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Old 05-20-2008, 17:48   #1
nmap
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Oil Prices and Global Exports

I came across the material in a newsletter from John Mauldin; I've attached a PDF for the entire piece. It presents some ideas about why oil prices may go up a great deal more, and rapidly. It also mentions the implications for Mexico which may be of interest.

Below are a few brief excerpts which will, hopefully, whet your appetite for more.

First the good news:

As a quick aside, if we would start a project to build a massive nuclear infrastructure, such as in France, which
produces 80% of its energy from nuclear, while at the same time pushing ahead in a Manhattan-type project the
development of electric cars (or some hybrid), we could reduce our dependence on foreign oil and lower travel
costs by the middle to the end of the next decade. And the environment would be cleaner and safer.


Now some of the challenges:

At the time the North Sea peaked in 1999, the U.K. was exporting 1 million barrels of oil per day. By August
2004, it had become a net importer. What happened to cause the situation to turn around so quickly?


As you can see, for illustrative purposes the ELM assumes that, after a country's oil production hits peak it will
decline at a rate 5% annually, at the same time that local consumption increases by 2.5%. The dotted red line
then shows the impact those two metrics will have on the ability of the country to export its excess production.
Using these assumptions, the ELM shows that exports reach zero in 9 years.



Rather it is that the global market is now deprived of those exports; between UK and Indonesia alone, the
change over just the last decade amounts to a swing in the wrong direction of a total of 2 million barrels per day.
And those are just two of a number of important countries which have swung from exporters to importers in
recent years.


This is what is creating so much international competition for the remaining supplies of oil. And why the trend to
higher energy prices is so well entrenched. And if the ELM is right, things are about to get far worse ... far sooner
than most people expect.


Here's a key point:

But here's the thing. Using straightforward ELM calculations, Jeffrey Brown is confident that Mexico will ship its
last barrel of oil to the United States -- or anywhere else, for that matter -- about 6 years from now, in 2014. In a
recent interview with Brown, I asked about this forecast.

"Mexico was consuming half of their production at peak in 2004. And if you look at the '05, '06, '07 data, they're
basically on track, on average, to approach zero net oil exports no later than 2014," he confirmed.

Of course, the US is completely unprepared to replace this source of oil, especially considering the growing
stresses on global oil supplies causing by ballooning demand from emerging markets. That means the
international competition for available supplies is only going to get more desperate in the months and years
ahead.

What will this mean to oil prices, according to Brown?

"From this point out I think we'll see a geometric progression in prices ... you know, $50, $100, $200, $400,
whatever. The only question now is how short the periods will be between prices doubling again."




The trend for sustained higher energy prices appears solidly in motion. If Brown and the ELM are correct, energy
prices will double, then double again.

Even if he is wrong and prices don't rise geometrically, the global dogfight to replace declining supplies -
decidedly exacerbated by the loss of Mexican and maybe Russian (and ??) exports in the near future - is going
to get ugly and expensive.


It looks as if we will experience interesting times.
Attached Files
File Type: pdf john_mauldins_outside_the.pdf (317.2 KB, 32 views)
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Old 05-21-2008, 07:03   #2
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Excellent point!

I like to look at quotations on the futures market. Oil for delivery in July 2008 just traded at $129.69. Oil for Dec. 2015 just traded at $139.48.

One is rarely more sincere than when one is investing; but here we see some 19,622 contracts that regard $139.48 as an equitable price 7 years hence. While I freely admit that I think oil will go higher, the counter-argument deserves careful consideration.

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Old 05-21-2008, 09:18   #3
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Money makes people move - changes their habits, modifies their priorities. When our wallets get spanked hard enough, we finally decide it's time for a new look on life.

Wind, Solar, Nuclear, Oil Shale in the Rockies, Oil Sands in Canada, Alaska Oil, New Coal Technologies, Electric Cars....Everything starts looking good and doable.

We may look back in ten years at $150 / barrel oil and understand it's the best thing that ever happened to us.

Pain is good.

I could argue the other side, but right now I feel like looking on the bright side. The dark side I may share a little later. If you're at your computer and you've got a few minutes check out Thomas Freidman's article "Imbalances of Power" in the New York Times today. He makes an interesting point on the humongous windfall the Saudis are getting with all this oil - With oil at $200/ barrel prices, when they decide to go shopping (and they WILL go shopping), they'll be able to buy any big ticket American assets that they so choose - one month of their oil production can buy Bank of America, Apple Computer in a week, GM in 3 days - That's kind of scary. Okay, no darkness now.

