I wrote a post last week called Steep oil decline or slow oil decline? Since writing it, I had some additional thoughts on the subject, on reasons to expect a steep decline rather than a slow decline.
Furthermore, my article What’s behind United States budget problems? got me to thinking about the reasons for declining employment. In this post, I also try to explain the connection between declining EROEI , declining demand for oil, and lower employment. I explain why free trade with China and India tends to make the employment problem worse and increase global CO2 emissions. It also increases the chance of collapse in the developed world.
A reader wrote, asking the following question:
Dear Gail,
I have been reading quite a bit about peak oil recently. I get the impression (not based on data) that at some point there will be a quite steep decline in oil production/supply, and therefore we will see dramatic changes in how the world runs. However, when I look at oil depletion rates and oil production declines based on the Hubbert Curve, it seems to suggest a rather smooth decline.
How is that some people expect a serious energy crunch in about two or three years, then?
Many thanks!
Sam
My (longer) answer is as follows:
Dear Sam:
It seems to me that
(1) A slow decline assumes that the only issue is geological decline in oil supply, and the economy and everything else can go on as usual. Technological advances and switches to alternatives might also be expected to help keep supply up.
(2) A fast decline can be expected if one or more adverse factors make oil supply decline faster than geological factors would suggest. These might include:
(a) Liebig’s Law of the Minimum – some necessary element for production, such as political stability, or adequate food for the population, or adequate financial stability, is missing or
(b) Declining Energy Return on Energy Invested (EROEI) interferes with the functioning of society, so the society generates too little net energy, and economic problems ensue, or
(c) Oil becomes so high priced that there is little demand for it. This would quite likely be related to declining EROEI.
My view is that some version of the faster decline scenario is likely, because we will hit limits that interfere with oil production or oil demand.
Let me explain my reasoning.
Declining EROEI
EROEI means Energy Returned on Energy Invested. It can be defined as the ratio of the amount of usable energy acquired from a particular energy resource to the amount of energy expended to obtain that energy resource. Wikipedia says,
When the EROEI of a resource is equal to or lower than 1, that energy source becomes an “energy sink,” and can no longer be used as a primary source of energy.
The situation is really worse than Wikipedia suggests. An economy needs a certain level of energy just to keep its infrastructure (roads, bridges, schools, medical system, etc.) repaired and working, and citizens educated. So energy resources, to really be useful, need an EROEI significantly higher than 1 to maintain the system at its current level of functioning.
How much higher than 1.0 the EROEI needs to be on average will depend on the economy. An economy such as that of China, with relatively fewer paved roads and less expensive schools and healthcare system can probably get along with a much average lower EROEI (perhaps 4.0?) than an economy like the United States (perhaps 8.0), because of lesser infrastructure demands.
If the average EROEI available to society is falling because oil is becoming more and more difficult to extract, an economy with a high standard of living such as the US would seem likely to be affected before an economy with a lower standard of living, such as China or India or Bangladesh, because of the higher EROEI needs of the more extensive infrastructure. Ultimately, though, the world is one economy, so problems in one country are likely to affect the economies of other countries as well.
There a couple of issues related to declining EROEI:
1. High cost to extract. Sources of oil or natural gas or coal that are difficult (high cost) to extract tend to be lower in EROEI than sources that are low-cost to extract. So high cost of extraction tends to be a marker for low EROEI. We are increasingly running into this issue, for both oil and natural gas.
2. Declining Net Energy. EROEI is closely related to “Net Energy,” which is the amount of usable energy that is left after deducting the energy that it takes to make energy. When net energy decreases, we have less energy to run society, making it difficult to do things like maintain bridges and roads, and fund schools.
So high cost of oil extraction, low net energy, and low EROEI are all very closely related.
What did M. King Hubbert Say?
M. King Hubbert in various papers such as these (1956, 1962, 1976) talked about a world in which other fuels took over, long before fossil fuels encountered problems with short supply.
Figure 1. Figure from Hubbert 1956 paper, Nuclear Energy and the Fossil Fuels
In such a world, there would be plenty of net energy from alternative fuels to run society. Because of this, even if fossil fuels ran low, it would be easy to maintain the economy’s infrastructure, without disruption. In Hubbert’s 1962 paper, Energy Resources – A Report to the Committee on Natural Resources, Hubbert writes about the possibility of having so much cheap energy that it would be possible to essentially reverse combustion–combine lots of energy, plus carbon dioxide and water, to produce new types of fuel plus water. If we could do this, we could solve many of the world’s problems–fix our high CO2 levels, produce lots of fuel for our current vehicles, and even desalinate water, without fossil fuels.
