How Oil Exporters Reach Financial Collapse

Recently, I explained how high oil prices can bring on financial collapse for oil importers. In this post, I’ll discuss the flip side of the situation: how oil exporters reach financial collapse.

Unfortunately, we have many examples of countries that were oil exporters, but are dealing with collapse situations. Egypt, Syria, and Yemen all have had political disruptions since 2011. These may not be called financial collapse, but they all took place as the country’s oil exports decreased and as the price of imported food rose. Another example is the Former Soviet Union (FSU). It collapsed in 1991, after a period of low oil prices, in what looks very much like a financial collapse.

There are several dynamics at work in the financial collapse of oil exporters:

  1. Oil exporters are often dependent on oil export revenue to fund government programs.
  2. The need for government programs grows as population grows and as the price of food  rises.
  3. The amount of oil that can be extracted in a given year often declines over time, as initial stores are depleted.
  4. Exports often decline even more rapidly than oil supply, because of rising oil consumption as population grows.

In general, high oil prices are good for oil exporters (except the effect on food prices). At the same time, oil importers strongly prefer low oil prices.  As a result, we end up with a price tug of war between oil importers and oil exporters.

One additional issue is declining Energy Return on Energy Invested. Countries often have the option of reducing their rate of decline by adding production in areas which are more expensive to drill (say deeper, smaller locations offshore Norway) or by using enhanced oil recovery methods. Such approaches add costs (and energy use), and further add to the price that oil exporters need for their product.

Egypt, Syria, and Yemen

Egypt, Syria, and Yemen are three countries that the press would say are suffering from the continuing impact of the Arab Spring revolutions, which began in 2011, or of civil war. The similarity of the oil production and consumption charts for the three countries (shown below) suggests that declining oil exports likely played a major role as well. 

In all three countries, oil production rose and then began to fall (Figures 1, 2, and 3). At the same time, oil consumption rose. The two lines–production and consumption–come very close to meeting in 2011, indicating that oil exports are at that point dropping to 0.

Figure 1. Oil production (all liquids) and consumption for Syria, based on EIA data.

Figure 1. Oil production and consumption for Syria, based on EIA data. (Both are on an “all liquids” basis.)

FIgure 2. Oil production and consumption for Egypt, based on BP's 2012 Statistical Review of World Energy.

FIgure 2. Oil production and consumption for Egypt, based on BP’s 2012 Statistical Review of World Energy.

Figure 3. Oil production and consumption for Yemen, based on EIA data. (Both are on an "all liquids" basis.)

Figure 3. Oil production and consumption for Yemen, based on EIA data. (Both are on an “all liquids” basis.)

To make matters worse, the three countries are in an arid part of the world, where a large share of food must be imported. Oil prices and food prices tend to rise at the same time (Figure 4, below). By 2011, both food and oil prices were high. In fact, both prices have tended to stay high. Now, these countries find themselves with the unpleasant problem of paying for the higher cost of imported food (grown and transported with oil), so indirectly they are becoming an oil importer instead of an oil exporter.

Figure 4. Food and oil prices tend to rise at the same time. Based on data of the FAO and the EIA.

Figure 4. Food and oil prices tend to rise at the same time. Based on data of the FAO and the EIA.

Faced with less revenue from oil exports, and higher prices of food imports, these countries find themselves with a permanent mismatch between revenue and expenses. Part of the revenue mismatch relates to subsidies offered to poor residents. With higher food and oil prices, the funding needed for subsidies rises rapidly, even as oil exports drop to close to zero.

One issue that makes the situation worse is the huge rise in  population that came with increased prosperity. Population has nearly doubled since 1980 in Egypt, and has more than doubled in both Syria and Yemen (Figure 5, below).

Figure 5. Ratio of population  in later years to population in 1980, based on EIA data.

Figure 5. Ratio of population in later years to population in 1980, based on EIA data.

All in all, the situation is very bad. These countries admittedly do have other resources, such as grazing land for animals, food crop production, and in some cases natural gas exports, but the loss of oil exports puts a hole in their budgets. If oil production continues to drop in the future, both jobs and local oil consumption are likely to be affected as well. (This is a link to a post I wrote about the Egyptian situation two years ago.)

I tried to put together an index of the relative dependence of various countries on oil exports, by comparing the value of oil exports to Gross National Income.  Based on exports before the recent drop-off, Yemen’s index is around 30%; Syria and Egypt are a little under 10%. The index no doubt understates the role of oil, because it does not include the oil the country uses itself, or the impact of any natural gas industry. It also excludes indirect jobs, like that of grocery store owner or taxi driver.

If Egypt and Syria are indeed collapsing with what seems like low dependence on oil exports, it makes one wonder about the impact if Saudi Arabia’s (index over 70%) or Libya’s (index about 60%) oil extraction would drop.

The Collapse of the Former Soviet Union

The Soviet Union was an oil exporter and a major world power, prior to its collapse in 1991. While there are many views as to what led to this collapse, one issue  seems to be a drop in oil price in the early 1980s.

Figure 6. Former Soviet Union oil production and price in 2011$, based on data from BP's 2012 Statistical Review of World Energy.

Figure 6. Former Soviet Union oil production and price in 2011$, based on data from BP’s 2012 Statistical Review of World Energy.

The drop in oil prices did not lead to an immediate decline in oil production (Figure 6), most likely because the cost of maintaining production on a field that has recently developed,  is low for a few years. What is expensive is the up-front cost of bringing new fields on line. These were not added, causing a decline in production, after a few years.

Russia’s energy data shows the marks of the financial collapse building, prior to 1991. Revenue from oil exports dropped in the mid 1980s, because of the lower oil price. Oil production started declining in 1987, four years before the collapse. Other types of energy production started declining as well, as if a recession were underway, pulling the economy down in all areas.

