And the oil rout continues unabated..

26 02 2017

Paul Gilding, whose work I generally admire, has published a new item on his blog after quite some time off. “It’s time to make the call – fossil fuels are finished. The rest is detail.” Sounds good, until you read the ‘detail’. Paul is still convinced that it’s renewable energy that will sink the fossil fuel industry. He writes…..:

The detail is interesting and important, as I expand on below. But unless we recognise the central proposition: that the fossil fuel age is coming to an end, and within 15 to 30 years – not 50 to 100 – we risk making serious and damaging mistakes in climate and economic policy, in investment strategy and in geopolitics and defence.

Except the fossil fuel age may be coming to an end within five years.. not 15 to 30.

The new emerging energy system of renewables and storage is a “technology” business, more akin to information and communications technology, where prices keep falling, quality keeps rising, change is rapid and market disruption is normal and constant. There is a familiar process that unfolds in markets with technology driven disruptions. I expand on that here in a 2012 piece I wrote in a contribution to Jorgen Randers book “2052 – A Global Forecast” (arguing the inevitability of the point we have now arrived at).

This shift to a “technology” has many implications for energy but the most profound one is very simple. As a technology, more demand for renewables means lower prices and higher quality constantly evolving for a long time to come. The resources they compete with – coal, oil and gas – follow a different pattern. If demand kept increasing, prices would go up because the newer reserves cost more to develop, such as deep sea oil. They may get cheaper through market shifts, as they have recently, but they can’t keep getting cheaper and they can never get any better.

In that context, consider this. Renewables are today on the verge of being price competitive with fossil fuels – and already are in many situations. So in 10 years, maybe just 5, it is a no-brainer that renewables will be significantly cheaper than fossil fuels in most places and will then just keep getting cheaper. And better.

With which economy Paul….? Come the next oil crisis, the economy will simply grind to a halt. Paul is also keen on electric cars….

Within a decade, electric cars will be more reliable, cheaper to own and more fun to drive than oil driven cars. Then it will just be a matter of turning over the fleet. Oil companies will then have their Kodak moment. Coal will already be largely gone, replaced by renewables.

When the economy crashes, no one will have any money to buy electric cars. It’s that simple….. Peak Debt is only just starting to make its presence felt…:

The carnage continues in the U.S. major oil industry as they sink further and further in the RED.  The top three U.S. oil companies, whose profits were once the envy of the energy sector, are now forced to borrow money to pay dividends or capital expenditures.  The financial situation at ExxonMobil, Chevron and ConocoPhillips has become so dreadful, their total long-term debt surged 25% in just the past year.

Unfortunately, the majority of financial analysts at CNBC, Bloomberg or Fox Business have no clue just how bad the situation will become for the United States as its energy sector continues to disintegrate.  While the Federal Government could step in and bail out BIG OIL with printed money, they cannot print barrels of oil.

Watch closely as the Thermodynamic Oil Collapse will start to pick up speed over the next five years.

According to the most recently released financial reports, the top three U.S. oil companies combined net income was the worst ever.  The results can be seen in the chart below:

Can the news on the collapse of the oil industry worsen…..? You bet……

According to James Burgess,

A total of 351,410 jobs have been slashed by oil and gas production companies worldwide, with the oilfield services sector bearing much of this burden, according to a new report released this week.

The report, based on statistical analysis by Houston-based Graves & Co., puts the number of jobs lost in the oilfield services sector at 152,015 now—or 43.2 percent of the global total since oil prices began to slump in mid-2014.

And then there are the bankruptcies……

A report published earlier this month by Haynes and Boone found that ninety gas and oil producers in the United States (US) and Canada have filed for bankruptcy from 3 January, 2015 to 1 August, 2016.

Approximately US$66.5 billion in aggregate debt has been declared in dozens of bankruptcy cases including Chapter 7, Chapter 11 and Chapter 15, based on the analysis from the international corporate law firm.

Texas leads the number of bankruptcy filings with 44 during the time period measured by Haynes and Boone, and also has the largest number of debt declared in courts with around US$29.5 billion.

Forty-two energy companies filed bankruptcy in 2015 and declared approximately US$17.85 billion in defaulted debt. The costliest bankruptcy filing last year occurred in September when Samson Resources filed for Chapter 11 protection with an accumulated debt of roughly US$4.2 billion.

Then we have Saudi Arabia’s decision to cut production to manipulate the price of oil upwards. So far, it appears to have reached a ceiling of $58 a barrel, a 16 to 36 percent increase over the plateau it had been on for months last year. But this has also come at a cost.

The world hasn’t really caught on yet, but OPEC is in serious trouble.  Last year, OPEC’s net oil export revenues collapsed.  How bad?  Well, how about 65% since the oil price peaked in 2012.  To offset falling oil prices and revenues, OPEC nations have resorted to liquidating some of their foreign exchange reserves.

The largest OPEC oil producer and exporter, Saudi Arabia, has seen its Foreign Currency reserves plummet over the past two years… and the liquidation continues.  For example, Saudi Arabia’s foreign exchange reserves declined another $2 billion in December 2016 (source: Trading Economics).

Now, why would Saudi Arabia need to liquidate another $2 billion of its foreign exchange reserves after the price of a barrel of Brent crude jumped to $53.3 in December, up from $44.7 in November??  That was a 13% surge in the price of Brent crude in one month.  Which means, even at $53 a barrel, Saudi Arabia is still hemorrhaging.

Before I get into how bad things are becoming in Saudi Arabia, let’s take a look at the collapse of OPEC net oil export revenues:

The mighty OPEC oil producers enjoyed a healthy $951 billion in net oil export revenues in 2012.  However, this continued to decline along with the rapidly falling oil price and reached a low of $334 billion in 2016.  As I mentioned before, this was a 65% collapse in OPEC oil revenues in just four years.

Last time OPEC’s net oil export revenues were this low was in 2004.  Then, OPEC oil revenues were $370 billion at an average Brent crude price of $38.3.  Compare that to $334 billion in oil revenues in 2016 at an average Brent crude price of $43.5 a barrel…….

This huge decline in OPEC oil revenues gutted these countries foreign exchange reserves.  Which means, the falling EROI- Energy Returned On Investment is taking a toll on the OPEC oil exporting countries bottom line.  A perfect example of this is taking place in Saudi Arabia.

Saudi Arabia was building its foreign exchange reserves for years until the price of oil collapsed, starting in 2014.  At its peak, Saudi Arabia held $797 billion in foreign currency reserves:

(note: figures shown in SAR- Saudi Arabia Riyal currency)

In just two and a half years, Saudi Arabia’s currency reserves have declined a staggering 27%, or roughly $258 billion (U.S. Dollars) to $538 billion currently.  Even more surprising, Saudi Arabia’s foreign currency reserves continue to collapse as the oil price rose towards the end of 2016:

The BLUE BARS represent Saudi Arabia’s foreign exchange reserves and the prices on the top show the average monthly Brent crude price.  In January 2016, Brent crude oil was $30.7 a barrel.  However, as the oil price continued to increase (yes, some months it declined a bit), Saudi’s currency reserves continued to fall.

This problem is getting bad enough that for the first time ever, the Saudi government has, shock horror,  started taxing its people….

Tax-free living will soon be a thing of the past for Saudis after its cabinet on Monday approved an IMF-backed value-added tax to be imposed across the Gulf following an oil slump.

A 5% levy will apply to certain goods following an agreement with the six-member Gulf Cooperation Council in June last year.

