Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

[Raz]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

And I don't believe it either.

The first part of the article is pure nonsense...but the latter parts of it include some valid information about what is really going on, and what's likely to happen.

Everybody here knows that the very idea that Iraq could achieve a "five-fold increase", to rival the world's two largest producers, in seven years is completely ridiculous. It's simply not physically possible. ...

Attached is a file with a "predicted" production profile for Iraq based on the contracts that were being promoted by the Iraqis in the latter half of 2009. The current contract round has inflated the 2020 production rate by roughly another 15%. This chart was put together last November just for laughs by a friend of mine who has many, many years of experience working the Iraqi oilfields as a petroleum professional.

Today everybody is playing their part. ...The Iraqi government is talking up the rosy future results ... And the industry shills [and nobody shills for the industry quite as well as Cambridge Energy Research Associates :p] are doing their bit to curry favour with their valued clients, governments and Big Oil, by getting out the appropriate pre-approved soundbites..."lots of oil, just have to get it out of the ground"..."western desert never explored"...blah, blah. ...

No matter what, in typical Middle East fashion, time will pass, deadlines will be ignored, targets won't be met, obligations will be reinterpreted, governments will change, and new contract arrangements will be negotiated...

Thanks, GRG55. I suspected as much and I'm sure most iTulipers did as well.

Thanks for taking the time to offer your valuable insight as an industry professional and "insider".

[GRG55]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

Just an adder... this isn't the first time the topic of Iraq oil development has come up. Here's a link to a previous thread that may contain some info of interest. An excerpt from that earlier thread:

...Given the tragedy in Iraq, going back decades now, the fields/reservoirs certainly have varying opportunities to quickly increase production and recovery. The Iraqis are not ignorant of how to do this...there's quite a few knowledgable and technically competent petroleum professionals there. But the political system, the wars, the lack of resources, the sanctions have all taken their toll. Only a couple of years ago anybody working in the Oil Ministry in Baghdad was at high risk of being kidnapped or murdered on the way to or from work.

The strategy that will most likely be applied here will be to inject a pre-determined amount of front end capital into the obvious opportunities and then recycle the net cash-flows generated by the joint-venture internally. BP and CNPC probably have a marketing clause that allows them to match whatever price is bid for the cargos so they can buy them, if they wish, and take physical delivery...thus creating a risk managed way to capture the downstream margin. Obviously CNPC's motives and business drivers will be somewhat different from BP, given their ownership differences.

[Rajiv]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

Raz,

You may also find this document useful in evaluating Iraq oil production - Oilwatch Monthly - December 2009

[ggirod]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

Originally Posted by jtabeb
Biofuel stocks from algae

jtabeb - news - hot off the presses ....

Algae Biofuel may require more petroleum based fertilizer than it produces but there are solutions.

"Researchers from the University of Virginia have found that current algae biofuel production methods consume more energy, have higher greenhouse gas emissions and use more water than other biofuel sources, such as switchgrass, canola and corn. The researchers suggest these problems can be overcome by situating algae production ponds behind wastewater treatment facilities to capture phosphorous and nitrogen — essential algae nutrients that otherwise need to come from petroleum."

[Rajiv]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

They obviously haven't heard of nitrogen fixing algae -- which do not require additional nitrogen -- but of course! here is the caveat -- the nitrogen fixing algae are not the lipid rich algae that produce the oil!

But there are solutions for that as well.

[GRG55]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

They obviously haven't heard of nitrogen fixing algae -- which do not require additional nitrogen -- but of course! here is the caveat -- the nitrogen fixing algae are not the lipid rich algae that produce the oil!

But there are solutions for that as well.

I just knew that General Motors was making a big mistake selling off their Hummer brand...

[ggirod]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

I personally feel that algae fuels will probably be a great solution to sustainable energy. After all, we are now just burning the output of sunlight and algae millions of years ago, and not all that efficiently processed.

If the algae are hungry enough, maybe you just make fuel from cattle feedlot runoff, hog farm runoff, and chicken farm runoff. It would be a great source of additional income for the operator and a means to keep water clean.

A small operation could make its own fuel, a larger one could sell the biofuel, and a full fledged stockyard could haul rail cars of the stuff off.

Of course, in the grand scheme of things, if we make meat more convenient, we divert grains from efficient human consumption to less efficient meat production.

Then again, grass fed critters are most certainly fair game. Of course, they are not raised in high density locations that would provide the nitrogen and phosphorus.

Interesting problem.

[Rajiv]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

Especially since we all evolved from algae!

You should see the video - Algae: The World's Most Important Plants

Believe it or not, your life depends on algae! Join Scripps' Institution's Russell Chapman as he discusses the important roles algae have played in the development of life as we know it. Series: "Perspectives on Ocean Science"

[ggirod]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

Especially since we all evolved from algae!

Actually, we didn't evolve from algae. There was a fungus amungus (we share a closest common ancestor with fungi -- that is the thought that stuck in my mind so I remembered it -- now you will too ). We and algae do share a more distant common ancestor, however. From Wikipedia

I remembered this from fairly long ago, but I was surprised how hard it was to find it.... I guess it is old news.

That video looks excellent - it is on my list to watch.

[GRG55]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

And I don't believe it either.

The first part of the article is pure nonsense...but the latter parts of it include some valid information about what is really going on, and what's likely to happen.

