Beginning of the End? Oil Companies Cut Back on Spending

Steve Kopits recently gave a presentation explaining our current predicament: the cost of oil extraction has been rising rapidly (10.9% per year) but oil prices have been flat. Major oil companies are finding their profits squeezed, and have recently announced plans to sell off part of their assets in order to have funds to pay their dividends. Such an approach is likely to lead to an eventual drop in oil production. I have talked about similar points previously (here and here), but Kopits adds some additional perspectives which he has given me permission to share with my readers. I encourage readers to watch the original hour-long presentation at Columbia University, if they have the time.

Controversy: Does Oil Extraction Depend on “Supply Growth” or “Demand Growth”?

The first section of the presentation is devoted the connection of GDP Growth to Oil Supply Growth vs Oil Demand Growth. I omit a considerable part of this discussion in this write-up.

Economists and oil companies, when making their projections, nearly always make their projections depend on “Demand Growth”–the amount people and businesses want. This demand growth is seen to be rising indefinitely in the future. It has nothing to do with affordability or with whether the potential consumers actually have jobs to purchase the oil products.

Kopits presents the following list of assumptions of demand constrained forecasting. (IOC’s are “Independent Oil Companies” like Shell and Exxon Mobil, as contrasted with government owned companies that are prevalent among oil exporters.)

Thus, it is the demand constrained view of forecasting that gives rise to the view that OPEC (Organization of Petroleum Exporting Nations) has enormous leverage. The assumption is made that OPEC can add or subtract as much supply as much as it chooses. Kopits provides evidence that in fact the Demand view is no longer applicable today, so this whole story is wrong. 

One piece of evidence that the Demand Model is wrong is the fact that world crude oil (including lease condensate) production has been nearly flat since 2004, in a period when China and other growing Eastern economies have been trying to motorize. In comparison, there was a rise of 2.7% per year, when the West, with a similar population, was trying to motorize.

Kopits points out that China’s big source of oil supply has been US main street: China bids oil supply away from United States, to satisfy its needs. This is the way that markets have made oil available to China, when world supply is not rising much. It is part of the reason that oil prices have risen.

Another piece of evidence that the Demand Model is wrong relates to the assumption that social tastes have simply changed, leading to a drop in US oil consumption. Kopits shows the following chart, indicating that the major reason that young people don’t have cars is because they don’t have full-time jobs.

Kopits makes a comparison of the role of oil in GDP growth to the role of water in plant growth in the desert. Without oil, there is less GDP growth, just as without water, a desert is starved for the element it needs for plant growth. Lack of oil can considered a binding constraint on GDP growth. (Labor availability might be a constraint, but it wouldn’t be a binding constraint, because there are plenty of unemployed people who might work if demand ramped up.) When more oil is available at a slightly lower price, it is quickly absorbed by markets.

“Supply Growth” is the limiting factor in recent years, because the amount of extraction is rising only slowly due to geological constraints and the number of users has risen to the point that there is a shortage.

Experience of Major Oil Producing Companies

Kopits presents data showing how badly the big, publicly traded oil companies are doing. He looks at two pieces of information:

  • “Capex” – “Capital expenditures” – How much companies are spending on things like exploration, drilling, and making of new offshore oil platforms
  • “Crude oil production” –

A person would normally expect that crude oil production would rise as Capex rises, but Kopits shows that in fact since 2006, Capex has continued to rise, but crude oil production has fallen.

The above information is worldwide, not just for the US.  At some point a person might expect companies to start getting frustrated–they are spending more and more, but not getting very far in extracting oil.

Kopits then shows another version of Capex history plus a forecast. (This time the amounts are labeled “Upstream,” so the expenditures are clearly on the exploration and drilling side, rather than related to refineries or pipelines.)

The amounts this time are for the industry as a whole, including “NOCs” which are government owned (national) oil companies as well as IOCs (Independent Oil Companies), both large and small. Kopits remarks that the forecasts shown were made only six months ago. When talking about the above slide Koptis says,

People in the industry thought, “Capex has been going up and up. It will continue to do very well. We have been on this trajectory forever, and we are just going to get more and more money out of this.”

Now why is that? The reason is that in a Demand constrained model for those of you who took economics–price equals marginal cost. Right? So if my costs are going up, the price will also go up. Right? That is a Demand constrained model. So if it costs me more to get oil, it is no big deal, the market will recognize that at some point, in a Demand constrained model.

Not in a Supply constrained model! In a Supply constrained model, the price goes up to a price that is very similar to the monopoly price, after which you really can’t raise it, because that marginal consumer would rather do with less than pay more. They will not recognize [pay] your marginal cost. In that model, you get to a price, and after that price, there is significant resistance from the consumer to moving up off of that price. That is the “Supply Constrained Price.” If your costs continue to come up underneath you, the consumer won’t recognize it.

The rapidly growing Capex forecast is implicitly a Demand constrained forecast. It says, sure Capex can go up to a trillion dollars a year. We can spend a trillion dollars a year looking for oil and gas. The global economy will accept that.

I quote this because I am not sure I have explained the situation exactly that way. I perhaps have said that demand had to be connected to what consumers could afford. Wages don’t magically go up by themselves (even though economists think they can).

According to Koptis, the cost of oil extraction has in recent years been rising at 10.9% per year since 1999. (CAGR means “compound annual growth rate”).

Oil prices have been flat at the same time. On the above chart, “E&P Capex per barrel” is pretty much the same type of expenses as shown on the previous two charts. E&P means Exploration and Production.

Kopits explains that the industry needs prices of over $100 barrel.

The version of the chart I have up is too small to read the names of individual companies.  If you would like a chart with bigger names, you can download the original presentation.

Historically, oil companies have used a discounted cash flow approach to figure out whether over the long term, pricing for a particular field will be profitable. Unfortunately, this “standard” approach has not been working well recently. Expenses have been escalating too rapidly, and there have been too many new drilling sites producing below expectation. What Kopits shows on the above slide is the prices that companies need on different basis–a “cash flow” basis–so that each year companies have enough money to pay today’s capital expenditures, plus today’s expenses, plus today’s dividends.

The reason for using the cash flow approach is because companies have found themselves coming up short: they find that after they have paid capital expenditures and other expenditures such as taxes, they don’t have enough money left to pay dividends, unless they borrow money or sell off assets. Oil companies need to pay dividends because pension plans and other buyers of oil company stocks expect to receive regular dividends in payment for their equity investment. The dividends are important to pension plans.

In the last bullet point on the slide, Kopits is telling us that on this basis, most US oil companies need a price of $130 barrel or more. I noticed that Brazil’s Petrobas needs  a price of over $150 barrel. (OSX, Brazil’s number two oil company, recently went bankrupt.)

In the slide below, Kopits shows how Shell oil is responding to the poor cash flow situation of the major oil companies, based on recent announcements.

Basically, Shell is cutting back. It no longer is going to tell investors how much it plans to produce in the future. Instead, it will focus on generating cash flow, at least partly by selling off existing programs.

In fact, Kopits reports that all of the major oil companies are reporting divestment programs. Does selling assets really solve the oil companies’ problems? What the oil companies would really like to do is raise their prices, but they can’t do that, because they don’t set prices, the market does–and the prices aren’t high enough. And the oil companies really can’t cut costs. So instead, they sell assets to pay dividends, or perhaps just to get out of the business. But is this sustainable?

The above slide shows that conventional oil production peaked in 2005. The top line is total conventional oil  production (calculated as world oil production, less natural gas liquids, and less US shale and other unconventional, and less Canadian oil sands). To get his estimate of “Crude Oil Normal Decline,” Kopits uses the mirror image of the rise in conventional oil production prior to 2005. He also shows a separate item for the rise in oil production from Iraq since 2005. The yellow portion called “crude production forward” is then the top line, less the other two items. It has taken $2.5 trillion to add this new yellow block. Now this strategy has run its course (based on the bad results companies are reporting from recent drilling), so what will oil companies do now?

Above, Kopits shows evidence that many companies in recent months have been cutting back budgets. These are big reductions–billions and billions of dollars.

On the above chart, Kopits tries to estimate the shape of the downslope in capital expenditures. This chart isn’t for all companies. It excludes the smaller companies, and it excludes the National oil companies, so it is about one-third of the market. The gray horizontal line at the top is the industry consensus back in October. The other lines represent more recent estimates of how Capex is declining. The steepest decline is the forecast based on Hess’s announcement. The next steepest (the dotted gray line) is the forecast based on Shell’s cutback.  The cutback for the part of the market not shown in the chart is likely to be different.

Oil and Economic Growth

Kopits offers his view of how much efficiency can be gained in a given year, in the slide below:

In his view, the maximum sustainable increase in efficiency is 2.5% in non-recessions, but a more normal increase is 1% per year. At current oil supply growth levels, OECD GDP growth is capped at 1% to 2%. The effect of constrained oil supply is reducing OECD GDP growth by 1% to 2%.

Conclusions

While demand constrained models dominate thinking, in fact, a supply constrained model is more appropriate in recent years.

We seem to be short of oil. Whenever there is extra oil on the market, it is quickly soaked up. Oil prices have not collapsed. No one is nervous about a price collapse.

China recently has been putting little price pressure on the market–its demand is recently less high. Kopits thinks China will eventually return to the market, and put price pressure on oil prices. Thus, oil price pressures are likely to return at some point.

Gail’s Observations

An obvious point, which I thought I heard when I listened to the presentation the first time, but didn’t hear the second time is, “Who will buy all of these assets on the market, and at what price?” China would seem to be a likely buyer, if one is to be found. But when several companies want to sell assets at the same time, a person wonders what prices will be available.

The new strategy is, in effect, maintaining dividends by returning part of capital. It is clearly not a very sustainable strategy.

It will take a while for these cut-backs in Capex expenditures to find their way through to oil output, but it could very well start in a year or two. This is disturbing.

What we are seeing now is a cutback in what companies consider “economically extractable oil”–something that isn’t exactly reported by companies. I expect that what is being sold off is mostly not “proven reserves.”

In this talk, it looks like lack of sufficient investment is poised to bring the system down.  That is basically the expected limit under Limits to Growth.

In theory, if an expansion of China’s oil demand does bring oil prices up again, it could in theory encourage an increase in drilling activity. But it is doubtful that economies could withstand the high prices–they are already having problems at current price levels, considering the continued need for Quantitative Easing to keep interest rates low.

A recent news item was titled, G20 Finance Ministers Agree to Lift Global Growth Target. According to that article,

Mr Hockey said reaching the goal would require increasing investment but that it could create “tens of millions of new jobs”.