Residents of the energy-rich region had long enjoyed a tax-free and heavily subsidised existence but the collapse in crude prices since 2014 sparked cutbacks and a search for new revenue.

How long before Saudi Arabia becomes the next Syria is anyone’s guess, but I do not see any economic scenario conducive to Paul Gilding’s “Great Disruption”. The great disruption will not be the energy take over by renewables, it will be the end of freely available energy slaves supplied by fossil fuels. I believe Paul has moved to Tasmania, in fact not very far from here….. I hope he’s started digging his garden.





The End of the Oilocene

19 02 2017

The Oilocene, if that term ever catches on, will have only lasted 150 years. Which must be the quickest blink in terms of geological eras…… This article was lifted from feasta.org but unfortunately I can’t give writing credits as I could not find the author’s name anywhere. The data showing we’ll be quickly out of viable oil is stacking up at an increasing rate.

Steven Kopits from Douglas-Westwood (whose work I published here three years ago almost to the day) said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programs. Nearly half of the industry needs more than $120,” he said”.

And if you don’t finish reading this admittedly long article, do not exit this blog without first taking THIS on board…….:

What people do not realise is that it takes oil to extract, refine, produce and deliver oil to the end user. The Hills Group calculates that in 2012, the average energy required by the oil production chain had risen so much that it was then equal to the energy contained in the oil delivered to the economy. In other words “In 2012 the oil industry production chain in total used 50% of all the energy contained in the oil delivered to the consumer”. This is trending rapidly to reach 100% early in the next decade.

So there you go…… as I posted earlier this year, do we have five years left…….?

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End of the “Oilocene”: The Demise of the Global Oil Industry and of the Global Economic System as we know it.

(A pdf version of this paper is here. Please refer to my presentation for supporting images and comments. )

In 1981 I was sitting on an eroded barren hillside in India, where less than 100 years previously there had been dense forest with tigers. It was now effectively a desert and I was watching villagers scavenging for twigs for fuelwood and pondering their future, thinking about rapidly increasing human population and equally rapid degradation of the global environment. I had recently devoured a copy of The Limits to Growth (LTG) published in 1972, and here it was playing out in front of me. Their Business as Usual (BAU) scenario showed that global economic growth would be over between 2010 -2020; and today 45 years later, that prediction is inexorably becoming true. Since 2008 any semblance of growth has been fuelled by astronomically greater quantities of debt; and all other indicators of overshoot are flashing red.

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One of the main factors limiting growth was regarded by the authors of LTG as energy; specifically oil. By mid 1970’s surprisingly, enough was known about accessible oil reserves that not a huge amount has since been added to what is known as reserves of conventional oil. Conventional oil is (or was) the high quality, high net energy, low water content, easy to get stuff. Its multi-decade increasing rate in production came to an end around 2005 (as predicted many years earlier by Campbell and Laherre in 1998). The rate of production peaked in 2011 and has since been in decline (IEA 2016).

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The International Energy Agency (IEA) is the pre-eminent global forecaster of oil production and demand. Recently it admitted that its oil production forecasts were based on economic projections rather than geology or cost; ie on the assumption that supply will always meet projected demand.
In its latest annual forecast however (New Policies Scenario 2016) the IEA has also admitted for the first time a future in which total global “all liquids” oil production could start to fall within the next few years.

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As Kjell Aklett of Upsala University Global Energy Research Group comments (06-12-16), “In figure 3.16 the IEA shows for the first time what will happen if its unrealistic wishful thinking does not become reality during the next 10 years. Peak Oil will occur even if oil from fracked tight sources, oil sands, and other (unconventional) sources are included”.

In fact – this IEA image clearly shows that the total global rate of production of “all hydrocarbon liquids” could start falling anytime from now on; and this should in itself raise a huge red flag for the Irish Government.

Furthermore, it raises a number of vital questions which are the core subject of this post.
Reserves of conventional “easy” oil have mostly been used up. How likely is it that remaining reserves will be produced at the rate projected? Rapidly diminishing reserves of conventional oil are now increasingly being supplemented by the difficult stuff that Kjell Aklett mentions; including conventional from deep water, polar and other inaccessible regions, very heavy bituminous and high sulphur oil; natural gas liquids and other xtl’s, plus other “unconventional oil” including tar sands and shale oil.

How much will it cost to produce all these various types? How much energy will be required, and crucially how much energy will be left over for use by the economy?

The global industrial economy runs on oil.

Oil is the vital and crucial link in virtually every production chain in the global industrial world economy partly because it supplies over 96% of global transport energy – with no significant non-oil dependent alternative in sight.

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Our industrial food production system uses over 10 calories of oil energy to plough, plant, fertilise, harvest, transport, refine, package, store/refrigerate, and deliver 1 calorie of food to the consumer; and imagine trying to build infrastructure; roads, schools, hospitals, industrial facilities, cities, railways, airports without oil, let alone maintain them.

Surprisingly perhaps, oil is also crucial to production of all other forms of energy including renewables. We cannot mine and distribute coal or even drill for gas and install pipelines and gas distribution networks without lots of oil; and you certainly cannot make a nuclear power station or build a hydroelectric dam without oil. But even solar panels, wind and biomass energy are also totally dependent on oil to extract and produce the raw materials; oil is directly or indirectly used in their manufacture (steel, glass, copper, fibreglass/GRP, concrete) and finally to distribute the product to the end user, and install and maintain it.

So it’s not surprising that excluding hydro and nuclear (which mostly require phenomenal amounts of oil to implement), renewables still only constitute about 3% of world energy (BP Energy Outlook 2016). This figure speaks entirely for itself. I am a renewable energy consultant and promoter, but I am also a realist; in practice the world runs on oil.

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The economy, Global GDP and oil are therefore mutually dependent and have enjoyed a tightly linked dance over the decades as shown in the following images. Note the connection between oil, total energy, oil price and GDP (clues for later).

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Click on image to enlarge

Rising cost of oil production

Since 2005 when the rate of production of conventional oil slowed and peaked, production costs have been rising more rapidly. By 2013, oil industry costs were approaching the level of the global oil price which was more than $100/barrel at that time; and industry insiders were saying that the oil industry was finding it difficult to break even.

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Click on image to enlarge

A good example of the time was the following article which is worth quoting in full in the light of the price of oil at the time (~$100/bbl), and the average 2016 sustained low oil price of ~$50/bbl.

Oil and gas company debt soars to danger levels to cover shortfall in cash By Ambrose Evans-Pritchard. Telegraph. 11 Aug 2014

“The world’s leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry. The US Energy Information Administration (EIA) said a review of 127 companies across the globe found that they had increased net debt by $106bn in the year to March, in order to cover the surging costs of machinery and exploration, while still paying generous dividends at the same time. They also sold off a net $73bn of assets.

The EIA said revenues from oil and gas sales have reached a plateau since 2011, stagnating at $568bn over the last year as oil hovers near $100 a barrel. Yet costs have continued to rise relentlessly. Companies have exhausted the low-hanging fruit and are being forced to explore fields in ever more difficult regions.

The EIA said the shortfall between cash earnings from operations and expenditure — mostly CAPEX and dividends — has widened from $18bn in 2010 to $110bn during the past three years. Companies appear to have been borrowing heavily both to keep dividends steady and to buy back their own shares, spending an average of $39bn on repurchases since 2011”.

