Understanding the New Price of Oil

Gregor Macdonald has written an interesting article entitled "Understanding the New Price of Oil" that explains how over time the factors determining the oil price have changed. Besides that the article has a lot of small tidbits of highly relevant information regarding the future of oil. Worth reeading.

Gold vs. Oil

Both resources oil and gold are interesting from an investment perspective. Both are natural resources and interesting options in times of change. Oil took quite a nose dive over the last weeks and gold is up by 30% YTD. Why is that? The answer nobody can know for sure but there are certainly many factors ranging from economic growth, economic forecasts, resource discoveries, exploration costs, speculation, global stability, wars to political signals. Here is an interesting up-to-date chart comparing oil to gold. On the chart one can quickly see that the oil to gold ratio has doubled ion just one year (2008 to 2009) and is overall quite volatile.

Food Prices

About 2 years ago I realized that food has to take a more central role in our life. Certainly I placed food close to the center of my thoughts. Very slowly - at the pace of a turtle - I am taking mini-steps to deal with this. The key reasons for putting more focus and emphasis on food is the continuing erosion of quality of food in the market. Every year, food products are more industrial, more artificial, more polluted, more genetically modified, less transparent in respect to their ingredient list, and so forth. That boils down that we need higher quality food with better nutrition for a better health. Secondly, food has to move more into our focus due to quantitative problems and distribution problems that are foreshadowed. That means we need more local food and more self-grown food. Peak oil will let food production cost rise drastically. Last year food cost has risen 30%. Imagine in a year with little official inflation, food prices have soared. See this article entitled "Will increasing food prices lead to more revolution?". Rich people like us in the "developed" world spend a small percentage on food, and we did not notice the 30% increase. But poor people that spend 50% of the income on food have painfully and instantly noticed.

Peak oil will not only cause food production (seeds, fertilizers, pesticides) to become more expensive, but also transport costs will increase drastically. Add to that issues like peak phosphorus, peak water, peak arable land, etc. The good way out or at least a form of insurance policy to this upcoming storm is to engage in a more local food economy. In short, it seems to be a good idea to make friends with local farmers, know where to buy fruits or eggs. Join a local food basket service. And lastly, we must grow a little bit of our own food. I took some courses on gardening and food conservation. I always sharpen my ears when I meet people who grow their own food. This year I will also start with a tiny 2 square yard vegetable garden. These are all tiny baby steps. With a 2 square yard garden I will not be able to produce any noticeable amount of food for my family. It will literally be a drop in the bucket. It might be 1% of our family food consumption. Still, 1% is 1%. I also have to look into the future. I will learn a skill, i.e. farming. Maybe next year I can do 2%. Anyhow, it is crystal clear to me that local food supply and home grown food are essential to a sane life style. I recommend container gardening and square foot gardening to everyone. I hope to see green roof tops and back yards that replace lawns with veggie beds in the near future. I would not mind seeing a certain amount of the Cuba-approach around here.

Not everyone will agree with me. Have a look at this OilDrum articles entitled "The Fallacy of Reversibility" that argues that in the future due to peak oil there will be even more industrial, even larger-scale agrobusiness. One can join this opinion or not, but even if we follow this argument, it is clear that the final cost of this even more industrial, even larger agro-business will be carried by the consumer. In short, even in this scenario, or better said, especially in this scenario, the food prices will go up.

Food is so close to the human heart and soul, there are many things we can live without, but food is not one of them. Instead of outsourcing it to others (agro-business, big chain supermarkets) we should keep this core skill within our family or at least within our community. And on top of that we should mentally prepare for further price hikes,

Collapse

I just watched the full-length 2009 documentary "Collapse". The film is in its entirety an interview of whistleblower Michael Ruppert. The line I liked best is: Von Clausewitz said that war is a continuation of politics by other means. [Michael Ruppert adds that] Politics is a continuation of economics by other means. [at 0:35:00] At the very end Michael Ruppert reaches the spiritual and philosophical conclusion that can be summarized with the belief that the love of money is the root of all evil. The love of money has the potential to exterminate, to render extinct, the entire human race. [at 1:10:00] This is inline with Zeitgeist 3 which wants to create a new humankind, a new society, without money.

