Sunday, May 25, 2008

Oil History Village? Not!

Here's one for all you "investors" out there in PeakOilLand. Just in case you aren't getting those stellar returns you were promised in your latest pre-IPO scam, ponzi, pyramid or multi-level nutritional supplement company "business opportunity."

How about us all investing in an "Oil History Village." Yeah!!!

This would be big fun. Or like my neighbor in Hawaii used to say, "Beeg fun Brudda!"

We can have old drillbits, hardhats, buckets of pipedope and other tools of the trade on display. Maybe a little shower to douse tourists with real drilling mud so they can get a taste of roughnecking. A splash of diesel in the face would be really authentic.

The foodpark can feature manifold burritos (burritos heated on top of the exhaust manifold of a diesel generator) and lunchboxes with weekold sandwiches just like the ones flown out to wildcat rigs by helicopter.

Just add a cup of "roughneck coffee" (4 cans of Folger's per gallon), a can of Skoal, swearing lessons, and a nosepicking manicure to give folks the real feeling of the oilpatch.

Or maybe a cool interactive simulated drilling floor funstation where civilians can attempt to throw the spinning chain and try to keep their fingers from getting chopped off. You could come up with a points system with points added for making hole and points subtracted for twisting off the bit and going fishing! Imagine the thrill of drilling into a high pressure gas zone without any blowout preventers and running to jump 80 feet into the cold ocean or sliding down the angel line into a patch of cactus in order to escape being burned alive! We're talking Survivor on steroids.

How about an authentic drilling mud "reserve pit" swimming adventure? You could let the park guests test their survival skills by attempting to negotiate their way across 200 feet of old drilling mud, raw sewage, abandoned sacks and drums full of caustic chemicals, 4 months of accumulated trash from a real drilling rig and varying concentrations of hazardous waste while swimming in oil soaked coveralls, boots, gloves and a hardhat. Do you think we should issue complimentary safety glasses and install eyewash stations at each end?

Maybe an "oil futures pit" where amateur traders could try to beat a Gordon-Gekko-like artificial intelligence opponent and experience the satisfaction of crashing the economy of a whole country or the buzz of getting arrested for insider trading?

You could get the park visitors some decent exercise by sending them out driving on the "back four thousand acres" of desert scrubland in Hummers purposely low on fuel and letting them enjoy a stimulating "reality show experience" by making them huff it back to town in the hot sun and then trying to carry a full gas can back to save their families!

What about the psychological drama you could create by letting ignorant tourists handle live samples of various well logging radioactive materials? A little Cobalt 60 anyone? What a fantastic way to help people bond with former oilfield services employees who were exposed to excessive doses of radiation. Nothing like a nice exposure to some thermal neutrons to give you something to keep you up at night wondering about cancer treatments.

Imagine the great entertainment value people would get from the boardgame, not to mention the 3D videogame. Why would anybody want to keep playing GrandTheftAuto when instead they could create an avatar, assassinate innocent indians and destroy the rainforest building drilling pads and pipeline easements? They could enjoy the administrative side of the oil biz with a "LandMan" avatar that goes out and gets unsuspecting landholders drunk enough to sign over their mineral rights! Whoopee! Or, best of all, an "Oil Company CEO" avatar that comes equipped with a country club membership, stock options, excort service expense account, corporate jet and congressional investigation subpoena.

I know, I know. It's a brilliant plan. But I have to admit I stole the concept. I read a May 22, 2008 New York Times article titled "As Oil Prices Rise, Nations Revive Coal Mining" and learned about a town in Japan, Yubari, that created their own funpark, "Coal History Village" which, unfortunately, "failed to attract tourists."

Hey, no problem. These guys were just ahead of their time. Never mind that the town went BANKRUPT due to the failure of this obviously ingenious plan. Maybe a little updated market analysis and recast Pro Forma Financials could whip their numbers into shape. No matter. They just picked the wrong commodity. Coal isn't nearly as fun as oil.

We could design a really awesome roller coaster and name it, are you ready for this, "The Plummet after the Peak." Just bend the track around to follow the Hubbert curve or maybe you could have different sections memorializing various countries' oil production history curves to give people that great nostalgic feeling of the age of oil. I bet the most popular part of the track would be the Russian history with it's two prominent humps.

Hmmm...What's that feeling? I think I'm turning Japanese! I guess I better get busy buying up the domain names and drafting the Private Placement Memorandum huh?

DISCLAIMER: the above information does not represent an offer to sell securities. Investors should seek independent counsel prior to investment. Past performance is no guarantee of future results.

Saturday, May 24, 2008

Richard Heinberg

Hey all you Peak Freaks out in Peak-land!

I just escaped from the Church of the Bakken Formation and I thought we could drink some Kool-Aid together and watch some old Peak Freak videos.

Check out this classic Richard Heinberg clip. Sorta like watchin' an ol John Wayne movie ain't it? This is only one year old and it already seems ancient considering the turbo spike in oil prices in 2008.

This is plenty of stuff to think about for one daily post. Tune in again soon and please subscribe.

Friday, May 23, 2008

Bakken Be Thy Name

I used to have a Merrill Lynch broker that would call me every week. He was just itching to sell me some goodies.

It didn't faze him for me to explain that my duty as a fiduciary prevented me from taking any risk with the funds under my care. It wasn't his problem if I got sued for Breach.

