The Real Oil Extraction Limit, and How It Affects the Downslope

There is a lot of confusion about which limit we are reaching with respect to oil supply. There seems to be a huge amount of “reserves,” and oil production seems to be increasing right now, so people can’t imagine that there might be a near term problem. There are at least three different views regarding the nature of the limit:

  1. Climate Change. There is no limit on oil production within the foreseeable future. Oil prices can be expected to keep rising. With higher prices, alternative fuels and higher cost extraction techniques will become available. The main concern is climate change. The only reason that oil production would drop is because we have found a way to use less oil because of  climate change concerns, and choose not to extract oil that seems to be available.
  2. Limit Based on Geology (“Peak Oil”). In each oil field, production tends to rise for a time and then fall. Therefore, in total, world oil production will most likely begin to fall at some point, because of technological limits on extraction. In fact, this limit seems quite close at hand. High oil prices may play a role as well.
  3. Oil Prices Don’t Rise High Enough. We need high oil prices to keep oil extraction up, but as we reach diminishing returns with respect to oil extraction, oil prices don’t rise high enough to keep extraction at the required level. If oil prices do rise very high, there are feedback loops that lead to more recession and job layoffs and less “demand for oil” (really, oil affordability) among potential purchasers of oil. One major cut-off on oil supply is inadequate funds for reinvestment, because of low oil prices.

Why “Oil Prices Don’t Rise High Enough” Is the Real Limit

In my view, our real concern should be the third item above, “Oil Prices Don’t Rise High Enough.” The problem is caused by a mismatch between wages (which are not growing very quickly) and the cost of oil extraction (which is growing quickly). If oil prices rose as fast as extraction costs, they would leave workers with a smaller and smaller percentage of their wages to spend on food, clothing, and other necessities–something that doesn’t work for very long. Let me explain what happens. 

Because of diminishing returns, the cost of oil extraction keeps rising. It is hard for oil prices to increase enough to provide an adequate profit for producers, because if they did, workers would get poorer and poorer. In fact, oil prices already seem to be too low. In years past, oil companies found that the price they sold oil for was sufficient (a) to cover the complete costs of extraction, (b) to pay dividends to stockholders, (c) to pay required governmental taxes, and (d) to provide enough funds for investment in new wells, in order to  keep production level, or even increase it.  Now, because of the rapidly rising cost of new extraction, oil companies are finding that they are coming up short in this process. 

Oil companies have begun returning money to stockholders in increased dividends, rather than investing in projects which are likely to be unprofitable at current oil prices. See Oil companies rein in spending to save cash for dividendsIf our need for investment dollars is escalating because of diminishing returns in oil extraction, but oil companies are reining in spending for investments because they don’t think they can make an adequate return at current oil prices, this does not bode well for future oil extraction.

A related problem is debt limits for oil companies. If cash flow does not provide sufficient funds for investment, increased debt can be used to make up the difference. The problem is that credit limits are soon reached, leading to a need to cut back on new projects. This is particularly a concern where high cost investment is concerned, such as oil from shale formations. A rise in interest rates would also be a problem, because it would raise costs, leading to a higher required oil price for profitability. The debt problem affects high priced oil investments in other countries as well.  OGX, the second largest oil company in Brazil, recently filed for bankruptcy, after it ran up too much debt.

National oil companies don’t explain that they are finding it hard to generate enough cash flow for further investment. They also don’t explain that they are having a hard time finding sites to drill that will be profitable at current prices.  Instead, we are seeing more countries with national oil companies looking for outside investors, including Brazil and Mexico. Brazil received only one bid, and that for the minimum amount, indicating that oil companies making the bids do not have high confidence that investment will be profitable, either. Meanwhile, newspapers spin the story in a totally misleading way, such as, Mexico Gears Up for an Oil Boom of Its Own.

US natural gas is another product with a similar problem: the price is not high enough to justify new production, especially for shale gas producers. The huge resource that some say is there is simply too expensive to extract at current prices. Would-be natural gas producers cannot tell us this. Instead, we find a recent quote in the Wall Street Journal saying:

“We are not dealing with an era of scarcity, we are dealing with a situation of abundance,” Ken Cohen, Exxon’s vice president of public and government affairs, said in an interview. “We need to rethink the regulatory scheme and the statutory scheme on the books.”

Cohen could explain that without natural gas exports, there is no way the natural gas price will rise high enough for Exxon-Mobil to extract the resource at a profit. Without exports, Exxon Mobil will lose money on the extraction, or more likely, will have to leave the natural gas in the ground. With low prices, the huge resource that Obama has talked about is simply a myth–the prices need to be higher. Of course, no one tells us the real story–it seems better to let people think that the issue is too much natural gas, not that it can’t be extracted at the current price. The stories offered to the news media are simply ways to convince us that exports make sense. Readers are not aware how much stories can be “spun” to make the current situation sound quite different from what it really is.

What Goes Wrong with “Climate Change” and “Limit Based on Geology” Views

The Illusion of Reserves. Oil and gas reserves may seem to be “be there,” but a lot of conditions need to be in place for them to actually be extracted. Clearly, the price needs to be high enough, both for current extraction and to fund new investment. Other conditions need to be in place as well: Debt needs to be available, and it needs to be available at a sufficiently low rate of interest to keep costs down. There needs to be political stability in the country in question. Something as simple as a continuation of the uprisings associated with the Arab Spring of 2010 could lead to the inability to extract reserves that seem to be present. Other requirements include availability of water for fracking and the availability of skilled workers and drilling rigs.

In the past, we have been far enough away from limits that issues such as these have not been a big problem. But as we get closer to limits and stretch our capabilities, these become more of a problem. Right now, availability of debt at low interest rates is a particularly important issue, as is the need for adequate oil company profitability–things that are easy to overlook.

Wrong Economic Views Leading to Wrong Oil Views. Economists have put together economic models based on a world without limits. A world without limits is the easy approach, because mathematical relationships are much simpler in a world without limits: a relationship which held in 1800 is expected to hold in 1970 or in 2050.  A world without limits never offends politicians, because growth always seems to be possible, meaning a never-ending supply of jobs and of goods and services for constituents. A model without limits produces the simple relationships that we are accustomed to, such as “Inadequate supply will lead to a rise in price, and this in turn will tend to create greater supply or substitutes.” Unfortunately, these models omit many important variables and thus are inadequate representations of the world we live in today.

In a world with limits, there are feedback loops that cause high oil prices to lead to lower wages and more unemployment in oil importing countries. Thus “demand” can’t keep rising, because workers can’t afford the higher oil prices. Oil prices stagnate at a level that is too low to maintain adequate investment. High oil prices also feed back into slower economic growth and a need for ultra-low interest rates to raise demand for high-priced goods such as cars and homes. 

When prices remain in the $100 barrel range, they are still high enough to damage the economy. Businesses are not much damaged, because they have ways they can work around higher oil prices, especially if interest rates are low.  Most of the ways businesses can work around high oil prices involve reducing wages to US workers–for example, outsourcing production to a lower cost country, or cutting the pay of workers, or laying off workers to match lower demand for goods. (Lower demand for goods tends to occur when oil prices rise, and businesses raise their prices to reflect the higher oil costs.)

Workers are still affected by costs in the $100 barrel range, and so are governments. Governments must pay out higher benefits than in the past, to keep the economy afloat. They must also keep interest rates very low, to try to keep demand for homes and cars as high as possible. The situation becomes very unstable, however, because very low interest rates depend on Quantitative Easing, and it does not appear to be possible to continue Quantitative Easing forever. Thus, interest rates will need to rise. Such a rise in interest rates is likely to push the country back into recession, because taxes will need to be higher (to cover the government’s higher debt costs) and because monthly payments on homes and new car purchases will tend to rise. The limit on oil production then becomes something very remote from geology–something like, “How long can interest rates remain low?” or “How long can we make our current economy function?”

The Interconnected Nature of the Economy. In my last post, I talked about the economy being a complex adaptive system. It is built from many parts (many businesses, laws, consumers, traditions, built infrastructure). It can operate within a range of conditions, but beyond that range it is subject to collapse. An ecosystem is a complex adaptive system. So is a human being, or any other kind of animal. Animals die when their complex adaptive system moves out of its range.

It is this interconnectedness of the economy that leads to the strange situation where something very remote from the real problem (oil limits) can lead to a collapse. Thus, it can be a rise in interest rates or a political collapse that ultimately brings the system down. The path of the downslope can be very different from what a person might expect, based on the naive view that the problems will simply relate to reduced supply of oil.

A Case Study of the Collapse of the Former Soviet Union 

The Soviet Union was major oil exporter and a military rival of the United States in the 1950s through 1980s. It also was the center of a huge economic system, involving many other countries. One thing that bound the countries together was the use of communism as its method of government; another was trade among countries. In effect, the group of communist countries had their own complex adaptive system. Things seemed to go fine for many years, but then in December 1991, the central government of the Soviet Union was dissolved, leaving the individual republics that made up the Former Soviet Union (FSU) on their own.

While there are many theories as to what all caused the collapse, it seems to me that low prices of oil played a major role. The reason why low oil prices are important is because in an oil exporting country, such as the FSU, oil export revenues represent a major part of government funding. If oil prices drop too low, there is a double problem: (1) it becomes unprofitable to drill new wells, so production drops and, (2) the revenue that is collected on existing wells drops too low. The problem is then a huge financial problem–not too different from the financial problem the US and many of the big oil importing countries are experiencing today.  

Figure 1. Oil production and price of the Former Soviet Union, based on BP Statistical Review of World Energy 2013.

Figure 1. Oil production and price of the Former Soviet Union, based on BP Statistical Review of World Energy 2013.

In this particular situation, oil prices (in inflation adjusted prices) hit a peak in 1980. Once oil prices hit a peak, FSU oil production very much flattened. There was a continued small rise until 1983, but without the very high prices available until 1980, aggressive investment in new oil extraction dropped back.

Not only did FSU oil production flatten, but FSU oil consumption also flattened, not long after oil production stopped rising (Figure 2). This flattening helped maintain exports and the taxes that could be collected on these exports.

Figure 2. Former Soviet Union Oil Production and Consumption, based on BP Statistical Review of World Energy, 2013.

Figure 2. Former Soviet Union Oil Production and Consumption, based on BP Statistical Review of World Energy, 2013.

Even though total exports were close to flat in the 1980s (difference between consumption and production), there were some countries where exports that were rising–for example North Korea, shown in Figure 4. This mean that oil exports for some allies needed to be cut back as early as 1981. Figure 3 shows the trend in oil consumption for some of FSU’s allies.

Figure 3. Oil consumption as a percentage of 1980 consumption for Hungary, Romania, and Bulgaria, based on EIA data.

Figure 3. Oil consumption as a percentage of 1980 consumption for Hungary, Romania, and Bulgaria, based on EIA data.

A person can see that oil consumption dropped off slowly at first, and increased around 1990. All of these countries saw their oil consumption drop by at least 40% by 2000. Bulgaria saw is oil consumption drop by 65% to 70%.

The FSU exported oil to other countries as well.  Two countries that we often hear about, Cuba and North Korea, were not affected in the 1980s (Figure 4). In fact, Cuba’s oil consumption never seems to have been severely affected. (It is possible that exports of manufactured goods from the FSU dropped, however.) Cuba’s drop-off in oil consumption since 2005 may be price-related.

Figure 4. Oil consumption as a percentage of 1980 oil consumption for Cuba and North Korea, based on EIA data.

Figure 4. Oil consumption as a percentage of 1980 oil consumption for Cuba and North Korea, based on EIA data.

North Korea’s oil consumption continued growing until 1991. Its drop-off was then very severe–a total of an 83% reduction between 1991 and 2010. In most of the countries where oil consumption dropped, consumption of other fossil fuels dropped as well, but generally not by as large percentages. North Korea experienced nearly a 50% drop in other fuel (mostly coal) consumption by 1998, but this has since somewhat reversed.

By 1991, the FSU was in poor financial condition, partly because of the low oil prices, and partly because its oil exports had started dropping. FSU’s oil production left its plateau and started dropping about 1988 (Figure 2).  The actual drop in FSU oil production meant that oil consumption for the FSU needed to drop as well–a big problem because industry depended upon this oil. The break-up of the FSU was a solution to these problems because (1) it eliminated the cost of the extra layer of government and (2) it made it easier to shift oil consumption among the member republics, so that those republics that produced more oil could keep it for their own use, rather than sending it to republics which did not produce oil. This shortchanged non-oil producing republics, such as the Ukraine and Belarus.

