The Fourteenth Banker Blog

September 9, 2010

Another Quality Post

Filed under: Running Commentary — thefourteenthbanker @ 7:00 AM

Here is a rather lengthly post that compliments the one from yesterday.  Believe it or not, this is a short segment of the post by a UW professor with a rather interesting background.  Jerry will appreciate the take on energy. I recommend the whole post as it discusses markets at length.

It turns out that as long as buyers are generally making more income over time (or believing they will in the future) and there are ever more buyers entering the markets over time, the economic measure of the market (not its intrinsic aggregate value) can rise without seeming to cause too much of a problem. These conditions are met as long as the economic system in which the particular market is embedded is growing. The housing market in the US and earlier in Japan are examples. And that condition had been met as long as energy flow was increasing throughout much of history. But starting around the early 1970s things started to change. Energy flow was still growing but at a slower pace each period. It had entered the top part of an ‘S’-shaped curve. This is the point beyond which the marginal return on energy (and money) invested in getting more gross energy out of the ground went into serious decline*. And as economists are fond of reminding us, such conditions cause a decline in period to period profit growth.

When the rate of marginal energy return started to diminish the real work that needed to be done to support the production of real (actual physical) wealth began to diminish as well. Almost nobody noticed because nobody paid attention to net energy and its role in production. The energy inputs to production are relatively small for any one firm, so the marginally rising costs of those inputs could be easily ignored. Nor were they paying attention to the declining growth rate of real assets. Instead financial wizards had started to push financial ‘instruments’ and ‘products’ onto the financial markets. Ordinary people started thinking of their homes as investment that paid dividends. Everyone was fooled into believing the economy was still growing over the last several decades The sales of these products and consumer goods based on money borrowed from supposedly appreciating asset values fluffed up the GDP. Indeed the demand for services in the artificially buoyed economy led to the creation of many jobs. All of which led economists to declare the economy healthy.

In reality it was moribund. Real wealth was being produced at declining rates. What was being called real wealth, trinkets and toys made in China, further enhanced the illusion that our material wealth was expanding. Behind the scenes, as is now painfully obvious, governments ignored important infrastructure investment letting entropy work its will on bridges and power grids were not upgraded to deal with the growing demand. We let slide the deep basis of society and the economy for superficial and illusory marks of a healthy economy. We, in the west, shipped manufacturing and other jobs off to Asia because it was expedient and supported maintaining the bottom line. Of course a few companies that could not sweep their cost structures under the Asian rug were stuck looking for another way out through creative bookkeeping. Companies did what they had to to keep the illusion of America and the other OECD countries as economic engines producing wealth, when in fact it was producing hot air to pump into the bubbles.

Without real growth in the real asset base, especially when there is growth in population, you will find that markets will crash and fail at the slightest provocation — call it the trigger effect. One little hitch and a bubble or two will bust and bring the whole edifice down with it. That is what we are witnessing now.

And further in his conclusion that these conditions are necessary for the proper functioning of markets. I do not have quite the same confidence in regulation as it currently operates but do believe it can be made more effective and at the same time not overly disruptive.

To summarize, markets work when:

  • Buyers have adequate information
  • Sellers are restricted to reasonable profit margins
  • Competition among buyers is regulated to assure best uses
  • Competition among sellers is regulated to assure non-overuse of resources
  • Not expected to provide coordination over larger scales (smaller is better)
  • The system as a whole is either in steady-state or growing
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22 Comments »

  1. 14,

    Thanks for reposting this piece. It is excellent, as is Professor Mobus’ blog page, replete with important aspects of systems theory that we have to come to grips with if we are to get our arms around the challenges presented to modern regulation. I was not aware of this site.

    Lawrence

    Comment by Lawrence — September 9, 2010 @ 7:41 PM | Reply

  2. * Buyers have adequate information
    This is correct…

    * Sellers are restricted to reasonable profit margins
    And who is to decide this? One man’s reasonable profit is another man’s unreasonable profits. Removing the price-setting ability for new technologies (and hence being able to charge higher prices for products using breakthroughs in research and development) means that you’ve removed the profit motive for investment in new technologies.

    * Competition among buyers is regulated to assure best uses
    And who determines best uses? Same problem applies…

    * Competition among sellers is regulated to assure non-overuse of resources
    And who determines non-overuse of resources? That is something regulated by market prices, scarcity=higher prices…

    * Not expected to provide coordination over larger scales (smaller is better)
    Smaller is better only when there are no economies of scale involved, or are these to be eliminated as well?