He also showed this figure in his 1956 paper:
Figure 2. Figure from Hubbert’s 1956 paper, Nuclear Energy and the Fossil Fuels.
In this figure, most of the additional energy comes from nuclear energy, while a smaller amount comes from “solar” energy. By solar energy, Hubbert would seem to mean solar, wind, tidal, wood, biofuels, and other energy we get on a day-to-day basis, indirectly from the sun. His figure seems to suggest that solar energy would basically act as a fossil fuel extender, and would not last beyond the time fossil fuels last. The primary long-term source of energy would be nuclear.
Figure 3. Hubbert’s view of world oil production from his 1956 paper, Nuclear energy and the fossil fuels.
In such a world, applying Hubbert’s Curve to world oil supply would make perfect sense, because there would be plenty of other energy, to provide the energy needed to keep up the infrastructure needed to main extraction of oil, gas, and other fuels as long as they were available. Even liquid fuels and pollution wouldn’t be a problem, if they could be manufactured synthetically. The carrying capacity of the world for food would eventually be a factor, but in one scenario in his 1976 paper, he shows the possibility of world population eventually reaching 15 billion people, thanks to the availability of other fuels.
Another Approach to Forecasting Future Oil Supply: Limits to Growth Type Modeling
Another approach estimating the shape of the decline curve is by applying modeling techniques, such as used in the 1972 book Limits to Growth by Donella Meadows et al. The factors considered in this model were population, food per capita, industrial output, pollution, and resources. Resources were modeled in total, not oil separately from other types of resources. There were 24 scenarios run. The base scenario suggested that the world would start hitting resource limits about now (plus or minus 10 or 20 years). There have been several analyses regarding how this model is faring, and the conclusion seems to be that it is more or less on track. This is a link to such an analysis by Charles Hall and John Day.
With this type of model, according to Limits to Growth (p. 142), “The basic mode of the world system is exponential growth of population and capital, followed by collapse.” This type of decline would seem to be substantially faster than the decline predicted by the Hubbert Curve.
One thing I notice about the Limits to Growth model is that it leaves out our debt-based financial system. Since so much capital is borrowed in today’s world, it seems like including such a variable would tend to make the system even more “brittle”, and perhaps move up the date when collapse occurs.
Also, the Limits to Growth model is for the world as a whole, rather than for different parts of the world. Different areas of the world can be expected to be affected differently, as oil gets in shorter supply. The effect of this would seem to be to push economies which have a higher need for oil (illustrated above with my estimate that he US requires a EROEI of 8.0 on energy resources) down toward economies that use smaller amounts of oil (illustrated by my rough guess that perhaps China could get by with an EROEI of 4.0), especially if they trade with each other. I explain how I see this happening in a later section of this post.
Demand for Oil (or other Fossil Fuels)
Even if there is plenty of high-priced oil extracted from the ground, if potential buyers cannot afford it, there can be a problem, leading to a decline in oil production. Demand can be thought of as the willingness and ability to purchase oil products. Many people would like to have gasoline for their cars, but if they are unemployed, or have a part-time minimum wage job, they are likely not to have enough money to buy very much.
Over the long term, declining demand can be expected because of declining EROEI, as illustrated by Prof. Charles Hall’s “Cheese Slicer” model.
Figure 4. Professor Charles Hall’s cheese slicer model of the economy, reflecting the energy needed to make energy, and other aspects of the economy at 1970
Figure 5. Professor Charles Hall’s cheese slicer model of the economy, reflecting the energy needed to make energy, and other aspects of the economy at 2030.
Declining demand, and ultimately lack of sufficient demand to support supply, is related to the much larger size of the big black “energy needed to create energy” arrow as resources become more and more difficult to extract, and the much smaller size of the red discretionary spending arrows. When the discretionary spending arrows are small, people can’t afford the oil that is produced.
Lack of Demand Can Be Expected to Affect the More-Developed World before the Less-Developed World
Let me explain one way I see lack of demand for oil arising in the developed world today. This is related to the tendency of economies with high required EROEI to maintain infrastructure to be the first economies to be affected by declining EROEI, and by the tendency of free trade to lead to equalization among economies.
Figure 6. US energy consumption, from Energy Export Data Browser
US energy consumption in general, and oil consumption in particular, has been relatively flat in the 2000-2009 period, and declining at the end of that period, indicating low demand. Prior to this period, it was rising.
More or less the reverse has happened in China and India. Growth in oil use and energy products in general was moderate prior to 2000, but increased rapidly after 2000.
Figure 7. China’s energy consumption, from Energy Export Data Browser
Figure 8. India’s energy consumption, from Energy Export Data Browser
When we look at the percentage of the US population that is employed (Figure 9), it has been decreasing since 2000, so there are fewer people earning wages, and thus able to buy oil and other products. Prior to 2000, the percentage of the US population working was increasing.
Figure 9. US Bureau of Labor Statistics employer non-farm employee counts divided by US Census Bureau resident population estimates
In fact, over time, in the US, there is a high correlation between number of people employed and amount of oil consumed.
Figure 10. Number of jobs from US Bureau of Labor Statistics non-farm employer; oil consumption is “Product Supplied” from US Energy Information Administration
This high correlation is not surprising for two reasons: (1) jobs very often involve often use oil in producing or shipping goods, and because (2) people who are earning a salary can afford to buy goods and services that use oil.
If we think about it, businesses employing people in China and India have three cost advantages over businesses employing people in the US:
1. People in China and India earn less, in large part because their life styles use less oil. As the price of oil has rises, a person would expect this difference to become greater, if salaries of US earners are raised over time, to reflect the higher cost of oil, as it rises. If the living standards in China increase, the salary differential could decline, but still might be very high in dollar terms.
2. The cost of electricity used in manufacturing in China and India is cheaper, because it is generally coal-based. The cost of electricity from coal is quite likely even cheaper than electricity from coal from the United States, because these countries are more likely to have poor pollution controls, and because the coal is extracted using cheap labor. The difference in the cost of electricity can be expected to become greater, to the extent the US imposes stricter pollution regulations, or switches to higher priced alternative power (say, offshore wind), or imposes a carbon tax.
3. Taxes and employee benefits are likely to be lower (in absolute dollars, but perhaps as a percentage as well) in China or India, because infrastructure is less complex, and because there is less in the way benefits comparable to Social Security, Medicare, etc. (This is related to the lower EROEI required to maintain the infrastructure in these countries.)
With these advantages, as trade restrictions are eased and more “free” trade of services is enabled through the Internet, I would expect an increasing number of jobs to move overseas, and more goods and services to be imported. Salaries will also tend to stay lower in the US, especially for jobs associated to goods and services that can be produced more cheaply in China or India.
With these lower salaries in the US, demand for oil in the US will tend to be lower, because people who are paid less (or out of work) will not be able to afford high-priced oil for vacations and other optional purchases. As more US jobs move overseas, unemployment and recession can be expected to increasingly become problems. Furthermore, it will become difficult to collect enough taxes from the lower number of employed people to pay enough taxes to keep the system operating. I write about this in What’s Behind the US’ Budget Problems?
One thing that happens, too, with this arrangement is that world’s coal use has risen.
Figure 11. World energy consumption, from Energy Export Data Browser
I wonder if all of the emphasis on CO2 reduction has not exacerbated the problem. Countries that reduce their own coal use and instead rely more on exports can feel virtuous, but they also set the stage for negative impacts. By using less coal, these countries leave more coal for lesser developed countries to import. These lesser developed countries probably burn it less safely (for example, with less mercury controls) and compete with them for jobs. The developed countries can be expected to have more and more budget problems, as their tax bases erode, and the number of unemployed rises.
When new electricity generation is planned in the United States, the usual practice is to compare expected costs with other types of new electricity generation that might be possible in the United States. It seems to me that this practice does not show the full picture. Goods and services produced in the United States will have to compete with goods and services produced around the world. Some of the electricity used will be from nuclear plants that have long been paid off; some will be from coal production; and a little will be from high priced new types of electricity production. As long as there are no tariffs or other trade restrictions, higher-priced US electricity will tend to hinder exports and help imports. I would vote for trade restrictions.
Conclusion
The downslope of oil production can be expected to reflect a combination of different impacts. Unless technology improvements truly have a huge impact, it would seem to me that the overall direction of the downslope is likely to be faster than Hubbert’s Curve would predict.
Thanks for writing!
Best Regards,
Gail Tverberg (also known as Gail the Actuary)
I think governments will do desperate things post peak energy. I think they will be less military and more things like building lots of nuclear power plants.
It seems to me that in the United States, the peak was fairly sharp because it was unexpected (except by Hubbert and a few others), and the rate of decline was fairly slow because over the decades following the peak, a number of techniques for increasing ultimate recovery and maintaining a higher rate of production were invented and applied. For increasing ultimate recovery; water flooding, maintaining the gas cap, steam flooding, adding carbon dioxide to lower viscosity, and fracking to increase porosity. For maintaining flow until near the end of a given well: mainly horizontal drilling guided by improved seismic reading of the reservoir, especially bottle-brush wells.