The cutback in investment by oil companies is working precisely in the wrong direction. If these cutbacks act to cut future oil extraction, it will bring down growth further.

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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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547 Responses to Beginning of the End? Oil Companies Cut Back on Spending

  1. Pingback: What’s the point of martial arts? An essay. – Sing. Dance. Fight.

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    • 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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
      Gail Tverberg says:

      Thanks! If there are buyers, theoretically smaller companies could develop this oil–but that is a big if. Otherwise, production will drop more, and tax revenue will be down and well. Gas production will go down as well.

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  4. Paul says:

    I fail to understand why the police require armoured personal carriers and billions of rounds of ammo http://www.forbes.com/sites/ralphbenko/2013/03/11/1-6-billion-rounds-of-ammo-for-homeland-security-its-time-for-a-national-conversation/

    Unless of course the government is planning to turn the police on the people when the SHTF.

  5. Pingback: Varios puntos muy importantes y lecturas para el fin de semana | cteycga

  6. Don Stewart says:

    Jan
    Yes, the commenter talked about that also. Learning new things is a good way to combat brain deterioration.

    Just FYI, here is the agenda for tonight’s webinar, with Kelly McGonigle of Stanford:

    Building Your “Mindset Muscle” to Train Willpower and Change How You React to Stress
    How We Can Overcome the Brain’s Defense System and Change Our Approach to the Things We Don’t Want
    The Role Your Brain Plays in Mindset and How We Experience Pain
    Do-It-Yourself Neurofeedback: One Technique That Can Change Your Brain’s Response to Pain
    How Shifting from a Self-Serving to a Compassionate Mindset Helps You Deal with Stress and Reach Your Goals

    If one expects a future involving stress and pain, the webinar sounds pretty relevant. Perhaps with more chance of success than ‘convincing corporations and governments to do the right thing’?

    Don Stewart

  7. Don Stewart says:

    Dear Interguru and Jan
    Last evening I listened to a podcast with a medical guy who was talking about dementia in old people (in case I ever get old). He talked about ‘the nun’s study’ in Minnesota. The nuns were quite active, including politically. They left their brains to science when they died. The nun who had been most active politically lived to be nearly a hundred. The autopsy revealed that she had considerable development of dementia, but that she also had a large number of connections in her brain. The large number of connections meant that, even though she had lost quite a few, she was still able to function near normal.

    This relates to both my previous comment about the difference between a net and a chain (or rope) and also to Jan’s comments about action being the best defense.

    Don Stewart

    • Jan Steinman
      Jan Steinman says:

      But the so-called “nun study” also had a bit of predestination in it. Researchers noted an 80% correlation between old-age dementia and the person’s “linguistic density”† in her early 20s!

      Nuns who showed linguistic density in their entrance essay to the sisterhood had less than 10% chance of later dementia, while those who did show linguistic density had an 80% chance of developing dementia.

      I suspect most of us commenting here have pretty good linguistic density, and probably had it in our early 20s, and so hopefully we will dodge the dementia bullet.

      †”Linguistic density” is defined as the “idea density” of writing: the amount of complexity, vivacity, fluency, etc. that combine to contain a large number of ideas in a small number of words.

      • Jan Steinman
        Jan Steinman says:

        Oops, second paragraph is missing a crucial “not:”

        those who did not show linguistic density had an 80% chance of developing dementia.

  8. Pingback: Reasons for our Energy Predicament – An Overview | Our Finite World « Olduvaiblog: Musings on the coming collapse

  9. The rapidly increasing energy and environmental costs of extracting energy is alone becoming an economy growth show stopper. When combining it with the increasing energy and environmental costs of extracting minerals and other resources, it’s hard to see how we can hope to maintain a significant part of our current lifestyle and population. But that’s not the main point of my comment.
    We have built during the industrial era mountains of what I would call negative real assets. ie wastes. Those assets require constant investment to control their associated risks. Let’s take what I consider the worst asset type : nuclear wastes. There are thousands of nuclear wastes pools around the world. A significant part of nuclear wastes is still in the cooling stage where it require constant cooling to avoid melting and then nuclear explosions that would typically be a hundred time more polluting than Chernobyl one, affecting dramatically life sustainability on earth. Most governments have, even in good economic times, postponed long term storage because of prohibitive costs. Just remember that long term means around 200K years during which you must put wastes in an unreacheable and geologically stable place inside specialized containers. The task of storing such wastes require much ressources and technologies. So my question is how will we manage these long term negative physical assets as the economy is shrinking, causing riots and instability ? When it may be hard just to feed people ? Nuclear energy will certainly prove to be, in my view, the most thoughtless human invention. So we have gigantic tar sands tailing ponds that constantly kill birds and surounding wildlife, ghost fishing nets that constantly kill marine life, plastic components that kill many critical species of food chain, agricultural fertilizers that also kill marine life and so on… In short, we have setup many destructive systems that will further reduce earth carrying capacity.

  10. Pingback: Reasons for our Energy Predicament – An Overview | Our Finite World

  11. Pingback: ¿El principio del fin? Las compañías petroleras reducen sus gastos [ENG]

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  13. Christian Gebauer
    Christian says:

    Well, top 1% is still a problem because they will try to impede we find any way out of capitalism, even when things will look really bad. Have found an interview to Graeber, very interesting even if my english skills and his speach velocity doesn’t match all the time:
    http://www.bloomberg.com/video/8-3-graeber-on-book-debt-the-first-5-000-years-vSxKj4B_QVmja8zpDha40w.html

    • Exactly, that’s what I’ve also read in different books. The wealthy and the powerful have so much vested in the status quo, that even if they see it’s all headed in the wrong direction they will still reject any kind of Plan B. That makes sense too, because if you imagine you were are wealthy and got it made in the shade, the idea of having to start over is horrendous.

      Unfortunately, the golden rule is ‘Those with the gold rule’ will apply until BAU collapses and their loss of wealth and power opens the way for other ideas.

      • Christian Gebauer
        Christian says:

        That seems to be the rule. Until the system get some ugly crash people on top and in the middle will hold on. As we don’t know the details we don’t know what we will really get. In the late post at my site I’ve gone a little revolutionary and thereafter my boss at the party almost stopped greeting me. Perhaps he disliked I talked about landowners as “the new lords” cause he comes from an important agricultural town. After that I made some polite remarks and things worked better. Anyway, people start realizing how deep the cliff is expected to be.

        Slow, it’s not to redistribute anything except food stamps under the current system, but to do it under another one. The point is that at some stage middle and lower classes will do have some reaction. Were we to use shovel tech, do we’ll prefer to go coal mining or gardening?

        I’ve made some calculations based on actual amount of building here and there is enough capacity to build 6 million houses, 50 square meter each to put up 18 M people in the country, which is the urbanite population in need to move because not being able to feed them at some point in the future if they hold in cities. This could be made in 15 years, starting with 10% the first year (3 M sq meters being last year national building achievement) and degrowing within that period along with FF. Given these figures, this would not be difficult from the physical point of view, have to make it politically and organizationally workable, in case. Another (aged) 18 M could stay in towns and naturally die there (suicides are nevertheless welcome) and some 8 M could perfectly stay at home in their rural environment or small towns. In Argentina, it’s “just” a matter of willingness.

        We have 30 M hectares working on agriculture (75 M acres) and may be we’ll be a little cramped; this is enough to feed people organically and I wonder how much would rest for things as feeding horses and growing fibers. It seems not very much.

        Until the system goes down, the task is to inform so much people as possible. Last night our president said we have for a 100 years of shale… Everybody knows she’s not very reliable, wages eating inflation is a day to day reminder.

        • msbjudy
          JudyB says:

          Christian, you guys have been through collapses before. Do you have a sense that this one will be different for you? What exactly do the Argentine people think of your President? It would be nice to have your perspective since you live there.

          • Christian Gebauer
            Christian says:

            Well, most people here don’t have a clue of actual predicament of mankind as we understand it and just believe we are going through another crisis. Nonetheless, I do surely believe this will be different, as for the whole world. But given Argentina has one of the best agricultural exporting ratios (tons of exported grains per capita, may be the highest) of the world, and that agriculture importance can only improve from now, it seems we can go better than more industrialized countries (if our government don’t miss it all).

            Our actual president was reelected in 2011 with an almost record breaking 54% of votes, but her image rapidly declined from that time and if elections were to be held today she may surely get under the half of that. It occurred that 2011 was also the year when our energy trade balance gone negative, and this impacted the general economy, specially boosting inflation and stopping growth in government programs. Recent measures aiming to stop inflation were very badly conceived, and their results are cooling the economy, devaluation and lose of purchase power, and improving banking benefits. And not stopping inflation. Actual political group in the government is there since 2003, and it is obvious to everybody they have known very much better times and their cycle is over, even if just a few understand exactly why they could go so well at first and so bad right now.

            • Paul says:

              Curious — is most of the agriculture in Argentina dependent on industrial methods i.e. crops grown with pesticides made from oil and fertilizers made from natural gas?

              If so then like most other countries that primarily employ industrial ag methods, Argentina will not be producing much in the way of food for some years when the SHTF.

              It takes 3+ years to grow a crop in what is dead soil and only after intensive organic inputs are introduced.

              America and Canada are in the exact same boat — dead soil from pouring chemicals on it for decades.

              The stupidity of mankind is appalling.

            • Jan Steinman
              Jan Steinman says:

              “It takes 3+ years to grow a crop in what is dead soil and only after intensive organic inputs are introduced.”

              That is probably a bit too dire. I’d say that it may take three or more years to reach yield parity, but you can get something out even in the first year.

              The key is good amendments. If you don’t have a good source of organic fertilizer, you won’t get much out — even after 30+ years! But if you can “make soil,” you can produce fairly quickly.

              Of course, making soil relies on having a source for stuff like animal manures, which if your only source is CAFO cattle fed on grain that is no longer coming in on boxcars, could be a problem!

              A lot of scary thought comes from “event thinking.” Collapse will be a process, rather than an event — although it may be punctuated by events that people will be tempted to mistake for causes. Things may be okay for those who can stay one step ahead of the process. But you’d better start now.

            • Paul says:

              Jan – this is a copy of some correspondence I had with a leading permaculture expert:

              Hi Paul,

              I think the answer goes way beyond how long it would take to revitalize the soil. There is the question of how much land is dedicated to producing livestock feed, how much produces non essential (but maybe desirable) ag. products like coffee, food being produced in New zealand to be sold in Canada and so on.

              Can organic methods revitalize the soil? Yes. But so many societal changes are needed it boggles the mind.

