In this week's report:

Canada and US energy security?

Net Energy.

1 million plug-in cars in 5 years?

Washington [State] should scrap biofuels mandate.

Seattle Times – Opinion (June 25^th) "The state must rescind its myriad laws requiring public and private use of biofuels. These laws force use of crop-based biofuels — the only biofuels available for mass consumption. Hoping and waiting for so-called "second generation" biofuels is denying the global devastation biofuels are wreaking now." Now let's see if we have any leadership in Olympia. Trying to maintain business as usual with biofuels is a fundamentally flawed approach. Thanks Duff.

Now consider what the geniuses in the other Washington have cooked up.

Washington, D.C. – "Biofuels producers would be shielded from emissions rules that could restrict the industry's growth under a congressional agreement intended to smooth House passage of legislation addressing global warming. The deal, designed to win over rural Democrats, would require the government to spend five years studying the Environmental Protection Agency's biofuels regulations, and then give the U.S. Department of Agriculture a veto over the final rules." Is there any hope? The Department of Agriculture should have a veto over the EPA on emissions? Does that mean the EPA should determine the level of farm subsidies? This would certainly give new meaning to the idea of checks and balances in government.

I guess that old saying is right; we have the best government money can buy!

Just think if they had stuck to the plan.

Time (June 22^nd) "…Floridians voted in 2000 to build a high-speed bullet-train service between Miami, Tampa and Orlando. By 2004, however, then-governor Jeb Bush, who had insisted the estimated $6 billion cost would in reality top $20 billion, had persuaded Florida voters to drop the idea." Yea, I guess it was a silly idea???

Too bad we don't have a bunch of highly skilled workers in the transportation industry in need of jobs that we could put to work on a project like this.

Gee, now here is a surprise. A government plan wasn't quite as advertised.

NEW YORK (CNNMoney.com) – "If you think the new "Cash for Clunkers" law is going to help you buy a new car, you're probably wrong. As it's written, the law will benefit few car shoppers and those who might actually benefit from it probably shouldn't be buying a new car to begin with." It appears as though if you have a $500 dollar SUV to trade in you win. Otherwise good luck on the cash.

Link to this week's Master Resource Report 2009-06-26

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:

Boeing's view of the future of air travel.

A look at a graph from the BP Statistical Review.

So what is Ug99?

More on Hydrogen Fuel Cells.

US gasoline consumption year-over-year.

On Wednesday the IEA released its weekly petroleum report comparing this year's demand against year ago levels. The results should drive home just how dependent this country is on gasoline.

The four week average came in just 3 tenth of a percent below year ago levels. The more volatile one week demand showed a 1 percent increase over year ago levels. The country is in the worst recession in 80 years and gasoline consumption remains stuck at around 9 million barrels per day. What level of economic down turn would it take to really knock gasoline consumption down 3 or 4 million barrels per day? Let's hope we don't get chance to find out the answer.

In the mass market news we keep hearing how consumption is down. Yet for over six months this report has been making the point that gasoline consumption is not down. Instead gasoline consumption is moving back towards the highest levels seen during the last four and half years at nearly 9.4 million barrels per day. If the focus is only on headline oil prices and surplus crude oil the nation will lose sight of its dependence on this single critical product, gasoline.

Diesel fuel on the other hand continues to languish over 13% below last year's level. This continues to be a clear indicator that industrial and commercial demand has yet to rebound.

The charts for both gasoline and diesel from the EIA report are on page 5 of this week's Master Resource Report.

If you thought the rising price of gasoline and the recession would impact SUV sale check this out. There are shortages of SUV's & light trucks reported.

"We're very short of Expeditions and [Lincoln] Navigators," said Randall Reed, owner of Prestige Ford-Lincoln-Mercury in Garland and Park Cities Ford-Lincoln-Mercury in Dallas. "We have been selling record numbers of [crossover] Flexes because of it, I think." Ok, granted this is from the Dallas Morning News which means we are not reading about this happening in a Prius land like San Francisco. It still illustrate that the American public has a long ways to go in understanding where it is headed. Any wonder gas consumption is up over a year ago?

Throw in the "Cash for Clunkers Plan" (which is a clunker itself) and there could be a spike in SUV sales. Maybe as James Kunstler latest blog posting says we are "To Stupid To Survive".

Pacific Basin coal demand appears to have turned up.

Reuters (June 17^th) "Producers and traders say the agreed price between South Korean utilities and Chinese miners reinforce the view that the Asian thermal coal market has turned around and that prices are unlikely to fall back to the near two-year low below $60 struck in April this year." There is more in this week's report on Chinese coal use.

Link to this week's Master Resource Report 2009-06-19

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:

Driving a hydrogen fuel-cell car.