    * The system as a whole is either in steady-state or growing
    So that there can never be recessions or corrections?

    Sorry, the constraints on the system contain too many unknown, politically determinable constraints for this to be a workable system. What may be allowed under a social-democrat administration would be not allowed under a green administration, and neither would allow what a conservative administration would allow. This means constant political intervention in markets, and this is an improvement how?

    Comment by John F. Opie — September 10, 2010 @ 8:22 AM | Reply

  3. David Harvey on page 71 of his ” The Enigma of Capital” should add an interesting aspect to this post for further comment.

    ” At the base of the long supply chain that brings the means of production to the capitalist ,there lurks the deeper problem of potential natural limits. capitalism,like any other mode of production,relies on the beneficence of nature. The depletion and degradation of the land and of so-called natural resources makes no more sense in the long run than the destruction of the collective powers of labour since both lie at the root of the production of all wealth. But individual capitalists,working in their own short-term interests and impelled by the coercive laws of competition, are perpetually tempted to take the position of ” apres moi le deluge” with respect to both the labourer and the soil.”

    We are at the cusp of the deluge of both labour and Gaia. These obstructions to capital growth are becoming ever more difficult to avoid or supplant. This difficulty can be seen from the rising confusion of capitalist thinking over what to do about the post deluge factors that will cancel out capital growth . Even before factoring in the natural political reqirements of humans… survival with enough desire intact to live in an organized polity. At some future time, not far off, the entire world citizenry will have have become proletarianized to the maximum extent. At that point, the proletariat will amount to virtually all of the sources of markets for goods and services outside ” luxury goods”. Even luxury goods will mostly be upper end proletarians who fancy themselves predominantly capitalists. That is, those whose salaried position generates the capitalist possibility. Retail activity is the end result of all capitalist activity.

    The natural resouces conundrum from Gaia exhaustion is something we will recognize only after it has occurred. In the meantime, Truthers will so obfuscate the factual bases for their truthiness that political consensus will be difficult to achieve from a huge political soup of varied forms of truthiness.

    A very amusing one is ” Peak Oil” . What has peaked is conventional production of light oils. The definition of Conventional Oil is light oil produced by primary and secondary means. Light oil is loosely defined as as crude oil lighter than 20 degrees API. The first thing to note is that conventional oil applies only to oil from wells under production. The production curve arises not only from declining production but from wells withdrawn from conventional production for future production by unconventional means. The production curve rejuvenates itself partially when new wells open for production under primary recovery. Generally today, the trend in thinking is that around 60 % of original oil in place will be recoverable and that conventional recovery averages about 30 %. Peak oil does not include the last added recovery of 30 % because such recovery is by un conventional means. Sophmorically, one could generalize that around half of conventional oil is left to recover and substantially all of unconventional oil would be recoverable. That leaves the sophmoric number of 25 % of recoverable oil has been produced. But what about all that oil heavier than 20 degrees API and ignoring tar sands? Processes ,like Ivanhoe Energy’s, now are able to economically convert heavy oils into lighter crudes en situ with the surplus heat being reinjected into the well for very effective SAGD ( steam assisted gravity drainage) results. And all within the price differential between light crudes and heavy oils.

    On top of all this, Tertiary Recoveries will require sequestration of almost all the carbon dioxide generated industrially. Here the US from sheer proximity of oil deposits to sources will gain a huge advantage. Current oil prices are already above the prices needed to amortize capital generation applied to recover unconventional oils.

    Yes, conventional oil has peaked.

    Soil degradation looks to be the one capital growth barrier that cannot be avoided.

    Comment by Jerry J — September 10, 2010 @ 1:03 PM | Reply

    • I thought I should add this link. This Overview more or less set off the peak oil phenomenon.

      http://www.hubbertpeak.com/Bentley/

      I post this only as an example of where so much confusing information is out there in terms of economics . This confusion, I suspect, prevents a synthesis of the data . The entire economic policy picture is inextricably tied to natural resources. Another confusing aspect is the attempt at globalized summaries when literally every solution must be arrived at locally. Perhaps , then coordinated globally by the locals that succeeded in local solutions. Labor is always local by definition. Soil economics and ecology is also by definition local in character.

