Will Oil Cost $500 a Barrel When the Climate Resets?

Climate Reset via WUWT
The graph above illustrates a "climate reset" occurring due to the solar cycle effect. The next abrupt climate reset is due to occur any moment now -- within the next several years. As depicted above, the "global temperature" is due to abruptly drop to average levels not seen in over 100 years, then to slowly return to near current levels near the middle of the current century.

With all the talk of "peak oil" and oil prices shooting up to $500 a barrel or above very soon, it is worth considering how modern societies will face decades of cooling weather when fuel prices are very high.

First of all, what are the valid points of the "peak oil argument?" Christophe de Margerie, the CEO of France's Total oil company, presents one of the most rational definitions of peak oil:

... he was saying that the world is fast approaching the maximum volume of oil it can possibly produce, which he reckons is about 95 million barrels a day; that's just 8 percentage points higher than the 88 million barrels a day the world consumes at the moment. _FP

A very valid point. The planet has only so many oil rigs, so many trained oil workers and engineers, so many points of production that can be brought into play -- at least until the dawn of artificially intelligent robotic oil exploration, discovery, and production.

Another valid point from the peak oil argument comes from Doug Casey, investor and man of the world:

Peak oil is a geological concept. It basically holds that all the low-hanging fruit has been picked. Now, philosophically, it rubs me the wrong way, in that I have total confidence that human ingenuity will find scores of ways to produce new hydrocarbon fuels – and lots of totally new energy sources in addition. Furthermore, the higher oil prices go, the more will be found – and the more it will be economized. So, in a free-market world, oil is a non-problem.

But we don’t currently live in that kind of world. In the meantime – let’s say the next 10-20 years – oil is an issue, for simple geological reasons. And also because, even though consumption has been basically flat in the advanced world for decades, consumption is going to grow radically in “Chindia” and the rest of the developing world. The biggest problem though is likely political, especially because of the increased political risk in the Middle East, where most of the world’s oil reserves are. You’ve got to be bullish on oil. _HoweStreet

Casey is saying two things about peak oil: 1. The sweet, light crude is becoming more rare and more dear. 2. Free market responses which would make it easy to substitute and adjust to changing supplies, are being hampered by political forces. In other words, Political Peak Oil is in play. One other point Casey is making to support his belief that oil prices are likely to shoot up: He believes that China and India will increasingly drive world oil demand for the foreseeable future.

For those reasons, Casey believes that oil could soon shoot up to $200 or $250 a barrel. If Casey's assumption about Chindia demand are correct, his conclusion on oil price could also be correct. But....

Al Fin energy futurologists and economic forecasters do not believe that India and China are ready to drive the global economic steamroller due to the many serious internal and regional problems each nation faces. And given the serious combined problems of debt and demographic decline which the current drivers of the world economy -- The Anglosphere, Japan, and Europe -- are suffering, we are more likely to see another global economic downturn before too long. This is likely to occur well before China and India are ready to steer the machine.

What does all that mean in terms of the cost of staying warm throughout the 2010s and 2020s? It means that unless the advanced nations of the world can dump their "energy starvationist" governments and learn to use the resources which are available, some societies accustomed to reliable power and heat will find it difficult to keep the lights on.

China: "An Unsettling and Unending Vista of Emptiness?"

video via economiccollapse.net
Most of the modern worldwide commodities bubble is being driven by demand from China -- both directly and indirectly. China's GDP continues to impress the outside world's economic gurus and analysts. But "it's not the quantity of GDP that matters, it's the quality." If, after the collapse of much of China's huge export market, China's economic growth is now being built upon ghost infrastructure (to nowhere), a financial reckoning will eventually come. When that happens, what will global commodities markets do?

Source for Table

As western economies begin to crumble and even China’s cheap manufactured items become too expensive, the Asian powerhouse could be in big trouble. Maybe even more trouble than the western economies.

Fact is, its domestic market isn’t robust enough to take up the slack. Not nearly robust enough. The government overlords can only keep the factories running, people employed and inventories piling up for so long.

