America Is On The Mend

The job market is bad. The economic scene is worse. And Federal debt is spiraling out of control. How can America be on the mend? Ambrose Evans-Pritchard tells the story.

He mentions shale gas. We now have at least a 50 year supply and maybe 100.

Then there is shale oil.

Total US shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009. The US already meets 72pc of its own oil needs, up from around 50pc a decade ago.

That is a pretty dramatic rise.

Ah. But there is more.

"Made in America, Again" - a report this month by Boston Consulting Group - said Chinese wage inflation running at 16pc a year for a decade has closed much of the cost gap. China is no longer the "default location" for cheap plants supplying the US.

A "tipping point" is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture.

"A surprising amount of work that rushed to China over the past decade could soon start to come back," said BCG's Harold Sirkin.

Feathers in the wind? What about actual companies? What are the people who make corporate decisions doing?

The list of "repatriates" is growing. Farouk Systems is bringing back assembly of hair dryers to Texas after counterfeiting problems; ET Water Systems has switched its irrigation products to California; Master Lock is returning to Milwaukee, and NCR is bringing back its ATM output to Georgia. NatLabs is coming home to Florida.

Boston Consulting expects up to 800,000 manufacturing jobs to return to the US by mid-decade, with a multiplier effect creating 3.2m in total. This would take some sting out of the Long Slump.

As Cleveland Fed chief Sandra Pianalto said last week, US manufacturing is "very competitive" at the current dollar exchange rate. Whether intended or not, the Fed's zero rates and $2.3 trillion printing blitz have brought matters to an abrupt head for China.

Fed actions confronted Beijing with a Morton's Fork of ugly choices: revalue the yuan, or hang onto the mercantilist dollar peg and import a US monetary policy that is far too loose for a red-hot economy at the top of the cycle. Either choice erodes China's wage advantage. The Communist Party chose inflation.

On the inflation front we are working hard but we got beaten by the Chinese. Good for us. Bad for them.

Now for the bad news. Which I alluded to at the start.

The switch in advantage to the US is relative. It does not imply a healthy US recovery. The global depression will grind on as much of the Western world tightens fiscal policy and slowly purges debt, and as China deflates its credit bubble.

Yet America retains a pack of trump cards, and not just in sixteen of the world’s top twenty universities.

It is almost the only economic power with a fertility rate above 2.0 - and therefore the ability to outgrow debt - in sharp contrast to the demographic decay awaiting Japan, China, Korea, Germany, Italy, and Russia.

Our bad policies at the top are temporary. Our natural advantages manifest. And we have something no other country has. The American Spirit.

Cross Posted at Classical Values

Huge Oil Discovery In The Middle East

Saudi Arabia? Nope that has already been picked over. The "new" oil find is in Israel.

The old energy order in the Middle East is crumbling with Iran and Syria having left the Western fold and others, including Saudi Arabia, the largest of them all, in danger of doing so. Simultaneously, a new energy order is emerging to give the West some spine. In this new order, Israel is a major player.

The new energy order is founded on rock – the shale that traps vast stores of energy in deposits around the world. One of the largest deposits – 250 billion barrels of oil in Israel’s Shfela basin, comparable to Saudi Arabia’s entire reserves of 260 billion barrels of oil – has until now been unexploited, partly because the technology required has been expensive, mostly because the multinational oil companies that have the technology fear offending Muslims.

Of course you should read the whole thing for details but the essence is that if this oil can be exploited it will put a lid (depending on demand of course) on what can be charged for oil. In any case immediate fears of an oil shortage are put off a little longer. And if the Wave Engine works out it could extend that "little to fear" era by 50 or 100 years. Long enough to develop what ever comes next without requiring a crash program.

Speaking of offending Muslims. I wonder if they would be offended if the price of oil declines by half? It would be good to see that proposition tested in the real world.

Cross Posted at Classical Values

The Gulf - It Is Worse Than We Thought

The Oil Drum has an excellent bit of speculation (backed with knowledge) about what is going on with the blown out well in the Gulf of Mexico. (you should read the whole thing)

All of these things lead to only one place, a fully wide open well bore directly to the oil deposit...after that, it goes into the realm of "the worst things you can think of" The well may come completely apart as the inner liners fail. There is still a very long drill string in the well, that could literally come flying out...as I said...all the worst things you can think of are a possibility, but the very least damaging outcome as bad as it is, is that we are stuck with a wide open gusher blowing out 150,000 barrels a day of raw oil or more. There isn't any "cap dome" or any other suck fixer device on earth that exists or could be built that will stop it from gushing out and doing more and more damage to the gulf. While at the same time also doing more damage to the well, making the chance of halting it with a kill from the bottom up less and less likely to work, which as it stands now?....is the only real chance we have left to stop it all.

It's a race now...a race to drill the relief wells and take our last chance at killing this monster before the whole weakened, wore out, blown out, leaking and failing system gives up it's last gasp in a horrific crescendo.

We are not even 2 months into it, barely half way by even optimistic estimates. The damage done by the leaked oil now is virtually immeasurable already and it will not get better, it can only get worse. No matter how much they can collect, there will still be thousands and thousands of gallons leaking out every minute, every hour of every day. We have 2 months left before the relief wells are even near in position and set up to take a kill shot and that is being optimistic as I said.

Over the next 2 months the mechanical situation also cannot improve, it can only get worse, getting better is an impossibility. While they may make some gains on collecting the leaked oil, the structural situation cannot heal itself. It will continue to erode and flow out more oil and eventually the inevitable collapse which cannot be stopped will happen. It is only a simple matter of who can "get there first"...us or the well.

We can only hope the race against that eventuality is one we can win, but my assessment I am sad to say is that we will not.

The system will collapse or fail substantially before we reach the finish line ahead of the well and the worst is yet to come.

Sorry to bring you that news, I know it is grim, but that is the way I see it....I sincerely hope I am wrong.

And what is the worst case?

According to BP data from about five years ago, there are four separate reservoirs containing a total of 2.5 billion barrels (barrels not gallons). One of the reservoirs has 1.5 billion barrels. I saw an earlier post here quoting an Anadarko Petroleum report which set the total amount at 2.3 billion barrels. One New York Times article put it at 2 billion barrels.

