Ferdinand E. Banks

Ferdinand E. Banks
Contributor since: 2008
For those who want to avoid futures, you say.
I taught futures for ten years in Sweden. I also taught them in Prague, Australia, Bangkok etc etc. I cant think of anything easier to teach, although there are some dumb experts out there. In a local Swedish paper one of them talked about a 5 year futures contract for wind, and a year or so ago Helicopter Ben said that there would be no problem with the oil price, because a 3 year futures indicated that everything was cool and groovy.
A futures-free commodity portfolio. What's next?
Paulo, please dont be offended by the opinion of the leading academic energy economist in the world, and also a great teacher who has published books on natural gas and coal, but I don't believe for a minute that the flexibility you talk about - the (short run) 'switching' between natural gas and coal inputs - takes place anywhere except at the margins. Put another way, it's not a big deal.
Of course, nuclear and oil are my thing now, and I certainly don't know as much about coal as I used to know and want to know, but the kind of switching you talk about sounds like something that would be taught in Econ 101 by the parasites and charlatans who - conventionally - teach graduate studies here in Sweden
I published a book once about the economics of coal, in which I talked about other resources as much as coal. But if I decided to look at coal again I would study this article carefully, because having also taught finance I consider it a very impressive piece of work.
There are a lot of crazy opinions going around at the present time that coal is finished, while shale gas is blah blah blah. But regardless of what happens on the shale front, it is going to be impossible to ignore the energy content of coal, especially in a world in which population increases by almost a billion every decade.
netbluesky, you could be right. Notice the usage 'could be'. I taught finance in Sweden for ten years, and rubbed shoulders with a few of these gents in Singapore. I'll accept that I am out of date where trading is concerned.
Strange isn't it, but I just got through telling a certain gentleman what he knows and doesnt know about oil, and the first thing I see in this article is "a $4 trading range".
That expression sounds like geechee (or worse) to me, and so it will not be incorporated into the brilliant lecture on oil that I hope to be asked to give by the charlatans I have to deal with on the energy front here in Sweden...and elsewhere.
I've mentioned resource nationalism in my energy economics textbooks, and many articles. The point is however I am only concerned with one example, and that is oil. It is said in this article that resource nationalism puts a floor under the price of a commodity, however the resource nationalism that I write and talk about is not concerned with floors, but with 'calculating' (if that is the right word) and then establishing the highest price that makes economic sense.
I stayed out the US because I didn't like the idea of spending what some people call my declining years in an Old Soldiers Home, because that's where I was heading. I deduced that because later I couldn't get a job in a university OR a community colleage because my 12 books published internationally, my visiting professorships and my brilliant lecturing had no meaning: I wasn't a woman and gay and a foreigner and a rotten teacher and a rotten researcher.
As for what went wrong in the US, it isn't/wasn't demographics but the reelection of George W Bush. The voters have themselves to blame. But believe me folks, the machine can be fixed. The problem is that it can't be fixed by amateurs, and those are what the drowsy and celebrity loving voters prefer.
You got one thing right Shaun. Population growth is not a problem - it's population movements, and the ignoramuses who think that immigration is fun.
And Starkoski, there is a problem with ASPO. Some of its members are parasites and charlatans. I'm not going to tell you who they are, although I will say that Dr Hirsch is not one of them, and there ARE a few other genuine experts associated with that organization. But please be careful with your use of the word expert when commenting on energy matters.
As for the present article, I think that Shaun is just playing with the folks in the cheap seats, because nobody with half a brain could fail to understand that the issue is not the peak but the price of oil, Regardless of the amount of oil in the crust of the earth, and when or if it peaks, OPEC is going to do what is necessary to make their trillion dollars this year, and if you don't understand what that mean for the price, ask some of the...experts in.....
When I went into the (American) army, some young gentleman addressed us as follows: "Many of you men play sports, well the U.S. is a team that has never lost." In other words, a team of winners.
Americans don't want to hear that kind of thing now. They find that kind of sentiment hateful. Instead, everything has become some kind of insoluble problem. I'm a Democrat, but I would never vote for Obama because he is too dumb to understand that the money that went into the war in Afghanistan should have gone to American primary and perhaps secondary schools. That would have been a key play in securing the American future.,
You say that the Japanese have a demographic problem. I dont believe it. If they do it is because they want one. The fewer the numbers the better, with a limit of course. The thing is to make sure that the population has an 'optimal' education.
