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 Kopits provides evidence that in fact the Demand view is no longer applicable today, so this whole story is wrong.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%.
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.
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.
When a listed company stops growing – or worse – contracts – that is the death knell. Institutional and retail investors will not generally touch it (except to acquire assets or in this case remaining reserves – on the cheap)
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.
One is inclined to say ‘If only the owners of capital had been contented to leave the peasants in the fields , rather than trying to make even more out of them in the factories and – latterly – shopping malls.’
But they became addicted to the lure of ever greater power and luxury, forced them from off the land the 18th century onwards, and so here we are.
In retrospect it wasn’t such a bad system even with the tinted spectacles off: it could produce – gradually, century by century – enough surplus for great cultural wealth in poetry and music, extremely beautiful architecture and arts, (as anyone who visits western Europe knows), and thereby sustained a substantial body of skilled craftsmen and artists. There is no life better than that of the skilled worker who is respected and engaged in work they love.
And now utterly impossible to return to (sorry, Kunstler) to after the abuse of Mother Earth in the final, mad and frenzied, acceleration we have seen since the 1900’s, rising to a pitch in the globalized capitalist system.
I am afraid you are 100% right….. the industrial revolution has been mankind’s greatest folly.
And it may have been the beginning of an extinction event
If it had been explained to the intelligent working man of 1950 that the globalized, oil-powered economy would give him and his children unparalleled personal comfort, decent working hours and holidays,free medical treatments (in Britain and much of Europe) , a full stomach, etc, making the conditions of 1900 seem like a bad dream, and those of 1700 like a nightmare, but at the cost of this horrendous collapse we now face and the poisoning of the Earth (all possible to envisage in 1950, in fact foreseen as early as the 1840’s!), what would he have chosen if allowed to choose? What would his wife have chosen?
I live in a British worker’s village house of 1949, built as part of the new post-war Socialism of that time, and I can empathise with that worker: it is a world away from the nasty, badly-built and cramped terraces which his father would have known and in which he would have been born (in which of course one might still live a good life, except that they had too many children on the whole).
I don’t think he would have believed that this clear step up in life and symbol of social justice was in fact the harbinger of global destruction.
At the end of the day the ‘Don Drapers’ of the world would have been telling him what to think at the behest of their corporate masters.
We are little better than lemmings — Edward Bernays realized that nearly a century ago and he and his acolytes have been driving us towards the cliff ever since.
The cliff edge is fast approaching.
The definition of insanity – spending 1.50 to get 1.00 back!!!!
The path toward U.S. energy independence, made possible by a boom in shale oil, will be much harder than it seems.
Just a few of the roadblocks: Independent producers will spend $1.50 drilling this year for every dollar they get back. Shale output drops faster than production from conventional methods. It will take 2,500 new wells a year just to sustain output of 1 million barrels a day in North Dakota’s Bakken shale, according to the Paris-based International Energy Agency.
All they need to do is keep borrowing more and more, at super low interest rates. Is this a sustainable model?
Americans have no idea why we have energy security. We have covert operations throughout the world (though mostly in the Middle East) to secure an unimpededed flow of cheap oil. It is a major operation of JSOC (Joint Special Operations Command). When the US can no longer afford to project its power to far away places to secure stability in what would otherwise be unstable oil-bearing countries it is game over for us. We are a very powerful country, for now. Enjoy it while it lasts.
The notion that oil exploration and development will trail off due to it no longer being a profitable venture is missing an important singular moment.
At some point, oil development is no longer a strictly economic pleasure of capitalism, but a life/death strategic pursuit of sovereign nations attempting to stave off internal collapse and the loss of power.
I expect that the US Fed (to pick one) will use QE to raise funds to buy up oil rights at par to enrich the IOCs. And then the US government will use even more QE to pay the majors to go back and exploit the fields at a loss but on the taxpayer dime. Even if doing so costs $trillions. They will then use the energy resources in a strictly tactical sense to resist border incursions, brow-beat and terrorize an inflamed citizenry, and pursue additional resource adventurism abroad.
They will not yield power. Rather they will lie, provoke, terrorize and eventually murder. But they will not yield power. The end game is upon us, but I believe it will not to be played out on the chalkboards of economics, but the battle fields of war.
And because of the stark realities of warfare and the will to power, every last drop of oil will be extracted at whatever the cost to natural and human life, with whatever impacts this will in turn have on environmental integrity.
Because — they will not yield power.
I suspect you are correct – however that does not change the fact that we get a massive economic collapse.
If the US were to just focus all resources on say fracking (I believe one of the purposes of QE is to provide capital for fracking) that does not fix the problem or delay it for long. The problem is the end of cheap oil — and sapping the rest of the economy to chase expensive oil is no solution.
As for adventures abroad in the name of oil — the US has been doing that for decades already. That only adds to the costs of oil when you factor in the military expenses. Nothing new with that – although they might be more overt about it. But the more overt they are the more the locals get riled up which increases costs even further.
I think there is a possibility that powerful forces in the US could use existing technology to force the American people into a ruling class/slave society. A situation where you do not need an economy at all. Just use sheer force. The old would be rounded up and executed. The young equipeed with devices that force them to obey orders of the ruling class to extract resources and do manual labor for the priviledged. Like a hellish 1984 and science fiction merger. We simply do not know what tools the military has to control the people. The US could become like North Korea on steroids.
ruling class/retainer class/slave class there has to be a niche for the army/DHS/police.
Dennis Meadows and others did the analysis counting physical amounts of resources, and your approach just doesn’t work. If you start with a maximum of say 100 units of oil coming out each year, it is that 100 units of oil that must be divided up, no matter who prints how much money. Some of these 100 units of oil will be used to extract more oil; some of the 100 units of oil will be used to repair infrastructure like roads and pipelines and electrical transmission. Some of the 100 units will be used to fight pollution. Some of it will be used to counter shortages of other types, such as building and running water desalination plants. It is only what is left of the 100 units of oil that can be used to grow the economy, because all of the other things are just trying to stay in place. What happens is that there is less and less left, and it becomes less and less possible to grow the economy. Employment drops precipitously. Debt defaults climb very high. Banks fail right and left. Governments collapse. You have to have the real resources there. With a shell game, you need something under the shells.
While there is, at least theoretically, substitutes for oil, there is none for water. We are at peak water with droughts, rapidly depleting aquifers, and overused polluted rivers. Improving water usage efficiency works within limits, but is not a solution. Water shortages manifest themselves as rising food prices, such as those that set off the Arab Spring. Some places, such as Yemen are already running out of water. To make it worst, energy and water both need each other.
Water and energy are connected at the hip. New sources of water, desalination, dams (evaporation ), pumping from aquifers, require energy. New sources of energy, fracking, refining, solar power ( to clean the collectors ), nuclear power ( for cooling ) require water.
IEEE Spectrum magazine did a special report “Water vs. Energy” where they cover many aspects.
Yes, Peak Water in the politically unstable, over-populated, oil-producing regions, perfectly aligned
That is the kind of news I’m inclined to shut my mind to…….!
Thanks for the link! That is a good point about water. Water is another area where we run into diminishing returns. We can in theory get all the water we want, through distillation, but it will cost an arm and a leg, because of all of the energy used to get it.
I find from teaching bookbinding that the first and most difficult step is to get people to leave their pre-conceptions to one side and follow what they are taught, step by step.
Imagination and wishful-thinking get in the way of real progress, instead of helping it.
In fact, desire to progress gets in the way of real progress (the Sufis noted this long ago).
The cultural influences brought to bear on the young in ‘advanced’ countries now are certainly more insulating from reality than at any time in history. That certainly is pre-occupying……
I’ve also found that those with the highest innate talent very often don’t have enough staying power, but those who are perhaps less gifted get furthest.
WASHINGTON — “The federal budget deficit fell precipitously to $680 billion in the 2013 fiscal year from about $1.1 trillion the year before, the Treasury Department said Thursday. That is the smallest deficit since 2008, and marks the end of a five-year stretch when the country’s fiscal gap came in at more than a trillion dollars a year.”
Did you catch the word precipitously? I recall when Bush jr. Admin. was consistently posting 500 billion a fiscal year deficits, and I thought it was stratospherically high, but now it’s 180 billion more yet it has fallen precipitously. Don’t get me wrong, it’s good it has come down from over a trillion a year for five straight years but not sure I’ll get all giddy about it.
Fascinating though that deficits are coming down while the Fed are attempting to taper QE to zero, at the same time we can see in this latest article investment in exploration by the majors is being reduced (due to a 10.9% annual increase in cost of new production), EROEI is descending and the economy requires growth. Something’s gonna have to give.
I think the Social Security folks were getting upset by the lack of funding of Social Security, so the temporary cut in funding for it had to come to an end on Jan 1, 2013. That was most of the reason for the precipitous drop.
A good chunk of this lower deficit is related to fracking (oil imports reduce).
But that will be short-lived:
The path toward U.S. energy independence, made possible by a boom in shale oil, will be much harder than it seems.
Just a few of the roadblocks: Independent producers will spend $1.50 drilling this year for every dollar they get back. Shale output drops faster than production from conventional methods. It will take 2,500 new wells a year just to sustain output of 1 million barrels a day in North Dakota’s Bakken shale, according to the Paris-based International Energy Agency. Iraq could do the same with 60.
Reading through the comments here, there is still the obsession that wheels must form the fundamental means that supports our future society. Demand growth, or supply growth, however you phrase it is concerned primarily with making our wheels go round. How will we keep ourselves on the move? Planes, trucks, trains, cars, must all use fuel to make wheels turn and make our way of life roll on as it always has. Even Kopits, after prophesying doom, advocates electric cars, so we can carry on as normal, as if our ability to travel will provide the means and thus the purpose of our existence. That is the delusion we have had since the wheel was invented. We applied energy to wheels, then made them turn in order to shift stuff around.
The wheel is a lever, nothing more. But we built a civilisation on it.
So we now have this collective assumption of mass transit, but no discussion as to the purpose of it, only that it must go on forever. We have to go on ‘levering’ our existence to ever higher levels of sophistication.
The laws of physics seem to preclude any realistic alternative to rotary motion being necessary for forward movement, so we seem stuck with that. With a billion vehicles in existence, hydrocarbon fuel seems the only way of making that happen…but I’m happy to be proved wrong on that, provided it applies to now.
But wheels assume a necessity to travel, and a purpose in our destination, as a reason to transport people or goods.
If there is to be societal breakdown, just what is this purpose likely to be? We board a train to where exactly?
If energy goes into decline, as it must, then what purpose will there be in going somewhere that has problems worse that your own?
We move around in order to carry out three primary functions: Warfare, Commerce, or Leisure. Scarce fuel won’t be used to transport (scarce) food, that’s for sure, or shipping cheap goods from China. You won’t be flying off to sunny beaches for a few weeks every year, so it seems we will be left with only one of those three, and when that’s run its course, finally none of them.
Dear End of More
I suggest that you consider a fourth purpose in wheeled transportation: assembling materials at a tool factory and then moving the finished tools from the factory to the place they are needed.
When we, in the year 2014, talk about transportation it tends to be about flying off to a resort or driving to a place of entertainment or transporting coal to generate heat and perhaps electricity. Suppose all those things go away. But suppose that the ability to make tools survives. The transport sector would be a tiny fraction of its current size. But it might very well be crucial.
I think tools are like enzymes. Enzymes make complicated molecules possible because they speed up the needed reactions enormously. Waiting around for the chemicals to randomly interact to make the molecules would be hopeless. Similarly, tools make highly productive societies possible. For example, I was listening to Geoff Lawton talk about his farm. It’s really a community of people…he employs a couple of chefs and serves 30,000 meals each year. 85 percent of the food they eat is grown on the farm. Should transportation of food break down, I am sure they could cope. But their food productivity depends on certain tools. For example, Geoff has designed a mobile chicken tractor. The chicken tractor is most efficiently provided by someone who develops the skill of building them…call it a factory. The factory then supplies the finished tractors to people who want to use chickens in their food production/ recycling/ land fertility cycle. The chickens eat only vegetation and kitchen waste. The chickens produce eggs and fertile soil as well as feathers for lots of traditional uses.
Another tool that Geoff uses is light weight electrical fencing powered by PV panels. The electrical wire and the PV panel almost certainly could never be made by hand on the farm. Thus, the materials need to be transported to a central factory, and the finished goods need to be distributed. The electrical fencing increases the productivity of the chicken system by quite a bit. One key point is that the chickens are moved around a larger field which is divided into sections which are alternately cropped and then used for chicken pasture. A plain, traditional, chicken yard would not achieve the same level of productivity. Chickens in a tradtional yard are fed grains, which introduces lots of issues.
To me, it seems that the hallmark of a mature human, or mature society, is the ability to distinguish between a tool and an entertaining pastime. GDP, of course, makes no distinction. Gambling your money away in Vegas has the same value as buying a farm implement to the economist.
Whether our society survives depends in part, I think, on whether we can sort out the tools from the pastimes. If we cannot make the distinction, then a replay of the Stone Age is entirely possible. If we can make the distinction, I see no need for a return to the Stone Age.
Strictly speaking your ‘fourth application’ is covered by ‘commerce’. There are of course endless subdivisions, but I still can’t see anything that wouldn’t be covered by the three main uses of wheels—eg as in your ‘tractor’ usage. Others may be able point something out.
As to the distinctions, separating tools from pastimes, Chariots were used in warfare, races and transport, again, my three uses of the wheel neatly encapsulated in ancient times too. Everything depends on the use to which it is put. We have exactly the same thing today, the difference lies in the internal combustion engine, not the motives or intent.
As to tool making, you can make basic tools without rotary motion, but you cannot make anything sophisticated. Thus you can support small communities as you say, but unfortunately you cannot support large ones, and they are the ones we are stuck with.
Small rural groups would be able to survive quite well, but those city-groups will demand continued sophisticated lifestyles, and will get violently annoyed when it fails to materialise. Essentially that it kicking off right now in poverty stricken areas of the world.
Dear End of More
I agree that tools are included in ‘commerce’ so long as they are made by skilled artisans or in factories with the purpose of being sold. A digging stick probably isn’t commerce, but it is a tool.
However, I think the distinction between a tool and a pastime is still important. Let me try to explain. If we make no distinction and continue to equate the tools needed to operate a chicken food/ recycling/ soil fertility closed system, to the monetary equivalent of a trip to Vegas, then we are likely headed back to the Stone Age as we exhaust our resources.
Now suppose that humans actually had some of Mobus’ ‘sapience’. Then these intelligent humans would see that we have plenty of resources to last us a long time if we use them to make tools…but that we do not have enough resources to burn through them multiplying our pastimes.
I’m not advocating optimism about sapient humans, just suggesting that making the distinction clarifies where the problem lies.
Yes, walking into any big department store today (where they survive!) shows how much by way of resources we are wasting on inessential trivia. The whole of the cosmetics department could be eliminated for instance….
Eliminate those inessential goods and services, though, and the economic system of today crashes and the people have nothing to do with themselves.
Humanity has an unfortunate tendency to demand the status quo, or improvements on that.
That’s just human nature. from a pessimistic viewpoint. We will continue to think of trips to Vegas as some kind of right–until that right is taken away. Just as I intend to take vacations this year…because they are a pleasant diversion I’ve worked for. My grandfather worked 10 times harder than I’ve ever done, but he never took vacations. The difference in our lifestyles is oil…pure and simple
Suppositions will remain just that… part of wish-politics and wish-economics….. We cannot alter human nature. As Lovelock puts it: Man is a hunting carnivore, not a gentle gardener, We would do well to remember that we have killed off every species not useful to us.
But to your point, those who are able, will go on taking leisure for as long as they can, while an increasing number have to go on providing the labour that supports that leisure. That would appear to be the situation we are beginning in this era, but of course from a historical perspective–twas ever thus. Only the last 70 years or so has seen a more equitable society, a time so brief as to pass unnoticed except to we who have lived through it. That period was supported entirely on hydrocarbon energy input and the wheels it drove, and the ensuing energy output in the form of food and excess population who make incessant and unsustainable demands for more.
Unfortunately there isn’t any more, but few accept that. So those with wealth go on amassing more of it, growing further and further apart from those who produce it until we reach the tipping point of violent revolution. That is what we are witnessing now around the world.
All our mechanical wonders have not changed what we are, we have the same basic intelligence as we had 10000 years ago when we started farming. A farmer from that period would have no difficulty in learning to drive a tractor now, whereas a modern farmer would likely starve on a farm from prehistoric times. So who then is the more intelligent?
exactly xabier, we can only continue to employ each other—essentially passing goods from hand to hand, or taking in each others washing in the hope that no-one notices the water’s getting dirtier each time round.
Don’t urban populations just turn to drugs and drink when disappointed? Consider Russia post-collapse. Just take the toys away from the toddlers and let them eliminate themselves…….
I’m replying to end of more, but there was no reply button after his post, so excuse this post location for its location in the thread.
“A farmer from that period would have no difficulty in learning to drive a tractor now, whereas a modern farmer would likely starve on a farm from prehistoric times.”
Exactly! The oil age has made us softer, less capable of hard labor. Once collapse takes place there will be a transition from sedentary to laborious lives. This will greatly winnow down those that can be sustained even for those that survive the bottleneck to come. I can see permaculture communes springing up for survivors, but having great difficulty getting people to do enough work to produce food for the whole group. With only so much food available there will be numerous situations in which individuals find themselves rejected by the group to founder on their own, probably to their demise. The days of big emotional outbursts receiving empathy, like we see on reality TV, will receive little if any sympathy in a hard future. People will be told get tough or get out. The numbers will continue to decline until a very physically capable population abides. From what I’ve observed here in CA, probably the best group of people to survive will be people of Mexican descent. They still have that manual trabajo, hard labor ability coupled with familia. Both good survival attributes.
There are an awfully lot of connections between tools and pastimes. I think David Korowicz is the one who points out that if we eliminated all of the pastime use of the Internet, the business use could not support the total cost.
When I cut out my vacation trip, people whose services I would use find themselves without revenue, and thus without a job. Airlines also need vacation travelers to support their total cost structure.
If we want oil extracted, we need high oil demand to keep prices high (except this isn’t happening anyhow). Eliminating the frivolous doesn’t do this.
We had an internet with no commercial use. Then the World Wide Web was invented by a fellow at CERN, and the commercial interests saw lots of possibilities and usage began a parabolic rise.
Now, I am all in favor of the ability of the modern internet to transmit videos. Geoff Lawton is impressed by the quality of the videos he is currently making, and he is apparently getting very good feedback from the audiences. He jokes a little about some of the stuff, such as always wearing the same clothing wherever he goes so that the video editors can splice it together as if he was simultaneously in Alaska and Australia and Austria.
But he genuinely appreciates the ability of the internet to convey the essence of a Jamaica garden in East Brooklyn and a Puerto Rican garden in Holyoke, MA.
The ability of the internet to carry all that video traffic is a result of communications technology which has reduced the cost of circuits and switching by many orders of magnitude since WWI. The technologically driven cost reductions were, for many years, obscured by government policies which siphoned the money off for other purposes. Now we see that the internet is so cheap it can be supported by advertising…something I thought was a ridiculous idea 30 years ago. In fact, the two largest corporations in the world, by market cap, are now Apple and Google. Neither company is a significant manufacturer. I guess you could say that Apple’s primary business is design and hype, and that Google specializes in targeted advertising. This is not the world of DARPA.