If the BP data correctly or honestly identified four separate reservoirs then a bleed-out might gush less than 2 to 2.5 billion barrels unless the walls -- as it were -- fracture or partially collapse. I am hearing the same dark rumors which suggest fracturing and a complete bleed-out are already underway. Rumors also suggest a massive collapse of the Gulf floor itself is in the making. They are just rumors but it is time for geologists or related experts to end their deafening silence and speak to these possibilities.

I wonder if mining oil shale might not be better relative to environmental risks than drilling for oil in deep water. The risks of oil shale are relatively well known; the real risks of deep water drilling not so much. Until now.

If you want to read up on oil shale may I suggest:

Oil Shale

H/T Diogenes at Talk Polywell

Cross Posted at Classical Values

Got Gas?

Yes we have gas. Lots of gas. Lots of natural gas.

Last October, just as the economy was tilting into crisis, a small oil and gas company in Houston quietly announced the discovery of a mammoth natural gas field in South Texas that at any other time might have garnered bigger headlines.

Petrohawk Energy's find, however, did not go unnoticed in the oil and gas industry — and it didn't take long before oil companies large and small began making their moves.

Today, though the economy and natural gas prices remain weak, the Eagle Ford shale remains one of the hottest prospects in North America, and energy companies are moving forward there even as they're pulling back elsewhere.

That's because of what some companies suggest is a virtually recession-proof combination of highly productive wells and low drilling costs they say can yield profits even as natural gas prices hover near seven-year lows.

Just how much gas is there in the new fields using the new methods?

Recently discovered U.S. shale plays, including the Haynesville in Louisiana and Marcellus in Pennsylvania, are expected to provide a major boost to U.S. natural gas supplies in coming years. The dense rock formations, once thought too difficult to explore, have been unlocked with the help of recent advances in drilling technology.

The core areas of the eight largest U.S. shale plays may contain 475 trillion cubic feet of recoverable resources, according to an estimate by Ross Smith Energy Group, an industry research firm in Calgary, Alberta. That's roughly ten times the size of Texas' famed Barnett shale play in the Dallas-Fort Worth area, which supplies nearly 10 percent of U.S. natural gas production, excluding Alaska.

That is a lot of gas. But really what does the new gas situation look like from a longer term perspective?

After declining for 15 years, U.S. natural gas production is finally on the rise, thanks to new technological developments that make it possible to draw large amounts of gas from deposits previously thought to be unreachable. An increase in natural gas production of the magnitude many industry insiders predict could do wonders for business, the environment and even U.S. energy independence.

U.S. gas production is up 9% this year – a rate of increase not seen since 1984 – with most of that gain coming from natural-gas shale, particularly the Barnett Shale, a deposit that now produces 7% of the country’s gas supply. Indeed, there could be as much as 842 trillion cubic feet of retrievable gas in shale deposits throughout the United States alone, according to Navigant Consulting. That would support the current level of U.S. consumption for about 40 years.

And that is just from the gas found so far. I have seen estimates that go as high as 100 years for the total amount of gas available with current methods. More than enough time to get fusion or even economical wind/solar/storage going.

And if Thomas Gold's The Deep Hot Biosphere : The Myth of Fossil Fuels theory is correct we may have much more than 1,000 years of gas and oil available if we can drill deep enough.

Now that would make our transition off fossil fuels very comfortable. Time and a few very deep exploratory wells will tell.

Cross Posted at Classical Values

The Next Oil Shock

You ought to watch an interesting video of oil/economic experts James Hamilton and Daniel Yergin giving testimony before Congress. Their testimony begins about 11 minutes into the video. Note at the beginning though where Congress Critter Carolyn B. Maloney (D-NY) says she wants to avoid drilling new oil supplies.

A good text overview can be found at The Star. Another valuable look at the hearings is at Talk Radio News Service. Some very good quotes from the hearings are available from The Washington Post. A good discussion in the comments and more links can be found here.

Jevons Paradox says that energy efficiency will not gain us as much as the numbers suggest. An increase in efficiency of 10% might only decrease use by 5% or it could increase use by 5% depending on the supply/demand curve.

That can be offset by increased taxes. However, what you usually get from taxes is a large dead weight loss. If it costs to increase efficiency (it will) the net effect of more taxes can be anything from a reduction in growth to negative growth.

The only way out is to increase energy supplies. Where is that to come from? Oil shale reserves in America are very large. There is also a lot of offshore oil yet to be discovered. Alaska has untapped reserves. All of those are off limits to varying degrees by law.

If we started tapping those reserves we have more than enough energy to carry us through the 50 to 75 years it will take to develop ECONOMICAL alternatives. By pushing alternatives before they are economical we are creating further dead weight losses to the economy.

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Fortunately our new President and Congress understand all this and will do the right thing. (/sarc off)

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Well OK. Our Congress and our President only exist to make things worse. What can be done? We need to invent cheap sources of energy NOW. Cheap enough so converting that energy to liquid fuels provides a ceiling on liquid fuel prices.

Well - talk is cheap. But I do have a suggestion. Polywell Fusion. It is no sure thing. But the cost to find out if it will work is minuscule in comparison to even a one cent rise in the cost of a gallon of gasoline. At an American consumption rate of 140 billion gallons a year, a one cent rise in the per gallon cost of gasoline would cost Americans $1.4 billion a year. What would five years of experiments (the time to get a certain yes or no answer) cost? Around $200 million. So five years of experiments would cost 1/7th of a cent a gallon for one year. And what is our government putting into the experiments? About $5 million a year. You know, with the brilliance found in our current Congress it is a wonder that any of them can move their lips and talk at the same time.

You can learn the basics of fusion energy by reading Principles of Fusion Energy: An Introduction to Fusion Energy for Students of Science and Engineering

Polywell is a little more complicated. You can learn more about Polywell and its potential at: Bussard's IEC Fusion Technology (Polywell Fusion) Explained

Why hasn't Polywell Fusion been fully funded by the Obama administration?

H/T Econobrowser

Cross Posted at Classical Values

How Much Oil Is There?

David Zondy is taking a look at resources and the ginned up fear of not enough.

