In this week's report: (click this link to access PDF)

Does $70 present a problem for the economic recovery?

Brazil's offshore oil hits another dry hole.

New York Times Op-ed – Where are the facts?

Mexico's government is getting nervous about tax revenue.

ASPO 2009 International Peak Oil Conference

System Reset: Global Energy and the New Economy

October 11-13, 2009 Denver, Colorado

For all the details check out the ASPO-USA web site.

http://www.aspo-usa.org/

August 27, 1859 – The first commercial oil well in the U.S.

Javier Blas nailed this very important concept with his Short View article this week.

Financial Times (Aug. 25^th) – "The drop in global prices earlier this year has now revealed that China can only sustain high domestic production when global prices are near record highs. As raw materials prices declined in late 2008 and early 2009, output from Chinese mines plunged because their mines were uncompetitive. This forced the country to rely heavily on imports, mopping up global surpluses and boosting prices." This is not good news for others who must buy their commodities in the global market by bidding against China.

Another model of this same concept is domestic oil production in the U.S. The low oil prices touched in the last 12 months rapidly brought down U.S. domestic exploration and development along with production from marginal wells. Also don't forget the impact on that expensive deep water Gulf of Mexico oil everyone keeps talking up.

The electrification of our transportation system is not going to be easy.

Wall Street Journal (Aug. 26^th) – "Austin on Monday recorded its 64th day of 100-plus degree weather since June 1 -- has pushed electricity demand up to record levels, as air conditioners run overtime. To meet the demand, costlier electric generators have been pressed into service. As a result, electric rates and consumer bills have risen despite the lower price of natural gas, which is used to generate most of the electricity in Texas." So do you plug in the car or run the air conditioner so you can sleep? This is only one of the trade-offs that may need to be faced in the decades ahead. It just isn't going to be easy.

More trouble for biofuels.

Wall Street Journal (Aug. 27^th) – "Two-thirds of U.S. biodiesel production capacity now sits unused, reports the National Biodiesel Board. Biodiesel, a crucial part of government efforts to develop alternative fuels for trucks and factories, has been hit hard by the recession and falling oil prices."

The situation could get much worse given the risk to crop yields by the droughts and high temperatures mentioned above. "While crop yields depend on a variety of factors, extreme heat is the best predictor of yields," Roberts says." (North Carolina St. Univ. news release 2009-08-24) Feedstock prices and availability may have to be added to the recession and falling oil prices as major obstacles to biofuel producers. Why weather is never mentioned as a major concern with biofuels has always baffled me. Just ask a farmer if it is a risk.

Disclaimer

This publication is dedicated to the education of readers and is an information service only. While the editor is licensed to offer investments and investment advice, the information provided herein is not to be construed as an offer to buy or sell securities of any kind, is the opinion of the author and not endorsed by KMS Financial Services, Inc. It is possible at this or some subsequent date, the editor and/or affiliated parties may own, buy or sell securities discussed in this newsletter, or based upon information provided in the newsletter, or contrary to information provided in this newsletter. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. We make every effort to provide timely information, but cannot guarantee specific delivery times due to factors beyond our control.

In this week's report:

How at risk to an oil price spike are some states?

Mexico's Chicontepec oil field is not Cantarell.

Could natural gas production cause earthquakes?

What happened when a company moved 90% of its production back the U.S. from China?

ASPO 2009 International Peak Oil Conference

System Reset: Global Energy and the New Economy

October 11-13, 2009 Denver, Colorado

Special Note: Early Registration has been extended until Aug. 21^st

For all the details check out the ASPO-USA web site.

http://www.aspo-usa.org/

China passed the U.S. this year in auto sales, but hybrids have a long way to go.

Financial Times (Aug. 20^th) – "…only 899 Prius hybrid cars were sold in China last year." Clearly cost is going to be the biggest hurdle for all the alternatives to the internal combustion engine and not just in China. The Financial Times had a pragmatic report on carmakers switching to various incarnations of electric vehicles this week. It is going to be a long and difficult road if the shift doesn't match well with the timing on constrained liquid fuels in the near future.

Is small hydro an answer?

WSJ (Aug. 21^st) – "According to the U.S. Hydropower Resource Assessment for Washington state in 1997, more than 2,500 megawatts of power could be added by simply improving efficiencies at existing hydroelectric plants and adding hydro to non-generating dams, such as those used for reservoirs or agricultural irrigation. By contrast, the report estimated that developing all the state's potential hydro sites, including small ones, would add only 762 megawatts." It appears that even in hydro rich Washington State the scale in new dams isn't there. As is often the case the opportunities are in doing more with what is already there.

Disclaimer

This publication is dedicated to the education of readers and is an information service only. While the editor is licensed to offer investments and investment advice, the information provided herein is not to be construed as an offer to buy or sell securities of any kind, is the opinion of the author and not endorsed by KMS Financial Services, Inc. It is possible at this or some subsequent date, the editor and/or affiliated parties may own, buy or sell securities discussed in this newsletter, or based upon information provided in the newsletter, or contrary to information provided in this newsletter. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. We make every effort to provide timely information, but cannot guarantee specific delivery times due to factors beyond our control.

In this week's report:

Did China's oil imports really grow 42% from a year ago?

When will your UPS delivery arrive in an electric truck?

It seems they smuggle more than illegal drugs from Mexico to the U.S.

U.S. liquid fuel demand trends still don't look good.

