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By Robert Rapier on Apr 7, 2011 with 36 responses

A Double Dip Recession? Only If We Are Lucky

Former Secretary of Labor Robert Reich recently warned that the U.S. is likely headed back into recession:

The Economic Truth That Nobody Will Admit: We’re Heading Back Toward a Double-Dip

Why aren’t Americans being told the truth about the economy? We’re heading in the direction of a double dip — but you’d never know it if you listened to the upbeat messages coming out of Wall Street and Washington.

Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest point of the Great Recession.

The Reuters/University of Michigan survey shows a 10 point decline in March — the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low — and a large part is due to expectations of fewer jobs and lower wages in the months ahead.

So is Reich correct? Are we headed back toward recession? We should be so lucky.

What is a Recession?

Recession is generally defined according to changes in Gross Domestic Product (GDP). The rule of thumb is that two down quarters of GDP mark a recession, but there are many other indicators such as unemployment rate, inflation, and household incomes that all change predictably during a recession. (There is no standard definition of depression, but some suggested definitions are a recession lasting at least two years, or a real decline in GDP of at least 10%).

According to the Bureau of Economic Analysis, (BEA) real (inflation-adjusted) GDP grew 2.9% in 2010 after a 2.6% decline in 2009. Measured in 2010 dollars, the change in GDP from 2009 to 2010 amounts to $541 billion. However, you may recall that the U.S. government embarked upon a massive stimulus plan in order to spur economic activity, borrowing money to fund growth. According to the U.S. Treasury Department, the federal government increased spending by $543 billion in 2009 by implementing a number of new spending initiatives (e.g., the Cash for Clunkers program).

Essentially, this is like borrowing money from the bank to give yourself a pay raise. The caveat of course is that if you are already living beyond your means when you give yourself this debt-based pay raise, you are simply digging a deeper hole that must ultimately be paid back. So you cross your fingers and hope that you eventually get a real pay raise while maintaining enough financial discipline to use that money to pay off your debts. In the case of federal spending, we are essentially mortgaging the futures of our children in order to keep the economy growing today.

But stimulus programs aren’t a sustainable way to fuel economic growth. Ultimately that stimulus money has to be paid back — with interest. If consumer confidence is high, we spend more money which drives economic growth. But as Robert Reich showed, consumer confidence is falling, based partly on the rise of fuel prices and food prices (in itself partially driven by fuel prices).

The Long Recession

This leads me back to my “Long Recession” thesis. In a nutshell, there is a strong correlation between rising oil prices and recession. The reason for that is simple; as oil prices rise consumers are forced to spend more of their budgets on energy, leaving less to spend on other things. Because the U.S. is heavily dependent upon imported oil, much of the increased spending leaves the country to fuel growth in other countries. (Professor James Hamilton recently surveyed the relationship between spiking oil prices and economic downturns in Oil Shocks and Economic Recessions).

When there is an adequate excess of energy production capacity in the marketplace, price increases will bring more product onto the market and price increases can be moderated. This was the case a decade ago when several producers outside of OPEC could bring spare capacity onto the market as needed. But in 2011, it appears increasingly likely that global oil production outside of OPEC has peaked, or is at least very close to peaking (Merrill Lynch, IEA). In this case, OPEC would remain the sole entity that could significantly impact the price of oil (at least until their production peaks), and it is in their best financial interest to keep oil prices high, as long as demand remains high.

This situation is evident when one considers that despite the recession, oil prices remained at very high levels. There was some demand destruction in the U.S., but countries like India and China increased their demand, which kept prices high. As the U.S. moves out of recession, economic activity increases, and this increases demand for oil. That did in fact happen in 2010; after demand for oil in the U.S. declined in both 2008 and 2009, it grew in 2010 as we came out of recession. But with little spare capacity in the system, increased demand pushes prices back up, transferring money from consumers to oil exporters and slowing economic activity.

Consider that in 2000, the U.S. imported 9.1 million barrels of oil per day. By 2005, that had increased to 10.1 million barrels per day, but the average global oil price had also increased from $27.07 in 2000 t0 $49.87 in 2005 (data from EIA). In 2010, oil imports had fallen to 9.2 million barrels per day due to a combination of several factors, but the price had increased significantly to $77.68. So the money that flowed out of the U.S. to pay for oil increased by $75.7 billion per year between 2000 and 2005, and another $92 billion per year between 2005 and 2010.

