New Blog Subtitle: Risks to Global Civilization

After reflecting on it over the vacation, I changed the subtitle of the blog from the old:

"BLOG FOR PRO-BONO RESEARCH ON ENERGY SUPPLY, BIOFUELS, AND ANYTHING ELSE THAT BOTHERS ME..."

which was sort of a hastily assembled laundry list of things I knew I was interested in to

"RISKS TO GLOBAL CIVILIZATION"

which I think better captures what it is that really drives my interest and is much snappier.

The Boy Who Harnessed the Wind

Continuing the holiday book blogging theme, I just finished The Boy Who Harnessed the Wind by William Kamkwamba and Bryan Mealer.

This was a book that my Dad gave me for my birthday a couple of months back, along with several others, and it had sat somewhere towards the bottom of the big teetering pile of books-in-progress on my bedside table, which is a constantly churning, occasionally-overflowing-onto-the-floor, index of whatever I'm currently interested in. Somehow this book hadn't really caught my attention (I guess the cover-art didn't really work on me), but mainly out of a sense of duty to my Dad I threw it into my bag for this trip.

And Wow! This is one of the best books I've read in a long time. It's gripping, it's tears-down-the-cheeks heartwarming, it's inspiring, and it's must-read material for anyone who cares deeply about the shape of the ongoing collision between global civilization and global resource constraints.

Dirt: The Erosion of Civilizations

I'm still on Christmas vacation, but have been reading dirt: The Erosion of Civilizations by David Montgomery as my idea of cheery relaxation reading. I wanted to offer a few comments as a mini-review (meaning I want to give my impressions without being held to any particular standard - I am still on vacation after all!)

Firstly, to state my prejudices on this issue - soil erosion is an issue that I've found difficult to form a clear opinion on (you can read as far as I'd gotten in the "Soil Loss" section of this Oil Drum piece. It's clearly important in the long term, it doesn't seem to be an acute crisis globally (though it's certainly serious in some places), and it's not easy to sort out the science and decide exactly how acute a problem it is. Conventional agriculture clearly discounts the problem and is focussed on short term profit over long-term health of the soil. On the other hand, there is clearly an over-alarmist wing of the environmental movement (epitomized by people like Lester Brown) that is prone to overstating the severity and immediacy of the issue. In between these extremes, I haven't really been able to figure out the situation to my satisfaction.

Lack of Consensus on Iranian Oil Production

New Highs of Russian Production

al-Naimi expects no change in production quotas

Dec. 21 (Bloomberg) -- OPEC will make “no changes” in production quotas when it meets tomorrow in Angola, Saudi Oil Minister Ali al-Naimi said.

“No, absolutely not,” al-Naimi said today as reporters asked if the Organization of Petroleum Exporting Countries will adjust the output limits that have been in place all this year. Asked if he was happy with oil prices, he said, “Yes, absolutely.” Al-Naimi predicted “gradual, steady growth” in the economy next year.

OPEC has a consensus to extend the current production limit of 24.845 million barrels a day, Secretary General Abdalla Salem el-Badri told reporters earlier today. Oil has gained 66 percent since the beginning of 2009, when production cuts agreed late last year took effect. The group left quotas unchanged for a third time when it last met in September.

Source: Bloomberg.  Not a big surprise - $70-$75 oil is well inside OPEC's comfort zone.

Revised Recovery in Global Fuel Production

Latest Saudi Production Statistics

Click for large version

Baker-Hughes Rig Count Blog

Rate of Recovery of Global Fuel Production

Latest Global Production Numbers

Saudi Spare Capacity

OPEC Price/Production

OECD Oil Demand in a Recovery

Ok, let's go about this differently - looking at correlations with employment (as yesterday and the day before) is not getting me anywhere. Let's do something simpler. In a non-oil-shock but post-financial-crisis world, what is a reasonable range of estimates for the growth in OECD oil consumption during a recovery?

To estimate this, we need to estimate two things - what will the growth of GDP be? And how will oil efficiency evolve - the ratio of GDP to oil consumption?

Gasoline Demand and Employment

Employment and Oil Demand

Why the Federal Reserve will Not Stop Bubbles

Professor Jim Hamilton has an interesting post up about whether the Federal Reserve should try to put a stop to bubbles:

Before we can discuss this issue, we'd need to agree on what we mean by a "bubble". Here's one definition that a lot of people may have in mind: a bubble describes a condition where the price of a particular asset is higher than it should be based on fundamentals and will eventually come crashing back down.

