Ramping Up Renewables Can’t Provide Enough Heat Energy in Winter

We usually don’t think about the wonderful service fossil fuels provide in terms of being a store of heat energy for winter, the time when there is a greater need for heat energy. Figure 1 shows dramatically how, in the US, the residential usage of heating fuels spikes during the winter months.

Figure 1. US residential use of energy, based on EIA data. The category “Natural Gas, etc.” includes all fuels bought directly by households and burned. This is primarily natural gas, but also includes small amounts of propane and diesel burned as heating oil. Wood chips or other commercial wood purchased to be burned is also in this category.

Solar energy is most abundantly available in the May-June-July period, making it a poor candidate for fixing the problem of the need for winter heat.

Figure 2. California solar electricity production by month through June 30, 2022, based on EIA data. Amounts are for utility scale and small scale solar combined.

In some ways, the lack of availability of fuels for winter is a canary in the coal mine regarding future energy shortages. People have been concerned about oil shortages, but winter fuel shortages are, in many ways, just as bad. They can result in people “freezing in the dark.”

In this post, I will look at some of the issues involved.

[1] Batteries are suitable for fine-tuning the precise time during a 24-hour period solar electricity is used. They cannot be scaled up to store solar energy from summer to winter.

In today’s world, batteries can be used to delay the use of solar electricity for at most a few hours. In exceptional situations, perhaps the holding period can be increased to a few days.

California is known both for its high level of battery storage and its high level of renewables. These renewables include both solar and wind energy, plus smaller amounts of electricity generated in geothermal plants and electricity generated by burning biomass. The problem encountered is that the electricity generated by solar panels tends to start and end too early in the day, relative to when citizens want to use this electricity. After citizens return home after work, they would like to cook their dinners and use their air conditioning, leading to considerable demand after the sun sets.

Figure 3. Illustration by Inside Climate News showing the combination of resources utilized during July 9, 2022, which was a day of peak electricity consumption. Imports refer to electricity purchased from outside the State of California.

Figure 3 illustrates how batteries in combination with hydroelectric generation (hydro) are used to save electricity generation from early in the day for use in the evening hours. While battery use is suitable for fine tuning exactly when, during a 24-hour period, solar energy will be used, the quantity of batteries cannot be ramped up sufficiently to save electricity from summer to winter. The world would run out of battery-making materials, if nothing else.

[2] Ramping up hydro is not a solution to our problem of inadequate energy for heat in winter.

One problem is that, in long-industrialized economies, hydro capabilities were built out years ago.

Figure 4. Annual hydro generation based on data of BP’s 2022 Statistical Review of World Energy.

It is difficult to believe that much more buildout is available in these countries.

Another issue is that hydro tends to be quite variable from year to year, even over an area as large as the United States, as shown in Figure 4 above. When the variability is viewed over a smaller area, the year-to-year variability is even higher, as illustrated in Figure 5 below.

Figure 5. Monthly California hydroelectric generation through June 30, 2022, based on EIA data.

The pattern shown reflects peak generation in the spring, when the ice pack is melting. Low generation generally occurs during the winter, when the ice pack is frozen. Thus, hydro tends not be helpful for raising winter energy supplies. A similar pattern tends to happen in other temperate areas.

A third issue is that variability in hydro supply is already causing problems. Norway has recently reported that it may need to limit hydro exports in coming months because water reservoirs are low. Norway’s exports of electricity are used to help balance Europe’s wind and solar electricity. Thus, this issue may lead to yet another energy problem for Europe.

As another example, China reports a severe power crunch in its Sichuan Province, related to low rainfall and high temperatures. Fossil fuel generation is not available to fill the gap.

[3] Wind energy is not a greatly better than hydro and solar, in terms of variability and poor timing of supply.

For example, Europe experienced a power crunch in the third quarter of 2021 related to weak winds. Europe’s largest wind producers (Britain, Germany and France) produced only 14% of their rated capacity during this period, compared with an average of 20% to 26% in previous years. No one had planned for this kind of three-month shortfall.

In 2021, China experienced dry, windless weather, resulting in both its generation from wind and hydro being low. The country found it needed to use rolling blackouts to deal with the situation. This led to traffic lights failing and many families needing to eat candle-lit dinners.

Even viewed on a nationwide basis, US wind generation varies considerably from month to month.

Figure 6. Total US wind electricity generation through June 20, 2022, based on EIA data.

US total wind electricity generation tends to be highest in April or May. This can cause oversupply issues because hydro generation tends to be high about the same time. The demand for electricity tends to be low because of generally mild weather. The result is that even at today’s renewable levels, a wet, windy spring can lead to a situation in which the combination of hydro and wind electricity supply exceeds total local demand for electricity.

[4] As more wind and solar are added to the grid, the challenges and costs become increasingly great.

There are a huge number of technical problems associated with trying to add a large amount of wind and solar energy to the grid. Some of them are outlined in Figure 7.

Figure 7. Introductory slide from a presentation by power engineers shown in this YouTube Video.

One of the issues is torque distortion, especially related to wind energy.

Figure 8. Slide describing torque distortion issues from the same presentation to power engineers as Figure 7. YouTube Video.

There are also many other issues, including some outlined on this Drax website. Wind and solar provide no “inertia” to the system. This makes me wonder whether the grid could even function without a substantial amount of fossil fuel or nuclear generation providing sufficient inertia.

Furthermore, wind and solar tend to make voltage fluctuate, necessitating systems to absorb and discharge something called “reactive power.”

[5] The word “sustainable” has created unrealistic expectations with respect to intermittent wind and solar electricity.

A person in the wind turbine repair industry once told me, “Wind turbines run on a steady supply of replacement parts.” Individual parts may be made to last 20-years, or even longer, but there are so many parts that some are likely to need replacement long before that time. An article in Windpower Engineering says, “Turbine gearboxes are typically given a design life of 20 years, but few make it past the 10-year mark.”

There is also the problem of wind damage, especially in the case of a severe storm.

Figure 9. Hurricane-damaged solar panels in Puerto Rico. Source.

Furthermore, the operational lives for fossil fuel and nuclear generating plants are typically much longer than those for wind and solar. In the US, some nuclear plants have licenses to operate for 60 years. Efforts are underway to extend some licenses to 80 years.

With the short life spans for wind and solar, constant rebuilding of wind turbines and solar generation is necessary, using fossil fuels. Between the rebuilding issue and the need for fossil fuels to maintain the electric grid, the output of wind turbines and solar panels cannot be expected to last any longer than fossil fuel supply.

[6] Energy modeling has led to unrealistic expectations for wind and solar.

Energy models don’t take into account all of the many adjustments to the transmission system that are needed to support wind and solar, and the resulting added costs. Besides the direct cost of the extra transmission required, there is an ongoing need to inspect parts for signs of wear. Brush around the transmission lines also needs to be cut back. If adequate maintenance is not performed, transmission lines can cause fires. Burying transmission lines is sometimes an option, but doing so is expensive, both in energy use and cost.

Energy models also don’t take into account the way wind turbines and solar panels perform in “real life.” In particular, most researchers miss the point that electricity from solar panels cannot be expected to be very helpful for meeting our need for heat energy in winter. If we want to add more summer air conditioning, solar panels can “sort of” support this effort, especially if batteries are also added to help fine tune when, during the 24-hour day, the solar electricity will be utilized. Unfortunately, we don’t have any realistic way of saving the output of solar panels from summer to winter.

It seems to me that supporting air conditioning is a rather frivolous use for what seems to be a dwindling quantity of available energy supply. In my opinion, our first two priorities should be adequate food supply and preventing freezing in the dark in winter. Solar, especially, does nothing for these issues. Wind can be used to pump water for crops and animals. In fact, an ordinary windmill, built 100 years ago, can also be used to provide this type of service.

Because of the intermittency issue, especially the “summer to winter” intermittency issue, wind and solar are not truly replacements for electricity produced by fossil fuels or nuclear. The problem is that most of the current system needs to remain in place, in addition to the renewable energy system. When researchers make cost comparisons, they should be comparing the cost of the intermittent energy, including necessary batteries and grid enhancements with the cost of the fuel saved by operating these devices.

[7] Competitive pricing plans that enable the growth of wind and solar electricity are part of what is pushing a number of areas in the world toward a “freezing-in-the-dark” problem.

In the early days of electricity production, “utility pricing” was generally used. With this approach, vertical integration of electricity supply was encouraged. A utility would make long term contracts with a number of providers and would set prices for customers based on the expected long-term cost of electricity production and distribution. The utility would make certain that transmission lines were properly repaired and would add new generation as needed.

