A Drop of Rain

Who said it’s all bad news? Globalization was always a totally false construct, built on a foundation of dirt cheap oil prices (around $10 a barrel until only 10 years or so ago), caused by a very temporary global oil glut.

So to see a story about globalization already collapsing at oil prices around 120 a barrel current really makes my day a bit more cheerful. Read on to see how rising oil prices are already impacting the US locally as well.

To summarize some other postings here, ship bunker oil, fuel oil, is from what I can gather basically Number 6 distillate, the heaviest, crappiest stuff, left over after they refine out gasoline, diesel, heating oil, and jet fuel. Read this nice overview in wikipedia if you want to learn the specifics. Check out this sample of current Los Angeles bunker fuel prices.

Noting there that all categories of bunker fuel prices are rising right along with crude oil futures, the following article now should be fairly easy to understand:

The rising price of oil is making international trade of heavy cargo prohibitively expensive, and acting as an incentive for importers to find products such as steel closer to home, new research by CIBC World Markets shows.
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If oil prices continue to rise, the soaring cost of global transport will act like a major tariff barrier and lead to a substantial slow down in international trade, they argue.

“Globalization is reversible,” they state.
High oil prices will hurt trade, report says, Globe and Mail, May 27, 2008

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Last week saw Barcelona receive it’s first shipments of water from France to alleviate it’s massive water shortage.

I’m going to follow this story for a while to see when the first major news source points to overpopulation coupled with the drought. Currently the best they seem able to do is tell us that Barcelona has about 5 million plus people, but it seems to be too much of reach for anyone to say that the arid land simply cannot support that population.

Barcelona is a preview of what’s going to happen in the American Southwest, with Los Angeles, San Diego, Las Vegas, and many other large metropolitan areas built in the desert soon to face the same issues as their water supplies become increasingly impacted by global warming initiated snowpack loss, overpopulation, and of course, a lifestyle that is simply absurd to even consider realistically in a desert in the first place.

Barcelona is a dry city. It is dry in a way that two days of showers can do nothing to alleviate. The Catalan capital’s weather can change from one day to the next, but its climate, like that of the whole Mediterranean region, is inexorably warming up and drying out. And in the process this most modern of cities is living through a crisis that offers a disturbing glimpse of metropolitan futures everywhere.
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The political battles now breaking out here could be a foretaste of the water wars that scientists and policymakers have warned us will be commonplace in the coming decades. The emergency water-saving measures Barcelona adopted after winter rains failed for a second year running have not been enough. The city has had to set up a “water bridge” and is shipping in water for the first time in the history of this great maritime city.

A tanker from Marseilles with 36 million litres of drinking water unloaded its first cargo this week, one of a mini-fleet contracted to bring water from the Rhone every few days for at least the next three months. So humbled was Barcelona when prolonged drought forced it to ship in domestic water from Tarragona, 50 miles south along the Catalan coast, 12 days ago, that city hall almost delayed shipment and considered an upbeat publicity campaign to lift morale and international prestige.
Spain’s drought: a glimpse of our future?, independent.co.uk, 24 May 2008

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The following story shows how the global diesel shortage directly affects an entire region in Africa’s domestic wheat production.

Wheat farmers in the Southern Rift Valley on Tuesday said they were unable to prepare their land for planting due to a serious shortage of diesel.

“It will not be possible for some farmers to plant wheat next month because some parts will be too dry,” said Mr Samuel Gitonga, the chairman of the Nakuru chapter of Kenya National Federation of Agricultural Producers.

Mr Gitonga said that some farmers had been harrowing their farms in readiness for planting wheat but had now suspended it due to lack of diesel. Farmers in the Rift Valley Province produce about three million bags of wheat annually but Mr Gitonga said that the target may not be achieved.
Fuel shortage threatens South Rift wheat output, 5/14/2008

As you can see, unlike the dreams of economists, the markets do not in fact adjust everything nice and neatly, it’s a fairly brutal, unforgiving game, and the sooner countries extract themselves from the industrialized agriculture system, the better off they all will be.

The recent developments in global fertilizer price hikes, diesel fuel rising, global grain prices skyrocketing, point towards one fact:

At Some Point Sustainability Must be Addressed

That, of course, will also expose the true carrying capacities of each region, since industrial agriculture is essentially an extractive industry, not a sustainable one. Sustainable means sustainable, in case you’re trying to confuse yourself, it means you can sustain the practice over time. If unsustainable food production, aka: industrial farming, is used to maintain a population at a certain level, that population is not sustainable.

It’s not, however, nearly as simple as it seems. As a recent The Nation piece reminds us, most global food production has been industrialized, and is in one way or the other, in the hands of global food corporations.

The Mexican food crisis cannot be fully understood without taking into account the fact that in the years preceding the tortilla crisis, the homeland of corn had been converted to a corn-importing economy by “free market” policies promoted by the International Monetary Fund (IMF), the World Bank and Washington. The process began with the early 1980s debt crisis. One of the two largest developing-country debtors, Mexico was forced to beg for money from the Bank and IMF to service its debt to international commercial banks. The quid pro quo for a multibillion-dollar bailout was what a member of the World Bank executive board described as “unprecedented thoroughgoing interventionism” designed to eliminate high tariffs, state regulations and government support institutions, which neoliberal doctrine identified as barriers to economic efficiency.

