ODAC News

Tuesday 13 Nov

The Oil Depletion Analysis Centre

‘Oil Crisis’ in the US Media

1/ Rising Demand for Oil Provokes New Energy Crisis (NY Times, Fri 09 Nov)

UK Lecture - Richard Heinberg

2/ UK Lecture: What will we eat when the oil runs out?, Richard Heinberg, The Soil Association, London, 22 November 2007

Bolivian Fuel Problems

3/ Fuelling Bolivia's crisis?

(BBC News, Thu 08 Nov)

Economy - UK

4a/ House prices continue to fall (The Guardian, Thu 08 Nov)

4b/ UK Trade - Deficit widened to £5.1bn in Sept 2007 (National Statistics [UK govt], Fri 09 Nov)

4c/ The witches' brew of 1987 is back again (The Telegraph, Thu 08 Nov)

4d/ Surveyors see house price falls (BBC News, Tue 13 Nov)

Economy - USA

5a/ Housing meltdown hits US economy (BBC News, Fri 09 Nov)

5b/ Carnage on Wall Street as loans go bad (BBC News, Tue 13 Nov)

Peak Oil / IEA Forecasts in the FT

6a/ Twin threats and a lack of leadership (The Financial Times, Fri 09 Nov)

6b/ Peak oil: How will we cope when the oil has run out? (The Financial Times, Fri 09 Nov)

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1/ Rising Demand for Oil Provokes New Energy Crisis (NY Times, Fri 09 Nov)

http://www.nytimes.com/2007/11/09/business/worldbusiness/09oil.html?ex=1352350800&en=2581cab08e9b7843&ei=5088&partner=rssnyt&emc=rss

Article: With oil prices approaching the symbolic threshold of $100 a barrel, the world is headed toward its third energy shock in a generation. But today’s surge is fundamentally different from the previous oil crises, with broad and longer-lasting global implications.

Just as in the energy crises of the 1970s and ’80s, today’s high prices are causing anxiety and pain for consumers, and igniting wider fears about the impact on the economy.

Unlike past oil shocks, which were caused by sudden interruptions in exports from the Middle East, this time prices have been rising steadily as demand for gasoline grows in developed countries, as hundreds of millions of Chinese and Indians climb out of poverty and as other developing economies grow at a sizzling pace.

“This is the world’s first demand-led energy shock,” said Lawrence Goldstein, an economist at the Energy Policy Research Foundation of Washington.

Forecasts of future oil prices range widely. Some analysts see them falling next year to $75, or even lower, while a few project $120 oil. Virtually no one foresees a return to the $20 oil of a decade ago, meaning consumers should brace for an era of significantly higher fuel costs.

At the root of the stunning rise in the price of oil, up 56 percent this year and 365 percent in a decade, is a positive development: an unprecedented boom in the world economy...

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2/ UK Lecture: What will we eat when the oil runs out?, Richard Heinberg, The Soil Association, London, 22 November 2007

The Soil Association's Lady Eve Balfour lecture, What will we eat when the oil runs out?, will be given by Richard Heinberg. The event will be chaired by Anna Ford, BBC Newsreader.

Date: Thursday 22 November 2007
Time: 6:30pm
Venue: Central Hall Westminster, London

Tickets £18.50 (inc. VAT) to include champagne reception and organic canapés. To book go to www.soilassociation.org/ladyevelecture. Or download the booking form, to be returned by Nov. 16).

Programme summary
Guests to arrive at 6:30pm for organic tea and cakes, with the lecture starting at 7:20pm.
Following a prestigious panel debate champagne and canapés will be served. Guests to depart at 10:00pm.

Richard Heinberg
Richard Heinberg is widely regarded as one of the world’s foremost Peak Oil educators, and author of eight books including Peak Everything and The Party’s Over: Oil, War and the Fate of Industrial Societies. He is an educator, editor, lecturer, and a Research Fellow of the Post Carbon Institute. His essays and articles have appeared in journals including The Ecologist and Resurgence; and on web sites such as Alternet.org and EnergyBulletin.net.

