The coming decline of Aviation

[The Professor]

Yep, and as the price goes up the number of pax goes down and fewer planes are needed and fewer pilots employed. The future is not to bright for airlines unfortunately. Anyone care to guess why NK is in the gunsights?

[Eagleman]

From the IATA site:

• IATA Commentary: Jet Fuel Price Impact on Airlines

Both crude oil and jet fuel prices moved higher last week, with the IATA jet fuel basket reaching $89 a barrel which is 25% higher than the 2005 average of $71 a barrel. The sustained high level of energy prices partly reflects the strength of economies and demand for oil around the world. However, there is still no sign of additional supply from outside of OPEC (despite production costs remaining below $20 a barrel) and there seems little prospect of the $15/b or so geo-political risk premium diminishing soon. As a result the remaining analysts forecasting a short-term fall in the oil and jet fuel prices have capitulated. Merrill Lynch raised their WTI oil prices forecast for this year from $59.5/b to $67.5/b and to $65/b in 2007. UBS raised their forecast for average jet fuel prices this year from $72/b to $80/b.

4-Jul-06

Movements in the jet fuel price index over the past four weeks:

Date
Index*
30 Jun 06
243.423 Jun 06
238.616 Jun 06
236.109 Jun 06
247.4Sourced from Platts * (Equal to 100 in year 2000 or 87cts/gal)

Taking a look at the price action over the past six months:


Taking a longer term perspective of price movements:


Impact of Euro/US$ exchange rate movement:

[CaptR]

Air Transport Association - Fuel Prices

Back in Apr. 19, 2006 – Vice President and Chief Economist John Heimlich from the Air Transport Association provided some perspective on jet fuel and its implications for industry operations and financial performance.

"Simply put, today's jet fuel prices are crushing, and could prove to be a knock-out blow for some. Thanks to the high price of crude as well as a range of issues with refining capacity, product distribution, and market speculation, jet fuel prices have soared. And keep in mind -- unlike other modes of transport, airlines have no alternative to jet fuel. Even before Hurricane Rita landed, we saw two additional bankruptcy filings, not to mention significant reductions in domestic air service. Others may be on the horizon.

Fuel prices are influenced by a myriad of global and local factors, but are heavily correlated with the price of crude oil, which is being driven principally by a robust global economy, increasing supply tightness, geopolitical insecurity, and unique production and demand factors, and, most recently, Hurricanes Katrina and Rita, among other causes.

The technical specifications for jet fuel make it more complex to refine. U.S. buyers have also been somewhat disadvantaged in recent years vs. their foreign counterparts, due to a relatively weak dollar. Beyond the price of crude oil, the price of jet fuel has risen sharply with overburdened refineries, competition with other products in multi-product pipelines and refinery outages".

Increasing supply tightness will continue to increase - this is caused by geology and will not be resolved by the market - hence the disagreements between economists and geologists......at the Australian Petroleum Production and Exploration Association (APPEA) conference in Apr 2005, when attendees (generally industry geologists and engineers from the likes Woodside, Shell, BP etc) were asked by the speaker if we are at or near peak oil, 50% raised their hands in agreement - a worrying sign by anyone's standard!!

Recently James C. May, President and CEO Air Transport Association of America, Inc testafied before the Aviation Subcommittee, Committee on Commerce, Science and Transportation of the United States Senate on September 14, 2005, of interest he said "No business model at any airline can survive with sustained jet fuel prices of $90 - $100 per barrel" sounds like their is some consensus with what the CFO of QANTAS also stated in the Bulletin magazine! He went on to also say that "Every $1 increase in the price of a barrel of crude puts another 5,500 airline jobs at risk". In one of his concluding remarks he stated " we must find and produce more oil in the U.S., including reserves from the Arctic National Wildlife Refuge and the outer continental shelf. Other environmentally concerned nations are tapping into their off-shore oil and natural gas reserves. We must do the same if our aviation network – indeed our entire transportation system – is to remain sound and competitive in the face of growing worldwide demand for oil". Given that this has not be occuring (with the exception of nations like China who are aggressively locking in long term (30yrs+) contracts for the supply of oil and gas - one has to wonder where the airlines are heading in the next couple of years........am glad that I got out of it and am now earning more dollars flying a desk than what I did flying aircraft.........my counsel for what it is worth - is start to set yourselves up for a job outside of the industry as you don't want to be looking for a job when thousands of others are as well.........by the way - I have not read Matt Simmons book yet - however I have head that it is good.