“the two largest corporations in the world, by market cap, are now Apple and Google. Neither company is a significant manufacturer.”
If by “manufacturer,” you mean people huddled over machines, building things, then there are very few “manufacturers” left in the US, no?
On the other hand, Apple is as much a manufacturer as many companies who simply glue a label on a product built by someone else. Apple is certainly in charge of design, which is a significant component of manufacturing.
Without design, there would be no manufacturing! And at least in Apple’s case, it can be argued that the design is perhaps the major component of the final value!
Many people “manufacture” Windows-compatible computers in US garages and strip malls, assembling component manufactured by others, but they perform little or no design.
I am not arguing that Apple ‘should’ be a manufacturer. I think the point is that when we look at the corporations which are setting new records for market capitalization, they are certainly not like the Dow Jones Industrials we all used to know about.
Therefore, I suspect that the way we talk about the connection between energy and capitalism needs to change…but we don’t know how to do that, as yet.
Every time I turn on the computer, I get an advertisement for Arrowmont School of Crafts. Why? Because I did a Google search for Arrowmont to check on a particular class my wife is interested in. I guess I am a pretty dull person (no Maseratis or Lear Jets), so Google keeps sending me Arrowmont ads. What is financially supporting my OFE habit is the ability of Google to convince people such as Arrowmont that they have the ability to spy on my internet usage and turn that to the advertiser’s (and Google’s) advantage.
What does all that have to do with oil and other fossil fuels? I don’t think we really know.
Consider Geoff Lawton’s description of his first Online Permaculture Design Course. Geoff is very pleased with the way it turned out. He says that the students are more involved than the students at a conventional ‘travel to Australia and physically participate’ class. Geoff also talks about the use of satellite data to map the contour lines on a field, and even make digital instructions for computer controlled keyline plowing of those fields. Almost untouched by human hands. As another keyliner recently said, it requires about 20 dollars worth of diesel per acre and you get returns for the next 200 years.
We can repeat the mantra that industrial agriculture is all about oil, but it might seem to the clever observer that cutting edge agriculture is much more about the manipulation of information. Geoff Lawton has said something similar…I just can’t remember the exact words. Brain over brawn.
Geoff also said in the recent talk that as the information density increases, the need for specialization increases. For example, most permaculture designs are no longer drawn, but are digitally created. And taking a conceptual design and turning it into digital outputs is a special occupation. Several years ago, I saw a video of the architect Calatrava inventing preliminary plans for one of his buildings. He worked with a little tray of watercolors and a brush and pencil. He took his watercolor back to the office and a horde of assistants turned it into a digital design with material specifications and cost estimates. Calatrava didn’t try to do their work for them…because he can’t.
So I think that as the digital revolution continues, the connection between energy and GDP will become ever more hard to understand and explain. But consider Calatrava’s office or Geoff Lawton’s use of computer jocks to do the digital work to give physical substance to his designs. Most of the energy used is simply to sustain the lives of the people involved…as opposed to toting barges and lifting bales. If the people require trips to exotic locations for vacations and large houses which are always 72 degrees and luxurious cars, then their energy demands are high. If the people live frugal lives, then their energy demands are low. Focusing on how much energy is needed to operate the computers is probably just going to mislead you.
Suppose the price of energy forces the people to live frugal lives. Will that necessarily kill the computer business and the digital revolution? I would certainly expect some bumps. Most all of the railroads which were started in the 19th century in the US went bankrupt, after all. But railroads still survived and became, for a time, a dominant mode of transportation. So I don’t think it is correct to claim that bumps and bankruptcies will kill off the most efficient ways to do certain jobs, such as designing buildings and designing permaculture installations.
Very preliminary thoughts. I have been mulling this….Don Stewart
I think you’re under Lawton’s spell, Don.
“Consider Geoff Lawton’s description of his first Online Permaculture Design Course. Geoff is very pleased with the way it turned out. He says that the students are more involved than the students at a conventional ‘travel to Australia and physically participate’ class.”
Having conducted a half-dozen PDCs, I can’t imagine doing it on-line. But perhaps I just lack imagination, but the core of how I teach is experiential learning. We have two hours doing for every hour in the classroom. I’ll bet Mollison and Holmgren would be aghast at on-line PDCs.
“Geoff also talks about the use of satellite data to map the contour lines on a field, and even make digital instructions for computer controlled keyline plowing of those fields. Almost untouched by human hands.”
And unless he added ground-penetrating radar, he would have totally missed the underground watercourses and springs in our fields, which I carefully mapped out by the “Frankenstein method” — go stomp around in gumboots, and where they either come out looking like Frankenstein boots — or where they come completely off! — that’s where your places are that want to be ponds. GIS keyline desinge would not have done much good in that field.
Having spent three days with David Holmgren, I must say I’m doubtful he would approve of a “hands-off” approach. What happened to “Observe and interact?” Can you really do that from a computer screen?
“as the information density increases, the need for specialization increases”
In ecology, energy drives specialization, so if you equate “information density” with increased energy, I’m with you.
But what makes you think we can continue to increase information density without also increasing energy? This is where I get lost.
HT Odum taught us that complexity (which is a generalization of “information density,” no?) is a function of energy. Take away some energy, and some information density must go, as well.
So I would invite you to question, and be skeptical of the trend to “high-tech Permaculture.” Been there, done that, quickly came to my senses!
TOTALLY agree Jan. I completed an online course and while I did gain some useful knowledge, there is nothing like hands on.
I’ve been spending a lot of time watching youtube instructional videos (Salatin etc) and implementing some of these ideas in our expanding garden.
We have a permaculture expert from a foundation here in Bali (from Aceh) who will spend 3 months (once/week) training and working with us on getting the most out of this specific land.
I am sure that will be cash well spent.
Dear Jan Steinman
I won’t try to argue in detail your points about the difference between 3 days with David Holmgren and a computer mediated course with Geoff Lawton. I haven’t spent 3 days with David, and I haven’t taken Geoff’s on-line course. I’ll just point out that some smart people are putting lots of effort into the on-line course method of instruction, including Ivy League schools. Charles Hugh Smith predicts that on-line courses will gut the brick and mortar colleges, while a number of college people think that students are too immature to do the work strictly on their own. That argument gets back to the point raised by Daniel Siegel about how our society has lengthened enormously the period of adolescence. I would guess that many of the people who signed up for Geoff’s course have made the transition to adulthood, and may get a lot of benefit from the on-line format, at minimum expense and energy cost.
Here is another interesting event to think about. See this video and just note a few pertinent points:
1. Mark Hyman used to be the medical director at Canyon Ranch ( a ‘fat farm’ for wealthy people to come and stay at).
2. Then he went into private practice in Lenox, MA.
3. Now he is quite active in the on-line medical business, while still retaining a private practice.
And most importantly, he believes that medicine needs to be practiced in terms of what is causing the chronic disease, not in terms of the symptoms or the location. We now have enough knowledge to address the causes, and when we fix the causes, the symptoms, wherever they are located, disappear.
He says he sometimes feels like apologizing ‘for just telling people to eat real food’.
You don’t have to watch it all, just get the points I mentioned.
Sara Gottfried notes that he has pared his ‘detox period’ down to 10 days. I want to comment on that. A couple of years ago a team in Britain intervened to treat diabetes. Diabetes is described by the American Diabetic Society as ‘incurable’. The dietary treatment given in Britain was a shock to the system: all the unprocessed 100 calorie per pound vegetables the patient could eat plus a daily dose of a protein shake. Water to drink. Within a week, most patients were off insulin. Within 2 weeks most all their symptoms of diabetes were gone. At the end of the six week trial, no medical traces could be found indicating diabetes. Obviously, these patients did not lose all their excess weight in one week or even six weeks. So the statement that ‘overweight causes obesity’ is obviously wrong. Yet the big majority of diet doctors in the US continue to prescribe weight loss…which happens over months and months. The shock to the system came from a drastic change in the information that the body was getting from the food the patients were eating. Change the information, and you change the body’s response and health results. Hyman thinks he has a more sophisticated version of that British experiment.
Now let’s try to explain what we see with Lawton and Hyman and the British and Harvard University in terms of Odum and the idea that ‘more information density requires more energy density’.
I can’t do what Odum describes. The model which comes a lot closer, to me, is Design in Nature, written by the mechanical engineer Adrian Bejan. Energy and information flow more and more easily over time. Partly, the ease is accounted for by human design innovations. Lawton, Hyman, and Harvard are all engaged in innovations designed to ease the flow of energy and information. Lawton, especially, is designing so that a minimum usage of fossil fuels eases the flow of photosynthesis and information. That strategy makes sense to me.
Energy and information are not independent. Many people writing here claim that a small decline in oil production will inevitably lead to a collapse in the flow of information. I don’t think that necessarily follows. I see that some small amounts of oil can have a big multiplier effect on the flow of information. Some small amounts of oil applied now can also have a big multiplier effect on the harvesting of photosynthetic energy over a long time span (as with the keyline plowing example). I will agree that humans MIGHT be dumb enough to blow everything up in a Nuclear Conflagration…but maybe we will dredge up a few ounces of wisdom and agree to make good use of the oil we have left and can afford to burn.
Well, we must agree to disagree, Don.
I know lots of people think this or that technology “will save us.” You seem to think it is the Internet. Please forgive me if I miss some essential difference between climate-controlled rooms filled with servers and routers and “self-driving electric cars.” Neither can survive in a low-energy world, although there may be some hysteresis in their following the energy decline that may lead us to believe some high-tech or another will endure.
Alan Weisman (The World Without Us) thinks today’s brass statuary (a form of information representing embedded energy) will be around for a million years, but statues require very little maintenance, compared with server farms and fleets of electric cars.
Everything I read leads me to the conclusion that information is a form of embedded energy, and that it must decline as energy declines.
My guess on the future of the internet is about like it is on other things. The truly useful may well survive, the fluff will probably not. The internet might shrink to 10 percent its current size, and it may cost a fee to use it…since advertisements will likely shrink along with the economy. But the internet may well remain the most economical way to do a lot of things. And so I think we may well preserve it.
I am unsure about all the video content. Video requires a lot more bandwidth than simple letters and numbers (which worked just fine with telegraphs). But I suspect that the technological innovations which made bandwidth cheap will keep even video available.
The impetus for the shrinkage, I think, will not be so much the shortage of oil, as the shortage of advertising money to pay the freight for usage which is not truly useful. I foresee the same phenomena in many aspects of life. Gazing at the stars will be free and consumption unlimited. But anything made with energy will have to earn its way. I think the internet will earn its way.
I expect that the impetus for shrinkage will be lack of credit (debt) for financing much of anything, whether electricity or Internet, or farming, or oil extraction. Thus, many things will decline simultaneously.
Gail, please forgive what I suspect is a very naive question but I am trying to grasp the reason/s for the lack of credit you refer too.
I appreciate that a bank will not be willing to provide a loan to a non-viable business but if there are sufficient customers with the ability to afford the product or service and given that a bank can produce a loan out of thin air exactly what factors would cause the lack of credit?
I agree with you Jan. There are “layers” of more basic goods before we can get to the high tech ones. If we lose the lower layers, we lose the upper layers as well.
“Now we see that the internet is so cheap it can be supported by advertising”
What?? How then am I paying $75/mth for internet access? Businesses and commercial websites pay quite a bit more. A fraction of the content can be supported by advertising and certainly not the internet itself. As for Geoff, “FREE VIDEOS SHOW YOU HOW TO CREATE YOUR OWN PARADISE ON EARTH WITH PERMACULTURE!”,
shameless self-promoter, that’s all.
Also, Apple pays quite a bit for manufacturing, that they don’t do it “in-house” is moot.
For what it is worth, the biggest companies in the world are not publicly traded. They are the oil companies of oil exporters. So they don’t make many lists.
Things change. Imagine supporting the upkeep of roads by tolls paid by 5% of current drivers.
So far as I know, there aren’t any financial statements for the national oil companies that might really be making money. But it is easy to imagine that some of them really aren’t returning all that much cash after you subtract what they are required to give the treasury to support general government.
It’s like asking the question ‘Is the Bakken profitable?’. It makes a big difference whether the numbers are before or after tax. It probably also makes a difference whether externalities such as road degradation and carbon dioxide emissions are counted. In fact, if you subtract a reasonable value for the carbon dioxide, there may be no profitable oil companies anywhere.
Apple and Google would probably still be profitable, no matter what you did with carbon dioxide emissions.
If a company is government run automatically assume it is not profitable. 🙂
Governments support themselves on oil company profits. It has been this way since the beginning of extraction. Russia changes its tax rates monthly, to take into account how much prices are–what is the maximum they can take? The companies that are experiencing higher costs get lower tax rates. Canada charges lower taxes, because the oil sands can’t be profitable with higher taxes. The ability of oil companies to support whole countries is why they are government owned.
Paul, anyone who can’t build and use an A-frame and a water level won’t pass one of my PDCs.
At least when you survey with three sticks, a bit of twine, a rock, and a garden hose, you understand what’s going on. When you survey with a computer screen, all you understand is what the computer tells you.
Plus, walking the field with an A-frame or water level yields myriads of other information! What is growing where? Why? What sort of rocks are in the field? Why? Where does that animal track go? Why? All those questions never even get asked with computerized GIS.
Like Big Bertha in Seattle, the automated keyline digger gets trashed by the old barn foundation that anyone walking the field would have stumbled over.
Thank you, Paul, for hiring a permaculture expert to physically come to your site. Make sure you go out with him, or it may not be much different than getting it off a screen. 🙂
They were supposed to start yesterday but I was out of town and had to delay my return — so will start on march 4. I most definitely intend to be here for as many of the sessions as possible – and will be in the fields every day for a couple of hours implementing 🙂
People who learn using computer methods are likely to be unable to perform their services when the computers aren’t there.
My father was a physician who was trained back in the late 1940s. He learned a lot of hands-on techniques that aren’t taught today. Instead, doctors learn to use tests for everything. We end up with a whole set of skills being lost. (Of course, without fossil fuels, we won’t be doing much key lining anyhow.)
Dear Gail and Jan
I am a gardener. So, naturally, I think that everyone is talking gardening. As I listened to Geoff talk, it became clear to me that his main message in this particular talk was directed to designers. That is, they design a property, give the owner a detailed plan, and collect their money. They may or may not be involved in implementing the design.
I will agree that his videos tend more toward the homesteader. I will agree that the confusion is perhaps not in everyone’s best interest. It is also true, as he says, that feeding yourself and providing water and shelter for yourself are the beginnings of everything.
But going back to the design profession. No designer today can actually make a living unless they use computers. Nobody is going to hire an architect who ONLY works with paper and pencil and slide rules. Similarly, if a landowner has, say, 400 acres and hires Darren Doherty or Geoff Lawton to do a design, the design is almost certainly going to require computers.
Geoff is a grandfather. His native language is not computers. So he hires young people to translate his vision into computer-ese.
If the two of you are saying that he should get rid of the computers and use only manual tools, then I think you are confusing a small scale homesteader with a professional designer.
In closing, let me recommend a thought experiment. Sound movies were invented in 1927 and became the dominant movies by 1929. Now suppose you were consultants to a Hollywood studio after the crash in 1929. Would you have recommended that they go back to silent movies? If so, you would have been completely wrong. Sound movies flourished during the Depression.
“No designer today can actually make a living unless they use computers. Nobody is going to hire an architect who ONLY works with paper and pencil and slide rules. Similarly, if a landowner has, say, 400 acres and hires Darren Doherty or Geoff Lawton to do a design, the design is almost certainly going to require computers.”
You can probably count on one hand the number of Permaculture designers world-wide who can get away with that.
When I do a Permaculture design for someone, I’m out there with them, walking the site, looking at existing plants and their habitat, examining soil and hydrology issues. Then I’m out there with the landowner (or his minions), doing the work.
Don, I know you’ve done lots of things. Have you worked as a consultant?
There is a popular, but totally wrong image of a “consultant” as someone who comes in, takes a look around, and then writes a report. I imagine that work exists, but I’ve never been able to find it! My consulting clients had this annoying habit of wanting me to actually do something!
To that end, I’m looking at the best use of my time. Do I waste lots of time accessing Digital Elevation Models, importing them into SketchUp Pro, painstakingly modelling specific features, providing before-and-after models?
No! That’s not what clients want. (At least not any clients I’ve been able to attract.) This might be appropriate when the sizzle is more important than the steak, such as if a developer is hiring you to produce glossy sales material, but it is certainly not what any Permaculture design clients I’ve ever met are expecting. They want you to actually do stuff!
Of the 150 or so Permaculture Design Certificates I’ve signed, I’d guess that only one or two got the PDC with the expectation that it was going to launch a consulting career for them. Perhaps 10-20 of them were already professional landscapers, who wanted to be able to sell Permaculture services to their clients — but those services would be actually moving earth and planting plants, not presenting the client with a thumb drive! The other 80% or so wanted to learn Permaculture design in order to implement it on their own site.
So while your “sound movies” analogy might make sense to you, I think it’s irrelevant to Permaculture design, which, unlike movies — sound or not — isn’t a spectator sport.
As I said, I am a gardener and have been a worker on a small farm where spending money on twine to tie up the peppers was a big deal and we diligently resused twine from year to year.
When I hear people like Lawton and Doherty talk about the value of doing a computer drawing, I just have to accept that I haven’t done work for the type of clients or on the scale they have. Lawton’s farm where he lives serves 30,000 meals a year and employs two chefs. That’s a pretty good sized business. He said during the interview that he has been working with the same video team for more than a decade, and so they have developed a working relationship which let’s them produce high quality videos efficiently. He remarked that the video team wants him to always wear the same clothing so that they can cut and paste episodes which were filmed at different times and places which happen to fit the needs of a particular video. Such a method of operating is very similar to that of a Hollywood movie, where ‘continuity’ is a big deal and there are people who are responsible for maintaining it.
During a talk between Paul Wheaton and Geoff, Paul kept referring to his desire to make ‘high quality’ as opposed to ‘crappy’ videos. I think there are three different gradations:
1. Gardeners like me who don’t make videos
2. People with higher aspirations who make crappy videos on their phones, etc.
3. A very few people at the top of the heap who make high quality videos, and spend some money doing it.
But don’t let me tell you what Lawton is doing. You can listen to the conversation between him and Jack Spirko yourself. I don’t find the link with a quick search, but I am sure a more diligent search will turn it up pretty soon. The interview happened in the last week or two.
When I have acted as a consultant, I did the work and testified to the result. The lawyers did the typing from my draft, but otherwise it was pretty much a one man band.
There was a movie about a dentist (Walter Matthau) and his assistant/secretary (Ingrid Bergman) who practiced in midtown Manhattan. Nowadays, doctors and dentists are moderate sized businesses. A surgeon told me he employs 50 people. I heard another doctor talkiing about ’50 people in my office have decided to band together to lose weight’.
Now there are complex reasons why these organizations have grown from ‘one man bands’ to organizations of 50 people. Some of them are legal issues. Some of them reflect the specialization of knowledge. Some of them reflect the fact that humans have different strengths and weaknesses. I heard a panel of psychologists say that ‘the real strength of an organization is the diversity of people in the organization’. A one man band might be confused and incoherent, but it isn’t likely to qualify as ‘diverse’.
