Decline of the Empire

The Shale Gas Scam Goes Public

It is always gratifying when the New York Times catches up to what some of us have been saying for years now. I was pleased to see their recent three-part series Insiders Sound an Alarm Amid a Natural Gas Rush (June 25), Behind Veneer, Doubt on Future of Natural Gas (June 26) and S.E.C. Shift Leads to Worries of Overestimation of Reserves (June 27). The shale gas scam has gone public.

I intend to milk this story for all it's worth, and there's far more material than I could cover in a single post. So this is the first of two (or three) articles on the subject.

I will talk about the Times' articles next week, and the responses to them. I shall also describe in some detail how the scam works. This first post allows us all to get on the same page about the current state and future of shale gas production in the United States. Here's stuff I've posted about shale gas on DOTE.

• Betting The House On Shale Gas  (why we need the natural gas)
• Shale Gas Shenanigans  (the scam)
• The Shale Gas Shell Game  (more about the scam)
• A Miracle In The Marcellus Shale?  (more about the scam)
• Natural Gas Boom Gets Put On Hold  (U.S. natural gas production has been exaggerated)
• Our Energy Problems Are Over!  (ridiculing the hype about shale gas)

The Times had access to all sorts of internal e-mails and documents which were not available to me when I wrote those articles.

Natural gas companies have been placing enormous bets on the wells they are drilling, saying they will deliver big profits and provide a vast new source of energy for the United States.

But the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells.

In the e-mails, energy executives, industry lawyers, state geologists and market analysts voice skepticism about lofty forecasts and question whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves.

Many of these e-mails also suggest a view that is in stark contrast to more bullish public comments made by the industry, in much the same way that insiders have raised doubts about previous financial bubbles.

“Money is pouring in” from investors even though shale gas is “inherently unprofitable,” an analyst from PNC Wealth Management, an investment company,  wrote to a contractor in a February e-mail. “Reminds you of dot-coms.”

Here's a few choice quotes from those anonymous inside sources.

• "The word in the world of independents is that the shale gas plays are just giant ponzi schemes and the economics do not work"

— This August 2009 e-mail is in response to an article in an industry publication questioning shale gas economics. The official is from IHS Drilling Data, a research company that specializes in energy issues.

• "I believe you are factual in your analysis of the shale plays. It looks to me that the hype about those plays is creating a false sense of security for the American public"

— From an e-mail exchange between a geologist in Texas and a petroleum geologist who spent about a decade and a half at Phillips Petroleum Company. They discuss whether the hype about shale gas is giving a false sense of security with regard to energy policy.

• "Many energy analysts have concluded that the average cost of gas that is needed for shale gas companies to break even financially and start making a profit is roughly $7.50 per million cubic feet. Under the new S.E.C. rules companies can only include gas in their reserves estimates that they report if the companies can realistically and affordably get that gas out of the ground within 5 years," said Deborah Rogers, a member of the advisory committee of the Federal Reserve Bank of Dallas who has been skeptical about shale gas economics. These two facts raise a troublesome question: How are companies including gas on their books when the price of gas remains so low? In other words, how are companies booking these reserves when most energy forecasters and the futures market does not predict the price of gas rising above $6 per million cubic feet before 2016? It would seem that booking such gas would defy the S.E.C. about only booking gas that can affordably be pulled from the ground within 5 years. I know the S.E.C. has asked some companies to explain in detail how this rule applied to their reserves calculations — but I still have to wonder, is the S.E.C. fully policing this 5-year rule?"

— This is an April 2009 e-mail from a geologist at North Star Geological Services LLC. He says that when he works for shale companies in the Haynesville shale play and asks them questions about true costs, well performance and longevity, he gets no answers.

There's plenty more where these examples came from. And finally there's this graph from the first Times article.

I hope you'll read some of my previous posts on shale gas if you haven't already done so. I'll have more for you next week.

Don't Fall Asleep

The biggest story going is that the New Normal is here. Since few seem to have noticed, and certainly no one has said anything about it, I thought I would.

To write DOTE I have to be on top of what's going on. What are people talking about?

• all things Greek — will they default?
• it's a good time to buy gold
• there's another Republican presidential candidate
• political squabbling over raising the debt ceiling — will they? or won't they?
• the deficit is bad and getting worse
• what kind of "correction" can we expect to see in the stock market?
• more quantitative easing — will Ben pull the trigger?
• what are Obama's poll numbers?

