How (Not) to Run a Modern Society on Solar and Wind Power Alone

20 07 2019

This is a great article from Low-Tech Magazine explaining the limitations of renewable energy. Let me tell you, now we are off grid and not relying on it for the house site, I have personally visited the limits of solar energy on several occasions. Winter, in particular, really tests my ability to do things, even building. We’ve had lengthy rainy periods when the solar array has literally produced nothing whatsoever, and I couldn’t even use power tools. When the sun shines, I can do anything. But when it doesn’t……. to add insult to injury, even owning a wind turbine would not help, because at this time of year there’s no useable wind!

While the potential of wind and solar energy is more than sufficient to supply the electricity demand of industrial societies, these resources are only available intermittently. To ensure that supply always meets demand, a renewable power grid needs an oversized power generation and transmission capacity of up to ten times the peak demand. It also requires a balancing capacity of fossil fuel power plants, or its equivalent in energy storage. 

Consequently, matching supply to demand at all times makes renewable power production a complex, slow, expensive and unsustainable undertaking. Yet, if we would adjust energy demand to the variable supply of solar and wind energy, a renewable power grid could be much more advantageous. Using wind and solar energy only when they’re available is a traditional concept that modern technology can improve upon significantly.

100% Renewable Energy

It is widely believed that in the future, renewable energy production will allow modern societies to become independent from fossil fuels, with wind and solar energy having the largest potential. An oft-stated fact is that there’s enough wind and solar power available to meet the energy needs of modern civilisation many times over.

For instance, in Europe, the practical wind energy potential for electricity production on- and off-shore is estimated to be at least 30,000 TWh per year, or ten times the annual electricity demand. [1] In the USA, the technical solar power potential is estimated to be 400,000 TWh, or 100 times the annual electricity demand. [2]

Such statements, although theoretically correct, are highly problematic in practice. This is because they are based on annual averages of renewable energy production, and do not address the highly variable and uncertain character of wind and solar energy. 

Annual averages of renewable energy production do not address the highly variable and uncertain character of wind and solar energy

Demand and supply of electricity need to be matched at all times, which is relatively easy to achieve with power plants that can be turned on and off at will. However, the output of wind turbines and solar panels is totally dependent on the whims of the weather.

Therefore, to find out if and how we can run a modern society on solar and wind power alone, we need to compare time-synchronised electricity demand with time-synchronised solar or wind power availability. [3][4] [5] In doing so, it becomes clear that supply correlates poorly with demand.


The intermittency of solar en wind energy compared to demand

Above: a visualisation of 30 days of superimposed power demand time series data (red), wind energy generation data (blue), and solar insolation data (yellow). Average values are in colour-highlighted black lines. Data obtained from Bonneville Power Administration, April 2010. Source: [21]


The Intermittency of Solar Energy

Solar power is characterised by both predictable and unpredictable variations. There is a predictable diurnal and seasonal pattern, where peak output occurs in the middle of the day and in the summer, depending on the apparent motion of the sun in the sky. [6] [7]

When the sun is lower in the sky, its rays have to travel through a larger air mass, which reduces their strength because they are absorbed by particles in the atmosphere. The sun’s rays are also spread out over a larger horizontal surface, decreasing the energy transfer per unit of horizontal surface area.

When the sun is 60° above the horizon, the sun’s intensity is still 87% of its maximum when it reaches a horizontal surface. However, at lower angles, the sun’s intensity quickly decreases. At a solar angle of 15°, the radiation that strikes a horizontal surface is only 25% of its maximum. 

On a seasonal scale, the solar elevation angle also correlates with the number of daylight hours, which reduces the amount of solar energy received over the course of a day at times of the year when the sun is already lower in the sky. And, last but not least, there’s no solar energy available at night.

Cloud map

Image: Average cloud cover 2002 – 2015. Source: NASA.

Likewise, the presence of clouds adds unpredictable variations to the solar energy supply. Clouds scatter and absorb solar radiation, reducing the amount of insolation that reaches the ground below. Solar output is roughly 80% of its maximum with a light cloud cover, but only 15% of its maximum on a heavy overcast day. [8][9][10]

Due to a lack of thermal or mechanical inertia in solar photovoltaic (PV) systems, the changes due to clouds can be dramatic. For example, under fluctuating cloud cover, the output of multi-megawatt PV power plants in the Southwest USA was reported to have variations of roughly 50% in a 30 to 90 second timeframe and around 70% in a timeframe of 5 to 10 minutes. [6]

In London, a solar panel produces 65 times less energy on a heavy overcast day in December at 10 am than on a sunny day in June at noon. 

The combination of these predictable and unpredictable variations in solar power makes it clear that the output of a solar power plant can vary enormously throughout time. In Phoenix, Arizona, the sunniest place in the USA, a solar panel produces on average 2.7 times less energy in December than in June. Comparing a sunny day at midday in June with a heavy overcast day at 10 am in December, the difference in solar output is almost twentyfold. [11]

In London, UK, which is a moderately suitable location for solar power, a solar panel produces on average 10 times less energy in December than in June. Comparing a sunny day in June at noon with a heavy overcast day in December at 10 am, the solar output differs by a factor of 65. [8][9]

The Intermittency of Wind Energy

Compared to solar energy, the variability of the wind is even more volatile. On the one hand, wind energy can be harvested both day and night, while on the other hand, it’s less predictable and less reliable than solar energy. During daylight hours, there’s always a minimum amount of solar power available, but this is not the case for wind, which can be absent or too weak for days or even weeks at a time. There can also be too much wind, and wind turbines then have to be shut down in order to avoid damage.

On average throughout the year, and depending on location, modern wind farms produce 10-45% of their rated maximum power capacity, roughly double the annual capacity factor of the average solar PV installation (5-30%). [6] [12][13][14] In practice, however, wind turbines can operate between 0 and 100% of their maximum power at any moment.


Hourly wind power output on 29 different days in april 2005 at a wind plant in california

Hourly wind power output on 29 different days in april 2005 at a wind plant in california. Source: [6]


For many locations, only average wind speed data is available. However, the chart above shows the daily and hourly wind power output on 29 different days at a wind farm in California. At any given hour of the day and any given day of the month, wind power production can vary between zero and 600 megawatt, which is the maximum power production of the wind farm. [6]

Even relatively small changes in wind speed have a large effect on wind power production: if the wind speed decreases by half, power production decreases by a factor of eight. [15] Wind resources also vary throughout the years. Germany, the Netherlands and Denmark show a wind speed inter-annual variability of up to 30%. [1] Yearly differences in solar power can also be significant. [16] [17]

How to Match Supply with Demand?