[gaunty]

I'm with Selac66.

It might not be exactly 5 years but sooner than later, as will most of the First World nations airlines with the rest of the fleet either consolidating into major blocks out or going out of business.

Every country will be retreating to economic and nutritional self sufficiency and there will as a consequence be a revoltion in the refurbishment and recovery of out agricultural industries with a drastic redistribution of work and wealth from the non productive and secondary "services industries" to primary production.

Blind Freddy can tell you that when it is cheaper to buy your "fresh squeezed" orange juice from half way around the world than from your local orchard, and then try and find proper garlic even, that hasn't been grown in Spain or China there is something seriously wrong with our thinking for the future. For the same reason when it is cheaper to fly half way around the world than it is to holday in your own backyard.
The alarm bells are ringing off their mounts chaps.

You should contemplate that fundamental law of Physics, that of conservation of energy against the current

1 calorie of "fresh" food requiring 10 claories of fossil fuel to produce

for a start.

Airline travel will return towards the mode in which it was the most profitable and succesful. Highly discretionary, relatively high value and therefore relatively unavailable to the masses.
And I dont mean exclusive or elitist, just not profligate.

Everybody, and quite rightly, points at the USA as the mega consumer, forgetting Europe, but the real BBQ stopper is what will happen within the next 5-10 years when only 10-20% of the Indian and Chinese populations become and they are as entitled as we "middleclass western type consumers". That will represent something like doubling the pressure on existing scarce and diminishing resources. And that does not account for the natural increase in world population, which the last time I looked appeared to be going asymptotic.

How we and they negotiate the uncharted waters this will bring some seriously sleepless nights, readjustment of expectations and fundamental technological changes to the way we currently do things, basic to which is how we are going to feed them all?

And yes oil will be closer to the mid $30. A paradox you think, not really, if you think it through.

[skyshow]

Seems like aircraft manufacturers have acknowledged the future problems expressed here in these posts.
Just like our road transports are starting to see changes, the air transport industry may see positive changes too.

"...hydrogen-powered Airbus will fly in 12 to 14 years..."

"It needn't take another couple of decades for hybrid-powered airplanes to take to the skies, however. Prototypes using fuel cells and alcohol-powered engines are already flying, though large-scale versions have yet to taxi off the drawing board. Both Boeing and Airbus have studied airplanes fueled by liquid hydrogen, and these may be the most promising. They wouldn't require any technological breakthroughs, just redesigned planes capable of carrying more of the lighter, colder hydrogen fuel."

There are many web sites/articles with information on the technological changes in aviation and other transport systems within years to come, just like there are about an 'end being near'.


www.h2-economy.com/

[Shitsu_Tonka]

Gaunty,

I see your line of thinking v.v. $30/barrel if you are referring to massive retraction of the economy and reduced demand. (and probably a worthless USD)

One observation - when this was raised here about a year ago it was shot down in flames - now there seems to be general acceptance of the concept. Unfortunately, our economy is so inextricably linked to cheap oil it is probably too late to cushion the 'crash'.

The whole concept of globalisation relies on cheap oil to make it work - mores the pity, in the process of importing cheap labour by de-facto means (cheap imported finished goods delivered to our doorstep by fossil fuels), we have de-skilled our own economy: agriculture (oil based pesticides), manufacturing and textiles have been decimated. Our current economic boom is almost solely built around ripping stuff out of the ground - and exporting it: Hardly energy effective business in the long run, but possilby some cushion to our own future energy needs if we can no longer afford to export the stuff.

[Our rail network has rusted away to allow cheap road-trains to haul our stuff around. The resurgence of rail will occur out of neccessity one would think.]

Globalisation is really the only means by which the requirement for continual growth can be sustained - barely. Without the means of servicing this globalised trade, economically, it does not bode well for the basis of the western economy as it is currently structured.

