Feb 05 2010

Seven States of Energy Debt

February 5, 2010

Out here on Cottage Grove it matters. The galloping
Wind balks at its shadow. The carriages
Are drawn forward under a sky of fumed oak.
This is America calling:
The mirroring of state to state,
Of voice to voice on the wires,
The force of colloquial greetings like golden
Pollen sinking on the afternoon breeze.
In service stairs the sweet corruption thrives;
The page of dusk turns like a creaking revolving stage in Warren, Ohio.

–from Pyrography, by John Ashbery 1987

The inevitable coming of the sovereign debt panic finally engulfed Europe this week as the derisively (or perhaps affectionately) named PIGS spilled their slop on the continent. But Portugal, Ireland, Greece, and Spain are hardly worthy of so much attention. In truth, they are little more than the currently favored proxies among the leveraged speculator community (cough) for the larger problem of all sovereign debt. Indeed, the credit default swaps on these smaller European satellite states were not alone this week in making large moves higher. UK sovereign risk rose strongly, and so did US sovereign risk. With a downgrade warning from Moody’s to boot.

Notable among three of the PIGS are their relatively small populations, and small contributions to either world or European GDP. While Spain has a population over 45 million, Portugal and Greece have populations roughly equal to a US state, such as Ohio–at around 10 million. And Ireland? The Emerald Isle has a population similar to Kentucky, at around 4 million. While the PIGS are without question a problem for Europe, whatever problems they present for Brussels are easily matched by the looming headache for Washington that’s coming from large, US states such as California, Florida,  Illinois, Ohio, and Michigan.

I’ve identified seven large US states by four criteria that are sure to cause trouble for Washington’s political class at least for the next 3 years, through the 2012 elections. These are states with big populations, very high rates of unemployment, and which have already had to borrow big to pay unemployment claims. In addition, as a kind of Gregor.us kicker, I’ve thrown in a fourth criteria to identify those states that are large net importers of energy. Because the step change to higher energy prices played, and continues to play, such a large role in the developed world’s financial crisis it’s instructive to identify those US states that will struggle for years against the rising tide of higher energy costs.

First, let’s consider a large state that didn’t make my list. Texas didn’t make the list because its unemployment rate has not risen high enough to reach my cutoff: a state must register broad, U-6 underemployment above 15%, and currently Texas has only reached 13.7% on that measure. Also, Texas’s total energy production nearly perfectly matches its total energy consumption. Of course, Texas has indeed had to borrow more than billion dollars so far to pay unemployment claims, thus technically bankrupting its unemployment trust fund. That meets my criteria. But, it’s instructive to note Texas’ energy production capacity in this regard, as that produces dollars. And one of the big reasons US states are under so much pressure, like their European counterparts, is that they cannot print currency. Being able to produce oil and gas is the next best thing to printing currency. So, Texas doesn’t make my list.

The seven states to make my list are California, Florida, Illinois, Ohio, Michigan, North Carolina, and New Jersey. Each has a population above 8 million people. Each has had to borrow more than a billion dollars, so far, to pay claims out of their now bankrupt unemployment insurance fund. Also, each state currently registers broad, underemployment above 15% as indicated by the U-6 measure for the States. And finally, each state is a large net importer of either oil, natural gas, electricity, or all three of these energy sources.

Let’s consider the overall predicament for residents of states like California, with its epic housing bust, Ohio and Michigan at the end of the automobile era, or North Carolina and New Jersey in light of the financial sector’s demise. Not only have states such as these permanently lost key sectors that once drove their economies, but, residents in these states are over-exposed to structurally higher energy costs. The prospect for wage growth in the United States is now dim. We are already recording year over year wage decreases in real terms. The culprit? Energy and food costs. My seven states are squeezed hard at both ends: no wage growth at the top, and no relief through cheaper energy costs at the bottom.

