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Roubini on peak oil
Andrew Marshall, Reuters
Global crisis politics - A Davos debate with Nouriel Roubini and Ian Bremmer
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Two leading experts on the financial crisis and its political dimensions — Nouriel Roubini and Ian Bremmer — gave exclusive answers this week to Reuters questions on the key risks for 2009 and beyond, and the countries to watch.

Roubini is professor at the Stern School, New York University and chairman of economic forecasting consultancy RGE Monitor. He is widely credited as one of the few leading economists to forecast the onset of the crisis and its implications.

... Where is the oil price going in 2009, and what will be the political and social consequences?

... Roubini - In the short run, the demand destruction in the global demand for oil will keep prices low and hurt a bunch of unstable petro-states. These petro-states should become less aggressive facing fiscal and financial pressures; but some may be tempted to convert the domestic anger triggered by economic malaise into an aggressive foreign policy stance. Over the medium term, oil prices will sharply rise again once the global economy recovers. The return to potential growth will imply rapidly rising demand from urbanizing and industrializing China, India and other emerging markets. Meanwhile, the supply response will be much slower as low prices in the short-run lead to less investment in new capacity. In addition, as peak oil factors take hold, unstable petro-states won’t invest enough in new capacity and even Middle East states will decide it is better to keep more of the limited and finite reserves of oil in the ground for future generations. This suggests the importance — for oil importing countries — to invest in alternative and renewable technologies as a new oil shock looms.
(28 January 2009)

Canadian farm energy study acknowledges peak oil
Rick Munroe, Energy Bulletin
Acknowledgement that peak oil may be a legitimate concern has come from a rather unlikely source in Canada.

Farm Credit Canada is a federal lending agency.

It recently established a Strategic Intelligence department to examine long-term trends and provide analysis to Canadian farmers and the public.

On January 20/09 this department of FCC issued its “Knowledge Insider: Energy Edition” (50 pgs).

This document begins by pointing out, “We are on the threshold of an energy revolution that could change Canadian agriculture and our society as we know it” (p. 2). Sensing the lack of peak-oil awareness in Canada, the authors then ask, “Have you heard of peak oil?” (p. 7) and (referring to the Hirsch Report) point out that serious investments must be made “more than a decade in advance of peaking” if a successful transition is to be made.

The authors of this document make it clear that the information and views which are expressed in this document should not be interpreted as the position of FCC, much less that of the Government of Canada.

Their disclaimer notwithstanding, this appears to be the first document with the Government of Canada logo which indicates that peak oil may actually be an issue which warrants some serious consideration.

Congratulations to Katherine Patterson, Brenda Frank and their team at FCC for this timely and thought-provoking study.

Perhaps it will prompt other federal and provincial agencies to start examining the implications of peak oil.

Here is the link to FCC press release:
http://www.fcc-fac.ca/en/AboutUs/Media/news20090116_e.asp?main=6&sub1=me...

Here is the link to the full report:

http://www.fcc-fac.ca/en/LearningCentre/Knowledge/doc/Knowledge_Insider_...
(29 January 2009)

Oil Rises, Oil Falls
The History of Oil Meets the Perfect Energy Trifecta
Jim Puplava, Financial Sense
... We began 2008 with oil prices close to $100 a barrel. Oil prices rose rapidly during the first half of last year eventually setting a record high at $147 a barrel during the first week of July, a price very few thought was possible. In a single year the price of energy rose nearly 50%, than collapsed by 74% during the final quarter of the year. From reaching a low of $10 a barrel in 1998 until the apex in July of 2008, oil prices rose nearly fifteen-fold in only 10 years. From a record low to a record high, oil's price advance continued to confound the experts throughout its historic price run. A litany of excuses and scapegoats were given to explain its meteoric ascent. They ranged from the second Gulf War, to terrorist attacks, to weather, to the falling value of the dollar, to everyone's favorite—"speculators." The most common explanation given for oil's thespian rise was that it was due to speculators entering the market and driving the price up. Six months later, this still seems to be the common perception held by today's mainstream media from CBS's 60 Minutes to FoxNews' The O'Reilly Factor.

However, it is clear from reviewing a chart of oil prices over the last decade (above) that something else was occurring beneath the surface. The real price driver was largely due to fundamental supply and demand factors. The demand for oil was growing faster than the supply. What was driving demand was that the world economy expanded at its fastest pace in decades, led by explosive growth in emerging market countries. From 2004 to 2007 world economies grew by close to 5% per year with a concomitant growth in oil consumption of 3.9% per year (Interagency Task Force on Commodity Markets, "Interim Report on Crude Oil," July 2008, p 3).
(28 January 2009)

Global energy investment hit by financial crisis
Reuters via Forbes
The deepening of the global financial crisis and the sharp drop in energy prices have forced companies to scale back spending and delay projects, with expensive ventures in the Canadian oil sands hardest hit.

Below is a list of projects that have been delayed or scaled back in recent months, as well as other related news.
(28 January 2009)

Deflation, Reflation and Our Oil Future
Dave Cohen, ASPO-USA
I suspect that most of those concerned about a peak, plateau and decline in the global oil supply assumed that such events would eventually cause a reeling economy like the one we have now. But something else happened instead—the depression—or something very much like it—came first.

When will a faltering oil supply and high energy prices next have an impact on global economies as they did in 2007 and the first half of 2008? The answer depends entirely on whether the severe global recession lingers—Nouriel Roubini calls it stag-deflation—for some years or starts to ease as early as 2010.

How do these poor economic conditions bear on the oil question? The easy rule-of-thumb goes like this:

When there is positive inflation and the global economy (aggregate demand & output) grows, so does oil consumption. When deflation rules and the global economy shrinks, so does oil consumption.

... A 2nd Great Depression is certainly the worst case scenario, but a repeat of the cascading bank failures that took place in the early 1930s has probably been averted by Fed and government intervention. Still, we need to be careful here. Nouriel Roubini’s analysis indicates that the banking system is effectively insolvent and will likely not survive in anything like its present form without additional rescue packages and guarantees like those given recently to Citigroup ($300 billion) and Bank of America ($118 billion). The situation is unstable, but the caretakers are bound and determined to bail-out the banks and reflate the economy.

The Oil Supply Problem Did Not Just Disappear

This all-too-brief overview of our economic future relates to the “peak oil” issue in a very straightforward way. Oil demand and prices will remain depressed during the deflationary period (2008 Quarter III–?, the “Ka” part of the model) and then rebound as they did in recent years when inflation takes hold again (the “Poom”). In the inflationary period that preceded the current downturn from 2003–2008 Quarter II, oil demand and prices rose steadily against a backdrop of faltering supply after 2005.

The next inflationary period shown in Figure 2, when it finally kicks in, may have very similar effects to the previous one, but this is not guaranteed because we’re in dire straits now. If aggregate demand and output growth in the next period turns out to be robust, which I consider unlikely, the end game may play out very differently this time around, with oil scarcity taking on a much larger role in determining our economic health than it did these last few years after the collapse of the Housing Bubble.
(29 January 2009)
Companion piece on Dave's blog: Depression Or Recovery -- What's In the Cards?.