The Oil Drum: Canada

The credit crunch is already having an impact on energy markets. New projects are harder to fund. Highly leveraged companies are sometimes finding it necessary to shed assets. Some players are finding themselves to be the indirect casualties of other players, like Lehman, that have already failed. Long term, we will probably see consolidation and lower production than would have been the case without the credit crunch. Of course, if there is a major recession, it is possible that we won't need as high production.

In this post, I have tried to bring together some of the impacts of the credit crunch on the energy industry that are already being felt. If you are seeing other impacts, please make note of them in the comments.

Man greatly extended his domain by learning to consume energy he did not create. In financial terms, he has accomplished a similar thing. He has learned how to consume income not yet earned. When a man (or woman) signs on the dotted line for a 30-, 40-, or even 50-year mortgage (thank you California), he is committing a stream of future earnings to a purchase. The money to be paid usually has not yet been earned; for all intents and purposes, it does not yet exist. Financial leverage, like fire, allows man to access a power source external to himself. The fact that homeowners all across the Western world can do this, and think little of it, is a great testament to the power of innovation. The invention and explosive proliferation of the mortgage, in its own way, is as meaningful an advance as England's transition from wood to coal in the High Middle Ages.

Unfortunately, we are on track to relearn a painful lesson: Financial disasters can be just as ugly as environmental ones. The first may be caused by careless use of leverage, the second by careless exploitation of resources on a grand scale; depending on how you look at it, these are two sides of the same coin. In both cases, lax attitudes, lolling complacency, and rampant greed are often to blame.