Here's what they're not talking about—

• the fate of the long-term unemployed
• the recent, substantial rise in new unemployment claims
• the economic slowdown, which is shown by almost every indicator
• the ongoing destruction of the Middle Class
• anything bad

Obviously, the list of what people are not talking about could go on forever, so I used the catch-all anything bad. But do you see the pattern? Everybody is talking about financial or political subjects. Only those with money to invest (or lose) OR those vested in our failed politics could possibly be interested in today's "popular" topics.

In short, America's elites are still running the show. As George Carlin said in describing the owners of this country, "it's a big club and you're not in it." Got it? You're not in it.

You might wish this little news item had received more attention—

Change To Inflation Measurement On Table As Part Of Budget Talks -Aides

By Corey Boles and Janet Hook

WASHINGTON -(Dow Jones) Lawmakers are considering changing how the Consumer Price Index is calculated, a move that could save perhaps $220 billion and represent significant progress in the ongoing federal debt ceiling and deficit reduction talks.

According to congressional aides familiar with the discussions, the proposal would shift how the Consumer Price Index is calculated to reflect how people tend to change spending patterns when prices increase. For example, consumers tend to drive less when gas prices increase dramatically.

Such a move is widely seen by economists as resulting in a slower rise in inflation. That would impact an array of federal programs that are linked to CPI including the Social Security program and income tax brackets set by the federal government.

The proposal could lower federal spending by around $220 billion over the next decade, based on calculations by last year's White House deficit commission, which recommended the change as part of its final report...

If you are incredulous, and I wouldn't blame you if you were, read it again. Yes, it says what you think it says. I hope you caught this mistake—

Such a move is widely seen by economists as resulting in a slower rise in inflation...

No, sorry. Inflation will be whatever it is. The official reporting of inflation will systematically underestimate it in order to fuck the elderly (among others). Only zerohedge and au contrarian (among sources I might look at) covered the story. If you are interested in how this deft maneuver works, read either article.

So welcome to the New Normal, which is lot like the Old Normal except for the fact that an ongoing socioeconomic catastrophe must now be kept out of sight. "Anything bad" has now been relegated to Carl Jung's shadow.

Unfortunately there can be no doubt that man is, on the whole, less good than he imagines himself or wants to be. Everyone carries a shadow, and the less it is embodied in the individual's conscious life, the blacker and denser it is. If an inferiority is conscious, one always has a chance to correct it. Furthermore, it is constantly in contact with other interests, so that it is continually subjected to modifications. But if it is repressed and isolated from consciousness, it never gets corrected.

What goes on in the unconscious minds of people also occurs in societies as a whole. I shall wrap this post up with this quote from Jung.

When we must deal with problems, we instinctively resist trying the way that leads through obscurity and darkness. We wish to hear only of unequivocal results, and completely forget that these results can only be brought about when we have ventured into and emerged again from the darkness. But to penetrate the darkness we must summon all the powers of enlightenment that consciousness can offer.

Don't fall asleep. Don't get used to this crap. If you do, the owners of this country win. They may have all the money, power & influence, they may "own you" in Carlin's sense, but they don't own your soul. That's yours to keep, but you've got to claim it. You must summon all the powers of enlightenment that consciousness can offer.

Here's George.

 

The Great Bamboozle

In his latest missive Pimco's Bill Gross gets at the heart of what I call the Great Bamboozle.

Over the past 10 years under both Democratic and Republican administrations, only 1.8 million jobs have been created while the available labor force has grown by over 15 million.

It is clear, however, that neither party has an awareness of the why or the wherefores of how to put America back to work again...

Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea. While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare.

Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama’s long-term budget makes just such a claim and Republican alternatives go many steps further. Former Governor Pawlenty of Minnesota might be the Republicans’ extreme example, but his claim of 5% real growth based on tax cuts and entitlement reductions comes out of left field or perhaps the field of dreams. The United States has not had a sustained period of 5% real growth for nearly 60 years.

I call it The Great Bamboozle for some of the reasons Gross outlines in his long essay—both political parties are fresh out of ideas, having laid down the solid bedrock of our demise over the last 30 years. There's no longer any way to keep the sinking ship afloat, but some Americans will prosper. Special interests in Finance, Defense, and so on have been served. The Middle Class is withering away, the ranks of the poor are swelling. The American Dream is deader than a doornail.

Wall Street bonuses are bigger than ever. So is the operating budget of the War Defense Department.

And now we in the United States will endeavor to slam the barn door shut after the horse has left. Perversely, the embarrassing political show must go on. Important illusions—our problems are fixable—must be maintained. The solutions? Cut taxes, reduce transfer payments and shrink the size & scope of goverment. But especially the latter—the Bamboozle.

Michele Bachmann says as much on her website.

As a constitutional conservative, I believe in the Founders' vision of a limited government that trusts in and preserves the unlimited potential of the American people.