[CaptR]

Hydrogen as an alternative

The website that looked at aircraft bveing powered by hydrogen can be located at http://www.flug-revue.rotor.com/FRhe...09/FR9809k.htm

As the previous reply correctly stated "possibly" the website reads as follows -

"The end is in sight. Even if opinions about the exact date may differ, the supply of fossil fuels is expected to be exhausted sometime in the next century. This is the latest when we will need alternative forms of energy at our disposal. They will have to be developed well enough not to just work in the laboratory but be used safely and reliably in operational service.
One possible energy source is hydrogen. It might be used in aviation as well. In view of the fact that today's airliners have a service life of several decades, it seems only reasonable to look into the basic requirements for aircraft that are powered by hydrogen".

The website correctly points out that "the significantly lower density of hydrogen causes problems with the fuel tanks. In order to reduce the space needed for the storage of hydrogen, there are plans to store the fuel in liquid form in its designated tanks at 20 degrees Kelvin (minus 253 Degrees Celsius). But even then is the specific volume of hydrogen twelve times larger than that of kerosene. If you take into account that only a third of the weight of kerosene has to be transported, a tank, which is four times bigger than that for a kerosene aircraft, is needed for a hydrogen airplane". I expect that eventually (not anytime soon) they may find some way of effectively storing hydrogen and also work out the ground support infrastructure that would be required to hold the fuel as well.

The key point to remember about hydrogen is that it is an energy carrier and not an energy source. Hydrogen must be manufactured from other fuels and its storage is problamatic. The lack of a hydrogen distribution system is a major barrier for its use for vehicles and aircraft use.

The US Department of Energy report reminds one that "Oil peaking represents a liquid fuels problem, not an “energy crisis” in the sense that term has been used. Motor vehicles, aircraft, trains, and ships simply have no ready alternative to liquid fuels. Non-hydrocarbon-based energy sources, such as solar, wind, photovoltaics, nuclear power, geothermal, fusion, etc. produce electricity, not liquid fuels, so their widespread use in transportation is at best decades away. Accordingly, mitigation of declining world oil production must be narrowly focused. Mitigation will require an intense effort over decades. This inescapable conclusion is based on the time required to replace vast numbers of liquid fuel consuming vehicles and the time required to build a substantial number

of substitute fuel production facilities. Our scenarios analysis shows:

•

Waiting until world oil production peaks before taking crash program
action would leave the world with a significant liquid fuel deficit for more
than two decades.

•

Initiating a mitigation crash program 10 years before world oil peaking
helps considerably but still leaves a liquid fuels shortfall roughly a decade
after the time that oil would have peaked.

•

Initiating a mitigation crash program 20 years before peaking appears to
offer the possibility of avoiding a world liquid fuels shortfall for the forecast period.
The obvious conclusion from this analysis is that with adequate, timely
mitigation, the economic costs to the world can be minimized. If mitigation
were to be too little, too late, world supply/demand balance will be achieved through massive demand destruction (shortages), which would translate to significant economic hardship. There will be no quick fixes. Even crash programs will require more than a decade to yield substantial relief.

[Shitsu_Tonka]

On current demand, there is reasonably balanced opinion that we have peaked already, or are very close to it. The unknown proven reserves secrecy is part of the problem of being sure.

If demand could be drastically reduced by bringing on alternative sources where oil is not neccessary (the US currently burn the stuff to generate electricity in some places) could actually push the peak 'out; a little further to enable other developments a window of opportunity for R & D and production and distibution. The problem with this, is that with reduced demand come redduced price on the oil - thus the alternatives are not as attractive in the short/medium term, and the countries who rely almost solely on oil revenues would not be happy.

One could also argue this then takes the argument full circle to keeping known reserves secret.

[soldier of fortune]

one only has to look at the building boom in the sandpit to relise that they to know they are running out of oil-trying to turn there economy from oil based to a middle eastern singapore-
trying times for everyone- ---on a local level [email protected] aud a ltr for petrol- this price now must be making an impact on peoples every day living in australia.
have or are we reaching a breaking point. how do the LCC's like easy jet still make a profit but carriers like qf are starting to struggle- yet we are one of the best hedged airlines in the world

[Mainframe]

Yes, there is a problem looming no doubt.

