• British GDP shrank 2.4% in the 1Q (more than the 1.9% shrinkage expected)
• The VIX – a widely used measure of market volatility is – fell 25 points. But it’s still 25% higher than average.
• US equity trading volume is also down – signaling a lack of demand… and a possible sagging in the recent bear market rally
• US Treasury yields have remained more or less unchanged over the month of June despite the boys at the Department of the Treasury flooding the market with an impressive $176 billion in new issuance
• Crude oil prices are up over $71 a barrel. Meanwhile, the IEA has lowered its forecast for oil consumption. (There is enough storage for 62 days of global consumption – 10 days above Opec’s stated goal.)
• June auto sales are will come in at about 10 million units annualized. This is less than 50% their peak and roughly back at levels last seen in the 1960s.

Rosenberg writes that “the crisis at the lower levels of government in the US is now so intense that as many as TEN states may not have a budget prepared for the fiscal year that is about to commence next month!”

Wow!

Notes faithful will be aware that we view the fiscal crisis in California as a precursor of what’s to come in America. The mechanics of this are very simple. The government spends too much money out of an empty pocket to appease and please. It relies on a just about half of the population (according to the IRS the top 50% of earners pay 97% of income taxes) to contribute the majority of the tax revenues. This upside down pyramid eventually topples (revenues shrink while spending increases), and the government is thrown into a “budget crisis” (which is really a spending crisis by a different name).

The US federal government isn’t far behind state governments (a) because it has a larger tax base to rely on and (b) because it can borrow seemingly infinite amounts of money on the international debt markets thanks to the dollar’s status as world’s reserve currency (foreign governments and banks need dollars to buy a wide range of commodities, which are priced in the US currency).

But one day (sooner rather than later in our humble opinion) foreign buyers of US debt wake up and realize that huge increase of dollar-denominated debt on the market is causing the value of the buck to decline… and they look for alternatives.

This is happening already. China and its fellow “Bric” nations, Brazil, Russia and India are already vocalizing their discontent with the dollar-pegged system. The problem is they don’t yet have an alternative mechanism to the dollar. But they’re working on it. And when they come up with an answer to their dilemma, $174 billion in Treasury bonds a month will no longer find a happy home. The feds will have no alternative but to raise yields to attract investors. Higher yields mean higher borrowing rates overall, which mean you can forget about a sustained recovery or a return to the golden years of US economic dominance.

According to Rosie, the situation in the ten problem US states “is so acute that state governments are now threatening to go after unused gift cards for sales revenues — affecting $7 billion of income for the retailing sector.”

Saudi Arabia’s oil minister, Ali Naimi, has indicated that while demand is beginning to pick up, inventories remain dangerously high. Therefore, it would be best for the cartel to “stay its course” by continuing to adhere to previous production cuts until demand stabilizes.

After soaring above $147 a barrel last summer the price of oil tumbled more than 80% to a four-year low of $32.70 a barrel in February. To combat the sharp decline in prices, OPEC has lowered its production quotas by 4.2 million barrels per day (bpd) – about 5% of global demand – since September.

Since February, oil prices have recovered, climbing to their current level above $60 a barrel. But both Naimi and industry analysts have warned that the rally has more to do with market sentiment and the potential for a recovery than it does fundamentals.

“The price rise is a function of optimism that better things are coming in the future,” Naimi told reporters earlier this week.

The International Energy Agency (IEA) estimates global oil consumption will fall by 2.6 million bpd this year. That would be the biggest drop since 1981.

Naimi says that world crude inventories – at current levels – would be sufficient enough to meet about 62 days of global demand. OPEC members would like to see them fall to about 52 to 54 days worth of demand.

An increase in OPEC production “will not happen until we are sure that global inventories return to their normal levels,” Naimi told the Arab daily Al-Hayat.

U.S. crude oil inventories rose to the highest level in two decades earlier this month. However, Naimi did note that demand in Asia, particularly China, seems to be accelerating and crude prices could reach $75 a barrel by the end of the year.

