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I am borrowing this shamelessly from an Oil Drum thread (and more specifically from a comment by substr4ct, but it's such a telling graph that it's worth flagging and circulating widely:

This graph shows, for every year since 1990, what the markets' expectation of long term oil prices, as represented by the longest date future, was.

Until very recently, and at least since the mid 80s, i.e. basically since we have futures markets in oil, the expectations on long term price of oil were extraordinarily stable - at around 20$/bl.

That meant that, at all times, and whatever the actual spot price was, oil prices were expected to come back (upwards, or downwards, depending on where it would be then) to that level. For instance, in late 1998/early 1999, when spot prices dropped briefly below 10$/bl, the market still epxected them to recover in the medium term (the longest futures available are 5 years forward).

And that price was the central hypothesis used to evaluate oil projects: you'd build your basic retrun on investment scenarios using that price for the life of your project, adjusting, if necessary, the first one or two years to then prevailing prices. And banks, a notoriously conservative bunch, basically used the same numbers to finance oil project over the long term (well, we'd use 18$/bl to be on the safe side).

So it is actually quite remarkable how quickly the view of the market on future prices of oil has changed in the past 2 years. What the graph says is that as of today, the market expects oil prices to still be around 60-70$/bl 5 years from now, and not to drift down to 20$/bl or somewhere in between.

The market has dumped the orthodoxy of the past 20 years, which is REALLY amazing, considering how deeply these long term expectations remain entrenched, usually.

And the banking market is actually following. Financings that used to be based on 18$/bl oil went to 25$/bl in 2004 and to 35$/bl or more last year. That's also a pretty remarkable change - and, again, an astonishingly rapid one.

You may think that it's silly to argue for 18$/b when oil prices have been above 50$ for the past year or so, but remember that the hypotheses we're talking about in long term financings have to be valid for 15-20 years, and even more if you're talking about the actual investment decisions by oil companies. Prices "always" came back to their 20$ mean in the past, so why think it will be different this time? Why expect prices not to drift back to their "normal" price?

That has required a pretty big shift in overall psychology, which cannot be explained by short term worries on supply or by speculative influxes of "hot money". it's a real, structural change.

It would seem that the markets have accepted the idea, if not of peak oil, at least of the end of cheap oil.

substr4ct provides another graph, which shows the similar evolution of future prices for natural gas:

The worries about long term prices of natural gas have started a bit earlier than for oil (possibly a consequence of the 2000 price peaks created by the Enron/California crisis) - and have so far stayed "ahead" of oil price worries.

As you may have noticed, I have focused increasingly on natural gas in recent "countdown" diaries, as well as on the impact on electricity prices. With natural gas being an industry much more dependent on infrastructure issues, we're likely to see that shortages can come not just from the short term demand-supply balance, but also from short and medium term transport and storage problems. This is a structurally less liquid market, and investment decisions from 5-10 years back (the time of full market liberalisation in a number of places) will come to haunt us unexpectedly.

The markets have taken note, and are (rightly) worried. and yet the irony is that, as mentioned in the Oil Drum thread, buying today the rights to 60$/bl oil in 2010 may well be the best deal ever...