There are good reasons why isolated homesteads usually aren’t the most productive ways to use land. And when the homestead begins to trade with its neighbors, then it becomes part of an organization with diverse membership. Good transportation and electronic communication has given us the opportunity to expand our organizations around the globe. I believe both you and I agree that the physical transportation is going to fade (or crash spectacularly). The future of electronic communication is uncertain…at least to me. For example, did you know that some of the first adopters of telephones were ranchers in the desert region near the Mexican border? They built their own telephone lines covering up to 100 miles because they needed them to call their neighbors to help repel Mexican bandits who had crossed into the US because of the wars going on in Mexico. So the highest cost lines were some of the first installed, because the value was so great.
Which circles us back around to using computers to physically produce architectural drawings and component lists and the like. Lawton seems to think it works for him. I can’t second guess him. You are closer in scale to him, but I don’t think you work at his scale, either. The future is uncertain.
“the video team wants him to always wear the same clothing so that they can cut and paste [him]… Such a method of operating is very similar to that of a Hollywood movie…”
Fascinating, industrial education comes to Permaculture. Ivan Illich is rolling in his grave!
“there are complex reasons why these organizations have grown from ‘one man bands’ to organizations of 50 people”
No, I think there is one simple reason: cheap energy. I suspect Lawton serving 30,000 meals a year has nothing to do with Permaculture — unless he actually uses Permaculture to grow all the food that goes into those 30,000 meals; does he?
Rather, these are complexities that can only happen with lots of energy, and which will cease to happen as energy becomes more and more dear.
It is tempting to think “economy of scale” is a simplification. It generally is not! A 10,000 hectare field of wheat appears to be much simpler than the preceding native polyculture, but it is not! Of course, it relies on the entire complicated petrochemical industry for tractor fuel, artificial fertilizer, and pesticides. But it also depends on the entire complicated manufacturing industry for tractors and implements, the finance industry for seasonal cost of seed and inputs, the transportation industry so there is some way to ship all that wheat once it is harvested, the industrial food system so there is some place at the end of the transportation to “make food” (ugh!) out of that wheat.
Life is about to get simpler. I doubt Lawton will be serving 30,000 meals in another ten years. And it won’t be because he’ll have moved thousands of students from on-site to on-line, because the Internet is a tremendously complicated thing that will not survive without cheap energy.
You actually have to listen to Lawton talk. If you did, you would find that the farm is growing 85 percent of the food served.
The point is that Lawton sees himself as in the ‘education business’. As part of his education business, the students and interns grow their own food and harvest their own water, etc. In a number of talks he is quite eloquent about the different outcomes a student can expect from going through his permaculture curriculum and going to an ordinary university. So he sees himself as tearing down an educational model which has become dysfunctional.
If you set out with such lofty goals, you have to reach a certain scale of operation. Geoff thinks that the on-line model allows him to greatly multiply his effectiveness. He sounds very much like certain university presidents, except that the learning that Geoff is promoting isn’t much like what the university presidents are promoting.
Listen to him before you start casting stones.
One more thing about the continuity in a movie or video. The early movie industry learned this lesson. Ask yourself, why is continuity important in a movie? I’ll give you my layman’s explanation. The audience is sitting in a dark room watching flickering lights on the screen. That’s not normal, is it? Yet the goal is to get the audience immersed in the story. Which means they have to ‘suspend disbelief’. And anything which takes the audience ‘out of the story’ makes it harder for them to suspend disbelief. So if the hero first appears in a red shirt as he is rescuing the heroine from the villains, then there is a cut and he is in a blue shirt, and another cut and he is in a black shirt, the audience begins to pay attention to the shirt and not to the story.
The French New Wave challenged these conventions, created a sensation with things like jump cuts and costume changes and radical changes in the direction of light…but then faded from view. There may be reasons to take people ‘out of the story’, but usually you want them focused on the story and not on extraneous matters.
If you are working with someone face to face, these things aren’t very important, because you have lots of physical bonds with the person. If you are doing things with electronic links, then they become important. Like everything else in life, one can polish these sorts of considerations beyond the point of diminishing returns. If you actually listen to Geoff, you will find that he listens to his customers/viewers/students quite a lot.
My point is that if an institution such as MIT or the University of Illinois or Geoff’s non-profit sets out to make extensive use of electronic communications, then some of these things become important and a certain scale of operation is necessary to fund them.
Did you ever see The Life of a Cell? That video which showed the inner workings of a single cell made a brief appearance on the internet about 5 years ago. Then Harvard exercised its copyright and forced its removal. Harvard had paid a lot of money to the company which did the animation, and didn’t want to give it away for free. In about 7 or 8 minutes that little video brought the cell to life for me.
I encourage you to approach Geoff’s work with an open mind….Don Stewart
People perhaps also travel to learn, reflect, seek Wisdom, to teach others, which is strictly speaking not Leisure activity but essential to humanness.
And because they are simply part of a restless species……
agreed–they do, but in the grand scheme of things that is a minority activity. In any event they travel because they can afford it.
It’s that affordability factor that’s critical.
In the 18th Century, young men went on ‘grand tours’ of Europe, to absorb the culture. But they were the sons of the aristocracy, their travels were financed by the labour of thousands of virtual slaves–(or actual slaves if you owned a plantation in the West Indies)
Whereas this summer we will fly to Venice for a short break because we love it, and absorb the culture at the same time
Dear End of More, Xabier, and Jan Steinman
I listened to Dan Siegel talk last evening. His subject was the adolescent brain. Bear with me for a few minutes.
Adolescence is defined as the time between when we begin to separate from our parents and the time we are fully independent, responsible adults. This used to take about 2 years. Now it may take 20 years or longer. As the world gets poorer, I suspect that the time frame will begin to collapse to what it used to be.
Think about hunter gatherer bands. The boys typically went off on some sort of quest or journey during which they proved their adult capabilities, without the assistance of parents. The girls typically married into another band. While the parent-child relationships were not totally severed, the ‘newly adult’ boy and the girl who married into another band and started her own family were clearly not the dependent children they had been.
Siegel talked about how changes in the brain support the behavior that adolescents exhibit. For example, the adolescent sees great opportunity out in the wide world, but fails to adequately weigh the risks. I believe the words Siegel used were ’tilted amygdala’. Evolution wants that adolescent to get out and ‘make things new’, not trusting to the old ways as comfortable habits. Cautious adults see the risk taking as dangerous, and may try to keep the adolescent penned up. Siegel talked about some strategies that adults might use to enable their children to both stretch their wings and also avoid disaster…but I won’t go into that very deeply. One of his points was that adolescents suffer from downregulated reward chemicals in the brain, but with increased susceptibility to short term thrills. So an adolescent may be bored most of the time, but also engage in bungee jumping or eating junk food or taking drugs or unwise sex. So one parental strategy may include providing lots of opportunity for their adolescent to experience new, but not deadly, things. Some travel might be such an experience. But I doubt that just doing what teenagers do in Paris rather than in New York is really ‘travel’. Working on a subsistence farm for the summer in the Hudson Valley is ‘travel’ for a kid from NYC.
My point is that each new generation has an opportunity to discover ways to live which are not those of its parents. People like Geoff Lawton continually remark on the hard work and intelligence of the young people they meet. When I worked at the farm, I worked alongside just such young people. When a young person is willing to live in a teepee and work with hand tools at the farm, then you know there is hope. Lawton said in his talk that the cure for pessimism is actually doing something useful and productive.
As I was listening to Siegel talk, I was thinking about the great pessimism on this blog. The young people may surprise us yet.
I don’t think higher primates at the human level were ever able to leave parents at 2…there are 1m year old footprints that seem to confirm that
Lions–Tigers etc yes, us–definitely not
as to reproduction, the fundamental means by which the species is strengthened is by conflict. My tribe conquers your tribe, kills all the guys and impregnates all the girls.
(sorry about that)
but that way theres no inbreeding, and only the strongest get to reproduce. Any who get killed don’t get the conjugal rewards.
By nature’s rules, the species is strengthened, the weakest are eliminated.
In todays terms, we no longer do that, because we’re ‘civilised’, instead a female picks her mate (given the chance) by the likelihood of him being able to offer the best opportunity to any offspring. Thus you see gorgeous bimbos with 80 yr old billionaires or knuckle dragging footballers
Dear End of More
The two years is the period of adolesence between childhood and adulthood. According to Siegel, that lasted about 2 years.
As an example of girls marrying out of the group. The Native Americans in Oregon got together once a year for trading and making marriages. Conflicts were called off, to be resumed later.
If you read The World Until Yesterday, by Jared Diamond, you will find some discussion of the divided loyalties that young brides had. Suppose they hear the men in the ‘married into’ band planning a raid on ther ‘born into’ band. Does she try to warn her former band? Or does she reason that her future is now with the new band, so let the old band fend for itself?
I think your assumption that girls usually married within the natal band and only left as a result of bloody conquest is not correct. (And I admit that I just read about such stuff, I am not an anthropologist.)
2 years between adolescence and childhood is a different thing altogether
As for marriage, different groups obviously arrive at different methods of dealing with the problem. It is likely however that they had an awareness of the dangers of interbreeding.
Unlike certain modern cults, (aka religions) who encourage cousins to marry to preserve ‘purity’ either of the cult itself or wealth.
Because of this birth defects are becoming endemic in the UK, to the ultimate cost of our health services…but of course it is the will of their god, not genetics.
The rest of us just pick up the tab
I agree, there are many splendid young people around.
Unfortunately, in this university town I find they tend to hold doors open and call me Sir, which does make me feel rather past it….. but it’s a good sign: bright, with good manners, and consideration for others.
I suppose the late middle-aged people who may post here are by definition the ones most likely to be pessimistic. And yet I seem to detect that the oldest are among the most positive.
We old people are secretly glad to see some semblance of the last world we actually understood begin to emerge again.
“The young people may surprise us yet.”
Yea, the ones who aren’t walking around with their nose glued to some i-thingy.
We had one here recently who had to leave to care for an aging parent. I begged him to come back, and he’s going to try, once he assesses the parent situation.
He doesn’t have a cell phone. He doesn’t have a credit card. He does have a laptop, but is not at its beck and call. He’s mechanically inept, but willing to learn. He doesn’t assume he is supposed to already know stuff. He wants to build a simple mud hut, meet a nice girl with similar outlook and ethics, and grow food as close to the earth as possible.
In my experience with nearly two hundred such volunteers over the past eight years, he is an exception among an exceptional group.
I’m always prepared to be surprised by young people, but it is rare when it actually happens. Most of those who volunteer here (that alone makes them exceptional among young people) are filled with pre-conceived notions, and are unwilling to change themselves. Instead, they come here seeking to figure out how change the world! Good luck with that one!
“My tribe conquers your tribe, kills all the guys and impregnates all the girls.
(sorry about that)
but that way theres no inbreeding, and only the strongest get to reproduce. Any who get killed don’t get the conjugal rewards.
By nature’s rules, the species is strengthened, the weakest are eliminated.”
This reasoning is wrong on so many levels.
It’s not always that a conquering tribe will impregnate the local females after defeating the men. The females may be killed or expelled. The outcome depends on the mentality of the conquerors. A handy text from the past regarding this very subject:
“Our Anglo-Saxon fathers started later from the shores of England, and landed upon the rock of Plymouth or upon the flats of Jamestown. The Puritan himself, trembling over his rock for a while, in terror of the tomahawk, ventured at last on what was then deemed gigantic heroism. He crossed the Connecticut and the Hudson, and slowly crept up the Mohawk, and halted for years and years upon Lakes Erie, Ontario, and Huron. The cavaliers of Jamestown threaded their way up the River James, stealthily wound over the passes of the Alleghanies, and looked down at last with astonishment and affright upon la belle riviere of Ohio.
But all this time these heroic Hidalgos of Spain were spreading the name and fame of Castile and Arragon throughout the whole American continent, from Florida on the north to Cape Horn on the south, and from Cape Horn to California, while our Anglo-Saxon race stood shivering upon the Ohio and Lake Erie without the courage to advance further. What, sir, happened then ? What has produced this difference between us and the lofty Hidalgo ? Why are they fallen, these men of the Armada, so exalted among all the nations of the earth, who made our ancestors, in the days of Queen Elizabeth, tremble on the throne ? Why was it that in the Mexican war one regiment of our Anglo-Saxon, Celtic, Teutonic blood, again and again put whole regiments of these once noble Hidalgos of Spain to flight at Chapultepec, the Garita, and elsewhere ?
I will tell you why, sir. The Latin, the Spanish race, freed from that instinct of ours which abhors all hybrid amalgamation, revelled in a fatally tempting admixture of blood, indulged in social and governmental copartnership with Aztecs, Indians, Negroes, one and all. The pure blood, the azure blood, of the old Hidalgos of Spain, lost and drained, dishonored and degraded, has dwindled into nothing, while the pure blood of the Anglo-Saxons, the Celts, the Teutons, abhorring all such association and amalgamation with the negro or the Indian, has leaped over Lake Erie, crossed la belle riviere, the great Father of Waters, the Mississippi, crowded the mountain passes of Colorado, Utah, Nevada, and Montana, rolled over the Rocky Mountains, and spread for hundreds of miles on the Pacific Ocean, carrying not only there, but everywhere, triumphant, from the Arctic to the Antarctic, the glorious flag of our country, that emblem of a pure race, and ever contrasting the glory and honor, the prowess of that race with the degradation of the race of these once noble Hidalgos of Spain.
James Brooks. Speech in the House of Representatives, Dec. 18, 1867.”
Inbreeding refers to procreation between close relatives. A tribe or nation has a large genetic pool that you can choose from, and as far as I know, sharing genetic proximity to the people from your geographic location is not inbreeding. In fact, it was pretty much the norm until very recently. If you are equating “avoidance of inbreeding” to “miscegenation”, the so-called “hybrid vigor” theory, it has pros and cons. While it’s true that a mixed individual may inherit protection against diseases or propensity to diseases from one of the parents (e.g. X disease happens more frequently in the father’s race), diminishing the frequency that they will manifest, it is equally true that the mixed individual will inherit propensity to diseases that are NOT common in the father’s race from the mother (e.g. Y disease is associated with the mother’s race). Basically, the frequency of the diseases associated with the father’s race will decrease in the future mixed descendants, but at the same time, diseases unknown or rare to the father’s race, will now exist in the descendants as well. Miscegenation decreases the diseases associated with one race, while adding new diseases (or more propensity) from the other race. In the end, there’s no advantage.
End if More: I like your wheels of life metaphor. Since the discovery of all that surplus fossil fuel energy, most of it has been used to turn wheels and provide unimaginable mobility to the human species. With the wheels now coming off, leisure travel, commerce and war (in that order) will all contract. Keeping all the wheels turning also requires a lot of people which without wheels we will not need. For the few that survive, walking and hoe agriculture will be the future of the species. Of course, extinction from radiation pollution and methane release is also likely.
The convention (often religious) of hospitality to strangers makes travel possible too, not great wealth (of course, the host needs a surplus to feed the guest).
Among the ancient Welsh, it was actually the height of bad manners to ask a traveller why he had turned up and who he was until at last 5 days had passed, lest you seemed rude and suspicious.
In old Europe, craftsmen could wander from town to town in search of work in the ‘Wander Year’, and be put up for the night and fed by the municipal authorities – moving on if there was no work them.
All possible without fossil fuels either for the lodging or the travel. WE are unawaer of just how financialized our world has become.
Xavier, I’m replying to two of your comments —
1. The dismissive comment about ‘make up’ and other such stuff: so long as lipstick remains, I shall forego the rest.
2. Middle aged? Get out of here! “many splendid young people around” Thank you kindly.
There is a blindness of a lot of people to seeing the implications of our oil problems. Somehow, the problem must be over in one little corner of the economy, to be fixed by substitutes. Even if oil prices don’t rise high enough, somehow vehicle prices can rise to astronomical levels to solve the problem.
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One of my biggest fears is that the government will do anything at all in response to the collapse. Without rational, forward thinking leaders in place, (which we obviously do not have now) nothing good can come of the governments intervention.
Governments are some of the worst off. Keeping their financial systems going is a top priority. Also, it is hard to help all of the people. The only way we have our current governments is with the help of a lot of cheap energy products.
My concern is that is that collapsing governments can be very dangerous if they are going to insist on maintaining the status quo during the process of their collapse.
Here I go again with another question. Since your article talked about the CAPEX, I just came across this on the ABC. http://www.abc.net.au/news/2014-02-27/capex-fall-points-to-looming-mining-investment-cliff/5288244. Is the mining investment cliff that they talk about in the article the beginning of the end for Australian enterprise and the beginning of a depression. While there is no reference to energy costs, prices are due to increase sharply after July 1, 2014 as there is apparently a natural gas shortage looming http://www.abc.net.au/news/2014-02-24/analyst-gas-prices/5279052 What do you make of all this for future ‘growth’ in Australia that the Abbot government is predicting?
Kind regards H.
I was originally thinking about adding something about the Capex problem in the mining sector at the end, but decided the post was long enough as it is. Commodity prices in general have been lagging, and mining has the same diminishing returns problem as oil. So it needs more energy products for mining, even with sagging prices. This doesn’t work–producers will “quit and go home”.
I haven’t looked at the situation outside of mining.
High priced natural gas (or high priced anything) is not good for growth. People’s wages don’t rise to compensate. It tends to lead to cutbacks and rescission. Making goods for export with high priced gas doesn’t work well either. None of this is good for “growth”.
The only thing one hears from the Abbott Government is that it is all the fault of the previous administration.Memo Tony Abbott you are now in government not opposition start acting like it.
Hello once again Gail
Well things have gone to rack and ruin here in Australia over the last 6 months. I find it hard to credit that things have gone to the dogs so quickly. Whats more the stife we are in seems to be accelerating! Our national carrier QANTAS is insolvent and is about to sack 5000 people. http://www.abc.net.au/news/2014-02-27/qantas-profit-result-airline-posts-loss/5287188. One of our oldest companies, AWA, which is even old than me, is also insolvent http://www.abc.net.au/news/2014-02-26/awa-appoints-administrators-after-105-years/5284766. This makes me terribly sad, as my brother and I bought our first radio set from them back in the late 1920’s. They were a great company.
As well as rocketing unemployment, we have a serious but hidden problem with underemployment. http://www.abc.net.au/news/2014-02-26/underemployed-wait-longer-to-get-more-work/5285702 Is this underemployment stife also because of the resource limits that you talk about in your article? Perhaps resource limits have nothing to do with it? I read this story today which was thought provoking. http://www.abc.net.au/radionational/programs/futuretense/5285816 Funnell seems to think that technology rather than globalisation is responsible for most of the job losses. If that is the case won’t there be a move to the electricity grid and away from oil, as time passes. Where will this leave Australia do you think?
Oh by the way, thanks for all the previous information that you have given me
Kind regards H.
I think commodity prices are at least part of Australia’s problems. And perhaps the sagging Chinese economy, which is part of what is leading to the sagging commodity prices. Australia isn’t a low cost manufacturing country either, so if local sales lag, it is hard to make up for them with global sales.
Maybe Australia, US and Canada need to form a coal cartel to set prices high enough to keep BAU.