Energy prices of all kinds spiked in the late 1970s. Not long afterward, in an attempt to prevent high electricity prices from causing inflation, a shift in pricing arrangements started taking place. More competition was encouraged, with the new approach called competitive pricing. Vertically integrated groups were broken up. Wholesale electricity prices started varying by time of day, based on which providers were willing to sell their production at the lowest price, for that particular time period. This approach encouraged providers to neglect maintaining their power lines and stop adding more storage capacity. Any kind of overhead expense was discouraged.

In fact, under this arrangement, wind and solar were also given the privilege of “going first.” If too much energy in total was produced, negative rates could result for other providers. This approach was especially harmful for nuclear energy. Nuclear power plants found that their overall price structure was too low. They sometimes closed because of inadequate profitability. New investments in nuclear energy were discouraged, as was proper maintenance. This effect has been especially noticeable in Europe.

Figure 10. Nuclear, wind and solar electricity generated in Europe, based on data of BP’s 2022 Statistical Review of World Energy.

The result is that about a third of the gain from wind and solar energy has been offset by the decline in nuclear electricity generation. Of course, nuclear is another low-carbon form of electricity. It is a great deal more reliable than wind or solar. It can even help prevent freezing in the dark because it is likely to be available in winter, when more electricity for heating is likely to be needed.

Another issue is that competitive pricing discouraged the building of adequate storage facilities for natural gas. Also, it tended to discourage purchasing natural gas under long term contracts. The thinking went, “Rather than building storage, why not wait until the natural gas is needed, and then purchase it at the market rate?”

Unfortunately, producing natural gas requires long-term investments. Companies producing natural gas operate wells that produce approximately equal amounts year-round. The same pattern of high winter-consumption of natural gas tends to occur almost simultaneously in many Northern Hemisphere areas with cold winters. If the system is going to work, customers need to be purchasing natural gas, year-round, and stowing it away for winter.

Natural gas production has been falling in Europe, as has coal production (not shown), necessitating more imports of replacement fuel, often natural gas.

Figure 11. Natural gas production in Europe, based on data of BP’s 2022 Statistical Review of World Energy.

With competitive rating and LNG ships seeming to sell natural gas on an “as needed” basis, there has been a tendency in Europe to overlook the need for long term contracts and additional storage to go with rising natural gas imports. Now, Europe is starting to discover the folly of this approach. Solar is close to worthless for providing electricity in winter; wind cannot be relied upon. It doesn’t ramp up nearly quickly enough, in any reasonable timeframe. The danger is that countries will risk having their citizens freeze in the dark because of inadequate natural gas import availability.

[8] The world is a very long way from producing enough wind and solar to solve its energy problems, especially its need for heat in winter.

The energy supply that the world uses includes much more than electricity. It contains oil and fuels burned directly, such as natural gas. The percentage share of this total energy supply that wind and solar output provides depends on how it is counted. The International Energy Agency treats wind and solar as if they only replace fuel, rather than replacing dispatchable electricity.

Figure 12 Wind and solar generation for a category called “Wind, Solar, etc.” by the IEA. Amounts are for 2020 for Germany, the UK, Australia, Norway, the United States, and Japan. For other groups shown in this chart, the amounts are calculated using 2019 data.

On this basis, the share of total energy provided by the Wind and Solar category is very low, only 2.2% for the world as a whole. Germany comes out highest of the groups analyzed, but even it is replacing only 6.0% of its total energy consumed. It is difficult to imagine how the land and water around Germany could tolerate wind turbines and solar panels being ramped up sufficiently to cover such a shortfall. Other parts of the world are even farther from replacing current energy supplies with wind and solar.

Clearly, we cannot expect wind and solar to ever be ramped up to meet our energy needs, even in combination with hydro.

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Why No Politician Is Willing to Tell Us the Real Energy Story

No politician wants to tell us the real story of fossil fuel depletion. The real story is that we are already running short of oil, coal and natural gas because the direct and indirect costs of extraction are reaching a point where the selling price of food and other basic necessities needs to be unacceptably high to make the overall economic system work. At the same time, wind and solar and other “clean energy” sources are nowhere nearly able to substitute for the quantity of fossil fuels being lost.

This unfortunate energy story is essentially a physics problem. Energy per capita and, in fact, resources per capita, must stay high enough for an economy’s growing population. When this does not happen, history shows that civilizations tend to collapse.

Figure 1. World fossil fuel energy consumption per capita, based on data of BP’s 2022 Statistical Review of World Energy.

Politicians cannot possibly admit that today’s world economy is headed for collapse, in a way similar to that of prior civilizations. Instead, they need to provide the illusion that they are in charge. The self-organizing system somehow leads politicians to put forward reasons why the changes ahead might be desirable (to avert climate change), or at least temporary (because of sanctions against Russia).

In this post, I will try to try to explain at least a few of the issues involved.

[1] Citizens around the world can sense that something is very wrong. It looks like the economy may be headed for a serious recession in the near term.

Figure 2. Index of consumer sentiment and news heard of company changes as reported by the University of Michigan Survey of Consumers, based on preliminary indications for August 2022.

Consumer sentiment is at an extraordinarily low level, worse than during the 2008-2009 great recession according to a chart (Figure 2) shown on the University of Michigan Survey of Consumers website. According to the same website, nearly 48% of consumers blame inflation for eroding their standard of living. Food prices have risen significantly. Over the past year, the cost of car ownership has escalated, as has the cost of buying or renting a home.

The situation in Europe is at least as bad, or worse. Citizens are worried about possibly “freezing in the dark” this winter if electricity generation cannot be maintained at an adequate level. Natural gas supplies, mostly purchased from Russia by pipeline, are less available and high-priced. Coal is also high-priced. Because of the fall of the Euro relative to the US dollar, the price of oil in euros is as high as it was in 2008 and 2012.

Figure 3. Inflation-adjusted Brent crude oil price in US dollars and euros, in chart by the US Energy Information Administration, as published in EIA’s August 2022 Short Term Energy Outlook.

Many other countries, besides those in the Eurozone, are experiencing low currencies relative to the dollar. Some examples include Argentina, India, Pakistan, Nigeria, Turkey, Japan, and South Korea.

China has problems with developers of condominium homes for its citizen. Many of these homes cannot be delivered to purchasers as promised. As a protest, buyers are withholding payments on their unfinished homes. To make matters worse, the prices of condominium homes have started to fall, leading to a loss of value of these would-be investments. All of this could lead to serious problems for the Chinese banking industry.

Even with these major problems, central banks in the US, the UK and the Eurozone are raising target interest rates. The US is also implementing Quantitative Tightening, which also tends to raise interest rates. Thus, central banks are intentionally raising the cost of borrowing. It doesn’t take much insight to see that the combination of price inflation and higher borrowing costs is likely to force consumers to cut back on spending, leading to recession.

[2] Politicians will avoid talking about possible future economic problems related to inadequate energy supply.

Politicians want to get re-elected. They want citizens to think that everything is OK. If there are energy supply problems, they need to be framed as being temporary, perhaps related to the war in Ukraine. Alternatively, any issue that arises will be discussed as if it can easily be fixed with new legislation and perhaps a little more debt.

Businesses also want to minimize problems. They want citizens to place orders for their goods and services, without the fear of being laid off. They would like the news media to publish stories saying that any economic dip is likely to be very mild and temporary.

Universities don’t mind problems, but they want the problems to be framed as solvable ones that will offer their students opportunities for jobs that will pay well. A near-term, unsolvable predicament is not helpful at all.

[3] What is wrong is a physics problem. The operation of our economy requires energy of the correct type and the right quantity.

The economy is something that grows through the “dissipation” of energy. Examples of dissipation of energy include the digestion of food to give energy to humans, the burning of fossil fuels, and the use of electricity to power a light bulb. A rise in world energy consumption is highly correlated with growth in the world economy. Falling energy consumption is associated with economic contraction.

Figure 4. Correlation between world GDP measured in “Purchasing Power Parity” (PPP) 2017 International $ and world energy consumption, including both fossil fuels and renewables. GDP is as reported by the World Bank for 1990 through 2021 as of July 26, 2022; total energy consumption is as reported by BP in its 2022 Statistical Review of World Energy.

In physics terms, the world economy is a dissipative structure, just as all plants, animals and ecosystems are. All dissipative structures have finite lifespans, including the world economy.

This finding is not well known because academic researchers seem to operate in ivory towers. Researchers in economic departments aren’t expected to understand physics and how it applies to the economy. In fairness to academia, the discovery that the economy is a dissipative structure did not occur until 1996. It takes a long time for findings to filter through from one department to another. Even now, I am one of a very small number of people in the world writing about this issue.