Earlier "Countdown Diaries":
Countdown to $100 oil (23) - Running out of natural gas in North America
Countdown to 100$ oil (22) - gas shortages in the UK - 240$/boe
Countdown to 100$ oil (21bis) - long term vs short term worries
Countdown to 100$ oil (21) - 8-page extravaganza in the Independent: 'we're doomed'
Countdown to 100$ oil (20) - Meteor Blades is Da Man in 2005
Countdown to 100$ oil (19) - Your bets for 2006
Countdown to 100$ oil (18) - OPEC happy with oil above 50$
Countdown to 100$ oil (17) - Does it matter politically? A naked appeal for your support
Countdown to 100$ oil (16) - We'll know on Monday
Countdown to 100$ oil (15) - the impact on your electricity bill
Countdown to 100$ oil (14) - Greenspan acknoweldges peak oil
Countdown to 100$ oil (13) - Katrina strikes / refinery crisis
Countdown to 100$ oil (12) - Al-Qaeda, oil and Asian financial centers
Countdown to 100$ oil (11) - it's Greenspan's fault!
Countdown to 100$ oil (10) - Simmons says 300$ soon - and more
Countdown to 100$ oil (9) - I am taking bets
Countdown to 100$ oil (8) - just raw data
Countdown to 100$ oil (7) - a smart solution: the bike
Countdown to 100$ oil (6) - and the loser is ... Africa
Countdown to 100$ oil (5) - OPEC inexorably raises floor price
Countdown to 100$ oil (4) - WSJ wingnuts vs China
Countdown to 100$ oil (3) - industry is beginning to suffer
Countdown to 100$ oil (2) - the views of the elites on peak oil
Countdown to 100$ oil (1)

Originally posted to Jerome a Paris on Sat Mar 25, 2006 at 02:38 PM PST.

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Comment Preferences

  •  Oh, you and 'peak oil'. :) (13+ / 0-)

    We've got real problems now, Jerome -- We've reached Peak Earth!

    No, but seriously...

    As it turns out, the most current understanding of how planets and stars are formed suggest that

    1. Most Earthlike planets (Earths) have already formed.
    1. For technical reason, most star systems our own Sun's age and younger form gas giants -- planets like Jupiter -- in the close orbits where Earth, Venus and Mars hang out in our Solar System.
    1. In other words, no more Earths.

    This is serious stuff!

    We could be talking $100/bbl Earth, here. :)

    We're all Helens now. :)

    by cskendrick on Sat Mar 25, 2006 at 02:37:13 PM PST

  •  Are the figures corrected for inflation? (1+ / 0-)
    Recommended by:
    Hoya90

    I hope that's not a stupid question... I couldn't see anything about it in the text. Obviously if the price has really remained at $20/bl then the actual price has been dropping.

    It's good to know that the markets are finally waking up to reality, even if very late and very slowly.

    Climate change, peak oil, nuclear proliferation, human rights abuses, electoral fraud, and on and on... or the mystery prize?

    by lmd71 on Sat Mar 25, 2006 at 02:50:00 PM PST

    •  It's all nominal prices (3+ / 0-)
      Recommended by:
      Hoya90, kd texan, Elise

      oil prices don't follow inflation (if there's any link, it's probably the other way round), and prices are almost always expressed in nominal terms.

      So yes, until recently, real oil prices were considered to be slowly drifting downwards.

      In the long run, we're all dead (Keynes)
      Read more on the European Tribune - bringing dKos to Europe

      by Jerome a Paris on Sat Mar 25, 2006 at 02:56:47 PM PST

      [ Parent ]

      •  'oil prices don't follow inflation' (1+ / 0-)
        Recommended by:
        Hoya90

        This has always seemed very strange to me. Absent constant decreases in the real cost of production, why would this be? Is it an artificially-induced stability due to price manipulation (the cartel effect)?

        Come see TV from the reality-based community at RealityBasedTV.com

        by MarkInSanFran on Sat Mar 25, 2006 at 05:15:11 PM PST

        [ Parent ]

        •  quite the opposite (4+ / 0-)
          Recommended by:
          Hoya90, WI Deadhead, kd texan, Gegner

          the only "real" players way out the curve tended to be the smaller producers that were forced to hedge their future production in order to get bank loans.

          The Seven Sisters (now 4), OPEC, and their ilk have enough credit worthiness or cash flow to fund projects without being forced to hedge.  

          At $20 ish, Wall Street would take on the time spread risk until buy side hedgers like airlines, trucking co's, etc are ready to play.  Few of those folks will buy further than a couple of years out, while a driller/producer is looking at decades perhaps.

          As for why $20 when production costs were rising, couple of thoughts.

          Projects were/are only done if there's enough cash flow to make them work.  Production costs were still such that $20 made money for many projects.  That was a level the 10 or so long term oil speculators felt comfortable with and as the club is small, there is a lot of group think.  "Reversion to the mean" was a catch phrase for these folks.