While it is true that the value of U.S. exports also increased from 2000 to 2005 to 2010, the cost of oil now represents over 50% of the U.S. trade deficit. In 2000, that fraction was 24%, but by 2010 it had grown to 52%. This situation is not sustainable, and it is a grave long-term threat to the U.S. economy.

Conclusions

Recurring oil-price induced recessions will likely be a vicious circle, and won’t be easy to break. It is a new phenomenon that is largely unrecognized by our political leaders. In the past, expanding oil production kept oil prices in check and could in turn spur economic growth. Once oil production stops growing — or worse, starts declining — history is no longer a good guide for predicting sustained economic growth following recession. With little spare production capacity, growth puts pressure on oil prices, which puts the breaks on growth.

How can we break this cycle? It won’t be easy, and politics as usual will make it even more difficult. Ultimately we will have to have some real political leadership to address this situation instead of the typical predictable goals and pandering that we have had for decades.

Otherwise, Robert Reich’s projection will have turned out to be optimistic.

  1. By Herm on April 14, 2011 at 1:35 pm

    “we might see a significant shift away from gasoline to CNG despite the present lack of CNG infrastructure.
    The little Honda Civic GX that runs on natural gas has won “greenest car” award over the gas-electric hybrids, Chevy Volt and battery electric vehicles for years.”

    It may be simpler to require cars than can handle E85 to also take M85.. then just make methanol out of the NG.. or coal.. or waste. California ran a fleet of methanol cars a few years back, before ethanol took over. The corrosion issues of M85 can be handled with additives.

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  2. By Walt on April 11, 2011 at 5:26 am

    I think there is a lot of value in what the States could do to avoid local and regional recessions, if not worse.

     

    Although this blog is not what you would call “traditional economics” in some circles, this lawyer does an excellent job of writing about solutions.

     

    http://webofdebt.wordpress.com…..et-crisis/

     

    She believes as I do that money is only a means of exchange, and value is determined by what someone believes.  This goes in line what RR comments above on the issue of consumer confidence as an economic indicator.  I do not support going back to gold as the standard for a monetary system, since it is a rare commodity controlled like oil.  The idea of a central bank, controlled by several private banking families and their member banks, is not something which can be faithfully audited.  While our State governments do have a better record of disclosing their books to the tax payer, I do not see this happening within privately owned banks…whether they be in Switzerland or in New York.

     

    State owned central banks (e.g., owned by the tax payer) like in North Dakota do have a lot of benefits, especially if the money is made available to multiple industries beyond those “selected” by bankers and politicians.  Mandates and guarantees paid special interests has not worked.  Wall Street is guaranteed against any losses, and more and more information is coming to light that a very small group will benefit from QE3 and the “stimulus” of printing more money.  This appears to work almost contrary to what State owned central banks could undertake for its communities.  Debt is not the answer…as a form of our only money…unless backed by something credible and honest.  Criminals cannot be in charge of the money system in my opinion.

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  3. By rate-crimes on April 11, 2011 at 8:31 am

    “Criminals cannot be in charge of the money system in my opinion.” – Walt

    A good point, even if it is rather obvious, and in no need of qualification.  More central is the question of what occurs if the definition of who is a ‘criminal’ is specified by criminals.  More than just the monetary system depends on full faith.

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  4. By Walt on April 11, 2011 at 11:06 am

    Rate Crimes said:

    “Criminals cannot be in charge of the money system in my opinion.” – Walt

    A good point, even if it is rather obvious, and in no need of qualification.  More central is the question of what occurs if the definition of who is a ‘criminal’ is specified by criminals.  More than just the monetary system depends on full faith.


     

    I think a good way to identify them is watching the SEC settlements and lawsuits.  Madoff was a criminal over many years, but those who made allegations and complaints were generally ignored.  I think whistleblowers have been protected, generally, but it seems some politicians feel that whistleblowers should no longer be protected…and this is truly sad.  Therefore, I suspect fewer people will go public about what they know unless they are ready to face the wrath that follows.  We will not find the Madoff types very often, but what we do see is the SEC charging banks with fraud and violation of the law for which they will often settle, admit no wrongdoing and then pay a fine.  This is about the best you can get politically.  Fortunately, at least they do still publish these settlements to see where the fraud is originating.