Well, one thing is certain. There are a lot of smart guys out there where oil is concerned, although I am not sure that Shaun is one of them. There are a lot of smart guys and this is a very different situation from just a few years ago. I only hope that Dr Chu's foot soldiers are just as smart, because he is hopeless.
Speaking of hopeless, give it up, Shaun. You lost this one. Spend a few month in the library and leave the Maugeris of this world to dream their nutty dreams about oil.
Did I say Hubbard instead of Herbbertus. Gee, how could I make a mistake like this. Makes those comments of mine very untrustworthy.
I dont know if your reply was meant for me, Shaun, but let me put it this way. In a classroom, seminar room or conference, you would get a few lessons about oil that you wouldn't believe. That a paraphrasing of John Rambo by the way. I failed math my first year in engineering school, but was able to get on the winning team just by solving more math problems than anyone. That won't work in energy economics. You need a strategy for studying, and you cant waste time with research by questionable (i.e. half baked)researchers.
On the other hand, your willingness to study energy economics and write about it is exactly what we need. What can't happen however is that you read stuff by Maugeri and similar no-hopers and then think that you can call out people like the Fitzman and a number of others in this forum. As those folks outside the gate of our camp in Japan used to say, "it never happen GI".
About my work for those people who think that they have some advice for me. I'm probably the best teacher of energy economics in the world, going back to Adam and Eve, but you can find mistakes in my books. Given the parasites and charlatans that I have to deal with here in Sweden, I'm surprised that I haven't made more. But where oil and nuclear are concerned, I'm the man. In the matter of natural gas and coal, well....I'm not first, and so I'll have to work harder.
Why make a mountain out of a molehill. Shaun is wrong, and the fact that he found Leonardo Maugeri's work quotable shows that he is basically an amateur. At the same time I'm ready to approve of him as a reader of my textbooks, assuming that he NEVER quotes anything by Signor Maugeri.
AND, peak oil is no longer of interest to yours truly. What difference does it make if or when the peak comes if the price of oil suddenly escalates up 40 or 50 dollars. Don't the people who find Shauns approach credible realize what that will mean for the international macroeconomy. Incidentally, somebody said something about hedging the oil price by purchasing long term futures. That is off-the-wall advice. I once taught from a macro book by Ben 'Helicopter Ben' Bernanke, and had considerable admiration for that book, and accordingly the good doctor. But when he started talking about 'plenty of oil being available' because of the situation on the long term futures market, I realized that he was a man who knows less about energy than Dr Chu or his boss. In case you find these remarks disgusting, buy a good book on the futures and options markets and see what they say about long-term futures. (Hint: there is little or no liquidity in that market.)
There was a mention of the work of Dr King Hubbard above. I like his work because I have a long discussion of his mathematics in one of my recent papers, and it so happens that his prediction that US oil would peak in 1970-71 was right on the money. The logistic curve Dr Hubbard employed makes a lot of sense to me, and since it probably is valid for natural gas also, the claim that the US now has 100 years of gas on the basis of present statistics strikes me as absurd.
Lets fact another fact. Oil and gas are too valuable to the countries of the Middle East to sell at bargain basement prices. Starting with that fact it would be an enormous mistake to expect any sort of decline in the oil price in the near or not-so-near future.
You are on the wrong track Shaun - you miss the point. You should read the above comments very carefully, because most of the guys who made them know what they are talking about. The issue is not the peak but the price. We were further from the peak in 2008 than probably - PROBABLY - we are today, but even so at that time 'they' were talking about oil reaching $200/b, and the global macroeconomics was starting to implode because of it.
Let me add the following though. I am impressed that you take an interest in this topic, because there is a shortage of credible opinion. If you stick with it I doubt whether you will be sorry, because Mr Obama and his Energy Secretary could use some informed help...to say the least.
Shaun, you take Harvard - I'll take the Fitzman, which is the first comment in this string.
Now listen carefully to the leading academic energy economist in the world, who is yours truly. THE REPORT YOU ARE TALKING ABOUT IS NOT HARVARD, BUT SIGNOR MAUGERI, AND HE HAS ALWAYS BEEN WRONG. ALWAYS!