Everybody here knows that the very idea that Iraq could achieve a "five-fold increase", to rival the world's two largest producers, in seven years is completely ridiculous. It's simply not physically possible. Not only would such a magnificent effort consume a wildly disproportionate share of the world's drilling fleet, experienced oilfield & oil service sector personnel and capital allocated to petroleum, but [as the article properly points out] drilling the stuff isn't enough. The processing, storage, transport, export loading and other facilities required to move that amount of oil to a paying market would take decades, not years, to build up.

Attached is a file with a "predicted" production profile for Iraq based on the contracts that were being promoted by the Iraqis in the latter half of 2009. The current contract round has inflated the 2020 production rate by roughly another 15%. This chart was put together last November just for laughs by a friend of mine who has many, many years of experience working the Iraqi oilfields as a petroleum professional.

Today everybody is playing their part. The industry is signing up to agreements that contain terms they know they cannot achieve. The Iraqi government is talking up the rosy future results and the tough terms to gain public support for letting in the foreigners. And the industry shills [and nobody shills for the industry quite as well as Cambridge Energy Research Associates :p] are doing their bit to curry favour with their valued clients, governments and Big Oil, by getting out the appropriate pre-approved soundbites..."lots of oil, just have to get it out of the ground"..."western desert never explored"...blah, blah.

In the Middle East it is quite common for governments to force the renegotiation of contracts. The article mentions that many of these oil services contracts are likely to be renegotiated in the future. That is a virtual certainty...but in a wee twist on the usual, this time it will be the oil companies that initiate that move. There's no money in any of these contracts beyond the obvious exploitation of the easiest production increases, most of which are due to a lack of money and equipment dating back to the UN sanctions. Once that so-called "low hanging fruit" has been plucked, the industry can't make an adequate return continuing to invest more capital under the terms of these contracts. So Iraq will again be faced with being starved of capital or renegotiate the agreements.

No matter what, in typical Middle East fashion, time will pass, deadlines will be ignored, targets won't be met, obligations will be reinterpreted, governments will change, and new contract arrangements will be negotiated...

Lukoil, Statoil Sign Contract for Iraq’s W. Qurnah-2 Oil Field

Jan. 31 (Bloomberg) -- Iraq, holder of the world’s third- largest crude reserves, signed a contract with a group led by Russian producer OAO Lukoil to develop the West Qurna Phase 2 oil project at a ceremony in Baghdad today.

The group, including Statoil ASA, won the field in a December auction, agreeing to boost production to 1.8 million barrels a day for a fee of $1.15 a barrel produced.

A buck, fifteen a barrel...

...My laugh for the day...from one of the least competent Oil Ministers in the Middle East...

Oil firms missing targets face 'huge fines' - Iraq


BAGHDAD, Jan 31 (Reuters) - Oil companies have committed themselves to the ambitious targets set in deals signed this month with Iraq and face fines of billions of dollars if they miss them, the Iraqi oil minister said on Sunday.

"These production target figures are contractual and were set in the contracts with the companies. The companies are obliged to implement them otherwise they should pay huge fines worth billions of dollars," Oil Minister Hussain al-Shahristani told Reuters.

[MulaMan]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

It is really about politics whether America wants to play in the 21st century or get left behind.

China is already the world's largest "alternative" energy producer, then Europe, way ahead of the USA.

China provides tons of incentives $$$ to solar where America still provides special tax breaks to big oil and invades entire countries (Iraq) on behalf of big oil. The Iraq war is in fact a trillion dollar big oil subsidy from Repbulicans, stolen from the middle class, or what is left of it.

All you need to do is travel outside of the U.S.A. to see how backwards this country has become, how un-enlightened this county is, how far ahead the civilized world is, and how the "developing" world has caught up while America stood still.

America used to stand for progress. Now they seem like cowards to me, scared of progress, scared of the future, perhaps it is just all the baby boomers getting old and only worrying about themselves vs. thier country.

On a positive note, there is some great technical innovation going on but most of it is going offshore to where the enlightened markets are, some of the money will come back to the USA technology industry but not really the middle class until as someone said -

there is a culture change in America followed by a major political change

(and I'm not talking a repeat of Rebulican scumbags using tax dollars to pay Exxon to drill for oil in California and Florida as the solution)

[cindykimlisa]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

It is really about politics whether America wants to play in the 21st century or get left behind.

China is already the world's largest "alternative" energy producer, then Europe, way ahead of the USA.

China provides tons of incentives $$$ to solar where America still provides special tax breaks to big oil and invades entire countries (Iraq) on behalf of big oil. The Iraq war is in fact a trillion dollar big oil subsidy from Repbulicans, stolen from the middle class, or what is left of it.

All you need to do is travel outside of the U.S.A. to see how backwards this country has become, how un-enlightened this county is, how far ahead the civilized world is, and how the "developing" world has caught up while America stood still.

America used to stand for progress. Now they seem like cowards to me, scared of progress, scared of the future, perhaps it is just all the baby boomers getting old and only worrying about themselves vs. thier country.