Figure 7. Former Soviet Union Energy production by type (hydroelectric omitted), based on BP's 2012 Statistical Review of World Energy.

Figure 7. Former Soviet Union Energy production by type (hydroelectric omitted), based on BP’s 2012 Statistical Review of World Energy.

Every type of energy production (except hydropower, not shown) dropped back during this period, even coal and nuclear, with decreases beginning prior to 1991. Population growth started slowing prior to 1991 as well. Eventually, the government collapsed, after continuing recession.

Figure 8. Former Soviet Union energy production and consumption, based on BP's 2012 Statistical Review of World Energy.

Figure 8. Former Soviet Union energy production and consumption, based on BP’s 2012 Statistical Review of World Energy.

The FSU never regained its former stature as a manufacturing country, even when oil production rose, after oil prices rebounded. With little manufacturing, energy consumption has remained far below its pre-1991 levels (Figure 8).

I visited Russia in 2012, and saw for myself a little of the current situation. One problem is that its cost structure (based primarily on oil and gas which is now high-priced, and workers who need wages to pay for these fuels) is not competitive with the low-cost structure of the Chinese and Indians. Another issue is the poor condition of Russia’s infrastructure (roads, bridges, water pipelines, etc.) due to neglect during the time of its collapse. With the high cost of oil, it is expensive to make repairs and add new infrastructure.

In terms of my index, Russia’s oil exports now amount to a little less than 20% of Gross National Income.

Collapse in Countries with Declining Exports

Egypt, Syria, and Yemen are examples of countries whose exports have pretty much disappeared, causing great crisis. But how about countries with earlier declines in production? To some extent, there were not many problems in the 2003 to 2008 period, because declines in oil exports could often be offset by increases in oil prices.

One country that stands out, though, is Argentina, with problems both before and after the 2003-2008 period.

Figure 9. Oil and Gas Production of Argentina, based on EIA data (total liquids).

Figure 9. Oil and Gas Production of Argentina, based on EIA data (total liquids).

Argentina’s oil production hit a peak in 1998, and began dropping in 1999. Oil prices were  at an unusually low level in the 1998 to 2002 period. This timing coincided precisely with it first economic crisis, which came in 1999 to 2002. Oil prices rose in the 2003 to 2008 period, and Argentina’s problems seemed to disappear.

Now Argentina’s oil exports are very low, and in 2012 and 2013, the country is again having financial problems. Argentina’s economy is well diversified, so a person wouldn’t think that oil would play a big role. (My index of the role of oil exports was only about 2%, as of 2008.) But oil problems overlay any other problems a country may have. If a country has a tendency to overspend its income, or over-promise subsidies, any reduction in oil income will tend to magnify this effect. When making plans, it is easy to overlook the fact that the benefit from oil income is temporary.

Target Break-Even Brent Oil Prices

Many large oil exporters include revenue from oil exports in a country’s annual budget. This is quite different from the cost of pulling the oil out of the ground. It is the money governments collect, as taxes or revenue sharing agreements or leases,  to support their programs.  With rising population, and often with declining exports, oil exporters find that they need higher prices each year, just to make their budgets balance.

Figure 10 provides some Deutche Bank estimates of budget break-even oil prices.

FIgure 10. Budget breakeven oil prices, based on a Deutche Bank analysis provided in a presentation by Mark Lewis.

FIgure 10. Budget breakeven oil prices, based on a Deutche Bank analysis provided in a presentation by Mark Lewis.

Note that the indicated break-even prices for Nigeria and Russia are above current Brent price levels.  (The current Brent Crude oil price is $106.) An estimate from Energy Policy Information Center (EPIC) shows Venezuela’s break-even price to be a little higher than Russia’s, and Iran’s between that of Nigeria and Russia. According to EPIC, Iraq’s break-even is in the $80 to $100 barrel range. The Saudi Arabian oil minister was quoted on January 16, 2013 as saying that the country needs oil prices averaging $100 barrel.

One concern is that these break-even prices will keep rising. Another concern is that countries “at the margin” will find it difficult to reach their price targets.

One country of concern is Venezuela. It has a very high break-even price, and recently underwent a leadership change. It also has a tendency to spend oil revenue, even before the oil is pulled from the ground, through loan programs from the Chinese.

Figure 11. Oil production and consumption of Venezuela, based on data of the EIA.

Figure 11. Oil production and consumption of Venezuela, based on data of the EIA.

Venezuela’s exports are lower than in some previous years (Figure 11, above), but with the rise in the price per barrel, the dollar value has perhaps risen–this really depends on the price negotiated by China. With funds spent before the oil is produced, Venezuela can easily get itself into a trap, if “regular” oil production drops, or if it is difficult to ramp up new planned production.

Venezuela’s oil export index is about 20%, which is similar to Russia’s and Norway’s.

In general, oil exporters with declining oil production face worrisome situations. Reduced oil exports present a drag on the economy unless oil prices are rising rapidly. If oil prices do not keep rising rapidly, oil exporters will need to cut back on social programs–something that will not be well-accepted by citizens. Furthermore, adding new industries to take the place of missing oil supply may be difficult. There may even be a reduction in oil supply available to world market, if civil disorder causes a loss of production which would otherwise reach the export market.

137 thoughts on “How Oil Exporters Reach Financial Collapse

  1. Thank you for an interesting analysis. I read it as highlighting two things: the urgent need for the nations of the world to move to a steady state economy before the shit hits the fan (since we will be able to do sod all after it does), and the equally urgent need to invest heavily in renewable energy sources, especially wind and solar. In amongst all the bad news, the documentary film ‘The 4th Revolution: Energy Autonomy’ provides a beacon of hope.

    • @Pendantry

      Well made sales movie. The problem is that even with the hyper-subsidation of renewables in Germany there is no way to get even 50% of them. Why? The problem is that sometimes there is no sun and no wind. PV is not a goof choice in Germany, especially in the north and in the winter.