The pessimist's approach is that there are no alternatives and we'll all be rooned.

"Said Hanrahan" by John O'Brien

"We'll all be rooned," said Hanrahan,
In accents most forlorn,
Outside the church, ere Mass began,
One frosty Sunday morn.

The congregation stood about,
Coat-collars to the ears,
And talked of stock, and crops, and drought,
As it had done for years.

"It's looking crook," said Daniel Croke;
"Bedad, it's cruke, me lad,
For never since the banks went broke
Has seasons been so bad."

On the other hand, the optimists embrace the creed
"Necessity is the mother of invention".

Shale oil was once viable, (Southern Highlands NSW was a thriving production centre once),
and the Rundle Shale Oil reserves in Central Qld and other places are just waiting for the viability costs for break even to occur.

Elsewhere in the world, shale and tar abounds (Athabascar tar sands etc.)

The Australian Shale oil production was centred around the easier to produce kerosene (isn't this almost Jet A1?).

Petrol rationing in WW2 also spawned alternatives such as automotive charcoal burners for flammable gas production.

All possible interim steps while the innovators start innovating.

Bring on the alchemists, we need them soon.

The world was going to end at the start of the 2nd millenium, but we're still here.

Yes, be concerned, but don't just let go in despair, solutions will develop.

MF

[Eagleman]

Quote..
So what of that $US100-a-barrel oil price? Gregg sees airlines disappearing at such a level
Unquote

Could big Pete be sending us a signal?

Quote..
Leighton announced yesterday that Qantas chief financial officer, Peter Gregg, would become a director. He replaces Qantas CEO Geoff Dixon, who resigned from the Leighton board six weeks ago to become a director of PBL where executive chairman, James Packer, is a director of Qantas.

Surely Gregg should be too busy to have an outside directorship. It's one thing for a CEO to pick up a board seat as he heads towards retirement – Ted Kunkel at Billabong and Roger Corbett at Fairfax are two examples – but quite another to start landing them before even making it into the top job.
Unquote

[The_Cutest_of_Borg]

When Y2k reared it's ugly head, and yes it actually was a threat, the powers that be realised the potential and ensured that it was a non-event when it occurred. Why? Because the workings of the Industrialised world depended on it.

I tend to see this in the same light. The world cannot afford the ramifications of running out of liquid energy. The onset of the problem could be delayed substantially right now by the mandating of hybrid vehicles for all. The only thing missing at the moment is the political will.

Unfortunately, with a least a trillion barrels of recoverable oil still left in the ground, Big Oil sees at least 100 trillion dollars worth of business still to be done and Government see the tax revenues that will bring.

Maybe, with the environment also at stake, the solution would be for people to start demanding these sorts of changes. (and tip all the damn 4WD's in the recycle centre! )

[Wirraway]

Mon "ABC News"

Monday, July 10, 2006. 4:05pm (AEST)

Shortage looms: Dr Bakhtiari says the world has five years to prioritise oil use.

Oil production limit reached: expert
An international oil industry expert says the limit of global oil production has been reached.

Academic and former National Iranian Oil Company executive Dr Ali Samsam Bakhtiari has told the Financial Services Institute in Sydney the world's oil fields are producing as much oil as they can.

He says giant fields in Saudi Arabia and Kuwait are struggling to meet production targets.

Dr Bakhtiari says the massive output declines in the North Sea oil fields and Mexican oil fields will have a major economic impact.

"Crude oil is the master domino," he said. "When you tumble crude oil, all the other dominos tumble."

Dr Bakhtiari says for the first time in 150 years, the world is entering an era in which it cannot have all the oil it wants.

He says there are five years left to plan priorities for the use of crude oil.

"Some countries don't even know what is happening," he said.

"Some huge companies don't even know what is happening and they are going to be ambushed and trapped and they are going to panic.

"The worst thing you can do is to panic when the prices are going to go sky-high."


ABC TV's Four Corners program this week examines the state of the world's oil reserves. The full program can be seen at 8:30pm tonight.

===========================================

[CaptR]

Response

Hi All,

Well this thread is getting interesting - suggest all watch 4 corners tonight.