     

    If Madoff was former non-executive Chairman of the NASDAQ it should tell us something about the system.  I read recently (from jail) he said that other banks knew what he was doing.  What?  Are you kidding?  http://www.anhourago.co.uk/sho…..&d=501

    ——————————–

    He points out that the large banks not only handled his cash, but also
    marketed his funds. “UBS and HSBC are going to have big problems,” he said.
    “Picard is suing all of these [banks] and he thinks he can get $50bn or so.
    HSBC sat up there twice and set up and looked over my books and records, for
    two weeks, and missed things.”

    ——————————-

    In my opinion, these banks are out of control.  Anyone who does not see this reality is, like most Americans, blinded by their presupposition and unwilling to see it.  I was thinking the other day how hard it would be as a ethanol lobbyist, but then it dawned on me that being a banking lobbyist would not even allow one to look someone in the face arguing for the industry.  When you study the history of the American banking system, and its developments, it really is a place where few have been deserving of a slap on the wrist a time or two…if not down right jail time.

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  5. By Benny BND Cole on April 11, 2011 at 12:50 pm

    Well, in this case I think RR misses the mark quite a bit.

    The price signal works wonders. Also, oil is a much smaller part of our economy than in previous decades, and shrinking all the time. Japan and Europe have more than proven that consuming less oil, yet obtaining higher living standards, is very doable.

    We can easily absorb higher oil prices, and switch to other fuels and conserve, and we will.

    Indeed, consuming less oil, especially imported oil, will be a boon to our economy. I hope we employ lots of guys in Pennsylvania, Louisiana and elsewhere to drill for natural gas, as consumers migrate to CNG cars, or perhaps methanol.

    Long recession? No, we are entering a long global boom.

    I see a cleaner more prosperous future.

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  6. By Rufus on April 11, 2011 at 12:55 pm

    Very good post, RR; you explain it very well.

    This is why I am an Ethanol proponent. It’s our best opportunity to do something, Now.

    We can use a lot of our existing infrastructure, and utilize much of our under-used, and fallow land (not to mention Ag waste such as corn cobs, and stover, and, possibly municipal solid waste.)

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  7. By Rufus on April 11, 2011 at 1:23 pm

    To get an idea of the problem we’re facing, go to

    http://www.upstreamonline.com/….._crude.htm

    and you’ll see that the Spot Markets associated with the U.S. are down, but the Markets most closely associated with China are up, smartly.

    Tapis – Up $1.63

    Minas – Up $1.70

    Oman – Up $0.87

    That does not bode well for us.

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  8. By rrapier on April 11, 2011 at 1:39 pm

    Benny BND Cole said:

    Well, in this case I think RR misses the mark quite a bit.

    The price signal works wonders. Also, oil is a much smaller part of our economy than in previous decades, and shrinking all the time. Japan and Europe have more than proven that consuming less oil, yet obtaining higher living standards, is very doable.

    We can easily absorb higher oil prices, and switch to other fuels and conserve, and we will.


     

    Benny, we can’t “easily” absorb higher oil prices right now because we all remain very dependent upon oil. More money is flowing out of the U.S. into other countries today as a result of high oil prices than at any time in our history. That is not the prescription for the start of a global boom.

    It is true that we respond to higher oil prices, but that response will take some time before oil stops having a strong impact on our economy. And all the while oil is going to be depleting. So even as we cut back, I see prices going ever higher.

    If the country was running predominantly off of natural gas right now, we would be much more insulated since even if prices rose that money would stay in the country. As it is, we currently have $165 billion more money per year flowing out of the country than we did a decade ago. That is a problem.

    RR

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  9. By rrapier on April 11, 2011 at 2:09 pm

    Rufus said:

    Very good post, RR; you explain it very well.

    This is why I am an Ethanol proponent. It’s our best opportunity to do something, Now.

    We can use a lot of our existing infrastructure, and utilize much of our under-used, and fallow land (not to mention Ag waste such as corn cobs, and stover, and, possibly municipal solid waste.)


