Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2012

[jtabeb]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

This is exactly what is needed now: the dollar cartel to pump-up the value of the US dollar once again, just as the so-called cartel did under Volker's leadership at the Fed in 1980. This deflated the price of oil, as you said above, and this is exactly what is needed now: an artificial pump-up of the dollar through a series of interest rate hikes, and the consequent deflation of the commodities markets including a collapse of the oil price.

Why doesn't the cartel understand the obvious? Instead, they stay with these failed economic policies.


You've just hit the nail on the head as well. You ask a good question.

I'll give you the best guess of many for an answer: THEY CAN'T, the system is SO weak that to do what you are suggesting, would literally destroy the entire edifice. So they backpedal to try to keep it running.

If the system crashes, they loose power, simple as that. So the argument of many (myself included) is that they will try EVERTHING, legal or not, to attempt to keep the system functional. The question is "do you think they will be able to put humpty-dumpty back together again". Many, (again ncluding myself), think they will not be able to do so.

Astute logic, BTW.

[jk]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

This is exactly what is needed now: the dollar cartel to pump-up the value of the US dollar once again, just as the so-called cartel did under Volker's leadership at the Fed in 1980. This deflated the price of oil, as you said above, and this is exactly what is needed now: an artificial pump-up of the dollar through a series of interest rate hikes, and the consequent deflation of the commodities markets including a collapse of the oil price.

Why doesn't the cartel understand the obvious? Instead, they stay with these failed economic policies.


You've just hit the nail on the head as well. You ask a good question.

I'll give you the best guess of many for an answer: THEY CAN'T, the system is SO weak that to do what you are suggesting, would literally destroy the entire edifice. So they backpedal to try to keep it running.

If the system crashes, they loose power, simple as that. So the argument of many (myself included) is that they will try EVERTHING, legal or not, to attempt to keep the system functional. The question is "do you think they will be able to put humpty-dumpty back together again". Many, (again ncluding myself), think they will not be able to do so.

Astute logic, BTW.

the name of the game is delay. if the banks and freddy and fannie et al can hide their impaired assets in the fed's vault, and earn ongoing income, while the underlying assets are allowed to inflate NOMINALLY in price, then down the road they can survive eating any losses incurred by taking the paper out its hiding place at the fed. that's the plan. then, and only then, will the system be able to afford another volcker.

[GRG55]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

This is exactly what is needed now: the dollar cartel to pump-up the value of the US dollar once again, just as the so-called cartel did under Volker's leadership at the Fed in 1980. This deflated the price of oil, as you said above, and this is exactly what is needed now: an artificial pump-up of the dollar through a series of interest rate hikes, and the consequent deflation of the commodities markets including a collapse of the oil price.

Why doesn't the cartel understand the obvious? Instead, they stay with these failed economic policies.

Yesterday, the Bank of England (Mervyn King, governor) refused to raise interest rates. Same thing at the Bank of Canada (Carney, governor); they refused to raise interest rates. The Bank of Canada even went against the policy recommendation of the C.D. Howe Institute to raise rates..... It certainly does seem as if we are dealing with a cartel of central bankers intent upon keeping interest rates negative, in real terms, for as long as possible, no matter how bad inflation gets, and no matter how bad economic conditions get.

In England we all know this is what they are really fretting about:

...The Royal Institution of Chartered Surveyors' monthly survey of house prices for June pointed to further falls in house prices in the months ahead, with sentiment in the property market near record lows...

even though the headline on this Reuters item dated today read:

UK inflation surges as economic gloom deepens

Tue Jul 15, 2008 8:09am EDT
LONDON (Reuters) - British inflation shot up to nearly double the central bank's 2 percent target in June, intensifying doubts about whether the Bank of England can cut interest rates to prevent a sharp economic slowdown...
More...

And back in Canada this was the news that greeted Bank of Canada Governor Mark Carney on the front page of the National Post he picked up off his front stoop this morning [probably choked on his Corn Flakes as he read this]:

West leads drop as Canadian housing slumps

First decline in 9 years
Garry Marr, Financial Post Published: Tuesday, July 15, 2008
Canadian home prices fell for the first time in almost a decade in June but the Canadian Real Estate Association said Tuesday it is likely a one-month blip and not a sign of things to come... [sound familiar? :rolleyes:]
More...