At some point, even the Chinese must submit to the inexorable forces of supply and demand. Factories will be shuttered. Massive layoffs will ensue. Unrest will rise among millions of Chinese factory workers (nee peasants). _EconomicCollapse

More from the Atlantic
Dramatic Slowdowns in China Coming

If your investment strategy is based upon a continuing exponential growth in demand for petroleum and other commodities, it may be time for a rethinking.

Certainly most believers in "peak oil doom" are counting on continued high global demand, to make their dreams of doom come true. For those in better tune with the global economic and demographic symphony, it is not too late to move away from the groupthink to a more justifiable position.

Further, if you are an American who is coming to see your president as a combination of Nixon's paranoia and Carter's incompetence, you may want to take a look a some "going Galt" options that many of your cohorts are eyeing.

More interesting takes on why the government -- any government -- is not a friend to your financial well-being, by Doug Casey

The US population is drowing in debt and demographic decline. The same twin disasters are beginning to take hold of many European nations, if they are not careful about who immigrates. Japan and Russia may well be beyond the point of demographic return, for their core populations.

As long as the "intelligensia" of the world can be distracted by hysteric nightmares of carbon climate catastrophe, overpopulation doom, resource scarcity doom, ecological collapse, and other figments of inadequate and undisciplined minds, attention of the masses will be diverted from the genuine disaster creep of debt and demographics.

Conversation with Casey on Russia and Demographics

Louis James, editor of International Speculator, interviews Doug Casey on the ailing Russian bear.

Doug: .....The population seems to have fallen into a terminal decline curve. It takes about 2.2 children per female to maintain a stable population, and in Russia, the birth ratio is down to something like 1.2 - 1.4. This is not just a decline; the population is actually collapsing. That's true of most of Europe, Japan and other relatively advanced countries as well, so it's not just a Russian problem, but when you add this factor to Russia's other problems – like a high death rate – the future looks considerably less bright.

L: .....It's hard to create new businesses here and most young people simply don't see many opportunities. So they put off having children… If that's the culture in Russia too, I can definitely see the problem.

Doug: I don't know how much the population collapse relates to perceived lack of opportunity, the alcoholism, a remnant culture of fear from the Soviet era, or any number of other variables, but it's a very serious problem.

L: And this isn't a problem for which one can look to history for solutions. Effective, widespread birth control is a recent innovation. And in the agrarian economies we've known for most of history, having a lot of children was a good thing; they helped on the farm.

Doug: That's right, kids were financial assets then. They were your pension plan, if you had enough that some might survive to look after you, if you were lucky enough to reach old age. In an industrial, urbanized setting, they are expensive liabilities – at least from an economic point of view. And in the modern world, the state is supposed to steal money from everyone else to take care of you in your old age. So, if people feel less economic necessity and, perhaps subtly or not so subtly, that their world is not the nice place they want to have kids in, it's hardly surprising to see birth rates falling across the developed world.

L: Hm. As you say, this doesn't apply to Russia alone. I wonder why we don't hear more about this problem?

Doug: Well, since Paul Ehrlich wrote his famous book, The Population Bomb, and perhaps farther back, since Malthus' paradigm-shifting 1798 Essay on the Principle of Population, overpopulation has been the bugaboo of intellectuals around the world.

L: Radical environmentalists have taken up the cause as well; too many people making too much trash. We're going to bury the rain forests in Styrofoam cups – if we don't chop them down first to make toilet paper.

Doug: Hysteria is the ruling psychological state in today's world. But population decline is something intellectuals approve of because, I believe, they basically hate people. The chattering classes want to see, but don't particularly want to report on, terminal population decline in the developed world. That might lead to the conclusion humans aren't going to destroy the planet after all. It's the elephant in the room nobody's talking about...

....Demographics are as important, or even more important, than any other megatrend you can point to. It is, for example, the factor that will ultimately result in the demise of Israel. One of the more shrewd things said by a leading political figure in recent history was Yasser Arafat's comment that the most potent weapon the people of Palestine had was the womb of the Palestinian woman. And he's right, because, as in most advanced cultures, the rich, urban Israelites aren't reproducing quickly, but the Palestinians are. There's really not much they can do to overcome the demographic trend; it is what it is.

The same is true for the Russians, who also have a rapidly growing Muslim population, among other rapidly growing minorities.

