Energy is still the most important economic issue

I have been convinced since 1970 that nothing explains more economically than the price of energy.  Not only does energy feed us and keep us warm, the whole modern lifestyle is made possible by the easy consumption of energy—especially the fossil fuels.  Energy is also the driving force behind most of what we consider social progress because most of the work formerly done by slaves and others in hideously exploitive arrangements is now assigned to our machines.  If you don't consider energy critical, try to imagine all of our automobiles replaced by sedan chairs carried by slaves.

The energy questions are essentially divided into two subgroups—availability and price.  Of course, these issues are closely related so dividing them is mostly a matter of convenience.

Up first, a link to an extremely well-done slide show explaining why we have probably already reached Peak Oil and what this means.

Peak Oil Guru Robert Hirsch Gives The Definitive Guide To The Coming Energy Fiasco
Gus Lubin and Hannah Kim | Nov. 4, 2010,

There is no greater advocate of peak oil than Robert Hirsch, who directed America's nuclear energy program in the 1970s and authored the first major warning to the Energy Department in 2005.

Hirsch repeated his warning at last month's ASPO-USA conference and said the time has come to adjust your lifestyle and portfolio.

His advice: Sell most stocks. Get out of bonds. Buy annuities and gold. Move closer to public transit and shopping centers, and get a Prius. more

Then we see an astonishing data dump that reveals that the real problems caused by Peak Oil have been made infinitely worse by banksters who make a lot of money for themselves at the expense of the rest of us who are simply trying to survive.  Even worse, this disgusting display of naked greed is so massive, it sucks up the funds necessary to build any meaningful solutions.

Leaked Documents Reveal Major Speculators Behind 2008 Oil Price Shock: Hedge Funds, Koch, Big Banks, Oil Companies
By Lee Fang on Sep 15, 2011 at 11:30 am

Last month, Sen. Bernie Sanders (I-VT) leaked confidential data about oil speculation to a number of media outlets, including the Wall Street Journal. Ordinarily, the Commodity Futures Trading Commission, the regulatory body that oversees futures trading, does not provide identities of speculators to the public. However, the data leaked by Sanders provides a rare snapshot into the trading volumes by major speculators right before the oil price spike in the summer of 2008.
As experts from Stanford University, Rice University, the University of Massachusetts, and authorities have concluded, rampant oil speculation was the prime driver of the record high prices for crude oil three years ago.

To view a copy of the data, click here for documents leaked by Sanders. To view an organized spreadsheet, click here. 

Notably, the top speculators are noncommercial players, meaning they are companies that simply and buy and sell crude contracts with no interest in actually refining and selling the product. Each contract in the list represents 1,000 barrels of oil. The documents show the total volume of trades made on one specific day shortly before the record high price of $148 per barrel. 

The data, though revealing, still does not give a complete picture of trading strategies. Speculators invest in multiple private exchanges, and trading tactics can shift from day to day. Moreover physical plays, such as buying up large quantities of actual oil and storing it on tankers or in large containers, are still largely hidden from public view. 

Tyson Slocum, an oil speculation expert at Public Citizen, reviewed the documents and spoke with ThinkProgress. He said that this data is important because it shows who the “big players are” and underscores the need for transparency and regulation in these so-called dark markets:

SLOCUM: What this tells us is who the big players are, because volume equates market share in a way, if you are driving volume, and if your volume is at a significant enough amount you become a price setter or at least a price trender where you’re going to have the effect of unilaterally influencing prices and that’s very significant. And you’ve got sort of a cascading effect, and the smaller traders are going to follow Goldman Sach and others will chase the leader, which is why Dodd Frank said Congress shall set position limits in these markets. Position limits would limit the market share, limit the positions banks could take. Dodd Frank recognizes the danger that one or two traders can have when they dominate the positions in a given market. 

Professor Michael Greenberger, a former CFTC official, told ThinkProgress that the “short” positions outlined by the document might cause confusion because in many cases banks act simply as intermediaries for their clients. Critics will note the net short positions and assume incorrectly that many of these players were simply betting on prices to go down, not up. Greenberger explained that if you look closer at the data, the trading shows banks and other speculators were actually pushing the price up:

GREENBERGER: When you look at it carefully, the speculative money has all been heavily weighted in the favor of buying in the direction of the price going up. […] They go in and buy long in the regular futures market, which sends a long signal to the market, that there’s a supply problem that really doesn’t exist. To keep their long bets in place, they have to do something called the “Goldman Roll,” which is these contracts don’t go on forever. They expire. So what they have to do is sell short to get out of the contract when the expiration takes place, then roll around and buy long again to keep the long bet on the books. So the long bets are predicated on intermediate short bets, that are canceled out within three or four days of each other. 

Regardless of the actual trading strategies, the volume makes clear that not only were Goldman Sachs and Morgan Stanley, as well as pension and sovereign wealth funds, among the top participants in the oil speculation bubble, but so were politically connected hedge funds. Elliott Management, one of the top hedge funds revealed by the documents, is led by Paul Singer, a billionaire investor and a major donor to Karl Rove’s network of attack groups and to Republicans on the Financial Services Committee. 

As we have discussed on this blog, “all the major oil companies (Shell, BP, Occidental, etc) operatelike Wall Street investment banks and use their privileged position in the oil market to make speculative bets on the price of oil.” An accidental leak of private Chevron data two months agoconfirmed that the company relied on sophisticated speculation strategies, just as much as drilling and refining oil, to make a profit. This data seems to confirms that Koch Industries — a conglomerate that has admitted that it is among the top five oil speculators in the world — participates in the oil speculation market on the level of big banks. 

The Dodd-Frank law passed last year contains a mandate that the CFTC crack down on rampant oil speculation by imposing position limits to curb the number of contracts held by participants in this market. As lobbying firms have spent months fighting these new rules, it is instructive to note that the biggest players 2008 oil price spike have also flooded campaign coffers of DC politicians, potentially hoping for influence in shaping these rules or weakening the CFTC’s hand (through budget cuts and other limitations). MapLight has compiled the campaign donations for some of the largest speculators revealed by Sanders’ leak, which can be viewed on this spreadsheet. more

And lest one thinks that there are easy ways out of the technological trap set by all the machines that require fuels, a cautionary note from the best-financed alternative.  If nuclear power—the offspring of Big Industry, Big Science, and Big Money—can't make it, powering a society on windmills and PV cells looks pretty risky too.  Yet because there is no alternative to quenching the fires of a fossil-fueled society, SOMETHING must be tried—seriously and soon.

Siemens to quit nuclear industry
BBC   18 September 2011

German industrial and engineering conglomerate Siemens is to withdraw entirely from the nuclear industry. 

The move is a response to the Fukushima nuclear disaster in Japan in March, chief executive Peter Loescher said. 

He told Spiegel magazine it was the firm's answer to "the clear positioning of German society and politics for a pullout from nuclear energy". 

"The chapter for us is closed," he said, announcing that the firm will no longer build nuclear power stations. 

A long-planned joint venture with Russian nuclear firm Rosatom will also be cancelled, although Mr Loescher said he would still seek to work with their partner "in other fields". 

Siemens was responsible for building all 17 of Germany's existing nuclear power plants. 

But more recently, the firm has limited itself to providing the non-nuclear parts of plants being built by other firms, including current projects in China and Finland.  

The latest decision appears to imply a step back from building "conventional islands" - the non-nuclear plant in nuclear power stations - an area in which Siemens has remained active. 

However, Mr Loescher also said Siemens would continue to make components, such as steam turbines, that are used in the conventional power industry, but can also be used in nuclear plants. more