The Vicious Pincer

September 26, 2005,
     Shouts of deliverance rang through the gallerias and subdivisions of Houston, while the picture of what happened off-shore remains murky. Rita might have spared the nation's fourth biggest metroplex, and most of the chemical-cracking infrastructure on-shore around it. But clawing up between Beaumont and Lake Charles, she cut a path through the densest concentration of offshore oil and gas rigs in the whole Gulf of Mexico. We don't know they all came through yet, or how the pipelines below the surface fared.

      What happens next on the oil and gas markets -- and up-close in pump prices and home furnaces around the land -- will be an interesting story.

      The combined fury of Katrina and Rita has obviously flattened whole communities in a large area. One outcome will be what is called "demand destruction," which means that the people who owned all those shredded homes, crushed cars, and flattened businesses will be using less oil in the months ahead. The catch is natural gas: the Gulf coastline is very temperate, even subtropical, and does not require much home heating. So, little demand for heating will have been affected, while the supply of natural gas has been cut twice in a month.

       Half the houses in America are heated with natural gas and most of them are elsewhere than the Gulf Coast. On the markets, the price of gas is now heading north of $15 a unit (1000 cubic feet). It could easily hit $20 by Christmas, which would be about 700 percent higher than the price in 2002. Everyone in the non-Sunbelt is going to feel the pain this winter, and quite a few of the poor and infirm may freeze to death.

      This is going to be a whole new kind of crisis for America and will set off a new kind of political fury. Both parties will get it in the neck but, of course, the Republicans led by the Bush White House will get it worse, because they are nominally in charge of things. There will be nothing they can do about the natural gas crisis. You can't get any significant amount more of it from overseas because it requires special tankers and terminals to receive it, and those terminals will not be built before the robins come back to Kalamazoo. The Democrats will have to prove that they don't deserve to join the Whigs in the Hall of Extinct Parties.

      The political allegiance of the American public will be fully in play. Politics, like nature, abhors a vacuum, and we are likely to see the emergence of something new, perhaps something like the British National Party (BNP) which combines a very aggressive agenda on energy policy with overt fascism. The American people will be starved for action, too, and will be waiting for a man of action to embody their desperation. Let's hope that the characters who percolate out of this mess are not maniacs. The outrageously wealthy had better duck-and-cover -- the half-billion-dollar-CEOs, the $20-million-a-picture movie stars, perhaps even the relatively humble drivers of Hummers and Beemers. The sinking middle class will want to eat them.

      Oil prices may hang back in the low $60s for a little while -- a combination of less driving, relief over the refinery situation in Houston, and some financial monkeyshines like shorting in the markets (perhaps by government-connected entities seeking to soften up futures prices). But the basic fact is that global oil supply and global demand are now so close that any loss of crude inputs anywhere is going to result in both spot shortages and higher prices. Right now, the supply crunch is being borne by third world countries. The catch there is that some of these third world countries are also oil-producing countries, like Indonesia and Nigeria, and the latter is in the process of falling into social anarchy, which will further impact the global supply. In any case, I don't expect oil prices in America to lay low for long. By Christmas, gasoline pump prices will have joined home heating prices in a vicious pincer around the neck of the non-rich classes.

     The serious public conversation of our energy predicament has not begun, and when it does it will be too late. In the background of all this, an economy based on suburban sprawl and easy motoring is going to absolutely fall on its ass, and that means a much quicker end to the housing bubble than we might have expected a month ago. It might also lead to both the demise of the airline industry and the nationalization of what remains of it. It will certainly quash any remaining faith that such an economy can produce wealth, which is what the financial markets are based on, so look out below on Wall Street.

Comments

[Hadley Bumperkin]

Frist

[DahDitDit Dit DahDah]

This week's post makes perfect sense to me, though I wonder about the timing of the crunch and the backlash. The American consumer seems to be whining about high gas prices, yet not modifying many behaviors in a way that would reflect that. My evidence: the 75-mph minimum speed on the highway this morning at 5:15. That may not be much, but most people know that fuel is cheaper per mile at 65 than 75, and that even more of an improvement occurs between 55 and 65.
I'll wait until the traffic gets less dense and slows down to declare that most people know they're hurting.
For now, it's all going on the credit cards, building up the lake of red inky goo that will spill over when the dam breaks.
I have watched doomsayer after doomsayer be wrong about America since 1973, but this time I'm truly scared.

[John Stuart Mill]

It seems you are a one-song ministrel. We get the point - we are low on gas, low on natural gas, and there will be trouble ahead. Give it a rest now and talk about something else for a change.

By next April/May we will know whether you are a prophet and if you deserve to be taken seriously.

