World Energy Outlook – November 12, 2008

With the focus on the worsening global recession, it is not so surprising that there was relatively little media coverage of the November 12th release of this year’s International Energy Agency report, World Energy Outlook.  As expected, the 900 page well-documented report has indeed predicted a serious energy crisis.  For example, here is the opening paragraph of the IEA report:

 

“The world’s energy system is at a crossroads.  Current global trends in energy supply and consumption are patently unsustainable – environmentally, economically, socially.  But that can – and must – be altered;  there’s still time to change the road we’re on.  It is not an exaggeration to claim that the future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today:  securing the supply of reliable and affordable energy;  and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply.  What is needed is nothing short of an energy revolution.”

 

Here is a link to the IEA website, specifically its press release regarding the report:

 

http://www.iea.org/Textbase/press/pressdetail.asp?PRESS_REL_ID=275

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Also, here is the Toronto Star article about the annual IEA report:

 

Over a trillion dollars needed to avert energy crisis

Toronto Star – November 12, 2008    

Jane Wardell & John Porretto

 

THE ASSOCIATED PRESS

 

HOUSTON–More than a trillion dollars in annual investments to find new fossil fuels will be needed for the next two decades to avoid an energy crisis that could choke the global economy, the International Energy Agency said today.

 

The warning from the Paris-based agency comes at a time when major oil companies are pulling back investments amid the most severe economic downturn in a generation. The IEA stressed that it’s essential for the world’s energy companies to continue investing in new projects despite tumbling crude prices. The total potential tab through 2030 amounts to US$26.3 trillion.

 

“While the situation facing the world is critical, it is vital we keep our eye on the medium- to long-term target of a sustainable energy future,” IEA executive director Nobuo Tanaka told reporters at the release of its annual World Energy Outlook report in London.

 

There are growing fears that the simultaneous plunge in oil prices and a pullback in spending on exploration and production will result in another massive energy price spike.

 

“While macroeconomic conditions have lowered oil prices for the moment, there is nothing in the underlying economic picture that suggests this slowdown will be long-lived, maybe a year or more out,” said former Secretary of Energy Spencer Abraham. “There was not enough production even when we were in triple-digit oil markets over the summer, and there’s going to be a lot of pressure on the system when economies recover.”

 

Tanaka said that state-run national oil companies – like those in Venezuela and Saudi Arabia – are projected to account for about 80 per cent of the increase of both oil and natural gas production to 2030.

 

But it is “far from certain” those companies will make crucial investments.

 

Future sources of oil, the cost of producing it and the price consumers will have to pay for it are extremely uncertain, the IEA said.

 

That has prompted companies to withhold billions of dollars of investment in new oilfield and refining projects, even with major oil companies posting record profits this year thanks to triple-digit crude prices.

 

Producers and refiners, large and small, are delaying and even cancelling some work as they adjust to oil prices that have fallen more than 60 per cent since peaking in July above $147.

 

Many companies have slashed capital spending budgets for at least the coming year. Just last week, ConocoPhillips and the state-run Saudi Arabian Oil Co. said they’ve postponed construction of a multibillion-dollar refinery in Saudi Arabia.

 

Royal Dutch Shell PLC, Europe’s largest oil company, said last month it was pushing back a decision on expanding its Athabasca oilsands project in northern Alberta. Other oilpatch companies, from Suncor and Nexen to BA Energy, have also cut back on planed expansions and capital spending in the Canadian oilpatch.

 

Multinational oil giants like Shell and Exxon Mobil Corp. are also finding it increasingly difficult to gain access to potential new sources of fossil fuels. State-run oil companies control about 80 per cent of global oil reserves and, for now, are keeping a tight grip on their assets.

 

“Even (in the United States) we’re limiting access,” said Mary Novak, an energy analyst at IHS Global Insight. “The $20 trillion figure sounds good, but who’s going to spend it and where are they going to spend it is the biggest problem.”