If we look at oil consumption for a few of the republics that were previously part of the FSU, we see that oil consumption was fairly flat, then dropped off quickly, after 1991.

Figure 5. Oil consumption as a percentage of 1985 oil production for Russia, the Ukraine, and Belarus, based on BP Statistical Review of World Energy 2013.

Figure 5. Oil consumption as a percentage of 1985 oil production for Russia, the Ukraine, and Belarus, based on BP Statistical Review of World Energy 2013.

By 1996 (only 5 years after 1991), oil consumption had dropped by 78% for the Ukraine, by 61%  for Belarus, and by “only” 47% for Russia, which is an oil-producing state. At least part of the reason for the fast drop off was the fact that in the years immediately after 1991, oil production for the FSU dropped by about 10% per year, necessitating a quick drop off in consumption, especially if the country was to continue to make some money from exports. The 10% drop-off in oil production suggests that the decline in oil production was more than would be expected from geological decline alone. If the decline were for geological reasons only, without new drilling, one might the expect the drop off to be in the 4% to 6% range.

When oil consumption dropped greatly, population tended to decline (Figure 6). The decline started earliest in the countries where the oil consumption drop was earliest (Hungary, Romania, and Bulgaria). The steepest drop-offs in population occur in the Ukraine and Bulgaria–the  countries with the largest percentage drops in oil consumption.

Figure 6. Population as percent of 1985 population, for selected countries, based on EIA data.

Figure 6. Population as percent of 1985 population, for selected countries, based on EIA data.

Some of the population drop is from emigration. Some of it is from poorer health conditions. For example, Russia used to provide potable water for its citizens, but it no longer does. Some is from conditions such as alcoholism. I haven’t shown the population change for North Korea. It actually continued to increase, but at a much lower rate of growth than previously. Cuba’s population has begun to fall since 2005.

GDP growth for the countries shown has tended to lag behind world economic growth (Figure 7).

Figure 7. GDP compared to world GDP - Change since 1985, based on USDA Real GDP data.

Figure 7. GDP compared to world GDP – Change since 1985, based on USDA Real GDP data.

Nearly all of the countries listed above have had financial problems, at different times.

Belarus’s GDP seems to be doing better than the rest on Figure 7. Belarus, like the Ukraine, is a pipeline transit country for Russia. In Belarus, natural gas consumption has increased, even as oil consumption has decreased. This increase is likely helping the  country industrialize. Inflation occurred at the rate of 51.9% in 2012 according to the CIA World Fact Book. This high inflation rate may be distorting indications.


We can’t know exactly what path our economy will follow in the future. I expect, though, that the path of the FSU and its trading partners is closer to the path we will be following than most forecasts we hear today. Most of us haven’t followed the FSU story closely, because we wrote off most of their problems to deficiencies of communism, without realizing that there was a major oil component as well.

The FSU situation may, in fact, be better that what the Industrialized West is facing in the next few years. The FSU had the rest of the world to support it, offering investment capital and new models for development. Oil production for Russia was able to rebound when oil prices rose again in the early 2000s. As situations around the world decline, it will be harder to “bootstrap.”

One of the things that hampered the recovery of the FSU was the fact that the communist economic model proved not to be competitive with the capitalistic model. In a way, the situation we are facing today is not all that different, except that our challenge this time is competition from Asian economies that we have not had to compete with until the early 2000s.

Asian economies have several cost advantages relative to the Industrialized West:

(1) Asian competitor countries are generally warmer than the industrialized West. Because of this, Asian workers can live more comfortably in flimsy homes. They also don’t need much salary to cover heating and can more easily commute by bicycle. It is often possible to produce two crops a year, making productivity of land and of farmers higher than it otherwise would be. In other words, Asian competitor countries have an energy subsidy from the sun that the Industrialized West does not.

(2) Asian competitors are often willing to ignore pollution problems, reducing their costs relative to the West.

(3) Asian competitors generally depend on coal to a greater extent than we do, keeping their costs down, relative to countries that use higher-priced fuels.

(4) Asian competitors are less generous with employee benefits such as health care and pensions, also holding costs down.

Economists, through their wholehearted endorsement of globalization, have pushed industrialized countries into a competitive situation which we are certain to lose. While oil prices tend to push wages down, competition with Asian countries makes the downward push on wages even greater. These lower wages are part of what are pushing us toward collapse.

To solve our problems, economists have proposed a shift toward renewable energy and the implementation of carbon taxes. Unless these changes are done in a way that actually reduces costs, these “solutions” are likely to make us even less competitive with low-cost competitors such as those in Asia. Thus, they are likely to push us toward collapse more quickly.

To support this position, economists point to climate change models based on the view that the burning of fossil fuels will increase greatly in the decades again. In fact, if collapse occurs in the next few years in the Industrialized West, carbon emissions are likely to fall quickly. Because of the interconnectedness of the world system, the rest of the world will likely also encounter collapse in not many more years, and their carbon emissions are likely to fall quickly, as well. Even the “Peak Oil” emissions that are used in climate change models are way too high, relative to what seems likely to be the case.

If I am right about collapse being a possibility for the Industrialized West, then our problem will be that we as nations become so poor that we can no longer find goods to trade with Asian countries. Most of our goods will not be competitive as exports, and we won’t be able to simply add more debt to rectify the situation. Thus, we will become unable to buy many goods we depend on, including computers and replacement parts for wind turbines.

Breakups of many types are possible. The European Union may cease to operate in the way it does today. The International Monetary Fund is likely to cease operating in the way it does today, because of the collapse of many of its members who provide funding. The US will be subject to strains of the type that lead to break up. If nothing else, oil producing states will want to withdraw, so that they are not, in effect, subsidizing the rest of the US economy.

It is unfortunate that economists are tied to their hopelessly out-of-date economic models.  Part of the problem is that the story of “collapse around the corner” doesn’t sell well. The alternate story economists have come up with really isn’t right, but it is pleasing to the many who benefit from subsidies for renewables, and it makes politicians look like they are doing something. The specter of climate change in the distance gives an excuse to cut back oil use, among other things, so has at least some theoretical benefit.

It is unfortunate, however, that we cannot look at the real problem. Unless we can understand the problem as it really is, it is impossible to find solutions that might actually be helpful.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
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347 Responses to The Real Oil Extraction Limit, and How It Affects the Downslope

  1. Scott says:

    Hello, A good talk from Nicole Foss for any interested. I think Gail may know Nicole too – just like JHK.

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    • JHK reads some of my stuff; Nicole generally does not. She comes from a somewhat different viewpoint. I know Nicole, but I do not generally follow her writing.

      • Danny says:

        Really? I see a lot of similarities from your writing and Nicole’s. The only difference I see is in outcomes due to deflation. She is preaching that if one prepares enough then you can live on an Island , but this is where I think she is wrong. If things crash as much as she is saying “much worse than the great depression” then no one will be able to be an Island. Other than that your opinions seem very closely related…but I could be wrong….can you expand on your differences?

        • She is not very much tied into the question of what oil limits do to the economy. Instead, she is more looking at energy separately from the economy. She seems to have the view that the bad things that will happen to the financial system because of the way the financial system is constructed and being run, rather than because of energy limits. Thus, her view of the long-term outlook is different from mine. I tend to agree with her view of renewable energy–neither of us have much hope for it.

          • Danny says:

            Well Nicole believes that we will fall into a deflationary system not having the finances to get oil at the lower prices…I guess my problem with their theory is that it only leaves room for one scenario, Deflation. And with a system so complex and crazy human behaviour who knows what will happen. Is it not possible to have runaway inflation? I can see the problems with deflation but I just can’t stick my feet in the mud and prepare for deflation and then have inflation….seems counter…danny

            • The problem I see is lack of goods available at any price. Call that what you like. It doesn’t matter what you save up, it doesn’t buy much of anything. Quite possibly, the government takes control of your bank deposits, and only lets you have a small amount out each week, if you can get anything at all out. Or the government disappears all together, as does electricity, and the record you had of your paper investments.

  2. Stan says:

    The majority of the 9 billion people on Earth will live with severe pressure on fresh water
    within the space of two generations as climate change, pollution and over-use of resources
    take their toll, 500 scientists have warned.
    A majority of the (world’s) population – about 4.5 billion people globally – already live within
    50km of an “impaired” water resource – one that is running dry, or polluted.

    As energy resources become more scarce, the repercussions from inadequate water will surely speed up any collapse (or maybe even start it).


  3. Daniel Hood says:

    From my research & analysis there are projections to suggest that 2015 will be the start of total global physical extractive production limits. I’m sticking with this window, although it wont be until 2016/17 and the next mammoth crash that it’s obvious. I researched extensively after 2007/8 as Brent crude skyrocketed north of $147p/b and then world wide financial panic that ensued. 2008 was clearly the first warning shot across the bow of civilization that the world was reaching limits and it seems we’re heading for a repeat as US fracking tapers off and then declines frighteningly fast. Reports were circulating back then that 2015 was the period the world would possibly reach physical limits in line with US decline. If this article is anything to go by, it seems we’re right on track with those projections at the start of 2014 ( We’re all confident that the latest US renaissance in energy independence is nothing more than a temporary desperate illusion to stave off reality and terminal decline.

    In line with this information I sense we’re incredibly close to something monumental. Just so you know I left the UK June 2011 to set up Agritech Media and concept Agricerebrum because in I believe that world attention over the next few years will be forced to shift back to Agriculture. I believe a food consumption shift is approaching as a result of 2015 peak and thereafter food security will become our single greatest challenge. How do we sustainably, intensively, produce more food in the next 20/30yrs than the previous 10,000 given the converging issues uppon us?

    We hope Agricerebrum will become a powerful collective brain on the state of global agriculture with the aim of informing the wider community and supporting those who we desperately need to sustain and enhance our lives in the 21st century.

    As Gail famously said, overpopulation has morphed into both an energy and financial crisis and everything is linked. Ultimately we live on a finite planet, too many people and rapidly declining resources. Technology will not save us. I think it’s important we try to warn people and do the right the thing no matter what the eventual outcome.

    Good luck people and god speed.

    • Leo Smith says:

      “How do we sustainably, intensively, produce more food in the next 20/30yrs than the previous 10,000 given the converging issues upon us? ”

      We don’t. Some people will die.

      A lot more will come knocking on your door with begging bowls, and some will have machetes behind their backs.

      And those with liberal consciences will find they are now in the same boat, having had everything taken from them by those whose immediate needs were greater..Or who claimed that they were.

      Those who are much less inclined to have a conscience, but do have an assault rifle, will do better. See Syria for the example.

      These things are necessary in order to transform the morality of the public into one which has a chance of surviving. Expect rigid micro dictatorships by warlords to emerge everywhere , and a new form of slavery. Along with lots of inter-tribal genocide.

      Zimbabwe anyone?

      ‘How to ‘rescue’ a prosperous agricultural society into poverty debt and intertribal warfare in one generation, using communist principals’

      If you are going to die without food, you will kill to get it.

      And so people will die. Mainly in the second and third world, at first. That will ease the pressure on the first world, particularly if its smart enough to go and do a bit of genocide and empire building itself.

      “What does a LIberal call a man with a machine gun?”


      if he wants to remain a living liberal..

      • Daniel Hood says:

        So you better look out for my Agritech Media network and subscribe. Make yourself valuable by taking a fast track course on agriculture. 2015 is rapidly approaching. I’ve been warning people since 2007/2008 of the coming crisis. Lucky for me I have no kids to support, no mortgage, own my owns properties, liquid assets, military training, a smart girlfriend in the agri business and I’m in a location that’s safe militarily, actually has significant energy reserves, unbelievable brain power and innovative capacity and can adapt to most challenges and threats quickly. The UK I’m not so sure about. They’re desperate for cheap energy and are stuffed as is America.

        Here’s a another convincing argument that physical limits will trigger the collapse first.

        War is upon us.

        • Leo Smith says:

          Right Daniel, so not the B-ark* then ;-)


    • You may be right about the idea that a physical limits will bring on the crash. I think a financial crash will disguise whether a physical limit is really there or not. Physical and financial are so closely tied, that I expect to two will happen more or less simultaneously.