In regard to shale oil - its crap oil, not the sweet light oil that gave the world the era of cheap easily recoverable oil...........as Chevron Texaco says - the era of cheap is is OVER............

Look around you - almost everything you see comes from oil or is oil based, the synthetic clothes you wear, the food you eat (fertiliser feedstock, farming and transport), the sunglasses you wear, the making of your car, the 11 litres it took to make your car tyre........every god damn thing........as the Australian Labour party says in its energy blueprint - who are the Australian public going to blame when they ar paying between $5 - $10 litre for petrol............at these prices there will be NO MORE discretionary spending = NO MORE discretionery travel - by car or by aircraft for the average jo bloggs...........for everyone who thinks technology will save the day - do the research - I have spent seven years researching this issue and there is no one simple solution to replace the efficiency that oil provides us in the vast quantities needed every day - without an ever increasing energy supply the global economy will stagnate and go backwards and as the wiser economists who are across this state the global depression will make the great depression look like a picnic party. We have not discovered more oil than what we use in a year since the 1960's - technology is working good isn't it - NOT - with a track record like that I wouldn't trust it at all. Remember the US Department of Energy report - if massive mitigation measures are not started 20yrs prior to peaking the economic consequences will be DIRE............what do you think they are talking about? It is the harsh reality of geology not economics that is about to slap us.........and the market can do jack s**t about that!!

Have a look at

http://www.abc.net.au/news/newsitems...7/s1682899.htm

another person has already pasted the general content of this - watch 4 corners tonight and I urge everyone to research this yourself - do not be satisified to you have proven that a solution exists, - it takes effort - unfortunatley most people prefer to ignore it - well simply put, don't ask for help when you need it because you were warned, have been for years but didn't pay attention. Many people insure your car or your house, but fail to understand what is about to happen...........its their own fault - do the research and don't expect the Govt to lay it out on a plate for you and tell you what you need to do! If you live in the suburbs and your house in 2010 is worth 50% less than what it is now - its your fault for not doing something now...........frankly - I look forward to the world becoming bigger again and less busy!!!

Happy research.........

[el @]

Originally Posted by CaptR

Hi All,
..............its their own fault - do the research and don't expect the Govt to lay it out on a plate for you and tell you what you need to do! If you live in the suburbs and your house in 2010 is worth 50% less than what it is now - its your fault for not doing something now...........frankly - I look forward to the world becoming bigger again and less busy!!!
Happy research.........

So, let's say the world as we know it will tumble in 5-10 years. Let's look at the perspectives of the developed western countries, betters to say not the country but the individual itself.
The nations may even dissolve, will we fall into chaos? Will the resources so scarce that there will be no food for everyone? Will the money still have a value after the banks collaplse? Or will be instead a gradual, orderly slowdown to a self-supporting type of economy?
Ok, nobody can anser these questions, but what do you suggest CaptR, how we should plan to live our last years and what to do for our childs ? Sell the house now ? Move in country, learn agriculture and how live off basic things? And which country should we move to? Should we get armed (the Americans already are) ?
Inquiring minds wants to know ...

[CaptR]

What to do

When I first became aware of what was going to occur in 1999, I tried everything I could to disprove it, I researched, researched and researched.........to date I have been unable to disprove it (against my strongest wishes to do so).......so over the years I have watched with interest as what I expected to happen gradually start to occur and watch the debate between economists and geologists heat up.

The consensus is that Peak Oil will occur (thus this point I now do not dispute), there is ongoing debate about when it will occur, however once again the consenus (if you do your research) seems to be swinging around that it is likely to occur sooner rather than later.

The consequences - will it be a soft descent to new energy sources that are yet to be fully developed or will it be a moderate descent or a hard descent (that makes the great depression seem like an enjoyable picnic!)? Will it be better to live in a city (and avoid the consequnces of living in outer suburbs), but then again what about food - how will the agricultural industry that depends on oil to produce food (look at graphs of world population the past thousand years and overlay oil production with it and you will see what I mean).........grow enough and send it to the market.....

Looking at this from a risk management perspective, I insure my home, my car - how am I going to insure myself to achieve a reasonably comfortable existence for myself, better half and family?