To some extent, wind and solar energy can compensate for each other. For example, wind is usually twice as strong during the winter months, when there is less sun. [18] However, this concerns average values again. At any particular moment of the year, wind and solar energy may be weak or absent simultaneously, leaving us with little or no electricity at all.

Electricity demand also varies throughout the day and the seasons, but these changes are more predictable and much less extreme. Demand peaks in the morning and in the evening, and is at its lowest during the night. However, even at night, electricity use is still close to 60% of the maximum. 

At any particular moment of the year, wind and solar energy may be weak or absent simultaneously, leaving us with little or no electricity at all.

Consequently, if renewable power capacity is calculated based on the annual averages of solar and wind energy production and in tune with the average power demand, there would be huge electricity shortages for most of the time. To ensure that electricity supply always meets electricity demand, additional measures need to be taken.

First, we could count on a backup infrastructure of dispatchable fossil fuel power plants to supply electricity when there’s not enough renewable energy available. Second, we could oversize the renewable generation capacity, adjusting it to the worst case scenario. Third, we could connect geographically dispersed renewable energy sources to smooth out variations in power production. Fourth, we could store surplus electricity for use in times when solar and/or wind resources are low or absent.

As we shall see, all of these strategies are self-defeating on a large enough scale, even when they’re combined. If the energy used for building and maintaining the extra infrastructure is accounted for in a life cycle analysis of a renewable power grid, it would be just as CO2-intensive as the present-day power grid. 

Strategy 1: Backup Power Plants

Up to now, the relatively small share of renewable power sources added to the grid has been balanced by dispatchable forms of electricity, mainly rapidly deployable gas power plants. Although this approach completely “solves” the problem of intermittency, it results in a paradox because the whole point of switching to renewable energy is to become independent of fossil fuels, including gas. [19]

Most scientific research focuses on Europe, which has the most ambitious plans for renewable power. For a power grid based on 100% solar and wind power, with no energy storage and assuming interconnection at the national European level only, the balancing capacity of fossil fuel power plants needs to be just as large as peak electricity demand. [12] In other words, there would be just as many non-renewable power plants as there are today.

Power plant capacity united states

Every power plant in the USA. Visualisation by The Washington Post.

Such a hybrid infrastructure would lower the use of carbon fuels for the generation of electricity, because renewable energy can replace them if there is sufficient sun or wind available. However, lots of energy and materials need to be invested into what is essentially a double infrastructure. The energy that’s saved on fuel is spent on the manufacturing, installation and interconnection of millions of solar panels and wind turbines.

Although the balancing of renewable power sources with fossil fuels is widely regarded as a temporary fix that’s not suited for larger shares of renewable energy, most other technological strategies (described below) can only partially reduce the need for balancing capacity.

Strategy 2: Oversizing Renewable Power Production

Another way to avoid energy shortages is to install more solar panels and wind turbines. If solar power capacity is tailored to match demand during even the shortest and darkest winter days, and wind power capacity is matched to the lowest wind speeds, the risk of electricity shortages could be reduced significantly. However, the obvious disadvantage of this approach is an oversupply of renewable energy for most of the year.

During periods of oversupply, the energy produced by solar panels and wind turbines is curtailed in order to avoid grid overloading. Problematically, curtailment has a detrimental effect on the sustainability of a renewable power grid. It reduces the electricity that a solar panel or wind turbine produces over its lifetime, while the energy required to manufacture, install, connect and maintain it remains the same. Consequently, the capacity factor and the energy returned for the energy invested in wind turbines and solar panels decrease. [20]

Installing more solar panels and wind turbines reduces the risk of shortages, but it produces an oversupply of electricity for most of the year.

Curtailment rates increase spectacularly as wind and solar comprise a larger fraction of the generation mix, because the overproduction’s dependence on the share of renewables is exponential. Scientists calculated that a European grid comprised of 60% solar and wind power would require a generation capacity that’s double the peak load, resulting in 300 TWh of excess electricity every year (roughly 10% of the current annual electricity consumption in Europe).

In the case of a grid with 80% renewables, the generation capacity needs to be six times larger than the peak load, while the excess electricity would be equal to 60% of the EU’s current annual electricity consumption. Lastly, in a grid with 100% renewable power production, the generation capacity would need to be ten times larger than the peak load, and excess electricity would surpass the EU annual electricity consumption. [21] [22] [23] 

This means that up to ten times more solar panels and wind turbines need to be manufactured. The energy that’s needed to create this infrastructure would make the switch to renewable energy self-defeating, because the energy payback times of solar panels and wind turbines would increase six- or ten-fold.

For solar panels, the energy payback would only occur in 12-24 years in a power grid with 80% renewables, and in 20-40 years in a power grid with 100% renewables. Because the life expectancy of a solar panel is roughly 30 years, a solar panel may never produce the energy that was needed to manufacture it. Wind turbines would remain net energy producers because they have shorter energy payback times, but their advantage compared to fossil fuels would decrease. [24]

Strategy 3: Supergrids

The variability of solar and wind power can also be reduced by interconnecting renewable power plants over a wider geographical region. For example, electricity can be overproduced where the wind is blowing but transmitted to meet demand in becalmed locations. [19]

Interconnection also allows the combination of technologies that utilise different variable power resources, such as wave and tidal energy. [3] Furthermore, connecting power grids over large geographical areas allows a wider sharing of backup fossil fuel power plants.

Wind map europe saturday september 2 2017 23h48

Wind map of Europe, September 2, 2017, 23h48. Source: Windy.

Although today’s power systems in Europe and the USA stretch out over a large enough area, these grids are currently not strong enough to allow interconnection of renewable energy sources. This can be solved with a powerful overlay high-voltage DC transmission grid. Such “supergrids” form the core of many ambitious plans for 100% renewable power production, especially in Europe. [25] The problem with this strategy is that transmission capacity needs to be overbuilt, over very long distances. [19]

For a European grid with a share of 60% renewable power (an optimal mix of wind and solar), grid capacity would need to be increased at least sevenfold. If individual European countries would disregard national concerns about security of supply, and backup balancing capacity would be optimally distributed throughout the continent, the necessary grid capacity extensions can be limited to about triple the existing European high-voltage grid. For a European power grid with a share of 100% renewables, grid capacity would need to be up to twelve times larger than it is today. [21] [26][27]

Even in the UK, which has one of the best renewable energy sources in the world, combining wind, sun, wave and tidal power would still generate electricity shortages for 65 days per year.