Because these techniques have been invented before the peak in Middle Eastern and some other oil fields, and the managers of the those oil fields are aware of the facts of depletion, it seems reasonable that the overall effects would be different – flattening of the peak, followed by rapid decline when all known methods for improving recovery are exhausted. This is consistent with rapid decline in the North Sea, in Cantarell, and other examples.
That’s the general picture that I have. It is muddied, of course, by all the “above-ground” factors that make actual outcomes erratic – infrastructure problems, political problems, discovery of new oil fields, short-sighted and incompetent management of oil fields in general, and so on. As soon as we see rapid decline in the Middle East, there will be plenty of infrastructure and political problems to intensify the rate of decline and mask the cause.
That’s the simple outline I have developed over five years of paying attention to The Oil Drum and otherwise trying to understand the issues.
Art Myatt
Maybe what we have a situation where supply is really impacted two ways –declining supply, as geological limits are hit; and messed up demand, because of all the financial problems of buyers, and food riots, and international trade problem. It is pretty clear we are hitting a crisis soon, but it is really from multiple effects.
>>
I tend to think the ruling goverments of the US and China ( and also Russia) will be too circumspect to provoke each other. There is little to be gained and too much to be lost by direct nuclear exchanges between superpowers.
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But this is Cold War thinking. Not post Peak world thinking.
This is not to say you’re wrong. Nobody wants to go to war for the sake of going to war. The maneuvers for advantage in the Cold War were ideological. Only in the end game were they economic, as the Soviets approached surrender. There is a phase of the decline where I can envision your point being in play, but it seems brief.
Establishing the ground rules is the initial truth. People will fight to survive. They will kill to survive. They will have remorse about it that night, and the next day they will go out and kill more. If the US maneuvers to retain its 4/24 configuration, someone out there will be starving early, and they will fight to survive.
It is at this point that your point has its phase. The US government will have to make a cold calculation that it must reduce its voters quality of life to . . . not prevent that starvation out there, but to prevent the starving people from waging war. Compassion won’t be the motivator. We let millions starve in Africa without any national gut-wrenching guilt. We won’t be sacrificing oil to prevent starvation. But we may sacrifice it to prevent suicide bombs from attacking oil production facilities.
That will be a delicate debate, though. If it turns into . . . we must reduce our quality of life because we’ve been threatened with war, then it’s just Cold War tension again and no oil will be sent there.
The Russians are sitting pretty, unless their production avalanches for lack of investment. They are holding their numbers up with 6000 wells drilled per year. The Western companies trying to get a piece of that action (BP and RDS) might not like the $5 or $10/barrel they get to keep for that enormous investment. Rosneft can’t do the work themselves or they wouldn’t be hunting partners. Regardless, if the western OCs take their marbles and go home, Russia production will crash.
No, it’s all about China, and then India on the back burner. It’s consumption. We all know nothing can be done about supply. It is consumption that has to crash. Quickly.
There’s only one way for that to happen, and it’s not windmills.
There is a particular perspective on these matters chronically lacking in the Peak Oil discussions. It is somewhat astonishing that it is so frequently absent.
All the computer models go after an analysis of The System and do so in a completely uniformly distributed way. This is simply absurd.
The export land model itself, though it is the first oblique attempt at things, misses the reality.
The US has 4% of the world’s population and consumes 24% of the world’s oil. Why would this change? Why would America want to erode its advantage? Dominance was achieved by burning oil faster than the competition. Why would any American leader give that dominance away and degrade the lives of his voters? That would be not just irresponsible; it would be treasonous — or at the very least traitorous. It’s not credible. No career politician is going to come to power without acquiring the instinct for re-election.
So in this context, the bemoaning of the 1 billion people who live in poverty and misery is inconsequential. They have no nuclear weapons. They can’t do anything but maybe riot at their local oil production facility, and be mowed down by the automatic weapons that will be on site there, if not now, soon.
So it is not the poor who have anything to say about the 4/24 ratio above. Only real competitors like China could truly object. And they must.
Oil sufficiency will decline. That portion of the world presently getting less than their population proportional “fair share” will demand more. Those presently getting more than their population proportional fair share will invent some other measure of “fair”, like one GDP based.
But there is no credible way that in an environment of decreasing oil production America, enduring a decrease in lifestyle, will voluntarily agree to accelerate that decrease by adjusting the 4/24 ratio. That’s Not Going To Happen, and all these models are based on it.
