Overview of Our Energy Modeling Problem

We live in a world with limits, yet our economy needs growth. How can we expect this scenario to play out? My view is that this problem will play out as a fairly near-term financial problem, with low oil prices leading to a fall in oil production. But not everyone comes to this conclusion. What were the views of early researchers? How do my views differ?

In my post today, I plan to discuss the first lecture I gave to a group of college students in Beijing. A PDF of it can be found here: 1. Overview of Energy Modeling Problem. A MP4 video is available as well on my Presentations/Podcasts Page.

Many Limits in a Finite World

We live in a world with limits. These limits are not just energy limits; they come in many different forms:

2 We are reaching limits in many ways

All these limits work together. We can work around these limits, but the workarounds are higher cost–for example, substituting less polluting energy resources for more polluting energy resources, or extracting lower grade ores instead of high-grade ores. When lower grade ores are used, we need to process more waste material, raising costs because of greater energy use. When population rises, we must change our agricultural approaches to increase food production per acre cultivated.

The problem we reach with any of these workarounds is diminishing returns. We can keep increasing output, but doing so requires disproportionately more inputs of many kinds (including human labor, mineral resources, fresh water, and energy products) to produce the same quantity of output. This creates higher costs, and can lead to financial problems. This phenomenon is one of the major things that a model of a finite world should reflect.

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Putting the Real Story of Energy and the Economy Together

What is the real story of energy and the economy? We hear two predominant energy stories. One is the story economists tell: The economy can grow forever; energy shortages will have no impact on the economy. We can simply substitute other forms of energy, or do without.

Another version of the energy and the economy story is the view of many who believe in the “Peak Oil” theory. According to this view, oil supply can decrease with only a minor impact on the economy. The economy will continue along as before, except with higher prices. These higher prices encourage the production of alternatives, such wind and solar. At this point, it is not just peak oilers who endorse this view, but many others as well.

In my view, the real story of energy and the economy is much less favorable than either of these views. It is a story of oil limits that will make themselves known as financial limits, quite possibly in the near term—perhaps in as little time as a few months or years. Our underlying problem is diminishing returns—it takes more and more effort (hours of workers’ time and quantities of resources), to produce essentially the same goods and services.

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Gail in China Report #3

Greetings Finite Worlders!  Gail is on her 1 month lecture tour of China. She’s unable to access WordPress from China, but does have access to email, so she’s sending me updates to publish here on OFW.  My Byline/About appears at the bottom here, but the China Travelogue articles are authored by her. -RE

From Gail below:

Greetings from China again!

As I mentioned previously, it was Prof. Feng at China University of Petroleum in Beijing who invited me to come to China for the first two weeks. In the second two weeks I would be doing a variety of other things. I am now in the “other things” part of the visit.
One thing we did during the first two weeks is make video recordings of the talks I gave during the first two weeks. I also I have the PDF slides. After I get back I will work on putting those things up on OurFiniteWorld.com.
One thing that Prof. Feng has talked to me about is that he would like to host a “Finite World” conference in Beijing in 2016, if he can get the details worked out (and if the financial system stays together well enough, and if I would help with the endeavor). Because of the cost of transport and other details involved, he expects that the vast majority of the attendees would be from China–perhaps 80 Chinese attendees and 20 attendees from elsewhere in the world. Given the way Prof. Feng does things, I expect the plan would be to make videos of those talks available on line, to the many people who would not be able to travel to China.
I have been working on a number of other things. Together with Prof. Feng and a graduate student, I wrote an article called, “The Myth of Everlasting Oil from Shale Formations,” which we are hoping will run in the “People’s Daily.” The graduate student translated it into Chinese.
One morning, I gave a talk to a group of about 20 people doing research related to energy and the economy at an institute in Beijing. This is a photo of Prof. Feng, the director of the research group (Prof. Fan), and myself, standing in front of their buildings. They seemed to be interested in what I had to say. This talk was videotaped as well.
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One evening, I met with the vice president in charge of international operations for BGP, which is the subsidiary of China National Petroleum Corporation (CNPC) that does the initial geological assessment of proposed new locations. He told us that the work of his staff is down by 50%, but that the company has held off in laying off workers, because they are hopeful that prices will rise in the next few months. He is also hopeful that technological innovation will solve our other problems. He said that he is hesitant to lay off staff, because if he loses his staff, he loses the heart of his operations. It is very hard to build the expertise back up again.
I visited Ordos, Inner Mongolia for a short time. I received a very warm welcome there, from the extended family of the graduate student who invited me to visit the area. This is a photo of me shaking hands (in a symbolic handshake of friendship) with the graduate student’s father, while the graduate student looks on.
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Ordos is the gateway to many of China’s coal operations. One of the things we noticed was how few cars were on the road. The road was a new four lane highway, but we drove for miles without seeing another car or other vehicle. The Ordos airport had few patrons, and many spaces available for stores were not rented. The airport had been built at the time the growth in coal operations was at its highest, but growth has not continued as hoped. Another thing we noticed is that while apartments seem still to be being built in Ordos, many of the apartments seem to be unoccupied.
I am now in Daqing (pronounced Daching), China, the home of China’s largest oil field, Daqing Oil Field. The city is a very modern city that grew up after Daqing oil field began production in 1960. It now has about 2.5 million inhabitants. The economy is very much tied to oil–I have been told that there are something like 300,000 CNPC employees living in Daqing, and many more indirectly tied to the oil field. The production of Daqing Oil Field is now in decline. We (I am here with others from Petroleum University of China, Beijing) visited some of the oil field operations today. The question a person might ask is whether low oil prices will adversely affect Daqing operations. When we attempted to ask CNPC employees questions along this line, we were told that the oil field is profitable at $40 barrel. We were also told that the company is testing the use of fracking and long horizontal wells, in the hope of increasing production (or slowing the decline).
When I asked how long oil prices would have to stay low before Daqing employment would be affected, the CNBC employee I asked (who may not be knowledgeable about this) said “one to two years.” When I talk to people at Petroleum University of China in Beijing, the point is made that the Chinese government realizes that there is a need for employment for a huge number of people–laying off a large number of employees would simply turn one problem into a different one. That is probably the reason why employment at CNPC is as high as it is–300,000 employees is a huge number for a field producing less than 1 million barrels a day. A large number of people are involved with monitoring well production. This part of the operation could probably be significantly mechanized, reducing the needed number of workers–but then what would all of the laid-off workers do? We will be meeting with some of the folks at the Daqing branch of Petroleum University of China tomorrow–perhaps they will have some additional insights. If the numbers I quoted above are right, the employees are not earning very much a piece–or the story about being profitable at $40 barrel is not true.
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Gail in China Report #2