If that's what you believe, then there's a potential profit opportunity from selling the asset short whenever you're sure there's a bubble. And if that's the case, my question for you would be, why don't you do put your money where your mouth is instead of telling the Fed to do it for you? Your answer might be that it could take years for the bubble to pop, and you're not willing to absorb the risk in the interim. Or maybe you don't have the capital to cover the necessary margin requirements while you're shorting the bubble on the way up.

Even so, posing the statement in this way should bring a dash of humility to those currently claiming to see a plethora of bubbles that the Fed supposedly needs to fight. What exactly persuades them that they are right and all the other players in the market are wrong? How much of their personal wealth are they staking on the strength of their convictions? And even if you're absolutely sure you know how to identify bubbles, raising interest rates as a response is, as Tim Duy observes, "a rather blunt weapon that kills indiscriminately".

Yet More on US Oil Demand Recovery

More on Oil Demand Recovery

Has OECD Demand Started to Recover?

And one of Baltimore

This one is even better, showing the growth of Baltimore (done by NASA). If you imagine all that orange space filled up with cars rushing about, using oil, it's sort of intuitive that the bigger it is, the more oil it takes to power it.

Simplistic, I know, but I think it helps the intuition to see it...

Growth of Las Vegas

This is more what I was looking for. You can just kind of see those VMT's growing over time...

Walmart Growth

While looking for something else, I stumbled across this video of the growth of Walmart, from Kiwitobes. Pretty fascinating...

The Second Shock: Agenda for the Next Few Weeks

This morning, I want to briefly lay out what the issues are that I want to work on via this blog. Obviously, surprises might turn up, but certain things I can see clearly are going to need to get covered, and I'd like to try and summarize that agenda.

What I think is going to happen in the world is roughly as follows: currently, and for another year or N, OPEC has some spare capacity, and will most likely act to moderate prices somewhat - they will go roughly sideways for a while (give or take a few $10s/barrel). However, as the global economy slowly recovers from the 2008-2009 recession, eventually that spare capacity is going to get eroded, and we are going to get a second price spike, probably bigger than the one in 2008, and big enough to get everyone to really take the oil supply situation seriously and put us on the kind of efficiency trajectory that is actually needed. That second shock will also trigger another recession.

$300 Oil Needed to Reproduce '70s.

Year over year improvement in fuel economy of new light vehicles, left scale, together with oil price pain index, right scale.  See text for details.  Source: EPA for fuel economy statistics, BP for oil prices, with estimate for 2009 based on data through November, BEA for GDP.

GDP/mile across countries

GDP/Mile in various countries in 2008 - see text for details of methods

US New Car Fuel Economy Trends

Fuel economy of new light vehicles, together with average annual oil price (expressed in $2008).  Source: EPA for fuel economy statistics, BP for oil prices, with estimate for 2009 based on data through November

"Why Cheap Oil is Here to Stay"

Phew! I was actually getting a little worried there writing those posts about oil supply. But I guess I shouldn't have bothered my fluffy little head, because CNN is here to reassure me that everything is going to be just fine.  Peachy.  Future's so bright, we've gotta wear shades.  Here is the official word from the most trusted brand in cable television:

Because oil prices have always been directly related to the strength of the economy, a recovery might have seen headlines like these:

• The recession ends: Get ready for $100 oil

• The economy roars: $140 oil, is there an end in sight?

• Everyone in China buys a Cadillac: World tapped out

But a growing number of experts are saying that you can forget all that. For the next couple of years, they say, oil prices will remain well below $100 a barrel as the economy remains fragile and efficiency measures kick in.

League Table of Most Oil-Efficient Economies

At least for those countries that BP had oil consumption data for.

A few surprises here. Bangladesh would not usually be thought of as best positioned to do well in an era of oil scarcity! And look at the famously dense and bike-friendly Netherlands down there below the United States. Perhaps no surprise that the bottom of the rankings are dominated by oil exporting nations.

Driving is Extremely Inelastic

US economic output (GDP in chained 2005 dollars) per vehicle mile traveled 1960-2008 (left scale), together with annual average oil prices adjusted for inflation to 2008 dollars (right scale). Source: FHWA for VMT data, BEA for GDP, and BP for oil prices.