     

    To reiterate, I favor ethanol as part of the solution, just not the way we are doing it now. There are many shortcomings from spreading it as thin as we have and failing to develop a core E85 market in the Midwest. We have tried to make the entire U.S. slightly more self-sufficient, when we could make the Midwest MUCH more self-sufficient. I would rather see the breadbasket of America able to sustain itself in the face of an import cut-off than California getting 10% of their fuel from ethanol and still being entirely susceptible to supply disruptions.

    RR

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  10. By Benny BND Cole on April 11, 2011 at 3:45 pm

    R-

    We agree on the need to export less money for oil. (Although since the USA is the world’s reserve currency, we can pay for oil by printing more money).

    The good news is that a “weak” dollar is boosting all sorts of USA exports. (I dislike the term “weak,” since a lower exchange rate is actually a strength for US exporters).

    The movement to natural gas can take place rather easily. I have seen three compressed gas filling stations in Los Angeles. I could commute today by CNG. This guy: cngvehicles.net is selling CNG trucks off the lot now in Oklahoma, and for low prices.

    The Internet resolves some of the fear of traveling and not knowing where there are CNG stations. You can look them up online.

    You could do your next drive across country by CNG–the one you feared would never be duplicated.

    There are many CNG and LPG stations already in Thailand.

    Moreover, in about 10 years (given that lithium batteries are improving at about an 8 percent annual rate) I expect we will see excellent PHEVs on the road.

    I cannot vouch against financial bombs (Long-Term Capital Management, AIG etc) or the boobs we have in DC. There will be recessions again. Crickey, maybe we will bankrupt ourselves occupying even more nations. I don’t know.

    But the energy outlook is bright, and global growth looks good.

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  11. By Walt on April 11, 2011 at 4:10 pm

    Benny BND Cole said:

    But the energy outlook is bright, and global growth looks good.


     

    I would agree with this statement…contingent upon the USA not printing more and more money as the solution to “calm” the markets.  People are moving their money offshore and outside the USA as the confidence is low and that debt will continue to cause controversy in DC.  All we had to see was how the politicians declared victory when within hours the government was to shut down.  This problem has not gone away whatsoever, and smart money is not convinced the USA is going to be the financial superpower it once was in global growth.  Energy and growth looks interesting, but Asia, Russia, Southeast Asia and Africa seem to be attracting more and more investment.  Yes, Obama administration is giving away everything it can to keep “job growth” going, but you seriously cannot believe this is going to continue beyond QE3?

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  12. By Benny BND Cole on April 11, 2011 at 5:38 pm

    Walt-

    Actually, I am a fan of QE3, and hope it happens. The lower exchange rate for the dollar is resulting in a surge of exports. It takes time to set up exports, so I think we are still in the first inning on this one, as long as we don’t allow the dollar to become overvalued again.

    It is inevitable that other parts of the world catch up to us, and it is a good thing. BTW, the world has a capital glut, so there is more than anough to go around.

    Evidence of that: Can you name a single promising energy technology that is not being funded?

    I agree 100 percent with RR that more domestic sources of energy should be exploited. I perhaps disagree with RR that oil can stay above $100 a barrel. I think it falls within a year.

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  13. By Walt on April 11, 2011 at 8:50 pm

    Benny BND Cole said:

    Walt-

    Actually, I am a fan of QE3, and hope it happens. The lower exchange rate for the dollar is resulting in a surge of exports. It takes time to set up exports, so I think we are still in the first inning on this one, as long as we don’t allow the dollar to become overvalued again.

     


     

    So in your view there is no risk to causing inflation, or hyper inflation in USA, but printing more federal reserve notes?

     

    Let me ask it another way.  Do you believe that product manufacturing costs, or raw material costs, to make these exports could be effected by high inflation, or hyper inflation, or do you think that there is no limit on the production costs of goods and services here in America that a weak dollar cannot make up in sales overseas?