Still, analysts are urging caution, as production quota compliance among OPEC nations is beginning to wane. Production compliance among OPEC nations reached 85% in March – an impressive level by historical standards. Members only delivered on 78% of the promised cuts in April as prices recovered.

Saudi Arabia, OPEC’s largest and most influential producer, actually pumped below its target level in April, but other members have been cheating. Iran, OPEC’s second-biggest producer, accounted for 410,000 bpd of the overproduction last month, while Angola exceeded its target by 170,000 bpd and Venezuela overproduced 130,000 bpd the IEA reported.

“Lagging quota compliance by the non-Gulf Arab states – hovering around 50% – has hamstrung any real discussion of a potential cut to accelerate the drawdown of the glut,” PFC Energy analyst David Kirsch said in a report today. “Purported requests by Angola to revise or suspend its quota, as well as moves by Venezuela to certify a higher production figure leave any proposal for further output restraint effectively stillborn.”

Source: OPEC to Maintain Production Levels at Thursday Meeting

And that suggests higher oil and gasoline prices in coming months – perhaps as much as 50% – 70% higher, or more – particularly if a U.S. economic recovery is truly in the offing.

To really see what I’m talking about, let’s start with a close look at consumption. I’m asked about this frequently in my global wanderings, most recently at the Las Vegas Money Show last week.

For months we’ve been hearing about a drop in global demand. It’s a popular story and one that sounds credible: After all, it seems logical to assume that during economic chaos, consumers and businesses alike will rethink their budgets and ratchet back their spending.

For consumers, the continued economic malaise will mean fewer trips to the store, less-ambitious vacations, and car-pooling to school or work . For businesses, the cutbacks by consumers will clearly translate into canceling trips where conference calls will suffice and using lower-cost shipping alternatives for the decreased sales volumes most U.S. companies will experience.

According to the U.S. Energy Information Administration, oil consumption fell by nearly 50,000 barrels a day throughout 2008. According to the latest figures, the EIA suggests that global oil demand may slump to 83.4 million barrels a day in 2009 – nearly 2.4 million barrels below 2008 consumption levels. On a percentage basis, that’s almost a 3% drop. I have my doubts that we’ll actually see a decline of this magnitude, but if it does occur, it will be the first time ever that consumption has declined for two straight years. That alone is pretty noteworthy in this era of cohesive and powerful global growth.

The reason I have my doubts about such a steep decline in demand is this: While overall consumption is dropping in such developed economies as the United States, Europe and Australia, it’s being at least partially offset by continued growth in China, the Middle East and Latin America. Because the data produced there is less than transparent, I can’t help but think that analysts are underestimating the growth we’ll be seeing in those markets, where consumption is accelerating strongly. And it’s entirely possible that growth in those markets will outstrip any fall here in the developed world.

Even if the growth in the emerging markets doesn’t quite offset the decline in their developed brethren, analysts seem to be forgetting that oil prices are a function of two variables – consumption and production. And it’s the change in production that’s going to catch a lot of people by surprise.

After a run of record high oil prices punctuated by frantic resources development, we’re now seeing the opposite scenario. The long period of lower than anticipated oil prices following oil’s meteoric rise last year means that the entire industry is no longer making the investments needed to sustain production capacity or actual production.

And not many folks recognize this fact.

For instance, direct project investment in drilling may be down as much as 20%, while the number of drill rigs in operation in America alone has dropped by more than 40%. Various estimates from the EIA and private sources suggest that actual U.S. production may fall by as much as 320,000 barrels a day. While the amount is a matter of debate, the fact that production is declining is not.

More than 20% of total U.S. oil production comes from tiny wells located in remote areas that were marginally profitable producers when crude oil was trading at $100 a barrel. With oil currently at about $61 a barrel, those producers are practically worthless now.  So the “mom-and-pop” shops that own them are actually abandoning entire fields and equipment without a moment’s thought.

To be fair, at least part of the drop in demand can be attributed to increased reliance on methanol, ethanol and other types of biofuel, but that’s hard to quantify at the moment because the long period of low oil prices has eroded the economic viability of alternative fuels – at least for now.

