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The Economy

Posted on Sunday, Apr 27th 2008

One of my readers asked me for comments on the outlook for the global economy. I saw this post on Paul Kedrosky’s site which I think does a very good job summarizing the situation, which effectively, is demand exceeding supply in every dimension. [It’s actually a passage from FT].

My sense is, all the major economies – US, Europe, India, China – would be looking at Free Trade with a question mark at this point. US, particularly Obama, wants to keep jobs in the country. That desire translates into an anti-globalization, anti-free-trade rhetoric that is off-putting, but it is what it is. The declining dollar is causing food prices to rise, oil prices are sending shocks all over the world, also a function of supply-demand inequilibrium. India and China, on the other hand, will need to restrict exports to be able to feed their internal growth, whether in terms of grains or steel.

However, oil is the economic variable at heart of the entire global economy, and drives food prices, as well as wars.

One rather intriguing fact that a lot of people are trying to get their arms around is that Western Colorado, apparently, has 100 YEARS of oil, and three times as much as Saudi Arabia.
I spoke with Chet Sandberg, an expert in the field, and he pointed me to some articles. Here are some excerpts from what I gathered from a piece by Environmental News:

::

The lands under consideration for oil-shale exploitation are located in sections of Colorado, Utah, and Wyoming, where the underlying Green River Formation contains an estimated 1.5–1.8 trillion barrels (bbl) of oil, of which 800 billion bbl are considered potentially recoverable. A recent RAND Corp. report calculates that at a daily production rate of 5 million bbl of oil—one-quarter of the current national usage—the reserves could last more than 400 years.

::

There are both technology and business challenges, and a very significant environmental impact.

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“Of all the environmental impacts of oil-shale development, the most serious appears to be the extent to which land will be disturbed,” according to the RAND report. BLM’s EIS estimates that each oil-shale project would occupy up to 14,000 acres. Lands being considered for leases encompass 170,000 acres with wilderness characteristics, 249 miles of perennial streams, and a vast array of plant and wildlife communities, including 14 threatened and endangered species.

::

It seems to me that the economic variable that can release some of the pressures is oil, so environmental issues notwithstanding, this Shale Oil reserve needs to be explored.

What do you think?

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[…] opinion on the rising food prices,the declining dollar, and the shooting oil prices? Sramana Mitra comments on the outlook for the global economy. My sense is, all the major economies – US, Europe, India, China – would be looking at Free Trade […]

Economic outlook | DesiPundit Sunday, April 27, 2008 at 9:19 PM PT

The ecological impact is not limited to a few species and some small area of land.

Here some details to start with…
https://en.wikipedia.org/wiki/Environmental_impact_of_oil_shale_industry
https://www.aspencore.org/images/pdf/OilShale.pdf

Given todays global scenario, where the climate of the earth is in jeopardy and the humans are already on the endangered list. A lot of careful thought should be given before Oil Shale or Tar Sands are to be processed for Crude Oil.

Maybe it does solve our problems but maybe its time we should exercise a little caution…

Sudeep Monday, April 28, 2008 at 12:07 AM PT

I absolutely agree oil is fundamental to our modern society’s function. Until we replace that element with another that is as usable at such a practical and base level, we will continue to undulate to the demand and supply issues. However, what is more interesting is how the price of oil has been disconnecting from those same forces, and is now far more driven by investment purposes than a scarcity of the black goo. The pricing of oil has far more serious ramifications to U.S. economic pillars with how much it impacts the cost of everything else’s operations, thereby driving up those prices in turn. More supply from Shale deposits here and there is not going to change that momentum.

What is instead more of a clear impact is the findings of Petrobras off the coast of Brazil with the third largest oil field. Now you have a fundamental shifting potential of market power from the U.S. to emerging regions. If Brazil can avoid the falldowns of Iran (see Greenspan’s discussion about dutch disease in his auto-bio), and learn to actually maximize its findings into refined product, it will become an opening for an emerging market to share the power stage with the faltering U.S. and OPEC.

This is even more possible given the fact that the U.S. will bog down any push towards new resources with its own paradox of insatiable desires for resources and an unbearable web of regulatory protections of environmental impacts. The two don’t mix. As a result the U.S. will remain paralyzed, including Alaska fields and Shale deposits, while others continue to sell to the U.S.

If Americans can’t figure out how to become a producer again, instead of a consumer, we will see in our lifetime the degradation of the country’s economy to a 2nd place has-been when our purchasing power runs out.

Tom Lutzenberger Monday, April 28, 2008 at 6:19 PM PT

I am surprised the anti-middle eastern politicians havent kicked up a storm as yet on this (or maybe i’ve been missing out on the late night recaps).
If there is an economically viable means of getting the oil, the US will tap into it. The environmentalist have a strong say, but arguments dipped in patriotism and flag waving triumphs all others and from the looks of it, this is a slam dunk!

Quli Tuesday, April 29, 2008 at 3:57 AM PT