[berford]

Of course in America we have found a way to externalize the pain of the gasoline shortfall. We import more of it. Since most of the price surge reflects the perception of shortage, American gasoline prices have quickly settled down. But it had to come from somewhere. Was this truly excess refining/storage capacity in exporting countries? Or did we as highest bidder merely transfer the pain of shortfall to whomever would otherwise have been consuming the extra gasoline we so readily imported?

[Joe]

This guy Cuntsler makes me believe that Hunter S. Thompson is still alive and writing under a perverted pseudonym

[Zack S]

Interesting read...

http://www.msnbc.msn.com/id/9468701/site/newsweek/print/1/displaymode/1098

Saudi Storms
As hurricanes batter the American coast and send oil prices up, Al Qaeda is watching, and drawing lessons.

By Christopher Dickey
Newsweek

Oct. 3, 2005 issue - The shoot-out earlier this month around a seafront villa in the Saudi Arabian city of Ad Dammam lasted almost 48 hours, and ended only when security forces brought in light artillery. They blasted the opulent home until the roof came down on the people inside. In the immediate aftermath police said they couldn't tell from the charred remains just how many members of "a deviant group" had died in the battle. Finally, with DNA tests, they counted five. Police also found enough weapons for a couple of platoons of guerrilla fighters. The inventory given out by the Saudi Interior Ministry included more than 60 hand grenades and pipe bombs, pistols, machine guns, rocket-propelled grenades, two barrels full of explosives, video equipment, a large amount of cash and forged documents.

It was the documents that really set off alarms. According to a Saudi Interior Ministry statement, they included forged passes to enter "important locations." The Saudi daily Okaz quoted the minister, Prince Nayef, saying the cell—which was linked directly to Al Qaeda—had planned major attacks on some of Saudi Arabia's key oil and gas facilities. "There isn't a place that they could reach that they didn't think about," said Nayef. And their ultimate target was the global economy. Saudi Arabia is the greatest source of oil on earth, with a quarter of known reserves and a proven policy of trying to stabilize prices even in today's volatile markets.

If the incident made few headlines at the time, it's because it ended on Sept. 6, when the United States—and oil traders—were focused on the impact of Hurricane Katrina. Yet precisely because of the shortages brought on by that storm and the damage still being counted from Hurricane Rita, Saudi Arabia is more important than ever to world oil supplies. What's worse, according to several analysts, Al Qaeda knows it. "They're watching Katrina. They're watching Rita. They're watching what it's doing to the United States," says former CIA agent Robert Baer, who has written extensively on Saudi Arabia's vulnerabilities. A few ruptured pipes could be repaired quickly, says Baer, but a concerted attack at several points could bring on the kind of nightmare scenario that U.S. officials have been dreading since the Reagan years, pushing oil prices up from their current prices in the range of $60 to $70 a barrel to well over $100 for weeks or even months.

Since Al Qaeda's campaign of terror inside Saudi Arabia began in 2003, the Saudis have dramatically stepped up protection of their oil installations. Security forces have issued several lists of their most-wanted terrorists, and tracked down or killed most of them. (Four of the five in Ad Dammam were on the latest lists.) Officials have sought to reassure the world that the terrorists are on the run. Anthony Cordesman at Washington's Center for Strategic and International Studies, among others, has backed up that basic analysis.

Yet the cells seem to be replaced almost as quickly as they're taken down. The brother of one of those killed in Ad Dammam, himself a wanted terrorist named Muhammad Abdelrahman Al-Suwailimi, put a voice message on the Web afterward claiming the incident was exaggerated by authorities. He also thanked the infamous terrorist Abu Mussab al-Zarqawi, in neighboring Iraq, for his support. Saudi Arabia now is increasingly concerned about the potential blowback of disintegration in Iraq. "I don't see how the Arab countries are going to be left out of the conflict in one way or another," said Saudi Foreign Minister Saud al-Faisal last week. "I think this is what is going to happen if things continue as they are."

Precisely what the Dammam cell intended to hit, if known, has not been revealed in any detail. But, as Baer points out, Saudi Arabia is a target-rich environment. Certain critical nodes in the general vicinity of Ad Dammam have worried American strategists for years. Past studies suggest a moderate-to-severe attack on the Abqaiq oil-processing facilities, for instance, could cut Saudi output (now about 9.6 million barrels a day) by more than 4 million barrels for two months or more.

Al Qaeda has used suicide boats before. A successful hit against a major offshore loading facility at either Ras Tanura or Juaymah would knock millions of barrels off the market. Baer wrote in 2003 that "a single jumbo jet with a suicide bomber at the controls ... crashed into the heart of Ras Tanura, would be enough to bring the world's oil-addicted economies to their knees." After the one-two punch from Katrina and Rita, it might not take that much.

