Update on US natural gas, coal, nuclear, and renewables

On August 6, I wrote a post called Making Sense of the US Oil Story, in which I looked at US oil. In this post, I would like to look at other sources of US energy. Of course, the energy source we hear most about is natural gas. We continue to be a net natural gas importer, even as our own production rises.

Figure 1. US natural gas production and consumption, based on EIA data.

Figure 1. US natural gas production and consumption, based on EIA data.

US natural gas production leveled off in 2013, because of the low level of US natural gas prices. In 2013, there was growth in gas production in Pennsylvania in the Marcellus, but many other states, including Texas, saw decreases in production. In early 2014, natural gas prices have been higher, so natural gas production is rising again, roughly at a 4% annual rate.

The US-Canada-Mexican natural gas system is more or less a closed system (at least until LNG exports come online in the next few years) so whatever natural gas is produced, is used. Because of this, natural gas prices rise or fall so that demand matches supply. Natural gas producers have found this pricing situation objectionable because natural gas prices tend to settle at a low level, relative to the cost of production. This is the reason for the big push for natural gas exports. The hope, from producers’ point of view, is that exports will push US natural gas prices higher, making more natural gas production economic.

The Coal / Natural Gas Switch

If natural gas is cheap and plentiful, it tends to switch with coal for electricity production. We can see this in electricity consumption–natural gas was particularly cheap in 2012:

Figure 2. Selected Fuels Share of US Electricity - Coal, Natural Gas, and the sum of Coal plus Natural Gas

Figure 2. Selected Fuels Share of US Electricity Production – Coal, Natural Gas, and the sum of Coal plus Natural Gas, based on EIA data.

Coal use increased further in early 2014, because of the cold winter and higher natural gas prices. In Figure 2, there is a slight downward trend in the sum of coal and natural gas’s share of electricity, as renewables add their (rather small) effect.

If we look at total consumption of coal and natural gas (Figure 3), we find it also tends to be quite stable. Increases in natural gas consumption more or less correspond to decreases in coal consumption. New natural gas power plants should be more efficient than old coal power plants in producing electricity, putting downward pressure on total coal plus natural gas consumption. Also, we are using more efficient lighting, refrigerators, and monitors for computers, holding down electricity usage, and thus both coal and gas usage. Better insulation is also helpful in reducing home heating needs (whether by electricity or natural gas).

Figure 3. Layered US consumption of coal and natural gas, based on EIA data.

Figure 3. Layered US consumption of coal and natural gas, based on EIA data.

Another factor in the lower electricity usage (and thus lower coal and natural gas usage) is fewer household formations since 2007. Young people who continue to live with their parents don’t add as much electricity usage as ones who set up their own households do. Low household formations are related to a lack of good-paying jobs.

Coal Production / Consumption

US coal production hit its maximum level in 1998, with production tending to decline since then. US coal consumption has been dropping faster than production, so that exports (difference between production and consumption) have been rising (Figure 4).

Figure 4. US coal production and consumption based on EIA data.

Figure 4. US coal production and consumption based on EIA data.

In 2012, about 16% of coal produced was exported. This percentage dropped to about 10% in 2013, with greater US coal usage.

Coal tends to cause pollution of several types, including higher carbon dioxide levels. It also tends to be less expensive that most other fuels, so world demand remains high. Worldwide, coal use continues to grow.

Nuclear and Hydroelectric

Hydroelectric is the original extender of fossil fuels. Hydroelectricity using concrete and metals became feasible in the 1800s, when we began using coal to provide the heat necessary to make metals and concrete in quantity. The first hydroelectric power plants were put in place in the US in the 1880s.  As recently as 1940, hydroelectric provided 40% of the United States’ electrical generation.

Nuclear electric power was the next major extender of fossil fuels. The first nuclear power was added to the US energy mix in 1957, according to EIA data. The big ramp up in nuclear began in the 1970s and 1980s. Similar to hydroelectricity, nuclear requires fossil fuels to build and maintain its plants making electricity.

If we look at the US distribution of fuels, we see that in recent years, nuclear has been a much bigger source of energy than hydroelectricity.

Figure 5. US Energy Consumption, showing the various fossil fuel extenders separately from fossil fuels, based on BP data.

Figure 5. US Energy Consumption, showing the various fossil fuel extenders separately from fossil fuels, based on BP data.

The above comparison includes all types of energy, not just electricity. The grouping GeoBiomass is a BP grouping including geothermal and various forms of wood and other biomass energy, including sources such as landfill gas and other energy from waste. Note that GeoBiomass, Biofuels, and Solar+Wind are hard to see on Figure 5, because of their small quantities.

If we look at hydro and nuclear separately for recent years (Figure 6, below), we see that nuclear has tended to grow, while hydro has tended to fall, although both now seem to be  on close to a plateau. Hydro tends to be more variable than nuclear because it depends on rainfall and snow pack, things that vary from year to year and month to month.

Figure 6. Comparison of US nuclear and hydroelectric consumption, based on EIA data.

Figure 6. Comparison of US nuclear and hydroelectric consumption, based on EIA data.

The reason why hydro has tended to decrease in quantity over time is that it takes maintenance (using fossil fuels) to keep the aging power plants in operation and silt removed from near the dams. Most of the good locations for dams are already taken, so not much new capacity has been added.