 

The IEA expects demand for oil to rise from 85 million barrels per day currently to 106 million barrels per day in 2030 – 10 million barrels per day less than projected last year.

 

The IEA is a policy adviser to 28 member countries, mostly industrialized oil consumers.

 

China and India continue to be the main drivers, accounting for more than half of incremental energy demand to 2030, but the Middle East, a longtime supplier, also emerges as a major new demand centre.

 

The agency said these trends call for energy supply investment of $26.3 trillion to 2030, or more than $1 trillion a year, but it noted that tight credit conditions could delay spending.

 

Last year, Platts, the energy information arm of McGraw-Hill Cos., said oil and gas companies, pipeline outfits and refiners will need to invest as much as $21.4 trillion through 2030 to meet global energy demand.

 

However, Platts also noted the industry already was falling behind the spending curve, in part from limited access to new potential reserves for the major multinational oil companies.

 

The Organization of Petroleum Exporting Countries, which pumps around 40 per cent of the world’s oil, cut output by 1.5 million barrels per day from Nov. 1 to counter a recent fall in the price of crude, which have dropped from $147 a barrel in July to around $56 Wednesday – prices not seen since January 2007.

 

OPEC has warned that crucial investment in refining and distribution will be cut if the oil price does not stabilize.

 

It’s already happening.

 

In addition to the postponement by ConocoPhillips and Saudi Aramco, North American refining giant Valero Energy Corp. has said it will curtail capital spending for the rest of 2008 and 2009. Also, Marathon Oil Co. has said it has delayed expansion of a gasoline refinery in Detroit “due to current market conditions.”

 

[ http://www.thestar.com/Business/article/535853 ]

Everything You Need To Know About the Economy and Upcoming Economic Challenges

 

For anyone with any interest in the global economy or concern about the economic challenges we are facing, I highly recommend a very engaging, professional, online audio-visual presentation prepared by Chris Martenson, a successful businessman and former college professor now living in rural Massachusetts with his young family.

 

Chris has prepared what he calls The Crash Course, which explains in plain language with numerous illustrations the basic workings of the economy (with a focus on the U.S. economy), the current mess, our individual involvement, short-term and long-term crises, and, perhaps most importantly, what all of us should be doing to prepare for the future.  Not only is his presentation informative, stimulating, and entertaining, it is also, in my opinion, crucial viewing for anyone who wishes to hold onto the highest possible quality of life for themselves, their families, and their friends and neighbours.

 

Here is the link:  

 

 http://www.chrismartenson.com/crash-course

JULY 2008 – THE HISTORICAL PEAK OF GLOBAL OIL PRODUCTION?

If a recent report turns out to be correct, it seems quite probable that we have already passed the global oil production peak.  If so, the time of Peak Oil has arrived earlier than expected by most and there is increased urgency in our preparations for the challenging new world of the all too immediate future.

 

This blog post is mainly prompted by a report in the Financial Times a few days ago about the International Energy Agency‘s long-awaited study, World Energy Outlook, which documents the depletion profiles of the world’s 400 largest oilfields and is scheduled to be released on November 12th.  According to the Financial Times, the IEA will report the astonishing fact that global crude oil production is expected to be in decline by at least 6.4% annually, possibly as high as 9.1% annually, unless there is massive extra investment to raise output (and in our current state of economic deterioration, it seems unlikely that the required investment capital is available).  If the actual IEA report confirms these alarming figures when it is released 10 days from now, then, according to energy analyst Richard Heinberg, the historical peak of global oil production in the Petroleum Era occurred in July 2008.    [For more details, see Heinberg’s full posting pasted at the bottom of this blog entry.]  

 

This is truly disquieting news for every human being on our planet. 

Some questions come to mind:

 

1.  Over the past couple of months the price of crude oil has dropped substantially, so how could we be facing an imminent energy crisis? 