Gasoline consumption is down 1% year-over-year.

A world with 3 billion cars?

Water Footprint?

Oil's price and inflation?

Financial Times (June 11^th) "Short-term inflation expectations are tightly linked to moves in the oil price. When oil peaked last July, US inflation-linked bonds were priced for inflation of 2.76 per cent on average over the next two years. By December, when oil hit bottom, the bond market expected deflation over the next two years, at an average of 6.95 per cent per year." (There is a good video interview with John Authers along with the article.)

So what happens to inflation expectations when the market finally comes to grips with a future permanently facing Peak Oil? It probably would be safe to say that the yield of 3.99% on the 10 year U.S. Treasury bond at last Wednesday's auction won't look so good. Eventually long-term, not just short-term inflation expectations will become tightly linked to moves in the oil price.

If you have ever tried to find those famous "hen's teeth" you have a sense of what it is like trying to find a bond manager that understands the risks from Peak Oil. While there are some in the equity markets who are beginning to get a handle on Peak Oil, in the bond market it is a waste land of understanding.

Supply and demand are going in opposite directions!

Financial Times (June 11^th) "The rich countries' energy watchdog on Thursday noted the first signs of a true recovery in oil demand, saying the recent oil price rally was at least partially underpinned by improved market fundamentals." Now wait a minute, we have a major problem here. For months the IEA has been telling the world that the financial crisis has resulted in a substantial delay in new supply over the next several years. Now they are saying demand is turning around. Could they have come up with a worst possible scenario?

OPEC may not have to wait very long for triple digit oil to raise production.

Bloomberg (June 10^th) "OPEC, the supplier of 40 percent of the world's oil, will only consider increasing output when the price of crude rises to $100 a barrel, according to Kuwaiti Oil Minister Sheikh Ahmed al-Abdullah al-Sabah." OPEC may not have as long to wait as many think given that oil prices would need to rise $30/barrel (less than 50%) in the next 6 months to be at $100 by the end of the year. They have already risen over 100% or $37/barrel since the lows earlier this year.

The 2009 BP Statistical Review is out and global proven reserves are down for the first time since 1998.

"Global proved oil reserves in 2008 fell by 3 billion barrels to 1,258 billion barrels, with an R/P ratio of 42 years. Declines in Russia, Norway, China and other countries offset increases in Vietnam, India and Egypt." Note the declines are in the major producers while the increases are in minor players.

Link to this week's Master Resource Report 2009-06-12

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:

Japan and Peak Oil?

Biomass to electricity.

Ocean Acidification.

Seattle's Sail Transport Company.

Jeff Rubin interview:

"When you spend more on fuel than food, an economic contraction will follow"

FT.com (June 3^rd) FT: What do you think the oil price rise to now $68 will mean for economic recovery?

JR: I think we'll see a return to triple digit prices very early into an economic recovery, probably within 12 months of that recovery being under way, and I guess the issue is going to be: will the return to triple digit oil prices lead us right back into recession? Because I think triple-digit oil prices have played a much larger role in the global recession than it's yet been given credit for.

If that is the case, will a future rendezvous with triple digit oil lead to a similar result?

Never forget the "Prime Directive" -- Do Not Predict Price!

Bloomberg (June 4^th) "As the financial crisis eases, an energy shortage lies ahead," Goldman analysts Jeffrey Currie in London and David Greely in New York wrote in a research report e-mailed today. The bank set a 12-month price target of $90 a barrel, up from $70, and introduced a forecast of $95 for the end of 2010."

The guys at Goldman just can't help themselves. However, this prediction does help to put into perspective the incredibly optimistic one in the EIA's "International Energy Outlook 2009" released last week. The Outlook predicted a 44% increase in global demand and amazingly "…the price of light sweet crude oil in the United States (in real 2007 dollars) rises from $61 per barrel in 2009 to $110 per barrel in 2015 and $130 per barrel in 2030."

So demand is going to rise 44% and price will only go up to $110 in 2015 and to $130 in 2030? The one big key here is that it is in 2007 dollars. By 2030 at only 2% inflation that will be well over $200 in nominal terms. Is anyone willing to bet on only 2% inflation in energy prices over the next 20 plus years? There is no scarcity premium in these forecasts. Therefore they are as likely to be of the same value as the ones made by the EIA in the past; None!

ST. PETERSBURG, Russia (Dow Jones, June 5^th) "The price of oil may hit $150 or $200 a barrel by the middle of the next decade if oil companies don't invest enough, Tony Hayward, chief executive of BP PLC (BP) said Friday."