[Edgar Cave Urbanus]

Who will be the scape goat(s) for the emerging man of action?

[Baby Peanut]

May I suggest http://retrofoam.com/
for you insulation needs? It worked for me.

[bleep]

{{ Oil prices may hang back in the low 60s for a little while -- a combination of less driving, relief over the refinery situation in Houston, and some financial monkeyshines like shorting in the markets (perhaps by government-connected entities seeking to soften up futures prices). }}

Huh, is this the same Kunstler that said he doesn't believe in conspiracies?

[Weaseldog]

Every business plan is a conspiracy.

[Weaseldog]

We're just going to have to get used to higher prices, job loss and reduced wages.

We've suffered a national disaster and we're fighting a war and we're engaged in the occupation of two nations.

Dick Cheney and Donald Rumsfield have made it clear that we can't leave Iraq for decades. It will take that long to give them their freedom. And it will take that long to pump all of the Iraqi oil.

Aghanistan is going to need our military to maintain control of their nation, to keep the Unocal pipeline safe for decades also.

These things require sacrifices, just as all wars require sacrifices.

If we really believe in giving these nations, the dream of freedom for their descendants, then we need to be prepared to give up our own freedoms, priviledges and relatively wealthy lifestyle.

Spain and Britain went bankrupt while trying to maintain expensive colonies on other continents, when energy supplies were increasing. It will come faster for the US, when energy is in decline.

This is our place in history. It's the path we've chosen. To become a beacon of freedom for the rest of the world, we must colonize it. Go bankrupt, then come home to rebuild and impoverished nation. Just like many other nations have done before us.

Except, this time everything's different. Right?

[Dave]

De Lay the dumbest was wailing about the importance of highways to our national economy the other day. Seemed to me the absurd spectable of trying to evacuate Houston via a monotransport system was being defended less the proles starting getting the idea that maybe its time to place their bets elsewhere and defund the road building lobby. In any case there is still four weeks of hurricane season in store and my bet is on one more big one before this farce really turns to national tragedy then what will the delay's of the right say ?

[Roderick A. Bryan]

I live in Little Rock, Arkansas, where I am running as an independent for Governor (http://www.rodbryan.com).

Our current Governor has announced a special election to vote on bonds for highways and higher education- Two things that should be decreasing in relevance. (The buffoon is also positioning himself to run for president.) I spent the summer attending festivals and riding my bicycle around the state to garner support and was amazed at two things.

1.) Most politicians that I met are much more stupid than just purely corrupt-i.e. they know not what they do.
2.) People generally trust these morons.

The events of the last two weeks have had quite a ripple effect on politics here. It's also brought my small record store to its knees (http://www.playadel.com/anthropop).

I was in the middle of "The Long Emergency" when Katrina hit and I've had a hard time getting up in the morning. I'm all for Jim completely airing his opinions to the fullest extent on this blog. Don't blame the messenger. If he overblows it, be happy that it wasn't as bad. Lord knows we need a different brand of reality coming from the blowhards in Congress. Our Democratic Senators from Arkansas make Nixon look like a liberal.

[george]

A stopped clock is right twice a day, which is more than Jim can say about his peak oil predictions. His comments on the 'burbs, however, are right on, even the 'burb dwellers realize it; they are there so their kids won't have to go to the horrendous inner city schools and they can't afford the good private schools. Jim, however, seems disappointed the economy hasn't collapsed around our ears. He assumes that we, as a nation, can't adjust to higher prices and that total economic collapse is a heartbeat away. Well, we are adjusting and will continue to do so. What is needed right now is leadership at the national level but the nation has two cretins at the helm who are owned by Big Oil, so the rest of the country is working around them. We are carpooling, cutting un-necessary trips, foregoing vacations, and trading in the gas hogs for fuel-efficient sedans. We are advocating increased mass transit, and an end to subsidizing the car. We need leadership from people like Jim, instead we get his visage of a funeral director who is hoping for a few more stiffs to come his way. Enough is enough.

[Weaseldog]

Roderick, smart and motivated politicians are wild cards for business interests. You never know when a politician of this sort, will vote against your interests, after you've bought and paid for him or her.

The citizenry and small businesses, need politicians that are smart, savyy and care about their constituents.

Businesses with enough resources to buy influence, need dumb and unmotivated politicians that will do what they are told. When a choice needs to be made between the needs of the community, or the needs of an international shopping chain, a dumb, greedy and compliant politician is what the chain will be backing. And they'll be backing that politician with money and resources.