Nuclear power plant electricity production has grown even since the 1986 Chernobyl accident because the United States has continued to expand the capacity of existing nuclear facilities. I do not expect this trend to continue, for a variety of reasons. Not all such capacity expansions have worked out well. The capacity expansion of the San Onofre plant in California in 2010 experienced premature wear and is now being decommissioned. Many of the nuclear plants built in the 1970s are reaching  the ends of their useful lives. Unless we add a large number of new nuclear plants in the next few years, it seems likely that US generation of nuclear electricity will be falling over the next 20 years.

Other Energy Types

It is easier to see other energy types if we look at them as a percentage of US total energy consumption. The following is a graph of “renewables” as a percentage of US energy consumption, using EIA data:

Figure 7. Renewables are percentage of US energy consumption, using EIA data (but groupings used by BP).

Figure 7. Renewables are percentage of US energy consumption, using EIA data (but groupings used by BP).

A person can see that over the long haul, hydroelectric has tended to shrink as a percentage of energy consumption, as energy needs grew and hydroelectric failed to keep up.

The GeoBiomass category is BP’s catch-all category, mentioned above.1 It (theoretically) includes everything from the wood we burn in our fireplaces to the charcoal briquettes we use to cook food outdoors, to home heating with wood or briquettes to the burning of sawdust or wood pieces in power plants. It also includes geothermal, which is about 6% as large as hydroelectric, and is increasing gradually over time. Based on EIA data, biomass isn’t growing either in absolute amount or as a percentage of total energy consumed.

Biofuels are liquid fuels made from biomass used to extend oil consumption. In the US, the major biofuel is ethanol, made from corn. It is used to extend gasoline, generally up to 10%.  A chart of production and consumption shows that US biofuel production “topped out,” once it hit the 10% of gasoline “blendwall”.

Figure 8. US biofuel production and consumption, based on EIA data.

Figure 8. US biofuel production and consumption, based on EIA data.

Biofuels now amount to 5.7% of US petroleum (crude oil plus natural gas liquids) consumption. In recent years, the US is a slight exporter of biofuels.

Corn ethanol currently takes about 40% of US corn production, according to the USDA (Figure 9). Greater corn plantings would put pressure on land usage for other crops.

USDA corn use, from USDA site.

Figure 9. USDA corn use, from USDA site.

If someone figures out how to make cellulosic ethanol cheaply (perhaps from wood), it presumably will cut into the market for corn ethanol, unless the blend wall is raised to 15%. Without additional ethanol coming from a source such as cellulosic ethanol, such an increase in the maximum blending percentage would likely be problematic.

Wind and Solar PV

Wind and Solar PV are sources of US electricity, so really need to be compared in that context. If we compare nuclear, hydroelectric, and all renewable electricity other than hydro (including electricity from wood, sawdust, and waste, and from geothermal, in addition to wind and solar) we see that in total, all other renewables are approximately equal to hydro electricity in quantity:

Figure 10:  Hydroelectric, other renewables, and nuclear as a percentage of US electricity supply, based on EIA data.

Figure 10: Hydroelectric, other renewables, and nuclear as a percentage of US electricity supply, based on EIA data.

If we look at the pieces of other renewables separately, we see the following:

Figure 11. Wind, solar/PV and other renewables as a percentage of US electricity, based on EIA data.

Figure 11. Wind, solar/PV and other renewables as a percentage of US electricity, based on EIA data.

Wind energy has indeed grown in quantity. Solar/PV is growing, but from a very small base. The remainder, which includes geothermal, wood and various waste products, is growing a bit.

A major issue with wind and solar is that we badly need a “solution” to our energy problem, so these are “pushed,” whether they are really helpful or not. Some issues involved:

(a) Cost effectiveness. Studies (such as by Brookings Institution, Weissbach et al., Graham Palmer) show that wind and solar PV are not cost-effective for reducing carbon emissions. If we want to reduce carbon emissions, conservation or switching from coal to natural gas would be more cost effective.

(b) Peak supply or peak affordability (demand in economists’ language)? The peak oil “story” often seems to be that because of inadequate supply, oil and other fossil fuel prices will rise, and substitutes will suddenly become competitive. This story is used to support a switch to wind and solar PV and high priced biofuels, since the expected high prices of fossil fuels will supposedly support the high cost of renewables.

Unfortunately, the story is wrong. High prices of any fuel tend to lead to recession because wages don’t rise to match the high prices. Also, a country using the high-priced fuel tends to become less competitive compared to countries that don’t use the high-priced fuel. The net effect is that prices don’t rise very much. Instead, manufacturing moves to countries that use less-expensive fuels. Oil prices may fall so low (relative to the cost of oil production) that oil producers sell their land and increase dividends to shareholders instead; in fact, this seems to be happening already.

(c) Hoped for long-term life. If fossil fuels have problems, can “renewables” have long life-spans in spite of those problems? Not that I can see. It takes fossil fuels to maintain the electric grid and to produce any modern renewable, such as wind, or solar PV or wave energy. Wind turbines need frequent replacement of parts, and solar PV needs new “inverters.” Wood and biomass will have long lives, if not overused, but these won’t keep the electric grid operating.