              It would take at least three years to develop sustainable fertility on degraded soils. Longer on some soils like dry, sandy irrigated soils.

              We would need to:
              • break up agri. business holdings and get many more people back to farming, not using the Soviet model, but a new model of cooperativeness, built from necessity, not dictatorship. (if this is possible).

              • accept that eating tomatoes in January in Canada may not be wise (I don’t just the ones I have canned) relearn the art of cooking delicious meals with season appropriate foods and using much less meat (much less)

              • incorporate animal husbandry into the many smaller farms to supply essential soil nutrients

              • accept the fact that we have been greedy and major changes must take place.

              • realize that fast food (cheap) comes at a huge cost, and provides poor nutrition.

              I could go on and on but I am sure you see these points and the many others.

              If we do not plan for the changes they will be thrust upon us and mass starvation is a real possibility, more likely a probability.

              So, my short answer is, yes diligent application of organic methods would rehabilitate most soils, in fact has in some badly degraded areas.

              Also, I think the comment “that we could simply go back to organic farming fairly quickly and we’d have these massive farms back in production (albeit with far lower yields)” suggests to me the speaker has a vague idea of what organic farming really is.

              There is the assumption that all farming before the advent of chemical fertilizers and pesticides was “organic” Not so. many ag lands worldwide were seriously depleted. Have you read the Ronald Wright Massey lectures, The Short History of Progress? A good read for a thinking person.

              Going back fairly quickly does not acknowledge the many factors beyond soil fertility.

              What equipment would be used?

              Would beasts of burden be a major energy source?

              Where would enough come from ‘fairly quickly’

              How would food be distributed if it is produced on the lands now in use?

              If GMO’s or disaster of disasters, the terminator seeds (a GMO) take over, where will seed stock come from?

              We have lost so much genetic diversity where will region appropriate seeds come from? and on and on.

              All rather gloomy.

            • Jan Steinman
              Jan Steinman says:

              Paul, I think your problem is that you want (or hope, or wish) to “save the world.”

              The world is not going to be saved. Small groups of people may be able to save themselves. I don’t think it helps anyone to be gloomy when there’s so much work to be done.

              Yea, I know Ron Wright personally. He lives on our island. He gave a talk to our Transition Town group, and showed this population growth video. Scary. But it does no one any good to be scared.

              I’m going tomorrow to pick up a couple dozen 180AH NiCd batteries. Gonna convert a Vanagon to electricity! I figure in the summer, I can take food into town once a week if I get three days of sunshine. In the winter, I’ll need to have vegoil for Veggie Van Gogh in order to take food into town. The hazelnuts and chestnuts won’t provide enough for frivolous use for a dozen years or so.

              It’s a race between depletion and subsistence! Have fun, and enjoy the ride!

            • Paul says:

              Jan – my concern is that all my preparations are going to be for naught when the SHTF and billions are starving.

              I think you have suggested on a past article that the best outcome would be if most people just laid down and died very quickly after the shops are looted and there is no food left in the cities.

              I very much agree with that.

            • Jan Steinman
              Jan Steinman says:

              “I think you have suggested on a past article that the best outcome would be if most people just laid down and died very quickly after the shops are looted and there is no food left in the cities.”

              Ugh. I don’t think I ever said such a thing, because I don’t think it will go down like that. This is a process, not an event.

              Personally, the city will be no place for me to be. I can enjoy what cities have to offer, while feeling somewhat uncomfortable in them, and always being ready to leave. One who loves cities and has great city-survival skills might feel horrified at being out in the country!

              I think my point is that we all do the best we can, given our temperament, capabilities, prescience, and awareness. Those who lack balance in these elements will have a tough time. In particular, I think the number of capabilities will be more important than their depth. Specialists who lack breadth will have a tough time.

              A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.Lazaras Long, as told by Robert Heinlein in Time Enough for Love

            • Paul says:

              Jan – I’ve posted two articles that indicate Big Oil capex is pulling back because they cannot make money with oil prices at $110.

              As we know, if oil is already killing growth at this price so it cannot go any higher.

              Investors are starting to pull the plug on companies like Exxon and Chevron – their share prices are massively lagging the indices so who can blame them

              So if the herd does a runner – Big Oil is left without the means to explore or extract oil.

              That means the oil stops flowing – this will not be gradual – it will likely be an overnight phenomenon.

              Recall how quickly the Lehman collapse stopped the world. Stop the flow of oil and that’s Lehman times 10000000000 – and there is no bailing that out.

              I fail to see how that is not an event — a cataclysmic event – as opposed to a gradual process

            • Jan Steinman
              Jan Steinman says:

              Oops, forgot to include the video: https://www.youtube.com/watch?v=4BbkQiQyaYc

            • 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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
              Gail Tverberg says:

              Sounds like my impression of the situation.

  14. SlowRider says:

    Many comments here mention the ultra rich, corrupt elites and the dying middle class (although much less than in other forums). Often with a basic assumption that a more equal distribution of wealth would make things better. This blog completely cured me of this thinking.
    If our problem is a finite world, exemplified here by too expensive oil, the conclusion must be that the middle class is exactly the problem. The capitalist 1% system may be the one that best maintains the status quo. A billionaire doesn’t spend much of his money on resources, even if he travels by private jet. But give 1 billion to the middle class, and what will they do? Buy the equivalent of 20.000 cars. After that, we are that much closer to the limits.
    China is the perfect example, they are trying to go “middle class” right now, running themselves and the rest of the world into all kind of troubles. Oil limits are the most fascinating. I can’t say I support the view expressed in one comment, of looking forward to collapse, because we all go down with that boat. But to watch the middle class wake up from their fossil dream will be a sight to remember.

    • Paul says:

      Excellent points.

    • Danny says:

      “The capitalist 1% system may be the one that best maintains the status quo”…This only works when you can feed a population as soon as they are starving the natives get restless…and then we know what happens….Also it is hard to imagine how much they do or don’t consume….I have worked on some 1 percent houses and they have heated driveways so the snow melts even at -15 degrees…the houses are very large and wasteful as far as energy goes…oh and don’t forget the heated toilet seats…a must have for every 1 percenter! See it how easy it is to hate them! Now add in the fact that the middle class can’t heat or eat and then you will need a sizable army to protect them.
      I see the idea that America could still maintain status quo on a macro scale of this but I don’t know if that is possible.

      • SlowRider says:

        How well the 1% will handle collapse and after, that is hard to predict. Meanwhile, the concentration of wealth postpones collapse. Imagine a democratic redistribution of wealth. You can start with China, which has over 300 billionaires and thousands of millionaires right now. They like french wine at 5000 $ and heli-skiing in Switzerland. OK, we redistribute that money to the Chinese people, so every family can buy a car and move to the suburbs. Next thing is, we run out of oil, steel and water.

        • Danny says:

          I am not saying redistribute it…but you can’t have the 1% percent living while the rest starve..it does not add up.It is not a solution…as we go deeper into this jungle the rich will be scapegoated and eventually destroyed. We may have to release a virus and wipe out a large part of world population. I am surprised nature hasn’t done this already….I know she has tried we are just so neurotic as a species we have been able to keep her at bay. Danny

    • Jan Steinman
      Jan Steinman says:

      You hit the nail on the head, SlowRider.

      The task at hand is much more difficult than getting people to change their lightbulbs. The middle-class must strive for what I call “sufficient poverty.”

      I know it’s possible to live a comfortable life on very little. I don’t know how many people it’s possible for, however. That would require a huge reform of capitalism and government. By breaking up big corporate farms, it might be possible (for example) to give lots of people “forty acres and a mule.”

      Even were that possible, I don’t know how many people would take such an offer today. Things aren’t tough enough. People look around and say, “Things aren’t that bad!”

      We are definitely in the “boiling frogs” phase of collapse. Things are imperceptibly worse day by day, month by month, year by year. People look around and say, “Well, at least it’s not as bad as Syria or Greece or Egypt,” and thus refuse to take action. When things get bad enough for most people to act, it will be too late.

      • Don Stewart says:

        Dear Jan and Others
        A few days ago I read an article about Nature’s complexity and compared Nature’s way with our capitalist idea. Nature almost always have several different ways to accomplish a task. If one solution fails, there are others waiting in the wings. But capitalism, in the name of efficiency, destroys all redundancy.

        The article used ‘knot mathematics’ to illustrate. For example, a fishing net would score high in terms of complexity with knot mathematics. But if you take a string and just spool it into a pile, it may look complicated but it is really very simple…pick it up by one end and it unspools into a single strand.

        I would have preferred that the example be a chain. A chain ‘is only as strong as it’s weakest link’, as we all know. So the seemingly complex supply chains that undergird modern capitalism are actually very simple structures, and resemble a chain in susceptibility to weak links.

        A web like structure for food and water and energy would look like this:
        1. A multitude of independent, but interdependent, small farms and gardens
        2. Lots of people collecting rainwater from their roofs for drinking.
        3. Lots of people collecting solar or wind or other renewable energy for household use. Not much dependence on batteries.
        4. Lots of non-cash exchanges, such as food sharing and work sharing and payments in kind. Much smaller cash economy.

        A problem in getting from here to there is that our society is going ninety miles an hour toward further consolidation of ownership. If a collapse happens, we will not only have to figure out how to practice the skills we need to survive, we will have to simultaneously take by force the resources which are controlled by the, now dysfunctional, corporate entities and governmebnts.

        Don Stewart

        • tim – Florida, USA
          timl2k11 says:

          Yes, what could have been, should have been, but isn’t.

        • interguru
          Interguru says:

          ” Nature almost always have several different ways to accomplish a task.”

          Nature is also very profligate of individuals. In working between the different ways large numbers of individual organisms perish. When “nature” straightens out our mess, many ( billions? ) of us will go.

          Remember: Nature always bats last

      • SlowRider says:

        Live comfortable on very little? Tell that to the global “emerging middle class”. They want the dream, the full package! Job, car, family, quality food, house, health, insurance, travel…

        • Jan Steinman
          Jan Steinman says:

          Hey, I didn’t say it would be popular — just necessary!

          What we don’t choose for ourselves will be chosen for us by nature eventually. Get poor now, and avoid the rush!

  15. Stan says:

    Goods news! New report details unlimited oil.
    “Report: Good Thing World Has Unlimited Quantity Of Oil”
    Go to http://tinyurl.com/Unlimited-Oil

    Stan.