Greetings Finite Worlders! Gail is on her 1 month lecture tour of China. She’s unable to access WordPress from China, but does have access to email, so she’s sending me updates to publish here on OFW. This is the second of her Updates to me from China.  My Byline/About appears at the bottom here, but the China Travelogue articles are authored by her and all photos are from her. We will try to keep you updated as the trip progresses. -RE

I left on March 13, and it is now March 25, so I have been traveling or in China for 12 days now. 

The short course I have been teaching is approaching its end point. I have given seven two-hour lectures to my class. Tomorrow, I will finish the last of my lectures (for 1/2 hour or so), and give a test for the rest of the period. The test will be multiple choice and short answer. The big concern I have is whether the students will know enough English to do well on the exam. One of the faculty has written translations for parts of the test, but there is still quite a lot that is not translated.
My plans for the rest of my stay here are still being finalized. I will be flying to Hohhot, Inner Mongolia on Friday, and staying through the week-end. That is about a 1.5 hour flight north-west of Beijing. One of the graduate students is from there. That is a big coal producing region, and wind energy is also produced there. The graduate student’s father is involved with wind energy.
There is also a plan that I will visit Daqing oil field with two of the professors, since that is a location that the professors are familiar with, and where they have contacts. The second trip will probably take place the following week-end (and a bit before and after), because the professors have teaching commitments during the week. In between, plans are still being finalized. One plan being discussed is an internal seminar with faculty/ grad students here; another is to try to get together with a fairly high level official that I met when I was here in 2011. I am doing other things as well. I have been helping Prof. Jiangliang Wang with a paper evaluating unconventional gas in China. (I have been a co-author on two previous papers with him.) And I am talking to graduate students about their projects, with the idea of perhaps helping them.
Prof. Feng would like to help me get my ideas together in an easy-to follow form. My lectures here have been videotaped (with me standing next to the slides), with the idea of putting the videotapes up on line, probably on OurFiniteWorld. I also have PDFs of my talk that can be put up on line, perhaps with notes added.
As I indicated previously, I am being treated very well. On Saturday morning, three graduate students and I climbed a nearby mountain overlooking a reservoir. It was not very high, and there were stairs leading to the top, so it was not too difficult.

 

