Can we save energy, jobs and growth at the same time ?

20 05 2018

I apologise in advance to anyone with a short attention span, this is a bit long at almost one and a half hours……  especially as if you are new to limits to growth, you might have to watch it more than once!
If you ever needed proof that economics is an imbecilic proposal, then this is it.

Published on 30 Jan 2018

Jancovici’s conference in ENS School of Paris – 08/01/2018 To download the Presentation : https://fr.slideshare.net/JoelleLecon… The depletion of natural resources, with oil to start with, and the need for a stable climate, will make it harder and harder to pursue economic growth as we know it. It has now become urgent to develop a new branch of economics which does not rely on the unrealistic assumption of a perpetual GDP increase. In this Colloquium, I will discuss a “physical” approach to economics which aims at understanding and managing the scaling back of our world economy. Biography : Jean-Marc Jancovici, is a French engineer who graduated from École Polytechnique and Télécom, and who specializes in energy-climate subjects. He is a consultant, teacher, lecturer, author of books and columnist. He is known for his outreach work on climate change and the energy crisis. He is co-founder of the organization “Carbone 4” and president of the think tank “The Shift Project”. Original video : https://www.youtube.com/watch?v=ey7_F… Facebook page : https://www.facebook.com/jeanmarc.jan… Website : https://jancovici.com/
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Is this a sign of collapse gathering pace…?

15 05 2018

The articles coming from the consciousness of sheep are getting more and more interesting… after reading this one, I could not help but think that while Australia’s energy dilemmas are different to the UK’s, the following quote really struck a cord with me…:

Underlying all of this is a fundamental truth that few are prepared to contemplate: with the end of the last supplies of cheap fossil fuels, there is no affordable energy mix for the foreseeable future.  No combinations of gas, nuclear and renewables can be developed and deployed at the same time as prices are held at levels that are only just affordable to millions of British households.  Nor is there any option of returning to cheap gas from depleted North Sea deposits; still less reopening coal deposits put out of reach by the Thatcher government.

We are ‘lucky’ to have more coal and gas than we know what to do with, until that is it becomes so obvious we can’t keep burning these climate destroying fuels, we just stop. Hopefully before it’s too late.  But consider this……  if the UK economy collapses, what effect would it have on ours? Oil is creeping up, and our electricity rates are the subject of much moaning all over the country. An economic shock is coming, as sure as the sun rises in the East…..

Centrica may not care

Sometimes a story is repeated so often that its veracity is never challenged.  One such is the myth that British households are in thrall to a wicked energy cartel that puts excessive profits above common decency.  So much so, indeed, that the government and the opposition parties have all signed up to some form of energy cap designed to keep energy prices affordable.

The grain of truth in this story is that, aided by a craven regulator, the “big six” – British Gas, EDF Energy, E.ON, Npower, Scottish Power, and SSE – have on many occasions operated a cartel to hold prices up.  How else can we explain, for example, recent British Gas price increases in the face of a collapse in their customer base?

“British Gas owner Centrica lost 110,000 energy supply accounts in the first four months of the year.  That is roughly equivalent to 70,000 customers as many households buy their gas and electricity from British Gas, so will have two accounts.

“Last year, the company lost 1.3 million energy accounts…

“In April, British Gas announced a 5.5% increase in both gas and electricity bills, which comes into effect at the end of this month.  It blamed the rising wholesale cost of energy and the cost of meeting emissions targets and introducing smart meters.

“Other big energy firms have also announced price increases this year, including Npower, EDF and Scottish Power.”

This is surely evidence of a cartel being operated behind the back of the regulator… or is it?

There is an alternative explanation for the recent behaviour of the soon to be Big Four that should send a shiver through the UK economy.  Toward the end of last year, Jillian Ambrose at the Telegraph reported that:

“Britain’s second-largest energy supplier is eyeing the exit as the Government’s crackdown on energy bills threatens profits.

“SSE, formerly known as Scottish and Southern Energy, may turn its back on supplying gas and power to almost 8m British homes ­after years of political threats against the six largest energy companies comes to a head.