I could have told him to buzz off and just send me the monthly statements but I humored him and found it intriguing listening to his "hot tips."

He was a "stock picker." You know the type. Always hyped up on something.

I used to meet a lot of stock pickers when I was jumpseating around the world. You might be surprised how many pilots claim to have the latest dope and the hot tip of the century. Or the business dudes waiting for their flights. Kinda like getting tips from a New York City cab driver. Maybe George Soros' chauffeur would be a reasonable source but never yesterday's news from some amateur. How about getting a tip from some big talker in the locker room at the gym? Too funny. It's good entertainment but doesn't constitute an investment strategy.

I like technical investing just fine. Reading the charts. Memorizing the patterns. The new software packages give the individual investor some good tools.

I like fundamental investing just fine also. Ordering the annual reports. Doing the Free Edgar thing. Picking apart the financials and insider trades. I dig the Bill O'Neill momentum investing and enjoy reading IBD. It's all lovely. I get to hear about all the latest wall street stuff when "investors" come to the world of real estate and we help them out with a strategy.

It's been a real hoot the last couple of months with all the activity happening on the Bakken formation. I get lots of newsletters. Some are authoritative. Some are whacky, just for perspective. It has been real amusing hearing all the media hype about the "billions of barrels."

Been there, done that. That applies to the Williston Basin and the Dakotas for me. I punched some holes up there way back in the day. And I'm as happy as any oilhand that there is a mini boom going on up there again. Great. Every lil bit helps. Too bad we didn't pay more attention to US stripper wells over the last ten years...but that is a subject for another post.

Bakken is the new God. Bakken be thy name. Bakken this, Bakken that. It reminds me of that Merrill trader squawking at me with his hot tips. Did they sacrifice any virgins yet?

I got one newsletter that had this real simple graphic that showed the 260 Billion barrels in Saudi and the 20 Billion in the USA and then they just magically tagged on another 200 Billion barrels.

200 billion barrels! Do they have any idea how much magic go-go juice that would make?

It just shows how totally off base their thinking is.

I got another newsletter that claimed 500 Billion Bakken Barrels and suggested that the US could completely eliminate oil imports! This seemed really amazing to me until I thought about the snake oil salesmen that have been ripping people off throughout the centuries. My great grandmother told me some stories that have helped keep me out of trouble over the years.

If I remember right the USGS report discussed 3 billion. I guess it's all relative right? Nope, that's not even what Mr. Einstein said, it was space and time. But hey, 3 billion, 200 billion, what's a few billion here and there when it comes to rebalancing a portfolio?

It is sad really that all the stock tipper boys have to resort to such ridiculous tactics to squeeze some more fees out of their shrinking clientbase.

The sheer scale of the fraud is one thing but then there is the "new technology" fantasy angle as well. The idea that some "new" technology like horizontal drilling and frac-ing will come to the rescue and magically suck blood out of the stone. Unbelievable. Sort of a modified pump and dump scheme, huh?

I guess that goes with the times. Last month I had two new real estate clients get caught up in the drama just before they got to me. One got into a pyramid and the other into a ponzi. Unfortunately they were successful business people who never happened to get any education on those basic scams and couldn't recognize them. At least they didn't get taken by the stock pickers yet.

So there you go. The Church of the Bakken Formation. Hallelujah! Bakken be thy name. God bless all of them. I think it is neat that some of those ranchers who inherited grandad's spread are going to get some nice royalty checks. I always enjoy getting those things in the mail.

Maybe there is water or methane on the moon and Bill Stone will pull it out of there, maybe not. Maybe Mr. Putin will snag the Arctic, maybe he won't. But inventing a new Saudi Arabia just to avoid dealing with the Peak is pretty weak, even for wall street.

But I hope the parishioners of the Church of Bakken will think carefully before tithing too much of their net worth to the holy men.

Thursday, May 22, 2008

A "Dangerous Situation?"

Fatih Birol, the chief economist for the IEA (don't you love the alphabet soup of acronyms in the energy biz?; International Energy Agency) was quoted Thursday in the online Wall Street Journal as saying that the "oil investments might be much, much higher than what people assume. This is a dangerous situation"

No shit sherlock!

much, much?

Your honor I object. Denied. I strenuously object.
much higher. Much, much higher. Hmmm.....

The great and powerful Oz, I mean the IEA, has already spoken on the Peak Oil issue. They told us that the world's supply could meet the rising demand. They told us that it would go from 87 million barrels per day to 116 Mbpd in the year of our lord 2030.

But now, apparently, the IEA is conducting a new "study" of the world's 400 biggest oilfields and is scheduled to release the info in November 2008. Sounds great. It's about time we got some better info.

Dangerous situation? How about catastrophic situation? Global crisis? Here we come.

The question is, where is all the money going to come from to invest in the development of all those oilfields? Abu Dhabi? Gazprom? China's sovereign fund?

I find it interesting that information is again the problem. Just this week the oil traders freaked out when the inventory information turned out to be wrong.

Didn't Matthew Simmons already suggest that the system of gathering data on oil inventories was broken and needed fixing? And now we are told that The IEA is trying to get better info about all these oilfields. Hmmm....

Lucy! You got some 'splainin' to do!

667 Reasons Oil is Worth $800.00 Per Barrel

Don't you love those lists filled with some outrageous number of reasons why something is a certain way? I guess people are stupid enough to believe that stuff. It all comes from the idea that more is better.

