Saturday, January 30, 2010

 

US Space Program Facing Budget Difficulties

In a recent post I noted that space exploration will be scaled back because of limited funds (actually limited energy). An AFP article, “Obama trims US space ambitions,” describes how funding problems are hobbling the US space program. It just goes to show how desperate problems on Earth are going to trump space development, except for perhaps military uses of space. The article also refers to expectations for the private sector to take over some tasks that have been performed by government space programs so far.

 

Sovereign Debt Panic

In a bid to goose their economies, governments are spending with abandon, and now — even before any appreciable effects have been realized — they suddenly realize that they have spent themselves into a corner. Now, wallowing in debt and with unprecedented debt-to-GDP ratios staring them in the face (see previous post), everyone is starting to panic. Privately at least, they are asking: What if we can’t pay off all this debt? I’ve made no secret of my belief that all that debt cannot be paid, because that would require some really hot economic growth worldwide, which in turn would necessitate a copious supply of cheap energy and resources.

So, it appears that panic is setting in. Japan is ready to implode, and deflation is proceeding apace. The US too is a basket case. And we all know about Greece and Spain. Spain has embarked on making huge cuts everywhere in a desperate effort to stop the bleeding. Greece’s situation is so critical that the IMF is on standby and says that Greece must slash its budget (this article says that this year Greece’s debt-to-GDP ratio will reach 120%, but that’s just sovereign debt). In the US, President Obama says that “it is critical that we rein in the budget deficits we’ve been accumulating for far too long.” You bet!

At Davos, “audience participants voted electronically, with 50.7% declaring sovereign debt to be the top candidate for the cause of the next global crisis.” That got by far the most votes.

And then there’s China. Everyone is raving about its economic growth, but China has been pumping up a really big bubble. If it deflates suddenly (good possibility), it will be more like an explosion than a pop. There is a colossal amount of non-performing real estate assets in China (vacancy rates in Shanghai’s Pudong district are as high as 50%), and a mountain of debt piled up because obviously real estate developers have borrowed heavily to build all those office buildings and condominiums.

So, amigos, it’s about time people started to panic. Keep a watch on the situation and have an emergency bag packed at all times.

Wednesday, January 27, 2010

 

Total Debt-to-GDP Ratio: Help!

Seeking Alpha has a great article titled “Total Debt to GDP Trumps Everything Else.” Usually the debt-to-GDP ratio is calculated with a country’s public debt alone, but there’s a lot more debt out there to be accounted for (and, ultimately, either paid off or defaulted). That’s why using total debt gives one a much better idea of how serious the situation is. We learn here that the ratio for the US is about 370%. This is really bad, but as noted,
Even more incredible is that the present debt level does not include the entitlement and pension obligations that would just about double the total debt from where it is now.
Wow! And politicians are still assuring us that we’ll pull out of the recession and everything will be OK. Do they really believe that so much debt can be paid? Believe it or not, some other countries are even worse off.
The UK debt to GDP is about 470%, Japan 460%, Spain 340%, South Korea 340%, Switzerland 315%, France and Italy about 300%, Germany 275%, and Canada 245% (all are records of debt to GDP).
But there’s more shocking news ahead. Since the economy is like a big Ponzi scheme, it’s necessary to keep more and more new money coming into the system to fuel growth. So progressively more money is needed to generate the same amount of GDP.
This U.S. debt to GDP started accelerating in the 1960s (with the Vietnam War, Space Race and continuation of the Cold War) when it took $1.53 to generate an additional $1 of GDP. Then during the 1970s, with the continuation of the Vietnam War, it took $1.68 to generate $1 of GDP. In the 1980s (including Leveraged Buyouts and Star Wars) it took $2.93. In the 1990s (with the internet bubble) the debt it took to generate $1 of GDP climbed to $3.12. However, the most incredible of all was the first decade of this century when it took over $6 to generate an additional $1 of GDP.
Of course, securing the increasing amount money needed to maintain growth and keep the system from collapsing (not to mention the expense of maintaining an empire) necessitates issuing debt. Lots and lots of debt. That’s how we ended up with so much cheap credit. It was virtually inevitable if we are going to keep pumping up the system.

