Gary’s Note:
We continue to ring in the New Year with predictions from James
Kunstler. Read on below. Send your questions and comments to
gary@whiskeyandgunpowder.com or post directly to our website
www.whiskeyandgunpowder.com.
|
Less Oil, Less Credit: Forecasts for
2009, Part II |
January 2, 2009
By James Howard Kunstler
Saratoga Springs, New York, U.S.A.
We’ll turn around early in 2009 and discover that we are a much
poorer nation than we thought because from now on credit will be
extremely hard to get for anyone for anything. The businesses
that survive will have to keep going on the basis of accounts
receivable. This is the area where the crash of giants will be
heard. I’ve been saying since publication of
The Long Emergency that comprehensive downscaling
in all our activities, from farming to business to schooling to
governance, will be the categorical imperative of the years
ahead. Giant enterprises requiring giant loans to get from
quarter to quarter will tend to not make it. Borrowing from the
future will become a practical impossibility as past bad debts
from previous borrowings continue to unwind, cease performing,
and get written off. This argument implies that the federal
government will tend to flounder just as General Motors,
Citicorp, Target Stores and other gigantic enterprises will tend
to flounder. It would be sad to see a President Obama so
hamstrung and helpless, and it is largely why I see his role as
largely symbolic — as a reassuring presence encouraging the
distressed public to bravely bear their hardships, and to be
kind and helpful among their neighbors.
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Households, like businesses, will have to pay as they go from
earned income. The house as ATM is over. Credit cards are maxed
out and credit ceilings are lowering like the ceiling in “The
Pit and the Pendulum,” preparing to slice-and-dice the old
“normal” of family life in America. Bankruptcy will be the new
Nascar. A lot of families will lose everything. They will sift
and disperse into the housing owned by other family members —
parents, siblings — and a strange new not-altogether comfortable
kind of togetherness will become common. Over time, a lot of
people will go looking for casual work “under-the-table” (and
probably low-paying). To some degree, these workers will begin
to look and act like a new servant class, and before too long
they may be absorbed into the households of people who employ
them. There will be plenty of room for them there.
Counties, municipalities, and states will join in the bankruptcy
fiesta. It would be reasonable to expect collapsing services as
a result. This would be a situation fraught with danger — of
rising crime, of public health emergencies as water systems are
not kept up and sewage treatment becomes unaffordable. I don’t
imagine the federal government stepping into every Podunk or
Metropolis from sea to shining sea and propping up these
services. People will have to cope with danger and deprivation.
2009 may be the point where we begin to understand what kinds of
places will be more hospitable to human society further ahead. I
maintain that our giant urban metroplexes have way overshot
their sustainable scale and will contract severely. With all the
economic hardship, we ought to expect a lot of demographic
churning, people leaving hopeless places and moving on to
something more promising. I believe we will see them move to
smaller towns and smaller cities. The reorganization of the
rural landscape into smaller-scaled farms has not begun to occur
— though 2009 might be very hard on agribusiness, given the
shortage of capital and if oil begins to march up in price by
late winter. Eventually, the rural landscape will require the
labor of many more people than is currently the case. Whatever
else happens, 2009 will surely see a massive return to home
gardening as budgets become strained to the extreme. As the New
Urbanist Andres Duany said recently, “Gardening is the new
Golf!”
The Oil Scene
Many were stunned this year to witness the parabolic rise and
fall of oil prices up to nearly $150 and then back around $36 by
Christmas time. Quite a ride. I said in The Long Emergency
that volatility would be the hallmark of post peak oil because
it was obvious that advanced economies could not absorb super
high prices and would crash in response; that at some point
after crashing, these economies would respond to the new lower
oil price, resume their cheap oil habits, and build to another
price rise. . . and crash again. . . in a declension of
ever-lower industrial activity.
What I probably didn’t realize at the time was how destructive
this cycling between low-high-and-low oil prices would actually
be in the first instance of it, and what a toll it would take
right off the bat. We can see now that our first journey through
the cycle took out the most fragile of the complex systems we
depend on: capital finance. As a result, a huge amount of
capital (say $14 trillion) has evaporated out of the system,
never to be seen again (and never to be deployed for productive
purposes). It will be harder for the USA to rebound from the
grievous injury to this crucial part of the overall system, and
Europe has foundered similarly — though the European nations are
not burdened to the same degree by the awful liabilities of
suburbia.
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Even if these advanced economies — throw in Japan too — remain
moribund, the price and supply prospects for oil look ominous.
My own guess is that the price of oil has overshot on the low
end just as it overshot on the high end, and that, when all is
said and done, we’ll still see an upwardly trending price line
over the long haul. The plunge, which began right after the $147
peak in July 2008, was as much the result of banks, hedge funds,
and individuals dumping oil investments and positions to raise
cash as it was a matter of the markets predicting a sharp
fall-off in economic activity (and supposedly oil consumption).
The truth is that demand destruction for oil in the USA has been
surprising mild compared to the drop in price. Jim Hansen’s
Master Resource Report says that gasoline consumption
dropped from 9.29 million barrels a day in 2007 to 8.99 million
barrels a day for 2008. That’s not much of a fall-off,
especially compared to the price drop.
As Julian Darley of the Post Carbon Institute put it recently:
“There won’t be any energy bail-out.” And, as many other people
have noted, the recent plunge in oil prices strongly implies
future supply destruction, since so many planned oil projects
have been suspended or cancelled because they are economic
losers at $40-a-barrel (or even $70). Even projects well
underway, such as Canadian tar sand production, have been scaled
back or shut down because they don’t make sense at current
prices. Some of these other newer projects will now never get
underway — they have missed their window of opportunity with so
much capital leaving the system — and so the hope of offsetting
very-near-future depletions in old giant oil fields looks dimmer
and dimmer.
Those depletions are very serious. For instance, Mexico’s
super-giant Cantarell oil field, the second-largest ever
discovered after Saudi Arabia’s Ghawar field, has shown a 30
percent depletion rate in the past year alone. (Pemex had
forecast a 15 percent rate entering the year.) Cantarell
provides over 60 percent of Mexico’s total production, and
Mexico is America’s third largest source of imports — just after
Saudi Arabia (#2) and Canada (#1). Obviously, Mexico soon will
lose its ability to export oil, and as that occurs, America is
going to feel more than pinch — more like a two-by-four upside
the head. In short, remorseless depletion is underway and we are
less likely now than even a year ago, to make up for it.
At some point, then, demand, even if slightly lower, will catch
up with declining supply. My prediction for 2009 is that we will
see two things occur, possibly at the same time: a resumption of
rising prices, and spot shortages. I say this because the global
economic fiasco is sure to produce geopolitical friction, and
inasmuch as America has to import almost three-quarters of the
oil we use, the prospect for trouble is great.
The tragic part of all this, of course, is that the temporary
plunge in oil prices has prompted an incurious American public
to assume, once again, that the global oil predicament is some
kind of a fraud. Given the flood tide of fraud they have been
subject to in banking and investment matters, I suppose you
can’t blame them from thinking that everything is some kind of a
scam. Given feeble car sales this season, there are reports that
an increasing percentage of those sold now are trucks and SUVs.
Though I give Boone Pickens high marks for stepping up to the
leadership plate, I’m not altogether on board with his energy
proposal for swapping natural gas for gasoline in motor fuels
while we swap out wind power for natural gas in electric power
generation. I don’t believe that the ballyhooed shale-gas-plays
of the last few years will prove-out long-term, as some
huckster’s claim. They are expensive to drill and run, and they
all tend to deplete very quickly — around one year. I’m not
convinced we have the capital or the resources even to come up
with the steel necessary to drill for it. Anyway, the last thing
we need is a way to prolong our car-dependency.
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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In the meantime, there are still those who hope (as described
above) that various alt.energy systems will insure the
continuation of Happy Motoring. This is an idle hope, and 2009
will be very sobering for those who imagine that hybrid cars, or
electric cars, or “air” cars, or any other kind of car
technology are going to save the day. Even if President Obama
mounts an “infrastructure stimulus” program, it will not keep up
with all the necessary routine road repair that our highway
system requires. The extreme financial hardship faced by
localities and states insures that they will have to postpone a
lot of expensive highway maintenance — even if the federal
government fixes a big bunch of bridges and tunnels — and so we
face the interesting prospect that our roadway systems will
enter their own deadly zone of systemic failure even before the
whole car issue is settled.
I am waiting to see whether Mr. Obama will undertake a
restoration of passenger railroad service. I’ve said enough
about this in the past, but it’s worth reiterating that a
failure to get comprehensive passenger rail service going will
be a sign of how fundamentally unserious we are as a nation.
Regards,
Jim Kunstler
It’s not over yet, Whiskey
Shooters. We got one more round of the hard stuff ala Kunstler
coming to you next Monday. We’ll see you then.
Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder
