Areas Of The World More Vulnerable To Collapse

16 06 2018

ANOTHER great post from SRSrocco…..  this one should be of particular interest to Australians though, because we are in a more vulnerable region…. and while Australia may look not too bad on those charts, it’s only because our relatively small population means we consume way less than most of the other nations of the Asia Pacific region…

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Certain areas of the world are more vulnerable to economic and societal collapse.  While most analysts gauge the strength or weakness of an economy based on its outstanding debt or debt to GDP ratio, there is another factor that is a much better indicator.  To understand which areas and regions of the world that will suffer a larger degree of collapse than others, we need to look at their energy dynamics.

For example, while the United States is still the largest oil consumer on the planet, it is no longer the number one oil importer.  China surpassed the United States by importing a record 8.9 million barrels per day (mbd) in 2017.  This data came from the recently released BP 2018 Statistical Review.  Each year, BP publishes a report that lists each countries’ energy production and consumption figures.

BP also lists the total oil production and consumption for each area (regions and continents).  I took BP’s figures and calculated the Net Oil Exports for each area.  As we can see, the Middle East has the highest amount of net oil exports with 22.3 million barrels per day in 2017:

The figures in the chart above are shown in “thousand barrels per day.”  Russia and CIS (Commonwealth Independent States) came in second with 10 mbd of net oil exports followed by Africa with 4 mbd and Central and South America with 388,000 barrels per day.  The areas with the negative figures are net oil importers.

The area in the world with the largest net oil imports was the Asia-Pacific region at 26.6 mbd followed by Europe with 11.4 mbd and North America (Canada, USA & Mexico) at 4.1 mbd.

Now, that we understand the energy dynamics shown in the chart above, the basic rule of thumb is that the areas in the world that are more vulnerable to collapse are those with the highest amount of net oil imports.  Of course, it is true that the Middle Eastern or African countries with significant oil exports can suffer a collapse due to geopolitics and civil wars (example, Iraq, and Libya), but this was not a result of domestic oil supply and demand forces.  Rather the collapse of Iraq and Libya can be blamed on certain superpowers’ desire to control the oil market as they are strategic net oil importers.

The areas with the largest net oil imports, Asia-Pacific and Europe, have designed complex economies that are highly dependent on significant oil supplies to function.  Thus, the areas and countries with the largest net oil imports will experience a higher degree of collapse. Yes, there’s more to it than the amount of net oil imports, but that is an easy gauge to use.   I will explain the other factors shortly.  If we look at the Asia-Pacific countries with the largest net oil imports, China, India, and Japan lead the pack:

China is a net importer of nearly 9 mbd of oil, followed by India at 4 mbd and Japan with 3.9 mbd.  Thus, as these net oil imports decline, so will the degree of economic activity.  However, when net oil imports fall to a certain level, then a more sudden collapse of the economy will result… resembling the Seneca Cliff.

We must remember, a great deal of the economic infrastructure (Skyscrapers, commercial buildings, retail stores, roads, equipment, buses, trucks, automobiles, etc etc.) only function if a lot of oil continually runs throughout the system.  Once the oil supply falls to a certain level, then the economic system disintegrates.

While China is the largest net oil importer, the United States is still the largest consumer of oil in the world.  Being the largest oil consumer is another very troubling sign.  The next chart shows the countries with the highest oil consumption in the world and their percentage of net oil imports:

Due to the rapid increase in domestic shale oil production, the United States net oil imports have fallen drastically over the past decade.  At one point, the U.S. was importing nearly three-quarters (75%) of its oil but is now only importing 34%.  Unfortunately, this current situation will not last for long.  As quickly as shale oil production surged, it will decline in the same fashion… or even quicker.

You will notice that Saudi Arabia is the sixth largest oil consumer in the world followed by Russia.  Both Saudi Arabia and Russia export a much higher percentage of oil than they consume.  However, Russia will likely survive a much longer than Saudi Arabia because Russia can provide a great deal more than just oil.  Russia and the Commonwealth Independent States can produce a lot of food, goods, commodities, and metals domestically, whereas Saudi Arabia must import most of these items.

Of the largest consumers of oil in the chart above, Japan and South Korea import 100% (or nearly 100%) of their oil needs.  According to the data put out by BP 2018 Statistical Review, they did not list any individual oil production figures for Japan or South Korea.  However, the U.S. Energy Information Agency reported in 2015 that Japan produced 139,000 bd of total petroleum liquids while S. Korea supplied 97,000 bd.  Production of petroleum liquids from Japan and South Korea only account for roughly 3% of their total consumption…. peanuts.

Analysts or individuals who continue to believe the United States will become energy independent are ignorant of the impacts of Falling EROI – Energy Returned On Investment or the Thermodynamics of oil depletion.  Many analysts believe that if the price of oil gets high enough, say $100 or $150; then shale oil would be hugely profitable.  The error in their thinking is the complete failure to comprehend this simple relationship… that as oil prices rise, SO DO the COSTS… 

Do you honestly believe a trucking company that transports fracking sand, water or oil for the shale oil industry is going to provide the very same costs when the oil price doubles????  We must remember, the diesel price per gallon increases significantly as the oil price moves higher.  Does the energy analyst believe the trucking companies are just going to eat that higher cost for the benefit of the shale oil industry??  This is only one example, but as the oil price increases, inflationary costs will thunder throughout the shale oil industry.