“City sources say the FTSE 100 energy giant is quietly discussing early plans to sell off its customer accounts, or even spin the business off as a separate listed company in order to focus on networks and renewable energy and avoid the Government’s looming energy price cap.”

Some months earlier I took the time to examine Centrica’s (British Gas’ parent company) annual accounts.  The results are not pretty:

“While Centrica profits were down (but still high) the division of British Gas that supplies electricity to UK consumers (businesses and households) actually made a loss of £61.1 million last year – in the household market, the loss was even bigger at £71.9 million.  That is, business electricity consumers are subsidising household electricity to some extent, while Centrica itself is subsidising its UK electricity business out of the profits from its other divisions.  Despite this, of course, electricity consumers are facing increasing bills even as they scale back their consumption.  This is exacerbated by the government decision to load the cost of renewables, new gas and new nuclear onto customers’ bills; effectively creating in all but name an even more regressive tax than VAT.”

Centrica’s response at the start of this year was to axe 4,000 jobs; having previously ceased maintaining the strategically essential Rough natural gas storage facility in the North Sea.  SSE in the meantime has announced a merger with N-Power in an attempt to rationalise both company’s retail energy business.  Unfortunately, no business to date has managed the trick of cutting its way to greatness… particularly in an economic climate in which ever fewer consumers can afford the service.

Centrica’s route out of an increasingly unprofitable domestic energy supply sector will be to focus on its much larger international energy business.  Britain’s remaining retail energy suppliers – all of which are foreign owned – may not enjoy this option.  For example, EDF’s wholesale energy investments are tied up in an increasingly risky and very-likely loss-making nuclear power sector.  Nor is there much to be gained from investment in renewable energy technologies that depend upon uncertain government subsidies that have become politically toxic among ordinary voters.

Underlying all of this is a fundamental truth that few are prepared to contemplate: with the end of the last supplies of cheap fossil fuels, there is no affordable energy mix for the foreseeable future.  No combinations of gas, nuclear and renewables can be developed and deployed at the same time as prices are held at levels that are only just affordable to millions of British households.  Nor is there any option of returning to cheap gas from depleted North Sea deposits; still less reopening coal deposits put out of reach by the Thatcher government.

For the moment, the UK government is content to fill Britain’s energy gap with imports.  However, as global energy supplies begin to tighten once more, pricing and profitability issues are likely to rise up the political agenda again.  Faced with an increasing struggle to remain profitable, and in the face of a government determined to add the cost of green energy onto domestic bills while legislating to prevent those bills from rising, companies like Centrica may simply choose to walk away.  After all, one of the blessings of being a private corporation (as opposed to a public utility) is that nobody can stop you from closing when you run out of money.





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 Bumpy Road Down, Part 5: More Trends in Collapse

21 02 2018

IrvMillsIrv Mills has published the fifth and last part of his 5 part series called ‘The Bumpy Road Down’, previous instalments being available here.

 

 

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In my last post I started talking about some of the changes that will happen along the bumpy road down and the forces and trends that will lead to them. (The bumpy road down being the cyclic pattern of crash and partial recovery that I believe will characterize the rest of the age of scarcity). These changes will be forced on us by circumstances and are not necessarily how I’d like to see things turn out.

The trends I covered last time were:

  • our continued reliance on fossil fuels
  • the continuing decline in availability, and surplus energy content, of fossil fuels
  • the damage the FIRE industries (finance, insurance and real estate) will suffer in the next crash, and the effects this will have
  • the increase in authoritarianism, as governments attempt to optimize critical systems and relief efforts during and after the crash

Oscillating overshoot with declining carrying capacity

I’ve once again included the stepped or “oscillating” decline diagram from previous posts here to make it easier to visualize what I’m talking about. This diagram isn’t meant to be precise, certainly not when it comes to the magnitude and duration of the oscillations, which in any case will vary from one part of the world to the next.

The trends I want to talk about today are all interconnected. You can hardly discuss one without referring to the others, and so it is difficult to know where to start. But having touched briefly on a trend toward increased authoritarianism at the end of my last post, I guess I should continue trends in politics.