US wage growth in real terms has been stagnant for years. And the most recent decade of higher oil prices has been particularly punishing to states over-leveraged to the automobile like California, Florida, and North Carolina where highway and road systems dwarf public transport. While it’s true that states like Ohio and California produce some oil and gas, the size of their populations overwhelm any production with outsized demand for electricity and gasoline. In contrast, and as I mentioned, it will be revealing to see how this depression ultimately plays out in such states as Colorado, New Mexico, Wyoming, Oklahoma, North Dakota, and Louisiana which are all net exporters of energy.

Were it not for peak oil, gasoline prices would have fallen to a dollar during this depression as oil returned to the lows of the late 1990’s–if not even lower. Petrol at 90 cents a gallon would begin to chip away at the  painfully decreasing spread between punk wages and energy input costs, currently endured by underemployed Americans. Natural gas and coal prices are also much higher than they were at the lows of the 1990’s. And I need not remind: while energy prices are very 2010, the American workforce has lost so many jobs that our labor force has indeed returned the 1990’s.

21st century energy prices overlaid on a 20th century economy? That’s no fun at all. The mainstream economics profession, perhaps unsurprisingly, still does not pay enough attention to the interweaving of long-term stagnant wage growth, higher energy inputs, and the resulting credit creation that OECD countries took as the solution to resolve that squeeze. Given that one of out of eight Americans takes food stamps, a visit to states like Illinois, Florida, Ohio, and North Carolina would reveal that the difference between 15 dollar oil and 75  dollar oil, and 2 dollar natural gas and 5 dollar natural gas is large.

My seven states of energy debt represent a full 35% of the total US population. As with other US states, they face looming policy clashes between protected state and city workers on one hand, and the growing ranks of the private economy’s underemployed on the other. The recent circus at the LA City Council meeting was a nice foreshadowing that the days of unlimited borrowing by governments–against future growth based on cheap energy–is coming to an end. Washington can print up dollars and fund these states for years, if it so chooses. But just as with the 70 million people in Portugal, Italy, Greece and Spain, the 108 million people in these seven large states are probably facing even higher levels of unemployment as austerity measures finally slam into their cashless coffers, and reduce their ability to borrow.

-Gregor

Photograph: from FREZNO, a new book of photos by Tony Stamolis, available now at Process Books.  (I bought a copy and it’s brilliant. For those who study California, it’s a must-have addition to your bookshelf)

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Author: Gregor Macdonald   Posted in: Debt   EROEI   inflation   transport   Tagged:                  
Feb 02 2010

A Podcast of Possible Energy Futures

February 2, 2010

Eric Garland of Competitive Futures in Washington, DC advises corporations and helps them develop a strategy for the longer term view. He is also an experienced broadcaster and interviewer. And in this hour-long podcast recorded this week, Eric manages to extract from me a number of my own calls on our energy future. I also speak to my own journey into the world of energy, and how it began with my simple idea 15 years ago while living in London: that the dollar seemed over-privileged in relation to the price of oil. Thanks so much to Eric for such an enjoyable conversation.

Podcast link here: Eric and Gregor February 2010.

-Gregor

Photo: Oscillon 520 by Ben Laposky, 1960. An early example of computer generated art, courtesy The Victoria and Albert Museum, London.

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Author: Gregor Macdonald   Posted in: Future   Oil   coal   transition   Tagged:    
Jan 29 2010

Used Rainbows

January 29, 2010

There’s a picture floating around on the internet but I’m not going to show it to you. It depicts several rows of half-buried automobile tires, off in a distance behind a chain-link fence. A dusting of snow covers the ground. A trash-heap of sorts or perhaps a small hill just behind. The sky? A pale blue (in an Iowa sort of way). And then this: sharpie-black lettering on a piece of rough cardboard announces: Used Rainbows.