Friday, January 22, 2010

 

US Concerned that China Is Grabbing All the Oil

For some time now, China has been using its bulging foreign currency reserves to buy up oil around the world. Of course any country would do that if it had the money, but this had to be bothering the US (which is unfortunately flat broke), and sooner or later this had to happen. By “this” I mean the US coming right out and saying that it’s worried about China trying to “lock up” all the oil reserves. Which shows that the US government does not believe those who claim there is an “oil glut,” but that’s another topic. Anyway, read about it here.

Oh, by the way, did you know that the US now keeps two Aegis-equipped ships in the Persian Gulf at all times? No doubt to keep watch on that “oil glut,” right?

Addendum: The From the Wilderness blog has a comment on this here.

 

Nuclear Power and Capital Cost

Not too long ago I linked to a Telegraph article, “Nuclear: the corporate killer in our midst?,” which observed that capital cost is a huge and likely insurmountable hurdle that blocks the way to the so-called “nuclear renaissance.” Now more and more people are coming to the realization that nuclear is simply not an option due to its ballooning cost, even if we ignore its other problems. For your reading enjoyment I submit another entry into this increasingly crowded field of realistic naysayers, “Nuclear Power: Too Costly to Revive.”

 

Man Claims Jihadi Attack

In “Who Is ‘al-Qaeda’?” I discussed the difficulty of pinning down claims about who is or is not AQ, and the various motives for claiming one way or another on both sides. Now we have a news story that illustrates this very conundrum. A man who killed a soldier outside a military recruiting office claims it was a jihadi attack, and that he has ties to AQ in Yemen. So how do you know whether he’s lying or telling the truth? As I said before, you just check his official AQ membership card. But seriously, there is no way to know for sure how much is truth and how much is fabricated. Probably he thinks that identifying himself as an AQ operative confers some sort of advantage, or will scare the bejesus out of many people by making them believe American society is thoroughly infiltrated with terrorist cells. Certainly some Americans too are happy about this because it will ratchet up the fear level and reinforce the perception that the US is “at war.”

Tuesday, January 19, 2010

 

Energy Decline and Peak Demand

Oil & Gas Magazine has posted a guest editorial by The Oil Drum’s Gail Tverberg, titled “Oil, Gas and Electric Power: Some Issues for 2010” (it’s also posted at The Oil Drum here). The editorial is short and gets right to the point, so even if you have just a few minutes, it’s well worth your time to read it.

There is one place in particular I would like to discuss here. It deals with “peak demand,” not in the sense of, for example, there was a new (local) peak in demand for electric power, but in the sense of overall demand declining, which we are starting to see because of the global business downturn.
While some are painting “Peak Demand” as a good thing, I see it as a problem, since it is likely to be accomplished through declining standards of living. Peak demand may, in fact, be inevitable because our current standard of living cannot be supported if oil and gas prices rise to too high a level—people will spend too much of their incomes on necessities, and will not have enough left over for new homes, new cars, and all of the other things that have enabled economic growth in the past.
This is an excellent observation, and I would just like to add something. If demand for energy declines (or even if it is perceived to fall — watch the markets), so does its price. Again, this seems like a good thing, because the cheaper energy is, the better the chances of economic growth resuming. But the downside is that the less we pay for energy, the less capital is generated for further energy development, and the less incentive energy companies have to make those investments. Developing fossil fuels is more expensive than before, and investment in renewables is expensive. So we have a classic dilemma. If we want to keep developing fossil fuel resources, and if we want to invest a lot in renewables, we need high demand to generate the requisite capital. But, as the editorial points out, energy is already too expensive for an economy designed to run on cheap energy. You can see where this is leading.

 

Space Exploration: How Much Longer?

Back in 2005, I predicted that “in a few years the ISS will become an uninhabited hulk orbiting a planet beset by energy wars.” Well, it’s at least a few years later, and the space station is still inhabited, so my timing was a little off on that one (although the energy wars started some time ago). Nevertheless, I stick by my predictions that future space exploration will be limited to science fiction novels, and that the ISS will be abandoned.

A USA Today article, “Has USA hit its final frontier in human space exploration?,” discusses the constraints on space exploration by recent circumstances. It provides us with a window on the declining prospects for space exploration, and the beginning of the end for national and international space programs. So it’s only a matter of time until the ISS indeed becomes an “uninhabited hulk.” As international conflicts escalate, all governments with the ability to launch payloads into orbit will be concentrating those resources on spy satellites and other military applications.