In another article (my highlights) he wrote

“The major companies are struggling to find viable reserves, forcing them to take on ever more leverage to explore in marginal basins, often gambling that much higher prices in the future will come to the rescue. Global output of conventional oil peaked in 2005 despite huge investment. The cumulative blitz on exploration and production over the past six years has been $5.4 trillion, yet little has come of it. Not a single large project has come on stream at a break-even cost below $80 a barrel for almost three years.

Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said”.

The following images give a good idea of the trend and breakdown in costs of oil production. Getting it out of the ground is just for starters. The images show just how expensive it is becoming to produce – and how far from breakeven the current oil price is.

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Click on image to enlarge

It is important to note that the “breakeven cost” is much less than the oil price required to sustain the industry into the future (business as usual).

The following images show that the many different types of oil have (obviously) vastly different production costs. Note the relatively small proportion of conventional reserves (much of it already used), and the substantially higher production cost of all other types of oil. Note also the apt title and date of the Deutsche Bank analysis – production costs have risen substantially since then.

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The global oil industry is in deep trouble

You do not need to be an economist to see that the average 2016 price of oil ~ $50/bbl was substantially lower than just the breakeven price of all but a small proportion of global oil reserves. Even before the oil price collapse of 2014-5, the global oil industry was in deep trouble. Debts are rising quickly, and balance sheets are increasingly RED. Earlier this year 2016, Deloitte warned that 35% of oil majors were in danger of bankruptcy, with another 30% to follow in 2017.

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Click on image to enlarge

In addition to the oil majors, shrinking oil revenues in oil-producing countries are playing havoc with national economies. Virtually every oil producing country in the world requires a much higher oil price to balance its budget – some of them vastly so (eg Venezuela). Their economies have been designed around oil, which for many of them is their largest source of income. Even Saudi Arabia, the biggest global oil producer with the biggest conventional oil reserves is quickly using up its sovereign wealth fund.

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It appears that not a single significant oil-producing country is balancing its budget. Their debts and deficits grow bigger by the day. Everyone is praying for higher oil prices. Who are they kidding? The average BAU oil price going forward for business as usual for the whole global oil industry probably needs to be well over $100/bbl; and the world economy is on its knees even at the present low oil price. Why is this? The indicators all spell huge trouble ahead. Could there be another fundamental oil/energy/financial mechanism operating here?

The Root Cause

The cause is not surprising. All the various new types of oil and a good deal of the conventional stuff that remains require far more energy to produce.

In 2015, The Hills Group (US Oil Engineers) published “Depletion – A Determination of the Worlds Petroleum Reserve”. It is meticulously researched and re-worked with trends double checked against published data. It follows on from the Hills Group 2013 work that accurately predicted the approaching oil price collapse after 2014 (which no-one else did) and calculated that the average oil price of 2016 would be ~$50/bbl. They claim theirs is the most accurate oil price indicator ever produced, with >96% accuracy with published past data. The Hills Group work has somewhat clarified my understanding of the core issues and I will try to summarise two crucial points as follows.

Oil can only be useful as an energy source if the energy contained in the product (ie transport fuel) is greater than the energy required to extract, refine and deliver the fuel to the end user.

If you electrolyse water, the hydrogen gas produced (when mixed with air and ignited), will explode with a bang (be careful doing this at home!). The hydrogen contained in the world’s water is an enormous potential energy source and contains infinitely more energy (as hydrogen) than humans could ever need. The problem is that it takes far more energy to produce a given amount of hydrogen from water than is available by combusting it. Oil is rapidly going the same way. Only a small proportion of what remains of conventional oil resources can provide an energy surplus for use as a fuel. All the other types of oil require more energy to produce and deliver as fuel to the end user (taking into account the whole oil production chain), than is contained in the fuel itself.

What people do not realise is that it takes oil to extract, refine, produce and deliver oil to the end user. The Hills Group calculates that in 2012, the average energy required by the oil production chain had risen so much that it was then equal to the energy contained in the oil delivered to the economy. In other words “In 2012 the oil industry production chain in total used 50% of all the energy contained in the oil delivered to the consumer”. This is trending rapidly to reach 100% early in the next decade.

At this point – no matter how much oil is left (a lot) and in whatever form (many), oil will be of no use as an energy source for transport fuels, since it will on average require more energy to extract, refine and deliver to the end-user, than the oil itself contains.

Because oil reserves are of decreasing quality and oil is getting more difficult and expensive to produce and transform into transport fuels; the amount of energy required by the whole oil production chain (the global oil industry) is rapidly increasing; leaving less and less left over for the rest of the economy.

In this context and relative to the IEA graph shown earlier, there is a big difference between annual gross oil production, and the amount of energy left in the product available for work as fuel. Whilst total global oil (all liquids) production currently appears to be still growing slowly, the energy required by the global oil industry is growing faster, and the net energy available for work by the end user is decreasing rapidly. This is illustrated by the following figure (Louis Arnoux 2016).

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The price of oil cannot exceed the value of the economic activity generated from the amount of energy available to end-users per barrel.

The rapid decline in oil-energy available to the economy is one of the key reasons for the equally rapid rise in global debt.

The global industrial world economy depends on oil as its prime energy source. Increasing growth of the world economy during the oil age has been exactly matched by oil production and use, but as Louis’ image shows, over the last forty years the amount of net energy delivered by the oil industry to the economy has been decreasing.

As a result, the economic value of a barrel of oil is falling fast. “In 1975 one dollar could have bought, on average, 42,348 BTU; by 2010 a dollar would only have bought 6,946 BTU” (The Hills Group 2015).

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This has caused a parallel reduction in real economic activity. I say “real” because today the financial world accounts for about 40% of global GDP, and I would like to remind economists and bankers that you cannot eat 0000’s on a computer screen, or use them to put food on the table, heat your house, or make something useful. GDP as an indicator of the global economy is an illusion. If you deduct financial services and account for debt, the real world economy is contracting fast.

To compensate, and continue the fallacy of endless economic growth, we have simply borrowed and borrowed, and borrowed. Huge amounts of additional debt are now required to sustain the “Growth Illusion”.

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In 2012 the decreasing ability of oil to power the economy intersected with the increasing cost of oil production at a point The Hills Group refers to as the maximum affordable consumer price (just over $100/bbl) and they calculated that the price of oil must fall soon afterwards. In 2014 much to everyone’s surprise (IEA, EIA, World Bank, Wall St Oil futures etc) the price of oil fell to where it is now. This is clearly illustrated by The Hills Group’s petroleum price curve of 2013 which correctly calculated that the 2016 average price of oil would be ~$50/bbl (Depletion – The Fate of the Oil Age 2013).

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In their detailed 2015 study The Hills Group writes (Depletion – A determination of the world’s petroleum reserve 2015);

“To determine the affordability range it is first observed that the price of a unit of petroleum cannot exceed the value of the economic activity (generated by the net energy) it supplies to the end consumer. (Since 2012) more of the energy from petroleum was being committed to the production of petroleum than was delivered to the consumer. This precipitated the 2014 price decline that reduced prices by 50%. The energy delivered to the end consumer will continue to decline and the end consumer maximum affordability will decline with it.

Dr Louis Arnoux explains this as follows: “In 1900 the Global Industrial World received 61% of the gross energy in a barrel of oil. In 2016 this is down to 7%. The global industrial world is being forced to contract because it is being starved of net energy from oil” (Louis Arnoux 2016).

This is reflected in the slowing down of global economic growth and the huge increase in total global debt.