I don’t believe that the solutions to our problems come from Washington: more than ever, Washington IS the problem, and the real solutions will come from your businesses, your communities, your schools and the most basic and powerful unit of all, your families.

We need to reclaim our independence from a government that has gotten too big, spends too much and has accumulated too much power – so that we can allow you to achieve your potential and expand the American dream for the next generation.

Republicans have carefully crafted this message for about 35 years now. An extraordinarily effective propaganda machine lies behind it. But the main reason this rhetoric works is because it's true. In an Empire, all the power & influence—where does the money flow?—lies at the Imperial center. You would have to be mindbogglingly naive, you would have to be deaf, dumb and blind—you know, a liberal idealist—to deny that Washington IS the problem.

This isn't the 1930s, folks. A lot of crimes and misdemeanors have flowed under the bridge since the glory days after World War II. Power corrupts, absolute power corrupts absolutely.

This is why, after the Republicans stole the 2000 election from the Democrats in Florida, W and his cronies expanded the size of government while placing us securely on the path to record deficits. No opportunity for theft by special interests was left unfulfilled. Defense and national security contractors were especially pleased, but movers & shakers in Health Care and Finance found little reason to be dissatisfied. Obama has followed up W's performance with great gusto. We should have expected nothing less. (Bill Clinton benefited from higher tax rates—now defunct—and the Tech Bubble.)

One would need to write a book to describe the Great Bamboozle in all its glorious detail. The only thing you can be sure of is that the power & influence of those Inside the Beltway will continue to grow until the whole borrow & spend scam falls apart. It is not mystifying, as Bill Gross observed, that both political parties appear to believe that balancing the budget will magically produce 20 million jobs over the next 10 years. They want you to believe that. It is politically expedient to spread these lies. But there is a double feint here. Neither party has any intention of shrinking the size & power of government if they can possibly avoid it.

The Republicans especially want you to believe government is too powerful because they don't control the government. The Democrats, who are always moving to the ever-right-shifting "center" of the political spectrum, spout this nonsense to maintain their share of the co-opted electorate.

All political theater should be ignored, all politicians ridiculed. What's the real issue for politicians? The real issue is who will wield the most power & influence in 2012 and thereafter. Who gets to run the potlatch? Who gets to hand out the candy and favors? Who gets the tax cuts, the spoils? Nobody ever went to Washington to make it smaller or weaker.

Why do you think American presidential campaigns last 18 months and cost billions of dollars? I don't like to state the obvious, but it's because there's a lot at stake for the winners. In Europe and elsewhere, elections begin and end in a matter of weeks. The difference? We are the Empire, and they are not.

If the Great Bamboozle wasn't obvious to you before, I hope it's clear to you now.

Brace Yourselves For The Next Oil Price Shock

Looking at the oil supply & demand fundamentals, next year looks like an accident waiting to happen. If economic growth in emerging economies remains on track, and that is a big If, the next oil price shock will occur in 2012.

Dave Rosenberg recently put the odds of America going into recession in 2012 at 99%, but I doubt he had oil in mind when he said that. On the current path, oil is set to hit $150/barrel next summer. Take an economy in recession, add in oil prices well in excess of $100/barrel, and what do you get?

Let's briefly review the fundamentals. Here's the Energy Information Administration's current outlook (STEO, June 7 edition).

EIA projects that total world oil consumption will grow by 1.7 million barrels per day (bbl/d) in 2011, which is about 0.3 million bbl/d higher than last month's Outlook, primarily because of higher forecasts of consumption for electricity generation in China, Japan, and the Middle East. 

Projected world consumption increases by 1.6 million bbl/d in 2012, unchanged from last month's Outlook.  Projected supply from non-OPEC countries increases by an average of about 0.6 million bbl/d in 2011 and 0.5 million bbl/d in 2012.

EIA expects that the market will rely on both a drawdown of inventories and increases in production from both OPEC and non-OPEC countries to meet projected demand growth.

These daunting numbers—1.7 million barrels-per-day in 2011, 1.6 million barrels-per-day in 2012—portend a demand shock just like the one the world experienced in 2006-2007. The key phrase is a drawdown of inventories. This is precisely what happened prior to the oil shock of 2008. If you are forecasting that new oil demand will be met by depleting global stocks, you are already acknowledging that supply can not meet that demand. The EIA can't just come out and say that, of course.

If the mother of all oil price shocks is coming, the situation in Libya will loom larger with each passing month. Despite rumors to the contrary, the world has yet to replace the shut-in oil in Libya.