Also, economic researchers are not expected to study the history of the many smaller, more-localized civilizations that have collapsed in the past. Typically, the population of these smaller civilizations increased at the same time as the resources used by the population started to degrade. The use of technology, such as dams to redirect water flows, may have helped for a while, but eventually this was not enough. The combination of declining availability of high quality resources and increasing population tended to leave these civilizations with little margin for dealing with the bad times that can be expected to occur by chance. In many cases, such civilizations collapsed after disease epidemics, a military invasion, or a climate fluctuation that led to a series of crop failures.

[4] Many people have been confused by common misunderstandings regarding how an economy really works.

[a] Standard economics models foster the belief that the economy can continue to grow without a corresponding increase in energy supply.

When economic models are designed with labor and capital being the important inputs, energy supply doesn’t seem to be needed, at all.

[b] People seem to understand that legislation capping apartment rents will stop the building of new apartments, but they do not make the same connection with steps taken to hold down fossil fuel prices.

If efforts are made to bring down the prices of fossil fuels (such as raising interest rates and adding oil from the US petroleum reserves to increase total oil supply), we need to expect that extraction will be adversely affected. One article reports that Saudi Arabia does not seem to be using recent record profits to quickly raise reinvestment to the level that seemed to be required a few years ago. This suggests that Saudi Arabia needs prices that are quite a bit higher than $100 per barrel in order to take significant steps toward extracting the country’s remaining resources. This would seem to contradict published reserves that, in theory, take current prices into consideration.

Reuters reports that Venezuela has reneged on its promise to send more oil to Europe, under an oil for debt deal. It wants oil product swaps instead, since it is lacking in its ability to make finished products from its oil itself. It would take a long run of prices much higher than today’s level for Venezuela to be able to sufficiently invest in infrastructure to do such refining. Venezuela reports the highest oil reserves in the world (303.8 thousand million barrels), even higher than Saudi Arabia’s reported 297.5 thousand million barrels, but neither country can be counted on to take major steps to raise supply.

Similarly, there have been reports that US shale drillers are not investing to keep production growing, despite what seem to be sufficiently high prices. There are simply too many issues. The cost of new investment is very high, outside of the already drilled sweet spots. Also, there is no guarantee the price will stay high. There are also supply line issues, such as whether appropriate steel drilling pipes and fracking sand will be available, when needed.

[c] Published information suggests that there is a huge amount of fossil fuels remaining to be extracted, given today’s level of technology. If we assume that technology will get better and better, it is easy to believe that any fossil fuel limit is hundreds of years in the future.

The way the economy works, the extraction limit is really an affordability issue. If the cost of extraction rises too high, relative to what people around the world have for spendable income, production will stop because demand (in terms of what people can afford) will drop too low. People will tend to cut back on discretionary spending, such as vacation travel and meals in restaurants, cutting back on demand for fossil fuels.

[d] How “demand” works is poorly understood. Very often, researchers and the general public assume that demand for energy products will automatically remain high.

A surprisingly large share of demand is tied to the need for food, water, and basic services such as schools, roads, and bus service. Poor people require these basics just as much as rich people do. There are literally billions of poor people in the world. If the wages of poor people fall too low relative to the wages of rich people, the system cannot work. Poor people find that they must spend nearly all their income on food, water and housing. As a result, they have little left to pay taxes to support basic governmental services. Without adequate demand from poor people, the prices of commodities tend to fall too low to encourage reinvestment.

The majority of fossil fuel use is by commercial and industrial users. For example, natural gas is often used in making nitrogen fertilizer. If the price of natural gas is high, the price of fertilizer will rise higher than farmers are willing to pay for the fertilizer. Farmers will cut back on fertilizer use, reducing yields for their crops. The farmers’ own costs will be lower, but there will be less of the desired crops grown, perhaps indirectly raising overall food prices. This is not a connection that economic modelers build into their models.

The lockdowns of 2020 show that governments can indeed ramp up demand (and thus prices) for energy products by sending out checks to citizens. We are now seeing that the approach seems to produce inflation rather than more energy production. Also, countries without energy resources of their own may see their currencies fall with respect to the US dollar.

[e] It is not true that energy types can easily be substituted for one another.

In energy modeling, such as in calculating “Energy Return on Energy Invested,” a popular assumption is that all energy is substitutable for other energy. This isn’t true, unless a person accounts for all of the details of the transition, and the energy needed to make such a transition possible.

For example, intermittent electricity, such as that generated by wind turbines or solar panels, is not substitutable for load-following electricity. Such intermittent electricity is not always available when people need it. Some of this intermittency is very long-term. For example, wind-generated electricity may be low for more than a month at a time. In the case of solar energy, the problem tends to be storing up enough electricity during summer months for use in winter. A naive person might assume that adding a few hours of battery backup would fix intermittency problems, but such a fix turns out to be very inadequate.

If people are not to freeze in the dark in winter, longer-term solutions are needed. One standard approach is to use a fossil fuel system to fill in the gaps when wind and solar are not available. The catch, then, is that the fossil fuel system really needs to be a year-around system, with trained staffing, pipelines and adequate fuel storage. A modeler needs to consider the need to build a whole double system instead of a single system.

Because of intermittency issues, electricity from wind and solar only substitute for fuels (coal, natural gas, uranium) that operate our current system. Publications often talk about the cost of intermittent electricity being at “grid parity” when its temporary cost seems to match the cost of grid electricity, but this is matching “apples and oranges.” The cost comparison needs to be in comparison to the average cost of fuel for plants producing electricity, rather than to electricity prices.

Another popular assumption is that electricity can be substituted for liquid fuels. For example, in theory, every piece of farm equipment could be redesigned and rebuilt to be based on electricity, rather than diesel, which is typically used today. The catch is that there would need to be an enormous number of batteries built and eventually disposed of for this transition to work. There would need also need to be factories to build all this new equipment. We would need an international trade system operating extraordinarily well, to find all the raw materials. Likely, there would still not be enough raw materials to make the system work.

[f] There is a great deal of confusion about expected oil and other energy prices, as an economy reaches energy limits.

This issue is closely related to [4][d], with respect to the confusion about how energy demand works. A common assumption among analysts is that “of course” oil prices will rise, as limits are approached. This assumption is based on the standard supply and demand curve used by economists.

Figure 5. Standard economic supply and demand curve from Wikipedia. Description of how this curve works: The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D). The diagram shows a positive shift in demand from D1 to D2, resulting in an increase in price (P) and quantity sold (Q) of the product.

The issue is that the availability of inexpensive energy products very much affects demand as well as supply. Jobs that pay well are only available if inexpensive energy products can leverage human labor. For example, surgeons today perform robotic surgery, requiring, at a minimum, a stable source of electricity for each operation. Furthermore, the equipment used in the surgery is created using fossil fuels. Surgeons also use anesthetic products that require fossil fuels. Without today’s fancy equipment, surgeons would not be able to charge nearly as much they do for their services.

Thus, it is not immediately obvious whether demand or supply would tend to fall faster, if energy supply should hit limits. We know that Revelation 18:11-13 in the Bible provides a list of a number of commodities, including humans sold as slaves, for which prices dropped very low at the time of the collapse of ancient Babylon. This suggests that at least sometimes during prior collapses, the problem was too low demand (and too low prices), rather than too low supply of energy products.

[5] The International Energy Agency and politicians around the world have recommended a transition to the use of wind and solar to try to prevent climate change for quite a few years. This approach seemed to have the approval of both those concerned about too much burning of fossil fuels causing climate change and those concerned about too little fossil fuel energy causing economic collapse.

A rough estimate of what the decline in energy supply might look like under the rapid shift to renewables proposed by politicians is shown in Figure 6.

Figure 6. Estimate by Gail Tverberg of World Energy Consumption from 1820 to 2050. Amounts for earliest years based on estimates in Vaclav Smil’s book Energy Transitions: History, Requirements and Prospectsand BP’s 2020 Statistical Review of World Energy for the years 1965 to 2019. Energy consumption for 2020 is estimated to be 5% below that for 2019. Energy for years after 2020 is assumed to fall by 6.6% per year, so that the amount reaches a level similar to renewables only by 2050. Amounts shown include more use of local energy products (wood and animal dung) than BP includes.

If a person understands the connection between energy consumption and the economy, such a rapid drop in energy supply looks like something that would likely be associated with economic collapse. The goal of politicians seems to be to keep citizens from understanding how awful the situation really is by reframing the story of the decline in energy supply as something politicians and economists have chosen to do, to try to prevent climate change for the sake of future generations.

