Posted: Sun Sep 12, 2004 6:56 pm Post subject: The Canary in the Mineshaft
In mining lore there is a story about miners placing a canary in the mineshaft to test the safety of its atmosphere. If the bird lives, the air's breathable and you're probably going to be ok. If the bird dies, get out quick. In today's world, the airline industry is that figurative canary in the mineshaft. For those wishing to know where the peak-oil crisis--as it pertains to the economy--will start, I think it is here.
Jet fuel prices, which are about 16 percent of airline costs, have surged 52 percent in the last 12 months, to $1.267 a gallon from 83.3 cents (74 percent this year, to more than $1.50 a gallon--update 12/27/04). Many companies use financial trading strategies that hedge their fuel expenses and, where possible, slap fuel surcharges on customers' bills. Hedging effectively enables them to lock in prearranged prices for fuel, so that they are not hurt if prices jump above those levels. Some distressed airlines--needing the money for other expenses--have less than half of their fuel requirements hedged, leaving them more vulnerable to the high market prices. Delta has no hedges in place, and in the second quarter its fuel costs soared 54 percent from a year earlier.
The International Air Transport Association estimates a $1 per barrel rise in jet-fuel prices costs the airline industry $1 billion per year. Several of the large, conventional carriers such as United Airlines and Delta, already were in dire financial straits before this year. United, the nation's second-largest airline, has been operating under court-supervised bankruptcy protection since 2002. United sought a $1.6 billion loan guarantee from the government, and was turned down. Arlington-based US Airways, which already received a $1 billion loan guarantee, says it is trying to avoid a return to bankruptcy. Delta has said bankruptcy is an option unless it can eliminate its losses.
Quote:
"All-time high oil prices and the ever-increasing burden of government taxes and fees are killing the industry," said Gordon Bethune, chief executive of Continental Airlines. "Unless fuel prices abate, or the revenue environment improves, we will have to furlough employees and seek wage and benefit concessions," he continued.
United has already stopped paying into its pension accounts. If the other airlines follow suit to stay competitive, that could send huge ripples through the economy. If United Airlines defaults, (or God help us, goes bankrupt) the effect on the economy is nearly incalculable. No matter what else happens, in five years time, two or three major airlines are going to be gone. United heads the list, followed by Delta and US Airways.
The U.S. airlines have pleaded for President Bush to stop diverting oil from the market to the Strategic Petroleum Reserve at a time of record jet-fuel prices. Any investor will tell you that you buy low, sell high. Unfortunately, the government is doing just the opposite by accelerating the rate at which it's filling the SPR at a time when oil prices are sky high. Well, we know why they are doing that, the price is low compared to what it will be.
The domino effect of job loss will cascade through the economy. If the government bails them out it will cost billions of taxpayer dollars, much like the S & L fiasco of the 1980's. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Last edited by MonteQuest on Mon Dec 27, 2004 7:48 pm; edited 3 times in total
I too think that airlines are the canary... If you plan on being somewhere else when a crisis were to start, don't presume you'll be able to get there by air...
I too think that airlines are the canary... If you plan on being somewhere else when a crisis were to start, don't presume you'll be able to get there by air...
Ah, the plot thickens! No, I hadn't. Goes to show you just how fast this is moving.
Quote:
But the airline failed to get another penny from pilots, flight attendants, mechanics and other unions, who yielded nearly $2 billion to help the company out of its first bankruptcy.
The Retirement Systems of Alabama pension fund, which agreed to finance US Airways' prior bankruptcy restructuring, holds the biggest stake in the airline at about 36 percent.
One major problem has been fuel costs, which the company said are expected to be approximately $300 million higher than previously thought. Its mainline passenger revenues are expected to be $450 million lower than forecast.
There is already a huge reluctance by the American workers to concede anything more. When these pension funds go, watch out!
Does anyone else have a canary of a different feather to share? _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Right now, they're building lots of coal fired power generation stations and lining up access to Russian oil. But they have rapidly rising expectations and a lot of "bare branches" - young men who, because of demographic imbalance, have no chance to marry and establish a family. Those bare branches can contribute to social instability in a bad economy.
Also, their economy depends on manufacturing consumer products for other countries. Those products have to be transported, which requires fuel. China's actions might be an indicator of whether they believe than Peak Oil has occurred, and how steep they expect the decline to be.