The story is much the same with new exploration projects being cancelled left, right and center. The trend is particularly apparent in the Canadian oil sands that were everybody’s fancy only 24 months ago. Now we’re seeing Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B), StatoilHydro ASA (NYSE ADR: STO) and Petro-Canada USA (NYSE: PCZ) each backing away from multi-million dollar investments that were to bring online an estimated 500,000 barrels a day.

Russian, Saudi and Mexican producers are reporting the biggest production drops seen in 50 years. Even Venezuelan leader President Hugo Chavez – the perennial motor mouth and longtime U.S. critic – is eating crow. He’s begrudgingly invited (read that to mean “is begging”) the oil companies whose assets he nationalized only a year ago to “come back” into the market.

He has no choice. Venezuela’s oil production is already below its 1997 levels, and many analysts say that output could fall even more since Chavez has done such a thorough job of alienating the big foreign oil companies that actually possess the technology needed to extract crude oil from that country’s hard-to-reach reserves.

Chavez’s Chavez’s government seized the assets of 60 foreign and domestic oil service companies after conflict erupted over nearly $14 billion in debt owed by the country’s state-owned energy company, Petroleos de Venezuela (PDVSA). PDVSA accumulated the debt as oil prices took a dramatic slide from over $147 a barrel last July to less than $35 a barrel in February.

Then there’s simple shrinkage. This is an oil industry term for declining output. The EIA recently released data suggesting that production at more than 800 oil fields around the world is going to decline by about 9.1%. It doesn’t matter whether the decline is prompted by depletion, war, or simple neglect. The fact is that this shrinkage will take an estimated 7.6 million barrels per day out of the system.

I could go on but I think you get the picture.

Now imagine what could happen to oil-and-gasoline prices when normalized demand resumes. Not only will there be less oil in storage, but virtually the entire industry – exploration, production, refining and sales – is going to be caught sitting on its heels when the world needs it to be zooming along in high gear. And that means the companies that make up this industry will have to ramp up again to meet the newly increased consumption demands.

This whole process could take two years – or even longer – to play out.

As for prices, history is replete with examples of what happens when there are major shortages of key commodities.

In the Energy Crisis of 1973-74, for example, I can still remember the numbingly long gas lines and waiting in the car for hours to get a fill-up. My father and grandfather vividly remember that prices quadrupled in a matter of months. I’m sure you do, too.

Only a few years later, in 1979, we got another oil shock when prices quadrupled again. Because it was coupled with stagnant economic growth and virulent inflation (stagflation), this period was an economic disaster for the United States.

For those who had learned from the earlier crisis, however, it was a mondo- profit opportunity.

The same can be said for 2007-2008, when the huge spike in oil prices that I predicted contributed to the bear market in stocks, tight credit and recessionary conditions that led to the current malaise that continues to grip the U.S. economy. As much as anything else, high oil prices contributed to the carnage we’ve seen in the auto-making and airline industries, and to the financial crisis that started here before spanning the globe.

Which brings us full circle.

Many investors will refuse to believe we’ve arrived at this new energy nexus, especially given all the hype we’ve seen surrounding alternative fuels, hybrid vehicles and the new “green” mentality that’s taken hold here in this country. If you listen to some of the real believers, they’ll tell you that we could be living in a petroleum-free Nirvana – as early as tomorrow.

While I personally would like that, too, it’s a misleading argument if for no other reason than there are millions of consumer items we use – from plastic bags to makeup – still created using petroleum. And there are still more than 60,000 manufacturing processes that depend on petroleum, and even the most aggressive estimates suggest that it will take the world decades to shift away from them.

We’re in much the same situation when it comes to hybrid vehicles. There isn’t a mass-produced electric vehicle available today that could offset the coming rise in recovery-driven demand for oil and gasoline. There’s a strong effort underway, but I’m not aware of a single company ready to field the solution in cost-affordable quantities by 2010 – which is when most analysts say a recovering economy will stoke demand for oil.