Reality is, the world won’t be able to tolerate it. Lifestyles will begin to fall towards the starvation threshold, and America will very visibly be at that point in time far above it. The Middle East has a great many countries that would hit starvation while their neighbors who have more oil are still feeding their populace. Egypt’s 80 million could stream northeastward. We’re seeing the preliminaries of this right now as France closes the train lines from Italy, who has been packing trains with Tunisian refugees and sending them northwest.
I won’t go into too very much detail on how the wars will look as China realizes the US is guaranteeing its own perpetual dominance. My only general point here is that the polite, generalized models are absurd. Reality is non uniformity in distribution. Reality is a smashing of production facilities during the wars.
It will all be much worse than the most severe of the projections in the models.
The winning side wins. Subsistence farmers having an advantage over the rest because they never became used to oil? Silliness. Their crops will be taken and they will be left to die. Or they will be downwind of the fallout.
Not exactly a cheery comment, but I think there is some truth to it. The US has recently been dropping in its share of oil consumption, because we have decided to compete with other countries. The problem in this is that we lose good-paying jobs, so would-be workers cannot afford to buy oil products. But I think you are right is saying that the downslope will be uneven, and pretty much everyone will be affected.
The Realpolitiks of it are that Owen does have a point. Countries that lack adequate domestic resources and lack a powerful military (relative to neighbours and even great powers) will suffer the most and first. That is not to say that the US and China will have it all easy. The US will suffer but survive. The central power of the USA’s government is sufficient to keep the US intact until 2050 at least. I think China might have more trouble staying together than the USA.
Being an Australian, I wish we would play our cards a bit more cleverly. Realistically, we have to remain a US ally. However, we should keep a lower profile and avoid following the US into so many wars. Rather than being in such a hurry to sell natural gas to China, we could be keeping it on-shore and converting our fleet of cars from petrol to natural gas. (Australia is not self-sufficient in oil.) At the same time, we should be moving to wind and solar power (from our vast plains and deserts) and cutting back on coal use.
I’m not a fan of nuclear power at all. (Ironically, Australia has uranium and is probably the safest place in the world to build nuclear power plants in terms of geological and political stability.)
I see great unrest spreading through the Middle East and Africa first. The plain fact of the matter is that earth is overpopulated and nature (as the sum of all biological and physical forces) will deal with it because we have not.
Well, I was typing my previous comment in a turbulent airplane so it is only barely literate.
Interesting point by the Australian gentleman. The military superiority in an oil scarcity situation need only be regional to suppress neighbor consumption (which is, of course, euphemism for “depopulate”). Oil transport issues would have a lower marginal risk of interdiction if you take oil that has already traveled most of the distance to you — meaning, if your neighbor is depopulated, you get his oil because it has already made most of the trip to *your* harbor, and his is now smoking rubble.
Let’s also be clear here about another matter. I am a former US Air Force officer. Pilots will not accept orders to target civilians. Targeting and killing are two different things. They will not accept orders to target civilians.
For civilians to be killed, there will have to be not only a pretext of substantial credibility, but the specifics of targeting will have to be carefully orchestrated, or the officer corps “will refuse an unlawful order.”
Now, for those of you who hate the idea of using the military to dominate the post Peak world, don’t celebrate too quickly.
A full 80% of China’s population is within a few tens of miles of their east coast. I personally suspect the Senkaku Islands will be the eventual flashpoint. Japan will not tolerate theft. They will drag the US in. China will amass debarkation equipment in various ports to prepare for the invasion — and those will require nuclear pre-emptive strikes. Those ports are cities. Effort would be made to reduce civilian casualties, but when you are outnumbered you must use nuclear weapons. This has always been so.
Perhaps too much detail there from a G2-style of contingency planning. The overall strategic point is, perhaps, that the present phase of the post Peak world of war is using weapons to secure supply (in Libya and Bahrain). This will never work as things get more scarce. There will have to be a transition from securing supply to destroying consumption.
Nothing else is going to work. 6.8 billion people is not going to work. And I think all of you reading this know this to be so. Young people are not going to stop having babies. You can applaud one child policies all you want. It hasn’t fixed the problem and it’s not going to, and certainly not in a sharp decline scenario.
Gail, when you say “the decline will be uneven”, the phrasing implies something that is horribly unlikely. It implies that everyone is at an equal place on the declining line, which wiggles a bit, making it uneven. That is not the point at all. That is not human nature. Humans seek advantage. Always. When successful, they will have advantage. The losers will hate this and find it intolerable.
