[tpark]

I was playing with some charts generated from economagic, and I think this one is particularly interesting. Power utilization by industry should roughly reflect the amount of industrial activity of a nation; certainly process improvements can reduce the amount of energy required by certain industries, but I don't see that as a general case. I think this chart suggests that the real decline started at the end of 2000, and has not improved in any material way. Comments? I'm sure there are stoolies out there who know more about this sort of thing than me.

edit: pink bands are recessions BTW

Attached image(s)

• 

[The brown one]

Excellent, tpark.I note that the use is now at the 1992 level--but the markets aren't.This would be an interesting chart to follow.Is it updated monthly?

[pleiotropik]

That is an awesome chart. Thanks for sharing it.
I´ve been following the natural gas market for two years and i couldn´t come up with an explanation for the smallish withdrawals of the last four months compared to historical trends when looking at the weather map (unnaturally cold, compared to the last five years) and the declining trend of exports to the US from Canada; the flat production graphs for natgas in the US.
There seems to be a line in the sand at $5 per 1000 cubic feet where industrial demand is destroyed and/or fuel switching becomes a serious issue (witness the historically low crude oil reserves)
IMHO the chart you post is an important part of the puzzle that explains, when complete, why this has been a "jobless recovery" Not only are jobs exported because the wage structure of asia outcompetes the US. but also (my contention) because natgas prices in asia are 50% to 60% lower than in the US
Russia can (and does) deliver nat gas to Europe at much lower prices and that is one salient point that makes industrial production in the US a losing proposition in critical areas such as Steel, aluminum, fertilizers... all energy intensive.
So to sum up. this "jobless recovery is also an "industry less" recovery... in other words an "hedonic recovery" a "smoke, mirrors and fiat money" recovery. or to put it more bluntly... not a recovery at all.

[pleiotropik]

sorry... the chart didn´´t upload...

Attached image(s)

• 

[pleiotropik]

And this one... Sorry for the glut.

Attached image(s)

• 

[machinehead]

pleiotropik, on Feb 2 2004, 09:56 AM, said:

... in other words an "hedonic recovery" a "smoke, mirrors and fiat money" recovery. or to put it more bluntly... not a recovery at all.

Brilliant phrasemaking ... "the hedonic recovery."

Now if we can just short this hedonic rally ...

[tpark]

The brown one, on Feb 2 2004, 05:07 AM, said:

Excellent, tpark.I note that the use is now at the 1992 level--but the markets aren't.This would be an interesting chart to follow.Is it updated monthly?

I believe it is updated monthly, but I'm not sure since I just found it. Economagic seems to have all sorts of interesting and wonderful stuff.

[The brown one]

pleiotropik, on Feb 2 2004, 08:56 PM, said:

Russia can (and does) deliver nat gas to Europe at much lower prices and that is one salient point that makes industrial production in the US a losing proposition in critical areas such as Steel, aluminum, fertilizers... all energy intensive.
So to sum up. this "jobless recovery is also an "industry less" recovery... in other words an "hedonic recovery" a "smoke, mirrors and fiat money" recovery. or to put it more bluntly... not a recovery at all.

Brilliant description of the "hedonic" recovery.

Why does Russia ship gas at half-price to Europe and Asia?
Is it logistics/geographics or that those continents did a good bargaining job when contracts were negotiated?

[pleiotropik]

"Why does Russia ship gas at half-price to Europe and Asia?
Is it logistics/geographics or that those continents did a good bargaining job when contracts were negotiated?"

NatGas in the US sold sold for $1.50/tcf five years ago; ten years ago it was too cheap to meter and most of the natgas emanating from oil fields not close enough to pipelines was vented or flared (wasted). The situation changed dramatically with the maturing of the gas turbines technology alongside clean air laws. most of the electrical generating capacity erected in the last ten years was natgas. (as compared with the older infrastructure which is mostly coal).
Right now, if you exclude Alaska´s north slope (due to be in line in perhaps 7 to 10 years) the lower 48 are a mature producing field. The US is drilling furiously just to keep present levels of extraction and the decline is about 3-5% yearly (there are some disputes on these numbers; if you want detailed info on this, go to
http://www.simmonsco...as%20Summit.pdf

The main problem with north america is that IMVHHHHO it has already peaked in nat gas and is set to decline constantly and acceleratingly in its rates of extraction in the next 5 years

Russia on the other hand has the biggest natgas reserves in the world so therefore it still has a long production/extraction potential ahead

So to complete the energy mosaic the US will have to build prontito a humongous (humongous=150+) fleet of LNG (liquefied Natural Gas) tankers to be able to get mid east and russian supplies... At $300 million a piece, this will be quite an an investment. Then you have to build the terminals to receive them Then you have to protect them... you get the idea.
Basically you are looking forward to an energy crunch which will absorb most of your attention investments+military to protect it. but that is then... right now the fact is that demand and supply in the US reach "perfect" equilibrium at around $5/tcf; which is three times what europeans and china are paying for... because their demand/supply equilibrium price is much lower.