Of course, U.S. President Barack Obama’s much-lauded efficiency and greenhouse-gas-standards mandate will help significantly, but that’s like bolting the barn door after the horses have run for the fields. The irony of watching auto executives “applaud” his press conference was almost too much to watch with a straight face. But that’s a story for another time.

The bottom line is this: Our society will be highly dependent on oil for many years to come and investors should plan accordingly.

If governments around the world really want to get serious, they could collectively work to eliminate the fuel subsidies that are part of the price paid for gasoline in Asia or sugarcane ethanol in Brazil. We could also stop our own energy pork barreling. But given the complete lack of transparency that surrounds this issue – not to mention the influence wielded by vested industry interests, and the scores of well-paid lobbyists that patrol the halls of power in our nation’s capital – I don’t think we’ll see any big changes anytime soon.

So I’m left with one inescapable conclusion, at least in the intermediate term. Every investor needs to have at least some sort of energy strategy – preferably one that includes a range of drillers, producers and suppliers to cover the spectrum from wellhead to consumer.

That way, we can profit from an increase in energy prices that we can only hope rise fast enough to jump-start the oil industry’s production arm but not so fast that it snuffs out the badly needed economic recovery.

Editor’s Note: Money Morning Investment Director Keith Fitz-Gerald is the editor of the new Geiger Index trading service. As the whipsaw trading patterns investors have endured this year have shown, the ongoing global financial crisis has changed the investment game forever. Uncertainty is now the norm and that new reality alone has created a whole set of new rules that will help determine who profits and who loses. Investors who ignore this “New Reality”will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive. With the Geiger Index, Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as “Golden Age of Wealth Creation” The Geiger Index system allows Fitz-Gerald to predict the price movements of broad indexes, or of individual stocks, with a high degree of certainty. And it’s particularly well suited to the kind of market we’re all facing right now. Check out our latest report on these new rules, and on this new market environment.

Source: With Oil Prices Poised to Jump as Much as 70%, Every Investor Needs an Energy Strategy

Oil prices now trade at a five-year low.

If oil prices overshot on the way up to US$147, then the opposite is certainly true today with prices at US$36 a barrel. At some point, crude oil will bottom; the odds of a spectacular bounce occurring is highly likely as global governments spend trillions of dollars at the same time to desperately boost economic growth in 2009-2010.

China, which is the world’s second-largest consumer of oil after the United States at 9.4 million barrels per day, is now importing the lowest amount of crude oil this decade amid a softening economy. U.S. demand has also declined sharply to less than 19 million barrels per day.

Did Crude Overshoot on the way down to US$36?

According to the International Energy Agency (IEA), oil consumption in 2009 will decline to its lowest levels since 1982.

The IEA cut its demand outlook last week as the global economy continues to deflate since the fourth quarter. The Paris-based agency now projects oil consumption will decline by 570,000 barrels per day to 84.7 million barrels. Just 12 months ago, the world sat on a net supply deficit of about one million barrels.

More than any other nation, China has seen the largest spike in net oil consumption this decade. Chinese oil consumption has increased by 3.2 million barrels per day since 2000, accounting for a third of the total increase in global demand.

The Chinese are also in the midst of their biggest expansion of credit in history following the passage late last year of a US$541 billion dollar stimulus package. That spending should at least boost short-term demand for oil assuming consumption in the United States is also supported by the government’s recent passage of the $878 billion fiscal spending package.

Even the biggest bears will concede that concerted global government spending will buy at least a few quarters of economic growth later this year or in 2010 – and that should boost oil prices. Combined with additional supply cuts by OPEC and a host of cancelled exploration and development projects over the last few months, oil prices are bound to bottom shortly.

The above chart shows oil prices dating back to 1997. In 1998, amid the tail end of the Asian economic crisis and the Russian debt default, oil prices bottomed at an incredible $10.50 a barrel. Ten years later, at its peak, oil climbed a cumulative 1,300%.