Without noticing it, in 2012 the world entered “Emergency Red Alert”

In the following image, Dr Arnoux has reworked Hills Group petroleum price curve showing the impending collapse of thermodynamically driven oil prices – and the end of the oil age as we know it. This analysis is more than amply reinforced by the dire financial straits of the global oil industry, and the parlous state of the global economy and financial system.

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Oil is a finite resource which is subject to the same physical laws as many other commodities. The debate about peak oil has been clouded by the fact that oil consists of many different kinds of hydrocarbons; each of which has its own extraction profile. But conventional oil is the only category of oil that can be extracted with a whole production chain energy surplus. Production of this commodity (conventional oil) has undoubtedly peaked and is now declining. The amount of energy (and cost) required by the global oil industry to produce and deliver much of the remainder of conventional reserves and the many alternative categories of oil to the consumer, is rapidly increasing; and we are equally rapidly heading toward the day when we have used up those reserves of oil which will deliver an energy surplus (taking into account the whole production chain from extraction to delivery of the end product as fuel to the consumer).

The Global Oil Industry is one of the most advanced and efficient in the world and further efficiency gains will be minor compared to the scale of the problem, which is essentially one of oil depletion thermodynamics.

Humans are very good at propping up the unsustainable and this often results in a fast and unexpected collapse (eg Joseph Tainter: The collapse of complex societies). An example of this is the Seneca Curve/Cliff which appears to me to be an often-repeated defining trait of humanity. Our oil/financial system is a perfect illustration.

Debt is being used to extend the unsustainable and it looks as though we are headed for the “Mother of all Seneca Curves” which I have illustrated below:

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Because oil is the primary energy resource upon which all other energy sources depend, it is almost certain that a contraction in oil production would be reflected in a parallel reduction in other energy systems; as illustrated rather dramatically in this image by Gail Tverberg (the timing is slightly premature – but probably not by much).

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Energy and Money

Fundamental to all energy and economic systems is money. Debt is being used to prop up a contracting oil energy system, and the scale of money created as debt over the last few decades to compensate is truly phenomenal; amounting to hundreds of trillions (excluding “extra-terrestrial” amounts of “financials”), rising exponentially faster. This amount of debt, can never ever be repaid. The on-going contraction of the oil/energy system will exacerbate this trend until the financial system collapses. There is nothing anyone can do about it no matter how much money is printed, NIRP, ZIRP you name it – all the indicators are flashing red. The panacea of indefinite money printing will soon hit the thermodynamic energy wall of reality.

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The effects we currently observe such as exponential growth in debt (US Debt alone almost doubled from $10 trillion to nearly $20 trillion during Obama’s tenure), and the financial problems of oil majors and oil producing countries, are clear indicators of the imminent contraction in existing global energy and financial systems.

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The coming failure of the global economic system will be a systemic failure. I say “systemic” because for the last 150 years up till now there has always been cheap and abundant oil to power recovery from previous busts. This era is over. Cheap and abundant oil will not be available for recovery from the next crunch, and the world will need to adopt a completely different economic and financial model.

The Economics “profession”

Economists would have us believe it’s just another turn of the credit cycle. This dismal non-science is in the main the lapdog of the establishment, the global financial and corporate interests. They have engineered the “science” to support the myth of perpetual growth to suit the needs of their pay-masters, the financial institutions, corporations and governments (who pay their salaries, fund the universities and research, etc). They have steadfastly ignored all ecological and resource issues and trends and warnings such as LTG, and portrayed themselves as the pre-eminent arbiters of human enterprise. By vehemently supporting the status quo, they of all groups, I hold primarily responsible for the appalling situation the planet faces; the destruction of the natural world, and many other threats to the global environment and its ability to sustain civilisation as we know it.

I have news for the “Economics Profession”. The perpetual growth fantasy financial system based on unlimited cheap energy is now coming to an end. From the planet’s point of view – it simply couldn’t be soon enough. This will mark the end of what I call the “Oilocene”. Human activities are having such an effect on the planet that the present age has been classified by geologists as a new geological era “The Anthropocene”. But although humans had already made a significant impact on natural systems, the Anthropocene has largely been defined by the relatively recent discovery and use of liquid fossil energy reserves amounting to millions of years of stored solar energy. Unlimited cheap oil has fuelled exponential growth in human systems to the point that many of these are now greater than natural planetary ones.
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This cannot be sustained without huge amounts of cheap net oil energy, so we are inescapably headed for “the great deceleration”. The situation is very like the fate of the Titanic which I have outlined in my presentation. Of the few who had the courage to face the economic wind of perpetual growth, I salute the authors of LTG and the memory of Richard Douthwaite (The Growth Illusion 1992), and all at FEASTA who are working hard to warn a deaf Ireland of what is to come and why – and have very sensibly been preparing for it! We will all need a lot of courage and resilience to face what is coming down the line.

Ireland has a very short time available to prepare for hard times.

There are many things we could do here to soften the impact if the problem was understood for what it is. FEASTA publications such as the Before The Wells Run Dry and Fleeing Vesuvius; and David Korowicz’s works such as The Tipping Point and of course, The Hills Group 2015 publicationDepletion – a determination of the worlds petroleum reserve , and very many other references, provide background material and should be required urgent reading for all policy makers.

The pre-eminent challenge is energy for transport and agriculture. We could switch to use of compressed natural gas (CNG) as the urgent default transport/motive fuel in the short term since petrol and diesel engines can be converted to dual-fuel use with CNG; supplemented rapidly by biogas (since we are lucky enough to have plenty of agricultural land and water compared to many countries).

We could urgently switch to an organic high labour input agriculture concentrating on local self-sufficiency eliminating chemical inputs such as fertilisers pesticides and herbicides (as Cuba did after the fall of the Soviet Union). We could outlaw the use of oil for heating and switch to biomass.

We could penalise high electricity use and aim to massively cut consumption so that electricity can be supplied by completely renewable means – preserving our natural gas for transport fuel and the rapid transition from oil. The Grid could be urgently reconfigured to enable 100% use of renewable electricity within a few years. We could concentrate on local production of food, goods and services to reduce transport needs.

These measures would create a lot of jobs and improve the balance of payments. They have already been proposed in one form or another by FEASTA over the last 15 years.

Ireland has made a start, but it is insignificant compared to the scale and timescale of the challenge ahead as illustrated by the next image (SEAI: Energy in Ireland – Key Statistics 2015). We urgently need to shrink the oil portion to a small fraction of current use.

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Current fossil energy use is very wasteful. By reducing waste and increasing efficiency we can use less. For instance, a large amount of the energy used as transport fuels and for electricity generation is lost to atmosphere as waste heat. New technological solutions include a global initiative to mount an affordable emergency response called nGeni that is solely based on well-known and proven technology components, integrated in a novel way, with a business and financial model enabling it to tap into over €5 trillion/year of funds currently wasted globally as waste heat. This has potential for Ireland, and will be outlined in a subsequent post.

To finance all the changes we need to implement, quickly (and hopefully before the full impact of the oil/financial catastrophe really kicks in), we could for instance create something like a massive multibillion “National Sustainability and Renewable Energy Bond”. Virtually all renewables provide a better (often substantially better) return on investment compared to bank savings, government bonds, etc; especially in the age of zero and negative interest rate policies ZIRP, NIRP etc.