The leading oil economist in the US is Professor James Hamilton of the University of California (San Diego). Write him, and ask him to give you his opinion of Mr Maugeri. Unfortunately Hamilton is not negative enough, so I will put it as follows: Anybody who believes Maugeri or the present article, should make sure that they do not find themselves in a classroom, seminar room or conference with my good self.
Please note carefully what Mr Fitzsimmons said. Peak oil has become irrelevant. Who cares whether there is a peak or not when the US is paying enormous amounts of money for foreign oil? 'An Engineer' just above indicated that the cost of energy is becoming "infinite", which is almost correct: infinity is not a number but a direction. Let's just put it as follows: the cost could eventually become very high, which means a repetition of the present macroeconomic situation, possibly multiplied by something greater than unity..
Nole, it wasn't George W. but the voters. Instead of thinking seriously about what presidential candidates have to offer, they turn to some lousy soap opera on TV that is filled with gutter language. If the voters had dumped Bush in 2008, we could have avoided the incompetent Mr Obama.
I dont need students or scholars or intellectuals or what-not to tell me about China. When they stopped our advance in Korea, that told me all I needed to know. What I am mildly curious about though is how that country will solve its population problem, although I do not plant to make an attempt to find out. I'm not going to make an attempt because I might not be able to sleep at nights if I found out. If, however, they do solve that problem in a manner that makes sense, then - ceteris paribus - the absolute best that any other country can hope for is second place.
When I want terrific articles on natural gas, I usually look at my own, but this is a very interesting and perhaps important contibution. I just hope that I have time to look at it with the care it deserves. A few of the comments are also interesting, especially the one by GUS100. Yes Gus, the fools are at work where energy economics is concerned, and I certainly can't understand it. Lies and misunderstandings are also coming thick and fast about solar, wind and the like. I can also mention that nuclear is not given the respect it deserves.
I find interesting the comment by Michael Fitzsimmons about the huge amount of money that is sent abroad to purchase oil. That deserves to be remembered, and referred to daily by our splendid political masters, although I don't think that anything can be done about it in the short run. I don't know as much about gas as I used to know, but a lot of the talk about the plenitude of gas hardly deserves to be called nonsense. .
Buffalo_Bear, the production of oil in the US did peak, and I have never heard anybody say that the peak US output will ever be reached again. As for what happened in 2008, demand outran output, and OPEC was smart enough to go along with the show. Moreove, when the price of oil collapsed, OPEC had a meeting or two in Vienna and the price escalated up again. How many times do I have to tell people that before they give up their fantasies and get the message.
Interesting...very interesting. Some time ago I put on my 'leading academic energy economist in the world hat' and published an article on SA in which I said that all this talk about 'game changers' was a crock. That didn't go over too well with some of the folks in the cheap seats, as well as certain parasites and charlatans in academica, and so I concentrated on trying to show that the contention that the US has a gas supply of 100 years was dumber than stupid.

What those folks did not understand was that while they may be burning gas in the US in 100 years, the availability of this resource will definitely be unimpessive. Incidentally, the relevant mathematics for discussing this issue involves a logistic curve.

What's going on here? What is going on is that teachers of energy economics have failed their students, because they haven't told those ladies and gentlemen that their fantasies about gas, oil, and nuclear often lacks a modicum of scientific or economic logic. Where wind and solar are concerned it's worse.
Seven or eight months ago Angela Merkel said that Germany needed more nuclear power. Then one of her stooges or somebody else told her that she needed some anti-nuc votes to win the next election, and so she came to the conclusion that Germany's nuclear sector can be dumped.
The calculation here is interesting. Merkel and her stooges have as much desire to promote a nuclear retreat as they do to have sex change operations, but if lies and economic nonsense are necessary to stay in office, then so be it.. . However instead of expanding solar and wind - which they say they will do, but which is worse than nonsense for Germany - electric power will be bought from surrounding countries, the nuclear retreat will be made more slowly, and the gas pipeline under the Baltic Sea (Nordstream) will be operated at full capacity, etc. That should buy Frau Merkel and her stooges at least another term in Berlin.
