Home energy

Attic temperature.


You probably dont think much about attic temperature, but it has a lot to do with your summer cooling load. The attic can get hot from the sun beating down on those asphalt shingles (another petroleum product that could start to get expensive). The shingles get so hot they radiate the heat into your attic. Without adequate ventilation the attic will get much hotter than the ambient air outside.


The problem with a hot attic is that this heat seeps into your house and needs to be cooled by the Air conditioning. Also most air conditioning blowers - and thus the feeding and returning air ducts are also located in the attic spaces. Although most modern air ducts are insulated (as are most attic floors) this insulation just slows the seepage - but doesnt stop it.


Some companies sell attic fans, some are even solar powered (clever!)

But I wanted to know for myself how bad my problem was. So I bought a little inside-outside thermometer

On a typical 80F day in late may - with lots of sun and little wind, my attic gets up to 110F!

with wind or cloud its usually much less like 95F. Still compared with the ambient temp of mid 80s thats a significant extra load to put on all that insulation.


Try it yourself - thermometers are about $10 to $15.

Car book

I mentioned I like cars.
Well someday Im going to make a book about my car, and a video. I will do this to prove just how pathetic and obsessed I am about the car. Hopefully I can accomplish this before gasoline becomes $50 per gallon and a ride in the country will require me to fill in forms and get a bank loan.

Im going to make a coffee table book with those nifty websites like shutterfly.

So far I have made a cover photo montage, and thats about as far as I have got.
Someday I will get around to organizing my photos and making something really striking.

Here is the cover art made up from photos of my car.

May 28th

In the absence of anything better to do for a half hour I thought id roundup todays action.

Well we closed a whole buck higher today at 130, we had opened at 129. Big whoop.

No significant news, I imagine most of the action was money being moved around in response to other factors.

Interesting though in the face of all this news about demand destruction that so many chose to go long later in the day. The price had fallen 2 dollars in the morning and it gained it all back and then some. Today I cant help wondering what the Thursday weekly report will show. It was delayed a day because of Memorial day...

For those that are interested here is where youll be able to see the report:

EIA report

After 10:30 ET you get the basic text only report, then after 1pm they print a nice PDF file for those with ADHD.

Interesting how the government devotes so many resources to the gathering of this data.

You can bet there isnt an entire "administration" concerned with the consumption and production of bottled water. Perhaps this oil stuff is important after all...

For a little light bedtime reading, I have included an essay from Robert Rapier on theoildrum.com

Crude Assaying

Im sure you will agree that was Fascinating with a capital F. I will attempt in future to thoroughly explain octane ratings, either myself or by lifting an article off theoildrum again. If Im feeling wordy I may even explain how your engine may or may not benefit from different octane fuel.

Here is a cheesy looking graphic from the UK's Institute of Petroleum showing the distillation products. It doesnt show nearly the level of detail that we get from Roberts article but it a graphic and you can never have enough of those.

One chart cont...

OK, back to where I was.

Where was I? Ah yes, why would someone want to place an order for oil to be delivered months or years from now?

Well the answer will help define the futures market.

Lets say I place an order, 1000 barrels of oil to be delivered in November at a price of $130/barrel. Realize that Im a trader and I have no intention of actually taking delivery of that oil. My motivation is the hope (based on some sound research hopefully!) that the actual price between now and that date will increase. So before I actually take delivery I can sell my contract to someone else. If the price rises to $140/barrel then I get to make $10,000, or a roughly 7% return on my investment, that would be a decent return for 5 months.

That would be called a "long" trade. Buying oil hoping the price will rise, so I can sell it later and make a profit.

There is however another way to do business.

I can sell someone oil that I do not have. This may seem to be the riskier move but its really no different. By selling oil I do not have today, I commit myself to buy some later. By making a contract now at todays price, I hope that the price later will be lower - the difference being profit

This is called selling "short".

It should be apparent that there are plenty of people who do need to buy oil, they need oil to refine it. But the key element is that there are lots of traders selling short, to other traders who are betting long. If more folks bet long then todays price must rise. In addition to todays price changing you can also look at the prices being charged for contracts way out into the future.

Various trading sites, and the NYMEX.com site will let you take a look at prices far out into the future like that.

Its possible to look at those future contracts and draw some conclusions about what traders think the market will do.