The rich and powerful can see this change as a good thing if they themselves can profit from it. When there is not enough energy, the physics of the situation tends to lead to increasing wage and wealth disparities. Wealthy individuals see this outcome as a good thing: They can perhaps personally profit. For example, Bill Gates has amassed about 270,000 acres of farmland in the United States, including newly purchased farmland in North Dakota.

Furthermore, politicians see that they can have more control over populations if they can direct citizens in a way that will use less energy. For example, bank accounts can be linked to some type of social credit score. Politicians will explain that this is for people’s own good–to prevent the spread of disease or to prevent undesirables from using too much of the available resources.

One way of dramatically reducing energy consumption is by mandating shutdowns in an area, purportedly to prevent the spread of Covid-19, as China has been doing recently. Such shutdowns can be explained as being needed to stop the spread of disease. These shutdowns can also help hide other problems, such as not having enough fuels to prevent rolling blackouts of electricity.

[6] We are living in a truly unusual time, with a major energy problem being hidden from view.

Politicians cannot tell the world how bad the energy situation really is. The problem with near-term energy limits has been known since at least 1956 (M. King Hubbert) and 1957 (Hyman Rickover). The problem was confirmed in the modeling performed for the 1972 book, The Limits to Growth by Donella Meadows and others.

Most high-level politicians are aware of the energy supply issue, but they cannot possibly talk about it. Instead, they choose to talk about what would happen if the economy were allowed to speed ahead without limits, and how bad the consequences of that might be.

Militaries around the world are no doubt well aware of the fact that there will not be enough energy supplies to go around. This means that the world will be in a contest for who gets how much. In a war-like setting, we should not be surprised if communications are carefully controlled. The views we can expect to hear loudly and repeatedly are the ones governments and influential individuals want ordinary citizens to hear.

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The world’s self-organizing economy can be expected to act strangely, as energy supplies deplete

It is my view that when energy supply falls, it falls not because reserves “run out.” It falls because economies around the world cannot afford to purchase goods and services made with energy products and using energy products in their operation. It is really a price problem. Prices cannot be simultaneously high enough for oil producers (such as Russia and Saudi Arabia) to ramp up production and remain low enough for consumers around the world to buy the goods and services that they are accustomed to buying.

Figure 1. Chart showing average annual Brent-equivalent oil prices in 2021$ based on data from BP’s 2022 Statistical Review of World Energy, together with bars showing periods when prices seemed to be favorable to producers.

We are now in a period of price conflict. Oil and other energy prices have remained too low for producers since at least mid-2014. At the same time, depletion of fossil fuels has led to higher costs of extraction. Often, the tax needs of governments of oil exporting countries are higher as well, leading to even higher required prices for producers if they are to continue to produce oil and raise their production. Thus, producers truly require higher prices.

Governments of countries affected by this inflation in price are quite disturbed: Higher prices for energy products mean higher prices for all goods and services. This makes citizens very unhappy because wages do not rise to compensate for this inflation. Prices today are high enough to cause significant inflation (about $107 per barrel for Brent oil (Europe) and $97 for WTI (US)), but still not high enough to satisfy the high-price needs of energy producers.

It is my expectation that these and other issues will lead to a very strangely behaving world economy in the months and years ahead. The world economy we know today is, in fact, a self-organizing system operating under the laws of physics. With less energy, it will start “coming apart.” World trade will increasingly falter. Fossil fuel prices will be volatile, but not necessarily very high. In this post, I will try to explain some of the issues I see.

[1] The issue causing the price conflict can be described as reduced productivity of the economy. The ultimate outcome of reduced productivity of the economy is fewer total goods and services produced by the economy.

Figure 2 shows that, historically, there is an extremely high correlation between world energy consumption and the total quantity of goods and services produced by the world economy. In my analysis, I use Purchasing Power Parity (PPP) GDP because it is not distorted by the rise and fall of the US dollar relative to other currencies.

Figure 2. Correlation between world GDP measured in “Purchasing Power Parity” (PPP) 2017 International $ and world energy consumption, including both fossil fuels and renewables. GDP is as reported by the World Bank for 1990 through 2021 as of July 26, 2022; total energy consumption is as reported by BP in its 2022 Statistical Review of World Energy.

The reason such a high correlation exists is because it takes energy to perform each activity that contributes to GDP, such as lighting a room or transporting goods. Energy consumption which is cheap to produce and growing rapidly in quantity is ideal for increasing energy productivity, since it allows factories to be built cheaply and raw materials and finished goods to be transported at low cost.

Humans are part of the economy. Food is the energy product that humans require. Reducing food supply by 20% or 40% or 50% cannot be expected to work well. The economy suffers the same difficulty.

In recent years, depletion has been making the extraction of fossil fuel resources increasingly expensive. One issue is that the resources that were easiest to extract and closest to where they were needed were extracted first, leaving the highest cost resources for extraction later. Another issue is that with a growing population, the governments of oil exporting countries require higher tax revenue to support the overall needs of their countries.

Intermittent wind and solar are not substitutes for fossil fuels because they are not available when they are needed. If several months’ worth of storage could be added, the total cost would be so high that these energy sources would have no chance of being competitive. I recently wrote about some of the issues with renewables in Limits to Green Energy Are Becoming Much Clearer.

Rising population is a second problem leading to falling efficiency. In order to feed, clothe and house a rising population, a growing quantity of food must be produced from essentially the same amount of arable land. More water for the rising population is required for the rising population, often obtained by deeper wells or desalination. Clearly, the need to use increased materials and labor to work around problems caused by rising world population adds another layer of inefficiency.

If we also add the cost of attempting to work around pollution issues, this further adds another layer of inefficiency in the use of energy supplies.

More technology is not a solution, either, because adding any type of complexity requires energy to implement. For example, adding machines to replace current workers requires the use of energy products to make and operate the machines. Moving production to cheaper locations overseas (another form of complexity) requires energy for the transport of goods from where they are transported to where they are used.

Figure 2 shows that the world economy still requires more energy to produce increasing GDP, even with the gains achieved in technology and efficiency.

Because of energy limits, the world economy is trying to change from a “growth mode” to a “shrinkage mode.” This is something very much like the collapse of many ancient civilizations, including the fall of Rome in 165 to 197 CE. Historically, such collapses have unfolded over a period of years or decades.

[2] In the past, the growth rate of GDP has exceeded that of energy consumption. As the economy changes from growth to shrinkage, we should expect this situation to reverse: The rate of shrinkage of GDP will be greater than the rate of shrinkage of energy consumption.

Figure 3 shows that, historically, world economic growth has been slightly higher than the growth in energy consumption. This growth in energy consumption is based on total consumption of fossil fuels and renewables, as calculated by BP.

Figure 3. Annual growth in world PPP GDP compared to annual growth in consumption of energy supplies. World PPP GDP is data provided by the World Bank; world energy consumption is based on data of BP’s 2022 Statistical Review of World Energy.

In fact, based on the discussion in Section [1], this is precisely the situation we should expect: GDP growth should exceed energy consumption growth when the economy is growing. Unfortunately, Section [1] also suggests that we can expect this favorable relationship to disappear as energy supply begins to shrink because of growing inefficiencies in the system. In such a case, GDP is likely to shrink even more quickly than energy supply shrinks. One reason this happens is because complexity of many types cannot be maintained as energy supply shrinks. For example, international supply lines are likely to break if energy supplies fall too low.

[3] Interest rates play an important role in encouraging the development of energy resources. Generally falling interest rates are very beneficial; rising interest rates are quite detrimental. As the economy shifts toward shrinkage, the pattern we can expect is higher interest rates, rather than lower. As the limits of energy extraction are hit, these higher rates will tend to make the economy shrink even faster than it would otherwise shrink.

Part of what has allowed growing energy consumption in the period shown in Figures 2 and 3 is rising debt levels at generally lower interest rates. Falling interest rates together with debt availability make investment in factories and mines more affordable. They also help citizens seeking to buy a new car or home because the lower monthly payments make these items more affordable. Demand for energy products tends to rise, allowing the prices of commodities to rise higher than they would otherwise rise, thus making their production more profitable. This encourages more fossil fuel extraction and more development of renewables.

Once the economy starts to shrink, debt levels seem likely to shrink because of defaults and because of reluctance of lenders to lend, for fear of defaults. Interest rates will tend to rise, partly because of the higher inflation rates and partly because of the higher level of expected defaults. This debt pattern in turn will reinforce the tendency toward lower GDP growth compared to energy consumption growth. This is a major reason that raising interest rates now is likely to push the economy downward.

