Energy Information Administration (EIA) Changes Forecasts

[Nordmadr]

LONG-TERM FORECASTS REVISED FOR THE ENERGY MARKETS
Bullish Trends Continue
by Joseph Dancy, LSGI Advisors, Inc.
Adjunct Professor, SMU School of Law
January 3, 2006


Last month the Energy Information Administration (EIA), a branch of the U.S. Department of Energy, released their official long term forecast for the U.S. energy markets. The twenty-five year forecast of energy production and consumption is radically different than the one issued last year – with major changes in their assumptions:

“world oil prices have risen sharply as supply has tightened, first as a result of strong demand in developing economies such as China and later as a result of supply constraints resulting from disruptions and inadequate investment to meet demand growth. As a result . . . includes much higher world oil prices than were projected in ”

How much higher is the new price estimate? The EIA increased their long term crude oil pricing estimates by 66%. And this is not a short term issue either – the EIA sees the price pressure lasting decades, with demand “keeping pressure on prices through 2030.” This change in their long term forecast may not seem significant – and few in the press even picked up on the change - but it has huge implications for investors.

The EIA Study: Three Major Changes
In addition to forecasting substantially higher crude oil prices, the EIA’s base or ‘reference’ case has two other major changes from last year. Liquefied natural gas (LNG) imports to the U.S., required to meet the shortfall of domestic natural gas production, will not be as large as projected – in fact will be one-third lower in 2025 than projected last year:


http://www.financialsense.com/fsu/editorials/dancy/2006/0103.html


Got Oil? EIA is notoriously retarded in their projections. If they say things are getting kind of bad, it's worse.

This final money quote at the end...

"Worldwide demand for crude oil this winter could exceed worldwide supply by 1 to 4 million barrels per day. The global energy system has not experienced such a shortfall recently, and it could pressure inventories and impact prices. Demand for crude oil will be highly correlated with winter temperature over the next few months."


Olafr

[MadHound]

1. Welcome to Peak Oil

We are quickly running out of time in which to stave off the worst of the effects of the coming oil shortage. With an oil man in the White House, and pro-oil goons in Congress, there is going to be no significant national program to smoothly transcition our economy off of oil. They are going to run this country right off the cliff, making obscene amounts of money while doing so, and banking that their personal fortunes will protect them from the worst effects of the oil shortage. But they will leave the common citizen to fend for themselves once the oil supply runs out. Interesting to note is that on both the Bush and Cheney ranch/rural retreats there are state of the art alternative energy generation systems installed and in place.

Thus it is going to be up to each of us to start preparing for the worst now. If you have the money and the house/land, start installing wood furnaces, thin film photovolteic solar panels, and wind turbines. Take out a home equity loan if you have to, or if you're buying a house, include the price of these upgrades in your mortage. If you can't do this, buy a hybrid car, or better yet a diesel vehicle in order that you can run you car on biodiesel(which is quite easy and cheap to make for yourself).

Start these preparations now, for that proverbial cliff edge is looming on the horizon, and we'll be going over it sooner than you think.

[Nordmadr]

2. My wife and I currently own a house but were shopping for land.

I set a 10 acre minimum with some nice hardwoods on it. I have been up on this peak oil thing for about a year and a half now, but have had a hard time, until recently, convincing my wife that I wasn't looney. The more I see what is going on with government just further heightens my sense of urgency and concern about the world's energy supply.

All the things you mentioned are stuff we are considering and trying to plan for. I just hope I have enough time to get to where I want to be. Went and looked at a nice wooded 12 acre piece of property on Sunday that is surrounded by other woods for at least a few hundred acres, separate owners, sparse housing. I liked it, but she keeps stalling. Dammit!

Olafr

[MadHound]

3. My wife and I bought twenty acres two years ago

And at the time, my wife didn't want to add anymore on to the mortage than we had to. Thus we've been scrimping and saving. However we're now going downhill, with savings starting to accumulate rapidly. This was accomplished by one very simply purchase of mine, a scooter.