Carney is a Goldman Sachs alumnus [Yes Virginia, Canadians can be wooed by the siren song of Wall Street too]. What do you think he's going to do? Raise rates? Hardly. :p

[marvenger]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

the name of the game is delay. if the banks and freddy and fannie et al can hide their impaired assets in the fed's vault, and earn ongoing income, while the underlying assets are allowed to inflate NOMINALLY in price, then down the road they can survive eating any losses incurred by taking the paper out its hiding place at the fed. that's the plan. then, and only then, will the system be able to afford another volcker.

I agree with this analysis. Michael Hudsons simple analysis of the political pressure to maintain the debt burden on 90% of the population also helps me understand the very simple needs and wants, more concentration of power, of the decision makers. The more debt laden the 90% the more controlled they are. They'll do everything they can to maintain this and their creditor power rather than take a hair cut and give some power to some entrepreneurs who'll divert some money from the housing market and make everyone lives a bit better. That is until the entrepreneurs too take on corrupt tendancies like microsoft, google etc.

A little conspiracy theory like but It seems complicated issues are constantly being contorted and manipulated to justify these very simple ends.

[reallife]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

Thanks gentlemen,

It seems intuitive that since 2/3rds of the earth is covered by ocean that we would find a similar proportion of resources below the ocean as on dry land. Agreed, though, the cost would be staggering. Not just in terms of dollars but also in terms of energy required to extract it.

In Kunstler's "Long Emergency" he says that in the early days of oil exploration that it took 1 barrel of oil to extract 100 bbl. Today it is something more like 1 bbl required to get just 2. Forgive me if my figures are off. I am on the road and don't have the reference in front of me but you get the idea. The resources may very well be there but it seems the law of diminishing return wins out every time. Like ethanol, at some point, the energy return for deep water drilling would be a net negative.

Oil extraction is limited to the continents and the continental shelves. Oceanic tectonic plates are turned over (under actually) at a much more rapid rate than the continents which are lighter and actually floating around the planet. BTW, the so-called Law of Diminishing Returns is merely a corollary of the Second Law (Thermodynamics).

[xela]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

Give me $8 Mil and I can produce at 240,000 gals/yr, give me $8 Bil and you can make that number 240,000,000/ yr, give me $80 Bil and I'll make the US a net energy exporter.

That is DOABLE NOW W/ CURRENT TECH no less.

BTW that's $500,000 per acre of production at 15K gallons per acre and $100K per 100K gallons of refined product.

I read TheOilDrum now for over 2 years, and never saw any tech being discussed that comes even close to what you talk about (at least for the US; Brazil is a different matter, but not scalable as would be needed).
Indeed one of their contributors (Robert Rapier) calls bullshit on most bio-anything - Eroei never makes sense, and scalability is a huge problem.

[GRG55]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

Don't believe everything you hear about spectactular oil finds in the media. Here's some previous stuff on Brazil's Tupi deep water find, and a few others before that in the link at the end:

The hype and mis-information around Tupi continues...

Petrobras to Pay Most in Bond Market Since ’03 on Oil

Jan. 9 (Bloomberg) -- Petroleo Brasileiro SA, owner of the Americas’ biggest oil discovery in three decades, will pay the most in the bond market in five years to finance a record investment plan after crude prices tumbled...Petrobras will boost borrowing this year from $8.5 billion in 2008 to help fund an investment plan of about $22 billion, Credit Suisse Group AG said yesterday...

...Petrobras, whose shares fell 48 percent last year, needs money to pay off $3 billion of maturing debt and fund development of the Tupi field. Its borrowing costs are rising after oil tumbled 71 percent from a July record and the credit crisis curbed demand for emerging-market debt. Petrobras’ 5.875 percent bonds due in 2018 yield 4.92 percentage points over Treasuries, more than on any bond the company sold since June 2003...“Petrobras will probably have to pay up to tap the international debt market,”...

...Petrobras became a darling of investors after its discovery in November 2007 of the Tupi oil field, the largest find in the Americas since Mexico’s 1976 discovery of Cantarell.