[4] With fewer goods and services produced by the economy, the world economy must eventually shrink. We should not be surprised if this shrinkage in some ways echoes the shrinkage that took place in the 2008-2009 recession and the 2020 shutdowns.

The GDP of the world economy is the goods and services produced by the world economy. If the economy starts to shrink, total world GDP will necessarily fall.

What happens in the future may echo what has happened in the past.

Figure 4. World energy consumption per capita, based on information published in BP’s 2022 Statistical Review of World Energy.

Central bank officials felt it was important to stop inflation in oil prices (and indirectly in food prices) back in the 2004 to 2006 period. This indirectly led to the 2008-2009 recession as parts of the world debt bubble started to collapse and many jobs were lost. We should not be surprised if a much worse version of this happens in the future.

The 2020 shutdowns were characterized in most news media as a response to Covid-19. Viewed on an overall system basis, however, they really were a response to many simultaneous problems:

  • Covid-19
  • A hidden shortage of fossil fuels that was not reflected as high enough prices for producers to ramp up production
  • Hidden financial problems that threatened a new version of the 2008 financial collapse
  • Factories in many parts of the world that were operating at far less than capacity
  • Workers demonstrating in the streets with respect to low wages and low pensions
  • Airlines with financial problems
  • Citizens frustrated by long commutes
  • Very many old, sick people in care homes of various types, passing around illnesses
  • An outsized medical system that still desired to increase profits
  • Politicians who wanted a way to better control their populations–perhaps rationing of output would work around an inadequate total supply of goods and services

Shutting down non-essential activities for a while would temporarily reduce demand for oil and other energy products, making it easier for the rest of the system to appear profitable. It would give an excuse to increase borrowing (and money printing) to hide the financial problems for a while longer. It would keep people at home, reducing the need for oil and other energy products, hiding the fossil fuel shortage for a while longer. It would force the medical system to reorganize, offering more telephone visits and laying off non-essential workers. Many individual citizens could reduce time lost to commuting, thanks to new work-from-home rules and internet connections. The homebuilding and home remodeling industries were stimulated, offering work to those who had been laid off.

The impacts of the shutdowns were greatest on poor people in poor countries, such as those in Central and South America. For example, many people in the vacation and travel industries were laid off in poor countries. People making fancy clothing for people going to conferences and weddings were laid off, as were people raising flowers for fancy events. These people had trouble finding new employment. They are at increased risk of dying, either from Covid-19 or inadequate nutrition, making them susceptible to other illnesses.

We should not be surprised if some near-term problems echo what has happened in the past. Debt defaults and falling home prices are very real possibilities, for example. Also, making a new crisis a huge focal point and scaring the population into staying at home has proven to be a huge success in temporarily reducing energy consumption without actual rationing. Some people believe that monkeypox or a climate change crisis will be the next area of focus in an attempt to reduce energy consumption, and thus lower oil prices.

[5] There is likely to be more conflict in a world with not enough goods and services to go around.

With a shrinking amount of finished goods and services, we should not be surprised if we see more conflict in the world. Many wars are resource wars. The conflict between Russia and Ukraine, with other countries indirectly involved, certainly could be considered a resource war. Russia wants higher prices for its exports of many kinds, including energy exports. I wrote about the conflict issue in a post I wrote in April 2022: The world has a major crude oil problem; expect conflict ahead.

World War I and World War II were almost certainly about energy resources. Peak coal in the UK seems to be closely related to World War I. Inadequate coal in Germany and lack of oil in Japan (and elsewhere) seem to be related to World War II.

[6] We seem to be facing a new set of problems in addition to the problems that gave rise to the Covid-19 shutdowns. These are likely to shape how any new crisis plays out.

Some recently added problems include the following:

  • Debt has risen to a high level, relative to 2008. This debt will be harder to repay with higher interest rates.
  • The US dollar is very high relative to other currencies. The high level of the US dollar causes problems for borrowers from outside the US in repaying their loans. It also makes energy prices very high outside the US.
  • Oil, coal and natural gas are all in short supply world-wide, leading to falling productivity of the overall system Item 1. If extraction is to continue, prices need to be much higher.
  • Difficulties with broken supply lines make it hard to ramp up production of manufactured goods of many kinds.
  • Inadequate labor supply is an increasing problem. Baby boomers are now retiring; not enough young people are available to take their place. Increased illness, associated with Covid-19 and its vaccines, is also an issue.

These issues point to a situation where rising interest rates seem likely to send the world economy downward because of debt defaults and failing businesses of many kinds.

The high dollar relative to other currencies leads to the potential for the system to break apart under stress. Alternatively, the US dollar may play a smaller role in international trade than in the past.

[7] Many parts of the economy are likely to find that the promised payments to be made to them cannot really take place.

We have been taught that money is a store of value. We have also been taught that government promises, such as pensions, unemployment insurance and health insurance can be counted on. If there are fewer goods and services available in total, the whole system must change to reflect the fact that there are no longer enough goods and services to go around. There may not even be enough food to go around.

As the world economy hits limits, we cannot assume that the money we have in the bank will really be able to purchase the goods we want in the future. The goods may not be available to purchase, or the government may put a restriction (such as $200 per week) on how much we can withdraw from our account each week, or inflation may make goods we currently buy unaffordable.

If we think about the situation, the world will be producing fewer goods and services each year, regardless of what promises that have been made in the past might say. For example, the number of bushels of wheat available worldwide will start falling, as will the number of new cars and the number of computers. Somehow, the goods and services people expected to be available will start disappearing. If the problem is inflation, the affordable quantity will start to fall.

We don’t know precisely what will happen, but these are some ideas, especially as higher interest rates become a problem:

  • Many businesses will fail. They will default on their debt; the value of their stock will go to zero. They will lay off their employees.
  • Employees and governments will also default on debts. Banks will have difficulty remaining solvent.
  • Pension plans will have nowhere nearly enough money to pay promised pensions. Either they will default or prices will rise so high that the pensions do not really purchase the goods that recipients hoped for.
  • The international system of trade is likely to start withering away. Eventually, most goods will be locally produced with whatever resources are available.
  • Many government agencies will become inadequately funded and fail. Intergovernmental agencies, such as the European Union and the United Nations, are especially vulnerable.
  • Governments are likely to reduce services provided because tax revenues are too low. Even if more money is printed, it cannot buy goods that are not there.
  • Citizens may become so unhappy with their governments that they overthrow them. Simpler, cheaper governmental systems, offering fewer services, may follow.

[8] It is likely that, in inflation-adjusted dollars, energy prices will not rise very high, for very long.

We are likely dealing with an economy that is basically falling apart. Factories will produce less because they cannot obtain financing. Purchasers of finished goods and services will have difficulty finding jobs that pay well and loans based on this employment. These effects will tend to keep commodity prices too low for producers. While there may be temporary spurts of higher prices, finished goods made with high-cost energy products will be too expensive for most citizens to afford. This will tend to push prices back down again.

[9] Conclusion.

We are dealing with a situation that economists, politicians and central banks are ill-equipped to handle. Raising interest rates may squeeze out a huge share of the economy. The economy was already “at the edge.” We can’t know for certain.

Virtually no one looks at the economy from a physics point of view. For one thing, the result is too distressing to explain to citizens. For another, it is fashionable for scientists of all types to produce papers and have them peer reviewed by others within their own ivory towers. Economists, politicians and central bankers don’t care about the physics of the situation. Even those basing their analysis on Energy Return on Energy Invested (EROEI) tend to focus on only a narrow portion of what I explained in Section [1]. Once researchers have invested a huge amount of time and effort in one direction, they cannot consider the possibility that their approach may be seriously incomplete.

Unfortunately, the physics-based approach I am using indicates that the world’s economy is likely to change dramatically for the worse in the months and years ahead. Economies, in general, cannot last forever. Populations outgrow their resource bases; resources become too depleted. In physics terms, economies are dissipative structures, not unlike ecosystems, plants and animals. They can only exist for a limited time before they die or end their operation. They tend to be replaced by new, similar dissipative structures.

While the current world economy cannot last indefinitely, humans have continued to exist through many bottlenecks in the past, including ice ages. It is likely that some humans, perhaps in mutated form, will make it through the current bottleneck. These humans will likely create a new economy that is better adapted to the Earth as it changes.

Posted in Financial Implications, oil shortages | Tagged , , | 4,063 Comments

Why raising interest rates to reduce inflation may work out very badly

Are we headed for very high energy prices? Or, are we headed for a financial system that starts falling apart? The whole economic system may change remarkably. For example, what many people thought was money, or a promised pension plan, may not really be there when the time comes to get value from it. Shelves in stores may be empty when it comes time to make a purchase.