More than any nation on earth, besides perhaps Israel, America HATES pain and takes action to change things.

Pain hurts, but pain is good....Pain makes things happen.


Three Soldier Dad...Chuck
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Old 05-21-2008, 11:58   #4
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Quote:
Originally Posted by 3SoldierDad View Post
Money makes people move - changes their habits, modifies their priorities. When our wallets get spanked hard enough, we finally decide it's time for a new look on life.

Wind, Solar, Nuclear, Oil Shale in the Rockies, Oil Sands in Canada, Alaska Oil, New Coal Technologies, Electric Cars....Everything starts looking good and doable.

We may look back in ten years at $150 / barrel oil and understand it's the best thing that ever happened to us.

Pain is good.

I could argue the other side, but right now I feel like looking on the bright side. The dark side I may share a little later. If you're at your computer and you've got a few minutes check out Thomas Freidman's article "Imbalances of Power" in the New York Times today. He makes an interesting point on the humongous windfall the Saudis are getting with all this oil - With oil at $200/ barrel prices, when they decide to go shopping (and they WILL go shopping), they'll be able to buy any big ticket American assets that they so choose - one month of their oil production can buy Bank of America, Apple Computer in a week, GM in 3 days - That's kind of scary. Okay, no darkness now.

More than any nation on earth, besides perhaps Israel, America HATES pain and takes action to change things.

Pain hurts, but pain is good....Pain makes things happen.


Three Soldier Dad...Chuck
For all our sakes I hope you're right. At least I have real hope in my country, its citizens, and the men and women who defend her. For all of our current "pain" it is nothing compared to other events in history.

Somewhat off topic, but sometimes I wonder what all this hope s*** from Obama really means or is about... Anyone?
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Old 05-21-2008, 15:11   #5
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Somewhat off topic, but sometimes I wonder what all this hope s*** from Obama really means or is about... Anyone?
A mere campaign slogan. He can't change what is coming any more than I can.

That's the real problem, in my opinion - the size of the problem is such that solutions will take time. No matter what form that solution might take, we are on a course that will be well-nigh impossible to change in the next four years. Not unlike trying to turn a great ship at sea, there is a large turning radius.

That supposes there is some pleasant solution. There may not be.
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Old 05-21-2008, 15:55   #6
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Somewhat off topic, but sometimes I wonder what all this hope s*** from Obama really means or is about... Anyone?

Words...that's it - words...BHO, he's just words...A pretty boy in an empty suit.

IMO, he's the biggest nothing presumptive leader this nation has ever seen. He couldn't run a small business - he's never lead anything except a law journal in college; which was a figurehead position.

He's a nice puppy, but a naive puppy - a speech maker. I'm afraid our enemies would eat his freaking lunch. If America backs this guy, I will be the first to tell you we will have taken the first step toward insanity. All bets will be off. One bright spot - If we hadn't had Carter we probably never would have gotten Reagan. But, getting "sober" after an idiot President can really be tough.

I think it is kind of telling that the guy who proposes to "unite" the country sat 20 years under Jeremiah Wright - Can't America read the billboard over this guy's head - The blinking FRAUD sign. Oh well, what was I saying? - Oh yeah, pain is good.

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Old 05-21-2008, 17:08   #7
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Yes - and keep in mind that Robert Hirsch has just gone on record - publicly - with a prediction of $12 gasoline in a few years. Dr. Hirsch has done significant work for the DOE, so he is no lightweight.

The implications of such developments for the economy are troubling. People will call for the President to do "something". And that "something" will probably involve the exercise of considerable authority.

Could an ambitious fellow abuse such a situation?

As has been pointed out, pain can be gain. But sometimes it takes awhile to get the gain...
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Old 05-21-2008, 18:56   #8
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Just a thought

Not for anything... but gas prices in this nation have remained low for a LONG time. Like everything, it eventually goes up. Milk goes up, eggs go up, clothes go up, diapers go up, and pay goes up. Problem with oil is, once it's gone, ain't gonna be no more. I'll know when the price of gas is high, when the kids no longer buzz by my house on atvs and return to bikes.