          There have been technical advances that mitigated the effect of inflation on oil field cost structures.

        •  Oil Prices Are Inflation (0+ / 0-)

          When you get down to it energy prices are probably the biggest, if not the biggest component of long-term inflation. The price of oil affects literally everything. When oil is cheap the cost of production for everything is cheap and vice versa.

          Sponge Bob, Mandrake, Cartoons. That's how your hard-core islamahomocommienazis work.

          by Benito on Sat Mar 25, 2006 at 06:52:09 PM PST

          [ Parent ]

  •  In that CNN Oil Crisis special.... (6+ / 0-)

    I thought it was interesting that James Woolsey, former CIA director, had solar panels on his house and drove a hybrid.  Maybe he's just a tree-hugger, but I'm guessing there's more to it than that....this is a guy who had access to some data.  I think this diary also shows that people with access to data have drawn and sealed some conclusions.

    Otherwise the CNN show was useless.  Everyone here knows all the stuff they presented.  And they did this rip-off of that movie from last year, Oil Storm.  They did these future scenarios of a Cat5 hitting Houston, and attacks on Ras Tanura, etc.  They just interspersed the futuristic stuff with these interviews, and Woolsey was one of them.

    •  Woolsey (2+ / 0-)
      Recommended by:
      liberal atheist, Gegner

      Woolsey is the classic example of the "geogreen" movement, essentially righties who think that the national security implications of relying on imported oil and natural gas are so high that we should do everything we can to reduce those imports.

      I can't really argue the point, although I think it's a case of doing the right thing for the wrong reason, i.e. I think we should be pushing as hard as possible to build out our use of renewables to accelerate the transition to a post-fossil-fuel era, as well as to minimize emissions in the short run.

      •  His bumper sticker highlighted his philosphy (1+ / 0-)
        Recommended by:
        liberal atheist

        "Osama Bin Laden hates my car" on the back of his Prius.  Minor nit though, I don't think it's "the right thing for the wrong reason", it's more like the right thing for one of the many vital reasons.  

        I loved this CNN special and FOX's bolder "Oil Storm".  Bring on the copycats!  Has anyone noticed how the movie "The Day After Tomorrow" isn't looking so wild-eyed lately?
         

        Nature never breaks her own laws. --da Vinci

        by lale on Sat Mar 25, 2006 at 05:25:01 PM PST

        [ Parent ]

  •  My Take (1+ / 0-)
    Recommended by:
    Gegner

    The market has dumped the orthodoxy of the past 20 years, which is REALLY amazing, considering how deeply these long term expectations remain entrenched, usually.

    a lot can happen in twenty years, and in this case what has happened is totally to be expected, given the massive growth in the Chinese, Indian, and to a lesser extent, SE Asian economies.

    while GM cries in their beer here about sales figures, they are putting up big numbers in China, because a Buick is now considered a hot status symbol among Chinese up and comers.

    in other words, it's all about demand in new markets which had been sitting stagnant for decades.

    throw in the instability in the middle east and Nigeria, political changes in South American oil-rich nations, and the lack of new refineries coming on line-- it can only mean higher gas prices for everyone.

    "Think of Iraq as a military base with a very large oil reserve underneath.... You can't ask for better than that." Fadel Gheit

    by Superpole on Sat Mar 25, 2006 at 03:13:23 PM PST

    •  It's just in the past year or two (4+ / 0-)

      The point is, nothing changed for twenty years in perceptions, and now they are changing brutally. So it's either a belated ackowledgement of long term trends which were previously ignored (which markets are precisely supposed not to ignore), or a perception that something major has changed recently - and that the tightness in energy markets is not something temporary.

      Either way, it's highly relevant information.