Most people do not understand that the world economy is a physics-based system, powered by energy. If the energy is suddenly much less available, there will be a huge problem. The world economy has been powered by a rapidly growing supply of energy for over 200 years.

Figure 1. World energy consumption by fuel based on Vaclav Smil’s estimates from Energy Transitions: History, Requirements and Prospects (Appendix) together with data from BP’s 2011 Statistical Review of World Energy for 1965 and subsequent. Wind and solar are included in Biofuels.

My concern is that the current attempt to bring inflation down will lead to falling energy supply and a world economy that is rapidly changing for the worse.

Figure 2. Energy amounts for 2010 and prior equal to those in Figure 1, with a corresponding amount for 2020. Future energy for 2030, 2040 and 2050 are rough estimates based on the observation that the world is now reaching extraction limits for both coal and oil.

Everything I can see says that world leaders are not able to face the possibility that the world is already running seriously short of oil and coal. Future supplies are likely to be much lower, and much more expensive, if they are available at all. Other energy types (including natural gas, nuclear, hydroelectric, wind and solar) are simply add-ons to a system built using coal and oil.

Current world leaders do not realize that the energy situation is very much like the water level in Lake Mead. Looking at it from the top, there still seems to be water there but, in fact, the required depth is lacking. Water for watering crops will soon be exhausted. The world’s energy supply is not a whole lot different. The supposedly proven reserves do not tell us anything at all. It is the amount of fossil fuels that can be affordably extracted that is important. We have already exceeded the amount that can be affordably extracted. If central banks cut back future energy supplies using higher interest rates, we can expect to encounter major problems going forward.

In this post, I will try to explain some of the issues involved.

[1] The amount of energy the economy requires depends very much on population. The greater the world population, the more oil is needed for food production and transportation. Non-oil energy is a bit more flexible in quantity than oil, but the total quantity of energy per capita needs to keep rising to prevent very adverse outcomes.

Figure 3. World per capita energy consumption by source, with the 1950-1980 period of rapid growth highlighted. Amounts are equal to those used in Figure 1, divided by population estimates by Angus Maddison.

Figure 3 highlights the fact that the period of Rapid Energy Growth between 1950 and 1980 was a period of unprecedented growth in per capita energy consumption. This was a period when many families could afford their own car for the first time. There were enough employment opportunities that, quite often, both spouses could hold down paying jobs outside the home. It was the growing supply of inexpensive fossil fuels that made these jobs available.

If a person looks closely, it is possible to see that the 1920 to 1940 period was a period of very low growth in energy consumption, relative to population. This was also the period of the Great Depression and the period leading up to World War II. Sluggish energy consumption growth at that time was linked to very undesirable socioeconomic outcomes.

Energy is like food for the economy. If energy of the right kinds is cheaply available, it is possible to build new roads, pipelines and electricity transmission lines. World trade grows. If available energy is inadequate, major wars tend to break out and standards of living are likely to fall. We now seem to be approaching a time of too little energy, relative to population.

[2] Recently published data through 2021 indicates that energy consumption growth is not keeping up with population growth, similar to the situation of the 1930s. This says that the economy is doing poorly. Supply lines are broken; most jobs don’t pay well; many goods that normally would be available aren’t available.

Figure 4. World energy consumption per capita, based on information published in BP’s 2022 Statistical Review of World Energy.

Figure 4 shows that the year with the highest per capita energy consumption was 2018. This agrees with other information such as automobile sales.

Figure 5. Auto sales by country, based on data of vda.de

For example, the number of automobiles sold seems to have peaked back in the 2018 period. China and India are both reporting fewer automobile sales recently. The economy was already sliding into recession in 2019. The 2020 shutdowns hid the very poor condition the world economy was already in. If people were forced to remain in their homes, they could not take to the streets to protest their poor wages and pension plans. The shutdowns helped give the impression the world economy was doing better than it really was.

Figure 4 shows that even with the bounce back in 2021, total energy consumption per capita is still below the 2018 and 2019 values. This contrasts with the situation that occurred after the 2008-2009 Great Recession. By 2010, per capita energy consumption was back above the 2007 and 2008 values.

[3] We can look back and see how rising interest rates were used to slow the world economy in the 2004 to 2006 period, and how different the economic situation was then compared to now. Even with the rapid growth the economy was making at the time of the interest rates increases, the result was still a deep recession in 2008-2009.

Figure 6. Figure similar to Figure 4 showing world energy consumption per capita, except that notation has been added with respect to the timing of increases in US Federal Reserve Target Interest Rates.

It is clear from Figure 4 and Figure 6 that between 2001 and 2007, the quantity of energy consumed per capita was rising rapidly. This was the period shortly after China was added to the World Trade Organization. Manufacturing was rapidly being moved to China. China’s demand for energy products of all kinds was rising rapidly. As a result of this greater demand, oil prices were increasing between 2001 and 2007. To try to reduce inflation, the Federal Reserve raised target interest rates in the 2004 to 2006 period and gradually brought them down, starting in late 2007.

There are two things that are striking about this earlier situation:

  1. The world economy (as shown by rising energy supply) was growing much more rapidly during the 2001 to 2007 period than it is in 2022. All the world economy is trying to do now is get back to where it was before the 2020 shutdowns, in terms of energy consumption per capita.
  2. Eventually, there was a bad reaction to the higher interest rates of 2004 to 2006, but this did not come until 2008-2009. This was a much longer lag than most people would expect.

Now, in 2022, we cannot get energy consumption per capita up to the 2018 and 2019 levels. There are many unfinished automobiles, waiting for missing parts. Appliances of many kinds are not available without a long wait. Fertilizer is often not available. Broken supply lines leave many store shelves empty. It is not that demand is unusually high; it is the supply of the energy products we need to grow food and to transport many finished goods that is not available.

Raising interest rates is a way to reduce the demand for finished goods and services, such as automobiles and appliances, if the world economy is growing very rapidly, as it was back in the 2001 to 2007 period. If the problem is an inadequate supply of finished goods and services (due to broken supply lines and low wages for workers), then raising interest rates is entirely the wrong medicine. It will cause even fewer automobiles and appliances to be made. It will cause many current workers to be laid off. Such an approach, when the world is trying to deal with too few workers, will tend to make the situation worse, rather than better.

[4] The trend in fossil fuel supplies is concerning. Both oil and coal are past peak, on a per capita basis. World coal supply has been lagging population growth since at least 2011. While natural gas production is rising, the price tends to be high and the cost of transport is very high.

Most energy charts are similar to Figure 7, showing energy consumption on a total product supplied basis, without reference to the size of the population using those resources.

Figure 7. Total quantity of oil, coal and natural gas supplied based on information published in BP’s 2022 Statistical Review of World Energy.

Figure 7 indicates that coal supplies are, in some sense, the most troubled of the three types of fossil fuels. In the 2001 to 2007 period, China was able to ramp up its manufacturing using coal, but eventually those supplies ran short. In fact, coal supplies around the world started running short. Instead of telling us about the shortfall in production, we started hearing a story that sounds a lot like The Fox and the Grapes of Aesop’s Fables: Coal is a horribly polluting fuel which we don’t really want anyhow.

To understand how these quantities correspond to the world’s rising population, it is helpful to look at consumption divided by population, shown in Figure 8.

Figure 8. Oil, coal and natural gas energy consumption per capita, based on data in BP’s 2022 Statistical Review of World Energy.

Figure 8 shows that oil consumption per capita was relatively stable up until 2019. Then, it suddenly dropped in 2020, and it has not been able to fully recover from that drop in 2021. In fact, we know that as oil production has tried to increase in 2022, its price has risen further. Of the years shown, 2004 was the year with the highest oil consumption per capita. That was back at the time that “conventional” oil production peaked.

Figure 8 shows that the peak production of coal, relative to world population, was in the year 2011. Now, in 2022, the least expensive coal to extract has been depleted. World coal consumption has fallen far behind population growth. The big drop-off in coal availability means that countries are increasingly looking to natural gas as a flexible source of electricity generation. But natural gas has many other uses, including its use in making fertilizer and as a feedstock for many herbicides, pesticides, and insecticides. The result is that there is more demand for natural gas than can easily be supplied.

[5] Governments and academic institutions have gone out of their way to avoid telling the world how important energy of the right types and in the right quantities is to the economy.