As an Englishman living in America, where Marmite is hard to come by, I'm all too familiar with the concept of scarcity, but a lack of resource in a local or a particular instance is a very different kettle of fish from absolute scarcity. The Malthusian idea of overpopulation leading to the gobbling up of finite resources has been around for a couple of centuries now and what is remarkable about it is how it has proven so consistently wrong–especially when it tries to lay the blame on the doorstep of civilised, industrial nations. I'll grant you that the image of some future New York where a hundred million people live cheek by jowl in polluted squalor until the oil runs out and then they fall on one another like starving rats as nations go to war over what scraps are left does have a certain dramatic appeal in a Mad Max sort of way, but the real world doesn't and never has worked like that.

Overpopulation is a problem, but only locally in certain, to be blunt, backward parts of the world and even there the problem isn't too many people, but too many tyrants robbing them blind. They don't suffer so much from overpopulation as poverty. A village of a hundred people ruled by a dictator with only enough food for fifty and no way to buy more is "overpopulated". A city of a free ten million that can import more than it needs is not.

Which brings up the question of oil. Is there enough or has oil output peaked and the inevitable decline begun?

In a word - no. There is plenty of oil in the ground at current prices. Is that true? Well lets do an inventory to check that assertion.

...the world oil shortage is political, not geological. In the U.S., the government makes it virtually impossible to drill in new areas offshore. In Nigeria, civil strife has shut down major production. In Libya and Iran, Washington effectively blockaded and isolated the nations for years to inhibit new production. In Iraq, of course, the U.S. destroyed much of the infrastructure since the first Gulf war in 1991 and then blockaded reconstruction. In nations such as Russia and Mexico nationalism and corruption curtail increased production.

Outside of developed Western countries, the single largest reason for oil "shortages" is government incompetence and ownership of the subsoil rights so that landowners don't benefit from oil discoveries. In Patagonia, Argentina (a nation with abundant oil), I was told how it was common for landowners to try to hide any evidence of oil seepages from underground, lest the government oil company come in and ruin their lands with no benefit to themselves. Private mineral rights ownership is the reason some 90 percent of all oil wells drilled have been in the U.S. Scientific advances and innovative engineers keep coming up with ways to both discover new fields and keep old ones in production almost indefinitely.

That is pretty amazing, but there is more.

ANWR could become the fastest way to generate hundreds of billions of dollars of new oil. But laws need to be changed to fast track the leasing (there are 11 litigation choke points) and to create special courts to expedite environmental issues, as recently proposed by Rep. Michele Bachman (R-Minn.). Under current laws, it could indeed take 10 years to produce oil, compared to two or three years for the actual drilling and pumping. Additionally, leasing is done slowly, thanks to laws written when oil was plentiful. Such laws were designed to gain maximum upfront money for the government, not for speed. For example, BP recently paid $1.2 billion for a new offshore lease, some 400 miles east of Alaska's Prudhoe Bay. The cost and distance gives some idea of industry expectations as to the extent of oil reserves.

Well what do you know. Politics is causing higher oil prices in America. And who are the politicians against more American oil? The Democrats.

Washington has become paralyzed by dysfunctional government. France and China can build nuclear electric plants in just years; in the U.S. it takes a decade. Brazil will bring offshore oil online in 24 months, while for U.S. companies it takes 10 years. New refineries are virtually illegal to build. New electricity-generating plants using coal are now unable to obtain financing because of environment constraints.

This is destroying the value of the dollar and wrecking our balance of trade, making oil prohibitively expensive, and sending hundreds of billions of dollars to foreign lands—many of whom are no friends of America. No wonder 80 percent of Americans think their nation is on the wrong track. Washington needs to declare a national emergency program to produce energy. The reasons we don't are political, not technical. Indeed, new natural gas discoveries have knocked U.S. prices down by about 30 percent.

What do American resources of natural gas look like? About 150 trillion cubic feet of gas can be obtained by drilling and 590 trillion cubic feet are in gas hydrates. More than enough to last until we have other sources of power in sufficient quantities.

Are we done yet? Not by a long shot.

WASHINGTON -- House Speaker Nancy Pelosi opposes lifting the moratorium on drilling in the Arctic National Wildlife Refuge and on the Outer Continental Shelf. She won't even allow it to come to a vote. With $4 gas having massively shifted public opinion in favor of domestic production, she wants to protect her Democratic members from having to cast an anti-drilling election-year vote. Moreover, given the public mood, she might even lose. This cannot be permitted. Why? Because as she explained to Politico: "I'm trying to save the planet; I'm trying to save the planet."

She may lose her job over that one. In fact I hope so.

Here in the U.S., one out of every three ears of corn is stuffed into a gas tank (by way of ethanol), causing not just food shortages abroad and high prices at home, but intensive increases in farming with all of the attendant environmental problems (soil erosion, insecticide pollution, water consumption, etc.).

This to prevent drilling on an area in the Arctic one-sixth the size of Dulles Airport that leaves untouched a refuge one-third the size of Britain.

There are a dizzying number of economic and national security arguments for drilling at home: a $700 billion oil balance-of-payment deficit, a gas tax (equivalent) levied on the paychecks of American workers and poured into the treasuries of enemy and terror-supporting regimes, growing dependence on unstable states of the Persian Gulf and Caspian basin. Pelosi and the Democrats stand athwart shouting: We don't care. We come to save the planet!

They seem blissfully unaware that the argument for their drill-there-not-here policy collapses on its own environmental terms.

And that does not even count the cost of financing our adversaries Russia, Iran, and our "best friend" Saudi Arabia.

Did I mention that there are about 2 trillion barrels of oil shale in America and about 3 trillion barrels of tar sands in Canada where exploitation has only started? And don't tell me it costs too much. The Canadians are getting the oil from tar sands at about $15 to $20 a bbl. Oil shale, with water recycling to preserve precious water resources, might run $30 a bbl. We really don't know because the oil companies are not allowed to try. So what is the Republican answer? Watch this video to find out.

We don't have to pay high prices at the pump and send our money to people who don't like us if government would get out of the way. Republicans are on board. How about you Democrats?

Cross Posted at Classical Values

Captured By Little Oil

Commenter Schwimmer at my post Democrats Strike Out had this to say:

And so it begins. The party which has controlled the White House for the past 8 years and which has controlled Congress for the past 12 of 14 years is now the party of new ideas. The Democrats are rightfully trying to pursue an energy policy that will bring immediate relief as well as long-term solutions. They are doing so in a measured, thoughtful manner. The GOP is only trying for a last-minute land grab for Big Oil, prior to November when they will go into political irrelevance for the next decade or so.