Panel
The confirmed panelists who will join us to debate Richard's lecture are:
Patrick Holden, Soil Association director
Jeremy Leggett, Solar Century CEO
Lucy Siegle, Columnist, The Observer
Christopher Skrebowski, Editor of Petroleum Review
Guy Watson, Managing Director, Riverford Farm

Lecture outline available at the Soil Association website.

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3/ Fuelling Bolivia's crisis? (BBC News, Thu 08 Nov)

http://news.bbc.co.uk/1/hi/business/7083724.stm

Article: In the midday heat, truckers hang out of the windows of their trucks or sit slumped behind their wheels, waiting.

They may have to queue for hours to fill their tanks with diesel at this petrol station in the city of Santa Cruz, eastern Bolivia.

"Sometimes you get to the front of the queue and the diesel has already run out," says Agapito Serviche from his pick-up truck.

"The diesel does not last long enough for a day's work, so I have to stop working and come back to the queue just to put food on the table."...

Future shortages?

But diesel shortages were on the horizon long before Mr Morales came to power in 2005.

Bolivia has the second largest natural gas reserves in Latin America, but its diesel refining capacity has not met domestic needs for almost two decades.

Consecutive governments have spent more than $100m (£50m) a year on fuel subsidies, making Bolivia's diesel the cheapest in South America.

The subsidy helps people in this country, which is South America's poorest.

But it also gives rise to contraband smuggling, which President Morales blames for the shortages.

Nationalisation may not have caused the diesel crisis, but avoiding future shortages will depend on its success...

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4a/ House prices continue to fall (The Guardian, Thu 08 Nov)

http://www.guardian.co.uk/money/2007/nov/08/houseprices.personalfinancenews

Article: House prices in the UK fell for the second month running in October, the UK's largest mortgage lender said today, in a further sign the market may be grinding to a halt.

The 0.5% fall reported by the Halifax follows a 0.6% dip in September - the first time prices have dropped in two consecutive months since the early summer of 2005.

The fall has brought annual price inflation down to 8.9%, from a high point of 11.4% in August.

The average price of a home in the UK now stands at £197,248, Halifax said.

This is the first time since February that the annual growth rate recorded by the lender has been in single figures.

Halifax said the rate was expected to fall further over the next few months as the strong monthly price gains seen in the autumn of last year began to drop out of the equation…

4b/ UK Trade - Deficit widened to £5.1bn in Sept 2007 (National Statistics [UK govt], Fri 09 Nov)

http://www.statistics.gov.uk/cci/nugget.asp?id=199

Article: The UK's deficit on trade in goods and services was £5.1 billion in September, compared with a revised deficit of £4.2 billion in August (previously published as £4.1 billion).

The surplus on trade in services was £2.7 billion, the same as in August.

The deficit on trade in goods was £7.8 billion, compared with a deficit of £6.9 billion in August (the same as previously published). Exports fell by £0.2 billion and imports rose by £0.6 billion.

The deficit with the enlarged EU (27 countries including Bulgaria and Romania) was little changed from that in August at £3.0 billion. Exports rose by £0.1 billion and imports rose by £0.2 billion. There were increases in exports of oil, and capital goods, but exports of chemicals were lower. There was a rise in imports of cars, but imports of intermediate goods were lower. The deficit with non-EU countries widened to £4.7 billion compared with the deficit of £4.0 billion in August. Exports fell by £0.3 billion and imports rose by £0.5 billion. A rise in exports of oil was more than offset by a fall in exports of intermediate goods. There were rises in imports of oil, consumer goods other than cars, and intermediate goods. Imports of chemicals fell.

Excluding oil and erratic items, the volume of exports was four per cent lower in September than in August and the volume of imports was one per cent higher.

4c/ The witches' brew of 1987 is back again (The Telegraph, Thu 08 Nov)

http://blogs.telegraph.co.uk/business/ambrosevanspritchard/nov07/witchesbrew.htm

Comment: The latest from Ambrose Evans-Pritchard.

