<html><head></head><body style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; ">Nate put a lot of work into this op-ed. Pity to see it go to waste, particularly as he's one of the sharpest analysts of the meaning of peak oil - in the world.<br><div>
<span class="Apple-style-span" style="border-collapse: separate; color: rgb(0, 0, 0); font-family: Helvetica; font-size: medium; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-align: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; "><span class="Apple-style-span" style="border-collapse: separate; color: rgb(0, 0, 0); font-family: Helvetica; font-size: medium; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; "><div style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; "><span class="Apple-style-span" style="border-collapse: separate; color: rgb(0, 0, 0); font-family: Helvetica; font-size: medium; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; "><div style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; "><span class="Apple-style-span" style="border-collapse: separate; color: rgb(0, 0, 0); font-family: Helvetica; font-size: medium; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; "><div style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; "><span class="Apple-style-span" style="border-collapse: separate; color: rgb(0, 0, 0); font-family: Helvetica; font-size: medium; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; "><div style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; "><span class="Apple-style-span" style="border-collapse: separate; color: rgb(0, 0, 0); font-family: Helvetica; font-size: medium; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; "><div style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; "><span class="Apple-style-span" style="border-collapse: separate; color: rgb(0, 0, 0); font-family: Helvetica; font-size: medium; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; "><div style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; "><div>-----------------------------</div><div>Keith Thomas</div><div><a href="http://www.evfit.com">www.evfit.com</a></div><div>-----------------------------</div></div></span></div></span></div></span></div></span></div></span></div></span></span>
</div>
<!--StartFragment--><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">From: NJ Hagens <o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">To: Jay Hanson<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">Jay I was asked by NY Post to write an op-ed on 'my take' on the Exxon earnings
release. They gave me 24 hours to do it. I spent 5 hours on it and after
sending it to them Saturday morning, they replied 'This doesn't work, sorry.
Its not too convincing.'<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">PCI posted it <a href="http://www.postcarbon.org/blog-post/322207-complaining-about-mosquito-bites-while-a"><span style="color:#174FA4">http://www.postcarbon.org/blog-post/322207-complaining-about-mosquito-bites-while-a</span></a>
thought you'd want to see it<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">Nate<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">====================</span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">Last week, in a repeat of 2008, reports of fat earnings from the oil majors
were met with blame and outrage from American consumers, who are stressed from
$4+ gas prices and strapped finances. Exxon Mobil, the 18th-largest oil company
in the world, with about 3% of world production (~4million barrels of oil
equivalent per day), reported quarterly earnings of $10.7 billion dollars.
Americans are upset because they envision such hefty profits as direct
transfers from their thin pocketbooks to Exxon, itself the recipient of
government oil and gas subsidies to boot.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">I am not an oil industry apologist, but recognize that I live in an oil-centric
world, own a car, enjoy air travel and partake in the daily smorgasbord of
food, services, and novelty made possible in the cheap energy age. To me, given
the problems our country and government face, blaming Exxon for high gasoline
prices and excessive tax subsidies is akin to complaining about a mosquito bite
on your arm when a crocodile has your leg in its mouth.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">First, it is a stretch to say that Exxon is under-taxed; last year Exxon's
worldwide total taxes amounted to $86 billion <<a href="http://www.sec.gov/Archives/edgar/data/34088/000119312511047394/d10k.htm"><span style="color:#174FA4">http://www.sec.gov/Archives/edgar/data/34088/000119312511047394/d10k.htm</span></a>>,
or 23% of its revenue (by comparison, at this country's second-largest corporation
— Apple, Inc. — taxes were 6.9% of revenue <<a href="http://www.sec.gov/Archives/edgar/data/320193/000119312510238044/d10k.htm"><span style="color:#174FA4">http://www.sec.gov/Archives/edgar/data/320193/000119312510238044/d10k.htm</span></a>>.
Yet Exxon understandably is a lightning rod, because the ~3 cents per gallon it
makes as the world's largest refiner add up to very large numbers. And yes they
make large sums on their oil production when commodity prices rise more than
costs. But these are two sides of the wrong argument, and are not the real
story.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">Under a lens of ecology and biophysical economics, the vitriol being expressed
at the Exxon is misplaced at best and counterproductive at worst. Though our
culture perceives dollars and digits in the bank as wealth, in reality they are
only markers. Our real wealth comes from the sun, including its direct daily
insolation, its role in photosynthesis (which creates biomass, including fossil
fuels), and its pushing natural and hydrological cycles that perform vital
services to our species and others.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">Our primary wealth is our finite endowment of resources, like oil and gas,
timber, water, and minerals. We extract resources from this natural "bank
account" and combine them with human ingenuity and technology to produce
things we can use, such as tractors, houses, and clothing. Our socio-political
system then overlays monetary tokens: stocks, bonds, bank deposits and cash
that function as markers of our real wealth, markers that are increasingly
disconnected from the reality of our natural resource balance sheet.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">But energy is different from iPads or Doritos in its impact on our lives.