I came across this photograph today while listening to a macroeconomic panel session from Davos. I was multi-tasking at the time. Which is to say, I was writing my monthly research note which generally runs 15 pages. And so I was pushing global coal data into Excel, and making charts with that data, and then pulling those charts into Microsoft Word, and then testing it all out in quick conversions to Adobe Reader. (The charts are looking fine). The voice of Nouriel Roubini played in the background. He was saying something about the back half of 2010. Or was it the front half of 2011? Years that once seemed so far away are now arriving.

If you’re still thinking about the photograph, you could always google now for used rainbows. I’m sure you’ll find the photograph, and you may find other ideas too. After all, that’s exactly how I found that image: by breaking away from my writing as the Davos panel played in the background. I was getting to the part in my research report where I talk about oil surpassing coal. That happened in 1965. After several hundred years of coal domination, the world switched mainly to oil. As I search the LIFE magazine archives for 1965 photographs, David Rubenstein begins to speak from Davos. David was saying that alot of people were going to make alot money, from deals they did in 2009. He also said the worst for the economy was over. Then he takes a swipe at economists after offering faint praise for Roubini.

Just as they start to laugh at Davos I find a nice image of the Gemini space walk, November cover of LIFE magazine 1965. I also notice my stock market screen and see everything has turned red, as the afternoon close approaches. I’m liking my research note. In one of those rare coincidences that only comes along so often, I think back to the bedtime story I read the night before to my son: Mike Mulligan and His Steamshovel, published in 1939. Adoption of oil was slow and steady in the United States in the first half of the last century. And then it broke out strongly to the upside after World War Two. The 1939 children’s story captures this perfectly, as Mike’s beloved steamshovel, named Mary Anne, is replaced by oil based machines. Speaking of rainbows and 1939, The Wizard of Oz was made in 1939.

Today is Friday the 29th of January and I start to recall that last week I emailed BLS.gov, the Bureau of Labor Statistics, asking when they would produce the broader measure of unemployment for individual States. I search for the reply in my gmail inbox.  But by the time I learn the full year 2009 data for the States is due out today, I am already opening the link to the webpage. It’s here! Published. Right there in the Alternative Measures of Labor Underutilization for States section. (Alot of people don’t know about this data. It is, after all, a new series). There is of course one state in particular I am watching out for: no surprise, California.

Starting last year with a series of posts, a Financial Times article, and a couple of interviews, I began to make the case that California was so leveraged to cheap oil via its automobile system that now with the arrival of the high oil price era California would never be able to recapture the efficiencies that made it work so well, at 25 dollar oil. I  also conjectured that Americans would finally accept that we were in an inflationary depression should oil get to 100 dollars a barrel on top of, say, 15% unemployment in the Golden State. Well, we did see oil get as high as 84 dollars. And while the standard measure of unemployment has reached 12.4% in California (the highest since WW2), the broader measure rose as high as 19.6% at the end of the third quarter 2009. Given that I watch all data and news out of the state quite closely, I figured the final quarter would take U-6 above 20%. And that’s exactly what was reported today. California broad unemployment has now reached 21.1%.

If you recall the 1939 children’s story mentioned before, Mary Anne the steamshovel tries to prove her worth by digging a new town hall foundation all in one day. She and Mike dig so fast, however, that they wind up at the bottom of the pit with no way out. You know it’s the end of Mary Anne’s productive life as the world transitions from the Coal Age to the Oil Age. Mike proposes that she be kept down there, in what will become a Town Hall basement, to be refitted as the boiler plant for the new building. I suppose this is a consolation, a form of happiness. When I read the story to my son, he goes quiet.

My monthly research note has a tough message also. It was only 55 years ago that the world crossed over to use more oil than coal. In another five years, we will be going back to coal. As I restart the Davos videocast the voice of David Rubenstein comes back up again on my media player. David is saying you really can’t prevent bubbles.  Agreed. Then David says we’ll have bubbles for another 600 years to come. I don’t agree. Arif M. Naqvi, on the same Davos panel, makes the point that in world of plateauing and then declining oil supply, the GCC (Gulf Coast Council/MidEast countries) will increasingly gain influence over the remaining supply of oil, and that will spawn a number of serious pressures. Agreed, agreed, and agreed. Out of 227 sessions at Davos over five days, only two session actually contained the word “energy.”