Source: Gregor's The Dark Side Of The OECD Oil Inventory Release

The EIA says this about Libya—

While OPEC crude oil production declines 0.4 million bbl/d in 2011 because of the disruption forecast to Libyan production, OPEC non-crude liquids production grows by 0.6 million bbl/d. EIA expects the world crude oil market will continue to tighten in 2012, with forecast OPEC crude oil production increasing by 0.7 million bbl/d and OPEC non-crude production growing by 0.4 million bbl/d.

This is typical government sleight-of-hand. OPEC crude oil production (on average) will be down 0.4 million bbl/d in 2011, and if it increases 0.7 bbl/d in 2012, our net gain is 0.3 million bbl/d in 2012, assuming the Libyan oil remains shut-in. Right now it looks like the production disruption will be protracted, despite NATO bombing runs. Non-crude liquids production refers to natural gas liquids. If you're lucky, you can get some "natural" gasoline from refining these liquids, but you won't get any middle distillates—diesel—at all. Gas liquids are used primarily in the petrochemicals industry.

Speaking of precious diesel fuel, the EIA's This Week In Petroleum had some scary things to say about China's demand for it in Chinese Oil Demand 101: The Role of Electricity.

It helps to remember that coal, rather than oil, accounts for a larger share of China's energy mix, in contrast with the United States and other mature, industrialized nations, which tend to be, primarily, oil economies... Past experience shows that even temporary shifts in the Chinese power generation mix from coal to oil can result in surprisingly large increments in apparent oil consumption.

Thus, in 2003-2004, Chinese oil demand spiked when electricity shortages occurred as the country lacked sufficient capacity to generate needed power. Faced with chronic brownouts and blackouts, or merely concerned with the potential for electricity shortfalls, many end-users turned to back-up generators, and ramped up their purchases of diesel to fuel them, or simply to keep as a precaution in the event that those oil-fired generators came in use.

Similar issues were at play in 2007-2008, when a growing wedge between market-based coal prices and state-regulated electricity prices made it uneconomical for some utilities to produce electricity, again resulting in shortages. In response, the state implemented new rates and pricing mechanisms in late 2008, which alleviated economic pressures to some extent. The economic downturn also helped mitigate shortages at the time...

Already middle distillates (diesel) account for the lion's share of Chinese oil demand (unlike the United States, where gasoline plays that role). One of the consequences of the expected uptick in Chinese oil demand for electricity generation this summer will be to further increase diesel's share of the Chinese demand barrel.

On a positive note, steep increases in Chinese refining capacity this year will boost China's capacity to produce these needed middle distillates domestically. In recent years, China has moved very close to Japan as the world's largest importer of Middle East crude oil. At the same time, as China's refining capacity has grown both larger and more complex, its ability to extract middle distillates from those relatively low-quality grades has substantially increased.

Never underestimate the role middle distillates play in driving crude oil prices. If diesel is in great demand, and clearly it will be given the Chinese scenarios laid out above, the "best" oil which provides the highest quantities of this product via the refining process is also in great demand. If there isn't enough of it to go around, prices spike. Ethanol substitutes for gasoline. At large scales—just about anything bigger than the gas tank of Willie Nelson's bus—nothing substitutes for diesel.

At the level of abstraction presented here, that's all you need to know. China's thirst for diesel fuel is unrelenting, and will easily overwhelm their ability to refine it from domestically produced crude. There were global diesel shortages in 2007-2008, and we are well on the way to having them again next year. The lost Libyan light sweet crude is "good" oil in the sense that you get lots of gasoline and diesel when you refine it.

Although I could bring a lot more supporting evidence to bear, all things being equal, a major oil price shock is coming in 2012. Just as in 2007-2008, the skyrocketing price will be driven by a demand shock and a supply situation incapable of meeting it. Unlike this latest "mini-shock" driven by the Libyan situation and speculation in the oil markets, the price shock to come will be the real deal.

Brace yourself.

Two Can Play This Game

Pimco's Bill Gross recently published School Daze, School Daze, Good Old Golden Rule Days. Like all those who think America's problems can be fixed, Bill had some excellent insights into the problems themselves, but advocated solutions (an infrastructure investment bank, government work programs) which don't have a snowball's chance in Hell of actually being implemented. Thus Bill did not get at why real change is impossible in the United States.

There is seemingly an endless supply of commentary of this sort. Yves Smith of Naked Capitalism picked up the ball and ran with it, citing Marshall Auerback of New Deal 2.0. Apparently, now is the time to bring back Franklin Roosevelt's policies. Bill Gross cited GE’s Jeff Immelt, Fareed Zakaria, Jeffrey Sachs and Paul Krugman. Jobs outsourcer Jeff Immelt?  Capitalist cheerleader and Newsweek airhead Fareed Zakaria?

