Saturday, August 27, 2005

The Imminent Recession Part II – Looking for Clues

Not being an economist, I look for more "close to home" signs for for economic barometers. This morning I got a good one. As many of you know, I live in West Houston (TX), out in the exurbs surrounded by neighbors who all drive very large SUV's (all with W'04 stickers in the windows). While walking my dog, I started talking to one of my neighbors. He was test driving a 2003 Acura coupe. I asked why. He said the weekly gas burden on his Suburban was getting to be too much. He was hoping to cut his gas costs from $320/month to $160 per month.

This is the first tangible sign that I have seen, other than people bitching, that the recent runup in gas prices is taking a toll on the economy. Sounds like bad news for car companies who have bet big on large SUV's and Trucks (GM, Ford). Also, I expect the value of 2nd hand SUV's to depreciate in value as more and more come into the used car market

On the other hand, James Hamilton and Econobrowser has a much more technical discussion going on regarding the chances of a future (2006-07)recession.

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Wednesday, August 24, 2005

Tar Sands Will Save Us

Installment 2 of the Series

The Common Misconceptions about Peak Oil

Tar Sands Will Save Us


As opposed to oil shale, which I have direct professional experience with, I have only peripheral experience with tar sands. Tar sands refer to a large grouping of hydrocarbon accumulations where the hydrocarbon phase is so viscous that it will not flow on its own and must be produced either by mining the oil with the equivalent of a large shovel or by injecting heat into the rock (through steam or direct heat of conduction) to decrease the viscosity of the oil to flow.

There is a very good treatise on tar sands – especially the Canadian kind – here on the ASPO web site. It explains everything in much greater depth than I care to go into here.

In any case, like with oil shale, there are many deposits in the world but only a few that are worth considering from a commercial standpoint. The largest of these deposits is in Alberta, Canada and is called the Athabasca Tar Sands (or Oil Sands) deposit. When people speak of tar sands, they are usually referring to this deposit in addition to some nearby deposits at Cold Lake and Peace River. The total volume of “oil” in place in these deposits is estimated to be at least 1.6 trillion barrels.

The “oil” or tar in these deposits is not really oil but something called bitumen. The bitumen is what was left in these deposits after the oil that was initially deposited there was biodegraded over millions of years. Basically them damn bugs ate all the good light oil and left all the heavy tarry shit behind. This is different than oil shale which has never been turned into oil yet. Oil shale requires a very large amount of energy to turn the raw kerogen into a liquid form of hydrocarbon whereas the bitumen in tar sands has already gone through this process

To turn this bitumen into usable energy and transportation fuel it has to be heavily refined and upgraded, but that is doable. However, as you might imagine, this bitumen is not a very valued product by most oil refiners. Consequently, it sells at a heayv discount ($20/bbl ?) to light, sweet crude.

Right now approximately 1 million barrels of bitumen per day are produced from tar sands in AlbertaBy 2010 that quantity is expected to double. It may double again by 2020.

With WTI at $67/barrel lots of companies are making a fortune in this right now. I personally have made enough money investing in a lot of these companies (UTS, WTO, SHC, IMO, OPC, CNQ, DCE, SU, HSE, COS-UN) to either put my daughter part of the way through college or to comfortably outfit my cave when Peak Oil Armageddon arrives.

In any case, if there is so much of this stuff, why can’t it stave off peak oil? Good question. The answer is multi-fold. First, all of the forecasts for future relating to future worldwide oil supply already forecast a substantial and growing wedge of production from Canadian tar sands. Some of these forecasts assume as much as 5 million barrels per day (total “Heavy Oil”) by 2020. But that is not enough to offset the decline in other areas.

In addition, tar sands require a lot of other energy resources to extract and upgrade them. Natural gas has been the fuel of choice for most of these energy needs as well as to use in hydrogenating the bitumen in the upgrading process. The forecasted need for natural gas collides head on with a forecast of limited future supply for this vital resource. There may be a way around this conundrum, but right now it is considered an impediment to future growth of tar sands development.

Lastly there is the issue of acceptable environmental disruption and damage. As you can imagine, mining tar is kind of a messy project. These deposits occur in a swampy, low-lying, area full of muskeg. How much environmental pollution will the Canadians put up with to provide Americans oil? Also, how willing is Canada to break the commitment it signed at Kyoto? These questions are yet to be answered.


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Sharia-for-all

As the reasons for invading Iraq move from eliminating WMD and toppling Saddam Hussein to creating a free Iraq and improving the lives of Iraqis, I give you this analysis from the BBC on the New Islamic Republic of Iraq. Is it possible that we have made things worse for the average citizen there, as well as the region as a whole? Whodathunkit?

Talk about your deja vu. Ever get that strange feeling, when the hairs on the back of your neck stand up straight and every instinct you possess screams fight or flight, with flight winning most the time. That's how I felt when I read the following to posts from Kos and Magorn, both via Daily Kos - Fundamentalist Republic of America & American Madrasas.

The first chronicles a group of congressional aides who dine together each week scouring their bibles for help on such matters as taxes, foreign aid, education and cloning. "They view every vote on the hill a religious duty and compromise a sin..." Most of these aides are future politicians who "have no problem imposing their biblical worldview on every American."
They are evangelical conservatives who acknowledge that this is their goal.

