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The Energy Crisis Real or Artificial?

"I think it's only in a crisis that Americans see other people. It has to be an American crisis, of course. If two countries fight that do not supply the Americans with some precious commodity, then the education of the public does not take place. But when the dictator falls, when the oil is threatened, then you turn on the television and they tell you where the country is, what the language is, how to pronounce the names of the leaders, what the religion is all about, and maybe you can cut out recipes in the newspaper of Persian dishes." - Don Delillo 1926-, American Author

A major portion of this article was extracted from the April 5th 2005 market update.

  Country Description Amount
1. United States 19.7 million barrels per day (2002E)
2. Japan 5.4 million barrels per day (2002E)
3. China 4.9 million barrels per day (2001E)
4. Germany 2.71 million barrels per day (2002E)
5. Russia 2.38 million barrels per day; (2001E)
6. Brazil 2.2 million barrels per day (2001E)
7. India 2.0 million barrels per day (2002E)
8. Canada 2.0 million barrels per day (2002E)
9. France 1.96 million barrels per day (2002E)
10. Mexico 1.93 million barrels per day (2002E)
11. Italy 1.87 million barrels per day (2002E)
12. UK 1.7 million barrels per day (2002E)
13. Spain 1.5 million barrels per day (2002E)
14. Saudi Arabia 1.36 million barrels per day (2002E)
15. Indonesia 1,022,000 barrels per day (2001E)
16. Taiwan 985,000 barrels per day (2002E)
17. Australia 872,000 barrels per day (2001E)
18. Singapore 722,000 barrels per day (all imported) (2002E)
19. Thailand 715,000 barrels per day (2001E)
20. Turkey 635,000 barrels per day (2002E)
21. Egypt 538,000 barrels per day (2002E)
22. Argentina 483,000 barrels per day (2002E)
23. South Africa 482,000 barrels per day (2001E)
24. Iraq 460,000 barrels per day (2002E)
25. Malaysia 460,000 barrels per day (2001E)
  Definition: Quantity consumed per day, given in millions of barrels.

From nowhere China emerged as a huge energy hungry monster and now its second to the US (it just surpassed Japan recently) in energy consumption. Current projections show that China's oil needs could match those of the US in the next 10 years. The interesting part is that not much attention is being paid to India; it has the potential to surpass Japan and take the 3rd position within the next 10 years. The combined demand from India and China could then easily surpass that of the US and create an unbelievable energy crunch; well that's only one part of the story.

The truth of the matter is that there is more than enough oil available in the world to meet all our energy demands. Most estimates do not take the huge heavy oil deposits available in many parts of the world such as those in the Orinoco region (Venezuela) and the current estimates could be grossly undervalued, Tar sands in Canada etc; it's estimated that the Orinoco region alone has more oil then Saudi Arabia. The technology to extract oil from coal exists and a huge part of the US needs could be met if we embraced this technology. Still all this info is totally irrelevant as the main problem is still being ignored; no new refineries have been built in decades. Without new refining capacity we could have all the oil in the world and it would do little to alter the energy problem the world now faces.

It takes over 2 years to build a refinery that can process regular light sweet oil; it takes an additional year to modify this refinery to process heavy oil. So do the math if they started to build refineries today we would still have a 3-year lag time period and that is assuming everything goes according to schedule (which in reality never happens). So the only conclusion that we can draw and one that most have chosen to ignore is that this crisis has all the necessary ingredients to be called an "engineered event". In the end profit is what drives all these big corporations (which are in effect controlled by the smart money) and in effect it is these big corporations that control the world (they are the ones that help elect governments by contributing to their campaign coffers).

Another big potential problem is a terrorist attack on strategic routes.

ALERT

Malacca straits - kidnap and ransom incidents
After Tsunami there were no incidents of any kind in the Malacca Straits for two months. However, attacks have resumed since 28.02.2005. In the last four weeks there have been three serious attacks of kidnapping the crew for ransom in Malacca straits. Heavily armed pirates have boarded ships and seized the master and one or two crewmembers and taken them ashore. Pirates have not stolen any property and sole aim has been to kidnap the crew.

Recently reported incidents:

03.04.2005 at 0145 LT in position 03:08N - 105:24E, 12nm west of P.Mangkai Island, Anambas Islands, Indonesia.
Four pirates armed with long bolo knives boarded a bulk carrier underway at poop deck. They assaulted two duty crew who received knife wounds. Pirates stole ship's equipment and escaped.
  http://www.icc-ccs.org/prc/piracyreport.php

Most of Japans oil comes through the Malacca straits, one well positioned attack here could create complete chaos in the energy markets as it would take over 3 times longer for the oil to get to Japan. The number of attacks is going to keep increasing; it's just a matter of time before a bunch of crazy terrorists commandeers one of these ships. The only way to stop this would be to increase the number of military troops there; noting is being done currently to ensure the complete safety of this vital transportation point.

KUALA LUMPUR: Armed pirates continue to attack ships in Indonesian waters, increasing the risk of environmental disaster and exposing the region to heightened terror threats. The bridge of one tanker was left unmanned for an hour after armed pirates rounded up its crew threatening a collision with other vessels in the world's busiest shipping lanes, the International Maritime Bureau (IMB) said.

In the past few weeks, an Indian oil tanker and a Panama bulk carrier were targeted by pirates while a Singapore-owned tugboat was also hijacked, Noel Choong, IMB regional manager told AFP. The attacks follow an increasing number of acts of piracy reported worldwide and come amid fears of terrorist attacks against ships and ports in the region.