      Comment by Jerry J — September 10, 2010 @ 4:10 PM | Reply

      • Inquiry into the subject of seemingly impossible barriers that capitalism cannot surmount has led to some very interesting parameters in the field of energy. The US alone is presently estimated to have over 400 billion bbl of recoverable oil. ( My own view is that the eventual recovery could be quite a bit higher.) A controlled high oil price is required here. Put the long term fix in or fail. Canada has huge amounts of now even easier to recover tar sands based on latest techniques. Add in UNconventional gas deposits estimated in excess of 8000 Trillion Cubic feet and North America looks to have the energy supply available to move capitalist production back to North America when Asian delivered energy prices are much higher than North America. Even a 10 % recoverable factor in unconventional gas gives a very long term advantage. Let us not forget coal although the above unconventional gas numbers include coal bed methane. The catch though is political control of energy decisions. Big energy is very aware of these potentials and I would presume ( correctly?) that big finance is also aware of the bonanza. Realization of these energy resources for capitalist expansion requires a very high tech, organized and politically strong elite organization. A structure that must take green aspirations into account up to some unknown tolerance level. Right now it seems the state is allowing China , for example, to make inroads in securing Canadian tar sands output for China’s use. Contravening this though is the huge US ownership of recoverable crude oils and unconventional gas. All capitalist barrier end running in North America needs in the US are political limitations on labor becoming aggressive again and a leash on us Green’s. That said, the US retail market must still consume the bulk of the production derived from the future relative US energy advantage or the production has lost much of it’s customer base. Then too, the whole advantage could be squandered from political dissolution.

        National capitalist survival in North America will require TIMELY ending effective political opposition to the elites that emerge to solve the capitalist dilemma. These elites will have recognized that there are no global solutions due to relative regional energy barriers that cancel out labour arbitrage advantages.

        That is a very tall order I should think given the blockheadedness demonstated by US elite slavery to their ideologies. Remember too that world elite ownership of assets is so heavily concentrated in claims from US retail debtors that these debtors must be ” saved” or the capital loss will be too great for the capitalist cash flows to survive.

        Comment by Jerry J — September 10, 2010 @ 5:51 PM

  4. Whale oil was used to light the lamps of Europe. Industrial whaling nearly drove whales to extinction. A moratorium in 1986 on whale hunting saved the species. But the number of whales in the ocean are a fraction of what it used to be. The bison and the passenger pigeons went the way of the whales. Now some oil fields have run dry. Where next?

    I’ve working on Plan B. Here is a juicy quote from the history of capitalism:

    In the 18th century Saint-Domingue (now Haiti) was a brutal slave colony, with an estimated 500,000 slaves and 32,000 colonists, and the most lucrative possession in the French overseas empire; producing sugar, cotton, coffee, tobacco, cocoa and indigo. Much of the wealth and glory of 18th century France came from the slave plantations of “la perle des Antilles” Saint-Domingue.

    Comment by tippygolden — September 11, 2010 @ 11:31 AM | Reply

    • Lovely Audubon watercolor of Red Wing Black Birds. I live near( across the road) large tracts of land that are in the process of reversion back to nature. These areas are just west of the forested dune areas bordering Lake Michigan. The forest is reclaiming the cleared land. Anyway, yesterday I ran across an exquisite Butterfly I cannot identify. This Butterfly was sitting on a Timothy stalk remnant. It was literally golden and orange with an exquisite dark Paisely pattern on its upper wing surface. On any given day this time of year, I see hundreds to thousands of Monarchs and a large number of other species of Butterflys and Dragon Flys. My wife and I both gather and spread Milkweed seeds all over the place each year. Our own little acreage is filled with Butterfly attracting plants.

      Anyway, yesterday was the day I saw the most beautiful Butterfly I have ever seen. This gift was due to now large tracts of reverting land not having seen pesticides and herbicides for a generation. This area was mostly Apple and Cherry orchards and the apples still persist in the wild. I have a dozen or so wild Apple trees that are simply loaded this year. Friend Bear has made his usual appearance too since he/ she smashed up our Oriole feeder again.