      In the long run, we're all dead (Keynes)
      Read more on the European Tribune - bringing dKos to Europe

      by Jerome a Paris on Sat Mar 25, 2006 at 03:30:30 PM PST

      [ Parent ]

    •  to be expected? (1+ / 0-)
      Recommended by:
      liberal atheist

      given the massive growth in the Chinese, Indian, and to a lesser extent, SE Asian economies

      Hindsight is 20/20. Can you quote me somebody from 3 or 5 years back predicting this? If not, it wasn't "totally to be expected." Just saying.

      •  Asian and third world economies (2+ / 0-)
        Recommended by:
        Superpole, das monde
        was it expected that China and India and other countries would never ever switch to a petroleum economy and start buying lots of gas guzzlers?

        Someone had to see it coming.

        I'm kind of stalling for time here...They told me what to say. George W Bush, 03-21-2006 10:00 EST Press Conference

        by Tamifah on Sat Mar 25, 2006 at 05:25:04 PM PST

        [ Parent ]

        •  Right! (0+ / 0-)

          I mean, c'mon! The big three U.S. automakers begged for years to be able to do business in China.. and it's paying off rather nicely for GM right now.

          oh yeah, when was China first granted most favored nation trading status? I believe that was during the Clinton administration.

          "Think of Iraq as a military base with a very large oil reserve underneath.... You can't ask for better than that." Fadel Gheit

          by Superpole on Sat Mar 25, 2006 at 07:31:49 PM PST

          [ Parent ]

      •  Actually OPEC did expect it (0+ / 0-)

        I recall an oil economics class I took back in the early 1990s.  Oil had taken a huge dive towards $10/bbl and we were all wondering how they'd survive.  My prof put up the future consumption and production charts for the class.  OPEC and the major oil companies all expected a huge growth in consumption by 2000 with only limited growth in production.

        While my prof wasn't predicting $50 or $60/bbl for 2000 or 2005 (and this was 1993), it was clear that OPEC planned to use the price drop to knock out a lot of marginal production and then manage an emerging oil shortage to their benefit.

        What is different than the scenario my prof forecasted in 1993 is that OPEC tried to open up the taps to the max as consumption grew.  This lulled the markets into believing that doomsday could be avoided and it also wound up hurting some of the supergiant fields by pulling the oil too fast.

        - "You're Hells Angels, then? What chapter are you from?"
        - REVELATIONS, CHAPTER SIX.

        by Hoya90 on Sat Mar 25, 2006 at 05:54:24 PM PST

        [ Parent ]

      •  C'mon (1+ / 0-)
        Recommended by:
        Gegner

        there were plenty of predictions. of course we don't hear them in the universities here or in corporate mainstream media because few want to accept the fact the Chinese are going to surpass us, the "greatest country in the world".

        here's one:

        http://www.oecdobserver.org/...

        "Think of Iraq as a military base with a very large oil reserve underneath.... You can't ask for better than that." Fadel Gheit

        by Superpole on Sat Mar 25, 2006 at 07:29:22 PM PST

        [ Parent ]

  •  slightly OT but relevent (3+ / 0-)
    Recommended by:
    WI Deadhead, MarkInSanFran, Elise

    Someone handed me a postcard on the street in NYC earlier this week about an event in the city to learn more about peak oil.  I have no clue who this people are, but  saved it in anticipation of one of Jerome's diaries about the subject.

    April 27-29, 2006 in midtown. Goals include learning about peak oil and the effect on energy prices and to discuss realistic, sustainable local responses.

    They have a website at Energy Solutions Conference to learn more about it.

    I saved that card all week so I could post that information here.  Thanks, Jerome for making me aware of the problem so I knew what the card was even about.

  •  break point in the futures curve? IRAQ WAR (2+ / 0-)
    Recommended by:
    lale, das monde
  •  Isn't (3+ / 0-)
    Recommended by:
    grndrush, liberal atheist, Gegner

    the end of cheap oil peak oil by definition? I thought the central problem was not running out of oil,  but demand eclipsing suppy, ending cheap oil. Our entire society is based on cheap energy and endless growth, and will certainly get into massive trouble without both.