The laws of economics (more like guidelines) state that energy, capital and
labor are all substitutable. This turns out not to be true; there is no
substitution for energy in our economy — every single economic product created
requires first an expenditure of energy.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">The amount of human labor that oil and other fossil fuels have been able
to replace or allocate to other pursuits is gargantuan. The average human can
generate only about 0.6 kilowatt-hours per day from physical effort, which,
based on median U.S. salaries, equates to more than $300 per kWh generated by
human labor. Oil, even at $110 per barrel, costs us just 6 cents per kWh, or
500 times cheaper than human labor. This replacement of human effort with
fossil fuels has been the single primary driver of economic riches of the past
couple of generations. For all intents and purposes, on human time scales, oil
in our lives is indistinguishable from magic.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">And it is depleting. U.S. oil production has been in steady decline since
its peak in 1970. World production has been stagnant since 2005, despite a
tripling in price last decade. The marginal barrel of oil now costs $85, as we
are drilling deeper and in harsher environments, and now having to include
fuels with lower net BTUs like tar sands, natural gas liquids and ethanol into
the oil category just to stay even.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">So when Exxon reports $10.7 billion in earnings, this is the monetary accounting
of the chemical and kinetic energy it contributed to society in the form of oil
and gas sales. This oil and gas then went on to perform myriad other activities
in our economy — and 4 million barrels per day is the equivalent of over 2
billion human-days of useable energy. About equal to the working population of
the world. Quite a deal actually, for us.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">While high gasoline prices might appear to be the problem, they are only
a symptom of our more-complex problem. We have grown debt in this country more
than we’ve grown GDP for 45 years in a row. Our borrowing of money to buy cheap
shoes, cheap furniture and cheap TVs gives China much (paper) wealth with which
to bid up world commodity prices, including oil.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">To avert financial ruin in 2008, our government stepped in as lender of last
resort in the housing market, spent 12% of GDP each year they didn’t have, and
grew the Federal Reserve balance sheet by over $2 trillion dollars. These
actions have furthered the U.S. dollar's devaluation, which in turn drives oil
prices higher in dollar terms. In the context of these trillions, a focus on
eliminating $4 billion in subsidies to an industry that produces the hemoglobin
of our economy is much more politic than actually relevant. The Big Problem
isn't Big Oil creating energy from fossil fuels, it's Big Government creating
money from thin air to cater to an over-entitled population.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">This brings us to the biophysical money shot. At issue is not whether we
are ‘running out’ of oil or other fossil fuels. The problem is that we are
running out of fossil fuels affordable enough to power a globalized industrialized
society. As easy (government) money causes commodity prices to rise, this helps
Exxon and the other oil companies but is costly to the American public.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">If this stimulus goes away, and oil goes back down to say $40-50 per barrel
due to recession, this helps the American consumer, but at a cost of
significant amounts of oil resources then becoming uneconomic to produce. One
can imagine the endpoint of this trajectory, as eventually get to a market
price which is both unaffordable to our debt-saturated society, and uneconomic
for oil companies to extract the harder to find remaining hydrocarbons.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">This is the future we should be planning for. It’s not all dark, but significant
belt-tightening of both consumption and aspirations will be required.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">For now, its safe to assume that the passing of the credit creation mechanism
from the private sector, to the central banks was not only a wealth transfer to
the financial sector (via free money), but to the energy and other sectors as
well. So again, XOM just reported pudgy earnings, but so did Goldman Sachs,
General Electric and a host of other companies benefiting from the reflationary
FED bullet.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">The bottom line is the main drivers of American progress over the past two
generations have been cheap energy, and increasingly cheap credit. This era is
now over. Perhaps as importantly, it’s beginning to be recognized as over. It
turns out that cheap energy and cheap money may not be our God-given rights as
Americans. And the secret truth is their availability, in hindsight, was as
much a curse as a blessing, given what we see of people’s reactions and
expectations today to an increase in oil price from 3 cents to 6 cents per kWh.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">It was less than two years ago we were squawking about the financial companies
bringing the U.S. to the brink of financial ruin. Now it seems we’ve turned our
sights on the evil oil companies (again).<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">They may not be noble, or admirable, or even likeable, but oil companies
are providing a critical service to society and playing by the rules created by
you and me and the people we voted for. Though gasoline is expensive relative
to what we have become accustomed to, it is still incredibly cheap in what it
can accomplish for us. In the face of resource depletion, it is time we not
only wake up to the realities of our natural resource situation, but also grow
up — by making hard choices instead of blaming whomever seems to be the bad guy
du jour.<o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
13.0pt;font-family:Helvetica;mso-bidi-font-family:Georgia;mso-ansi-language:
EN-US">Nate Hagens has a PhD in Natural Resources from the University of Vermont
and an MBA from the University of Chicago. He writes at the energy discussion
portal, <a href="http://www.theoildrum.com/"><span style="color:#174FA4">www.theoildrum.com</span></a>
and is on the Boards of Post Carbon Institute and Institute for Integrated
Economic Research. </span><span lang="EN-US" style="font-size:11.0pt;mso-bidi-font-size:
12.0pt;font-family:Helvetica"><span style="mso-spacerun: yes"> </span></span><span lang="EN-GB" style="font-size:11.0pt;mso-bidi-font-size:12.0pt;font-family:Helvetica"><o:p></o:p></span></p>
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