If the oil price shoots up to $100 or higher and stays there (which I highly doubt), then costs will start to surge once again for the shale oil industry.  As costs increase, we can kiss goodbye the notion of higher shale oil profits.  But as I mentioned in the brackets, I don’t see the oil price jumping to $100 and staying there.  Yes, we could see an oil price spike, but not a long-term sustained price as the current economic cycle is getting ready to roll over.  And with it, we are going to experience one hell of a deflationary collapse.  This will take the oil price closer to $30 than $100.

Regardless, the areas and countries with the highest oil consumption and net oil imports will be more vulnerable to collapse and will fall the hardest.  Just imagine the U.S. economy consuming 5 million barrels of oil per day, rather than the current 20 mbd.  The United States just has more stuff that will become worthless and dysfunctional than other countries.

Lastly, the end game suggests that the majority of countries will experience an economic collapse due to the upcoming rapid decline in global oil production.  However, some countries will likely be able to transition better than others, as the leverage and complexity of the economies aren’t as dependent on oil as the highly advanced Western and Eastern countries.

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2030

11 06 2018

I’m well aware of the fact that making predictions with actual dates on them is really taking a chance, but at least this one is a round number, so I’d say +/- two or three years… So what has prompted me to post this prediction?

Several sources in the know have published articles about Saudi arabia becoming a net importer of oil from 2030….. no it’s not a joke – well it is a joke I guess, who will KSA be buying oil from? Regardless, a report by Citigroup has warned that Saudi Arabia could run out of oil to export by 2030, raising fears that oil prices may rise significantly in coming years. Never mind the price of oil, the price of petrol is currently the highest it’s ever been in Australia, (I recently paid almost $1.80/L on my way to Hobart Airport to pick up my better half…) even though the price of oil was more than double today’s in 2008 when the oil price of $147 triggered the financial crisis…….

KSA consumes some 25% of its oil output domestically and oil accounts for about 50% of its electricity production…..Saudi Arabia already has a higher per capita consumption of oil than most other industrialised nations, and that consumption is growing at a rate of 8% a year and is aiming to almost triple its power capacity by 2032 through new nuclear and solar instalations. But doubt has been cast on the nuclear plans, given problems of underinvestment (read growing debt bubble), safety fears over “keeping reactors cool in the desert” and the risk of cost overruns which have occurred on every single recent projects elsewhere…. and besides KSA has no Uranium. This is turning out to be one of the best examples of the EXPORT LAND MODEL….
On top of its geological problems, KSA is deep in political turmoil, and may be on the verge of collapse, if not now, then some time between now and that fateful appointment with 2030.
I haven’t been posting much here lately, because there’s a building boom happening on the farm, and a full report will go up soon, I hope…….




Why the ERoEI of oil fracking is so awful revisited…

1 06 2018

Following from my last post on this subject, in which the voice over person in the video clips gives the impression of “how smart are we doing this stuff”, Steve StAngelo of SRSRocco fame published this amazing set of data. I clearly remember Chris Martenson saying in another podcast that the amount of tax levied at the fracking industry barely covered something like a third of the cost of repairing the roads after the millions of truck trips in Texas alone…..

IF you don’t regularly visit SRSRocco, I heartily recommend it.

The Unbelievable Amount Of Frac Sand Consumed By U.S. Shale Oil Industry

The U.S. Shale Oil Industry utilizes a stunning amount of equipment and consumes a massive amount of materials to produce more than half of the country’s oil production.  One of the vital materials used in the production of shale oil is frac sand.  The amount of frac sand used in the shale oil business has skyrocketed by more than 10 times since the industry took off in 2007.

 

According to the data by Rockproducts.com and IHS Markit, frac sand consumption by the U.S. shale oil and gas industry increased from 10 billion pounds a year in 2007 to over 120 billion pounds in 2017.  This year, frac sand consumption is forecasted to climb to over 135 billion pounds, with the country’s largest shale field, the Permian, accounting for 37% of the total at 50 billion pounds.

Now, 50 billion pounds of frac sand in the Permian is an enormous amount when we compare it to the total 10 billion pounds consumed by the entire shale oil and gas industry in 2007.

To get an idea of the U.S. top shale oil fields, here is a chart from my recent video, The U.S. Shale Oil Ponzi Scheme Explained:

(charts courtesy of the EIA – U.S. Energy Information Agency)

As we can see in the graph above, the Permian Region is the largest shale oil field in the United States with over 3 million barrels per day (mbd) of production compared to 1.7 mbd in the Eagle Ford, 1.2 mbd at the Bakken and nearly 600,000 barrels per day in the Niobrara.  However, only about 2 mbd of the Permian’s total production is from horizontal shale oil fracking.  The remainder is from conventional oil production.

Now, to produce shale oil or gas, the shale drillers pump down the horizontal oil well a mixture of water, frac sand, and chemicals to release the oil and gas.  You can see this process in the video below (example used for shale gas extraction):

The Permian Region, being the largest shale oil field in the United States, it consumes the most frac sand.  According to BlackMountainSand.com Infographicthe Permian will consume 68,500 tons of frac sand a day, enough to fill 600 railcars.  This equals 50 billion pounds of frac sand a year.  And, that figure is forecasted to increase every year.

Now, if we calculate the number of truckloads it takes to transport this frac sand to the Permian shale oil wells, it’s truly a staggering figure.  While estimates vary, I used 45,000 pounds of frac sand per sem-tractor load.  By dividing 50 billion pounds of frac sand by 45,000 pounds per truckload, we arrive at the following figures in the chart below:

Each month, over 91,000 truckloads of frac sand will be delivered to the Permian shale oil wells.  However, by the end of 2018, over 1.1 million truckloads of frac sand will be used to produce the Permian’s shale oil and gas.  I don’t believe investors realize just how much 1.1 million truckloads represents until we compare it to the largest retailer in the United States.