Thanks for the interesting article and presentation Steven Kopits and Gail. Very interesting, and definitely seems to point to a very dangerous situation. I’m a layman on this subject, although I have been following it for about 10 years since I discovered “peak oil” in 2004, so I can’t really presume to guess when things will get really bad. But it’s natural to think about the possibilities (possibly not so healthy though). It’s good to read Steven Kopits’ comments and replies here in the comments section too. It’s always good to hear information, facts and citations on this very complex subject.
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Some years ago I remember a presentation by Matt Simmons titled “Rust Never Sleeps.” This perhaps was a play on the Neil Young album of the same name but he addressed the aging infrastructure of the oil and gas industry. Most of the comments here have addressed reduced CAPEX spending as it relates directly to increasing oil production but CAPEX also would cover major upgrades to refineries, pipelines and other infrastructure critical to getting products to the end user.
Do you have any information on the aging infrastructure?
I haven’t looked into this. I know that every time we have a pipeline spill, it seems to be in a very old pipeline–but that is at least partly because most of the main pipelines are by now very old. I expect these are like electric transmission infrastructure (also nearing the end of its planned lifetime). It is cheaper to wait to fix it until it fails, so nothing gets done until then. (I know someone who works for a company that provides services to electricity providers, who has commented to me on this issue–everyone waits until failure to fix things.)
I suppose we have reached the point when hyper-regulating (which makes one hyper-ventilate?), over-ideological, and just plain corrupt, government, tragically removed from reality, can stupidly stand in the way of people who, say, just want to grow fresh food for themselves and their neighbours and get moving to face some of the imminent problems we discuss here.
To that extent I, too, see evil and obtuseness in much of government.
We just have to exercise our wits in circumventing it as much as we can.
At least here in Britain, unlike in the US suburbs I am legally allowed to grow vegetables and keep poultry in my front garden: the only disapproval being social, which a thick skin can deal with. Foolish restrictive zoning laws have to go! But to remove them would involve acknowledging a Crisis, and we are in Recovery so how can that be……?!
Whether you can grow vegetables and raise chickens in your garden is going to be variable all over the United States.
I live on 4.5 acres in the midwest. They have plans to annex our street which will mean we will become part of the city (no longer rural). If this happens, we will not be allowed to have chickens (which now we can have as many animals as we like). 4.5 acres and no chickens. I hope that gives a sense as to how restrictive zoning laws can be in the US.
Insanity! Is this perhaps to make you sell up and move on while a ‘developer’ profits? My sympathies.
I remember reading not long ago about a “Permaculture professiona” in Colorado who was so fed up with zoning and city ordinances there they decided to pack up and leave the United States and more to Central America.
Also, The Editor of the major US Publication, “Permaculture Activist” and author of the recently published “bible” on the subject…”The Permaculture Handbook: Garden Farming for Town and Country”, was cited for building code violations in his town and from what I read needs to tear down a “barn” that was built because it violated setbacks.
That is why i am not too hopeful regarding the society here to adapt to a low energy system.
I remember reading a plaque in Mahcias, Maine that the settlers refused to listen to the Native Indians concerning the need to adapt to their ways to survive the upcoming winter.
They starved rather listen to the “savages”.
“[senseless bureaucracy] is why i am not too hopeful regarding the society here to adapt to a low energy system.”
I can’t see such things continuing for very long.
Bureaucracy is a form of complication. Complexity cannot survive without energy. Joseph Tainter says excess complexity brings down civilizations.
Bankrupt federal systems are pushing more and more enforcement responsibility down to the state and local level, without providing commensurate funding. The locals, who are not allowed to run deficits, must either raise taxes, or cut services.
I’ll bet the local building inspector will go before the local fire chief or police chief or (heaven forbid) the elected official.
The real danger is not that building codes and such will keep people from doing necessary things; it’s that such laws will be selectively enforced. Be on a first-name, friendly basis with your bureaucrats, and don’t piss them off! Thinking of building an illegal barn? Offer to host your police chief’s daughter’s graduation party in it! Thinking of building an illegal still? Offer “samples” of your “medicinal extracts” to your elected officials! It’s never been a bribe as long as it’s been among friends.
How about an irate pissed off pain in the buttt neighbor that complains and will not stop?
I had a couple of bee hives and the city claimed I kept “wild animals” , the judge was a country boy and allowed me to keep them.
I believe being friendly works (sometimes) and sometimes it don’t.
“How about an irate pissed off pain in the buttt neighbor that complains and will not stop?”
I’ve long thought that the first step in investigating a complaint should be to investigate the complainer. Then perhaps neighbours would actually talk to each other, instead of running to the nanny state whenever they were upset.
We had to stop construction of a woodshed because someone complained, and we did not have a building permit! I thought the purpose of building permits was to ensure the safety of structures, but it seems it is actually to generate revenue.
Some people just do not like alternative living because they are concerned about their property value, or they do not like neighbors being different. Sometimes it is impossible to reason or deal with neighbors or local regulators. Capice
Too many regulators have a vested interest in resisting adaptation.
Also, to relax regulations implies acceptance of a major Crisis, and that they can never condone.
I’ve formulated plans to make my village very productive in food and timber, there is so much wasted land, but there is no way that anyone would listen to me, let alone bend the rules. Not yet anyway.
Village funds are being spent on a new skateboard ramp: construction and concrete rule!
Skate! Non fuelled locomotion at least
Here is similar data out of Norway…
Thanks for the link!
I viewed his whole talk on the link and recommend watching it for points that the above may miss. Interesting his emphisis on China, and the role that nation will play in the scheme of things. Needless to say, we are headed for “interesting” times. Thank you Gail and Steve for you time and valuable insights on what we are facing.
You are welcome. With such a long talk< I thought it would be best to just try to write up part of it, and let readers read the rest themselves.
The horrible Obama/Keynesian economic policies which are killing small businesses, stifling entrepreneurs and aiding the lazy are big drivers of less oil demand and sub <$5.00 per gallon gas in the US. The doubling of our national debt under Barry aint helping either. As soon as we get rid of Obozo and get a president with policies that favor job makers and not couch potatoes, we will see more US oil production. We have a massive supply of coal which leads me to assume that trains, both short track and nationwide, will be the future of mass transit. Trains are so much more efficient than cars that expensive diesel will also still be a viable power source for trains. All aboard !!
Do you really look at the facts and think for yourself, or do you instead let the conservative pundits do the thinking for you? Your statement above suggests you have not mastered the art if “thinking for one’s-self” nor managed to comprehend what is written in this article. What is going on with you? Is “Obozo” the one printing money? (Hint: no) BTW, I think he is not a very good leader (Obama), I’m no fan, but I have little tolerance for lazy thinking.
yup—vote for whoever promises unlimited wealth and prosperity—it never fails.
I seem to recall Bachmann promising $2 gas
It’s disheartening to see a factual, citation based, presentation and article appropriated by someone who immediately uses it to support his longstanding partisan politics: blame Obama.
Yes, Obama is a terrible president, and a liar to boot.
But that does not change the fact that we are bumping up against resource limits, and you should probably get your money back from whomever sold you that load of bull.
Oh, and policies that favor job makers are policies that encourage the local production of basic necessities. But that’s not going to happen under our current system, because there is too much regulatory capture by the big guys. Large companies would go out of business and there wouldn’t be as many people to bribe congress if we did that.
It is very convenient to have a scapegoat and if you are a politician now is the time to start your BS so that when we do have a collapse you can rise to power like Hitler…etc…fascism is not dead yet.
Sounds strikingly familiar, no?
It’s always only a matter of time until someone mentions WW2. That’s not the only frame of reference, you know. Far far from it, the world is much more nuanced, and each situation is unique with its own dangers.
If wages are depressed, I am not convinced that economic policies of anyone will work. Wages tend to be a lot better if energy prices are low, and if we are not competing with a lot of low-wage countries.
More on Shell Oil in today’s Automatic Earth. The original article analyzed is in Dutch, making this extra interesting for us few non-Dutch speakers out there.
I look forward with mixed feelings to discussing the world’s woes at this year’s Age of Limits conference.
Thanks, that is a very interesting and informative link. The decline of North Sea oil production is astonishing, even if expected. That graph of the decline of Royal Dutch Shell oil production vs. investment is alarming (yet also as one should expect).
Thanks! That is a good article, with a lot of information about the UK oil situation and Shell’s Woes.
One point that hasn’t been emphasised is that The Powers That Be know all this stuff perfectly well already. They are not fools, they have access to the best experts and better data than we do. It follows that what you have seen them doing, over the last two decades at least, IS their “solution”.
Deny Peak Oil, fiddle the statistics, lump Crude and Condensate and Tight Oil together despite the fact they are quite different things, print more money and lend it to banks who leverage it tenfold and lend it out to shale oil developers, pretend the global economy is healthy, pretend that the Saudis are good people – all just kicking the can down the road because THERE IS NO SOLUTION.
The collapse is on now, but it is only in its early stages yet. While the USD is still respected as the world’s reserve currency, the collapse rate is slow. But when the next financial crash happens (and it could be tomorrow) the entire global house of cards will implode, China too (some say China will implode first, causing the US to implode). Kiev will be played out everywhere, with people demanding more jobs, cheaper fuel, cheaper food – a completely impossible goal.
This may be the very reason that China is attempting to create a second reserve currency in the renimbi, perhaps backed by all of the gold they have been importing. If they can get something going of their own to replace the petrodollar, maybe they can extend the shell game for quite a bit longer.
I agree that that is what they are trying to do, but they have a low-wage, export-based economy, financed by gigantic borrowings from US/Japan/Europe, so the kind of fundamental shift to a high-wage, home-based economy that is needed would be an economic miracle, and would take years to achieve. And that still doesn’t solve the Peak Oil problem.
In my case, it’s to have a way to take my farm goods to market.
[cynic]Should be a hit with the organic food crowd.[/cynic]
Jan given the nature of the business we’re in, interested to hear more about what solutions you will need to help shift your farm produce to market.
“what solutions you will need to help shift your farm produce to market”
It’s pretty simple. Pile it in the van and go. We have four grocers and two open-air markets. Certain products (like cucumbers) I take to the grocers and get a cheque in the mail, and I get almost as much or the same as I would get if I sold direct. Other products are more exotic (like physalis), and are worth spending a whole day farmers marketing: hauling, setting up, selling, tearing down, hauling home.
We’ve used the Vanagon with our own biodiesel, with a full-sized pickup as backup. But the 48 hp diesel in the Vanagon is grossly underpowered when we load it up with a ton of produce. We have a kilometre of 10% grade a short distance from here. It’s 80 kph road, and people get unhappy when they are stuck behind a walking-speed vehicle, labouring up the hill in second gear. Thus, the electric conversion.
If transportation collapses, and you don’t live in an actual desert, I suspect you may have the opposite problem. That is, local people will overwhelm your ability to provide them with food.
At the present time, 95 percent or so of the food in grocery stores comes from far away. Even if there is a field of lettuce next to someone’s house, the lettuce is trucked to a giant washing and packaging factory. A transportation crisis would severely upset the industrial food system.
If you look at the old French painting of The Gleaners, or read the story of Ruth in the Bible, you see an alternative. Local people go out to the fields and buy or work for their food. Sepp Holzer in Austria plants a ‘tangled bank’ of plants, some of which are edible, and local people come out and harvest food and pay by the pound (or kilo). Sepp is, according to what I hear, making lots of money based on the taxes he complains about paying.
When Simon Fairlie did his ‘can Britain feed itself?’ study, he assumed that many people would have to move from the cities to the countryside to get closer to the sources of their food.
I suspect you are right, but it’s all about bridges, isn’t it?
So until we have interlocking city-country fingers, it’s still more efficient for me to bring a van full of stuff to a population centre than it is to have all those people come to me.
Agreed. Just pointing out that, should you survive long enough, you may well end up as the destination.
We’re already the destination for people who are willing to work to eat. But the government is clamouring for us to pay full Mandatory Employment Related Costs (MERCs) on an imputed minimum wage for them — and to report that minimum wage so that our “volunteers” have to pay taxes on it!
I guess that can be seen as protecting people from becoming serfs…
(Luckily, BC is pushing this approach for all forms of volunteer work, which they’ll never get away with. I’m baffled that they now want to tax the volunteer boards and workers of organizations providing the services that a government should be supplying, like homeless housing, mental health and environmental protection!)
When I look objectively at government activities, I see either stupidity or evil, mostly. When Gail looks at government activity, she sees the charitable acts that are holding the country together.
Perhaps if the government went away, but ‘citizens councils’ were formed to guard against violence, I might find that the government is doing something positive that I am overlooking. But, what I see right now, is that we would be better off without it.
The government needs to be supported with something. If it doesn’t have oil or gas revenue, it has to go after wages.
“The government needs to be supported with something. If it doesn’t have oil or gas revenue, it has to go after wages.”
And eventually, it may go after land. Property taxes are a time-honoured way of confiscating land.
It reminds me a little of Amazon deliveries vs. driving to the book store.
I agree with you.
the ultimate problem with gold is that you can’t eat it.
Two coins over the eyes sockets, for the Ferryman?
thats about it
“One point that hasn’t been emphasised is that The Powers That Be know all this stuff perfectly well already.”
I’d like you to give us a citation, reference and some evidence for this. The great thing about this blog, and especially this presentation by Steven Kopits, are the cold hard facts and conclusions drawn by professionals.
This is not a place for conspiracy theories or fantasies. Perhaps there are conspiracies (every agreement behind closed doors – by politicians or married couples – is by definition a conspiracy) and maybe there aren’t. But talking about hypotheticals is very dangerous, and detracts from what we can know, and the reasonable plans we can make. We have no idea if the “powers that be know this perfectly well”, even if that thought makes you feel more justified. We need to stick to the facts.
Apart from the conspiracy theory opening, I generally agree with you about the state of the market.
The Powers That Be know about Peak Oil, but it is not clear that they understand about the financial implications of Peak Oil. They may not understand the connection to current financial problems.
At one point, I had a peak oil quotes from Alan Greenspan and from Bill Clinton. I am sure that the Bushes would know about oil limits.
I agree with that, that there are people in power who know about it, but don’t recognize how it will effect the economy and the world. I hope I’m not being arrogant when I say this, but many of our leaders (these “powers that be”) are incompetent and fools. And they don’t hold the pursestrings (big business), which could be where the real power and influence is. I’m sure that oil has been on many, if not all, administrations’ minds, but I don’t see much of a conspiracy, apart from focussing their military on countries with oil, and supporting friendly regimes in oil producing countries. I would say they’re obviously not so smart if they’re so focussed on making profits on oil, yet risking the entire world monetary system (if the economic system collapses totally, so does the value of their own money) at the same time.
I can’t accept that TPTB are fools. Yet what they are currently doing about the problem, Plan A, is just kicking the can down the road. What interests me most is what Plan B is likely to be when Plan A fails, for they surely have one.
I’m afraid I get bogged down in doing analyses of (probably faked) statistics too, because it is at least amenable to mathematical treatment, but pondering about Plan B is no less important just because we will never get a mathematically certain result.
Plan B almostly certainly involves some wars, because the war machines are getting deadlier all the time (dont be fooled by “proposed cuts” – they will only be cosmetic). And it almost certainly involves a crack-down on personal freedoms – why else the arming of the police with full-on military gear? And by developing the capability to know everything that is going on on the internet, and how to launch/repel cyber-attacks, they are preparing for threats which aren’t apparent right now, but will become obvious when Plan A fails. This much I take for granted.
Could we all take this much for granted, and then hypothesise rationally about the likely future course of Plan B? It’s too easy to dismiss it all with the “conspiracy theory” label. There are valuable insights to be gained here, if we really look.
Plan B: http://www.forbes.com/sites/ralphbenko/2013/03/11/1-6-billion-rounds-of-ammo-for-homeland-security-its-time-for-a-national-conversation/
Well if we assume that the TPTB can’t/won’t proactively propose more realistic policies to attempt to mitigate a descent because doing so would go completely against the current power/financial structure. They would also have to justify such policies and given that they are responsible for us being in this mess in the first place that is unlikely to go down well.
I probably need to add that whereas our collective behaviour has brought us to this point in time I believe that those in power are responsible for perpetuating the system/outlook that controlled such behaviour. I have a science background and started looking into the 2008 crash a couple of years back and found it very hard to come to terms with the fact that the underlying assumptions to the economic theories/models that were being used to manage our economy were obviously insane and that our financial system is completely unstable.
So the safest approach would appear to be to say things are improving while things steadly contract. Cut back on benefits and services whereever possible so that the more vunerable and less useful members of society (remember you are less useful if you aren’t working) become progressively more stressed and either die off or become homeless. I believe you can no longer ‘vote’ in either case.
Eventually something more drastic will occur, financial collapse or war and the government will be able to justify more serious measures/controls. Like food/fuel rationing, directed labour, etc.
Continue this way for a while and I suspect we’ll end up with a substantially reduced population mostly labouring in the fields, controlled by a well-equipped security force with a small elite at the top.
I really don’t think there is anything that anyone can do that can soften the landing.
I think that the most they can do is to continue QE/ZIRP and other draconian policies to try to delay the catastrophic collapse.
Does anyone have any suggestions as to what else they could be doing that would not be exercises in futility?
Well, there are, in fact conspiracies. Operation Northwoods is just one such example. But, to your point that we shouldn’t use hypotheticals as though they were fact is something that should be emphasized. The conspiracy that I listed is one that has dates, names and actions that have been documented. Evidence. My personal experience, though far from conclusive, is that TPTB are suffering from the same normalcy bias as everybody else regarding peak oil.
I agree there are conspiracies. Any secret deal is a conspiracy, and there must be plenty of them. But yes, we shouldn’t cling to hypotheticals as facts. As soon as we go down that road, we start to become distracted by our own biases and our own personal investments – political, idealogical, religious beliefs etc..
I was in Hong Kong last week and had dinner with two fairly senior bankers from the Squid. While they both indicated they thought a calamity was imminent when I stated the case that the end of cheap oil was the cause neither were buying that – they were unable to explain why they just were dismissing the theory.
I suppose that relates to Cognitive Dissonance – the are smart guys and they know what the end of cheap oil means — no recovery – no reset – no job – no food – likely death for most. So I suspect they didn’t want to go down that rabbit hole.
But at the highest levels of these banks I am 100% certain that the big picture is painted for the decision makers. There is NO WAY in hell that they do not know cheap oil has peaked – and there is NO WAY in hell that they do not understand the implications.
The minions are cogs in the wheel – it does not matter that they know. But when you are making strategic decisions on a global level I don’t think you stick your head in the sand and deny or ignore the facts — you would not be around long if you did that.
And the facts in this instance are irrefutable – there is no way to argue out of this crisis — the only question that I think comes up at these high level discussions is:
How can we delay this as long as possible
You are doing exactly the same thing the bankers you had dinner with were doing. You find it to be incredulous that those at the top do not understand the implications, therefore you do not believe that they don’t understand the implications. There is no rule or law that says that they must understand and acknowledge the implications of peak oil. None. They are still human and still fallible. If they understand the implications, you should show evidence that they are acting in such a way that they do understand those implications. Trying to maintain the status quo is not evidence of such. Maintaining their power is not evidence of such.
Actually I believe what I have said is that those at the very top (not the people I had dinner with – they are only cogs in a big machine) absolutely do know we have passed peak oil and they are fully aware of the implications.