I think it’s highly unlikely we’ll see 1998 prices again, unless another major bank fails or worse, a major sovereign borrower defaults in this cycle. This remains a possibility in a brutal deflationary environment.

Yet, if the time to buy an asset is when prices are low and in near disrepute, then crude oil fits that bill right now. When the time comes to buy oil, look to the oil futures or oil futures related ETFs. They’ll give you much more bang for your buck than most oil stocks.

Source: Depressed Oil Prices Approaching Speculation of a Lifetime

Oil edged above $41 a barrel on Wednesday, as further evidence emerged of a deepening global slowdown that is crushing demand for fuel.

U.S. light crude for March delivery rose 77 cents to $41.61 a barrel by 1300 GMT on its first day as the new front month contract.

The February contract, which expired on Tuesday, settled up $2.23, or about 6 percent, at $38.74 a barrel, on short-covering.

London Brent crude rose 23 cents to $44.85 a barrel.

“We’re consolidating a little bit after yesterday’s late bounce on the February contract expiry,” said Andrey Kryuchenkov, vice president commodities research at VTB Capital in London.

“Sentiment continues to be very bearish as strong demand just doesn’t look like emerging in the current climate.”

The International Monetary Fund is set to sharply cut growth forecasts this month and the world will not return to strong growth for two to three years, IMF Managing-Director Dominique Strauss-Kahn said on Wednesday.

FALLING DEMAND

The International Energy Agency (IEA), a leading energy watchdog, last week joined the ranks of forecasters predicting a fall in global oil demand this year in light of the slowing economic outlook. The IEA sees demand falling by 500,000 barrels per day (bpd) in 2009 to 85.3 million bpd.

Oil has plunged from record highs above $147 a barrel in July as oil consumption has dropped, prompting the Organization of Petroleum Exporting Countries (OPEC) to agree to a series of output cuts.

OPEC is fully enforcing its deepest ever oil supply curbs, which should be enough to boost prices, the group’s president, Angolan oil minister Botelho de Vasconcelos, told Reuters on Tuesday.

But prices remain at levels not seen since 2004.

China, one engine in the six-year commodity price rally that started in 2002, was expected to release fourth-quarter GDP data this week that economists say will show 7.0 percent growth, the slowest pace of expansion in nearly a decade for the world’s third-biggest economy.

A Reuters poll of analysts forecast that crude oil stocks in the United States, the world’s biggest energy consumer, rose by 1.4 million barrels last week, with distillate stocks seen down 1.4 million barrels due to cold winter weather.

Gasoline stocks are expected to be up 2.1 million barrels, up 5.1 million barrels from a year ago.

Data will be released on Thursday, a day later than usual, following the U.S. holiday on Monday honoring civil rights leader Martin Luther King Jr.

LONDON, Jan 21 (Reuters)

The EIA report says that increases in fuel-efficiency standards, use of renewable fuels and advances in technology will translate into less dependence on imported oil. At the same time, the reports projects that hybrid vehicles will comprise 38% of total sales by 2030 – a hefty share if any investor is willing to wait 21 years for that kind of growth.

While some form of battery-powered vehicle will emerge in the coming decades, the U.S. market will also see a diversification in fuel consumption flex-fuel, hybrid, and diesel vehicles, according to the report.

While this growing adoption of new fuels is bound to impact the sales of hybrid and electric vehicles, Detroit is ramping up production of small fuel-sipping cars that could meet or exceed the mileage of any kind of car with a battery.

It’s going to be a zero-sum game when it comes to oil imports versus gasoline consumption. The EIA reports that overall liquid fuel demand will increase by 1 million barrels per day between 2007 and 2030, during which we’ll see a dramatic increase in miles per gallon among different types of fuels.

During this historic transition, hybrid vehicle sales will rise from 2% in 2007 to 38% in 2030 (sales are tracking at around 2.4% for 2008), with full and mild hybrid systems accounting for most of that. Sales of plug-in hybrid electric vehicles (PHEVs) are expected to grow to 90,000 vehicles annually by 2014, supported by recently enacted tax credits. By 2030, PHEVs account for 2% of new light vehicle sales.