Don't focus on price predictions; they will always be wrong. Instead consider this point from the Goldman report from the FT.com/energysource. "…interestingly, the note talks about the 'unrecognised energy crisis' and concludes that underlying demand must fall in the OECD countries if the BRICs are to maintain their growth."

Link to this week's Master Resource Report 2009-06-05

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:

Oil is now up 100% from the February lows. Remember the predictions of $20/barrel?

Why energy is the "Master Resource".

U.S. gasoline consumption and price?

Is the world going to be short as much as 4 mb/d over the next few years?

Could solar in the desert provide 25% of electric generation?

Audio and video interviews with Jeff Rubin.

    Jeff Rubin will be in Seattle on June 8^th giving a talk at Town Hall

Why do people think anyone really controls the oil price with precision?

Bloomberg (May 28^th) "The outcome, no change in OPEC quotas, was expected, but the surprise was Saudi Arabia being very explicit about a price objective for the first time since the price band mechanism in the early part of this decade," said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York." Yea - a price band. We all know how well that worked out in the early part of the decade. They had to keep raising their price band as crude price kept going up.

From the White House announcement on auto emissions and efficiency standards.

White House Press Release (May 18^th) –Question/Answer following release of the announcement:

Question: What is the administration assuming will be the price of gasoline in 2016?

SENIOR ADMINISTRATION OFFICIAL: The models that were used by EPA and DOT assume a price -- a price per gallon from AEO, the Energy Information Agency -- no, AEO. And that, remember they use in model year 2016 $3.50 a gallon, so that was the number used by the agency.

That is correct, $3.50 per gallon 7 years from now. If gasoline price just rise the same percentage in the next 7 years as they have in the last 7 years the price will be over $5 per gallon. If they rise in just nominal dollars the price will be over $4.00/gallon based on last week's U.S. average price. For some strange reason I just don't take much comfort in the government's estimates of future gasoline prices.

In Seattle this week there are a number of stations selling mid-grade and premium above $3/gallon. We could be at $3.50/gallon this summer let alone in 7 years.

Link to this week's Master Resource Report 2009-05-29

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:

More from Jeff Rubin's book "Why Your World is About to Get a Whole Lot Smaller".

    Jeff Rubin will be in Seattle on June 8^th giving a talk at Town Hall

Globalization and Food Production

Cantarell production falls 34% year-over-year!

Like most governments Mexico will probably wait until it is too late.

Reuters (May 19^th) "Mexico, which funds about a third of its budget from crude oil sales, has put off the tough choice of hiking taxes in recent years as sky-high world oil prices masked a steady decline in crude output and a grim prognosis for 2010 production." How do they hike taxes within an economy that may be imploding?

Brazil and China?

Bloomberg (May 20^th) "China Petroleum & Chemical Corp., Asia's biggest refiner, will benefit from guaranteed supplies of crude under a $10-billion loans-for-oil agreement with Brazil as the company's reserves decline." The key word here is "guaranteed"!

Financial Times (May 18^th) "Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil's central bank and aides to Luiz Inácio Lula da Silva, Brazil's president." They are taking steps to solve a problem they both face; the U.S. Dollar!

Link to this week's Master Resource Report 2009-05-22

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 World will not remain flat for much longer. A review of Jeff Rubin's new book.

Bioelectricity vs Bioethanol?

A nuclear powered drill rig, what will they think of next to extract oil?

Peak Phosphate?

Just one example why you should read Jeff Rubin's new book.

"While electronics and steel may garner all the press attention, food exports from China have managed until recently to stay under the radar. Nevertheless, the recent growth in Chinese food exports has been enormous. Everything from bok choy to apples to breaded chicken fingers is being sent around the world. Food exports to the US have soared from a modest $1 billion to $6 billion in 2008 – a 500 percent increase. This brings a whole new meaning to having Chinese food delivered." (page 217)

I recently met a wheat farmer from Eastern Washington (he now provides organic wheat to our local bakery) that described how wheat is shipped from Washington farms to China, processed into food products and then shipped back. Ultimately to be sold in big box retailers like Wal-Mart in… you guessed it Eastern Washington. As Jeff makes clear in his book this applies to everything from apples to salmon and it will soon end.

We face bigger issues around Peak Oil than just the cost of a summer vacation.

Community Solutions (March-April 2009) Congressman Roscoe Bartlett speaking at a conference on the risks facing Public Health by Peak Oil – "In Bartlett's view, today's federal government efforts to prepare are inappropriately focused on trying to fill any future energy supply gap with substitutes for fossil fuels—although there is in fact no set of substitutes that can make up the difference. "We are still in a phase of irrational exuberance over alternatives," he concluded, "despite the failure of hydrogen only a few years ago, and despite the recent failure of corn ethanol."