I believe their reaction to this has been a) to purposely create a housing bubble to try to offset end of growth and b) when that unsustainable strategy failed they quadrupled down on seemingly insane policies printing money and dropping interest rates to 0 pumping up far more and far bigger bubbles.
Of course they know what the implications of doing nothing are – why else would they implement policies that are clearly suicidal – but which delay the inevitable? These policies are clear demonstration of their awareness of just how dire the situation is…..
As for preserving the status quo – of course that is what they are attempting to do – and although on one level I find it distasteful, I applaud Bernanke and his crowd for doing that – because a world where bankers pay themselves absurd bonuses on the backs of almost everyone else is something we will look back on fondly when the SHTF.
Being intelligent is not a prerequisite for getting to the top. They are just like everyone else, can’t or won’t connect the dots in front of them. And remember that the globalized world we live in is extremely specialized. Each professional is only an expert in his tiny field of expertese. Many fewer people today have broad skills and responsibilities. Politicians trust their think tanks and voter bases (and ideology), for examples. In this respect they are no different to average Joe on the street: they have a narrow field of concerns, and think optimism is good. Peak oil and the limits of growth have no solutions – or at least no solutions most people would want to hear.
Yes, one must wonder how much the rulers of the Easter Island civilization realized that cutting down the last tree to roll the last stone statue to the coast would be the end of their civilization. Surely they all knew what was coming, but cultural norms and an inability to see beyond the short term led to their collapse just the same. All that is left are silent stones standing mutely as testimony to human fallability.
I wonder if the likes of Bernanke and other leaders who are in the know on this are like those Easter Islanders who were looking at their landscape with a handful of trees remaining and said ‘oh my – what have we done?’
How come you never take us out to dinner?
I love Dim Sum!
Ha ha — you never told me you were there or I would have 🙂
How about these two Presidential addresses:
Carter’s “fireside chat” to the nation, 1977
Tonight I want to have an unpleasant talk with you about a problem
unprecedented in our history. With the exception of preventing war, this is
the greatest challenge our country will face during our lifetimes. The
energy crisis has not yet overwhelmed us, but it will if we do not act
It is a problem we will not solve in the next few years, and it is likely to
get progressively worse through the rest of this century. We must not be selfish or timid if we hope to have a decent world for our children and grandchildren.
We simply must balance our demand for energy with our rapidly shrinking
resources. By acting now, we can control our future instead of letting the
future control us.
Obama’s eerily similar version, 2010
” After all, oil is a finite resource. We consume more than 20% of the world’s oil, but have less than 2% of the world’s oil reserves. And that’s part of the reason oil companies are drilling a mile beneath the surface of the ocean – because we’re running out of places to drill on land and in shallow water.
For decades, we have known the days of cheap and easily accessible oil were numbered. For decades, we have talked and talked about the need to end America’s century-long addiction to fossil fuels. And for decades, we have failed to act with the sense of urgency that this challenge requires. Time and again, the path forward has been blocked – not only by oil industry lobbyists, but also by a lack of political courage and candor.
The consequences of our inaction are now in plain sight. Countries like China are investing in clean energy jobs and industries that should be here in America. Each day, we send nearly $1 billion of our wealth to foreign countries for their oil. And today, as we look to the Gulf, we see an entire way of life being threatened by a menacing cloud of black crude.
We cannot consign our children to this future. The tragedy unfolding on our coast is the most painful and powerful reminder yet that the time to embrace a clean energy future is now. Now is the moment for this generation to embark on a national mission to unleash American innovation and seize control of our own destiny.”
They’re not the same at all. Carter proposed being more efficient, starting by putting on a sweater and driving less. Nobody liked that idea. Using less?? That’s the antithesis of capitalism.
Obama’s plan is to drill polluting oil at home. Perhaps it’s his only politically feasible option. But it is far far from Carter’s address.
Don’t bother with the words they said, they are always going to be “I can fix this if you do as I say, and everything will be good again”. Instead, ask yourself why they made statements on it at all. They knew about Peak Oil, that’s the point I was trying to make. They are not fools.
I would be more supportive of this if I thought a clean energy future would have any chance of working. We need to use less–that is the only solution I can see.
You miss my point. Their words are unimportant – just more feel-good Presidential propaganda. But why did they say anything at all, unless they understood that worldwide Peak Oil is going to happen ? They are not fools. The words they say to the public are ridiculous, but they are not fools. They know they have to sound as if they (and not the opposition) have the answers. They cannot say what we say, or else the opposition will say THEY can fix it, and win power.
Meanwhile watch what they actually DO. More weapons, more militarisation of the police, more spying on dissenters, more assassinations. When Plan A fails, they will have to try Plan B. Plan B seems silly and over the top right now, and people object with quaint ideas like “You are infriging by personal privacy”. But under Plan B, you won’t have the right to personal privacy. Get it?
These two speeches are pretty clear evidence that TPTB know and understand what is going on. Things in our world are running on 200 years of momentum and inertia. Its hard to slow and then turn the ship of state.
Obama putting country on notice that he will get around legislative inertia by using executive orders…April timeline for getting US to ratify new IMF SDR global currency
“One point that hasn’t been emphasised is that The Powers That Be know all this stuff perfectly well already.”
Don’t be so sure. I was discussing peak oil with a friend of mine last night who does a lot of modeling for TPTB. One of the things that he was asked to do back in 2005 was to model security threats in a world with expensive oil. His group was going to use $100/bbl as the point and TPTB raised hell because they did not believe that we would ever see $100/bbl, and said that even $70/bbl was almost unbelievable. 3 years later, it hit $147/bbl. They suffer from the same normalcy bias that everybody else does.
Who are “they”? The German military has a peak oil plan; you don’t think the rest of the world doesn’t know about peak oil? You have to keep the sheeple in line, any public talk of this will get you fired and forced to seek therapy…Look what happen to Kopits after he gave this talk. Maybe that was going to happen anyway. But one has to take everything with a grain of salt…I noticed when Kopits mentioned alternative transportation there was immediate “respectful” condemnation of his thoughts… I don’t think anyone knows how this is all going to play out….Paradigm shifts are in order.
“I don’t think anyone knows how this is all going to play out….Paradigm shifts are in order.”
I think this is key. I think we can predict some large broad events, but I do not think that we can predict what comes after those events. We know painful change is coming on a very large scale. We know that modern countries have not been developing alternative systems to industrial oil based agriculture. We know that alternatives for globalized products are not being developed. We know that oil is getting more difficult to extract and is vital to almost everything in our modern economies, and that no alternative has been found or developed.
We can predict that this will all come to a head without an oil alternative. We can guess how fast things will happen once it does. What comes after is a lot more murky.
BTW, the “they” in this case was the US government. They were using Lawrence Livermore resources and personnel, so that would be the US DOE.
You’re right in that we do know the problem (the limits of growth, as Gail puts it), but nobody can know how it’s going to play out. I like Kopit’s opinion about alternative transportation. I don’t agree with it, and I can’t fault Gail’s logic on how she sees a lot of serious problems and changes coming. But I hope I am wrong, and that Kopit is right.
But I get tired of “conspiracy” talk. It’s becoming my own theory (from experience, and now from studying anthropology in uni) that most conspiracy theories are just a way to avoid harder truths. It’s easy to blame a secret organization: it’s simple, it’s concrete, and you can focus your frustration on a fixed point. It’s the classic “us” vs. “them”.
But it’s much harder to look inside. It’s not so easy to accept that none of us are innocent, some more and many of us less to blame, but we have all contributed to this situation. And it’s also difficult to accept that many (I would say most, but you may think I’m being too cynical) people are closed-minded and willfully ignorant: you can show them facts, evidence and danger, and they won’t even consider it. People automatically prefer to believe a comfortable lie. The problem is not a conspiracy, it’s just each person (CEO, shareholder, politician, iPhone buyer, anyone etc. involved in this growth system) looking out for themself and short term profits. That’s the scary truth, that we belong to a species that doesn’t even care about its own existence and votes against its own interests.
When the truth becomes too much to bear – or can no longer be ignored – there’ always XANAX.
Of course that’s why so many people are popping these on a daily basis in the US.
Yes, we are caught up in a complex web: the indirect results of billions of complex interactions weave our doom.
And like the Prince in the Persian tale, even when we recognise the destructiveness of our habits, we find can’t free ourselves from them.
I’d love to ditch this poisonous laptop, but I can’t function now in the modern economy without it, etc….. Just a fly in the web.
I’d agree: I learnt that lesson re TPTB when I spent some years reading diplomatic documents – what even the best informed people get wrong or misunderstand is quite eye-opening. They are as apt to live in a world of delusion and wishful-thinking as any other human beings. Even the cynicism and real politik can be based on very mistaken preconceptions. Blind ‘leading’ the blind, etc.
Well I guess you are right about the Blind leading the Blind….I remember watching a Front line special on the collapse of 2008 and Hank Paulson was so scared he was telling his wife to go get cash out of the bank. I also remember Bernanke telling we had “green shoots” in 2009….I have talked with a lot of people about this and more “comfortable” they are the less likely they are to listen…I remember seeing John Snow give a talk at my local university and he mentioned some bumps in the road but to end his talk he had to find something positive so in his laziness started bragging how much oil is in the Baaken and Eagle Ford and how we are going to become a self sufficient nation….I would just like to think that our leaders are a little more intelligent but I guess you don’t make it to leadership by thinking outside of the box and group think is very powerful thing….Danny
There is also the powerful urge felt by all people, including TPTB, to conform. Nobody wants to be the first Chicken Little to shout “the sky is falling!” They think to themselves, “maybe it isn’t true…what if I’m wrong…? I don’t want to be the crazy guy in the room who makes an ass of himself.” Its imagine its quite like a bunch of teenagers and nobody wants to be the weird one in the group.
Yes every time I bring this up with people I am vilified as a doomer and crazy person but I can see with BAU how crazy it does seem.
Amazing that in 2005 he had no idea….since this movie was made in 2005 “Syriana” all about peak oil and the battles for it….even discusses what would happen if oil prices fell to a certain level….it seems like the writer new a lot about peak oil……
I subscribe to Hanlon’s razor:
Never attribute to malice that which is adequately explained by stupidity.
Our politicians are particularly short-sighted when the only goal is to get elected again at any cost. Australia’s Abbott government is trapped by their own stupidity into an action plan* that is counter to any sensible policy.
Business is slightly better, but often equally short sighted when Shell is borrowing and selling assets to pay dividends to keep the shareholders happy. If this sort of behaviour doesn’t cause a rush for the exits, what will?
In a repeat of previous episodes, the water has to be coming in the port holes before the masses stampede for the now departed life boats.
We urgently need an agenda that does ‘more with less’ and then one that does ‘less with much less’.
* To undo everything that the previous government did
“We urgently need an agenda that does ‘more with less’ and then one that does ‘less with much less’.”
If you think that through it is not possible.
Think about this — if people shop less – fly less – eat less meat etc… that will only accelerate the collapse of the world.
There are many implications but the key one is that if people consume less we end up with deflation – deflation would mean that the price of oil crashes to a point below where it is economically viable to extract oil – it would also mean no additional investment into oil exploration because the ROI is not there.
No oil means no civilization – means no food because most food is produced using oil and gas inputs. Remove those and mass starvation is guaranteed.
Sadly we are well past the point of being able do anything meaningful.
I hate to say it but we might as well just keep on shopping and borrowing and printing – anything that keeps the current paradigm going for as long as possible.
Because the only other option is more dystopian than anyone’s worst nightmare.
I am afraid I have to agree with you.
This thread is getting too dark to read. ( Not that I disagree, I just prefer keeping my head in the sand )
Oh, c’mon now! We all know things are going to get bad.
The antidote to depression is action. If you focus on individual and community coping mechanisms, you don’t have any time to be depressed.
What’s sad is that we COULD do something. But it would require coordinate action of most nations in the world. An agreement that the current system is not viable. In the end, it’s the insanity in human nature that is causing all this. We, as a species, are, once again, directly or indirectly choosing to go down the path of madness and collapse. We have failed to prepare ourselves. We are just not civilised enough as a species. Not yet.
What do you suggest we could do to make this a soft landing – or less hard landing?
If you’ve seen the Zeitgest films, there are some ideas there. Basically, it’s about a resource-based economy. In other words, common sense. Of course, most people would think it’s science fiction but it’s possible, we have the technology. It’s just that we are not willing to do it because we are not civilised enough, we are prisoners of our tribal thinking. But there’s really no alternative: a resource-based global economy or suffer the consequences.
How do you extract resources without oil and gas inputs? How do you run a iron ore drilling rig – transport the ore – smelt it – refine it – create a product from it?
The resource based economy is done. Technology is a result of oil and gas inputs – not the other way around. An iphone would not exist without cheap oil and gas.
So I suppose we will suffer the consequences.
The catch is that we need energy to live–perhaps not as much as we are currently using, but some. Also, all species keep expanding their population, to match the energy resources available to them. Humans are no different. Perhaps, quite a while ago, we could have decided to go slower on our growth, so resources would have lasted longer. But now it is too late.
As to living styles… I would not want to be in a condo or a high-rise when the power shortages start. Imagine life in a high-rise with no power. There will be no lifts, no air-conditioning, no heating and very possibly no water. Many high-rises are not designed for opening windows so in summer they are unliveable then; too hot.
But overall, will we see catastrophic collapse or controlled descent? I think the answer depends on where you live. Some nations and regions will see catastrophic collapse. Others will manage controlled descent. Strangely, Russia is well placed to manage a controlled descent. They have a relatively small population, the largest country on earth and plenty of oil and gas left if they keep it to themselves. The Middle East, India, China and Africa look doomed for catastrophic collapse. Europe will decline quickly too. North America (Canada + USA) could manage a controlled descent if they are clever about it. Australia could also manage a controlled descent. I doubt that Central and Sth America will do very well.
Surprisingly enough, if they keep their own houses in order and manage a controlled descent, I would suggest USA, Canada, Russia and Australia will probably be the best places to be.
Ikonoclast, I would add Sweden (lots of hydro and trees) to the do well list and Japan to the catastrophic list.
* +200,000 people per day (1 France per year)
* Forecasts of + 3-4C temp in 100 years
* Massive youth unemployment. How can they prop up any retirement system?
* Severe droughts in US, Brazil, Australia
* QE drives inequality through the stock market
“Recovery” is a propaganda term. Clearly marginal consumers are giving up every day, and that makes it very hard to drive up oil prices. “Things we all need have to be cheap”. Therefore fuel price will never be an issue for the top 15% of income earners, and the government has to step in and reduce fuel consumption by law.
But the long term (100 year) scenario looks very bleak. No oil left. Chaos everywhere. Hunger and misery. I guess a rising population was a good thing as long as we all had jobs. But now… But this was very obvious and the failure to understand the exponential function comes back to haunt us again. Long live Albert A. Bartlett.
and he’s dead
Right in line with the points that Gail and Steven are making, here is an article posted today entitled “Clouds on the horizon for fracking companies?” It looks like the largest company involved in fracking — Chesapeake — is not doing well. “The fact that they are now planning to sell a large part of their business and that they have earlier sold off parts of their activity indicates that their foremost problem is “cash flow”.”
Thanks! Yes, Chesapeake’s problems are quite possibility indicative of problems elsewhere as well.
Gail and posters, during the video presentation linked at the beginning of this most recent posting, Kopits shows a graph with a symmetrical peak, saying the only reason the plateau (gray shaded area to right of peak) was extended as far as it was after 2005 is because of 1.2 trillion in major oil company exploration. An unprecedented investment that resulted in minimal gains in production.
That graph (with the extended gray zone shown after the symmetrical peak) looks very like the (predicted by many) ‘Shark Fin’, going from the front base of the fin to the top. Is it possible that we are that close to the beginning of the descent in oil supply (vertical back side of fin)? I don’t remember which collapse scenario you ascribe to, shark fin, catabolic, or something else, but maybe at some point later it might be a good posting to delve into the different projected descents, with which one seems most plausible and on a graph where you think we are now.
That sort of posting might be too scary. But for my part I think the most probable outcome is what is represented by the ‘Shark Fin’.
A good analogy is a treadmill. We will keep increasing the speed on the treadmill to keep up current production until we (metaphorically) die of a heart attack.
I think we are ultimately following the Limits to Growth descent. All fuels decline simultaneously, because of oil’s influence on the economy.
Gail, can you spot the typo? It happens, just sayin’.
But Mcmericans have never been able to spell our language correctly. Even their dictionaries are wrong.
Fixed it (I think). The latest update to the MacIntosh software makes words out of any group of letters a person types. Sometimes what it thinks you are trying to type is not what you think you are trying to type.
Reblogged this on Arijit Banik and commented:
Gail Tverberg always provides a lot to think about in terms of resource depletion and economic growth. She references Steven Kopits’s presentation which can be found here: http://energypolicy.columbia.edu/events-calendar/global-oil-market-forecasting-main-approaches-key-drivers
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From purely a gut feelI agree with Steve’s prediction of $150/barrel in 2020. That is why I hope I am buying an car from Elio with 80mpg.
Edpell, I remember you from TOD. Anyway, I can see oil supply dropping due to reduced exploration, putting pressure on oil price to rise, however if the economy is too weak to handle higher prices all that will happen is a reduction in demand. In an early post Gail agreed that would probably be the case, but either way, 1) increased price or 2) reduced demand, will lead to economic contraction.
Personally I don’t thing the economy can handle 150 a barrel. Maybe 120-130 if QE continues, but that’s about it.
As China and India continue to grow in efficient use of oil they can bid up oil. Yes,major chunks of the trilateral economies can not afford $150 they will be pushed out of the global economy. No country is a monolith that survives or dies as a whole. Parts of a country can fall out of the global market place while other parts remain industrialized. At $6 per gallon for gas I expect my wife and I will reduce to one car from two.
Yes, even $100 seems to be a strain for the consumer. Steve Kopits described this in some detail in his talk. If anything, the world economies are getting more ragged and less able to afford, even the current prices. First the onto the knees, then a face plant in the mud seems to be the prognosis.
I like the lime green, myself.
Yes, lime green. 🙂
“That is why I hope I am buying an car from Elio with 80mpg.”
That is why I’m converting a vehicle to electricity.
That’s a personal, stop-gap measure, I know. I don’t subscribe to the notion that all we have to do is change all our cars to electricity and things will be fine. I’m hedging my bets against not being able to the the vegoil I need for my diesel truck.
I calculate that, at least in the summer, I can get a couple trips to town each week on my two solar panels.
“That’s a personal, stop-gap measure, I know. I don’t subscribe to the notion that all we have to do is change all our cars to electricity and things will be fine.”
I agree and see this a lot. The illusion is energy for vehicles is the big stumbling block leading to collapse, but it’s way too late for conversion to alternate forms of transport in a desperate attempt to save us from the descent from peak. Refined oil is used for barge oil in ships, diesel in trains, tractors and so on. Now if what is meant is trying to have a mode of transport to have mobility after the collapse, well, sure for a while anyway it will help.
We are seeing a surreal bidding war in the last few days between Scottish Nationalists and the UK Prime Minister concerning Scotland’s North Sea resources. (A referendum for independence is coming up.) The PM promises large capital investment in North Sea if Scotland stays with the Union. Scotland will benefit, he says, from UK government standing behind the investment. Scotland’s present First Minister (devolved Scottish Parliament) disagrees and says investment will be better guaranteed by an independent Scotland. What they both seem to agree on is that there is more oil still out there than has yet to be accessed. Given dropping production rates that seems a surreal assumption. I think the ‘rate of production’ versus ‘reserves’ issue goes to the heart of the matter.