The timeless reality of “if I can’t have it, no one can” will enter the picture, and that will put 1000 year half life isotopes on the Saudi oil fields. THAT is the mechanism for war making it all much, much worse. And THAT is the highest probability scenario. Given that, it’s best to be on the winning side.
I tend to think the ruling goverments of the US and China ( and also Russia) will be too circumspect to provoke each other. There is little to be gained and too much to be lost by direct nuclear exchanges between superpowers. Having said that, there are many other ways of competing for resources.
I think the US would be better served by concentrating on reducing wasteful oil consumption, reducing expensive foreign wars and channeling more money into renewable energy.
The 3 trillion plus dollars spent on Middle eastern wars would have bought a lot of oil at market prices and lot of renewable energy infrastructure.
I took Gail’s comment about ‘uneven decline’ quite literally. Domestically, I expect bankrupt cities / states to halt services, close parks and libraries, lay-off workers, etc. A neighboring city that has done a better job of staying out of debt or has a solid tax base might maintain services longer, which makes them a destination for the new refugees. The old Depression billboard warning men to ‘keep moving’ comes to mind.
Internationally it seems the game is afoot. The US is busy destabilizing every third world country that thinks they have a right to use their own oil. When they are done shooting at each other and destroying their infrastructure, the gas companies and financial overlords are ready to ‘assist’ them. Libya just sold some oil with a little help from their new friends. Of course, this means jobs for people who are out of work. Who cares where the oil goes as long as I can feed my family? In addition, the US or it’s allies gets their military foot in the door with no intention of leaving.
I guess that I hadn’t thought about the “If I can’t have it, no one can have it” aspect. Figure 4 on the post I put up today makes it pretty clear that it will be pretty hard to hold back the consumption of oil exporters/developing countries. With the US being the world’s largest importer, there clearly are others who would like to get their hands on the oil supply that we would normally get.
I bookmarked http://ourfiniteworld.com/2011/04/11/steep-oil-decline-or-slow-oil-decline-expanded-thoughts at reddit.com so my co-workers can read it as well. I simply used Steep Oil Decline or Slow Oil Decline – Expanded thoughts | Our Finite World as the entry title in my bookmark, as I figured it would be a great way to promote this awesome post. Please email me back at Kinahan2744@gmail.com if there is anything more I can do to help.
Gail,
Have you seen this suggestion at TOD?
http://www.theoildrum.com/node/7594#comment-793089
Thanks for the link! I was traveling today – Biophysical economics conference tomorrow.
It’s better that you folks say those things than me.
Gail,
I have made an on-blog bet with a prominent Australian academic economist. I respect him greatly but feel he is too optimistic on Limit to Growth issues. In simple terms, my bet (for a tokenistic A$100 inflation adjusted) is that World Gross Product (or World Income) for year ending 2020 will be less than for year ending 2010.
The reason I made this bet is that I believe energy is crucial to the whole economy and we have hit or will hit Peak Energy (in net EROEI terms) in 2010 plus or minus five years. Like you, I see the implied compounding problems of this event cascading rapidly through the entire world economy. I also see a pretty much 1 to 1 correlation between energy use and economic production as being conclusively demonstrated by Thermoeconomics. The only assumption I can see that endangers my modest bet is the actual time of Peak Energy. How do you think my bet will pan out? – Ikonoclast.
Icono,
IMHO, it’s an irrational wager.
WGP (World Gross Product) is a fantasy number that we humans pull entirely out of our rear quarters. Take the number of real people and add it with the number of fictional corporate entities round the world, then multiply the sum by a fictional other number, namely, average productivity per entity. See that tulip farmer over there? Look, he has 1,000 budding tulip plants. And tulip futures are “priced” in today’s market at 1000 money units per tulip. So that guy is going to be a millionaire for sure. It’s solid mathematical logic. Just do the numbers.
Except it is not logic at all, but rather consummate delusion. “Price” is a fictionalized number we make up. Rationalized markets is another fantasy we create in our heads. The WGP number for 2020? It can be any number “they” choose it to be.
You’re probably relying on the notion that the number living humans will greatly depreciate by 2020. And unfortunately you may well be right on that count. But you forget that the US Supreme Court (in Citizens United) has declared corporations to be legal persons. The world can produce an infinite number of corporations. Each can produce an infinite number of digital tulips (in their computers) and price each as they please. So there is no upper bound on the WGP number. It’s just a made up fantasy number.
Matt Simmons lost his 2005 “bet” with John Teirny (NYTimes writer) in regard to oil prices in the year 2010. What Simmons did not foresee was the possibility of oil-unaffordability, namely, that so many of us would lose jobs and not be able to afford oil at any price and therefore the price never gets to $200/bbl. (The Automatic Earth web site did an analysis on the unforeseen deflation surprise. Check it out.)
