A Drop of Rain

Bloomberg is really on a roll today for some reason. Rather than regurgitate the same nonsense that the normally uninformed mass media is prone to, Bloomberg actually posted an article about how A: incredibly difficult it will be to pump any oil at all from their recent deep sea finds, and B: how the technology to do it does not yet even exist.

So don’t get too excited about the coming drops of Brazilian oil.

Brazil’s plan to become one of the world’s biggest oil exporters hinges on exploiting crude six miles below the ocean surface in deposits so hot they can melt the metal used to carry uranium to nuclear plants.

Tapping what may be the biggest oil finds in the Western Hemisphere in three decades will require equipment that can withstand 18,000 pounds per square inch of pressure, enough to crush a pickup truck, pipes that can carry oil at temperatures above 500 degrees Fahrenheit (260 Celsius) and drill bits that can penetrate layers of salt more than one mile thick.
[...]
“This is a very, very technically challenging environment where no one’s ever done this,” Cline, who tracks the Latin American oil industry, said in a telephone interview from Washington. “These discoveries are in very deep water, and once you get to the seabed they are very deep under the floor, with a layer of salt that is definitely a difficult barrier.”

Brazil’s oil will be harder to develop than the Gulf of Mexico, where the deepest wells are now in production, Cline said. Exxon Mobil Corp. and Chevron Corp., the two biggest U.S. oil companies, saw diamond-crusted drill bits disintegrate and steel pipes crumple when they attempted to tap deposits beneath the Gulf’s seafloor two years ago.
Brazil Oil Trapped in 500-Degree Heat, Metal-Crushing Pressure, Bloomberg

What’s amazing is that when you look at the technical challenges of drilling this deep, you start to realize that these fields now constitute our best hope for the future. In case you have trouble understanding this: there will be only more and more complex and expensive oil finds now. We are at the end of the road, and this level of challenge merely proves that we are in fact facing the true crisis, now.
(more…)

Well, this one didn’t take long to start happening in real time. Yet another stinking mess the Republicans are leaving whoever replaces them. And don’t think you’ll see a single one of them take even a tiny bit of personal responsibility for systematically gutting the value of the formerly premiere global fiat currency. That talk of responsibility doesn’t actually ever apply to them, just to people they want to criticize.

The Japanese, who own $586.6 billion, or 12 percent of U.S. government debt, had their worst quarter in Treasuries this decade, losing 7 percent in the first three months of the year as the dollar fell to the lowest since 1995 versus the yen…
[...]
“It’s too early to say the dollar will stop falling,” said Masataka Horii, head of the investment team in Tokyo for the $53.1 billion Kokusai Global Sovereign Open, Asia’s biggest bond fund. “The U.S. economy will be slow for a while.”

Japan owns more Treasuries than any other nation. After raising their holdings by $9.2 billion to $620.6 billion between March and July 2007, Japanese investors trimmed that stake by $34 billion through February, the Treasury said April 15.

America relies on foreign investors, who own more than half the U.S. government debt outstanding, to finance a deficit that New York-based Goldman Sachs Group Inc. predicts will expand to a record $500 billion for the year ending Sept. 30, after a $163 billion gap last year. Without their support, long-term interest rates would be 0.9 percentage point higher, a 2006 Federal Reserve study found.
Dollar Slide Drives Budget as Japan Shuns Treasuries, Bloomberg

More after the fold. If the thought crosses your mind: if they don’t buy our debt, how will we run a government using deficit spending? crosses your mind, good for you, that means logic is starting to win the battle, finally.

(more…)

As if the recent increases in basic food commodities globally wasn’t enough, now the dreaded new Wheat Fungus strains are devastating Africa’s wheat crops:

On top of record-breaking rice prices and corn through the roof on ethanol demand, wheat is now rusting in the fields across Africa.

Officials fear near total crop losses, and the fungus, known as Ug99, is spreading.

Wheat prices have been soaring this week on top of already high prices, and futures contracts spiked, too, on panic buying.

Experts fear the cost of bread could soon follow the path of rice, the price of which has triggered riots in some countries and prompted countries to cut off exports.
[...]
David Kotok, chairman and chief investment officer of Cumberland Advisors, said the deadly fungus, Puccinia graminis, is now spreading through some areas of the globe where “crop losses are expected to reach 100 percent.”

Losses in Africa are already at 70 percent of the crop, Kotok said.

“The economic losses expected from this fungus are now in the many billions and growing. Worse, there is an intensifying fear of exacerbated food shortages in poor and emerging countries of the world,” Kotok told investors in a research note.