MORE POLITICAL TRENDS

Currently there seems to be a trend towards right wing politics in the developed world. I think anyone who extrapolates that out into the long run is making a basic mistake. Where right wing governments have been elected by those looking for change, they will soon prove to be very inept at ruling in an era of degrowth. Following that, there will likely be a swing in the other direction and left wing governments will get elected. Only to prove, in their turn, to be equally inept. Britain seems to be heading in this direction, and perhaps the U.S. as well.

Another trend is the sort of populism that uses other nations, and/or racial, ethnic, religious and sexual minorities at home as scapegoats for whatever problems the majority is facing. This strategy is and will continue to be used by clever politicians to gain support and deflect attention from their own shortcomings. Unfortunately, it leads nowhere since the people being blamed aren’t the source of the problem.

During the next crash and following recovery governments will continue to see growth as the best solution to whatever problems they face and will continue to be blind to the limits to growth. Farther down the bumpy road some governments may finally clue in about limits. Others won’t, and this will fuel continued growth followed by crashes until we learn to live within those limits.

One thing that seems clear is that eventually we’ll be living in smaller groups and the sort of political systems that work best will be very different from what we have now.

Many people who have thought about this assume that we’ll return to feudalism. I think that’s pretty unlikely. History may seem to repeat itself, but only in loose outline, not in the important details. New situations arise from different circumstances, and so are themselves different. Modern capitalists would never accept the obligations that the feudal aristocracy had to the peasantry. Indeed freeing themselves of those obligations had a lot to do with making capitalism work. And the “99%” (today’s peasantry) simply don’t accept that the upper classes have any right, divine or otherwise, to rule.

In small enough groups, with sufficient isolation between groups, people seem best suited to primitive communism, with essentially no hierarchy and decision making by consensus. I think many people will end up living in just such situations.

In the end though, there will still be a few areas with sufficient energy resources to support larger and more centralized concentrations of population. It will be interesting to see what new forms of political structure evolve in those situations.

ECONOMIC CONTRACTION

For the last couple of decades declining surplus energy has caused contraction of the real economy. Large corporations have responded in various ways to maintain their profits: moving industrial operations to developing countries where wages are lower and regulations less troublesome, automating to reduce the amount of expensive labour required, moving to the financial and information sectors of the economy where energy decline has so far had less effect.

The remaining “good” industrial jobs in developed nations are less likely to be unionized, with longer hours, lower pay, decreased benefits, poorer working conditions and lower safety standards. The large number of people who can’t even get one of those jobs have had to move to precarious, part time, low paying jobs in the service industries. Unemployment has increased (despite what official statistics say) and the ranks of the homeless have swelled.

Since workers are also consumers, all this has led to further contraction of the consumer economy. We can certainly expect to see this trend continue and increase sharply during the next crash.

Our globally interconnected economy is a complex thing and that complexity is expensive to maintain. During the crash and the depression that follows it, we’ll see trends toward simplification in many different areas driven by a lack of resources to maintain the existing complex systems. I’ll be discussing those trends in a moment, but it is important to note that a lot of economic activity is involved in maintaining our current level of complexity and abandoning that complexity will mean even more economic contraction.

At the same time, small, simple communities will prove to have some advantages that aren’t currently obvious.

CONSERVATION

All this economic contraction means that almost all of us will be significantly poorer and we’ll have to learn to get by with less. As John Michael Greer says, “LESS: less energy, less stuff, less stimulation.” We’ll be forced to conserve and will struggle to get by with “just enough”. This will be a harshly unpleasant experience for most people.

DEGLOBALIZATION

For the last few decades globalization has been a popular trend, especially among the rich and powerful, who are quick to extol its many supposed advantages. And understandably so, since it has enabled them to maintain their accustomed high standard of living while the economy as a whole contracts.

On the other hand, as I was just saying, sending high paying jobs offshore is a pretty bad idea for consumer economies. And I suspect that in the long run we’ll see that it wasn’t really all that good for the countries where we sent the work, either.