An important set of interviews frames these problems and supports as I understand it Steve and your positions. http://www.theguardian.com/environment/earth-insight/2013/dec/23/british-petroleum-geologist-peak-oil-break-economy-recession
It seems like we are only just beginning to get used to Peak Oil, but we have not seen the last of Public Relations.
Thanks for the update. I expect as resources get tighter, there is going to be more of a tendency of countries to break up.
that fits with my favourite bit of drum banging—that nations are held together by the energy they produce
Britain’s North Sea oil and gas industry is facing its “biggest challenge in 50 years” thanks to a combination of rising costs and a sharp drop in the number of new strikes, according to a major report.
Oil and Gas UK, the official trade body, said exploration activity over the past three years has fallen to its lowest ever levels, with only 15 new wells drilled in 2013.
Production fell by eight per cent last year, the report, said, although this is an improvement on the 15 per cent annual drops experienced between 2010 and 2012.
Although the North Sea is currently attracting record investment, the report said the drilling that took place was “often expensive and subject to time and cost overruns.”
Production is expected to increase this year, with 25 exploration wells planned, but the industry warned this was “too low to recover even a fraction of the potential resources”
Full article from yesterday’s Telegraph: http://www.telegraph.co.uk/news/uknews/scotland/10661448/North-Sea-oil-facing-biggest-challenge-in-50-years.html
Thanks! Oil and gas revenues are important to countries as well. When revenues fall, and exports change to imports, countries are especially bad off. I imagine that the big UK increase in wind turbines is to help fix the gas problem, but it is hard to see how it will work. The costs are way too high, and it still needs lots of other energy to balance.
It seems that there is ‘hope’ that China will ‘save’ the market. The information I’ve been reading suggests that China is looking at a harder landing than the States or Europe had after the 2008 financial crisis.
While many critics of the US Federal Reserve point out the $4+ Trillion in an expanded balance sheet, it would appear that the People’s Bank of China has expanded theirs even more outrageously, by almost 4 times, $15+ Trillion (for a sum of over $25 Trillion) (see this:
I don’t know if China can save the ‘market’, with their empty cities and highways to nowhere (extensive misallocation of capital). They are already looking at a number of significant financial defaults as their economy contracts (see this: http://www.zerohedge.com/news/2014-02-17/china-folds-reforms-bails-out-2nd-shadow-banking-default-after-last-drop-blood-threa). If there was some hope that they could buy assets, perhaps if they continue their money printing along with all the other central banks; but that fiat currency experiment always seems to end badly…
A quick follow-up since this was just posted recently on zerohedge (http://www.zerohedge.com/news/2014-02-25/chinas-corporate-debt-hits-record-12-trillion). This post outlines that corporate debt in China has hit record levels and is expected “to accelerate a wave of domestic restructuring and trigger more defaults.”
Thanks. Hard to see how this ends well.
Gail, I don’t know where you find the time (or energy) to write the insightful commentary you do and respond to most comments. My hat is off to you:)
It is hard to pack everything into 24 hours, including personal fitness, garden, family, etc..
Thanks! When I visited China in 2011, I was astounded at all of the building. Everyone was being sold new condos for the first time. Previously, people had gotten housing “free” as part of their employment. The housing was modest, with a shared outhouse for bathroom facilities. The new buildings are high rises, with “real” bathrooms and electricity. So people are getting mortgages for the first times in their lives, and I imagine electricity bills and water and sewer bills.
As long as there is more debt and more building, this sort of works. Some people buy condos they don’t need, just because they think the value will be rising. In the big cities, mortgage amounts are very high relative to salaries based on what I heard. If the economy hits any kind of speed bump, and jobs are a problem, or debt comes due on investments that aren’t really working out, there will likely be a problem.
The tragic irony of China is that it is ramping up its infrastructure for a civilization that has already ceased to exist on all but paper. By the time China finishes “developing” the game will be over and they will have a built infrastructure they cannot use. The energy embodied in all of the buildings, roads, cement, cars, etc. etc. will be sitting wasted and useless. They are like the new kid on the block who shows up to the party too late.
That is a good way of describing the situation.
It makes me remember some anthropologist I’ve read saying XVII th century Emperor had about ten empty towns, replicas of european or asian existing cities; I think Genoa was on the list. Now, they had converted this sport in a gigantic housing bubble, fossil fuels scale. It seems working middle class invest on this thinking on their future, because there is no pension funds and the State doesn’t care of old people.
Well it will probably end with them taking over another country and taking all their resources….and maybe starting WWW3…just like the Germans did.
A good bet that you’re right. Probably get another East Asian Co-Prosperity Sphere or something akin to it.
No need to take over the country.
Many, particularly here in Aussiestrailia, have been happily selling it to them one piece at a time. By the time WW3 is primed, they will have got all that is worthwhile and will be sending us their garbage, unless the fragile state of economies gets there first.
My understanding of the situation in china is not so much home owners buying those condos, but families (and funds?) using the grey banking sector to buy ‘investment’ properties in one of the few non-state-bank and non-share markets available to them. This would explain the near total lack of people in those cities and also give the properties about the same intrinsic value as tulip bulbs.
The income gap in the Chinese labour market means that, even if these cities were filled with industry, the factory workers are hopelessly priced out of the condo market, so there is no way to ever occupy or rent these properties. When will the penny drop?
Perhaps it already has: I have read of some strange goings-on in the local property market with offered properties being sold to ethnic Chinese buyers, well above the asking price, aggravating the housing bubble in Australia. It occurs to me that the investment strategy is “anywhere but China and preferably somewhere temperate”.
Gail; Excellent stories and writing. Awesome effort.
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Since the “New Scientist” just wrote an article about underground coal gasification (UCG) will this play a roll? Yes, I understand about C02 please do not shoot the messenger. It seems there is 600 years worth on brown coal that can be burned. Yes, leading to levels of CO2 that will frighten everybody.
I don’t think so. All of these things need investment. We are running short on funds (and stuff) for investment. It will not be long before borrowing for investments will be very difficult. It is this cut off of credit that will cut off most of (or all of) these things. We need a high-tech civilization for all of these fancy investments. It will be increasingly difficult to keep up such a civilization.
Household net worth relative to GDP (national income) is near all time highs.
Household debt service is near 35 year lows.
The U.S. is not short on funds (and stuff) or ability to borrow for investment.
$56 Trillion in total debt in the US, $100-$200 trillion in unfunded liabilities and over $200 trillion in potential bad financial exposure in our banking system, much of which is exposure by FDIC insured (read: taxpayer backed) deposit taking banks. You really think the US is not short on funds?
You really think the US is not short on funds?
Yes. Household, nonfinancial business and government debt service costs relative to income (profit) are at multi-generational lows.
“Household, nonfinancial business and government debt service costs relative to income (profit) are at multi-generational lows.”
Well, nobody I know feels included in that group!
You must admit that, assuming for a moment your point is true, it is grossly inequitably distributed? And in the final analysis, what is the difference between inequitable distribution and the vast majority being “short on funds?”
Or do you advocate seizing assets of the rich?
“Yes. Household, nonfinancial business and government debt service costs relative to income (profit) are at multi-generational lows.”
When debt service costs are this low, (lower than inflation, which is *understated* despite the fact that core CPI is used for COL adjustments) it introduces distortions. The interest rates are artificially low, manipulated by the Fed. They cannot EVER go up to historical norms without crashing the system. Never. We are backed into a corner. People who would save are punished. They must either accept diminished purchasing power, or go into high risk investments. Asset price bubbles are also an artifact of cheap money. People aren’t going to buy price inflated houses even with cheap money without NINJA loans, and that stocks and bonds are not overvalued is a load of BS.
Regarding debt creation, last year, 99% of net consumer debt created was auto loans (about half of which was subprime) and student loans. Student loans are given under the assumption that a person will become educated and get a higher paying job and be able to afford to pay the loan back. A simple look at non performing student loans tells you that people are not getting high quality jobs needed to pay their loans. Your premise that cheap money is the answer is flawed, and you need look no further than student loans to see this.
That the population employment ratio has dropped (63% in 2006 to 58%-59% post Lehman,) the labor force participation rate has been dropping, and that part time employment for economic reasons is very high is a sign that the unemployment figures that we see are BS. That median household income has dropped from $55,627 in 2007 to $51,017 in 2012 is another clue that people have less discretionary income than they used to. That means less to pay debts back as well. On top of that, the Gini index has been on the rise, meaning that the rich are getting richer and the poor are getting poorer.
Or you could just look at the numbers I posted above and understand that we are swimming in more debt and liabilities than we can pay. Don’t believe the bank exposure? Well, go to page 13 on the OCC’s quarterly derivatives report: http://www.occ.treas.gov/topics/capital-markets/financial-markets/trading/derivatives/dq313.pdf Then ignore the OCC’s notes on total risk should there be a market meltdown because it’s risk assessment assumes that none of the counterparties goes out of business. When Lehman went down, that ignited the 2008-2009 firestorm, including the bailout of AIG (due to derivatives,) TARP and several trillion dollars being printed via QE, and that’s just the US.
Cheap money only benefits the government and those who have direct access to the Fed’s discount window and QE programs.
It is short on wages, with fewer people working as a percentage of the population. Unemployment statistics hide this detail. Prices of assets are being “pumped up” by Quantitative Easing.
Both of your graphs are of net worth.
Both of your graphs are of net worth.
No. Do you want me to post a graph on the ratio of household assets to household liabilities? 5:1 seems about right.
Wages as a percent of the economy in developed economies have been in secular decline for decades. What’s the point?
Economies get more energy efficient every second of every day. There is not much difference in the growth rates of world GDP between 1995-2004 and 2005-2014 even though there were differences in the volumetric extraction of oil (crude & condensate) in each of the 10 year periods; an increase of 10 mb/d in period 1 and 2.5 mb/d in period 2.
Prices of assets are being “pumped up” by Quantitative Easing.
What asset classes? Quantitatively define “pumped up”. For instance, U.S. equities are trading at historically average price-earnings levels.
Gail: Both of your graphs are of net worth.
I think you are mistaken. Both your links have the same URL — they are identical graphs!
The links for the two graphs are both http://research.stlouisfed.org/fred2/graph/?g=swh
Stocks are only at “reasonable” P/E ratios because companies have been going into debt to buy back their stocks and mark-to-unicorn accounting.
I should also add that companies are cutting input costs left and right, hence the declining labor force participation rate and the rise in part time workers. People with low paying or no jobs do not buy goods, hence the current trends are unsustainable.
I personally think it will. There is plenty of investment available if neoliberal consumerism stops being the dominant model — just think how many millions of jobs and countless resources are wasted on designing extremely similar gadgets with slightly different shapes.
With rationing (either direct or through prices, such as imposing a major oil tax) there is plenty to get UCG up. It also directly leads to being able to produce whatever hydrocarbon based product you want. This is why I do not share Gail’s “rosy” opinion that CO2 emissions are unimportant due to peak fossil fuels.
Both of your graphs are of net worth. Yes, indeed. My html error.
<A HREF="http://research.stlouisfed.org/fred2/graph/?g=sBv"Household debt service as a percent of disposable personal income. The decline in the debt service ratio has offset the rise in energy goods and services.
Cheap money only benefits the government and those who have direct access to the Fed’s discount window and QE programs.
Then explain why the household debt service ratio has declined? Okay, households refinanced higher interest rate obligations.
People with low paying or no jobs do not buy goods, hence the current trends are unsustainable.
Wage and salary compensation and proprietor income as a percent of the economy has been in decline since WW11. The wage and salary compensation ratio peaked in the late ’70s.
Once again. Why is the crude oil futures curve in backwardation if the market is supply constrained?
I would direct you to the presentation in the article to see that less miles are being driven by people. That means less income for those who rely on tourism, for starters. It also means that, when combined with more fuel efficient vehicles, that gasoline expenditures is not going to have increased very much. There is, however, a limit to fuel efficiency in cars, and the higher gas prices are already having an effect on consumption.
“Then explain why the household debt service ratio has declined?”
Except for student loans and auto loans, banks are not lending. That means defaults plus people paying what they can without access to new credit. The debt load has decreased for consumers. However, the median household income has decreased while the income for the top earners has increased. The richest Americans are also certainly included in those statistics, which makes them misleading in a consumer economy. The rich are getting richer and the poor are getting poorer, unless you think that going from 26 million on foodstamps in 2006 to 47 million in 2013 indicates something else. Or, unless you think an ever increasing Gini coefficient indicates something else. My statement about ZIRP and QE (cheap money) still stands.
This is all in a consumer economy, where it is the masses who must be able to afford to consume in order to drive it forward. The foodstamp, median household income and Gini data say that the masses will not be able to continue. You do realize that there is a difference between median household income and mean household income, right? You do realize that GDP growth is not being driven by the bottom 90%, right?
The picture you paint does not jive with the unemployment, employment population ratio and labor force participation rate figures that I listed.
And you seriously don’t understand why the price of something that is going to be more scarce or is going to cost more to produce in a year is in backwardation? The closer the contracts come to becoming due, the more people realize that it is going to cost more to actually produce the product. But go ahead, explain why a physical resource that our entire economy would collapse without and that is supply constrained should be in a contango market. (I’ll give you a hint, if they do go into a contango market, and it is not just minor, it means that supplies are going to be collapsing.) Furthermore, futures markets are not perfect markets. If they were, we would not have terms such as backwardation, contango and arbitrage.
And you still continue to ignore the total debt numbers, the unfunded liability numbers and the derivatives numbers that I keep on bringing up. Those will not go away. Those will destroy our economy. Ignore them at your own peril.
Who cares that urban American Soccer Dads double up in the Lincoln Navigator to the game, suburban blathering bloggers grow tomatoes in their backyards and exurbans have rooftop solar hot water.
Why do experts in the oil business with money at risk say that oil prices will be lower next week, next month, next year and in every year through 2022 relative to the spot price? Backwardation is the antithesis of a supply constraint.
Now when Tverberg commenced her prophetess of doomerism, the oil market was in contango which is the thesis of a supply constraint.
It’s amazing that mathematically trained persons (actuarial scientists) are so blindingly innumerate to data which is in short supply on this blog.
Who cares? Our economy is CONSUMER DRIVEN. When consumers can no longer spend to consume, our economy breaks. The top 10% cannot consume enough to make up for everybody else living paycheck to paycheck.
And the pricing that you are describing is contango, not backwardation. Furthermore, your appeal to the “experts” who have money in the game have been wrong in the past. Think big money is right because it is big money? Look at how wrong they got it in 2008.
Oil prices will drop until 2022? If so, say goodbye to all of that fracking and all the associated liquid fuels with it.
You are out of your league here.
I would suggest you introduce yourself to a dictionary. Backwardation is associated with a supply constraint.
Gail, thanks for the wonderful video reference. Steve, thanks for the detailed analysis, Go Lions!
Gail, as an actuary where will pension funds invest when energy companies are liquidating, electric companies no longer have primary inputs, communications is dirt cheap (? there is that energy input needed maybe communication goes down too?), food production faces rising input costs, etc… What is a safe solid long term investment for pension or anybody?
Only half tongue in cheek, here….(as you ask the million dollar question). Where will they invest? Answer: how about something like this https://www.lehmans.com/
I like the phrase: “simple products for a simpler life”
I think Gail’s answer might be something like, “There will be damn few things like pensions around” (which is almost the case, now, isn’t it?) Buy land, tools, knowledge, and help create community. Watch you health. Some will buy weapons, or all of the above.
Unfortunately, each year we live on pretty much what is produced (or extracted) that year. All money does is help allocate who get what. There is a some carry over from year to year in the form of buildings and vehicles, but not a whole lot. Things like food and clothing are produced new each year.
What money does is allocate the production that is available among potential buyers. If there isn’t much to buy, money can’t do anything about the situation.
As oil production goes down, I except considerably less will be produced by the economy. Gas and coal extraction will probably decline as well. Food production will go down.
I imagine in not too many years, pension plans will be a thing of the past, except perhaps based on taxes of current production. Social security mostly operates in this manner. Some of what young people earn is used to give money to the elderly and disabled.
There still might be a transition time when pensions continue to operate. I don’t know what they should invest in. Nothing will do all that well.
Yes but I think you underestimate the role of the government..especially here in the U.S….I don’t think it is going to wimper away….I think they are already working on this..that is why you haveNSA, massweaponpurchaces, and police that look like military commandos. The government will nationalize everything so there will be no need for taxes….
The government is going to collapse under its own weight. Even with all of their paramilitary gear, the police are going to be no match for the hoards of people who are worried about what they are going to eat. There is something like one firearm for every man, woman and child in this country, and civilian purchases of ammunition have put government purchases to shame. Remember, with no oil, there will be very little food under our current system. Even cops have to eat. Those MRAPs and Bearcats are fuel hogs, and there would be a choice: Food or paramilitary police running around in armored vehicles.
What it boils down to is that even the government cannot violate the laws of physics, and ever increasing entropy is one of those laws.
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Interesting listening to Kopits presentation and then taking a quick look at the presentations of Howard K. Gruenspecht, Deputy Administrator, Energy Information Administration and Mark Finley, General Manager, Global Energy Markets & U.S. Economics, BP which are both demand side oriented. In particular the last slide from Howard Gruenspecht reads:
Why long-term projections might/could/will be wrong
• Different relative fuel prices
• Faster / slower economic and energy demand growth
• Changing policies and regulations
• Changing consumer preferences
• Faster / slower technology progress
• Technology breakthroughs
Spot what’s missing?
Supply side might be constrained!
Sort of like missing the obvious. We have so much wrong “stuff” being published, that it is hard to find something right in the midst.
Is it both demand and supply growth as a description of at least oil (energy source) is not other finite natural resources?
In the beginning, there is “low hanging fruit” with high EROI and costs that are low and profits high. It starts with low demand but grows encouraged both by the industry itself and the natural inclination of all species to grow into the available energy source in its environment.
Cars, multiple cars, muscle cars, SUV, trucking, shipping, SSTs, industrial agriculture, and more and more people, infrastructure upon infrastructure. Remember 30 cent gas prices? https://www1.eere.energy.gov/vehiclesandfuels/facts/2012_fotw741.html
Housing/settlement/suburb patterns, all the goodies to fill the homes, city blocks with buildings filled at the bottom with stores and above with residences that are the size of small rural towns of yesteryear. Honest but useless manufacturing jobs, honest but frivolous service jobs, massive bureaucracies.
At some cross-over time (2005), the “low hanging fruit” peaks, EROI begins to reduce dramatically, costs grow and profits diminish. Supply becomes the search in the bottom of the barrel for sources with at least a modicum of positive EROI – fracking, tar sands, deep ocean drilling. High costs demand high prices per barrel. High prices per barrel limit demand because of high costs for energy. All this comes with the “unintended consequences of massive environmental damage of the earths support systems for life and threats for life itself.
And it is a mad scramble to maintain what everyone believes is the norm, should be the norm, has to be the norm because the reality is to tough to wrap our minds around.
Overshoot with a human face.
I am afraid you are right.