If I come up with more reasons, it must be better. Hmmm......

Bigger, better, faster, longer, higher, stronger. Whatever.

I thought of 667 reasons for you today.

It's just all a corollary of "the secret." You know. The Secret. The secret Secret.

Of course the secret is that there is no secret. It is just plain greed.

By the way, did you notice that all the people involved with last year's secret book scam are all suing each other? I guess the secret thing didn't work out so well for them. Did they really think you could buy philosophy in a can?

It's sorta like when they say something is free. You know. Free. Free! FREE.

Free bonus. Buy one get one free.

But what if it was true? What if there really were 667 reasons that oil will soon rise to $800.00 per barrel?

That would be impressive. Oil was trading today at $133.64 according to one of my little widgets. So a rise to $800.00 per barrel would be a 498% gain!

I told my clients last year when oil was $65.00 per barrel that it was going up. Way up.

I think it was Steve Forbes and other wall street gurus along with various talking heads in government that insisted that oil was going back down to $30.00 per barrel. We will have to wait to a later blog to discuss the Venezuela factor in all that.

I wonder if any of those wall street wonder boys drink coffee? Not buy coffee. Not commodities or futures trading or options or anything exotic like that. Just coffee. A cup of joe.

Actually I don't drink coffee and I probably would be really out of touch with the whole coffee culture if I didn't agree to meet new clients at coffee shops sometimes.

But I do remember that coffee used to be ten cents a cup. Back in the sixties when I was a little snow skiing devil I would be forced back into the ski lodge by my not so very tough lowlander surfer buddies who couldn't stay out in the cold like I could.

They would order a hot cup of coffee and I would get a nice hot chocolate. And I remember the coffee was cheaper than the hot chocolate. I guess it was the cost of the sugar.

Remember the way things were before the Starbucks orgy? At the very most a cup of really great coffee was about a buck. $1.00. One dollar. Plus tax. Say 6% percent for many municipalities. A dollar six. Not too bad.

So if a cup of coffee is worth one dollar, even if it isn't worth 4 or 5 like today's "gourmet" prices, what about a cup of oil?

You see that's the genius I see every time I listen to Matthew Simmons. Simplicity.

What is a cup of oil worth?

A buck? $1.06? $1.10? How about $1.20? Those pennies don't seem like much but they compound quickly don't they?

Just $1.20 a cup is $800.00 per barrel!

See, there are 667 cups in a barrel of oil.

That is a pretty big multiplier. I think you would agree it is a significant multiplier.

This is just sort of barnyard logic. Informal math. Back of the napkin stuff.

But look how easy it is to get to $800.00 per barrel!

Soon I will take us through a few other similar exercises..... stay tuned and please subscribe

Wednesday, May 21, 2008

Pipeline Rodeo

Pipeline testing is part engineering, part art, part rodeo.

The idea with the engineering part is to pressurize the pipeline to some meaningful percentage of the maximum it was designed to hold and then measure the pressure over a meaningful time period to see if it holds. All pipelines leak, so it is normal to have a pressure drop over a few hours. But the pressure is not allowed to drop too much or that means there is a significant leak somewhere. Maybe in your backyard.

Of course you can pressurize the pipeline with "product" in it. Product as in oil. But then you risk making a big huge mess when the pipeline bursts. I've seen a few of those. I got called out to monitor a test and the line burst. The pipeline operating company had to spend a week cleaning up the thousands of gallons that sprayed all over. So usually we do a "hydrotest." Which means the oil is purged out of the line and replaced with water which is easier to clean up.

It would be an understatement to say that most people don't have a clue about the true nature of the network of oil and gas pipelines that snake their way through the backyards and backwoods of America. About 380,000 miles of pipelines are located in the US. Of course that makes sense when you understand that the US is the biggest energy hog country on the planet. So of course there is a psycho amount of pipelines. I can guarantee you would be surprised if you knew some of the places where these things go and you have no idea. You would probably be pissed if you found out that most of our pipeline infrastructure is really old and falling apart.

Pipelines sneak all over the US. Let me give you an example. There is a pipeline that carries jet fuel from the Los Angeles refinery all the way down to Miramar in San Diego where the Top Gun jet fighter school used to be located. About 20 years ago there was a huge construction project  to expand the freeways at the choke point they called the "Orange Crush" in Orange County between LA and Diego. The pipeline route just happened to cross the freeway right there in the middle of the project. The 8 inch diameter pipeline crossed the freeway interchange and if I remember right it was bolted to the side of a freeway overpass that had been dismantled. But for some crazy reason the engineers had failed to figure out that they should construct an alternate line during the construction. So, for several months the naked pipeline was left in place and it stretched straight across 10 or 12 lanes of traffic without hardly any support. I was driving to a pipeline test one day with one of the engineers and he was laughing and shaking his head and when I asked him to let me in on the joke he pointed up to the pipeline and explained that there was still jet fuel in it that day. I was shocked. It looked like an accident just waiting to happen. What if something happened on the freeway down below to impact the line? What about an earthquake? The earthquakes never stop in California, they are continuous every day. How big an earthquake would it take to bust open the line and spray jet fuel down on the public below? It was crazy. But somehow, nothing happened.