ASPO 2009 International Peak Oil Conference

System Reset: Global Energy and the New Economy

October 11-13, 2009 Denver, Colorado

Special Note: Early Registration has been extended until Aug. 21^st

For all the details check out the ASPO-USA web site.

http://www.aspo-usa.org/

About those hyped "Green Bamboo Shoots" in China???

Reuters reported that Peabody Energy's CEO Greg Boyce said …China had built up stockpiles of steel and other products, and he was sceptical the country would maintain its pace of imports of metallurgical and thermal coal in the second half of the year. "We're seeing signs of both of those slowing down right now as China has kind of gone through their first stimulus, and their export economy has not recovered," Boyce told reporters during a visit to Australia.

This is consistent with the drop in the closely watched Baltic Dry Index which until recently was being held up as a clear sign of China's rebound. Bloomberg reported last week that "The Baltic Dry Index, a measure of shipping costs for commodities, had its worst week since October as Chinese demand for shipments of coal and iron ore slowed."

As if fuel price weren't enough of a problem for the airline industry.

Wall Street Journal (Aug. 14^th) -- "Boeing Co. has ordered work halted at a fuselage assembly plant in Italy working on its marquee 787 Dreamliner aircraft, according to a report on an aviation industry blog." This week's report has more on the problems faced by all global supply chains. Remember the future is often here, it is just not obvious or evenly distributed.

More on the Seattle Times web page. "Boeing stops work on 787 fuselages made in Italy to fix wrinkled skin."

For Boeing and the airline industry this is a short-term and most likely fixable problem. Fuel however is a chronic and terminal problem. From a Peak Oil perspective it is very difficult to see how it is fixable in the context of an industry dependent on cheap mass market air travel.

Disclaimer

This publication is dedicated to the education of readers and is an information service only. While the editor is licensed to offer investments and investment advice, the information provided herein is not to be construed as an offer to buy or sell securities of any kind, is the opinion of the author and not endorsed by KMS Financial Services, Inc. It is possible at this or some subsequent date, the editor and/or affiliated parties may own, buy or sell securities discussed in this newsletter, or based upon information provided in the newsletter, or contrary to information provided in this newsletter. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. We make every effort to provide timely information, but cannot guarantee specific delivery times due to factors beyond our control.

In this week's report:

The IEA continues to gradually confront Peak Oil.

U.S. gasoline demand compared to diesel demand.

China and India – A grand Tragedy of the Commons.

Brazil is still a net importer.

Is this Economist article describing the U.S. in a few years?

The Economist (Aug. 8^th) – "North Sea gas has served Britain well, but supply peaked in 1999. Since then the flow has fallen by half; by 2015 it will have dropped by two-thirds. By 2015 four of Britain's ten nuclear stations will have shut and no new ones could be ready for years after that. As for coal, it is fiendishly dirty: Britain will be breaking just about every green promise it has ever made if it is using anything like as much as it does today. Renewable energy sources will help, but even if the wind and waves can be harnessed (and Britain has plenty of both), these on-off forces cannot easily replace more predictable gas, nuclear and coal power. There will be a shortfall—perhaps of as much as 20GW—which, if nothing radical is done, will have to be met from imported gas."

Ten years ago the UK didn't realize or believe its natural gas and oil production had peaked. All looked good for the decades ahead. The reality of course has proven to be different. The UK went from being a top 10 exporter of oil in the world to a net importer in just six years. Now given the very long tail of energy policy and infrastructure decisions made a decade ago it finds itself on the verge of a crisis with time having essentially run out on mitigation choices.

I suggest reading the Economist article and interjecting the U.S. in place of the UK and examining the striking similarities of the current U.S. policy with what occurred in the UK. In many ways the U.S. is following the same road map just over slightly different terrain and on a much larger scale. The U.S. future therefore may be playing itself out in real time in the UK for us all to observe. The question is will we learn anything from it?

The infrastructure shift to electrified transportation is beginning.

Seattle Times (Aug. 6^th) – "The Seattle area will get millions of dollars from the federal government to equip streets and homes with charging stations for the electric cars due to arrive at area dealerships next October."

"Under the grant, which is part of the federal economic-stimulus package, people who buy a Nissan Leaf will get a 220-volt charging station in their home at no cost. In addition, eTec will put in a station network throughout the area for any electric vehicle. Zipcar is part of the deal, and will put electric cars on the streets for members of its car-sharing service."

The problem of course is that going forward as electric car penetration increases the installation of a 220-volt charging stations in car buyer's homes is not going to free; maybe subsidized but not free.

The use of the Leaf by Zipcar seems like a very attractive strategy for scaling the fleet of electric cars and introducing them to future owners. It also solves the initial problem of charging station locations and availability. The charging spot won't be taken up already when you drive up.

There is more on the Nissan Leaf electric car announcement in this week's report.

Disclaimer

This publication is dedicated to the education of readers and is an information service only. While the editor is licensed to offer investments and investment advice, the information provided herein is not to be construed as an offer to buy or sell securities of any kind, is the opinion of the author and not endorsed by KMS Financial Services, Inc. It is possible at this or some subsequent date, the editor and/or affiliated parties may own, buy or sell securities discussed in this newsletter, or based upon information provided in the newsletter, or contrary to information provided in this newsletter. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. We make every effort to provide timely information, but cannot guarantee specific delivery times due to factors beyond our control.