The decline in the price of a barrel of crude oil from its high of U.S.$147 in August to its present day level of just $67, misleads us to believe that there is plenty of oil in the world, that the record high price was the result of speculation or some other behind-the-scenes market manipulation, and that petroleum output can be readily increased in response to the higher prices that would accompany a future increase in demand.  To repeat the old cliché, nothing could be further from the truth.  [Check out some of the energy websites listed in my “blogroll” for the detailed facts and information which support this contention.]

The global economic downtown, okay, recession, has reduced the demand for petroleum by a few percentage points, and since the price of oil is highly sensitive to demand, the result has been a dramatic price drop.  However, at the first hints of a global economy recovery, the demand for oil will begin to rise and the price of oil will shoot up just as fast as it has dropped.  But in spite of predictions of $200/barrel oil as early as the end of 2009, a higher price for oil cannot change the fact that most of the world’s oilfields are past their peak and that essentially all of the cheap oil has already been extracted and consumed.  Yes, it is probable that global production of crude oil will never again exceed the level of July 2008. 

 

2.  If this year, 2008, turns out to be the year of Peak Oil, what are the short and long term implications?

If indeed we have passed the production peak in the Petroleum Age, then the inexorable decline in world oil output on the road to depletion has begun.  Of course, absolute petroleum depletion is many decades away but if production declines from existing oil wells average 9% per year, acute oil shortages will be a fact of life within a few short years, accompanied by ever higher prices to balance global demand with a diminishing supply.  Although there will be the usual price fluctuations, we can expect exponential increases in the price of oil to be the overall pattern for the duration, i.e. until the world’s petroleum supplies are ultimately exhausted sometime beyond mid-century.

This economic recession we are entering could easily become an economic depression worse than that of the 1930s.  We may never regain our current level of wealth.  Obviously, future record high prices for oil will seriously inhibit economic recovery because the production of all goods and the provision of all services require energy.  The much higher costs of this embodied energy will result in higher costs for virtually everything we consume.  Consequently, the economic future promises to be a time of great price inflation which will not be able to be matched by wage increases.  Furthermore, we have become a society that expects economic improvement as our birthright, and economic hardship could result in widespread social and political unrest.

 

3.  Big questions remain not only regarding our future viability as a society or even as a civilization, but also regarding our very survival as a species.  Here are just a few of the urgent questions we must ask ourselves:

     a)  Will we be able to embrace energy conservation and switch to renewable energy sources fast enough to compensate for the relatively rapid decline in petroleum production?

     b)  Will we be able to adjust to a so-called “steady-state economy” where we forego our ingrained compulsion for material wealth and growth at all costs (or perhaps achieving even a steady-state economy is way too optimistic)? 

     c)  It is quite possible that securing energy will become every nation’s and every individual’s main focus.  In any case, in an energy-deficient world, global economic turmoil is quite certain.  Will we be prepared for the inevitable social and political unrest, not just internationally, or nationally, but in our own neighbourhoods as well?

     d)  Although falling consumption of petroleum may reduce the rate of global warming, an obsession with obtaining energy at all costs is likely to have a decidedly negative impact on our environment, in part because, yet again, environmental concerns will be put on the back burner.  As the rate of environmental degradation accelerates, at what point will the natural cleansing mechanisms of our planet be overwhelmed such that, for example, food output goes into decline?

 

Unfortunately, I don’t have any brilliant answers to any of these crucial questions that challenge our future.  But I will make several observations about some basic energy realities: 

    

  1)  Fossil fuels are finite resources.  By definition, they will run out.  [Okay, it’s an obvious point, but up to this point in the Petroleum Age, our economists, our political leaders, our corporations, and most of us as energy consumers have been behaving as if global non-renewable energy supplies are infinite.]

  2)  Since the mid-1980s the world has been consuming oil and gas at a rate faster than the rate at which new sources are being discovered.  This is not news;  the news is that this fact has been blatantly ignored for so long by oil companies, governments, and oil consumers, i.e. all of us.  Our current rate of consumption is at least three times our current rate of oil discovery, and the gap widens every year.