These numbers clearly show that hybrids will be the green vehicle of choice over PHEVs — or will they?

Ford CEO Alan Mulally said earlier this month that it will stay the course of bringing small, fuel-sipping cars to the marketplace.

Mulallay believes is betting that fuel prices will stay relatively high, and that consumers will continue to adopt small cars. This is certainly true, but the questions looms if Americans are willing to pay more for a hybrid than a cheap, high-mileage gas car.

These sub-compacts and microcars produce profit margins of $2,500 to $3,500 compared with $8,000 or more in profit for SUVs and pick-up trucks. So while Ford will manufacture and import these tiny cars, the other question that needs to be asked is where Ford will put its marketing dollars? Into microcars or SUVs?

The other consideration is safety. It’s hard to believe that SUV-driving soccer moms will be real eager to shuttle around their kids in something like a Chevy Aveo.

Bottom line is that hybrids could be the vehicles of the future — 21 years from now. Are you willing to wait that long?

“Oil prices have witnessed a dramatic collapse – unprecedented in speed and magnitude,” OPEC said, adding that prices have fallen to levels that could jeopardize “many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage.”

The 1.5 million-barrel daily reduction exceeded the expectation of many analysts, but failed to rally crude prices which have plummeted 57% since hitting a record high record high of $147.27 a barrel on July 11.  Light, sweet crude for November delivery fell $3.09, or 4.55%, to settle at $64.75 a barrel on the New York Mercantile Exchange Friday.

“The financial crisis is already having a noticeable impact on the world economy, dampening the demand for energy, in general, and oil in particular,” the cartel said. “This slowdown in oil demand is serving to exacerbate the situation in a market which has been over-supplied with crude for some time.”

On Oct. 10, the International Energy Agency (IEA) lowered its forecast for 2008 global demand growth by 250,000 barrels per day (bpd) to 440,000. The agency cut its 2009 growth forecast by 190,000 bpd to 690,000.

In its October report, OPEC reduced its forecast for 2009 demand by 190,000 barrels a day, as well. It was the cartel’s seventh-consecutive forecast reduction. OPEC said that total oil consumption in developed countries fell by more than 1 million barrels per day in the 12 months through to the end of September.

Developed nations in 2009 will need only 400,000 barrels a day more oil than this year, the cartel said, whereas demand from emerging markets will increase by an estimated 1.1 million barrels.

The cut announced Friday, effective Nov. 1, was at the high end of analysts’ expectations, but as prices continue to slide, there is now a growing sense that the reduction won’t be enough.

Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut, told Bloomberg News that a further reduction of 500,000 barrels a day is possible.

“If prices continue to fall, they may find themselves having to revisit deeper production cuts,” Armstrong said.

OPEC President and Algerian Oil Minister Chekib Khelil said at a news conference that the cuts could reach 1.8 million barrels per day by the end of the year, which would mean an additional cut of 300,000 barrels a day, perhaps at the group’s next meeting in December. He denied that there would be any impact on inflation, or growth, if such a cut were necessary, and that the cartel would be willing to increase production should prices rebound.

With control over 40% of the world’s oil supply OPEC is the arbiter of oil prices. As such, the group walks a very fine line. If the cartel pulls the reins too hard on production, it risks a price spike that would cause demand to drop even further.

“They have to be careful of cutting production in a tough [global] economy,” Phil Flynn, analyst at Alaron Trading told The Associated Press. “They could make [falling oil demand] even worse.”

However, if OPEC overproduces, the price of oil could collapse, just is it did 11 years ago. In 1998, the price of crude skidded 28% over a 10-month period, below $10 a barrel, after OPEC raised quotas in the face of the Asian financial contagion. Oil prices that low make it unprofitable for corporations to begin new projects or seek out new oil sources.

A lack of exploration and development would make the world vulnerable to an energy shock when the global economy regains traction and demand picks back up. In fact, many analysts believe that even at current prices enough projects will be delayed, and enough investment curtailed, to spur a serious rebound in oil prices within the next few years.