The problems with such grid extensions are threefold. Firstly, building infrastructure such as transmission towers and their foundations, power lines, substations, and so on, requires a significant amount of energy and other resources. This will need to be taken into account when making a life cycle analysis of a renewable power grid. As with oversizing renewable power generation, most of the oversized transmission infrastructure will not be used for most of the time, driving down the transmission capacity factor substantially.

Secondly, a supergrid involves transmission losses, which means that more wind turbines and solar panels will need to be installed to compensate for this loss. Thirdly, the acceptance of and building process for new transmission lines can take up to ten years. [20][25] This is not just bureaucratic hassle: transmission lines have a high impact on the land and often face local opposition, which makes them one of the main obstacles for the growth of renewable power production.

Even with a supergrid, low power days remain a possibility over areas as large as Europe. With a share of 100% renewable energy sources and 12 times the current grid capacity, the balancing capacity of fossil fuel power plants can be reduced to 15% of the total annual electricity consumption, which represents the maximum possible benefit of transmission for Europe. [28]

Even in the UK, which has one of the best renewable energy sources in the world, interconnecting wind, sun, wave and tidal power would still generate electricity shortages for 18% of the time (roughly 65 days per year). [29] [30][31]

Strategy 4: Energy Storage

A final strategy to match supply to demand is to store an oversupply of electricity for use when there is not enough renewable energy available. Energy storage avoids curtailment and it’s the only supply-side strategy that can make a balancing capacity of fossil fuel plants redundant, at least in theory. In practice, the storage of renewable energy runs into several problems.

First of all, while there’s no need to build and maintain a backup infrastructure of fossil fuel power plants, this advantage is negated by the need to build and maintain an energy storage infrastructure. Second, all storage technologies have charging and discharging losses, which results in the need for extra solar panels and wind turbines to compensate for this loss. 

Wind map usa

Live wind map of the USA

The energy required to build and maintain the storage infrastructure and the extra renewable power plants need to be taken into account when conducting a life cycle analysis of a renewable power grid. In fact, research has shown that it can be more energy efficient to curtail renewable power from wind turbines than to store it, because the energy needed to manufacture storage and operate it (which involves charge-discharge losses) surpasses the energy that is lost through curtailment. [23]

If we count on electric cars to store the surplus of renewable electricity, their batteries would need to be 60 times larger than they are today

It has been calculated that for a European power grid with 100% renewable power plants (670 GW wind power capacity and 810 GW solar power capacity) and no balancing capacity, the energy storage capacity needs to be 1.5 times the average monthly load and amounts to 400 TWh, not including charging and discharging losses. [32] [33] [34]

To give an idea of what this means: the most optimistic estimation of Europe’s total potential for pumped hydro-power energy storage is 80 TWh [35], while converting all 250 million passenger cars in Europe to electric drives with a 30 kWh battery would result in a total energy storage of 7.5 TWh. In other words, if we count on electric cars to store the surplus of renewable electricity, their batteries would need to be 60 times larger than they are today (and that’s without allowing for the fact that electric cars will substantially increase power consumption).

Taking into account a charging/discharging efficiency of 85%, manufacturing 460 TWh of lithium-ion batteries would require 644 million Terajoule of primary energy, which is equal to 15 times the annual primary energy use in Europe. [36] This energy investment would be required at minimum every twenty years, which is the most optimistic life expectancy of lithium-ion batteries. There are many other technologies for storing excess electricity from renewable power plants, but all have unique disadvantages that make them unattractive on a large scale. [37] [38]

Matching Supply to Demand = Overbuilding the Infrastructure

In conclusion, calculating only the energy payback times of individual solar panels or wind turbines greatly overestimates the sustainability of a renewable power grid. If we want to match supply to demand at all times, we also need to factor in the energy use for overbuilding the power generation and transmission capacity, and the energy use for building the backup generation capacity and/or the energy storage. The need to overbuild the system also increases the costs and the time required to switch to renewable energy.

Calculating only the energy payback times of individual solar panels or wind turbines greatly overestimates the sustainability of a renewable power grid.

Combining different strategies is a more synergistic approach which improves the sustainability of a renewable power grid, but these advantages are not large enough to provide a fundamental solution. [33] [39] [40]

Building solar panels, wind turbines, transmission lines, balancing capacity and energy storage using renewable energy instead of fossil fuels doesn’t solve the problem either, because it also assumes an overbuilding of the infrastructure: we would need to build an extra renewable energy infrastructure to build the renewable energy infrastructure.

Adjusting Demand to Supply

However, this doesn’t mean that a sustainable renewable power grid is impossible. There’s a fifth strategy, which does not try to match supply to demand, but instead aims to match demand to supply. In this scenario, renewable energy would ideally be used only when it’s available. 

If we could manage to adjust all energy demand to variable solar and wind resources, there would be no need for grid extensions, balancing capacity or overbuilding renewable power plants. Likewise, all the energy produced by solar panels and wind turbines would be utilised, with no transmission losses and no need for curtailment or energy storage.  

Moulbaix Belgium  the windmill de la Marquise XVII XVIIIth centuries

Windmill in Moulbaix, Belgium, 17th/18th century. Image: Jean-Pol GrandMont.

Of course, adjusting energy demand to energy supply at all times is impossible, because not all energy using activities can be postponed. However, the adjustment of energy demand to supply should take priority, while the other strategies should play a supportive role. If we let go of the need to match energy demand for 24 hours a day and 365 days a year, a renewable power grid could be built much faster and at a lower cost, making it more sustainable overall.

If we could manage to adjust all energy demand to variable solar and wind resources, there would no need for energy storage, grid extensions, balancing capacity or overbuilding renewable power plants.

With regards to this adjustment, even small compromises yield very beneficial results. For example, if the UK would accept electricity shortages for 65 days a year, it could be powered by a 100% renewable power grid (solar, wind, wave & tidal power) without the need for energy storage, a backup capacity of fossil fuel power plants, or a large overcapacity of power generators. [29] 

If demand management is discussed at all these days, it’s usually limited to so-called ‘smart’ household devices, like washing machines or dishwashers that automatically turn on when renewable energy supply is plentiful. However, these ideas are only scratching the surface of what’s possible.