    We are all wearing the blue dress now.

    by PLS on Sat Mar 25, 2006 at 04:18:46 PM PST

    •  Are cities obsolete? (3+ / 0-)
      Recommended by:
      WI Deadhead, grndrush, das monde

      If sea levels are rising twenty feet by the end of the century,

      and storms and grass fires, and mudslides and floods are getting worse, and pretty soon we won't be able to afford to commute into cities from the suburbs,

      and we have already allowed the Republicans to spend or waste all the money, and eventually people are going to get tired of moving New Orleans up the Mississippi until its somewhere north of Baton Rouge,

      and besides that we have sold off all the infrastructure anyway, and we are still bogged down fighting somewhere to give our military defense contractors reason to stay in business, and meanwhile we continue to destroy our constitution and bill of rights and reputation as standing for something

      and meanwhile continue to ignore Medicaid and Medicare and Socical Security and Education and all that Health and Human Services stuff, maybe that will solve our immigraton problems

      because who in their right mind would want to come here then?

      Live Free or Die (-8.88 -9.49) IMPEACH

      by rktect on Sat Mar 25, 2006 at 04:41:38 PM PST

      [ Parent ]

      •  Cities? (2+ / 0-)
        Recommended by:
        bronte17, liberal atheist

        It sounds like you're saying the United States is obsolete...you don't say much about cities. Actually, we'd be better off if more people lived in vertically integrated cities rather than suburban sprawl which requires long commutes and uses so much oil.

        "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

        by Alice in Florida on Sat Mar 25, 2006 at 04:50:14 PM PST

        [ Parent ]

        •  I take your point, no need to panic... (0+ / 0-)

          For that red part of the map it'll sort of be like Marine World, or Water World maybe, and people can just use windpower and sail around instead of having to drive.

          Live Free or Die (-8.88 -9.49) IMPEACH

          by rktect on Sat Mar 25, 2006 at 05:11:58 PM PST

          [ Parent ]

        •  Vertically integrated cities (1+ / 0-)
          Recommended by:
          liberal atheist
          I have some questions about whether or not it would be best to live in a city after the shit hits the fan.

          Lots of people in a concentrated space, no place to grow food, no way to truck it in...

          how would that work?

          I'm kind of stalling for time here...They told me what to say. George W Bush, 03-21-2006 10:00 EST Press Conference

          by Tamifah on Sat Mar 25, 2006 at 05:31:45 PM PST

          [ Parent ]

          •  I'm thinking its your basic Soylent Green scenaro (1+ / 0-)
            Recommended by:
            HillaryIsMyHomegirl

            at least until things get bad

            Live Free or Die (-8.88 -9.49) IMPEACH

            by rktect on Sat Mar 25, 2006 at 05:54:31 PM PST

            [ Parent ]

          •  Trucking in food (0+ / 0-)

            takes a lot less energy than trucking people all over the place. Why do you think we would not be able to truck in food?

            "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

            by Alice in Florida on Sat Mar 25, 2006 at 06:06:28 PM PST

            [ Parent ]

          •  Green Roofs (1+ / 0-)
            Recommended by:
            Alice in Florida

            Actually you can grow a considerable amount in a city with smart designs. This is the major paradigm shift that needs to happen. Put more thought into the design of a product, building, what have you and you won't need to extract nearly as many resources and companies will actually profit more from this investment than the current way of thinking. It's basically a win/win. Leave the Industrial Revolution's mindset to the 1800's and start an Industrial Evolution.

            You can make buildings that not only doesn't use up much electricity, but one that actually is a net producer. 'Living machines' can remove the pressure on sewage treatment plants and actually provide potable water back to the home. Etc. Using green roofs lowers the heat sink of buildings and reduces the problem of rainwater runoff while providing some relatively beautiful vistas depending on what you want to put up there. Normally it is sedum and mosses, although you can have flowering plants and grasses (Chicago City Hall). No reason why you couldn't have corn or wheat instead.

            Of course the number of people living within a city likely exceeds the amount of food you could grow there, but if we actually tried to curtail sprawl the farms and breadbaskets wouldn't be so far away.