     

    For example, if in November 2010 my capex for equipment was $1 million, but in April 2011 it is estimated to be $1.4 million due to raw material costs skyrocketing, do you see any problems with another wave of massive cash being sent into the system (this cash is provided to banks who provide it to their commodity trading desks and other interbank clients who invest it in other offshore banks or in special clients offshore portfolios) that will likely send my equipment costs even higher?  Of course, the higher these costs go I can tell you daily I’m being pushed outside of the domestic market unless I can remove the Opex costs which are growing fast as well.  The only way to stay in business is to increase my sales prices, or operate at a loss.  Increasing sales prices do not guarantee customers, even internationally, since more and more companies are looking to get out of the dollar, and into much more stable currencies…effecting my ability to even price in dollars.  I have to buy other currencies (like the rest of the world does who operate outside the dollar in their domestic market) taking many more dollars to offer the product in foreign markets.  They don’t want to buy in dollars, or even hold dollars.  I do hope your views on QE3 will cause more people to buy those dollars, and take contracts in dollars as coverting to other currencies adds to my costs…I can assure you. 

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  14. By paul-n on April 11, 2011 at 9:03 pm

    Can you name a single promising energy technology that is not being funded?

    Actually, methanol does not seem to be getting any funding, and it is the most promising of all…

    Otherwise I do agree there is going to be an energy boom – but I expect it will end up being in coal, once the easy to get Ng is gone.

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  15. By Walt on April 11, 2011 at 11:11 pm

    Paul N said:

    Can you name a single promising energy technology that is not being funded?

    Actually, methanol does not seem to be getting any funding, and it is the most promising of all…

    Otherwise I do agree there is going to be an energy boom – but I expect it will end up being in coal, once the easy to get Ng is gone.


     

    Paul,

    Early this morning I announced to my private email list that we will try to build 10 plants at one time to lock in prices.  We estimate a total cost of $20 million for these plants (including installation costs), and will be able to handle a wide variety of gas quality without additional work/cost in the field to modify the front-end.  Our equipment suppliers will lock in their prices if I commit to ten plants, but there is no certainity beyond these 10 plants to fix prices.  Costs are rising very quickly and they will be rising even faster over the coming 9 months.  I dare say costs are not rising just in food and fuel prices alone!

     

    I can confirm as well that methanol is getting a lot more positive media coverage, and I really believe this is due to high oil prices, uncertainity of gasoline prices and the administrations desire to continue their policy to invade countries in the middle east out of “national security”.  I really think the ethanol lobby has overplayed its hand and it might backfire as more people wonder who are all the administration and congress special interests that get money.  The oil companies are going to be at the front-end of the wrath, but they have been here many times before so it just bounces off their backs without much controversy.  As long as oil prices stay above $100/bbl, I don’t see anyone in that sector saying anything about any lack of incentives or rising costs as a problem.  Ethanol companies I cannot imagine will be able to handle these opex numbers without a “bailout” from the administration or congress.  I could be wrong, but rising costs domestically is not going to help us produce cheaper fuels.

     

    The companies to watch will be Sabic, Methanex and the Chinese as they continue to see the USA as a growing methanol market.  You can see this with the recent multiple press articles done by Methanex, and how the Chinese producers are growing desperate to lock in long-term methanol export sales.  They have so much cash now that “dumping” prices of some commodities are very important to gain marketshare.  I get one or two emails every week from different Chinese chemical suppliers trying to get their chemicals (methanol and methanol derivatives) into the USA and they are willing to sell or beat any costs to “start the relationship”.  What was the former Walmart model to bring in cheap products from China, and grab marketshare, is now changing a little bit with chemicals and other key raw materials.  As long as natural gas prices remain low, people will switch to CNG I think as a fuel of choice in some markets, but if natural gas prices rise due to market forces or more drilling moratoriums (or the carbon controversy released today over methane/natural gas emissions), I think it is not going to be so easy to compete.

     

    Put me on the list of skeptical that I’ll find any funding for our methanol technology at any scale…unless as I’ve mentioned in our Methanol Use section of the website.  It is either going to be for fuel blending (which I doubt will happen over ethanol due to mandates) or will be for use as a fertilzer or pipeline inhibitor.  Prices will need to be cheap to enter, and/or someone will need a phone call from Obama himself offering a fund raising dinner! :)   Take some of the billion he will spend on the election campaign, and toss $20 million in the hat to create manufacting jobs!