Zeitgeist 3

The third documentary of the Zeitgeist series has been released. At the current rhythm director and activist Peter Joseph is producing one every year. Zeitgeist - Moving Forward is available freely. It is revising all the same topics of the previous Zeitgeist movies, with less emphasis on religion and spirituality. The goal remains a bias-less, science-founded, money free society that is using a resource-based economy. Certain individual freedoms will be compromised to accomplish this sustainable planet. But we have heavy restrictions on our freedoms today in the capitalistic society (and others). The 1% of the super-rich can bypass some of the restrictions on freedom, but the middle class and lower have no escape route. I belief that absolute personal freedom is illusionary and unfair. Since freedom ends where injustice begins, it is acceptable to me to seek a society that balances sustainability (isn't sustainability nothing else than the freedom of the future generations?) with current freedoms. Oversimplified, if we want to give future generations the freedom to use some oil, we have to reduce our oil consumption today. It is worth watching. Just like the in previous Zeitgeist documentaries, I remain somewhat sceptical about the dependence on high technology. I believe it to be risky and it as well needs to balances with "low technology", even if it just as an insurance policy. Placing all eggs in the same "hi-tech" basket, is not a wise choice for the basis of the whole planet. Watch it, form your own opinion.

PS: Here is a good critique, or a warning, about the Zeitgeist thoughts by James Corbett called The last Word on Utopia.

Peak Oil

WikiLeaks released US Embassy cables that emphasize a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels, that is nearly 40%. This embassy cable caused a whole bunch of reports in various new outlets. The UK Guardian reports "Saudi Arabia cannot pump enough oil to keep a lid on the price". The Oil Drum has a discussion on these cables. What shall we make of that?

Find Oil, Get Poor

For some time I wondered why rich countries that find oil get richer, but poor countries that find oil get poorer. There is not a single example of an African nation that found oil and by doing so improved economic conditions for its people. In all cases, in the African continent, income and wealth from oil ended up in the pockets of the multinational exploring companies (MobilExxon and the like), arms dealers and manufacturers, and a handful of corrupt politicians, but never in the pocket of the people. Often the issue is also meddled with by intrusions from the IMF and the World Bank. The involvement of these two organizations in these poor countries having discovered oil does not improve these nations' fate of getting poorer. It is not limited to oil, other resources will do as well, and it is not limited to poor nations in Africa, poor nations in other continents are likely to follow the same path. There are some exceptions, most notably Bolivia and Venezuela.

Today I started reading up on this known issue and I learned that there is even a term for this behavior. It is called "the Curse of Oil" or the oil curse for short. The general term is Resource Curse. The 16-page report by Samuel R. Schubert published in the scientific journal Oil and Gas Business in 2006 entitled "Revisiting The Oil Curse: Are Oil Rich Nations Really Doomed To Autocracy And Inequality?" describes the situation and the facts in an excellent fashion. Read it, it is fascinating.

When Western politicians, organizations, corporations (Bush, Obama, Blair, IMF, World Bank, etc.) say and dictate that poor countries must do what is right for the people, they really mean the western corporations. And they (with help from their credits) have the power to modify policies to see through that the benefits of oil finds in poor countries flow back into the rich nations. An article entitled "When Two Poor Countries Reclaimed Oilfields, Why Did Just One Spark Uproar?" in the Guardian written by George Monbiot also talks about this topic.

Also relevant and compelling is the TED video entitled "Four Ways To Help The Bottom Billion" that suggests that the rich nations should help install good governance in poor countries to avoid the resource curse.

Oil and Presidents

Want to know what the last US presidents said about US dependency on foreign oil? Here are lovely quotes, and each one of them is a presidential promise that was never kept. Read this article entitled "A history of false starts for US energy independence".

War

What are reasons for war? There is nothing that truly justifies war. Yet, humankind over and over again goes into war. Politicians sell us war. How? In the past when the church was ruling it was for religion. Nowadays with worldly politicians ruling they justify it in the name of freedom, in the name of peace, in the name of democracy, etc. It is all lies. The Iraq wars were certainly not about freedom, nor democracy, nor world peace.

Many suspect that it was about oil. Al Bartlett in an interview from the Blind Spot documentary eloquently said that the in the Iraq wars the US used middle eastern oil to punish middle eastern people. Have a look at this interview snippet. The US doesn't have enough oil to fight the war in Iraq without having to cut back somewhere else, so it uses Iraq oil to fight the Iraqis. What sad irony.