            If you are really interested in the ability for cities to provide practically their own eco-system read up on Paolo Soleri and Arcologies. It is rather interesting, albeit somewhat impractical. As for the industrial evolution paradigm I mention, check out William McDonough & Michael Braungart's Cradle to Cradle.

            •  All buildings should be sustainable and green (0+ / 0-)

              I'm with you on this. I like the idea of arcologies. They do require a lot of energy, especially from all those dedicated young architecture students.

              Personally I don't see bigger as better despite the idea of getting rid of the automobile. In the seventies I was doing photovoltaics and solar sustainable off the coast of Maine which is similar but different, its more about going back to the land and stewardship and sharing rather than an ownership society and consumption.

              For most architects, even after educating owners about the benefits of buildings designed around LEED certification its not easy to sell the project managers doing the value engineering who can't get their eyes off the schedule and the bottom line on experimenting with pricy alternative and sustainable technology to get it to the point where everybody wants it and its cheap.

              I have seen people do all the engineering for photovoltaic buildings and then get it stripped away piece by piece.

              Green roofs are a big deal in Europe, in Canada and maybe Vermont, I even talked to a guy from Chicago who is running the parks department in DC who is into them, but we should have been there 50 years ago.

              Most cities are high rise, the HVAC goes on the roof, add to that the photovoltaics, You can grow food with hydroponics, but its not quite the same as with real dirt.

              Live Free or Die (-8.88 -9.49) IMPEACH

              by rktect on Sun Mar 26, 2006 at 07:02:26 PM PST

              [ Parent ]

      •  Nice little piece of Graphics. (0+ / 0-)

        Emmm pictures,I get the point.

        It's out "There" just OPEN your eyes.

        by Clzwld on Sat Mar 25, 2006 at 05:57:54 PM PST

        [ Parent ]

    •  Different, but ... (0+ / 0-)

      Quite right, if demand were to go down at the same rate that supply does, we'll be fine. So if either cold fusion heaters or hydrino heaters (and power generators — but both projects are looking to market home heating units first) pan out, a whole lot of oil/natural gas/coal will be freed up — enough to at least keep the conventional plastics industry happy for some decade.

      Of course, there's a lot of physics that says neither one will. In that case, peak means supply will sharply decline, China means demand will sharply rise. And global climate will be well and truly fucked, since China's coal reserves are second to nobody's, and ours are next.

  •  Natural gas is different from oil (0+ / 0-)

    in that it can easily be produced.

    My own inclination is to buy into pig shit.

  •  Jerome, I think you should consider this: (2+ / 0-)
    Recommended by:
    WI Deadhead, Gegner

    I think there is another cost dynamic you've overlooked. You are talking about the world price of oil. You should spend some time looking at the price America pays for oil.

    At this point, every single reason and rationale for the American invasion and occupation of Iraq has been disproven or discredited. That's because at the core, there really, fundamentally, was only one reason though I think "motive" would be a better word--as in "means, motive and opportunity," the three elements of proving any crime.

    The only remaining, logical, irrefutable motive for the American misadventure in Iraq was to guarantee a flow of oil from the Middle East.

    So how much has all that cost since Day 1? Whatever it is, it should be added as a premium to the price of each barrel of oil that has made its way into the United States from the Middle East. I'm just spitballin' here, but I think when we add the cost of the war, and the cost of the (so called) peace, and all associated costs, like to local economies, cost of supporting disabled vets, and indirect costs, such as the inability to properly react to Hurricane Katrina because the needed equipment was in Iraq with the National Guard, I'm thinking that the AMERICAN price of oil over the past three years is substantially higher than $100/bl.

    Course, I'm just some dumbass with a keyboard.