(d) Apples to oranges cost comparisons. There are a few situations where wind and solar PV are used to substitute for oil–for example, on islands, where oil is used to operate electricity generation. In these cases, wind and solar PV are likely already competitive, without subsidies. In these situations, per capita use of electricity can be expected to be very low, because exports made with such high-priced electricity will be non-competitive in the world market-place.

The confusion comes elsewhere, where substitution is for natural gas, coal, or nuclear energy. Here, the savings to an electric company is primarily a savings in fuel cost, that is, the cost of the natural gas, or coal or uranium. The plant’s manpower needs and its cost of electric grid maintenance will be the same (or higher). There may be costs associated with monitoring the new sources of electricity added to the grid or additional balancing costs, and these need to be considered as well.

If we want to maintain the electric grid so we can continue to have electricity for a variety of purposes, the “correct” credit for intermittent renewables is the savings to the power companies–which is likely to be close to the savings in fuel costs, or about 3 cents per kWh on the mainland United States. This is far less than the “net metering” benefit (offering a benefit equal to the retail cost of electricity) that is often used for grid-tied solar PV. It is also generally less than the “wholesale time of day” cost of electricity, often used for wind.

Germany is known for its encouragement of wind and solar PV, using liberal funding for the renewables. This approach has adverse ramifications, including high electricity costs, less grid stability, closure of some traditional natural gas power plants, and rising carbon dioxide emissions. A recent article called Germany’s Electricity Market Out of Balance by the Institute for Energy Research summarizes these issues.


It would be great if we had a solution for our non-oil energy issues, but we really don’t. The closest we can perhaps come is scaling up natural gas consumption some, and reducing coal’s current portion of the electricity mix. We currently have a large amount of coal consumption relative to natural gas consumption (Figure 3), so we ourselves have good use for rising natural gas production, if it should actually take place.

The “catch” in scaling up natural gas consumption is a price “catch.” If the price of natural gas price rises too high relative to coal, then electricity production starts switching back to coal. If, on the other hand, natural gas prices don’t rise very much, not much of an increase in production is likely to be available. Producers would like to export (a lot of) natural gas to Europe, as a way of jacking-up US natural gas prices. This seems like a pipe dream. See my article The Absurdity of US Natural Gas Exports.

Nuclear is a big question mark. If the United States starts taking much nuclear off line, it will leave a big hole in electricity generation, especially in the Eastern part of the US. Germany and recently Belgium are starting to experience the effect of taking nuclear off line. It is hard to see how wind and solar PV can play a very big role in offsetting the nuclear loss.

Politicians need to have a “solution” they can call an energy savior, but it is hard to see that renewables will play more than a small role. Biofuels seem to have “topped out” for now. Wind and solar PV are still growing, but it is hard to justify subsidies for them, as part of the electric grid system. Solar PV does have uses off grid, if citizens want their own source of electricity, with their own inverters and back-up batteries. There are also business uses of this type–for example, to operate equipment in a remote location.

I have not tried to cover all of the various smaller items. There may also be growth possibilities for items that I have not discussed, such as solar thermal for heating hot water, particularly in warm parts of the United States.


[1] I have used BP’s GeoBiomass grouping for convenience, but I am adding together EIA data amounts. What is included in the “biomass” portion of GeoBiomass seems to vary from agency to agency (BP, EIA, IEA), because of different definitions of what is included. For example, is animal dung burned as fuel included? Is fuel that is gathered by a family, rather than purchased, included? I am using EIA data for US renewables in Figure 7, since its long-term data series is probably as good as any for the US.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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984 Responses to Update on US natural gas, coal, nuclear, and renewables

  1. MJ says:

    The Japanese PTB advise its citizens on an important item to stock up on when the SHTF…
    Toilet Paper
    Seems in times past when a disaster struck, folks ran out of wipes and substituted others, such as, newspaper, paper towels and yellow pages to keep clean. Thus, clogging up the plumbing and creating another disaster

  2. Stilgar Wilcox says:


    Europe Goes “All In”: Will Sanction Rosneft, Gazprom Neft And Transneft

    Europe’s latest sanctions round will boldly go where Europe has never dared to go before, and impose sanctions on the big three: Rosneft, Gazprom Neft and Transneft.

    It also means that suddenly the stakes for Russia, and thus Europe, just got all too real, as Putin will now have no choice but to really ramp up the retaliatory escalation, which following the food ban can only mean one thing: a staggered reduction in gas flow to Europe.

    I haven’t confirmed this report, but if true it sure ups the ante.

    • InAlaska says:

      Europe has no choice for if they don’t do this, they’ll be slaves to Russia forever.

      • Yep, exactly it’s all Putler’s fault, in fact Europeans after exhausting their stuff always wanted to rely only on the cheap LNG via ME tankers imported from their good friends there. The western-eastern europe-turkey-izrael-gulfies alliance is winning on the all fronts anyway, Syria, Iran, Libya, Iraq, Afghan, .. /sarc off

        • Paul says:

          Slave to America — slave to Russia — what’s the difference?

          At least with Russia you are assured of being able to keep the lights on and warm for at least one more winter.