      With the financial crash, it will be very hard to fix the agricultural problem. Governmental crashes will come about the same time–at least the way I see things. I am sure that it doesn’t hurt to have people thinking about the problem. I expect that they will be expecting the availability of many goods that will not really be present.

      • Daniel Hood says:

        Gail firstly happy holidays and best wishes . If you start from the premise that the economy is a surplus energy equation then it makes perfect sense. Over the last decade, scientists have increasingly warned of the more immediate impacts of a Peak Oil. After 10 years of scientific peer reviewed research Kjell Aleklett and his team concluded it’s likely that by 2015-2020 the world will enter into steep permanent energy decline. Recent revivals in US unconventional energy has done nothing more than temporarily mask the severity of total overall global energy decline. In other words we’re on the plateau. Rapid unconventional energy decline is set to push us off the plateau thereby exposing Peak Oil as it triggers economic collapse. 2008 was the warm up to an even larger set of economic crises. Today the Western world has pinned most of its hopes on new fossil fuel energy extraction technologies.

        It’s also clear that some individuals, firms and state actors have decided to focus on the effects of Climate Change long into the future, rather than having to deal with the imminent elephant in the room known as Peak Oil. There are even those who say that neither Peak Oil nor Climate Change is a threat of any kind and we should continue business as usual. We observe these are the same people who failed to identify the risks posed which led to the financial collapse of 2008 and the same kind that failed to spot the threat of Nazi ideology in the build up to WW2. Some ignored, some denied, some even tried to appease. To reason by analogy, they suffer the proverbial combinations of the lemming (ignorance) ostrich (denial) titanic (exuberance, hubris, arrogance, ego) effect. Lastly, there are those who understand all too well the threats we face, but seek to actively obfuscate and divert attention to protect their own vested interests. Their argument will nearly always be whatever is in their best interests. In many respects this is just a natural response to protect their own threatened controlling power base. They will do and say whatever it takes.
        Elon Musk, billionaire industrialist, founder of PayPal, Tesla, Solar City, SpaceX, arguably one of the greatest inventors of our time said it best, “natural human tendency is to suffer wishful thinking”. He also went on to explain that mankind’s greatest challenge is sustainable energy and is the reasoning behind the launch of his 3 companies after the sale of PayPal for $1.5 billion back in 2002. Solar City is responsible for energy production. Tesla for energy consumption and SpaceX for enabling mankind to become a space faring civilization in the event of an extinction event. I also suspect SpaceX is looking for ways to mine resources interplanetary as crazy as it sounds.

        Interestingly enough, both the US & German militaries conducted studies back in 2010 (see the US Joint Operating Environment 2010 report) warning that around the period 2015 there would likely be a significant global energy crunch. Many alternative independent experts are also concluding that an energy crunch will occur before 2020. We seem to be hearing consistent predictions that the period between 2015 & 2020 will be significant. If they are correct, then there is a possibility that rapidly declining energy use will actually serve to mitigate the problems of climate change. As a species we will however have more immediate problems to face.

        Kjell Aleklett in his book “Peaking at Peak Oil” points out that the IPCC never factored in the threat of immediate Peak Oil into their calculations. They used projections given to them by the IEA & EIA. Furthermore it has been suggested that the US pressurized the IEA into releasing optimistic projections claiming we have abundant reserves that are extractable well into the future. For the record, Peak Oil does not mean the world is running out of oil, it has nothing do with total energy reserves deep in the ground, but everything to do with physical extractable production limits. Using the analogy for ATM machines at your local bank, “You may well have money in the bank, but there are physical limits to withdrawals.” If the system runs fine then usually you can get immediate access to your money but you still have daily withdrawal limits. If there’s a run on the bank because everyone wants their money at the same time, then everyone has a problem as witnessed in Cyprus recently. Our modern growth economies are in fact nothing more than energy equations powered by ever increasing rates of energy extraction. For growth and expansion we need to extract greater quantities of fossil fuels. After 2008 we’re beginning to understand that we live on a finite planet with finite resource and exponential growth is not possible. We’re about to experience a run on the bank of fossil fuel energy and we predict this will become clear between the periods 2015 – 2020.

        The Americans are frightened that markets will lose faith and collapse if the world finds out that growth as we know it is coming to an end. The Anglo-Saxon financial system would likely not survive in its current form. The dollar would almost certainly lose its status as world reserve currency and the exorbitant privileges granted and this in turn would lead to a collapse of America perhaps sharing a similar fate to that of the Soviet Union. The Americans may well have a case to argue when they say that a collapse of the established order would cause chaos. Currently they underwrite/protect trade and perceived security (depending on which side you’re on) by having US forces positioned globally. In fact they actually admit this in their 2010 report (see US Joint Operating Environment 2010). When the Soviet Union collapsed we witnessed rising instabilities and chaos in some areas, Yugoslavia an obvious case in point. Shortly after the collapse of the Soviet Union, Yugoslavia also collapsed into warring, violent ethnic divisions that were kept in check by the Soviet empire. The theory goes that power never leaves a vacuum and there is plenty of historical evidence to back this claim up. If America is forced to retreat due to internal economic collapse then the world may well destabilise in areas it has underwritten in terms of both economic trade and security. Opportunities will be taken advantage of and old scores may well be settled. In fact it’s highly likely. We’re currently seeing tensions build across the Middle East, Africa, Asia where American influence is being challenged, checked or at least eroded after 2008.

        It’s been said that the money and interest on debt and investment is nothing but an elaborate smoke screen masking the real life physics of our finite world.

        Beware the Spanish proverb:
        “Lo que la civilizacion de la anarquia son solo siete comidas”
        “Civilization and anarchy are only seven meals apart”

        • My view is slightly different from yours. Money and interest on debt are very much tied in with the physics of our finite world–it is not just an elaborate smoke screen. It is the close tie between the financial system and the physical system that is bringing down the financial system, quite possibility before physical “peak oil” appears.

          The economic models that economists use obscure the close tie, but it is there none-the-less. A big part of the problem is that wages do not rise as fast as the cost of extracting energy products. It becomes more and more difficult to afford these energy products, even when increased efficiency is reflected.

  4. Ag47 says:

    I have to skim through all the responses to find new posts/follow-up comments and it is time consuming..
    Is it possible to mark follow-up comments or new posts making it easy to see them so you do not have to receive 20 new emails per day ??
    A new post/follow-up comment could look something like: “Gail Tverberg says: (new)” with (new) in red color making it easy to see new posts/follow-up comments..

    • I have written to Word Press, and they do not support such a system. I am not sure I can find information they sent with a suggestion–they basically suggested using some kind of reader to help manage comments. If someone else remembers, and it is helpful, please post the information.

      As the site administrator, I see one listing of comments in chronological order, which is helpful. But others don’t have this option.

  5. Don Stewart says:

    Dear All

    Some recommended reading.

    This was posted by Adam Taggart, so it is also available from Chris Martenson’s website.

    You will find lots to ponder. Just a few tidbits:

    ‘Rising rates will spread into the markets and economy at large, causing concurrent stagnation, dropping price earnings ratios (from nosebleed Case–Shiller estimates of 24), collapse of credit-fueled/capex-lite corporate profit margins, and crush under-funded pensions and municipalities rendering them less funded. If rates have nowhere to go but up, what direction are they headed? Thought so. That is the generic monster under my bed.’

    ‘The really nasty monster is a Frankenstein-like beast constituted by combining demographics and unfunded liabilities…Some readers have heard this number, but precious few can grasp it. $205 trillion? Let me do another demonetization. Assuming that there are 100 million taxpayers to pick up this tab and that the average taxpayer contributes 50% of their $50,000 per year salary—a preposterous payment schedule—how long will it take to pay off these liabilities? The answer is…wait for it…80 years…80 friggin’ years…8 decades…four score…8.0×101 birthdays…a lifetime.’

    ‘History shows that dismissiveness directed at expanding impoverished masses can have dire consequences. The 1% who suggest that the 99% “eat cake” are likely to eat it metaphorically.’

    ‘Over 50 percent of all American workers now make less than $30,000 a year. Forty percent of all workers in the United States make less than what a full-time minimum wage worker made back in 1968.’

    ‘Savings—deferred consumption
    Debt—consumption from the future pulled to the present or past’

    And what us old, broken-down retired people think is truly crucial:
    ‘The U.S. and arguably the rest of the developed world are in a boatload of trouble owing to what many call a debt supercycle—a global debt problem of monumental proportions. Can you really have a global debt problem? Yes. To the extent that you can neither stockpile goods nor services, the entire world is on the pay-as-you-go (paygo) system. I don’t care who has what drawer full of chits claiming somebody owes them money, a global demographic problem is a global debt problem.

    I have described a global debt problem as the misalignment of perception and reality and still find this approach most compelling. If everybody thinks they will live at a level that is above the production capacity, you have a global debt problem. In dollar currency terms, if you are aware of what has been promised to you yet unaware of what your costs will be to service promises to others, you have a debt problem. Everybody knows what’s in their pension, but does the average taxpayer realize that they owe $30,000 each to top off existing municipal pension funds? Does the average taxpayer realize that their share of the total unfunded liabilities is $2 million? They have a debt problem. If you are owed goods and services by folks who haven’t a clue how they will pay up—a form of counterparty risk—their debt problem is now your debt problem. We can’t live the American dream if we can’t crank out adequate goods and services to do so.’

    We could discuss all these points at great length, but I will confine myself to one observation. Collum observes that, as any given time, the world can only consume what it has produced. We can refine that a little and consider whether the production came from current work or from the harvesting of production made possible by capital investments or improvements to natural capital (such as soil and water). He also says we have a debt problem when everyone thinks they have been promised things which are never going to appear in reality. As a hypothetical question, suppose everyone took a sober look at the unfunded liabilities and the demographic trends in the US and adjusted their expectations accordingly. How would they live differently?

    I submit that ‘being able to provide the necessities of life without much money’ would be high on the list. Giving up the dream of playing golf every day of one’s declining years in Florida is a blow to some people, but the thought that one won’t have food and water and shelter is a much more sobering event.

    Is there anyone here, except Economists, who can look soberly at the multiple real challenges we face in terms of the Finite World and predict an exponential growth in production large enough to enable all the promises to be kept?

    Which leads me to the conclusion that investing in a home economy which is largely independent of the money economy should be a high priority for everyone. I also recommend the book Saved, by Ben Hewitt. (The S in Saved has a dollar sign through it). ‘How I Quit Worrying About Money and Became the Richest Guy in the World’. About interdependence among pretty low income people in Vermont which is largely outside the money economy.

    Don Stewart

  6. Quitollis says:

    The economy of modern industrial society (MIS) also relies on the complex adaptive system of its personnel. Thus it is liable to collapse when personnel moves outside of its viable range.

    The personnel range has a quantitative aspect: the system needs a high enough population to perform all of the work tasks and to consume the produced goods if companies and economies are to prove viable.

    The personnel range has a qualitative aspect: the economy relies on people able to perform all of the necessary tasks.

    Both the quantity and quality of personnel imposes limits on economies. Thus governments favour mass immigration to boost the economy, both of skilled and of unskilled labour. And governments educate workers during childhood and adolescence.

    An economy is liable to collapse if either the quantity or the quality of personnel reaches lower limits. There always seems to be enough immigrants ready to enter MIS but the qualitative decline of personnel may prove to be another factor that explains how the collapse will happen.

    The economy adapts to oil limits by the development of new technology and better policies. Clearly society needs creative, high IQ thinkers. The better the quality of the intellectual personnel, the better the technological and political solutions that they will be able to come up with.

    But there is nothing to say that modern industrial society has the brightest personnel that it could have had. There is reason to believe that MIS is dysgenic and that it breeds a mass urban lower class that gradually interbreeds with higher IQ strata.

    Indeed historical medical reflex times show that the average British g factor (genetic general intelligence) has fallen by the equivalent of 15 IQ points since the Victorians.

    (Reflex times are universally accepted as an excellent indicator of general brain health and it correlates closely with genetic general intelligence. The Flynn Effect whereby IQ rises with better social conditions applies only to this or that cognitive skill, it does not increase general intelligence (g factor) where we tend to get a similar score in all cognitive skills. Education makes people better at this or that (which is good for a diversified MIS economy) but it does not make them generally brighter.)