      In Addition to Wind/PV we do need more fast gas-powerplants that can cope with the high elasticity of renewables. But the operators shut them down as they are needed only some hundred hours in a year – so they are not economical. Bt if a ammount of PV/Wind needs a certain amount of Buffer capacity in gas powerplants or very inefficient storage that is available today, the total EROEI is even worse.

      There is no easy escape of our predicament.

      The electric car is such another story. It does not change a wrong concept – it extends it with less efficiency as low as the battery technology doesn’t deliver more than now. We will see…

      • If the problem that causes collapse of oil importing countries is high price, adding new higher price substitutes only makes the situation worse.

        In order to make the wind and solar subsidies work, Germany has to subsidize natural gas as well. If this is done, the costs become too much for the customer.

        High priced electric cars that have only a short range are not really an improvement either.

        • But I think its important to have several thoughts at the same time in this matter. Electrical cars are very good in combination with a restructuring of society that involves less travel in general. Many places in Europe, the electrical car works very well now. In Norway we have had a rather big boom of them due to good taxes and >100km range covering most needs for the average commuter.

          But our main problem is that cheap fossil fuel has been the basis for where people choose to live in relation to their jobs and how easy they can jump on a plane and visit parents many many miles away as well as the 3-4 trips around the planet every year.

          I think people need to realise that these things will be come less and less available as the “distances grow” again. An electrical car can ensure some mobility in the local area and the “fuel” can be generated on the rooftop of our own house. But I think we will have to ditch the idea that a car has to function like a modern saloon and be more as the Think manufacturers say: “a mobility concept”. The biggest problem with this concept is as you say Gail though that it requires high maintenance roads. A society where you can walk to most of the necessities is naturally way more important than any electrical car.

          The abundance of goods in shops will also shrink and our impulse purchasing will have to disappear and be focused on what we need and not what we want so much. Society is overly complex with all kinds of stuff today that requires high amount of energy to both manufacture and transport – things that people can perfectly well live without. The surplus energy will as we all know diminish and make these things less available everywhere. I think a good political advice today is to think ahead at the inevitable and trying to both figure out how to replace fossil fuel as well as scaling down the economy and “stuff” – figuring out some way to motivate people to accept that living with less is good. Now that is a very big challenge in the consumer focused society we live in today.

          • One question in my mind is whether it is reasonable or helpful to do two transitions, assuming two transitions are even possible, in the short time frame we are taking about (20 to 50 years, most likely).

            Clearly we cannot keep up oil use indefinitely, but we even if we adopt electric cars, we likely can’t keep them up very long either. The only modes of transportation that are truly sustainable are walking and riding on an animal, or in a cart pulled by an animal. Any of these modes of transport require that society be organized in small towns, with food production near by. Having electric cars will delay any such reorganization. I think it will be hard to make one transition. Trying to make two will be really hard.

          • Yes indeed Gail, I totally agree. The electrical is in this view perhaps just a distraction into keeping our old transportation habits. That’s why I also argue a serious restructuring of society is needed to reduce the need for any transport at all besides what you can pull on a cart or carry in a backpack. Consider the incredible amount of energy we use today to one where transportation of goods was centralised in such a way that it arrived by e.g. electrically driven rail at regular times filling up a central store where people could walk to (within 500 meters). A governmentally run system of necessary goods transport would be a thousand times more energy efficient than the rat-race system we use today with people travelling all over the place – even driving long treks just to get a litre of milk for their cappuccinos on a Sunday.

            People had very limited ability to travel anywhere and if so it would have to be planned ahead and at designated times of the year even (unless you trekked by foot, or bicycle – although that is hard without good roads).

            Its clear also that there is just too many people around as well as such a society would have a lot less workplaces too. If you strip away manufacturing of all the nonsense in society then you are probably left with 10% of the necessary workforce needed to feed the people – assuming you do have access to renewable energy like solar, hydro and wind power to run it all. I think its perfectly possible to create such a future. The problem lies within peoples expectations about how to “realise themselves” – and in that sense we have been taught a completely different set of motivators and dreams. This is why I think only a strong government is able to make the masses understand that serious action has to be done to reduce the human impact on ecology as well as changing society into one that can live on renewable energy sources (which means reducing our energy use by 90% perhaps).

    • Actually, I don’t read it that way. We don’t have enough resources to produce a steady state economy, unless it is a steady state economy with very few people, and with a very low standard of living.

      The issue with oil importers is high cost of energy resources. Many renewables (especially intermittent renewables added to the grid) tend to raise costs further. Thus they tend to encourage collapse, earlier. Unless we have truly cheap renewables–cheaper than today’s fossil fuels–they are not helpful from a collapse point of view.

      • Perhaps we need to change our perception of ‘low standard’ living, which is very much seen from the perspectives and assumptions of America in the latter part of the 20thc.

        For example, the ‘low GDP and low consumption’ societies of medieval Europe created – by the 15thc – towns, and in rural areas monasteries, of very great beauty indeed, and it is apparent that people felt the living there was good for the bourgeoisie and the merry monks.

        We need to get a sense of perspective in this respect.

        However, I’d agree with you that we are pobably not going to be able to step-back into an earlier form of economy, (as European societies did after the collapse of more sophisticated Rome) but are more likely heading for dystopia.

        • This is partially what I am trying to get across to most people when I discuss this matter of limited resources and collapse. There seems to be an assumption that we have to figure out a way to maintain our current standard of living but there is really no way to achieve that as we have been living on overshoot and an idea of surplus energy that will stay abundant and rising to stimulate growth. We all agree this is not happening and indeed we are witnessing the slow collapse these days.

          What people need to learn is how they can cope with less – much less! How they can restructure their lives and transportation needs to live their lives. It very likely involves a shift in what we do more towards agriculture and just doing less. Hundred of years ago a trek of some distance was considered a once in a lifetime experience – today we have a very twisted view that unless we can travel to some other country far away at least 2 times a year we aren’t living our full lives. What nonsense!

