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Beyond the Credit Crunch, An Oil Crunch
[Opinion] Oil shortages are imminent
Nicolas van der Leek (Nick)     Print Article 
Published 2009-03-31 14:44 (KST)   
In the last few days and weeks a few fringe bloggers and Jeremiahs (myself included) have prognosticated that oil prices are about to surge again, and in the last week we have seen prices breach $50.

Oil prices will rise again in 2009 to last year's record $150 and surpass this record. It may go beyond $200 or even $250 before we see another collapse, in a cycle of convulsions. It is for this reason (severe supply constrictions) that talk of recovery is nonsensical, foolish and shortsighted. A real recovery is impossible. The pretense of a recovery (that is a very short term return to "growth") is possible, but to base our faith and hopes in this is unwise.

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We are headed beyond a Great Recession. We'll see a Great Depression that will make the 1930's look like a picnic. It may sound like pessimistic doomsday talk, and often such talk is dismissed out of hand without considering supporting evidence. I concede that such evidence is somewhat subtle, and people need to carefully ponder the scenario for a few moments in order to understand it.

The current economic catastrophe is as bad as it is exactly because people have failed to see the simple subtleties in the market. We're talking about a resource that underlies all activity, a resource = energy. That resource is now declining, from a Peak Moment, which means whatever your theories, whatever your economics, contraction is going to be your Guiding Philosophy.

Unfortunately it is so late in the day and few people have taken the trouble to understand let alone absorb the real implications of this. Many don't want to think about it or accept it. That's a pity because to some extent we still have a choice right now to change the future. Those choices are diminishing with each second. That is no exaggeration. Investing in automakers, and banks is rather sad given what we know. We ought to be investing in railways, in making food networks sustainable and in eating more healthy diets. The carbon footprint of a burger compared to an apple is a case in point.

All hope is not lost however. Projects such as South Africa's JOULE (Electric Vehicle pioneered by Optimal Energy) are underway though not yet in production. This is VERY late in the day but better late than never. The JOULE will not solve our problem, in fact nothing will (contraction is inevitable), but we can ameliorate our prospects somewhat.

It may seem counter intuitive that oil prices will rise when the industry:

1) Acknowledges large excesses in supply
2) Shows demand has been already become severely constrained

However, it is a more subtle point that in the same way that the credit crisis has impacted on demand, so has it impacted on supply (and vitally, investment in supply).

It is interesting to see that the media have been quicker to pick up on this subtlety this time around.

One of the reasons for the drain on supply is China, where millions of people are experiencing having a car for the first time, and thus the last thing on their minds is conservation or fuel supply limits.

Gerhard Swart, one of the engineers behind South Africa's Joule project (I met him on Thursday in Stellenbosch and will post an interview at some stage on this site) confirms that the oil price relief we've seen is temporary. A crunch is imminent.

Matt Simmons confirms this, saying we are three to nine months away from serious shortages. These shortages will not be easy to "fix" as a lot of production has been permanently curtailed, and other production still requires large amounts of free capital to come online again.

"When you have an old oilfield whose flow is being maintained by extremely high levels of investment and you reduce production, you rarely if ever get back to where it was."

"Unless oil demand falls by 10 or 15 percent per annum, which it is not going to do, then we don't need to wait for oil demand to come back before we have a supply crunch," he said.

"Within a few months, we are going to realize our visible inventories are really tight -- squeaky tight -- and what would really be inconvenient is to see a recovery in the economy." - Matt Simmons

One of the issues most people fail to see when looking through the window called "RIGHT NOW ECONOMICS" is that oil prices and supply are based to a large extent on present flows. They ignore the reality that oil discovery (which is an indicator of future supply) has been decreasing for the past several decades. Even oil companies like Chevron and BP acknowledge this. Without new discovery, you start guzzling the stuff that was discovered 30 years ago. And very quickly.

Electric vehicles provide a solution in terms of energy efficiency. That said, EV's are a temporary solution. The future needs to be about more walkable communities. And living more locally. In the future, 20 years from now, very few people will possess cars. Thus the future is not going to be about motoring or suburbia. It is more likely to be based around growing food, around agriculture. Remember, as oil depletion worsens, the ability to conduct large scale industrialised agriculture diminishes. And the world's food systems - growing, production, transport - is all heavily based on a cheap and abundant energy scenario.

Gerhard Swart describes the electricity problem in South Africa as a "peak electricity problem," not a total electricity problem. Peak Oil predicates Peak Food, Peak Cars, Peak Finance, Peak Education, Peak Commerce, Peak Jobs, Peak Freedoms, Peak Choice, Peak Transport, Peak Gadgets, Peak Health, Peak Population, Peak Entertainment and Peak Safety and Security. The slippery slope we face from here on out will deliver diminishing returns on all of these at the same time.

In a recent newspaper article I came across the following statement: "Investors seem to have shrugged off government data and had been bidding up prices on the expectation of a future shortage of crude oil."

These investors are 100 percent correct. Put your money in oil stocks now, but get your money out before the next "crash." There are likely to be a few as what is left of the finance system convulses until it is dead wreckage incapable of doing or being anything other than an epitaph to a bygone system called "Capitalism" (how greed killed off all of humanity's interests...).

For more on the writer visit www.nickvanderleek.com.
©2009 OhmyNews
Other articles by reporter Nicolas van der Leek

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