We may need to think about managing this during a contraction in the economy and financial system which could occur at any time. We certainly could do with a new clever breed of “Ecological Economists” to plan for the end of the old system and its replacement by a sustainable new one. There is no shortage of ideas. The disappearance of trillions of fake money and the shrinking of national and local tax income which currently funds the existing system and its social programmes will be a huge challenge to social stability in Ireland and all over the world.

It’s now “Emergency Red Alert”. If we delay, we won’t have the energy or the money to implement even a portion of what is required. We need to drag our politicians and policy makers kicking and screaming to the table, to make them understand the dire nature of the predicament and challenge them to open their eyes to the increasingly obvious, and to take action. We can thank The Hills Group for elucidating so clearly the root causes of the problem, but the indicators of systemic collapse have for many years been frantically jumping up and down, waving at us and shouting LOOK AT ME! Meanwhile the majority of blinkered clueless economists that advise business and government and who plan our future, look the other way.

In 1972 “The Limits to Growth” warned of the consequences of growing reliance on the finite resource called “oil” and of the suicidal economics mantra of endless growth. The challenge Ireland will soon face is managing a fast economic and energy contraction and implementing sustainability on a massive scale whilst maintaining social cohesion. Whatever the outcome (managed or chaotic contraction), we will soon all have to live with a lot less energy and physical resources. That in itself might not necessarily be such a bad thing provided the burden is shared. “Modern citizens today use more energy and physical resources in a month than our great-grandparents used during their whole lifetime” (John Thackera; “From Oil Age to Soil Age”, Doors to Perception; Dec 2016). Were they less happy than us?

PDF of this article
Powerpoint presentation

Featured image: used motor oil. Source: http://www.freeimages.com/photo/stain-1507366





What is this ‘Crisis’ of Modernity?

22 01 2017

But why is the economy failing to generate prosperity as in earlier decades?  Is it mainly down to Greenspan and Bernanke’s monetary excesses?  Certainly, the latter has contributed to our contemporary stagnation, but perhaps if we look a little deeper, we might find an additional explanation. As I noted in a Comment of 6 January 2017, the golden era of US economic expansion was the ‘50s and ‘60s – but that era had begun to unravel somewhat, already, with the economic turbulence of the 70s. However, it was not so much Reagan’s fiscal or monetary policies that rescued a deteriorating situation in that earlier moment, but rather, it was plain old good fortune. The last giant oil fields with greater than 30-to-one, ‘energy-return’ on ‘energy-cost’ of exploitation, came on line in the 1980s: Alaska’s North Slope, Britain and Norway’s North Sea fields, and Siberia. Those events allowed the USA and the West generally to extend their growth another twenty years.

This week, there has been an avalanche of articles on Limits to Growth, just not titled so……. it’s almost as though the term is getting stuck in people’s throats, and are unable to pronounce them….

acrooke

Alastair Crooke

This article by former British diplomat and MI6 ‘ranking figure’ Alastair Crooke, is an unpublished article I’ve lifted from the Automatic Earth…… as Raul Ilargi succinctly puts it…:

 

His arguments here are very close to much of what the Automatic Earth has been advocating for years [not to mention DTM’s…], both when it comes to our financial crisis and to our energy crisis. Our Primers section is full of articles on these issues written through the years. It’s a good thing other people pick up too on topics like EROEI, and understand you can’t run our modern, complex society on ‘net energy’ as low as what we get from any of our ‘new’ energy sources. It’s just not going to happen.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Alastair Crooke: We have an economic crisis – centred on the persistent elusiveness of real growth, rather than just monetised debt masquerading as ‘growth’ – and a political crisis, in which even ‘Davos man’, it seems, according to their own World Economic Forum polls, is anxious; losing his faith in ‘the system’ itself, and casting around for an explanation for what is occurring, or what exactly to do about it. Klaus Schwab, the founder of the WEF at Davos remarked  before this year’s session, “People have become very emotionalized, this silent fear of what the new world will bring, we have populists here and we want to listen …”.

Dmitry Orlov, a Russian who was taken by his parents to the US at an early age, but who has returned regularly to his birthplace, draws on the Russian experience for his book, The Five Stages of Collapse. Orlov suggests that we are not just entering a transient moment of multiple political discontents, but rather that we are already in the early stages of something rather more profound. From his perspective that fuses his American experience with that of post Cold War Russia, he argues, that the five stages would tend to play out in sequence based on the breaching of particular boundaries of consensual faith and trust that groups of human beings vest in the institutions and systems they depend on for daily life. These boundaries run from the least personal (e.g. trust in banks and governments) to the most personal (faith in your local community, neighbours, and kin). It would be hard to avoid the thought – so evident at Davos – that even the elites now accept that Orlov’s first boundary has been breached.

But what is it? What is the deeper economic root to this malaise? The general thrust of Davos was that it was prosperity spread too unfairly that is at the core of the problem. Of course, causality is seldom unitary, or so simple. And no one answer suffices. In earlier Commentaries, I have suggested that global growth is so maddeningly elusive for the elites because the debt-driven ‘growth’ model (if it deserves the name ‘growth’) simply is not working.  Not only is monetary expansion not working, it is actually aggravating the situation: Printing money simply has diluted down the stock of general purchasing power – through the creation of additional new, ‘empty’ money – with the latter being intermediated (i.e. whisked away) into the financial sector, to pump up asset values.

It is time to put away the Keynesian presumed ‘wealth effect’ of high asset prices. It belonged to an earlier era. In fact, high asset prices do trickle down. It is just that they trickle down into into higher cost of living expenditures (through return on capital dictates) for the majority of the population. A population which has seen no increase in their real incomes since 2005 – but which has witnessed higher rents, higher transport costs, higher education costs, higher medical costs; in short, higher prices for everything that has a capital overhead component. QE is eating into peoples’ discretionary income by inflating asset balloons, and is thus depressing growth – not raising it. And zero, and negative interest rates, may be keeping the huge avalanche overhang of debt on ‘life support’, but it is eviscerating savings income, and will do the same to pensions, unless concluded sharpish.

But beyond the spent force of monetary policy, we have noted that developed economies face separate, but equally formidable ‘headwinds’, of a (non-policy and secular) nature, impeding growth – from aging populations in China and the OECD, the winding down of China’s industrial revolution,  and from technical innovation turning job-destructive, rather than job creative as a whole. Connected with this is shrinking world trade.

But why is the economy failing to generate prosperity as in earlier decades?  Is it mainly down to Greenspan and Bernanke’s monetary excesses?  Certainly, the latter has contributed to our contemporary stagnation, but perhaps if we look a little deeper, we might find an additional explanation. As I noted in a Comment of 6 January 2017, the golden era of US economic expansion was the ‘50s and ‘60s – but that era had begun to unravel somewhat, already, with the economic turbulence of the 70s. However, it was not so much Reagan’s fiscal or monetary policies that rescued a deteriorating situation in that earlier moment, but rather, it was plain old good fortune. The last giant oil fields with greater than 30-to-one, ‘energy-return’ on ‘energy-cost’ of exploitation, came on line in the 1980s: Alaska’s North Slope, Britain and Norway’s North Sea fields, and Siberia. Those events allowed the USA and the West generally to extend their growth another twenty years.

And, as that bounty tapered down around the year 2000, the system wobbled again, “and the viziers of the Fed ramped up their magical operations, led by the Grand Vizier (or “Maestro”) Alan Greenspan.”  Some other key things happened though, at this point: firstly the cost of crude, which had been remarkably stable, in real terms, over many years, suddenly started its inexorable real-terms ascent.  And from 2001, in the wake of the dot.com ‘bust’, government and other debt began to soar in a sharp trajectory upwards (now reaching $20 trillion). Also, around this time the US abandoned the gold standard, and the petro-dollar was born.