Needless to say, inconsistencies, implausibilities and absurdities don't matter when, like Bluto in Animal House, you're on a roll. Marshall Auerback provides an excellent example of fantasy as policy advocacy. This is from his Getting America Back to Work Remains the Singular Challenge for the Obama Administration—

On the anniversary of the inauguration of the Works Progress Administration (WPA), it is striking to compare the unemployment record of Franklin Delano Roosevelt, and that of his modern day successor, Barack Obama...

OK, that's not the main bit. I just wanted to highlight that Auerback refers to Barack Obama as the modern day successor of Franklin Roosevelt

Here's the important quote.

In my view, a universal Job Guarantee program would be the best way forward and truest to the spirit of the WPA. The jobs would pay basic wages and benefits with a goal to provide a living wage. The program would take all comers — anyone ready and willing to work, regardless of education, training, or experience. We could adapt the jobs to the workers. As the late Hyman Minsky put it, we could “take the workers as they are”, work them up to their ability, and then enhance their skills through on-the-job-training. Additionally, the guaranteed public service job would be a counter- cyclical influence, automatically increasing government employment and spending as jobs were lost in the private sector, and decreasing government jobs and spending as the private sector expanded. Such a program would remain a permanent feature of our economy, acting as a buffer stock to put a floor under unemployment, while maintaining price stability whereby government offers a fixed wage which does not “outbid” the private sector, but simply creates a stabilizing floor and thereby prevents deflation.

Given the nature of today’s “predator state” (to use Jamie Galbraith’s felicitous phrase), politicians have a proclivity to reward those who “pay to play”.  They tend toward wasteful spending and give goodies to campaign contributors.

But we could take this power away from sock puppet politicians through a mechanism that automatically adjusts to insure the private sector can actually realize its desired net nominal savings position. This would help to free the system from political parasites while increasing the freedom of the private sector to achieve its savings goals. What better way to celebrate the anniversary of the WPA’s inauguration?

Auerback has imagined ... a workers Utopia! But Marshall has failed to say how we will take the power to reward those who "pay to play" away from sock puppet politicians. I would say that's kind of a sticky point, wouldn't you?

But two can play this game. Here's how to fix American society and the powerful, corrupt miscreants therein. We will use the Human Change-O-Meter And Flaw Eliminator (H-CAFE, patent pending, All Rights Reserved). This wondrous machine can be used to deliver a highly-charged, narrow beam of Etherial Energy toward any human subject who clearly needs some improving.

Once dosed with the "CAFE" or the "Sermon On The Mount machine" as its inventors refer to it, mean & stupid people with a pathological need to harm others, or kiss powerful asses to advance their careers, or rationalize all manner of evil—you name it!—will suddenly feel an overwhelming—and permanent—urge to help their fellow man.

Take Tim Geithner. Please! Once he has been "CAFE-D", he won't even recall the time when he didn't oversee the Wall Street banks from his high post at the New York Federal Reserve, that he frantically helped to bail them out in such a way that it didn't cost them a dime. He won't even remember that he has done nothing but kiss Wall Street's ass ever since. Instead, he will suddenly feel the urge to regulate the Big Banks, or break them up, or punish them for the damage they've inflicted on so many Americans.

Tim need never know that he has been beamed. It could be done when he's out to dinner, or in his office at the Treasury, or on his knees at Jaime Dimon's secret bungalow. The H-CAFE is quite small—you can fold it up and put it in your pocket—and runs on a set of AAA-batteries available at any local Walgreens or Rite-Aid. You just have to be within a few yards of the person-to-be-improved. Accuracy is important, so the "CAFE" comes with a sniper's rifle scope to make sure you don't miss. And all this for $14.99 + tax at Home Depot.

Why not use the H-CAFE? If anything is possible, as Marshall Auerback seems to believe, I say that's the way to go.

Bonus Video

Remedy du Jour -- June 25, 2011

It's let's get some perspective day. Tired of economists? Politicians? Pundits? Other assorted assholes & idiots?

I know I am.

It's time to take the longer view.

• The opening scenes of the movie Contact, based on Carl Sagan's novel
• Nick Lane probes the mysteries of how complex eukaryotic life arose on Earth
• The formation of the Earth 4.6 billion years ago, and the beginning of plate tectonics
• Monty Python's The Galaxy Song, and finally, the Meaning Of Life

 

 

 

 

Our Fantastic Future

There is only one question about the future which matters.

Will Homo sapiens get a clue?

Science fiction writer Arthur C. Clarke offered this thought about the future on BBC's Horizon in 1964—

The only thing we can be sure of about the future is that it will be absolutely fantastic

Humankind, and Arthur C. Clarke in particular, were clueless in 1964.