Compare that to what happened one day when we were testing "Line 1." The pipeline that goes up and down California from the LA Refinery. We cranked up the pressure to 3000 PSI. I think it was mostly 14 inch line. It's hard to remember the diameters after testing so many lines over the years. When it blew during the middle of the test, the line was snaking through a residential neighborhood and there was a car parked right on top of the line that was buried a few feet below the surface. The force of the pipeline bursting flipped the poor little car up into the air and it landed upside down in a pool of oil. Somehow the whole mess didn't catch on fire. But an exciting spectacle nevertheless.

Therein lies the rodeo nature of a pipeline test. It starts with something similar to the fans gathering at the county fairgrounds as all the work trucks filled with all those persons participating in the pipeline test show up at the test site. You have long periods of calm. Sort of like in between bull rides. And all of a sudden all hell will break loose when the bull breaks out of the pen and tears around on a rampage. The pressure drops in the pipeline and you get a sick feeling knowing that even though you can't see it, there might be a giant problem somewhere along the line. It doesn't seem like much when the pressure drops and the little piston on the pressure scale quietly drops. But those of us monitoring the test understand how much it means. It might mean a fire. Sometimes they don't bother to use water and use oil instead.

The big ruckus main event is when the pipeline test crews drive up and down the pipeline route for a while to try to figure out where the break is located. Things can get really crazy as everybody speeds around hoping to get to the break soon enough to throw a valve and shut it off and avoid a fire or an even bigger spill. People are yelling on the radios and talking over each other and trying to read ancient pipeline route as-built maps as they drive and drink coffee and chew tobacco. Time makes the problem worse so everybody is in a huge hurry and civilians often tend to get in the way. 

See, all we know back at the measuring station is that there was a big pressure drop and the test had failed. We have no way of knowing at what point along the miles and miles of pipeline the actual failure occurred. That's why the helicopter comes in handy for some tests where it is difficult to drive along the entire pipeline route to looks for leaks or breaks.

The art part of a pipeline test has to do with logging the test data. Normally, we set up a pressure recording device that is the size of a small microwave oven and has a metal disk with a piece of 12 inch circular graph paper clipped on it that rotates. As time goes by, the pressure in the pipeline draws a curved line on the pressure graph. The idea is to get the line to look nice and neat in order to impress the state fire marshall who oversees and approves the test. The "artist's judgment" comes into play when wrestling with the question of whether to pump up the pipeline during the test or not. 

If the line doesn't leak much you can just pump up the line and leave it alone until the test is done. That is an easy test. Not many of them go like that. See the line is always leaking. Sometimes hardly anything. Sometimes it is hard to tell how much it is leaking. So I have to make some calcs in order to guesstimate. You compare the total volume of the line to the rate of the pressure drop over maybe 15 minutes and try to extrapolate to figure out whether the line is leaking so bad that by the time the 8 hour test is over the pressure will have dropped below the minimum acceptable for the State Fire Marshall. 

If you calculate wrong, then you might sit there for 8 hours, with a whole crew of expensive men and equipment cranking up the cost of the test and the lost down time that they can't ship oil through the line, and then have to fix the line and do it all over again. It might be better to drive to all the valve boxes one more time before the test and bang the bolts a little tighter with a sledgehammer in anticipation of the high pressures of a test. See the pressure you test the line at is usually a lot higher than the day to day pressures on the line. So even if the line has not been leaking in normal use, it might start leaking badly or burst during the test. 
And, you want to make that pen line on the paper graph look nice and neat so that if some little shithead attorney gets a hold of it in a lawsuit they can't turn it into something negligent. So pipeline testing is artful, believe it or not.

It ends up being sort of like shooting a movie. There is a whole motley crew of various "actors" necessary to successfully complete a test. But unlike a movie, everybody has a part. And at the end you have a nice product in the form of a neat little pressure graph and an accompanying report with all the calcs and signatures of the powers that be. 

On the day of the test everybody buzzes around like the grips on a movie set. It's an organized panic. 

You've got the pipeline company folks, usually some administrator types from the home office.
Real serious. Coat and tie. They are easy to tell by their brand new hard hats that never had, and never will have, any drilling mud sprayed all over them. Office boys. No callouses on the hands, get it? Never lost any fingers throwing the spinning chain. They don't usually have a friendly attitude. Pipeline tests cost money. Huge liability exists. Sometimes they even bring an attorney or two to worry about the thousand things that can go wrong and get us all in trouble.

Then you've got the engineers. Sometimes they actually show up with pocket protectors and slide rules and broken glasses taped together. Seriously. These are the guys that talk in partial differentials with a southern drawl. They bring me the "calcs" for the test including the line specs and the temperature correction curves. Pop quiz! Can you remember the equation for the volume of a cylinder? That's all a pipeline is. A long cylinder. One that stretches with pressure and temperature and wall thickness and steel type and so forth. How about Pi-r-squared times h? Just change h for height to l for length and you've got it.

Then there are the guys that work for the pipeline company. These guys are the ones who usually wear the dirty, grimy coveralls and hard hats. And chew tobacco and swear like the roughnecks that most of them used to be until the drilling business crashed and burned and put them out of roughnecking and into pipeline babysitting. We're talking colorful characters. Roughnecks are good at spinning tales and killing time during an 8 hour test. Never a shortage of bullshit around oilhands. The engineers run out of personality a lot earlier in the test.

Then you've got some outside contractors like the company that gets hired to do maintenance on the valves along the line or does regular inspections. They are sort of worthless as they float around trying to figure out the command hierarchy and whose orders they should listen to and whose they should ignore.