    When all the other factors come together, diminishing returns etc., the dysgenic policies of MIS and the decline of general intelligence may also provide a range collapse factor. We wont be bright enough to find new and adequate solutions.

    I am not suggesting that there are no limits to MIS than those imposed by our intelligence but our intelligence will be a vital factor in how well we can respond to new demands and for how long we can keep MIS going.

    Just saying…

    • Leo Smith says:

      Blimey, yes.. I am going to sound frightully politically incorrect, but the thesis I have for the UK goes like this.

      A class of people with no political clout at all, gained it once the universal franchise was in place, and used it to elect people who would represent their ideas ethics and moralities. Unfortunately these were not the ideas ethics and moralities of the people who had been running things since forever, and they didn’t really work.= at that level, and those elected didn’t understand how to run anything, since they never had, so they concentrated on simply getting into power and giving their voter base anything they asked for under the guise of ‘that’s what they voted for’ That meant lots of free milk, free childcare, free schools and worst of all, child benefit allowance. That made having children a profitable enterprise, not something you saved up for and cherished because it was bloody expensive. Then they stuffed the schools with politically correct teachers who taught them how to Love The Party, and be good little citizens, and gave them worthless qualifications so they would feel as good as anybody when they were in fact no better than they ought to be., and then found employment for them doing useless things in a massively increased public sector, so now they, their ideas their ethics and their utter inability, lack of real education, and total incompetence run society.

      Whether they aren’t very smart because of genetics, or environment doesn’t really matter.,Its not smart to be smart these days, anyway. Prizes go to the most amusing displays of arrogance ignorance and posturing, as any watcher of TV will tell you.

      It is in the end a cult of mediocrity, a ‘lowest common denominator’ type culture, where to try to succeed and worse, to be successful, is suspicious and smacks deeply of the cardinal sin of ‘elitism’ which means, being actually good at something.

      They talk of ‘sustainability’ like they use any words they don’t really understand. To them its word that means they aren’t stupid OK? they are with the programme. What they don’t realise is that they themselves are unsustainable. Deep in debt, they have raided the piggy bank run the countries credit card to the max, and spent it on worthless rubbish. Even their own Party daren’t promise them anything any more, and is content to lose elections, and let the whole mess be someone else’s problem,. unto there is money in the bank again that they can filch.

      They went a bit too far last time. they really have messed up, and the result of 50 year spending spree on tasteless junk and no investment in stuff that really matters has taken its toll. Its touch and go as to whether there is a future for democracy frankly. Its not really worked, as it never could, when the vote is given to large numbers of people who simply use it for short sighted narrow personal selfish gain. While all the time being lauded for how compassionate caring and decent the chaps they elect are. So that’s all right then, isn’t it.

      Greed and tribal loyalty led them into the arms of a political class who have sold them down the river.

      Will they wake up to that fact before its too late?

    • I always wonder what happens when a society spends a huge share of its time watching television, playing video games, and watching movies. Doesn’t this contribute to the general downward trend as well?

  7. Don Stewart says:

    Dear Gail and Others
    First, the disclaimer. I am certainly not an expert on climate change calculations. So if there any howlers in here, please point them out to me.

    I will try to address these two questions which come up repeatedly:
    1. Collapse is in our future, and collapse is the best we can do in terms of climate change.
    2. Collapse is far more damaging than climate change, and so we should worry about collapse and not worry about climate change.

    I will reject both of those arguments and instead propose a third way to think about it all:
    3. We have to reduce carbon in the air and return it to the biosphere (trees and soil), and we will have to expend some fossil fuels to do that. It behooves us to prioritize the use of fossil fuels to sequester carbon in trees and soil and rapidly reduce all other fossil fuel use.

    The first two arguments have the merit that they excuse us from acting–except perhaps in terms of individual and small group survival. The third argument requires that we engage in political discourse and persuade people to do something that they are not inclined to do.

    I’ll use the paper by Jim Hansen and others to derive expectations about Earth resulting from various levels of carbon in the atmosphere:
    (If there is a way to paste from the article to this blog, I haven’t found it.)

    Hansen and collaborators conclude that we have to get back to 350 ppm, and do so quickly. 350 ppm is consistent with a cumulative burning of about 500 Gt of carbon–provided we also sequester 100 Gt in soil and trees. Absent the soil and the trees, we can burn only 400 Gt. The IPCC models generally assume we can burn about 1000 Gt and be ‘fairly safe’ with 2C warming…but Hansen shows that we could expect oceans to rise 9 meters at 2C. We have currently burned about 370 Gt.

    Instant Collapse alone will leave us with our current situation–about 400 ppm and an Earth with a positive energy balance of about 0.5 W/ sq meter. So Earth would continue to warm for a long time under a pure collapse scenario and the oceans will rise and cause havoc for our children and grandchildren. There will be numerous other penalties to pay, as Hansen discusses.

    The notion that Collapse is more dangerous than Climate Change requires us to heavily discount the future. Trying to think with a zero discount rate applied to the future is very difficult for humans. I understand one of our ex-President’s is promoting the Second Coming. But if we are able to think clearly about our descendents, we know that we want to leave them a stable and beautiful world to live in. Wall Street’s or Evangelical Apocalypse’s heavy discounting should play no role in our decisions. It is clear from Hansen’s calculations that the longer we delay, the more wrenching the change which will be required. If we assume a 50Gt sequestration in trees and soils, and begin to act in 2013 (only a few days left), we must reduce emissions by 9 percent per year to reach 350 ppm by 2100. Every year of delay makes the arithmetic worse.

    Which leads me to my third point. Hansen describes the calculations the team did to come up with their 100 Gt sequestration in trees and soils. Here, I would like to change ‘experts’ to Albert Bates, a permaculturist who has been active in terms of carbon farming and biochar and climate change for decades.

    I can quote from Albert. Here are three paragraphs:
    ‘Imagine for a moment you are the non-linear, quantum entangled brain of Gaia. You have four organs that you are balancing for carbon (and nitrogen, phosphorus, potassium, and other elements too — you have to keep them all in balance, but lets start with carbon). At present, there is too much carbon dioxide in the air, and reducing its concentration from 390 ppm to 350 means we’ve got to take 300 billion tons out. We can’t put that into the oceans and in fact 350 is probably too much so we really need to remove between 900 and 1,000 Gt of carbon dioxide from the atmosphere and lock it safely away. Land plants hold 600 billion tons of carbon at present but Earth’s soil holds about three times that amount. That is the storage medium we need.

    While we need to rebalance the sources humans contribute (cement, coal, fertilizer, population), we will also need to go to Net Minus for a while to dial the pressure down. To do that we need to find around 8 to 10 Gt of carbon we can lock up annually. After a century, that would bring us back to 350 atmospheric parts per million, or lower, and also repair ocean acidity. If by then we have managed to cross the road with our eyes closed, repeatedly, and survived, we might even be able to restart civilization.

    So what are the wedges that find us 8-10 GtC to remove from the atmosphere annually? We have four main ones: steep reduction of our emissions (we currently emit 5.6 GtC/yr from fossil fuels); “carbon farming” (the suite of permaculture tools advocated by Yeomans, Savory, Salatin and others — about 1-2 GtC/yr); biochar (recreating the dark earths — 4-10 GtC/yr); and tree-planting (afforestation and reforestation, about 80 GtC/yr by UN estimates). These are our best options, and lo! we find we can get our 8-10 GtC from these wedges, working together in coordinated ways.’

    If I am doing the math correctly, Albert has a laundry list which can quickly bring the ppm down to Hansen’s targets…provided we have the political will to do it and stop wasting fossil fuels on ‘growth’..

    Can this be done without political will? I honestly don’t know about the Collapse business. Today, a review of a recent expert panel in Britain
    ( )
    found that:
    … a sustained decline in global conventional production appears probable before 2030 and there is significant risk of this beginning before 2020… on current evidence the inclusion of tight oil [shale oil] resources appears unlikely to significantly affect this conclusion, partly because the resource base appears relatively modest.”

    If we somehow manage to continue Business as Usual until 2030, Hansen’s paper shows that the results are disastrous in terms of climate change.

    All of the political and corporate will that I can detect today is solidly behind BAU. Carbon farming is best done by human intensive, small scale agriculture. It produces plenty of food, but it isn’t very friendly to mega-corporations and the automation of everything. Forests are best managed with some human intensity, such as the selection of individual trees for harvest rather than clear-cutting. Maximum carbon sequestration occurs when lots of trees are planted and then individual trees are harvested to accomplish necessary thinning. This also maximizes the wood harvest, obviously. Bio-char is best done by people cooking and heating with wood they have gathered in a nearby forest, I think. In short, it’s not a Mega-Corporation kind of thing, and it is difficult to imagine a man like Obama being in favor of it.

    My conclusion is that, as distasteful as it may be to those of us with a libertarian bent, we really do need to become political. David Holmgren, an Australian permaculturist, has recently come to a somewhat similar conclusion:
    ‘David’s argument is essentially that radical, but achievable, behaviour change from dependent consumers to responsible self-reliant producers (by some relatively small minority of the global middle class) has a chance of stopping the juggernaut of consumer capitalism from driving the world over the climate change cliff. It may be a slim chance, but a better bet than current herculean efforts to get the elites to pull the right policy levers; whether by sweet promises of green tech profits or alternatively threats from mass movements shouting for less consumption.’

    A farmer friend of mine decided about 10 years ago that, when invited to a dinner or reception which did not serve any local food, he would simply eat nothing. He is still on people’s invitation list, but they think twice about the menu. Perhaps it is time to walk the talk in terms of politics. (Fortunately, I have some practice in terms of being obnoxious– charm may be a little harder)

    Don Stewart

    • I guess where I would differ from you is that I expect few enough children and grandchildren that they can work around climate change–move to the more hospitable parts of the world. Or become hunter-gatherers. We are expecting way too much of climate right now.

  8. Ert says:


    You may have a brother in thought in the UK: “Former BP geologist: peak oil is here and it will ‘break economies'”:

    He argues your way: Price and production rates – not reserves matter, etc. Also: ” “If we can afford to pay $150 per barrel, we could certainly produce more given a few years of lead time for new developments, but it would break economies again.”

    The whole article is dense in argument and extraordinarily good for “mainstream” newspaper. An recommended read!

    • Quitollis says:

      global oil production is declining at about 4.1% per year, or 3.5 million barrels a day (b/d) per year

      I guess that he means that the production of conventional oil is declining at 4% a year, but even so! do the math…

      That trend suggests a 20% decline of conventional oil production over just five years,

      And a 40% decline over 10 years. Half of the world’s COP will be gone in just 12 years at the present rate of decline!

      Do cornucopians really suggest that we can offset a loss of that magnitude and replace half of the world’s COP over the next decade by US fracking and Canadian tar sands?

      Someone needs to do the math…

      • Quitollis says:

        Tom Whipple explains the figures a little clearer. The 3-4 million b/d currently lost to production are from existing oil fields. The industry uses enough new fields to keep production of COP flat and it uses non-COP to slightly raise the levels of oil.


        Also lost in the euphoria is the undeniable fact that the world’s existing oil wells are drying up at the rate of 3-4 million b/d each year so that it is taking all the efforts of the oil industry just to keep conventional oil production flat. The growth in what is loosely deemed “oil” these days is now coming from fracked wells, biofuels, natural gas liquids, and mythical “refinery gains” in which the products of refining take up more volume than the original crude did. No real energy comes from these refinery gains, just more full barrels.

        • Quitollis says:

          Miller: “We are drawing down on our reserves, even though reserves are apparently climbing every year. Reserves are growing due to better technology in [b]old fields[/b], raising the amount we can recover — but production [from old fields] is still falling at 4.1 percent every year,” he said.


          I am afraid that the Guardian article did not explain the figures very well and gave the impression that overall COP is decline by 3-4 b/d.

          “[b]Despite new discoveries[/b] and increasing reliance on unconventional oil and gas, 37 countries are already post-peak, and global oil production is declining at about 4.1% per year, or 3.5 million barrels a day (b/d) per year”

      • Paul says:

        Indeed – we are on the cliff’s edge hanging from our finger tips. It’s difficult to time things but I cannot imagine we have more than a couple years left before this house of cards collapses – the only thing keeping the pulse going is QE – a lot of that money is flowing into oil and gas exploration and extraction that has no ROI at current oil prices – obviously that cannot continue – this mega bubble is going to explode – and deep sea, fracking and tar sands will stop.