      Comment by Jerry J — September 11, 2010 @ 12:29 PM | Reply

  5. Tippy, oil fields do not run dry as such. Total original oil in place will never be fully extracted. The general understanding among Americans is that we are in massive oil decline. Running out. The figures I use here come from the NPC Oil & Gas Study Working Paper on Impact of Technology on Conventional wells. Original US Oil in Place from all sources, excluding oil shale deposits is estimated at 1.332 trillion bbl of crude oil of all types. Since 1859, 208 billion bbl have been produced. That is a cumulative production of only 15 .6 %. Present technology and perfection of existing research has created an expectation that over 60 % of OOIP will be recoverable. The subsidized study I use here details out 430 billion bbl of future recoverable oil. For comparison, Saudi Arabia has an official goal of 65 % total oil recovery prospect within 25 years.

    Notice how low cumulative US recovery is compared to the 30 % rounded global recovery of 30 % I cited yesterday? There is a reason for this discrepancy. The US was the pioneer of oil recovery and literally blew off or wasted the advantages of primary recovery until after WWII for all intents and purpose. With Saudi oil so cheap, US wells were shut in quite early after secondary recovery. ( Water Flooding) Many wells were simply shut in when primary pressure was lost.

    Yet, the idea persists that the US is running out of oil. This is butressed by the US presently having only 21 bn bbl of crude Proved Reserves. This is an SEC mandated financial statement requirement set out based on facts as they stood in the mid 1970’s. Back then, any given well could sweep only a tiny area roundedly a square mile. Today, a single well can sweep around 50 square miles through horizontal drilling. It costs a fair sum to get oil appraisals to include oil in proved reserves. Consequently, these studies are not done until a well is rejuvenated. Around 240 bn bbl of oil in the 430 bn bbl number I mentioned will be derived by Tertiary Recover otherwise called Enhanced Oil Recovery. The major impediment to recovery now is a lack of policy forcing sequestration of Carbon Dioxide . The capitalist natural resources barrier relating to oil forced an end run to conventional oil sources outside the US after WWII. The entire long term oil investment strategy for over a half century was built on this assumption. The oil companies literally had no idea thirty years ago that EOR would be perfected and sold off their leases to vehicles like oil royalty trusts. So, getting back into domestic production means they are forced to pay out royalties to others. That or buy back the leases at a huge cost to themselves. So, there is the political and investment impediment of CO 2 sequestration coupled with the cost of buying back the leases they all sold so cheaply a generation ago.

    But the oil is there. Given also the recent new understanding about Transition Zone future oil recoveries, even more oil will become recoverable. Oil that does not particularly require EOR using CO2 although combining both makes sense. A major study was recently completed ( 2010) about CO2 sequestration and use in oil recovery by Advanced Resources International. It is very impressive.

    Yet, we are running out of oil. When the dollar is no longer a Reserve Currency and the US must buy another currency to purchase oil imports US oil presently mothballed will be produced instead. When will the Dollar irrevocably collapse?
    That is the ultimate question swirling around US energy policy. The elites dare not admit the fall of the Dollar for it means their own end. Consequently, they also put off thinking about alternate ways for national survival. They will not be elites any longer from their internal beliefs.

    Comment by Jerry J — September 11, 2010 @ 1:25 PM | Reply

  6. thanks jerry j,

    but do those beautiful Butterflies you saw need more fossil fuel to survive ?

    Comment by tippygolden — September 11, 2010 @ 3:39 PM | Reply

    • I doubt fossil fuels help the Butterflies. Indirectly though, the fossil fuels might well be prospectively saving them. People to survive in present numbers require fossil fuels to stay warm, housed, clothed and fed….. and to be content as they see it. The opposite of content might well be meaness never experienced before. Constrain fossil fuels and the chaos of the reaction to the constrainment would entail catastrophic destruction of natural habitat . Even allowing for mass death of humans, the aftermath would be survivors burning up every forest to stay warm until they too died off and the natural habitat would be left to recover. Then too, after a mass die off and cessation of fossil fuels, tens of millions of acres of agricultural lands would no longer be planted. They would be quite sickly in the first two years while weeds would not reclaim them fast enough to avoid destruction by wind. Even then, the cover that did germanate would prevent more long term postive plants from coming back. Humans would need to reintroduce the naturalization process in former prairie areas. The reversion of former farm lands where I live took place mostly on lands seeded for hay. The hay reverted to wild status allowing the natural plants to establish themselves. Then the cedars and popples moved in.