I agree there are problems with denominating the value unit for the wager. I understand why you say “price” is a fictional number but I think you state the case a little strongly. Money is a token of value and it is a matter of how reliable that token remains. Yes, it is abstract and alien to nature but it is customary in the market and a set of complex rules govern its value. Most currencies are fiat currencies and can be devalued/revalued by government action. At the same time, currency markets exist which can cross-value currencies and this provides as it were cross-check trades and flows.
One condition I did not mention here was that the Australian dollar still has to be legal tender (IE a government backed fiat currency) in 2020. Otherwise, the bet is invalidated.
I’m guessing that the Australian dollar may not be legal currency by 2020.
I would agree with you about “real” world product dropping. But I think you will have a hard time teasing out inflation. I think there must be two kinds of inflation. One in which the supply of stuff is constant and the supply of money increasing causing inflation. The other where the supply of stuff goes down but the supply of money is constant so that more dollars are available to chase each unit of stuff. And of course both can be operating at the same time.
I am attending the EROI conference in Syracuse and look forward to meeting you.
Ed,
It will be good to meet you and others I have only met online.
Gail
Ikonclast,
My guess is you will be right in your bet, but I am wondering how different the world may be. There may not be anyone measuring World Gross Product or World Income any more. Timing is always hard to tell, but it seems like there will be some pretty big changes in the next ten years, and not for the better.
A terrific follow-up Gail, thank you. The large urban areas of the US have a lot of ‘evening out’ to do before this is all over.
Gail,
Nicely put.
Another way of saying it is that “slow decline” is the most optimistic thing we can hope for assuming a best of all possible future worlds.
Oil does not come out of the ground all by itself.
(Well not so much any more.)
Humans have to do the deep drill and energetic suck to get it.
But what if the humans are too busy warring with each other to have time and resources for sucking up more oil?
What if the humans are busy fighting a global pandemic?
What if the humans are busy dealing with other ecological catastrophes?
What if the humans can’t keep their Tainter-plexified financial structures going?
Then what?
Then the oil stops coming, even if its continued flow is still geologically possible.
That is why the slow decline scenario is an unlikely one.
We are not likely going to get the best of all possible future worlds.
Let’s pray we do not get the worst of all possible future worlds.
Hi Step Back,
I assume that you are using this phrase in a secular fashion and are not actually beseeching a supernatural spirit to intervene with miracles to save those “created in his image and likeness” from disaster.
Unfortunately, billions of your specie are doing exactly that – they are attempting to communicate with an imaginary entity in a fervent hope that they will either get some improvement in this life or secure a better deal in thier afterlife. So much for science and enlightenment.
Hard to figure how this all plays out when the bulk of humanity has no clue regarding what is true or false.
BD,
Of course I speak with tongue in cheek as I suggest petitioning the Lord with prayer.
I would not go so far out on the limb as detach myself from the rest of humanity and thus believe I am “special” and above it all. The limbs at the top of the tree are the most fragile of all.
We are all human and all very much alike, be that for better or worse. In times of personal crisis, when there is nothing else that can be done but to whale at a wall, I am not above muttering a few choice words for receipt by an unseen deity. (Just in case She is listening.) It is only during the rare good times that one can feel smug and detached from the rest of our species mates. But that doesn’t last long.
Harken. I hear the wind blowing and the lofty branch I stand on begins to creak once more. Time to retreat, no stampede, towards the sturdier trunk of our common tree of human ancestry and to be one with the rest. Science and enlightenment were just a dream. For sooth, a short one at that.
Hi Step Back,
I never feel like I’m either “special” or “above it all” – maybe it sounded that way, but definitely not how I feel. On one hand, I was just trying to have a bit of fun with your “praying” – I didn’t really picture you as being monk-like!
However, I stick to my guns – I think that the generally accepted beliefs about a supernatural dimension (and especially stuff like an afterlife) really get in the way of understanding our relationship to our planet. But, this is a long discussion.
Having my POV doesn’t exempt me from suffering whatever fate will visit us. I suspect that the only really “special” folks will be some groups who have survived for a long time without reliance upon the industrialize world. I don’t qualify here.
If I were taken with the urge to pray, I’d much prefer Aphrodite or Venus as the objects of my veneration!
Gail
While I agree with your conclusions there is a minor fact that may moderate the rate at which jobs will migrate to China and India.