On a positive note, there is some great technical innovation going on but most of it is going offshore to where the enlightened markets are, some of the money will come back to the USA technology industry but not really the middle class until as someone said -

there is a culture change in America followed by a major political change

(and I'm not talking a repeat of Rebulican scumbags using tax dollars to pay Exxon to drill for oil in California and Florida as the solution)

Mulaman



Perhaps some of those civilized countires you are talking about include CHina, Brazil and India. Have you been there and done that for any long term period? I'll take Obama and Bush and the USA over any of those three anyday and I despise Bush and Obama's politics.

Cindy

[phirang]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

Mulaman



Perhaps some of those civilized countires you are talking about include CHina, Brazil and India. Have you been there and done that for any long term period? I'll take Obama and Bush and the USA over any of those three anyday and I despise Bush and Obama's politics.

Cindy

The more i travel to "sporty" places, the more I love my own country.

[Raz]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

Mulaman



Perhaps some of those civilized countires you are talking about include CHina, Brazil and India. Have you been there and done that for any long term period? I'll take Obama and Bush and the USA over any of those three anyday and I despise Bush and Obama's politics.

Cindy

Cindy:

I agree with you. Now I'm going to ask a small favor: the next time you answer Mulaman please don't quote his assinine diatribes and hate-rants so I have to see them. I enjoy reading your thoughts, but he's on my ignore list for a good reason.

[Rajiv]

Re: Is Jeff Rubin right ... or is there ANOTHER Saudi Arabia?

Jeff Rubin at the The Business of Climate Change Conference 2009

Transcript:
You know, the world’s not running out of oil. There’s all kinds of oil left in all kinds of places. There’s 165 billion barrels of the stuff in the Alberta tar sands. And if we run out of that, there’s tar sands in the Orinoco. And there’s oil 5 to 10 miles below the ocean floor, in the Gulf of Mexico, off the coast of Brazil. And if we run out of that, there’s oil in shales, in places like Wyoming and Colorado. So it’s not about running out of oil. We’re never going to run out of oil.

But what the world is going to run out of, indeed, what the world has already ran out of, is the oil that you can afford to burn. Not just burn in your cars, and 60 percent of all the oil that we consume is consumed in the form of either gasoline or diesel fuel to power those cars. But maybe, more fundamentally, the ways that we burn oil in a million different degrees to which we’re not aware of. But most fundamentally, the way we burn oil to run a global economy. And by a global economy, I mean where we produce something at one end of the world, ostensibly to take advantage of cheap labor costs, to be sold at the other end of the world.

Because, while that model of the economy is based on wage arbitrage, it assumes, implicitly and critically, that the cost of moving goods and parts around the world is trivial or marginal at best. But no matter how we move goods around the world, whether we move them by air, whether we move them by boat, whether we move them by rail, or by truck, we are burning oil. And soon, we will no longer be able to do that.

Because the cost of raising 4 million barrels a day out of the Canadian tar sands, or the cost of replacing the rapidly depleting Middle East fields with deep water oil, the very prices that will be needed to get that oil out of the ground, are the very same prices that will get you right off the road. And that indeed is a world of triple digit oil prices.

We saw a brief glimpse of triple digit oil prices, and of course people said that was a fluke. Governments blamed speculators. Speculators blamed the US dollar. Oil companies blamed restrictive drilling conditions. But nobody wanted to acknowledge the inconvenient truth here, and the inconvenient truth here is that since 2005, conventional, i.e. the kind of supply that you can afford to burn, conventional oil supply, has not grown. And it may never grow again.

That doesn’t mean to say that we can’t bring new oil out of the ground. But remember one thing – you hear fancy gala press conferences by the Exxons and Chevrons of the world, or by the Brazils of the world, that they’ve just discovered these huge fields, with billions of gallons, barrels of oil trapped in them. But what you never hear about from these companies, or these host countries, is, you see this field – it’s been pumping for 50 years, we’ve pumped her dry, and she’s not going to yield any more oil. Yet, that very event, when you add up all of the fields that dry up every year, is worth 4 million barrels a day per year we lose to depletion. Just to put that number in some kind of context for you, we consume about 85 to 86 million barrels a day, so depletion is basically running at 5 to 6 percent.

What does that mean? Well, that means that in the next 5 years, we have to find 20 million barrels a day of new production, just so, that in 2014 we can consume the same 86 million barrels a day that we consume now.

That leaves no allowance for any increase in world demand. There have only been two years since 1983 that world demand did not grow - 1983, following the double dip recession, and last year, the deepest postwar recession on history. If we stay in recession, we have nothing to worry about – oil demand will not grow for the next 4 to 5 years. But if we have an economic recovery, of whatever shape, of whatever pace, we have a huge problem. Because it’s not even clear that we’ll be able to replace what we’re about to lose, let alone make any net additions.

And even if we are able to replace to roughly 20 million barrels a day that we will lose over the next 5 years to depletion, understand what we are losing, and understand what we are replacing it with. What we are losing is the 3 dollar a barrel cheap oil, the conventional stuff, the light Arab sweet crude that we’ve been pumping for the last 70 years. What we’re going to replace it with is synthetic oil, made out of Canadian oil sands. Look at the US Department of Energy, or the International Energy Agency, the 2 sort of official barrel counters, barrel predictors of the world. Look at where they’re expecting the largest supply increases in the next 15 years. Not Saudi Arabia, not Russia – Canada. And of course, they’re not talking conventional oil, they’re talking synthetic oil. They’re talking the Canadian oil sands going from 1.2 million barrels a day to over 4 million barrels a day.