Barclays Capital, for one, said the world faces “a serious supply-side crunch” within a few years when world demand comes back online.

“The dominant market view remains that sub-$70 short run prices are a stop on what might be a circuitous route back above $90, not a wind-swept motel on the route to even lower prices,” Barclays said.

Source: OPEC Cuts Output by 1.5 Million Bpd as Oil Prices Slump

In fact, the decline in U.S. oil consumption will be quite painful for pretty much every American. Prices for fuel will rise, and you will wish that was the only problem. Spot shortages will turn into large scale “dry outs.”

You should anticipate that every level of government will do things to discourage using liquid fuel, from charging user fees and “congestion pricing” to higher taxes. Heck, the government might even appeal to your patriotism to drive less. And don’t be surprised to see rationing in one form or another, even with expensive fuel and costly fees and taxes.

But this is not a book review of James Howard Kunstler’s 2005 volume The Long Emergency, or his recently released (and exceedingly well-written) World Made By Hand. The point is that oil use will fall in the years to come, because world oil output is falling. You cannot use what is not there in the first place.

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Setting the Stage for CTL

So this sets the stage to explain why Coal to Liquid (CTL) is about to simply take off in the U.S. The U.S. will adopt CTL, because it has to do so. There are few other large-scale industrial alternatives. Windmills, biofuels, conservation and every other energy-saving and energy-extending idea will help. But the world we live in is built to run on oil, and nothing else will cut it for some things when it comes to running a fast-transforming economy. So stand by for CTL.

According to a 2006 estimate by the National Coal Council, a robust CTL industry could produce about 2.6 million barrels per day of oil-equivalent fuel by 2025. This is about 12.5% of current U.S. daily demand. But it is tricky to draw comparisons over time frames of nearly 20 years. Certainly, a lot of things will change between now and 2025 in the realms of both demand and supply.

And a large-scale CTL program will dramatically increase the demand for coal. Can U.S. mines deliver? There are issues here, to be sure. The U.S. is supposed to have that mythical “250 years of coal reserves, at present rates of consumption.” But that estimate is 35 years old. And much U.S. coal is buried deep, in thin seams, and thus hard to mine. Plus, some 40% of U.S. coal resources are in Alaska — much of it north of the Arctic Circle. So even with coal, the U.S. needs to be wary of believing its own press releases.

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Potential 250% Gain This Year — If You Get in By July 12

The U.S. Department of Energy says it could be the key to unlocking an oil deposit in the Rocky Mountains that’s three times the size of Saudi Arabia’s reserves.

I say it could make you $65,500 inside of a year.

Let me tell you why that’s such a big deal.

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Still, CTL can serve as a liquid fuel supplement for at least several decades. And CTL technology is pretty well developed, based on many decades of operational success by Sasol in South Africa. The Air Force believes that the CTL plants of the future can even be relatively “green,” based on evolving technology for removing pollutants from the coal and sequestering carbon dioxide. It will also be possible to reduce the volumes of coal in the blend by adding some types of plant-derived materials.

Thus, it is not a question of if the U.S. will adopt CTL. It is a question of when. And looking ahead, every month is precious. As I said above, we are running out of time. So it will matter greatly how much will we as a nation fool around with our national obsession of navel-gazing over ancillary issues before we get around to making a decision to bend steel.

One way or another, CTL is coming. And one way or another, we at Penny Sleuth are going to find a way to invest in the companies that will build it out.

Until we meet again…
Byron W. King

P.S.: My colleague, Greg Guenthner, is working on an amazing energy play that trades for just a few dollars. If he pulls the trigger, only his elite Penny Stock Fortunes’ readers will gain access to it. To be among these lucky few, click here…

Source: Stand By for CTL

Indonesia no longer has the ”E” to stay in OPEC (Organization of Petroleum Exporting Countries). It had been a net importer of oil since 2004.