Since i do not expect 150 lng tankers to be ready before 5-10 years Nat gas is giong to get prohitively expensive to use... more fuel switching towards coal and oil... more pollution; higher oil prices. One partial intermediate solution would be to build three or four dozen newclear plants... but then again nobody wants´em in their backyard... its complicated.

What i see happening is that the US is adjusting to reality, reality being that there is no economic growth without stable and growing energy supplies... the US has unstable and diminishing energy supplies so i can only see downhill from here.

The chart belongs to BP , by the way.

Attached image(s)

• 

[pleiotropik]

My memory betrayed me in regards to the cost of LNG tankers...

http://www.energy.uh...oduction_08.asp

"The typical LNG carrier can transport about 125,000 - 138,000 cubic meters of LNG,17. The typical carrier measures some 900 feet in length, about 140 feet in width and 36 feet in water draft, and costs about $160 million. This ship size is similar to that of an aircraft carrier but significantly smaller than that of a Very Large Crude oil Carrier (VLCC). LNG tankers are generally less polluting than other shipping vessels because they burn natural gas in addition to fuel oil as a fuel source for propulsion."

Attached image(s)

• 

[tpark]

Thanks for the info - I bet if an LNG tanker goes up, it would be an unhappy event if it was even sort of close to something you'd want to keep.

[rayok]

tpark, on Feb 1 2004, 11:35 PM, said:

  Power utilization by industry should roughly reflect the amount of industrial activity of a nation; certainly process improvements can reduce the amount of energy required by certain industries, but I don't see that as a general case.  I think this chart suggests that the real decline started at the end of 2000, and has not improved in any material way.  Comments?  I'm sure there are stoolies out there who know more about this sort of thing than me.

The U.S. financial/service economy uses less power, because power intensive industries are being sent to China. It takes less power to count widgets, than to produce widgets. I'm assuming your chart represents U.S. power use.

[constantpated]

Good catch. Wish I thought of that.. <--- Ha! The disconnect is both real and important, and the explanations for the disconnect weakly dismiss the valid concerns with debt-deflation.

Raw data confirms the same phenomena in oil, which peaked in 2001, as your chart illustrates. One can see the energy disconnect across the board.

Other data confirming the disconnect between GDP and energy consumption include: Rising NNP despite falling energy consumption; and another chart illustrating that Industrial production well off the peak, as your chart well-demonstrated.

I shall discuss the defects in the reasoning used to dismiss the validity of your observations: The disconnect between energy consumption and reported output remains a valid indicator that things are not going well and was known well before 9-11. 9-11 occurred because all other options to address the known disconnect between energy consumption and reported output in the summer of 2001 had, were known to, and continue to fail.

Illusions to explain it away

Intensity

Intensity levels have proven a poor metric to explain away the disconnect.Energy intensity is a non-sense reason to argue "we're more efficient" and can "make more with less." Energy like oil has a maximum efficiency rate of about 45% meaning, regardless the "fantastic technology", you can't squeeze more energy/efficiency out of the oil.

The data on intensity further confirm the presence of debt-deflation. Let's take a look at some specific graphs.. Japan's energy intensity slowed, leveled off, and is well above its most efficient level.

If the world truly had a "good result," then we should be seeing an upward trend in energy intensities; as time passes, the amount of energy used per unit of GDP produced should rise. In fact, the trend is the opposite implying that although there is a trend, the trend is at odds with the proposed argument.

At best, the energy intensities are flat. But for Russia, I see little evidence to suggest the "improved intensity" is either real or a plausible explanation for "why we have more NNP despite falling energy consumption". Energy intensity is a red herring, and does not adequately support a plausible foundation to dismiss the concerns with either the disconnect between energy consumption-output or debt-deflation.

But, let's not stop there. Here's a sample presentation on how the "improvements in energy efficiencies" appear to be a thing of the past. Woe to those who straight line the historical data going-forward, ad infinitum.

Technology

Technology has not advanced to explain away the disconnect between energy consumption and output. There have also been no major "conversion from oil to non-oil" or "conversion form electricity to non-electricity" programs to explain the fall in both oil and electricity consumption; nor have there been sufficient efficiency improvements in either the fuel or the machines which use this fuel to explain this disconnect. Thus, "because there's been no major quantum leap in technology-efficiency" of oil consuming machines, there's no merit to the argument "we're doing more with less." Rather, we are doing less, but pretending to do more.

Bluntly, "Doing more with less" defies the laws of thermodynamics. If we are doing more with greater efficiency, the energy consumption rate would not fall; rather, what should be happening, if the energy-output miracle were true, is that the rate of energy growth should be slowing, but still rising. Some would have us believe we have the opposite: That we are magically using less energy, yet somehow making more stuff. Yet, when this phenomena of "rising output despite falling energy consumption" was identified in Europe, analcysts were quick to explain it away using the above non-sense reasons.

Generally, the weak arguments imply there a desire to find solace in illusions. Moreover, to rely solely on either technology or intensity as the foundation to argue "there is no problem" or "the bad news is good news" merely illustrates the desperation of the arguments to explain away increasingly larger piles of negative information which confirm we are sliding into debt-deflation, worldwide.