The cost of electrical power in these countries is in fact not significantly cheaper than in the OECD. The cost of coal fired power generation is made up of :
– 40% fuel cost which as an internationally traded commodity is about the same
– 15% capital cost that again is mostly consistent as equipment supply is an international business but may be a little lower because of the local construction labour
– 30% interest charges that are considerably higher in developing countries
– 15% operating costs that are lower due to labour costs
The net result generally results in a marginally higher cost of coal fired electricity in developing countries than in the US or Australia.
I wish I had better data to look at.
Coal is mostly locally produced. I would agree that the internationally traded would be the same, but less clear on the other. Coal percent imported tiny to date for China; growing from a small base for India. China has a lot of small coal mines that have historically been unsafely operated.
On the plant side, most US coal fired plants have by now, had their costs fully recovered, because they are so old. I thought that this is what helps keeps US electricity rates down. It may be that Chinese and Indians have more “new” electricity plants than the US or Australia, and this would change the comparison. The US also has a lot of nuclear plants, that are so old that their costs are either fully recovered, or partly written off as they were sold to new owners. I believe this electricity is pretty cheap too.
Have Chinese and Indian coal fired plants been financed, historically? With their big savings rate, it seems hard to believe they would have needed to.
The point I was really thinking of is that if costs of electricity in the future are higher (because we have added more high priced sources, like offshore wind), then they will tend to make products less competitive. At this point, a lot of US electricity is pretty cheap, I would agree.
Nice analysis Gail. I’ve been mulling over this question myself. It seems to me that you are right, however (as both you and I have commented elsewhere) the effects will not be evenly distributed. Some geographic locations are likely to be wiped out by high prices, thus reducing their demand and perhaps providing a little time (measured in months or years) for other locations.
Localised collapses will, however, have knock-on effects in this networked world (even if it is just a reduction in the availability of cocoa or guava).
So a rapid decline with cascading localised collapse.
I really wish this was not true, but that is how I see it.
It seems like everything is so networked, that within 20 years, a lot of evening-out will take place. It will be hard for anything to stay very high, very long, as pieces collapse out from under.
I wish someone would redo the Limits to Growth computer model with each nation represented and with detailed modelling of finance.
In electrical engineering if we have 20 transistors we all agree it is too complex for a human to analyze and a computer simulation must be used. In economics, ecology, politics, etc we (not us here at Finite World) are satisfied with simple sports analogies.
Ed, I would be astounded if someone has not.
I think that whoever has is acting rationally.
There has been a dumbing down of the competition and an accumulation of wealth by the top 1%.
Isn’t evolution wonderful?
There was a company called Chase Econometrics about 30 years ago. It sounded like they were doing this kind of modeling. Then I stopped hearing about them. I assume it is because they were successful.
I flew over snow covered Lesotho in South Africa and remarked to my sister that it would hardly notice the effects of Peak Oil. I could see no roads.
The Limits to Growth says that the peak is now. Chaos theory says that the curve will be erratic and self similar at different scales.
Nuclear power will fulfil its promise.
“Chairman of the Royal Swedish Academy of Sciences’ Energy Committee, and chairman of the Swedish Skeptics Society observe a test of the Rossi device and agree that the effect is real.”
http://www.lenr-canr.org/
The strong correlation between energy and population will force us into space.
Or, according to another scenario from the Limits to Growth the population and pollution spike upwards and then there is a steep downside to population, life expectancy etc. All too traumatic to contemplate.
“Common sense is the collection of prejudices acquired by age eighteen.” Einstein.
I read a paper from SRI that has the necessary science to make me believe something is happening in “cold fusion”.
Cold Fusion at SRI
An 18 Year Retrospective
(and brief Prospective)
Michael McKubre
Director of the Energy Research Center
Principal Staff Scientist in the
Materials Research Laboratory
SRI International, Menlo Park, California.
Presented at the APS meeting, Denver CO, March 5, 2007.
As far as Rossi goes it could be either way (true or false). So we will have to wait until he tells us what he does and we can reproduce or until he fails to deliver a 1MW generator to Greece in October. If we get excuses in October and November then it is a hoax.
One thing Limits to Growth says is that its model is only valid (to the extent it is valid) up to the point the collapse begins. Collapse is just too different from what we have seen to date for historical patterns to be valid. No one really knows whether people will have more or fewer children, or how they will adapt to the new situation, so it isn’t possible to model it.
I find that the Limits to Growth team, especially Meadows, to be overly modest.
While modesty is meritorious, in this case I think it leads us away from the accuracy of the model.
I shall immodestly state that the downside is real.
Really, really undesirable.