You see a pipeline test is a lot like a municipal construction site. Have you ever been stuck in traffic for 30 minutes while you are late for an appointment and when you finally get up to the blockage in the roadway there is a ditch with one guy down there slaving away with a shovel while 25 "supervisors" from 6 different agencies watch him work? Pipeline tests can sort of get that way.

There is almost always a contractor that brings a bunch of "vacuum trucks" to the test. These trucks are usually strategically placed along the 10 or 20 or 50 miles of pipeline that is getting pressurized and tested. The trucks standby to suck up any leaks or god forbid, a burst. They carry sacks of that neat absorbent stuff they use for hazmat spills. They face the formidable challenge of sleeping all day and night in the cab of their trucks while still keeping an ear on the radio in case they are actually needed to do something. It's good work if you can get it.

Sometimes I have seen the local fire department show up at a pipeline test. This is really tragic. These poor guys missing time from their bodybuilding and calendar photoshoots just to drive out to some industrial hole in the wall shithole with a valve box or pumping station and no hope of getting their picture taken with their shirt off. You gotta feel sorry for them. The roughnecks always get a laugh or two out of the fireboys and will make a diving run at them by asking them a stupid question with a serious face and letting the sorry fire dude try to form an opinion about something oilfield related without having a clue what he is talking about. Hazmat questions are good. Maybe even one about the fire triangle and a gas well blowout. Ever heard of Red Adair?  Why do they call it "Midnight Death?" Do you know Murphy's email address? Even the engineers and company guys are relieved when the fireboys split and go back to the dangerous world of walking around shopping malls conducting fire inspections and chatting up teenage salesgirls while the men that make the oilfield world go round are out blowing up pipelines.

But let me tell you a secret about pipeline testing. We should be glad they do it at all. When I was in Baku, in Azerbaijan, you could look around and tell that they had never done a pipeline test. Ever. Baku is a mess. An oilfield wasteland. Rusting pipelines and manifolds and valves all over. They didn't even try to clean any of it up after the big oil boom and they moved to drill a new field. Same with all the other dead oilfields I have been to. West Texas, Elk Hills, Lake Maracaibo.

When the party is over, don't expect to see the maid come to clean the penthouse suite we have all been partying in. At least in Los Estados Unidos they try, unlike in Baku. A pipeline test every few years keeps the treehuggers and enviro-nazis at bay. And we should be glad.

Peak Oil. Peak, peak oil. The changes are a comin.' Where is Bob Dylan anyway? The oil crash is plenty enough inspiration for a blues tune. It would be nice to have something to hum when we are all reduced to metal scavenging like the Iraqi looters after Operation Freedom.

Tuesday, May 20, 2008

Combat Larry and the Time of the Great Gas Lines

Larry had the Thousand-Yard-Stare. He was the kind of dude that you just knew not to bother.

But Larry was my bud. We worked together at the gas station on Pacific Coast Highway in Corona Del Mar, California. Larry was older than us teenagers. Larry had been in the 'Nam. Larry knew his shit. Customers would come in bitching about some mystery noise or broken whatever and Larry would assume his "you're on point tonight" stance and just amuse himself while some silly civilian would try to get him vibed up. Nothing fazed Larry. Been there done that was an understatement. As it turned out, Larry's combat experience would soon come in handy.

As a teenager, I didn't have any combat experience to get me through the gas rationing crisis. But, I was pretty proud of the fact that one of the only times I had ever seen Larry raise an eyebrow was when me and "Da Boyz" invited him down to hang out while we picked off some 20 footers at night at the Wedge. We had the impression that Larry might have thought that surfers were a sub-species of humans. Larry was a redneck through and through. But after watching a 5 second tube ride Larry changed his tune and gave me the "bro" handshake. He realized that there was no way his combat training and cool under fire could do jack shit for him out in the lineup. I could tell my stock had gone up a notch or two, even if he probably wouldn't share a foxhole with me or trust me to crawl down a VC tunnel on the Ho Chi Mihn trail with him.

We opened the station at 7 am. Right on the money. No earlier. I usually paddled out for a little tube-ride-breakfast and then came in about 15 minutes early so I could wash out the wetsuit and get my little uniform straightened out. 

Larry was big on uniforms. It was a life or death thing for him. He was used to the "yes sir, no sir" thing. It wasn't hard for me to go with the flow of the "neat and orderly uniform" plan once Larry had started working with us. Why not, I figured? It gave you a little leverage with the customers anyway. They didn't treat you quite as bad if you looked like you knew what you were doing. And it helped Larry relax. He got uptight if we started to look too much like grease monkeys.

People didn't impress Larry very much. He had seen too much. The crew at the station knew that when one of those pushy New Yorkers that had just got transferred to California came in to bitch about their car, Larry was the one to handle it. It wasn't more than a couple of weeks into Larry's tenure that some fool made the near-fatal mistake of trying to jab his finger into Larry's chest to make a point about the exorbitant cost of replacing a water pump. I was only about 10 feet away and I still could hardly make out the blur that was Larry throwing some jungle move that looked like a Tai Toshi or something on this poor dude. Wham! That guy flipped upside down and hit the ground with a thud and was out cold! Larry didn't bat an eye. He just cruised back inside the little office with the glass windows looking out on the pump islands and sat down to finish off his coffee lest it might chill a bit. Make a note. Don't ruffle Larry. 