During the crash we’ll see the breakdown of the financial and organizational mechanisms that support globalization and international trade. There will also be considerable problems with shipping, both due to disorganization and to unreliable the supplies of diesel fuel for trucks and bunker fuel for ships. I’m not predicting an absolute shortage of oil quite this soon, but rather financial and organizational problems with getting it out of the ground, refined and moved to where it is needed.

This will lead to the failure of many international supply chains and governments and industry will be forced to switch critical systems over to more local suppliers. This switchover will be part of what eventually drives a partial recovery of the economy in many localities.

In a contracting economy with collapsing globalization there would seem to be little future for multi-national corporations, and organizations like the World Bank and the IMF. While the crash may bring an end to the so called “development” of the “developing” nations, it will also bring an end to economic imperialism. At the same time, the general public in the developed world, many of whom are already questioning the wisdom of the “race to the bottom” that is globalization, will be even less likely to go along with it, especially when it comes to exporting jobs.

Still, when the upcoming crash bottoms out and the economy begins to recover, there will be renewed demand for things that can only be had from overseas and international trade will recover to some extent.

DECENTRALIZATION

Impoverished organizations such a governments, multi-national corporations and international standards groups will struggle to maintain today’s high degree of centralization and eventually will be forced to break up into smaller entities.

Large federations such as Europe, the US, Canada and Australia will see rising separatism and eventually secession. As will other countries where different ethnic groups have been forced together and/or there is long standing animosity between various localities. If this can be done peacefully it may actually improve conditions for the citizens of the areas involved, who would no longer have to support the federal organization. But no doubt it will just as often involve armed conflict, with all the destruction and suffering that implies.

RELOCALIZATION

The cessation of services from the FIRE industries and the resulting breakdown of international (and even national) supply and distribution chains will leave many communities with no choice but to fend for themselves.

One of the biggest challenges at first will be to get people to believe that there really is a problem. Once that is clear, experience has shown that the effectiveness of response from the victims of disasters is remarkable and I think that will be true again in this case. There are a lot of widely accepted myths about how society breaks down during disaster, but that’s just what they are: myths. Working together in groups for our mutual benefit is the heart of humanity’s success, after all.

Government response will take days or more likely weeks to organize, and in the meantime there is much we can do to help ourselves. Of course it helps to be prepared… (check out these posts from the early days of this blog: 12) and I’ll have more to say on that in upcoming posts.

The question then arises whether one would be better off in an urban center or a rural area such as a small town or a farm. Government relief efforts will be focused on the cities where the need will be greatest and the response easiest to organize. But just because of the millions of people involved, that response will be quite challenging.

Rural communities may well be largely neglected by relief efforts. But, especially in agricultural areas, they will find fending for themselves much more manageable.

I live in a rural municipality with a population of less than 12,000 people in an area of over 200 square miles (60 people per sq. mile, more than 10 acres per person). The majority of the land is agricultural, and supply chains are short, walking distance in many cases. Beef, dairy and cash crops are the main agricultural activities at present and they can easily be diverted to feed the local population. Especially if the food would go to waste anyway due to the breakdown of supply chains downstream from the farm.

So I think we’re likely to do fairly well until the government gets around to getting in touch with us again, probably sometime after the recovery begins.

In subsequent crashes the population will be significantly reduced and those of us who survive will find ourselves living for the most part in very small communities which are almost entirely relocalized. The kind of economy that works in that situation is very different from what we have today and is concerned with many things other than growth and profit making.

REHUMANIZATION

The move toward automation that we’ve seen in the developed world since the start of the industrial revolution has been driven by high labour costs and the savings to be had by eliminating labour from industrial processes as much as possible. That revolution started and proceeded at greatest speed in Britain where labour rates where the highest, and still hasn’t happened in many developing nations where labour is very cheap.

Sadly, the further impoverishment of the working class in Europe and North America will make cheaper labour available locally, rather than having to go offshore. During the upcoming crash, and in the depression following it, impoverished people will have no choice but to work for lower rates and will out compete automated systems, especially when capital to set them up, the cutting edge technology needed to make them work, and the energy to power them are hard to come by. Again, the economic advantages of simplicity will come into play when it is the only alternative, and help drive the recovery after the first crash.

