Limits We are Reaching – Oil, Debt, and Others

The world is clearly reaching many limits. This graphic below shows how I see man interacting with natural systems, back before man discovered fire and back before man became intelligent enough to kill off whole species.

Figure 1. My view of man’s relationship to natural systems, in the beginning.

In these earliest days, human systems were a part of the natural system. Humans behaved like other animals, and fit easily into the natural order. There weren’t many humans–probably under 100,000 total in the whole world.

This is the way I see man’s systems interacting with the natural system now:

Figure 2.My representation of relationship of systems created by humans to the natural system, at the present time.

In my illustration, human systems are sufficiently interrelated that they combine to form one single interrelated “humans’ system”. This system draws its power from the natural system. It also puts its waste products back into the natural system. Because of entropy, we know that everything we create eventually ends up as waste products. In order to keep the humans’ system going, we need to keep adding new energy to the system, partly to offset entropy and partly to support the growing world population.

What limits are the human and natural systems reaching now?

Oil Limits

According to EIA data, crude oil production in 2005 averaged 73.6 million barrels a day. It has grown very little since then. Crude oil production for 2011 averaged 74.0 million barrels a day. In the first two months of 2012, crude oil production was higher yet, averaging 75.6 million barrels a day.

Figure 3. Crude oil production vs Brent oil spot price, in US $, based on EIA data.

Even with the higher production in 2012, and with growing “other liquids” production (not shown), crude oil production has not been sufficient to bring oil prices back to the $60 a barrel or less range that we were comfortable with prior to 2006.

The Wall Street Journal recently reported, Oil Price Likely to Stay Buoyed by Marginal Costs. Thus, part of the limit we are reaching is that the cheap-to-produce oil has mostly been produced. No matter how much oil is produced, it is hard for the price to drop very much. According to the article, Bernstein Research estimates that the marginal cost of production was $92.26 a barrel for the 50 largest oil and gas companies in 2011, and will exceed $100 barrel in 2012. These high oil prices put strains on the economies of oil-importing nations.

Debt Ratios

Clearly debt ratios are a problem for many countries.

Figure 4. European debt to GDP ratios, from This in MONEY.co.uk.

Debt ratios tend to rise, as oil importing countries have more and more problems with high oil prices. People who are laid off from work don’t pay taxes; instead, they expect to get payments from government-funded programs. The combination tends to force debt levels of governments higher.

The US government is paying out a great deal more than it is taking in. Based on Bureau of Economic Analysis data, the US government ratio of outgo to income was 146% in calendar year 2011.

Figure 5. US government expenditures divided by receipts, based on US Bureau of Economic Analysis data.

This wide gulf between income and expenditures is being used to try to prevent recession in the United States. Legislation which was passed last year requires that this gap be fixed, starting the beginning of 2013. The Congressional Budget Office is now warning that the United States is likely to enter recession when this happens.

Over-Promised Social Security and Other Benefit Programs

If a person looks at the information underlying the US budget for 2013 (see page 208), it becomes clear that the big gap between income and outgo is in “Mandatory Programs,” in other words, Social Security, Medicare, Unemployment, and Other Mandatory Programs.  It is hard to see any way the spending gap can be cut without cutting these programs.

The reason why this issue has been overlooked is because Social Security is supposedly funded on an accrual basis in accounting for the program, but in fact the funding goes through the US budget program, which is on a cash basis. While some funds were collected in advance to smooth out the baby boom bulge, these funds have already been spent. Thus, the huge payouts as the baby boomers retire look at though they will directly affect the US budget. (This issue deserves a separate post.)

Europe can be expected to have even more problems with mandatory programs than the United States because their programs have generally been more generous. Europe also has a lower birth rate, and the benefits for the old are paid by the young. If there are not enough young people, the system doesn’t work.

Low Interest Rates

Artificially low interest rates are one way of making borrowing more attractive, so that businesses will take the opportunity to expand and individuals will be able to purchase homes and cars. Low interest rates also make the load of governmental debt more bearable. But at this point, interest rates are about as low as they can go–the only direction they can go is up from here.

One problem with artificially low interest rates is that they make it almost impossible for pension plans to make good on their promises (unless they are mostly invested in stocks, and the stocks miraculously go up). The US government guarantees pensions plans up to certain limits through the Federal Pension Guarantee Corporation. This program doesn’t have much in the way of real funds behind it–if there are widespread defaults, somehow enough funds must be provided through “printing money” or higher taxes.

