Best-selling energy economist,
author Economides verifies our predictions
BY MORRIS R. BESCHLOSS
PVF and economic analyst
Before the largest industry assemblage to ever attend the PVF Roundtable at the Hess Club in Houston on February 8, this admixture of manufacturers, distributors, industrial maintenance and project engineers, specifiers and turnkey contractors were riveted by the most comprehensive energy outlook ever, encompassing current status as well as future development.
I had the distinct pleasure to be privy to the presenter, Michael J. Economides, a professor of economics at the University of Houston, who was the focal point of my admiration. The fact that both his statistics and conclusions dovetailed my own, played only a minor role in my enthusiastic response.
Since I normally precede the main speaker at these quarter-year meetings, I was amused by his twitting my comments regarding the morose state of oil and natural gas pricing, and its long-term impact on future development. I had also warned the group that credit would be the make-or-break standard for survival throughout 2009 and 2010.
The following are Economides’ most cogent points:
- Although admittedly a Democrat, Economides debunked the role of renewable energy. He emphasized that coal, natural gas and oil have been and will continue to provide the empowering natural resource for 87% of the world’s energy needs for at least the next 50 years.
- Like myself, he labeled ethanol a scam whose impossible-to-reach mandated level was the result of an unholy alliance between 20 Midwest Senators, agricultural giants Archer-Daniels-Midland, Cargill, and other agribusinesses, bent on forcing this cost ineffective blend down the throats of the American public.
- The learned Professor accused Al Gore and such cohorts as Robert F. Kennedy Jr. of misleading the American public in their fight to ‘outlaw’ coal, and de-industrialize America to sell the “inconvenient truth” of their unproven climatic theories.
- Economides also took a shot at T. Boone Pickens for exaggerating the positive impact of solar and wind energy producers. He further claims that Pickens knows these will only produce 1% of energy needs, but is bent on promoting major investments that Pickens has accumulated.
- Echoing a sentiment that I have often repeated, Economides expects a major price rebound in both oil and natural gas within 18 months. With a purported breakeven around $75 a barrel, the Houston professor expects that level to be reached by the end of this year, but then spike over $100 in 2010.
He concluded by reaffirming my point of view that new discoveries of oil will be progressively more difficult and costlier to find. As demand soars in China and India, especially, this will effectively close the cost-price gap by the third quarter 2010, at the latest.
Nationalization fear rocks financial institutions
Nationalization has been a synonym for government take-over throughout the last century. Over the years, it was normally associated with tin-horn dictatorships like Italy’s Benito Mussolini, Cuba’s Fidel Castro and now Venezuela’s Hugo Chavez.
But the most egregious example of all was the imposition of nationalization in the United Kingdom, ushered in in 1945, after Britain’s legendary lion, Winston Churchill, was ousted in favor of a ramshackle labor government, headed up by Prime Minister Clement Atlee and Foreign Secretary Ernie Bevin. They not only proceeded to nationalize all major aspects of Britain’s industry and commerce, but ended that illustrious nation’s position as a world power, and pauperized a greater segment of the population than it uplifted. Despite a short respite under Premier Margaret Thatcher, the U.K. has now fallen into permanent disarray, with its banking system leading the downward spiral.
There are similar signs that elements in the current Administration are attempting to lead the American institutions into a point of no return, starting with the U.S.’s disintegrating leading banks.
With Bank of America, Citigroup, Wells Fargo, U.S. Bancorp, and even JPMorgan Chase selling at prices that weren’t even imagined a year ago. Only the infusion of tarp cash seems to be propping up these institutions. It’s the ultimate irony that the government-sponsored absorption of failing Countrywide Financial, Merrill Lynch, Wachovia and Bear Stearns had a lot to do with these once grand Wall Street champions dangling at the edge of the survival precipice.
But despite U.S. government protestations decrying nationalization as a viable banking alternative, that is exactly where the orifice of our nation’s financial system will be ending up.
However, don’t expect that this march toward government takeover will stop with the banks. America’s massive coal industry is in jeopardy because the environmentalists, who have been significantly empowered by this Administration, will put penalties on new and existing utilities using coal, making the U.S.’s largest natural resource potential out of bounds for future development.
Next will come the domestic automotive sector, which can only be saved by downsizing under government direction or bankruptcy. Within the next four years, the tentacles of government control will have become so impenetrable, as to make their removal virtually impossible.
Keep your eye on current developments in Western Europe and you will see its parallel to what will be going on in the U.S. Both the transition and its outcome possibilities are frightening.
The stock market, touching 1997 lows earlier recently, hasn’t become demoralized by accident.
Deleveraging spreads its tentacles globally
As the continuing surge of recessionary statistics arrive from all corners of the world, no region, nor nation, is left unscathed from this global attrition.
Only China, which is making a prodigious effort to encompass a much larger slice of its world-leading population into the modern era, has both the monetary strength as well as the demand power to move its global economy forward this year.
Although Beijing is also suffering from an export retraction, China’s hefty $600-billion stimulus cache (the equivalent to America’s $2.57 trillion) has the heft to overcome the shrinkage of major commodities, like oil and a wide range of other imported products to reverse the current global implosion.
Preliminary evidence indicates that China is on a major campaign to nail down oil contracts and production facilities all over the world with an eye toward the middle of this century when the present low prices and ready availability will seem like a distant memory.
Touted as the world’s leading growth economy this year, even at a ‘modest’ six percent, China has both the surplus cash and the will to move forward aggressively this year. Already in a position to surpass tottering Japan as the world’s No. 2 economy in 2009, the ‘middle empire’ may be moving ever closer to the global leadership position far sooner than first anticipated.
This could come about as America’s discretionary consumer sector deflates at lightning speed, while China grows its internal expansion with a real currency surplus, not debt-laden monopoly paper.
Look for China’s comeback to be the uplifting economic surprise for 2009.
Morris R. Beschloss, a 53-year veteran of the pipe, valve and fitting industry, is PVF and economic analyst for The Wholesaler.