Last week I found another argument why the US entered into war with Iraq. The reason is to keep the US dollar strong. Iraq wanted to stop selling oil in dollars and start selling its oil exclusively in Euros. That would strengthen the Euro and weaken the dollar. The US could not print paper money (out of nothing) to buy oil, but would now have to buy Euros in order to buy part of its oil. Also, that Iraqi policy would send the "wrong" message to the world and other middle eastern country might follow. Hence, the US had to intervene. Here are the details at "Dollars, Oil, and the Big Wipe Out".

It is all so intertwined: politics, finance, economics, peak oil, ...

Also have a look at this related article outlining how oil producers are collaborating to price and sell oil in Euros and a basket of currencies.

Winning the Oil End Game

There is a thought-provoking video on peak oil on TED. Armory Lovins talk about Winning the Oil End Game. I do not agree with all his points. In my opinion he is too optimistic about the government response to the transition. I also doubt that the government being steered by lobbyists and big business interests has the right intentions. His proposed solution is also heavily dependent on technology, which I also see as a possible weakness or at least a factor of risk. I would prefer simpler solutions more in line with nature. Nonetheless his option is a positive step forward and the video is worth watching. He gives a lot of numbers and presents possible approaches for tackling peak oil. Here is the Winning the Oil End Game talk video. Background data on the presentation can be found on his dedicated web site and his book with the same title. The Winning the Oil End Game book is free and a lot of research has gone into it.

Peak Oil

This Peak Oil presentation by Matthew Simmons is excellent. I recommend reading it. It's a 6 MB file but worth the download. Note the similarity of energy to money: he asks for a public 3rd party audit of the oil reserves, just like Ron Paul asks for an audit of the Federal Reserve; he warns of a run on the energy "bank" once nations accept that the oil supply cannot meet demand, ... And he urges policy makers to act rapidly to avoid that the lights go out.

Cuba and Sustainability

Once again about Cuba. I am intrigued by Cuba. It is certainly a fascinating place. Not without mistakes and problems, that is for sure. Still, they are doing many things right. New Scientist journal states: "Only one country, Cuba, is developing sustainably, according to a new report - and even that is due to an oil embargo imposed upon it". The article is here but not free. The New Scientist investigated the living conditions and ecological footprints of 93 countries. Upon this research it derived a chart with HDI (Human Development Index = quality of life) on the vertical axis and the ecological footprint (how many plants would be necessary according to the resource consumption of the given life style). Cuba achieved an 0.82 on the HDI scale and if everyone would live like Cuba we would need only 0.8 planets, i.e. Cuba is sustainable. The US on the other hand has a 0.98 on the HDI scale, but if everyone lived like the US we would need more than 5 planets, i.e. the US is a long long way off sustainability. The chart (in Spanish) can be found here.

Transition Movement Videos

I stumbled across a video collection on the topics of permaculture, transition culture, and sustainability. The video collection is created and maintained by Transition Culture. The RSS feed of videos (http://www.videobomb.com/rss/users/submittedvideos/Transition_Movement) can be added into RSS Readers like Google Reader or directly into Miro Internet TV. Currently there are some 18 videos on food grow parties, urban forest, local resiliance, etc.

The official "In Transition 1.0" video is available in full length here, or in 6 segments here.

The Human Side

I liked this article on The Oil Drum entitled Life after the Crash: Lessons from Kenya. It makes us look inside. Happiness comes from the inside and in order to be happy one does not need to fulfill ones desires, we just need to cover our needs. I also liked his observation that in Kenya, people are not getting by because of politics and the financial system, instead people are getting by despite politics and the financial system. Politicians and bankers are the two biggest road blocks for social improvement in the author's home country. I believe that is equally true for many countries, including the so-called first world. The financial institutions and politicians are not going to solve problems for us, they mostly steal from the poor and middle class. (Watch "Argentina's Economic Collapse" (Memoria del Saqueo, Social Genocide) if you have doubts.) We have to strive for happiness by reducing our wants and desires. The crash and peak oil will bring the opportunity of a simpler life and it is our obligation to turn this into a more meaningful, satisfying personal experience: A life with less money, more time and a new closeness to our key resources like family, food, water, and the land.

Ayres Warr Model

A friend of mine has written an article on "Some Implications of the Ayres Warr Model". He builds on the Ayres Warr model and puts all the terms of energy, efficiency, economic production output, labor, energy supply and energy prices into a new relationship. The advantage of his model is that it is a mathematical formula that one can play with to derive real numbers. The disadvantage is that the model needs further validation with historic data to increase the level of confidence in the model. I see that this model can be useful in predicting tendencies. It is not intended to predict given prices on a given date. I also see that as a model is tells us how the oil prices should react to certain changes in supply, efficiency or economic production. It will not tell us how it will react. The model shows us what the value of energy is, but the true intrinsic value can be far off the price. In short we can have a bubble where the price is significantly above the intrinsic value. In this context the model can possible help us see and recognize bubbles.