Choong said that in the early hours of November 22, Indian-registered tanker "Jag Pranam" was boarded by armed pirates off Indonesia's Bintan island, near neighbouring Singapore. "They held the duty officer at gun-point, entered the master cabin, rounded the entire crew and took the ship's cash. But what is more worrying is, during the one hour the pirates were on the ship, the bridge was unmanned. The ship was moving on its own," he said. Choong said without a navigational officer on the bridge, the vessel could have either collided with another ship in the busy waters or grounded causing an oil spill. "You can just imagine the catastrophe. Lives could have been lost," he said.

One shipping analyst, speaking on condition of anonymity, said that terrorists could use explosive-laden tugboats to ram ships or ports. IMB had last year reported unusual high number of tugboats being hijacked in the region. Muhammad said to combat the potential threat of terrorism against ships and ports, police were boarding ships and screening the background of their crews. "With the presence of militant activities in the region, we need to take pre-emptive measures to protect our ports and ships," he said. Full Story

Pirates are coming out in full force and to make matters worse Indonesia has refused an offer by the US to help patrol these waters; they are extremely wary of the US and even demanded the US withdraw troops that were helping Tsunami victims.

ChevronTexaco Announces Agreement to Acquire Unocal

Stock and cash transaction valued at $18 billion. Acquisition extends Chevron Texaco's strategic positions in core areas. Chevron Texaco production and proved reserves expected to increase by more than 15 percent. Full Story

The price they paid was so high that oil prices would have stay in the 35-40 dollar ranges for the next 9 years for them to just break even on this purchase. This story once again highlights how these chaps have missed the big picture. They could make a lot more money investing in a huge new refinery (they could combine with other producers to reduce the cost) and build it in a country that is far less restrictive than the United States. Instead they choose to pay an exorbitant price for a company without increasing refining capacity. The theme with the biggest producers now is to build up reserves and forget everything else.

Conclusion

The two biggest threats to the Oil markets are a lack of refining capacity and disruption of transportation routes; both factors are being completely ignored by the mainstream press and most governments of the world. Everyone is focusing on the demand and supply issue (currently heavy oil is not taken into consideration when calculating a nations oil reserves) and the amount of speculative money entering this field is reaching extreme levels; therefore a correction is inevitable as the time to barbecue the bloated pigs is close at hand. Once this correction gathers steam the world will completely forget that the real threat has not changed (lack of refineries and disruption of strategic routes) and like programmed robots the masses will sell right when they should be buying. We believe that for the most part we should sit on the sidelines and wait for these oil stocks to move back into the oversold ranges.

The reason we have the audacity to state that this crisis has all the makings of an Engineered event are:

  1. No new refineries have been built in decades and no concentrated effort is being mounted at all to address this issue. Instead everyone chooses to hide behind the smoke screen excuse of demand exceeding supply due to dwindling reserves.
  2. No effort is being made to provide extra protection to supply ships that have to pass through strategic points. In addition no significant efforts are being mounted to deter these pirates from continuing their attacks.

The amount of money that stands to be made when this crisis is over is truly mind boggling, so the masses will be sacrificed. In addition that money then can be used to scoop up even more valuable assets that will sell for pennies on the dollar after real estate and equity markets start to crash due to super high energy costs.

This Story just hit the air waves and once again illustrates that one of the main problems is refining capacity.

NEW YORK (Reuters) - Oil prices vaulted over $52 a barrel on Tuesday, breaking a two-week slump from record highs as refinery problems in the United States, the world's largest energy consumer, reignited supply worries. .S. light crude climbed $1.73, or about 3 percent to $52.10 a barrel, down from an all-time record $58.28 struck on April 4, but around $8 up from prices at the end of 2004. London's Brent crude rose $2.06 to $52.84 a barrel.

The jolt higher on the back of a rally in gasoline ended a two-week slide triggered by rising crude inventories in the United States, additional OPEC supply and signs that strong demand growth, especially in China, is easing. U.S. crude stocks are at the highest level since June, 2002, and a preliminary Reuters survey of nine analysts forecasts inventories increasing by another 1.8 million barrels in the week to April 15. The head of OPEC said on Monday the producers' cartel would pump near 25-year highs next month although it would postpone any formal increase in output limits until a June meeting.

Full Story

"When written in Chinese, the word "crisis" is composed of two characters -- one represents danger, and the other represents opportunity." - John F. Kennedy 1917-1963, Thirty-fifth President of the USA

The Inevitable Outcome of Newton's Law
By John Tyler, CEO www.trader007.com

When talking energy, Newton's Law springs to mind, and that's Hooke's Law(something about forces and springs).

Newton's Law says that if there is no force acting on a system, then that system persists in the same or unaltered state. A crisis is a powerful force that can change a systems state. We can debate when this force will start to act, but it is already acting. We can ask about oil inventory, exploration and pipelines, but this the industrial age's answer.

Here are a few examples of Newton's Law in action, forcing a new approach:

  • Nanotechnology improving solar cells and energy storage systems
  • Wind power advances
  • Hybrid cars
  • Hydrogen cells etc.

Will these technological advances be able to fill the breech imposed by declining oil supplies and rising prices?

Once a force of this magnitude is at work, life as we have known it will change, and is already changing. Some of the areas already showing strain are:

  • Commuter real estate where the cost of transport is already a large part of the family budget. Prices will continue to fall.
  • "Old Tech" cars- anything that doesn't use an alternate fuel or hybrid technology will be scrap. Gus guzzlers are already next to worthless.
  • Touring the globe will become a luxury again.

These changes can generate large profits for those who can identify the right technology and trends, however the most important thing is that this force may lead to a less polluted world. Sniff the sweet fresh air after a few days without traffic. Thank you Mr. Newton. Watch out for Mr Hooke......"and may the force be with you".....

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