          • Yes. Moreover, if you perform the deep analysis only two basic scenarios could be correct in the end. Either the increasingly sclerotic Europe, but still advanced market and industry is just the un-anchored prize in the winds for global powerstruggle between falling NA vs. ascendent Sinorussian Euroasia. Likely parallel to how the ancient world fought about rich clubmed kingdoms not to destroy them but to juice their wealth, yet keep their luxury trades/goods/knowledge flowing etc. Or is valid the second option, namely that for the past 250years the biggest honcho on the planet was uninteruptably focused in a small pocket of int bankers (BIS), e.g. hence the timings of switch from sterling to dollar standard, aborted “promising” dominance of Euro etc., all was just a mere vehicle/tool of overall control in changing world not “evidence” of that particular’s country/region real importance.

            For me the jury is still out on this one. If the relevant powers of the EU bloc definately switches sides in say no more than 5-10yrs horizon to “the east” while NA goes into something like post Gorbatchev inner implosion and fragmentation, the latter option would be proven valid and vice versa.

      • xabier says:


        All the Asians have to do is impose clothing sanctions on Europe, and all the poor will go naked. And put an embargo toothbrushes, and we all die of tooth abcesses (don’t you think CTG?)! Europe is so fantastically vulnerable now on every front.

    • edpell says:

      The government of Russia will have to issue credit to the oil sector to develop oil. Just as Lincoln issued greenbacks. No need to enslave industry to the global bankers. The “sanctions” say to the global bankers you may not increase your leeching off of the Russia oil industry. Great.

      • CTG says:

        Never ever overestimate the “cleverness” of the elites or TPTB. I am definitely sure TPTB wants to live as long and as prosperous as they are now. So, if they are so “”smart”, then they would have started the transition to a “more renewable economy” 20 or 30 years ago.

        So, when Europe wants to play “chicken” with Russian on NG/Oil, there will be tons or “unintended consequences” that will bring down the entire supply chain and banking sector completely. Even a “YES” for Scotland’s referendum will cause civilization to collapse. It will cause pound to drop, margin calls, pension funds starts to exit and threw in the towel. Liquidation of other assets to cover margin calls, trust disappears, credit evaporates and supply chain collapses. Unlike 2007, our global economy is so weak that no amount of QE will help. Any QE will just cause very high inflation. Interest already negative. “More negative” does not help at all. We have long past the “even horizon” and whatever we do, doing more will not help anymore..

        • Paul says:

          If a Scottish yes vote is capable of bringing down the global economy — then it will not be allowed to happen. If there is a yes vote — and it is allowed to hold — then I will assume that the PTB do not think this is a threat to their position

          • CTG says:

            How about Lehman Bros? Do you think they “underestimate” the situation? Do you think they sit down and think 10 steps ahead on what will happen especially on the unintended consequences? If they are capable of doing that, then we will not be in the “peak resources” situation. We would have our thorium reactors or fusion power already.

            • Paul says:

              Here’s what I think happened with Lehman:

              I believe that there was disagreement amongst the PTB about what to do in 2008 – some were likely saying we can’t bail this out — others were saying we must.

              And Lehman was the test case — they decided to throw Lehman to the wolves and see what would happen.

              And the pro bail out people said – see!!!! we told you so —- and they quickly threw the beast back in its cage and fed it trillions of printed dollars….

              Look at Berlusconi – when he went against the ECB he was quickly thrown out of office and a dictator put in his place. The king of the mafia – billionaire — sent packing overnight.

              And recall Papendreao – he wanted to call a referendum — again out the door – in comes an central bank appointed dictator.

              The PTB will not let something as silly as a Scottish referendum upset the apple cart — if they think it will do that then we will do whatever is necessary to prevent this. If the yes vote goes through and they bust apart that surely means the PTB do not see this as a major problem. Otherwise they would stop it.

              Of course that does not mean that the PTB are omnipotent — there are things that are beyond their control — things that they are unable to stop from going into motion — and unable to stop once they start to roll down the hill.

              I do not see Scotland as being one of these.

              Japan imploding – China imploding – the EU imploding — all certainties — and all things that once you reach a tipping point there is nothing that can be done… in the meantime as we can see the central banks are doing everything possible to hold them steady.

  3. B9K9 says:

    Lots of good comments, with valid points made by all. IMO, this is how it plays out:
    – debt implosion wipes out all current asset pricing
    – US fed.gov takes back currency authority – (re)issues ‘greenbacks’
    – all available resources are directed at maintaining N America production via “new dollar” pricing regime
    – national emergency declared, resulting in rationing, price controls, travel restrictions, etc

    Once a baseline is established where everyone is getting a basic level of water/food, then the military/police patrols can be scaled back. At that point, no one is working except those commandeered by fed.gov; TV and the ‘net will keep the unemployed masses occupied.

    The key industries will remain as today: military contractors, oi companies, ag biz, trucking/transportation. Keep these running, and there’s no reason for civil disobedience. Eventually, the truth may seep in that this is the new normal with a progressive slow decline to ever lower standards of living.

    The scenarios I outlined above conform to the #1 prime directive, which is US fed.gov continuity of government. Remember, over 1000s of years, when the crisis arrives, kings kill the bankers. They then utilize traditional methods of uniting the body politic by (a) convalescing around a chose external/foreign enemy; (b) appealing to class unity via nationalism; (c) vilifying the 20% domestic population on either side in order to achieve 60% consensus.