THE FOOD SUPPLY AND OVERPOPULATION

In the initial days of the coming crash there will be problems with the distribution systems for food, medical supplies and water treatment chemicals, all of which are being supplied by “just in time” systems with very little inventory at the consumer end of the supply chain. To simplify this discussion, I’ll talk primarily about food.

It is often said that there is only a 3 day supply of food on the grocery store shelves. I am sure this is approximately correct. In collapse circles, the assumption is that, if the trucks stop coming, sometime not very far beyond that 3 day horizon we’d be facing starvation. There may be a few, incredibly unlucky, areas where that will be more or less true.

But, depending on the time of year, much more food than that (often more than a year’s worth) is stored elsewhere in the food production and distribution system. The problem will be in moving this food around to where it is needed, and in making sure another year’s crops get planted and harvested. I think this can be done, much of it through improvisation and co-operation by people in the agricultural and food industries. With some support from various levels of government.

There will be some areas where food is available more or less as normal, some where the supply is tight, and other areas where there is outright famine and some loss of life (though still outstripped by the fecundity of the human race). In many ways that pretty much describes the situation today but supply chain breakdown, and our various degrees of success at coping with it, will make all the existing problems worse during the crash.

But once the initial crash is over, we have a much bigger problem looming ahead, which I think will eventually lead to another, even more serious crash.

With my apologies to my “crunchy” friends, modern agriculture and the systems downstream from it supply us with the cheapest and safest food that mankind has known since we were hunters and gatherers and allows us (so far) to support an ever growing human population.

The problem is that this agriculture is not sustainable. It requires high levels of inputs–primarily energy from fossil fuels, but also pesticides, fertilizers and water for irrigation–mostly from non-renewable sources. And rather than enriching the soil on which it depends, it gradually consumes it, causing erosion from over cultivation and over grazing, salinating the soil where irrigation is used and poisoning the water courses downstream with runoff from fertilizers. We need to develop a suite of sustainable agricultural practices that takes advantage of the best agricultural science can do for us, while the infrastructure that supports that science is still functioning.

The organic industry spends extravagantly to convince us that the problem with our food is pesticide residues and genetically engineered organisms, but the scientific consensus simply does not support this. The organic standards include so called “natural” pesticides that are more toxic than modern synthetic ones, and allow plant breeding techniques (such as mutagenesis) that are far more dangerous than modern genetic engineering. Organic standards could certainly be revised into something sustainable that retains the best of both conventional and organic techniques, but this has become such a political hot potato that it is unlikely to happen.

As I said above, during the upcoming crash one of the main challenges will be to keep people fed. And I have no doubt that this challenge will, for the most part, be successfully met. Diesel fuel will be rationed and sent preferentially to farmers and trucking companies moving agricultural inputs and outputs. Supplies of mineral fertilizers are still sufficient to keep industrial agriculture going. Modern pesticides actually reduce the need for cultivation and improve yields by reducing losses due to pests. It will be possible to divert grains grown for animal feed to feed people during the first year when the crisis is most serious.

Industrial agriculture will actually save the day and continue on to feed the growing population for a while yet. We will continue to make some improvement in techniques and seeds, though with diminishing returns on our efforts.

This will come to an end around mid century with the second bump on the road ahead (starting at point “g” on the graph), when a combination of increasing population, worsening climate, and decreasing availability and increasing prices of energy, irrigation water, fertilizer, pesticides and so forth combine to drastically reduce the output of modern agriculture.

Widespread famine will result, and this, combined with epidemics in populations weakened by hunger, will reduce the planet’s human population by at least a factor of two in a period of a very few years. Subsequent bumps as climate change further worsens conditions for farming will further reduce the population, resulting in a bottleneck towards the end of this century. Without powered machinery, synthetic fertilizers and pesticides and with drastically reduced water for irrigation, agricultural output will fall off considerably. And our population will fall to match the availability of food. I do think it unlikely that the human race will be wiped out altogether, but our numbers will likely be reduced by a factor of ten or more.

TURNING TO VIOLENCE AS A SOLUTION

It is a sad fact that many people, communities and nations, when faced with the sort of challenges I’ve been talking about here, will respond with violence.