    Quis custodiet ipsos custodes? (Who will watch the watchers?)

    by The Crusty Bunker on Sat Mar 25, 2006 at 04:51:42 PM PST

  •  Three things (0+ / 0-)

    1. One of the reasons why oil futures stayed at $20 was the belief that oil demand was price elastic in the long term even if extremely inelastic in the short term. Two years of sustained $50 prices with no perceptible impact on demand or on the world economy (attributable to high oil, that is) have put that belief in doubt.
    2. Another reason was the belief that we will always continue to find new sources of oil. Perhaps the 'environmentalist wackos' were right after all and oil is a limited resource.  Ya think?
    3. Profits for oil companies and the owners of oil are music to the ears of oilmen like bush and cheney.   Hear past the sound bites and you realize that these guys have no interest in threatening to cut demand to force the opec cartel to cut prices.

    But I disagree with Jerome on a key point:  I don't think oil will hit $100 .

  •  Can't agree (1+ / 0-)
    Recommended by:
    Gegner

    So it is actually quite remarkable how quickly the view of the market on future prices of oil has changed in the past 2 years. Whatthe graph says is that as of today, the market expects oil prices to still be around 60-70$/bl 5 years from now, and not to drift down to 20$/bl or somewhere in between.

    The market has dumped the orthodoxy of the past 20 years, which is REALLY amazing, considering how deeply these long term expectations remain entrenched, usually.

    It's really not amazing at all.  The market players can do the same math you are doing.  Once people realized that Saudi doesn't have another 5 MMBD up their sleeve, Iraq isn't going to be at 7 MMBD any time soon, and the Chinese and Indians are truly going to have big economies, it's not that hard.

    the forward price really did'nt move before the trade had their nose rubbed in the fact of $50+ pricing.  No crystal ball situation, people are just reacting to facts on the ground that are easy to see.

    What I do find interesting and heartening is bankers are beginning to figure project econs on $35/bbl oil.  That will stimulate production and mitigate the squeeze.  And the high prices will mitigate consumption growth.  Kunstleresque collapse theories are less and less probable.

  •  My only beef ... (0+ / 0-)

    is that the graphs should be on semi-log scales instead of Cartesian.

    That way you see the percentage growth per year, which is the important thing to look at.

    (-6.25, -5.23)
    Hopelessly pedantic since 1963.

    by admiralh on Sat Mar 25, 2006 at 06:17:13 PM PST

  •  Seeking Practical Advice (0+ / 0-)

    I'm doing a major renovation and addition to a single-family home (3BR/2BA, approx. 1650 sq ft. once finished). I plan to own the home (as my residence or as a vacation rental property where I'm still paying the utility bills) for the forseeable future (20-30 years).

    The question is, in light of $100 oil (etc.), what energy sources should I seek out?

    My major considerations are: keeping lifetime energy costs to a minimum, reduced price volatility (if possible), and relative impact on global warming.

    The default choice is a traditional everything electric from-the-grid system. This location does not have natural gas available.

    Right now I'm planning on using propane for an on-demand hot water. That system will provide hot water for both personal use as well as for radiant floor heating (for 75% of the house; the other 25% will be heated by wood stove with electric baseboard backup).

    One question is, should I pay the premium for propane appliances (e.g., go with as much propane as possible, compared to electric)?

    Alternatively, should I stick with electric but look at wind or solar (both potentially feasible at this location)?

    Two considerations: (a) the state the property is in, WV, does not offer net-metering, and (b) is there significantly better technology on the horizon that would make solar and/or wind more cost-effective in the future (the next 3-5 years)?

    Any and all advice is welcome!

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    "If you want others to be happy, practice compassion. If you want to be happy, practice compassion." -- The Dalai Lama

    by SLJ on Sat Mar 25, 2006 at 06:19:28 PM PST

    •  Just say yes to insulation. (0+ / 0-)

      Now that you have such a great question, spend to answer it with the most return.

      It's out "There" just OPEN your eyes.

      by Clzwld on Sat Mar 25, 2006 at 06:28:56 PM PST

      [ Parent ]

      •  lots of insulation (0+ / 0-)

        Yes, good point. I am adding lots of insulation, replacing the old crappy windows with energy-efficient windows and the like.