The article mentions a report by Howard Frumkin with Centers for Disease Control and Prevention that was published in the Jan-Feb 2009 issue of Public Health Reports titled "Energy and Public Health: The Challenge of Peak Petroleum." There is also a second article "Energy and the Public's Health: Making the Connection" also available. These should be required reading for Public Policy, Public Health and Hospital officials. Time is especially short for them to develop and implement policy.

The big question -- Was it Speculation or Was it Supply vs Demand?

ASPO-USA Commentary (May 11^th) "After many years of solid growth, oil production plateaued in October 2004. Regardless of the price level, the oil supply simply stopped responding, and from then on, the world had to make do with broadly flat supplies." This was clear to those who followed the Peak Oil story. To the general public it was as clear as mud. It wasn't the brief move from $100 to $147 that mattered; it was the move from $10 in 1998 to nearly $100 in 2007, a tenfold increase in a decade.

Link to this week's Master Resource Report 2009-05-15

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:

Special Guest Commentary: Was there a link between Mortgages and Energy Prices?

Wind power – policy, politics and the mafia.

Could a distillate glut cause a gasoline supply problem?

Wal-Mart acknowledges the impact of fuel prices on spending.

When the economy rebounds and fuels costs rise again will this story change?

Seattle Times (May 8^th) "With just weeks to go before its first flight, the Dreamliner program has now lost a total 57 orders since the beginning of the year and has taken in only one new order, for eight of the 787s." By the time the mass market air travel demand increases it is very possible the airlines will be confronted by the same fuels cost they thought was left behind last year. Airlines and aircraft manufactures may be running on the same kind of treadmill as petroleum faces, slanted uphill and speeding up.

Great article and a new book (I know it is not about energy but is a must read).

Financial Times (May 3^rd) "In the 1990s, a young team at Wall Street investment bank JP Morgan pioneered a new way of making money – credit derivatives. Within a decade, the market for these exotic securities had exploded to more than $12,000bn – and some people later blamed them for fuelling the global financial fiasco. In the first of two extracts from her book, Fool's Gold, the FT's Gillian Tett reveals how the innovation genie was first let out of the bottle – and eventually devoured the system, to the horror of its creators."

Gillian Tett is a great writer and reporter, now she has put that talent into her new book which I am looking forward to reading. In addition she was named Journalist of the Year at the British Press Awards in March. Her second excerpt will run in this weekend in the Financial Times, don't miss it!

GM sales increased 50% last month!

Bloomberg (May 8^th) "General Motors Corp., the biggest overseas automaker in China, boosted sales in the country 50 percent last month on demand for minivans, which account for 63 percent of its sales." Ok, it was in China where the sale of passenger vehicles rose 37%. Remember, these are not hybrids or electrics, they will demand more and more gasoline and diesel for years to come.

There is hope.

AP (May 6^th) "Ford Motor Co. stripped "truck" from the name of one its Detroit-area plants Wednesday as it announced plans to build its next-generation Focus here, including a battery-electric version Ford expects will run up to 100 miles without using gas or emitting greenhouse gas." If gasoline is $4/gallon when the first of these hits the show room floor the sales could be great. Just remember to be careful with any version 1.0 product.

Link to this week's Master Resource Report 2009-05-08

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 surplus supply of natural gas will soon be taken care of.

9 million barrels per day and holding steady.

Water and Energy have more than one form of linkage.

I am frequently asked for a solution when I speak on "Peak Oil". The solution is simple.

ODAC Commentary (April 24^th) "Shifting transport away from liquid hydrocarbon fuels towards electricity can make a significant contribution to the twin challenges of climate change and energy security." This is a key point; the world faces two challenges that can only be solved from the perspective of energy solutions. Electrification of transportation is the only solution that meets the long-term challenges of both. The sooner the world gets on with electrification and the necessary reduction in per capita energy consumption in the OECD countries the sooner the crisis that looms ahead will begin being mitigated.

http://www.odac-info.org/newsletter/2009/04/24#ad6effe70f30f917640bedf05a7

I did not think I would live long enough to read this.

Financial Times (April 29^th) "Higher taxes to push the price of petrol up by more than 70 per cent are needed to change Americans' car-buying habits and usher in a new generation of fuel-efficient vehicles, according to Bill Ford, chairman of Ford Motor." Honestly based on the flat line of U.S. gasoline consumption it will probably take something closer to $6 per gallon to really drive consumption down and that would also have the nasty effect of driving the economy back down. Don't forget though that to keep gasoline at $2 the requirement is the economy can't recover. Nice choices?