          If we had been able to greatly reduce consumption we might have a lot of surplus for maintaining and developing the true and necessary technology to help us towards a more sustainable future. For example we just crossed a barrier where solar panels are generating more energy than we use for making them. It could have happened a long time ago if governments had really grasped the problem at the root. It also means that the people as a whole needs a more fair way of sharing of the countries wealth not through birthright but through human rights of equality. Its fully possible to achieve a better model of sharing through a community effort which is definitely needed in any scenario that unfolds in the coming years – with or without government intervention. The most important thing is that no corporate owns huge and life necessary resources, neither lands or its resources. Those belong to humanity and should either be controlled by government for fair sharing or taken by force from the people.

          Pretty revolutionist ideas I know. But you when you think about it, the cause of most problems today is because of lack of human rights, mis-management of resources, wealth distribution and lack of any real creative thinking about a better future for humanity. The only way to limit human beings will to “realise themselves” is through limiting their options through education of the planets finiteness and our effect on the ecology. An important step is for people to understand that we are physical beings in a physical world. Nevermind what beliefs you have about afterlife or spiritual life. When you are physically present on this planet – what you do here and now is what matters for future generations and the survival of the planet and its biodiversity. That is truly above anything else and knowledge about it should be enough to guide you to make the right decisions.

          • I think the number one problem we have today is that we can’t really support 7 billion people without fossil fuels. It is hard to get around that.

          • I think its possible to support 7 billion people with a more fair and intelligent sharing of wealth and resources across the planet. But yes its true that some areas are just too packed to support growing enough local food for those populations, so people will have to spread out into smaller communities again or we need efficient centralised transport of goods into the cities using renewable energy sources.

            A lot of energy today is wasted on silly things:
            – Transport of oranges to a market on the opposite side of the planet
            – Creation and transport of “junk” that noone really needs
            – Creation and transport of upgraded iJunk because yours is 1 year old already
            – Transport of people for leisure and holidays (especially through air travel)
            – Transport of people for “business” that for some odd reason requires them to be on the opposite side of the planet
            – Transport of people for workplaces miles away from where they live just because “the personal economy allows it”
            – Transport of people to shops for leisure shopping (and preferably several times a week)
            – Transport and manufacturing of the raw materials and results of endless layers of stupid packaging on goods so they “look good on the shelves”
            – Creation of low quality “junk” that is meant to break down so that you can sell people a new version of it in a couple of years – even simple things like tools (my last spade broke after 3 uses – I wonder how long the tools of a stone age man lasted?)

            The world is literally packed with these open market capitalism enabled things that just defies common sense when you think about it. The world is extremely inefficient, hence we have such an immense energy requirement to run the endless “rat race”. A bit of lateral thinking and a good strong government to tell people to stop mucking about with all the silly notions of “self fulfilment though free choice and purchasing power” could have come a long way. I believe there are plenty of political parties who does preach this message to the ears of very few today already. But since we are basically very selfish apes staring at our own belly buttons all the time, we simply fail to see the bigger picture.

            Which is why we have ecological disaster ahead, and resource collapse. No better than bacteria in a petridish…

  2. It appears that suppliers, as a general rule, might be in worse shape than the consumers, especially if they fail to diversify their economies.

    Perhaps we should make an effort to identify petroleum producers that are content and satisfied and proceeding happily, rather than feel cursed.

    Surely the Arabian/Persian Gulf countries (GCC) could be so regarded, then a few new African spots such as Angola, and perhaps Brunei is still a happy place. Colombia seems to be doing better; its economy is more varied…

    Need input.

    • I am not sure we have petroleum producers that are content and feeling satisfied. The Middle Eastern countries have populations that are growing rapidly, and must be kept content, even if they don’t have jobs. We don’t know how long before the oil production of these countries will start to decline–it could be very soon. It is hard to put together a very diversified economy, in a land that is very arid. Norway seems to be doing OK, but its oil production is declining. Isn’t Columbia a source of illegal drugs?

      • Norway is really luck as its decline in production happened just when the price boomed and has hardly experienced anything of the crisis in Europe because of this. But the government here is clearly aware that our oil doesnt last forever, something that their latest future prospects report tells, one that looks 50 years into the future. Its also clear from that as our population grows older so does our lack of funding to keep up the welfare. Its clear that Norway has a rather large social budget that has grown considerably as we as also had immense immigration these past 10 years. There is no way Norway will be able to keep up these surplus-funded services for long. Our roads are also in a pretty bad shape (and have generally been from the lack of funding), and there is a lot of “boohooing” about this in the media – something that draws a lot of the population towards voting for the parties on the right wing (still way left compared to US democrats though). The classical “why cant we have some new roads when Norway is making so much money” are repeated every year. I guess a lot of people should learn a bit about finiteness.

        I have been frequently posting Rune Likverns analysis of Norways oil future in the comment areas on any news article around energy to make people wake up and be more aware of our future. By 2050 its unlikely that Norways oil will bring us much income anymore, and I think its good if people start preparing for this in some way now instead of just reliving what all the other oil producing countries are going through now one at a time. Lets hope our future government will be wise about this and realise that a serious shift is needed. At least we have very good tax reductions on electrical vehicles here so that has made us the country in Europe with most electrical cars per capita. Most likely it will stay that for a very long time due to people in Europe not being able to afford the more expensive electrical cars because taxes on petrol cars were already too low. Dont underestimate a governments ability to affect peoples choices based on taxes. This is why people like James Hanson keeps saying that a carbon tax is needed in order to shift capital into greener technology. When act like sheep you got to force them to make the right decisions. The only problem in the US is that there is too tight a tie between political power and financial power, stuff that would have been viewed as serious cases of corruption here in Norway at least. Admittedly we are seeing some of the same problems with regards to Statoils wish to drill in the northern regions… too many decisions seems to have jumped over any scientific paper about the dangers – and indeed the whole idea that we got to get “off fossil fuels”.