So it came to pass that the Time of the Great Gas Lines came about and Larry was completely unfazed with civilian life back in the world. But to me, our first day of gas rationing was insane. I showed up about 10 minutes before 7 and there was already a line of cars stretching way down Coast Highway towards Laguna. Everybody was pissed! There was honking and swearing all up and down the line. I just about got lynched for trying to maneuver my truck to park at the station because everybody thought I was trying to cut in line. I was a bit nervous as I plucked at my uniform and watched the clock tick towards 7. About 1 minute before, Larry got up and ambled on out to the nearside island and slid the cash drawer into it's place. I was stuck with working the outer island and having to weave my way between irate motorists all day as they barreled up for their chance to load up on magic go-go juice.

Larry's Vee-et-nam stories gave me a pretty good idea of what I was missing over there. From what I could tell, working the morning shift dealing with spoiled American motorists was about as dangerous as going out on night ambush looking for VC.  I figured my odds were getting closer to the proverbial FNG recruit over there in the Nam every day of my combat duty at the gas station during gas rationing. I quickly learned to perch myself up on the island right behind the big huge metal column that supported the roof over the pump islands and that way I could let them hit the column first instead of my legs as they charged forward after waiting for 2 hours or so. 

It was amazing to me all the crazy excuses people came up with for cutting in line. "I'm a doctor," was popular. Yeah right. Everybody is a doctor in Corona Del Mar and Laguna, how do you think they can afford those mansions? Wait your turn.

Some people would just drive up on the center divider with their left tires and go right around everyone and then crank a hard right at the last minute and sneak in between the third or fourth car in the driveway. It reminded me of the drunks and crazy dangerous types in the border line at Tijuana. People that are that crazy are capable of anything. Better to just give them some room.

Somehow I survived those weeks of chaos and mayhem. I was glad when it was over and things mellowed out and we had time to sit in the office and every once in a while Larry would trust me with another true life tale of napalm and dope and Saigon bars, not to mention the graphic descriptions of his buddies getting their faces blown off. 

One of the last weeks that Larry worked with us I remember there was a crazy nasty accident directly in front of the station. The car was speeding and flipped over and over and bodies were scattered all over the street. Everybody within a couple hundred yards just stared, paralyzed. Customers in the station just stopped what they were doing. This degree of blood and guts was beyond the paradigm of the sedate suburbanites. I watched Larry casually put down his dipstick rag and walk out in the street towards a woman lying there bleeding to death. He reached down and flipped her over to assess the situation. You could just tell she was toast as Larry let her flop back down like a rag doll. He just matter of factly moved on to the next victim. We all stared and marveled at his coolness. It was at that moment that I really understood the reality of all of Larry's jungle stories. 

And that's the way it was, back in the last gas rationing crisis. Can't wait for the next one. Maybe I should try to hook up with Larry again, wherever he is, before it gets too ugly in those gas lines and I need some backup.

Monday, May 19, 2008

Ethanol fantasy

Be still now! For you are drunk, and we are at the edge of the roof! - Rumi, Sufi Philosopher

The US is living an ethanol fantasy. The leadership is drunk. The lobbyists brought the kool-aid to the party. Watch out! They might knock us off the roof.

I guess somebody wiser than I will have to explain how such a ridiculous situation has evolved. I can only shake my head and wonder.

Politics is closely associated with the concept of awareness. Usually in an inverse way. Success in politics seems to be inversely proportional to public awareness of facts and issues.  Obfuscation is an effective political tool. "Spin" is the mark of the master politician. Awareness is not the objective of politics. Perhaps that explains the descent into darkness.

I believe most people will do the right thing once they become aware of a particular problem. That was the whole idea in writing a blog about awareness.

The ethanol fantasy might be summarized by explaining that somehow over the 27 years since oil production peaked in the United States the politicians that control the government have failed to come up with a plan to replace cheap energy from oil. 27 years! Instead they have now decided that ethanol will be the leading replacement. This is not a well thought out plan.

A May 16, 2008 article in explored the ethanol fantasy issue.

Shhh! Keep your voice down. The Chinese might be listening. Or maybe foreign investors concerned with the viability of the US economy and security of their investments in the US.

The ethanol fantasy presents a whole bunch of interesting impossibilities.

My favorite is the EROEI analysis. Energy Returned on Energy Invested. Yep. You're right. It works very similar to mutual funds that promise fantastic returns but conveniently forget to mention that they don't have any responsibility to report their actual expenses that decrease your returns. EROEI is a hot topic these days. Many scientists have now questioned whether the energy you get out of a "technology" like ethanol (meaning corn ethanol, ethanol produced from corn, corn subsidized by the US government) is more than the energy you put into it! Probably not.

Hmmm. Maybe it would have been a good idea to figure that out BEFORE the commitment to ethanol?

EROEI is one thing. Of course there is the opportunity cost also. Every dollar and every hour spent going down the road of a false technology is an opportunity lost to go down the right road. Whatever that may be.

But the one ethanol issue that just amazes me is the simplest.

ETHANOL CAN'T BE DISTRIBUTED BY PIPELINE! It is too chemically corrosive.

Now, if you ask me, I would say that understanding the chemistry of ethanol and therefore the challenge of building an effective distribution network is pretty important. It is just painfully obvious. For me, this is just another great example how having a working knowledge in chemistry can help a person grasp the reality of an important issue.