  3)  Over 90% of the energy humans consume world-wide continues to be supplied by non-renewable sources, primarily petroleum, natural gas, and coal.  Natural gas production is expected to peak within a few years, and recently energy analysts are predicting a coal production peak within as little as 20 years.  Moreover, as with oil, the cheaper, more accessible, higher quality sources of natural gas and coal have already been burned.

  4)  Technically, Canada is considered self-sufficient in oil.  However, most of the eastern half of the country relies on imported oil, while much of our western oil is exported to the U.S.  If, more correctly when, sources of imported oil dry up and western Canadian oil becomes required by eastern Canadians, one would assume that we could simply divert some of our western oil exports to the eastern Canadian market.  Aside from the fact that Uncle Sam would resist this action with all means available, it would, believe it or not, also contravene terms of NAFTA actually agreed to by our government.  Perhaps it’s a moot point in any case because there is no easy means of transporting western Canadian oil to the eastern half of the country.  Neither our politicians, nor, understandably, the multi-national oil corporations, have ever seen the need for an all-Canadian oil pipeline linking western and eastern Canada, so there isn’t one.

  5)  The rate of development and production of renewable alternatives, and the necessary infrastructure, is nowhere near the level required to provide major substitution for fossil fuels in the near future.  For example, energy shortages will lead to unaffordable energy prices for many, maybe most of us, which should encourage most of us homeowners to go solar and install photovoltaic and solar water heating systems on our rooftops.  However, based upon current production capacity, including plants now under construction, if you are among the last half of the homeowners in your neighbourhood to decide to go solar, your waiting time for a solar system will certainly be many years and could very well be decades.  [Note that a solar system manufacturing plant requires a huge capital outlay, takes years to finally come into production, and requires huge upfront and ongoing energy inputs.]

  6)  If we consider that future comfort for us and for our families is our number one priority, then energy conservation must be our primary objective.  However, despite widespread, longstanding knowledge of energy efficiency and conservation techniques, serious energy conservation by government, industry, commerce and householders has hardly begun. 

 

The years ahead promise to be a time of great change and along with it unrest – the unrest that accompanies declining disposable income as a result of job loss, small business bankruptcies, and inflation due to continually increasing energy costs.  Unfortunately, for the most part, our elected officials, who should know better than we do just how insecure our future energy supplies are, remain either unaware or in denial of the unprecedented global energy crisis that looms ever larger.  Here in Canada, we certainly cannot expect our current federal Conservative government to provide the vision and leadership required to set us on a path to a secure, sustainable energy future.

If we wish to maintain anything close to the lifestyle and level of comfort to which we have become accustomed, we must take action ourselves, starting with our own homes and our own lifestyle.  Energy conservation is our main hope, particularly in the short run.  It is low tech, readily available, inexpensive, and easy for us as individuals to do, and it provides a significant and immediate payback.  If we become serious about energy conservation, we reduce the oil depletion rate and extend the amount of time we have to bring renewable energy alternatives online.  And time is what we really need in order to make as smooth a transition as possible from our current dependence on non-renewable resources to a sustainable economy and way of life based on conservation and renewable resources.  It can be done.  Each of us has a role to play. 

It appears that 2008 will be seen as the pivotal year in the history of our species.  Although the path ahead is fraught with hurdles, it also provides us with great opportunities.  But if we hope to avoid the most serious consequences of declining global fossil fuel production, the time to act is now.

There are challenging times ahead.  Be prepared.

 

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Peak Oil is now history

Post by Richard Heinberg on October 29, 2008

Nine Percent

The Financial Times has leaked the results of the International Energy Agency’s long-awaited study of the depletion profiles of the world’s 400 largest oilfields, indicating that, “Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent.”

This is a stunning figure.

Considering regular crude oil only, this means that 6.825 million barrels a day of new production capacity must come on line each year just to keep up with the aggregate natural decline rate in existing oilfields. That’s a new Saudi Arabia every 18 months.