        • Keeping roads up is a real issue, especially if there is a lot of freezing and thawing. The process is energy intensive, whether roads are made of concrete or asphalt.

          Norway is one country with a good supply of hydroelectric for electricity. Without that, it is not necessarily clear that electric cars make sense. They are not a bridge to a sustainable future. Only human and animal energy is sustainable in the long term, and perhaps sail boats, because we cannot make electric cars, or the roads they run on, only with electricity. Electric cars in most places seem likely to be a bridge to something that will be failing almost as fast as oil supply–allow people to think things are OK, when they aren’t.

          • Unsurprisingly when the Roman Empire came a part because the limits to growth were met in a horse and cart world and the resources on the fringes of Empire like Scotland and Germany were just too poor in slaves and farmland the roads were the first to fall into ruin. Too long, and too expensive to maintain.

            My solution is to make roads out of the piles of old tyres- cut them into long tiles and glue them down on the old roads! I’ll let you know when I make my fortune mining the past waste !-)

          • I am not so sure its that unstable Gail. I think Germany is proving that with serious effort you can offer an alternative energy source that counts, even though it was enabled with fossil fuels (which just proves we got to do this now). If we at the same time think about reducing transportation and making society as a whole more energy efficient through downscaling the economy and globalization, it really should be perfectly possible to create new solar/wind, food and have some energy surplus. But it means going away from the old free market capitalist way of life, and that is the hard part.

            Roads are expensive yes, especially since we build them to every corner for people lust to drive everywhere. Limit their ability to drive everywhere and you also limit the amount of raw materials needed to maintain the roads. There really is no need to pave every flat surface for driving if you can motivate people that you dont really need to drive everywhere to “live a full life”. I think a lot of the younger people today dont necessary consider owning a car and driving an especially important part of their lives – hence the pressure on roads will go down. Although their economy naturally has something to do with it as well.

            We can also create way more efficient transportation of goods compared to the 40 tonnes trucks that roll around and destroy paved roads today. Also, when I talk about an electrical car I dont necessary mean one that runs on paved roads either, it could be one that runs automatically on rails or some other guidance thing. Lowering weight by moving the energy source outside the vehicle also lowers the strain on paving, guidance or rails that the system runs in. If we want to revolutionize transportation – we really need to think beyond what we today consider personal transportation. But one thing I can assure you is this: it will run on electricity!

            The question that really should be asked is if society will adapt quick enough or if we will experience a massive collapse that will render all kind of new technology and manufacturing broken. A lot of high tech today requires a rather high degree of globalism – while you might grow your potatoes in your garden – you might not find lithium or some other rare earth metal in your local mountain. So yes, there is a delicate balance here between maintaining the necessary flow of goods to “create and run the machine” and the shift of energy from unnecessary usage to the essentials. Without both of these at the same time there is really no way to realise this considering the constraints of the planet. And its not possible at all with governments acting as puppets for big corporations either (unless you have a “good” mega corporate owner that seriously invests into changing society for the benefit of humanity and not for himself).

            • Even if you somehow transfer use to just the essential, you still have a problem–with this change, there is that much less flexibility in the system. If people continue to have children in more than the number needed to replace themselves (likely, since contraceptives are expensive, and no government can really guarantee pensions), then even if we temporarily solve the problem, in a few years, we will have it back aging. Having more children than are needed to replace ourselves is an instinct. Every species does it. In the natural order, only a few survive.

  3. Very interesting description of the parallel universe created by neo-liberal intoxication; a universe where Chavez totally forgot to invest massively the oil rent into developing agriculture, thus massively reducing food dependance of Venezuela. In which Bahrain does not seem to exist, either – neither Russia’s and Syria’s ample natural gas reserves (which happen to be the energy of the XXI century)…

  4. We need another paradigm outside of capitalism and it’s attendant regulatory capture.

    • I am doubtful that capitalism is more than a small part of our problem. Our problem is finite resources, and humans who have learned to control their death rate, but not their birth rate.

  5. The passing comment about the effects of a temporary crash on Russia’s infrastructure caught my attention.

    At the moment, in the UK and Europe, one hears a lot from politicians about the need for infrastructure investment and maintenance,, even considerable extension – in order to ‘create growth’ (and provide the jobs that win elections, of course.) But not much reference to the ongoing cost of maintenance.

    But it’s apparent that if spending is severely cut back for even a comparatively short time, the deterioration can be rather rapid.

    For instance, in my village, failure to repair the main tarmac road after a hard winter, left only about 70% of the road width negotiable on a bicycle, the pot holes formed were that deep. After 5 years, what would be the situation? Only negotiable in a SUV?

    The profound vulnerability of this infrastructure is never, it seems to me, taken fully into account by those seeking short-term employment fixes. And its vulnerability to high oil prices is still less considered.

    • It is sort of humorous that folks think that working on electric cars is the main priority, when they haven’t considered the road situation. I can’t imagine that electric cars will work well on very muddy, unpaved roads.

      • Yes, there is a lot of black humour to be cultivated at the moment.

        Back to mule trains, and hardy people peddling wares on foot, perhaps?! And of course waterways and canals.

        Are decent mules still bred anywhere? Most of the great draught horses were shot at the end of WW2, in Europe.

        Spain was once famous for them and exported them. All this has died out in less than a century……

        • Ramping these industries would take a while, I expect. One person who has tried raising crops in Finland using horses remarked that he needed to use very small horses, or the horses would eat more food than they produced. He observed that in recent decades, the size of horses has been getting bigger, just like the size of people. Finding small horses for this purpose would be necessary. Oxen are used in some places. They are less demanding in their feed needs–can graze in grass in areas where crops don’t grow.