    This is just standard sh!t that anybody trained in governance knows since they were 13+ and slated (ie legacies) for their future graduating classes at Harvard/Yale/Oxbridge. Knowing how it plays out provides one with a sense of calm since you don’t have to get all worked up about the day-day theatrics.

    Just focus on the really big picture, and make sure you fit in the 60% bracket to both avoid persecution and also get some goodies from the pantry (well, as long at that lasts).

    • John Doyle says:

      That, B9K9 is not a bad summary of what seems to me to be a feasible way forward. Oil supplies will not just switch off and certainly not because letters of credit will go missing. The government will see to all that administrative stuff. But there needs to be a plan, probably worked out in secret to not spook the population still in la la land. Avoiding chaos will be difficult. Chaos is easy to create [look at Iraq] but hard to stop.

    • Ann says:

      “Focus on the really big picture.” B9K9? Not big enough. Bigger still. Climate change will wreck all of their plans, IMHO. I’m sure the elite among the yeast cells in the vat of beer had a plan, as well.

      • B9K9 says:

        Oh, there’s a plan all right: it’s to maintain control. Fed.gov has every law needed to justify any action, at any time, under any circumstance.

        This mitigates the need for day-day details, other than make sure there’s basic food staples available. It’s also why the grid will be the last vestige of civilization to fail: it pumps fresh water in, pumps waste water out, and drives the devices to keep people entertained.

        Ann, yes, the big picture as far as human constructs are concerned. Beyond that point, it’s difficult to get worked up about events that no one can control/stop. AWG, overpopulation, resource depletion, etc, etc were probably baked into the cake the day the first life forms began reproducing. That process launched all species on exponential growth curves that only nature can rectify ie cull, die-off, extinction.

        Once you’re ok with that prospect, then you can enjoy your morning coffee in peace, and when the day is over, have a nice dinner, watch some TV (usually sports), have a beer and relax.

    • Paul says:

      To reiterate discussions and earlier articles on this site — how do you keep pumping oil without a fully functioning global economy?

      Oil extraction is massively high tech – it requires complex machinery — it requires computers — it requires spare parts — it requires chemicals …. it requires a functioning global supply chain.

      A single part of that chain breaks — and that means oil supply ends — immediately.

      We can’t even get oil out of the ground at a price that allows the global economy to grow as it is — high priced oil has destroyed growth and is collapsing the economy — pull away the trillions of stimulus and we collapse in a heap of rubble.

      Oil production ends — civilization as we know it ends.

      It has been suggested we can enslave people and force them to produce oil.

      Utterly ridiculous – and out of touch with reality.

      It is not like you can just put a gun to an engineer’s head in Texas and he will push a button and the oil comes out… this is not like building a pyramid where all you need are strong backs and stones quarries (and whips)… this a a complex operation that requires a fully functioning economy.

      Our food supply is 100% dependent on oil and gas bases fertilizers and pesticides — without oil and gas — we starve. It really is as simple as that.

      Of course nobody wants to think the worst — but unfortunately the facts do not support a scenario where the PTB are able to maintain any sort of control — that the PTB will feed you

      Even if they could — they know there are billions too many on the planet — why wouldn’t they just let most people perish? Is it because they are benevolent good kinds who love the people?

      Gimme a break….

      Rather than speculation tinged with hopium and very little logic…. I prefer to go with well thought through research — and the best I have seen is Korowitz — I will post this again for those who have not seen it — the punchline starts on p.56 http://www.feasta.org/wp-content/uploads/2012/06/Trade-Off1.pdf

      I would prefer Korowitz was wrong — but try as I might — I cannot find flaw to any of his logic.

      Once you cut open the golf ball — and snip the elastic — it unravels quickly — and there is no putting it back together.

      The PTB know that — that is why they are desperately trying to delay the start of the great unraveling.

    • CTG says:

      B9K9, when the USD fails, a lot of things will fail. Hotels in Bali are quoted in USD. Aircraft parts, semiconductor equipment spare parts are quoted in USD. If the faith in USD is gone, Chinese manufacturer will not send their parts (especially bearings and connectors) to anywhere in the world. Credit would be frozen. JP Morgan will cease to exist and my bank in Malaysia will not be able to transfer my USD20,000 to my Chinese supplier of bearings as JP Morgan happens to be the intermediary bank for USD. My Chinese supplier wants the cash now (in 2 days) or else he will revoke my order. Furthermore, since USD is gone, they will reprice it in Yuan (which is also tied to USD) or EURO (which will also crash together with USD). My hypothetical factory makes the transport systems that is used in transporting the pipes at the oil rig (the heavy pipes that are used when they drill for oil). We have a large order for a company that drills in Bakken and we are to fulfill the order because they really need the transport system. However, my company is running lean (cost cutting due to deflation) and with “just in time” inventory, our company normally uses Purchase Order from the oil company to secure a loan from the bank. We will use the loan to purchase steel from Korea as they make high quality steel that will stand the harsh weather in N. Dakota. As our banks have problems with USD being worthless or changed to a new currency, we cannot get the loan needed within 3 days that we normally get. Our Korean supplier is also delaying our shipment as we cannot pay them. They also say that their ships have difficulty securing oil and their backup ship is under repair. The properly shaft was damaged but they too cannot secure a loan to buy the bronze.

