, Act Locally is at work in those efforts, but they lack the scale needed to deal with Peak Oil on a national scale. It's better than nothing and those communities will be better off when it hits the fan. Will Chicago ever join them?
Friday, August 03, 2007
She Made Me Say This
I truly don't like to take up other bloggers' space with really long comments. At moments like that I just have to come here and lay it out.
Paradise's latest acknowledges the writing here at The Living Room, and professes a lot of excitement for the positive things that can be done. As we all know, she is an unabashed Moore supporter and it shows. My comment, suggesting that Moore take the lead on developing a risk analysis for Chicago regarding Peak Oil elicited this in response:
It costs maybe a hundred grand to do those. Maybe more, I never shopped around for one. Have the peak oil people done them for cities in general, have you already pondered it over? I guess its not a matter of guessing is it? It's alot of work. It wouldn't be any trouble at all to ask Joe to have a look if there were a risk analysis, but you ask someone to do it themselves, I don't think its indifference, it's alot to do!
Goodness gracious me (as Curlytop would say). I can't help but believe Paradise is either naive or terribly uninformed about the way things work. I don't know why she thinks Joe would have to do this himself. But more revealing is the focus on the mechanics of getting it done, not the issue as to whether it is needed. She never goes there.
As I pointed out to her, Portland, Oregon has already done it. Why not Chicago? All of the candidates got a copy of the Portland report. Clearly Portland thought it was necessary to do.
My email also included a copy of the Hirsch Report. I spoke to Jim and Don personally, and very briefly with Chris, about Peak Oil. Only Don really embraced the discussion, Jim tried but his comments to me indicated he needed more time to study the issue. I don't know if he has. In any case, Moore has the info, I know because I sent it to him. So I am unlikely to think kindly of him if he pleads ignorance about it. Especially now that the NPC and IEA have commented on the matter of oil supply and demand.
Chicago can do this. Moore can get behind this, if he chooses to do so. He certainly is looking for a national issue, why not this one?
Paradise's latest acknowledges the writing here at The Living Room, and professes a lot of excitement for the positive things that can be done. As we all know, she is an unabashed Moore supporter and it shows. My comment, suggesting that Moore take the lead on developing a risk analysis for Chicago regarding Peak Oil elicited this in response:
It costs maybe a hundred grand to do those. Maybe more, I never shopped around for one. Have the peak oil people done them for cities in general, have you already pondered it over? I guess its not a matter of guessing is it? It's alot of work. It wouldn't be any trouble at all to ask Joe to have a look if there were a risk analysis, but you ask someone to do it themselves, I don't think its indifference, it's alot to do!
Goodness gracious me (as Curlytop would say). I can't help but believe Paradise is either naive or terribly uninformed about the way things work. I don't know why she thinks Joe would have to do this himself. But more revealing is the focus on the mechanics of getting it done, not the issue as to whether it is needed. She never goes there.
As I pointed out to her, Portland, Oregon has already done it. Why not Chicago? All of the candidates got a copy of the Portland report. Clearly Portland thought it was necessary to do.
My email also included a copy of the Hirsch Report. I spoke to Jim and Don personally, and very briefly with Chris, about Peak Oil. Only Don really embraced the discussion, Jim tried but his comments to me indicated he needed more time to study the issue. I don't know if he has. In any case, Moore has the info, I know because I sent it to him. So I am unlikely to think kindly of him if he pleads ignorance about it. Especially now that the NPC and IEA have commented on the matter of oil supply and demand.
Chicago can do this. Moore can get behind this, if he chooses to do so. He certainly is looking for a national issue, why not this one?
Sunday, July 29, 2007
Can I Make It Any Plainer?
At the VOTER49 party I talked briefly with Don about my concern that no one in the Chicago political elite has stepped forward to do a risk analysis. We chatted a bit as to why that was, and then he suggested we could, if we put the nation's resources to work on it, solve this problem in 5 years.
Uhhhhh.......no Don. We won't.
Let's start with the Hirsch Report of 2005, which makes it plain that the primary issue is transportation fuel. Dr. Hirsch estimates a 20 year lead time to put mitigation actions into effect, and he is quite clear that doing so will REQUIRE A CRASH EFFORT! He gives the details behind his thinking, and I believe him.
But Kheris, that report is 2 years old and a lot has changed. We spend so much on Iraq, we surely can solve this if we reallocate resources.
Oh really? Yes, a lot has changed, and not in ways that will help us.
1. The National Petroleum Council report tells us that after 2015 the balance of oil supply and demand will be tenuous. They acknowledge the need to make changes, however Tom Whipple points out the self serving nature of those recommendations. We are all glad NPC noticed Peak Oil, but how strongly will the government push the envelope in preparation? Not much.
2. On July 27 PEMEX acknowledged that they have 7 years of oil left. 7 Years!!!! By 2014 they will be toast. They don't have the financial or technical wherewithal to overcome this problem. Assuming they struck a supergiant tomorrow, it would still be 5 years (minimum) before first oil (based on the usual development cycle), and longer until the field is producing at anything near an optimal, let alone peak, level. They are our second largest single country supplier. Who's going to replace that oil?