The Financial Times story goes on:

The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term demand. The effort will become even more acute as [oil] prices fall and investment decisions are delayed.

This is putting it mildly. Investment capital is being vaporized almost daily in a global deflationary bonfire of unprecedented ferocity. Oil production projects are being mothballed left and right.

Inter alia, the IEA takes the requisite swat at “peak oil theorists,” who, the agency somehow still believes, are saying that the world is “running out of oil.” Of course that’s NOT what peak oil theorists say, but a correct summation of their position would have to be followed with a statement to the effect that, “Our research supports their position,” which would be just too embarrassing.

Sadly, the IEA feels it must pull its punch even further. With adequate investment in new small oilfields and unconventional sources like tarsands, it insists, the world can still achieve higher levels of production. In other words, if the $12 trillion that vanished from the world stock markets last week were invested in new tarsands projects, then theoretically a few more years of total oil production growth could be eked out (not growth in net energy production, mind you, but in the gross—and I do mean gross—production of exotic, very expensive stuff that it’s physically possible to run your car on, assuming you could afford to do so).

Of course, any realistic assessment either of the likelihood of that level of investment appearing, or of the ability of new projects to really produce a sufficient rate of flow regardless of the size of the cash infusion, would end merely in a hearty belly-laugh.

Evidently peeved about being scooped on its planned November 12 press conference roll-out of the study, the IEA has disavowed the Financial Times story. But if nine percent is even close to being the final figure, then it’s absolutely clear: July 2008 was the all-time peak in world oil production. Don’t expect anyone at the IEA to officially admit that fact until 2025 or so. But among those who pay attention to the evidence and the terms of the debate, further ink need not be spilled in speculation.

Peak oil is history.

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TIME FOR ELECTORAL REFORM.

 

Not only did the recent federal election waste $300 million of our taxpayer money, it also wasted a significant amount of time and productive effort of many of our nation’s citizens, as well as a considerable amount of energy of the non-renewable kind as politicians and their entourage planed, bussed and motored around the country.  Instead of electioneering for six weeks, our politicians should have been focussing their energy on dealing with the pressing issues Canada is facing in this time of turmoil and change.

 

Canada is a large and diverse country with a wide range of political preferences based not only on the usual individual differences, but also on regional differences related to such things as geography, history, economy, population and culture.  As a result, a majority government is no longer the likely outcome of any federal election.  As Canadians, we must accept that, indeed, minority governments have become the logical outcome in a country as diverse as ours.  More importantly, our politicians must also accept this reality.  Our elected representatives must learn to put aside partisanship to ensure that a minority government is productive and progressive.

 

As has been said before, there are challenging times ahead, and we need the collective wisdom of all parties and all elected officials working together to help us prepare.  Of course, if we believe in true democracy, where every citizen has a say, and where every vote has meaning, then our new group of MPs is far from what we, the electorate, voted for.  Yes, it is time to replace the old, first-past-the-post system with a proportional voting system, which would accurately reflect the democratic wishes of Canadians.

 

Below is a commentary from Fair Vote Canada about the unrepresentative parliament that Canadians recently elected.  [ www.fairvote.ca ]

 

Also click on the link to read the recent Macleans magazine cover story written by editor-in-chief, Andrew Coyne, on October 16, 2008.

     What if they gave an election and nobody won?

      We now know one thing: this electoral system is broken

      ANDREW COYNE | October 16, 2008 |

       http://tinyurl.com/5c3ykk

 

             

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Electoral dysfunction, yet again    

 

[October 15, 2008]

 

[Fair Vote Canada      www.fairvote.ca]

 

Greens deserved more than 20 seats – voting system also punished New Democrats, western Liberals and urban Conservatives

 

Once again, Canada’s antiquated first-past-the-post system wasted millions of votes, distorted results, severely punished large blocks of voters, exaggerated regional differences, created an unrepresentative Parliament and contributed to a record low voter turnout.