Article: We forget now, but the triple backdrop to the Wall Street crash in October 1987 was a tumbling dollar, record oil prices, and an inflation mini-scare across the world.

This witches’ brew is coming to the boil again with some violence.

The dollar has crashed through historic support levels to an all-time low of 75.61 on the global index, and oil is flirting with $100 a barrel.

Take a glance at these two dollar charts.

[US dollar index for 1986-87 and 2006-07]

The Greenback has slumped to 91 cents against the Canadian Loonie, the lowest since Canada’s currency was floated in 1950.

It has fallen for three years against the Brazilian real, the Mexican peso, the Russian ruble, et al – the first time it has ever lost ground in this fashion against a mix of emerging market currencies. And, of course, the euro has risen 70pc in six years to $1.47.

Why is the dollar crumbling? Is it just because the Federal Reserve has begun to cut interest rates, while other central banks are still tightening?

Or have we reached the moment when the United States is downgraded as an economic, political, and military power by the rest of the world - permanently - reflecting its new status as a super-debtor with $3 trillion in external liabilities?

What we know is that Asian and Mid-East central banks are cutting their holdings of US Treasuries at a brisk clip. Qatar has cut the dollar share of its $50bn sovereign wealth fund from 98pc to 40pc.

... The Fed is caught between the Scylla of screaming CPI inflation and the Charybdis of a housing crash. Call this stagflation, if you want.

Perhaps the Fed should have thought about this danger when it held rates at 1pc in 2003 and 2004, and kept them at recklessly low levels in 2005 in one of the greatest policy blunders of the post-war era.

... Here is a sampling of global inflation rates.

Eurozone 2.6pc, (highest since the launch of the euro).

China 6.2pc

Russia 9pc

Vietnam 14pc

United Arab Emirates 9.3pc

Most of these levels are the highest in a decade, whether caused by commodity booms, dollar pegs or euro pegs, or a mix...

4d/ Surveyors see house price falls (BBC News, Tue 13 Nov)

http://news.bbc.co.uk/1/hi/business/7091469.stm

Article: The slowdown in the housing market is becoming more pronounced, says the Royal Institution of Chartered Surveyors (Rics).

Its latest survey of members in England and Wales suggests prices in October fell for the third month in a row, and at the fastest pace since July 2005.

London was the only region where prices did not fall during the month, according to the Rics survey.

Separately mortgage lenders said costs for first-time buyers were rising.

... Enquiries from new buyers also fell, for the 11th month in a row, as other factors came into play.

"Interest rate rises, the recent credit crunch and the subsequent tightening of lending conditions have all had an impact upon demand," said Rics.

Overall, 22% more surveyors in England and Wales in October saw prices fall than rise in their locality.

Although prices are still rising slightly in Scotland they are now falling sharply in Northern Ireland, Rics said...

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5a/ Housing meltdown hits US economy (BBC News, Fri 09 Nov)

http://news.bbc.co.uk/1/hi/business/7078492.stm

Comment: Lengthy article (for the BBC) with several interesting charts.

Article: The sudden tightening of credit on high-risk sub-prime mortgages has led to a property price crash in the US, with devastating effects on the whole economy.

The unprecedented decline in US house prices may also lead to further pain for financial institutions, who collectively own more than $1 trillion worth of sub-prime debt.

... Housing markets are local, and few areas have experienced the 30% decline in average house prices that has hit Cleveland, the sub-prime capital of the US.

But average house prices across the US are declining for the first time since the Great Depression in the 1930s, and the magnitude of the collapse has surprised experts.

There is nearly a year's supply of unsold houses standing vacant.

And the housing crash is now extending to the formerly "hot" housing markets in Southern California, Arizona, Nevada and Florida, where expanding populations and a strong economy were expected to keep prices high.

Mark Zandi, an economist at Moody's, who is tracking the housing market, expects the fall in house prices to accelerate from 5% this year to 10% in 2008.

He says that prices could end up 10-15% lower than the peak of 2006 - if policymakers move quickly to stem the wave of foreclosures.