It is beyond me how, the first nation to develop nuclear power would be so far behind in using it for the betterment of it's society. We as a nation should NOT need to use coal, or oil, or natural gas to heat our homes, or make our electricity. When are we, as a society, going to grow beyond the fright of the nuclear boogyman, and USE this energy to it's full potential??? Hell, if we can make a nuke plant for an aircraft carrier that can run for 12 YEARS without refueling... Why are we not using this to power our society? It makes very little sense to me; why we would rather pollute the air and water with coal and oil smoke, when we can use clean nuke power.

Personally, I think it comes from the 50s and 60s cold war fears of a nuke war.

We, as a society, NEED to get off these fossile fuels ASAP. Sure they helped fuel the industrial age, but, everyone knew these things would run out. What we really need to do is make middle east oil worthless. The sooner we no longer have to deal with them, the better.
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Old 05-21-2008, 19:03   #9
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As has been pointed out, pain can be gain. But sometimes it takes awhile to get the gain...

The most significant part of pain is that it is.....Well, painful.

Some wither and die, some riot, some alter their circumstances, and some change in a beneficial way. It all happens at the same time and the hearts of men are tested.

Pain can heal us and pain can harm us - It depends a bit on our souls.

Somehow I don't think all this oil under the feet of the Arabs is a coincidence. They are a people with both the resourcces and the temperment to bring much pain to the entire globe.


Three Soldier Dad...Chuck
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Old 05-22-2008, 07:18   #10
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Unfortunately, we don't have enough uranium to rely solely on nuclear power right now either I don't think, and even if we do, we don't have enough domestically, we have to import it.
Source on that factoid please.
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Old 05-22-2008, 07:32   #11
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Source on that factoid please.

You might find this LINK helpful.


Uranium 2005: Resources, Production and Demand - also called the "Red Book" - estimates the total identified amount of conventional uranium stock, which can be mined for less than USD 130 per kg, to be about 4.7 million tonnes. Based on the 2004 nuclear electricity generation rate of demand the amount is sufficient for 85 years, the study states. Fast reactor technology would lengthen this period to over 2500 years.

Notice the 85 years is at current usage; increased usage would change that. At the link, additional reserves are discussed.

Here's another LINK that may be helpful.
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Old 05-22-2008, 08:58   #12
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It's time to save/exploit petroleum for its chemical properties instead of burning it in IC engines. It's too valuable to continue wasting. Rhetorical question - "Why isn't the US Govt heavilly invested in fusion research?" Where is the next "Manhattan Project" or moon shot? We used to be able to mobilize innovative/imaginative science. What happened? Tokamak plasma containment (pioneered by the Russians, for Christ's sake) has been a reality since the mid-50s yet the US only has three active research facilities. Everything else was shut down or dismantled for lack of funding/interest. Most high-energy physics research is now conducted elsewhere (the Europeans seem to be doing most of it). Nuclear fusion is the only technology that actually creates energy. Everything else just "converts" stored energy (sun - fusion) into something useable. Do the math - we're trying to increase efficiencies of conversions, not create more. Ethanol, biodiesel, petroleum, etc. are all net losses. The more steps in the conversion, the greater the loss.
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Old 05-22-2008, 10:12   #13
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The most significant part of pain is that it is.....Well, painful.

Some wither and die, some riot, some alter their circumstances, and some change in a beneficial way.
Three Soldier Dad...Chuck

Demand curve for any good (oil) is inelastic when the quantity demanded for that good (Oil) does not change when price changes, if and only if, there are no substitutes for that good. In this case oil.

When that demand curve affects the home front; this is the impact I will experience due to the inelastic demand curve for oil.

We are expecting to enjoy an incredibly profitable season this summer at the beach restaurant. No one is going to be taking long trips with the price of fuel. People will be staying close to home. As a result, restaurants will be view as entertainment, as will other business’s that can supply the illusion of escape.
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Old 05-22-2008, 11:22   #14
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We used to be able to mobilize innovative/imaginative science. What happened?
We lost our major competitor, the CCCP. Now, no one seems to care anymore. Also, today's society seems based on "what's in it for me" instead of "What can I do for my Country..."
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Finally, I believe that punishing lawful gun owners by creating new, more onerous laws, and restricting Constitutionally guaranteed rights, when we already don't enforce the tens of thousands of gun laws we have on the books, is like beating your dog because the neighbor's dog shit in your yard.
"The Reaper"
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Old 05-22-2008, 15:22   #15
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Wouldn't hurt if we ignored the tree huggers and built 3 sweet crude refineries and 2 sour crudes ASAP...
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