        And then reality will hit us

    • You are right–it is a good article.

      The author (Nafeez Ahmed) is a Facebook “friend” of mine. I think he reads at least some of my posts. He also clearly read David Murphy’a article. Dave Murphy was at The Oil Drum–a student of Charles Hall.

  9. Pingback: The Real Oil Extraction Limit, and How It Affects the Downslope | Our Finite World « Olduvaiblog: Musings on the coming collapse

  10. Tom Reis says:

    A perfect example of a politican not having a plan how to scope with costs of climate change and rising costs of importing energy from russia etc.: Mitterlehner here in Austria cuts back PV subsidies to a dead lock…so no more cheap big Solar Power Plants will be build! 10 Cent/Kwp is not much but bigger projects than 200kwp will be forbidden! So expencive Russian Gas will keep Economy Down in EU and Climate Change risks High!

  11. Jorge Vilchis says:

    Dear Gail
    Merry Christmas to you and your family, and a happy new year !!

    Thank you for all the articles you wrote at TOD and you keep writing here.

    Jorge Vilchis.

  12. Archie Stanton says:


    I was interested in you ideas for nuclear power, and I looked up the current published plans for China’s nuclear power plant expansion.

    China is aiming to produce 6% of its electricity by nuclear power by 2020, and 16% by 2030.

    Although these numbers are better than nothing,,,this performance seems to be in line with the U.S. build-out of nuclear power…is it true that most U.S. nuclear power plants were built between the mid 1960s and the early 1980s? Ans the U.S produces ~19% of its electricity from nuclear power.

    I am surprised that China cannot do better, that is, build out nuclear plants much faster, given that:

    1) They are a late-comer to the game and there are various designs to select from

    2) China has over 1 billion people

    3) China has a goodly number of people trained as engineers and scientists, and contruction workers and metal fab skilled labor is probably a dime a dozen

    4) China enjoys a robust trade surplus

    5) China has a government-driven command economy, combined with goodly portions of capitalism…

    These are the factors that allowed ancient empires to build pyramids and such…if China picks one or two designs and can license-build them, it seems that they should be able to build/complete /at least/ several dozen plants per year, and likely more.

    Putting the analyst hat on…what are their limiting factors? Water for plant cooling? Concrete production? NIMBY from the rural farmer peasants? Steel/reactor vessel production? Waste management? Come on, they can crush each of these challenges if they put their collective party minds to it! Chines version of Yucca Mountain? Can do easy..legend has it they may already have thousands of miles of tunnels for unknown purposes.

    I am at a loss how China, given all of its resources and advantages in commanding its economy, cannot do better…why can’t they build nuclear reactors faster?

    I think this is a worthy issue to research…if China is being held back from its potential maximum build-out, what hope is there for other counties lacking one or more of China’s advantages to rapidly build out nuclear power plants in their countries?

    This published China timeline is worrisome…there must be some factor(s) holding them back.

  13. Paul says:

    Sorry I have duplicated the posts of others… i just popped on to post that link then read up the page and see others have already done so.

    Of course that research should be screaming front page news across the MSM – but instead we’ll read how fracking will give us 100 years of energy.

  14. Dr. Z says:

    As for Gail’s comments on the FSU, and the price of oil in relationship to it’s collapse… I don’t understand how the pre-1989 economy of the Warsaw Pact nations functioned. While one can assume that the Soviets traded predominantly (domestically), but a great deal of trade was confined to solely within the Warsaw Pact nations. If each WP nation had it’s own currency, was the ruble the central currency? The relationship of market forces on a centrally-planned economy seems nebulous. There is a clear relationship between the progression from prolonged lows in oil prices to collapse of the USSR, but the details of such an event are perhaps many?

    • Leo Smith says:

      I have a different (and possibly totally erroneous) preceptin of te collpase of te USSR. It had been a leaky iron curtain for decades. Western culture, Western lifestyles and Western goods could not be kept out. The maintenance of what were in fact occupied and clonised countries was dependent on the maintenance of belief in a percieved externa threat, and in some kind of actual advance in living standards: so long as this was happening, people were more or less content. When it became apparent that the massive engine of it was not able to match US and NATO outputs of weaponry, living standards stagmnated, and dissilusion set in. likewise such elements of western culture as did leak across were very un threatening, and therefore deeply subversive…and hne what breached svoite deneses was not an aramy of missles or bombers, but a light plane piloted by a german landing ion Red Square, the myth of soviet defence against a hostile west was seen to be ridiculous in the extreme.

      The Soviet people no longer feared the West as much as they feared Moscow.

      The rest is, as they say, history.

      • I am sure that there are many aspects to collapse.

        Sometimes it is hard to separate cause and effect. With oil supply stagnating, the Soviet Union would look like it was falling behind the West. (Lack of technology improvements could play a role as well.)

  15. Scott Walker says:

    Hello, well we made it through another Christmas and it was not bad, the world seems calm but let us hope it stays that way.

    In the new year I will be watching the fed with the Tapering of bond buying (QE). I expect that rates will begin to rise either next year 2014 or early 2015 which will cause the Fed to reinstate QE at even a higher amount which will lead to inflation and higher prices and energy will be sought after and the higher prices will be paid for it while prices of food, gas and things like gold and silver will once again begin to rise at some point next year early 2015.

    We would be facing the opposite if it was different and the we had no FED that could print money. So my outlook is inflationary, not collapse in most areas but in some and some will do well while others suffer depending on your location and situation.

    Although stocks and bonds have done well they may be in their last good year or even less.

    I just see inflation ahead that has been bottled up for some time, just waiting to emerge.

    So I am out of stocks and bonds, but just holding real assets like real estate, if it is a main home with some water and wood lands and paid for much better. Stocks look to be topping to me and rates soon to go up which will rock even the real estate market. Not much safe places to hide in this environment. I like precious metals, quality real estate, farm investments (if I could afford one), well the Fed has the ability to create inflation so I see not a collapse ahead but just higher prices, interest rates in the years ahead, kind of like the stagflation of the 1980’s but this time more inflationary. So we will all just get by on less.

    For example this year we were just pleased to have a good Christmas Holiday meal but our tree is bare no presents except for a new baby in the family. The days of the the tree loaded with presents are gone for us but we really have all we need. Some younger families will buy lots of gifts, but not like we saw in the 1980-1990’s it seems to me as people are more careful not to over extent finances and credit which is wise I believe. Good to buy something that is really needed now a days not just toys for us adults.

    Merry Christmas Everyone.


    • Scott Walker says:

      Hello just to reply to myself on the inflation I see coming, I did want to mention that the QE Taper will likely bring down the markets and will be infact deflationary at first, but the Fed reaction will likely be an even larger dose of QE and that reaction likely inflate some prices, depending on how bad things look perhaps the things to watch are oil, gold, aside from the bond and stocks, gold and oil and many assets (even that farm and house you may like) may initially fall before the FED starts an even larger QE and for for those that can invest may have an opportunity before the next campaign to re-inflate.

      So if you have not bought that farmhouse, we may see a dip ahead before prices rise again. I know this may differ from Gail’s view, but I will put it out there anyway. Surely gas and oil will become scarcer in the years ahead, but not for a few more it seems.


      • My view is a dip in prices–probably not an increase. So yes, your view does differ from mine. Even if goods cost more to produce, this doesn’t mean that buyers can afford them. What actually may happen is discontinuity–lack of goods available at any price.

      • Scott Walker says:

        hello Just a correction I expect that 2014 could be a deflationary year as the fed attempts to taper but perhaps 2015 we may see the higher rates , but that could be if the fed does not start to buy bonds again. So my bet is that 2014 will be a bit deflationary and then 2015 will be seeing new huge QE program if not before then and that could inflation that has been latent. Any thoughts anyone?


        • SlowRider says:

          If we are really at the big Peak/Turning Point/End of Prosperity/Collapse….. then 2014 or 2017 don’t matter much, and what the reactions of governments will be is difficult to say – although going for inflation has a good historical record.
          I have just been reading there are about 350 Chinese billionaires today, may be many more. They sure have some big money to invest in real assets, and they won’t buy US government bonds only :-)

        • The big danger if QE is cut back is that interest rates will rise. If interest rates rise by very much, the economy is likely to go into deep recession for many reasons. For one, the government will need to raise taxes to pay interest on its own debt. For another, the people’s monthly payment associated with buying new cars and homes will increase. There are likely to be debt defaults.

          I don’t know that other countries will stand for countries again attempting to bail themselves out using QE. If they do, the effect of QE is to pump up stock and bond prices, not particularly inflation of the price of goods.

  16. Ikonoclast says:

    Leo Smith is spot on and very amusing in his characterisation of the Isle of Wight fiasco and its implications for modern society and its alternatives. Leo and I have had our strong disagreements on certain points. However, there is much we could also agree on.

    I am not religious but I often think of the Tower of Babel story when thinking of our modern civilisation. It is a story of hubris and of building too high. We have ratcheted up world population and technology to such a high level that there is no easy “come-down”. We are committed to continuing on the high-tech, high-energy path (if possible) because the alternative is that millions or billions will die in squalor and misery.

    It is a real dilemma. If we keep going on the high-tech, high-energy path we make the ensuing crash even worse. If we attempt to limit things now (like global population) we run into all sorts of political and social problems. The bottom line is we can’t have 7 billion plus people AND a high-tech, high-energy consumption society. Indeed, it doesn’t even seem likely we could sustain 7 billion indefinitely at a lower level of average consumption. This is because of overshoot, ecological damage and depletion of various resources.

    I think we are all floundering around a bit, wondering what will happen next. This is the final hiatus, the last calm before a kind of protracted “perfect” storm of interacting Liebig Minimums. System disjunctions are very chaotic times.

    • Stan says:

      Ikonoclast wrote: “Leo Smith is spot on and very amusing in his characterisation of the Isle of Wight fiasco…” (see

      Hmmmm…it becomes obvious that every participant in a pyramid scheme must believe that there is an infinite supply of people who will joining in the next lower levels of the pyramid…they don’t recognize that there is a “finite” supply of pyramid participants.

      Considering how many pyramid schemes have come and melted-down – and that people are still joining in – it is becoming clearer why so many refuse to understand how finite the world resources are.

      Happy Holidays. y’all.


    • I am afraid the Tower of Babel story is probably a good analogy for where we are now.

    • Paul says:

      We’re in ‘The Long Emergency’

  17. Don Stewart says:

    Dear All

    A few weeks ago I mentioned Bill Gammage’s interview which is available on YouTube. Bill wrote The Biggest Estate on Earth: How Aborigines Made Australia. The recommendation prompted a torrent of criticism, the gist of most of which was that these people were just as destructive as everyone else. Since I hadn’t read the book at that time, I did not respond in any detail to all the criticisms of Gammage’s thesis.

    I will give you a brief analysis, but first I want to recommend for your quick study a picture, which can be found here:

    It isn’t necessary to read the article. The important point is that David Holmgren’s son has crafted a knife from trash. There are frequent comments here about the impossibility of recycling. But if you believe your eyes, you have to admit that it is possible. Now this is not a microchip, but it is probably more useful than a microchip when the chips are down :-)

    Here is the major point that I will try to make in this post. Most of us here believe that a certain type of civilization is coming to an end and that survivors, if any, will have to live differently. But we don’t know exactly how differently. Very crudely, we might think of three situations:
    1. Like today but with more strategic use of fossil fuels. Many biological food systems (rotational grazing, permaculture, natural farming, etc.) fit this description. Simple Living systems fit this description.
    2. Retrogression to the iron age, with lots of recycling. The Holmgren knife is an example.
    3. Retrogression to the stone age. And a stone age retrogression is where Gammage’s book may give us some invaluable clues. Because the Aborigines WERE living in the stone age. Furthermore, they were quite content and saw no reason to adopt the ways of the English settlers. (Australia began to be settled by the English in 1788.)