Thanks to Jeff Vail of theoildrum.com we have a chart that can let us see what I mean














Jeff made this chart on the 20th of May 2008 and it shows how the prices for future delivery (months out in the future on the X axis) vary compared with the front month price. The typical price structure is known as backwardation. This would involve distance future prices being lower than todays front month (earliest possible delivery point) price.

That should strike you as normal, because the alternative known as Contango leaves open some intersting possibilities. If you could see prices for distant contracts raising much higher figures than todays prices you would have contango. You could buy some oil at the front month price and sell some oil at the higher future price, then take delivery of the cheap "today" oil and store it for when youre future contracts delivery date comes up. Although we know the cost of storage would never be zero, we can still see why this situation would not be considered all that normal, it would lead to folks hoarding oil.

If the future price gets high enough (which means traders have decided that through the buying and selling of contracts) then hoarding is exactly what will happen. If futures prices get high enough (high enough to offset the cost of storage and inflation) then you could make money by simply storing oil. Its unlikley that the market can get that hot, the front month price will rise too fast, as traders start buying short term contracts to cover their long commitments.

Since Jeff made that chart the amount of Contango has settled back a little to mid May levels. But the point Jeff makes is that up until Mid April the market was still selling long term future contracts at LESS than the front month price (in backwardation). The fact that it is now higher is only significant from a purely theoretical perspective. With the costs of storing oil, and inflation taken into account you still couldnt make any money by simply hoarding oil.

But its a useful way of looking at the market to determin if its "hot" or not.

You wont see this kind of analysis in the media, I think because its too simplistic for the traders, and too complex for the average joe on the street. Hopefully you found it thrilling...

May 27th

Every now and then I will do a sort of news round up from the different sources I scan around the web. I wont have the time to do this every day, but hopefully I will connect it back to the last time I did a summary.

Apart from the 27th being the date of my Sisters Birthday, we didn't have a very eventful day.

Probably the biggest movement of the day was the price of oil. I guess my prediction of falling prices doesn't look quite so startling following a day like today. WTI went from around $133 to 128. A $5 drop is a big movement - around 4% in one day.

I don't have anything solid to go on here, but I imagine the reports that came out showing significant demand destruction have something to do with this movement, we might see more of that. Also I wonder if Wednesdays inventory report has something interesting in it. Rumors have a way of getting out on Tuesdays and whispers tend to cause a good bit of movement at the moment. We shall see, tomorrow may bring some higher than expected inventory numbers.

Edit: as it turns out this weeks "wednesday report" is coming out on Thursday. The report I refer to is the EIA report (US government report from the Energy Information Administration)

However on Tuesday a report did come out from the IEA (internation energy agency based in Paris) which highlighted some of the demand destruction above

My favorite article of the day is:
http://www.independent.co.uk/news/world/americas/black-gold-rush-834598.html

I'm not sure how long the Independent will keep these files up, so I am saving my favorite articles for future reference.

Speaking of future reference. My prized possession is a 2004 copy of national geographic. The "end of cheap oil" issue.

Here is that article online, again I don't know how long it will last but I bet this will stay a while since it appears to be a pretty well written article that is slowly being proved to be prescient.
http://ngm.nationalgeographic.com/ngm/0406/feature5/fulltext.html

Predictions

This is where I leave planet earth behind and start making stuff up based on what I think might happen. Its a time capsule for later. I can come back and find out how much money I would have won or lost if I was actually wealthy enough to play in the commodities market.

My first statement - might seem kind of bold, especially considering that ive been reading all the peak oil doom and gloom latley.

I think the price of oil will fall. A bit.
Between now (late May) and about August, I think $130/bbl will return to about $120. I dont think the information that we have got us to $130. The last bit of run up seemed to be more speculation betting on severe supply disruptions. I dont think those panned out so I think we will see the market take a breather. In addition a lot of the extra money in oil came here because stocks and currency wasnt a safe place. I think theres a good chance people will start moving some money back to those places.

Then we have an IEA report due in November. After August we also have the election run up. I have a feeling that by then, maybe Sept we will start to see some more buying. I think the IEA report will be very bearing and maybe even catch a few people out. Im sure some info will leak out before the official report, so it may not be so sudden a shock.

So after about September/Oct I would expect to see it soar again.