Well Schwimmer it looks like the Democrats have been captured by little oil.

See you in November.

Cross Posted at Classical Values

Blackness Wins

I think this election is going to turn on the economy. Oil prices in particular. The Democrat resistance to drilling, mining, and converting is going to bite them hard.

This campaign will turn on blackness. The blackness of oil. The blacker candidate will win.

Soft Treason

Ron Nord has posted an excellent comment to my post On The Saudi Payroll? The 15 Senators he refers to were the 15 Democrats who voted against allowing oil shale projects in Colorado and Utah. Here it is with some minor edits:

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While trying to find the names of the 15 Democrat Senators I wrote to Senator Allard for help, here is my letter to him.


Dear Senator Allard,

Could you please send me a list of the Democrat Senators who voted to extend the oil shale moratorium? Was my Senators Feinstein or Boxer involved in this? I have looked on the internet and can't find the break out of names. There seems to be a concerted plan or scheme to ruin the United States by the Democrats and it has been going on for a long time now. The only thing that I can figure out at this point is that the oil producing countries of Arabia are paying some in the Senate to vote the way they do. Also, just who is funding these 'greens' who are throwing the legal roadblocks, is Saudi Arabia putting up a few hundred million in order to make trillions, isn't it about time to start thinking out of the box. Has anyone driven the price of oil higher than the Democrats and 'greens', are they in pay of our enemies, what else makes that much sense? I know that both former Presidents Carter and Clinton get millions in honorariums from the Arabs and then lead the band in their behalf, isn't it wise to have laws precluding this type of "soft" treason? I don't trust my government any more to do the right thing, I look for the baseness in its actions and unfortunately am not very surprised at what is found. Are the Democrats and 'greens' in the pay of our enemies through cutouts, PAC's and all the other ways to hide the money trail?

On The Saudi Payroll?

The American Thinker asks: What do the Saudis want?

Slowly but surely it is beginning to dawn on a world mesmerized by the Democratic primary contest that an oil cartel has been picking our pocket with impunity by willfully failing to adjust its output to the additional needs of China and India. More specifically, Americans are beginning to wonder at the logic of continuing to keep Saudis safe. Hence, the US-Saudi oil axis faces a day of truth when president Bush will deliver diplomatically to his Saudi hosts the message NY senator Chuck Schumer delivered most undiplomatically:

We are saying to the Saudis that, if you don't help us, why should we be helping you?

Interesting that a Democrat would be asking that question. And asking it in relation to an American arms sale to the Saudis. We will have more on that question in a bit.

But first what do the Saudis want?

First, they want to see energy demands curtailed rather than supplies increased so that oil will continue to be able to meet that need.

Second, they want oil consumers to continue to promote investment in oil and to promise NOT to invest in or subsidize seriously the development of alternatives to oil.

Third, if alternative energy is to be developed, it should not substitute for oil, merely supplement it.

Fourth, they want "to smooth the recycling of billions of dollars in oil revenues from producers back into consuming countries." In other words, end the growing scrutiny of sovereign wealth funds.

Basically what they want is a guarantee that they can continue their leveraged buy out of the USA. I don't think that is a good idea.

Which fits in pretty well with keeping alcohol tariffs high and preventing the development of flex fuel vehicles, which I discuss at The Girls From Brazil Have A Question. They also have nice asses (and I don't mean donkeys) which you can see in the included video.

Which leads us to the final question which Instapundit asks: is Congress on the Saudi payroll? Rocky Mountain news has the details.

The Senate Appropriations Committee today narrowly defeated Sen. Wayne Allard's attempt to end a moratorium related to oil shale development in Colorado.

It was a big day for Colorado energy issues on Capitol Hill as Gov. Bill Ritter testified before a senate committee asking lawmakers to move cautiously on oil-shale development until more is known about the environmental impact and other issues.

Meanwhile downstairs, the appropriations committee was considering a massive Emergency Supplemental Spending Bill. Allard, a member of the committee, attempted to insert an amendment that would reverse the moratorium that lawmakers approved late last year.

The moratorium prevents the Department of Interior from issuing regulations so that oil companies can move forward on oil-shale projects in Colorado and Utah. Allard said the moratorium has left uncertainties at a time when companies need to move forward and in the long term make the United States more energy independent.

"If we are really serious about reducing pain at the pump, this is a vote that would make a difference in people's lives," Allard argued.

But in a 14-15 vote, the committee spilt strictly on party lines and rejected the amendment.

Don't forget that the Dems in the name of the enviro lobby have been blocking drilling in Alaska and drilling off our coasts. The funny thing is that the Cubans with the help of the Chinese don't see any problem with drilling off our coast, albeit just on their side of the economic zone demarcation line. If there is oil on their side of the line there is most probably oil on our side of the line.

So do the Saudis own the Democrats? It is as good a hypothesis as any. And what about Bush? I think he is a bad politician. He didn't stay bought. How about the Democrats? It looks like they are getting double crossed. Well crossings and double crossings are always the prelude to war. This one is going to be a real bitch.

Cross Posted at Classical Values

Oil Shale Breakthrough?

Fortune Magazine Reports a breakthrough in oil shale recovery.

...a cutting-edge technology that, according to Shell, will produce large quantities of high-quality oil without ravaging the local environment - and be profitable with prices around $30 a barrel. Now that oil is approaching $90, the odds on Shell's speculative bet are beginning to look awfully good.

Shell declines to get too specific about how much oil it thinks it can pump at peak production levels, but one DOE study contends that the region can sustain two million barrels a day by 2020 and three million by 2040. Other government estimates have posited an upper range of five million. At that level, Western oil shale would rival the largest oilfields in the world.

That will be very helpful if they can actually begin production.

Oil Outlook

This is a really long piece by A. Jacksonian. He wrote this as a series of e-mail exchanges with me and I edited it making some minor corrections which A. Jacksonian has approved. It covers the outlook for oil production for the next 5 to 10 years. The short version: Iran and Venezuela will probably be dropping out of the oil market as producers.