Putting the price of energy or oil aside, it gives conclusions on how the economy would react to reduced production and it concludes that increasing energy efficiency is the best way for increasing economic output. Interestingly, better efficiency would also benefit the energy producers as energy prices would go up according to the model.

A summary of this long document was posted on The Oil Drum at http://www.theoildrum.com/node/5378. A long discussion with 100 comments can also be found there.

Obama on Energy

Today for Earth Day president Obama gave a speech on energy. Here is the presidential energy speech transcript. The speech is directed towards the emotional side and tries to be inspiring, it is a motivational talk. It provides a few facts for proposed legislative and tax changes, most but not all of which are good, but ... He hides the size of the energy issue we are facing and he is silent on the implications.

The government will provide funding of $15 billion each year for ten years to develop clean energy including wind power, solar power, geothermal energy, and clean coal technology. Compare that to the cost of the current bail out of the collapsing financial system that some experts estimate at $15 trillion. The government spends 0.1% on new energy in comparison to rescuing the financial sector. That says something about the importance of energy in the government strategy. It is not crucial if it is 0.1% or 1%, the point is that it is vastly out of proportion.

In the second part he negates that current US politics are broken. In my opinion he is wrong on this. Our society and economy is first of all in a structural collapse, not a financial one. And the structural collapse just like the financial one were permitted and induced by past and recent politics. Politics is broken.

We need a change in energy production/consumption and above all in politics.

Oil Price

The PRI had an article on oil price. There are many factors influencing the price: exploration cost, market supply and demand, political decisions, and speculation. I thought the article quite interesting and the author to be correct on many issues. The US will be the country most impacted by high oil prices. Producers will soon satisfy their domestic needs and reduce export. For the next years while we are going through the current structural crisis, oil price will not be a crucial issue. We are heading equally fast into the peak oil situation but oil price is unlikely to go up drastically during the next 2 years and hence oil, oil prices, and peak oil will not be on the political radar even though it should be. Current politics is always a step behind. Our society is always dealing with the past problem, the one that just happened; it is never willing (to face and) to deal with the upcoming problem showing up on the horizon, no matter how big it is.

Technology Revisited

A friend provided me with this link: http://www.lifeaftertheoilcrash.net. It's an American perspective. The author argues that technology will not improve the peak oil issue, on the contrary technology makes the situation worse. He basis this opinion on the Jevon's paradox.

He argues that the same holds true for conservation too. If an individual conserves another individual or the banks or corporations will use the saved energy to reap profits, such that the total consumption will not be reduced.

An all encompassing holistic mind-set change towards energy and according legislation is more important than savings through technology or conservations. Individual contributions will just be wiped out by current greed and profit thinking. Nonetheless, the individual conservationist will be better of and better prepared for the day when the oil really ends.

Past Lessons

Other countries have gone through crisis similar to Peak Oil. Notably Cuba. Russia has gone through a political crisis. Argentina and other South American countries have gone through a crisis in their financial system. These examples give us something that we can look to when searching for answers. Beside the Cubans (which for me is the Peak Oil example par excellence) (see The Power of Community: How Cuba Survived Peak Oil), the Russians might also become a "role" model. Just like the Cubans have gone through a collapse, so have the Russians. Can we learn from them? Read www.SurvivingPeakOil.com and "Social Collapse Best Practices". Even Kenya might help us understand what is important and what's not in a "Life After the Crash".

Funny that the US might have to learn from their biggest enemies (Cuba and Russia) and that the "enemies" are possibly a step ahead nowadays.

Forecasts

In Jan 2008 Gail from TheOilDrum made a forecast for 2008, a total of 15 predictions. I just read it now and I am in awe how well she hit the nail on the head. I guess she got 10-12 out of 15 right on. I was impressed and scared. Then I found her 2009 forecast, written in Jan 2009. The 2009 forecast is a lot less detailed. But knowing that it came from the person who got 2008 so right, I have to give special weight to this information. I suggest you read the 2008 forecast first and then the 2009 one.

• 2008 forecast
• 2009 forecast