Gregor Macdonald

Commodities, energy, alternative energy
Gregor Macdonald
Commodities, energy, alternative energy
Contributor since: 2009
Thanks for all the comments. I've brought in two colleagues to go over all the data from BP. We've found enough to merit a new post soon. Bottom line is that BP is doing some very odd things, switching between Barrels and Mtoe (million tonnes oil equivalent). The gap is not as neat and tidy as some in this thread assume. The bottom line is that in 2010, the gap was real. Though, perhaps not as large as first reported. And certainly not merely because of categories like biofuels. Best, G
Thanks. The subject of my presentation to ASPO in Washington DC last year, was just this very issue. The transition back to coal. You might want to peruse or search gregor.us for my ongoing work in this area. I do have a forecast of the transition, but alas it's not in 2011. Important subject for sure.
Best,
G
Yes, I could have been more clear that the two figures cannot match. IEA is reporting on OECD. BP is reporting on total global. My intent was to show direction, using the best freely available graphic I could find. More here: gregor.us/fossil-fuels...
One of the most common analytical errors I see in my own work, which concentrates on the global oil market, is that people generally do not understand how the dynamics of very large systems work. All your points about NYC real estate are valid--but--what you don't seem to understand is that the system is much larger than all that. Given the massive, broad, structural condition of this market, your points are simply not enough to move it opposite to the facts which Keith outlines in his piece.
Look at it this way: look how well the NYC RE market is still holding together despite the structural forces placing pressure down upon it. What that should tell you is that it's hard to turn these systems in a hard way, in either direction. The problem is that the array of structural pressures on this market are all pointing down. Even if your points started to emerge, there would be several years of flat and chop in this market. At the very least, certainly you can see no upturn is coming.
And so you have to ask yourself: is the risk greater that NYC RE turns up, or turns down again? Answer seems pretty obvious from a probabilistic viewpoint.
G
Love the data, Keith. And love the very well organized article. I've been watching the US housing market for a decade. My specialty area is energy, however, and the two are of course inextricably linked. I wrote as much (again) just recently in "Housing in North America: Peak Oil’s Primary Victim."
gregor.us/economics/ho.../
In short, the excess capital which allowed for the salaries and gains over the past 50 years, which supported US housing prices, is going away. Watch how each new leg down will fool mainstream observers into thinking that lower prices equals higher affordability. This is the mistake Carl Case (of Case-Shiller) made last summer in his call for a housing bottom. There will be housing bottom calls for years, and years to come.
Best,
G
Thanks for all the comments. I think I am obligated to acknowledge, additionally, that the relentless downward trajectory of housing prices is incredibly painful for the country and for many people. As such, essays like mine will often draw a vehement, critical response. However, as a wise man once told me, that which you know may hurt you but that which you don't know may ruin you. I think that it's best we face up, therefore, to the fact that there will be no recovery in US housing to the previous price level. Once we get through it, however, towards the end of this decade, then housing will once again regain its utility value as a place to shelter, run a small business, store capital, and grow a garden. If you ponder this, for a while, it's not a sad prospect but in fact its a happy one.
There are already cities, like Portland OR, Totnes, UK, various places in France, and Canada, and elsewhere in the US where buying a house in the next 24 months will give the owner enough utility value to offset any further declines. Temperate climes and/or fertile soils and also an aware local populace will be very good things to optimize for. That's what I intend to do.
Best,
G
Good comments. Thankyou. FWIW: many of us who blog and get republished on S.A. do not see these comment streams as we are tending to things at the original site. Wish I could reply more over here, but there is only just so much time. In general it's best to find me at gregor.us
Meanwhile, for another excellent post on this subject, see Dave Cohen's piece from last week: www.declineoftheempire...
Best,
G
A large object growing at 7% a year will not be caught by a tiny object growing at triple those rates. Not for a long time, at least. Even if don't dispute your numbers--your numbers make my case.
I assume you are aware of growth rates for coal consumption in the developing world? I'm merely telling it how it is--not addressing how I wish it would be. I very much wish to see the same displacement of coal by other sources that you wish to see. But 2020 is a long way away.
G
Poor people use coal. The world is getting poorer. Oil has peaked. Thus, the future is obvious: a return to coal as the world's primary energy source, with tiny, marginal additions from hydro, solar, wind, and nuclear around the edges.
I know. It's grim.
French use of nuclear cannot be scaled up or used as an example for what the whole world can do. In other words, France is now a nuclear outlier, and will remain so.
The data presented here is for total consumption, globally. There is no breakdown by mode or sector.
I'm not aware of any previously expressed enthusiasm for NG. My position is neutral: I am skeptical of claims that Shale NG is a crappy resource that offers little prospect for new supply. And, I am skeptical that we can transfer large demand loads from, say, oil based transport to NG. In other words, I don't accept the high or the low case for shale NG. I simply agree that it's there, it's available, and it's part of how the US is about to have the highest NG production in 2010 since 1974. Not quite, but very close, to an all time high.