===============

The petroleum infrastructure of any Nation or company has multiple components for input, output and feedback. Economic, of course, is the main judge of the overall system, but not the only guide as to system health. The physical 'plant' component of pumps, pipes, pressure gauges, platforms, and then refineries, which are their own specialty, are critical to continued economic efficiency. That said the system is maintained by the actual people hired on to do the work and their skill base is reflected *into* the system itself. An individual, here or there at a low level, can do some OJT, but for the system to work as a whole, good management and training are essential. Economic feedback *into* this system then goes for pay, training, upkeep, exploration to replace depletion and increased demand, and keep output steady with a slow upward spiral to it. Overall the system is 'motion stable' with feedbacks to reduce wobble and instability. The numbers on the amount fed into this system, economically, will either establish/maintain stability or reduce stability. Boom/bust cyclicity is not wanted as sudden surges/declines means an unstable labor base and the physical plant suffers due to that.

The purpose of the interior system feedback dynamics, is to keep the entire system on an 'even keel' and at a steady and stable state. Deprive the system of economic input, and training suffers then basic upkeep and maintenance and then one starts on a downward decay cycle. Throwing in bursts of cash make that cycle nastier, while giving short-term gains. If you do not have the training to bring up old areas or properly scope-out new areas, then even if you bring them online you are stuck with higher overall depletion and actual loss through mismanagement. The large scale 'wobble' that is now showing up in Iranis due to the 18 months of not meeting export quotas. That is also due to National fiscal policies in Iran coming back with teeth to bite them. The Islamic world, by trying to eschew such concepts as 'compound interest' has problems dealing with the world of economics and markets. It is a key part of the mental toolbox that is missing, and even if *learned* it may be seen as an 'outsider thing'. Strong xenophobia thus exculdes key concepts for actually running a Nation and the Nation suffers and starts to see infrastructure decay.

The servo, if operated under a steady load, but designed for a small slowlyincreasing load, is a good example. A flywheel spinning up far below its design tolerances but suffering uneven control and feedback are another. Sudden changes in load, electrical input and stress will each start to put strain on the overall system. If the system is designed for such strain, small amounts of it are acceptable. A petroleum infrastructure is like a mechanical watch in that regard: you need enough winding to ensure continued operation, but getting it actually 'cleaned' for maintenance once in a great while is also necessary. Otherwise the junk builds up, friction increases and no matter how much you wind it, the poor thing stops. Works right up to the last tick!

Iran is performing the strangest form of economic suicide I have witnessed: willful degradation of a 'cash cow' the Nation depends upon so that the cow stops giving milk and then dies. Feeding the poor thing lots *now* will just stop up its guts... while it can still operate it needs a limited increase in grazing and a good, thorough exam. Soon there will be a carcass if that doesn't happen, so you won't even get steaks from it. A 'poison pill' that Iran has already swallowed... the Nation will run for awhile, but less well and it will start grabbing for high-cost solutions, like buying gasoline. And that will start a very nasty downward spiral as the motion stable system begins to slow and the wobble builds up and suddenly falls over, heading to the complete stability of death as it turns and turns and turns on the ground going nowhere, save to a stop.

The overall supply/demand and boom/bust cycle are inter-related, although the longer term trend analysis looking at reserve capacity points to a plateau in current existing supplies of oil as we have known it. Oil shale and oil sands, however, have reached a price point in which the improved technology has brought the extraction price down and the as the market price for oil has trended upwards over time. So, the 'easy to get to' first generation oil reserves are already starting to see replacement by oil sands production in Canada. And as those reserves dwarf anything in the Middle East, they have a longer-term price stabilizing component in them with the limiting factors being: capacity expansion and production capability. One of the early notes of mine on Canadacommented on this and the impact this would have in actually capping actual prices at a ceiling when Middle Eastern oil starts to hit its first real stumbles. Chevron, as an example, in 2005 alone invested $70 billion in the oil infrastructure in Canada, mainly Alberta. Canada, itself, has an interesting system of being a welfare regime at the top end, but not having any say over local resources. The central-western provinces of Canada now have a negative unemployment rate and cannot get enough Canadians to relocate there to fill these jobs. Not just in the petro-industry, but across the board for services as well. These provinces are also getting fed up with subsidizing Quebec and a few other provinces, looking to get their money out of the oil revenue stream.

Recent Israeli work on oil shales, which they have an abundance of, is now showing real promise and they do point out that even with their relatively low content oil shale it will be economical to start extracting oil from it. That report also points out that US oil shale has twice the concentation of the typical Israeli oil shale... which is why Montana is doing its first major prospecting to getting an oil shale industry up with the older technology. So the old reserves are running out, slow but sure, but the untapped future reserves will now become economical and start to change the landscape and cash flow from inefficient Middle Eastern regimes to more efficient industrial and manufacturing Nations. That, of course, will be seen as 'oppressive' by some parts of the political sphere...

Subsidies are wrecking the oil system, just as they are relatively useless in the US agricultural system. For the $13 billion the USDA pays for its subsidies and emergency support $0.5 billion is for emergencies. The rest are subsidies, 'price supports' and encouraging farmers not to farm... for all the arguments on 'cheap food in the US' we are also getting an erosion of the basis of farm labor by inefficient companies continuing to use sub-minim wage workers who do not have a part to play in society. Thus the Federal Government is paying for the erosion of National Sovereignty to get us 'cheap food'. Yet, even there, the first realms of automation are starting to be felt, with the Mondavi Vinyards, as an example, moving towards automated harvesting of wine grapes. Florida has pushed research into robotic pickers with chemical sensors that can tell by the direct analysis of fruit if it is ripe to pick or not. While still clumsy and in prototype stage, the need for this in multiple industries and drive out the cyclic costs of labor are immense. Robotic picking can be continuous, set to specifications for fruit grade and done on a 24 hour a day picking cycle. Further, such robots can be retooled for individual tree/plant maintenance during the year on that same cyclic basis. Add in GPS and wireless and farmers can now tell how much moisture they are getting and vary the harvest so that it is at 'peak' for all parts of the crop.