      • And of course much hauling in towns was done by big dogs until the beginning of the last century.

        I’m not bullish on electric cars either!

        • Not sure about London (or anywhere in UK).
          London was up to its ankles in horse manure if it wasn’t collected smartly.
          Dogs would provide a different experience.

          • Dog haulage is now, of course illegal in the UK at least; I’m not sure about other countries. The dogs were well-fed and looked after though, like all valuable draught animals. They were well-suited to older towns on the Continent of Europe, with narrow alley-ways, etc.

            Quite right about the – side effects of horse manure! I believe the incidence of certain diseases also declined once the horses went.

            ( I have a sentimental attachment to horse-drawn conveyances, in that my English great-grandfather was one of the very last hansom cab business owners in London, dying 1912. He turned down the opportunity to invest in motor buses, and now a hundred years later we are entering the last painful and over-crowded stages of that technology…..)

          • I got my girlfriend’s dog to carry a lighter, cigarettes and whisky miniatures in a pocket of its raincoat, but it’s not much of a recipe for global survival……. then again?!

            Historically, in England, and I’m sure elsewhere, there were also the poor little dogs who were trained to turn roasting spits in kitchens, rather than employ a boy to do it.

      • Why will electric vehicles perform poorly (more poorly) on muddy, unpaved roads? Torque is torque, and electric vehicles produce plenty of it. The designs will be affected, of course; places with bumpy, unpaved roads will be easier for electric vehicles that have central motors rather than motors mounted on the axles, which add weight to the wheels and complicate suspension in bouncy conditions.

        • Autos also will likely need to be built high off the ground, as in the early days of automobiles. I doubt anyone will think to change design in advance. The range of the vehicles will go down, as the quality of roads goes down.

          Our real need is transport of goods, not people, and this mostly is not being addressed.

          • Right. Road height, clearance, and many other important ‘survival’ factors are not being considered. A few decades ago a few some knowledgeable minds asked the question: what would be an appropriate vehicle for survival purposes. The answer was a 1968-70 Suburban that was kept in Arizona / New Mexico. It has these virtues:
            1. Uses a basic carburetor with no anti-smog device that more advanced fuels.
            2. Good height and cargo capacity.
            3. Minimal rust.
            With a little imagination we could conjure some interesting business opportunities.

          • Just as a little light humour tossed into all this,,,,,last Thursday I was ambling down a narrow (typical) English country lane—and there was a 1915 -ish model T Ford rattling towards me.
            fair lifted my spirits so it did

          • Hehe, actually a lot of modern technology is made to be frail as its both cheaper and ensures that you dont kill of your own market (latest iGadget). Some countries (like Norway) have guarantee rights based on what kind of thing you buy, 5 years is common. Incidentally both my central vacuuming unit and central ventilation fan both broke down after about 5.5 years – almost designed to work the guaranteed time.

            There really should be a shift towards longevity of manufactured goods if we have any plan to make our resources on this planet last longer. This free market experiment we are doing is mainly producing tons of junk that breaks down after some days. Imagine all the energy wasted on cheap plastic junk you can buy in food stores now. A lot of it is so badly made (and full of dangerous chemicals) that it doesnt even work when you unpack it – some so badly designed that they couldnt have worked at all when they exited the toy printing press. I didnt ask for this? Who can raise their hands and say, yes I want more silly plastic toys that dont work? (or ends up in the garbage after a couple of days).

            • Actually, I think we need to cut back farther than that.

              Why do we need hundreds of kinds or cars, when a handful that stay the same from year to year would work? All we need is spare parts then. In fact, collision damaged cars could be used for spare parts. The same goes with lamps and refrigerators, and almost anything you need for your home. Of course, jobs sort of disappear at the same time, except for repair-person. Even clothes could come in a few basic styles, as they did in the Former Soviet Union. No need to buy new ones, when the old ones go out of style.

              This will not happen in the US, as long as corporations are big contributors to elections. I doubt it will happen anywhere. Instead, people will become too poor to buy what is on the market, and just trade old objects that are still working, among themselves.

          • Yes I totally agree. A lot more standardization is needed. Although some companies has seriously tried to create standardization organizations within computing, I think we need more of these for absolutely anything in society. It will be as you say a more like old Soviet Union and limit peoples choices.

            I have often preached about standardization among things we use every day. Why haven’t we figured out some standard food packaging that can easily be washed and reused like plastic bottles are today? Why do we need so many different manufacturers in the world of the same things but with different names and small differences in shape, when in essence their function is more important? I feel the world is putting way too much emphasis on shape, style and looks compared to functionality. There is a whole industry just for this and just for marketing this useless variety “indirectly” through styling and design magazines. The shelves in magazine stands are packed with these.

            Its about time people woke up from this consumerism bling-bling way of looking at the world and see that reducing complexity in world can make our lives easier to live and less of a rat-race to show that your “sombebody” in this constant ego-focused society.

            Although as you say Gail, it wont happen in USA – and it wont happen in any country oblivious to the limits of the planet. Martin Rees’s old TED talk puts this into perspective:

      • It depends on how they are built. There is no reason why an electric vehicle can’t have offroad capabilities.

        And people are ingenious at solving the problems of bad roads. About 30 years ago I was a passenger in a vehicle driving along the main road from Lhoksumawe to Langsa in Aceh, Indonesia, when we came across a pothole so large that a pool of water nearly two feet deep stretched the full width of the road. But it was only a minor impediment to the traffic. A local entrepreneur had a water buffalo with a suitable harness and ropes to pull vehicles through the mudhole. He was disappointed to find that the Landrover we were in had 4WD that still worked, and we just drove through it. I noted that one man was busy hauling water in a bucket from a nearby stream to keep up the water level in the mudhole.