    The contrast between the English and the Aborigines could not have been more stark. The English came from a land where life was hard, the Aborigines had constructed a land where life was easy. The principle tool used by the Aborigines was the skillful use of fire. We might call theirs a ‘knowledge economy’. The Aborigines religion told them that the responsibility for land was parceled out to specific families, and those families must preserve and enhance the productivity of that land in perpetuity. The English religion said (in practice) that land was useless until converted into money. If you read the book Scarcity, and note the symptoms which arise when humans perceive scarcity, and follow Gammage’s pages and pages of evidence, you will see that the English initially discovered abundance, but created scarcity, and suffered the consequences.

    I cannot here describe the bales of evidence that Gammage offers, nor describe all the sophisticated methods the Aborigines uses to garden Australia. But consider this point: Oliver Holmgren makes a metal knife and David Holmgren carries a metal knife; the Aborigines made stone knives which were heavy and so they just left them at each campsite. The next time they camped there, they had a knife ready to use. The English would be scared of theft; theft was rare among the Aborigines, and wasn’t a big deal if it did happen. The point here is to think fluidly about what it means to live frugally, to live in the iron age, and to live in the stone age.

    I will leave you to ponder the many obstacles in the way of taking 7 billion people back to an idyllic stone age existence, but I will mention a couple.
    1. The knowledge which the Aborigines had was astonishing. How would we ever reclaim it? (Gammage knows a lot.)
    2. The culture encompassed all of Australia. HOW they did varied with the situation, but WHAT THEY WERE ACCOMPLISHING was uniform. How do you pull that rabbit out of the hat?
    3. The religion strongly enforced an ecological way of life in a non-hierarchical society. Exactly how do you propose that we do that?
    4. In contrast to New Guinea, violence was unusual. What magic elixer distinguished the Aborigines from the New Guineans?
    5. The Aborigines kept population below the carrying capacity of the land, which allowed some slack for floods and droughts. Few societies have managed such a feat. How?

    To me, one of the most poignant stories relates to one of the last bands of Aborigines in Tasmania. They were being rounded up and killed or deported by soldiers. Part of their religion was to take care of the land with burning. The small band was reduced to a fraction of their normal size. They knew the soldiers were near, and that if they started a fire, the soldiers would find them. And yet they started the fire which their religion and knowledge about the health of the land required. I cannot imagine how I would persuade a Black Friday crowd to adopt that world-view.

    Don Stewart

  18. Pingback: El limite real de la producción petrolífera y cómo afecta al decrecimiento [ENG]

  19. dogtrainer says:


    This is one of your best works thus far; you were able to make good arguments expressing technical concepts in non-technical terms.

    However, there remains gaps in your arguments-analysis around your theme of finite resources–of our finite world. If you could somehow figure out ways to talk more about the role of government in the development, pricing, and distribution of these finite resources as compared to the private sector’s role.

    Finally, the biggest gap in your analysis is role of integrity for individuals and groups of individual in private and public institutions as these individuals in these entities shape our finite world. For example, what would the price of gold per ounce in dollars really be (today) if the price of gold was not heavily manipulated? If gold was honestly (truthfully) priced would the price of oil be at its current price (all in dollar for example)? Therefore, if inflation was lower would not we have that $40.00 a barrel full employment economy?

    • You make the mistake of thinking that the economy of the ‘western’ industrial world is based on money and its exchange for goods and services (that is the well known economic model of taking in each others washing in exchange for money handed over the garden fence..there are Nobel prizewinners who advocate that, so you are in good company).
      We built our industrial infrastructure on the available energy embedded in cheap oil, coal and gas. Unfortunately the word ‘cheap’ (eg $2 barrel). is misconstrued in terms of monetary value. We think of ‘cheap’ oil like we think of cheap furniture or a cheap house, this a danger we face, demanding that oil ‘must’ be cheap again.
      Oil is like no other product, yet we lump it it in with everything else as if we manufacture it for profit. We don’t, oil manufactures everything for us. The real meaning of cheap or expensive hydrocarbon fuel can be assessed by the effort needed to get hold of it, which (when oil was $2 barrel), about 10c worth.
      Thus for every 10c of effort, we got $2 worth of usable energy. So why can’t we have that oil party again?
      The answer is really very simple. Those oil costs apply to the 1930s when the USA was awash with seemingly unlimited oil, and Saudi Arabia was only being guessed at. So everyone went oilcrazy, and built cities like Detroit exclusively to service an oil burning society. The endgame on that is apparent in Detroit right now. The city is bankrupt (the first of many) because oil got too expensive to burn. The city was built on the difference between 10c extraction costs, and the $2 selling price. It has been a model for our industrial society, and a pointer to where we’re all headed, because most people refuse to accept that we no longer have that cost differential on which to support ourselves.
      If you can’t accept that, take a look at Saudi today. They are repeating the excesses of Detroit, on steroids!
      They too delude themselves that colossal buildings represent ’embedded value’ and will remain so after their oil has gone, and endlessly circulating ‘property money’ will support an economy based on infinite excess. A $10bn tower is ‘worth’ $10bn forever plus compound interest. Accountants are paid to say it is so.
      The reality is of course that such value as there is in them remains intact only so long as oil can be pumped out of the ground at a sufficient rate to support them. When the oil stops, the buildings will fall down, just as surely as Detroit’s municipal excesses are falling apart right now.
      Still not convinced about what the real value of oil is?
      Put a gallon of fuel in your car, drive it carefully for 30 miles to use up that gallon.
      Now collect a team of 50 men to haul your car back to your start point, offer them a basic rate of, say, $15 an hour. It should take about 10 hours. You paid $3 50 for fuel from which you extracted $7500 worth of actual work
      The correlation between oil at 2c and $2, or $3 50 and $7500 is clear, we have been living on the ‘excess’ of oil for almost a century, now the party is over.

      • Dear EOM,
        Very succinctly put! It reminds me of a meeting years ago with a middle management man from a large pharmaceutical company in the process of ‘downsizing’ to their core business (which is a euphemism for layoffs and out sourcing services). He liked to use the phrase “Stretch goals” as justification for the demanding those left with jobs should just work harder.

        The meeting was set up to discuss plans for setting up a composting operation that would handle a large volume of the solid waste. He believed that personnel could handle hundreds of thousands of cubic yards of material using only a one yard loader bucket on a farm tractor. I argued that this was hardly going to be adequate for our needs. I tried to convince him with logic by calculating how many hours it would require to move all the materials. Came out to 20 hours a day, seven hours a week, not including maintenance time. I’ll never forget his comment. “I’m not disagreeing with your math, but if we give our stretch goals you would be surprised what they can accomplish!”

        Some people have difficulty understanding reality!

        • Stan says:

          Jody wrote: “Some people have difficulty understanding reality!”

          Or maybe they understand reality but are convinced that magical, mystical thinking can work in the particular situation.


          • Dave says:

            Perhaps I am misinformed, but it is my understanding that “…magical, mystical thinking…” is fundamental to all religions. It is indeed one of the few things common to ALL religions.

            That Americans demonstrate widespread magical, mystical thinking can best be demonstrated by the most recent Harris Poll which suggests that a majority of Americans believe in miracles (72%), the devil, hell (both at 58%), and the Virgin birth (57%).
            According to the Harris poll 42% of Americans believe in ghosts, 36% each believe in creationism and UFOs, 29% believe in astrology, & 26% believe in witches.

            Sorry to break the bad news, folks. Magical, mystical thinking dominates American voters, juries, your families, and your neighbors.

            • There is no way of proving what the ultimate force underlying all of the natural laws we observe really is. If, in fact, a god (or gods) are behinds these natural laws, then the mystical thinking these people are doing may, in fact, be correct. There are some things we simply don’t know. I am not the one to shoot down these beliefs. We need all the help we can get in our current predicament.

            • Leo Smith says:

              That’s why I am praying that people will wake up smell the coffee and stop relying on belief ;-)

          • The ramblings of people in relatively high office, (such as Inhofe and others) are such a sad reflection on the great American nation, to be held as a laughing stock that such people can be voted into office at all.
            Soon the next lineup of comic acts will begin to pitch for the presidency, in the last audition they all failed. But I think the great danger is, that when it becomes obvious that voting for prosperity doesn’t make it happen, a real godfreak will make it to the white house. Maybe by 2016—certainly by 2020.
            As the economy crashes–who will be blamed? Why the same folks who always get blamed—the infidels of course. And I don’t mean the followers of Allah
            And who are these infidels? Easy–they are the folks who don’t believe what you believe in, get rid of them and Jesus will return to fill up all the oilwells, and all will be right with the world.
            A ridiculous notion?
            Lets hope so, but the insignia on the belt buckle of the SS read: Gott Mit Uns. The similarities are all in place. The Nazi regime got rid of ‘unbelievers’—the actual faith is irrelevant.
            Already the US has a military infected with religious belief, and leaders inclined to zealotry. when the nation tips into economic chaos, as it must, the military will be required to maintain civil order. Under a godcrazy president and senate majority, you have the makings of a theocratic dictatorship.
            The mechanism for that is in place right now.

          • And don’t forget that 54% of Americans believe that the Earth was created less than 10000 years ago

          • Dave says:

            I agree that “magical, mystical thinking” is essential to the “out of the box” thinking essential to the paradigm shifts (Kuhn, “The Structure of Scientific Revolutions” 1970) which characterize all major new discoveries in any field.

            However, innovative mentation is fundamentally different from defective cognition:


            An ABC News poll found that 60% of Americans believe in the story of Noah’s ark and a global flood.

            In other words, a guy & his family used exclusively wood & some primitive tools to make a boat big enough to hold representative samples of every land-dwelling living thing (plant & animal) on earth. Also required was food & fresh water. Rough approximation of size would be on a scale of the biggest cruise ship, supertanker, or aircraft carrier.

            What we have here is not just “magical, mystical thinking”, but a fundamental inability of certain types of cognition. We know from Piaget the famous child psychologist, that there are stages of cognitive development that occur sequentially in normal people. At a certain age for example, a normal kid knows that a parent who leaves a room does not magically “disappear”. The parent is just moving to a different point in space & continues to exist (& will therefore return at some point). Depending upon level of cognitive impairment, some kids never reach this stage, or do so at a much later age than “normals”.

            A normal kid probably knows by age 13 that one man & his family cannot build a supertanker out of wood. Piaget never addressed this directly, but probably would have called it the “Ark” stage of development. All his other rules apply however. That is, a normal intellect of age 13 knows a man & his family cannot build an Ark. Someone with moderate cognitive impairment achieves this level of awareness at age 18. Those with severe cognitive impairment never get it, but can vote, breed children who share their impairments, & serve on juries.

            • I agree that the Noah’s arc myth is a stretch, but from the beginning of time, people have been making up stories to describe phenomenon they don’t understand. Today, we have Ben Bernanke making up stories about the economy and the Federal Reserve making up stories about a return to growth, and the Federal Reserve being able to fix the economy.

              Politicians have any number of stories. Wind turbines will save us; solar panels will save us; biofuels will save us. Of course, they all depend on fossil fuels, so it is hard to understand how–but the stories help win votes, and get academic papers published.

              We also have stories about what is important in life, like “He who dies with the most toys wins.” If you are concerned about energy, perhaps dying with a Tesla brings you close to nirvana. There seem to be an amazing number of people who believe such a story.

              I am more concerned about people believing the current myths that are being passed around, than I am about people who are fixed on old myths that clearly are out of date. People need a way of passing along what appear to be “best practices” to their children. Religions are a way of doing this.

              There are certainly many churches (including Christian Churches) that do not believe that the Bible is literally true. If you go to the liberal churches, you are likely to hear that the walls of Jericho fell down many years before Joshua supposedly marched around those walls. You may hear comparisons of the Old Testament creation myth with other creation myths of the time, such as with those of the Babylonians. The point is then not what the creation myth says, but how the differences in the myths explain different views of God (or gods).

              I don’t know why people get so disturbed with one particular set of wrong beliefs. We seem to have any number of wrong beliefs now being promulgated, some by politicians, some by economists, some by financial planners, and even a few by religious leaders.

        • xabier says:

          Reminds me of the managers in the Nazi slave factories, who took some time to grasp that inflicting a poor diet on the slaves led to decreasing productivity. Albert Speer, with a better grasp of reality, had to tell them to increase the rations in order to meet the targets.

          ‘Stretch goal’ is terribly Nazi-like. Corporate life, oh dear……….