According to Walmart, their drivers travel approximately 700 million miles per year to deliver products from the 160 distribution centers to thousands of stores across the country.  From the information, I obtained at MWPWL International on Walmart’s distribution supply chain, the average one-way distance to its Walmart stores is about 130 miles.  By dividing the annual 700 million miles traveled by Walmart drivers by the average 130-mile trip, the company will utilize approximately 5.5 million truckloads to deliver its products to all of its stores in 2018.

The following chart compares the annual amount of Walmart’s truckloads to frac sand delivered in the Permian for 2018:

To provide the frac sand to produce shale oil and gas in the Permian this year, it will take 1.1 million truckloads or 20% of the truckloads to supply all the Walmart stores in the United States.  Over 140 million Americans visit Walmart (store or online) every week.  However, the Industry estimates that the Permian’s frac sand consumption will jump from 50 billion pounds this year to 119 billion pounds by 2022.  Which means, the Permian will be utilizing 2.6 million truckloads to deliver frac sand by 2022, or nearly  50% of Walmart’s supply chain:

This is an insane number of truckloads just to deliver sand to produce shale oil and gas in the Permian.  Unfortunately, I don’t believe the Permian will be consuming this much frac sand by 2022.  As I have stated in several articles and interviews, I see a massive deflationary spiral taking place in the markets over the next 2-4 years.  This will cause the oil price to fall back much lower, possibly to $30 once again.  Thus, drilling activity will collapse in the shale oil and gas industry, reducing the need for frac sand.

Regardless, I wanted to show the tremendous amount of frac sand that is consumed in the largest shale oil field in the United States.  I calculated that for every gallon of oil produced in the Permian in 2018, it would need about one pound of frac sand.  But, this does not include all the other materials, such as steel pipe, cement, water, chemicals, etc.

For example, the Permian is estimated to use 71 billion gallons of water to produce oil this year. Thus, the fracking crews will be pumping down more than 1.5 gallons of water for each gallon of oil they extract in 2018.  So, the shale industry is consuming a larger volume of water and sand to just produce a smaller quantity of uneconomic shale oil in the Permian.

Lastly, I have provided information in several articles and videos explaining why I believe the U.S. Shale Oil Industry is a Ponzi Scheme.  From my analysis, I see the disintegration of the U.S. shale oil industry to start to take place within the next 1-3 years.  Once the market realizes it has been investing in a $250+ billion Shale Oil Ponzi Scheme, the impact on the U.S. economy and financial system will be quite devastating.





Why the ERoEI of oil fracking is so awful…

30 05 2018

I recently listened to a podcast featuring Nate Hagens, who, as you might know, is very well connected with Wall Street from his previous life there….. Nate quoted someone who owns an oil company, and apparently they budget 30% of their total well costs on…. DIESEL!

 

 

Here is the latest Chris Martenson podcast of Art Berman that re-confirms most of the above.





The Collapse of Saudi Arabia is Inevitable

23 04 2018

I’ve been saying this for years now…….  but here’s one of the world’s best journalists explaining it way better than I can….. and you better believe it, when Saudi Arabia goes the way of Syria, it will be the trigger for global collapse to start in earnest.
By Nafeez Ahmed

nafeezSeptember 28, 2015 “Information Clearing House” – “MEE”- On Tuesday 22 September, Middle East Eye broke the story of a senior member of the Saudi royal family calling for a “change” in leadership to fend off the kingdom’s collapse.

In a letter circulated among Saudi princes, its author, a grandson of the late King Abdulaziz Ibn Saud, blamed incumbent King Salman for creating unprecedented problems that endangered the monarchy’s continued survival.

“We will not be able to stop the draining of money, the political adolescence, and the military risks unless we change the methods of decision making, even if that implied changing the king himself,” warned the letter.

Whether or not an internal royal coup is round the corner – and informed observers think such a prospect “fanciful” – the letter’s analysis of Saudi Arabia’s dire predicament is startlingly accurate.

Like many countries in the region before it, Saudi Arabia is on the brink of a perfect storm of interconnected challenges that, if history is anything to judge by, will be the monarchy’s undoing well within the next decade.

Black gold hemorrhage
The biggest elephant in the room is oil. Saudi Arabia’s primary source of revenues, of course, is oil exports. For the last few years, the kingdom has pumped at record levels to sustain production, keeping oil prices low, undermining competing oil producers around the world who cannot afford to stay in business at such tiny profit margins, and paving the way for Saudi petro-dominance.

But Saudi Arabia’s spare capacity to pump like crazy can only last so long. A new peer-reviewed study in the Journal of Petroleum Science and Engineering anticipates that Saudi Arabia will experience a peak in its oil production, followed by inexorable decline, in 2028 – that’s just 13 years away.

This could well underestimate the extent of the problem. According to the Export Land Model (ELM) created by Texas petroleum geologist Jeffrey J Brown and Dr Sam Foucher, the key issue is not oil production alone, but the capacity to translate production into exports against rising rates of domestic consumption.

Brown and Foucher showed that the inflection point to watch out for is when an oil producer can no longer increase the quantity of oil sales abroad because of the need to meet rising domestic energy demand.

In 2008, they found that Saudi net oil exports had already begun declining as of 2006. They forecast that this trend would continue.

