Agora Financial’s Rude Awakening

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Dubai, UAE

· The $250 million beacon of alternative energy possibility,
· The “unimaginable” endgame of Peak Oil,
· A trip down memory lane and plenty more…

Joel Bowman, from Dubai, UAE…

The scenes from the time are emblazoned on the minds of all those that lived through them…literally. Free love, Hendrix and Morrison at Woodstock and anti-nuclear protests all flourished under a perpetual cloud of euphoria and patchouli.

Of course, your junior editor is too young to have experienced any of the iconic revelries of that time. [When Hendrix set his guitar on fire at the famed Woodstock of ‘69, we were negative 12] Now how times have changed. Free love, rockin’ music and quality potpourri are now only fashionable, it seems, in small pockets of the epicenter from whence they sprang, Southern California.

Some things seem to transcend the ages both in terms of fasionability and relevance…like green, clean, renewable sources of energy, for one. But before you go donning your favorite tie-dyes and polishing off the old vinyl, you should know that the new shade of green is pinstriped…and its cashed up corporate advocates prefer fine Cuban cigars and Dom Peringnon to jungle juice and wacky tabacky.

Today’s edition of the Rude Awakening features an edited excerpt of a fascinating column by Kevin Capp, which previously appeared in Las Vegas City, Nevada’s most widely read weekly newspaper. As the first in a Rude two-parter, today’s focus is on the state of the world’s oil supply and production with an eye to what’s next. Enjoy…

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The End of Las Vegas
By Kevin Capp

The room beamed with good intentions and positive thinking. So many ideas and innovations. You just had to believe.

On Aug. 27, inside the Dialogue Center at the Las Vegas Springs Preserve, the much-hyped $250 million beacon of alternative energy possibility, U.S. Sen. Harry Reid told the small group of concerned citizens and green business people in attendance that the time had come for Nevada to go renewable and lead the nation toward a clean energy future.

“What we need to do is stop using fossil fuel,” Reid told the audience. “But people need to be incentivized to do this.”

To that end, and to his credit, Reid has been doing a lot more than doling out platitudes. In a torrent of press releases, he has announced his opposition to three proposed coal plants; hailed a decision by the Bureau of Land Management to lease 123,000 acres of Nevada land for geothermal exploration; sung the praises of a Senate energy bill that he says will ramp down our oil use and ramp up renewable use; and, most recently, highlighted a report that shows coal is an unpopular energy source as a means to push the Silver State into a leadership position on all things renewable. (His only flaws seem to be a decidedly non-green coddling of a politically supportive Nevada mining industry, and helping developer Harvey Whittemore build a giant suburb in the middle of nowhere.)

Yes, the man’s got ideas.

So did the folks at the meeting. They talked about all the usual, obvious solutions. We should harness the power of the sun; use soybeans and fry grease to run the cars; create a hydrogen economy; and all the other stuff Americans have been hearing about of late to lower those nasty emissions destroying Mother Earth. Best part is: We’ll get to continue living the same way — tooling around in our cars, relaxing in our air-conditioned homes. Only now we’ll finally be treating our old Momma with some respect while we do it.

Green smoke

Many energy experts say this a dangerous myth, one that will prevent us from adapting to a monumental change with no historical parallels. While it’s surely imperative we clean up our act in the name of preserving our planet, a potentially even bigger issue than that of global climate change is staring us down: an oil shortage. These critics say the American way of life as we know it is on the wane. They say our addiction to fossil fuels and all of the glorious achievements that accompanied our discovery of oil back in the mid-18th century have convinced us that the way we live is an inalienable right that will continue on into eternity. Because we have technology. Because we have ingenuity. Because we’re Americans.

Fact is, none of that matters in the face of geology, experts say. Oil is a finite, fast-diminishing and, perhaps more importantly, unique resource that no amount of so-called alternatives can replace. Even if they could, we may already be too late to put together a plan.

“The renewables are not ready,” says Jan Lundberg, an oil industry analyst. “They are not going to deliver energy the way cheap oil used to.”

James Howard Kunstler, one of the most prominent speakers and prolific writers on the impending oil crisis, says of the push by Reid and other politicians to switch out energy sources: “What they are doing right now is blowing green smoke up the public’s ass.”

What’s more, the issue isn’t necessarily whether we run out of oil, but what happens when shortages throw the cost of energy into a schizophrenic tizzy of price spikes punctuated by brief, illusory drops, says Richard Heinberg, author of The Party’s Over. Many credit him with being one of the first intellectuals to bring this issue to public light. “It’s going to go up in a stair-step fashion, because oil usage is seasonal. March, April next year, we’ll probably see softer prices. But softer in comparison to what? A few years ago, a soft price was $20.”

Now oil hovers around $80 a barrel, a jump from around $60 earlier this year. “Reflect on what this is going to mean to the airlines and tourism in Las Vegas,” says Kunstler. “You’re going to be dealing with an increasingly tapped-out public. They’re simply going to have a lot less money to toss into the casinos.”

