Archive for June 6th, 2011


Just ignore anything thing that comes out of a politician’s mouth when discussing oil prices, whether that politician may be President Obama or Denny “I do believe I fell off my horse” Rehberg.  For that matter you can also ignore Faux News’ claim that financial speculation is the key culprit of high oil prices because the reality is that the main driver behind oil prices is a lack of sufficient supply.

The Oil Drum has a great analysis (which continues in the comments) up at their site that comes to this very conclusion.  It’s a long, and a very technical post, but well worth the read.

The basic problem the world is facing in the short-term is that the great oil exporters aren’t so great anymore.  You see, the major exporters have been massively developing their countries over the last 20 years trying to diversify their economies away from a dependence on oil exports.  This has strangely had the reverse effect of making their economies more reliant on oil.

In 2005 total world exports were 40.8 million barrels per day (mbpd) as compared with 35.7 mbpd in 2009, a  12.5% decline in only a matter of 4 years.  While data might not be available for 2010, the news only gets worse.  Both Russia and China have instituted export restrictions so as to support their domestic economies.  This will lead to a further reduction in total oil exports.  The news out of Russia, being the world’s second largest oil producer, does not bode well for the oil importing countries of the world.  Add in the fact that Saudi Arabian oil production peaked in 2005 and Russia peaked in 2007.  No country can replace these two producers and so the decline in world exports will continue and with it prices at the gas station here in America will continue to rise.

Two additional variables complicate the situation.  The first is political.  Already the Arab Spring is effecting oil exports coming out of the Middle East.  But on-top of the unrest directly leading to reductions in oil production regimes that are desperate to hold on to their power are already starting to spend oil revenue on social programs with the aim to buy the silence of their populace.  That leaves less money to invest in future oil production and will lead to an otherwise faster decline in production.

The second, is the economic principle of diminishing returns on investment.  This is an economic fact that was drilled into my head in economics class.  Usually, this principle is couched in the terms of labor vs. capital.  Each additional laborer produces a certain amount of profit, add too many workers and that rate of return decrease and will eventually go negative.  Same with capital.

Energy markets are subject to the same principle but in a slightly different manner.  The principle here is “energy returned on energy invested” (EROEI).  Back in the day when oil was first discovered, the EROEI was in the range of 30-50, meaning for every unit of energy expended in production, 30-50 units of energy were actually produced.  Now however, we are down to the point of extracting oil at an EROEI under 10, with tar sands right about 5.  So we are reaching the point of having to expend a lot more energy and money to get just a little bit of energy in return.

Now, You can take this principle and expand it a bit further.  Lets take for example infrastructure investment, in this case our national highway network.  Because this type of investment is public, the return on investment would be the total economic activity spurred by said investment, ranging from the construction jobs created directly from the investment to the development of real estate on former farmland and the sale of cars that fill up said highways.

Between 2004 and 2008 23,300 miles of additional roadway were built in America.  Now the first 23,300 miles that were built in the system way back under Truman contributed much more to the economic prosperity of our country than the last 23,300 miles.  Why is that?  It’s because of all that previous investment.  Not only is that last 23,300 miles a marginal amount at this point compared with all that previous investment,  but all those thousands of miles already built require a lot of investment each and every year just to maintain.  All the maintenance required to keep up that old investment takes away from the ability of a nation to invest in new infrastructure.

This same phenomenon is occurring in places like Saudi Arabia.  Once you’ve gotten to all the easy oil, you have to spend an increasing amount of money just to tread water.  From The Oil Drum:  Saudi Arabian oil officials met with Halliburton to discuss plans to boost their oil-directed rig count by roughly 30%.

According to a Saudi oil official interviewed by Reuters, the investment in new drilling rigs “is not to expand capacity. It’s to sustain current capacity on new fields and old fields that have been bottled up.” (1) This news on its own should be troubling as it infers that the Kingdom is facing significant declines on currently producing fields. Even more troubling is the recent statement by another senior Saudi oil official that the Kingdom “expects oil production to hold steady at an average of 8.7 million barrels per day to 2015.”

Increasing investment by 30% just to stay barely above water.


by Lesley Lotto

Seriously?  I mean someone with your cojones on the House Floor to show your cojones online to unsuspecting Tweeps is SO.VERY.DISAPPOINTING Weiner.

Last week Congressman Anthony Weiner of New York said his Twitter account was hacked after a woman tweeted that the Congressman sent photos of his crotch to her which then went circulating on the Internet.  Weiner said at the time, after pressed repeatedly by journalists (who couldn’t press George W. on the Iraq war, but certainly wanted to know if these were Weiner’s private parts) that the photo may or may not have been him.  He could not say with certitude that it was or was not his Weiner all over Twitter. (And oh, what an unfortunate surname.) He also made some lighthearted jokes about the scandal to reporters trying to brush the whole, now unfortunately named, Weinergate scandal aside.  All the while a woman had been tweeting that Weiner sent her the photo and she was being hounded by the media.  Oh poor you!

Right wing websites went ballistic with the info.  Andrew Breitbart, famously known for some alleged creative editing in connection to another major news story, is now even more famous for posting Weiner’s Twitter pix.  Today, he said he was posting a “cache” of photos and communications he was sent that were between Weiner and yet another woman who says she too got pix of Weiner’s problem. I mean, shouldn’t he be off to rehab by now?

Weiner was holding a press conference as I typed this that I could not bear to watch as he gave his account of how he thought he was communicating with followers and friends or people that had become his friends (presumably after seeing his rather large package).  Some of the pictures are of a man in excellent physical condition.  There are others where he’s even proving it’s him by holding a piece of paper that says “me” with an arrow pointing squarely at his face.   There are also photos behind him which leads the viewer to believe he’s at his Congressional office.  Have you nothing better to do with your time sir?  How cruel reality is.

Here’s the rub for me, moments before John Edwards gets arrested for being an absolute shlub, Weiner comes out swinging saying his Twitter account was hacked.  I can’t take two in a week, let alone a day!  But Anthony really, I thought you were smarter than that!  Who hacks a Twitter feed? Sending photos of all things?  There is definitely plenty of spam on Twitter, but reports of widespread hacking?  Oh, I know it was a hacker in China. Or maybe someone bored waiting for Sony to get the Playstation Network back online again.  Really – why hack 140 characters?  Someone in a hurry?  Maybe I’m a Twitter neophyte.  I’ve heard about loads of Facebook hacking to be sure, but while all the Left Wingers were lining up behind Weiner, I had one corner of my mouth pointed upward, DO. NOT. BELIEVE.

Why in the world do I keep holding these characters up to a higher standard than the rest of us?  I mean we all spend our time taking pictures of our bodies and communicating online with strangers while fighting for our country, right?

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