They were right. From 2005 to 2015, Saudi net exports have experienced an annual decline rate of 1.4 percent, within the range predicted by Brown and Foucher. A report by Citigroup recently predicted that net exports would plummet to zero in the next 15 years.

From riches to rags
This means that Saudi state revenues, 80 percent of which come from oil sales, are heading downwards, terminally.

Saudi Arabia is the region’s biggest energy consumer, domestic demand having increased by 7.5 percent over the last five years – driven largely by population growth.

The total Saudi population is estimated to grow from 29 million people today to 37 million by 2030. As demographic expansion absorbs Saudi Arabia’s energy production, the next decade is therefore likely to see the country’s oil exporting capacity ever more constrained.

Renewable energy is one avenue which Saudi Arabia has tried to invest in to wean domestic demand off oil dependence, hoping to free up capacity for oil sales abroad, thus maintaining revenues.

But earlier this year, the strain on the kingdom’s finances began to show when it announced an eight-year delay to its $109 billion solar programme, which was supposed to produce a third of the nation’s electricity by 2032.

State revenues also have been hit through blowback from the kingdom’s own short-sighted strategy to undermine competing oil producers. As I previously reported, Saudi Arabia has maintained high production levels precisely to keep global oil prices low, making new ventures unprofitable for rivals such as the US shale gas industry and other OPEC producers.

The Saudi treasury has not escaped the fall-out from the resulting oil profit squeeze – but the idea was that the kingdom’s significant financial reserves would allow it to weather the storm until its rivals are forced out of the market, unable to cope with the chronic lack of profitability.

That hasn’t quite happened yet. In the meantime, Saudi Arabia’s considerable reserves are being depleted at unprecedented levels, dropping from their August 2014 peak of $737 billion to $672bn in May – falling by about $12bn a month.

At this rate, by late 2018, the kingdom’s reserves could deplete as low as $200bn, an eventuality that would likely be anticipated by markets much earlier, triggering capital flight.

To make up for this prospect, King Salman’s approach has been to accelerate borrowing. What happens when over the next few years reserves deplete, debt increases, while oil revenues remain strained?

As with autocratic regimes like Egypt, Syria and Yemen – all of which are facing various degrees of domestic unrest – one of the first expenditures to slash in hard times will be lavish domestic subsidies. In the former countries, successive subsidy reductions responding to the impacts of rocketing food and oil prices fed directly into the grievances that generated the “Arab Spring” uprisings.

Saudi Arabia’s oil wealth, and its unique ability to maintain generous subsidies for oil, housing, food and other consumer items, plays a major role in fending off that risk of civil unrest. Energy subsidies alone make up about a fifth of Saudi’s gross domestic product.

Pressure points
As revenues are increasingly strained, the kingdom’s capacity to keep a lid on rising domestic dissent will falter, as has already happened in countries across the region.

About a quarter of the Saudi population lives in poverty. Unemployment is at about 12 percent, and affects mostly young people – 30 percent of whom are unemployed.

Climate change is pitched to heighten the country’s economic problems, especially in relation to food and water.

Like many countries in the region, Saudi Arabia is already experiencing the effects of climate change in the form of stronger warming temperatures in the interior, and vast areas of rainfall deficits in the north. By 2040, average temperatures are expected to be higher than the global average, and could increase by as much as 4 degrees Celsius, while rain reductions could worsen.

This would be accompanied by more extreme weather events, like the 2010 Jeddah flooding caused by a year’s worth of rain occurring within the course of just four hours. The combination could dramatically impact agricultural productivity, which is already facing challenges from overgrazing and unsustainable industrial agricultural practices leading to accelerated desertification.

In any case, 80 percent of Saudi Arabia’s food requirements are purchased through heavily subsidised imports, meaning that without the protection of those subsidies, the country would be heavily impacted by fluctuations in global food prices.

“Saudi Arabia is particularly vulnerable to climate change as most of its ecosystems are sensitive, its renewable water resources are limited and its economy remains highly dependent on fossil fuel exports, while significant demographic pressures continue to affect the government’s ability to provide for the needs of its population,” concluded a UN Food & Agricultural Organisation (FAO) report in 2010.

The kingdom is one of the most water scarce in the world, at 98 cubic metres per inhabitant per year. Most water withdrawal is from groundwater, 57 percent of which is non-renewable, and 88 percent of which goes to agriculture. In addition, desalination plants meet about 70 percent of the kingdom’s domestic water supplies.

But desalination is very energy intensive, accounting for more than half of domestic oil consumption. As oil exports run down, along with state revenues, while domestic consumption increases, the kingdom’s ability to use desalination to meet its water needs will decrease.

End of the road
In Iraq, Syria, Yemen and Egypt, civil unrest and all-out war can be traced back to the devastating impact of declining state power in the context of climate-induced droughts, agricultural decline, and rapid oil depletion.

Yet the Saudi government has decided that rather than learning lessons from the hubris of its neighbours, it won’t wait for war to come home – but will readily export war in the region in a madcap bid to extend its geopolitical hegemony and prolong its petro-dominance.

Unfortunately, these actions are symptomatic of the fundamental delusion that has prevented all these regimes from responding rationally to the Crisis of Civilization that is unravelling the ground from beneath their feet. That delusion consists of an unwavering, fundamentalist faith: that more business-as-usual will solve the problems created by business-as-usual.

Like many of its neighbours, such deep-rooted structural realities mean that Saudi Arabia is indeed on the brink of protracted state failure, a process likely to take-off in the next few years, becoming truly obvious well within a decade.