        • Ahhh, rent seeking and its demands. If only all of us could identify the less obvious forms we could improve economic efficiency greatly.

  6. Mathew Hulbert’s copious writings on Forbes provide a strategic perspective that is all too rare but appears germane to the fundamental issues we face regarding energy. For example, he explains America’s conflicted strategy:
    “If America forges ahead to become the world’s largest oil producer in the next five years, mirroring what’s already happened in natural gas, OPEC will have little option but give up on price, and go for enhanced volume instead. In a new world of cheap energy abundance, the only real winner is China, hands down. Far from being Washington’s global salvation, cheap energy will be its instrumental to its nadir. ‘Obama ground zero’, it starts here.”

    • I don’t think it is possible to bring oil prices down, because producers need those high prices, to keep their populations from rioting (or in the US case, to extract the oil).

      If by some chance we come to energy abundance (perhaps through electric cars), I think the net result will be to free up a lot of oil usage, which can then go to China.

      • @Gail

        Do you think that Electric Cars will solve the issue? Currently the battery technology is quite limited – and I fear that the energy to produce and recycle one is also considerable. Where the electric energy shall come from is also a question. In Germany there is the INEES Project which looks into usage of batteries of cars for network storage of PV/wind… but there are a lot of issues:

        Nevertheless – (some of) the automotive industry project 120 million cars in 2040/50 – where 50% shall be (hopefully) electric vehicles (HEV). So that still makes 60 million internal combustion engines per year in 2040/50. All very strange… no projected limits anywhere. They all need growth as the car industry has a ultra high debt burden.

        • It seems like every group that makes projections assumes that only limit is the most obvious one–oil. It doesn’t really work that way, which is why the forecasts are so unrealistic. Batteries are a problem, but there is also a problem for people to be rich enough to afford a car that quite expensive, but still doesn’t do very much.

          • Most people – even now -can’t actually afford the cars they drive, they do it on credit.

            Your concentration on the financial collapse is a wise emphasis indeed: the money -for the masses in the advanced economies – is running out.

      • Re Gail’s response to my referenced comments about Mathew Hulbert’s writings: Hulbert believes the US could increase production of cheap oil over the next 5-8 years to the point that prices would drop significantly. He warns, however, and this is his salient point, that by doing so the US would be sacrificing itself. Something about a peeing contest with a camel…

  7. Here is an article arguing the collapse is not in the future. It’s happening now. I would argue the collapse started with the Global Recession of 2009.

    The collapse is happening now. As it is a slow motion phenomenon (at least fot the first few decades) a lot of people just don’t notice. But believe me, The people of the PIGS (Portugal, Ireland, Greece, Spain and MENA are noticing it right now. As are people of the FSU and the poor of the USA. One could name many more countries.

    • I agree that collapse is happening now. It has already started with the 2008 recession. It is a process that takes years. We haven’t had the right name for it.

      The 2008 Recession wasn’t a global recession–it was only a recession in the countries whose oil consumption dropped. This included the United States, quite a bit of Europe, and Japan. These are the areas sliding into collapse right now, as well as some of the former oil exporting countries.

      Much of the FSU has never gotten back out of collapse (although the free-fall did stop).

      • Looking at graphs across the web [and very much stimulated by this blog] measures such as oil production/price other energy prices along with real disposable income in the West it appears [my caveat is I only see it without other expertise] that rather than 2008 as the crash year brought on by bankruptcies a year earlier that 2005 is the year energy prices started to inflate [ignoring the US shale gas bubble] and the beginning of either a plateaux or decline in disposable income. Given that peak will be a historic event- i.e. we will only know after its happened and that failure of the financial system only occurred after debts could no longer be hidden I am coming to conclusion that [Easter] 2005 marks the beginning. The decade from 1995-till -2005 was golden years – I was earning more in 2004-5 than I do now, and there was a lot of money in the system then and was able to buy property outright which is one of the few things I got right in my career!

        2005 was a particularly important year in the UK, oil and gas imports started again, borrowing went up, and real disposable income started to decline. I was in the property business doing renovations and Easter 2005 was a slight bubble burst in the property market, a blip when every increasing house prices reached a limit. The wealth still appeared to flow for the following 2 years and business appeared to be normal but all those take overs by the big banks were in very suspect investments that fell a part 2 years later. In the US- and I don’t know how correct this is but real disposable income plateaued in 2005

        The UK led the industrial revolution and we have tended to do things first, like build an empire, exploit fossil fuels, have a declining empire, build the first railways, jets, computers, and other innovations and then watch the world over take us. Perhaps it is appropriate that we ended up leading the western decline. Does 2005 represent the end of more? Do the numbers match up to my speculation?

        As has been mentioned government also grew in the UK to a height around the mid noughties, and it seems to have been the Labour wish to distribute wealth by expanding services [although not to the extremes of India or Saudi or even Japan as at least more well paid nurses, doctors and teachers actual do a valuable job rather than document checkers or metro service personnel ]. I’m in two minds- with unemployment growing do governments give handouts or offer pointless jobs? The unemployed will riot but perhaps there is a degree of harmony to found in lots of lowly paid officials who at least feel they have a stake in society.

        Bread and circus- welfare and the Olympics cheered London up no end.
        interesting times. and interesting contributions, I am finding this discussion most stimulating.

        • Yes, indeed the high point in oil consumption was 2005, for the US and for the EU-27. This is a chart I put together. 2012 oil consumption seems to be down again.

          Oil consumption for US, EU-27 and Japan, based on EIA data.

  8. Pingback: How Oil Exporters Reach Financial Collapse | Our Finite World « olduvaiblog

  9. Gail
    I find this set of comparisons useful especially as you say when the data has been available but never before collated into historical narratives.
    You made some interesting points in comments:
    “Part of it, too, is that the availability of oil allows vastly more work to be done, for a trivial expenditure. Adding even a little (from a price point of view) oil allows a significant ramp up in the amount of goods and services produced.”
    and …
    The issue with oil importers is high cost of energy resources.