(See page 2 of this week's report for comments on price and consumption)

http://www.ft.com/cms/s/0/d2534a80-3455-11de-9eea-00144feabdc0.html

Link to this week's Master Resource Report 2009-05-01

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 U.S. just finished a ten year test of "Drill Baby Drill".

The weather forecast may determine if your lights stay on.

China's Demand vs Depletion.

Ever heard of neodymium?

Why doesn't a 34% decline get more attention?

Reuters (April 21^st) "Pemex said Cantarell produced 787,000 bpd in the first three months of 2009, down 34 percent from the same period in 2008 when the field yielded 1.195 million bpd." Cantarell has historically accounted for nearly 100% of the exported volume of oil for Pemex. Does it have to go to zero before anyone gets concerned?

Even though Mexico's oil production was down 7.8% in the first quarter of 2009 compared to the first quarter of 2008 net exports are down even more. According to the Reuters report "The drop in oil production cut oil exports by 14.7 percent to 1.279 million bpd. Mexico exported 1.499 million bpd in the first quarter of 2008, according to government data." Pay attention to net exports, they are all that matters to both Mexico and the U.S.

http://in.reuters.com/article/oilRpt/idINN2148560120090421

Link to this week's Master Resource Report 2009-04-24

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:

Oil Discoveries and Oil Depletion.

Just how ignorant are Americans on energy?

How many ExxonMobil's would it take to supply U.S. crude demand?

More on water and a must view video.

Javier Blas in the Financial Times

Financial Times (April 14^th) "The International Energy Agency, the western countries' oil watchdog, estimates that spending on exploration and production of oil this year is likely to drop by 20 per cent, double the initial forecast. "Non-Opec project cancellations and slippage out of the 2009-2010 start-up horizon alone stand at 1m barrels a day or more," it says, adding that supply losses could be even bigger as oil companies curtail maintenance in mature fields in the key regions of North America, the North Sea and Russia."

The surprise for the markets will not only be as Javier Blas indicates "that when the economy starts to recover next year it will discover that supply is falling, pushing prices sharply higher" but it will also be the severity and chronic nature of the decline. The discussion of the depletion on page one of this week's report combined with Javier's comments means it could be much worse than even the futures markets believe.

http://www.ft.com/cms/s/0/a2d03e0c-288a-11de-8dbf-00144feabdc0.html?nclick_check=1

(The Financial Times is my number one read each day. If you only have time for one this is it.)

Biofuels – There is much more to it than just CO₂

The Economist (April 11^th) "The ICSU report concludes that, so far, the production of biofuels has aggravated rather than ameliorated global warming. In particular, it supports some controversial findings published in 2007 by Paul Crutzen of the Max Planck Institute for Chemistry in Mainz, Germany. Dr Crutzen concluded that most analyses had underestimated the importance to global warming of a gas called nitrous oxide (N2O) by a factor of between three and five. The amount of this gas released by farming biofuel crops such as maize and rape probably negates by itself any advantage offered by reduced emissions of CO2." Keep this in mind the next time you spread all that fertilizer on your lawn to keep it looking green. You may have just canceled out some of that savings from driving that shining new hybrid SUV. Note: This was covered in the Dec. 21, 2007 issue of this report.

http://www.economist.com/science/displaystory.cfm?story_id=13437705

Trade those Dollars for some real stuff.

New York Times (April 15^th) "Meanwhile, China is rapidly increasing its lending in Latin America as it pursues not only long-term access to commodities like soybeans and iron ore, but also an alternative to investing in United States Treasury notes." Interesting idea, trade all that paper for natural resources. (Thanks Scott for the link)

http://www.nytimes.com/2009/04/16/world/16chinaloan.html?_r=2&hp

Link to this week's Master Resource Report 2009-04-17

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:

Was it subprime, hedge funds or an energy spike that pushed the world to the brink?

Mass Market Air Travel and Boeing losing money on 747's?

Lithium in Bolivia and national security?

Flying Car?

Energy Secretary Steven Chu at the 2009 EIA Energy Conference

"I was quite looking forward to hearing from Energy Secretary Steven Chu, so I grabbed a seat up front. Chu started off by saying the DOE is the biggest source of science funding within the government, and that science and technology absolutely must solve the energy issue. The major thrust of his speech was that we must rein in carbon emissions to avoid a climate catastrophe, but he primarily focused on electricity. Chu correctly noted that imported oil has become a huge drain on the economy and that recessions typically follow oil price spikes, but there was otherwise scarce mention of liquid fuels."

Robert Rapier attended the Conference and posted the above comment as part of his report on his R-Squared Energy Blog. Robert is a very bright guy so his comments are worth paying close attention to. He references others who attended in his report this week, each of whom can contribute to understanding where our current Energy Secretary sees the issues.

http://i-r-squared.blogspot.com/

I also recommend taking a look at Dave Cohen's comments on the ASPO-USA web page concerning Secretary Chu's policy positions.