Fresh Water Shortages

Fresh water shortages are a problem in many parts of the globe. The World Bank issued a report on the subject saying, “In 1997 only 47 countries borrowed for water [projects], but by 2007 there were 79 borrowers, and lending for water had increased by over 50 percent.” Besides drinking and sanitation, water is needed for irrigation and for the cooling of electrical power plants. While it is possible to convert salt water to fresh, the cost is very high. Thus, what looks like a physical problem (a shortage of water) can be “fixed,” but through an approach that affects the financial system, and uses more energy supplies.

Food Supplies That Can’t Keep Expanding

The green revolution allowed agricultural yields to increase in the 1940s through 1960s, through greater use of fertilizer and irrigation, and the development of disease resistant types of seeds, but we don’t have any follow-on major improvements now. In fact, problems with high salt levels and declining water tables where irrigation has been used make it clear that expansion of irrigation cannot continue indefinitely. Sandra Postel in “Piller of Sand: Can the Irrigation Miracle Last?” writes, “The overriding lesson of history is that most irrigation-based civilizations fail.”

Apart from difficulties in raising per-acre yields, there is also competition for land from rising biofuel production. To the extent that food shortages arise, prices can be expected to be higher, and the poor will face more difficulty in getting an adequate diet.

Pollution 

Pollution occurs in many forms and in many ways. The best-known is excessive carbon dioxide, which leads to ocean acidification and climate change. There are clearly many, many kinds of pollution, since everything that is made degrades with time, becoming pollution of sorts. Once concern is that much pollution may be hidden. A recent article in Science Daily reports, Today’s Environment Influences Behavior Generations Later: Chemical Exposure Raises Descendants’ Sensitivity to Stress. This is truly disturbing news, since it would appear that conditions of our children (autism, ADHD, weight gain) might be influenced by chemicals that we or our mothers were exposed to.

Climate Change

The activities of humans have been affecting the climate for many years, since humans started cutting down and burning forests to meet their own needs, thousands of years ago. The changes we are now seeing (higher carbon dioxide levels and ocean acidification) parallel some of those that took place in the Permian extinction 252 million years ago. We don’t know exactly how things will develop from this time forward, but climate models give one indication.

Many Other Limits

This list is far too short. A person could argue that population is now reaching a limit. The concentration of nearly all ores is becoming lower and lower. Ocean acidification and overfishing are problems by themselves. Soil is eroding at higher than the rate that new soil is being formed. Loss of humus and loss of soil nutrients are issues as well.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
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70 Responses to Limits We are Reaching – Oil, Debt, and Others

  1. Don Stewart says:

    Farmers of Forty Centuries
    Here is a link to a PDF with the book text, written around 1910 based on intensive observation in China, Korea, and Japan.
    http://www.permaculture.org.au/files/farmers_of_forty_centuries.pdf

    I particularly call your attention to this passage at the bottom of page 74 and continuing on 75:
    Had the Mongolian races spread to and developed in North America instead of, or as well as, in eastern Asia, there might have been a Grand Canal, something as suggested in Fig. 148, from the Rio Grande to the mouth of the Ohio river and from the Mississippi to Chesapeake Bay, constituting more than two thousand miles of inland water−way, serving commerce, holding up and redistributing both the run−off water and the wasting fertility of soil erosion, spreading them over 200,000 square miles of thoroughly canalized coastal plains, so many of which are now impoverished lands, made so by the intolerable waste of a vaunted civilization. And who shall venture to enumerate the increase in the tonnage of sugar, bales of cotton, sacks of rice, boxes of oranges, baskets of peaches, and in the trainloads of cabbage, tomatoes and celery such husbanding would make possible through all time; or number the increased millions these could feed and clothe? We may prohibit the exportation of our phosphorus, grind our limestone, and apply them to our fields, but this alone is only temporizing with the future. The more we produce, the more numerous our millions, the faster must present practices speed the waste to the
    sea, from whence neither money nor prayer can call them back.

    King’s forecasts assume increased importance as we face the end of the ‘extraction’ era and search for a sustainable economy.