Demographic trends are huge factors that carry a lot of momentum; they change slowly over long periods of time, and rarely respond to the feeble efforts of officialdom. The whole world is going to look very different in 100 years – even if we don't first go through something resembling World War III, which I think we will.

L: Sounds like "the dismal science" should be demographics, not economics.

Doug: Right. But no one will talk about this. It's partly because the chattering class doesn't want to admit that it was wrong about the population bomb. Just as the same people won't ever own up to the scam of global warming. But also because the places where there is explosive population growth are among the poorest populations, which goes beyond social and cultural to racial implications. And it's a total no-no to even talk about that, as people like Charles Murray and Philip Rushton have discovered.

L: But facts are facts, and the current trends indicate that the average skin color will be much darker in each succeeding generation for the foreseeable future.

Doug: That's just the way it is. During the 19th century, it seemed the whites were going to take over the world. Now non-Europeans are in the ascendant....

L: Okay, so back to Russia. I visited Moscow two summers ago, and I came to two very strong impressions of the people I met. First, they were very hungry for better lives. Everyone everywhere wants a better life, but apathy and sloth are also common human traits. Russians impress me as highly motivated and intensely focused on getting ahead. That's normally a very good thing.

But their traditional ethics were paved over by the Soviets, and whatever collectivist ethics they tried to instill have blown away on the wind with the Soviet empire itself, leaving most of the people with no moral compass. Many are turning to religion again, but the old Orthodox Church doesn't seem to have much impact on moral choices made by modern Russians. This is not a good thing; ambitious people with few ethical constraints on what they are willing to do to get ahead can be very dangerous.

Added together, this gives me an impression that feels like new barbarians at the gates of Rome. It's no surprise to me that people fear new Russian military expansion, Russian hackers, Russian pirates, etc.

Doug: That's a good analogy, but these barbarians are highly educated barbarians. They're using computers and mathematics, rather than clubs and swords. On the other hand, I'm not sure they are much more thoughtful than the barbarians of the Middle Ages.

Another thing about barbarians; they don't manufacture much. Production is mostly in natural resources, which is certainly the case with Russia. They do sell some high-tech spin-offs of old defense industry research and development, but that's nothing compared to the oil and gas exports, minerals and other resources. There's a lot of truth to the joke that in places like Russia the chief import is stolen cars, and the chief export is prostitutes. Did you see anything else going on there?

L: That was pretty much it. Gazprom rules. Lukoil is coming to America (I'm sure we'll have more to say on the implications of all this in our energy newsletters). Some people see a new world order in which Russia supplies the resources, Chindia the labor and manufacturing, and the West the high-tech applications. I suspect that may be giving the West too much credit, and perhaps the Chinese too little, but the Russians should prosper regardless, with all the resources they have to deliver to a hungry world, shouldn't they?

Doug: Well, there are groupings within the Russian Federation that may do well, but for all the reasons we cited above, I think the whole cobbled-together society won't last. But even among those groups, abundant natural resources may not be a blessing. When such riches fall into the laps of people who don't have a culture for putting them to productive use, the kleptocrats in charge get rich while the masses continue to suffer. Look at Nigeria, for example, or Saudi Arabia, for that matter. Oil is the worst thing that's ever happened to Venezuela. Without a culture that respects individual rights and productivity, upholds the sanctity of contracts, honors honest effort and achievement, etc., inequality and misery just get worse. They'd be better off if all anyone had in such a society were sand and rocks. And, in fact, that's why Hong Kong and Japan, to name just two places, prospered. They had nothing, except what they created.

Actually, it was the commodities boom back in the 1970s that helped make it seem at the time that communism would triumph. There were high metals prices, high oil prices, and that was stuff they had. What little capital this accumulated was directed into their space and military programs, which made them look like a formidable power. But it didn't last, of course. Commodities cycled down, and knocked the last leg out from under their stool.

L: What about the barbarian propensity for plunder? Do you see no danger of renewed Russian militarism?

Doug: No. The chances of Russia going on the march in some sort of new effort aimed at conquest are almost zero. They have enough on their plates, they're busting apart at the seams as it is.

Another thing: backward cultures don't usually understand the importance of sustaining capital and the Russians were no exception. Most of their submarines and other military hardware turned into junk shortly after the collapse of the Soviet Union.