Steven Chu's Energy Miscalculations

http://www.aspousa.org/index.php/2009/03/steven-chus-energy-miscalculations/

The Secretary of Synthetic Biology

http://www.aspousa.org/index.php/2009/03/the-secretary-of-synthetic-biology/

Ad Hoc – Crisis Management will not work in the Peak Oil world that is ahead.

The Sydney Morning Herald (April 10) "The state of play in the oil industry is unsustainable and a critical situation will be reached unless concerted proactive action is taken to address the coming crisis. Unfortunately, if history is any guide, actions will only come once the crisis is upon us." The fact the world will need all the liquid fuel we can get to build out the replacement infrastructure for the declining liquid fuels is a classic catch 22. The sooner policy makers come to grips with this simple reality the better.

http://business.smh.com.au/business/enjoy-the-cheap-petrol-while-it-lasts-20090409-a26l.html?page=-1

Link to this week's Master Resource Report 2009-04-10

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:

Canadian Tar Sands.

U.S. gasoline consumption.

Oil prices jump 73%

Japan converts from Steel to Lettuce.

"World oil demand this year will average 84.4 million barrels a day, Tanaka said,".

Bloomberg – (April 2, 2009) "The decrease in demand projected for this year is the steepest decline since the 1970s, Tanaka said. The latest IEA report shows a 1.5 percent decline. "It is quite obvious that this economic downturn is one of the worst in 100 years" World demand declines by only 1.5% during the worst economic downturn in 100 years? That should be a clue that the world depends on oil more than anyone seems to understand.

http://www.bloomberg.com/apps/news?pid=20601072&sid=aoX49J3dkqQU&refer=energy

Their guess is as good as any ones.

UPI – (April 3, 2009) "Information from the British Oil Movement tanker tracking company shows exports from the Organization of Petroleum Exporting Countries could fall to 22.15 million barrels per day in the four-week period ending April 18. That is a decline of 960,000 bpd compared with the previous four-week period, the Platts news service reports." The really important point of these reports may not be the volume of oil. The real issue is no one really knows. It is a guess based on such accurate techniques as spies sitting with binoculars looking at tankers leaving ports estimating their loads based on how they ride in the water. In the case of Oil Movements it is based on activity in the spot tanker market. That is right the actual flow of the world's most important traded commodity (water isn't traded) is based spot market estimates and best guesses. Comforting isn't it.

http://www.upi.com/Energy_Resources/2009/04/03/OPEC_export_forecast_down_nearly_1B_bpd/UPI-49071238767856/

Link to this week's Master Resource Report 2009-04-03

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:

Wind power report.

"Clean Coal"???.

Brazil's oil production will be increasing.

The BBC broadcast on Peak Oil "A Farm for the Future".

This BBC documentary is worth every minute it takes to watch the 49 minutes video. It hits at the biggest risk society faces from Peak Oil & Gas - Food. The link below will take you to The Oil Drum page where you can view it and also experience the community of folks who contribute to the discussion there. This is a top notch production by the BBC; I highly recommend taking the time to watch it.

http://www.theoildrum.com/node/5241#more

Alternative viewing at Google: http://video.google.co.uk/videoplay?docid=4152340418943461860&hl=en

Jim Kunstler doesn't write to make us feel good, rather to make us think.

"Everything that we're doing right now is engineered to avoid reality, to sustain the unsustainable, to recover the unrecoverable, when the mandate of reality compels us to face our losses in order to move on to the next chapter of a collective American life. The next chapter would be a society that runs on a much more local and modest scale, centered on essential activities like growing food, requiring harder physical work, and focused attention -- in other words, the opposite of a society lost in abstractions, long-range daisy chains of off-loaded responsibility, and incessant pleasure-seeking." Just think of how much we endure to keep from changing even when the change is inevitable.

http://www.kunstler.com/mags_diary25.html

The Peak Oil Crisis: Pondering the Near Future.

"What appears to be lacking in the current economic debate is a coherent plan of where the U.S. and indeed the world's civilizations need to go. Unfortunately the only stated, and politically feasible, goal at the minute seems to be a return to "economic growth," an objective which is clearly unrealizable in the midst of the current but as yet unrecognized transition to non-fossil fuel energy." I would add water to this list and consider it even more immediate than global warming. Of course global warming will exacerbate the water problem but problems with water are already unfolding in many parts of the world in real time.

http://www.fcnp.com/index.php?option=com_content&view=article&id=4283:the-peak-oil-crisis-pondering-the-near-future&catid=17:national-commentary&Itemid=79

Link to this week's Master Resource Report 2009-03-27

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:

U.S. oil consumption and the rest of the world's production.

