Saturday, December 24, 2005

Peak Oil Update; what will it cost to drive next year?

Look at this chart from the following link:

This jagged graph represents the very best official information available on world oil production during the last few years.

Given the soaring price of oil over the last several years, why would production have slowed down so much that world production appears to be stagnant during the last year or so?

Other than the fact that production can no longer respond to price, so that steadily increasing demand causes the price to rise sharply to accommodate this new reality. An expert analysis by the editor of Petroleum Review Chris Skrebowski [at the recent ASPO-USA conference in Denver] meanwhile predicts peak oil within 30 months, which includes now.

A good bit of discussion follows at the link above, while the following parent site is a good place to go to keep up with discussion on energy-related topics.

As a snip of the discussion by Stuart Staniford points out below, only Russia and Saudi Arabia can potentially turn production around for a time, but it is probably not in their interest to spend a fortune increasing production just to keep it cheap and decrease their own long term benefit. -- Roger

"... Let's think about it from a different angle. We know the IOCs, taken together, have been unable to increase production for a number of years. All through that big 2002-2004 rise in global production, the IOCs were not contributing a whit to the cause. They bought a lot of production on stream, but it just offset their decline rates. Judging by the nice Bloomberg story we saw Dave post, we shouldn't expect much change in that in the next few years (as megaproject analysis tends to confirm). So if production is to increase by a lot over the next 5-10 years, you've basically got two places with the reserves (maybe) to do it: Russia and Saudi Arabia. Some people would argue even they can't increase production, but I tend to the view that they could if they really pulled all the stops out to do so. As HO has been documenting at length in his posts, there's not much evidence that Saudi Arabia is drilling at the rate required for massive increases in production, and John Grace makes, to me, persuasive arguments in his book that Russian production is unlikely to increase too much more absent a large independent oil sector to go after all the smaller fields. So they could increase production somewhat further, but for some reason they aren't acting like they plan to. Why not?

Well, Putin and Abdullah basically control the price of oil. How much should they charge? Should they sell it cheap, such that demand will grow fast? Or should they sell it dear so that demand will grow slowly? Or very high so demand will collapse? What's in their best interest? They're not interested in maximizing global growth in oil production, they're interested in maximizing revenues to their respective regimes. I would say that it's in their interest to charge as much as the market will bear without causing a substantial collapse in demand. I suggest that would be high enough that any uses of oil with much elasticity will tend to get weeded out to make room for the growth in BRIC vehicle miles traveled. There's a lot of inefficiencies in oil use such that it's quite possible for demand to go flat for a number of years as developing countries fuel-switch to coal for power generation and the vehicle fleet gets more efficient. So if it's possible for demand to go flat, and it's in the self interest of the people who control the market for that to happen, why is it not going to happen?...

Friday, December 23, 2005

Bad news for the Toll Road Lobby; Texas Travel Volumes Decline

Bad news for the Toll Road Lobby:
Texas Travel Volumes Decline

U. S. Department of Transportation; Federal Highway Administration
TRAFFIC VOLUME TRENDS; Office of Highway Policy Information

The trend is clearly down due to soaring fuel costs, with total travel on all roads and streets in the USA shrinking 1.6% in Oct. 2005, as compared to Oct. 2004.

Travel normally varies seasonally, with a vacation travel peak in July. A strong slowdown travel on US urban highways (the roads most linked to suburban sprawl) is evident from the numbers from 2003-2005 on figure 2. US urban highway travel jumped sharply from 2003 to 2004, but this trend decelerated sharply from 2004 to 2005.

TxDOT’s planning has in recent years been heavily based on leveraging debt. The reliability of these ever-increasing traffic volumes is used to generate toll road revenues. These revenue projections are shown to Wall Street, thus effectively being used as collateral to borrow money to build more toll roads to handle even more projected traffic, etc.

The travel volume in Mississippi and Louisiana clearly increased from 2004 to 2005 due to the hurricanes. But for such hurricane-related stimulation of travel, the numbers in Texas in recent months likely would have decreased more.

These are the raw numbers (Sept.‘05 is revised but not yet Oct.’05).

All roads in Texas:

Sept. ‘03 to Sept. ‘04 +1.0
Oct. ‘03 to Oct. ‘04 -0.6

Sept. ‘04 to Sept. ‘05 -1.0
Oct. ‘04 to Oct. ‘05 +0.1

Rural arterials in Texas:

Sept. ‘03 to Sept. ‘04 +1.4
Oct. ‘03 to Oct. ‘04 +0.2

Sept. ‘04 to Sept. ‘05 -2.5
Oct. ‘04 to Oct. ‘05 -0.7

Urban arterials in Texas:

Sept. ‘03 to Sept. ‘04 +1.0
Oct. ‘03 to Oct. ‘04 -0.8

Sept. ‘04 to Sept. ‘05 +0.0
Oct. ‘04 to Oct. ‘05 +1.3

Monday, December 19, 2005

TxDOT empire based on cheap oil addiction

TxDOT's $6 billion a year road-building empire is based on cheap imported oil. This is clearly a necessary assumption to do long range planning for roads basic to a road-centered, oil addictive Texas economy.