    Don Stewart

  2. I am staying where I don’t have regular internet access (only from my phone) so I can’t see and respond to readers comments right now. My apologies. Hopefully I will be able to find a regular connection in a couple of days.

  3. Reaching and passing our limits is not the ultimate danger we face.
    The danger lies in our collective refusal to accept that there is a limit at all. We have enjoyed a century or so of plenty (in the terms of our western developed society), now we know no other way of life. Our century of excess has allowed 7 billion people to live on a planet that can support 1 or 2 billion at most.
    In brutal terms, our lives literally depend on those very resources that are in depletion.
    Our answer to that problem is either reliance on as yet undiscovered technology, or on a diety returning to ‘restore’ the planet to pristine condition.
    As humanity enters a period of privation during the coming decades, it will become obvious that neither of those solutions are going to work. Yet we will still refuse to accept the truth, particularly among those inclined towards godbothering. That is going to set off conflict far worse than we are seeing right now, as we fight for diminishing resources in order to stay alive

    • Bicycle Dave says:

      Hi Medieval,

      we will still refuse to accept the truth

      For a long time, I was of the opinion that the most pressing need was to find a highly charismatic, high profile person to give voice to a brilliant presentation of the basic facts regarding the state of planet Earth. The belief being that a broad understanding of the true nature of our predicament would surely lead to the development of beneficial goals and constructive solutions – a kind of faith that humanity will rise to the occasion once the evidence is abundantly clear and logically convincing.

      I’m no longer very optimistic about this approach as it is becoming painfully obvious that factual evidence and rational argument can’t overcome irrational and illogical ideological belief systems. Currently, we are even hearing from some authors and pundits that focusing on these global issues is bad for our mental health – we are advised to focus on happier thoughts.

      I always find it fascinating how some people are able to employ facts, reason and logic to accomplish such an extraordinary feat like travel to the moon, and yet can’t (as you mention) accept the truth about a simple concept like “limits to growth” or as you also mention ” that there is a limit at all”.

  4. eugene12 says:

    I continue to be amazed at the misrepresentation of the “Social Security problem.” And I fully understand the concept of “mandatory/entitlement” programs but “Social Security” is the predominant word. Why is it so called intelligent people refuse to present a problem for what it is. Social Security was not a pay as you go proposition. Why do you continue to ignore the 2.7 trillion or so dollars that were collected, spent and, consequently, owed to the people who paid it in. It’s the repayment of the money the country borrowed from the Social Security fund that is the problem. To state it otherwise is pure fiction and used only by those who have an agenda. As it is represented in this article as well as by many of the comments, it appears to the THE budget problem. As far as I can tell the budgetary issues are everywhere, and I mean everywhere, in the system. Singling out a particular area is an error and selecting out segments of the population as scapegoats when the problems are system wide. Everyone of you commenting paid less in taxes as you spent my money. Oh, I know, it wasn’t “you”. Funny how people avoid the concept of republic or democracy and blame the “government”.

    In addition, I find it interesting that people continue to use government figures to discuss the budget problem. There are considerable numbers of military programs that are buried in other budgets. Those who take the time to seriously investigate the military budget come up with figures well over a trillion a yr.

    If we are going to discuss the budget issue, ALL of the budget needs to be on the table. The vast number of “subsidies” given to wide segments of the population such as farm subsidies, pork barrel projects, off budget military programs, housing interest deductions, etc. need to be addressed. The list is long.

    I can only assume the real complexity of the US budget is either beyond the comprehension of the average American or simply too difficult to address on a one shot basis. America has a long, long history of throwing those most vulnerable off the boat first and rationalizing it with arguments that appeal to the resentments of the voting public.

    • You are mistaken, I am afraid. I have talked to the actuaries involved with funding Social Security, and the intent is pretty much “pay as you go”. While there is a “little” $2.7 dollar IOU on the books of the Social Security Trust Fund, this IOU comes nowhere near putting it on a true “prefunded” basis. It is intended only to smooth out the big jump in funding that comes because of the big increase in births after World War II. But even that seems iffy to me, because all programs are rolled together and treated on a cash basis in the Federal Government funding. Thus, if there are excess funds relative to cash payments collected by Social Security (as there were in the past) they are used for other programs, and the IOU (which is now $2.7 trillion) put in their place. This is the graph of income and outgo I showed in an Oil Drum post a while back.