Wow, Mexico replaced more than 100% of production, well not quite.

Videos – Matt Simmons, IEA and a cool electric car.

While Congress worries about maintaining business as usual; those who understand Peak Oil are planning for when they can't.

Richard Heinberg – "A process for designing the energy system to meet society's future needs must start by recognizing the practical limits and potentials of the available energy sources. Since primary energy sources will be the most crucial ones for meeting those needs, it is important to identify those first, with the understanding that secondary sources will also play their roles, along with energy carriers (forms of energy that make energy from primary sources more readily useful—as electricity makes the energy from coal useful in millions of homes)."

http://www.richardheinberg.com/sites/default/files/museLetter_203_march_2009.pdf

An interesting way to look at the WTI NYMEX oil contract's pricing impact.

The Times Online - "It sounds absurd, that a tiny market, buffeted by local news, should become a proxy for values across a nation, not to mention the world, but that is roughly what has happened in the global oil market." Oil prices have not gone down to the $20 per barrel that was being predicted by the experts just a few weeks ago. In fact they have moved over 50% higher than the low to over $50. The article in the Times presents a different way of viewing what has been going on with the pricing of the WTI. For investors who understand Peak Oil focusing on short-term price swings is a risk to long-term success. Understanding the WTI should help avoid getting trapped in the WTI vortex.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article5927188.ece

Link to this week's Master Resource Report 2009-03-20

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:

Further thoughts on the U.S. coal reserves.

Where does most of the electric power generated in the U.S. go?

What do Mexico and Pakistan have in common?

"Clean Coal" they still don't get it.

(Bloomberg) – "A clean-coal power plant backed by Peabody Energy Corp. and American Electric Power Co. and rejected by Republican President George W. Bush may be revived by the industries' usual political adversaries: Democrats." The plant is intended to capture 90% of the CO₂. This week's report gives some details on why this is a doubtful endeavor to pursue.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOtHPD__eF1I

It is simple, reduce drilling and supply will soon follow.

"SAN ANTONIO, Mar. 10 -- Rapidly declining US natural gas rig counts and prices are setting the stage for a recovery in both sooner rather than later. That was the message today of Gregory A. Dodd, vice-president for natural gas marketing and supply at Devon Energy Corp. in remarks to the 88th Annual Convention of the Gas Processors Association in San Antonio." The decline rates in natural gas are far steeper than in oil resulting in a much quicker supply response on the downside. The question that needs to be examined now is how fast can supply can match demand and not dramatically overshoot once the two meet sometime during the next 12 months?

ASPO-USA Peak Oil News – March 11, 2009

http://www.aspo-usa.org/index.php/category/news/

Link to this week's Master Resource Report 2009-03-13

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:

It is simple; a drop in drilling will result in a drop in supply.

But the U.S. will never run out of coal right?

Is it possible we have achieved Peak Autos & Peak Airplanes?

Would you loan Pemex over $10 billion?

Gasoline consumption is still hanging in there, diesel continues to a lag year ago.

Gasoline consumption year-over year -- four-week avg. down .36% -- one week up 1.5%

EIA data: http://tonto.eia.doe.gov/oog/info/twip/twip_gasoline.html

Distillate consumption year-over-year -- four-week avg. down 7.7% -- one week down 12.9%

EIA data: http://tonto.eia.doe.gov/oog/info/twip/twip_distillate.html#demand

So the decline in demand for petroleum in the U.S. continues to be provided by the industrial & commercial users cutting back. These demand changes illustrate the inelastic nature of gasoline consumption in the U.S. The country is in the deepest recession in 80 years and gasoline demand is running flat to up slightly.

The U.S. and the UK have found a way to bring natural gas prices down.

Just kill the industrial and commercial part of the economy and demand will come crashing down. (Bloomberg) – "U.K. spot natural gas, costing about half as much as long-term European contracts, may fall 42 percent as lower industrial demand pushes more gas onto the open market, analysts said." Of course there is that one negative side effect; massive economic hardship. More on the U.S. natural gas supply in this week's report.

http://www.bloomberg.com/apps/news?pid=20601072&sid=aa6F637JnYuw&refer=energy

Link to this week's Master Resource Report 2009-03-06

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:

Do CFLs, CO₂ and mercury mix?

U.S. gasoline consumption trends and price.

Guess who is a painter?

The Peak Oil Crisis: A Turning Point?