In 2011, humankind remains clueless. For some recent confirmation, see my posts A Mass Extinction In The Oceans and Learning From The Aquacalypse.

Perhaps the future is predictable after all

 

 

A Release From The "Strategic" Petroleum Reserve

Not even W ever stooped this low. I believe we have just witnessed the first use of the Strategic Petroleum Reserve (SPR) as a way to stimulate the economy. The SPR exists for use in emergencies. The Wall Street Journal alerted me to the move yesterday afternoon

The International Energy Agency (IEA) said it will release 60 million barrels of oil from emergency stocks in the next 30 days to alleviate supply problems caused by the shutdown of Libyan crude exports due to the civil war.

The IEA, which represents major energy-consuming nations, said the tight supply situation was becoming a threat to a fragile global economic recovery.

"I expect this action will contribute to well-supplied markets and to ensuring a soft landing for the world economy," IEA chief Nobuo Tanaka said.

So which is it, Dr. Tanaka? Is the supply situation tight? Or is the market well-supplied? Clearly, this is a stimulus, not an emergency. The IEA will release 30 million barrels from OECD stocks, and the United States will release 30 million barrels from the SPR.

To understand this, you must understand the role of the IEA in the oil markets. Each month, they calculate the call on OPEC. This is how much oil OPEC is expected to produce to meet the IEA's estimate of global demand. (There is no slack in non-OPEC supply, what is called spare capacity.) Sometimes OPEC takes the call, and other times they tell the IEA to leave a message. Usually the latter.

OPEC does or does not respond based on its internal policies, self-interests (Saudi Arabia) and its own estimate of world demand. A short time ago, OPEC failed to raise production quotas when Algeria, Venezuela and Iran objected. However, production quotas are largely meaningless, which is evident in the often-low compliance rate. Member states routinely produce more (or less, usually more) than their quota according to their economic needs.

Saudi Arabia wanted OPEC to produce more oil at that meeting, but was thwarted by a minority of the members. It is reported that the Kingdom is raising production now, but not fast enough to suit the IEA.

Saudi Arabia has said it would boost production by 1 million barrels a day. The IEA has said its preliminary numbers show the kingdom has already increased output by about 500,000 barrels a day. Kuwait has also said it could hike its production by up to 200,000 barrels a day this summer.

On Thursday, IEA Executive Director Nobuo Tanaka said the emergency release was taken to make up for a delay before Saudi supplies hit the market.

This is complete nonsense. The stocks release is meant to target speculators and bring prices down, to achieve a "soft landing for the world economy." It was working yesterday.

Light, sweet crude for August delivery ended down 4.6% at $91.02 a barrel on the New York Mercantile Exchange [Nymex]. Prices fell as low as $89.69 a barrel earlier in the session, their lowest level since Feb. 22. August Brent crude oil futures settled down 6.1% at $107.26 a barrel on ICE Futures Europe.

Oil market observers John Kemp and Fadel Gheit believe the crackdown on speculators is obvious. Here's Gheit.

“This is the straw that breaks the camel’s back — this is the tipping point,” said Fadel Gheit, oil analyst for Oppenheimer, a leading investment bank. “The speculators will have to change their positions. Instead of betting on higher prices they have to bet on lower prices."

The Kemp article is worth reading, especially in regard to past objections (from the IEA itself and others) "to using the SPR to mitigate purely economic disruptions or manage price rises."

And what about the role of the United States? Here things get fuzzy, but I believe this amounts to a phony "We Care" signal from the White House. Or as Dan Gross calls it in the Daily Ticker video below, "propaganda by deed." I also believe the United States exerted pressure on the IEA to get the stocks release done, but obviously I can't prove that. This SPR release is just the kind of nonsense we get in the absence of an effective, long-term policy for dealing with America's oil dependency.

In short, there's no emergency, but this is exactly how we might expect morally bankrupt politicians to act in a failing economy—use our "strategic" oil reserves to give the desperate junkies their fix.

Here's the video.

 

America, The Fraudulent Society

It is not controversial to say that Medicare & Medicaid spending is bankrupting the United States. Given that we're already broke, and with Baby Boomers retiring in droves, future bills we can't pay will only make a bad situation worse. An interesting graph published recently by the Economist caught my eye (hat tip, Tim Iacono).

Estimated waste in American health-care spending

America has a talent for wasting money on health care. It has devised many ingenious ways to do this. A patient may see many skilled specialists, none of whom coordinate with one another. Payment systems are unfathomably complex and highly variable. Doctors order duplicative or unnecessary tests. The country excels at treating sick people and does a horrible job keeping them from getting sick in the first place. All these problems, however, are due to a simple, structural failing: the more services a hospital provides, the more it is paid.