As I study the unemployment data out of California, Michigan, South Carolina, I bring the Davos video to the front of all my windows and I can see the dark blue, windowless room in which the session has been taking place. They’re getting to the end now. A somewhat passionate man from California stands up to explain that his venture capital business had a great year last year, but the problem now in the world (as he sees it) is that innovation may not necessarily lead to a decrease in global unemployment. Into my research report I insert images of Wood, Coal, the logo from the World Economic Forum, and a photo of the 1965 space walk. I push the Davos video into the background again. But I can still hear the voice of a conference organizer. She pleads with everyone to exit as they prepare for the next session.

-Gregor

Photos: 1965 LIFE Magazine cover. | Mike Brodie (The Polaroid Kidd) from the Riding Dirty Face series, via Needles and Pens Gallery, San Francisco. | Mike Mulligan and His Steamshovel.

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Author: Gregor Macdonald   Posted in: California   Tagged:          
Jan 26 2010

Poverty and the American Suburb

January 26, 2010

If 1 in 8 Americans is currently on food stamps then household budgets are clearly stressed enough to be affected by changes in the price of gasoline. Given that oil (and gasoline) made its biggest advances starting in 2004, it was revealing to see the latest study on poverty from the Brookings Institution. Their study showed what many in the peak oil community have been forecasting for years: poverty growth in the US between 2000 and 2008 was strongest in the suburbs:

By 2008, suburbs were home to the largest and fastest-growing poor population in the country. Between 2000 and 2008, suburbs in the country’s largest metro areas saw their poor population grow by 25 percent—almost five times faster than primary cities and well ahead of the growth seen in smaller metro areas and non-metropolitan communities. As a result, by 2008 large suburbs were home to 1.5 million more poor than their primary cities and housed almost one-third of the nation’s poor overall.

It’s equally unsurprising that many of the mega-suburban regions like Florida and Southern California were picked up in the Brookings study as being particularly hard hit in the 2007-2008 period. The price of oil started its march higher in 2004 but of course the most punishing gasoline prices came in in 2007 and 2008. Just as you would intuit, large populations tied to the automobile and with few public transport options took the biggest hits:

Western cities and Florida suburbs were among the first to see the effects of the “Great Recession” translate into significant increases in poverty between 2007 and 2008. Sun Belt metro areas hit hardest by the collapse of the housing market saw significant gains in poverty between 2007 and 2008, with suburban increases clustered in Florida metro areas—like Miami, Tampa, and Palm Bay—and city poverty increases most prevalent in Western metro areas— like Los Angeles, Riverside, and Phoenix. Based on increases in unemployment over the past year, Sun Belt metro areas are also likely to experience the largest increases in poverty in 2009.

Jeff Rubin has a very good post up on his new website, making the same case that many of us have made for years (and especially since the financial crisis hit). And that’s this: the unsustainable nature of the automobile complex has been known for some time but was revealed in spectacular fashion during the triple-digit-oil price period. And thus it’s really a form of craziness that the government went ahead and invested in Detroit Autos after the collapse of the credit bubble. | see also my May 2009 post: Lost Pearblossom Highway.

–Gregor

Photo: Ed Ruscha, 34 Parking Lots in Los Angeles, 1967

Document: The Suburbanization of Poverty: Trends in Metropolitan America, 2000 to 2008, Brookings.

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Author: Gregor Macdonald   Posted in: transport   Tagged:          
Jan 25 2010

Coal and Treasuries

January 25, 2010

It was the best of times for the developing world, and the worst of times for the developed world. In the developing world, they built savings. In the developed world, they groaned and sagged under the weight of debt. In a world where the credit of developed nations had always been believed, the serial monetizations and bailouts set loose an emerging incredulity–driving developing nations into gold, commodity currencies, and land. In the aftermath of the financial crisis the developing world, measured at about 4.5 billion people, lumbered forth with its insatiable demand for energy. Mostly coal. In the developed world? They replaced their lost demand, lost credit, and the loss of cheap energy the best they knew how: with paper.