Politicians cannot admit that the world economy cannot get along without the right quantities of energy that match the needs of today’s infrastructure. At most, a small amount of substitution is possible, if all the necessary transition steps are taken. Each transition step requires energy of various kinds. For example, a small amount of intermittent wind can be added to the fossil-fuel generated electricity supply, if care is taken to ramp up fossil-fuel generated electricity to offset the lack of wind when there is a shortfall in supply. Otherwise, battery or other storage is needed for the wind energy until the wind energy is truly needed by the system.

Thus, most people today are convinced that the economy doesn’t need energy. They believe that the world’s biggest problem is climate change. They tend to cheer when they hear that fossil fuel supplies are being shut down. Of course, without energy of the right kinds, jobs disappear. The total quantity of goods and services produced tends to fall very steeply. In this situation, there is likely not enough food for all the people in the world. War is likely to break out over limited resources.

[6] Once the economy starts heading downward, it is not clear that the economy can ever “catch itself” and start back on an upward path again, even for a short while.

Back in 2001, the World Economy was able to get a “bail out” from China’s rapid growth in coal production, but as we have seen, world coal production is no longer growing as fast as population.

Back in about 2010 and 2011, growth in US crude oil from shale formations was able to temporarily bail out world oil supply, but now this is also failing. Also, even the recent “growth” shown is to a significant extent from the completion of “drilled but uncompleted” wells started earlier. Eventually, there are no more “DUCs” to complete.

Figure 9. EIA chart showing US Field Production of Crude Oil through June 24, 2022.

In fact, despite all of the supposed high reserves of many kinds around the world, there is little evidence that the Middle East, or anywhere else, can actually raise production much higher.

Once the economy starts shrinking, debt defaults are likely to become a big problem. Banks will find their balance sheets impaired. They may be forced to close. Citizens with deposits may find that only part of their balance is available to spend.

Government programs will necessarily be forced to cut back to match the energy supplies that are available. For example, if road paving material is not available, roads cannot be repaved. If fuel cannot be found for school buses, students may need to learn at home.

Governments at all levels have promised pension plans. In fact, many employers have promised pension plans. Without a growing supply to cheap-to-produce energy, these promises are meaningless. Somehow, governments will find it necessary to cut back on their promises. Perhaps, Social Security and Medicare programs will be handed back to US States to fund, to the extent that the states have funds for these programs. Governments around the world can expect to face similar problems.

With less energy supply available, the whole world economy that we know today seems likely to start falling apart. Fewer goods will be available through international trade. It is cheap energy that has allowed today’s economy to function. Once this cheap energy is depleted, the world economy will need to shrink back in many ways, at once.

We don’t really know precisely what lies ahead, and perhaps, this lack of knowledge is for the best. We cannot even imagine a world economy changing rapidly for the worse.

Posted in Energy policy, Financial Implications, News Related Post | Tagged , | 3,945 Comments

A Few Insights Based on CDC Data Regarding COVID and its Vaccines

My background is as a casualty actuary. I am used to looking at data from standard sources and trying to make some sense of it. I am hesitant to take someone else’s word for what the data show because I know that it is easy for mistakes to creep in. In this post, I will provide observations based on data from the databases of the US Centers for Disease Control and Prevention (CDC) and the Johns Hopkins University. Hopefully, some of these observations will prove insightful.

I am aware that the proper reference for COVID is “COVID-19.” In this post, I have elected to use the shorter reference, except when shown in an exhibit prepared using software developed by someone else (Figure 3).

[1] Recent data show that COVID vaccines don’t really prevent a person from catching and passing along the virus that causes COVID. The CDC has recently changed its guidance to reflect the fact that the vaccines mostly reduce the chance of severe illness. Vaccines are still recommended by the CDC, not because they reduce transmission, but because they may reduce COVID-related healthcare costs.

Figure 1. Number of US vaccine doses provided to various age groups, based on data from a CDC database.

It is clear from Figure 1 that the big initial push for vaccine delivery peaked around April 2021. The rollout was substantially accomplished by July 2021. Then there was a second, lower peak, related primarily to boosters in the November 2021 to January 2022 period.

Figure 2 shows the pattern of newly reported COVID cases, relative to the first round of COVID vaccinations, based on data reported to the Johns Hopkins University database.

Figure 2.US reported COVID cases by month based on data from the Johns Hopkins University database.

Clearly, the first round of vaccinations did not put an end to new COVID cases. In fact, the CDC started becoming concerned about transmission among the vaccinated as early as July 2021. At that time, it started recommending that everyone wear a mask in conditions that represented high transmission. It also began using the term breakthrough infection to describe the (hopefully uncommon) condition of coming down with COVID after being vaccinated.

In fact, back when the Delta wave hit in the fall of 2021, it was possible to blame at least part of the problem on the lesser-vaccinated Southern part of the US. The well-vaccinated Northeast seemed to fare relatively much better (Figure 3).

Figure 3. US reported COVID cases (moving 7-day average, relative to population) by part of the US based on data from the Johns Hopkins University database. Visualization is available at this web address.

Figure 3 indicates that a quite different situation occurred when the Omicron variant hit close to the beginning of 2022. The heavily vaccinated Northeast clearly led the way, both in timing and in the number of COVID cases relative to population. The relatively less vaccinated South was much lower, close to the Midwest in its number of cases, relative to population.

The Omicron variant is very different from the original Wuhan version of the virus. This difference between virus variants is at least part reason that current mRNA vaccines fail to block transmission of the Omicron virus. Instead, current vaccines mostly reduce severe symptoms. This is very similar to the explanation we have heard when getting influenza vaccines each year. Researchers make a guess with respect to which particular strains will be circulating the following year. The level of protection will vary, depending upon whether the researchers’ guesses prove to be accurate the following year.

There are also indications from patterns elsewhere (and from theory) that it is not good practice to vaccinate at the time a virus is already starting to circulate widely. The booster vaccinations that took place in November and December 2021 (Figure 1) may have inadvertently raised, rather than lowered, their recipients’ chances of catching COVID. But, of course, the illness would be (on average) relatively mild. This lower severity of outcome is to be expected, partly because the mutated virus seems to be less virulent than the Wuhan COVID virus, and partly because the vaccines tend to reduce the severity of the disease.

The CDC started moving in the direction of treating vaccinated and unvaccinated people alike back in July 2021. Now, with the evidence from the Omicron wave coming in, it has had no choice but to move even further in the direction of treating everyone alike. For example, for domestic travel, the CDC recommends tests for both vaccinated and unvaccinated travelers if there is a concern about COVID. Recent CDC recommendations with respect to the wearing of masks do not depend upon vaccine status, either.

The idea of requiring everyone to be vaccinated likely originated from the cost-savings and profits that were expected to occur if people could be vaccinated and kept out of hospitals. Employers were very much in favor of such cost-savings because their workers likely would be able to stay on the job more of the time. Insurance companies were in favor of such an approach as well, because it would lower health care claim costs. Hospitals and physicians were in favor of the recommended COVID vaccines because physicians could perform more elective surgery (and thus make more money) if the hospitals were not full of COVID patients. Of course, the drug companies selling vaccines were in favor of selling more vaccines, too.

Furthermore, we know from prior experience with viruses that the ability to stop transmission with a vaccine varies greatly from virus to virus. Forecasting that any proposed vaccine will prevent transmission is a very “iffy” proposition. The viruses that cause the common cold, HIV and SARS are related (in some way) to the virus that causes COVID. Despite decades of research, none of these viruses has a successful vaccine. This suggests that COVID cannot be stopped by a vaccine, either. We also know, in general, that if a virus jumps from an animal to human hosts, transmission can only be stopped if all of the animal hosts are successfully vaccinated, as well.

[2] COVID vaccines used in the US do not seem to have done much to reduce total COVID deaths.

Figure 4. Number of US COVID deaths by month on two slightly different reporting bases. CDC data are based on death certificate data, reported up to several months after the date of the death, but backdated to the date of actual death. Thus, its indications will tend to be low for recent months. The Johns Hopkins University database contains reports sent in by providers. It should be more complete for recent dates.

Vaccinations started in December of 2020, but there were about 20% more COVID deaths in 2021 than in 2020. Part of the problem is that after the Delta peak in deaths in September, deaths never retreated to zero, or close to zero. COVID deaths immediately began increasing with the Omicron peak. While there was a lull during March 2022 in reported cases (Figures 2 and 3), data for April and May seem to indicate that reported cases are again on an upward path.

If today’s vaccines really worked as people initially hoped, I would expect to see a lot more progress in reducing new cases than shown to date.

[3] Data from OurWorldInData.org provides excess mortality indications for five age groupings. This data indicates that Ages 15-64 were particularly hard hit by the last two waves of COVID (Delta and Omicron). Ages 85+ were hit very lightly.