Casey Research’s Energy Division attended the recent oil and gas show in Jakarta, and it’s plain to see where the new oil demand is coming from. Greater Jakarta, Indonesia’s capital, hosts 23 million people, and while ten years ago the majority of them rode bicycles, now nearly everyone has a new 2-stroke Honda motorbike. Those who were riding motorbikes are now driving cars. (And those who were driving cars have moved to Australia to escape the smog.) In this light, it’s not surprising that Indonesia’s oil consumption has more than doubled since 1990.

As to their slumping oil production, it is no doubt partially due to a lack of reinvestment. Foreign oil companies are tired of paying 85% of their revenue into government coffers, and are looking to areas of the world where the fiscal regime is not as severe.

The main problem, however, is an extremely common one. Indonesia has exploited its fattest hydrocarbon targets, and the remaining exploration sites cannot make up for the decline from its existing oil fields. There’s certainly plenty of oil left to be found in Indonesia’s archipelago, but it’s equally certain that they’ll never regain their peak production rates of 1.6 million barrels per day.

Source: Indonesia Says ‘Goodbye OPEC, Hello Peak Oil’

The oil will simply not be available in the volumes that the government, industry and people in general have come to expect. So the phenomenon of declining oil use will not be voluntary, graceful or cheap.

In fact, the decline in U.S. oil consumption will be quite painful for pretty much every American. Prices for fuel will rise, and you will wish that was the only problem. Spot shortages will turn into large scale “dry outs.”

You should anticipate that every level of government will do things to discourage using liquid fuel, from charging user fees and “congestion pricing” to higher taxes. Heck, the government might even appeal to your patriotism to drive less. And don’t be surprised to see rationing in one form or another, even with expensive fuel and costly fees and taxes.

But this is not a book review of James Howard Kunstler’s 2005 volume The Long Emergency, or his recently released (and exceedingly well-written) World Made by Hand. The point is that oil use will fall in the years to come, because world oil output is falling. You cannot use what is not there in the first place.

Setting the Stage for CTL

So this sets the stage to explain why Coal to Liquid (CTL) is about to simply take off in the U.S. The U.S. will adopt CTL, because it has to do so. There are few other large-scale industrial alternatives. Windmills, biofuels, conservation and every other energy-saving and energy-extending idea will help. But the world we live in is built to run on oil, and nothing else will cut it for some things when it comes to running a fast-transforming economy. So stand by for CTL.

According to a 2006 estimate by the National Coal Council, a robust CTL industry could produce about 2.6 million barrels per day of oil-equivalent fuel by 2025. This is about 12.5% of current U.S. daily demand. But it is tricky to draw comparisons over time frames of nearly 20 years. Certainly, a lot of things will change between now and 2025 in the realms of both demand and supply.

And a large-scale CTL program will dramatically increase the demand for coal. Can U.S. mines deliver? There are issues here, to be sure. The U.S. is supposed to have that mythical “250 years of coal reserves, at present rates of consumption.” But that estimate is 35 years old. And much U.S. coal is buried deep, in thin seams, and thus hard to mine. Plus, some 40% of U.S. coal resources are in Alaska — much of it north of the Arctic Circle. So even with coal, the U.S. needs to be wary of believing its own press releases.

Still, CTL can serve as a liquid fuel supplement for at least several decades. And CTL technology is pretty well developed, based on many decades of operational success by Sasol in South Africa. The Air Force believes that the CTL plants of the future can even be relatively “green,” based on evolving technology for removing pollutants from the coal and sequestering carbon dioxide. It will also be possible to reduce the volumes of coal in the blend by adding some types of plant-derived materials.

Thus, it is not a question of if the U.S. will adopt CTL. It is a question of when. And looking ahead, every month is precious. As I said above, we are running out of time. So it will matter greatly how much will we as a nation fool around with our national obsession of navel-gazing over ancillary issues before we get around to making a decision to bend steel.

One way or another, CTL is coming. And one way or another, we at Outstanding Investments are going to find a way to invest in the companies that will build it out.

Until we meet again…

Byron W. King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: The Coal to Liquid Debate Part II