Tupi contains an estimated 5 billion to 8 billion barrels of oil. It may be at the center of a new offshore oil province that Haroldo Lima, head of Brazil’s oil regulator, said could contain 80 billion barrels of oil, enough for more than 10 years of U.S. consumption.

In January last year, Petrobras said another find nearby, Jupiter, was probably “Tupi sized.” In September the company said that another field near Tupi, Iara, holds 3 billion to 4 billion barrels of oil and gas. Petrobras and other oil companies may have to spend $600 billion over two decades to develop the “pre-salt” offshore reserves around Tupi, according to UBS AG...

The following came to mind as I read this article:

• Excessive debt is one of the most common reasons that resource companies fail. It's bad enough that commodity prices are cyclical; but for an oil company the kiss of death is drilling using debt. If the wells prove to be non-commercial there is no commodity to generate future cashflow, but the debt remains.
• The cost and time estimate from UBS is the first credible number to develop this oil province I have seen from analysts quoted in the media. Compare that with Petrobras' 2009 budget, and one can quickly see that the amounts that Petrobras can devote to these pre-salt projects in 2009 is barely enough to drill a few wells and get started on the engineering. Based on the long, long history of frontier oil and gas development, by the time Brazil's offshore development is well underway, the $600 B estimate will feel like a quaint memory - expect the actual costs to more than double.
• 4.92 percentage points over Treasuries!!! Where's all that low, low cost credit we keep hearing about? This is the best a state-owned oil company, backed by a country with one of the fastest growth rates in the world in recent years, and control of what is alleged to be 80 billion barrels of oil [the "next OPEC member"], can do?

[BadJuju]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

Indeed one of their contributors (Robert Rapier) calls bullshit on most bio-anything - Eroei never makes sense, and scalability is a huge problem.

I disagree with this assertion. Cellulosic ethanol, various non-corn ethanol inputs, and algae are definitely viable biofuels; however, they simply need more investment to realize their potential. The whole EROEI argument is really only applicable to corn. And as market forces dictate within the next few years, these innovative methods of extracting oil from new sources will prove to be the best options for everyone.

[GRG55]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

I disagree with this assertion. Cellulosic ethanol, various non-corn ethanol inputs, and algae are definitely viable biofuels; however, they simply need more investment to realize their potential. The whole EROEI argument is really only applicable to corn. And as market forces dictate within the next few years, these innovative methods of extracting oil from new sources will prove to be the best options for everyone.

I have a lot of respect for the folks at the Oil Drum, but I regard EROEI [energy return on energy invested] as economics by mysticism.

All forms of energy are not of equal value.

We regularly consume vast amounts of energy in the conversion from one form into another, that is presumably more valuable than the form of energy we started with. Burning coal to make steam to drive a turbine, which in turn drives a generator which produces electricity, which is conducted on wires to your home so the flat screen TV works [with energy losses at every point along the way], is but one example.

If there is a way to take an abundant and low value energy source and convert it to a form of energy that people value highly, such as transportation fuels, who cares what the energy balance is, as long it can be done profitably without a taxpayer subsidy inserted in the process [as they do now with ethanol ].

[BadJuju]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

If there is a way to take an abundant and low value energy source and convert it to a form of energy that people value highly, such as transportation fuels, who cares what the energy balance is, as long it can be done profitably without a taxpayer subsidy inserted in the process [as they do now with ethanol ].

I agree, sir, but do not mistake ethanol for corn ethanol, which is what is subsidized. It is a terrible biofuel stock with a poor energy balance of 1:1.3

[GRG55]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

I agree, sir, but do not mistake ethanol for corn ethanol, which is what is subsidized. It is a terrible biofuel stock with a poor energy balance of 1:1.3

I would like to understand this point in more detail.

Is it solely ethanol produced from corn inputs that is subsidized [I understand there may have been just a wee bit of agriculture industry influence over how the ethanol subsidies were structured}?

Or are there different levels of subsidies for different "bio-fuels", and if so how do these vary? By input source, or some purely political decision [like which Senator's state they are made in]?

This is a serious inquiry, even though the tone may strike some as flippant.

[GRG55]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

The hype and mis-information around Tupi continues...