OECD demand growth for oil faltered years ago, as far back as 2004 when oil went above the “unthinkable” price of 40 dollars a barrel. In the developing world the escalating price of oil did not so much delay, as divert, energy demand to the powergrid. To an extent that’s hard to measure, but certainly evidenced by power generation buildout and growth in electrified transport, the rising price of oil sent a confirmatory signal to the Non-OECD: stay on your coal trajectory. Of course, overall demand for all types of energy in the developing world took off ten years ago. Indeed, in 2008 for the first time ever, energy demand in the Non-OECD eclipsed by a hair all energy demand in the OECD. Roughly speaking, we can think of the OECD as the oil users, and the Non-OECD as the coal users. Gaze upon the chart below:

When the developing world faced higher oil prices, it guided its development toward power generation. But when the developed world, already married to an oil based infrastructure, faced higher oil prices it guided its development towards growth in credit. The United States is the number 2 user of coal, behind China, at 565 mtoe per year. And Germany is the number 7 user of coal at 85 mtoe per year. But coal demand growth in the OECD is largely halted by infrastructure. Most of the powergen additions in the OECD the past 30 years have been natural gas fired. Take a look at the growth of coal demand over the past 20 years, meanwhile, back in the developing world.

While the United States has little room for growth in coal demand, it does indeed have room to reduce coal demand as the depression rolls onward. It should not have been a surprise to anyone following the latest failed recovery in the housing market, the continued crash in the commercial real estate market, and the predictable fall-offs in auto production (since cash for clunkers) that US electricity demand is going nowhere. Thus, when CSX Railroad announced last week that shipments of coal to US utilities would not be strong this year it was confirmatory to the macro trend. Although natural gas is “more expensive” on a per unit basis, it generally takes a much bigger spread to get utilities to actually favor coal over natural gas as the latter can be burnt with lower regulatory costs.

The expansion of the FED’s balance sheet and the explosion in government debt issuance, therefore, may have eased the pain of the US industrial and consumer collapse–but they’ve done nothing to revive real demand. And the coming tail-off in electricity use even from low levels is yet another sign that the 2009 stimulus package as well did not come back to Washington in the form of higher industrial activity–and higher tax receipts. Indeed, tax receipts on both the state and federal level are awful and this accounts for recent declarations from Illinois, New York, and California that they are essentially broke. In all that empty commercial real estate across the country, where no shoppers roam and no sales tax is recorded, the thermostats are turned down and the lights are turned off.

Meanwhile, there is every indication that the FED is going to have to extend its quantitative easing as the supply of Treasuries continues to ramp higher while US savings and international capital flows are simply not enough to supply the necessary bid, in US Treasuries. Moreover, it’s likely that a great deal of last year’s bid in US Treasuries was simply the FED’s monetization of the mortgage-backed securities market (MBS) coming back in the form of Treasury demand. The FED in a program of ongoing duration started purchasing 1.3 trillion of MBS starting last year, with the intent to continue through the end of March 2010. Should they not extend the MBS purchase program, I would expect Treasury prices to fall. Foreigners have already been avoiding the longer end of the bond curve, or simply reducing Treasury purchases overall. | see: Debt Burden Now Rests More on US Shoulders. Additionally, there is the problem of duration, in that Treasury has been funding a large portion of US deficit spending with shorter duration bonds. That means a larger number of bonds mature in shorter timeframes. Thus, in 2010, the US not only has to float a large new supply of Treasuries but it has to find buyers for its maturing supply of Treasuries. | see: The $700 Billion U.S. Funding Hole; Desperately Seeking A Very Indiscriminate Treasury Buyer.