“The ramifications are serious. Food rioting continues to expand around the world. We saw the most recent in Johannesburg.

“So far this unrest has been directed at rising prices. Actual shortages are still to come.”
MoneyNews.com

They didn’t say the words, but I have to suspect that, like California’s bark beetle problem, this is indirectly related to global warming, rising mean temperatures providing new flash points for problems to come from.

What’s even more disturbing is the report that Bush has cut funding for wheat rust research.
(more…)

Interesting times, more and more people are starting to do the unthinkable: tell the truth. Well, ok, ignore his ridiculous babble about Large Oil Companies being better at extracting oil than Large Oil Service companies like Halliburton, Schlumberger, who do most of the advanced oil field work for many of the planet’s biggest oil producing nations.

Ok, he’s also unable to say the words: peak oil, and prefers to try to blame the producing nations for not pumping enough rather than admit the far simpler reality that they simply are experiencing finite geological constraints (pdf, new by Matt Simmons) that limit their ability to create higher flow rates.

In addition, politicians throw red meat to the crowd by promising to punish the oil industry for its huge profits, overlooking the small problem that much of this profit is not even made in the United States. In fact, it is not the oil companies, but producing countries like Venezuela, Mexico, Iran and Russia that are provoking the pending production crunch through lack of investment. National oil companies now control nearly 80 percent of worldwide reserves, leaving major Western multinationals with full access to only 6 percent.
[...]
Politicians have embraced ethanol as a policy that is good for consumers, the environment and farmers. Let’s be honest: ethanol is a great farm-subsidy program, but it is a multibillion-dollar distraction as an energy solution, and a mistake for both food prices and the environment. Corn prices have more than tripled since the end of 2005 despite record harvests, and ethanol’s net environmental benefits look increasingly dubious when we examine the large amounts of energy, water and fertilizer our farmers use to produce corn. Yet Congress—like King Canute commanding the tides—now wants biofuels production increased from seven to thirty-six billion gallons per year. Regrettably, we do not have the technology, land or water to produce that volume.

The brutal fact is that we do not know how to offset oil with other fuels on the scale that is required. Let me repeat this: there is no alternative energy elixir just waiting in the wings. So, if we cannot increase the supply of oil, then we must cut demand—ideally through efficiency and conservation.

But once again we see politics trumping economics. Government policy should encourage outcomes, but not mandate specific solutions and technologies—especially not those pushed by lobbyists.
J. Robinson West: former assistant secretary of the Department of the Interior, chairman of PFC Energy, Inc.

So finally people are beginning to understand the enormity of the crisis. Too bad they didn’t listen to Jimmy Carter back in the 1970s, who understood the long term repercussions of the energy problem back when it would still have been easy to fix it!

(more…)

Check these out, the first is a good overview of the current finance sector driven, government linked, bubble driven economic system we are finding ourselves increasingly mired in.

The first is from a recent article in Harper’s Magazine:

A financial bubble is a market aberration manufactured by government, finance, and industry, a shared speculative hallucination and then a crash, followed by depression. Bubbles were once very rare—one every hundred years or so was enough to motivate politicians, bearing the post-bubble ire of their newly destitute citizenry, to enact legislation that would prevent subsequent occurrences. After the dust settled from the 1720 crash of the South Sea Bubble, for instance, British Parliament passed the Bubble Act to forbid “raising or pretending to raise a transferable stock.” For a century this law did much to prevent the formation of new speculative swellings.

( I will use the familiar term “bubble” as a shorthand, but note that it confuses cause with effect. A better, if ungainly, descriptor would be “asset-price hyperinflation”—the huge spike in asset prices that results from a perverse self-reinforcing belief system, a fog that clouds the judgment of all but the most aware participants in the market. Asset hyperinflation starts at a certain stage of market development under just the right conditions. The bubble is the result of that financial madness, seen only when the fog rolls away.)

(more…)

Everybody is talking about oil, the economy, all that, but the biggest problem is going to be water:

I’ve been around the world twice. I’ve seen many cities, societies, [and] nations that disappeared because the water disappeared. China has a huge water problem. In Northern China, they’re running out of water. They know this and they’re working on it, big time. But if they don’t solve it, or if they don’t solve it in time, then China - as you put it - has failed.

By the way, Northern India has the same problem, only worse. Many places have it now. Water is becoming a huge problem worldwide. The same is true in the Southwestern United States. You know, you may have Arizona going to war with California. Some sections of Nevada, Colorado …they’re desperate there.

So it’s not just China - but water’s the main thing that worries me about China.
Jim Rogers, MoneyMorning.com

And that’s all over, this problem is the least talked about issue of all the big problems facing us. The longer we try to avoid the inevitable readjustments we will need to make as a global civilization, the worse the outcome is going to be.

(more…)

Interesting article, Deflation In A Fiat Regime?, brought up some recent articles by Doug Noland of PrudentBear.com

• Setting the Backdrop for Stage Two
• The Meaning of Stage II

Update: Noland’s April 25, 2008 column:

I am at this point more convinced than ever that only a severe crisis will instigate the necessary adjustment to the distorted and imbalanced U.S. and global economies. One is then left with the disconcerting view that Stage II will lead our authorities to exhaust all policy measures in a futile attempt to sustain the unsustainable. The obvious question: how long does the lead up Crisis Stage II last? I would today guess a number of months, although I wouldn’t at all be surprised if it was rather short. What will be the impetus for Crisis Stage II? A spike in interest rates, a run from U.S. Treasury and agency debt, a disorderly drop in the dollar, another bout of derivative and Credit market implosion, or acute global financial tumult should be considered leading candidates based on Stage II ramifications. Or it could easily be something completely unexpected, perhaps even war.

From Noland’s April 18, 2008 column:

With crude hitting a record $117 today, there is every reason to expect that newly created global liquidity will further inflate energy, food, and commodity prices generally. The Goldman Sachs Commodities index has gained 21% already this year. But when it comes to Monetary Instability, our financial markets might just prove the unappreciated wildcard. When the Fed and Washington radically altered the rules of U.S. finance last month, they placed in jeopardy huge positions that had been put in place to hedge against and profit from systemic crisis. With the end of “Stage one” arises a major short squeeze in the Credit, equities, and derivatives markets. And when it comes to contemplating the scope and ramifications of today’s “hedging” activities, we’re clearly in Uncharted Waters. It is not beyond reason that a disorderly unwind of “bearish” Credit market positions could incite a mini bout of liquidity, speculation, and Credit excess that exacerbates Global Monetary Instability - while Setting the Backdrop for Stage Two of the Crisis.

Check out the latest Al Gore talk on the climate crisis, taking into account the latest Ice cap melts and the Climate Code Red warnings:

Well, the news keeps pouring on. Yesterday’s reports of the Saudi King wanting to keep future finds for posterity got a rise out of the market.

And it’s not hard to see why:

Mexico’s state-run oil company said Monday that oil production fell 7.8 percent to 2.91 million barrels a day in the first quarter as current reserves dwindle.
[...]
Pemex also said Monday that oil exports had dropped 12.5 percent in the first quarter, mostly due to falling production and port closures caused by bad weather in February.
BusinessWeek.com

Mexico is one of the top 3 suppliers to the USA, if you’re not keeping track. I’m assuming this is a yearly averaged drop, not an actual 12.5% drop.

Meanwhile, crude futures today rose to $119.90

US crude oil hit an all-time peak of $119.90, boosted by supply worries from key producers Russia and Nigeria and a jump in demand last month from China, the second-largest energy consumer after the US.
Gulf Daily News

Are you getting worried yet? You should be. Take a look at what the Wall Street Journal put on their front page today:

But the [massive new oil Khurais field revitalization] project also illustrates a darker point: Even in Saudi Arabia, home to more than a quarter of the world’s known recoverable reserves, the age of cheap and easily pumped oil is over.

Got it? Is that clear enough? This is the core premise of all peak oil discussions: the age of cheap and easily pumped oil is OVER.

(more…)

Not satisfied with the peak oil sources? Then how about the current king of Saudi Arabia?

From the April 21 (pdf) ASPO newletter (Newsletter Archives).

Well worth a read, see an HTML version on evworld.com if you prefer that format.

Saudi King Abdullah drops quiet bombshell; U.S. media sleep through it

Saudi Arabia’s King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world’s top exporter for future generations…

Saudi Arabia’s King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world’s top exporter for future generations…

The King’s remarks seem to confirm a statement made last year by Saudi oil minister Ali al-Naimi who, when asked “How high can your production go?” replied, “We’ll get to 12.5 million barrels a day and then we’ll see.”

If the Saudi announcement was a bombshell, American nearly newspapers ignored it. We decided to canvass experts we respect to see what they thought. Excerpts follow:

(more…)