Sadly, those few members of the royal family who think they can save their kingdom from its inevitable demise by a bit of experimental regime-rotation are no less deluded than those they seek to remove.

Nafeez Ahmed PhD is an investigative journalist, international security scholar and bestselling author who tracks what he calls the ‘crisis of civilization.’ He is a winner of the Project Censored Award for Outstanding Investigative Journalism for his Guardian reporting on the intersection of global ecological, energy and economic crises with regional geopolitics and conflicts. He has also written for The Independent, Sydney Morning Herald, The Age, The Scotsman, Foreign Policy, The Atlantic, Quartz, Prospect, New Statesman, Le Monde diplomatique, New Internationalist. His work on the root causes and covert operations linked to international terrorism officially contributed to the 9/11 Commission and the 7/7 Coroner’s Inquest.





 Juggling Live Hand Grenades

6 04 2018

heinberg

Richard Heinberg

Richard Heinberg. 2017-4-25. Juggling Live Hand Grenades. Post Carbon Institute.

Here are a few useful recent contributions to the global sustainability conversation, with relevant comments interspersed. Toward the end of this essay I offer some general thoughts about converging challenges to the civilizational system.

  1. “Oil Extraction, Economic Growth, and Oil Price Dynamics,” by Aude Illig and Ian Schiller. BioPhysical Economics and Resource Quality, March 2017, 2:1.

Once upon a time it was assumed that as world oil supplies were depleted and burned, prices would simply march upward until they either crashed the economy or incentivized both substitute fuels and changes to systems that use petroleum (mainly transportation). With a little hindsight—that is, in view of the past decade of extreme oil price volatility—it’s obvious that that assumption was simplistic and useless for planning purposes. Illig’s and Schiller’s paper is an effort to find a more realistic and rigorously supported (i.e., with lots of data and equations) explanation for the behavior of oil prices and the economy as the oil resource further depletes.

The authors find, in short, that before oil production begins to decline, high prices incentivize new production without affecting demand too much, while low prices incentivize rising demand without reducing production too much. The economy grows. It’s a self-balancing, self-regulating system that’s familiar territory to every trained economist.

However, because oil is a key factor of economic production, a depleting non-renewable resource, and is hard to replace, conventional economic theory does a lousy job describing the declining phase of extraction. It turns out that once depletion has proceeded to the point where extraction rates start to decline, the relationship between oil prices and the economy shifts significantly. Now high prices kill demand without doing much to incentivize new production that’s actually profitable), while low prices kill production without doing much to increase demand. The system becomes sEnter a captionelf-destabilizing, the economy stagnates or contracts, the oil industry invests less in future production capacity, and oil production rates begin to fall faster and faster.

The authors conclude:

Our analysis and empirical evidence are consistent with oil being a fundamental quantity in economic production. Our analysis indicates that once the contraction period for oil extraction begins, price dynamics will accelerate the decline in extraction rates: extraction rates decline because of a decrease in profitability of the extraction business. . . . We believe that the contraction period in oil extraction has begun and that policy makers should be making contingency plans.

As I was reading this paper, the following thoughts crossed my mind. Perhaps the real deficiency of the peak oil “movement” was not its inability to forecast the exact timing of the peak (at least one prominent contributor to the discussion, petroleum geologist Jean Laherrère, made in 2002 what could turn out to have been an astonishingly accurate estimate for the global conventional oil peak in 2010, and global unconventional oil peak in 2015). Rather, its shortcoming was twofold: 1) it didn’t appreciate the complexity of the likely (and, as noted above, poorly understood) price-economy dynamics that would accompany the peak, and 2) it lacked capacity to significantly influence policy makers. Of course, the purpose of the peak oil movement’s efforts was not to score points with forecasting precision but to change the trajectory of society so that the inevitable peak in world oil production, whenever it occurred, would not result in economic collapse. The Hirsch Report of 2005 showed that that change of trajectory would need to start at least a decade before the peak in order to achieve the goal of averting collapse. As it turned out, the peak oil movement did provide society with a decade of warning, but there was no trajectory change on the part of policy makers. Instead, many pundits clouded the issue by spending that crucial decade deriding the peak oil argument because of insufficient predictive accuracy on the part of some of its proponents. And now? See this article:

  1. “Saudi Aramco Chief Warns of Looming Oil Shortage,” by Anjli Raval and Ed Crooks, Financial Times, April 14, 2017.

The message itself should be no surprise. Everyone who’s been paying attention to the oil industry knows that investments in future production capacity have fallen dramatically in the past three years as prices have languished. It’s important to have some longer-term historical perspective, though: today’s price of $50 per barrel is actually a high price for the fuel in the post-WWII era, even taking inflation into account. The industry’s problem isn’t really that prices are too low; it’s that the costs of finding and producing the remaining oil are too highIn any case, with prices not high enough to generate profits, the industry has no choice but to cut back on investments, and that means production will soon start to lag. Again, anyone who’s paying attention knows this.

What’s remarkable is hearing the head of Saudi Arabia’s state energy company convey the news. Here’s an excerpt from the article:

Amin Nasser, chief executive of Saudi Aramco, the world’s largest oil producing company, said on Friday that 20 [million] barrels a day in future production capacity was required to meet demand growth and offset natural field declines in the coming years. “That is a lot of production capacity, and the investments we now see coming back—which are mostly smaller and shorter term—are not going to be enough to get us there,” he said at the Columbia University Energy Summit in New York. Mr. Nasser said that the oil market was getting closer to rebalancing supply and demand, but the short-term market still points to a surplus as U.S. drilling rig levels rise and growth in shale output returns. Even so, he said it was not enough to meet supplies required in the coming years, which were “falling behind substantially.” About $1 [trillion] in oil and gas investments had been deferred and cancelled since the oil downturn began in 2014.