HTH.
G
Instruction Manual for How to Be Very, Very Wrong When Projecting Adoption of EV's:
1. Project fleet turnover timelines using the period prior to peak oil.
2. Project EV adoption rates at the same turnover rates of ICE vehicles (again, using the period before peak oil).
Hope this helps!
Gregor
Is it your view that we make discretionary energy-use choices? My view is that history is quite clear on this matter. We do not make discretionary energy use choices. We choose from what's available, and most importantly we choose the source with the highest energy density. You think we would exercise discretion to move away from super high energy-density oil, were it not becoming more expensive in real terms (because of peak oil?). There is simply no precedent for discretionary rejection of a cheap energy source. But go on. Do explain.
Gregor
"To suggest we are going to go back to a coal age."
Could you please explain why that is a ludicrous assertion?
I define a return to a coal age as a return to a time when coal is the number one supplier of energy to the world. Could you address my assertion, on that level?
Question: I assume you are aware of several hundred years of energy use data, including the last 60 years, and the last 20 years. So you might reference this in your response. Thankyou.
Gregor
thecadean "1. States are not allowed to run a deficit. All of California's bond issuance only accounts for 4% of the budget."
How does your comment on California's debt structure compare with almost any pulblically available data? Answer not well. I will assume you mis-typed, mis-spoke, meant some other state. In short, even debt service is projected to be at 7.00% of revenue in 2011.
From Bloomberg: "Debt Payments
Debt payments are forecast to cost $6.2 billion during the 2011 fiscal year, about 7 percent of California’s revenue. The payments are the state’s second-highest obligation under the law after schools, according to the state’s bond documents.
As for your claim that "All of California's bond issuance only accounts for 4% of the budget." I refer you to Treasurer's Lockyear statement, in which he confirms that total GO debt is zooming towards 100% of the budget: Again, from Bloomberg.
"California’s credit default swaps, insurance contracts that are generally used to protect against default, have risen 97 percent since late October to $314,000 to protect an investment in $10 million of bonds. The state has $73 billion of general obligation debt outstanding, according to Treasurer Bill Lockyer, who has repeatedly dismissed any suggestion the state may not make required payments."
In my opinion, given the total collapse of revenues and total collapse of the budget from the peak, CA is on the road to reach the key 90% debt debt level vs revenues. IIRC the budget peaked around 115B and has since collapsed to around 80B? Revenues keep falling of course.
Hope this helps.
I could have pulled this data from anywhere. I've been watching it all year.
Bloomberg: www.bloomberg.com/apps...
I think you'll be surprised how thoroughly the built environment will be unable to respond to peak oil. Market responses to peak oil? Not sure about those. Unless you mean a permanent descent in total wealth.
Peak oil represents a huge problem to built infrastructure. It's at least a 20 trillion dollar problem that cannot be magically transformed, even from the margin.
Best,
G
This isn't the start of a new trend. This is a rather classical result of multi-month supply falls on a trailing basis, which usually gives producers the option to goose supply for a couple of months. That's pretty well defined pattern now. Lots more to say on this but that's the gist of it.
G
I don't claim that supply is falling. I refer to the fact that supply is falling. Big difference.
It should be very troubling to anyone with a handle on both macro and energy data that oil is above 80 in the midst of a depression. In 2004, when oil went above 40 for the first time that was regarded as unsustainable, and this is when the economy was pretty strong. Further to the point, during the Schumpeterian Deflationary Boom of the the late 1990's, oil was at 20 bucks or less at the lows as the global economy was cranking. Notice a pattern?
I recognize that global oil data is confusing and big to most people. That's one of the reasons I blog about the situation, and provide helpful tips, so that people can learn. Come on over sometime and see all these articles in their original form at gregor.us
Best,
G
The American house no longer offers the owner an upwardly volatile call option, on robust future wage growth. Peak oil and global wage arbitrage are a big part of the problem.
Consider this, even without the bubble--the biggest housing bubble in history--there would still be an adjustment owing to our hollowed out manufacturing economy, and poor education trends.
The US house is no longer something special. But, it remains priced like it's special. If you own anything above 350K you should be prepared that, despite your good schools and nice neighbors, there simply will not be enough economic activity in your local metro area to support the required quantity of buyers, to purchase alot of higher priced homes.
Not sure why people don't get this but a general rule is as follows: people rarely understand large systems. Their field of vision is more limited to a local view.
G
Thanks for all the comments.
There's an enormous amount of research that I have done, that sits behind this brief blog post. The annual cost to the state budget and to the state's productivity and air quality caused by the automobile-oriented transport system is gargantuan.
I very much enjoyed user 353732's social stratification comments.
seekingalpha.com/artic...