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        "If you want others to be happy, practice compassion. If you want to be happy, practice compassion." -- The Dalai Lama

        by SLJ on Sat Mar 25, 2006 at 08:28:53 PM PST

        [ Parent ]

    •  propane!!!!!!!!!! (0+ / 0-)

      Propane can have vicious price swings in international markets.  Cheap when you don't need it, unbelievable when you do.  When I was trading I saw a winter where waterborne propane hit $600/MT and then collapsed to $60 in just a few weeks.  For comparison, diesel was about $110-150/mt at the time.

      Inland markets in the US have been protected by logistics and a seemingly inexhaustable nat gas supply.  When/if oil/natgas blows out in price, your propane is going with it.  Nat gas is no longer going to be insulated from world markets now that our supply is unable to keep up with domestic demand.

      As for your question, I'd probably go with electricity as much as possible.  Then you can add either wind or solar capital investment when/if it makes sense.  If the propane equipment pays out right now at say 5-10 years vs electricity, you could go that way knowing you have to replace it anyway at some point.  Just make sure you wire/pipe such that you can change your mind later.

      •  makes sense (0+ / 0-)

        Thank you for the input.

        Okay, thanks, that makes sense. The main appeal for propane on my hot water system is I can get a relatively inexpensive whole-house on-demand hot water system versus paying a bunch for a large-tank electric system where I'm heating up water even when I'm not using it.

        From what you are saying about propane price swings, that'll motivate me to opt for a larger rather than smaller storage tank (to avoid spot purchases) and buy during the non-winter seasons when the price swings are less likely.

        -----
        "If you want others to be happy, practice compassion. If you want to be happy, practice compassion." -- The Dalai Lama

        by SLJ on Sat Mar 25, 2006 at 08:35:34 PM PST

        [ Parent ]

  •  In some minds the conversion has yet to. (0+ / 0-)

    But tomorrow I'm gonna go get me a loaf of rye bread for .0523 barrels of oil

    It's out "There" just OPEN your eyes.

    by Clzwld on Sat Mar 25, 2006 at 06:20:51 PM PST

  •  How Deep Has This Penetrated Corporate America? (2+ / 0-)
    Recommended by:
    Jerome a Paris, alizard

    To me, that is the big question. Folks tend to see 'corporate America' as a monolithic bloc out to get the little guy, but in reality CA is made up of many different types of firms with many competing interests. So, the question is when does the logic of peak oil begin to affect the bottom line of firms where the price of oil is counted as cost, not profit? Eventually enough firms will be hurt by rising energy costs to motivate them to pit their lobbying armies against the oil companies.

    What progressives and environmentalists need to do is build alliances with those firms that are the most exposed to things like peak oil and global warming. Insurance companies, for instance, have a lot at stake with global warming. Manufacturers will be hit by rising energy costs. Finance could lose a bundle if rising energy costs cause a deep recession.

    The business community as a whole is not necessarily our enemy.  

    Sponge Bob, Mandrake, Cartoons. That's how your hard-core islamahomocommienazis work.

    by Benito on Sat Mar 25, 2006 at 07:11:46 PM PST

  •  Look at Southwest Airlines (0+ / 0-)

    Alone amongst the big airlines, Southwest remains consistently profitable. There are a number of reasons but at least one reason is that for the last several years, Southwest has been busy hedging their fuel costs against this exact curve. That has allowed Southwest to be cutthroat in competition since they bought their fuel for 2006 quite some time ago. Meanwhile, the JIT style airlines get hammered with price volatility. The only way Southwest can lose in this scenario is to see oil go down consistently year over year and how many of us think that is actually going to occur?

    You can also expect Southwest's busines methods to be picked up by other large fuel users. And if you cannot afford the costs of hedging your fuel cost, then you will be driven out of business by those who can.

    This paradigm shift is taking place right now, Jerome, and some companies are "getting it" even as we speak. For those that don't, they can expect to be left on the roadside of history as the rusted out hunks of old economic thinking.

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