          Happy New Year to all! Whatever is coming, there are much worse things than death, and we are none of us very likely to be slaves in a war economy.

      • “Put a gallon of fuel in your car, drive it carefully for 30 miles to use up that gallon. Now collect a team of 50 men to haul your car back to your start point, offer them a basic rate of, say, $15 an hour. It should take about 10 hours.”

        I can put a gallon of gas in my car to travel 30 miles to get to my destination in 30 minutes. But, 98% of the time my purpose of this trip is to get me to my destination, not my 4000 pound car. I also have another choice of riding my bike, not using any fuel, getting to my destination in 2 hours and living 10 years longer from exercising.

        EndMore, like most good conservatives you need to let go the past and embrace the future. We aren’t going back to the 1930’s. We need to plan for the future and not be a deer staring into headlights. The choice is yours.

        If you fail to plan, you plan to fail,

        55 MPH is the beginning of a path to a fossil free transportation system

        • Going back to the 30s wasn’t suggested or even imagined.
          My reference to the 30s was a reference to the reason why we had cheap oil, and to illustrate the fact that millions of people fail to grasp why oil was cheap then but not now
          My reference to the energy extracted from a gallon of fuel was intended to offer an easily understood example of our lifestyle and the sole source of that lifestyle.
          comparing that to the fact that you can cycle 30 miles instead, (and stay fitter I agree) bears no relevance to the unsustainability of that lifestyle.
          Unfortunately my comparisons on energy extraction/per gallon of fuel can be scaled up, (think 40 ton food trucks) whereas a cycle ride cannot. Try sustaining your current living environment (all of it,) by the exclusive output of your own muscles. That will not make you fitter, it will make you dead no matter how much planning has gone into it

      • Paul says:

        Superb post.
        One way I look at this is in the past for one barrel of oil you got say 100 slaves. Now you get perhaps 12.

        I was in Dubai last year – hadn’t been there since 1992 when I played in an ice hockey tournament (yes – they were wasting energy on ice rinks well before the giant ski slope).
        I couldn’t believe the changes – absolutely massive sky scrapers blasting AC…

        The thought that crossed my mind was that because these buildings would not be habitable without cheap energy — this was going to be the mother of all ghost towns in the not so distant future. The utter hubris of building a city like this!

        I recall some years ago a developer speaking about building a residential development in Dubai — and proposing to pump air conditioned air onto the streets!!!!

        Insanity knows no boundaries

        • xabier says:

          Alas, not hubris – lack of imagination and sense.

          Amusing that the insanities of Western civilisation have found their final expression in Arabia, the source, in the Middle Ages, of the mathematical sciences……

          Super-heated climate = thick adobe walls in one form or another. This has been forgotten even in Spain. Concrete boxes to fry in………

          But then the English, once they were wealthy enough to do it, built in brick, much less sensible than thick mud and straw over a wood frame.

          If Humanity had a collective head, it would be a rather thick one.

    • As I think about the situation, gold is something which as no intrinsic value, except perhaps as an item of jewelry and a high-priced metal for filling teeth. Whether or not gold is used as a medium of exchange, and how much is required to buy a given object, depends on government policies.

      In fact, if people were like other animals, and simply found what they themselves needed to eat, and fought off their own enemies, absolutely nothing would have value, except the food they gather. It is the fact that humans have found ways to store up energy, and go beyond our boundaries that have made goods more valuable. In the earliest days, the item of value might have been a large animal that was hunted down using a stone tool, or “cornered” using fire, and then shared with the group. If we were restricted to what we could catch with our bare hands, we would not be hunting big animals. But with the help of stone tools, and the controlled use of fire, we could do a lot of things that gave us an advantage over other animals. Indirectly, it is this use of energy that is what leads to additional value the humans find for some goods, apart from the day-to-day foods we gather ourselves and eat (not many now!).

      One of the things we could do with the controlled use of fire was refine gold from gold ore. This eventually came to have value, as a result of its being used as a medium of exchange.

      I presume from your question you want me to analyze what governments and public/private institutions are now doing to the value of gold that it distorting its value relative to the long-term trend. I am not sure this is really the right direction to go. We need to be looking forward, and seeing what role gold will play in the future–which may be quite different, and likely will be different in different parts of the world. What people really need is food, water, clothing, shelter, and transportation. Gold may or may not be used as an intermediary in getting these things. Perhaps having some gold is worthwhile, if a person has assets and wants to diversify them. But I don’t think we can necessarily say, “The price of gold should only be going up,” or any other similar statement.

  20. Pingback: … and into 2014 | Brain Noise

  21. Don Stewart says:

    Dear All

    There has been some discussion here about three problems, or perhaps three aspects of essentially the same problem:
    1. The ‘oil is too expensive’ problem (Gail)
    2. The ‘debt is too high’ problem (Nicole Foss)
    3. The ‘climate change is a 400 pound gorilla’ problem (James Hansen)

    Many of the advocates for each position maintain that their particular viewpoint is the important one, while the remaining two viewpoints are not important. I would like to consider the relationship between the three viewpoints in terms of human psychology. I will refer to a study described in Scarcity.

    Tunneling means that we focus on something to the exclusion of other important things. For example, a deadline focuses us on the urgent need to finish a job, which makes us neglect things which are not the job we are focused on. Firemen are rather frequently killed because they failed to fasten their seat belts in the fire truck and the fire truck has an accident on the way to the fire. The firemen always fasten their seat belts in their private automobiles, but while racing to a fire they are tunneling on many other things and do not think about the seat belt.

    Page 34 in Scarcity
    ‘To measure the cost of tunneling, we added a wrinkle. We had participants play two games side by side. They were given two pictures to memorize and to reconstruct. And we made them poor (few guesses) in one game and rich (many guesses) in the other. So they experienced scarcity in trying to reconstruct one picture but not the other. Their total earnings depended on their performance in both games: they had to maximize total points earned. Think of it as having two projects, one with a deadline tomorrow and the other a week later. If people were to tunnel, then what they gain in one picture would be offset by worse performance on the other.

    Consistent with the focus dividend, people were more effective guessers on the picture they were poor on. But they also tunneled: they neglected the other picture. And this was not efficient. They performed so much worse on the neglected picture that they earned, overall, fewer points than subjects who were poor on both pictures. They earned less even though they had more total guesses.’

    It seems to me that expensive oil, excessive debt, and climate change are all very serious issues. We should not be trying to solve any one of them while neglecting the other two, else we will suffer the same fate as the study participants..

    Of course, quite a few people think that there simply are no solutions and humanity, and perhaps a whole lot of other creatures, are going to become extinct. As I have said here many times, I tend to side with Toby Hemenway’s talk ‘How to Save Humanity, But Not Civilization’. Saving humanity, I think, requires a simultaneous solution to all three aspects of what I see as one large problem. We have to recognize the deadlines, but not sub-optimize by focusing on only one aspect.

    Don Stewart

    • I would put excessive debt right up with the high cost of oil, in terms of what brings the economy down. Debt can’t keep growing, and an increase in interest rates may very will be the final straw, ultimately circling around to bring down both oil production and the economy.

      What happens to climate is interesting, but if most of us are dead, really doesn’t matter a whole lot. The earth will save itself; it will cycle to a new climate state. The point behind all of the climate change hysteria is a need to save humans from climate change. Climate change is not really anything we can do anything about, except allowing the collapse which we are already facing happen. The collapse from energy/ debt will bring the system down as effectively as anything we could engineer, to prevent climate change. I don’t know whether the collapse will make any difference, but there is really nothing more we can do. Worrying about climate change won’t help. We may have to go back to being hunter-gatherers, but that is a possibility regardless.

      • Don Stewart says:

        I disagree that collapse is the only thing we can do about climate change. As both Jim Hansen and Albert Bates and others make clear, we can also do reforestation and carbon farming. Hansen gives estimates for the potential carbon sequestration, and Albert gives his own estimates. Choosing NOT to do carbon farming and reforestation is a vote FOR climate change.

        One might argue that high priced oil or excessive debt is going to crash the economy in 2014, so it is a moot question. Old timers like David Holmgren and Albert Bates have been saying that industrial civilization is doomed now for 30 years. It is still chugging along. You can expect David and Albert to be more circumspect about their forecasts than newcomers who haven’t been serious wrong…yet.

        So a little humility is certainly in order from all of us. In any event, if civilization DOESN’T crash in 2014, then the issue of climate change and whether we do something positive (carbon farming and reforestation) is still on the table. Hansen notes that both positive actions make it easier for humans to make it through a crunch.

        Don Stewart

      • Joy says:

        It doesn’t matter what any of us say here, those that can see the writing on the wall and the cataclysm looming will lay out a case for change and those that buy into all well funded conspiracy theories, like the $ 1 billion spent per year to fight cap and trade will toe the corporate paid for line, people who can’t even comprehend that we are leaving a toxic junk pile in our wake as we exploit our way through this age.

        It’s a pity that disaster will unfold equally on the sane and rational as much as on the irrational and non thinkers but we might have to come to a point where much of the world is a desert including the US and over 1/3 of what was dry land sits under water as sea levels rise. Before sanity prevails

        I’ve been fighting this battle on the streets, through the media and face to face for more than 40 years and every year the outlook has become grimmer while denials have become louder, less sane and full of rote learned catchphrases that have even eliminated individual thought on the denial side.

        I’m OK, I’m in my sixties and won’t be around to witness much of the destruction but the same people who hyperventilate over an easily fixable debt problem are in full support of leaving an unviable ecosystem for the grandkids, and I’m sure they’d rather be left with some debt than planetary devastation.

        It takes a special type of ignorance to see a fiscal problem as being far more severe than the end of life as we know it but people are people, some study and learn and through learning grow and change while others are told what to think, how to repeat what they were told, stagnate and then slip into ignorance induced entropy.

        All I am thankful for is when the final tally is taken, I and many of us stood up for the planet and future while too many were bought by shiny, glitzy advertising paid for by big pollution.

        It’s a crying shame that all will be punished by the willfully induced ignorance that has held back any progress in fixing an ever more severe problem.

        Oh and Happy New Year and enjoy them while they last.

      • Actually, I should say cost of oil that is too low for producers to make a profit, even as it still is on the high side for consumers, who are increasingly without jobs.

  22. Wishing everyone a Happy New Year! I should be around for a while, until a short trip to Sweden February 8 – 12.

  23. Aleh Kaliada says:

    Hi, Gail.
    While i generally agree with most of your analysis, the thesis about oil’s major contribution to the fall of USSR is questionable imo.

    Firstly, unlike today’s Russian Federation, oil exports never were a big part of the soviet budget. Until 70s oil exports revenues were close to zero at all – and USSR felt not bad at that time dispite this inconvinience.
    After that oil exports started to rise. But even at the (short) peak prices time hard currency revenue was modest.
    Let us look into numbers. I did this calculations several years ago. Historical prices were taken from worldbank, export volumes – according to BP Stat Review.
    1st column is year. 2d is price of oil in constant 2005 year dollars. 3d is total exports, bill USD. 4d column is appr export in hard currency, bill USD (it is important, cause hard currency oil export was about 1/3 of total soviet oil export, the rest went to soviet block countries and was more like donation than profit to budget)
    1965 6,08 3,3 1,1
    1966 5,62 3,4 1,1
    1967 5,45 3,6 1,2
    1968 5,45 4,0 1,3
    1969 4,98 3,8 1,3
    1970 4,46 3,5 1,2
    1971 5,92 5,0 1,7
    1972 5,85 4,9 1,6
    1973 7,78 7,0 2,3

    As we can see, until 1973 hard currency oil revenues were about 1-2 $ billions 2005 year. Negligible. Remember, SU felt not bad in 1973 actually.

    1974 24,95 22,3 7,4
    1975 21,36 21,7 7,2
    1976 23,52 27,2 9,0
    1977 23,51 29,3 9,8
    1978 20,79 27,0 9,0

    These are 1st oil shock years. OPEc so called embargo, Nixon’s oil racioning laws, Israel-Arab war… Soviet hurd currency revenues from oil rise to $ 7-9 billions in 2005 dollars.