Interest payments rose from 19 percent of total government expenditures in 1982 to 57 percent in 1988, while capital expenditures dropped from an already low 19.3 percent to 4.4 percent. The contraction of government spending translated into the dismantling of state credit, government-subsidized agricultural inputs, price supports, state marketing boards and extension services. Unilateral liberalization of agricultural trade pushed by the IMF and World Bank also contributed to the destabilization of peasant producers.
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With the shutting down of the state marketing agency for corn, distribution of US corn imports and Mexican grain has come to be monopolized by a few transnational traders, like US-owned Cargill and partly US-owned Maseca, operating on both sides of the border. This has given them tremendous power to speculate on trade trends, so that movements in biofuel demand can be manipulated and magnified many times over. At the same time, monopoly control of domestic trade has ensured that a rise in international corn prices does not translate into significantly higher prices paid to small producers.
Manufacturing a Food Crisis, May 15, 2008

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I came across an interesting article re rice production. As you may have heard, the main components of fertilizer are skyrocketing in price. Economists, and people who believe that this way of thinking will help our future, of course make the predictable statement: high rice prices benefit the (largely corporate, but let’s leave that aside) rice growers.

The formula is simple: skyrocketing fertilizer prices are forcing down fertilizer use, which will next year create a major rice shortage.

Few people are aware that beneath the worries over rice which pervade media these days is a looming disaster which could make the rice crisis seem puny in comparison.

To understand the magnitude of this global menace, one would first have to appreciate how world food production quintupled many times over from the early 19th century to the present, making possible the global population explosion.

Of course, advances in global agricultural production technology played their part in boosting food production worldwide, but even their combined impact cannot compensate for something basic to agriculture which has been mainly responsible for increases in farm production since the earliest times: fertilizer.
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One thing which has not been given due attention in the present rice crisis is the effect of fertilizer in rice production. It´s fertilizer which enables countries like Thailand and Vietnam to have astounding rice yields compared to the Philippines. Thus, while we have a wider area planted to rice compared to these two countries, they produce more rice and we often end up importing from them. Without having to go into the details of the variance in yields between irrigated and raid-fed rice paddies, it´s easy to see evaluate the impact rising fertilizer prices have had on the farm gate and retail prices of rice.
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So why does this all matter to the ordinary consumer already burdened by rising prices of food, rice and petroleum products? With the dropping utilization of fertilizer as a result of its rising prices, domestic rice production is expected to fall by over 50% of the rice produced last year and the crisis that is being perceived today will further escalate to real crisis level as early as 2009.
Fertilizer and the looming global food crisis, May 23, 2008

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Although I do not believe that the car based lifestyle has any future, clearly I am in a minority. Most of the United States is built around the concept of suburban, car based development, and most of the people who bought into that are not about to let go of that dream, at least not without a fight.

In general, I consider most of the so-called ‘advances’ totally pointless. A Prius, for example, gets only about 42 or so miles per gallon highway, which is actually less than say a mid 1980’s Honda CRX, which was a very light car.

Other totally ridiculous things being promoted are the ‘hybrid’ Tahoe SUV. But I came across the Aptera electric/hybrid-electric recently, it’s pretty interesting, and, unlike the Prius style development, is a fairly serious effort to get around the core issues of modern cars: weight and air resistance (review in www.treehugger.com).

In a sense, it pains me to post things like this, but because this vehicle is clearly real, and equally clearly, is far less of a conceptual joke than say the Prius, I feel an obligation to take note. The car has a pretty large range in electric mode, about 120 miles, and, on sub 300 mile trips, gets about 300 miles per gallon (when considering the first 120 miles is on electric batteries). Real, non-electric mileage is 120 mpg, give or take.
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Well, I’d say the mainstream media’s main sources are all stumbling towards a part of the first step of realization. Seeing Kunstler featured in the Washington Post editorial pages is a pretty good sign in my opinion, although it’s a bit late, since from what I can see, we are now starting to bump our way down the back end of the global oil production peak.

The public, and especially the mainstream media, misunderstands the “peak oil” story. It’s not about running out of oil. It’s about the instabilities that will shake the complex systems of daily life as soon as the global demand for oil exceeds the global supply.
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As the world passes the all-time oil production high and watches as the price of a barrel of oil busts another record, as it did last week, these systems will run into trouble. Instability in one sector will bleed into another. Shocks to the oil markets will hurt trucking, which will slow commerce and food distribution, manufacturing and the tourist industry in a chain of cascading effects. Problems in finance will squeeze any enterprise that requires capital, including oil exploration and production, as well as government spending. These systems are all interrelated. They all face a crisis. What’s more, the stress induced by the failure of these systems will only increase the wishful thinking across our nation.

