The Big Chill  

Speculation continues to mount about the impact of natural gas shortages in the US this winter. The resulting high prices mean that its likely that the poor and industries that can't pass on cost increases will be the ones who bear the brunt of the problem.

Falling gasoline prices make it easy to believe the nation has seen the last of the energy woes that swept in behind this year's Gulf Coast hurricanes. But they don't fool an unemployed woman on the Crow Indian Reservation, using the electric oven to warm her house on increasingly crisp Montana nights because her natural-gas heat has been cut off. For brickyard workers in Mill Hall, Pa., unemployment looms after the holidays, because it will be too expensive to fire the clay kilns this winter. And one retiree in a mobile home in Millinocket plans to take her asthma medication once daily instead of three times as prescribed, to save money to pay the kerosene bills that will soar in Maine's bitter cold.

With the season's first snowfall hitting the Northeast last week, it is becoming apparent that Hurricanes Katrina and Rita did far more to the nation's energy equation than spoil Labor Day vacation drives. The storms upset the already precarious balance of the nation's supply and demand for fuel. So much Gulf of Mexico oil and natural gas production remains in disarray that even with a mild winter, Americans face a Big Chill: astronomical heating bills--on average, 38 percent higher than last year's record costs for natural gas and 21 percent higher for oil.

Triple threat. That means hundreds of closed factories and enormous hardship for low-income and working poor families, who can expect scant federal government help. And if bitter cold rides in on Mother Nature's coattails, extraordinary measures will be needed to keep energy flowing, particularly in the Northeast, as natural-gas shortages spill over into oil and electricity supplies. "We pray for warm weather. We have a prayer chain going," says Diane Munns, an Iowa regulator who is president of the National Association of Regulatory Utility Commissioners. "People are talking not just about high prices but actual shortages."

Adds Matthew Simmons, a prominent Houston energy investment banker, who has warned of a new era of scarcity: "We're headed into a winter that could be a real winter of discontent."

It is not just about money. Damage to rigs, pipelines, and processing facilities means a shortage of natural gas, the fuel that heats 52 percent of U.S. homes. The industry says 2.3 billion cubic feet per day, or 23 percent of the Gulf of Mexico's natural-gas production, will be offline through March. But even before the deadly storms struck, the country was consuming more natural gas than it produced and prices were at record highs.

Looking on the bright side, if oil and gas consumption is reduced, there is no chance North Americans will be succumbing to the smog the way people are in Tehran.

Bill Totten has a post up on the crisis facing car manufacturers like Ford and General Motors. While he blames "capitalist diehards" for this crisis, I think he should perhaps look at the examples of Toyota and Honda and contrast the styles of the different corporations. To a certain extent this seems to be an example of survival of the fittest - Ford and GM failed to look into the future and are paying the price, while the likes of Toyota have recognised the need to produce cleaner, more fuel efficient vehicles and are reaping the benefits. Some capitalists are better than others it would seem.

General Motors, the corporation that came to symbolize the United States in the 1950s, is teetering on the brink of bankruptcy. Delphi Corporation, an auto parts manufacturer that GM spun off a few years ago, declared bankruptcy at the beginning of October, making it the biggest bankruptcy in the history of the auto industry. Ford is in similar straits; slumping sales in North America have forced it to announce plans to close plants and lay off thousands of employees.

In the era of cheap and abundant oil GM and Ford dominated the top industries in both the US and the world. There are various reasons why these two companies are now in crisis, but here I will focus on how difficult it will be for them to recover.

First, over half of the automobiles sold recently in America have been SUVs. These vehicles guzzle gasoline and pollute the environment horribly. Yet for several years both Ford and GM have focused on manufacturing these automobiles because they could sell them at high prices and reap huge profit margins. It will not be easy for these companies to adjust to high oil prices by converting their manufacturing facilities to produce less expensive cars yielding much thinner profit margins. If oil prices continue to remain high, consumers will continue to turn away in increasing numbers from SUVs, leaving GM and Ford the last players in a rapidly shrinking market.

Last year 77% of US consumption was financed by borrowing as spendthrift Americans mortgaged their homes to pay for consumer goods and services. Both the Federal Reserve and Freddie Mac say that nearly one-third of American consumption has been financed by such borrowing over the past decade.

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High energy costs are affecting not only the inefficient auto and airline industries, but also have begun having an impact even on moderately efficient rail and large-scale distribution systems. As the brief (150 year) period that depended heavily on abundance of cheap fossil fuel ends, many aspects of our economy and our very lives inevitably will be affected by high and rising energy costs.

As is clear from looking at GM and Ford, the most important objective of private industry in the US is maximization of profit, immediate profit, for stockholders and for executives charged with achieving that objective. This is the ideology of America's capitalist diehards. When costs rise, the first steps taken by US capitalists is to reduce expenses by cutting wages and benefits, and to transfer the costs to consumers through higher prices while, of course, shirking their own share of society's tax burden off on those same workers and consumers.

The crisis facing the American auto industry - alongside war and prison, the very symbol of the United States - has profound significance for Japanese, both as workers and consumers of corporations addicted to the shaky US market and as subjects of an oligarchy whose only policies seem to be meekly obeying American commands and blindly aping American ways.

Elsewhere, Vietnam is considering cutting crude oil and coal exports, while Thailand is looking to build more hydropower and coal fuelled power plants to reduce their dependence on diesel.

An oil pipeline between Kazakhstan and China is now open - the first pipeline to export Kazakh oil that does not go via Russia.