      Nature is really in for it if humans do not fix up things before they nicely decide to die off in plains areas like the US plains and the 8000 mile long Eurasian Plain to mention two areas. If we mostly all die off from cold , hunger and destruction, who will plant hay all over the world’s plains now covered with genetically modified crops?

      What a mess, what?

      Comment by Jerry J — September 11, 2010 @ 4:16 PM | Reply

  7. After hunting whales to near extinction humans moved on to fossil fuels. Some say the oil wells are running dry … if so … what next? I don’t trust the nuclear option. There is wind, solar, geothermal, methane, tidal energy. Maybe that is where the leading edge of innovation should be.

    Comment by tippygolden — September 11, 2010 @ 4:33 PM | Reply

  8. There is innovation going on in all of the above. That innovation though will not cover global needs due to the distribution disparity of resources. In many areas gas will supplant a large portion of present oil usage. A quarter of the world supply of unconventional gas is in North America. Interestingly, that gas is close to places where it could be used in very , very effective ways in conjunction with wind, in particular. Presently, around 8 million homes heat with oil plus commercial heating. Consider doing three things here. First , convert present fuel oil usage for heating to gas. Secondly, electrify most rail lines. Thirdly, force over the road trucks onto rails through standardized use of Roadrailer type techniques. Trucks deliver from origination or to destination under 250 miles, or less. Presently our usage of oil is constrained by our use of middle distillates to heat homes, fuel locomotives and over the road trucks. Oil cracks generally 3-2-1. Thus you always get 1/3rd fuel oils and 1/2 light distillates…. gasolines in every barrel of oil refined in general terms. Put it this way, only 1/3rd of every barrel of crude oil delivers presently energy for truly essential uses based on how we are logistically organized. Substituting methane for middle distillates directly cuts all oil needs and greatly lowers available gasolines for cars… forcing hybrids , electrics and such. The perfection of the solid oxide fuel cell will let gas fill in for windgeneration intermittancy and let gas provide base power for rail electrification. Carry these changes through and our oil imports go way, way down or disappear. Think of the capitalist unrecovered investment losses in capital goods like trucks,locomotives due to sudden termination of usefulness. Bankruptcy everywhere unless subsidized by the state beyond immediate tax deductions. Think of the job losses in trucking.

    We would still need our domestic production of crude oils. The price of oil would be internally forced higher to cover EOR recoveries. Gas too will not be cheap. It would take huge power plant investment that would provide ever greater sequestered CO2 to enable domestic EOR. Note that fossil fuels would then be production zone free of CO2 generation. Gas and oil both, leaving only remaining gasoline and middle distillates used for local delivery as generators of CO2. Of course, building heating, agriculture and such would continue to generate CO2. New power needs would be staggering although much would be windgeneration. The cost too would be staggering. All told, the transition would take a couple of generations . Here too the apriori need for capital rears it’s ugly head. What drove Stalin in the industrialization of the USSR. Essentially, we would be required to produce the capital goods ourselves, like the USSR, when the dollar goes kaput and finance capitalism itself finishes it’s suicide. What the Nazi’s did to the USSR
    physically and in human terms our collapse would duplicate if we take too many wrong steps. David Harvey in his Marxist analysis of Capital covers our wrong mental steps in his Enigma of Capital. What better typical example, among many, than the Fundy Koran Burning Antics taking hold today. Achieving a switch to gas/ wind electric power and heating requires commonwealth which we lose ever more of by the year. Someone must decide for all. If the USSR were like the US after the death of Lenin could Russia have industrialized? China faced the same dilemma and set the stage for a priori industrialization under Mao. Both gents caused a lot of citizen death. What ever we do to get out of this ungodly mess will not be free of strife cost in human terms, especially if it takes political and social collapse to deliver a decider.

    Comment by Jerry J — September 11, 2010 @ 5:32 PM | Reply

  9. “To summarize, markets work when:

    Buyers have adequate information
    Sellers are restricted to reasonable profit margins
    Competition among buyers is regulated to assure best uses
    Competition among sellers is regulated to assure non-overuse of resources
    Not expected to provide coordination over larger scales (smaller is better)
    The system as a whole is either in steady-state or growing”

    Thank you 14th. This makes a lot of common sense.

    The rhetorical question is why is it human nature to make things more complicated and painful than they need to be?