China is facing a problem of subsidized fuel, a shift to the middle class and yet still having a huge amount of its population living in rural conditions. Destabilization of its Western provinces by Islamic terrorists is no longer unknown. The Central provinces are facing population decline and economic collapse for the population that remains. Eastern and Southern China is now facing multi-prong threats as the Magic Kingdom of Mr. Kim has stolen food trains from China. China delivers the food 'aid' and North Korea says the trains are part of the package and confiscates them, too. Mr. Kim then turns around and says: You keep feeding my people or I will open my borders. Who would have thought that starving millions would be a political weapon? Finally China is coming face up to the fact that the Rising Sun is returning with modern equipment that makes theirs look antiquated. Japan has put the first of a new set of Aegis class ships out to sea. And with Mr. Kim going atomic, Japan has let it quietly be known they are thinking that option over, too... which, coupled with their existing space rocketry, makes them an instant global power with nuclear tipped ICBMs. China is also realizing that if Japan does that, it will have manufacturing capability to turn those out like Toyotas.

All of that while China subsidizes a 1950's base factory system with a few spotlights on high-tech here and there. They run extremely polluting factories and are seeing things like lung cancer in cities go upwards. When a city disappears from satellite due to smog, you know you have a problem. When a yellow, noxious cloud hangs over it continuously, even after rain storms, you have an immense problem. Without a market and societal based feed-back into the industrial base, that base will be non-sustainable.

Cheap gas, oil, and land have led to urban sprawl and decay, which it already had but is now spreading faster. Compress the US history between 1910 and 1960 without the sustainability of industry and you get an idea of the problems China will have. They are also getting this damned thing known as cheap telecom, which is starting to liquidize their social cohesion. Attempting to put a 'Great Firewall' in has proven that you need lots of folks to plug leaks and that some of those folks are none too trustworthy in that job. Even if that were done, the SMS cellphone capability has made distributed messages of pure text to be something easily done at nearly no cost burden at all. Add to that increasing storage capacity, processing power and cameras, and you suddenly have individuals who are their own file servers with autonomous wireless connectivity. Attempting to stop the wired internet has proven impossible *inside* China, as the low cost of computers and storage now makes redundant, off-site, fail-over possible. Pull down one server and two others will pick up at distributed locations. To end this China would have to get rid of *all* computational capability, including cellphones, which now serve as the wireless conduit onto the world. To step forward they must let go, to let go is to invite disaster, to stay authoritarian invites overthrow, and to try and buy off the population just speeds the acceptance of modern digital technology which the State is not very adept at handling.

This same scenario is playing itself out in the Middle East in spades. The Iranian 'demographic bomb' is already destabilizing enough without the added petro-insanity. Saudi Arabia has *tried* to ban all picture phones, and failed. Phone dating and exchanging nude and other pictures is now commonplace amongst the younger generation there and the social taboos cannot be enforced via a *firewall*. And as there are too many overland routes for smuggling, just outlawing the picture phones raises the nominal expenditure and puts off buying one for a couple of months. In Iraq the majority of the population now has celllphones, at least one per household if not more. One of the great things going on there is that *everyone* has their own favorite downloads, web sites and such that they share with each other. Even if the insurgents got their wish and *won* they would be face to face with a population that is alien to them. Every day that Iraq holds together is a day further off that a repressive regime can come to power without wiping out a growing percentage of the population. The Iraq we invaded is no longer the Iraq on the ground, and *we* have to face up to that in the West, too. The one bright light of Iraq is the realization that subsidies kill. They are being removed and people are facing up to having to get real jobs to survive. The Kurds, in particular, see the need to transfer to a manufacturing based economy with a strong oil sector... not a strong oil sector and a Socialist State leeching from it. Iraq will turn the corner the day electric meters start to go in on houses.

In many ways I agree with your idea of the Iran as Socialist concept, but would also say that they have had a strong anti-technology streak in certain areas. While the 'National Flower of Iraq' is the Satellite Dish, in Iran they are attempting the pure Totalitarian move of limiting all 'net access. Throttle it down and thwart it... which just means other conduits will open and distributed comms will start to increase throughput across all the networks to overcome the localized bottlenecks. The oil industry, however, is retrograde. By actively removing the educational basis for it and the economic understanding of it to fund terrorism, they are going far and beyond even a Soviet concept here... Luddite is more the concept, I think. Just bonkers. Really there is no word to describe it as even the USSR knew it had to re-invest in its oil fields. Its industrial production was junk, but the idea was in the right place. Iran has neither the industrial capacity nor the educational capacity to understand this, now. I actually expect depletion to be reaching levels where it can't increase in amount as actual reserves and ability to pump it from the ground are going down.

Perhaps pre-industrial is what this is? Used more to the concept of 'piece work' rather than industrial integration. Any way you cut it the multiple feedback mechanisms no longer work and a downward spiral will begin within the next year or so, especially if they get put out of OPEC as a reliable supplier. Without steady export output, contracts for the long term start to dry up. If that is not addressed then the oil trade slowly moves to the spot market, where daily fluctuations will destroy any Nation depending upon it.

In the petroleum industry, there are few forms of adding capacity: exploiting new fields, expanding on old fields, rejuvenating old fields. Each of these have overhead time and cost and a multi-year timeline to them. The longest is the new field area, which can be as long as a decade to finally get economic production from a field. It adds yield, but at a higher marginal cost. Expanding old fields is only a 2-5 year timeline, but that is based on the 'knowns' of subsurface configuration and expected reservoir size. This will increase depletion of the field, but has a lower marginal cost and is the easier route to go with, especially on large fields. Rejuvenation starts with the repressurizing scheme, of injecting natural gas *into* the field to raise pressure levels and force oil through the pore space. After that you start to look at some more exotic techniques, each of which cost more to do. The marginal cost is higher than expansion but lower than new field work. While we may view those from the outside as 'chunks', to the industry these are minor and discrete operations towards an operational system. Still, $70 billion by Chevron in Canada is a huge investment and they promise lots more behind them as do the other companies.

Iran is not expanding oil output via new reserves nor by expanding on existing reserves in an amount that is above domestic use. Further, their subsidized use of natural gas puts the cheapest form of rejuvenation in peril. This isn't Socialist... its asinine. Even Socialists *try* to understand industrial production cycles. This? A rare form of seppuku. Take all the regulators and sensors off your servo, feed in a 'dirty' power stream and put a large delay on any control on the system or, no control for balance and see if it can stay in place. Something has got to give. In Iran it will be the refineries which are the most complex part of a complex system. Probably not with a bang, just a sigh of relief that they aren't going to be abused any more.