    1979 43,03 58,2 19,4
    1980 48,37 64,6 21,5
    1981 46,51 62,6 21,0
    1982 44,1 61,5 20,5
    1983 41,15 60,3 20,1
    1984 40,52 58,2 19,4
    1985 38,98 51,5 17,2

    These are 2d oil shock years. Iran revolution and Iran-Irak war. The revenues of USSR from oil rise to appr $20 billions of 2005 year dollars a year. This is the time of the most dependance on oil revenues – at least it is usually said so.
    Divide that $20 bill a year on the population of the SU – 300 millions ppl – and that is $65/year or $5/month (dollars of 2005 year). Not too bad. But hardly something that could be critical actually.
    In total we have 12 years of relatively big hard currency flows to soviets. Relatively – because they were small actually comparatively to the total sovet budget.

    1986 17,89 25,9 8,6
    1987 20,64 31,0 10,4
    1988 15,72 24,1 ?12
    1989 19,17 27,2 ?14
    1990 23,66 26,3 ?14
    1991 20,09 17,4 ?10

    These are drop in prices years until the fall of the soviet union… More than 1/3 of total oil exports is sold for hard currency that years, so ?? at the 4d column. Now it is around $10 bill a year, instead of $20 bill previous 7 years, and exactly similar to the 5 years before that (1974-1978).

    Just for comparison. Russian Federation.

    1991 20,09 32,2
    1992 19,48 24,9
    1993 17,09 20,8
    1994 16.1 18,3
    1995 15,95 19,3
    1996 19,56 24,8
    1997 19,58 25,6
    1998 14,03 18,6
    1999 19,84 26,0

    These are nasty 90s. People of the ex-USSR live very bad that years. Life expectancy drops an astounding 7 years. Thanks to reforms. Old people begging and undernourished are common – which was unthinkable before. Pay attencion,
    that hard currency revenues are actually higher that years than any time before that, and that should be divided for just a half of the population (soviet 300 million against russian 145 millions people). Paradox? Not at all…

    2000 31,60 46,3
    2001 28,71 47,5
    2002 29,57 55,5
    2003 32,04 69,7
    2004 38,85 93,5
    2005 53,39 133,1
    2006 62,93 159,0
    2007 65,51 170,8
    2008 82,86 210,8
    2009 56,50 148,7
    2010 69,99 183,4

    These are 2000’s years. Yes. 10-20 fold rise. That is contemprorary Russia’s foundation. And yes – for contemprorary Russia this is vital, and a major part of the budget. Unlike USSR.

    Drop in oil prices had some role in USSR falling. But not main at all. There were much more important drivers.

  24. Aleh Kaliada says:

    BTW sorry for spelling, non-native english and no time for verification. Also big thanks for your great blog, which i always enjoy reading.

  25. Paul says:

    I just read this on the Financial Times web site —- and quite frankly — I am feeling a bit nauseous…..

    Toil for oil means industry sums do not add up

    Rising costs are being met only by ever smaller increases in supply

    The most interesting message in this year’s World Energy Outlook from the International Energy Agency is also its most disturbing.

    Over the past decade, the oil and gas industry’s upstream investments have registered an astronomical increase, but these ever higher levels of capital expenditure have yielded ever smaller increases in the global oil supply. Even these have only been made possible by record high oil prices. This should be a reality check for those now hyping a new age of global oil abundance.

    According to the 2013 WEO, the total world oil supply in 2012 was 87.1m barrels a day, an increase of 11.9mbd over the 75.2mbd produced in 2000.

    However, less than one-third of this increase was in the form of conventional crude oil, and more than two-thirds was therefore either what the IEA calls unconventional crude (light-tight oil, oil sands, and deep/ultra-deepwater oil) or natural-gas liquids (NGLs).
    This distinction matters because unconventional crude has a higher cost than conventional crude, while NGLs have a lower energy density.

    The IEA’s long-run cost curve has conventional crude in a range of $10-$70 a barrel, whereas for unconventional crude the ranges are higher: $50-$90 a barrel for oil sands, $50-$100 for light-tight oil, and $70-$90 for ultra-deep water. Meanwhile, in terms of energy content, a barrel of crude oil is worth 1.4 barrels of NGLs.
    Threefold rise

    The much higher cost of developing unconventional crude resources and the lower energy density of NGLs explain why, as these sources have increased their share of supply, the industry’s upstream capex has increased. But the sheer scale of the increase is staggering: upstream outlays have risen more than threefold in real terms over the past 12 years, reaching nearly $700bn in 2012 compared with only $250bn in 2000 (both figures in constant 2012 dollars).

    Coinciding with the rise in US tight-oil production, most of this increase in upstream capex has occurred since 2005, as investments have effectively doubled from $350bn in that year to nearly $700bn in 2012 (again in 2012 dollars).

    All of which means the 2013 WEO has the oil industry’s upstream capex rising by nearly 180 per cent since 2000, but the global oil supply (adjusted for energy content) by only 14 per cent. The most straightforward interpretation of this data is that the economics of oil have become completely dislocated from historic norms since 2000 (and especially since 2005), with the industry investing at exponentially higher rates for increasingly small incremental yields of energy.

    The industry has been able and willing to finance such a dramatic increase in its capital investment since 2000 owing to the similarly dramatic increase in prices. BP data show that the average price of Brent crude in real terms increased from $38 a barrel in 2000 to $112 in 2012 (in constant 2011 dollars), which represents a 195 per cent increase, slightly greater in fact than the increase in industry capex over the same period.

    However, looking only at the period since 2005, capital outlays have risen faster than prices (90 per cent and 75 per cent respectively), while in the past two years capex has risen by a further 20 per cent (the IEA estimates 2013 upstream capex at $710bn versus $590bn in 2011), while Brent prices have actually averaged about $5 a barrel less this year than in 2011.
    Iran not a game changer

    That prices have fallen slightly since 2011 while capex has risen by a further 20 per cent is a flashing light on the industry’s dashboard indicating that its upstream growth engine may finally be overheating.

    Without a significant technological breakthrough reversing the geological forces that have driven the unprecedented increase in upstream investment over the past decade, prices will have to rise further in real terms from here or else capex – and with it future oil production – will fall.

    It should also be emphasised that this vast increase in capex has occurred during a prolonged period of record-low interest rates. Once interest rates start rising again, this will put further pressure on the industry’s ability to make the massive capital outlays required to keep supply growing.

    Of course, the diplomatic breakthrough achieved with Iran over the weekend could provide some much needed short-term relief to the market, as Iran’s exports could ultimately increase by up to 1.5m barrels a day if and when western sanctions were to be fully lifted. But this would not change the dynamics of the industry’s capex treadmill in any fundamental sense.

    Even if global oil demand only grows at 1 per cent a cent a year, those extra barrels would be would be fully absorbed by the market within about 18 months. And that is probably how long it would take for Iran’s production and exports to return to pre-sanctions levels in any case.
    Alternatively, if we take the IEA’s estimate that global production of conventional crude oil from all currently producing fields will decline by 41m barrels a day by 2035 (that is, by an average of 1.9m barrels a day per year), then Iran’s potential increase of 1.5m barrels a day would compensate for just 10 months of natural decline in global conventional-crude output.
    In short, behind the hubbub of market hype about a new age of oil abundance, the toil for oil is in fact now more arduous and back-breaking than ever.

    This should worry everybody, because with the evidence suggesting that consumers are reluctant to pay much above $110 a barrel, it is an open question what happens next to the industry’s investment plans and hence, over time, to the supply of oil.

    Mark Lewis is an independent energy analyst and former head of energy research in commodities at Deutsche Bank; Daniel L Davis, a lieutenant colonel in the US Army, is co-author

  26. Chris Johnson says:

    How should we reconcile the apparent contradictions between the reports of declining oil production worldwide, and newly discovered fields that promise almost unlimited opportunities? Here are two to look at:

  27. jrwakefield says:

    I really wish you people would end this climate change connection to CO2 nonsense. It diminishes the credibility of the over all message of this. 16 years now of no increase in world average temps in spite of ever increasing CO2 emissions. Record cold in the US this winter. Even the IPCC is backing off in their final version of their recent report. They claim that it is LIKELY that we are causing MOST of climate change. That means they are 50.1% sure we are causing 50.1% of the world’s climate. Yet in the real world there is nothing happening which is beyond normal variation. Nothing. If you think there is, then please I’d be more than happy to see a SCIENCE paper published which measures that abnormal change. But you wont find it because it doesnt exist. Human caused climate change is dead, just the supporters are too wrapped up in their ideology to see it.

    • Leo Smith says:

      Well you will enjoy this. Climate Believers should look away. Its blasphemous.

    • For what it is worth, Euan Mearns (formerly of The Oil Drum) has a post up called, The Ice Man Cometh. There were several Climate Change nonbelievers at The Oil Drum.

      • jrwakefield says:

        I was booted out from commenting at TOD for my skeptical views of AGW. Oh, and please get it right. EVERYONE understands that the climate changes. It as done for 4.5 billion years, and will do for billions more. We are skeptical of the THEORY that the ONLY cause of current change in the climate is only because of our emissions of CO2.

        • There were sharp divisions in views on climate change at TOD. Leanan was seriously concerned about climate change, and pushed her views on Drumbeat. There were so many conflicts otherwise that climate change posts, per se, rarely appeared on TOD.

  28. nonplused says:

    I worked until recently for a company that did an extensive analysis of gas supply in North America. Our results were as follows, and anyone can come up with this from the publically available information but it takes a fair amount of doing.

    Natural gas production is rising in some areas where the cost is essentially zero, like the Bakken and the Eagleford. This gas is associated gas from oil production and is essentially free, the oil pays for the well. In the Bakken they are still flaring something like 200 million mmcf/d, you can see it from space (Google Bakken gas flaring from space.)

    The Marcellous is also growing rapidly. Production costs can be as low as $2/mmbtu and they are very close to major markets, so transport costs are low.

    But all 3 of these plays will soon reach physical limits to production. They can only drill so many wells a year and decline rates are high. So that, combined with gas exports and coal plant retirements will eventually bring supply and demand into a balance that requires more expensive fields to be developed. There are a lot of them out there, but the price will have to be substantially higher than it is now. But it will still be significantly below the current cost of oil on an energy equivalent basis.

    If and when gas prices rise to a level that funds the marginal fields, producers with a large footprint in the Bakken, Eagleford, and Marcellous are going to make a mint.

    The major risk to this analysis is a reversal of anti-coal policies once gas and thus electricity prices start to rise. Put coal back on the agenda and it could be a while before gas prices rise above what we now call “the coal stack”. I also think that Thorium derived electrical power should be explored but right now we just don’t seem to have the money or will to do anything but keep our heads above water.

    Uranium derived electricity has probably seen it’s heyday, we don’t need anymore plutonium to wipe out the world and the process is way to messy, as the public will come to understand probably quite soon due to the continuing deterioration of the situation at Fukashima. Actually Fukashima is way more scary than people understand, because a loss of control of this situation has major implications beyond the release of the thousands of tons of spent fuel at just that one site. If they lose a spent fuel pool at Fukashima, the resulting exclusion zone could include other nuclear reactors, and without human intervention what’s to stop those sites from releasing materials? I’m taking about a domino affect here that might eventually wipe out Japan and have far reaching implications for the entire northern hemisphere.

    • Leo Smith says:

      Oh dear. Uranium fuel has had its day? – more reactors being built than ever.
      Plutonium not needed? – its better reactor fuel than uranium. All modern reactors can burn it.
      Thousands of tonnes of used fuel at Fukushima? Hardly. A typical reactor gets through less than a hundred tonnes a year.

      Stick to oil gas an coal, where your expertise and knowledge lies….

    • You talk about “if and when gas prices rise to a level that funds the marginal fields”. The problem I keep pointing out is that salaries don’t rise with higher energy prices. In fact, they tend to stagnate or fall, except perhaps in the immediate area where the production is taking place.

      If we spend more on energy costs, we have less to spend on discretionary spending. The economy tends to shrink. So the high natural gas prices don’t last for very long, and the companies will again have a problem making money, because the price drops below the marginal cost of production. The government tries to keep interest rates low to cover up this problem, but it is not clear this approach can continue. It is not a realistic long-term strategy.

      I agree that natural gas prices are way below oil prices, on a heat-equivalent basis. It has been this way quite a while. Oil is much more portable than natural gas, because it is a liquid, so it is much more in demand. Transportation could be switched somewhat toward gas, but it would take quite a while to make a very big transition.

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