Of course the proposed German nuclear retreat is small beer as compared to George W. Bush's lie about weapons of mass destruction in Iraq, but it goes to show what Merkel and her stooges will stoop to in order to keep the TV cameras turned in their direction. After all, they noticed what happened to Sarkozy in France.
Gee, what a disappointment. Nobody likes my above comment. It received the same grade as the Dean of Engineering gave me at IIT after my first year at his institution of higher learning. But these days I provide similar comments all the time at conferences and seminars, and if folks find them repulsive, my lecturing style has a way of telling them that they should keep their mouths shut.
What many of the friends and neighbors want to believe is that shale gas and oil, and oil and gas located somewhere around the center of the earth, will save their energy bacon. 'It never hat-chee GI', as certain young people outside the gates of my regiment in Japan liked to say.
I have a suggestion for you-all. Look at the work of Professor James Hamilton of the University of California, San Diego. Argue this business with him, because he probably has more patience than Yours Truly.
Interesting and perhaps important article, as well as some of the comments. And Mr Brown, don't pay any attention to - or worry about - the (insinuated) suggestion of Mr HayekvonFriedman that you should abandon subjective analyses for so-called "dynamic" models. There is already enough junk science in circulation in the faculties of economics, and this topic may be too important to justify more.
I really like the comment by John Eickholt because it deserves some thought by Yours Truly. One part of it however I didn't like, and that was the bit about Wall Street traders playing games with the oil market in 2008.
At the time in 2008 when the oil price looked as if it would move off the Richter scale, I was presenting a song and dance at the Ecole Normale Superieure in Paris. THE OIL PRICE AT THAT TIME WAS EXPLAINED BY THE DEMAND FOR PHYSICAL OIL OUTRUNNING THE SUPPLY OF PHYSICAL OIL. I had been watching the oil price since that time in 1999 when it was about $10/b, and all sorts of so-called oil experts were swearing that it would be going lower. Please let me explain to you what happened: THE OPEC PEOPLE LOOKED AT THAT $10/b, and it told them that they were fools for PLAYING GAMES WITH EACH OTHER, AND IT WAS TIME TO GET DOWN TO BUSINESS!
If Wall Streeters made any money in the ensuing years, they also understood that, and made the right bets, just as I would have if I had possessed any spare cash, and had stayed out of those restaurants and jazz clubs in Paris.
But, what happened during that wonderful summer when I was enjoying Paris was not the thing that showed the power of OPEC. What showed their power was what happened when the oil price turned down and looked as if it would go into the can. OPEC had a meeting or two in gorgeous Vienna, and despite the macroeconomic meltdown that was underway, got the oil price moving up again.
Is there any reason that people cant understand that? Well yes. It's because it is so simple.
Imagine that, but two things I tell my friends and neighbors here in Sweden is that I am the leading academic energy economist in the world, and OPEC - with a modicum of assistance from BIG OIL - determines the oil price. That's what it is, that is what it has been since early in this lovely century, and that is definitely what it is going to be.
In my new energy economics textbook ENERGY AND ECONOMIC THEORY - which should be available soon according to my publishers - I cite some findings of MIchael Fitzsimmons, and they together with my own glorious research make it clear that many persons in the US are going to be very disappointed if they really and truly believe that enough oil is going to be produced in North America to change the present situation.
One thing I especially liked in this contribution was the reference to Energy Secretary Chu. That gentleman is not agnostic - he is just incompetent.
Excellent article, and some excellent and important comments. Of course, a short observation might be useful. The statistics do NOT indicate that wind and solar are going anywhere at the present time, unfortunately, and SPECULATION IS AT BEST OF MINOR IMPORTANCE IN THE OIL MARKET! The problem with the latter is that e.g. the mechanics of the futures market is not taught as well as it should be taught, given how easily it can be understood by anyone who wants to understand it.
Well, I have just finished some important research, and so this might be an opportunity for the leading academic energy economist in the world - ME - to say a few words about oil.
As Donald Trump and others point out, OPEC has a lot to say about the oil price. As I point out whenever I get the opportunity, OPEC collected about a trillion dollars for their oil exportsl last year, and as far as I can tell they might agree to accept the same amount this year. The average price of oil at the present time (WTI and Brent) is about a hundred dollars, and looking at the structure of the oil market, that should give them what they want.