Before the Industrial Revolution, both industry and transportation were largely dependent on intermittent renewable energy sources. The variability in the supply was almost entirely solved by adjusting energy demand. For example, windmills and sailing boats only operated when the wind was blowing. In the next article, I will explain how this historical approach could be successfully applied to modern industry and cargo transportation.

Kris De Decker (edited by Jenna Collett)


Sources:

[1] Swart, R. J., et al. Europe’s onshore and offshore wind energy potential, an assessment of environmental and economic constraints. No. 6/2009. European Environment Agency, 2009.

[2] Lopez, Anthony, et al. US renewable energy technical potentials: a GIS-based analysis. NREL, 2012. See also Here’s how much of the world would need to be covered in solar panels to power Earth, Business Insider, October 2015.

[3] Hart, Elaine K., Eric D. Stoutenburg, and Mark Z. Jacobson. “The potential of intermittent renewables to meet electric power demand: current methods and emerging analytical techniques.” Proceedings of the IEEE 100.2 (2012): 322-334.

[4] Ambec, Stefan, and Claude Crampes. Electricity production with intermittent sources of energy. No. 10.07. 313. LERNA, University of Toulouse, 2010.

[5] Mulder, F. M. “Implications of diurnal and seasonal variations in renewable energy generation for large scale energy storage.” Journal of Renewable and Sustainable Energy 6.3 (2014): 033105.

[6] INITIATIVE, MIT ENERGY. “Managing large-scale penetration of intermittent renewables.” (2012).

[7] Richard Perez, Mathieu David, Thomas E. Hoff, Mohammad Jamaly, Sergey Kivalov, Jan Kleissl, Philippe Lauret and Marc Perez (2016), “Spatial and temporal variability of solar energy“, Foundations and Trends in Renewable Energy: Vol. 1: No. 1, pp 1-44. http://dx.doi.org/10.1561/2700000006

[8] Sun Angle and Insolation. FTExploring.

[9]  Sun position calculator, Sun Earth Tools.

[10] Burgess, Paul. ” Variation in light intensity at different latitudes and seasons effects of cloud cover, and the amounts of direct and diffused light.” Forres, UK: Continuous Cover Forestry Group. Available online at http://www. ccfg. org. uk/conferences/downloads/P_Burgess. pdf. 2009.

[11] Solar output can be increased, especially in winter, by tilting solar panels so that they make a 90 degree angle with the sun’s rays. However, this only addresses the spreading out of solar irradiation and has no effect on the energy lost because of the greater air mass, nor on the amount of daylight hours. Furthermore, tilting the panels is always a compromise. A panel that’s ideally tilted for the winter sun will be less efficient in the summer sun, and the other way around.

[12] Schaber, Katrin, Florian Steinke, and Thomas Hamacher. “Transmission grid extensions for the integration of variable renewable energies in europe: who benefits where?.” Energy Policy 43 (2012): 123-135.

[13] German offshore wind capacity factors, Energy Numbers, July 2017

[14] What are the capacity factors of America’s wind farms? Carbon Counter, 24 July 2015.

[15] Sorensen, Bent. Renewable Energy: physics, engineering, environmental impacts, economics & planning; Fourth Edition. Elsevier Ltd, 2010.

[16] Jerez, S., et al. “The Impact of the North Atlantic Oscillation on Renewable Energy Resources in Southwestern Europe.” Journal of applied meteorology and climatology 52.10 (2013): 2204-2225.

[17] Eerme, Kalju. “Interannual and intraseasonal variations of the available solar radiation.” Solar Radiation. InTech, 2012.

[18] Archer, Cristina L., and Mark Z. Jacobson. “Geographical and seasonal variability of the global practical wind resources.” Applied Geography 45 (2013): 119-130.

[19] Rugolo, Jason, and Michael J. Aziz. “Electricity storage for intermittent renewable sources.” Energy & Environmental Science 5.5 (2012): 7151-7160.

[20] Even at today’s relatively low shares of renewables, curtailment is already happening, caused by either transmission congestion, insufficient transmission availability, or minimal operating levels on thermal generators (coal and atomic power plants are designed to operate continuously). See: “Wind and solar curtailment”, Debra Lew et al., National Renewable Energy Laboratory, 2013. For example, in China, now the world’s top wind power producer, nearly one-fifth of total wind power is curtailed. See: Chinese wind earnings under pressure with fifth of farms idle, Sue-Lin Wong & Charlie Zhu, Reuters, May 17, 2015.

[21] Barnhart, Charles J., et al. “The energetic implications of curtailing versus storing solar- and wind-generated electricity.” Energy & Environmental Science 6.10 (2013): 2804-2810.

[22] Schaber, Katrin, et al. “Parametric study of variable renewable energy integration in europe: advantages and costs of transmission grid extensions.” Energy Policy 42 (2012): 498-508.

[23] Schaber, Katrin, Florian Steinke, and Thomas Hamacher. “Managing temporary oversupply from renewables efficiently: electricity storage versus energy sector coupling in Germany.” International Energy Workshop, Paris. 2013.

[24] Underground cables can partly overcome this problem, but they are about 6 times more expensive than overhead lines.

[25] Szarka, Joseph, et al., eds. Learning from wind power: governance, societal and policy perspectives on sustainable energy. Palgrave Macmillan, 2012.

[26] Rodriguez, Rolando A., et al. “Transmission needs across a fully renewable european storage system.” Renewable Energy 63 (2014): 467-476.

[27] Furthermore, new transmission capacity is often required to connect renewable power plants to the rest of the grid in the first place — solar and wind farms must be co-located with the resource itself, and often these locations are far from the place where the power will be used.

[28] Becker, Sarah, et al. “Transmission grid extensions during the build-up of a fully renewable pan-European electricity supply.” Energy 64 (2014): 404-418.

[29] Zero Carbon britain: Rethinking the Future, Paul Allen et al., Centre for Alternative Technology, 2013

[30] Wave energy often correlates with wind power: if there’s no wind, there’s usually no waves.