ETHANOL WON'T WORK! Why? It will not be possible to build a distribution network that is scaled up big enough to meet the need for replacement of the current huge volumes of oil and gas that are distributed by pipelines. No way.

In case you didn't catch it, a large part of the rail system in the US is already plugged up with coal for electricity production to keep the lights on and freight to keep the consumer economy chugging along. I urge you to take notice of the interesting point in the Forbes article that explains how rail-tankers to carry ethanol aren't being manufactured fast enough.

That leaves shipping by barges and trucks. Barges sound good. They hold a lot and move it relatively cheaply. But the ethanol needs to get from the midwest where they grow it to the coasts where the bulk of the population resides. Barges aren't going to work for that. So much for barges.

That leaves trucks. Truckers. The unsung heroes of the US economy. The people who get all those products to market to support the consumer economy. Well, guess what? Those truckers aren't making it. They can't make a living. I will come back to the plight of truckers in a later blog but for now, trust me, trucking the ethanol will not work for a whole bunch of reasons. For example. Ethanol being transported in a truck is a hazardous material. It is really, really dangerous. So you have to hire drivers that are sort of "above average" meaning they went through the extra expense for the HAZMAT training and they have a near perfect driving record to be insurable driving such a dangerous load. Not to mention the fact that the new TSA rules can delay a driver's HAZMAT certification for 6 months or more.

There just aren't enough drivers that good. Many companies have a turnover rate over 100%! Every day drivers get in backing accidents and other silly things they should have avoided. You don't want drivers with poor skills or a poor attitude driving a bomb filled with ethanol around the country. Since 9/11 most large cities have now designated special HAZMAT routes to prevent the boogieman terrorists from driving ethanol bombs through tunnels and over bridges and through downtowns. The level of responsibility when driving a HAZMAT cargo is more like the responsibility of an airline captain. I know because I have done both. But the money doesn't exist to pay people who have the skill and competency of a professional pilot to drive a truck. That's a problem with the ethanol business model.

One issue is whether we really want our soccer-moms in mini vans driving along next to thousands and thousands of new ethanol-delivering truck-bombs. Another issue is the fact that we now know that all that corn being diverted to make ethanol is causing huge impacts on food for people who don't have any other options. This is unethical. People in the US have not adjusted their use of oil to align with the reality that oil is peaking and we are now facing a mid-term crisis until we rearrange our energy production. Part of the lack of awareness comes from the fact that Wall Street is focused on the short term. Quarterly reports. Annual statements. Even if modern day CEO's have real time computerized dashboard widgets to give them an instrument panel on the the daily operations. Everything is just too short-term focused. Ethanol as a policy to replace cheap transportation energy is just a flawed concept.

We are just getting warmed up today. More to come on the ethanol in the near future.

By the way. Please subscribe to this blog by using the subscription tool in the right margin. Thanks. Until we meet again...

Wednesday, May 14, 2008

Matthew Simmons video-2007

Still not sure if global oil production is "peaking?"

Check out this video of Matthew Simmons, world-respected oil industry investment banker and expert on Peak Oil.

This was from last year. 2007. When oil was $65.00 per barrel.

Did you catch the number there? Yes, that was $300.00 per barrel.

On May 13, 2008 oil was trading for $127.00 per barrel already.

I am advising my clients that we will hit $200.00 by the end of 2008 if not sooner.

That would probably equate to somewhere around $6.29 a gallon for gasoline, maybe more for diesel.

Have you developed a strategy for living in a world of higher energy costs?

Many of my clients are already working hard on various lifestyle changes and investment strategies to adapt to Peak Oil.

More to come....

Discovering Mr. Hubbert

It was a dark, and lonely night. At my college in Colorado. I was tired from skiing all day and studying for mid-terms on the chairlift between runs. I spent some time finishing up my cheat sheets for the Chemistry, Physics and Geology exams. I always found that once you go to the trouble to make a cheat sheet you don't need to use it but some of my professors allowed us to use just one 3 by 5 card. Some people wrote their entire semester of notes in little hieroglyphics and I used to amuse myself watching them flip their little cards over and over squinting to read all the stuff they should have studied instead of partying. I had better results doing constant smaller efforts like the chairlift speed study sessions. I got up and wandered around the library in my usual habit of surprising myself by picking up random technical journals and periodicals outside my area of expertise. Every time I would shake my head in disbelief to think of the burning of the Great Library at Alexandria. What a shame. What a crime. I pinged around a bit and found myself orbiting about the science journals section like I was reconstructing the Lorentz Attractor. I stopped and reached out and grabbed a journal and cracked it open to a random page. There on the page was a simple graph. Up and down. Quantity versus Time. Ordinate and Abscissa. Interesting. I sat down and skimmed it over. The subject was Oil Production in the United States. I glanced back at the first page. Hubbert. Hubbert? Hey, wasn't that the guy that my first geology professor back in Junior College talked about. I remember they were buddies at Shell Oil or something? It was plain to see. The "Peak" of the graph was centered on the tick mark labeled 1970. Wow. Here it was 1981 already! Is this for real? Did Oil Production in the United States really Peak in 1970? I yanked down a pile of other journals from the oil biz and just skimmed and skimmed for a while. I wasn't really too familiar with production statistics. I had only punched the holes, drilled the wells. Production stats seemed like an engineer head trip, not really a geological focus like my studies in Petroleum Geochemistry. But after a while I got some numbers and sure enough, you could plainly see that production had dropped way off and then rebounded after Prudhoe Bay. Wow. What a trip! I was sort of motivated. It seemed that my country really needed me to help go find some more oil and gas out there in the world somewhere. It seemed strange to realize that everybody I knew was charging ahead doing more and more. Using more oil, burning more gas. No wonder we had the couple of years of oil boom in Colorado and Utah and other states. That was why they were always bitching at us to drill the wells faster and move the rig to the next hole as soon as possible. We were sliding down the backside of the curve. But it didn't really make sense. If this was true, which it obviously was, why didn't we have the gas rationing again? Didn't the government understand we were headed for trouble? When I think back on it now in 2008, I guess I just blindly assumed that "educated" people like me would charge out there and discover some huge new fields. I had my suspicions where those fields might be and tried to anticipate which companies would be hiring for work out there. The continental shelfs. The jungle and desert areas that were previously too remote and difficult to do some decent seismic profiling and wildcat wells. It's curious to reflect upon my intuition after 27 more years of participating in the most oil-wasteful society on Planet Ocean. I can think of all the millions of miles I have traveled in jets, helicopters, speedboats, jetskiis, motocross bikes, snowmobiles, ATVs. I must have one of the biggest oil-footprints ever! Amazing! And now in 2008, there is no place left to go to keep up with the demand. Is it Peaking today? No one "knows" for sure but intelligent people are already trying to look for the signs of the World Peak even while understanding that we totally missed the US Peak back in January 1971. Tune in next time for some more Peak Oil concepts and maybe even some talking heads or government propaganda!