(Falls Church News-Press) – "If there is anything we have learned in the last 18 months, it is that oil prices are highly sensitive to over and under supply. The conventional wisdom holds that last summer's $4 - 5 gasoline was mostly the doing of speculation by highly leveraged hedge funds and will not recur in the immediate future. However, most of those following the details of oil prices in recent years believe there was some amount of under supply last summer caused by the pre-Olympics Chinese oil demand spike." If you have not read Tom Whipple's insightful and to the point articles before this would be a good one to start with. He takes a very good look at where global supply may be headed in the months ahead given the apparent success in Opec members actually cutting supply. This will be a very unwelcome surprise to experts predicting $20/barrel oil.

http://www.fcnp.com/index.php?option=com_content&view=article&id=4173:the-peak-oil-crisis-a-turning-point&catid=17:national-commentary&Itemid=79

Opec is making believers out of skeptics on output cuts.

(Upstreamonline) – "Opec member United Arab Emirates announced it was cutting back supplies to Asia for April, adding to expectations the producer group will throttle back production further when it meets in March." This news plus indications that Opec members have achieved production cuts close to 4.3 mb/d may have started to sink in. If Opec sees results from these production cut backs it will reinforce their willingness to stick to them, at least in the short run.

http://www.upstreamonline.com/live/article172909.ece

2012 is an important year.

Readers of The Master Resource Report know that 2012 could be the year that Mexico confronts the net export problem head on. But it may also be the year that Las Vegas confronts the export of water from Lake Mead. (Bloomberg) –"Since 1999, Lake Mead has dropped about 1 percent a year. By 2012, the lake's surface could fall below the existing pipe that delivers 40 percent of the city's water." The article discusses the bleak scenario facing much of the U.S. Southwest water supply. As mentioned many times here the solutions to the water problems all depend on cheap abundant energy to succeed. Cheap and abundant are two conditions that Peak Oil is not going to provide.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a_b86mnWn9.w&refer=home

Link to this week's Master Resource Report 2009-02-27

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 U.S. has stepped of the natural gas drilling treadmill.

Energy and water.

Renewable energy and infrastructure.

Yesterday the market discovered something this report has been covering for months!!!

U.S. gasoline consumption is not falling year-over-year. Just imagine what U.S. gasoline consumption would be if the country was not in the worst recession in 80 years?

The future is being determined today.

(Bloomberg) – "Well shut-ins are "expected to grow markedly from March onward" as the cost of producing, transporting and paying taxes on the oil surpasses the price received for it…" This problem crosses both oil and gas. Are we moving towards the IEA's nightmare scenario?

http://www.bloomberg.com/apps/news?pid=20601072&sid=aaWUswQKCr1A&refer=energy

(Upstreamonline) – Repsol's chief executive Antonio Brufau said, "All in all, the reduction of investment, the credit squeeze and the current strong risk aversion caused by the global financial crisis and low prices, could have long-lasting effects on the supply side well above the effect on consumption, that is, a temporary shrinkage in energy demand…" There is little question that it will have a long-lasting effect. From the Peak Oil perspective will become permanent when coupled with the escalating depletion rate in existing fields outlined in the IEA's WEO 2008.

http://www.upstreamonline.com/live/article172360.ece

Back in January Kevin wrote about the Panic of 1907, now look at what he found.

"…last week called the auto industry's slump a "depression" and warned that Washington had better take quick action to help the unemployed." This week he found a Time Magazine article from Dec. 9, 1974. We highly recommend taking the time to read it. The world did not end in 1974 but at the time it sure seemed like it would.

"… middle-class people are coming into my shop in droves — at least triple the number of last year. We've had an influx of wealthier people who have been cleaning out safe-deposit boxes and selling the diamonds and jewelry."
http://www.time.com/time/printout/0,8816,908956,00.html

Link to this week's Master Resource Report 2009-02-20

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:

Where has the decline in U.S. consumption occurred?

Chevron hits oil, over 5 miles down.

How long would it take to watch 20 million barrels of water cascade over Niagara Falls?

Do you know where Cushing is?

Financial Times (Feb. 11, 2009) "The International Energy Agency warned that "deterioration in the fragile WTI pricing mechanism would only serve to reinforce the view that the crude has become an irrevocably broken benchmark". This landlocked delivery point for WTI is one more example of a risk facing long-term Peak Oil investors if they pay too much attention to short-term energy prices. Link to Google Map

http://www.ft.com/cms/s/0/6cc84c30-f867-11dd-aae8-000077b07658.html

Predictions from the past…. (I know this is not really energy related.)

"Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to "buy" houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily over stimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment." [emphasis is mine]

~From Chapter VI "Credit Diverts Production" in Henry Hazlitt's "Economics in One Lesson," first published in 1946, quote from 1978 edition.

Link to this week's Master Resource Report 2009-02-13

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.