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The Clock Is Ticking On The U.S. Dollar As World’s Reserve Currency

September 22, 2015

The Clock Is Ticking On The U.S. Dollar As World’s Reserve Currency

The View From Hubbert’s Peak

In 1971, the American President put an end to a 2,500 year trend; the Wall Street Journal called it “Nixon’s Worst Weekend.” Considering the old boy had some really bad ones, this must have been something special. In August of that year (on Friday the 13th) it was decided that the U.S. would no longer pay out gold for its paper dollars. OPEC Ministers took note, and in September they met, deciding it would be necessary to collect more paper dollars, if possible, since gold was no longer on offer and oil was the only asset they had to sell.

It would take another two years for those decisions to matter (during the October 1973 embargo in the wake of another Arab-Israeli war). The Oil Embargo marked the end of ‘free’ energy, and kicked off a massive rise in the price of oil because the U.S., the world’s swing producer since Colonel Drake’s Pennsylvania strike in 1859, had finally reached peak production at around 10 million barrels per day in 1970. This moment is the original Hubbert’s Peak, the beginning of decline for the U.S. oil industry, at least until recently. The surge in U.S. production since 2010 has stalled out around 9.5 mb/d and, due to the Saudi decision to give the American tight oil producers ‘a good sweating,’ that rate has begun to fall in the last few months.

It is certainly possible that U.S. production will surpass the 1970 peak, but with low prices it is hard to say when that will be; it is also hard to say how long that will last as tight oil wells have a devilishly high rate of decline. It is worth noting, as Arthur Berman has recently done in his fine article, that even the best producers are losing money now, and lots more are being lost by those who are not the best. Making it up on volume is a dog that does not hunt for $45.

 

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The Price Of ‘C’ In China

August 10, 2015

The Price Of ‘C’ In China

Source: U.S. Department of Energy

As the chart above indicates, since the end of World War II, the amount of carbon being leaked into the atmosphere has increased almost parabolically, with a brief pause around 1980 after the price of oil had come unhinged from its single digit moorings and economic activity slacked off for a bit. This rise is in line with the amount of coal, oil and gas that has been consumed in the meantime. It is also highly correlated to atmospheric and oceanic temperature increases.

In 2014, 35.5 billion metric tonnes were added to the mix. So far, this has not been a pay-as-you-go proposition, rather, the effects, and the externalities have been passed on to anyone and everyone who has been in the path of rising seas, rising temperatures and the storms, droughts and fires that have spread in their wake.

(Click to enlarge)

Though the U.S. has contributed the most since 1965, when temperatures started to rise (273 billion to China’s 166 billion, out of a total of 1.14 trillion added tonnes, according to BP), China has now taken the lead in annual output (9.7 billion tonnes in 2014 vs. 6 billion tonnes for the U.S., making up 44 percent of the total between the two), mostly due to that country’s reliance upon coal for so much of its electricity. China became the world’s largest car market a few years ago and expects to sell 24 million units, compared with 16 million projected sales in the U.S., assuming the recent market selloff there does not portend a dramatic economic slowdown.

 

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Olduvai IV: Courage
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Olduvai II: Exodus
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