A big problem is that the operation of this body has become intertwined with special interest politics; largely those tied to road contracting and real estate. These special interests naturally try to defend the status quo in terms of transportation infrastructure funded with public taxes and debt.

In other words, public officials are committing the public to a huge level of long-range debt to subsidize roads that serve expansive patterns of growth favored by the special interests. The credit ratings of counties in the CAMPO area are in effect being pledged as collateral on tax-free muninicipal revenue bonds for roads to serve projected sprawl growth.

The one factor that the Texas transportation bureaucracy has so far been unwilling to factor into their planning the debt risk involved in their travel demand policies extending decades into the future. What will happen to the local municipal bond debt if high gasoline prices restrain driving and cause the bonds to default?

The precariousness of any long range transportation planning that assumes that fuel will always be cheap is exemplified by stories like the following. -- Roger

How soon will world's oil supplies peak?

The question provokes hot debate among experts, as concerns rise that
America isn't prepared for a dropoff.

By John Dillin | Correspondent of The Christian Science Monitor
from the November 09, 2005 edition; CSM

WASHINGTON - If world crude-oil production hits its peak and then
falls within the next five to 10 years, would America be ready? The
answer is, almost certainly not.

A debate unlike anything seen since the oil embargoes of the 1970s
has erupted over the future of world petroleum supplies. A chorus of
experts claims that the peak in production may be approaching, and
that the impact of a peak and subsequent dropoff would be devastating
to the world's economies. Others insist that moment is still distant.

Some nations, including China, already appear to be taking steps to
lock in future oil supplies from the Middle East, Africa, Central
Asia, Canada, and South America.

The risks of future oil shortages are huge. As if to illustrate that
point, the temporary ripple in supplies after hurricane Katrina sent
gasoline prices in the US to record levels...

Sunday, December 18, 2005

New direction for Austin growth policy?

[This looks to me like an Austin Mayoral step away from a toll road focus. Sort of like Bush backing out of Iraq without admitting defeat.

My interpretation/theory is that Mike Krusee has told Wynn to push rail, Krusee having been told that even toll roads (which may not even be bondable now) cannot on their own handle the traffic -- from what are now emerging as the most profitable modes of private land development in denser clusters. -- Roger]


WHEREAS, the City of Austin is encouraging development of downtown as part of the City’s commitment to promoting transit-oriented infill development and to reducing sprawl development; and

WHEREAS, Mayor Wynn has established a goal of 25,000 residents living downtown in 10 years; and

WHEREAS, the City of Austin is pursuing a fiscal policy of strengthening the tax base by selling government-owned land and developing this land to its best community use; and

WHEREAS, the City of Austin must plan now for the placement of downtown rail and transit stations; and

WHEREAS, current funding for infrastructure such as sidewalks, Great Streets, drainage and flood control is inadequate and unpredictable; and

WHEREAS, the ordinances governing downtown development, which reflect a suburban sprawl-orientation, have not been updated in nearly two decades, and are now outdated in many important areas; and

WHEREAS, downtown contains significant parcels of government owned land that do not contribute to the tax base but which have the potential to be redeveloped to include housing in all price ranges; NOW THEREFORE,


The City Manager is directed to do the following:
Initiate the process to create of the Downtown Austin Plan and Ordinance; and
Establish the Plan and Ordinance boundaries as follows:

Town Lake
West side of Lamar
Martin Luther King, Jr.
Interstate 35;

Prepare a scope of work for the hiring of a national consultant with downtown expertise to develop the Downtown Austin Plan and Ordinance that includes the following:

Implement ordinance modernizations, including but not limited to—
FAR standards and procedures for modifying where appropriate;
Height standards and procedures for modifying where appropriate;

Funding ordinances for infrastructure; and

Identify right-of-way for passenger rail and dedicated bus thoroughfares; and

Develop a program and procedure for the sale and development of government-owned land; and

Work with stakeholders, including, but not limited to, the State of Texas, Travis County, the federal government, Capital Metro, the Downtown Austin Alliance, Downtown Austin Neighborhood Association, Austin Neighborhood Council, Old West Austin Neighborhood Association, Judges Hill Neighborhood Association, affordable housing advocates, parks groups and environmental organizations on process and substantive issues; and

Identify east-west and north-south rail lines and dedicate station locations downtown; and

Integrate the Downtown Neighborhood Plan and the TOD Ordinance Convention Center Station Area Planning effort into the Downtown Austin Plan and Ordinance; and

Identify strategies and best practices for affordable work force housing in the downtown area; and

Present the proposed scope of work for the RFQ to the Council subcommittee on Land Use and Transportation prior to releasing for bids.