It can be done, if Albertans want to turn an area the size of the state of Florida into one giant tailing pond. It can be done. But even if they’re so inclined to make that choice, the economics of that is going to require 200 dollar a barrel oil. And 200 dollar a barrel oil is going to translate into 7 dollar a gallon gasoline. So we’re going to basically be converting Northern Alberta into a tailing pond so some schmoe in Chicago can fill up at 7 dollars a gallon in 2014, because, believe me, all that increase in Canadian oil sand production isn’t for people in Red Deer and Calgary, it’s for the export sector.

But even if that’s the case, we’re going to see oil prices continue to rise, simply because the cost of bringing on new supply continues to grow. In economics, of course, higher prices ration demand. In the oil market that doesn’t seem to work, because just as oil prices have gone from around 20 dollars at the turn of the decade to as much as 147 dollars a barrel just a couple of years ago, the world seemed to get thirstier and thirstier for oil. Why is it that higher oil prices boost demand, when they’re supposed to restrain demand? Well, the answer to that riddle depends very much on where you’re looking at it. And this also has huge implications because where you burn oil is where you find its carbon footprint. Oil demand has peaked in places like Canada, the Unites States, Western Europe and Japan. The US will never consume more than the 21 million barrels a day that it did 3 to 4 years ago. Right now it’s about 19 ½ million barrels. That’s not where the demand for oil is going to be coming from, and that’s not what drove oil up over 100 dollars in the first place.

Guess where you think the demand for oil is growing the most rapidly. Probably, most of the folk here would say China, and certainly China is one of the strongest. But I know a place where the demand for oil grows even faster than China. Last year, OPEC, Mexico and Russia consumed 14 million barrels a day of oil – 2 Chinas. These countries also just happen to account for 65 percent of world oil production. These are the very countries where you’ve been told will supply you with your future oil needs. Saudi Arabia alone consumes 2 ½ million barrels of oil.

What makes OPEC thirsty for its own fuel? Have you ever filled your tank up in Caracas, or Riyadh? If you did, you’d soon know. It’s 25 cents in Caracas. It’s about 50 cents in Saudi Arabia. But the point is – it’s 50 cents whether oil is 20 dollars a barrel, or whether oil is 200 dollars a barrel, because that’s just the way things are over there. OPEC is a very disparate place, separated by history, religion, geography. But there’s one common denominator – everybody has a God given right to consume as much cheap fuel as they bloody well feel like. And that’s just the way things are, and not to be too sanctimonious, here in Ontario, we have a God given right to consume as much cheap electricity as we bloody well feel like, and any Provincial government that tries to discourage us from doing that is quickly shown the door. What’s the difference? The difference is, that here, we are 90 miles away from the worlds largest hydroelectric source, Niagara Falls. But you could understand, if you lived 90 miles away from Ghawar, the world’s largest oil field, you might feel the same way about pump prices as we do about power prices.

But if you think that 50 cents a gallon is a good deal, I know a way better deal in the Middle East. How do you think they generate power in the Middle East? They don’t have coal. They don’t have hydroelectric. We don’t want them to have nuclear. So guess what they burn? They burn natural gas and oil. And guess what the cost of oil is to that electric plant in Saudi Arabia – it’s not 50 cents a gallon, it’s 7 cents a gallon. And that, too, is set by royal decree. Why are power rates growing at a multiple of those in North America in the Middle East? The key reason is – I mean I write about ski Dubai in the book, but ski Dubai’s a head fake. The key reason is that the Middle East isn’t running out of oil – they’re running out of water. Places like Saudi Arabia, the United Arab Emirates, they consume about 15 to 20 times replenishable water levels. Aquifers in Saudi Arabia are already 80 percent depleted, which is why they’re now buying land in places like Pakistan and Sudan to grow food. They can’t make the desert green, because if they make the desert green, their people are going to be thirsty. Well, they may be running out of fresh water, but there’s no shortage of salt water. And salt water plus oil equals fresh water, through the wonders of desalination. Unfortunately, desalination is an extremely energy intensive process. Aside each new desalination plant in the Middle East is an oil powered generating station, with basically 7 cents a gallon smoke going up its smokestack.

Now, at the end of the day, this is their resource, and they can do whatever they want with their resource. My point is only this – stop thinking about what the Middle East is producing, and start focusing on what the Middle East and Venezuela is consuming. Because exports from OPEC are going to be steadily declining, not just because of depletion, but because, every year, more and more of that production gets cannibalized by domestic production. Instead of higher oil prices restraining oil demand, higher oil prices boost oil demand in oil producing countries, because you just have that many more billions of petrodollars chasing 50 cent a gallon gasoline and 7 cent a gallon diesel fuel.