The article also touches on the expectations for the commercial space business, but in a world put on an increasingly austere energy diet, there’s no reason to believe that it has much of a future.

Monday, January 18, 2010

 

In the Future We Will All Be Hatians

The devastating earthquake in Haiti has administered the coup de grâce to what was already known as an economic basket case (for the reasons why, read this, but that is not the direction I am going this with post). The country’s whole social fabric is crumbling, and chaos reigns. Something many of us take for granted — gasoline — is scarce and expensive.

The second link above does us the greatest service by showing how even those of us living comfortably in developed countries can become Hatians in an instant. And it’s not far-fetched at all. In fact, a number of developed countries are already economic basket cases. The US, UK, Ireland, Greece, and Japan come instantly to mind. Burdened with crushing debt and no real prospects for sustained economic growth, they are headed into a slow-motion crash. And the occurrence of a disaster — natural or otherwise — could easily trigger a rapid collapse.

But I want to caution everyone not to try and go it alone. The shake-out is going to be a very rough ride. Building communities of people having various talents and assets to share will give us a much better chance of weathering the coming storm. Some of us won’t make it. Some will make it, but barely. And others will come out smelling like roses, not only surviving but also thriving. Community-building is of the utmost importance, and the more people you bring into your community, the greater your chances of surviving and thriving. People without community, left to fend for themselves in a chaotic, free-for-all environment, will resort to the most desperate acts, so it’s important to involve everyone we can so as to reduce the population of lone wolves.

We all need good luck, but that’s only a minor part of the equation. What’s most important is how we make the most of our environments, both social and natural, and whatever assets and talents are at hand.

Sunday, January 17, 2010

 

Resource and Energy Production Peaks

Investment gurus are starting to see the handwriting on the wall regarding the coming (or already here) peaks in production of energy and minerals, which are needed to keep industrial civilization running. A number of minerals have already peaked or are approaching peak extraction rates. In this article an investment expert gives his view on the constraints caused by the inability to keep up with demand. To his credit, he sees the interconnectedness of all these mineral and energy resources, noting that a decline in one affects the others. While energy resources have been in the spotlight for some time, the world public seems to have little awareness of mineral peaks. One class of minerals that has gotten plenty of attention lately is the rare earth elements, and one can now find much information on their importance to technological applications, and China’s virtual monopoly on them. Just as China and Japan are still sparring over marine gas fields, the discussions over the supply of rare earths will become acrimonious as users around the globe feel the pinch.

Saturday, January 16, 2010

 

Electricity: Declining Supply and Demand

Although many countries have chronic electric power shortages that handicap their economies, industrialized countries are seldom mentioned in that respect, and we tend to think that they face no significant problems. And so it is with the Korean peninsula: Most people know that the North is an energy basket case, but assume the South has plenty of spare capacity. So an opinion piece in The Korea Times with the shockingly ominous title “Looming Power Blackout” will certainly surprise many.

Even in rich countries, however, ballooning capital costs are a drag on the growth of generating capacity, and keeping up with projected rising demand is a challenge. Some countries, such as the US, need to overhaul and upgrade their grids, which is another big expense. And because of the crumbling US economy and attendant decline in energy demand, power production has sustained its biggest drop since 1938. That means less capital to invest in new capacity, and less incentive to do so.

Thus, the power crunch isn’t limited to just developing countries. Watch for more discouraging developments in this area as the global economy continues to deteriorate.

Thursday, January 14, 2010

 

Can Hybrids Save the World?

The short answer is no. Just like all the claims that ethanol will help wean the US off foreign oil, we are bombarded daily with enthusiastic claims that hybrid cars will be instrumental in substantially decreasing oil consumption. Sorry to day, a recent analysis says it just ain’t so. Although hybrid owners may like to flaunt their green credentials, the fuel economy improvement is actually too small to make much of a difference, even on a national scale, and even in the future when there will presumably be many more hybrids on the road.

Monday, January 11, 2010

 

Jevons Paradox and Oil

In several previous posts, I discussed energy use in relation to Jevons paradox. This concept is of the greatest significance, and its importance to the decline of our civilization cannot be overstated. For that reason I am very pleased to see an excellent post on this very subject over at The Oil Drum, “Jevons’ Law: Enforcing the Age of Energy Decline - Part 1.” Since this is “Part 1,” we can look forward to more. Although perhaps a little long for busy people, it’s a really good read.