 

[Note: The following commentary is based on returns at 2am ET]

 

The chief victims of the October 14 federal election were:

 

– Green Party:  940,000 voters supporting the Green Party sent no one to Parliament, setting a new record for the most votes cast for any party that gained no parliamentary representation. By comparison, 813,000 Conservative voters in Alberta alone were able to elect 27 MPs.

 

– Prairie Liberals and New Democrats:  In the prairie provinces, Conservatives received roughly twice the vote of the Liberals and NDP, but took seven times as many seats.

 

– Urban Conservatives:  Similar to the last election, a quarter-million Conservative voters in Toronto elected no one and neither did Conservative voters in Montreal.

 

– New Democrats:  The NDP attracted 1.1 million more votes than the Bloc, but the voting system gave the Bloc 50 seats, the NDP 37.

 

“How can anyone consider this democratic representation?” asked Barbara Odenwald, President of Fair Vote Canada .

 

Had the votes on October 14 been cast under a fair and proportional voting system, Fair Vote Canada projected that the seats allocation would have been approximately as follows:

 

Conservatives – 38% of the popular vote: 117 seats (not 143)

 

Liberals – 26% of the popular vote: 81 seats (not 76)

 

NDP – 18% of the popular vote: 57 seats (not 37)

 

Bloc – 10% of the popular vote: 28 seats (not 50)

 

Greens – 7% of the popular vote: 23 seats (not 0)

 

Fair Vote Canada also has data for each province on the number of seats won and number of seats actually deserved by each party.

 

Odenwald emphasized that any projection on the use of other voting systems must be qualified, as specific system features would affect the exact seat allocations.

 

“With a different voting system, people would also have voted differently,” said Larry Gordon, Executive Director of Fair Vote Canada. “There would have been no need for strategic voting. We would likely have seen higher voter turnout. We would have had different candidates – more women, and more diversity of all kinds. We would have had more real choices.”

 

Fair Vote Canada (FVC) is a national multi-partisan citizens’ campaign to promote voting system reform. FVC was founded in 2001 and has a National Advisory Board of distinguished Canadians from all points on the political spectrum.

 

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“May You Live in Interesting Times”

 

The saying, “May you live in interesting times”, is commonly enclosed in Chinese fortune cookies.  Most of us interpret it as a blessing with generally positive connotations, perhaps because we reason that the opposite of “interesting” would be the word “boring”.  However, it appears that this proverb is actually more of a curse than a blessing with a meaning closer to:

 

May you experience much upheaval and trouble in your life, the clear implication being that ‘uninteresting times’, of peace and tranquility, are more life-enhancing.    ( www.thetruthseeker.co.uk )

 

In any case, it is certain that we do live in interesting times.  As many others have stated, it seems quite likely that the first half of the 21st century will be the pivotal period in the history of human civilization.  Starting before yesterday, and continuing into the foreseeable future, our ability as a species to adapt to radically changing conditions will be tested to the fullest.  If we can transform global society from one that depends on non-renewable resources and pollutes the environment, to one that truly embraces the 3 “R”s, one that relies only on renewable sources of energy and raw materials, one that stops polluting the environment, and one that shares and cares, then we will thrive.  If we fail to do this, we risk a return to very dark ages where life is “nasty, brutish, and short” (to quote Thomas Hobbes in 1651).

 

As predicted by many (including yours truly in an October 2007 e-mail newsletter, copy attached below), economic hard times are upon us, though this is just the beginning.  Not surprisingly, until very recently, world leaders have repeatedly denied that an economic recession was looming.  Here in Canada they have also been telling us that since the fundamentals of our economy are strong, if it is ‘steady as she goes’ then all will be well.  Specifically they have insisted that a U.S. recession won’t drag the Canadian economy down with it.  I hope that not too many Canadians have bought that line.  [See Dolighan cartoon below, from 7 months ago, March 21, 2008.] 