I've got a small Nissan truck that I use not only to haul things, but also for the 55-60 mile roundtrip commute everyday. Back last fall when gas was just starting to rise(before Katrina hit) I was really getting pinched by the rising gas prices and ran across this<http://www.bajajusa.com> These little scooters go 55-60 mph and get 100mpg. I picked one up for $2800 and just absolutely love it. It is big enough that you have to get a motocycle license to ride it, but it is a worthwhile investment. I'm saving enough money riding back and forth that we're going to be able to purchase an external wood furnace next summer, and then roll both of those savings into a wind turbine shortly after that(we heat with propane currently, and the pre-buy this year was priced at $1.60/gal). You can get 3kw wind turbines for $10,000-$11,000. Thus, there is a fifteen to twenty year time investment for you to recoup your money, but as energy goes up, it will probably be even quicker. And 3kw is plenty of power for most normal household usage. And they set up on only a quarter acre.

In addition, start preparing to grow your own food. Our food supply is obscenely intwertwined with petroleum products, from the petro based fertilizers to the diesel used to plant, maintain and harvest the crops, to the gas used to transport them to the grocery store. Thus, we're going to start seeing all food prices going up, and your best hedge against that is to start growing your own organic garden as soon as you can.

Sounds like the property that you're looking at is ideal. Close on it as soon as you can, because the sooner you can be prepared, the better off you will be. My best guess is that we'll really start feeling the pinch within three to five years, but it could very well be sooner.

[Nordmadr]

4. I agree with you 100%. I'm hoping the 3-5 time period holds true.

That has been my estimate, but I think it may be shorter than that now. I think peak for conventional products happened 2005.

I would love to be able to use one of those scooters. Maybe I'll look into it more, but the winter here, Upstate New York, makes it impractical about half the year. I currently commute 130 miles a day round trip to work. I hate it, and it is completely against my values to be doing it, but have not felt secure enough in landing an equivalent job to switch. I currently drive a Hyundai Elantra which gets close to 30 MPG and the gas prices have been killing me. I had to start the commute after I moved into my wife's house after our engagement (just married this July). We have a Toyota Tundra that we use only when necessary.

We have been researching the wind turbines, and had a new wood stove insert put into our current house last year. We purchased ten face cords of wood this winter, and have been using that to help draw down the cost of heating with oil.

One of the greatest things about our situation is that our current house is paid for, so we will be able ot use the equity in that to help establish ourselves in a new location, and then sell this house to hopefully put us close to even as far as debt goes (at least if the housing market holds itself together for a while longer).

Our currrent property is just barely over an acre, which would be completely insufficient in my mind for meeting several of the needs I would plan for property (wood, game hunting, privacy, gardening, etc). I made my first attempt at a real garden last year with some mixed success, and plan to give it a revised shot again this year to continue to gain knowledge and experience. I have been doing lots of research on skills that most people don't have anymore, including blacksmithing and carpentry, though I claim no competency in these things as of yet. The toughest thing is finding the time to learn everything while taking care of all my exisitng obligations.

My wife does not feel the same urgency that I do, so it is tough. I feel I am always trying to push her along, and have to make compromises to get her to keep going with my thought process. She doesn't want to believe that any of this is going to happen. I suggest to her, that even if it doesn't, is it not still more responsible for us to try to live more sustainably anyway?

Olafr

[MadHound]

5. Have you thought about getting a diesel vehicle,

And making your own biodiesel? It is cheap, easy, and doesn't take up much of your time. Hell, they even have kits out there which do most of the work for you.

As far as learning forgotten skills go, if you can run across an old set of Foxfire books, grab them. They are worth their weight in gold as far as forgotten information is concerned.

And I feel for you about having to push your wife along. Luckily my wife and I are on the same page. She teaches economics at a local college, and if anything she is a bit more scared of what's coming than I am.

Good luck to you, and I hope it all ends well.

[Nordmadr]

6. I have thought about the diesel, but I just bought the Hyundai

in Aug. 2004, and I am still paying for it. As soon as I am on the right side of this loan, I will be looking at the options more.

I have heard about the kits for the diesels.

I'll keep my eye out for those books. I have already purchased ones on blacksmithing, hide tanning, lots of home improvement stuff, tracking, wilderness survival, and more.

Good luck to you as well. I guess we'll just have to see where this road takes us.

Olafr