Petrobras to Pay Most in Bond Market Since ’03 on Oil

Jan. 9 (Bloomberg) -- Petroleo Brasileiro SA, owner of the Americas’ biggest oil discovery in three decades, will pay the most in the bond market in five years to finance a record investment plan after crude prices tumbled...Petrobras will boost borrowing this year from $8.5 billion in 2008 to help fund an investment plan of about $22 billion, Credit Suisse Group AG said yesterday...

...Petrobras, whose shares fell 48 percent last year, needs money to pay off $3 billion of maturing debt and fund development of the Tupi field. Its borrowing costs are rising after oil tumbled 71 percent from a July record and the credit crisis curbed demand for emerging-market debt. Petrobras’ 5.875 percent bonds due in 2018 yield 4.92 percentage points over Treasuries, more than on any bond the company sold since June 2003...“Petrobras will probably have to pay up to tap the international debt market,”...

...Petrobras became a darling of investors after its discovery in November 2007 of the Tupi oil field, the largest find in the Americas since Mexico’s 1976 discovery of Cantarell.

Tupi contains an estimated 5 billion to 8 billion barrels of oil. It may be at the center of a new offshore oil province that Haroldo Lima, head of Brazil’s oil regulator, said could contain 80 billion barrels of oil, enough for more than 10 years of U.S. consumption.

In January last year, Petrobras said another find nearby, Jupiter, was probably “Tupi sized.” In September the company said that another field near Tupi, Iara, holds 3 billion to 4 billion barrels of oil and gas. Petrobras and other oil companies may have to spend $600 billion over two decades to develop the “pre-salt” offshore reserves around Tupi, according to UBS AG...

The following came to mind as I read this article:

• Excessive debt is one of the most common reasons that resource companies fail. It's bad enough that commodity prices are cyclical; but for an oil company the kiss of death is drilling using debt. If the wells prove to be non-commercial there is no commodity to generate future cashflow, but the debt remains.
• The cost and time estimate from UBS is the first credible number to develop this oil province I have seen from analysts quoted in the media. Compare that with Petrobras' 2009 budget, and one can quickly see that the amounts that Petrobras can devote to these pre-salt projects in 2009 is barely enough to drill a few wells and get started on the engineering. Based on the long, long history of frontier oil and gas development, by the time Brazil's offshore development is well underway, the $600 B estimate will feel like a quaint memory - expect the actual costs to more than double.
• 4.92 percentage points over Treasuries!!! Where's all that low, low cost credit we keep hearing about? This is the best a state-owned oil company, backed by a country with one of the fastest growth rates in the world in recent years, and control of what is alleged to be 80 billion barrels of oil [the "next OPEC member"], can do?

Petrobras deadline prompts some bondholders to push for default

RIO DE JANEIROMon Dec 29, 2014 6:50pm EST

(Reuters) - Petrobras, Brazil's state-run oil company, could be declared in technical default on some of its foreign debt as early as Tuesday if bondholders pursue efforts to force it to speed up its assessment of losses in a giant corruption scandal...

...Petrobras, which first planned to release results in early November, has extended the deadline to Jan. 31 as new corruption allegations came to light, saying it had a waiver from investors but not giving any details.Petrobras did not immediately respond to a request for comment.

"We believe bondholders should immediately take the prudent precaution of giving formal notice of default," Aurelius managing director Eleanor Chan wrote. "While mere notice of default should not itself cause a crisis, bondholders cannot avoid a crisis merely by sticking their heads in the sand and accepting Petrobras’ assurances as a certainty."...

...Few have suggested Petrobras will be unable to pay its debts in the short or medium term. It has huge oil resources and the backing of the Brazilian government, whose officials have said they will backstop the company.

Petrobras, though, is already frozen out of capital markets because of the scandal and is in danger of losing its investment-grade debt rating, a situation that would reduce the pool of potential investors and raise its borrowing costs.

A notice of default will require Petrobras to provide financial statements by early March or face calls for early repayment of debt.
Even if matters do not reach that stage, the declaration will increase pressure on Petrobras executives to negotiate with bondholders and provide a credible accounting of the costs of the corruption scandal, a reckoning that Petrobras' chief executive said could take months...

[jk]

Re: Charley Maxwell - WELLING & WEEDEN - Oil Shortages Start in 2010. Peak Oil Hits 2

i thought the THIRD set of books always had the accurate numbers.