 

Iraqi Oil Production

There’s a long and quite comprehensive article over at The Oil Drum called “Iraq Could Delay Peak Oil a Decade.” Since it covers a lot of territory, there’s not much to add. As the writer notes, it is all quite speculative at this point, as there are many factors that could work to either boost or suppress Iraq’s oil production. Which factors will come into play, and to what extent, is anyone’s guess at this point. If you are interested in how a large and sustained boost in Iraq’s oil production could change the picture, this article is for you.

There are just two points that I would like to touch on here. First, if Iraq manages to flood the market and depress prices, that will create oil production problems down the road because obviously many oil projects that depend on the current price range for development will be shelved or abandoned, just as many Persian Gulf-region projects were shelved after the 2008 collapse in oil prices. As long as Iraqi production is sustained, the world can slake its thirst, but if a factor or combination of factors causes it to drop quickly, the oil supply problem could quickly deteriorate. And the article enumerates a number of possible factors.

Second, by its very nature (much high-quality crude with comparatively low capital cost for development), Iraq is a juicy plum that many global chessboard players would like to have all to themselves. Because most other oil-producing countries are in decline, the Iraqi plum looks more delicious and tempting by the day. The vast “embassy” built by the US in Baghdad is indicative of American intentions, but the region is now swarming with warships deployed by many of the big players with the avowed purpose of protecting commercial shipping from Somali pirates. In truth, every country with ships there is keeping its eye on the plum, and when push comes to shove, the situation could turn ugly in short order as navies that are now ostensibly cooperating would begin firing on each other. In addition, the presence of al-Qaeda (who else?) in Yemen is providing the US with a good excuse to try and establish a foothold in that country as well.

The Middle East is a powder keg and Iraq is a touchy flashpoint that could easily set it off.

Friday, January 08, 2010

 

Expanding the Cold Chain in Emerging Markets

I’m sure that few if any readers have ever heard of the cold chain. Despite that, all of us living in developed countries, and even some people in developing countries, enjoy the benefits of the cold chain. Simply put, it is the system of storage and transportation that keeps temperature-sensitive things within a desired temperature range at all times from production to use.

For example, let’s say you buy some frozen fish. After the fish were caught and processed, they were frozen, and to keep them from thawing and spoiling, they have to be kept at the right temperature until you are ready to prepare and eat them. That entails storage in facilities and transport in conveyances that are always kept well below the freezing point. After delivery to a retailer, they are put in cold storage and then placed in frozen food cases. After purchase, you take them home (here in Japan many supermarkets provide customers with small bags of ice or dry ice to keep refrigerated items cold during transit), and then put them in the freezer until you decide to eat them.

Basically, the same system is used for all fresh and frozen perishables, and for other things that must be kept within a narrow temperature range, such as some pharmaceuticals.

You’ve no doubt already thought of where this is leading: the cold chain consumes a lot of energy. Just imagine how many large commercial coolers and freezers, refrigerated trucks, and the like are involved in this vast system. And efforts are underway to build and expand cold chains in developing countries as well. You can get a hint of what’s going on in “Rising interest in supply and cold chain financing in emerging markets: IFC.” While I don’t have the expertise to calculate how much energy would be required to operate cold chain systems in these emerging markets, it’s safe to say that it would be a lot. Remember, many of the people who would supposedly be served by these new and expanded cold chains don’t even have refrigerators yet, so when you start adding up all the new power consumption this would entail, it would obviously be very large. India and other “emerging markets” are already starved for electric power, and they are hard put to build new power production capacity. In that light, these ambitious plans for cold chain expansion will very likely run up against severe energy limitations, even if the capital is secured.

And then there is the matter of what happens to food distribution and storage when cold chains in developed countries break down, but I don’t even want to think about that now.

Thursday, January 07, 2010

 

Japan Ups Ante for Marine Resources

News reports say that Japan’s Ministry of Land, Infrastructure and Transport has appropriated ¥700 million for construction of port facilities, including the atoll that Japan calls Okinotorishima (Okinotori Island). Building port facilities would, in the calculus of Tokyo, make Okinotorishima into a habitable island, thereby considerably extending Japan’s exclusive economic zone in the Pacific/East China Sea region, and giving it exclusive access to any oil and gas discovered there. As readers can see by the linked articles, this idea has gone up like a lead balloon in China. The “island” is actually just a few rocks that are preserved with concrete works. Should Japan press ahead with this project, it could seriously increase friction that has long kept a dispute smoldering between the two countries over islands and marine gas fields.