Putin may want to be a new Tsar. That sort of thing is just natural for the kind of sociopath who rises to the top in such political environments. But I don't think it will go anywhere. For all the reasons we've been discussing, the place is on a one-way slope downhill.

This gets back to our starting point: Russia doesn't belong among the BRIC countries. It's simply not headed in the same direction.

L: Well, whether you like China or not, it's certainly true that they have a powerful, almost Yankee can-do attitude that gets things done in a third of the time it takes to do them in the West. And they certainly don't have a collapsing population there, nor in India, nor in Brazil.

Doug: Right, and the workers in those places will work two jobs, will save for the future, and so forth. None of those productive Confucian values exist in Russia. You mentioned that they are focused on getting ahead – but that's not the same thing as having a work ethic and an appreciation for the importance of accumulating capital through greater production than consumption. The Chinese will eventually take over Siberia, demographically.

L: So… In spite of the great wealth of resources Russia has waiting to be developed, you're not investing in Russia. Not even a high-stakes speculation?

Doug: No, I'm not interested in investing in Russia. Maybe at some point in the future, when the place has really melted down and the stock market gets very, very cheap, it might be worth a punt. But I don't see the country as a growth environment in which you can count on steady average growth rates. There might be occasional hit and run speculative opportunities, but good ones will be rare indeed. It's a place to watch, but not one to enter, financially, without great caution.

L: If that changes, I'm sure you'll let readers know in The Casey Report. What might you advise our Russian readers who have not already stopped reading our obviously hateful and slanderous conversation?

Doug: The smart ones will take their education and training and leave. Russia just doesn't have the capital to make the best use of them, or provide them with the best opportunities. Most of the capital accumulation seems to flow to the oligarchs, who don't reinvest it in ways that produce more; they just spend it to consume more. That's why there are these jokes going around about Russians, like the one about Yuri and Boris who go to London. Yuri tells Boris, "Look at this new tie I bought for £1000." Boris replies: "You should have asked me first; I could have shown you a place where you can get the exact same tie for £2000!"

Look, I had a friend, an American of Russian background. He decided to go back to the old world and scrambled around for years trying to get into one business or another. It's not easy. I don't want to be negative, but in general, I have to say that trying to make any serious investments in Russia is a mistake. The Russian stock and bond markets are worth watching, but you'd need to dedicate yourself to becoming an expert in them, so you can identify exceptional opportunities – it's like speculating on penny mining stocks, but even riskier.

I'm not really looking to buy in the current global economic environment, but I could be talked into buying and holding select Chinese, Indian or Brazilian stocks much more easily. Not Russia. They're just hot potatoes, and the country is heading for trouble.

Time to get out of Dodge. _HoweStreet.com

Regular readers of Al Fin will find very little new information here. Russia is a drunken, depressed, diseased, and dying nation, ruled by a psychopath. As its population melts away, so will its vast land holdings. Beginning with the far East, and moving westward, Russia will lose its grasp on its vast Siberian conquest.

Population decline is not just a Russian phenomenon, of course.

The European Union is barely in better economic shape than Russia, and barely reproducing at a faster rate. Although it cannot afford it, the EU will probably need to put together something of a defense force soon, because as Russia disintegrates it will almost certainly foment violence on a national and international scale.

Even China is going through a demographic transition -- without a significant social safety net. When China turns old, we are talking about hundreds of millions of old people at once. That will not be an easy time, if much of the younger generation of Chinese are infected with syphilis and other debilitating social diseases.

Even so, China will be able to staff a sizeable army much farther into the coming century than Russia. Much of the Russian far East will become Chinese within a few decades.

Is Argentina the Best Place in the World?

Anyway, I asked myself, “Where is the best place to live, in order to enjoy life to the max, be freest, and enjoy the highest standard of living with the least amount of aggravation?” I looked at all the countries around the world, their pluses and minuses, and came to the conclusion that Argentina offers the best risk/reward and cost/benefit ratios of any country on the planet at this time...at this point, Argentina is more European than Europe is. You know what they say: an Argentine is an Italian who speaks Spanish, thinks he’s British, and lives in a French house. _DougCasey

The most recent conversation with Doug Casey -- international investor and advisor -- discusses Casey's favourite place in the world: Argentina. Casey and his interviewer rove the entire world, discussing the pros and cons of various locations from the standpoint of a free marketeer. Casey has finally settled -- for now -- on Argentina as the best place in the world to spend his free time.