I think of the oil extraction as being a function of both supply and demand. I think of increased demand as being driven primarily by increased wages and by increases in debt. If they aren’t there, is it hard for demand to rise in a country like the US. Of course, adding more Chinese consumers will increase demand.
If oil supply is high priced, demand (constrained by affordability) will fall. But I don’t use the proper economic jargon.
“If oil supply is high priced, demand (constrained by affordability) will fall. But I don’t use the proper economic jargon.”
Gail, the most valuable feature of your postings is that you can translate the ‘proper economic jargon’ to plain English for the rest of us! You spell it out, and then the comments from others expand and clarify anything that a first reading misses. We’d be less educated without you.
Thanks for this right up Gail. The presentation you linked to was great, I was surprised an hour had already passed by at the end, packed with information as it was. Kopit presents what I would call an unimpeachableargument that we are supply constrained. He also provides a lot of valuable data for those of us who really want to know what is going on and what to expect in the future, the kind of data that helps one make sense of the world in the fog produced by the MSM, by oil majors themselves, by mainstream economists etc, etc.
Thank you for the compliment.
This presentation, as I understand it, is the cutting edge in oil markets macro theory. Best I can tell, it’s the state of the art.
However, it should not be taken as a criticism of any other organization. I rely very, very heavily on excellent work done around the globe by industry professionals, investment banking analysts, and independent consultants. Just take a look at where I source my charts: Barclays, Goldman, IEA, BP. It is fair to say, however, that there are significant aspects of my analysis which qualify as innovative relative to models used elsewhere today.
I would also add that I think I make a strong argument for a supply-constrained world. But keep in mind, six months of non-conforming data could scupper all my fine theories. If you’re in the forecasting business–and you take it seriously–you’re always aware that all your models are provisional. It’s the best I can do now, but there’s no guarantee that it’s good enough in the long run.
Thank you for your feedback Steven. It is true you do not have a crystal ball, but what you do is provide a crystal clear picture of where we are today, how we got there, and where we are most likely headed. I don’t really see how any non-conforming data could be forthcoming. The foundation of your theories are based on facts. It’s true that some sort of unforeseen event could lead to a dramatic decrease in demand, or, (highly unlikely) a dramatic increase in the supply of cheap oil, leading to a “phase-switch”, if you will, to a demand-constrained economy, but this seems “baked-in”, or accounted for, in your theory.
And may I say, after hearing a certain person, whose name I won’t mention, (from IHS CERA) talk, your presentation with it’s clear layout of the facts and the big picture is therapeutic?
Why is the current price of WTI crude in backwardation through 2022 if there are supply constraints (“peak oil”)?
Our problem now is that the price won’t of oil won’t go up high enough to allow the oil to be extracted.
We need some combination of higher wages, increased borrowing, and increased number of buyers in the marketplace to get the price up higher, but these have not been working to raise price. At this point, the only way the “developed economies” are in the market for oil is through Quantitative Easing, as it is not working all that well. QE is not a long-term option, so in some sense, the backwardation may reflect the real state of affairs. Steve would argue that at some point, China will be getting back into the market, and oil prices will rise again. But if they rise, the high price will send economies back into recession quickly, so they can’t last, in my view.
As a practical matter, I understand only the close maturities are used in the vast majority of transitions.
I agree. We have Steve Kopits thank for the talk.
Can anyone help me think through what re-nationalization of oil companies might mean here? To this point, they seem to have developed a degree of regulatory capture that permits them to rearrange the deck chairs, direct and indirect subsidies, socializing environmental externalities, climate / carbon debts, film flam tight-oil financing. But if these companies become ever more evidently basket-cases, might (some) governments pull the overt and embedded subsidies, tank the share prices and take them over? It’s very much against the grain at the moment, but might we see crash programs of demand destruction (rationing / energy-efficiency investments / accelerated switches to renewables, however non-sustainable these might eventually prove to be in the long run)? I think it’s plain enough here that market forces cannot give us a managed energy descent. It’s far from certain that we could do this by design even if we had the nerve to try it, but perhaps in an accelerating collapse scenario a few jurisdictions might do so?
I don’t see denationalization of oil companies as a solution. It just changes ownership.
Oil companies historically have directly and indirectly helped the finances of a lot of folks:
1. Governments have levied huge taxes on oil companies. The “government take” can be as high as 80% or 90%. This is the reason for government ownership of oil exporting companies. All the stuff you hear about subsides is mostly distorted to make renewables look good. One article in Oil and Gas Journal in May 2013 showed that the “government take” associated with an $80 barrel of Bakken oil in North Carolina is $33.29. This is more than oil company Capital Expenditure ($22.60) and Operating Expenditure ($7.50) combined. Part of the Kopits’ presentation that I didn’t include mentioned a push to try to get the “government take” reduced. Obviously, that puts government finances in a worse position. (Some of the government “take” goes for things like fixing North Dakota roads after all of the big trucks wreck them.)
2. A big reason for the rising “productivity of humans” is a reflection of fossil fuel use. Some of this is equipment operated with oil. Roads would not be possible without oil use. Countries like Brazil with poor roads are terribly handicapped–they cannot get the goods they manufacture to market for a reasonable price. After peak oil, it is doubtful that we can keep up our roads, whether or not we have electric vehicles.
3. Oil companies have been able to pay big dividends, which is one reason pension plans have been possible. If a government takes over the oil company, and takes away the need to pay dividends, there is still the problem with supporting financially all of the elderly people who depend on these dividends.
When the cost of extraction is high, it is a real problem, because citizens cannot afford the oil. Changing the ownership doesn’t fix the situation, unless the government can somehow figure out a way to tax others, besides the oil companies. (Some of the “government take” is in the form of fees, rather than taxes. The amount includes local taxes as well.) I show some figures and a map with government take by country in this presentation.
Many thanks for the kind reply. I agree that this does not seem like a solution, if by “solution” we mean an arrangement by which things can go on as before. Indeed, given that most of your readers seem prepared to grant that things cannot go on as before, it would be helpful to devote more emphasis to what to do about or do with that. My question was in the context of ways in which we might make the energy / civilizational descent less chaotic than others. The market-driven version seems pretty much locked into catastrophic collapse, but are there there less-catastrophic albeit steep decomplexifications that we might alternatively envision?
You are on the right track to be looking for things we can do to soften the collapse. I am not sure governments will be able to play a very big role though–they are one of the worst off, and will be faced with trying to stave off their own collapses.
It may help if resources can be shared as equally as possible–at least that there aren’t a few who are dominating the distribution.
I think eventually we will need to be using more of a gift economy, where people give away their surpluses. This only works well in a small setting, where everyone knows everyone else, and there are expectations that each one give away any surplus. People will also need to take responsibility for relative’s children who lose their parents, if government is playing a smaller role. But such changes will be big ones.
In my opinion, there is no way of preventing the imminent economic collapse. We can either strive to maintain business as usual and fall into chaos or manage the decline. I suggest the actions;
On Wednesday, November 5, 2014, President Obama declares a national emergency and announces that petroleum rationing and increased petroleum taxes will be implemented on January 1, 2015.
The ratio quota would be 90% of the usage over the preceding six months. The quota would be reduced 5% every six months until consumption reached 50% of the 2014 consumption level.
The increased taxes would be used to fund the increased federal welfare expenditures that would accompany the economic decline caused by rationing and increased taxes.
I would also implement confiscatory tax levels on income and wealth above a certain level (level to be determined by analysis). Those taxes would also be used to fund the additional welfare load.
We have a reasonably well functioning food (SNAP), retirement (SS and disability), and medical (Medicare and Medicaid), housing (Section 8) system in place. They can be expanded to accommodate the greatly increased demand.
Europe, Japan, Saudi Arabia, etc. would be put on notice that they will now be responsible for their own defense. The recent Defense Department announcement on down sizing is a start but just a start. The funds freed up by military down sizing will be used for other domestic discretionary expenditures.
I contend that the above is far superior to what will occur if we continue business as usual
“We have a reasonably well functioning food (SNAP), retirement (SS and disability), and medical (Medicare and Medicaid), housing (Section 8) system in place.”
I don’t think the present industrial agriculture system will be a “well functioning food… system” in a low-energy world! Where will the tractor fuel, pesticides, and fertilizer come from?
“There is justifiable concern that the current dependence of the food sector on fossil fuels may limit the sector’s ability to meet global food demands.” — from the UN FAO. I think the US food system is perhaps one of the least secure in the world. Third-world subsistence peasants will have an easier time of it! US soils are depleted and tired, and cannot grow much without fertilizer derived from natgas and petroleum-fueled mining.
“Well functioning… retirement… system?” What is propping it up? Pensions are almost all in the stock market, and Social Security income has been included in the general budget to make deficits look less bad! Meanwhile, more baby boomers enter the system every day. I’m 58, and I don’t think there will be anything left by the time I reach retirement age. Or they’ll just start bumping the retirement age up every year, so that most people in the demographic bulge will never reach it.
“Well functioning… medical… system?” The US spends a greater portion of GDP on medicine than any other country — 16% or so, by some measures. Contrast with Germany, Japan, Canada, and many other “socialized medicine” countries that only spend some 7% of GDP. The insurance industry is a big, fat, unnecessary overhead expense that programs like Obamacare merely firmly institutionalize, with government subsidies. Any day now, only the rich will have health care in America!
“Well functioning… housing… system?” Section 8 does nothing for the person who bought property decades ago, retired to a fixed income, and now find the property’s value has inflated so much that they can no longer afford to pay the property taxes. Besides, where will a bankrupt central government get the funds as Section 8 claims start to increase in step with unemployment — which paradoxically reduces government income?
I think the only way the US can possibly slide through this crisis without general insurrection is through the use of military force to seize the assets of other countries. Canada comes to mind.
That recent Defense Department announcement was just a bit of smoke and mirrors posturing. They were given a cap, to which the Pentagon said, “This is what you will get for that money” in the certain knowledge that that wouldn’t get through Congress, and that the cap will have to be increased.
I bet the government will start creating money out of thin air, not borrowing it from anywhere. That will delay the collapse until the value of the new money is destroyed by hyperinflation. Look for deflation, to be followed by hyperinflation as the government gets desperate and starts to try anything to keep the system from melting down. Don’t be surprised if they start sending checks to all taxpayers, like they did around 2000 with that ‘refund’ they sent out when they saw the economic indicators heading straight down. Some economist on MarketWatch suggested that right after the crash of 2008 as a way to boost demand and get the economy growing again. Billionaires won’t just sit back and watch civilization collapse around them because, as Ukraine just demonstrated, no amount of money can protect you from the mob. You need to stop the mob from forming. So expect some very unconventional ‘fixes’ to be tried in a few years.
Will *start* printing money out of thin air? They’ve already been doing so via the Federal Reserve, using bankers as straw purchasers of US Treasury debt. That’s what quantitative easing is, at least the part of it that deals with US Treasuries. We have been monetizing the debt despite what the Fed has told us.
Indeed — but the Chinese get the gold medal having printed 15 trillion dollars since 09
Since every country is in the same position with the respect to money printing won’t they at some point have to come together and reprice assets and currencies. I know it seems hard to fathom but if you tell them o.k you can do this or take your chances with the lion in the arena…..I think most if not all will have to capitulate. We can’t be the only ones that see this coming? The PTB have known about this for a long time….that is why we went into Iraq…you could not have a PO crises with that guy in power…he would have been able to build a huge army under the wing of the Soviet Union and China…. Your models and assumptions are based on the “current system” which might not even exist anymore. Danny.
I am still getting to grips with the economic and financial aspects so would appreciate if someone could explain what constrains an oil company from simply cutting back or not paying dividends and investing the money in exploration, licenses and production. I assume it would send a very negative signal to the financial markets which would then impact the companies share price and I am guessing their ability to borrow but they can at least divert the revenues that they would have been paying out in dividends. Is the ability to borrow not backed by the assets and production that they control which won’t exactly vanish?
Considering institutional pension funds are tied up heavily in the fossil fuel industry and are likely invested for “income” generation over capital growth, trashing dividend payments would not only highlight massive wider problems, they’d also cause a stampede and have politicians scrambling for cover. Easier to keep people quiet by selling assets and continuing dividend payments. Clearly a FUBAR solution.
They want to buy as much time as they can before the inevitable. I’d be surprised if some of these invested funds hadn’t already written to these guys questioning their long term business plans. Not only do they need to panic about imminent peak oil but also rising impacts of climate change. In short it’s game over and they know it.
Think of the institutional behemoths tied up in Exxon Mobil, BP, Royal Dutch Shell, Gazprom, Sinopec, CONSOL Energy, American Electric etc.
Many thanks, so basically just keep the lid on things for as long as possible!
Think of everything in these terms from here on in in terms of aggreage fossil fuel production
Phase 1 – Growth (1800 >> 2006) 200+yrs
Phase 2 – Plateau (2006 >> 2015-2020) 10-15yrs
Phase 3 – Decline (2015-2020 >> ??
We’re months away from entering Phase 3
No one is beating the laws of physics. They’ll try with creative accounting but when the happy feely recovery articles flow just remember the above.
What we’re debating is the speed of collapse and its impacts globally.
as the usa has dominated global finance for much of the las century, based entirely on colossal hydrocarbon energy reserves tapped from the 1800s onwards, phase 1 ended in 1970, the year USA went from being in oil surplus to oil deficit.
Few realised the significance of this, so America carried on being the world’s creditor nation, but effectively borrowing money to do so as the oil deficit got larger and larger. they were freewheeling or freeloading on the rest of the world, depending on your point of view.
that lasted for a while, there were ‘energy shocks’ in the early 70s, but the producers had to accept that they were on the same pendulum as the infidel consumers.
everybody went back to sleep, so the American dream could carry on, with the promise of infinite oil.
Come the 90s, and the realisation that oil isn’t infinite, the oil wars began under the tattered banner of liberation. This trashed the oil sources, inevitably.
And just as inevitably we reached the plateau of 05/06, and we’ve been there ever since, denying the inevitable on a world scale, just as the USA denied it back in 1970.
Only this time there’s no one to borrow from to get ourselves out of trouble.
This why the USA is running down its military, without the ongoing guarantee of cheap energy, it’s unaffordable.
Now we come to the final phase: Saudi is clinging on to its delusion of infinite oil, just as the USA did, but soon it will run dry. Saudi is surrounded by basket case nations, held off by the US presence and oil wealth. America cannot maintain its military, and Saudi is too weak to survive without it. When the USA pulls out, Saudi will collapse and with it the stability of the global oil market—and by definition the global economy.
Oil will never run out, all it needs is for somebody to step on the supply hose for a while.
I hadn’t thought of the situation that way.
Oil company stocks and other dividend paying stocks are the backbone of pension plans. Pension plans, and almost everyone else, would dump the stocks, if they no longer could pay out dividends–especially if the reason was that they were running out of good prospects for development.
If they are running out of good prospects for development, borrowing is going to be less and less of a possibility too. The issue in the recent past is that as oil companies have not been able to estimate the extent to which the challenges of new oil fields can be overcome. They often find that they can get very little oil out, or the cost is much higher than planned. If the reason they are cutting back is because of this problem, lenders are not going to be very excited about the prospect of lending to these companies.
Thank you for a beautiful analysis. These data seem to have driven your somewhat alarmist last two pieces, where you proposed that serious oil shortages will bite into our economies within 2 years.
I think insiders know this, judged by 2 observations: P/E ratios of all major oil companies are way below average, implying that market observers do not believe in any growth in new oil finds.
Secondly, all major automobile manufacturers are rapidly developing electric and fuel cell driven cars. If we had oil for another 50 years, why would they bother ?
Conventional wisdom has moved in the direction of “Peak Oil,” with a morph to electric cars and all kinds of other technology. I agree that you are right–everyone is trying to move in the direction of getting off oil.
The problem is that conventional wisdom is wrong. We can’t maintain the long supply chains needed for any kind of high technology. Thus, unfortunately, these high tech solutions won’t save us.
Let me disagree.
We will get used to whatever energy budget we have. Look at Britain. Productivity has taken a hit, but employment is coming back. We will get used to less oil. And we will find alternatives–I personally think self-driving electric cars will be a huge change in technology and society after 2020.
But in the short run, Gail is pretty close to right, I think.
I think the things that lead me to see things differently are
(1) The dependence of governments on the surpluses that they get directly and indirectly from cheap energy.
(2) The dependency of our current system on debt, and in fact, on increasing amounts of debt. The use of increasing amounts of debt “works” in a growing world, but not in a shrinking world.
(3) The problems our economic system has had to adapting to $100 barrel oil. The financial system is very close to the edge, in spite of Quantitative Easing since 2008. The financial system cannot withstand higher oil prices. In fact, if interest rates go up very much, we are likely to see collapse with $100 barrel oil.
(4) The experience in previous collapses. The situation in each of these was a situation of diminishing returns leading to increasing disparity of wages. (With less resources per capita, new workers could not get as good-paying jobs.) Governments found that they needed to provide increasing amounts of services–such as armies to conquer other countries with more resources, and programs for the many unemployed. With common workers earning such low wages, it was impossible for governments to raise taxes sufficiently. The downfall came because governments could not raise taxes enough to pay for the increased benefits required. A recent related post is this one.
No one has ever disproved the original Limits to Growth analysis of 1972. It looks to me as if we are on the path that it suggested–not the common “peak oil with mitigation” story that is widely believed. The limit in the 1972 analysis was inadequate investment capital (in a physical sense), plus some pollution issues.
Gail, you are going to have an inbound email with the charts described in my post below.
Actually, employment is not coming back. If you plot the employment:population ratio against U-3 unemployment, then plot the labor force participation rate against U-3, you will see a very disturbing trend. The employment:population ratio plummeted after the 2008 financial crisis and has remained largely flat, yet U-3 has continually fallen after it peaked at around 10.5% or thereabouts. When you compare U-3 (or U-6 for that matter, U-3 and U-6 are so highly correlated that I doubt U-6 is measuring anything real,) to the labor force participation rate, you will notice that they are going down almost in lock step. The BLS is simply rolling people out of the labor force for its accounting purposes and no longer considering them unemployed. In other words, they’re out of work, but no longer unemployed. Nice, huh?
Look at what is currently happening in Australia’s manufacturing sector.The last three carmakers (GM,Ford and Toyota)leaving.Alcoa closing their Pt Henry aluminium smelter,SPC Ardmona closing their cannery,Qantas about to lay off over a thousand more workers,the end of the massive mining CAPEX,Major banks still offshoring the list goes on.
To make matters worse government budget deficits projected to only worsen unless we take the path of austerity which only feeds into this negative feedback loop but get this the Australian property market is at all time highs?
This ends badly.
It sounds like Australia is having problems not too different from quite a bit of the rest of the world. Low commodities prices are part of the problem, as is the inability of workers with stagnant wages to afford high prices.
(Thanks for your post and comments. )
And yet in Britain the ‘returning’ employment which our idiot politicians refer to is of a very low quality: increasingly, poorly-paid, inadequate for new household formation and the sustaining of a consumer class.
Even high salary earners are seriously under pressure if they wish to maintain the lifestyle they and retailers, and their creditors, wish to have – and which their parents enjoyed.
I’d agree that the goalposts move as costs rise: to the extent permitted by the credit available we get used to increases and changes, adapt to new budgets and change our expectations, but on the whole I’m not quite so optimistic.