[31] Building even larger supergrids to take advantage of even wider geographical regions, or even the whole planet, could make the need for balancing capacity largely redundant. However, this could only be done at very high costs and increased transmission losses. The transmission costs increase faster than linear with distance traveled since also the amount of peak power to be transported will grow with the surface area that is connected. [5] Practical obstacles also abound. For example, supergrids assume peace and good understanding between and within countries, as well as equal interests, while in reality some benefit much more from interconnection than others. [22]

[32] Heide, Dominik, et al. “Seasonal optimal mix of wind and solar power in a future, highly renewable Europe.” Renewable Energy 35.11 (2010): 2483-2489.

[33] Rasmussen, Morten Grud, Gorm Bruun Andresen, and Martin Greiner. “Storage and balancing synergies in a fully or highly renewable pan-european system.” Energy Policy 51 (2012): 642-651.

[34] Weitemeyer, Stefan, et al. “Integration of renewable energy sources in future power systems: the role of storage.” Renewable Energy 75 (2015): 14-20.

[35] Assessment of the European potential for pumped hydropower energy storage, Marcos Gimeno-Gutiérrez et al., European Commission, 2013 

[36] The calculation is based on the data in this article: How sustainable is stored sunlight? Kris De Decker, Low-tech Magazine, 2015.

[37] Evans, Annette, Vladimir Strezov, and Tim J. Evans. “Assessment of utility energy storage options for increased renewable energy penetration.” Renewable and Sustainable Energy Reviews 16.6 (2012): 4141-4147.

[38] Zakeri, Behnam, and Sanna Syri. “Electrical energy storage systems: A comparative life cycle cost analysis.” Renewable and Sustainable Energy Reviews 42 (2015): 569-596.

[39] Steinke, Florian, Philipp Wolfrum, and Clemens Hoffmann. “Grid vs. storage in a 100% renewable Europe.” Renewable Energy 50 (2013): 826-832.

[40] Heide, Dominik, et al. “Reduced storage and balancing needs in a fully renewable European power system with excess wind and solar power generation.” Renewable Energy 36.9 (2011): 2515-2523.





The shape of things to come…..?

30 11 2018

Consciousness of Sheep keeps coming up with magnificent articles, like this one…..  

I know I keep saying this too, but the Matrix can’t continue lurching about for too much longer….

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

Despite a series of stock market scares, see-sawing oil prices and central banks jacking up interest rates, it seems likely that we are going to get through 2018 without experiencing the economic crash that many expected at the start of the year.  But while we may breathe a sigh of relief to have got to the festive season without a complete meltdown, the odds of another crash are still high.

Understanding what might go wrong is a particular problem according to Helen Thompson at the New Statesman.  Not least because 10 years on, we still cannot agree on what caused the last one:

“In July 2008 the then president of the European Central Bank (ECB), Jean-Claude Trichet, declared while announcing an increase in interest rates that the Eurozone’s fundamentals were sound. In fact, a recession had begun in the first quarter of that year.

“The causes of recessions are also sometimes wrongly diagnosed – even in retrospect. For instance, the impact of exceptionally high oil prices and the response of central banks to those prices are still routinely ignored as causes of the US and European recessions in the aftermath of the 2008 crash.”

Thompson’s article sets out a range of weaknesses across the global economy where a new economic meltdown could begin.  China, the (albeit anaemic) growth engine of the global economy for the last decade, has developed debt problems not dissimilar to those in the west in 2008:

“Economic growth in China has been slowing since the second half of 2017, and even the growth of the first half of that year was an interruption of a downward slope that began in 2013. Predictions of a Chinese financial crisis, owing to the country’s huge accumulation of debt since 2008, are made too readily. But China is now caught between a policy shift towards deleveraging to try to avoid such a debt-induced financial crisis, and another debt-financed push for higher growth amid an economic slowdown and a fierce trade war with the US. The Chinese government is struggling under these conflicting imperatives as the country’s dollar reserves fall.”

The Eurozone is also in trouble:

“Growth in the third quarter was the weakest since the second quarter of 2014. Germany’s economy contracted and Italy’s experienced no growth. If the Eurozone’s troubles were confined to Italy, there would be less cause for concern. But even Germany’s powerhouse economy is weakening: retail sales and exports have fallen for several successive months.”

Canada – like the UK – is a basket case just waiting the central bank to add that last interest rate hike to push it over the edge.  Things are more complicated across the border in the USA:

“The official US unemployment rate stands at 3.7 per cent, the lowest since 1969. But this masks a notably low participation rate (62.9 per cent), as significant numbers of people have withdrawn from the labour market. Ever-fewer jobs sustain middle-class lifestyles, especially in cities where housing costs have risen over the past decade.”

Of course, a “black swan” event beyond the areas that Thompson points to might also prove to be the trigger for the next meltdown.  A collapse in the Australian property market, renewed conflict in one of the successor states of the Soviet Union or an oil shock in the Middle East are not beyond the bounds of possibility in 2019.

What is clear, however, is that we are in uncharted territory when it comes to understanding and having any chance of fixing the next meltdown.  As Thompson points out:

“Central banks cannot fix what they set in motion after 2008. There appears to be no way forward that would let this economic cycle play out without risking much more disruption than the typical recession would bring. What is at stake is compounded by the problem of oil: shale production must be sustained by one or more of the following: high prices, extremely cheap credit or investors’ indifference to profitability.

“When a recession does come, central banks are unlikely to be able to respond without wading even further into uncharted monetary and political waters. And major economies will have significantly higher levels of debt than in 2008, interest rates will already be low and central banks will have enormous balance sheets. As a consequence, a policy response comparable to that of 2008 is likely to be more dangerous and insufficient to restore sustained growth. In times of fear, high debt ensures that, beyond a certain point, consumers simply cannot be incentivised to spend more. Even if they were to be tempted with ‘helicopter money’ from central banks – new money distributed freely to citizens – there is no guarantee at all that the money would do much for aggregate demand.”