  16. Why the Periphery Is Crumbling: The Spoils System Is Cracking

    The vast majority of surpluses outside oil exporting nations have been generated by three factors: cheap energy, rising productivity and the expansion of credit. If we examine periods of rapid expansion and generalized prosperity, we find these three factors were active: cheap energy, rising productivity and ample credit.

    Just look at Europe and the U.S. in the 1950s and 60s, Japan in the 1960s and 70s, and China in the 1980s and 90s for examples.

    Any reversal in these factors reduces surplus and the spoils being distributed. Sharply higher energy costs crimp profits and cause recessions, stagnating productivity leads to near-zero growth and institutional/state sclerosis and credit contraction leads to recession and the destruction of malinvestments.

    Why is the periphery crumbling? It’s simple: the conditions that enabled rising national surpluses and the distribution of spoils is breaking down for three reasons:

    1. Energy is no longer cheap (compared to past prices)

    2. The low-hanging fruit of higher productivity has all been plucked

    3. The free-money flood of cheap, limitless credit is drying up

    http://www.oftwominds.com/blogfeb14/spoils2-14.html

    • Paul says:

      Great points – I’ll suggest one more:

      Wages are dramatically down inflation-adjusted —- in the US the drop has been nearly 10%.

      The numbers are similar in the EU and other developed economies.

      When an economy is heavily reliant on consumer spending to drive growth, this is its death knell.

      And this is why central banks are frantically trying to extend more credit — the problem is however, everyone is super-saturated with debt already.

      I think we are heading into the 8th inning now — and we are losing 1000 to nil….

  17. Pingback: Another Week of Anthropocene Antics, March 2, 2014 – A Few Things Ill Considered

  18. Pingback: Another Week of Anthropocene Antics, March 2, 2014 – A Few Things Ill Considered

  19. Pingback: Energy: Thriving On Five Percent? « Olduvaiblog: Musings on the coming collapse

  20. xabier says:

    Meanwhile in Spain, an angry mob of pensioners defrauded by a major bank, Caja Madrid, kick and punch the car bearing man responsible after a court appearance.

    Maybe there is hope?

  21. Adam says:

    Excellent post from Tim Morgan on Surplus Energy Economics blog: “Japan’s road to ruin”.
    http://surplusenergyeconomics.wordpress.com/2014/03/01/18-japans-road-to-ruin/

    • Paul says:

      Great article – Kyle Bass must be licking his chops right now…

      That said — I wonder if his shorts are going to pay off — when Japan goes I suspect everything goes — and nobody is getting paid — because this time I doubt there will be any bailouts.

      Central Banks are already all in — they have thrown their hail mary pass – it will of course fall short.

      When one of these dominoes goes this will be Lehman on steroids, HGH, coke, Meth, crack, speed, heroin, etc etc etc… this will make Lance Armstrong look clean.

  22. Pingback: Energy: Thriving On Five Percent? | VantageWire

  23. dashui
    dashui says:

    I got to eat dinner with a strategic planner from chevron, who has been living in Africa on some project. I asked her about peak oil and she had that turd in the punchbowl look on her face. She said peak oil is like saying peak soybeans . Then she used the ole more and more efficiency argument. Finally she said that she doesn’t know what it means.

    • Paul says:

      Similarly last year I was having a beer and a oil industry chap was sharing the table — he was regaling us with tales of high tech extraction techniques — what these fools fail to understand is that the issue is NOT that we are running out of oil.

      The issue – as everyone here knows – is that we are out of cheap oil. Even if one were to pound this into the heads of these people with a sledge hammer they would not be able to grasp the implications of that.

      • xabier says:

        There’s a post on Ugo Bardi’s site on the problems of Yemen, written by a Yemeni: the main fact is that while there are possible means of alleviating their resource problems, they are all really too expensive for that society to afford. When it’s no longer cheap, it becomes effectively impossible, if not theoretically….

  24. Pingback: peak oil (o cenit del petróleo): pésimas noticias que seguimos sin querer oír… un texto de antonio turiel, y varios otros más | tratar de comprender, tratar de ayudar

  25. MJ says:

    This article got my attention from a native from India that returned there after 24 years away and took notice of the changes there in “development’ and mindset of the people and influence of “outside” sources that is molding the culture to the “western model” of consumerism.
    Very insightful read;
    http://www.countercurrents.org/banerjee260214.htm

    New roads everywhere—is the face of economic development in India, I was reminded, again and again. “What’s an XUV,” I inquired. “Don’t you know? It’s bigger than SUV,” I was told. Fair enough. With great excitement a young person told me that before the end of this decade, India will become the third largest auto—producer or consumer, he wasn’t sure which—in the world.

    Where will India get the oil to fuel all these cars, the LUVs, SUVs, XUVs? It seems, among other places, from the US.

    “The United States is projected to become the largest global oil producer” by around 2020, according to the International Energy Agency’s World Energy Outlook 2012; and with the shale production in the US and tar sands in Canada, “North America becomes a net oil exporter around 2030.” The US wants to sell oil to the rest of the world, not keep it in the ground and solve the climate crisis. This is as good a reason as I can give for why the US wrecked the Copenhagen climate talks.

    So this is the fantasy that is being ingrained in the developing countries people from “global communication” . Wonder what is going to happen when the bubble bursts.
    Especially for all those counting on driving on those new roads!

  26. Don Stewart says:

    Dear Gail and All
    For a very different take on what is in store for us financially, see Charles Hugh Smith’s article on the Deep State vs. Wall Street…Don Stewart

    http://www.oftwominds.com/blogmar14/throw-under-bus3-14.html

    ‘Though everyone who is convinced the U.S. dollar will go to zero is confident that Wall Street will emerge victorious from the next financial crisis, I am convinced of the opposite: the Deep State will do whatever it takes to eliminate strategic threats to the integrity of the Deep State and the nation it depends on for its power and survival. In a financial crisis that threatens the dollar and the Deep State, the phantom claims of Wall Street’s financier skimmers, scammers and swindlers will be tossed under the bus with few qualms. The triage might even be performed with a certain relish.

    Put another way: we’ve reached Peak Wall Street and it’s all downhill from here.’

  27. Calista says:

    I am hoping that someone here, even our esteemed host, might be willing or able to expand upon this statement: “And the reason they have to continue destroying countries is so that the process of wealth destruction, which is inevitable as the world runs short of critical resources, can run its course some place other than the West’s economic heartlands in the US and Northern Europe.” The whole article can be found here http://cluborlov.blogspot.com/2014/03/reichstag-fire-in-kiev.html I find it an intriguing twist to the decline and holdback against such decline as strategies or potential strategies go. Thoughts? Elucidation?

    • Tarjei V
      Tarjei V says:

      Very interesting! Orlov expands a little on his concept of wealth destruction here: http://cluborlov.blogspot.no/2014/02/how-to-time-collapses.html
      It can see how this works within a state (hard pressed governments raises taxes, resorts to money printing that creates asset bubbles (that pop!) and keeps interest rates down, thus eroding savings. Or as Orlov puts it: “when these bubbles pop, savings are said to be destroyed, but in reality that money has already been spent by the government or used to fill the private coffers of those closely associated with the government”). I have more trouble seeing how wealth destruction in one country can benefit another. I guess multinational companies and trade agreements that benefit these, are a key here. But as you say Calista, we welcome elucidation!

    • xabier says:

      And yet wealth is being destroyed in Northern Europe and the USA, surely? At least, the wealth of the mass consumption classes, their purchasing power, but not that of the truly wealthy. Isn’t this the most significant feature of our time, a reversal of the great middle class expansion from the 19th century?

      • Calista says:

        I too struggle with the concept of the cross border wealth destruction. Especially as Xabier says, most of the wealth destruction is in the middle classes. I’m trying to understand what he meant by it and how that mechanism works. At what point does that impact our general infrastructure? What in the world does wealth destruction in another country buy me? And for how long? Yes, I understand arguments can be made for it already impacting our infrastructure but at what point does that wealth destruction bite the average Joe? At what point does he realize that the wife will keep her low-paying job with some poor semblance of health care while Joe goes out and works in the gray market for some under the table cash to keep food on the table.

        • Jan Steinman
          Jan Steinman says:

          Well, the most obvious case is the decline of property values. We were taught that they only go up, up, up! Now there’s all those underwater mortgages…

          It will be interesting to see how much of a bubble the stock market has become, now that the Fed has reduce the rate at which they’re inflating it. A big stock market crash could be a huge wealth destruction!

          You might say, “But I don’t own stocks!” Are you sure? Do you have a pension or retirement plan? Just about everyone has a foot in the stock market these days, whether they’re aware of it, or not.

          • Calista says:

            No pension. No retirement plan. Lots of student loan debt. Partner has no pension, no retirement plan, no student loan debt. Welcome to my generation. It is not pretty.

    • SlowRider says:

      The process of wealth destruction may START somewhere else. But the world economy is so fragile and interdependent, that a regional crisis can spread quickly. It is like with currency wars, they only work in the short run. And with real war, this is even more true, sadly.

  28. SlowRider says:

    The oil articles on this blog are the best ones. They also bring up the most interesting comment sections. The many limits we face are complex, but oil is just everywhere, in everything. Therefore, looking just at the limits of oil is telling us so much. We are about to loose the world as we know it, but at least we will be among the few who know why.

    • Ed – I am interested in energy issues.
      edpell says:

      Slow, for me knowing why really lowers my stress level when I watch what is happening. Still not happy about it but it is not a frightening mystery; just a sad lack of long term planning.

    • I have found the works of Chris Martenson and Nate Hagens very useful here. The both advocate unplugging from the rat race and getting back to a simpler community based life.

      I very much agree with edpell (below) and SlowRider that understanding is the key to being able accept the upcoming changes to the system without fear. We even have the opportunity to make some changes to our lives before there is a rush and the exits all get blocked.

  29. MJ says:

    Funny to confess, but I’ve been an airline employee for over a quarter of a century. I’ve seen it all. Prices of jet fuel so low that a total moron would be hard pressed not to be able to make a decent profit. Also, have seen the squeeze and felt the rapid decline of worker pay and benefits. Many jobs now are “contracted out” to vendors to pay employees low wages with no benefits.
    I am, though, perplexed on the rapid capital expansion of airport facilities around the country. One would not think there was a “contraction” coming by such expansion plans.
    I was at Miami airport recently and an info commercial came on telling us that airports have over 1,500,000 direct employees and support tens of millions of other jobs. As Ms. Trevberg pointed out, plentiful affordable fuel makes it all possible. The airlines have been able to fudge by charging for extras, like baggage fees and no frills. Never mind going into bankruptcy like American. I remember back in 2008 there was panic in the air when oil jumped to $147 a barrel. Well, it’s over $100 now and there is beginning the noise of worry starting to happen.