Everything now seems to hinge on the credit that can still be extended to almost every class in Britain. ‘Middle class’ and ‘working class’ seem outmoded to me: the rub is ‘Are you in the ‘credit-worthy’ class?’ When one thinks of the old definition of middle class, (not an economist’s definition but that of the middle class itself, a Victorian definition) which is ‘possessing a freehold property and being able to live of income from capital’, one can see how far things have declined……
I suspect – from anecotal evidence – at the moment that there is a brief phase of an end to patience with caution and austerity, and that people who have access to credit are saying: ‘To hell with it! The sky hasn’t fallen in, we have to live (go on holiday, buy that new car, etc)!’ Husbands fearing divorce if they don’t keep their wives happy, etc….. there are powerful social pressures which lead to consumption which can’t be afforded.
Seems very fragile indeed, to me at least.
This casualisation trend seems to be gathering pace so where’s the discretionary income to drive growth.Extend and pretend.Neo feudalism coming in the not to distant future.
Indeed, my poor husband is suffering under my requests for a cistern, masonry heater, metal roof, the list goes on and on… 😉
“I personally think self-driving electric cars will be a huge change in technology and society after 2020.”
Steven, where will the capital come from for the vastly increased complexity required of “self-driving electric cars?”
In many ways, I could see electric vehicles gaining traction. (Pun intended. 🙂 They were among the very first “horseless carriages,” and I think the tech of the future is going to look more like the past than it will look like the tech of today.
But it appears to me that the advances in technology necessary for “self-driving electric cars” stands on the shoulders of all of human civilization. They will require a functional financial system, education system, highway infrastructure, semiconductor manufacturing, etc. — all of which are currently dependent on “non-substitutable” petroleum.
Until the logistics industry converts to electricity, I don’t see “self-driving electric cars” as sustainable. Until then, it’s high-tech manufacturing is totally dependent on diesel-powered truck transportation.
Imagine a pyramid that is modern civilization. At the bottom is energy. On top of that, we build our various industrial systems — finance, education, food systems, medicine, etc. At the apex of the pyramid is the most modern, highest technology we have, along with the research and development necessary for future technology growth.
It seems to me that you are arguing that there will be a smaller “base” on our pyramid. Does that not mean that all the things that sit atop that pyramid must necessarily scale back?
If anything, we would be going back to steam engines, unless somebody figures out how to make a practical Stirling engine. NASA tried back in the 1980s and had vehicles driving around on them, but then stopped the research. I’m not sure why; if it was an engineering practicality problem, a funding problem or a QWERTY problem. No matter what, in the future, if there are engines, I expect they will be external combustion engines because there is much more flexibility in what kind of fuels you can use.
I don’t see electric cars taking over simply because of storage issues. That would require an enormous amount of batteries, which means a lot of mining, and there is also the issue of charge times vs changing batteries out. If I run out of juice, away from a source of electricity, I NEED to have spare batteries, whereas with gas or diesel, I need a can and a nice person to give me a ride. Perhaps some kind of electric trolley/train system in urban settings would be doable, but that means that we need a supply of electricity.
“If anything, we would be going back to steam engines…”
You mean horses, don’t you? 🙂
I think a lot depends on the rate and severity of collapse. It could be that the stock of vehicles on the planet will leave survivors with spare parts for many years. But I don’t see the mining, refining, and machining capabilities for making new engines of any sort being around for very long.
Steven, you seem to be missing an important piece of the puzzle that will limit future possibilities. Meet Simon Michaux. http://www.youtube.com/watch?v=TFyTSiCXWEE
(50 minutes and worth every one of them)
Thanks, you beat me to it!
;] I was inspired by your comment to make that post.
Ugo Bardi on the mineral side of things:
@Lidia From the article you linked to by Ugo: “Of course, this study doesn’t claim to be a complete survey of what’s being done in the world’s mineral industry, otherwise we would have had to put together an encyclopedia in 24 volumes or more.”
That right there is the hallmark of someone who cannot distill meaningful information from the trivial. Worthless reading. You don’t need a “complete survey” to figure out what is going on. I breezed through the rest if the article and, unsurprisingly, Ugo can’t seem to figure out what the real problems are.
Steven….having been impressed by your lecture, I am staggered by the naivety of that comment.
Surely you can’t have fallen into the ‘technology will save us’ trap?
We have enjoyed 2 centuries of increasing ‘technology’ which has created our modern world, but there isn’t a single aspect of it that doesn’t depend entirely on hydrocarbon fuelled energy for its existence. Energy =Technology, that equation cannot be reversed.
Can you visualise the complexity of self driving electric cars? A concept so staggering as to defy belief when related to our oncoming energy crunch! A human being is basically a means of converting raw fuel (food) into energy output. We do it at a fantastic level of efficiency. A self driving car would have to replicate that, just where do you imagine that energy replication will come from…solar panels on the car roof? That’s before we get to the onboard computers necessary to do it. Or the complexity of the factory system necessary to make it.
You point out, quite rightly, that rises in GDP etc coincide exactly with increases in miles travelled, You point to big changes being inevitable, then fantasise about society continuing on wheels so that our motoring habits continue to form the driving momentum of an industrial society —all we have to do is go on making things with wheels on! Unless you fantasise about anti-gravity too and dispense with wheels altogether?
We all know what happens when you drive around in ever decreasing circles.
We got into our fine mess by replicating human effort by mechanical means, (via heat) then magnifying it by factors of hundreds and thousands to produce 6bn people too many.
Only coal oil and gas allowed us that privilege, and for a short time—until those fuel sources run out. We are burning 200m years of stored fuel in 2 centuries…and there are no substitutes. You should add a blindingly obvious point to your next lecture, that you cannot make anything without heat.
Our society functions by making ‘stuff’, and stuff needs heat to manufacture it. The ‘wealth’ of the last 2 centuries came solely from digging fuel out of the ground and burning it. But we insisted on calling it GDP. But when that stops, the wheels come off our industrial society and those 6bn people will be left with no means of support. They will not survive by taking in each others washing and other modes of fantasy employment.
There are a lot of “peak oilers,” Steve included, who think that a decline in oil supply will not be a problem. We just move on to other forms of transportation. I agree with you though, that the issue is maintaining the whole web that allows for today’s technology.
@ Steven Kopits
“We will get used to whatever energy budget we have. Look at Britain. Productivity has taken a hit, but employment is coming back. We will get used to less oil.”
I and many people I know, here in Britain have ‘voluntarily’, halved our personal travel cars. Yes there are jobs being created, but many are zero hours contracts. i.e. no fixed hours, but waiting for a phone call for a day, or weeks work.
People are digging into savings for purchases, because there is no interest on savings, and there is a tacit fear that bank savings are not as secure as we had been led to believe 10 years ago.
A Personal Protection Insurance scandal here in the UK, by many financial services, has paid out compensation to thousands of people who have in the last 2 years found themselves with a ‘windfall’, of £ 5000 on average. ( some are even suggesting that these windfall payouts are part of the reason for the UK recovery ).
So when you say, we will get used to less oil, I say yes we are, but up to present we are basically eating into the easy ‘fat’.
It’s the next step down, when the fat has been used, that we need to worry about?
Thanks for your on-the-ground view.
“We will get used to whatever energy budget we have.”
Ugo Bardi notes that Italy is now getting by on the amount of oil they used in 1967.
That’s both encouraging and scary. “Encouraging” that a modern industrial country can even survive on an energy budget of nearly 50 years ago. “Scary” in that this has happened so quickly to a modern industrial nation.
Amusingly I saw an article the other day about how Americans are FINALLY becoming more efficient users of energy — utter bs of course — unless you count not having any money to pay for gasoline becoming more energy efficient.
When energy use does not grow neither does the economy (although QE can mask that for awhile)
Gail, I watched the video presentation. Here’s my question: If oil price is not high enough to reward exploration with increased production to satisfy investors, causing a hiatus in exploration (and selling of assets), won’t that lead to reduced supply, which will in turn cause higher prices for oil due to scarcity, and at say 125 a barrel once again provide incentive to drill?
Or, is it a case of oil sitting in a tight price zone due to an overall weak world economy, so that if oil price does get pressure to rise from reduced supply, all it will do is reduce demand? I’m leaning towards the 2nd scenario, but I’m interested on your view.
Since 2005 conventional has been declining by around 6% pa
Oil skyrocketed to $147 in 2007
Triggered 2008 financial collapse
As demand crashed, so did price of Oil to $37pb
ZIRP & QE went into overdrive financing, well everything! including LTO (unconventional) projects
Oil then climbed back up from $37pb in 2009 to $102 WTI Crude & $110 Brent in 2014 300% increase < 5 years
Contrary to the MSM/political recovery bullshit, we know there's sustained demand destruction happening throughout the West as people become poorer and the middle classes are being wiped out, so this sustained demand destruction must be absorbing the shock of rapidly rising prices
Developing nations still get greater bang for their oil usage so their economies will continue to grow
Between 2015-2020 LTO increases in production will fail to keep pace with conventional declines that I mentioned at the start. As soon as that rubicon is crossed demand will outstrip supply and prices will rise again triggering the next crisis, terrifying everyone to pieces leading to the next crash in price.
Basically the SHTF between 2015-2020 as we stare into the abyss and take our first leap into the unkown (right hand side of the Peak Oil curve)
Just expect to see a lot more civil unrest, war, chaos from 2015 onwards
I am afraid you are right. I think that the whole thing morphs into Limits to Growth, as foretold in The Limits to Growth in 1972.
The catch if oil prices go up again is that they sink the economy. In fact, the economies of the developed countries are already pretty much sunk with $100 barrel oil–it is just Quantitative Easing that is hiding the problem. The price can’t go up and stay for any reasonable length of time.
You are right. If the price does go up, it will very quickly reduce demand. This is what will sink the economy. So we either get reduced supply, and a contraction of the economy because of that, or higher prices leading to reduced consumption, and a contraction of the economy. The fact that there is all the debt outstanding makes the situation worse.
Thanks for your reply Gail. As I suspected, it doesn’t matter what we do now it will lead to economic contraction.
That’s a great question.
We have at least three differentiated influences on supply: rising costs and deteriorating economics for the IOCS, which in principle should reduce supply; rising costs and deteriorating economics for the limited access NOC countries (Mexico, Russia, Argentina, Venezuela, et al), which should lead to increased supply (or at least access); and shales, in which I would normally defer to Art Berman–does anyone really know what its long-term economics and prospects are?
Reduced supply should lead to increased prices, but probably not sufficiently great to overcome increasing E&P costs. This is an issue amenable to quantitative analysis. I’ll put it into my deck of analyses to be completed.
Perhaps if wealth and income inequality were not as bad as they are now, $125/bbl would be something that we could handle, but back when things were better, $147/bbl nearly brought the country down. We’re a lot more fragile and an lot fewer people can afford gas at today’s prices. Employment is down to 58.8% of the US population being employed as of Jan, 2014 from 63.4% in December, 2006. Low paying part time, rather than well paying full time jobs are on the rise. In short, there is a lot less discretionary income to go around, unless you are rich. $125/bbl will raise prices on just about everything in our globalized economy, putting a strain on people who are living paycheck to paycheck. The consumer base simply is not there to support $125/bbl for any appreciable amount of time. So, yes, they might start pulling more oil out of the ground for $125/bbl, but when people aren’t buying things because jobs have gone away due to the higher costs, further hurting the consumer base, who are they going to sell that $125/bbl oil to?
BTW, Mr Kopits, since you are on here, let me say that was a great talk. I love it when people bring hard data to the table. Would you agree that your point regarding supply-constrained forecasting is another way of saying that economists are not including resource scarcity into their models?
I believe Kopits was optimistic to think equity firms will buy the assets of the oil companies (I assumed not the oil production going forward), but what will any buyer do with these assets as the capex continues to widen and oil production declines? It is a losing proposition.
Agreed. What is the time marker when he talks about this? I know I heard it the first time, but when I was listening to sections later, I couldn’t find it.
The selling and hoped-for buying of assets (by China and Rosneft) are mentioned in the questions session at about the one hour mark. That’s probably why you couldn’t find it in the lecture per se.
Thanks! I listed to all the questions the first time through, but didn’t make it to them the second time.
As for what happens to assets not easy to sell, my own locality gives an answer. Birmingham was once “the workshop of the world” and “city of a thousand trades”. But the ubiquitous “Made in England” has now been replaced by “Made in China” and streets that were hives of industry for a century are now deserted. Many of the factories have been converted to residential or leisure use (e.g. The Custard Factory), or more recently to indoor car parks. The remainder just sit empty because few entrepreneurs see UK competing adequately with China where labor/environmental regulations and pay are so much lower.
Meanwhile the old (1768-72) and new (1826-1838) mainline canals, which were the “motorways” of the beginning of the global transport and industrial revolution, are now just “heritage” gimmicks for leisure boating and supposedly stylish city living (like canals in Venice or Amsterdam)(though also nice off road bikeways). Ironically these canals, which were originally fossil-fuel free (though actually used to carry coal) no longer allow horse-drawn barges but instead have smelly noisy oil-powered chuggers instead – so much for “heritage”!
We have lots of empty downtowns across the United States, filled with crafts people have made and other fun little “gift” stores. The major stores have moved to the edge of town, and are now part of huge chains getting goods from China. People need cars to get to them. Factories are mostly gone, moved to China too.
The buyers for assets have recently been primarily Middle Eastern–Kuwaitis, Qataris and the Emirates. The assets being sold are concrete and specific. They are amenable to valuation and therefore a transaction. That’s not the issue.
The issue is that the value of an asset to a strategic player should be greater than that to a financial buyer. Thus, Shell’s share in Wheatstone should, in principle, be more valuable to Shell than to, say, KKR. For now, we have quasi strategic buyers from the Middle East. However, if the oil companies decide to continue dumping assets–and I think that’s likely–then the first round buyers may discover that they have overpaid, on the one hand, and that they have a finite appetite for IOC divestments, on the other. If the Chinese or other oil companies don’t step in, then the IOCs will have to sell to financial investors like KKR, TPG and other funds who can move billions at a time. And they will have to sell them for less than the oil companies think they’re worth. Some oil companies are ahead of the game: BP, due to Macondo; Conoco (due to my visit there? maybe a bit); Hess (savaged by Elliott Management); and now, Shell. Expect Chevron and Exxon to wake up to this game late. They’re most likely to be caught out.
Great article — what I am left wondering is:
Once investors realize the ROI is no longer there will they rush for the exits unloading Big Oil shares which of course would collapse these companies and the age of industry is effectively over.
The central bankers and world leaders would have been aware of this issue years ago — I believe that the primary purpose of QE and ZIRP were to ensure that capital was available to flow into continued oil exploration to kick the can — I also believe the non-stop drum pounding by the MSM that fracking would save the world is also part of a coordinated effort to get hot money into that scam…
If the above are true — is there anything more that can be done to kick this can any further?
Are there any more creative ways that central bankers can delay this collapse? I hope so – but I doubt it.
When I read this article I am convinced that we have perhaps months – no more than a year or so — before things unravel.
And I am also convinced that the unraveling will be like splitting open a golf ball — fast and furious — when the big money moves there is not stopping the stampede.
The only way I can see this being delayed is if the big money is told that they MUST stay in no matter what the ROI is — because the moment any of them makes a move — the world as we know it – ends.
I don’t know if there are any more rabbits that can be pulled out of hats, in the financial world.
I think that part of what keeps things hidden is each sector’s lack of knowledge of the other’s goings ons, and their effects, and the willingness of people to believe the happy stories they are told.
The big money investing in oil companies is pension funds. In fact, pension funds are the big investors in practically all kinds of stock and bonds. Ultimately, we know that the value of paper investments has to converge to what they really can buy, in a world with shrinking resource extraction–in other words, not much. But a person would like to delay this day as much as possible. A lot of how this works out depends on how well governments hold together.
One ironic thing is that Steve Kopits was laid off from Douglas Westwood, not long after he gave his presentation. His office is being closed, for lack of business. I suppose oil company cutbacks hit all areas, including consulting services.
“I don’t know if there are any more rabbits that can be pulled out of hats, in the financial world.”
I don’t know if it will actually work, but continue to taper -> crash stock market -> money floods into the “safety” of US Treasuries -> stampede wears off and retirement accounts are seized. Somewhere in there, QE gets ramped back up to save the banks when the shadow banking system begins to unwind again.
Combine that with massive government subsidies, and that is the last rabbit. It may be a dead and decaying rabbit, however. I’m bracing for food price shocks sometime between this spring and fall, given the low cattle herds and the drought in California, and we all know what food price shocks can lead to. Add to that retirement accounts getting wiped out, and the end may be civil unrest, American style.
Maybe your list of additional steps would work. The “safety” of US Treasuries is something it is easy to forget. Maybe you could get a job in Washington DC, fixing the situation.
Sounds like the rabbit my dog was running around with today: a stripped carcase, fairly rotten but it kept him happy for a bit. We live in the age of short-term expedients.
I suspect we can take some food shocks: they will undoubtedly hit the very,very poorest, but the majority will not be so distressed as to riot.
Credit is still allowed to them, after all……..
And in Britain: rain = no riots, you can bet your last dollar on it!
the police call rain P C Rain—it does their job for them
The only dangerous time in Britain is a very, very hot and dry August/September, allowing those who might riot or join in to loot, to get tanked up out of doors on beers and cider (from about 8am, as far as I’ve observed…..).
A substantial rise in assaults and robbery is of course possible as a consequence of economic distress in any season.
there were riots in London and elsewhere in England not all that long ago – 2011 – These were just from what that Russell Brand talked about in his interview saying why he didn’t vote – had to do with his perceptions growing up about how the system only cared for itself.
In the US it will be far worse as there are magnitudes more guns unless the contrails conspirasists are correct and Americans are as chemically sedated as they are acting now.
What I have noticed is an economy only grows 1-3 % in good years – add in something like converting to fossil fuels (and a workable national policy – Japan 1965-85 and you can get 5-10% (China recently) for a decade or two. Then things level off and you are back to 1-3 % sustainable. You can have special situations like the US after WW2 with the only fully intact industrial system left functioning so 5% was sustainable til about 1970. Of course the US blew this golden egg on Empire, things like the Vietnam War, and the Cold War. Then the government and/or the financial segments use funny money schemes to ramp it up – the bubble and bust system now being used. The elites are never satisfied with their wealth growing 1-3% a year.
Ukraine is a top producer of corn and other grains that thicken the plot.
“The big money investing in oil companies is pension funds. In fact, pension funds are the big investors in practically all kinds of stock and bonds.”
So how long before pension funds, caught in the pincer of collapsing returns and baby-boomer retirement demands, start to fail?
We have the Pension Benefit Guaranty Corporation to guarantee our pensions up to a certain level–$35,000 a year comes to mind–in the US. Of course, there is virtually no money in the PBGC. It would have to be the US government attempting to guarantee everything.
We are already starting to see some pensions fail. Detroit has some that are going through the Detroit bankruptcy for example. With the federal government guaranteeing banks as well, and bailing out insurance companies, it seems like everything fails at once.
Information, rather than being shared, husbanded and used to improve, is used as a weapon in wars of finance, economic and political power. In the end we are damned by our childish, egotistical regard for the power of information. That is the story that, were there remnants left to tell it, survives the other narratives of gold and oil as the agents of our demise.