In this post, I consider some major issues contributing to our current financial problems, before making a financial forecast for 2009. These are

1. Why so many asset classes are so highly correlated in times of distress. This chart gives my interpretation of part of the problem.

3. Where we are now, and the role reduced resources (including peak oil) are likely to play as we go forward.

4. My forecast for 2009.

The 'McMansion' trend in housing is slowing

In Atlanta's 1920s-era Kirkwood neighborhood, teardown projects in the last year have been cast in the simpler Craftsman style, which have immediately found buyers. Indeed, US builders say their clients increasingly look for quality materials and workmanship rather than sheer size. Some families are even abandoning the one-bedroom-per-child model, builders say, in favor of larger, but fewer, shared rooms.

..."There's an awareness now that some of the homes frankly are too big," says Scott Van Duzor, a home builder in Illinois's Fox River Valley. "The McMansion has almost become embarrassing to some people," he says. "They're listening not just to their wallet but their conscience."

I was asked to give a presentation to a group called Leadership Mendocino. Every year about 30 people in our County, usually from a mix of businesses, government agencies, and non-profits, meet monthly for a full day and intensively study a particular topic. Nov. 14th 2008 was their Ag day, and my presentation followed the Ag Commissioner’s, who reviewed the County’s history and present. I didn’t want to talk about the future as if I knew what was going to happen, but I did want to highlight the vulnerabilities and tensions I saw building and suggest some alternatives to our predicament. Hence I created a storyline in which I was now the County Historian in 2020 giving a talk to the group about the past decade of change.

While the details are specific to where I live, the general lessons apply to the whole world.

A video version of my presentation (which adds more details to the discussion presented here) is available here.

Click on any image to see a higher resolution version.

For Mendocino County the key date was December 12, 2009. The trucks didn’t show up that day.

US drilling outlays soar to $226.4 billion in 2007

-- US oil and gas drilling expenditures soared to a record $226.4 billion in 2007, more than doubling the previous record of $109.8 billion a year earlier, the American Petroleum Institute said on Jan. 5.

API said the Joint Association Survey of Drilling Costs for 2007, the latest year for which figures are available, showed that records also were set in average costs per well and per foot.

Average costs per US oil well grew 82% to $4 million in 2007 from $2.2 million, while per foot costs climbed 78% year-to-year to an average of $717 from $412, according to API. It said that average costs per domestic natural gas well rose 105% to $3.9 million in 2007 from $1.9 million in 2006 as average costs per foot grew 74% year-to-year to $604 from $348.

Total oil well expenditures jumped 94% to $72.3 billion in 2007 from $37.3 billion in 2006, while gas well expenditures grew by nearly 101% to $119.1 billion from $59.3 billion, API said.

Recently, Rune Likvern wrote a post talking about the possibility of a natural gas shortage in the United Kingdom, possibly as soon as February or March 2009. Rune isn't the only one worried about the supply of gas in Europe and the UK. A little over a year ago, Euan Mearns wrote two posts about the European natural gas supply, the first called European Natural Gas and a follow-up addendum called Daddy, will the lights be on at Christmas? In this post, we combine the two posts and re-run them. Besides being relevant to the gas shortage issue, the posts also provide some additional background related to current Russian/Ukrainian dispute.

OECD European gas production looks set to peak in 2008. After that, falling production combined with rising demand will see OECD European gas imports wanting to rise from current 197 BCM per annum to 442 BCM per annum by 2020. Where will this gas come from and how will rising European imports affect N America and the rest of the world?

Figure 1 OECD Europe gas production and conceptual forecast. Click all charts to enlarge

Canadian oil-sand mines stuck as crude price plummets

Canada's once booming oil sands industry is cooling fast as the plunging oil price undermines investment. More than US$60 billion (£41 billion) worth of projects to extract oil from the bitumen-rich sands of northern Alberta have been delayed in the past three months, according to a study of industry figures by The Times.

A string of companies, including Royal Dutch Shell, Petro-Canada and SunCor, have been among those that have frozen multibillion dollar projects - in some cases indefinitely.

Below the fold is a guest essay by longtime TOD commenter DavebyGolly on how our society/population might possibly 'retrench' given the current limitations we are faced with. It is a bit longer than we expect for the Campfire slot, but Dave has good ideas, by Golly. Please submit your own essays (or ideas for same) for TOD:Campfire to TODCampfire@gmail.com or campfire@theoildrum.com. Guidelines for submissions and content are here.
(**Note: we are working on making the colors and graphics here purtier)

As we enter yet another episode of worried or sanctimonious articles about the gas conflict between Russia and Ukraine, it's worth remembering a few simple facts:

1) The conflict started in 1992, not in 2006;

2) Russia cannot win a gas war against Ukraine and knows it;

3) the real underlying stakes are not about Russia or Ukraine.

Russia oil output falls for first time in a decade

MOSCOW (Reuters) - Russian oil production fell by around one percent in 2008, official data showed on Friday, the country's first annual decline in a decade after large increases in previous years and a sign of things to come.

The decline is widely expected to continue because of ageing reserves and plunging oil prices, which combine with heavy taxation to leave producers with limited cash to invest in maintaining production and opening new fields.

The following is a post by both Dr. Charles Hall and EROI Guy. Most of the material comes from a recently published book chapter titled “Peak oil, EROI, investments and the economy in an uncertain future.” The book can be found here. Dr. Charles Hall is a professor of Systems Ecology at the College of Environmental Science and Forestry in Syracuse, New York, and has written about energy issues many times on The Oil Drum, found here.