    Comment by tippygolden press — September 11, 2010 @ 6:33 PM | Reply

  10. I got into the energy schtick again here to discuss the presumed ultimate barrier to perpetual capitalist growth requirements…. production and consumption has insurmountable energy constraints. A few years ago, I started to get into this problem and decided to tackle North America from the political perspective. I view energy problems as only locally solvable since politics is local in the same way that labor is local.

    Capitalism is supposedly through free market choice manipulation able to end run barriers to production. Capitalism fails without ability to end run barriers to generate surplus value using the Marxist term. Well, North America today through a combination of energy choices on a long term basis is now able to begin crafting availability of energy supplies needed to maintain North American production and consumption of that production and greatly reduce CO2 emissions in the process. Indeed, the future availability of energy requires the sequestration of as much global warming agent as possible. CO2 is essential for Enhanced Oil recovery. Unconventional gas for power purposes to by product supply the CO2 to enable the bulk of EOR oil productions. Tar sands already invested in will require gas for product enhancement using direct reduction of gas to middle distillates using mass Fischer Tropsch processes like Shell and Texaco’s. The CO2 here also is quite salvageable on the same basis as power generation. All this could be filled in with windpower serving as the central core of many power uses like rail electrification. For example, windgeneration could be coupled with gas sourced power utilizing solid oxide fuel cells for intermittancy to provide locally based residential power. The goal here would be small power avoiding transmission other than purely local. None of the integrated possibilities would work everywhere and time will deliver ever more smaller scale possibilities. The key to eliminating CO2 and large scale substitution of electric cars and hybrids is the need for CO2 to vastly increase domestic EOR of already drilled oil fields.

    The question I have is given the people mental constraints barriers such as hog wash ideologies that can be factually destroyed , will capitalism be able to surmount the countyervailing mental belief structures so widely prevalent in North America?

    Other areas of the world might be able to solve their energy conundrums from circumstances similar to the that developing in NA. Vast areas though will depend on imports from the oil and gas states.

    Social development structures along with their CO2 generation in the US are fortuitously located with respect to NA oil deposits to enable oil deposit recoveries. Other areas of the world would be forced to import sequestered CO2 . This gives NA a classic Ricardian Comparitive Advantage. Indeed, NA might have far too much CO2 enabling it to be somewhat exported to oil producer areas themselves in desperate need of CO2 supplies to continue oil extraction.

    The impediment is mental as I see it. Is the real problem human mental fatigue
    wrought by capitalism these past three centuries? No society can be on full alert 100 % of the time and not go nuts. The capitalist perpetual labor problem at some point must drive all participants to the edge. Are we at such a point now?

    Comment by Jerry J — September 12, 2010 @ 12:29 PM | Reply

    • I find the energy discussion helpful. Most people are not familiar with the line of thought about economic growth being largely built on cheap and subsidized energy. Nor are they cognizant of the long lead time to effect change in energy sources and consumption.

      As far as the mental constraints, absolutely right. The energy situation is essentially a democratic one. We vote for what we have by the way we live and what it takes to sustain that. The information you provide is very specialized and not easy to follow even for the more educated. Do you thing even 1/1000 can comprehend? We elect representatives to help with these matters but the downside to our democracy is that too often our representatives either will not touch third rail type issues, do not understand the issues themselves, or are in the pocket of one lobby or another. In the case of energy or farm policy, you have large blocks of states that are disproportionately dependent on the status quo, and they work as political blocks and wield considerable influence.

      So I am also pessimistic that people will get their heads around this until another crisis forces them to do so and then it may be hard to handle the dislocations that occur in the time frames it will take to make major changes.

      Food is another area where we have big challenges. Just the increased consumption of meat that is occurring in developing countries is stressing the resources because of feed conversion and petroleum usage for production of livestock, not to mention increased health care costs related to diet.

      Comment by thefourteenthbanker — September 12, 2010 @ 10:27 PM | Reply

  11. Ahh, do people comprehend through the technocratic obfuscations? I think few comprehend . The problem is the same in accounting . I wonder often if economists understand financial statements as a high speed flash still of capital in motion?

