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Peak Oil

Energy tsunami on the way
Peak Oil for real estate professionals

Jim Gillespie Ph.D., Realty Times
Of the approximately 300 articles I’ve written on the subject of real estate, this one could be the most important one.

If you’ve never heard the term “Peak Oil” before you’re definitely not alone. I estimate that less then one in twenty people in North America have ever heard of this term before, and know of its implications.

[Gillespie next gives a good summary of Peak Oil, drawing on Matt Simmons but also including a favorable reference to “From The Wilderness”!]

…here are my thoughts on what this could mean to all of us who are in real estate:

1. The values of homes and residential rental properties in and closer to major cities will probably do better in the long run versus those located farther away in the suburbs. Especially when compared with those suburbs that have a high percentage of their population who commute a great distance to major cities for their jobs. This is because the cost of commuting could become so expensive that people will do whatever it takes to live closer to the city rather than spend so much money on gas and sit in traffic.

2. Office buildings will experience a major increase in heating and air conditioning costs, especially those located in areas with severe winters or very hot summers. Landlords of these buildings could experience a substantial loss in their profits if their leases don’t call for their tenants to pay for any increases in heating and air conditioning expenses. And conversely tenants who will be paying for these increased expenses themselves will find this solidly biting into their own profits.

3. Commercial and industrial properties closer to the major cities will do much better than those in the suburbs. With more people living closer to the major cities, commercial space in these areas will command even more of a premium in the future when compared with commercial space in the suburbs.

4. There will be a need for a much greater amount of housing near the central business districts of major cities. People will want to live closer to where they work and they’ll also want to be within walking distance to both shopping and entertainment. This will create a demand for revitalizing central business districts and creating a more neighborhood-friendly environment with shopping, entertainment, and restaurants all nearby.

5. Industrial businesses will transition away from shipping and receiving their goods by truck and towards shipping and receiving them by rail which will be more economical for them. And as a result we’ll see a surge in demand for rail-served manufacturing and warehouse buildings, and those buildings without rail will sit vacant for longer periods of time and command less rent when they’re finally leased.

So while in recent years owning a rail-served building may not have meant much to your prospective tenants, you may very well have a functionally obsolete building on your hands years down the road no matter what kind of condition it’s in and how high the ceilings are if your prospective tenants can’t ship by rail.

6. Manufacturing businesses that already have substantial energy costs right now will be hit very hard with the coming increases in these costs and will find it increasingly difficult to remain profitable. In addition, I’m hearing from agents all over the country that their markets are cooling down now and listings aren’t moving as fast as they were months ago. In looking over the past 25 years in our industry, through three economic up cycles and two down ones, this is exactly the way the down cycles have begun in the past….
(9 October 2005)

Oil Depletion? It’s All In The Assumptions — Part 1

Ronald R. Cooke, Cultural Economist via Energy Pulse
In good news for the SUV set, Daniel Yergin’s Cambridge Energy Research Associates (CERA), is predicting we will soon be awash in light, sweet crude – ideal for making gasoline…

CERA doesn’t believe in peak oil, at least not before 2010, and probably not before 2020. The report indicates that the “inflexion” point will come between 2030 and 2040. Moreover, rather than a “peak,” it will be an “undulating plateau” that will continue for several decades. OPEC, the company claims, will be able to add 8.8 Mbl/day by 2010 and can continue its expansion – at a somewhat slower rate – beyond 2010. Non-OPEC production will experience a robust increase through 2010, and then slow significantly thereafter. Unconventional oil production will increase throughout this period, supplying almost 35 percent of the world’s oil by 2020.

Then Yergin adds a sobering caveat: “The main risks to our Supply Expansion scenario are above ground, not below ground – changes in the political and operating climate that could delay expansion.” In CERA’s downside “Delay and Disruption” scenario, capacity increases by only 11.5 million barrels between 2004 and 2010.


What is the implication? Will delayed projects and disruptions in the supply chain lead to temporary shortages before “Peak Oil” hits us? Perhaps we should review CERA’s implied assumptions. They are, after all, the basis of CERA’s optimistic conclusions. …Will they hold up under careful examination?

Assumption # 1. Peace in Iraq…
Assumption # 2. Political and labor stability…
Assumption # 3. Islamist terrorist activity will not disrupt the supply chain….
Assumption # 4. The proven reserves claimed by OPEC actually exist….
Assumption # 5. There will not be a substantial increase in reserve depletion rates…
Assumption # 6. All proven and potential reserves will be produced on schedule…

Assumption # 18. Higher prices will encourage the production of more oil.
(11 October 2005)
Ianqui at The Oil Drum has some comments.

A greener world – a possible dream
EV World editor’s keynote address to opening of 2005 Kansas City Solar Home Tour

Bill Moore, EV World
Thank you for extending me the opportunity of addressing this group. It’s been a long time since I stood before an audience and shared my views on any topic and back then it was as a very young church pastor talking to his small congregation about a coming better world.

Ironically, I stand here again to talk about a better world, but not a millennial one ushered in by a triumphant Savior and his resurrected saints — though that’s a vision I know many of us cherish and pray for — but one built by a world that has finally matured out of its millennial-long adolescence. It is a world that I often refer to in the opening introduction to my interviews on EV World as being one where “communities aren’t just smart, they’re intelligent and sensible”. I ask my readers and listeners to imagine a world “where all cars are green, bicycles rule and public transit is fast, frequent and fun. It’s world where mobility is sustainable and accessible to everyone, where energy is clean and abundant, renewable and affordable”.

So you see, thought it’s been over twenty five years since I preached my last sermon, there’s still a little of the evangelist left in me. Back then, I had been wrestling for several years with my personal dichotomy between preparing people’s hearts for an earthly millennium, as we understood the scriptures, and preparing our minds and our hands. Eventually, I decided I wanted to get my hands dirty, if you will, and get down into the grit and grim of this world to try to make it a better place. Eventually, I started EV World and began my secular EV-angelism, using the vehicle (if you’ll pardon the pun) of electric cars to address the larger issues facing our civilization.

While for some, it might seem a long and tenuous step between preaching the Gospels and writing about hybrids, and fuel cells and peak oil, in reality, there is much that unites them, philosophically.

…And in that decline [of fossil fuels], we are faced with two choices. One is a cleaner, safer, more just and equitable world founded on a transformational shift in cultural values and technologies in harmony with the cycles of nature. The other is a world that descends into the darkest period in human history; one — dare I say it? — of apocalyptic proportions where people and cultures and nations fight for the last drops of oil before the lamps go out. The first choice rides on the wings of a redefined personal values, while the second exploits cultural biases and human fears.
(2 October 2005)

Peak Oil goes mainstream in Sweden!

Starvid, peakoil-dot-com
Professor Kjell Aleklett has gotten a full page in Sweden’s second paper. And he spells it all out. He also was in the main Swedish morning radio show yesterday.

The link to the article is the confrontational OPEC lies.

The article is long so I won’t translate it fully, I’ll just recapitulate the main parts here.

They talk about peaking, about Hubbert, Campbell, the controversy within the industry, Chevron’s campaign “Will you join us?”, Matthew Simmons and his book, about Ghawar and Saudi Arabia’s refusal of third part audit. It even has small oil field production graphs that together form the global peak. It is an excellent article.
(10 October 2005)
From the Swedish newspaper:

Han utmanar oljeindustrin

OSLO En svensk fysikprofessor har hamnat i centrum av en debatt som i allt högre grad splittrar ekonomer, analytiker och geologer inom oljeindustrin. Kjell Aleklett leder ASPO, en grupp forskare som varnar för att världens oljeproduktion håller på att nå sin topp.

Länge fördes debatten om “Peak Oil”, som den kallas på engelska, på ojämna villkor. En mycket liten grupp oljepessimister – eller realister, som de föredrar att kalla sig själva – har stått emot ett kompakt oljeetablissemang. Att hävda att såväl den internationella energibyrån IEA som Opec, det amerikanska energidepartementet och de största oljeföretagen, förutom flera av världens ledande oljeanalytiker alla ger en felaktig bild av världens oljereserver kan verka förmätet. Men det är just det Kjell Aleklett och hans vapendragare gör.

Kurt Vonnegut interview
NOW with David Brancaccio, PBS
KURT VONNEGUT:…I think we ought to stop reproducing. But since we’re not going to do that, I think the planet’s immune system is trying to get rid of us.

DAVID BRANCACCIO: The planet is sort of trying to shed us as if we are some sort of toxin.

KURT VONNEGUT: Look, I’ll tell you. It’s one thing that no cabinet had ever had, is a Secretary Of The Future. And there are no plans at all for my grandchildren and my great grandchildren.

DAVID BRANCACCIO: That’s a great idea. In other words a Cabinet post–

KURT VONNEGUT: Well, it’s too late! Look, the game is over! The game is over. We’ve killed the planet, the life support system. And, and it’s so damaged that there’s no recovery from that. And we’re very soon going to run out of petroleum which powered everything that’s modern razzmatazz about America. And, and it was very shallow people who imagined that we could keep this up indefinitely. But when I tell others, they say; Well, look there’s– you said hydrogen fuel. Nobody’s working on it.

DAVID BRANCACCIO: No one is working seriously on it is what you’re saying.

KURT VONNEGUT: That’s right. And, and what, our energy people, presidents of our companies, energy companies never think. All they wanna do is make a lot of money right now…(7 October 2005)
Vonnegut has a new book out, “A Man Without a Country.”

The ‘Energy Police’ Are Coming!

Melissa Kite, UK Telegraph via New Builder
‘Energy wardens’ will police homes and offices to ensure that they do not waste gas and electricity under a radical plan being considered by John Prescott. An extraordinary blueprint being studied by the Deputy Prime Minister suggests conserving energy by monitoring the habits of home owners in the same way that air raid wardens made people turn off their lights during the Blitz.

Householders will also be forced to conduct an “annual energy audit” of their homes, defending the amount of fuel they have consumed. The spectre of a force of “green police” is painted in a study warning that Britain risks catastrophe if it remains dependent on Middle East oil and urging a rapid shift to renewable energy and conservation.

The paper, entitled Britain’s Energy Future, Securing the Home Front, by the former Labour minister Stephen Twigg and the Foreign Policy Centre, compares a future energy crisis to the Second World War aerial bombardment. It says: “The stakes are as high and the solution will be found only when UK citizens and corporate entities (government included) start acting as if the stakes are that high. The mentality at community and householder level must be similar to that of the war years or Britain will have no energy future.”

The study paints a doomsday scenario of Islamic extremists controlling the world’s oil supplies. Britain must prepare for an “inevitable shock to energy supply in coming years”, it says. It cites a study by the US Brookings Institution soon after the 9/11 attacks pointing to “devastating economic problems” in a “worst-case scenario” where extremists in all Arab Muslim nations have cut production. Oil prices would more than double to $161 a barrel.

The “khaki cost” of defending the world’s oil supplies would be $150 billion a year. “Without wishing to scaremonger… rapidly decreasing our dependency on oil and gas imports is a national imperative,” the study says. It calls for a range of action at grassroots level for Britain to “secure its home front”.
(10 October 2005)