Now, of course, in the Indias and Chinas, the question isn’t about price subsidy, the question is about the first time car drivers. And while the price of oil has gone up, that has limited traction among people who have no price memory. The big question there is the price of getting a car. Consider Tata’s Nano. Tata’s Nano is either a miracle, or a nightmare depending on your point of view. It’s a car that you can now buy for 2500 dollars. For literally millions of households in Southeast Asia, it’s a miracle allowing them access to roadways when they would never have that before. But in a world where gasoline supply has not grown in 4 years, on this side of the world, it’s a nightmare. Because every Tata owner, or every Chery owner in China gets a straw, a straw to start sucking at a world oil supply that has not grown in 4 years. So obviously, the more that they suck, the less that we suck, and the higher it costs for what we’re able to slurp up. And that’s why Americans don’t get the fact that while some 50 million North Americans are likely to take the exit lane over the next 10 years, for every person who will get off the road in North America, there are 10 people who are willing to get on the road in other countries. A strong sale year for car sales in countries like Brazil, Russia, India is 30 percent. A strong year for car sales in North America is 2 to 3 percent. China has already surpassed the United States in car sales. China has already surpassed the United States in coal consumption. Soon, the developing world will also surpass the developed world in oil consumption.

And that’s why, while triple digit oil prices do restrain our demand, the demand for oil is alive and well in the rest of the world. And that’s why we’re going to see that we’re going to have a rendezvous with triple digit oil prices, not in 10 to 15 years, we’re going to have a rendezvous with triple digit oil prices in the next 10 to 15 months. And it’s certainly not clear to me how this economy is going to behave any better than it did the last two years when we see those prices. It’s fashionable in the world that I used to come from to think that the recent recession was all about subprime mortgages. Gee, I never knew that Cleveland was that big. I never knew that the US subprime mortgage market was big enough to blow up the whole world economy. Blowing up Jeff Rubin’s bonus at CIBC World Markets – sure. Why the hell do you think I wrote a book? But blowing up an investment bank, and blowing up global GDP are two different order of magnitudes. And here are my problems with the Cleveland hypothesis: Why was the recession in Japan twice as deep as in the US? Why was the recession in Germany 50 percent deeper than in the US? And why did Germany and Japan go into recession before even Cleveland went into recession if it was all about subprime mortgages? Maybe, just maybe, there was something bigger going on – like for example, the world’s largest energy shock. An energy shock half of what the OPEC shocks were. The OPEC shocks both created deep recessions. This was even in inflation adjusted terms double the size of that. Why wouldn’t the biggest shock of all be the obvious explanation for the largest Post WWII recession? Surely knowing the nature of the disease is a precondition for finding the cure. We have gone billions of dollars into debt. We have gone billions of dollars into debt because we think the problem has been a liquidity problem and a financial market problem. We have even gone into billions of dollars of debt to prop up industries like auto which will soon be made obsolete by triple digit oil prices. You can bail out Cleveland property owners. You can bail out money center banks, and you can bail out technologically obsolescent auto companies. But what you cannot do, neither the central bank, nor the Department of Finance, is create BTUs of energy. And that’s why we’re going to run into the same challenges 10 to 15 months from now that we did 2 years ago.

There’s not a whole lot we can do about triple digit oil prices, but there is much that we can do to immunize our economy from the impact of those prices. What we have to do is find out a way that Peak Oil does not translate into Peak GDP. We don’t have 15 years to wait for the development of alternative technologies. The solution right now is not to figure out how to turn cow dung into rocket fuel. The solution right now is on the demand side because we don’t have the luxury of time for supply change innovation. And the single most important way that we can make that adjustment on the demand side is to go from a global economy to a local economy, because a global economy is an extraordinarily energy intensive, and in particular oil intensive way of doing business. And I believe that is exactly what is going to happen, not because governments are going to mandate it to happen, but because the very same economic forces that paved over our farmland and created sprawling suburbs, the very same economic forces that gutted our manufacturing sectors and sent them overseas in the pursuit of cheap labor. Those same very forces are going to bring those industries and those jobs back home.

Take steel, for example, an industry that we’ve all but kissed off in North America. The days of China supplying North America with steel are numbered. Consider what China has to do to ship steel to North America. First they have to schlep iron ore from Brazil across the Pacific Ocean, convert it into steel, which is in itself an extremely energy intensive process, and then ship it back. Well when oil got to 120 dollars a barrel, all of those shipping charges added on another 90 dollars to the cost of a ton of hot rolled steel. All of a sudden, the wage advantage on what is now as little as an hour and a half labor time to produce a ton of steel got eaten away by the 90 dollars extra transport cost. In other words, what you saved on labor, you more than spent on bunker fuel. Just prior to the recession, Chinese steel exports to the US had fallen 20 percent. US steel production was up 20 percent, and the share price of US Steel had doubled. Had the recession not occurred, the next stage in that chapter would have been the United Steelworkers going on strike. And for the first time in 20 years, their employers would actually give a shit, because for the first time in 20 years you could actually produce steel cheaper in North America than in China.

That’s steel. What about food? Last year the United States imported 6 billion dollars. Everything from bok choi to frozen chicken wings from China. A whole new meaning to having your Chinese food delivered. Well you know what? Steel does not have to be refrigerated, food does. What do you think powers that refrigeration unit on the boat? The same thing that’s powering the boat – bunker fuel. In a world of triple digit oil prices, we will not be getting our food from China. What will we do? It’s not like we’re not gonna eat. We’re going to have to grow our own. The only problem is that half of our farmland is already paved over. In 1985 over 45 percent of all the food in Ontario was grown right here. Today, less than 20 percent. That’s gonna change. That’s not gonna change because of philosophical choice. That’s not gonna change because of government policy. That’s gonna change simply because we will not be able to afford to fly in tangerines from Chile, or Avocado from Mexico in the middle of the winter. If we have to grow our own food, we have to change the nature of our land. And again, that’s not by government fiat, that’s by market forces.