Doug: Well, I’ve been to 175 countries, most of them several times. I’ve lived in 12, defined as having spent enough time in the country to have rented a place to live or bought real estate and set up housekeeping. The thing is, technology has now progressed to the point at which any sufficiently motivated person can pretty much live wherever he or she wants. But most people still have a medieval serf mentality in this area, and tend to live in or near the place where they were born and grew up. And they tend to think that the country they were born in is the best country in the world…I guess because they were born there.

...I like its wide-open spaces. It’s like the western U.S. Argentina is the size of the eastern U.S., but it has only 40 million people, and about 40% of those are centered around Buenos Aires. So, once you get out of BA – which is one of the great cities of the world: sophisticated, marvelous, you can get everything and anything you want there, just one of my favorites – you really are in the countryside. In most places, you can drive for hours through incredible scenery, and not see another car. I like that.

Sometimes people, who haven’t been there, look at me in a questioning way when I mention Argentina, because they’ve heard of the government. But it’s not evil, or dangerous, like many. It’s just corrupt, incompetent, and inefficient – which is actually much better than the alternatives, when we’re talking about governments. But there are disadvantages, too. Through one of the most impressive acts of government stupidity I’ve ever seen, Argentina, a country world-renown for its beef, might actually end up having to import beef this year. It’s insane. Like Saudi Arabia importing oil. But, that’s what governments do. _ConversationwithCasey

Okay, he has looked at both the strengths and weaknesses of Argentina. But is he looking at the country through rose coloured glasses, just a bit? Is he overestimating the chances that the government of Argentina will someday become sane?

I think there’s a chance that the place will reform for the better, much the way New Zealand did in the mid-1980s. In other words, you can be so stupid, for so long, that eventually you have to throw in the towel and try being less stupid. There are several candidates running in the next presidential election, which will take place in 2011, who are reasonably market-oriented. If the same thing happens in Argentina as happened in New Zealand in the 1980s, it will boom.

Ah. Comparing Argentina to New Zealand. This betrays an ignorance of history and culture -- something a financial advisor cannot afford. Argentina, as a Catholic culture of Spanish and Italian origin, has very little in common culture-wise with New Zealand, a protestant culture of British and Scottish origins.

Up until that point in the dialogue, Casey was making a great deal of sense. Argentina sounds very attractive on almost all points -- except for its insane government. But Argentina's government has been insane for many decades. What chance is there for a sudden awakening into sanity? Virtually none, all wishful thinking aside.

Revolution in Argentina makes little sense. There is always the aftermath, when a worse government than the one before is invariably formed. Regime change would only lead to further turmoil. No, if you want to create a free environment in the southern part of South America, you will need to populate and secede from the central government -- which is concentrated within a single city -- Buenos Aires. Yes, I agree that Buenos Aires is the only place in Argentina with enough culture to provide an enjoyable lifestyle, but it is the people of Buenos Aires who continue to allow all of those idiotic governments. Something is wrong with them, and it is unrealistic to expect them to wake up -- so long after the closure of their critical developmental windows.

Casey bought a large parcel of land in Cafayate (in the wine country near Salta), moved some friends down, and is building a luxury resort. Casey is also encouraging wealthy Europeans and North Americans to move to Argentina -- perhaps hoping to influence the political culture in a more rational direction. Not exactly the same thing as populating and seceding from a corrupt country, but perhaps a step in the right direction. The government of Argentina is unpredictable, but a smart person might find some locations and loopholes that allow him to live relatively free from interference.

But clearly the answer to the question "Is Argentina the best place in the world?" for most people would have to be no. Not unless you could get enough people together to buy and populate a large section of the country, to create the kind of government that would allow you to live and trade freely. Not a good prospect, unless you have some extremely sophisticated weapons of defense that could neutralise the Argentinian military.

I suppose it is back to the seastead idea. And if you live in the US, you had best start rooting for the Tea Partyers, if you enjoy the ever-dwindling freedoms you have left. The Obama - Pelosi reich does not intend to leave you very much at all.