Unusually for a mainstream academic Thompson – who is a professor of political economy at Cambridge University – grasps the impact of energy on the economy; particularly the hard choices that face politicians and central bankers as we transition from energy growth to energy decline:

“It has become impossible to confront the economic predicaments in the global economy without contemplating sacrifice, whether that be politicians and central bankers choosing where the heavy costs of the next policy response will fall, or recognising the role that energy sustainability has in maintaining material living standards and a liberal international politics…”

Tighter energy, coupled to the central bank policies that have kept business as usual limping along since the last meltdown, has given rise to a populist revolt that has thus far focused on the democratic pathways in liberal democracies, but has also favoured an emboldened nationalist right that has successfully targeted immigration as the cause of people’s woes.  Worse still, via social media, contrarian economists like Steve Keen, campaign groups like Positive Money and even central bank economists themselves, far more people understand that zero percent interest rates and quantitative easing were designed to favour the already wealthy at the expense of the majority of the population.  It would be lunacy for politicians and central bankers to attempt to do the same thing again this time around:

“The 2007-09 recessions exposed the political discontent that had grown in Western democracies over the previous decade. The next recession will begin with that discontent already bringing about substantial political disruption – from Brexit to Trump’s election to the Lega-Five Star coalition in Italy – which in itself has become a source of economic fear. The economic dangers that lurk are only likely to increase political fragmentation, especially when there is little understanding of the structural economic forces that serve to divide people.”

Unfortunately, the political left are like so many rabbits caught in the headlights in relation to the crisis that is coming.  Rather than the right wing economic and social policies of Trump or the European nationalist parties, the left is most opposed to the populism that these movements harness.  The opposite of populism, of course, is elitism… and that puts the political left on the same platform that Marie Antoinette found herself on in October 1793.

There is no written law that says that the political left or even benign liberals have to win in the end – that storyline only works in Hollywood movies.  In the crisis that we are about to face – whether it be 2019 or 2020 – responding with more policies that favour the wealthy while driving the faces of the poor into the dirt can only end one way, as Thompson reminds us:

“History is full of grisly episodes, usually in eras of revolution, when the politics of sacrifice have come to the fore. Indeed, in many ways, the whole ideal of Western liberal democracies in the postwar world has been about the importance of avoiding such a politics, even as the policies governments pursued unavoidably created winners and losers.

“But the conditions for politics have now become much harder, and the collective and individual question of our times has become how we can confront the inescapable political conflict generated by deep economic dysfunctionality without losing the democratic and liberal foundations of political order as we know it?”

The answer to this question might be the same as the answer to the two other existential crises facing us – How can we prevent runaway climate change without undermining our civilisation? And how can we prevent resource depletion and energy decline undermining it?  The answer is very likely to be that we can’t.





What’s happened to Peak Oil since Peak Oil….

2 10 2018

The latest news that Mexico has this month switched from being a net oil exporter to a net oil importer prompted me to do some more research on what stage we all are with Peak Oil…….  and as expected, the news are not good. Since the peak of conventional oil in 2005, ALL the major producing nations except for Iraq and the US have been producing less and less in real terms, and let’s face it, half the US’ production is unviable shale oil which since the GFC has lost the oil industry $280 billion and counting…..

Meanwhile, pundits on TV are expressing disbelief at how the price of fuel is skyrocketing in Australia (with our dollar struggling to remain above $US0.70) while oil is simultaneously surging under all sorts of pressures.

Crude_prod_changes_2005-May_2018Fig 2: Crude production changes between 2005 and 2018 by country

Group A
Countries where average oil production Jan-May 2018 was lower than the average in 2005. At the bottom is Mexico with the highest rate of decline. This group started to peak in 1997, entering a long bumpy production plateau at around 25 mb/d, ending – you guessed it – in 2005. This is down now to 16 mb/d, a decline of 700 kb/d pa (-2.8% pa).

Decline-group_1994-May2018Fig 3: Group A countries

Group B

Countries where average oil production Jan-May 2018 was higher than the average in 2005. At the top of the stack are Iraq and the US, where growth was highest. Group B compensated for the decline in group A and provided for growth above the red dashed line in Fig 1.
The 2018 data have not been seasonally adjusted.
In group B we have a subgroup of countries which peaked after 2005

Crude_post-2005-peaking_1994-May2018Fig 4: Countries peaking after 2005

A production plateau above 7 mb/d lasted for 6 years between 2010 and 2016. The average was 7.1 mb/d, around +1.8 mb/d higher than in 2005. Another country in this subgroup is China, here shown separately because of its importance and consequences.

Cumulative_crude_prod_changes_2005-May_2018Fig 13: Cumulative crude production changes since 2005

This is a cumulative curve of Fig 2 with changes in ascending order (from negative to positive). On the left, declining production from group A adds up to -9 mb/d (column at Ecuador). Then moving to the right, countries with growing production reduce the cumulative (still negative) until the system is in balance (column at Canada). Only Iraq and the US provide for growth.

According to Crude Oil Peak, where all the above charts came from, the only viable conclusion is…..:

Assuming that the balancing act between declining and growing countries continues (from Mexico through to Canada) the whole system will peak when the US shale oil peaks (in the Permian) as a result of geology or other factors and/or lack of finance in the next credit crunch and when Iraq peaks due to social unrest or other military confrontation in the oil producing Basra region. There are added risks from continuing disruptions in Nigeria and Libya, steeper declines in Venezuela and the impact of sanctions on Iran.

Assuming that the balancing act between declining and growing countries continues (from Mexico through to Canada) the whole system will peak when the US shale oil peaks (in the Permian) as a result of geology or other factors and/or lack of finance in the next credit crunch and when Iraq peaks due to social unrest or other military confrontation in the oil producing Basra region. There are added risks from continuing disruptions in Nigeria and Libya, steeper declines in Venezuela and the impact of sanctions on Iran.

To top it off, here’s a video clip of this guy I’ve never heard of before but which, whilst not peak oil specific, seems on the money to me…….





Conjuring Up the Next Depression

11 09 2018

chrishedges

Chris Hedges

During the financial crisis of 2008, the world’s central banks, including the Federal Reserve, injected trillions of dollars of fabricated money into the global financial system. This fabricated money has created a worldwide debt of $325 trillion, more than three times global GDP. The fabricated money was hoarded by banks and corporations, loaned by banks at predatory interest rates, used to service interest on unpayable debt or spent buying back stock, providing millions in compensation for elites. The fabricated money was not invested in the real economy. Products were not manufactured and sold. Workers were not reinstated into the middle class with sustainable incomes, benefits and pensions. Infrastructure projects were not undertaken. The fabricated money reinflated massive financial bubbles built on debt and papered over a fatally diseased financial system destined for collapse.