 


Source: Get It. Got It. Good, by Grant Williams

Well, the Hill’s Group, who are seasoned US oil industry engineers, led by B.W. Hill, tell us – following their last two years, or so, of research – that for purely thermodynamic reasons net energy delivered to the globalised industrial world (GIW) per barrel, by the oil industry (the IOCs) is rapidly trending to zero. Note that we are talking energy-cost of exploration, extraction and transport for the energy-return at final destination. We are not speaking of dollar costs, and we are speaking in aggregate. So why should this be important at all; and what has this to do with spiraling debt creation by the western Central Banks from around 2001?

The importance? Though we sometimes forget it, for we now are so habituated to it, is that energy is the economy.  All of modernity, from industrial output and transportation, to how we live, derives from energy – and oil remains a key element to it.  What we (the globalized industrial world) experienced in that golden era until the 70s, was economic growth fueled by an unprecedented 321% increase in net energy/head.  The peak of 18GJ/head in around 1973 was actually of the order of some 40GJ/head for those who actually has access to oil at the time, which is to say, the industrialised fraction of the global population. The Hill’s Group research  can be summarized visually as below (recall that these are costs expressed in energy, rather than dollars):

 


Source: http://cassandralegacy.blogspot.it/2016/07/some-reflections-on-twilight-of-oil-age.html

[This study was also covered here on Damnthematrix starting here…]

But as Steve St Angelo in the SRSrocco Reports states, the important thing to understand from these energy return on energy cost ratios or EROI, is that a minimum ratio value for a modern society is 20:1 (i.e. the net energy surplus available for GDP growth should be twenty times its cost of extraction). For citizens of an advanced society to enjoy a prosperous living, the EROI of energy needs to be much higher, closer to the 30:1 ratio. Well, if we look at the chart below, the U.S. oil and gas industry EROI fell below 30:1 some 46 years ago (after 1970):

 


Source: https://srsroccoreport.com/the-coming-breakdown-of-u-s-global-markets-explained-what-most-analysts-missed/

“You will notice two important trends in the chart above. When the U.S. EROI ratio was higher than 30:1, prior to 1970, U.S. public debt did not increase all that much.  However, this changed after 1970, as the EROI continued to decline, public debt increased in an exponential fashion”. (St Angelo).

In short, the question begged by the Hill’s Group research is whether the reason for the explosion of government debt since 1970 is that central bankers (unconsciously), were trying to compensate for the lack of GDP stimulus deriving from the earlier net energy surplus.  In effect, they switched from flagging energy-driven growth, to the new debt-driven growth model.

From a peak net surplus of around 40 GJ  (in 1973), by 2012, the IOCs were beginning to consume more energy per barrel, in their own processes (from oil exploration to transport fuel deliveries at the petrol stations), than that which the barrel would deliver net to the globalized industrial world, in aggregate.  We are now down below 4GJ per head, and dropping fast. (The Hill’s Group)

Is this analysis by the Hill’s Group too reductionist in attributing so much of the era of earlier western material prosperity to the big discoveries of ‘cheap’ oil, and the subsequent elusiveness of growth to the decline in net energy per barrel available for GDP growth?  Are we in deep trouble now that the IOCs use more energy in their own processes, than they are able to deliver net to industrialised world? Maybe so. It is a controversial view, but we can see – in plain dollar terms – some tangible evidence fo rthe Hill’s Groups’ assertions:

 


Source: https://srsroccoreport.com/wp-content/uploads/2016/08/Top-3-U.S.-Oil-Companies-Free-Cash-Flow-Minus-Dividends.png

(The top three U.S. oil companies, ExxonMobil, Chevron and ConocoPhillips: Cash from operations less Capex and dividends)

Briefly, what does this all mean? Well, the business model for the big three US IOCs does not look that great: Energy costs of course, are financial costs, too.  In 2016, according to Yahoo Finance, the U.S. Energy Sector paid 86% of their operating income just to service the interest on the debt (i.e. to pay for those extraction costs). We have not run out of oil. This is not what the Hill’s Group is saying. Quite the reverse. What they are saying is the surplus energy (at a ratio of now less than 10:1) that derives from the oil that we have been using (after the energy-costs expended in retrieving it) – is now at a point that it can barely support our energy-driven ‘modernity’.  Implicit in this analysis, is that our era of plenty was a one time, once off, event.

They are also saying that this implies that as modernity enters on a more severe energy ‘diet’, less surplus calories for their dollars – barely enough to keep the growth engine idling – then global demand for oil will decline, and the price will fall (quite the opposite of mainstream analysis which sees demand for oil growing. It is a vicious circle. If Hills are correct, a key balance has tipped. We may soon be spending more energy on getting the energy that is required to keep the cogs and wheels of modernity turning, than that same energy delivers in terms of calorie-equivalence.  There is not much that either Mr Trump or the Europeans can do about this – other than seize the entire Persian Gulf.  Transiting to renewables now, is perhaps too little, too late.

And America and Europe, no longer have the balance sheet ‘room’, for much further fiscal or monetary stimulus; and, in any event, the efficacy of such measures as drivers of ‘real economy’ growth, is open to question. It may mitigate the problem, but not solve it. No, the headwinds of net energy per barrel trending to zero, plus the other ‘secular’ dynamics mentioned above (demography, China slowing and technology turning job-destructive), form a formidable impediment – and therefore a huge political time bomb.

Back to Davos, and the question of ‘what to do’. Jamie Dimon, the CEO of  JPMorgan Chase, warned  that Europe needs to address disagreements spurring the rise of nationalist leaders. Dimon said he hoped European Union leaders would examine what caused the U.K. to vote to leave and then make changes. That hasn’t happened, and if nationalist politicians including France’s Marine Le Pen rise to power in elections across the region, “the euro zone may not survive”. “The bottom line is the region must become more competitive, Dimon said, which in simple economic terms means accept even lower wages. It also means major political overhauls: “I say this out of respect for the European people, but they’re going to have to change,” he said. “They may be forced by politics, they may be forced by new leadership.”

A race to the bottom in pay levels?  Italy should undercut Romanian salaries?  Maybe Chinese pay scales, too? This is politically naïve, and the globalist Establishment has only itself to blame for their conviction that there are no real options – save to divert more of the diminished prosperity towards the middle classes (Christine Lagarde), and to impose further austerity (Dimon). As we have tried to show, the era of prosperity for all, began to waver in the 70s in America, and started its more serious stall from 2001 onwards. The Establishment approach to this faltering of growth has been to kick the can down the road: ‘extend and pretend’ – monetised debt, zero, or negative, interest rates and the unceasing refrain that ‘recovery’ is around the corner.

It is precisely their ‘kicking the can’ of inflated asset values, reaching into every corner of life, hiking the cost of living, that has contributed to making Europe the leveraged, ‘high cost’, uncompetitive environment, that it now is.  There is no practical way for Italians, for example, to compete with ‘low cost’ East Europe, or  Asia, through a devaluation of the internal Italian price level without provoking major political push-back.  This is the price of ‘extend and pretend’.