 

Of course, with globalization the entire world economy is interconnected and, as a result, everyone will be affected.  I expect that this is just the beginning of a huge global economic shift with much turmoil and, in all likelihood,  hardship for most of us.  It is not a time to sit tight and do nothing; rather it is a time to adapt to changing realities.  It is a time for each of us, whether our political leaders choose to help us or not, to prepare for a new sustainable way of living.

 

May all of us thrive in these interesting times.

 

                          [originally written on October 24, 2008]

 

 

 

 

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The Investment Future

 

[e-mail message sent to various friends/family on or about September 20, 2007]

 

 

The main reason I’m writing this message is to offer a word of caution about the investment future.

 

I readily admit that I am no expert, but since I have been retired, I have had a little more time to do my own research.  Perhaps everything I have to say you already know.  Or if you are not interested in any financial observations and thoughts from a lay person, simply delete this message now.

 

If your investment portfolio has been in any way similar to mine, the past year or so has not been so profitable, but previous years were fairly good ones.  I think that, overall, my financial advisor has done a very good job, certainly much better than I could possibly have done on my own.

 

Obviously the stock market is currently in a very volatile phase.  Despite recent aggressive efforts by governments to support stock values, I am not optimistic about the investment future, especially the long-term future, and that is what this message is all about.

 

I am sure that I am not stating much that you don’t already know, but here are a few rather long-winded, rambling reasons for my concern.

 

  1. U.S. Debt.  The size of the U.S. debt is huge and growing daily.  The sub-prime mortgage problem is just the tip of the debt iceberg.  As almost everyone knows, the U.S. economy has not been well-managed by the Bush Administration.  The Iraq war has been costly and besides causing increased debt, it has taken money from social assistance, health care and other important domestic programs. 

 

  2. Consumer Spending Decline and the “R” Word.  In the U.S., consumer spending is levelling off and there are signs that it will decline.  The average U.S. worker is worse off economically than 5 years ago, the first such decline for decades.  Recession is being mentioned more frequently. 

 

  3. Our Economic Ties to the USA.  The Canadian economy still appears strong but we must remember that the health of our economy is about 75% dependent on the health of the U.S. economy.  There is a several month lag before many of the economic problems south of the border really start to affect us.  I’m not so sure that the rise in the value of our dollar with respect to the U.S. dollar is economically beneficial to our economy in the long run.  To a great extent the rise of our dollar is due to the decreasing strength of the U.S. dollar, i.e. the growing lack of global confidence in the future of the U.S. economy.

 

  4. Economic Models are Flawed.  Economic models, especially these days, are at best misleading and at worst quite unreliable.  Most economic models continue to downplay or blatantly ignore three key interrelated factors: 

(1) the role of cheap energy in sustaining global economic growth in the petroleum era,

(2) the finite nature of non-renewable natural resources, particularly fossil fuels,  and

(3) the environmental implications of economic growth. 

Most of the easy to extract (i.e. cheap) natural resources of the world, including fossil fuels, have already been consumed.  Environmental degradation is beginning to have a substantial negative impact on the global economy.  We have our smog days and our high UV index days, but to date the impact on our economy has not been particularly significant.  This is changing.

 

  5. Poor Political Decision-Making.  Almost all political decisions continue to favour economic growth over the environment, which, it is sad to say, reflects the viewpoint of most voters.  Polls indicate that the environment is the number one political issue in Canada.  Yes, voters want improved environmental quality, but, in most cases, not if it means less money in their pockets.

Obviously, if governments/societies do nothing, the impact of environmental degradation will increase exponentially.  If governments/societies implement modest measures to try to conserve resources and preserve the environment (currently about the best we can hope for), the negative environmental impact will continue to increase, albeit at a reduced rate.  For example, even if all Kyoto Accord targets were met by all nations, the impact of global warming would continue for decades since huge lead times are required to turn around systemic environmental degradation.  In addition, some have suggested that the environmental control measures themselves, if they are meaningful, may also contribute to an economic slowdown by increasing the prices of goods and services, and/or taxes, faster than wages increase.  [I tend to be more optimistic that environmental control measures will contribute positively to the economy, for example, by providing additional well-paid employment in both skilled and unskilled jobs.]