In the remaining years leading up to the next crash, I think it is likely that even the least stable of world leaders (or their military advisors) will remain well aware of the horrific consequences of large scale nuclear war, and will manage to avoid it. As has been the case since the end of WWII, wars will continue to be fought by proxy, involving smaller nations in the developing world, especially where the supply of strategic natural resources are at issue.

War is extremely expensive though and, even without the help of a financial crash, military spending already threatens to bankrupt the U.S. As Dmitry Orlov has suggested, after a financial crash, the U.S. may find it difficult to even get its military personnel home from overseas bases, much less maintain those bases or pursue international military objectives.

But even in the impoverished post-crash world, I expect that border wars, terrorism, riots and violent protests will continue for quite some time yet.

MIGRATION AND REFUGEES

Whether from the ravages of war, climate change or economic contraction many areas of the world, particularly in areas like the Middle East, North Africa and the U.S. southwest, will become less and less livable. People will leave those areas looking for greener pastures and the number of refugees will soon grow past what can be managed even by the richest of nations. This will be a problem for Europe in particular, and more and more borders will be closed to all but a trickle of migrants. Refugees will accumulate in camps and for a while the situation will find an uneasy balance.

As we continue down the bumpy road, though, many nations will lose the ability to police their borders. Refugees will pour through, only to find broken economies that offer them little hope of a livelihood. Famine, disease and conflict will eventually reduce the population to where it can be accommodated in the remaining livable areas. But the ethnic makeup of those areas will have changed significantly due to large scale migrations.

IN CONCLUSION

I’ve been talking here about some of the changes that will be forced upon us by the circumstances of collapse. I’ve said very little about what I think we might do if we could face up to the reality of those circumstances and take positive action. That’s because I don’t think there is much chance that we’ll take any such action on a global or even national scale.

It’s time now to wrap up this series of posts about the bumpy road down. At some point in the future I intend to do a series about of coping with collapse locally, on the community, family and individual level. I think there is still much than can be done to improve the prospects of those who are willing to try.





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.





The Bumpy Road Down

18 12 2017

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IrvMills

Irv Mills

The term “bumpy road down” refers to the cyclic pattern of crash and partial recovery that I believe will characterize the rest of the age of scarcity and make for a slow step by step collapse, rather than a single hard and fast crash. Indeed, that is where the “step-by-step” in the title of this series of posts comes from. And yes, many of the individual steps down will happen quite quickly and seem quite harsh. But it will likely take many steps and many decades before we can say collapse is essentially complete, and between those steps down there will (in many areas) be long periods when things are stable or even actually improving somewhat.

The fast collapse is a favourite trope of collapse fiction and makes for some exciting stories, in which stalwart heroes defend their group from hungry hordes and evil strong men. And if the story happens in the U.S. the characters get to do their best to stop a whole lot of ammunition from going stale. But it seems to me that in most parts of the world things will progress quite differently when disaster strikes. Indeed there is a branch of sociology which studies how people and societies respond to disaster, and it has identified a set of incorrect beliefs, known as “the disaster mythology” that much of the general public holds on the subject. In particular, the expectation of looting, mass panic and violence is not borne out in really. Here are some further links on the subject: 1234.

Dysfunctional as today’s world may seem to many of us, it is working fairly well for those who are in power. They have a great deal invested in maintaining the “status quo”, and in making sure that whatever changes do happen don’t have any great effect on them. They also have a lot of resources to bring to bear on pursuing those ends, and a lot of avenues to go down before they run out of alternatives.

The other 80% of us, who are just along for the ride so to speak, still rely on industrial society for the necessities of life. We are hardly self sufficient at all, dependent on “the system” to a degree that is unprecedented in mankind’s history and prehistory. As unhappy as we may be with the way things are at present, it’s hard to imagine collapse without a certain amount of trepidation. Denial is a very common response to this situation.

Some of us, though, aren’t very good at denial. Even if we only follow the news on North American TV, which largely ignores the rest of the world, we’ve seen lots of disturbing events in the last year or two and it is hard not to wonder if they are leading up to something serious. Many people in the “collapse sphere” are predicting a major disturbance in the next few years, and some think that this will be the one that takes us down—all the way.