Surprisingly, or perhaps perversely, 2010 sees an accelerated continuation of the 10 year trend in developing world coal demand and developed world credit growth. For all of its reflationary firepower, the OECD has at best eased the acute phase of deflation while sparking strong inflation in the Non-OECD. Here in the developed world we continue to see asset price deflation in real estate, though notably, our purchasing power has started to fall in the aggregate in both the US and in Britain. (In China, inflation threatens to rage. ) The problem for the OECD is that energy demand in the Non OECD does not translate well to demand growth for US Treasuries or UK Gilts. Coal prices are strong however because US utilities may not require more coal but pan-Asian utilities continue to build capacity, and the trajectory higher continues.

In January 2009 I asserted that the 27 year bull market in US Treasuries had ended in the blow off panic spike (in prices) just that December. I maintain that view now. And, while Washington may at times entertain thoughts of choosing a deflationary pathway out of the crisis–call it a liquidationist urge, if you will–the voices that beckon to inflate our way out of the crisis will always win out out in the end.

The developing world is clear-eyed enough to know that it cannot depend on developed world demand, to keep its factories running. This is why alot of direct trade occurs now within the Non-OECD that is designed to both trigger domestic demand and which also facilitates resource for resource deals which lock up supply. It’s in the developed world however that the lack of sobriety has reached epidemic levels as we keep trying to replace both energy inputs and production–with credit. When the growth in private credit could no longer carry the weight and failed, we embarked on a mad dash to do the same with sovereign credit. Were the OECD and especially the United States building new power generation or electrified transport with this credit, we could at least expect to get some return on the investment. But alas, we are hellbent still in trying to revive consumer demand. Thus, for all the growth in government debt, we are doing nothing more but pouring water on concrete.

-Gregor

charts by www.gregor.us using data from BP Statistical Review 2009

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Author: Gregor Macdonald   Posted in: Debt   coal   Tagged:        
Jan 22 2010

Post-Peak Mexico

January 22, 2010

Each year brings fresh updates to the body of peak oil research but I thought the recent An Explanation of Oil Peaking, R.W. Bentley, University of Reading 2009 was particularly good reading. Bentley does such a good job of explaining in direct terms a simple model for peak oil, without excluding any of the attendant complexity. (This would be a very good introduction for someone new to the subject). I especially liked his articulation of how the total production arc for, say a country or a region, is a sequence composed of the largest fields eventually giving way to many smaller fields. That description made me think of the post-peak production profile of the United States, with its long-life extension at levels well below the 1971 peak. And, it also brought to mind Mexico.

The chart you see here includes the latest updated production, provided just today by PEMEX. Total crude oil for the month of December comes in at 2.590 mbpd. This is a slight uptick to November’s 2.553 mbpd. Of course, the real story in the chart is that Mexico can never, and will never, get back to its peak year of 2004. The fact that the country’s oil minister(s) has been claiming it would, over the past five years, is actually kind of sad. And if you read Bentley’s paper you’ll understand more fully the reasons why.

Now that Mexico has lost its largest oilfield, Cantarell, which did a fast crash over 3-4 years and is the central thrust behind the above chart it’s now likely that Mexico’s crude oil production will tail off at a gentler decline rate. If Cantarell became inoperable for some reason then a new, fast leg down in supply would of course unfold. But, barring such an occurrence my guess now would be that much of the acute phase of the decline is over. Or, about to be over.

As Mexico moves into the chronic phase of its decline you will hear about new technologies, new discoveries, and increased production from some existing fields. Perhaps Mexico will even change its constitution, and allow western exploration companies to enter with their engineers and high-tech equipment. No doubt the Mexican government will claim, just like poorly written journalism here in the States often claims, that these developments have a chance to meaningfully lift production. Again, the data shows that’s simply not the case at all. For the explanation, read Bentley.

-Gregor

chart: by www.gregor.us using data from EIA Washington.

