The Oil Drum

The October 2008 edition of Oilwatch Monthly can be downloaded at this weblink (PDF, 1.42 MB, 24 pp).

Figure 1 - World Liquids production from January 2004 to September 2008.

A summary and latest graphics below the fold.

OPEC President: Many Oil Projects Hit By Banks Crisis

VIENNA -(Dow Jones)- The global banking crisis will hurt new oil development projects and is already forcing many companies to drop oil projects, OPEC President Chakib Khelil said Thursday.

The banking crisis is crimping project financing for foreign oil companies operating in OPEC and non-OPEC nations, Khelil said. Even if oil prices return to $90 a barrel, that wouldn't be enough in some cases to secure adequate financing for projects, he said, speaking at a Vienna press conference.

We all know that oil prices are lower than they were in the recent past because supply is greater than demand. In fact, OPEC oil ministers are meeting this week to try to fix supply, so it will be more in line with demand.

All of this seems a little strange, though. We are going into the winter months, when demand for oil normally rises because many people around the world heat their homes with oil. We are using somewhat less gasoline in the United States, but apart from the hurricane disruptions, not very much less than earlier this year. While we are going into a recession, it doesn't seem to have hit with full force yet. What other factors may be involved in the current lower prices? In this post, I will discuss factors besides those we usually think of as supply and demand that may be involved.

Organic farming 'could feed Africa'

Organic farming offers Africa the best chance of breaking the cycle of poverty and malnutrition it has been locked in for decades, according to a major study from the United Nations to be presented today.

New evidence suggests that organic practices – derided by some as a Western lifestyle fad – are delivering sharp increases in yields, improvements in the soil and a boost in the income of Africa's small farmers who remain among the poorest people on earth. The head of the UN's Environment Programme, Achim Steiner, said the report "indicates that the potential contribution of organic farming to feeding the world maybe far higher than many had supposed".

At this year's ASPO conference, I was twice asked about the gasoline supply situation - once at a panel session and once by a reporter. At the time, there were gas shortages throughout the Southeast, and some of the speakers gave the impression that this was the beginning of the end: Gas shortages are here to stay, and we are on the verge of the entire country running out of gasoline. There were a number of predictions along the lines of "It's going to get a lot worse before it gets better."

While first discussing the source of the gas shortages - low inventories followed by a hurricane that sidelined a significant source of refining capacity - I answered the question as follows: "This is a temporary event. We will see imports start to pick up and fill the shortfall. We will see refining capacity start to come back online, and I predict that a month from now gasoline inventories will be higher than they are today."

This is a simplified version of the presentation I will be making this Tuesday morning at the ASPO 7 Conference (the full presentation should be posted on that website in a couple of days). I must admit that I have been a bit nonplussed to see that the peak oil community seems to share the oil industry's dismissal of wind power as irrelevant and useless in the face of the currently energy challenge (maybe I am unfairly judging from a few individuals' comments, but it's definitely an existing undercurrent in the community).

So, in reaction, let me put up here a few arguments that suggest that wind could play a major role in solving our current energy woes - not a silver bullet, but rather more than a side show.

First, the "wind is too small to make a difference" argument: well, so was nuclear, until it got big enough. Wind is following the exact same growth trajectory:

Pure Power
EWEA, March 2008 (pdf)

As Oil Prices Drop, OPEC Ponders Tough Solutions

At the beginning of the year, OPEC producers felt confident that strong economic growth and tight supplies would keep oil prices high. When oil crossed the $100-a-barrel threshold in February, the cartel’s president blamed speculators and said there was not much OPEC could do.

But now, panic is gripping producers as prices drop. They are down by half since July, and the speed of the decline has stunned oil-rich governments that have become dependent on high prices.

As the global economy continues to weaken, the Organization of the Petroleum Exporting Countries faces its toughest test in years.

The problem for the oil exporters, who meet for an emergency session in Vienna on Friday, is to stop the price drop at a time when oil consumption is collapsing, particularly in industrialized countries. Even China, long the biggest engine of growth for oil demand, seems to be cooling markedly.

This is a guest post by Peter Salonius, a Canadian soil microbiologist.

According to Peter, humanity has probably been in overshoot of the Earth's carrying capacity since it abandoned hunter gathering in favor of crop cultivation (~ 8,000 BCE). The problem is that soil needs tightly woven natural ecosystems to properly recycle nutrients and prevent soil erosion. Earth's inhabitants have devised a whole series of approaches to increase the amount of food that can produced, starting first with hand-cultivation and culminating in the last century with the widespread use of fossil fuels. These approaches strip the soil of its nutrients and cause soil erosion. Even Permaculture cannot be expected to overcome these problems. According to the paper, eventually, to reach sustainability, the world will need to reduce its population to that of the hunter-gathers, and go back to living on the resources the natural ecosystems can produce.

Peter's paper begins below the fold.

The Folly Of A Depression Thesis

We have several things working against us this time around, and few things working for us, compared to the 1930s. Here's a short list:

● In the 1930s we were resource-independent. Today we are near-absolutely dependent on foreign oil. We import about 2/3rds of our consumption, and while Canada's supply is probably assured irrespective of our economic condition, the same is not true for the net creditors to the United States, particularly Arab nations. They both can and might cut us off, and so may Venezuela.

● In the 1930s we had debt owned by foreigners, but nothing like today. Today we require about $2 billion in foreign capital per day to remain solvent as a nation at the government level. This has been almost-entirely financed through the purchase of cheap foreign goods from China and oil from the Middle East. If either of those sources of foreign capital flows are disrupted, things get very bad very fast. There is no reason to believe that either of these blocks of nations will continue to provide this funding as our consumption of their goods decreases and thus their need to recycle dollars disappears.

● In the 1930s we had heavy industry out the wazoo in America. Today we have very little. Yes, we produce more now here than ever before - but as a proportion of what we consume, it is at all-time lows. What this means for us is that as those trade imbalances disappear prices are going to go up as the "recycling" trade goes away and production is forcibly repatriated here to the United States. (The alternative, a refusal to repatriate that production, is far worse, as that will result in a currency dislocation that will produce the same sort of price increases but no wage improvement for Americans. Down that road lies really serious trouble for us.)

● On the good side, we have technology we didn't have then. This means we may be able to find efficiencies that were the stuff of fancy 50 or 100 years ago. The counter-balance to this is that the really big efficiency gains are likely behind us, having been gained in the 80s, 90s and the first part of the 00s.