What will trigger the next crash? The $13.2 trillion in unsustainable U.S. household debt? The $1.5 trillion in unsustainable student debt? The billions Wall Street has invested in a fracking industry that has spent $280 billion more than it generated from its operations? Who knows. What is certain is that a global financial crash, one that will dwarf the meltdown of 2008, is inevitable. And this time, with interest rates near zero, the elites have no escape plan. The financial structure will disintegrate. The global economy will go into a death spiral. The rage of a betrayed and impoverished population will, I fear, further empower right-wing demagogues who promise vengeance on the global elites, moral renewal, a nativist revival heralding a return to a mythical golden age when immigrants, women and people of color knew their place, and a Christianized fascism.

The 2008 financial crisis, as the economist Nomi Prins points out, “converted central banks into a new class of power brokers.” They looted national treasuries and amassed trillions in wealth to become politically and economically omnipotent. In her book “Collusion: How Central Bankers Rigged the World,” she writes that central bankers and the world’s largest financial institutions fraudulently manipulate global markets and use fabricated, or as she writes, “fake money,” to inflate asset bubbles for short-term profit as they drive us toward “a dangerous financial precipice.”

“Before the crisis, they were just asleep at the wheel, in particular, the Federal Reserve of the United States, which is supposed to be the main regulator of the major banks in the United States,” Prins said when we met in New York. “It did a horrible job of doing that, which is why we had the financial crisis. It became a deregulator instead of a regulator. In the wake of the financial crisis, the solution to fixing the crisis and saving the economy from a great depression or recession, whatever the terminology that was used at any given time, was to fabricate trillions and trillions of dollars out of an electronic ether.”

The Federal Reserve handed over an estimated $29 trillion of this fabricated money to American banks, according to researchers at the University of MissouriTwenty-nine trillion dollars! We could have provided free college tuition to every student or universal health care, repaired our crumbling infrastructure, transitioned to clean energy, forgiven student debt, raised wages, bailed out underwater homeowners, formed public banks to invest at low interest rates in our communities, provided a guaranteed minimum income for everyone and organized a massive jobs program for the unemployed and underemployed. Sixteen million children would not go to bed hungry. The mentally ill and the homeless—an estimated 553,742 Americans are homeless every night—would not be left on the streets or locked away in our prisons. The economy would revive. Instead, $29 trillion in fabricated money was handed to financial gangsters who are about to make most of it evaporate and plunge us into a depression that will rival that of the global crash of 1929.

Kevin Zeese and Margaret Flowers write on the website Popular Resistance, “One-sixth of this could provide a $12,000 annual basic income, which would cost $3.8 trillion annually, doubling Social Security payments to $22,000 annually, which would cost $662 billion, a $10,000 bonus for all U.S. public school teachers, which would cost $11 billion, free college for all high school graduates, which would cost $318 billion, and universal preschool, which would cost $38 billion. National improved Medicare for all would actually save the nation trillions of dollars over a decade.”

An emergency clause in the Federal Reserve Act of 1913 allows the Fed to provide liquidity to a distressed banking system. But the Federal Reserve did not stop with the creation of a few hundred billion dollars. It flooded the financial markets with absurd levels of fabricated money. This had the effect of making the economy appear as if it had revived. And for the oligarchs, who had access to this fabricated money while we did not, it did.

The Fed cut interest rates to near zero. Some central banks in Europe instituted negative interest rates, meaning they would pay borrowers to take loans. The Fed, in a clever bit of accounting, even permitted distressed banks to use these no-interest loans to buy U.S. Treasury bonds. The banks gave the bonds back to the Fed and received a quarter of a percent of interest from the Fed. In short, the banks were loaned money at virtually no interest by the Fed and then were paid interest by the Fed on the money they borrowed. The Fed also bought up worthless mortgage assets and other toxic assets from the banks. Since Fed authorities could fabricate as much money as they wanted, it did not matter how they spent it.

“It’s like going to someone’s old garage sale and saying, ‘I want that bicycle with no wheels. I’ll pay you 100 grand for it. Why? Because it’s not my money,’ ” Prins said.

“These people have rigged the system,” she said of the bankers. “There is money fabricated at the top. It is used to pump up financial assets, including stock. It has to come from somewhere. Because money is cheap there’s more borrowing at the corporate level. There’s more money borrowed at the government level.”

“Where do you go to repay it?” she asked. “You go into the nation. You go into the economy. You extract money from the foundational economy, from social programs. You impose austerity.”

Given the staggering amount of fabricated money that has to be repaid, the banks need to build greater and greater pools of debt. This is why when you are late in paying your credit card the interest rate jumps to 28 percent. This is why if you declare bankruptcy you are still responsible for paying off your student loan, even as 1 million people a year default on student loans, with 40 percent of all borrowers expected to default on student loans by 2023. This is why wages are stagnant or have declined while costs, from health care and pharmaceutical products to bank fees and basic utilities, are skyrocketing. The enforced debt peonage grows to feed the beast until, as with the subprime mortgage crisis, the predatory system fails because of massive defaults. There will come a day, for example, as with all financial bubbles, when the wildly optimistic projected profits of industries such as fracking will no longer be an effective excuse to keep pumping money into failing businesses burdened by debt they cannot repay.

“The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses,” Bethany McLean writes of the fracking industry in an article titled “The Next Financial Crisis Lurks Underground” that appeared in The New York Times. “In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter.”

The global financial system is a ticking time bomb. The question is not if it will explode but when it will explode. And once it does, the inability of the global speculators to use fabricated money with zero interest to paper over the debacle will trigger massive unemployment, high prices for imports and basic services, and a devaluation in which the dollar will become nearly worthless as it is abandoned as the world’s reserve currency. This manufactured financial tsunami will transform the United States, already a failed democracy, into an authoritarian police state. Life will become very cheap, especially for the vulnerable—undocumented workers, Muslims, poor people of color, girls and women, anti-capitalist and anti-imperialist critics branded as agents of  foreign powers—who will be demonized and persecuted for the collapse. The elites, in a desperate bid to cling to their unchecked power and obscene wealth, will disembowel what is left of the United States.





Club of Rome’s predictions on target….

1 09 2018

Anyone following this blog will know I bang on about Limits to Growth constantly…… just click on the “Limits to Growth” text in the issues cloud in the right hand side bar of this blog, and you will see what I mean….. One of the most read entry on this blog is an interview with Dennis Meadows in which he says “There’s nothing we can do”, closely followed by Graham Turner’s most recent studies showing the CoR’s standard run is bang on target for realisation…….

