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Impact of Credit Crisis on the Energy Industry – Where Are We Now?

Gail Tverberg, The Oil Drum
I recently looked through news articles to see which energy sectors were being affected by the credit crisis. I was amazed at how widespread and how devastating the impact is.

There are really two closely related problems. One is reduced access to credit, making new borrowing difficult for nearly every business that requires debt. Prices for all commodities have been dropping as well. At least part of the reason for this price decline is the lack of availability of credit—many of the less credit-worth buyers drop out of the market. This leaves fewer buyers and almost the same number of sellers, so the price drops.

In this post, I examine how reduced access to credit and the concomitant decline in commodity prices is affecting energy companies. The impact I am seeing across a wide range of energy companies is a decline in new investment and a stretched-out timeframe for new projects. In addition, many of the weaker companies in the energy supply chain are likely to be forced out of business by the credit crisis.

When energy production is viewed for all companies combined, the below analysis suggests the credit crisis will cause the production of virtually all fuels to be in decline, relative to what they otherwise would have been. I expect production of oil will decline (in absolute terms, not just relative terms) in the years ahead. Since oil production was already on a plateau, this decline is expected to bring about “peak oil”. Because of long lead times, uranium production seems likely to fall short of what is needed by nuclear power plants, within the next few years.

The long-term implications of declines in energy production are very serious. Research shows that standards of living are closely tied to energy consumption. With less energy available, standards of living are likely to decline.
(30 November 2008)

How Our Ecomomy Went Kaput on the $100 Barrel

Marquis Hunt, Juuble
If you noticed, the Dow Jones Industrial Average is very crazy these days. Even crazier, this frenzy is simultaneous with the news that consumer confidence in the United States has reached new lows.

Some are betting that the worst is over, some believe hard times will continue beyond the next president. But is there anyone out there really able to analyze and bring solutions to this market crisis? Even Alan Greenspan (Wiki) has discovered a flaw in his ideology. If one of the great economist of our time is baffled by this financial turmoil, then where would we find credibility for answers to our current problems?

How did this happen? Was it that the housing market’s lack of regulatory measures gave freedom to rampant loaning and mortgage swapping? Was it that housing values reached a peak, and the price dive took the entire country down with it? Was it due to inflation, and the faltering US currency?

Many of the analyst overlooked the root the cause: The $100 barrel of oil was the slow poisoning of the world economy. When it hit the $100 mark, there was great relief that the markets were stable. What was neglected was that a market continuing to function under business models designed for cheaper resources was doomed to hit recession. The longer we stayed at expensive oil prices, the faster the turmoil was going to hit.

The $100 barrel is like a punch in the face. If you get punched, it hurts like heck, but you will survive. But the barrel punches you every day it exists. After a while, you have trouble surviving getting hit, and sooner or later, you will lapse. Analogous to the financial markets, there were punches hitting people’s wallets, mortgage payments, stock portfolios, retirement funds, grocery bills, property taxes, electricity, luxury goods etc.
(29 October 2008)
Submitted by the author. “A former student at the University of Massachusetts Amherst, Marquis Hunt had organized a local peak oil advocacy group, and had also created a small think tank called the Sustainable Focus Organization.”

I don’t understand what Hunt means by a rise of “3,000,000 points” in the Dow Jones average. The article he cites by Mark Hulbert talks of a 889-point jump. Maybe “3,000,000 points” is just a way of saying “a lot” ?

UPDATE (Dec 2)
Marquis wrote that he had revised his text so it is clearer. I replaced our excerpt with his revised version.


Seattle’s recycling program runs into plunging prices

Bill Richards, Crosscut
When world prices for metals and paper were riding high, Seattle had a little gold mine shipping out its recyclables. Then the prices sank by as much as 75 percent. Gold mine became a black hole.

Back at the end of the summer, Seattle’s recyclers were riding high. Commodity prices for copper, tin, aluminum, and steel, even paper, were scraping the ceiling, driven by what seemed like an insatiable hunger from China and the rest of the Pacific Rim. Every commodity-laden container ship headed west across the Pacific meant bigger profits for Seattle Public Utilities (SPU), which manages the city’s recycling program.
(26 November 2008)