3. The oil companies are still doing well by any standard, but signs of slippage are there.
Some Wall Street analysts were concerned about Shell's falling output, a trend that has been replicated across the industry as major oil companies contend with declining production at their mature fields and the challenges of finding new reserves. "All the oil companies are struggling to grow production," said Peter Hitchens, an analyst at brokerage Teather & Greenwood. "It's becoming more and more difficult to bring projects in on time and on budget."
4. The bombing of oil assets in Mexico is raising concerns about the country's ability to protect itself and its economy. Want to speculate on the impact to us if the Mexicans find themselves being pinched by local terrorism? And if you are wondering if those bombs had any real impact, allow me to fill you in:
The Mexican chamber of manufacturing industries reported that some 1,200 factories across Guanajuato, Qeretaro, Aguascalientes and Jalico were forced offline. The Washington Post reported that Mexican glass maker, Vitro, lost some US$800,000 a day while it waited for Petroleos Mexicanos (Pemex) to restore the energy feed. Mexico's beer manufacturer Modelo SA along with food manufacturer Hershey and auto makers Nissan and Honda were all forced to close temporarily.
The bombers knew what they were doing according to the article.
5. Finally, commentary from Jerome a Paris about the sale of Chrysler (subscription only). It's a very accessible article, and he draws a scary implication:
As we know, US consumers have barely seen their incomes increase in recent years. Consumption has been propped up by ever increasing levels of debt, and by buoyant house prices (whch made possible to raise home equity, i.e. to pile in again more debt). Such levels of debt are no longer going to be available, both as banks tighten standards, and as house prices stagnate or worse. And as incomes are unlikely to go anywhere in the context described above, consumption is likely to struggle, leading to lower growth, creating more economic hardship and tightening the noose over weak, over-indebted borrowers, whether households or companies, and putting their lenders in the position of having to take over assets (houses, businesses, or financial assets underpinned by the same) and holding them or trying to sell them in a hostile market. Selling makes the cost visible, but at least ends the problem. The problem is that if everybody tries to do the same, the markets will crash, as there won't be enough buyers on the other side - or not at the prices needed by the sellers.
For an example of how dicey things might get, see this article about Landry's. They are looking for new financing. $400M in unsecured debt has been called in due to delays in filing SEC reports.
According to the Company's Chief Financial Officer, Rick Liem, "The Company will refinance the amount outstanding under the Notes and under the Company's existing Credit Agreement. Due to the recent downturn in the credit markets and the increase in interest rate spreads, our 7.50% below market Notes did not provide enough of an economic return to our bondholders and prompted their decision to accelerate the Notes."
We currently spend, as a nation, between $1.3B and $1.6B on oil each day. Yes, that is a "B" for BILLION! That is based on a price range of $65-77/barrel. Crank the price to $100/barrel and we are at ~ $2.1B/day. We are buried in Iraq and will remain so for at least another year. In less than 7 years our second largest supplier will likely end exports in order to take care of domestic needs. The financial environment of easy money is over, and there are consequences to that. Big Oil sees the problem coming, recognizes the issues, and thinks it could get dicey 8 years from now. Their own financial situation is starting to deteriorate and so they want subsidies and a free rein in order to continue business as usual.
Perhaps that's the real problem; an across the board desire to continue business as usual. Folks; we don't have 20 years to prepare for a serious downturn in oil supplies. We don't even have 8 years. We have as much time as it will take for Mexico to turn off the export tap. Say 3 years, 5 on the outside. But 5 years will not be enough to identify and put in place the alternatives that could mitigate any fuel shortages. A close reading of The Oil Drum and its contributors makes it very clear that alternatives are out there, at varying stages of viability, but none is a silver bullet. All are considered silver BBs.
Five or six years ago when money was loose and we were riding high on the hog, probably right after 9/11, we could have mobilized the nation to reduce our oil dependency and be on our way to viable alternatives. We didn't do it. No one really tried and those who raise the issue are still seen as Chicken Littles.
I guess the sky really will have to fall before anyone even considers a risk analysis for Chicago. By then, we will be reacting rather than actually planning. By then, we will know something as to whether oil supplies will drop slowly or rapidly. By then, it will be too late to avoid fuel shortages. The lights will be on, CTA will run, bicycles will be back in vogue, and I wonder how Rogers Park will cope with an economy in pain and few options. By then we will have gone through another aldermanic election and I wonder if the next alderman will be as blissfully ignorant as the current one.
Uhhhhh.......no Don. We won't.
Let's start with the Hirsch Report of 2005, which makes it plain that the primary issue is transportation fuel. Dr. Hirsch estimates a 20 year lead time to put mitigation actions into effect, and he is quite clear that doing so will REQUIRE A CRASH EFFORT! He gives the details behind his thinking, and I believe him.
But Kheris, that report is 2 years old and a lot has changed. We spend so much on Iraq, we surely can solve this if we reallocate resources.
Oh really? Yes, a lot has changed, and not in ways that will help us.