    • interguru
      Interguru says:

      Just for perspective: In 1965 I got a bargain round trip ticket from New York to London. It cost $600. Translated in 2013 dollars, the cost is $4429, much more than today.

      • MJ says:

        The good old days of Government oversight. Guaranteed profit margins. Perhaps we are headed back to those days of exclusive travel only for the very few wealthy people?

        • in one sense it’s possible to imagine that.
          yet ultimately it won’t happen because the energy infrastructure that travel depends on is supported by millions of ordinary people each contributing their part.
          No matter how wealthy you are, you will not be able to sustain that infrastructure just by the market forces of the high-end wealthy themselves.
          This applies to all forms of travel. You may be able to afford a Rolls Royce, but if the roads and bridges aren’t there to drive on, it will rust away in a garage like any other car.
          Those roads and bridges are supported by the poorer sections of the population.
          It has always been so. In the days of stage coaches, that system was used by the better off, but it depended on an infrastructure that provided fresh teams of horses every 20 miles or so (the equivalent of filling up your car)
          Imagine supporting 1000 miles of highway, where the only use made of gas stations was by luxury cars passing ever few hours of so.

          • Calista says:

            This is a very excellent description of the dynamic. This is also why the internet will crash within a not so long timeframe after the masses cannot afford computers. Every computer chip sold to the average joe is subsidizing development costs of the high end server chips and equipment required to run the internet. This is a massive generalization but the same dynamic is at work for all of the electronics you purchase. They need the volume sales to pay off development costs.

          • xabier says:

            Exactly. Mass travel and taxation keeps the system going.

            And before fossil fuels, the wealthy were more or less marooned on their country estates during the winter, as the muddy or frozen roads were as impassable to them as to anyone else.

    • tim – Florida, USA
      timl2k11 says:

      Tampa International has put some major expansion plans on hold indefinitely. On a related note Tampa Electric has put off some expansion of the grid as well. I guess they had been planning for “growth as usual”. I think part of the resiliency of the airlines is that they have so many other costs besides just jet fuel. Labor and maintenance is very costly, if I’m not mistaken, and you have mentioned what they are doing about both.

      • InAlaska says:

        There are many mixed signals in the marketplace for sure these days, as Boeing has received orders for more than a thousand of their new 787 Dreamliner aircraft over the next few years.

      • jeremy890 says:

        Both Fort Lauderdale Airport and Charlotte Douglass are undergoing major expansion plans.
        As far as the wealthy are concerned, I do not agree they will not enjoy the “good life”. In pre-industrial era they enjoyed the high life and am sure they will continue to do so for the immediate future of 20 years ahead. Beyond that, who knows?

    • Ed – I am interested in energy issues.
      edpell says:

      MJ, I am seeing the same thing with long haul electric transmission lines. They want to build projects all over the place. Maybe both are a cargo cult. If you build airports the planes and tourists will come, if you build transmission lines electricity will magically flow out the end of the line.

      • MJ says:

        Those shovel ready projects that the Government promoted largely funded more of the same fossil fuel guzzling segments of the economy. The ‘all the above; energy policy of Obama is a desperate act to squeeze out a few more years (his terms) of the “American way of life”.
        The rich will survive fine in the upcoming years with their “protection” of homeland security.
        I believe Ted Turner “owns” more land out West than the size of Rhode Island! Feudal Lords are being set up as we speak.

        • Danny says:

          Comments like this are what upset me….how do you think the “Rich” are going to survive any better with a collapse? I have been to Turner’s ranch and it takes a lot of $$$ to run a ranch like that…The Rich will be just as vulnerable…if not more so….I think they will be attacked as causing this problem…right or wrong….

          • Jan Steinman
            Jan Steinman says:

            “how do you think the “Rich” are going to survive any better with a collapse?”

            Permit me to re-define “rich” as “those who are able to command and control resources.”

            I agree that today’s “rich” who hold fiat currency or stocks and bonds may be in a world of hurt in the future if they stick to conventional wisdom. And yet, fiat currency is how people today are able to “control resources.” The slower the crash, the more likely these people will “get it,” and convert their fiat currency into such resources as may be useful in the future.

            The future “rich” may be those who control agricultural resources, or who can manufacture basic tools using low-technology, or who are able to employ mercenaries.

          • Jan
            In pre industrial Europe, Resources (and therefore wealth) belonged to the monarch and/or the church. The monarch’s family has usually acquired it by conquest (as in England in 1066), then doled out parcels of revenue producing land pro rata to those who had helped in the conquest. They sublet that land in return for rents, and paid a proportion of that rent back to the king. They also had the muscle to protect it.
            Here in UK we still have families owning land from that time.
            The church was given land to absolve the King’s sins in this world. They still own land long term too,
            So there was no other ‘free land’ available. You paid rent ultimately to the monarch or church, who grew rich on the production and sale of resources (which might be corn, wool, coal, timber and so on). As late as the 30s, in some parts of UK the church could still legally extort 10% of produce from farmers.
            In the absence of a modern industrial economy, it is inevitable that we will return to this ‘arrangement’ in some respects, because, as in previous eras large landowners will control food (energy) resources. The same will apply everywhere in the world, those with large landholdings will control the ultimate energy sources, and will be able to pay the necessary muscle to protect it, just as in medieval times.
            Of course, if a modern feudal overlord (and this what they will be) neglects to pay his mercenaries (that is what they will be), then they will of course get very annoyed and take over the lands themselves.
            This must inevitably lead to the creation of mini-states as resources get tighter and tighter.

        • When politician say shovel ready—what they really mean is excavator ready—and they guzzle fuel

          • Danny says:

            Well I am sorry but it used to bother me on the oil drum how people would talk about collapse with one breath and then say how they are glad they will be o.k because of money, guaranteed pension, etc.” oh I work at a state university” ” my pension will always be there” ……I think they were missing the point of collapse. I think the nature of collapse is very volatile and the floor that you used to stand on might not be there. A paid off house in the Hamptons won’t be worth anything after the fall out…if you are perceived to be rich you will be a target.

            • Jan Steinman
              Jan Steinman says:

              “people would talk about collapse with one breath and then say how they are glad they will be o.k because of money, guaranteed pension, etc.”

              Since the death of the “defined benefit” pension, they’ve all gone into the stock market.

              I know people whose retirement income was cut 25% after the 2008 crash — are these the same people who think their pension will get them through an even bigger crash?

              Not many of us would do well with a 25% cut in income.

          • xabier says:

            End

            How many have even seen a shovel?

  30. Don Stewart says:

    To Jan Steinman
    You may be very interested in listening to Geoff Lawton’s interview with Paul Wheaton. There is extensive discussion about several subjects, including the on-line PDC. Geoff is still delighted with the quality of the work. He thinks that about 90 percent of the participants will get their certificate, but designs are still coming in.

    The software cost a hundred thousand dollars. Some months he was paying 40,000 to 45,000 in wages he was paying. In the last few years, he has donated a quarter of a million dollars back into the non-profit, keeping his income below the tax level.

    Geoff says that Bill Mollison likes the program. Geoff reiterated the statements others have made about getting rid of the bricks and mortar of traditional universities.

    Don Stewart
    http://www.richsoil.com/permaculture/75983-279-geoff-lawton-qa/

    • Jan Steinman
      Jan Steinman says:

      BTW: Paul Wheaton is a bozo. I was once active on his “permies” website, but he was censoring my postings — even editing them to change their meaning! I asked him to stop, and he said something like, “It’s my website, and I’ll do what I want,” so I deleted all my postings and haven’t been back.

      In particular, he once edited my posting in such a way that made it seem that I thought nuclear power was sustainable. That was worse than simply deleting my postings. Luckily, the software he uses allowed me to delete all my postings fairly easily.

      He also seems to be a rabid capitalist, and was fairly adamant that Permaculture had nothing to do with economics. He would often delete or modify my postings on co-operative ownership and management of farmland.

      In short, you don’t get to disagree with Paul on his website.

      I didn’t mind the deletions as much as I did the changes. To delete is indeed the right of the owner of the media, but to change the meaning of a posting is simply dishonest.

      • Don Stewart says:

        Dear Jan
        Paul Wheaton has some less than admirable qualities. In one of the earlier interviews with Geoff, he kept coming back to his same preconceived idea. A good interviewer doesn’t do that. But Wheaton’s shortcomings don’t really have anything to do with Geoff’s basic idea of substituting electronic communications and computer mediated teaching for physical travel and face to face teaching.

        From listening to the Jack Spirko interview and the interviews with Wheaton, I get the impression that Geoff is just trying to get coverage in North America. He would like to have another thousand participants in his second on-line PDC, and some of them need to come from North America. So he does what he needs to do to get publicity.

        Don Stewart

        • jeremy890
          Jeremy G says:

          I was around during the late 1980 to mid-1990’s when “Permaculture” was making headway here in the United States. Let me just say, that the intentions are good and admirable and practices put into place, makes sense. Will it transform the world?
          Well, do the math:.. Peter Bame uses a Chinese village in one of his youtube videos online to represent what he was describing as prime example of his “permaculture”. that struck me rather funny. Seems we are trying to become more like “them” and they are trying to become more like “us”.
          The 1960’s politician Brry Goldwater was right in that account after all!

  31. I was thinking some more about this latest development, i.e. reduction in Capex, and it occurred to me we just passed another threshold. So far those thresholds are:

    The Past:
    1. Hubbert in 1956 explains how peak production will follow peak discovery by approx. 30-40 years. 40 years after peak discovery in the mid-60’s, 2005 a plateau of crude extraction is reached.

    2. Oil price reaches all time high of 147 a barrel in 2008, followed by the great recession and price leveling off in a tight range around a 100 a barrel.

    3. Huge increases in govt. debt by OECD govt.’s result from reduced net energy.

    4. Many non-conventional oil sources become economical at new oil price, extending the plateau.

    5. After an unprecedented Capex investment by the majors of 2.5 trillion, production barely rises, due to 10.9% average annual increasing cost of exploration. Investors become risk aversive to minimal production increases, but still want their dividends, so majors cut back on Capex and sell assets.

    The Future:
    6. Due to a reduction in Capex, oil production declines, initiating the descent from peak. In spite of this, no solution exists to drill for oil at a loss, because the economy can only handle oil price around 100-110 (with increasing govt. debt), whereas oil price would have to be much higher to substantiate exploration.

    7. ?