      Now, multiply the parts that are required in hypothetical “pipe transport system” (controller electronics, wires, cables, rubber tubings, bearings, steel, plastics, etc), that are made by many companies located in every part of the world. You will find that “no man is an island” is 200% true in this globalized world. Without the pipe transport system, how will your oil extraction system work in US. Now this “pipe transport system” is just one of the thousands of parts in extracting oil. If you include software (seismic analysis), supercomputers and skills (that may be scattered around the world), do you think you can work out a solution within 1 week. You don’t have more than 1 week to work out a plan if you want to ensure that the entire supply chain is working.

      Please correct me if I am wrong but I think 99% of the people living in a modern civilization requires a bank. All our salary is now “digital”. When the employment income goes in, a large percentage disappears to pay down mortgages, car loans, etc. We are left only a small fraction of the money. We may take out a small out in cash at ATMs. So, if we were to have a bank holiday for 1 week and if VISA is not working, then I would say, that is also the end of “modern civilization” (in 1930s, bank holidays were not a problem as most of the people do not use bank).

      Feel free to correct me or tell me a different scenario. Back it up with real experience and not just “talk”. My family has a large manufacturing facility here and I am working in a high tech industry. What I have said here is real and it happens all the time in Asia.

      • This has been talked about it here numerous times. It’s called semi/quasi autarchy and domestic gov/MIC supply chain. That’s why when Soviet empire fell apart, their specific sectors never recovered due to crippled supply chain beyond treshold, namely big ship building, while certain “most important” sectors like nuclear subs could and do go on, also with some imported knowhow they are able to produce impressive arctic drilling pods now etc. And some parts of old MIC even prospered like the space oriented industries with int cargo orbit (EU/US/..) clientele, as well as jets, radar system, missiles, some of it for export/licensing etc.

        So, to assume these guys are not planning and executing for some autarchy in their most important export (energy) and general extractive industries as well is preposterous. Perhaps as lower priority long in the making as they thought energy – industry cooperation with Germany would be a smooth operation for ever despite anything, not so rosy now.

        To stay with this example, there has been a few TV sneak peaks inside the top of the russian MIC, the clean laboratories/assembly lines are fully packed with imported stuff like german optics, CNCs, precision soldering, computers and software. That’s a huge problem for replacement and spare parts in case of embargo, aerial attack on such facility, but now most of this equipment likely is imported from allied China anyway.

        In terms of credit cards/digital payment system some countires have it separately from US influence already, namely China and Japan, Russia is building its own now as well. More importantely there is a huge global wave of non usd denominated currency swaps for direct int payment with China, basically just a barter accounting layer.

        All in aggregate and more doesn’t equal todays consumerist BAU for ever, but it means some limited gov survival and basic substinance for the people at least in decades to come. The reset/crash/transformation of the system is not the end of the world or immidiate global dieoff. We already discussed the likelyhood of debt clean out jubilees, you don’t have to rely on casino stock based pension fund anymore with caloric gov provided rationing etc. The virtual trillion”s of wealth” will be simply wiped out and in few years time no looking back. The people of “middle class” employed in production and service for “middle class” domesticaly and internationaly will be the most affected, simply gutted out, left idle some moved to gov work.

        • Paul says:

          This time is different

          When the USSR collapsed the rest of the global economy remained fully functional. So they could ‘plug in’ to a new system. They would sell their oil and gas and other resources – and participate economically.

          When this collapse comes every country collapses – there will be nothing to plug into — no global economy — not even a functioning electric socket.

          It is rather amusing to see how people are underestimating what we are facing.

          We will revisiting a period somewhere between prehistoric man and feudal society — but without any of the skills that those people had.

          This will be like putting a subsistence farmer from Game of Thrones into a Wall Street investment banking job and expecting him to survive.

          As Gail has pointed out many times here — when the global economy busts — most of the resources that are in the ground – including oil — will remain in the ground.

          Governments will quickly fall to pieces once their strategic oil reserves are depleted — they will not be able to enforce order once that happens. They most certainly will not be feeding you when the SHTF — because there is no way they are going to allocate fuel to meg farms to feed billions… they will most definitely use fuel reserves to enforce martial law for as long as possible — ensuring that the billions of mouths to feed – are dead.

    • CTG says:

      Don’t underestimate the importance of a bearing. In WW2, bearing factories are always targeted in bombing raids. Any moving parts in the machine likely require a bearing. Even if it is just a simple rubber connector (hydraulic or pneumatic), it is just as critical as an electronic controller. Remember that the space shuttle exploded due to a faulty o-ring.

      • Paul says:

        “Remember that the space shuttle exploded due to a faulty o-ring.”

        Great point…

        In a globalized economy there are so many billions of different pieces — if any single one is no longer available for any period of time — the entire economy would blow to pieces just like the shuttle.

        If you interrupt the global economy with say a debt jubilee as some are suggesting…. it’s not one part that stops — everything stops….

  4. kesar says:

    Next round of sanctions against Russia:

    “The three oil companies– Gazpromneft, the oil-production and refining subsidiary of OAO Gazprom, oil transportation company Transneft, and oil giant Rosneft — will be forbidden from raising funds of longer than 30 days’ maturity.”

    I see only 2 possible motives:
    – introduce IOCs to russian oil/gas deposits and increase efficiency/output;
    – increase price of oil and hence profitability of IOCs.