Will people still live in Stoweville and Newmarket and commute 50, 70, 80 kilometers a day on the 401 when gasoline is $2 a liter? I don’t think so. I think those suburbs and far flung exurbs will soon be abandoned, and what we’ll see is falling real estate prices in the outer suburbs. Run the two lines – plunging real estate values in the outer suburbs with soaring food prices, and all of a sudden those unsold suburbs will be reconverted back to the farmland that they were 30 to 40 years ago.

Up until now I’ve just talked about the price of fuel, but there will be another price. Not only will it be beyond our grasp to burn fuel when it soon will be $200 a barrel, but we will also be putting a price on the cost of actually burning it. Carbon emissions are right now free, and have been so throughout our industrialization. That is about to change. We are going to put a price on carbon emissions. And just as distance costing money will bring jobs home, putting a price on carbon emissions is also going to bring jobs home. In the past, raising the environmental bar in North America has been all about exporting jobs. It’s been people in the service sector who wanted to make those kinds of choices – people in the manufacturing and resource sector who have paid the cost. That’s about to change. In the world that I see, Archie Bunker is about to get into bed with Al Gore. Because in the world that I see, raising the environmental bar is going to bring jobs home, not send them away.

Since 2000 there have been huge reductions in the rate of carbon emissions from OECD countries. And yes, it is these OECD countries who bear the historic responsibility of what’s in the atmosphere. Half of the carbon emitted from Charles Dickens’ days is still in the atmosphere. And certainly the move from 280 parts per million to 390 parts per million is all about the emissions of Western Europe, North America and the OECD. Unfortunately, the move from 390 parts per million to environmental tipping points like 450 parts per million won’t be about us at all. It’ll all be about the developing world. And to the biosphere, it doesn’t matter whether the emission is coming from Shanghai, or whether it’s coming from Hamilton or Pittsburgh, because there’s no borders out there. The problem with Kyoto was, it was not a plan to cap emissions, it was a plan to redistribute emissions. Because anytime you regulate one part of the world and leave the other part unregulated, guess what’s gonna happen? All those industries are gonna move from the regulated to the unregulated. The reason that China has already surpassed the United States in emissions, the reason that China’s emissions have grown 120 percent in the last 8 years compared to our emission growth, which is lass than 5 percent, is not because they are any more efficient at emitting carbon. Quite the contrary, they are far less efficient at emitting carbon. It’s because of the wage arbitrage. Because in a world where carbon emissions have no price, it doesn’t matter how inefficient you are, all that matters is your wage practice. Well consider steel, again. North American steel manufacturers emit 1/3 less carbon than the same steel manufacturer in China. Again, if emissions cost nothing, who cares? What happens if emissions cost $60 a ton? If you have the economic advantage of producing less emissions, then you, including the United Steelworkers should be the ones arguing for the highest price on emissions. Because the higher the price that you put on carbon emissions, the greater is your economic advantage, and the greater is the disadvantage of emitting. It’s the same thing with any resource pollution that we don’t cost. Take Canadian oil sands. 1 barrel of synthetic oil – 250 gallons of fresh water. But if fresh water carries no price, who cares? Certainly not the shareholders of Suncorp. What happens if all of a sudden we put a $5 price per gallon on the water that you pollute? Then the next thing – that flows to the bottom line. Then the next thing, Suncorp shareholders are asking management – why are you using 250 gallons of water? And the next thing, technological change occurs, and the next thing you know they are NOT using 250 gallons of water. But unless we are willing to apply that carbon standard to the rest of the world, all we are doing is redistributing the carbon. And on our own producers, they lose twice, because not only will we force them to pay a price for their emissions, as they should, but then they lose doubly, because they cede market share to those who don’t play by the same rules. How can we have traction with other economies who don’t want to put a price on carbon? We can’t tell the Chinas and Indias not to build the 800 coal plants and double world coal consumption, because after all they’re only doing what we’re doing. But what we can say is: You will gain no economic advantage by using dirty carbon to access our markets. Emissions from China’s export sector alone is greater than the emissions of any other country in the world, beside the United States. What we have to be prepared to do is to apply carbon tariffs to countries that will sell us goods that will not play by the same carbon rules that we will insist our own producers play on.

Of course, we cannot charge anyone a carbon tariff for carbon prices that our own producers do not pay. But when we do put a price on our own carbon emissions, and I believe that we are going to be putting a price on our carbon emissions very shortly, because, when President Obama implements that, he will be raising the bar for his trading partners, whether they want the bar raised or not. When we do put a price on carbon emissions, that will be futile unless we protect that price with tariffs for those who wish to access our own markets. And the higher that we put that price, then the more important the economic value is on carbon management. The reason that we emit less carbon per unit of GDP than in the Chinese economy is 80 percent of their power comes from coal, and in this country, less than 10 percent does. So, in the new economy that I see, not only will distance cost money, but carbon will cost money. And all of that will lead to a revitalization of a domestic market that has become all but forgotten in the onslaught of globalization of the last 15 to 20 years. Yes, there will be many things that we will have to give up. Virtually everything that we will produce at home, from steel, to food, to flat screen TVs will cost us more than when we had access to cheap labor at the other side of the world. But I think that we just might find, on a lot of different respects, from the quality of our environment to the breadth of new jobs in the economy, that the new, smaller world that we are about to embrace may in many respects be a lot more liveable than the bigger one we are about to leave behind. Thank you very much.