Oh yeah, Obama wins the election, and the Cubs win the world series.
Sorry couldnt resist.

8 Americas ate America.

Well we have a lot of ground to cover. We have already started talking about oil prices, the benchmark and what a few terms mean. In later posts id like to talk about fuels in more detail, but for this post I want to hit a few Geographical highlights.

While posting on another forum I often discuss the causes, and effects of energy prices. Its a great way to sharpen debate skills but more importantly skeptics force me to be more thorough in my research. Sometimes what "feels" right is wrong under closer scrutiny. Skeptics are a bloggers best friend, because they teach you how to reach out to folks who don't want to believe your message. What follows are excerpts from my response to a skeptic.

It is the opinion of the Author that high energy prices, high food prices and higher metals prices are primarily the result of demand from rapidly growing countries like China and India. One skeptic refused to belive that China and India could have grown sufficiently - so quickly - to influence prices in this way. Its is a hard concept to understand, and one that will take more than one post to cover - but I started thinking about a way to express the sheer scale of the population of India and China.

First of all I hope I dont offend anyone buy lumping both countries together for the sake of this comparison. I call the two countries Chindia. So lets compare Chindia with the USA.
Population:
USA, 300 Million (rough numbers guys)
Chindia, 2.4 Billion (or 2400 Million) Roughly 8 times the population of the Unites States - Hence my posts title.

The entire human race consists of about 6.7 Billion. So Chindia makes up more than one THIRD the entire Human race. Both global population and the population of Chindia is growing, global growth is still over 1% per year. Chinas population alone grows by about 60 million per year, enough people to populate the United Kindgom.

Here comes the fun part.
We have all heard the myth about how if everyone in China jumped at the same time, something awful would happen, like an earthquake or a tsunami or something.

Well It dawned on me that Chindia with its combined 2.4 Million have a great deal of power.
Before checking any facts I wondered what would happen if everyone in Chindia took a pee into the same river. This is how it turned out:

The Mississippi discharges about 16 million liters a second. If 2.4 Billion people urinate at about 1/100th of a liter per second, wed have 24 million liters a second of pee - or a river to rival to mighty Mississippi. Thats quite a benchmark I think you'll agree. Perhaps they should all get together and give it a try, they could call it the Missipissi.

Hopefully you get the point. Chindia has a staggering population. During 2006, China alone used about 2 barrels of oil per person. For comparison, Mexico used 6.6-- Chinese oil consumption could triple and they'd still be using less per person than Mexico is today. The U.S. used almost 25 barrels per person.

So heres a new phrase to help you remember the real source of price pressure:
8 Americas ate America.

The water is boiling

So we can see then that the price of oil is rising, and its rising very fast. The idea behind my title is the old wives tale about a frog in a pot of boiling water. If you put him in when the water is cold, he won't notice the slow steady rise in temperature and will cook. If you toss him in a pot of boiling water he'll jump out.

So anyway the prices are high, the water is starting to get very hot. Will we jump out or will this frog get cooked?

And what do all the numbers and information mean? Why do I care about the price of oil?

The prices shown on the previous graphs are the front month prices for West Texas Intermediate crude. This an oil that is known as a benchmark crude. Brent crude oil is another and is also traded on the NYMEX. Brent crude comes from the North Sea, and import source of oil for the UK, while WTI obviously comes from Texas. Both oils are what are commonly refered to as "Light Sweet" crude oils. What does that mean?

The oil that comes from the ground is found in many parts of the world, at different depths and in different conditions. Crude oil is made of many different components mixed together (in much the same way that sunlight is made of many different colors of light mixed together). Typical Crude oil contains a spectrum of products, from heavy think tar, to lighter more fluid kerosene and diesel fuels, all the way to lighter products that may be a gas at room temperature and pressure.

Here is a resource that helps explain things in a more visual way.
http://www.energy.ca.gov/gasoline/whats_in_barrel_oil.html

The relative amount of these products is important to the value of the crude oil. If the oil conatins mostly heavy products like tar - it will be less valuable. Lighter crude therefore = higher value. Lighter crude is easier to turn into the sought after products like diesel and gasoline and that why is more valuable.

