Monday, November 11, 2013

Severe Storms Will Result in Higher Oil Prices

Flood pictures surfacing early last week of Clementi jolted me, a few days later Super Typhoon Haiyan struck the Philippines. Death toll as of now has breached 10,000. Though the storm is much stronger than Katrina which hit the US in 2005 & claimed more fatalities, Haiyan didn't do extensive damage compared to what Katrina did to the highly industrialized & urbanized gulf coast of USA.

Increasing intensity of storms which obtained their energies from the warming oceans are an indication of the unsustainability of economic growth dependent on fossil fuels.

Super Typhoon Haiyan reminded me of a point made by economist Jeff Rubin about offshore oil drilling which is the susceptibility of oil rigs due to storms & flushing $$$ down the toilet on repairs. When oil companies drill for oil in deepwaters (Deepwater Horizon accident), it's a sign the cheap & easy oil are gone.

Look at the large capacity refineries built along the Gulf Coast to process the offshore oil:

The achilles heel of America's oil refining capacity is along the gulf coast. As storms form & rampage across the Gulf of Mexico, the oil rigs are damaged & tossed loose from their moorings. Then the storm make landfall & the refineries get hit.

As a result of the storm:

  • Oil rigs damaged & can't produce oil
  • Repairs taking months for oil rigs need $$$
  • Refineries damaged & can't process crude oil
  • Repairs for refineries taking months need $$$

Do factories cut down on their production? Do people drive & consume less oil while repairs are being made? Henceforth is a fact pointed out by Jeff Rubin that oil prices rises due to low supply of oil arising from storm damage.
"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."-Warren Buffett
$$$ flushed down the toilet on storm-damaged repairs is $$$ that could be spent on exploring/producing oil elsewhere. What happens to oil prices when global demand is ever rising? Meanwhile another severe storm is gonna arrive...

Super Typhoon Haiyan path lies across the South China Sea which China & the surrounding Southeast Asian nations are claiming a stake on the islands & vicinity due to oil/gas deposits. Producing oil with oil rigs in South China Sea in the future is beset with the same storm problems as the Gulf of Mexico.

If high oil prices don't put enough of a brake on economic growth, increasingly severe storms will help to do so by knocking out facilities & coastal cities(eg. New Orleans by Katrina, New York City by Sandy). Mankind has reached a point where fossil fuel driven type of economic growth is hitting its limits.

Climate change is upon us. Reduce our carbon footprint. Repair instead of discard & buy new.
- Repairing Backrest of Chair & Punctured Bicycle Tubes

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