     

    Just give me 10 minutes of the cash/debt generated here:  http://www.usdebtclock.org/index.html

     

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  16. By Mercy Vetsel on April 11, 2011 at 11:29 pm

    RR wrote:

    As it is, we currently have $165 billion more money per year flowing out of the country than we did a decade ago. That is a problem.

    This is a 18th century, pre-Ricardian view of economics. Clearly high oil prices are a problem for oil consumers, but why is it a problem that we buy more of it from Canada than Texas?

    $165 billion into $110 million is about $1500 — about the same as my natural gas deficit. Now I could buy a wood stove and go out and cut wood to cut my natural gas deficit by $1000, but that would be a pain in the ass. It would scarcely pay for the chainsaw and log-splitter maintenance, let alone my time.

    So $1500 flows out of my house for natural gas and $1500 flows out of my house and across the border for oil. So what? Give me an alternative that costs less than $1500 and you won’t need any fastidious bureaucratic coercion to get me to switch.

    Speaking of which, why aren’t we using methanol? It’s already cheaper than gasoline ($2.60/gge as of 4/7/2011) and if we made it from coal it would be even cheaper. Sure it’s only 50% of the energy content of gasoline, but that’s nothing, just make the tank a little bigger.

    There must be some regulatory obstacle.

    -Mercy

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  17. By Mercy Vetsel on April 11, 2011 at 11:31 pm

    Mercy Vetsel said:

    Argh:  $165 billion split amoung 110 million households is about $1500 apiece


     

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  18. By Mercy Vetsel on April 11, 2011 at 11:52 pm

    Mercy Vetsel said:

    Speaking of which, why aren’t we using methanol? It’s already cheaper than gasoline ($2.60/gge as of 4/7/2011) and if we made it from coal it would be even cheaper.


     

    Also, why don’t we see more natural gas vehicles?  Methanal can be used in flex fuel vehicles, but it’s only 65% efficient to go from nat gas to methanol.  Natural gas is now at $1 per therm or $1.14/gge RETAIL.  You’d think this would be a no brainer for fleet and delivery vehicles. 

    I think the problem is that gas prices in the $4+ range are unsustainable precisely because they cause a powerful response from 1) demand destruction due to greater economy and less driving, 2) a switch to realistic alternatives like natural gas and 3) supply increases.

     

    -Mercy

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  19. By russ on April 12, 2011 at 4:46 am

    Print more dollars and watch the price of oil go on up.

    Oil is effectively priced in Euros now.

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  20. By mcain6925 on April 12, 2011 at 10:19 am

    Also, why don’t we see more natural gas vehicles?  Natural gas is now at $1 per therm or $1.14/gge RETAIL. 

    You’d think this would be a no brainer for fleet and delivery vehicles.

    UPS is deploying local delivery vehicles that use natural gas for fuel, and long-haul trucks that use LNG.  The principle problem they have encountered with CNG in the local delivery fleet is lack of public fueling options.  While UPS does a lot of route optimization, unexpected circumstances — traffic problems, unanticipated courtesy pickups — occassionally require refueling trucks in the field, rather than at their own centralized facility.

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  21. By rrapier on April 12, 2011 at 1:35 pm

    Mercy Vetsel said:   

     $165 billion split amoung 110 million households is about $1500 apiece


     

    You have described why we use fossil fuels; they are still the cheapest and most convenient option. But there are two problems there though. First, is that this represents an additional financial burden on people that wasn’t there before. It is essentially just removing that money from their budget, leaving less to spend on other things. Since that money goes out of the country, much of it fuels growth in other countries, and that doesn’t necessarily benefit us (hence the increasing trade deficit).

    The other thing is that this trend shows no sign of abating. Keep adding $1500 onto consumers and you will have the situation I described: A Long Recession.

    RR

     

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  22. By Benny BND Cole on April 12, 2011 at 3:08 pm

    I agree wholeheartedly with those here that say that methanol and natural gas are being overlooked.

    Still, the globe is flush with investable capital. Obviously, it makes sense for the USA to go CNG and methanol.

    Sometimes these things “flip.” One day nobody has faxes, and the next day everyone does.

    Could happen in CNG-methanol? I hope so.

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  23. By Tim C. on April 12, 2011 at 4:19 pm

    Remember when rising oil prices would make the stock market go down? Now it seems the opposite is true. Today, for example, stocks are falling because oil prices are falling. The markets have locked in the assumption that oil supplies are static. Consequently, if oil prices are falling, it can only be a sign of a weakening economy, and therefore a signal to sell stocks.

    Does it really make sense to switch to methanol- and CNG-fueled vehicles? It seems more reasonable to me, if methanol and NG are significantly cheaper than oil, to convert them into oil. That way we can use our existing vehicle fleet, without sacrificing range.

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  24. By Benny BND Cole on April 12, 2011 at 4:31 pm

    Tim C-
    I know a fellow who says he sold a process to Marathon Oil to make gasoline from natural gas. So people are working on that angle too. Don’t know if that will bear fruit.

    We know we can make methanol from natural gas, and Methanex does so today and sells it for $1.28 a gallon. Modern-day cars would need t be retrofitted a bit to run on methanol–it is more corrosive than gasoline.

    On natural gas, a conversion acn cost as little as $500, and you can buy a used CNG car or truck off the lot today at cngvehicles.net, for a very reasonable price.

    The other goods news is the the cost of setting up CNG or methanol ststaions is not that hard–luckily, already there are gasoline sttaions at the most desirable locations. The free market handled that. We just have to add on methanol or CNG to exiting outlets, not acquire valuable and expensive land.

    Therefor, I see the conversion to methanol-CNG to be rather easy.

    A lot easier than spending $3 trillion in Iraqistan, for uncertain results, for example.

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  25. By Walt on April 12, 2011 at 9:25 pm

    For those who like to grasp energy costs and CPI:

    http://dshort.com/inflation/CP…..since-2000

     

    For those who like to read:

    http://www.consumerindexes.com/

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  26. By Mercy Vetsel on April 13, 2011 at 12:40 am

    But there are two problems there though. First, is that this represents an additional financial burden on people that wasn’t there before. It is essentially just removing that money from their budget, leaving less to spend on other things.

    Agreed. Higher fuel prices are a problem. I would also add that they are also part of the solution since they motivate investments in alternatives. That’s why I don’t think we will ever see oil prices sustained at $150/barrel for more than a year or so and the reason OPEC tries to keep prices down. At that high prices the pressure to reduce consumption and to use less expensive alternatives becomes too strong.

    Since that money goes out of the country, much of it fuels growth in other countries, and that doesn’t necessarily benefit us (hence the increasing trade deficit).

    This common sense view is wrong. Buying oil from Canada growth in our own country in equal proportion to how it fuels growth there. The trade deficit is an accounting identity that is offset by an investment surplus. An investment surplus means foreign capital flowing into the US and spurring our own growth.

    Is it bad that we’re running a huge investment surplus? Not in and of itself. The real problem is that the federal government is sucking up $1.5 trillion of investment each year to cover the budget deficit. THAT is a problem irregardless of the balance of trade.

    -Mercy

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  27. By Mercy Vetsel on April 13, 2011 at 12:52 am

    Here’s more on comparative advantage. As long as it’s cheaper for us to get our oil from Canada then we are better off doing so:

    http://en.wikipedia.org/wiki/C….._advantage

    In economics, the law of comparative advantage says that two countries (or other kinds of parties, such as individuals or firms) can both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage), it can still gain by trading with a less-efficient country, as long as they have different relative efficiencies.

    I agree that higher fuel prices are a problem and could contribute to a long recession, but the solution is to find a less expensive alternative fuel. Switching to a more expense domestic alternative only makes the problem worse.

    -Mercy

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  28. By Benny BND Cole on April 13, 2011 at 12:31 pm

    Moiety-
    Actually, since most recharging will likely take place at night, it is not clear we will need that much more electricity generating capacity. Additionally, electrical demand from other consumers will likely decrease–the advancements being made in LEDs, HVAC systems, and green buildings are wonderful.

    To top it off, we do not have have a shortage of electricity. Power can be generated by coal, gas, nukes, wind, hydro, solar, geothermal etc. We have been building such power plants for generations. Such plants are not expenisve (compared to the $3 trillion we have unloaded in Iraqistan, or the $700 billion military budget).