    Apart from the above, it’s like self-tightening the noose.
    I am interested in your opinions.

  5. MJ says:

    When will we run OUT?
    Aussie Mining ran this piece from Reddit

    • Paul says:

      The data assumes that we will extract to the last drop of oil or speck of ore… Of course as we know that is not going to happen — because the economy cannot grow if resource extraction costs are too high…

      Most of the resources indicated on those graphs will never see the light of day.

      • Stilgar Wilcox says:

        Speaking of which MJ & Paul, here is a link: http://www.economic-undertow.com/
        and although the article is interesting, scroll down to the graph. You may have seen it before but what it is illustrating is affordability. It shows that price for oil is narrowing into a tight range the overall economy, consumers, can afford that does not support costs of drilling that go higher than that price point. This is what we have recently been seeing as Capex requirements exceeds revenue.

        So yes there is still lots of oil in the ground but much of it will remain there.

    • wadosy says:

      there’s maybe a trillion barrels’ worth of bitumen –heavy stuff, peanut butter– in veenzuela… dont know how much would be technically recoverable, but the chinese keep pecking away at it after big oil baled out

      it’s called “orimulsion” once it’s diluted with water and sufactants so it will flow through pipes… apparently this orimulsion can be burned as is in power plants

      anyhow, when you consider peak oil, venezuela’s bitumen, china’s presence in venezuela and chinese/russian interest in building a canal across nicaragua, it all starts making sense…

      …which means that more atrocities in venezuela and nicarargua will make sense to the neocon empire

      could be a fenit, i spose… china’s feint at gwadar pakistan was probably another reason the neocons needed a new pearl harbor… you know, to stop persian gulf and central asian asian energy from going the wrong direction

      …the wrong direction being, towards colered people, wongs and slant eyes who have no business at all of using our oil and gas

      …”our oil and gas” by virtue of our manifest racial superiority… sirta like “manifest destiny”

      good deal

      • wadosy says:

        the weird thing about this venezuela/nicaragua/china lashup is that nobody seems to be making the connections… peak oil to vnezuela bitumen to chinese orimulsion to the nicaragua canal

        but maybe it’s not so weird, after all… not when peak oil is dead, and so couldnt possibly be the reason chinese want a canal in nicaragua… and peak oil most certainly couldnt have been the reason the neocons needed a new pearl harbor

        so i guess that’s to be expected –the failure to connect the dots, that is

        i spose the neocons will miraculously concoct another new pearl harbor, this time blamed on china or russia or nicaragua or venezuela or any combination thereof

  6. Paul says:

    Here Is Why Europe Just Launched The “Nuclear Option” Against Russia


  7. MG says:

    The reason for current splitting of Ukraine or United Kingdom is energy. The same was when the Czechoslovakia split into Czech Republic and Slovak Republic: the Czech Republic had less energy intensive industry and more energy resources, the Slovakia had more energy intensive industry and less energy resources.

    The depletion continues and the eastern part of the Ukraine (with coal deposits) or the Scotland (with oil) faces the same fate as the formerly energy rich regions of the Czech Republic – industry and population decline, as the easy to extract energy resources have already been extracted.

    Ukraine: http://underbelly-buce.blogspot.sk/2014/03/ukraine-population-water.html
    Scotland: http://www.transportscotland.gov.uk/report/j7106v2-02.htm (Table 5.2: Forecast Population Change by Local Authority Area 2003 – 2016)
    Czech Republic: http://sreview.soc.cas.cz/uploads/8422e02854eb8a803dc42b920b774dc2305595f1_12-5-05Rumpel18.indd.pdf (the article about Ostrava – the heart of the hard coal mining in the Czech Republic which is now “a shrinking city”)

    It is illusionary to think the break up will stop something. It cannot delay the results of energy resources depletion for Scotland or Eastern Ukraine. The Scotland or Eastern Ukraine must sacrifice more and more energy for resource extraction. They have less and less energy for the whole Ukraine and for the whole United Kingdom.

    I am affraid that this break up process can not be stopped. It seems that for some people it is hard to realise the fact that the resource extraction is more and more dependent on the debt anyway. Who will provide them enough loans for energy resource extraction and processing when it seems that their resources are less and less attractive?

    To stop believing that the past can not be revived is difficult…

    • xabier says:


      After all, recent the past – the golden, expansive 1950’s and 60’s in the West, when one could leave any job and get another straight away the next day, or even the illusory credit booms of the 90’s and early 2000’s, lots of credit, lots of consumer toys, – were so pleasant for so many people in the advanced economies that it is very uncomfortable indeed to realise that it will not come back.

      The ‘anti-Austerity’, ‘anti-Neoliberal’ parties in Europe essentially are promising that the past can be revived, that it is only policy errors by Brussels, and the wicked plans of capitalists and bankers, that are making things hard for ordinary people (public cuts, precarious employment at low wages, rising basic living costs, poor pensions or none, etc).

      An uninformed electorate will jump at that promise in desperation: for instance, the massive vote, crushing all opposition, which the Spanish Right got in the last elections was largely due to fear of decline, and the belief that they alone ‘know how to handle the economy.’ Bad move! They are using that majority to introduce a police state in which all protest is made either illegal or impractical.