    • Ed – I am interested in energy issues.
      edpell says:

      7. Brown coal in situ gasification begins with the same fanfare that frack gas drilling started with. By 2035 the world is awash in cheap methane. Global warming continues and accelerates. Equatorial nations are eroding to desert. Canada and Russia are making massive gains in grain production. The U.S. and Europe benefit from lower winter heating costs. Having brought their lifestyles in line with global standards the U.S. once again has a manufacturing base. The EU has fragmented back into its original states. Sadly nations like Germany have been unable to make the psychological shift to allow them to become globally competitive. They struggle to feed their population with little external trade. China has moved into the Great Graying and so is pacified. Japan has past the disaster of its Great Graying. With an increasing young, productive, and smaller population Japan leads the world in sustainable farming and culture with a very modest industrial base.

      • Interesting take on 7 edpell. Awash in cheap methane. I haven’t heard the latest, however a while back Japan was attempting to harvest coastal methane hydrates, but it was not looking profitable. However with such massive energy deposits beckoning it’s possible the tech. will be developed to do just that. The problem will in part be controlling the capture of the methane so a high percentage doesn’t escape into the atmosphere exacerbating AGW.

        Equatorial countries eroding to desert has to some degree already started in Brazil. Their finding out the hard way that deforestation leads to less moisture in the atmosphere, which leads to less foliage, an amplifying feedback. The only hope there is to stop cutting down trees, replant as many as possible and hope the rains come back. Not likely though as people find numerous reasons to deforest.

        My best guestimate on 7 is; Declining from peak, oil scarcity at first causes higher prices in the 120-130 range, but this leads to reduced demand and price drops to 110 for Brent. It also causes recession and the Fed returns to QE in an even bigger way than QE3 because high deficits are no longer accepted on Capitol Hill. As these trillions flush out into the ranks of the super wealthy there is the façade of minimal growth, but this leads to hyper-inflation and economic collapse. All attempts to fire the economy back up fail. The numbers are culled, then localization for the survivors willing to work really hard.

      • InAlaska says:

        Yes, and then the brown coal ensures that global temperatures increase by about 6 degrees fahrenheit much sooner than even the most liberal climate models. There is a sudden collapse in the Greenland Ice Sheet, slowing and than halting the thermohaline circulation. Without warm Gulf of Mexico waters, Europe enters a mini-Ice Age. Most if not all of the major coastal cities watch as their new sea barriers are breached. They become uninhabitable. Japan’s sustainable farms are engulfed in saltwater from multiple typhoon events. Massive refugee movements underway all across the globe. Desertifcation in the Gobi, Sahara and Mohave, expands across the mid-latitudes driving population centers northward toward less fertile soils where grains grow poorly. Tornados in Canada uproot its newly established breadbasket. Hurricanes batter the eastern seaboard into rubble. The massive influx of refugees from frigid Europe destroy attempts to farm in the Ukraine and other places, amplified by continental drying and cooling, or drying and heating. In the oceans, where currents have already been disrupted, acidification destroys most of the small shelled creatures upon which that ecosystem is based. Fisheries crash and those remaining are fished into extinction. In some places, human civilization goes out with a whimper, in other places it goes out with a bang!

        • “In some places, human civilization goes out with a whimper, in other places it goes out with a bang!”

          Unfortunately probably very true, as we can see with Bush jr’s invasion of Iraq, Russia’s willingness to invade the Ukraine because of all the gas lines passing through to the EU, or China declaring parts of the South seas as theirs (for oil exploration), and we haven’t even gotten to the descent from peak oil part yet. For those fully stocked and armed for post collapse it should be quite a show if the TV still gets reception. Otherwise tune in to your shortwave radio. For all other life-forms it will be time to adapt super fast to unprecedentedly quick climate change and an increasingly violent, angry dominant species seeking others to blame for the loss of their apps, American idol, McNuggets and pharm drugs.

          • InAlaska says:

            Like Chris Martenson’s “Three Es” of the Apocalypse with the Energy Peak causing an Economic Decline, followed by the Environmental Collapse.

      • Jan Steinman
        Jan Steinman says:

        8. You awaken from the pleasant dream, to find yourself surrounded by starving people, sweltering in a 45°C toxic cloud of coal plant pollution, wondering if that lump in your armpit could have come from the hundreds of nuclear plants that are melting down once the grid failed and they couldn’t re-fuel their backup generators.

        • xabier says:

          Jan, Stilgar, Ed, InAlaska

          Splendid vista of possibilities for Sunday morning!

          The worse it looks, the braver I feel – is this a psychological perversion, or does it indicate hope for the human race?

          Or am I just plain dumb? The Basques are reputed to have the thickest heads in Spain.

          On going out with a whimper, I recommend Doris Lessing’s ‘The Making of the Representative for Planet Eight’. An allegory not far removed from what we face.

          • InAlaska says:

            Hey xabier.

            I say that if you have to feel something, feel brave! I’m guessing the Basque are as tough minded, ingenious and persistent as many Alaskans I know. If were all going down, we might as well go down fighting for the ones we love! It always makes me feel better to get out and try and do something about my personal situation. I stand in admiration of my three teenage boys who refuse to lose hope despite their father’s gloomy rantings. Its hard to be hopeless when you spend time with young men. I’ll check out your Lessing allegory.

          • xabier says:

            I always recall a friend of mine in student days, from the Highlands of Scotland.

            Watching a film in which a passive man was beaten to death by mobsters, he exclaimed ‘Disgusting!……He didn’t even try to hit back!’

            He explained to me that in his book, if you are going down and the situation is hopeless: ‘you make sure you hit back somehow, that’s the Highland Spirit!’

        • 9. We are in the 3rd generation now after the shark fin collapse and subsequent methane release into the atmosphere that raised sea levels by 85 meters. We live underground where we grow crops via refracted light. Underground it’s 68F but outside in the summer it’s 120-135F in the day and never less than 90F during the night. We save our energy by not fighting the high temps, but rise to the surface to get fresh air in the early morning, retreating by 10AM. The land is scorched but there is hope that someday it will be cooler and plants will grow above ground. In the winter we can spend more time outside but we limit it because of radiation exposure from nuclear meltdowns. We keep losing people to sickness but some are very resilient, never showing signs of weakness so we are hopeful for future generations. Entertainment is by reading books. The old one’s try to explain to us what happened and why it’s called the shark fin collapse, but we don’t believe there ever could have been such a world. Yet we are entranced by photos in books that must be from someone’s imagination, artist renderings we are certain although they appear so clear. How did they ever make such pictures?

          Martenson is a sharp guy.

          I’ll ck. into Lessing’s book, Xabier.

        • Starting to sound like Beijing

        • Calista says:

          For your reading enjoyment. http://www.amazon.com/Windup-Girl-Paolo-Bacigalupi/dp/1597801585/ref=sr_1_1?s=books&ie=UTF8&qid=1393785349&sr=1-1&keywords=wind+up+girl Sadly he’s not made enough money and so finishing out his author’s contract he’s writing young adult novels. They’re almost as good. But this one, this one is sweet on so many levels.

          • interguru
            Interguru says:

            I’m sad to hear it didn’t sell, but I can understand why — it is too intense. I still think of it everytime I see a fully stocked supermarket. Check out reviews here .

          • InAlaska says:

            Calista,

            I’ve heard about this book now from a few different people. I think I’ll buy it on Amazon and check it out. I bet its an interesting take from Thailand.

  32. Don Stewart says:

    To Jan Steinman
    Here is an exercise. The President of MIT said that the university could be replaced with computer mediated communications, except for the laboratories. He ruefully commented that lecture halls are a lot cheaper than laboratories. (And other people claim that the adolescent state of most students requires them to attend formal classes.)

    At any rate, keeping in mind the distinction between lecture halls and laboratories, take a look at this latest video from Geoff Lawton and try to sort what can be learned from a computer mediated communications link and what can only be learned in a laboratory.

    Then, ideally, one would actually investigate how Geoff is addressing the question in his on-line course.

    Has Geoff demonstrated that it is possible to offload a lot of expensive on-site instruction to on-line computer mediated communications links? How does Geoff address the lecture hall/ laboratory issue? Does the video make a compelling sales vehicle for a designer to sell his services to a landowner? And other interesting questions that I am sure will occur to you.

    Don Stewart
    http://www.geofflawton.com/fe/63637-cell-grazing

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  34. Quitollis says:

    Yes, I have had it. I am looking forward to the collapse. I have heard so much mouth from people who think that they have a “right” to live in modern industrial British-style society. People generally are lazy, incompetent and cheeky. They are not the people who built this thing. No one any longer has a right to live in the society that our ancestors built. It is time to tear the whole thing down and then we will see how clever people really are and how much right they have to live in our society. That goes for everyone, tear it down and then we will see.

    • Paul says:

      On the contrary — are not the ‘John Galts’ of the past 200 years the ones who are responsible for this?

      If everyone was entrepreneurally lazy — and just cared to have enough to eat and a few simple possessions — would we not be facing a possible extinction event?

      • xabier says:

        Paul

        I suspect you are right, although over-breeding peasant farmers and hunters can trash an ecological system well enough without being entrepreneurs.

        Malthus actually said that the big problem with capitalist development is that no sane man wants to labour ceaselessly for wealth alone: the rich man will eventually attain the status he sought, ,and the poor man have enough food, drink, clothes and shelter to be contented – not being animated by money but by the desire to be safe and comfortable.

        His solution? Get the people addicted to luxuries, and tax them hard, and pay the poor man not quite enough to live on so he has to labour or go under!

        Before the factory system was fully established, highly skilled workers used just to stop work and go off to have fun when they’d saved enough., coming back hungover when they had spent it all. Living to about 30, so would I!

        • xabier says:

          With the increasing trend of contractors supplying low-pay, zero-hours workers with no benefits, we see Malthus’s prescription fulfilled. While the rich have secured low taxes fro themselves – temporarily I feel.

        • Quitollis says:

          “no sane man wants to labour ceaselessly”

          Yes, peasants got 100 days off a year as holydays in addition to Sundays. Arguably capitalism has been in many ways very harsh to the masses.

      • InAlaska says:

        Who is John Galt?

    • I share your point of view and complety agree with you. Let’s see how wise people are without electricity.

      I am happy to see that someone else share my view and is looking forward to the collapse.

      Good day Sir.

    • InAlaska says:

      We won’t need to tear it down. Its tearing itself down. Then we’ll see…

      • xabier says:

        If we are disgusted with modern society, it’s a step too far to actually wish for it to collapse – we will, after all, go with it: we should have no illusions about that!

        Beware what you wish for you might actually get it!