Big business isn't at all about people. It's about raking in money and nothing else. Everything else works in service of this goal. Any lip service about serving the community, or providing for charity is just marketing. What's done in the back room in politics and business, is rarely the same as the public face.

Orwell understood things very well.

[Weaseldog]

Jim didn't come up with the peak oil idea. That was Dr. King Hubbert.

Dr. King Hubbert accurately predicted the 1970 US Peak, almost 20 years before it happened.

Since then his methods have been turned to the world supply of oil at large. Hubbert had very accurate US data to work with in the 1950s. These days, world oil reserve figures are obfuscated and Dr. Coling Campbell, Dr. JEan Laherre and Richard Duncan have been working with the best data they have. Since the 1990s, they've argued that their data points to a peak between 2010 and 2020.

Now they are arguing that the peak will occur by 2008. The reason for bumping up the date is because Iraq's oil production has been seriously crippled. By the time they expect Iraq to be at full production (if ever), the delcine in world oil production will be moving at a faster rate than Iraq can make up for.

The year of Peak oil is simply the year that the world will see it's highest point of production.

If you think that peak oil is huey, then you must believe that we can produce more oil every year, for all time. In other words, you have to believe that the volume of oil in the earth is infinite, and is greater than the volume of the universe.

If you do accept that oil production will rise for a time and then decline, then we're just left with arguing over what year this will happen. Not if it will happen.

Jack Dingler

[chezewyz]

why is it that when Halliburton gets Ks for building in the wake of EVERY disaster since Dubya took office, it's "good business,"

but if someone points out that H-burton nefariously gets these Ks without any open bidding,

they're labelled a "conspiracy theorist"?

what is a "conspiracy"?

neocon grokkers need to brush up on their rhetorical, logical and writing skills, methinks.

[Weaseldog]

A conspiracy is when two or more people meet in private and make plans.

[Weaseldog]

Dick Cheney's Energy Task Force Meetings, meet the dictionary definition of a conspiracy.

[Weaseldog]

The government's contention that Saudi and Egyptian nationals planned and executed and attack on the US on 9/11, with premeditation and forethought, is a Conspircay Theory.

The theory is that the hijackers conspired to attack the United States.

Republic Liberal Fundamentalists, like Rush Limbaugh, Sean Hannity have no problem with conspiracy theories if they thought them up.

Just look at how they scream and wail about being persecuted by the vast and overwhelming liberal media.

They are so psychotically paranoid they see conspiracies everywhere.

[Syltty]

"Of course in America we have found a way to externalize the pain of the gasoline shortfall. We import more of it."

How is paying higher market price externalizing?

"Or did we as highest bidder merely transfer the pain of shortfall to whomever would otherwise have been consuming the extra gasoline we so readily imported?"

Bingo.

[Syltty]

Weaseldog
"Now they are arguing that the peak will occur by 2008. "

"If you do accept that oil production will rise for a time and then decline, then we're just left with arguing over what year this will happen. Not if it will happen."

Will you admit, that it makes quite big difference if the peak is at 2050, not in 2008?

[Weaseldog]

I sure will Syllty. There's a big difference between a peak in 2050 and 2008.

To peak at 2050, all we have to do is discover a few more Saudi Arabias.

I know of no geologists that are forecasting a 2050 peak. No oil company except the House of Saud is predicting such and event. Even the US gov has quit making such a prediction. The ever optimistic EIA is predicting that demand will peak in 2025, so they are forecasting a production peak, driven purely by demand to occur in 2025.

And how much more oil would that be? Something like 3 times as much oil as we've burned so far? What sort of industrial planet could we have by then? What glorious wars?

I honestly don't know which would be better. I envy the folks that spent their lives a few decades ahead of me. In theory I have decades left in which to see how this crisis turns out.

But this is my time and place in history. I'll make the best of it.

[Syltty]

Remember that after peak, half of oil is still left for cunsumption. It takes another 20 years after peak that light oil fields will be depleted. And even longer if yield of fields is upgraded.

[One Eye Open]

Bush in plea to cut use of cars and energy

Bush in plea to cut use of cars and energy
By Caroline Daniel in Washington
Published: September 26 2005 19:27 | Last updated: September 26 2005 19:27

President George W. Bush on Monday made a rare public appeal for Americans to share cars and curb non-essential driving as part of an effort to reduce high petrol prices following the two hurricanes that have struck the Gulf of Mexico coast.

Full article here:http://news.ft.com/cms/s/63b0a754-2eb8-11da-9aed-00000e2511c8.html

“We can all pitch in by being better conservers of energy. I mean people just need to recognise that the storms have caused disruption and that if they are able to maybe not drive, on a trip that's not essential, that would be helpful,” he said.