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Author: Gregor Macdonald   Posted in: Mexico   Tagged:  
Jan 20 2010

Venezuela Bids to Become a Dysfunctional Petrostate

January 20, 2010

A great deal of the newsflow from Venezuela over the past decade has detailed the gutting of PDVSA, the national oil company, for the sake of illusory programs dreamed up by one Hugo Rafael Chavez. As this has gone on for some time now it was inevitable that Venezuelan oil production would eventually suffer. Indeed, after serial takings in the Orinoco, the stuffing of PDVSA with cronies, and the depletion of its capital, there’s little surprise that Venezuelan oil production is down 1 mbpd since 2001. That’s a 30% fall.

Of course, with each successive nationalisation it was inevitable that Venezuela’s various systems would eventually merge to form new, tightly coupled, super-scaled problems. From yesterday’s Bloomberg/BusinessWeek:

Venezuela’s power shortage may push oil above $100 a barrel if President Hugo Chavez diverts electricity from the biggest refining complex in the Americas, Curium Capital Advisors LLC said. Chavez may tap a power plant at the 940,000 barrel-a-day Paraguana complex to supply electricity for public use, said Colin Fenton, chief executive officer of the Boston-based oil research firm. “He has to decide every single day what to do with Paraguana,” Fenton said today in an interview with Bloomberg TV in New York. A shutdown there would cause a temporary price spike until U.S. refiners make up for the lost output, he said. Most regions of Venezuela are facing blackouts for two to four hours a day to save power as the worst drought in 50 years reduces water levels in hydroelectric dams that provide 73 percent of the country’s energy.

Despite alot of incendiary rhetoric from the Chavez regime over the years, The United States secures alot of its just-in-time supply from Venezuela. (I’m not convinced that the power outages in the country’s grid will actually get the price of oil to 100 just yet). However, it’s instructive that along with geological declines in Mexico, hemispheric supply to the United States remains on a well-established downward path. It appears that Chavez is about to achieve dysfunctional petrostate status for Venezuela.

-Gregor

chart by www.gregor.us using data from EIA Washington

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Author: Gregor Macdonald   Posted in: Americas   Mexico   Oil   non-OPEC   Tagged:
Jan 15 2010

1965: When Oil Finally Overtook Coal

January 15, 2010

We generally think of the Oil Age as having begun around the start of the 20th Century. Henry Ford began production of the Model T in 1908, and British coal production would peak soon thereafter in 1913. And yet, despite the fast global uptake of oil through the first half of the century–and both world wars–it was not until 1965 that oil use in BTU terms overtook coal.

The chart you see here divides total global oil use in million tons by total global coal use in mtoe (million tons oil equivalent). This gives us BTU equivalency. As late as 1954 for example, the world was consuming 1054 mtoe of coal, yet only 673 mt of oil. I use this 10 year period of course because it shows the moment when, after 150+ years of coal use, oil finally overtook coal. In 1965 the world consumed 1480.9 mtoe of coal–and 1530 mt of oil.

So, when exactly did the Coal Age end, and the Oil Age begin? Well, I’ve recently spent time with energy data on global Wood, Coal, and Oil use back as far as 1800 and there are a number of insights to be gleaned. With regard to how global energy use was structured up until this time, it was revealing for example to see that the Great Depression hit global coal consumption very hard. Oil? Not so much. And for an obvious reason: oil was still young in its adoption. On the larger matter of energy transition, there are other good insights in the data. For example, the acceleration you see in this 10 year chart, when paired with the longer series back to say, 1854, confirms the idea that changes such as these happen slowly at first–and then (seemingly) all at once.

-Gregor

chart: www.gregor.us | data source: bp statistical review and other sources.

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Author: Gregor Macdonald   Posted in: coal   Tagged:    
Jan 14 2010

Peak Non-OPEC in 2010, Officially Speaking?