Question and Answer Period

Moderator: It’s unfortunate you don’t have any opinions. You tend to waffle around a little bit, but you know, I think we all got a little something out of that. And I also want to thank you for the image of Archie Bunker and Al Gore in bed together. It’s seared into my mind – I will never get rid of it. Uh, we are now taking questions. We only have about 10 to 12 minutes to do that, and I’m going to start things off – because I don’t see hands starting, but start thinking…

Moderator: I want to know if you’ve taken into account the fact that – you talk about China, the insatiable demand for everything from water desalination, everything that’s going on, but they are also building clean technology at a rate that we’re not seeing in North America. If I’m not mistaken I think the world’s largest solar farm is built close to the great wall of China, so how does that factor into things?

Jeff Rubin: You’re right that probably a lot of the new green technology that will become key to the economy of 10 to 15 years from now is going to be developed right in places like China. China is hydrocarbon challenged, and it’s certainly in their interest to develop that, but again while that gets the article in the New York Times, what doesn’t get emphasized is 80 percent of China’s power comes from coal. And yes, they are developing some of the world’s largest solar energy sites, but also between China and India they have 800 coal plants on the board right now that they’re going to build in the next 5 to 10 years. Because coal is, without question, the cheapest form of energy as long as emissions are free. I would argue it’s the same thing as polluting water, like water is cheap, if you don’t have to pay for the water you pollute. Maybe water’s not so cheap to Canadian oil sands operators if they had to pay for it. CO2 emissions right now are free. Let’s take Ontario for example, because not to be too holier than thou, forget about China. You don’t have to look at China, you can just look on the shores of Lake Erie right now, and we see the biggest coal belching source of CO2 emissions in all of North America. Why haven’t we closed that sucker? Well, we haven’t closed that sucker, because if we do the lights go out, OK? We don’t have an extra 3-4000 meg in the power system right now that we can close that plant. So, we keep it open, because it’s the economic thing to do. Would we make that same choice if we had to pay for the power of the electricity that we use from that power plant $60 a ton for the carbon emissions that it spews out? I believe the market can take us to some very very green places. You know, as much as I would want everyone in the world to buy my books, since I get $4.50 a copy, the simple fact of the matter is, that when oil is $200 a barrel, and gasoline costs 2 bucks a liter or 7 bucks a gallon in the states, people won’t have to buy my book, they’ll know exactly what to do, they’ll get off the road. You know, the question will be – will there be a bus to get on? Right now there isn’t a bus to get on, and I think that we’re going to find that those billions of dollars that we just bailed out Detroit and Oshawa with, 2 to 3 years from now we will decide that we could have better used them for urban transit. But, you know to get back to the coal question, I mean the fact of the matter is – yeah China’s going to pioneer new technology, but in the here and now, they’re getting 80 percent of their power form coal plants, and while they’re talking about solar fields, they’re building 800 coal plants.

Moderator: All right I see we have a question over there. We’ll get a mike over to you.

Questioner: A question about how your proposition will affect Chimerica, the China-America relationship.

Jeff Rubin: OK, how is this going to affect the China-America relationship? And I think what that specifically means is – is China going to show up at every treasury auction to buy all the US dollar debt, and with a 2 trillion dollar deficit there will be no shortage of new product. No, they are not going to show up to buy the debt. First of all, let’s understand why they’ve been showing up to buy the debt, because it’s not because they have warm and fuzzy feelings towards US taxpayers. They have been showing up to buy the debt, because if they don’t show up to buy the debt, the US dollar is going to puke against the yuan. And up until now, China has perceived that much of the growth of its manufacturing sector has been about supplying WalMarts. As you may note, China is leading the United States in the economic recovery and it ain’t about supplying WalMart – it’s about trade with its Asian neighbors and its own domestic market. When China figures out – forget about the carbon tariff – just the transport costs on $150 oil, when they figure out that at $150 oil they’re not gonna be supplying Walmart, there’s going to be no reason to worry about the yuan appreciating against the US dollar, because the US isn’t going to be a major export market. And when we throw the carbon tariff on top of that, between the carbon tariff and $150 oil costs, you’re basically looking at a 30,40 percent tariff rate. You’ll probably be seeing as many Chinese goods in your supermarket or in your store as you would have seen 30 to 40 years ago, because that’s when the tariffs were equivalent to that. So they’re not showing up at the treasury auction because they don’t care that the Chinese yuan will appreciate 30 to 40 percent. So, you know who’s going to have to buy those bonds? You’re going to have to buy those bonds. And I suspect that you’ll be asking a little bit higher interest rate than the Peoples Bank of China has been asking for recently. So, you’re absolutely right if the gist of your question is: Hey, if we do this, then the Chinese aren’t going to be funding our deficits, and I’m saying, even if we don’t do this, the Chinese aren’t going to be funding our deficits because at $150 oil they can’t supply WalMart anyway, and they won’t care about the yuan going up. Next question.