Productivity illusion

The "productivity improvement miracle" also fails to adequately explain the disconnect between energy consumption and output. If there were truly "greater efficiencies" because work was shifting to China, then we should see a zero-sum between the US and the rest of the world with respect to energy use. We're not seeing that.

China's data, economy, and poor internal controls merely confirm the world is relying on an illusion to explain away the disconnect between energy consumption and output. During 1998, despite rising output, China's energy consumption rate was falling. Moreover, the data from China is unreliable, and China suffers from major major structural problems which will take years to rationalize. More on the China bubble; and China's bubble -- [see page 21, ... message 5000007 of 310, 25 Jan 2003 11:50 PM]

The energy trends are inconsistent with an improving situation. Overall world energy consumption is falling at a greater rate that the expected efficiencies that can be explained by changes in the "productivity miracle." Gordon discusses the fallacies of the productivity miracle.

The Phillips curve serves as a useful illustrative model. In other words, "having high growth, high employment, without inflation" is usually explained using the Philipps curve meaning: "We can explain there being no inflation with high output and high employment [6%, vice 20%] when we have productivity gains." However, if the increase in output is unrelated to real net efficiencies/productivity, then the reason we have "high growth, high output without inflation" has nothing to do with productivity, and everything to deflationary pressures that are keeping a lid on prices.

Production vs prices

Both the hypothetical and actual pricing-production trends confirm the bleak conclusion with respect to the inconsistency between reported output and actual energy consumption. Increased output should not be ignored, as you can have net gains in output/production with falling prices.

Detailed analysis of the Fed data and other information in 2001 confirmed the early signs of deflation, prompting the Fed to rapidly reduce interest rates. But let's not stop there. To further dive into the Land of Oz fantasy, even if we compare the "efficiencies of production" relative to the "expected fall in deflation" associated with such miracles, such trends only confirm the underlying conclusion: That the country is spiraling into debt deflation..

Regardless the technical trading and cycle rules, the lesson from manias is that those who hold paper alone [not backed by real operating cashflows, or real, marketable assets] do get left holding the bag. Inadequate capacity utilization confirms the news: Rising GDP/NNP is merely creating more places to hide the excess inventory, actual profitable throughput is falling. It remains unclear what miracle fixed the imploding op-cashflow-problem.

As we delve further into the data and look beyond the disconnect between energy consumption and output, we see other confirming signs of debt-deflation.Channel stuffing also appears to occur: Shifting output, despite falling energy consumption. Channel stuffing appears to exist in 3Q01, as evidenced by the apparent blip in GDP despite no change in either energy consumption or employment.

Quality control and manufacturing would characterize the current situation as being well left of the Quantity-price chart. What happens is: As we increase output, we no longer have sufficient profitable throughput to sustain operations, unless we increase debt. Increasing output is not a sign of progress, but merely fuels the underlying problem: Too much stuff chasing too few solvent buyers, or debt-deflation.

Denial is confirmation. Minski argues that for debt-deflation to take root, one necessary but not sufficient element is that the debt-deflation be unexpected. Thus, weak and spurious explanations for the inconsistency between energy consumption and reported output ironically confirm the presence of debt-deflationary conditions. In other words, the very arguments used to discount the "disconnect between energy consumption and reported output" not only blind us to deflation, but are a necessary element to ensure that deflation further accelerates without warning.

Some did attempt to inject plausible solutions well before debt-deflation became both self-evident and uncontrollable. Those efforts appear to have been either ignored, or failed. What could have been done?

Confluence of events: Publicly discussed, Summer 2001

Read more what was publicly discussed in June 2001, 4 months before 9-11 [posted 14 June 2001 04:20 PM]. Note: The discussion was archived in August 2001, 40 days prior to 9-11.

The above "inevitable, no escape scenario" was the catalyst for letting 9-11 occur. The hope was to use the event as a justification to change the dynamics and rescue the world from debt-deflation. However, the continued disconnect between energy consumption and reported output confirms the inadequacy of both [a] the catalyst of 9-11 and [b] the unexpected economic stimulus. As of 2004, all economic and non-economic catalysts have been insufficient to escape debt-deflation.

The scope of the problem was clear, yet the leadership wanting. There existed inadequate world-wide support for a non-military solution to debt-deflation in the wake of the 1997 Asian crisis. In the summer of 2001 the confluence of debt-deflation, economic instability, and national security risks showed there existed great momentum toward relying on military campaigns as the bailout option. All other options appeared to have run their course.

The economic options were either rejected, or had proven ineffectual. By the summer of 2001 the military solution remained the only viable solution to a pervasive economic problem. The rest is history: A "surprise" event changed the national psychology to wholly reject balanced budgets, trigger massive economic stimulus in the form of both increases spending and tax cuts.

Unfortunately, that option has failed to insulate the economy from debt-deflationary trends. Hence, we continue to see negative trends and greater foolishness to explain away that valid feedback.

We see the results today. The mania continues. Profits are weak, yet cash still races to the same assets classes that suffered from financial distress during the Asian Crisis.

The disconnect between energy consumption and reported output is a real phenomena that deserves to be monitored. It remains to be seen which "next option" is used. They've running out of silver bullets.

Archived version.