January 14, 2010

You will recall the big dust up between the Guardian newspaper and IEA Paris in November of last year. The newspaper broke the story that the international energy agency had either been fudging data or at the very least downplaying data, in an effort to diminish the urgency of peak oil. The Guardian claimed to have statements from not one but two whistleblowers, either working or previously working inside IEA. More sensational was the claim for motive: the IEA had been putting sunny forecast spin on top of the data at the request of US government in Washington.

While the actual claims of the whistleblowers have never been adjudicated (and likely never will be), the more relevant takeaway from the incident is that IEA rather importantly suggested that Non-OPEC production would peak in 2010. As I wrote back in November, we needed no whistleblower to deduce the absurdity of an energy agency that claims a 2010 peak in Non-OPEC–which produces 60% of global supply–while maintaining that global peak would not arrive until after 2030. That is just silly.

I bring this up today because the EIA in Washington this week, at least on the matter of Non-OPEC, appears to be in agreement with IEA that peak arrives this year:

The EIA forecast for non‐OPEC supply growth has important implication for the world oil market. The expected decline in non‐OPEC supply in 2011 returns to a trend in non‐OPEC supply seen prior to 2009 … Declining liquids production from traditional sources of non‐OPEC supply raises the importance of new centers of supply growth and strains long‐established relationships between producers and consumers. Falling production in Mexico has led to a large decline in oil exports to the United States, forcing some U.S. refiners to locate new sources of supplies. The friction caused by these dislocations can contribute to elevated oil prices, as new relationships form and liquids flow from different sources.

Readers of this blog and subscribers to my newsletter know my view: the peak year for Non-OPEC was 2004 at a sustained annual average of 42.068 mbpd. While it’s always possible that we could hit that level on a monthly basis (and we did so in October of 2008–at least until the revisions start!), it’s highly unlikely Non-OPEC would be able to sustain that number for an entire year. The declines from existing fields are too strong now, and the new finds are too onerous, expensive, and slow to change the well-established trend. However, it’s always amusing to hear what the two energy agencies think–officially speaking, that is.

-Gregor

Document:  Short‐Term Energy Outlook Supplement: Outlook for Non‐OPEC Supply in 2010‐2011.(pdf) – January 2010, EIA Washington

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Author: Gregor Macdonald   Posted in: EIA   IEA   non-OPEC   Tagged:      
Jan 12 2010

Non-OPEC Production Soars in Latest EIA Data

January 12, 2010

In October of 2009, for which EIA Washington just supplied the latest data, Non-OPEC crude oil production soared by over 500 kbpd, going from 41.567 mbpd to 42.109 mbpd. This is the first time since the Spring of 2007 that Non-OPEC hit a single month’s production level at/above 42 mbpd. (Nota Bene: all data has been backward adjusted for the additions/subtractions to OPEC/Non-OPEC: Indonesia, as one example).

While recently there has been much focus on Russia’s ability to grow production, the two regions most responsible for October’s single month advance were The North Sea, and Canada. Readers should note that “The North Sea” is a composite region that brings together the following: United Kingdom Offshore, Norway, Denmark, Netherlands Offshore, and Germany Offshore. This region added a little more than 300 kbpd in October, and Canada added 200 kbpd. These additions caused overall Global crude oil supply production to advance from 72.529 mbpd to 73.121 mbpd.

The October data arrived yesterday from EIA Washington with extensive revisions to global supply reaching as far back as November of 2005. Generally, previous years were revised slightly higher in yesterday’s data release. My comment: this is a reversal of about an 18 month trend in which trailing data was continually revised lower. As for the one month upside surprise from The North Sea and Canada, I would point out that both regions in the past 12 months have produced either 1) lots of volatility in actual production, or 2) volatility in data reporting, and in particular from Canada.. Hey listen up: if you’re handling Canada data, we need less noise!

-Gregor

Charts: via www.gregor.us using data from EIA Washington IPM Monthly updated 11 January 2009.

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Author: Gregor Macdonald   Posted in: Oil   non-OPEC   Tagged: