Sunday, July 29, 2018

Addicts and Gangsters

"The rial is now at an all-time low, with an inflation rate of 147 percent. Addicts are dropping like flies."

These past few weeks we have been talking about how hard it is to end our addiction to the fossil growth economy that is killing us all. Over many years we’ve been getting updates about the global petroleum picture but have to respectfully opine that the terms of discussion used by post-petroleumers are identical to those used by industries and governments. If we are ever to change, we need to change that frame. 

Suppose we translated the discussion into something with a little more bite:

Weekly Update: Emerging Conflicts

For July 2018, here is no sign of a letup in addict demand, which is expected to increase by 1.5 million b/d this year. Despite the decision taken at the mafia dons’ recent summit to increase oil production by an undefined amount, pushers’ prices for crude products closed above $79 on Friday. 

There is suspicion street prices in New York and London may be rising on fears the temporary truce is just a prelude to war and that there will be shortages and higher prices in the coming months. In Basra, the lack of steady work, electricity, and potable water have been compounded by 120 degrees Fahrenheit heat and the reduced quantity and quality of water flowing from the Euphrates and Tigris rivers and tributaries. Increased salinization shut down the country’s largest operational refinery.

It seems unlikely that the Russian and Arab mobs, the only ones with actual capacity to increase production, will be able to offset demand and supply disruptions elsewhere. Some observers are even talking about a return to $100 next year. 

Boss Trump said in a tweet on Saturday that the Saudis agreed to boost their production by 2 million b/d. This assertion came as news to the Saudis. Nonetheless they are moving to increase production to a record high 11 million b/d in July.

Historically, the Saudis have been reluctant to increase production to their maximum for fear there would be too little a supply buffer should there be more unplanned outages. Both sober and dead addicts make bad customers.

According to the money laundering operation at Goldman Sachs, an outage at Canada’s facility may lead to a 360,000 b/d shortage for July and shrink stockpiles at Cushing, Oklahoma, the biggest warehouse for the American cartel.

The American cartel, led by Boss Trump, has been cudgeling the mobs to reduce Tehran’s take to zero in an effort to force the Iranian kingpin, Boss Rouhani, to kowtow. The American cartel’s move to eliminate Tehran comes on news the Saudis invited Russia to become an observer member of their mob. Russia and the Saudis have increased ties in recent years and a coalition between them could control more than half the global product. This worries bankers and brokers both inside and outside the cartels.

Boss Rouhani replied to Boss Trump’s tweeted ultimatum —demanding it remove Iranian oil from the global market by November — as “impossible.” The tone of Boss Rouhani’s reply suggests the pressure Trump is putting on addicts may be having unintended consequences, and that an all-out supply war may come sooner than either had planned.

There is an object lesson in the way the American cartel took down rival Venezuela, which had the temerity to undersell retail petroleum products on the Trump mob’s home turf. Venezuelan oil revenue was $22 billion last year, compared with about $70 billion in 2011. Mexico could be facing a similar outcome if its newly elected boss, Andres Manuel Lopez Obrador, is slow to fall in line. The new Mexican boss has said he will seek to end the country’s massive refined imports, nearly all from the US, during the first three years of his term. How he would replace that capacity remains a mystery, as Mexico's biggest rackets, onshore and offshore, are in terminal decline.

Last week India’s oil ministry told local refiners to get ready for a “drastic reduction or zero” of imports from Iran, a sign that India — Tehran’s second-largest customer — is bowing to pressure from Boss Trump.

Rouhani promised Iranians last Tuesday that the mob would be able to handle the losses from new US sanctions, but the rial is now at an all-time low, implying an inflation rate of 147 percent. Addicts are dropping like flies.

Rouhani has been touting $50bn worth of potential Russian investments. Ayatollah Ali Khamenei added that: “Rosneft and Gazprom have started talks with Iran’s oil ministry to sign contracts worth up to $10 billion.” Moscow is hard pressed for cash these days, and it seems unlikely that it would be investing large amounts of money in Iran unless the terms were very favorable.

Outside this conflict the Chinese gang appears prepared to wait things out and see who is left once the dust settles. When Boss Trump set out his list of US exports threatened with retaliatory tariffs, almost all petroleum products were covered. To avoid open war, Boss Xi Jinping decided not to impose additional tariffs on Trump’s plans to export increased volumes of liquefied natural gas from the US to China. China will become the world’s top natural gas importer by next year. 

Chinese demand for natural gas will rise by almost 60 percent between 2017 and 2023 to 376 billion cubic meters (bcm). This increase includes a rise in its LNG imports to 93 bcm by 2023 from 51 bcm in 2017. Global LNG imports will rise to 505 bcm by 2023 from 391 bcm in 2017, an increase of some 114 bcm.

So for now, China is biding its time, buying the product of its rivals, and keeping the peace. The tiger has decided to take a cat nap while the American and Iranian bosses duke it out and Czar Vladimir cozies up to Crown Prince Mohammed bin Salman, who has announced plans to sell shares in the 2.5 trillion-dollar Saudi Aramco. Vlad knows that while Russia may be cash-strapped at the moment, higher prices caused by the Trump vendetta against the Rouhani mob should add $40.14 billion to Russian state revenues this year, enough to buy 1.6% of Aramco shares.

The voracious demand for fracking sand to prop open cracks in shale oil and gas wells have opened a new product line for the American cartel. In the last twelve months, 11 gangs that dig and supply fracking sand to Boss Trump have opened within sight of each other in West Texas, and another 10 or so are hustling to get started.

Together, these gangs will mine and ship some 22 million tons, equal to almost a quarter of the total US supply. Within a couple of years those digs could climb to over 50 million tons.
A Hollywood Ending

While this frame is a little more satisfying, it depicts a world in which there will be no happy ending. These are not bootleggers quarreling over the rot-gut whiskey trade, after all. Elevating Chinese demand for LNG by 376 billion cubic meters means that trillions of cubic meters of unburnt methane will find its way into the atmosphere from fracked fissures, wells and pipelines and hundreds of billions will be burnt to send sequelae greenhouse gases into the sky. The victims in this gang warfare are the “innocent” bystanders — the addicted consumers and their descendants in time who will never achieve existence because their parents’ habits rendered their only habitat uninhabitable.

Too bad. Some of the neverborn might have turned this into a pretty good movie script.


Don Stewart said...

Dr. Tim Morgan, in his blog surplusenergyeconomics, has this to say in his current post:

'To repeat a point I made earlier, SEEDS calculates that scope for value destruction in 2008 was of the order of $84tn (worth almost $100tn in 2017 USD). This ‘cost of reset’ was ducked – so carried forward – using ultra-cheap money. Ten years on, SEEDS puts the scope for value destruction at close to $400tn.'

I notice a headline today that Trump thinks that 'the US economy is the envy of the world'. But everything which is being levered looks wonderful until the moment when the leverage falls apart. I do not see how it can be true both that value destruction continues apace at hundreds of trillions of dollars, and that the future of hydrocarbon consumption is onward and upward. The only way I can reconcile the two is thermodynamic exhaustion: increasing hydrocarbon usage is no longer generating the money to support the kind of economy the hydrocarbons produce.

So we have a number of alternatives:
*Morgan is just wildly wrong
*Hydrocarbons are plentiful, and we can easily grow the economy while producing them
*People will be walking on the road to Damascus and suddenly see a great light and a New Eden will be born
*Morgan is right and Trump (and all the other leaders) are wrong and it is all about to fall apart.

Don Stewart

Unknown said...

My understanding is that the international banking/monetary system is what empowers this whole shabang, it is where the levers are for moving all the resources. The current system moves massive amounts of resources, labor and material, all for personal gain (usury) so if we want to address a collective threat we will need to have a money system that is collective, a public utility. This entails banning the private for-profit money system. Until we understand this enough to organize and act we will continue down the same road doing nothing but talking about what could or should be done while the mad few with the money power build fortresses against the many. Money, which we are taught to deny, has been the central political issue of civilization becasue it determines who rules and for most of history it has been the wealthy few with the money power ruling the many. The people's energy is scattered broadly among a plethora of painful issues, all symptoms of the system. This is an issue of power and it's time to focus on the power and money is the power in our society, and who creates it and for what matters a lot. We've got to change the root system if we want to reverse the devastating trends.




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