Archive for April, 2008

Brazil Deepwater Oil to Rescue? I Don’t think so

Sunday, April 27th, 2008

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.
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Japan + World Begins to Reject US Debt

Sunday, April 27th, 2008

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.

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Wheat Rust Fungus Spreads in Africa

Saturday, April 26th, 2008

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.
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Energy Concerns: Today and Jimmy Carter

Friday, April 25th, 2008

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!

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The Bubble Economy: 2 Looks

Thursday, April 24th, 2008

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.)

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