And that’s the worst part of our quandary: the American public’s narrow focus on keeping all our cars running at any cost. Even the environmental community is hung up on this. The Rocky Mountain Institute has been pushing for the development of a “Hypercar” for years — inadvertently promoting the idea that we really don’t need to change.
GRAND DELUSION
Wake Up, America. We’re Driving Toward Disaster, May 25, 2008

Kunstler took good advantage of this opportunity, and I’m glad that the Washington Post is printing this story.
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I have to admit it, in some ways the sheer technical challenge of modern oil field development fascinates me, although of course the more technology that is required to produce oil, the closer we are to the steeper parts of the decline.

Several things to note in this story, which make it a worthwhile read:

• This is a horizontal well, which means it goes down about 5k feet, then turns and is drilled horizontally using some amazing steerable drill bits, for about 35k feet.
• The oil is in a roughly 20 foot high pocket, and they managed to keep that drill in that pocket the whole way, I assume
• No mention of how much this well cost, but I assume it was a lot since Maersk keeps on repeating how ‘efficient’ the process was compared to using multiple wells.
• Most important: horizontal wells basically speed up the extraction rate for any given field. That means you are sticking a straw with many holes, often with branching limbs, each with many holes in it, then sucking out the oil super fast, which leads to super fast oil field depletion.

Maersk Oil has finished drilling the longest hole in the world with a length of 40,320 feet (12.3km) at Al Shaheen Field, offshore Qatar, beating the 20-year old record of the Russian Kola Peninsula exploratory well.

With a horizontal section of 35,770ft (10.9km) Maersk Oil’s BD-04A well also extended the company’s previously held world record for the longest horizontal well by 9,000ft (3km). The entire horizontal reservoir section was placed within a reservoir target which is only 20ft thick.
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Maersk Oil Qatar managing director, Jakob Thomasen said, “It is not our goal to break drilling records, but rather to be an efficient and prudent operator and add value to our stakeholders. We have found Maersk Oil’s horizontal well technology adds indispensable value to the Al Shaheen field development. Not only do we gather information at highly competitive costs, but with our technology we minimise the number of wells, platforms and infrastructure required for oil and gas field development.
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Maersk Oil Qatar operates the Al Shaheen Field in Block 5, some 80km off the coast and is currently executing a $6bn field development to bring the oil production from the current level of 330,000 bpd to a plateau of 525,000 bpd by end-2009.
Maersk drills longest well at Al Shaheen, Gulf Times, 21 May, 2008

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The complete, total, and virtually complete, disconnect in the oil market and commentators continues to astound and amaze. Let’s keep in mind our econ 101. When demand is greater than supply, prices rise until the higher cost has killed enough demand to allow a deal to be made.

With this in mind, let’s look at today’s Bloomberg story:

OPEC’s daily shipments of crude oil declined by 4.3 percent in the four weeks ended May 4, according to Lloyd’s Marine Intelligence Unit.

Members of the Organization of Petroleum Exporting Countries, excluding Angola and Ecuador, exported 22.762 million barrels a day on tankers, according to data from the London- based tanker-tracking service. That compares with 23.786 million a day in the equivalent period to April 6.

“They seem to be trending downwards, but only by a marginal amount,” LMIU analyst Jacqueline Steele said in a telephone interview.

The decline in exports preceded plans by Saudi Arabia, OPEC’s largest producer, to raise output by 300,000 barrels a day in June, announced by Oil Minister Ali Al-Naimi on May 16.
OPEC Shipments Dropped 4.3% Last Month, May 23 2008

Couple this with declines in the other non-OPEC major producers, Russia and Mexico, and you end up with, surprise surprise, new record crude oil prices.

OPEC’s production is year over year down about 1 million barrels per day, that is. Now you know why oil futures hit $135 yesterday, and why more clear heads are pointing to supply problems in addition to speculation and the collapsing US dollar.
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See how it unravels? The industries that rely on the balance between what they can pay for fuel and what consumers can pay for the end product are going to feel the oil peak prices first, and will fail first. Trucking is probably one of these industries as well, by the way, only it is not as discretionary as air travel so it should survive for longer in a recognizable form.

The cost of protecting airline bonds from default soared and bond prices plunged as oil reached a record $135 a barrel, stoking concern that carriers will run out of cash as jet-fuel prices surge.
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A 94 percent increase in the price of jet fuel the past year may push some airlines into bankruptcy, Soleil Securities Corp. analyst James M. Higgins said yesterday.

“We now expect AMR [American Airlines] to have trouble avoiding bankruptcy by sometime in 2009,” Higgins wrote in a note to clients. “UAL [United Airlines] is too close to that possibility for our comfort,” and Continental is “close to our comfort threshold.”

Surging jet-fuel prices may help produce a record full-year loss for the largest U.S. airlines of $7.2 billion, JPMorgan Chase & Co. analyst Jamie Baker estimated this week. That estimate is 57 percent wider than Baker’s previous projection for the industry’s 2008 deficit.
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James May, president of the Air Transport Association, told reporters yesterday in Washington that major U.S. airlines face liquidation should capacity cuts and fare increases fail to cover rising fuel costs.
Bloomberg: Airline Default Risk Soars, Bonds Tumble on Record Oil Prices, May 22 2008

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