So what does "sweet" mean? Whos tasting this stuff? Well in oil terms sweet or sour has nothing to do with taste. Sour crude contains toxic hydrogen sulphide, sweet crude does not. This makes sweet crude the prefered choice because its cheaper to handle and refine. So you can see now that light sweet crude is a double whammy of refining perfection - great for turning into motor fuels at the lowest possible cost. And thats why they are used for benchmarking - because they tend to influence the price of motor fuel. It is of course possible to buy heavy crude, or sour crude - obviously at lower prices.

What does the front month mean?
Well when you buy oil, its not like buying potato chips at Walmart. You dont place an order and recieve the oil the same day. There are logistics involved and there are also minimums - in the case of oil - 1000 barrels! So the current price reflects the cost if you were to order a delivery of oil at the earliest possible time - usually taking about a month to be delivered. Thats why its called the "front month". Alternativley you can order oil for delivery at some date in the future, which is how the commodities get their name for example "oil futures", or the "futures market".

Why would anyone delay delivery like that?
That can be the subject of another post.

One chart

If there is one chart, this is it.

If you look at this chart and think about this a bit, then I already achieved a lot of what I set out for here. Even if you go no further you cant help but be a little "touched" by this chart and what they might mean.

For a guy who was interested in energy prices and their effects on society, this was it. This was the chart that made it all happen for me.

Of course this didnt happen overnight. Ive been quietly paying attention since - oh about September 2001 when some airplanes were flown into some important buildings in the United States. You can see what has happened since then.

This chart shows the price of WTI oil as traded on the New York Mercantile Exchange in US dollars. The chart comes from the NYMEX website and you can create your own graphs all day long there. What fun!

Its the king of all the charts - the source of debate, worry and for some a source of great wealth.

Here is a cleaner version from Gasbuddy.com showing gasoline prices and oil prices for the last 6 years (up to 2008)












Im going to let you look at those charts and think about it some.
Next post, what do they REALLY show, and what are the possible causes for such a dramatic price rise.

Whats in store?

Well lets get down to business.
In the next few posts I will be setting the agenda, making a few fun predictions and showing some charts to set the scene.

First, I should explain how I began to get so caught up in this interest.
The first time I began to question the exsisting "cornicopian" view of resources was back in Geography class. Different teachers would make mention of exponential population numbers, and also of limited resources with XX number of years remaining. Some of those teachers would make brief mention of these facts together as if to suggest that something bad might be around the corner - but without actually saying much about it. It always seemed to me that the combination of these two trends ought to be causing some concern in the big wide world - yet everyone seemed blissfully unaware. That was about 20 years ago...

When I moved to the USA my jaw dropped. I suppose it was no secret that in the UK we have some steep sales taxes - especially on fuel. But when I saw the prices of fuel and the way people behaved with it in the US, I was a little shaken. The population in the UK is about 60 million, in the US its around 300 Million. To find this many people consuming energy in what could only be described as an orgy of waste, lets say that was enlightening.

As I settled in I started to become more and more American, caring less about what I consumed. Occasionally academics or media commentators would talk about resources and a rebuttal was always made by an economist. Economists have typically approached resources with the cornicopian model. This model tells us that technology always finds a way to extract resources more efficiently, and to exploit them more fully (leave less in the ground). In effect nothing ever runs out, we either keep finding more, of we find something even better.

Another phrase you'll hear is "the stone age didnt end due to lack of stones". This analogy tells us that we should simply expect something better to come along, and not worry about the supply/demand constraints.

Another side hobby of mine has been to observe differences between my old home in Europe and my new home. Everywhere I looked, EVERYWHERE that I found differences between the UK and the US I find a connection with energy prices.

Some things you might not connect? Obesity, Home prices and Climate to name a few. Ah shucks I just mentioned climate. Its worth noting early on that will not talk a whole lot about climate change. Frankly I think the other issue outweigh climate change. I dont think theres much to talk about with climate change. If its true, the world gets a bit hotter, the sea levels rise a bit, some things change a bit. The extent and the true cause of the changes appear to be the cause of a great deal of debate. I will blog my full opinion on the matter some day but thats not the real reason for this effort.

So understand the effects of energy prices has been a bit of a side hobby of mine. Trying to make sense of it all is possible, but we will need to look at some charts and graphs. And occasionally to spice things up we will talk about things like food prices, water, vegetarians and some others things.

We will also talk about what might be done as a solution, what life might be like in the future and make some predictions which we refer back to later.