Moderator: Thank you, and in case you don’t know, the term of the US dollar “puking” is a very specific financial term, OK our next question right over there.

Jeff Rubin: (laughing) I think they get it!

Moderator: I think so.

Questioner: Hi Jeff. I’m Jeff M____, the director of the career department at the Robbins School of Management, and I have nine of our brightest and best MBA graduates heading out into a job market in 2010 that you said is the worst since the last war, or the last great war. You also mentioned putting a price on emissions will bring home the jobs. If you could play career counselor for a moment, what advice would you give to our MBA grads on how to take advantage, and how to make a difference given the Peak Oil hypothesis?

Jeff Rubin: OK, well, I think the key mantra of the local economy is going to be ‘distance costs money’. I mean, everything from supply chains to where you advertise. So, I think it’s going to be reengineering companies back into their own domestic market, or if not their own domestic market, their own regional market. It’s not that China’s not going to trade. China’s going to trade with Taiwan, Japan, Indonesia, Korea, and we’re going to trade with Mexico and the United States, but we’re going to go back to regional. Beyond the MBA, let’s just think about the changed nature of our economy and the changed nature of jobs. I mean, in the book I refer to it as the ‘Barista Economy’, where everybody’s basically serving caffe lattes at Starbucks, because we don’t make anything. This isn’t made here. The food we eat doesn’t come from here. Nothing’s made here, OK? Well, and that’s why 75 percent of the economy is services, and only 25 percent is goods. And most economists think that that is an irreversible trend. I think that trend reached its apex two years ago. I think that the manufacturing sector and the agricultural sector – they’re gonna start to grow. And if we’re gonna start making our own steel, making our own flat screen TVs, growing our own food, not everybody can be serving caffe lattes at Starbucks. We’re gonna need people to actually work in these places, and skilled trades that had become virtually obsolete in our economy, because everybody’s in the service sector, is gonna be coming back. And I also think that the whole repair industry, I mean, in a world of mass produced cheap consumer goods, where they come from cheap labor markets around the world, something breaks? Toss her! Because every year it now costs half of what it used to cost. That flat screen TV that used to be four thousand bucks - it’s a thousand bucks. Guess what? If it’s getting made in Kitchener, it’s going back to four grand! And the next time it breaks, you’re not going to toss her, because you can’t afford another four grand to buy a new one. You’re gonna have to fix it, so we’re gonna have to hire some TV repairman to fix it, and all of a sudden the market for TV repairmen is going to grow. And a few baristas will be working in the electrohome factory. So that’s basically the way that I see the labor market shaking out over the next ten years. Next Question.

Moderator: OK, I think we have our last question. Here you go.

Questioner: Hi Jeff, my name is ____________(unclear)… School of Management. OK, I have one question. Your premise is that by applying a carbon tariff on products coming from China, we are going to force them to apply more green techniques or apply greener technology to produce their products, but I’m just wondering…I agree with you, I think that’s a great idea, but what about if that’s too much of a disincentive for China to actually sell in the US, and it starts selling in its own domestic market. What incentive is there for them to still continue, you know, producing using greener technology?

Jeff Rubin: OK, I’m saying that we cannot tell China not to burn coal. Because they will point out that we industrialized through burning coal. And they will point out that 85 percent of the (unclear) up there, did not come from them. And that’s totally true. It’s the difference in mathematics between the integral and the first derivative. I’m sure that’s very clear to people (laughs). It’s the area under the curve - all the accumulated emissions with some tipping point, which is the rate of change. And as I said, to get to 390 parts per million that’s all about us, but going forward to 450, that’s all about them. So if we care about environmental tipping points, we have to get them engaged and by more than moral suasion. Otherwise there’s no point in us doing anything, because there’s no borders up in the biosphere. How do we get traction with them? I mean, they will call it eco-imperialism. And from a historical point of view that’s a legitimate thing to say. But again, the biosphere doesn’t care about the source of the emissions. It only cares about critical tipping points. We have to get a price on emissions, OK? I would say that all those carbon spewing industries in China is a market failure. They’re not there because they’re the most efficient emitters of carbon. They’re there because we haven’t put a price on carbon emissions. Just like we don’t put a price on the 250 water we pollute with every barrel of synthetic oil. I suggest that if we did, the oil sand manufacturers would find a new way of doing business. I suggest that if we put a carbon tariff on countries like China and India, they will find there will be incentive to change their ways. 30 percent of the emissions from the Chinese economy is in the export sector. That’s bigger than the total emissions of every other economy in the world except for the US. So you’re right, we can’t gain them traction on their own domestic economy, but we certainly can get their attention on exports. But, before we can start charging anybody a countervailing tariff on their emissions, we gotta start collecting on our emissions. But, the thing that the US steel industry, and all the industries like US steel gotta figure out is – in a world where we put a price on emissions, and you are the most carbon efficient producer, that flows positively, not negatively to your bottom line, and that brings jobs home, instead of sending them away. And indeed, you know my comment about Archie Bunker getting into bed with Al Gore, well, you know, it just so happens that my context for that was the blue-green alliance between the US steelworkers and the Sierra Club, and people are already starting to figure that out – that blue collar jobs can become green-collar jobs, by raising the environmental standard we can actually bring jobs home instead of sending them away. Thanks very much.