I do not offer counsel to anyone about what to do, or when, rather do the research that I have done. For me and my family - looking to downshift a little, a little acreage at a place with rainfall each month, access to water, fertile soil, plenty of sun & a moderate climate (including the climate in years to come - as this will also affect climate change somewhat as well), get a job that pays the same as what I get now (the area I am loking at has several going at present) and spin this out as long as I can, spend more time with my family, learn some permaculture - I will finally have time to enjoy life more and smell the roses.......this way regardless what happens I know that my family and I will be OK and that we can get by on very little energy due to how our house is being built and the design of our property.........

Others may choose to live in cities, personally I think that this comes with a little more risk than what I would be comfortable with after my research.........but hey - I am tired of the rush we have at present so what I plan to do is great for me, but not great for others....

You may be able to make some good money by doing some put options as some areas (aviation, trucking etc) of the share market goes down, as well as putting money on areas which wil go up i.e. coastal shipping, rail etc - get in early and hang on for the ride.....

Happy research and enjoy tonights program!

[The_Cutest_of_Borg]

I think there is huge scope for optimism provided people act soon.

As I said before, many of these problems can be delayed indefinitely by the increased usage of already available technologies. IMHO, hybrids offer the best hope in the short to medium term.

In 2000, 54% of petroleum in the US was used by all forms of road transport. At current usage rates that accounts for around 10-12 million bpd. Other countries would have similiar usage rates.

The average US car gets around 20 mpg. Developments in hybrids using lithium ion batteries are verging on the profound and easily have the potential to make 100 mpg engines on a car with a 300 mile range. That car can then be recharged relatively quickly via a standard AC outlet.

This technology is available NOW without the huge infrastructure costs and complexity of a hydrogen economy. All that is required to make it so, is the political will.

Once you get cars weaned off petroleum then most of the problems, whilst not solved, get relegated to the 22nd century. Hybrids will only get better as more R&D is put into them.

In short, provided good sense prevails (and that is the big IF) then there is no reason to panic. (Although a couple of acres in the country would be nice...)

[Howard Hughes]

CaptR=Capt Reporter?

One to many plugs for a TV show me thinks...
Great topic though and definately worth some research, I'll be watching your show with an open mind tonight!

[CaptR]

Hybrids

I agree - I think there is huge scope for optimism provided people act soon.........

However transport is only one item that is dependant on oil...............almost the entire economy is based on ever increasing supplies of cheap oil - and it ain't going to be cheap anymore. Hybrids are great but as with all vehicles a huge amount of energy goes into their construction from mining the raw materials to produce the metals to the car factories, to the batteries that are needed, even the tyres for a car take almost 11 litres of oil to produce - all of the processes are mainly dependant on cheap oil.......and this is going to change........then we have food production - one cow takes six barrels of oil to bring it to the market when one looks at all the fossil fuel inputs during its lifetime - this is how our cheap meat ends up in the supermarket (does this mean we get to eat less meat!!? Damn!!)

If we moved to an all electric hybrid (and find the money to do so now that I am paying more for everything) we would need to do major upgrades to the electricity grids (now that we already have brownouts in Australia and the US during peak demand time each year) - there are several interesting articles about system interdependancies if you do some research - and shows the ripple effect through an economy - real interesting reading......

The issue is to get people weaned off petroleum, not cars - hence why President Bush stated that America is addicted to oil.........but then again when his Deputy states that the American way of life is not negotiable one has to wonder how serious they are or if they will start the next resource war (Iraq being the first) with Iran?

Anyway - back to aviation, the outlook is not good........the sole intent of this thread was to keep your eyes open, watch your six, be informed, keep the research up and position yourselves so you have an option in teh next five years........hopefully some miracle will occur and we can all carry on consuming like we are now......I truly doubt this however........its better to plan and be ready than not and suffer for it......

Cheers and safe flying.......

[Shitsu_Tonka]

When I started researching this, one of the solutions I read about to overcome our human condition in failing to act (denial), was to actually get out there and burn up this stuff as fast as we can, and get rid of it as fast as possible to force our hand.

Curiously, it seems many of us are doing just that anyway.