The Cartels are actually only being set up to meet demand at a given price point. Their goal is to control the price point by their own supply of product. They were much more powerful when they had less competition, but their overall part of global production has been in decline for some years. And they have to be in this wonderful bind of having to either 'cover' for Iran or increase quotas and curse Iran. At some point they realize that Iran is no longer an 'Exporting' Nation that is reliable. Cartels love reliable environments and seek to manipulate those. Throw a spanner in the works and they seize up and fly apart. The question is: which spanner gets them first? Iran or Canada? My guess is Iran, based on spin-up time for the Canadian fields, and the rate of increase of Iranian problems.

It is very telling that not even Gazprom will touch Iranian production. Of course Russia has been faced with insurgents backed in the Chechen region by both al Qaeda and Iran, so they may be having an internal problem deciding exactly how to treat Iran. If I were into conspiracies, I would almost suspect Putin of encouraging the decline of the Iranian petro-industry to hand the West a long-term problem. China, of course, just wants oil, but even *they* haven't invested in the petro-industry in Iran, which is saying a lot, right there. So much for their 'Russian and Chinese friends' who will give Iran nominal cover so long as they continue to pony up and buy hardware from them. One does wonder if such 'support' will last past the point that Iran can no longer buy anything from them nor pay off its debt....

The analysis at multiple levels is difficult without knowing exact conditions. Iran, internally, is coming apart already as seen by student and worker demonstrations. Older, 19th century, divisions are reappearing *again*, with even a Monarchist faction still there. On a nearby regional basis and global basis the question is: how will Iran collapse? When is now a min/max timeline that I see starting in 2010 or so and ending at 2019, but the instabilities are now too numerous to fix a lower date anymore. From unstable regimes seen in the world prior to this, things rarely go to an extreme and often collapse before that... the American and French revolutions come to mind, while the Russian Revolutions are more towards maximum dissatisfaction being reached. They may try to put the al Qaeda management of savagery approach into play to become a distributed threat, but without a State sponsor... well that puts them on par with al Qaeda's poor rich man's road to Empire. The Persian population of Iran should prove relatively cohesive, but the multiple ethnic minorities at the periphery, those have serious problems some of them now wanting to *be* in Iran to start with.

My basic outlooks on energy independence for the US is in these following posts:

Basic energy independence policy, Review of the Popular Mechanics article, Nanotech to the rescue or not, The Stop-Gap Energy policy for the next 30 years, Dealing with Tom Vilsack and then the algae folks in the comments section .

Behind all of that is the view that the Middle East has nearly plateaued in oil production capability and they are now on a depletion curve over the next 50 years. OPEC has not only gone downwards in market share and power, but also in pure output capacity. While they have 'reserve capacity' that means that if that is used you get increased depletion of the oil fields and a shorter lifespan of them. To milk the cash cow longer, they would like to extend the life of their oil fields at the minimum necessary export amount to get them the maximal cash influx. What they have forgotten is that modern life runs on petro-chemicals and even tiny Nations like so many of the Emirates, are facing increased demand curves at home. Iran has this in spades with a huge population and subsidized fuel - a double-whammy that will get them in the end. Even if China, as I have heard, wants to put in lots of money, they may be faced with the regime actually *removing* Iranian money and depending on Chinese money, and the Chinese are unprepared to be the servants of Iran. Really, though, one Nation cannot hope to fill the multivariate needs of Iran's petro-infrastructure, and I doubt that any amount of Chinese money or skill will do more than steady the plateau or slow the downward spiral. That is at best... at worse it will be money down the drain and a rebellion changing the Nation and deciding not to pay off any debts. Funny how Socialist regimes do that and then get peeved when others do the exact same thing to them.

Venezuela has also gone bonkers. No two ways about it: by taking the socialist route and the anti-technology view towards the petro-economy, Chavez is ruining the entire system. Future projects going on hold or being cancelled are the death knell for a system that requires expansive forward capacity to keep exports stable. Stop running and the treadmill flips you off the end of it. By trying to bribe the population, allow Iran to get a terrorist base of operations and legitimacy in South America, and by buying Soviet and Chinese military hardware, he is using short term-profits to little good long-term effect. Mind you, the USSR actually was able to maintain an oil system that at least *tried* to keep up with domestic demand... and Putin's recent efforts there to take over Western oil capital goods in the way of exploration, well equipment, pipelines and so forth are heading Russia down that same path. On the South American front, the goals of Iran have been clear, even if one only bothers to peruse a half-year's worth of articles at the RFE/RL archive at Globalsecurity. What is happening is the workings of the internetworked Transnational Terrorist system with State sponsorship.

What this results in is increased terrorism and performance of terrorism on a global scale as the entire system of terrorism gets infused with money, goods, personnel and training. Much of what was seen in Lebanon this past summer bears a striking resemblance to how the FARC operate, which then looks like cross-training based on the RFE/RL reports. Iran has been working its way into the narcotics trade and other illegal goods trade in South America, looking for funding sources. It is more than ready to exploit Chavez to use any capital or legitimacy he can give so that the Iranian Foreign Legion #3 - South America, can get up and running as a going concern. Iranian equipment and training, however, will diffuse into the FARC and Shining Path, locally, and from those points back outwards globally into the internetworked terrorist system. One of the very pointed questions I put up on TTLB asks the GOP Leadership: What is the stance of the GOP towards illegal immigrants that will be ethnically hispanic, but aligned with Hezbollah? After the arrests and convictions of Hezbollah agents in the US, that is exactly what we are facing now. And those arrests point to Mexican drug lord contacts, contacts with the Asian Triads, and standard criminal and organized crime contacts. While there is some overlap between the criminal and the terrorist systems, notably FARC and North Korea, they are not one in the same, but separate systems with different global goals. Local concerns have their own goals, of course, but the system itself has a global outlook and that is spread via the common parts of each system.

So, Chavez is not only ruining the Venezuela petro-structure, its economy, and importing tons of cheap military hardware, but also helping Iran put a permanent enclave of terrorists in place to recruit locally and start to intimidate the smaller criminal and terrorist operations, like the Emerald Gangs and smaller narcotics outfits. As a resource, narcotics are far more dependable than oil, and cheaper to get, too. Low overhead, high profit. This is a major long-term destabilizing factor in South America and in the entire Western Hemisphere due to the porous nature of the US borders. Here the US 'bargain' of cheap labor to harvest goods and work in sub-minimum wage packing plants will come back heavily to bite us as that bargain will now start to have Hezbollah infiltration along with the unchecked illegals. The US is giving away National Sovereignty for cheap food and that is a recipe for disaster.