    The problem would be ever so much easier to comprehend if people dropped their presumptions about energy. Start with understanding that global data is nearly worthless. What matters is how energy is available on a national and group of nations basis. Even then, the key criterion is the locations of energy sources within the state compared to locations of uses. I linked Roger Bentley’s overview yesterday on the most important Hubberts peak website. The overview is crystal clear to anyone who understands that the words conventional and unconventional in the case of oil confusedly apply to the same oil pool while unconventional also applies to oils outside a loose general standard. Orinoco deposits are unconventional as would be Athabasca Tar Sands and Deep Water oil. Gas that is present in oil deposits is called Associated Gas and makes up virtually all of what is called conventional gas. Unconventional gas is gas not associated with oil pools per se. Unconventional gas is CoalBed Methane, Shale Gas and Tight Sands gas.

    Take a look again at Bentley’s Overview. The last paragraph by a single omission of the word conventional confuses the reader that oil and gas will peak in twenty years. To almost everyone outside those interested in energy gas is gas and oil is oil. That presumption makes the subject difficult. The vast majority of Original Oil In Place is in fact both conventional and unconventional depending on the cumulative processes of extraction. Until the oil pool ceases being water flooded it is a conventional pool. After that the pool is unconventional in the context that Bentley uses in his overview. That is mostly a professorial conceit. Oil people, in the field simply say the field is now under Tertiary Recovery or simply under EOR. Vast numbers of closed wells in the US were killed off after cessation of water flooding or even just after primary recovery pressure dropped too low and the oil company simply wanted to move on. Big oil loved to move on until the late sixties. So much so that they sold huge numbers of leases to Royalty Trusts in the last thirty years. This was the situation in the Appalachian and Indiana fields until recently. ( closed wells) What makes things even more confusing is the SEC concept of Proved Reserves. That counts only when a well is operating. What existing producing wells are virtually guaranteed to be able to produce without added capital investment other than what would be a repair.

    I finished David Harvey’s book and it refreshed my Marxist understandings as they apply to capitalist energy barriers. A terrific book .

    I often wonder if even Obama has a clear factual understanding of the state of fossil fuel energy today. I thought so before he was elected.

    The US has a fortuitous factual situation for our energy future. We have huge amounts of unconventional gas to power the end of logistical reliance on middle distillates and home heating. This reliance on gas via electric power mostly will require the sequestration of present and future CO2 emissions. Those sequestered CO2 emissions are essential to recovering US deposits of crude oil using EOR. The shifting over to gas and say windgeneration and lowering of middle distillate needs also automatically cuts available light distillates ( gasolines)by 150 % of middle distillate reductions. Both together could virtually eliminate imports of crude oil save for Canada where we are now or will soon be committed to buying Tar Sand generated Syncrude. Obviously, barring imports of gasoline, autos would be forced to increase gas mileage. Vastly increased power generation and capital updating would shift to hybrid autos or electrics. Taken together, our oil imports should go even lower. To nil on a net basis over time. Oh, the CO2 emissions would be dramatically lower. So here is a discussion outline for a national energy policy.

    I will try and link the new Advanced Resources pdf on EOR and CO2 sequestration.

    Our oil import problem is now technically and economically solvable and it very well could cut our CO2 emissions by over half, perhaps a lot more. The problem is political. We have the means. What I outline above could be put in in stages and could have a great deal more flexibility than I outline.

    Comment by Jerry J — September 12, 2010 @ 11:43 PM | Reply

    • Jerry, you mentioned that you were largely invested in Royalty Trusts. Do you believe this is the best way to hedge future energy costs? What pricing assumptions do you think are built into the market prices today? Are there some that specialize in the tar sands? I am familiar with some that are primarily tied to producing oil reserves in US.

      Comment by thefourteenthbanker — September 21, 2010 @ 12:38 PM | Reply

  12. Hey Jerry J

    Check out strix aluca. Bottom of the page. (I’m on a roll with this web design, I can whip up one of these vocalisations on short notice.)

    What would San Isidor Labrador say about the genocide of bird these past two centuries? Benjamin Franklin thought the wild turkey should have been the U.S. national bird, splendid creatures and driven to near extinction.

    Comment by tippygolden press — September 13, 2010 @ 12:21 AM | Reply

  13. Thanks Tippy. I have a Great Horned Owl that will answer me when around my house. The Owl is usually there every night at some point. So, whenever I go out at night I give a few Hoots and usually get an answer back. The owl hangs around a lot because food is always available. I ground feed a number of birds and critters. Owl has great pickings among the Ground Squirrels. The Deer get their turn at pickings too. One moonless night I went out barefooted and walked smack into a Deer. The Deer let out a snort, scream and fart all at the same time. American Eagles cruise around our place too looking for lunch. There is one individual Eagle that stakes out an ancient White Pine on our place regularly. Just sits there waiting . I can walk under the tree without disturbing the Eagle. I am inside the city limits barely and there is almost no hunting in my immediate area even outside the city limits. During hunting season game migrates hereabouts to escape hunters. The raptors know there are always sweet pickings.