        • Jan Steinman
          Jan Steinman says:

          “If we are disgusted with modern society…”

          … then I see it as a matter of duty to drop out to the greatest extent possible!

          A side-effect of people dropping out will be to hasten collapse. But at least those who drop out will be better prepared for that collapse. I think that’s what Holmgren had in mind.

          • xabier says:

            And be a happy drop-out in the meantime…..

            But of course, we are riding on the backs of those who are still happy consumers, and perhaps not so happy producers (those poor Chinese) much as the contemplative monk depended on peasant labour.

        • InAlaska says:

          I agree with you, xabier. A rational person would want to postpone the day of reckoning for as long as possible. The caveat being, however, that the sooner it happens, the more resources and workable climate will be leftover for whatever comes after. So from that perspective, I see why getting it over sooner might be better. However, as a father, I say ” please keep kicking the can!”

    • Jan Steinman
      Jan Steinman says:

      “tear it down and then we will see.”

      Isn’t that how Naomi Klein’s Shock Doctrine works?

      I just saw The Spirit of ’45 at our local film festival today, which chronicals the rise and fall of socialism in post-war Britain. Director Loach attributes the fall of socialism to the Thatcher regime, which may be true, but I think the deeper reason was the repeated energy crunches of the ’70s caused a “Shock Doctrine” reaction from the embattled rentier class, who used it as an opportunity to re-assert control.

      So be careful what you wish for. I don’t disagree that things need to be torn down, but that is a point at which strong tyrants can convince the populace that they will make everything better — which, of course, they cannot, except for the 1% at the top.

      • xabier says:

        Jan

        Except that by the end of the 1970’s many British people of every class were utterly sick of the self-indulgence of the trades unions (ever listened to those block-heads?) and the decay of the country in general.

        The moral element of Thatcherism was reminding people that they do at some time have to get off their backsides and work – it wasn’t just a reaction by the rentiers.

        Many wanted to do that, and not just extort higher pay from society at large, which was the sole policy of the big unions. This is not surprising as they had been so badly treated in the 1920’s and 30’s.

        The abuses of union power were as great as the former abuses of the capitalists: give a pig a trough and it will gobble, whatever the colour of its hide……..

        The overall context was, I agree, the Oil Shock.

        I am affiliated to neither Left nor Right. It’s interesting to see how the mythology of Thatcherism has evolved on both sides.

      • Quitollis says:

        “except for the 1% at the top”

        Yes, maybe 1% will survive the collapse of industrialism.

        LOL

        • Quitollis says:

          I can only hope that those most worthy of life will survive to propagate the future, those most competent and joyful. May the future be bright!

  35. mikestasse
    mikestasse says:

    Reblogged this on Damn the Matrix and commented:
    Interesting analysis of Steven Kopits’ presentation from Gail… MUST READ!

  36. To both Gail and Steve: Good work! To add to the anecdotal evidence, let me point out that Linn Energy, a medium sized upstream, just announced CapEx cuts for 2014. Even more telling is that some in the analyst community applauded the move as ‘capital discipline’!

    • 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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
      Gail Tverberg says:

      If you can get a slogan to go with it, you can get away with almost anything!

  37. xabier says:

    Lizzy

    I of course include lipstick of an enticing shade to accompany the goose fat in suitable post-Collapse body treatments. I would be lost without it.

    • interguru
      Interguru says:

      Don’t laugh. Things like lipstick, toilet paper and cigarettes make great currency in a post collapse economy.

      • InAlaska says:

        The 4 Basic Food Groups: Caffeine, Nicotine, Alcohol and Sugar. In demand, easy to trade. Widely available to stockpile now. It worked in WWII so should work post-collapse.

  38. peteTheBee says:

    But oil production in the US is booming. The US clearly doesn’t need $130 oil, or even $100 oil. The oil production is growing because $100 oil insures massive profits. It wouldn’t be growing in response to break even pricing.

    • 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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
      Gail Tverberg says:

      It is booming in response to ultra low interest rates, cheap credit, and easy accounting. Also, being able to send oil in trains that tend to blow up, without proper precautions. Ultimately, though, I think the problems are financial, with or without the oil. The presence of the oil is not what is holding things together; it is Quantitative Easing and ultra low interest rates.

    • Christian Gebauer
      Christian says:

      Boom… and burst within two or three years from now

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  40. B9K9 says:

    Greenhick, it’s actually quite simple, which is why it doesn’t really require much discussion. But, in case a quick summary is needed, here’s the basic gist of expected events, outcomes and necessary preparations:

    – The world is already engaged in the last stage(s) of energy politics, resulting in overt hostilities operating on a broad range of offensive and defensive campaigns.

    – Wartime measures are a time-honored means of achieving many state objectives, including devaluation, resource requisition, population command and control, etc. To effective wipeout accumulated debts, devaluation would need to be something on the scale of 10:1, which would put the price of gasoline @ $50/gallon. This is why price controls and rationing are important; in this situation, “approved” nationally important activities would be subsidized at around $10-15/gallon.

    – Everyone else, of course, would walk, ride a bike or take the train. Even better, now that the interwebs are so pervasive, it’s much easier to just have every non-essential producer stay at home and play on their computers.

    – Resource requisition involves not only asset seizures, but also the re-instatement of the draft. The recent posturing about the defense budget is recognition that a benefit funded military is not economically feasible. Other forced “contributions” will round the standard approach used countless times before in periods of war.

    – Media and propaganda are de rigueur – not much more need be said, other than those who dare to published the truth will entertain all kinds of mechanisms designed to quiet their voice(s). (The author of the original piece is finding out first hand what that means.)

    That’s about it – other rationed items would of course include such things as heating, electricity, food, healthcare, etc. All will eventually be reduced to induce appropriate levels of targeted population declines.

    In this kind of environment, the only thing people will have going for themselves will their own groups – whether neighbors, family, clan, etc. The wild card is the ability of the state to maintain and conduct full spectrum security activities that lead to sustained command and control. If that falters, then we’ll see the emergence of local/regional quasi-governments that might be able to provide some level of property protection.

    The key at this point is to ID the things that are somewhat plentiful, but will be both rare and in high demand on the other side of the curve.

    • InAlaska says:

      “The key at this point is to ID the things that are somewhat plentiful, but will be both rare and in high demand on the other side of the curve.”

      Well, that’s an easy thing to identify: Everything. But a good short list would be: Caffeine, Nicotine, Alcohol and Sugar…the 4 basic food groups that will be sorely missed, in high demand, easy to stockpile now, and very trade-able later.

      • garand555 says:

        I’m not sure how well tobacco will grow in Alaska, but for most places, I would say that having some tobacco seed would be a good idea. I have a local variety that I am going to plant this year to ensure that I have fresh seed in the future. Knowing how to distill is also another valuable skill. Once things calm down, who would want to kill the guy who can repeatedly get them hammered? I wouldn’t discount weed either. As for sugar, unless you live in a place where you can grow sugar cane, look into beekeeping, which I admittedly know little about.

        Caffeine, now that would be a tough one, especially if you are talking coffee, since coffee wouldn’t stand freezing winters.

      • Ed – I am interested in energy issues.
        edpell says:

        Spices including pepper.

        • InAlaska says:

          Yes, I was talking more about stockpiling for short term trading, not the actual production of. However, having some tobacco and weed seed would certainly be good. You can distill out of grain or even potatoes. We’ll all have to give up on sugar and coffee once you’ve bartered what you have away for antibiotics, etc. etc. I agree that a nice stockpile of black pepper and iodized salt would be a worthy thing.

          • Paul says:

            Interesting to observe the different challenges one faces depending on one’s location.

            Here in Bali we have loads of pepper and other spices as well as coffee – I am trying to work out what items I should stockpile on this end.

            I have been buying a lot of extra metal tools particularly garden implements – I am sure at some point I would be able to trade those for bags of rice (as we don’t have rice paddy fields on our property)

  41. GreenHick says:

    Gail kindly responded to my request for help thinking through the feasibility of a managed or designed energy descent. A few of the blog’s readers helpfully contributed thoughts. Gail, I wonder if you would consider devoted a post or two to this theme. I feel we spend a great deal of time documenting and ratifying what most of the blog’s readers would already assent to, I suspect: that business as usual in our energy and economic systems cannot plausibly continue. Although documenting various conditions of breakdown continues to have value, I feel that having stipulated much of this, we might devote a greater proportion of our energies to seeking alternative courses of action for steep, or emergency descent scenarios. Gail herself has struck a helpful note in conceding (I think) that beyond fairly high-confidence claims that the status quo cannot continue, and manifestly isn’t, how this plays out carries enormous uncertainties. Which makes it simultaneously difficult and valuable to attempt to identify, for example, something like the most and least promising courses of action, policy, thought in the face of this. I haven’t the slightest hesitation in conceding that apocalyptic outcomes are entirely plausible, but see less and less value in seeing so many of our threads taking this as the end of the discussion rather than as the beginning of a collaborative pursuit of least-worst alternatives.

    Warmest regards,

    • Ed – I am interested in energy issues.
      edpell says:

      Greenhick, that was the topic of the previous article. Gail gave good ideas for local individual actions to mitigate the impact. I think it is clear none of us see a solution that works globally or even nationally.

    • Calista says:

      Secure your own mask before securing others. Figure out how to take care of your waste stream, source your water, heating/cooling and food. I strongly recommend masonry heaters while capital is available, plant trees to coppice, learn how to coppice. Bushman water tanks and a metal roof (white is a good color). If the bushman or other slimline tanks are too expensive for you learn how to put in ferrocement water tanks. Figure out a method of filtering that water and how to build small perostatic pumps or purchase something larger from lehmans. Learn how to garden, raise cuy, pigeon, goat, pig depending upon what your zoning restrictions are. Build your own beehive warre has plans online for free. Start networking with gardeners and learn how to can and preserve. Get yourself a solar cooker or build on with the local school kids. Sew up a wonderbag or build haybox cookers. Set yourself goals. Two meals a week cooked in the solar cooker and two a week in the haybox. 30% of meals sourced from your garden or your community garden. 3 gifted food swaps a month. In other words, set goals that allow you to practice. Buy a camping shower or solar shower. In the summer that is your shower. You’ll have to remember to put it out every day. Learn to shower at night after you’ve worked in the garden. (yes, I can shower on 1.5 gallons and I’ve hair halfway down my back and it’s clean and a non-issue) My goal is to shower with the camping shower everyday from June through August here (cold weather life where I live, have to figure out how to get solar hot water in small amounts in the winter or learn to skip on cloudy days).