Monday, January 04, 2010

 

Shipbuilding Yards Face Crisis

A previous post, Tanker Glut, discussed the overcapacity in shipping capacity as a manifestation of global economic collapse. A very timely Financial Times article, Yards face closure as orders collapse, describes how shipbuilding yards around the world are going belly-up for lack of orders. It’s just another indicator of how the global trade system and globalization are swiftly declining.

Saturday, January 02, 2010

 

Underwear Bombs and Yemen

What a topic! It must be a slow day for Rice Farmer, you say (well, the paddies are frozen solid at this time of year). Anyway, President Obama has declared that the Yemen branch of al-Qaeda is behind the attempted underwear bombing by Umar Farouk Abdulmutallab. How does he know that? Intelligence aside, I’m positive that the US government checked their official al-Qaeda membership cards. In order to appease Dick Cheney and show that the administration is not “soft on terror,” Obama made sure to say, “Our nation is at war against a far-reaching network of violence and hatred. We will do whatever it takes to defeat them and defend our country.” So, the US is, lest there be any doubt, still officially “at war.” Start planning your spring victory garden.

US military assistance to Yemen will be substantially increased, the British have called for a top-level meeting on the crisis in Yemen, the US and UK are going to fund an anti-terror police force in Yemen, and the US and Yemen are planning air strikes.

Naturally, this is a great opportunity to gain another military foothold in the Middle East.

Just one thing: Some people think that the US is after Yemen’s oil, but that’s a serious misreading of the situation. Truth be told, Yemen produces very little oil, and what’s more is in steep decline. That fast-dwindling oil revenue is in fact the major reason that Yemen is disintegrating. There just isn’t enough energy to hold the country together any more.

 

Barriers to Renewables

Here is a piece on energy which makes some valuable points about why dreams about expanding renewable energy capacity have grown a bit too big. In short, a dearth of manufacturing capacity and money will prevent us from achieving grandiose goals for large-scale manufacturing and construction of new generating capacity. Of couse, we could build a lot of new manufacturing facilities and hire more workers, but that would take a lot of money — which we don’t have. That kind of financing would require us to take on much more debt, but as the writer of this piece observes, “with several of the world’s leading economies already leveraged to the hilt (i.e. America, the UK, and Japan), such a level of spending seems deeply implausible.” To say the least. (And all that money has been borrowed in a desperate gamble to keep the Ponzi-scheme economy afloat, but that’s another story.) To put it another way, a person who is broke and up to his eyeballs in debt won’t be covering his whole roof with solar panels.

Apart from the problems of manufacturing capacity and financing, there is the matter of finding the energy to invest, which is discussed in detail here. All these plans for vast renewable energy capacity would have had to be developed and implemented decades ago, when there was more money and fossil fuel energy was still cheap. It’s too late now.

 

How Long Can We Count on Coal?

The environmental consequences of coal use aside, India has a serious shortage of coal to run its thermal power plants. It will have to mine and import a lot more to satisfy its growing appetite for energy, but it turns out that domestic extractable reserves are far more limited than previously thought. This is going to seriously crimp India’s economic growth, but India isn’t the only one with this problem. In recent years several reports have concluded that economically extractable reserves of coal worldwide are much smaller than thought. And if an attempt is made to compensate for expensive oil by producing liquid fuels from coal, that would considerably exacerbate the problem by further accelerating coal use. It’s just a matter of time until India’s coal problem becomes everyone’s problem.

Friday, January 01, 2010

 

Small-Scale Piracy

Mention of piracy brings to mind, first of all, Somalia, but also Nigerian coastal waters (another hot spot), and of course the Strait of Malacca, where piracy is now largely suppressed by the expenditure of much energy on joint patrols. But we hear little about small-scale piracy. “Fisherman face rash of attacks” provides a window on this little-known phenomenon. This article describes how Iranian pirates prey on UAE fishermen (presumably this is not condoned by the Iranian government). Although I haven’t done any research in this area, this suggests that such piracy may be widespread in unstable parts of the world. At the very least, instability provides the opportunity for such activities, while poverty would provide a strong motive. Watch for more of this — not to mention more “highway robbery” on land — as energy decline leads to weaker social order and law enforcement.

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