1. The National Petroleum Council report tells us that after 2015 the balance of oil supply and demand will be tenuous. They acknowledge the need to make changes, however Tom Whipple points out the self serving nature of those recommendations. We are all glad NPC noticed Peak Oil, but how strongly will the government push the envelope in preparation? Not much.
2. On July 27 PEMEX acknowledged that they have 7 years of oil left. 7 Years!!!! By 2014 they will be toast. They don't have the financial or technical wherewithal to overcome this problem. Assuming they struck a supergiant tomorrow, it would still be 5 years (minimum) before first oil (based on the usual development cycle), and longer until the field is producing at anything near an optimal, let alone peak, level. They are our second largest single country supplier. Who's going to replace that oil?
3. The oil companies are still doing well by any standard, but signs of slippage are there.
Some Wall Street analysts were concerned about Shell's falling output, a trend that has been replicated across the industry as major oil companies contend with declining production at their mature fields and the challenges of finding new reserves. "All the oil companies are struggling to grow production," said Peter Hitchens, an analyst at brokerage Teather & Greenwood. "It's becoming more and more difficult to bring projects in on time and on budget."
4. The bombing of oil assets in Mexico is raising concerns about the country's ability to protect itself and its economy. Want to speculate on the impact to us if the Mexicans find themselves being pinched by local terrorism? And if you are wondering if those bombs had any real impact, allow me to fill you in:
The Mexican chamber of manufacturing industries reported that some 1,200 factories across Guanajuato, Qeretaro, Aguascalientes and Jalico were forced offline. The Washington Post reported that Mexican glass maker, Vitro, lost some US$800,000 a day while it waited for Petroleos Mexicanos (Pemex) to restore the energy feed. Mexico's beer manufacturer Modelo SA along with food manufacturer Hershey and auto makers Nissan and Honda were all forced to close temporarily.
The bombers knew what they were doing according to the article.
5. Finally, commentary from Jerome a Paris about the sale of Chrysler (subscription only). It's a very accessible article, and he draws a scary implication:
As we know, US consumers have barely seen their incomes increase in recent years. Consumption has been propped up by ever increasing levels of debt, and by buoyant house prices (whch made possible to raise home equity, i.e. to pile in again more debt). Such levels of debt are no longer going to be available, both as banks tighten standards, and as house prices stagnate or worse. And as incomes are unlikely to go anywhere in the context described above, consumption is likely to struggle, leading to lower growth, creating more economic hardship and tightening the noose over weak, over-indebted borrowers, whether households or companies, and putting their lenders in the position of having to take over assets (houses, businesses, or financial assets underpinned by the same) and holding them or trying to sell them in a hostile market. Selling makes the cost visible, but at least ends the problem. The problem is that if everybody tries to do the same, the markets will crash, as there won't be enough buyers on the other side - or not at the prices needed by the sellers.
For an example of how dicey things might get, see this article about Landry's. They are looking for new financing. $400M in unsecured debt has been called in due to delays in filing SEC reports.
According to the Company's Chief Financial Officer, Rick Liem, "The Company will refinance the amount outstanding under the Notes and under the Company's existing Credit Agreement. Due to the recent downturn in the credit markets and the increase in interest rate spreads, our 7.50% below market Notes did not provide enough of an economic return to our bondholders and prompted their decision to accelerate the Notes."
We currently spend, as a nation, between $1.3B and $1.6B on oil each day. Yes, that is a "B" for BILLION! That is based on a price range of $65-77/barrel. Crank the price to $100/barrel and we are at ~ $2.1B/day. We are buried in Iraq and will remain so for at least another year. In less than 7 years our second largest supplier will likely end exports in order to take care of domestic needs. The financial environment of easy money is over, and there are consequences to that. Big Oil sees the problem coming, recognizes the issues, and thinks it could get dicey 8 years from now. Their own financial situation is starting to deteriorate and so they want subsidies and a free rein in order to continue business as usual.
Perhaps that's the real problem; an across the board desire to continue business as usual. Folks; we don't have 20 years to prepare for a serious downturn in oil supplies. We don't even have 8 years. We have as much time as it will take for Mexico to turn off the export tap. Say 3 years, 5 on the outside. But 5 years will not be enough to identify and put in place the alternatives that could mitigate any fuel shortages. A close reading of The Oil Drum and its contributors makes it very clear that alternatives are out there, at varying stages of viability, but none is a silver bullet. All are considered silver BBs.
Five or six years ago when money was loose and we were riding high on the hog, probably right after 9/11, we could have mobilized the nation to reduce our oil dependency and be on our way to viable alternatives. We didn't do it. No one really tried and those who raise the issue are still seen as Chicken Littles.
I guess the sky really will have to fall before anyone even considers a risk analysis for Chicago. By then, we will be reacting rather than actually planning. By then, we will know something as to whether oil supplies will drop slowly or rapidly. By then, it will be too late to avoid fuel shortages. The lights will be on, CTA will run, bicycles will be back in vogue, and I wonder how Rogers Park will cope with an economy in pain and few options. By then we will have gone through another aldermanic election and I wonder if the next alderman will be as blissfully ignorant as the current one.
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