The endgame is even more frightening, surreal and just plain unimaginable. As oil peaks and prices soar, these experts say it will mean nothing less than the end of our air-conditioned, central-heated, car- and airplane-dependent neon metropolis, and it’s coming soon, green revolution be damned.

A Peak Oil Primer

“As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented.” — from “Peaking of World Oil Production: Impacts, Mitigation, & Risk Management,” a report commissioned by the U.S. Department of Energy, published February 2005

Although it’s written in the sterile language of bureaucrats, the Hirsch Report — named for its lead author, veteran energy analyst Robert L. Hirsch — nevertheless paints a dark portrait of a world in disarray, if we don’t act soon enough to wean ourselves off oil. While the term may sound like the name of some exotic religion, peak oil is a fairly straightforward concept that belies its devastating consequences for industrialized nations, which depend on access to cheap oil for almost every aspect of daily life, from getting to work on time to locating the ingredients grandma needs to make her famous apple pie.

Consider: Nevada, with its relatively small population of 2.5 million people, consumed almost two million barrels of petroleum in 2004 for asphalt and road oil alone, according to the Energy Information Administration, the statistical arm of the Department of Energy. That’s a fraction of the more than 48 million barrels Nevada gobbled up that year for everything from jet fuel to gas for cars. With growth, our demand will only increase.

Because it means the point at which all of the world’s reserves are depleted by half, global peak oil spells doom for meeting that demand by creating an unstoppable downward trend in the amount we can pump into our bigger-is-better economy.

However, as the Hirsch Report notes, “It is important to recognize that oil production peaking is not ‘running out.’” Indeed, even after peak, there will still be oil left. The problem isn’t total depletion so much as it is the turbulent ride toward it.

Predicting when this will happen is tough going for myriad reasons. For example, no politician — including President George W. Bush, who once employed energy-investment banker and peak oil expert Matthew Simmons as an advisor– wants to tell his constituency that life as they know it is kaput. And no oil company exec wants to admit to shareholders they’re invested in an industry in decline, especially as it earns record profits.

Despite such problems and others on the geopolitical stage (the Saudis, for example, closely guard their most sensitive state secret: how much oil they have left), experts have constructed a plausible window of time when peak might occur, which doesn’t bode well for Vegas. According to the Hirsch Report, “Even the most optimistic forecasts suggest that world oil peaking will occur in less than 25 years.” There are others who say it’s already happened.

Peak oil commentator Heinberg points to the latest figures released by the International Energy Agency, which shows the global production of liquids dropped by 854,000 barrels per day from August 2006 to August 2007. In addition, we’re pumping out 1.53 million barrels per day less than the all-time high of 86.13 million extracted in July 2006.

Translation: The sun may have already set on our ability to meet world demand.

This is not good.

Running that close to the bone means any systemic shock — a hurricane that damages drilling platforms in the gulf, a terrorist attack on oil pipelines in Nigeria, an unexpected cold snap in the northeast — could cause prices to skyrocket, impacting everything from costs at the pump to costs at the grocery store. What’s worse, the less oil we have, the less it takes to zap the price upward.

It’s an inevitable part of peaking, says Byron King, formerly a geologist with Gulf Oil and now an energy and natural resources analyst with Agora Financial. “We’ve built an entire industrial civilization around [oil],” he says. “Now the question is: Can we transform it fast enough?”

To be continued in tomorrow’s edition of the Rude Awakening…

[Joel’s Note: A short while back, Peak Oil expert and Rude regular, Byron King actually penned a fascinating report detailing a scenario that could see oil “rocket past $150.” Perhaps that number, at around double today’s price, seems extreme…but then, doesn’t $40 just seem like yesterday? How will this effect markets, consumer spending, the price of food…your daily life? Take a gander and see for yourself: Outstanding Investments Oil Report

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Rude Endnote: We’re not in the business of providing information that we can’t personally endorse. With that in mind, I’ll turn you over to a Rude reader who actually lived through the 70s for today’s endnote…reprinted in entirety…

“Hello Mr. Rude.

Or should I just call you Mr. Pompous. Seems like every time the price of oil takes a big jump the intellegencia in America start predicting gloom and doom. I was in college in the 70s when Jimmy Carter first took office and the price of oil was screaming and long lines were at whatever gas station had gas. This was the No-growth crowd. The so called intelligencia of the left.

“Anyway that went on for about three years and then along came the President Regan. What do you know, with tax cuts, deregulation, and reductions in the size of govt. the “no-growth crowd crawled back into their caves and No-Growth was never heard from again.

“To illustrate my point, we should be insisting on the free market taking care of the cost of oil and all other economic activity. I don’t know how many times people have to learn that the govt. cannot regulate us into prosperity. But then again I’m approaching my 70s now so my cinical self doesn’t have a lot of hope that the meddlers in Washington egged on by the egg-heads in the left wing won’t screw it up again. What we need is a new Political party dedicated to principles of reduced govt. the free market and self reliance on the part of the citizenry.”

Regards, D.C.

Rude End Endnote: If you would like to comment on anything in today’s Rude Awakening, including the endnote, please send your emails to Mr. Pompous at the address below.

Cheers,

Joel Bowman
Rude Awakening