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Kaboom: Peak copper, superspike prices, oil and US debt

Jerome a Paris, Daily Kos
This chart, representing oil prices, you’re probably familiar with by now…

This one, for gold, you’ve probably heard about…

But how about aluminium? … and copper? …

See a pattern? Prices going inexorably up and up? What’s up with that?

…Let’s summarise:

  • strong underlying demand growth from a buoyant world economy (expressed, in this case, in decreasing stocks rather than increased apparent demand);

  • producers unwilling or unable to produce more, and faced with increasing production costs;
  • short term disruptions like weather events or strikes that cause major price volatility;
  • financial investors reinforcing the trends in the expectation of more to come.

Sounds familiar? It is. The above 4 points are absolutely true for oil, and it seems that the same dynamics are at play.

The interesting thing to note, once again, is the difficulty for supply to go up. There are objective factors (energy prices, the slow internalisation of environmental costs, and the depletino of the best reserves), and there are the “political” factors (a reluctance to increase production, as it could bring prices down and make the additional investments unprofitable).

What we see confirmed, once again, is the deadly combination of increasing demand and the inexorable increase in the marginal cost of the resources, leading to massive price increases. The era of cheap commodities seems to be truly over.
(7 April 2006)
UPDATE. Related story from Schlumberger: OPEC Warns High Commodity Prices May Kill Oil Projects

PARIS – Soaring commodity and raw material prices are increasing the cost of oil and gas projects by up to three times, Organization of Petroleum Exporting Countries ministers said Friday.


Peak oil passnotes: oil prepares to push on

Edward Tapamor, Resource Investor
PARIS — If you are attached to the oil markets it is a great time to be plugged in. Very little is really making sense, after all if we really factored in Iran’s nukes, American strikes, Israeli strikes, French riots, Nigerian mayhem, Alaskan pipelines, Iraqi collapse, Repsol downgrades and Hugo Chavez we would already be at $100 and ready for more.

Instead the oil market is like a hungry child in a sweet shop. It can’t sit still and it is permanently distracted by something more amazing than the last thing it was sucking. The Europeans are sucking up Brent crude of that there is no mistake. The normal gap between Brent and the WTI has evaporated as European natural gas prices, currently around 99 pence per therm for 2007, have forced a switch back to oil for some power generators. That is the same as $110 oil. Plus Europe’s refiners are back on stream and champing for product

…Total world spare capacity is, and has been, the underlying driver behind the market over the past few years, coupled with demand. Estimates now put the capacity cushion of the planet Earth at 1.7 million barrels, 1.5 million of which sits with OPEC, most of which is so heavy no one really wants it. The world awaits the end of the refinery bottleneck, so that more complex refineries can actually process the stuff. That is at least five and more like ten years away.
(7 April 2006)

No problemo? Rochester and the decline of cheap oil

Clarke Conde, Rochester City News
When James Howard Kunstler’s first book, “The Geography of Nowhere,” came out in 1994, talk about running out of oil was akin to talk about that fake moon landing. Crackpots, oil executives, and every undergraduate geology student in the county knew we were approaching the peak of worldwide oil production, but most people had better things to worry about. Most still do.

James Howard Kunstler: “We won’t run the interstate highway system on bio diesel or second-hand French-fry potato oil. That’s wishful thinking.”
Clarke Condé

Almost immediately after his book was published, Kunstler become the go-to guy for biting criticism of America’s built environment. His four non-fiction books and popular blog (The Clusterfuck Nation Chronicle) have focused on the unsustainable aspects of our culture. Like a revival preacher, he has railed against what he sees as our asinine insistence on constructing car-dependent sprawl and our blindness toward our impending energy problems. His message is to repent while there is still time.

Extreme, maybe. Wrong, maybe not.
(5 April 2006, thanks to Leanan)

A peek past peak oil

Hadi Dowlatabadi, Univ. of British Columnbia Reports
The world’s production of oil has peaked and is on its way down, meanwhile the awakening of new economies like China and India has deepened the thirst for the stuff. This is popularly referred to as the Peak Oil crisis.

Many have interpreted this as the death knell to fossil fuels and the dawn of a new era of energy conservation and alternative energy. Unfortunately, those who have pinned their hopes for such changes on high oil prices will be disappointed to learn that we are simply at another energy crossroads. Beyond conservation and renewable resources, there are plenty of fossil fuels yet to exploit. And the nuclear industry, in phoenix-like resurrection from the glowing ashes of Chernobyl, is also in the running as our savior.

…Renewable alternatives such as bio-diesel and ethanol are being ramped up rapidly, but at most can contribute 20 per cent of our liquid fuel needs before 2020. The “smart money” is on infrastructure to convert coal and tar sands into liquid fuels. These options will have the upper hand because their fuel is most compatible with our existing infrastructure. This rush to fill the shortfall will lead to over-capacity. There will be a glut in the liquid fuels market, and the price of “oil and its equivalents” will not rise beyond $100 per barrel as predicted, but fall towards the marginal cost of production from tar sands and coal at between 20 to 40 dollars per barrel. This will not be conducive to energy conservation in the long run. And while we can be chastised for being profligate, we cannot deny the rest of the world the needs that only greater energy consumption can fulfill.

There is a silver lining to this seemingly gloomy tale. As recently as five years ago, the spectre of oil at $60 per barrel would send politicians scurrying. Environmentalists urging for pollution controls and carbon mitigation to prevent further climate change were dismissed for their unacceptable cost. Since we have now lived through oil at these high prices without economic and social crises, the environmentalists can now remind politicians that their fears were groundless and that we as a society can afford to meet our seemingly unquenchable thirst for energy while dramatically reducing its harmful effects on the environment.

Hadi Dowlatabadi is Professor, Canada Research Chair in Applied Mathematics and Global Change, Institute for Resources, Environment & Sustainability
(6 April 2006, thanks to RM)