    I think you are ‘on the money’ with other comments that mention recent population growth among other factors; (Europe particularly UK started the exponential thing more than two centuries ago – we in UK are a tad under 10 fold the numbers of people we had at the time of our previous historical ‘peak’ population circa 1750). The other factors seem to include a) size b) previous prosperity and infrastructure c) co-incident other resource restrictions and d), importantly, the ability to ‘add economic value’ via manufacture and services. You mentioned Argentina, which had a previous 19thC and 20thC infrastructure (including educational / social and business structures roughly comparable with pre-oil Europe). The UK used to get a big fraction of our meat from the great temperate grasslands. Norway, like the rest of Scandinavia went from agrarian austerity to being one of the most successful ‘modern’ social democratic countries well before the great North Sea petroleum / gas boom. Prior investment in hydroelectric power still means that the very high per person electricity use in Norway is very largely from hydropower.

    Countries on the other hand that were very largely ‘extractive’ economies and highly attractive to powerful global companies with technology and with the backing of growing industrial economies (i.e. ‘our’ companies particularly post WWII) never did catch up and will do even worse as they go down Hubbert’s Peak it seems. Those that built some kind of independent technological base for oil extraction might do better – but only for so long.

    best wishes and thanks again

    • Those are good points. I know Argentina had a long history of development, but you explained it better than I could have. Venezuela and quite a few of the oil exporters had much less of that kind of history. The extremely arid countries are especially badly off, because they have difficulty doing agriculture on a scale large enough to feed their people.

  10. The issue of either a pessimistic or optimistic future is one that has naturally been of great interest, it is about predictions and methods. Being a parent I lean towards optimism, peak oil may save us from extreme climate disruption in the long term- but the former is pressing, it will happen within the next decade, maybe next week.

    And Gail you are right, we are so dependant on oil get off it may result in an horrific decline in population through war, famine, disease. If there is a solution will it be free market or state or the third [euro] way?

    On the plus side we produce about twice as much food calories as needed- we just feed half to animals to feed our meat habit- and likewise we could get by on a lot less oil if walked to work, owned homes close to work, markets and schools. We could probably make a 25% saving through energy conservation- it is not hard and as energy costs go up consumption goes down. Germany for instance pays the highest price for electricity but they use far less. The market works as fuel consumption is down in the UK, smaller cars and less journeys has reduced petrol consumption by 15% and more since 2008.

    Egypt has a slight advantage over the West in that most people don’t consume much and family farm ownership is widespread- tiny plots make up part of household income in rural areas. In the west- most of us could reduce consumption drastically- the problem comes what do people do all day? Just like ancient Rome the masses provide a service sector that we use because food and fuel is cheap, when we consume less what are they to do? And what does an economy look like in a steady state environment?

    • In a steady state environment, I think we look like hunter-gatherers. Even they overused their resource base, though. We need external energy sources, because of the way we have evolved, (needing some cooked food, to feed our smart brain), plus heat and clothing if we are to live away from the very warm areas of the globe. We also have an instinct to have more children than are needed to replace ourselves. The result is constant population pressure, and a constant need for more energy than renewable sources can provide. We have been deforesting significant areas since world population was 20 million, 6000 years ago.

      The whole idea of a Steady State Economy seems silly to me. There is no species that can live in a steady state. Each species is a constant ebb and flow, as it makes use of all resources available to it. Humans are the ones who learned to control external energy, over one million years ago, when we learned to control fire (and thus burning of biomass). We have been expanding our control of energy ever since then. Right now we are living in overshoot, using energy from non-renewable resources. The only direction a species can go from overshoot is collapse–not
      steady state. Any survivors after collapse will attempt to ramp up population to the extent they can, using whatever energy sources are available, so will try for overshoot, starting the cycle over again. Perhaps if we had some magic energy making invention (which does not exist now), we could stay at a steady state, but even then we would over-use other resources and collapse–perhaps fresh water, or top soil putting us again into collapse.

      • Well my first response is not to invite you to a dinner party as everybody would go home depressed !-) but I think we could arrive at a Georgian period of luxury which means I need to get a few hundred labourers to landscape the estate.

        • Hey, that happens to me all the time 🙂

          The Energy/Resource topic as discussed here is the most best killer topic after politics and religion – with the small difference that everyone (which does not include me) is of the same option after I have talked /explained 😉

          • Considering the possibility that decline will be gentle and population is reduced through – um -natural wastage!?!- there will be only one thing worse than talking about how gloomy the future looks and that is people in 25 years time recounting how many things they used to have. I can hear it now ‘in my day we had the finest kiwi fruit, bananas and green beans from Kenyan flown into a the supermarket, – what’s a supermarket? – well in out day we these great big emporiums of….

      • Considering that EROEI on windmills can get as high as 40 and EROEI of solar energy collectors is rapidly increasing, it’s reasonable to assume an affluent steady state, indeed one that’s more prosperous than the present day. There’s vastly more sunlight falling on the Earth than we need to replace the energy derived from fossil fuels, and we are on track to do so within twenty or thirty years.

        Why stop with mere replacement of fossil fuels? Given that we’re already an influential component of Earth’s biosphere, we should bring the climate under control (regulating the concentrations of various gases) and turn this planet into Eden, e.g. turn the Sahara into a forest, weave forests and cities together, implant every last treefrog and panther with microchips so they behave like pets, etc.

        • This analysis doesn’t add up to me. High EROEI is necessary but not sufficient. If windmills don’t give the energy needed (liquids) and the EROEI does not cover the full costs, it doesn’t mean much. We need lots of resource inputs for windmills too, and these resources run short. We have a financial crisis now, and these ideas don’t fix our current problems, much less future ones.

Comments are closed.