Gail-China-1
A few comments about life here:
There are a lot of people wearing clothing with American logos on them, or with writing in English on them. Some of the writing is simply an American brand name like Adidas. I haven’t noticed any clothing at all with Chinese characters on them. In one case, I noticed a Chinese brand (361 Degrees) on a some shoes, written in American lettering.
A lot of people know at least a little English, since English has been taught in the schools for quite a few years (10?). But many of the students are not very good at spoken English, because most of their training was with respect to written English and grammar. The students have received PDFs of my presentations, so have had a chance to read them, and look up words if needed, to try to understand what is being said. Students all seem to have English-Chinese dictionaries on their phones, so that they can figure out translations.
There is no cold water served here, except bottled water (probably because of potability issues, past or present). At every meal, soup of some form is provided, free of charge. This is sometimes eaten with a spoon, and sometimes drunk from the bowl. Hot soy milk is one common from of soup, especially for breakfast. There are several other kinds of soup, including egg drop soup and various forms of thin grain porridge. At restaurants, if a beverage is ordered, it is often hot water, served in a pot (like hot water for tea, but without the tea). The graduate student office keeps thermoses of hot water, to make tea. In fact, all of the offices on campus seem to keep thermoses of hot water. These are refilled by the dining hall.
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The food is quite varied here, with more vegetables (and more kinds of vegetables) served here than in the United States. Fish tends to have a lot of bones in it; meat often has a lot of bones in it (or it is ground, and in a dumpling). I am willing to try quite a few things, so I haven’t had a problem with the food.
One thing I noticed is that the campus is not very handicapped accessible. I have seen a few buildings with ramps, but most of them have lots of steps. There are elevators, but they don’t necessarily stop at every floor. If you want to go to the fourth floor, you may have to go to the fifth floor and walk down a flight of stairs. Doorways may have bars at the bottom that a person has to step over. I asked about not seeing any students in wheelchairs on campus. I was told that the bus system wasn’t set up for handicapped people (and I doubt that the dorms are set up for handicapped people), so wheelchairs are few and far between.
The Great Firewall of China blocks a lot of websites–anything Google related, WordPress and Blogspot blogs, Facebook, Twitter, the Wall Street Journal, and I am sure a fair number of other sites. Our Finite World is available to read (but not edit) in China, but I have been having difficulty accessing it, apparently because of a weak WiFi system on campus. People who are accessing the Internet using an Ethernet cable are doing much better at connecting up with Our Finite World.
I commented earlier about the heat being turned off in the buildings on March 15. After being here a few days, I think that the reason for the cut-off has to do with the inflexibility of heat from radiators (probably hot water heat, using coal to heat the hot water). We in the United States in newer housing are used to systems where temperatures are easily regulated. But when the heat is either “off” or ” on” as it seems to be with radiator heat, the problem as the season heats up is that rooms quickly get too warm when the temperature outside rises. This is especially the case when there are a lot of people in a not very large room, with the sun shining in. Even with the heat off, there are times that someone opens a window to try to get the temperature down.
Smog levels have varied a lot. Today, the pollution level was high again, making it the third day out of the twelve since I arrived with a noticeably high smog level. I am feeling some effects in my sinuses. At this time of year, there are also some trees blooming, so my problem may really be a touch of hay fever.
I keep talking about diminishing returns in my talks. As I think about the differences between China and the United States, it strikes me that in many cases the difference has to do with diminishing returns. China has chosen the inexpensive way to do things, such as serving fish with lots of bones, not doing much to accommodate the handicapped, and using radiator heat put in buildings long ago. There is a more polished way of handling these issues, but the cost of making an upgrade may not be proportional to the benefit.
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First Report from Gail in China

Greetings Finite Worlders!   Gail is on her 1 month lecture tour of China.  She’s unable to access WordPress from China, but does have access to email, so she’s sending me updates to publish here on OFW.  My Byline/About appears at the bottom here, but the China Travelogue articles are authored by her and all photos are from her  We will try to keep you updated as the trip progresses. -RE

Here’s the email Recap so far from Gail

Greeting from Beijing!

I am being treated well at China University of Petroleum in Beijing. I have given four lectures to my class so far, and will give four more lectures (and a short test) to my students next week. The classroom is not heated after March 15, so students have their coats on.

I understand cutting off the heat on March 15 is pretty much standard in Beijing. Some of the graduate students have reported that their apartments are quite cold at this time of year–the night temperature gets down below 40 degrees.

The apartment I am in has  a separate heating and cooling unit, in addition to central heat. So my apartment has been as warm as I have wanted it. My apartment is intended for guests that the university wants to treat well. The apartment is not luxurious by United States standards, but it is very adequate for my needs. It is conveniently located, in the middle of the campus, so it is easy to get wherever I want to go. It even has its own machine for washing clothes, plus a rack for drying clothes. It is quite large, with a big kitchen area, living room, bedroom, and bathroom.

I have given four lectures so far to my class, and will give another four lectures next week. I have discovered that students don’t like talking very much in class. Usually, they understand written English better than spoken English, so I have tried to see that copies of my presentations are available in class. Professor Feng who invited me occasionally spends a few minutes explaining something I have said in Chinese so that the student have another chance to understand what is being said.

The classes are being video taped. I understand that they will be edited (probably to remove the Chinese portion) so that I can put the videos of the lectures up on OurFiniteWorld.com. I am attaching here the first of the lectures I gave. I will try to do write-ups of these lectures as well.

On Saturday afternoon, I am giving a lecture to MBA students. This will be a shorter overview of our problems. Actually, that lecture will be very soon. I need go over to that lecture in a few minutes.

I am being treated very well, with graduate students going with me to meals and taking me sight seeing. This is a photo of a group of us, after the dinner we had the first day I was in Beijing.

A few Pics from the trip so far…

Group who had lunch together first day

students from my class

Note from RE: Gail also included an Acrobat file of her presentation slides, however I will leave that for Gail to add after she returns.

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