It has been claimed at Davos that the much derided ‘populists’ provide no real solutions. But, crucially, they do offer, firstly, the hope for ‘regime change’ – and, who knows, enough Europeans may be willing to take a punt on leaving the Euro, and accepting the consequences, whatever they may be. Would they be worse off? No one really knows. But at least the ‘populists’ can claim, secondly, that such a dramatic act would serve to escape from the suffocation of the status quo. ‘Davos man’ and woman disdain this particular appeal of ‘the populists’ at their peril.





The price of fuel…. yep, Australia still bang on target to run out of oil by 2020

18 01 2017

Following on from the article I recently published regarding the sudden rise in the cost of fuel in Australia by a whopping 14% in one day, and the absence of any logical reason despite the mainstream media falsely rabbitting on about the soaring cost of oil, I started thinking about the series of articles I wrote years ago about Australia running out of oil by 2020……. the last time I investigated this was almost three years ago. How time flies when you move interstate and start again…!

Finding current data turned out difficult, as usual. My traditional source from the government has still not updated its spreadsheets beyond September last year, so 2016 totals were not yet available.

This chart is from http://www.tradingeconomics.com/australia/crude-oil-production and means I don’t need to produce my own..!

australia-crude-oil-production

Predictably, we are still bang on target to totally run out of oil by 2020, now just three years away.

I still believe that the oil companies are in serious financial trouble, but the fact that we are continually importing more and more liquid fuel from overseas instead of producing our own cannot be helping the situation. How much you will have to pay for the fuel for your favorite vehicle three hears hence is anyone’s guess…. except it’s unlikely to be less!

You may also remember I commented about the huge shale oil deposit found in South Australia over four years ago. Why has nothing yet happened about this scenario changing event, as we were promised by the ranting media of the time…?

A year ago, the Advertiser, Adelaide’s main newspaper wrote..:

THE company sitting on potentially significant shale oil reserves in the state’s far north has dismissed its previous claims to deliver a US-style economic boom for Australia.

AND…..

“We just don’t have the resources on the ground to facilitate it and it makes it harder for us to attract investment from major traditional oil investment markets such as the US because if you look at it pound for pound, you are investing in a remote area in a remote part of the globe,” he said.

Don’t expect that chart to change any time soon……..





The price of fuel..: what is going on..?

11 01 2017

Yesterday, I went to the big smoke for a medical appointment. I’m fine. But when I went to fill up to ensure I could make it home, I realised that the price of petrol had gone up by a whopping 20c/L in one hit. That’s a 14% increase……… in one day.Petrol price hike in Hobart

In the news, “Mr Moody (of the Royal Automobile Club of Tasmania) said prices were being driven up by increases in the global oil price, but he said the price should level out in Tasmania at about $1.40 a litre in about a month.”

Except that when I investigated this, the price of oil had not skyrocketed, it was still around $52 a barrel. Last time petrol was this expensive, oil was at $147 a barrel….. so what’s going on?

My take on this is that the oil companies must be finding it harder and harder to pay their interest bills. If they can’t make profits with oil, they’ll have to find them upstream at the pump.  Furthermore, maybe Peak Oil is on the cusp of getting really serious, and this might be the tip of the iceberg……. Nafeez Ahmed has just written the following article about how dire the oil situation is becoming…….

Brace for the oil, food and financial crash of 2018

80% of the world’s oil has peaked, and the resulting oil crunch will flatten the economy

New scientific research suggests that the world faces an imminent oil crunch, which will trigger another financial crisis.

A report by HSBC shows that contrary to industry mythology, even amidst the glut of unconventional oil and gas, the vast bulk of the world’s oil production has already peaked and is now in decline; while European government scientists show that the value of energy produced by oil has declined by half within just the first 15 years of the 21st century.

The upshot? Welcome to a new age of permanent economic recession driven by ongoing dependence on dirty, expensive, difficult oil… unless we choose a fundamentally different path.

Last September, a few outlets were reporting the counterintuitive findings of a new HSBC research report on global oil supply. Unfortunately, the true implications of the HSBC report were largely misunderstood.

The HSBC research note — prepared for clients of the global bank — found that contrary to concerns about too much oil supply and insufficient demand, the situation was opposite: global oil supply will in coming years be insufficient to sustain rising demand.screenshot

Yet the full, striking import of the report, concerning the world’s permanent entry into a new age of global oil decline, was never really explained. The report didn’t just go against the grain of the industry’s hype about ‘peak demand’: it vindicated what is routinely lambasted by the industry as a myth: peak oil — the concurrent peak and decline of global oil production.

The HSBC report you need to read, now

INSURGE intelligence obtained a copy of the report in December 2016, and for the first time we are exclusively publishing the entire report in the public interest.

Read and/or download the full HSBC report by clicking below:

HSBC peak oil report

The HSBC report has a helpful, ten-point summary of the key arguments the bank makes, and what is going on right now. These arguments are summarised below…:

  1. Oil’s oversupply problem, which has caused most of the trouble in the markets in recent years will end by 2017, and the market will return to balance.
  2. Spare capacity will have shrunk substantially by then “to just 1% of global supply/demand.” This HSBC argues, will make the market more susceptible to disruptions like those seen in Nigeria and Canada in 2016.
  3. Oil demand is still growing by ~1mbd every year, and no central scenarios that we recently assessed see oil demand peaking before 2040.”
  4. 81% of the production of liquid oil is already in decline.
  5. HSBC sees between 3 and 4.5 million barrels per day of supply disappearing once peak oil production is reached. “In our view a sensible range for average decline rate on post-peak production is 5-7%, equivalent to around 3-4.5mbd of lost production every year.”
  6. Based on a simple calculation, HSBC estimates that by 2040, the world will need to find around 40 million barrels of oil per day to keep up with growing demand from emerging economies. That is equivalent to over 4 times the current crude oil output of Saudi Arabia.
  7. “Small oilfields typically decline twice as fast as large fields, and the global supply mix relies increasingly on small fields: the typical new oilfield size has fallen from 500-1,000mb 40 years ago to only 75mb this decade.” — This will exacerbate the problem of declining oil fields, and the lack of supply.
  8. The amount of new oil discoveries being made is pretty small. HSBC notes that in 2015 the discovery rate for new wells was just 5%, a record low. The discoveries made are also fairly small in size.
  9. There is potential for growth in US shale oil, but it currently represents less than 5% of global supply, meaning that it will not be able, single-handedly at least, to address the tumbling global supply HSBC expects.
  10. “Step-change improvements in production and drilling efficiency in response to the downturn have masked underlying decline rates at many companies, but the degree to which they can continue to do so is becoming much more limited.” Essentially HSBC argues that companies aren’t improving their efficiency at a quick enough rate, meaning that supply declines will hit them even harder.

Here is the chart showing the decline in production post-peak:

Oil peak production

As usual, the mainstream media is spruiking loads of rubbish, probably trying to not scare the children…… unless you peek elsewhere like this blog, or follow other bloggers who keep abreast of the truth, you could be forgiven for thinking America will be great again…. or some other such rubbish.

Under the current supply glut driven by rising unconventional production, falling oil prices have damaged industry profitability and led to dramatic cut backs in new investments in production. This, HSBC says, will exacerbate the likelihood of a global oil supply crunch from 2018 onwards.
So how do you improve profitability? You put the price of fuel up. Given that petrol is the single biggest purchase made by households on a weekly basis, the lift in petrol prices may lead to less household activity — a potential concern for retailers and the economy generally. High fuel prices combined with large debts is what broke the camel’s back in 2008, causing the GFC. Things are not only not different today, debt levels are even higher….. how long before GFC MkII kicks off is anyone’s guess, but it can’t be too far away now….