Now along comes this fascinating video that apparently made the news on our own trusted ABC in 1973 (Australian Broadcasting Corporation if you’re not from here!) which, in my internet circles at least, is surfacing constantly….

I love its historic implications, and the way it shows how crude computing power could still come up with the goods……. and also shows how we did absolutely nothing to stave off disaster.

World One – the name of the computer – showed that by 2040 there would be a global collapse if the expansion of the population and industry was to continue at the current levels….. I frankly doubt this won’t happen by 2030.

2020 is the first milestone envisioned by World One. We now have less than two years folks…. That’s when the quality of life is supposed to drop dramatically. The broadcaster presented this scenario that will lead to the demise of large numbers of people:

“At around 2020, the condition of the planet becomes highly critical. If we do nothing about it, the quality of life goes down to zero. Pollution becomes so seriously it will start to kill people, which in turn will cause the population to diminish, lower than it was in 1900. At this stage, around 2040 to 2050, civilised life as we know it on this planet will cease to exist.”

Alexander King, the then-leader of the Club of Rome, evaluated the program’s results to also mean that nation-states will lose their sovereignty, forecasting a New World Order with corporations managing everything.

“Sovereignty of nations is no longer absolute,” King told ABC. “There is a gradual diminishing of sovereignty, little bit by little bit. Even in the big nations, this will happen.”

Well, THAT has already happened……

And now this…….  “enjoy”…..





Areas Of The World More Vulnerable To Collapse

16 06 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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





The beginning of the end for the USA?

10 09 2017

America Can’t Afford to Rebuild

By Raul Illargi

A number of people have argued over the past few days that Hurricane Harvey will NOT boost the US housing market. As if any such argument would or should be required. Hurricane Irma will not provide any such boost either. News about the ‘resurrection’ of New Orleans post-Katrina has pretty much dried up, but we know scores of people there never returned, in most cases because they couldn’t afford to.

And Katrina took place 12 years ago, well before the financial crisis. How do you think this will play out today? Houston is a rich city, but that doesn’t mean it’s full of rich people only. Most homeowners in the city and its surroundings have no flood insurance; they can’t afford it. But they still lost everything. So how will they rebuild?

Sure, the US has a National Flood Insurance Program, but who’s covered by it? Besides, the Program was already $24 billion in debt by 2014 largely due to hurricanes Katrina and Sandy. With total costs of Harvey estimated at $200 billion or more, and Irma threating to cause far more damage than that, where’s the money going to come from?

It took an actual fight just to push the first few billion dollars in emergency aid for Houston through Congress, with four Texan representatives voting against of all people. Who then will vote for half a trillion or so in aid? And even if they do, where would it come from?

 

 

Trump’s plans for an infrastructure fund were never going to be an easy sell in Washington, and every single penny he might have gotten for it would now have to go towards repairing existing roads and bridges, not updating them -necessary as that may be-, let alone new construction.

Towns, cities, states, they’re all maxed out as things are, with hugely underfunded pension obligations and crumbling infrastructure of their own. They’re going to come calling on the feds, but Washington is hitting its debt ceiling. All the numbers are stacked against any serious efforts at rebuilding whatever Harvey and Irma have blown to pieces or drowned.

As for individual Americans, two-thirds of them don’t have enough money to pay for a $500 emergency, let alone to rebuild a home. Most will have a very hard time lending from banks as well, because A) they’re already neck-deep in debt, and B) because the banks will get whacked too by Harvey and Irma. For one thing, people won’t pay the mortgage on a home they can’t afford to repair. Companies will go under. You get the picture.

There are thousands of graphs that tell the story of how American debt, government, financial and non-financial, household, has gutted the country. Let’s stick with some recent ones provided by Lance Roberts. Here’s how Americans have maintained the illusion of their standard of living. Lance’s comment:

This is why during the 80’s and 90’s, as the ease of credit permeated its way through the system, the standard of living seemingly rose in America even while economic growth rate slowed along with incomes. Therefore, as the gap between the “desired” living standard and disposable income expanded it led to a decrease in the personal savings rates and increase in leverage. It is a simple function of math. But the following chart shows why this has likely come to the inevitable conclusion, and why tax cuts and reforms are unlikely to spur higher rates of economic growth.

 

 

There’s no meat left on that bone. There isn’t even a bone left. There’s only a debt-ridden mirage of a bone. If you’re looking to define the country in bumper-sticker terms, that’s it. A debt-ridden mirage. Which can only wait until it’s relieved of its suffering. Irma may well do that. A second graph shows the relentless and pitiless consequences of building your society, your lives, your nation, on debt.

 

 

It may not look all that dramatic, but look again. Those are long-term trendlines, and they can’t just simply be reversed. And as debt grows, the economy deteriorates. It’s a double trendline, it’s as self-reinforcing as the way a hurricane forms.

 

Back to Harvey and Irma. Even with so many people uninsured, the insurance industry will still take a major hit on what actually is insured. The re-insurance field, Munich RE, Swiss RE et al, is also in deep trouble. Expect premiums to go through the ceiling. As your roof blows off.

We can go on listing all the reasons why, but fact is America is in no position to rebuild. Which is a direct consequence of the fact that the entire nation has been built on credit for decades now. Which in turn makes it extremely vulnerable and fragile. Please do understand that mechanism. Every single inch of the country is in debt. America has been able to build on debt, but it can’t rebuild on it too, precisely because of that.

There is no resilience and no redundancy left, there is no way to shift sufficient funds from one place to the other (the funds don’t exist). And the grand credit experiment is on its last legs, even with ultra low rates. Washington either can’t or won’t -depending on what affiliation representatives have- add another trillion+ dollars to its tally, state capitals are already reeling from their debt levels, and individuals, since they have much less access to creative accounting than politicians, can just forget about it all.

Not that all of this is necessarily bad: why would people be encouraged to build or buy homes in flood- and hurricane prone areas in the first place? Why is that government policy? Why is it accepted? Yes, developers and banks love it, because it makes them a quick buck, and then some, and the Fed loves it because it keeps adding to the money supply, but it has turned America into a de facto debt colony.

If you want to know what will happen to Houston and whatever part of Florida gets hit worst, think New Orleans/Katrina, but squared or cubed -thanks to the 2007/8 crisis.