      Regarding military budgets, I believe that it is quite possible that part of the $2.7 trillion funds collected for Social Security funds were used for things like Military programs (I haven’t looked in to the numbers). It had already been collected, but wasn’t really needed because the federal government in total is on a “pay as you go basis”, so was easy-game to be spent for pet projects. Now that there are no longer excess Social Security funds collected, it becomes a problem.

  5. Don Millman says:

    Is there any chance we could get together in August?

  6. OldStone50 says:

    The problem of supporting non-working members of society (a.k.a. social security, in all its forms) is not caused by age demographics, although there may be some degree of correlation. Rather it is due to one or more of three problems: product distribution is skewed; and/or per capita productivity is insufficient; and/or population size exceeds productive potential.

    The skewing of product distribution is self-evident.

    If people capable of working are denied the opportunity to work, or refuse to work, then per capita productivity is below its potential.

    If there are too few resources for people to work with, then clearly population size is too large. (It may also be too large on the basis of other factors as well.)

    I would argue that we face all three problems and that the population size problem is the most devastatingly pressing one, followed by poor product distribution systems. I suspect that if these two problems could be ameliorated, the opportunity to work/refusal to work problem would largely solve itself.

    There is a tendency to become obsessed with the existing financial/actuarial structures when discussing how to support non-working populations, but if we forget the underlying problems then there is a real possibility that any financial/actuarial solution we come up with, whether inside or outside existing structures, will fail to address the underlying causes.

    • Don Stewart says:

      I think that we also have issues which are seldom mentioned. For example:
      http://www.sciencedaily.com/releases…0521163853.htm

      Commonly used pesticides can change the epigenetics of each succeeding generation and create problems. Why are we seeing so much more chronic disease now than we were even 15 years ago? It isn’t because the diet has grown dramatically worse (it’s as bad now as it was then). I suspect that one thing that is catching up with us is the epigenetic inheritance which now predisposes the young to disease. And so we get enormous numbers of veterans with PTSD and we get large numbers of schoolchildren with mental problems and we get huge numbers of working age adults going on disability. ALL of them aren’t lying. We have to admit that we have created an environment which fosters sickness.

      Don Stewart

      • You are right. I think the environment that fosters sickness is especially case in the United States. If everyone had to bike to work or school, it might partly counteract the bad food. But without enough exercise, the bad food issue is especially a problem.

    • I agree that the at a certain point, the problem is not just financial/actuarial, and that we are probably well past that point. I am not sure if I would exactly agree with your breakdown, although it is an interesting way of looking at it.

      If each person could support, say, 50 others, and if having unemployed members of society were not a problem, then the working few could support the unemployed many. Having a fossil fuel subsidy seems to make it appear that the working few can support more than they really can. Without a fossil fuel subsidy, though, this ability for a few to support many others will disappear.

      One of our problems is that having many people working at tilling the soil tends to lead to erosion. Having many people working at extracting fossil fuels leads to depletion of the fossil fuels available, and having many people pump water from aquifers tends to lead to depletion of these aquifers. Even if having people work at various jobs seemed to work in the past, it can stop working.

      • Don Stewart says:

        Gail
        You ought to just glance at Farmers of Forty Centuries, written a century ago. In it, FH King from Wisconsin travels to Japan, China, and Korea to try to figure out why the Asians were able to sustain agriculture when, in the US, agriculture was an extractive industry.

        You will find that sustainability was achieved by having a very large percentage of the population engaged in intensive agriculture with an obsessive focus on preventing erosion and improving soil fertility.

        This solution is probably NOT what anyone wants to hear because it implies hard, physical work combined with enormous amounts of knowledge. But it can be made to work to support a large population (400 million at that time in China). So far as I know, nobody has proposed a better post-fossil fuel solution.

        Incidentally, there was still a surplus of labor. Ship passengers, for example, were besieged by men offering to carry baggage. And wages were very low. Perhaps the population which would have avoided the surplus of labor would have been 300 or 350 million.

        Don Stewart

        • Thanks! I think besides the obsessive attention to taking care of the soil, their probably has to be a serious focus on keeping the population low, so that food supply will be adequate, even in years with poor weather. Trying to figure out how to keep population down is a big problem, though, because no one wants to think about the possibility that tomorrow will not be as good as today.

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