      In short, learn how to source, trade, make, grow and supply within a small local area. I urge you to practice now, immediately whatever you can from now on out. Those two meals a week are a permanent thing. Why? Well when changes come it will be easier for you and your family from a psychological perspective. Hey, we played this game for two meals a week and all summer long with showers, now we just play it a bit more. It becomes comfortable, easy and normalizes the changes so they don’t all come at once as someone in the house lost their job and we don’t have money for x, y, or z. Find a local farmer’s market and buy 50 pounds of potatoes. Figure out how to store them and cook from them for the next 4 months. Practice this so you don’t go into shock when the margins are even slimmer for you to live on. Learn how to heat water or a brick and take it to your bed at night. Sew up the prettiest thing you can to cover it. Make it a game and make it a game now because the biggest problem that will happen is the “I don’t want to” “I hate potatoes for a week straight” response. This is damaging for children and adults both. Suicide is the result. Illness is the result. This is the biggest risk of all is the inability to make the psychological adaptation to wiping your bum with cloth, eating same/similar foods day in and day out, not having the “shopping” or “entertainment” treats currently available.

      • xabier says:

        For advanced learners, I would add:

        1/ Rub some goose fat in all over in late October.

        2/ Wear the same thermals all winter without changing.

        3/ Learn to sleep with your dog under the blankets.

        4/ Get a partner who does this to, or there will be trouble.

        For those who’d like to see what people can survive, try Victor Klemperer’s war diaries: as a Jew, he was left with a basic diet of nearly rotten potatoes for years, with his clothes falling to pieces. Lived quite a time after the war, too.

      • InAlaska says:

        Very good post. However: Shower every day? Get real. Shower once a week. Our family does it and it works well. Its better for your skin and saves a whole bunch of effort and energy. Once-a-day is the old paradigm. Sorry;-)

    • 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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
      Gail Tverberg says:

      Thanks for the idea. I will see. I can lay our general directions, as in Reaching Limits to Growth what Should Our Response Be?but I am not necessarily the best one to show directions to follow afterward. A big part of the problem is too many people for resources. It is hard to get around that issue, no matter what you do.

    • Christian Gebauer
      Christian says:

      Even if most of us are well aware of it, it is important to continue analyzing BAU’s fading because there are very few instances around the world where this is so clearly exposed, if any. But I agree with GreenHicks this is somewhat boring and distressing, and that we could advance in positive thinking even if it just comes out to be an intellectual exercise. I guess GH is not talking about individual approaches, which are anyway really worthy, or about what we suppose our stubborn governments could do just to stay afloat for a while, but about what could ever be a good solution to our predicament. Policy, (s)he says. Not an easy task, given industrial-capitalism was designed and built along a couple of centuries and we have just a short time to envision a different civilization.

      Epdell says nobody sees any kind of solution, but I personally have drafted some (draconian, I concede) course I bet would be useful in the long term for some countries, such of my own. Besides imagining a decent descent, we could think of some way to make it real, partially at least. It is to remark educated middle class, which most of us must belong, is the only able to understand the predicament and find some solution, but to do so it has to let go a lot of its prerogatives, and I wonder how many of us are prepared to do it. But in case we do not the loss will happen anyway, and for the worst.

  42. Christian Gebauer
    Christian says:

    In the first chapter of the original Limits to Growth, Meadows et al. explained exponential growth. One of the examples they used was interest in savings, so they obviously saw the relationship between economic growth and banking, and must have concluded any steady state economy may not hold banks or interests, or in case these should play just a very marginal role (I’m guessing, not having finished the book yet). Steady state can not be capitalistic and I wonder if they realized capitalism really is at the core of the problems they studied. May be they did, but preferred not to highlight this because of communism issues in the context of cold war time, even if their approach was not at all USSR friendly neither (soviets being addicted to growth too, their way).

    • “Communism is Soviet power plus the electrification of the whole country.”

      Lenin.

    • Chris R says:

      I suspect you’ve put your finger on the problem!

    • 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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
      Gail Tverberg says:

      Everything I can see is that the exponential growth of banking is essential to keeping the system going. It is what is keeping the system from collapsing.

      As nice as a Steady State economy sounds, it is completely out of our reach, because of the effect of diminishing returns. We need to invest more and more, just to stay flat. Right now, the oil majors are having increasing trouble just staying flat in their production.

      Capitalism is at least part of the problem. But any system that uses long term debt has similar problems.

      • Christian Gebauer
        Christian says:

        Meadows et al. proposed some steady industrial state, which of course is impossible at the present time, as you say, because diminishing returns preclude it. In the 70s, may be… I just wanted to remark the political and financial issues implicits in their suggestion.

        Otherwise, when I talk in some posts of a “steady” state I don’t mean an industrialised one, nor is it really steady, but ideally. Long term debt is gone forever, of course, and capitalism with it.

        • 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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
          Gail Tverberg says:

          Meadows et al had a proposal for capping population and industrial use, so amounts could stay level to 2100. After that, I expect everything would crash–it just would be later. If we are working with a finite world, we are extremely limited in what we can use on a regular basis without depleting natural resources. A small amount of wood, perhaps, and eating a few wild animals. Humans started killing off many of the animal species as huther-gatherers, also burning down forest.

  43. Nony says:

    Mr. Kopits:

    Nice slides and even better talk. Appreciated the questioners also. Have a few semi-critical questions:

    a. why the demand versus supply view sides? I am used to seeing both discussed in micro-economics. A supply curve and a demand curve. Both changing as a function of time. And not just something out of a book, but normal for commodity analyses (metals, chemicals).

    http://www.minecost.com/dynamic7a.gif (and the analogous for demand).

    b. The GDP effect of oil price is interesting and I agree it occurs. Oil is a fundamental feedstock of our economy. But I think this can still be captured by just some feedback in modeling (tweak the number lower from 3% or whatever, based on initial intersection of supply and demand). Probably some equation to do this. It’s more of an issue for someone who is mindlessly plugging in 3%, but then they shouldn’t do that. They should be considering segments of demand, substitutes, etc. 😉

    c. Talk a little bit more about the futures. Why backward? Obviously, you can just say “market is wrong” (and that can be valid…e.g. I was a dotcom bear). But I wonder what is behind long term futures being down. Are the expecting more supply? Less demand (but we are already in recession and starting to pull out…for instance equities are high).

    d. Is there some way to settle (to analyze) if OPEC is exerting market power or pumping full out? I would really love to crack that cartel like we did in the 80s…if that is possible.

    e. What do you make of the crude drop to 40 back in 2008? It should drop in a recession, but the drop should be limited, because the expectation is for future prices to be high, implies storing oil for later. Was it a weakening of OPEC? Speculation binge? Or expectation of even worse and more prolonged recession than we had?

    f. Does it really matter that the majors decline by selling off assets? Non-OPEC share of oil production has increased. US minors have added ~3 million bpd. Is it just dinosaurs being replaced by mammals? Maybe they were too fat and bloated and political anyway? Similarly CAPEX declining of majors does not reflect CAPEX of EOG/CLR increasing.

    g. I also wonder about reading too much into a this year change in CAPEX by the majors. Could be a trend. But, it’s the first year.

    h. Yeah, CAPEX has gone up a lot and total production stayed flat (implying that replacing declines has become much more expensive). But the dollar revenue of production has gone up a lot also. So I wonder what percent CAPEX has done. Some peakers think “how can they keep spending”, but won’t price motivate the spending?

    • 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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
      Gail Tverberg says:

      I am not Steve, but let me see if I can comment on some of these:

      a. OPEC has always claimed to have huge reserves, but these have never been audited. What is important is the size of the “tap,” not the (unknown or falsely stated) amount that might be in the ground. The Demand view of economists is based on the view that somehow (based on the false reserve numbers and little understanding of the importance of the size of the tap), OPEC can get a lot more oil out if it wants to. What Steve is trying to do is prove that this silly belief is false, based on how the market really acts.

      d. The charts I have put together have tended to show that when oil prices are high, OPEC pumps more oil; when prices are low, it pumps less oil. The nature of some of the Saudi fields is that they produce better if “rested” part of the time. The time for resting these field is when oil prices are low. Don’t worry about cracking the cartel–they have little to no power anyway.

      e. The crude price drop had to do with a drop in credit availability back in 2008. This is a link to an article I wrote about the subject, over at the Oil Drum. Impact of the Credit Crisis on the Insurance Industry. Where are we now? This is precisely the kind of thing I expect to happen in the future– a cutback in credit availability and a big drop in price. The purpose of Quantitative Easing is partly to get the price of oil pumped back up again. Also, with the low yields to encourage drilling, even when the return isn’t very good.

      f. Yes it does matter that the oil majors are selling off assets. The mammals are only supported by debt–they are not going to last long either.

      h. The dollar revenue of production has gone up a lot is precisely the effect of diminishing returns. Diminishing returns is what has caused economies to collapse in the past. I wrote a post called Our Investments Sinkhole Problem. The higher price for oil because of higher extraction costs is pretty much equivalent to just throwing money (and resources) into a sinkhole. When you put your resources into a sinkhole, then those resources cannot “grow” the rest of the economy. That is why eventually growth slows, and eventually collapse occurs.

  44. David Mason says:

    Excellent piece. I have followed you since The Oil Drum. Thank you for all your good work

    • 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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
      Gail Tverberg says:

      You are welcome. Glad you like my writing.

  45. “And with oil and gas companies the problem is compounded – because without new capital they do not have the means to continue to search for new sources of energy. Hence when the tipping point comes it could be very rapid indeed.”

    I agree, and due to negative feedbacks the situation accelerates;
    Increasing cost of exploration reducing capex
    Leads to reduction in supply
    Causes higher oil prices
    Reducing demand
    Oil price drops
    Further reduction in exploration
    Greater drop in supply
    Recession
    No more borrowed funds for stimulus
    Possible QE again but risking hyper-inflation
    Oil price too low for production of low EROEI non-conventional
    Depletion of existing fields increases to 3-4% annually
    Unemployment ballooning
    Defaults of commercial and residential loans
    Clearly past peak oil on the descent

    • Change that to positive instead of negative feedbacks. That’s like when they tell you negative for cancer and you cringe only to remember that’s good, but in regards to feedbacks (in this case) positive is bad. And I don’t mean bad as in good. Got it?

    • 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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
      Gail Tverberg says:

      Unfortunately, that goes further, to the banking system failing and governments collapsing. We have to have debt to run our system. With a shrinking economy, the debt part of our economy has increasing difficulty. Lack of credit availability may be what brings the system down.

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