The second piece concerns an evangelical college in Virginia, established in 2001, the stated mission of which is to train and establish conservative Christians in government. As stated by founder Michael Farris, Patrick Henry College was created because home-schooling parents and conservative legislators came to him, separately yet simultaneously, to ask for a way to supply more like-minded youngsters for internship positions. Seems the existing schools in and around the United States did not have enough candidates for the positions available. Look at how successful Patrick Henry has been:

"Patrick Henry is a Christian college, ... where almost all the students {300 in all} have internships, with Republican politicians or in conservative think tanks..Three times a year, the White House chooses a hundred students for a three-month internship. Patrick Henry, with only three hundred students, has taken between one and five of the spots in each of the past five years-- roughly the same as Georgetown. Of the school's sixty-one graduates through the class of 2004, two have jobs in the White House; six are on the staffs of conservative members of Congress; eight are in federal agencies; and one helps Senator Rick Santorum, of Pennsylvania, and his wife, Karen, homeschool their six children. Two are at the F.B.I., and another worked for the Coalition Provisional Authority, in Iraq"

Considering Georgetown is also a Christian college (Catholic), is geographically close, has five times the enrollment and has been in existence since 1789, that is quite an accomplishment for Patrick Henry.

Another astonishing fact is that 85% of Patrick Henry students were home-schooled. Not that there is anything wrong with home-schooling; I've home-schooled kids myself, but major colleges and universities are often leary of accepting such students because they often lack a world view deemed necessary for college life. Obviously not at Patrick Henry, where it seems to be an advantage.

Religious extremist across the globe are indoctrinating their young by educating them in such schools. It has happened in Afganistan and Saudi Arabia, Pakistan, Iran and Israel, and it is happening in America; now it seems to be the future in Iraq. In the name of God, what have we wrought.

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Tuesday, August 23, 2005

The Common Misconceptions About Peak Oil

I have been reading lots of discussions about Peak Oil on various blogs, especially those kept up by economists (see Freakonomics, or Econobrowser), and I keep reading misinformation that keeps getting propogated throughout the blogosphere. So I’m here to set the record straight! Here is a new series I am starting called

The Common Misconceptions About Peak Oil

First misconception “ Oil Shale Will Save Us”

I worked with a major oil company for 2 years trying to develop a way to commercialize oil shale. Trust me on this, it ain’t going to happen. Most oil companies know this. The few (one??) that don’t are totally deluded.
Oil shale is not oil. Oil shale is rock that has a relatively high concentration of organic carbon compounds in it. Geologists call this a source rock. If you heat this shale to 700 degrees F you will turn this organic carbon (kerogen) into the nastiest, stinkiest, gooiest, pile of oil-like crap that you can imagine. Then if you send it through the gnarliest oil refinery on the planet you can make this shit into transportation fuel. In the mean time you have created all kinds of nasty by products, have polluted the air and groundwater of where ever you have extracted it. You have also created an enormous pile of superheated rock that will take hundreds to thousands of years to cool off.

The biggest deposits of oil shale in the world are in northwestern Colorado. No other deposit anywhere else in the world (China, Jordan, Australia, etc.) even comes close in terms of size and richness. There are approximately 1.3 trillion barrels of POTENTIAL oil in this deposit of oil shale. However, even those in their wildest hallucinations have never proposed that more than about 300 billion of these barrels were POSSIBLY extractable.

Of course 300 billion barrels is a very large number. Assuming $50/bbl, these $300 billion would be worth $15 trillion. Quite an enticement to go after. HOWEVER, - I still haven't seen a good analysis that shows you end up with more energy at the end of the cycle than what you put in. Moreover, it takes about 3-5 barrels of water for about every barrel of oil you get. Last time anyone seriously looked at where all this water would come from was Exxon back in the late 70’s and early ‘80’s. Their solution was to RE-ROUTE THE MISSOURI RIVER to bring water to this very arid area. I am not shitting you.
Lastly, you will be leaving the biggest superfund site you could ever imagine.

Will we eventually extract oil from oil shale – maybe, but it has always been a last resort, and for good reason. In the meantime, DON’T EVEN THINK about investing in this, even if the offer seems really good. You can’t imagine how much money has been poured into trying to commercialize this resource without any success.

Stay tuned for future topics including:

Tar sands will save us
Deep water basins will save us
Alternative energy (as currently understood) will save us
Hydrogen will save us (corollary to the one above)
OPEC will save us
and finally the Holy Grail
The Market will save us

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Sunday, August 21, 2005

Scared Shitless

My wife and I watched the documentary "The End of Suburbia: Oil Depletion and the Collapse of the American Dream" tonite. The message was nothing new to me, but the film/video media with all of its visual imagery can pack a wallop, even when you are prepared. I am pretty sure my wife was not prepared for the dark message this film putting forward. She was visibly upset in the middle of it.

I am not a much of a pessimist as these guys, but sometimes I wonder if I am just kidding myself. When the price of regular gasoline goes over 3.00 (on average), 4.00, 5.00 per gallon there is going to be some political hell to pay. And that is where the shit starts to hit the fan. People will be blamed. Scapegoats will be found. ExxonMobil will very quickly be everybody's whipping boy. The Patriot Act will start being used for the purpose it was passed in the first place - to control an angry public.

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