But they might take less, though not a lot less. Once I had considerable contact with OPEC, and they seemed to like me because I understood that where oil was concerned, they were as smart as their customers, and a lot smarter than the academic charlatans who misunderstood them so grandly. Put another way, they comprehend that they have nothing to gain by raising the average oil price another ten or twenty dollars a barrel, given the condition of the global macroeconomy. At the same time the evidence from 2009 shows that even if the global econom goes into the can once more, our OPEC friends are capable of protecting their interests
I can recall a time when OPEC suggested that suppliers and consumers of oil should attempt to work together. That's not a bad idea, although the mechanics of such an arrangement is largely unknown to my good self at the present time, and I am not particularly interested. I might suggest however that the realities of the global oil market should be studied a little more thoroughly by our political masters and their experts, because there is NOT as much 'easy' oil in the crust of the earth as certain know-nothings believe.
Many thoughts/ideas here, and most of them are for the birds. I dont know the purpose of this article, but as with the work of Mr Yergin and his half-baked colleagues at CERA, it might be to tell friends and neighbors what they want to hear most, which is that China will soon be on the skids. I side with the groovy yblarrr: the Chinese know how to play the energy markets.
Excellent discussion, and for those who feel that they don't need "voluminous dissertations", let me insist once again that the state of knowledge concerning oil (and natural gas) is nothing short of pathetic, thanks largely to the charlatans who garner such a large amount of attention.
I was especially glad to see the expression "the end of easy oil". in this article, since some self-appointed experts still haven't gotten the message where that issue is concerned. I'm not in the mood to discuss that today, but try to remember the following. Regardless of the "vast quantities of oil and Nat Gas" supposedly being discovered, if the global economy does not go deeper into the can, OPEC is making plans to collect a trillion dollars for its oil this year. I'll go into what that means in terms of the oil price when ( or if) I start teaching energy economics next week.
Yes, it is actually true that I am the leading academic energy economist in the world, and a brilliant teacher of energy economics. What I can't understand however, as hard as I try, is why people who want to know important things about energy economics - readers of important newspapers and journals as well as some students - put so much faith in the parasites and charlatans who sell them nonsense about serious energy matters.
Take a good look at the future, please. Don't you know that the demand for energy resources later in this century is going to be enormous, and if the right decisions are not made, they are going to cut our civilization off at the knees. I remember how amazed I was 30 or 40 years ago when the director of ASEA - which is now unfortunately ASEA- Brown Boveri - said that we can do anything if we get enough energy. That was my line, wasn't it, and there was a corporation big-wig mouthing it. Well, he was correct, and we got the energy we needed, and we did a lot in the past 30 or 40 years, thank you. But as for the future...just try to make something out of wind and solar and other green things that they cant deliver, and see how things will be in the 30 or 40 years to come for you and your children.
Earlier today I was a lunch guest of a _______ researcher, and I explained to him in detail that the energy economics researchers in this country - Sweden - are for the most part parasites and charlatans, and as a result they find it politic to produce and accept all sorts of unscientific nonsense about energy issues.
But at the same time it should be understood that at the present time the engineers and managers in Sweden are in no mood to accept the ignorant energy ventures proposed by various high-ranking politicians and half-baked journalists. They know, as I know, that the anti-nuclear crusade proposed by Angela Merkel in Germany is preposterous, and its purpose is to garner enough environmentalist votes to give Frau Merkel another term in the German parliament. They also understand that in the promised land of wind energy, Denmark, only their access to coal and electricity imports keep the lights burning in wonderful Copenhagen.
This does not mean however that all enterprises associated with renewables should be dumped. In this country some wind and some solar make economic sense as long as nuclear enjoys its present eminence (supplying in Sweden about 45% of capacity and more than 50% of electric energy). The same thing is probably true in many other countries, to include the United States.
This interesting (and perhaps important) paper requires serious study by Yours Truly before the start of the next school year, and if the weather had not turned reasonable in this country (Sweden) I would start tomorrow. I would start because I am NOT convinced that you are completely correct about coal. And by the way, I hope that you are not one of those people who - on the basis of existing evidence - believes that there is a 100 year future for natural gas at today's gas output.
This is an important article. I must have been drunk or sleeping when it first appeared. I'll bring it to the attention of my students.