Figure 5. Chart prepared by OurWorldInData.org showing excess mortality.

Since these charts are for all causes of death combined, they will reflect deaths that might have occurred due to other problems of the 2020 to 2022 period, in addition to COVID deaths. For example, increased suicides and homicides would be included, as would a rise in drug overdoses and motor vehicle accidents. If there are deaths stemming from the use of vaccines, these deaths would be included in the total deaths from all causes, as well.

The rise in deaths in the Ages 15-64 grouping is particularly striking. This group is known for being more likely to be depressed by the events of the day. The base number of expected deaths is relatively lower than for the older ages. This allows the deaths from newly increased causes to magnify the total death rate of the period by a greater factor. Life insurance companies have been complaining about the high numbers of deaths experienced on their policies, predominantly for this age group.

The strikingly low deaths in the Ages 85+ group in 2021 may reflect the working of the vaccine. There might be other causes as well. Some of the weaker members of this group likely died in 2020, leaving fewer to die in 2021. This lower death rate may also reflect the impact of antibodies gained from catching COVID in 2020. People included in Ages 85+, more frequently than younger age groups, lived in care homes of various kinds during 2020. In this setting, they were more exposed to the early rounds of COVID than those living in home settings. Thus, they had more of a chance to develop antibodies from catching the illness.

[4] If we prepare charts showing provisional mortality data for 2021, together with similar indications for prior years, we can see how US mortality rates have been changing for different age groups. We can also see the relative role of COVID cases in these changes.

Figure 6. Death rates for four youngest age groupings, based on CDC Provisional Mortality Data for various years.

The CDC data show mortality rates based on deaths from all causes. For the years 2020 and 2021, it gives a separate indication of mortality associated with COVID. The orange line represents what the mortality would be if all COVID deaths (using a broad definition of COVID death, based on COVID appearing as “any cause” on the death certificate) were removed.

COVID vaccines were not available until mid-December 2020, and then for only a very small group, so the difference in the orange and blue lines at the 2020 point represents the number of COVID deaths for the age group, before the vaccines became available. The 2021 difference between the two lines represents the number of deaths from COVID taking into account whatever vaccines were used for this age group. We might expect the gap between the blue and orange lines to become smaller in 2021 than in 2020 if the vaccines given to the particular age group (or the prior antibodies from catching the illness) were making a significant change in reducing COVID cases in 2021.

Looking at Figure 6, COVID has essentially no impact on babies under Age 1. The total number of deaths seemed to drop more than usual in 2020, perhaps partly because mothers were at home more. For Ages 1-4, death rates are up in 2021, but not because of COVID. COVID seems to play practically no role in the mortality of Ages 5-14 and at most a very minor role for Ages 15-24. For the latter group, mortality is significantly up in both 2020 and 2021, perhaps because of more suicides and risky behavior resulting in death (such as car accidents and drug overdoses).

Figure 7. Death rates per 100,000 for four groupings between ages 25 and 64, based on CDC Provisional Mortality Data for various years.

We can see similar patterns to what we saw for Ages 15-24 in the chart above, but with progressively more COVID in the mix of causes leading to the uptick in the overall death rates. The share of COVID cases in the mix rises in 2021 relative to 2020 for all of these age groupings, despite the vaccines and prior immunity which should start building up (if immunity is truly “durable,” something that is not always the case).

Figure 8. Death rates for three groups from age 65 and up, based on CDC Provisional Mortality Data for various years.

It is only when we get to these oldest ages that death rates stop increasing in 2021. In fact, when the impact of COVID deaths is removed, the death rates seem to be improving. These age groups tended to get the vaccine early. They also lost quite a few sickly members in 2020, when the first round of COVID hit. The remaining group may be in somewhat better health than the original mix. Also, as mentioned in Section [3], they may also have more antibodies from actually catching COVID during 202o, while living in a care home.

[5] We can perhaps get an inkling of what is going wrong with death rates by comparing deaths by cause for January 2020, January 2021, and January 2022, based on monthly provisional death data.

A sample of one month is not very much, but January tends to be bad for mortality because the cold weather encourages dry indoor conditions, especially in the colder parts of the country. People tend to stay inside more because of cold weather. Vitamin D levels tend to be low because of lower sunlight exposure. Communicable disease deaths, including those of COVID, tend to be high at this time of year.

Figure 9. Chart prepared by Gail Tverberg using CDC data for Select Natural Causes. Amounts for January 2022 are likely somewhat incomplete because of the lag in death certificate preparation.

Looking at Figure 9, the first thing we notice is that total January 2022 deaths from natural causes are still outrageously high compared with January 2020 deaths. These deaths exclude deaths from suicides, drug overdoses, car accidents and many other unnatural causes that we know are trending up substantially, so the overall situation is probably even worse than natural death indications would suggest.

One thing we notice is that heart disease deaths seem to be trending higher. This could be a fluke, or it might be caused by COVID or the vaccines (or both). Investigation might be useful.

Cancer deaths, at least based on this tiny sample, seem to be flat. This suggests that fears of a rapid rise in cancer deaths because of vaccine-related issues may be unwarranted.

COVID deaths in January 2022 are down from their very elevated level in January 2021.

Cerebrovascular diseases, diabetes and kidney disease deaths all are higher, in this very small sample. These diseases would all seem to possibly be influenced by a greater number of COVID cases or perhaps by side effects associated with vaccines or with treatments. Researchers interested in these topics should be aware that data are being collected that might give insight into changes in the number of deaths associated with these causes.

One thing that alarmed me when I looked at the CDC’s list of “selected” natural causes is that the list of diseases for which data is given is not very complete. One grouping that clearly has been omitted is diseases of the liver. I would strongly suspect that deaths from diseases of the liver are rising, if people have been staying at home and drinking more alcoholic beverages.

[6] Conclusions and ideas for further examination.

Clearly, the CDC has a huge quantity of data that can be examined if anyone wants to put the time and energy into looking at it. Too often researchers coming from the biological sciences do not stop and think about using whatever data is available to support or refute their ideas, at least based on the evidence to date.

The significant increases in mortality for the many age groups between 15 and 64 would seem to suggest that something is going badly wrong. Someone should be examining these changes. If part of the problem is that vaccines are having serious side effects, this can perhaps be seen by analyzing deaths by cause for these age groups.

The lack of COVID cases in the youngest age groupings (babies and Ages 1-4) would suggest that vaccines are not really needed for these age groupings. Babies don’t excessively fill hospitals with COVID cases. Training their immune systems to look for a long-extinct version of the virus cannot be very helpful in the long run.

If the underlying purpose of vaccines is to help the profitability of big companies, hospitals, doctors and vaccine-makers, this makes a big difference in our understanding of what we are being told. Clearly, the government is also a big employer; its ability to stay within its budget is enhanced by holding down the hospital and other medical costs of its employees. For example, if the government wants the hospitalization costs and work lost by those in the US Army and US Navy to be as low as possible, it will mandate vaccines for these employees. The CDC, being a government agency, cannot help but be at least somewhat influenced by what government leaders are demanding when interpreting scientific evidence.

The government cannot explain that the reason it wants everyone to be vaccinated has essentially nothing to do with disease transmission, without upsetting many people, so it publicizes its change in stance with respect to vaccines as little as possible. Businesses do not want it known that their reason for demanding vaccines is to hold down their own COVID healthcare costs, so they are not anxious to publicize the underlying reason, either. Thus, the vast majority of citizens are not aware of the fact that even with boosters, their chance of catching COVID and passing it along to others is still very high. Studies seem to indicate that boosters may provide an individual person with a short window (6 weeks, or so) of lower likelihood of catching COVID, but the overall effect is not enough to reduce the overall pattern of disease transmission.

If a vaccine against Omicron is developed, we need to be aware that there is a high probability that by the time the vaccine is widely distributed, the virus will have mutated sufficiently that its only benefit will be to somewhat reduce the severity of whatever version of COVID is prevalent at the time the next wave of cases appears. Thus, we cannot hope that with a better-directed vaccine, it will make any substantial difference in disease transmission. Thus, we should expect that the major benefit will always be “reduced healthcare costs with respect to COVID.”

There are quite a few people who have discovered from reading on-line articles that there are ways of potentially reducing the severity of COVID besides receiving the vaccine. These include raising vitamin D levels in advance of contracting COVID and taking any number of common, inexpensive drugs (including aspirin) if the disease does hit. They also recognize that the long-term effects of the vaccines are unknown. For example, if repeated too many times, the vaccines may damage the immune system, according to some analyses. The views of these vaccine-refusers need to be respected. The vaccine-refusers can easily be turned into scapegoats.

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