Mr. Nasser went on to point out that conventional oil discoveries have more than halved during the past four years.

The Saudis have never promoted the notion of peak oil. Their mantra has always been, “supplies are sufficient.” Now their tune has changed—though Mr. Nasser’s statement does not mention peak oil by name. No doubt he would argue that resources are plentiful; the problem lies with prices and investment levels. Yes, of course. Never mention depletion; that would give away the game.

  1. “How Does Energy Resource Depletion Affect Prosperity? Mathematics of a Minimum Energy Return on Investment (EROI),” by Adam R. Brandt. BioPhysical Economics and Resource Quality, (2017) 2:2.

Adam Brandt’s latest paper follows on work by Charlie Hall and others, inquiring whether there is a minimum energy return on investment (EROI) required in order for industrial societies to function. Unfortunately EROI calculations tend to be slippery because they depend upon system boundaries. Draw a close boundary around an energy production system and you are likely to arrive at a higher EROI calculation; draw a wide boundary, and the EROI ratio will be lower. That’s why some EROI calculations for solar PV are in the range of 20:1 while others are closer to 2:1. That’s a very wide divergence, with enormous practical implications.

In his paper, Brandt largely avoids the boundary question and therefore doesn’t attempt to come up with a hard number for a minimum societal EROI. What he does is to validate the general notion of minimum EROI; he also notes that society’s overall EROI has been falling during the last decade. Brandt likewise offers support for the notion of an EROI “cliff”: that is, if EROI is greater than 10:1, the practical impact of an incremental rise or decline in the ratio is relatively small; however, if EROI is below 10:1, each increment becomes much more significant. This also supports Ugo Bardi’s idea of the “Seneca cliff,” according to which societal decline following a peak in energy production, consumption, and EROI may be far quicker than the build-up to the peak.

  1. “Burden of Proof: A Comprehensive Review of the Feasibility of 100% Renewable-Electricity Systems,” by B.P. Heard, B.W. Brook, T.M.L. Wigley, and C.J.A. Bradshaw. Renewable and Sustainable Energy Reviews, Volume 76, September 2017, Pages 1122–1133.

This study largely underscores what David Fridley and I wrote in our recent book Our Renewable Future. None of the plans reviewed here (including those by Mark Jacobson and co-authors) passes muster. Clearly, it is possible to reduce fossil fuels while partly replacing them with wind and solar, using current fossil generation capacity as a fallback (this is already happening in many countries). But getting to 100 percent renewables will be very difficult and expensive. It will ultimately require a dramatic reduction in energy usage, and a redesign of entire systems (food, transport, buildings, and manufacturing), as we detail in our book.

  1. “Social Instability Lies Ahead, Researcher Says,” by Peter Turchin. January 4, 2017, Phys.org.

Over a decade ago, ecologist Peter Turchin began developing a science he calls cliodynamics, which treats history using empirical methods including statistical analysis and modeling. He has applied the same methods to his home country, the United States, and arrives at startling conclusions.

My research showed that about 40 seemingly disparate (but, according to cliodynamics, related) social indicators experienced turning points during the 1970s. Historically, such developments have served as leading indicators of political turmoil. My model indicated that social instability and political violence would peak in the 2020s.

Turchin sees the recent U.S. presidential election as confirming his forecast: “We seem to be well on track for the 2020s instability peak. . . . If anything, the negative trends seem to be accelerating.” He regards Donald Trump as more of a symptom, rather than a driver, of these trends.

The author’s model tracks factors including “growing income and wealth inequality, stagnating and even declining well-being of most Americans, growing political fragmentation and governmental dysfunction.” Often social scientists focus on just one of these issues; but in Turchin’s view, “these developments are all interconnected. Our society is a system in which different parts affect each other, often in unexpected ways.

One issue he gives special weight is what he calls “elite overproduction,” where a society generates more elites than can practically participate in shaping policy. The result is increasing competition among the elites that wastes resources needlessly and drives overall social decline and disintegration. He sees plenty of historical antecedents where elite overproduction drove waves of political violence. In today’s America there are far more millionaires than was the case only a couple of decades ago, and rich people tend to be more politically active than poor ones. This causes increasing political polarization (millionaires funding extreme candidates), erodes cooperation, and results in a political class that is incapable of solving real problems.

I think Turchin’s method of identifying and tracking social variables, using history as a guide, is relevant and useful. And it certainly offers a sober warning about where America is headed during the next few years. However, I would argue that in the current instance his method actually misses several layers of threat. Historical societies were not subject to the same extraordinary boom-bust cycle driven by the use of fossil fuels as our civilization saw during the past century. Nor did they experience such rapid population growth as we’ve experienced in recent decades (Syria and Egypt saw 4 percent per annum growth in the years after 1960), nor were they subject to global anthropogenic climate change. Thus the case for near-term societal and ecosystem collapse is actually stronger than the one he makes.