I definitely agree that something is about to happen, but I don’t think it is going be the last straw. Just one more step along the way.

As always, I am directing this mainly to those who are not highly “collapse aware”, so a closer look at what’s going on and what this next big bump might look like would seem to be a good idea. And of course I am making generalizations in what follows. As always, things will vary a good bit between different areas and at different times, and all of this will affect people of the various social classes differently. Also beware that I am not an economist, just a layman who has been watching the field with keen interest for some time. What follows is a summary of what I have learned, in a field where there is lots of disagreement and where the experts themselves have been wrong again and again.

Despite all the optimistic talk about renewable energy, we are still dependent on fossil fuels for around 87% of our energy needs, and those needs are largely ones that cannot be met by anything other than fossil fuels, especially oil. While it is true that fossil fuels are far from running out, the amount of surplus energy they deliver (the EROEI—”energy returned on energy invested”) has declined to the point where it no longer supports robust economic growth. Indeed, since the 1990s, real economic growth has largely stopped. What limited growth we are seeing is based on debt, rather than an abundance of surplus energy. And various adjustments to the way GDP is calculated have made the situation seem less serious that it really is.

Because of the growth situation, investors looking for good returns on their money have been hard pressed to find any and so have turned to riskier investments, which has resulted in speculative bubbles and subsequent crashes. The thing about bubbles is they are based on trust. Trust in some sort of investment that in saner times would be recognized for the risky proposition it really is. But always there comes a day when the risk becomes obvious, people rush to get out, and the bubble crashes.

The dot com bubble was the first to burst in this century, and the real estate bubble in the US was the next, leading to the crash of 2008.

After 2008 many governments borrowed money to bailout financial institutions (banks) which were in danger of failing, since that failure would have had a very negative effect on the rest of the economy. To control the cost of that borrowing and stimulate the economy, they lowered interest rates. These low interest rates have made it possible to use debt as a temporary replacement for surplus energy as the driver of the economy. Unfortunately this is pretty inefficient—it takes several dollars of debt to create a dollar’s worth of growth, and the result has been debt increasing to totally unprecedented levels.

Meanwhile, much of the ill advised risk taking in the financial industry that led to the crash in 2008 has continued on unabated. You may wonder why responsible governments didn’t enact regulations to stop that sort of thing. And indeed they did, to a limited extent. I suspect, though, that really effective regulations would have stopped growth cold, and no one was willing to accept the negative results of that. Better to let things to go on as they are, leaving future governments to worry about the consequences.

So, in 2017 we are deep into what might be called a “debt bubble.” It relies on trust that interest rates will remain low and that any day now there will be a return to robust growth so that we can all make some money and pay off our debts. Those are risky propositions, to say the least.

On top of that, low interest rates have made it much more of a challenge for pension funds to raise enough money to meet their obligations, a vital concern for retired baby boomers like myself.

Those same low interest rates have made it possible for many non-viable or barely viable businesses to continuing operating on borrowed money, where under more normal circumstances they would have been forced out of business. This makes for a weaker economy, not a stronger one.

Here in Canada we still have a real estate bubble going on, especially in cities like Toronto, Calgary and Vancouver, and that despite recent government efforts to cool the real estate market by making it more difficult to get a mortgage, and by applying a tax on foreign real estate investors.

And over the last year that have been a long list of natural disasters which have increased the financial stress on governments, insurance companies and even re-insurance companies (who insure the insurance companies themselves).

The more conventional economists have come to think that all this is a normal situation and that it can just keep on keeping on. But there are others who think that this will lead to a crash of even greater magnitude that 2008. And many kollapsniks think this crash will mean the end of industrial civilization.

Some commentators expect this crash to take the form of a rash of debt defaults by governments who can no longer carry the debt loads they have built up. And a similar wave of bankruptcies of those shaky businesses I was just talking about, when they finally get to the point where they can no longer hold on. Tim Morgan, one of my favourite economists (who is certainly aware of the possibility of collapse), speculates that this bubble may burst in a different way than those of the past, with the collapse of one or more currencies. He points to the British pound as a prime candidate for the first to go and thinks that the U.S. dollar may follow it.