Indeed, I think it's fair to say that the wealthy elite of CA control alot of the real estate through which rail would run, and, they love to promote green and climate slogans but neither want to have their own cars dislocated, nor think very much about doing the same for the State. In short, they like policies that green-up the power grid as it will affect their lifestyle "less". Or so they perceive. I suspect this is why the Sierra Club is much happier to address emissions of buildings, than California's 33 million vehicles (all vehicles). The Sierra Club does not want to irritate the elite.
I remain amused the whole EV solution idea. CA is already importing more of its electricity than any other state (as a % of the whole) and it has to use a huge amount of that simply for Water Conveyance and Treatment.
But look what happens when you try to build a Utility Grade Solar plant in a CA desert. Uhhm, that's not a "Republican" senator that stands in opposition to that.
Thanks for all the great comments!
G
Thanks so much for all the comments. I have read each one carefully now, and especially appreciate those of you who have augmented, tweaked, and countered some of my views.
I've taken a few shots this year on my blog, describing how the US got itself to such an awful place. People might want to read my March 24 post The Seigniorage Curse
gregor.us/oil/the-seig.../
Best,
Gregor
<i>MacDonald seems to be feeding some kind of agenda-driven purpose rather than any connection with reality</i>.
Thanks Freddy. I was wondering if you could do the audience a favor: since you regard natural gas liquids as oil, you simply go on record as stating "I Freddy Hutter regard natural gas liquids as crude oil, and do so in all my analysis and data." I think this would clarify for people where you are coming from.
Best,
G
People still use hoary phrases like "Big Oil"? How quaint. How thoroughly out of date. Really, it's very charming. It's like listening to dinosaurs debating Soviet Communism vs Western Capitalism.
There is no Big Oil. The western oil companies are now midgets. They are in liquidation. They are irrelevant.
Gregor
Extremely well done. I will be mentioning this excellent piece liberally, to my pals. Keep it coming.
Gregor
We may very well come to an of end to this recession-depression, on a short cyclical basis. Possibly for a period time even up to a year. However, there are deep structural, demographic, and energy-supply issues that are totally unique to this juncture in US history that foreclose upon any sustained recovery. It's terrible, and I wish that were not the case. On a 6-12 month basis, I don't wish to argue with ECRI's work. I too see a relief period that would largely be marked by a lower dollar, a boost to agricultural and light manufacturing exports, and some inward investment. However, the twin limitations of interest rates and energy supply (oil) are waiting for us, any time we attempt to emerge from the hole. And that does not even mention the overall crushing nature of the aggregate debt. What you can have therefore is a replay of the January 2007 to July 2008 phase, where exports advance and BRIC is doing well--but US housing, autos, and the FIRE economy (the debt creation economy of finance, insurance, real estate) continues to contract. And when I use the word "contract" I'm being generous. If such a scenario played out, we would crash once again in Summer 2010, in car-crash of higher interest rates, a massacre in commercial real estate, and higher oil prices. Not to mention a potential debacle in government debt, and, the usual policy mistakes from both the FED and the federal government--who are now making mistakes not on a large level but on a scale that is truly awesome.
It's intriguing, however, that both you and Brad have the same throwaway line in each of your posts: "the economy has done much worse than anybody thought it would."
That's just not true, and, understandably neither you nor Brad spend anytime pursuing any quantification of the assertion. It's a kind of hanging chad of logic in both of your essays, that appears unimportant at first, but, actually weakens both pieces quite alot.
Thanks for all the responses. I'll make two remarks.
Readers of SA have to realize that these posts are republished from the author's original blog-and--that SA often changes the title. In this light, I can understand why so many comments here understand this post of mine as expressing a support for the thesis of climate change. Actually, that's not the case. I express no view whatsoever. I only refer to it.
Also, I reject traditional measurements of poverty which have tended to measure wealth in US Dollar terms. I am not alone in this criticism. It's hardly radical or even novel to question measures of poverty in USD terms.
Thanks to all.
Thankyou for all the remarks. I am quite surprised the assertion of collapse in this article, and in other related articles on my blog, was not rejected more forcefully. In over 125 comments, hardly anyone tried to make the case that the current economic dilemma was similar to other post-war recessions. That's a surprise.
Thanks for all the responses. I'll make two remarks.
Readers of SA have to realize that these posts are republished from the author's original blog-and--that SA often changes the title. In this light, I can understand why so many comments here understand this post of mine as expressing a support for the thesis of climate change. Actually, that's not the case. I express no view whatsoever. I only refer to it.
Also, I reject traditional measurements of poverty which have tended to measure wealth in US Dollar terms. I am not alone in this criticism. It's hardly radical or even novel to question measures of poverty in USD terms.
Thanks to all.
For those reading this thread, I would advise a review of Jevon's Paradox. Regards, G
It's a little surprising to learn, over this several month period that I have had my posts syndicated here at S.A., that most commenters seem unaware that...
1. Most posts on SA come from an original blog.
2. SA changes the title of most of these posts.
If you want to know what the Author really meant, I would suggest readers also check the original blog.
Best,
Gregor
gregor.us