Some Concluding Thoughts

Maintaining a civilization is always a delicate balancing act that is sooner or later destined to fail. Some combination of population pressure, resource depletion, economic inequality, pollution, and climate change has undermined every complex society since the beginnings of recorded history roughly seven thousand years ago. Urban centers managed to flourish for a while by importing resources from their peripheries, exporting wastes and disorder beyond their borders, and using social stratification to generate temporary surpluses of wealth. But these processes are all subject to the law of diminishing returns: eventually, every boom turns to bust. In some respects the cycles of civilizational advance and decline mirror the adaptive cycle in ecological systems, where the crash of one cycle clears the way for the start of a new one. Maybe civilization will have yet another chance, and possibly the next iteration will be better, built on mutual aid and balance with nature. We should be planting the seeds now.

Yet while modern civilization is subject to cyclical constraints, in our case the boom has been fueled to an unprecedented extreme by a one-time-only energy subsidy from tens of millions of years’ worth of bio-energy transformed into fossil fuels by agonizingly slow geological processes. One way or another, our locomotive of industrial progress is destined to run off the rails, and because we’ve chugged to such perilous heights of population size and consumption rates, we have a long way to fall—much further than any previous civilization.

Perhaps a few million people globally know enough of history, anthropology, environmental science, and ecological economics to have arrived at general understandings and expectations along these lines. For those who are paying attention, only the specific details of the inevitable processes of societal simplification and economic/population shrinkage remain unknown.

There’s a small cottage industry of websites and commenters keeping track of signs of imminent collapse and hypothesizing various possible future collapse trajectories. Efforts to this end may have practical usefulness for those who hope to escape the worst of the mayhem in the process—which is likely to be prolonged and uneven—and perhaps even improve lives by building community resilience. However, many collapsitarians are quite admittedly just indulging a morbid fascination with history’s greatest train wreck. In many of my writings I try my best to avoid morbid fascination and focus on practical usefulness. But every so often it’s helpful to step back and take it all in. It’s quite a show.





The Price of Oil

10 02 2018

Another excellent article by Dave Pollard over at How to Save the World…..  my only criticism of this article is that he’s not factoring in collapsing ERoEI will have on the production side…..


The clueless gamblers that speculate on stock and commodity prices have been having a field day recently. Desperately chasing profits, like high-rollers who keep increasing their casino bets every time they lose, they have wiped billions out of share and pension values in a lemming-like panic about whether and when the colossally overpriced stock market is going to crash. And they have also pushed the price of oil up to near $70/bbl for the first time in several years. These speculators, who contribute nothing of any value to our economy, are some of the most destructive individuals on the planet, destabilizing markets on which many depend for their lives and livelihoods. (They also wreak havoc on land, real estate, food, and currency prices.) And many of them make millions in commissions and bonuses just rolling the dice for their employers and clients and praying that their lucky bets (mostly on prices rising perpetually) will continue.

A couple of years ago I wrote an article about the price of oil, explaining that the issue we’re going to face in the 21st century isn’t one of energy running out, but of affordableenergy running out. Just as, during great depressions and famines, masses of food is left rotting in the ground because no one can afford to buy it (or even retrieve it and give it away), having oil in the ground that costs $80/bbl to get to market (especially if governments run out of money for subsidies, or, god forbid, decide that oil companies should start to pay the huge external costs of their activities) is not especially useful when you can only afford, in an economy ruined by overexploitation, environmental degradation, excessive debt, inequality and waste, $30/bbl for it.

Before I go further, if you’re one of the many who have been persuaded that “peak oil is over” and that renewables and new technology will soon save us from energy collapse, you might as well not read this article. Instead, I’d suggest you read this, or this, or this, or any of the many other articles written by people who understand the laws of thermodynamics and how the economy actually works.

This time I thought I’d start with a review of oil prices in the past. The chart above plots the course of oil prices (in inflation-adjusted dollars) back to 1946. Green lines show supply curves; red lines demand curves, and the dots at intersections are annual average oil prices for those years. Follow the dots:

  1. 1946-72. Oil prices were remarkably stable at about $25/bbl (in current dollars) during this entire period. The world became dependent on OPEC. Virtually all global growth in real terms since 1946 is attributable to increasing use of oil. Almost none of it is ascribable to new technology (other than energy extraction technology) or “efficiencies” or “innovation” or “economies of scale”. That’s it. If you’re a believer in GDP or that growth is essential to the economy you might want to keep that in mind (and if you are invested in stocks or land or any other industrial resource, you’d better believe, because their “value” is all computed in terms of future growth in exchange value, production and profits). Between 1946 and 1972 the OPEC nations were in bed with the western corporatists (as they still are today, supporting them politically and militarily), fixing the price of oil at that price to ensure the economy could continue to grow, as required, endlessly.
  2. 1973-80. OPEC fights back, realizing that although they can make money at $25/bbl because of the size and ease of tapping their reserves, they have already pumped out more than half of it, and they have only a few decades’ worth left and nothing to support their economy when it runs out. So they constrain production, driving the price up to $60/bbl (1975) and then $110/bbl (1980). At that price they can set money aside for when their oil runs out, and avoid the massive humanitarian crises that the end of oil spells for them. But for the western corporatists, this is disastrous: their economies are in a shambles, with double-digit inflation ruining profits, and line-ups at the pumps.
  3. 1981-85. The western corporatists “convince” OPEC to turn the pumps back on, persuading them that there is a happy medium price for oil (more than the $25-30/bbl that makes exploration for new sources uneconomic, but less than the $75/bbl threshold beyond which the global economy cannot pay for it and hence cannot survive. By 1985, OPEC has increased supply so that, despite the new demand from expanding Asian countries, the price has settled back in the perfect $50-60/bbl range. Remember here that the amount of production and consumption of oil is so close (there’s no place to put much excess once it’s pumped, and there’s no margin for error if there’s a serious shortage) that any changes in production, intentional or not, have a huge impact on price.
  4. 1986-2002. At $60/bbl, there’s an incentive to put more into the market than you can sustainably continue to produce, and also an incentive to find new sources — and remember, a small increase in supply has a big impact on lowering price. From the late 1980s to 2002, the lingering effects of the early-1980s crash kept demand from increasing as it had been, and a number of (heavily subsidized, environmentally catastrophically damaging) new sources of “dirty” and “tight” (harder to extract) oil were found. As a consequence, prices tumbled back to the $30/bbl level. OPEC was not happy, but some of their own short-term-thinking members were opening the taps to try to bolster their struggling economies, and the new sources meant OPEC as a whole had less oligopoly power over supplies and hence prices.
  5. 2003-08. The low prices were unsustainable to many producers, especially those with higher production costs that ceased or curtailed exploring, and that, combined with increasing demand from third-world countries, began pushing prices up again, to $60/bbl in 2005 and $90/bbl in 2008. You remember 2008, the bubble year, right? Over-exuberance had enabled speculators to push the price of everything up to ridiculous levels, and oil was not spared. The crash of 2008 also weakened demand, as many people could not afford to pay for anything, including fuel. But everyone knew the $90/bbl couldn’t last, just as they knew it in 1980.
  6. 2009-17. Banking on continuing high oil prices, speculators jumped into fracking and other high-risk, costly (and heavily-subsidized) smaller-scale oil ventures. For the first time, people who can’t think further ahead than the next quarter’s profit report were saying that there was more than enough oil, and that peak oil was dead. More reasoned experts argued that the danger to our planet from climate change caused by burning oil now exceeded the danger of running out of it (we may well experience both in the years to come). But many of the new ventures depended on sustained high oil prices, and as supply rose, price inevitably dropped. This was exacerbated by a chronic global recession that (despite what you might read in the Wall Street press) has left 90% of the population with massively higher debts and less disposable income than they had back in the 1980s. That recession curtailed demand and added to the price slump that saw oil drop from $90/bbl in 2008 to $60/bbl in 2015 and then back to a near-ruinous (for producers) $40/bbl in 2016-17. Many of the new operators declared bankruptcy, but in the mean-time they (and the ongoing recession for all but the super-rich) had created a short-term oil glut. More people came to believe that oil would be abundant forever, at reasonable prices. Many OPEC countries’ governments, already struggling with unruly political movements, and a permanently unemployed youth workforce, were getting antsy.
  7. 2018. Surprise, surprise, the oil price has risen again, to as high as $70/bbl, though it seems to be hovering mostly around the ‘ideal’ (for producers and consumers) $60/bbl level. The problem is, that’s not quite as ideal as it used to be. The cost of bringing new oil to market has risen from very low-levels (near $15/bbl in the mid-20th-century OPEC countries, to $45/bbl for much “tight” oil extraction). So a very volatile $50-60/bbl price doesn’t provide much margin for producers in an economy that demands significantly increasing profits every year. And it’s expensive for consumers, who start to reduce consumption and turn to alternative sources of energy (where available) when prices move into that $50-60/bbl range.

So what does this mean for the future? The second chart, below, describes what I think we’ll see by the middle of this century. Here we go:

  1. 2018-2025: Just a guess, but there doesn’t seem to be any compelling short-term trend in supply or demand one way or another, so I’m guessing that we’ll have a few years of relative stability, with prices ranging from $40-80/bbl depending on producer actions, politics, climate change proclivities, carbon taxes and regulations, and the strange whims and misconceptions of speculators (damn I’d like to see a huge speculation tax on every do-nothing transaction gamblers put through).
  2. 2025-2050: In the medium term, all bets are off. I can see, as conventional sources of oil get depleted and new ones cost more and more, the cost of getting oil to market rising enough that any price under $70/bbl won’t be worth the risk. And I can see, as the real economy (not the economy-of-the-elite the NYT and WSJ reports on) continues to struggle and inequality widens to become a political and even military issue in many parts of the world, the affordable ceiling price for oil dropping to $40/bbl. So that means there is no “happy medium” that works for both producers and consumers — any price is either too low for producers (keeping/driving them out of the market) or too high for consumers (leading to hoarding, involuntary reductions in use (ie repo’d cars and foreclosed homes) — or both. So I see prices whipsawing between $30/bbl or less (when the economy is in especially bad shape) and $100/bbl or more during speculative frenzies, rationing (in black markets), severe shortages and short-lived “is the long depression over yet?” economic recoveries.
  3. 2050-2100: This is the period in which I’ve forecast economic and/or energy collapse and the onset of chronic serious climate change trends and events. I don’t think the US dollar will survive this, so it’s hard to set a price on anything in that currency. I do see it as a long era of scavenging, re-use, rationing, nationalization (until national governments collapse and leave energy management to struggling local communities), hoarding, black markets, and yes, even conservation at last.

Not a very rosy picture, but those who’ve studied the economy and have been following oil prices for a while tend to support much of this hypothesis. Ultimately, it’s the economy, (not so) stupid. The economy is the tail that wags the energy dog, but ultimately the global industrial economy is founded entirely on the preposterous and untenable requirement that growth must continue forever, and the only thing that has provided sustained growth for the past couple of centuries has been cheap hydrocarbons.

And I understand oil doesn’t keep very well.