    Human population growth has obviously pressured out birds, especially Ducks due to flyway interdiction. Since capitalism must have compound growth to continue to exist, one consequence of seeking growth is obviously overpopulation. It would be interesting to hear from a population ecologist on this relationship.They all understand that humans will cause their own collapse. If you add all the apocalyptics of various stripes in the US together , are they a majority? I suspect so if you include those shading to apocalyptic views.

    I am very interested in animist views. My favorite set of books on the entire ecological problem is the Spiritwalker series by the anthropologist Hank Wesselman. Wesselmen is a shaman of the Hawaiian stripe who visits his ” counterpart” in the US 5000 years hence. The neolithic Hawaiians had landed in California some 130 years previously and found the coastal area to be a rainforest entirely absent of humans. Wesselman’s “counterpart” journey’s east into the highlands of the Great Basin and finally encounters a neolithic band of mixed Canadian/ Inuit people. This would indicate a 99.9 % human population collapse in North America. Civilization has entirely disappeared. Wesselman has a master’s in zoology and a doctorate in Anthropology. He spent considerable time in Africa involved in searching out early hominids including time with the Leakey’s.

    So, you see , it looks like population collapse really did hit the fan and civilization collapsed backed to square one just as the principles of population ecology predicted. What had happened was a final return to the normal condition of the Earth being largely without polar caps. The oceans had risen around 300 feet finishing off the ice cap melt related to the Pleistocene extinction. Muck’s meteorite hit that created the Puerto Rico Trench around 10, 600 years ago? The Central Valley of California was now an inland sea. Gaia had kicked ass.

    Comment by Jerry J — September 13, 2010 @ 12:20 PM | Reply

    • Strix aluca (European) has been replaced by Tybo alba for veracity.

      I read somewhere Americans lived on game (birds, venison, bison) until the animals were hunted out and then industrial farming started to fill the void. Cheasapeake Bay was crystal clear and there were oysters the size of dinner plates when the Puritans arrived.

      Gaia has put us on notice.

      Comment by tippygolden press — September 13, 2010 @ 10:20 PM | Reply

  14. Just to add a little gas to the fire.

    China and India: Still Hungry for Coal.

    http://www.321energy.com/editorials/casey/casey091210.html?print=on

    Neithr China nor India have as great a geographic proximity to future integrated energy sources as does North America. North America has a comparitive advantage in the future if they so choose. However, western capitalists have opted for absolute advantage which classic economists like David Ricardo equated to treason. China and India will be forced to adapt to their absolute advantages first in energy policy or eventually have mass population collapse. Both have already purchased the western absolute labor advantage to survive the past 30 or so years in particular. Having done so they must complete their cheap labor and environmental Faustian Bargain out of necessity. How can these states generate capitalist growth to cover energy highmindedness and greatly increased wages and social safeguards at the same time? It seems to me that these states must dispossess others as the Western Powers in the last two centuries. Who will be their nation of Gunga Din’s?
    In any event, the labor problem each state now has will socially have to take precedence over energy highmindedness. I expect that both states will try to ride both beasts at the same time though. Giving up at some point. Doing both would be trying to fill an inside straight in poker.

    Comment by Jerry J — September 13, 2010 @ 4:41 PM | Reply

  15. Another little tidbit that adds to the fire. David Harvey, Enigma of Capital, page 200.

    The best capsule of US political mental defectiveness I think I have run across.

    ” Within the United States,for example,most of the population ,deeply attached,as opinion polls show, to radical egalitarianism and equally radically anti-statism, clearly want health care for all but fiercely resist the prospect that the government should provide it. The insurance companies and the Republicans consequently never argue against universal health care. They spend all their time decrying the overweening state power that might deliver it.”

    Such a political mentality is now so deeply embedded will it ever change to allow solutions to problems like energy and other natural restraints looming from past practices of centuries standing?

    Comment by Jerry J — September 13, 2010 @ 9:10 PM | Reply


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