Kazakhstan and China have inaugurated a 1,000km-long (620-mile) oil pipeline to supply Kazakh oil to energy-hungry western China. It will eventually export oil to feed China's booming economy from huge reserves around the Caspian Sea.

Kazakhstan wants to become one of the world's top oil exporters in the next decade or two.

Construction began last year on the pipeline from Atasu in central Kazakhstan to Alashankou on the Chinese border. It should be fully operational by the middle of next year, providing a new source of oil for China to develop its western Xinjiang region.

Eventually another pipeline will link up with this one from the Caspian region in west Kazakhstan, where the huge new Kashagan oilfield is being developed.

With the help of Western oil companies, Kazakhstan has doubled its production to more than a million barrels a day since the collapse of the Soviet Union. That puts it among the world's top 20 oil producers now, but Kazakhstan has ambitions to triple this amount in the next decade or two.

Nigerian President Olusegun Obasanjo has warned of an energy crisis in Africa and urged other governments to prioritise the use of renewable energy.

The WorldWatch Institute's magazine for January is devoted to the subject of Peak Oil.

Although no one knows for sure when oil production will "peak," nearly everyone in the January/February issue of World Watch magazine's Peak Oil Forum agrees that the age of oil will end—and the time to start transitioning to alternatives is now. While industry representatives such as Red Cavaney of the American Petroleum Institute argue that failure to develop "the potentially vast oil and natural gas resources that remain in the world" will have a high economic cost, others, such as Worldwatch Institute's Christopher Flavin, argue that "the current path—continually expanding our use of oil on the assumption that the Earth will yield whatever quantity we need—is irresponsible and reckless."

A lack of transparency in the world oil market makes assessing oil reserves a guessing game, with figures in official oil reports often based as much on politics as geology: nearly three-quarters of the world's oil is controlled by state-owned companies, whose reserve figures are never audited. "We know that oil production will peak within our lifetime, we are pretty sure that market prices will not anticipate this peak, and we know that not having alternatives in place at the time of the peak will have tremendous economic and social consequences," says Robert K. Kaufmann, an energy economist at Boston University. "Doing too little now in the name of economic efficiency will appear in hindsight as rearranging deck chairs on the Titanic."

While some proponents of "peak oil" like to proffer doomsday scenarios, the Peak Oil Forum participants highlight the opportunity to engage human ingenuity as one resource that won't peak. "Unless we believe, preposterously, that human inventiveness and adaptability will cease the year the world reaches the peak annual output of conventional crude oil, we should see that milestone…as a challenging opportunity rather than as a reason for cult-like worries," says Vaclav Smil, a professor at the University of Manitoba.

While we will never wake up to the headline, "World Runs Out of Oil," says Kaufmann, before production declines to very low levels, the peak will mark a point of no return that will affect every aspect of modern life. "As oil becomes dearer," writes Smil, "we will use it more selectively and more efficiently, and we will intensify a shift that has already begun." Says Flavin: "Roughly $30 billion was invested in advanced biofuels, giant wind farms, solar manufacturing plants, and other technologies in 2004, attracting companies such as General Electric and Shell to the fasting growing segment of the global energy business."

RealClimate has a post on "Understanding Methane Hydrates" (also explained in a less densely technical way at WorldChanging).

As bad as the more obvious effects of global warming may be (e.g., drought, rising sea levels, and the like), the less-well-known effects are the ones that could prove the most worrisome in the long run. Take frozen methane, for example. We've discussed the role of methane in climate change before -- it's 21 times more powerful a greenhouse gas than CO2, but cycles out of the atmosphere far more quickly. The major risk from methane comes from large amounts being released in a relatively short period. Such large amounts exist frozen beneath the Siberian permafrost and deep in the oceans.

RealClimate explores in some detail today just how the frozen methane could melt, and what the result could be if it does so. The situation, as RealClimate sees it, could be disastrous, but there's still a great deal more research that needs to be done.

WorldChanging also has a post on "Regulations and Business Strategy" which looks at the benefit to business of cutting their carbon emissions.

Do motivations matter? Last week's BusinessWeek looks at the growing trend of large companies moving to cut their carbon footprints, not out of any concern for the environment or the planet's future, but out of fear of being caught flat-footed by regulations that they see as inevitable. Financial analysts and (in particular) insurers drive this, making it clear to corporate leaders that the more they work now to cut down on greenhouse emissions, the better off they'll be when governments begin to act.

We've covered this trend before, but it's clearly accelerating. And what's especially interesting is that some of the early-moving companies are beginning to find out that -- much as we've long contended -- working to reduce their carbon footprint doesn't hurt their bottom-line, but instead improves it.

TreeHugger has some interesing posts on BMW developing a Steam/Gas Hybrid Engine and Smart Power Strips (which I'm sure Odo will appreciate).

The BBC reports that 2005 was warmest ever year in northern hemisphere.

While traffic is trending down as the holiday season approaches (and my posting frequency and depth drops) the logs have had plenty of interesting visitors this week - lots of them are regulars I've commented on previously but I was pleased to see that the US House of Representatives is interested in efficient LED lightbulbs (hopefully they'll set a good example to us all for a change) while someone at the US Senate's Seargeant At Arms is curious about the link between Senator Inhofe and peak oil (I don't think he's known for talking about the subject, but maybe he has a conspiracy theory he can trot out in front of a committee one day helped along by a compliant fiction author). Plus the Federal Reserve Board seems to have become semi-regular lately (possibly because I've speculated about M3 a few times but maybe its just another lunch break peak oil blog watcher)...