You can easily see that unnecessary care leads the field by a wide margin, with fraud and abuse coming in a distant second. I consider myself an educated man, and pretty smart, too. Still, I am perplexed when I try to understand why unnecessary care is not a form of fraud and abuse. I am sure there are fine distinctions one could make to explain the difference, though I'm not particularly interested in them. And then there are the extremely fine distinctions required to separate unnecessary care from avoidable care, not to mention uncoordinated care.

But I digress.

Eyeballing that chart, the U.S. wasted roughly $845 billion (maximum, dark blue) in 2009 on health care. But did we really? Was it all a total waste?

Consider this jobs chart I took from Mike Shedlock's Interactive Map: Employment History Since 2001 by Job Type (Healthcare, Education, Mining, Construction, Finance, Real Estate, etc).

If you look at the top panel (absolute difference in jobs, millions) you will see that new health care jobs (dark red) leads all the other categories by a very wide margin. The percent difference (bottom panel) is right up there too, indicating that the U.S. is adding health care jobs left and right.

Obviously, you must ask yourself an important question: could the U.S. have added all those health care jobs to the economy without those trillions of dollars of waste and fraud over the last decade? No way!

You must stop thinking of "waste and fraud" as waste and fraud. Start thinking of it as integral to the economy. Where would we be without it? Similar remarks apply to the Defense Industry, Big Finance, Insurance, and God Knows What Else.

America is a fraudulent society, and in a fraudulent society, one man's waste is another man's paycheck.

Bonus Video — America, you can't be forever blessed...

 

A Mass Extinction In The Oceans

If the Ocean goes down, it's game over
   —Alex Rogers, from stateoftheocean.org

Kilgore: Smell that? You smell that?
Lance: What?
Kilgore: Napalm, son. Nothing else in the world smells like that. [kneels]
Kilgore: I love the smell of napalm in the morning. You know, one time we had a hill bombed, for 12 hours. When it was all over, I walked up. We didn't find one of 'em, not one stinkin' dink body. The smell, you know that gasoline smell, the whole hill.  Smelled like ... Victory
Kilgore: Someday this war's gonna end...
   — Apocalypse Now

On the heels of my three part series last week (part I, part II, part III) on what Daniel Pauly calls The Aquacalypse, a number of readers sent me e-mails yesterday alerting me to a new report on the State of The Oceans. The news is not good.

A high-level international workshop convened by IPSO met at the University of Oxford earlier this year. It was the first inter-disciplinary international meeting of marine scientists of its kind and was designed to consider the cumulative impact of multiple stressors on the ocean, including warming, acidification, and overfishing.

The 3 day workshop, co-sponsored by the International Union for Conservation of Nature (IUCN), looked at the latest science across different disciplines.

The 27 participants from 18 organisations in 6 countries produced a grave assessment of current threats — and a stark conclusion about future risks to marine and human life if the current trajectory of damage continues: that the world's ocean is at high risk of entering a phase of extinction of marine species unprecedented in human history.

To say what is happening is unprecedented in human history is an understatement meant for public consumption. The human species is only 200,000 years old. Only paleontologists, paleoclimatologists and others immersed in Deep Time (millions upon millions of years) can truly appreciate what is happening.

We are watching a sixth mass extinction take place in the oceans. There have been five "mass" extinctions in the Phanerozoic Eon (the time after the very long Pre-Cambrian), which began 542 million years ago. The last one occurred when an asteroid wiped out the non-avian dinosaurs and wreaked havoc on other Earth life 65 million years ago—~70% of species perished. (If some mammals hadn't survived the holocaust, we wouldn't be here.) It is thought that the closest analogue in Deep Time to what is happening now (in terms of rapidity) occurred 55.9 million years ago during the Paleocene/Eocene Thermal Maximum (PETM). From the workshop press release—

The scientific panel concluded that:

• The combination of stressors on the ocean is creating the conditions associated with every previous major extinction of species in Earth’s history
• The speed and rate of degeneration in the ocean is far faster than anyone has predicted.
• Many of the negative impacts previously identified are greater than the worst predictions [heretofore]
• Although difficult to assess because of the unprecedented speed of change, the first steps to globally signficant extinction may have begun with a rise in the extinction threat to marine species such as reef-forming corals.

Dr. Alex Rogers, Scientific Director of the International Programme on the State of the Ocean (IPSO) which convened the workshop said: "The findings are shocking."

"As we considered the cumulative effect of what humankind does to the ocean, the implications became far worse than we had individually realized. This is a very serious situation demanding unequivocal action at every level. We are looking at consequences for humankind that will impact in our lifetime, and worse, our children's and generations beyond that..."

As examples, the panel point out:

• the rate at which carbon is being absorbed by the ocean is already far greater now than at the time of the last globally significant extinction of marine species, some 55 million years ago [the PETM], when up to 50% of some groups of deep-sea [benthic] animals were wiped out
• a single mass coral bleaching event in 1998 killed 16% of the all the world's tropical coral reefs
• overfishing has reduced some commerical fish stocks and populations of by-catch species by more than 90%
• new science also suggests that pollutants including flame retardant chemicals and synthetic musks found in detergents are being traced in the Polar Seas, and that these chemicals can be absorbed by the tiny plastic particles in the ocean which are in turn ingested by marine creatures

The experts agreed that adding these and other threats together means that the ocean and the ecosystems within it are unable to recover, being constantly bombarded with multiple attacks.

So, let me ask you this. After reading this press release, do you still think it matters whether Obama or some Republican is elected president in 2012? Why not vote for Bozo the Clown?

In my own latest series of articles on the destruction of life in the oceans, I focused on overfishing because there the human impact on marine species is too obvious to ignore. In reality, there are multiple environmental insults (stressors) deleterious to life in the oceans in play, as the IPSO workshop results make clear. The point of the meeting was to assess the effects of all the human-caused factors taken together. We find them in the longer version of the workshop summary. Here's a sample:

The key points needed to drive a common sense rethink are:

• Human actions have resulted in warming and acidification of the oceans and are now causing increased hypoxia [oxygen depletion].

  Studies of the Earth's past indicate that these are three symptoms that indicate disturbances of the carbon cycle associated with each of the previous five mass extinctions.

  [And see my post on acidification The "Other" Carbon Problem — Ocean Acidification.]

• The speeds of many negative changes to the ocean are near to or tracking worst-case scenarios from the IPCC and other predictions...

  ... The 'worst case' effects [of climate change] are compounding other changes more consistent with predictions including: changes in the distribution and abundance of marine species; changes in primary production; changes in the distribution of harmful algal blooms; increases in health hazards in the oceans; and loss of both large, long-lived and small fish species causing widespread impacts on marine ecosystems, including direct impacts on predator and prey species, the simplification and destabilization of food webs, reduction of resilience to the effects of climate change.

  [And see my posts How We Wrecked The Oceans — Part II, Reactions To The Phytoplankton Crisis, and The Phytoplankton Crisis — An Update.]

• Ecosystem collapse is occurring as a result of both current and emerging stressors.

  Stressors include chemical pollutants, agricultural run-off, sediment loads, and over-extraction of many components of food webs which singly and together severely impair the functioning of ecosystems. Consequences include the potential increase of harmful algal blooms in recent decades; the spread of oxygen depleted or dead zones; the disturbance of the structure and functioning of marine food webs, to the benefit of planktonic organisms of low nutritional value, such as jellyfish or other gelatinous-like organisms; dramatic changes in the microbial communities with negative impacts at the ecosystem-scale...

• The extinction threat to marine species is rapidly increasing.

  The main causes of extinctions of marine species to date are over-exploitation and habitat loss. However, climate change is increasingly adding to this, as evidenced by the recent IUNC Red List Assessment of reef-forming corals. Some other species ranges have already extended or shifted pole-wards and into deeper cooler waters...

These conclusions are framed in the language of science, which is simply so much gibberish—an incomprehensible foreign language—to the vast majority of Americans, who often take inordinate pride in knowing nothing. As if that weren't bad enough, the most astonishing thing is that most Americans believe they are entitled to an opinion on scientific matters they no nothing about as if they were political issues like taxing the wealthy or the paring down the public debt. Jesus wept.

So let me restate these conclusions for all those living in The State of Denial—the hopelessly obtuse, the cheerfully oblivious, and the blissfully ignorant.

Marine ecosystems and the inhabitants thereof don't give a fuck about your obtuseness, your oblivion and your ignorance. Your narrow-minded, petty, self-serving, mean-spirited squabbles mean nothing to them. Those creatures dwelling in the ocean are too busy swimming for their lives. They're too busy dying off from causes they could not possibly begin to comprehend.

Someday this war's gonna end...

Those of you who read my Learning From The Aquacalypse know how I view the possibility of a mass extinction in the Earth's oceans—it is all but inevitable. There's no reason for me to rehash that view here. I saw from some of the comments on that post that my views on Human Nature were quite upsetting to some of you. Sorry about that. I just thought you might like to know what you're dealing with.

Here's the workshop summary video. You can find other videos at the State Of The Oceans channel on youtube.