Tuesday, May 13, 2008

My first lesson in Peak Oil awareness

Awareness. Consciousness, recognition, realization; understanding, grasp, appreciation, knowledge, insight; familiarity, formal cognizance.

Awareness of a problem is a precondition to creating a solution.
Do you like stories? I do! There's nothing like a good story to help us learn something new. I hope you like this one.
There I was. Circa, 1980. Standing at a gas station in Newport Beach, California. I was just minding my own business filling up the tank of my 4 wheel drive truck. And all of a sudden, in squeals a little black Porsche 911 that skidded to a stop utilizing a miraculous ad-hoc gas pump collision avoidance technique. Out pops a beautiful blond woman in designer clothes and dripping with jewelry. A trophy wife. It was obvious.
She proceeded to circle the vehicle looking high and low for the gas filler port. After about the 4th orbit she found it and realized she had pulled up on the wrong side of the island, again. Oh well, no matter :-) She popped back in behind the wheel and fired up that little black toy and proceeded to screech around to the other side of the pump island. Can you see it coming?
That's right! She jumped out again and it took her about 30 seconds before she became AWARE that she had recreated the same challenge of having the filler on the far side of the vehicle from the pump.
At this point, I discontinued my fueling operations to take advantage of my ringside seat.
The third time, she got it right, but back on the original side of the pump island and not without some spectacular circling maneuvers as she worked out in real time the spatial realities of re-positioning her lil rocket ship.
She jumped out again, and this time she actually made eye contact with me and immediately scowled. She gave me a look like I was an offensive insect and I smiled and she ignored me.
I watched her wrestle with the gas nozzle and hose, remember the old ones without the vapor-recovery system? She got the fuel filler door open and managed to pry the cap loose. So far, so good. But then, trouble. She tried to squeeze the nozzle actuator once she managed to get it in the hole, but it clicked off time and time again.
Being the consummate gentleman that my mother always hoped for me to be, I idled over and politely offered my assistance.
"Can I help you with that Ma'am?" She started with the "crush the insect" look again but changed course and put on her best "Daddy, can I have another diamond bracelet" look instead and smiled at me as she gave me one of her regularly practiced cleavage shots.
I proceeded to pump the gas for her and politely avoided any small talk so she wouldn't actually have to speak to me.  Out of the corner of my eye I noticed her sizing me up.
"What in the world happened to you," she asked quizzically?
I was still dressed in my roughneck coveralls and I was covered with, oil!
Oil! The black stuff that they use to make gasoline for little black Porsches! I had just driven all night from a well we were drilling in Utah and I was still filthy from a flow test we had done that drenched everybody on the drilling floor before we got it shut in and avoided the imminent explosion that roughnecks affectionately refer to as "midnight death." I was so excited to go surfing in Mexico on my days off that I hadn't even bothered to wash up.
I told Miss Porsche that I worked drilling oil wells. For just an instant, I saw a little flicker of RECOGNITION, and maybe even APPRECIATION cross her countenance.....but then it was gone.
She said to me, "Oh, I see!" And I could easily tell that she did not.
It was that moment that gave me a powerful INSIGHT into understanding my fellow man, or Porsche-Babe, as the case may be.
I UNDERSTOOD that the vast majority of people in this world will never have the slightest clue where oil comes from and what it takes to go get it so others can live their lives.
Life, liberty and the pursuit of happiness. Rock on! And why shouldn't people be able to enjoy their lives free of concern for things industrial, things of a petroleum nature?
After all, we don't live in tribes anymore. Modern society insulates the beautiful people from the dirty, grimy world of physical labor as in drilling wells for black gold.
I never forgot that lesson. I helps me even now to understand how people can be so blind to the Peak Oil problem.
I learned that my realizations are not your realizations. Everybody has to be responsible for their own awareness.
I am looking forward to sharing my expertise as this exploration into AWARENESS moves forward.