 

  6. Peak Oil.  Whether you believe that global oil production has already peaked, will peak soon, or will peak 20 years from now, oil is a finite resource and a historical global oil production peak is a certainty.  When the supply of petroleum cannot keep up with the rapidly increasing global demand for petroleum, the consequences include huge price increases and/or government-controlled rationing and/or social chaos.  I can remember the impact of just a 5% reduction in petroleum production by OPEC in the mid-70s.  It was not pretty, especially in gun-toting USA.  The time period following the peak of oil production, whenever it occurs (and maybe we are already there), will be one of great change and turmoil.  The impact on our global economy and the course of civilization will be profound, particularly for those societies who are most dependent on fossil fuels.   As you know, another complicating factor is that most remaining conventional petroleum reserves are not controlled by the USA and its political friends.  Furthermore, even using military means, the mightiest nation on the planet seems unable to secure its supply of petroleum. 

Maybe you already know about Peak Oil, but here is one of many informative websites to check out.  In my opinion this is the best one, partly because it has so many links to other websites, organizations, and media:     www.energybulletin.net     As a starting point, read the Peak Oil Primer.

 

  7. Transformation to a Sustainable Economy.  The transformation of our global economy and society from one dependent on non-renewable fossil fuels, to one supported by renewable energy and sustainable systems is required but it has barely begun.  About 95% of our energy still comes from non-renewable sources.  Switching to renewables will require massive, unprecedented investment in new infrastructure over decades.  Many experts believe that the time is too short to make the transition a smooth one. 

Current administrations in both Canada and the US seem to me to be mostly unaware of the urgency of the situation and do not have rational, comprehensive policies in place to deal with it.  For example, I am dismayed that the Bush Administration has focussed so much precious funding on ethanol and hydrogen.  A small amount of research by the average high school student is enough to show clearly that this is not the way to go;  these are not the fuels of the future.  Fortunately, there are some very promising renewable energy technologies out there, although the basis for a smooth transition remains conservation and efficiency improvements, including most likely saying goodbye to the family car, at least as we know it today. 

There are certainly investment opportunities in this transformation, but I think there is also high risk.  Despite the obstacles, I remain optimistic that, as a society, we can achieve a successful transformation.  However, we need political leaders with knowledge, awareness, and vision, plus communication skills to inspire us all. 

 

 

To get back to the primary purpose of this message, over the past two months, mainly for the reasons outlined above, I have withdrawn about 20% of my equity investments and put them into GICs and investment savings accounts, and I expect to withdraw quite a bit more before the end of the year.  The down side, as my accountant, Peter, says, is that I will be paying a higher percentage of any earnings in income tax.  Maybe it’s partly because I have become less of a financial risk-taker as I age, but in today’s economic / environmental / political climate I am more concerned about holding onto the value of my investments than taking a chance on earning those double digit gains of the past.  I truly believe that, unless one is very lucky, those days are over for a very long time.

 

I apologize if I am stating the obvious or things that you already know.  Maybe you are way ahead of me on this.  I am just one voice and I do not claim to have any real understanding about investing and certainly not what the stock market is likely to do in the future.  However, I do know that global economic growth cannot continue as it has done for the past several decades.  It was fuelled by cheap non-renewable natural resources, petroleum in particular, and those days are gone forever.  A new sustainable economy based on conservation, recycling, and renewable energy and resources is in its infancy.  It will require massive investment to implement, and so far there is a lack of political vision and leadership, as well as public support, to take on the task.

 

Anyway, for what it’s worth, this is my take on the investment future.

I hope you don’t mind that I shared it with you.

 

 

Initial Observation

 

There are challenging times ahead.

 

Be prepared.