Joined: Sep 02, 2004 Posts: 32 Location: Seattle, Washington, USA
Posted: Sun Sep 12, 2004 8:20 pm Post subject:
China is building a massive hydropower dam, the largest dam in the world, on the Yangtze river (the Three Gorges project). According to a Wired magazine article, they are also planning to build 30 new nuclear power plants.
Right now, they're building lots of coal fired power generation stations and lining up access to Russian oil. But they have rapidly rising expectations and a lot of "bare branches" - young men who, because of demographic imbalance, have no chance to marry and establish a family. Those bare branches can contribute to social instability in a bad economy.
Also, their economy depends on manufacturing consumer products for other countries. Those products have to be transported, which requires fuel. China's actions might be an indicator of whether they believe than Peak Oil has occurred, and how steep they expect the decline to be.
Yes, I agree. Two new coal-fired plants a week. Soon they will import more oil than we do. The competition could start a bidding "oil war". Watch for the US to increase it's Strategic Petroleum Reserve, even more so than they are doing. In fact, this "quiet hoarding" could bring on a sudden increase for oil demand, not for use, but for storage, much like the individual consumer did in the 1970's. You couldn't buy a gas can to save your ass! How confrontational this could get is scary to consider. Those who think a war with China is out of the question forgets, or nows little of history and the world at war over resources. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Regarding war and China - I keep thinking that Iran has to be a tempting target. Access would be a problem due to geography (the Himalayas) and India to the South, and Russia if they chose a route through Kazakhstan. Then again, if Russia and China decided to work together, all bets are off.
Impossible? Maybe. But countries start behaving badly when critical resources get shut off...
Joined: Apr 06, 2004 Posts: 257 Location: Sydney, Australia
Posted: Sun Sep 12, 2004 11:19 pm Post subject:
"...the most ferocious creature..." or the worst pest ever!!
For another Canary watch New Zealand. Its electricity is 25% NG and their biggest field, Maui is in freefall of the cliff. _________________ Ye shall know the truth, and the truth shall make you mad. - Aldous Huxley
Joined: Aug 13, 2004 Posts: 115 Location: United Kingdom
Posted: Mon Sep 13, 2004 9:01 am Post subject:
rowante wrote:
"...the most ferocious creature..." or the worst pest ever!!
For another Canary watch New Zealand. Its electricity is 25% NG and their biggest field, Maui is in freefall of the cliff.
But with all the rest from renewables, mainly hydro, surely they're in very good shape compared to many. I'm still thinking about going in that direction. Had a friend who did it, and they (NZ) even paid his fare there!
Joined: Sep 13, 2004 Posts: 142 Location: New Zealand
Posted: Tue Sep 14, 2004 5:59 pm Post subject:
JackBob wrote:
rowante wrote:
"...the most ferocious creature..." or the worst pest ever!!
For another Canary watch New Zealand. Its electricity is 25% NG and their biggest field, Maui is in freefall of the cliff.
But with all the rest from renewables, mainly hydro, surely they're in very good shape compared to many. I'm still thinking about going in that direction. Had a friend who did it, and they (NZ) even paid his fare there!
JackBob
Our Maui gas field was squandered by a take-or-pay contract which required the operator to pay royalties regardless of how much they extracted. Much was wasted in a 30% efficient gas-to-methanol-to-gasoline plant.
Despite the country's "clean-green" image, this is by default of a fairly low population (rather than a low impact lifestyle).
# 2.5% per annum (pa) GDP growth from 2007 (2002 Budget forecast prior to 2007);
# Oil prices rising from US$20/bbl in 2004 to US$25/bbl by 2020 and constant thereafter;
Unfortunately most New Zealanders are blissfully unaware of how close they are to an energy crisis. The country is busy emulating high energy US lifestyles :
- number of SUV has doubled in last 3 years,
- current building boom of large poorly designed houses reliant on gas for heating and hot water (even simple-cost-efficient things like solar hot water are installed on only 1% of new houses)
Sorry to shatter your illusions JackBob, but I have lived in UK and I'm currently in NZ.
Joined: May 26, 2004 Posts: 1190 Location: Zoorope
Posted: Wed Sep 15, 2004 7:05 am Post subject:
About resource wars, believe me: Russia, France and Germany will be on the same side forever and ever.
Russia has gas, Germany has coal and France has nuke plants. They hold Europe in their hands.
They also signed an agreement last year. _________________ **no english mothertongue**
--------
Objects in the rear view mirror
are closer than they appear.
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