But if they don't, and if interest rates are forced up by the inflationary worries, he says prices could fall by 15% to 20%...

5b/ Carnage on Wall Street as loans go bad (BBC News, Tue 13 Nov)

http://news.bbc.co.uk/1/hi/business/7086909.stm

Comment: Another lengthy article from the BBC.

Article: The scale of the losses that will hit Wall Street banks could approach half a trillion dollars as large numbers of sub-prime home loans go bad.

And the carnage in the financial markets could cause a credit squeeze that will dampen economic growth for years to come.

... But experts estimate that the total losses facing the financial sector could amount to between $150bn and $450bn, and that many of the banks have hidden losses that have been concealed in off-balance sheet instruments like "special investment vehicles".

The big Wall Street banks and investment houses who are most exposed could find their profits, and much of their capital base, wiped out.

To restore their profits, and indeed in some cases to remain solvent, they will be forced to sell off many assets and lay off many workers, as well as cutting the bonuses of their remaining staff and limiting their future lending...

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6a/ Twin threats and a lack of leadership (The Financial Times, Fri 09 Nov)

http://www.ft.com/cms/s/1/79e56ee8-8d15-11dc-a398-0000779fd2ac,dwp_uuid=4bf66816-8c39-11dc-b887-0000779fd2ac.html

Comment: The FT reports on recent IEA forecasts

Article: Sometimes, you can learn a lot from a single number. The price of oil is a temperature gauge for the world’s energy system – and at $95 a barrel for US crude, it is showing that the system is seriously overheated.

For policymakers and businesses, it is a warning that demand is running ahead of capacity.

Without decisive action, the world economy is threatened by energy shortages that would replicate the effects of the oil shocks of the 1970s. It may already be too late.

Alongside energy security, a second concern has become increasingly pressing: the need to tackle the threat of climate change.

As the scientific consensus hardens, efforts to fight climate change have gathered political momentum...

6b/ Peak oil: How will we cope when the oil has run out? (The Financial Times, Fri 09 Nov)

http://www.ft.com/cms/s/1/9272abd8-8d15-11dc-a398-0000779fd2ac,dwp_uuid=4bf66816-8c39-11dc-b887-0000779fd2ac.html

Comment: The FT mentions Peak Oil.

Article: Crude oil has fuelled history since the first modern well was drilled in Pennsylvania in 1859.

However, among the fossil fuels, crude is the closest to exhaustion, with about 40 years of reserves left at current production ratios, according to the BP Statistical Review of World Energy.

Although reports of the imminent exhaustion of reserves have been abundant, particularly in the 1970s after the first oil crisis, the recent price increase and production falls in mature areas, such as the North Sea and Alaska, have revived those fears.

In addition, multinationals such as Total and Chevron have warned in the past two years of the difficulties in continuing to increase production to accommodate a higher demand.

Chevron, in a worldwide advertising campaign, says: “While supplies are currently abundant, they won’t last forever.”

It added: “Oil production is in decline in 33 of the 48 largest oil-producing countries, yet energy demand is increasing around the globe as economies grow and nations develop.”

In an unusually stark prediction for the head of one of the world’s biggest oil companies, Christophe de Margerie, CEO of Total, the French group, says it will be difficult to reach 100m barrels a day of crude oil production. That is well below the official forecast of how much oil the world will need in the next 25 years.

The International Energy Agency, in its “business as usual” projections, has said oil supply will reach 116m b/d by 2030, up from about 85m b/d today. The US government has a similar forecast of 118m b/d in 2030, including a relatively small contribution from biofuels.

Mr de Margerie says: “It is not my view: it is the industry view, or the view of those who like to speak clearly, honestly, and not … just try to please people.”

... Although most industry executives, bankers and traders agree that there is a problem in sustaining a rise in production, there is no agreement about the root of the problem.

Some sceptics, who defend the theory of “peak oil”, contend that crude oil resources are close to depletion. Much of the industry disagrees, saying there is no way to be sure how much oil is left in the ground...

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