The Peak Oil Election

6 12 2016

The fact is that because oil production cannot be increased, economic growth is now over. Donald Trump’s promise to bring back coal production, increase all fossil fuel extraction and rebuild manufacturing are simply not going to happen, not because of Trump but because policy is no longer in charge. From now on, geology and physics call the shots.

 

The peak for conventional crude production arrived between 2008 and 2011. It seems that we passed the peak for “all liquids” in 2015, even though it will take some more time to be sure that an irreversible decline trend has started. Of course, reaching the peak has generated a vehement denial that the peak even exists. In this article, Eugene Marner comments on how and why the presidential elections completely ignored the hard facts of the declining net energy supply from fossil fuels.  (Image from “The Victory Report“)

Republished from Ugo Bardi’s excellent blog……..

From  The Daily Star, by Eugene Marner

Here in the USA, we held an election recently that left most surprised, many dismayed, and many others eager to explain what happened, why it happened and what we do now. Lots of deep thinking and heavy breathing have gone into those analyses and I don’t mean to compete here with students of history and politics. I would, however, like to offer what I think may be an important part of the context for recent events, a context that is defined and enforced by geology and physics. I suggest that the election of 2016 can be called the Peak Oil Election, although the issue certainly never came up in public.

Back in November 2000, The Daily Star published a guest commentary in which I wrote about peak oil, the moment when global production of oil reaches its maximum and starts its inevitable decline. I had hoped to rouse people to think about the grave consequences that would ensue when oil, the key resource that fuels and supports our civilization, is no longer widely and cheaply available. Clearly that didn’t work very well, as most people still don’t have any idea what peak oil means, much less that its consequences are unfolding around us right now. No doubt our media, always complicit in a corporate agenda (oil companies are big advertisers), have not done much to inform the public but, more alarming than the blithe disregard of the population at large, is the apparently total cluelessness of both the two major presidential candidates and most of their advisers and entourages as well as the Congress. The Army Corps of Engineers issued a report back in September 2005 called Energy Trends and Implications for U.S. Army Installations that sounded the alarm about peak oil coming soon but that didn’t get much attention, either.

The economy is widely acknowledged to be the critical factor in most elections. Both Donald Trump and Hillary Clinton, like most politicians everywhere, talked and continue to talk about “economic growth.” Voters can forgive scandals, bigotry, nastiness, stupidity and just about everything else but, when they see their standard of living falling, their jobs vanishing, their children with no future (and sometimes with nothing to eat), they blame politicians, rightly or wrongly. Politicians usually pretend to have solutions that almost always involve some path or other to “growth.”

Although none of us alive today can remember a time when economic growth was not part of our expectation for the future, such growth has only been conceived of for about the last 200 years. Until fossil fuels became the energy that powered the Industrial Revolution, economies grew by making war on their neighbors and taking their wealth. That was the stuff of history: empires rose on the principal of capturing territory and exacting tribute and eventually collapsed under the weight of their military costs and the expense of hauling all the loot back home.

Europeans had nearly exhausted the resources of their corner of the Eurasian landmass when Columbus came upon what was called the New World. Of course, it was just as old as every other place and, contrary to the persistent mythology, was not empty but chock full of animals, plants and, yes, many millions of human beings living in complex cultures. For the next three centuries, first the Spanish and Portuguese and, soon after, the Dutch, French and English crossed the Atlantic to subdue, conquer, and kill off the inhabitants in order, in traditional imperial fashion, to steal their stuff. Europe became rich again. That was how growth was done before about 1800 and the beginning of the fossil fuel age.

From the beginning of the 19th century, the Industrial Revolution was powered by coal, which was dirty but had much higher energy content than wood and charcoal, the main fuels that humans had used until then. In 1859, a hustler who called himself “Colonel” Edwin Drake drilled the first commercially viable oil well in Titusville, Pennsylvania and the petroleum age began. Oil is an incomparable fuel: at the beginning it was easily extracted, easily transported and, best of all, a single gallon of oil contains as much energy as a fit man working hard for three months or about 700 men working for an hour. One gallon. That huge amount of energy suddenly available is what gave rise to what we now call “economic growth.” More production and consumption requires more energy inputs and oil made it possible. But on a finite planet, nothing can go on forever and, by the 1960s, oil companies were finding less new oil each year than we were burning. Thus, about 40 years later, peak oil. Coal and gas will continue to be available for a while, but both will start to decline within a decade or two. Both already have serious financial problems, and neither one can do what oil does.

Let me return to why I called this the Peak Oil Election. Neither candidate spoke about it. Perhaps they don’t know about it. Or if they do, don’t want to believe it. Or maybe no politician can get elected by promising that the economy will continue to contract and energy supplies become ever scarcer. It was the Peak Oil Election because peak oil defeated both of them. Without increasing energy consumption, there can be no economic growth and, without increasing supplies, there can be no increase in energy consumption. The so-called renewables are hopelessly dependent upon fossil fuels for manufacture, installation and maintenance and are much less energy-intensive than fossil fuels.

The fact is that because oil production cannot be increased, economic growth is now over. Donald Trump’s promise to bring back coal production, increase all fossil fuel extraction and rebuild manufacturing are simply not going to happen, not because of Trump but because policy is no longer in charge. From now on, geology and physics call the shots. The remaining oil is too expensive to get to and extract. Oil companies can’t make a profit at a price that customers in a contracting economy can afford to pay. The growth game is finished as will be soon the multitude of financial frauds that, starting with the peak of United States oil production in 1970, have come to comprise much of our economy.

We need a new sort of politics and economy: local, cooperative, community-based, low-energy, conservationist, non-polluting, an economy that sustainably supports biological needs and health, rather than pursuing riches. I don’t think any politicians are going to do that for us; we need to do it for ourselves.

In Genesis 3:19, God instructs Adam that his punishment for disobedience will be “In the sweat of thy face shalt thou eat bread.” Apparently, humans didn’t like that very much, as all of history reveals them trying to get around that decree by any means possible: forcing others to do the work (slavery), getting rich and hiring others to do the work (wage slavery), or by burning oil (energy slavery). The time is here again for community cooperation, for low-tech solutions like the power of oxen, horses and mules, for relatively inexpensive simple technologies that can be made locally, like hoes, scythes, and pitchforks, and for the sweat of our faces. This isn’t a matter of virtue but of necessity; a simpler life is coming whether or not we choose to embrace it.

Eugene Marner lives in Franklin.





Do we have five years left…….?

23 10 2016

You may remember the articles I recently published about the twilight of the age of oil by Louis Arnoux….. well Raul Ilargi from the Automatic Earth has published them too, and this time, there’s a video to go with them. It’s very informative, and led me to understand all sorts of things, not least why the price of oil can never go back up. Basically, as less and less net energy is present in each new barrel of oil extracted, it’s simply worth less….

I was getting very enthusiastic about this presentation, right up until the end when Arnoux starts pushing this ‘green box’ of his, the logo for which appears (I now realise) in the bottom corner of all his slides. It’s called the nGeni. And it all sounds too good to be true, especially after telling us all that the economy probably has just five years left, and will grind to a halt…..

Here’s the video

After watching it, I then googled nGeni, and found this website trying to crowdfund it. I’d love to know what DTM readers think of this, because it all sounds like snake oil to me…..