    Liquid fuel is a challenge, although I am not sure of that either. PHEVs offer a way to radically curtail liquid fuel consumption but CNG cars do too.

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  29. By Walt on April 13, 2011 at 2:53 pm

    This article makes me so upset I cannot even type straight.  When are people going to look at these people as who they are?

     

    Is anyone else upset over this…even if the reporting is all wrong…and these ladies are going to sue Rolling Stone for libel?

     

    http://www.rollingstone.com/po…..nged:10:09

     

    I thought I have seen everything out of the fed…I guess not.  It makes sense why they want to remove protections for whistleblowers, and give themselves complete immunity (which they have now) on all decisions after 2008.  At least that makes sense now…they all get get out of jail passes for free…and back to the game of monopoly.

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  30. By moiety on April 13, 2011 at 3:44 am

    Benny BND Cole said:

    Moreover, in about 10 years (given that lithium batteries are improving at about an 8 percent annual rate) I expect we will see excellent PHEVs on the road.


     

    Fine. We will see excellent batteries. However how will we supply the electricity to power these? Rate Crimes posted this picture. According to it the US will have to increase electricity production by at least 28% (assuming none of that is wasted) just to cover transportation.

    What we see also is that there is much wasted energy due to lack of effiuciencies around the systmes involved. I can imagine that change to new systems will only increase (at least in the beginning) these losses.
    US energy use 2009

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  31. By mac on April 14, 2011 at 12:35 am

    Ben,

    The website Hybrid Cars has an interesting article about the pending Nat Gas Act which is before Congress and proposes generous incentives to foster adoption of natural gas vehicles.

    In light of $4 a gallon gasoline, (and if the Nat Gas Bill passes intact), we might see a significant shift away from gasoline to CNG despite the present lack of CNG infrastructure.

    The little Honda Civic GX that runs on natural gas has won “greenest car” award over the gas-electric hybrids, Chevy Volt and battery electric vehicles for years.

    The Hybrid Cars website regularly covers not only gas -electric hybrids such as the Prius but also PHEVs and electric vehicles as well as clean diesels (And now, apparently natural gas.)

    http://www.hybridcars.com/news…..29728.html

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  32. By OD on April 14, 2011 at 1:44 am

    The website Hybrid Cars has an interesting article about the pending Nat Gas Act which is before Congress and proposes generous incentives to foster adoption of natural gas vehicles

    If this passes, we better hope shale gas reserves haven’t been overhyped as some have speculated.

    Swapping one fossil fuel for another seems extremely shortsighted to me. Our grandkids will be cussing us :-)

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  33. By Rick on April 14, 2011 at 12:56 pm

    What you’re talking about in this article is really Peak Oil.

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  34. By Walt on April 14, 2011 at 2:43 pm

    Herm said:

    The corrosion issues of M85 can be handled with additives.


     

    Yes, I understand this is now what the Chinese are doing with blending.  It has solved all these issues both at the pump and vehicle level.  I am still wanting to learn more about this additive as it could be a solution if not too expensive.

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  35. By Walt on April 14, 2011 at 10:15 pm

    “Swings in commodity prices are also a prime area of concern for the
    BRICS. China is the world’s biggest importer of many commodities; the
    other BRICS members are major exporters of natural resources.
    China hopes the group will be able to agree on a common stance on
    commodity price fluctuations at the G20 summit in the French city of
    Cannes in November.”

     

    http://uk.reuters.com/article/…..geNumber=1

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  36. By Tiberius on June 1, 2011 at 7:57 pm

    Mainstream consumers aren’t consuming because their shares of the nation’s total wealth and income have fallen dramatically and continue to fall. Consumption by millionaires and billionaires doesn’t turn the wheels of a healthy economy, folks. If it did, the economy would be rolling along like gangbusters. The richest currently have the largest shares of the nation’s total income and wealth ever–not to mention the fact that their effective tax rates are at one of the lowest points in modern American history.

    The prolonged recession, unemployment, loss of benefits, and growing long-term financial insecurity have largely been the Common Man’s problem–though you would never guess that from listening to the pitch for even deeper high-end tax cuts.

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