In the Middle East, so long as there is oil flow and relatively easy profits to be had, terrorism will continue onwards. The chilling part of that is the Western ability to produce cheap goods now means that terrorism can be supported by less money *and* be more effective. This strange notion of 'cheap goods' leading to freedom seems to have the contrary effect of arming the enemies of freedom and letting them operate in a more deadly fashion as time goes on. With that said within 15-20 years, the Middle East will no longer be a large minority supplier of crude oil, their global output is dropping in percentage terms as Canada starts to enter the market. Similarly Israel and the US will start to exploit oil shales and steady out demand curves over the long haul as *mining* is far more dependable than sub-surface structure analysis for oil and gas exploration. At some point the US Continental shelf will be opened to such exploration no matter how much the environmentalists squawk: the environmentalists have had three long decades to 'put up or shut up' about renewables. Their 'put up' time is nearly over and their 'shut up' time is coming. Americans will not stand for a decreased standard of living to 'save' shore birds when the companies doing such work have not seen a major spill from an oil platform in decades. A proven safety record is hard to beat. A move to nuclear power is all to the good and third and fourth generation nuclear facilities do not operate in a metastable manner requiring constant oversight. The best of pebblebed designs will shutdown if containment is breached due to the denser nature of the air vice their standard coolant. The large 'nuclear batteries' that some companies are proposing are completely self-contained and sealed with set automatic control systems and sub-critical mass elements that cannot even undergo the 'China Syndrome'.

All of that spells a marginalization of the Middle East for importance in the world, increased repression, increased terrorism and strikes against the affluent Nations for 'exploiting' them and for 'not taking the path to virtue'. Only once supply and demand curves near each other will the Middle Eastern State and rich individuals stop being able to fund terrorists. Smaller Emirates realize this and are moving into service economies: banking, trade and the such. Iraq realizes this and the long term goal is to get a manufacturing economy in place for high-skill jobs and long term increasing profits. That latter is 15 years away, at least, but the education cycle for it is already starting and the Kurds point the way towards that future.

Iraq, for all of being a desert climate today, was a lush grassland 5-6,000 years ago. The Israelite description of the Garden of Eden and the lush lands of the two rivers is modern day Iraq. The climate changed, civilizations fell and folks moved around. The soil basis and rainfall basis are gone for that sort of agriculture in Iraq, but the Israeli's have shown the way forward with plant-drip dryland irrigation techniques that yield decent crops. Syria has been trying 1960's style 'Green Revolution' concepts, but lack the water basis for that and remain in some troubles due to that. The smaller Emirates will live quite well on imports and have a cash flow, due to services, that will allow that to continue even once the oil runs out. Iran is another story, and their agricultural sector was a bright spot back in the 1960's, but that era is long dead. Recovery of an agricultural sector in Iran within the next 20 years is critical for their population so as to have the majority of the population fed by home grown goods or via a trade system. Iraq is now a net *exporter* of agricultural goods and is taking up its role along the riverine areas of becoming the 'bread basket of the Middle East'. An expansive use of dryland agriculture will be necessary for the long haul in the Middle East. Iraq should make it, and was saved in time to not only recover but get a robust system in place. Iran is dicey, and will require help from Iraq and Afghanistan to recover its agricultural industries and get them into the modern era.

If Iran implodes in the next 5-10 years, all bets for the region are 'off'. The fragmentation of Iran would be just as disasterous as that of Iraq if it happens soon. My articles on that situation in overview are addressing the tribal nature of Iraq, but is applicable across the entire Middle East, save Israel. Even Turkey is not immune from this breakdown. The closest long-term historical analogy is that of The Balkans, save they had coherent Nation States bounding them to stop the ethnic/religious/cultural divisions from splintering Europe. There are NO such bulwarks in the Middle East, thus this analogy spreads from Sinai to India, the Empty Quarter to Russia. Getting Iraq into a coherent Nation State is critical to stop that splintering and fracturing and remove them as long term faultlines of instability in the Middle East. Long term peace in that region depends upon that solution being applied over and over throughout the region. The reason that is something I see as a solution, is that it has worked before the last time religious sects went after each other. The incoherence of Islam is a main sticking point, but even without that a 'place-by-place' solution can be done but only if that Geographic Center of the Middle East has come to terms with itself. That place is Iraq. Everything of importance on the human side of the equation runs right through there. Quite a lot of commerce, transport and communications, too. All of that is necessary to a vital region and without that there will be no peace (although stability is another and only somewhat related question) there nor globally.

The last time America ran we got stuck with a huge death toll from those who depended upon us, degradation of National affinity, and a route seen to bring the United States down. In point of fact we got stuck with problems that are *not* amenable to Nation State solutions of the 20th century - if they had been we wouldn't have them. Even with some relatively coherent Nations in the Middle East, the 20th century has re-formulated pre-20th century warfare into something that Nation States gave up as warfare... all save one... as those means to fight those kinds of wars are enshrined in the Constitution, only the People of the United States may take them away. There is a State based component in this, and providing semi-capable and freer opportunities to live will help to finally curb Nation State terrorism. The other kind, the non-Nation State side which got the Soviets out of Afghanistan, is not affected by that. To do that will require the most radical altering of any Nation, that is the US actually embracing the ideals it set forth and recognizing that in an era where individuals can be a mass destructive threat, so it is only individuals who can fight those wars.

That I do not see happening any time soon.

And the world is at peril because of that oversight and the unwillingness of a Free People to embrace their Freedom.

This is a long war and the military of the United States can win wars and topple States. But only the People taking up their rightful responsibilities to *fight*, as we have set down in our Constitution, can *win this war*.

The young Republic of the 19th century could easily have coped with this and thrived.

What we have today cannot.

It is pessimistic, but also based on how these systems operate. The feedback mechanism is in place, just not engaged in the way set forth for it to be applied. Our survival depends upon it. And our willingness to take up that old cry of: "Give me Liberty. Or give me Death."

For that is the choice we are left with in the end.

Cross Posted at Classical Values