Other experts I’ve asked say that while the U.S government does have huge debts, they are not so large in comparison to the size of its economy—an economy that is strong enough that trust in it is unlikely to fail. I am not so sure. Much of the strength of the U.S. dollar comes from the fact that all trading of oil is done in it. If you want to buy oil then you need U.S. dollars, so the demand for them is always high. But a number of countries who are not allies of the US have proposed abandoning this system, suggesting that they are willing to accept other currencies for their oil. If this were to happen on a large scale it would significantly weaken the US dollar.

But it takes some sort of unusual event to start a crash like this, to initiate the loss of trust. And that brings us back to the fossil fuel industry.

While the falling EROEIs of fossil fuels have hurt economic growth, it is a mistake to think that those fuels are not still the life blood of our civilization. The success of modern industry is based on the productivity boost provided by cheap energy. The price of oil, for many years, was a fraction of its worth in terms of what could be made with the energy embodied in that oil. But when the price of energy goes up, it reduces the profitability of industry, often leading to a recession.

The oil prices I quote here are for Brent crude, just to keep things simple. In fact, oil trades at a dizzying variety of different prices, depending on where it comes from and its quality, among other things. If you look back over the history of recessions since the 1950s it is interesting to note almost all of them were preceded by a spike in the price of oil. In the summer of 2008 the price of oil, which had been going up for several years, topped out just before the crash at almost $140 per barrel.

After the crash, the economy slowed down significantly, and the price of oil dropped to around $30 per barrel due to falling demand. Starting in mid-2009 the economy began to recover and the price of oil increased to over $100. This appeared to be a straight forward case of supply and demand—an indication that the supply of oil was barely keeping up and suppliers were being forced to turn to more expensive sources of oil to meet the demand.

Then in mid 2014 something surprising happened— the price of oil and many other bulk commodities began to go down. By early 2016 the price of oil was under $40/barrel, and it stayed in the range between $40 and $60 until quite recently when it edged up over $60.

All kinds of ideas have been put forth as to why this drop in the price of oil happened, many of them contradictory. It is my thought that two things have been happening. First, demand destruction—a slowing down of the world economy caused by high energy prices. Second, a temporary increase in the supply of oil, mainly from fracking in the continental US and tapping of unconventional oil—tar sands in Canada, heavy oil in Venezuela, and deep offshore oil in various place around the world, that were suddenly profitable when the price was around $100 per barrel.

Whatever is the cause, it is clear that we have had a surplus of oil for the last few years, and this has kept the price down. OPEC discussed limiting supply to force the price back up, but very little came of it, even though the lower price was severely hurting the economies of the OPEC nations.

In the short run, lower oil prices have had a beneficial effect on economic growth. But unfortunately, the big oil companies were making so little profit that they couldn’t afford to invest much in oil discovery.

Regardless of what you may think of the idea of “peak oil” on a global basis, it is a simple fact that the output of any individual oil field declines as it ages. Exploration for new oil aims to match that natural decline with new discoveries. For conventional oil, that has not happened since 1963 and by the start of this century this was becoming a problem. A problem that likely had something to do with the run up of oil prices prior to 2008.

Following 2008, higher prices and improved technology (like fracking and the syncrude process for getting oil out of the tar sands) made more oil accessible. But with the current lower prices, that is no longer the case. Furthermore the wells opened up by fracking are proving to have very high decline rates.

So it seems that sometime in the next year or two, the decline rate of the world’s oil fields will have eaten up the surplus of oil. Discovery of new oil fields doesn’t happen overnight, so there will be a crunch in oil supply. Not that there will be no oil available, but oil suppliers will be hard pressed to keep up with the demand and the price will spike upward. There may even be shortages of some petroleum products until those higher prices pull demand back to match the available supply.

It seems very likely that such a spike in the price of oil will touch off a loss of trust leading to a recession of such severity as to make 2008 look minor.

In my next post in this series I’ll look at how that recession—might as well call it a crash—might proceed and what will likely be done to mitigate its effects.