      Then, maybe, as the decline accelerates, the masses (above all the failing middle class, and formerly secure skilled workers ) will grasp at some kind of populist dictatorship (‘Left’ or ‘Right’ is irrelevant) promising the same thing, the return of the Golden Age, and similarly failing. It’s interesting to see what the French Right seem to be offering: ‘Policies for France, made by French people, for the French people’, in other words a denial of globalism, of interconnectedness, of the movement of history, and playing to a childish belief that the right policies will have the effect of restoring what has been irrevocably lost at this late stage of globalised industrialism and resource depletion.

      • A bit of contradiction there in your post.

        Le Pen wants return or rather change of direction towards semi/quasi autarky. For starters independent foreign policy (kicking certain clique of “internationalist” out of the entire gov structure), deconstruction of many/most of the centralized bureau euroarea trade dictats etc.

        You can’t deny globalism when it’s failing already and on the way to regionalism etc.
        That’s the direction of “movement of history” now. Is Le Pen naive, perhaps a lot, but the fun part being that her “wrong” model is more compatible with the future world of less consumption. Yes it’s indeed. So, what’s the problem?

        Looking forward, the airline industry (european consorcium) likely won’t survive anyway, the same for most of the car production, also loss of EU collected farming subsidies will be hard but more important question long terms is climate change effects on this part of Europe. Nuclear industry could be kept alive for a while with expedition force as of today (uranium mines in Africa) and/or with some sinorussian alliance. Shipyards are dead as we have seen recently. So, the future is very low speed, pastoral, perhaps luxury exports only.

        • MG says:

          The problem of the break up is that it does not solve anything, but just discloses the naked truth. So Le Pen and similar leaders have no solutions, they just want to be at the top of the new regions. They surely do not want to be in the bottom of the pyramid as the poorest ones. Autarky of nuclear energy dependent France, oil dependent Scotland or coal dependent Eastern Ukraine is a pure nonsense.

      • Paul says:

        This anti-austerity thing is nothing new. If you look at most countries they are almost always running deficits… year after year … decade after decade… I think the US has had only 2 years with a balanced budget in the past 30 or so… France I believe is even worse….

        It would appear that debt based — and now QE based — stimulus is the only way the economies can grow.

        Of course that was always inevitable — a system that needs eternal growth was always going to run up against limits…

        And that’s what has happened — the cancer that is capitalism (oh my banking friends in Hong Kong would love that phrase!!! — not) has metastasized and the host is gasping for air while the last rights are quickly read…

        Of course the peaking of easy to access resources has driven an AIDS tainted stake into the host’s body compounding the problem.

        All I am wondering is when the fat lady makes her appearance.

  8. dolph9 says:

    There is a way out for the central banks, but it’s the nuclear option, and they are afraid to use it, because it would reveal their machinations.

    Basically, to print as much fiat currency as needed to satisfy all debts worldwide, let the price of gold rise, and then allow the currencies to be backed by gold at a much higher price.

    They can save parts of the system this way, but they might sacrifice themselves in the process because the mob will demand heads.

    • “Mob will demand heads” not everywhere and if blamed on “world crisis” featuring “fire starter ubervillain” such as Russia, China, Iran.. There has been several good articles on this topic in recent years, including the hypothesis of poking the other side deliberately to start such shift, Ukraine as classic exhibit with potential to provoke the other side to move first, actually we have heard confirmation of such consequences directly from the gov circles of the sinorussian axis.

      The scenario you describe is therefore quite likely given the steps of major players up to date. However, it is from J6P (me) absolutely unpredictable game in detailed implementation globally. For instance, China is going to take over the pricing mechanism in PMs over few next years, however the infrustructure and gov policy has been already deployed, it’s operational (imports, mining, laws, vaults, trained employees), people are ready and informed by massmedia. I guess the minimum position starts at roughly 100grams or so, which is about orders of magnitude less than the current western trade system geared only to super institutional level. Now the crucial detail is, that we can have sort of working umbrella global system formed of say 2-3 semi autarcic blocks of adversary countries, where for instance in the west dominion you won’t be as individual legally allowed to trade anything bellow 1.000 – 12.000 grams, that’s 99% elimination of the poor and former middle class right there. So by that meassure the only front loading people are the big banksters/megabusiness/governments. Plebs will be just issued a new paper and digital currency tied to this global reserve system with obviously only pitifull real purchasing power of yesterday.

      Call it a reset/collapse/financial armagedon whatever, but after few weeks if you can still feed a family with the help of caloric rations, it’s not such a big deal. For residents of China, Singapore, Russia, Iran, Switzerland, perhaps Turky and Gulfies this could be viable mode of wealth protection and diversification. But to follow the same for the generalist western pauper of NA/EU it could be a disastorous mistake and complete dead end, either ending up under “calamity windfall profit” taxation scheme or other forms of capital controls to deal with hoarders.

      Skills, tools, land preferably unfit for at least first wave of collectivization is the better bet imho in the NA/EU part of the world, it’s sad but that’s the way I see it.

      The great paradox unwinds as west goes openly authoritarian and collectivist while the east enjoys for a while some hybrid system of relative economic freedoms and stability.

      • kesar says:

        Interesting view. Collapse under control. Authoritarian state seems inevitable at some point. Much less brutal and dramatic than Paul’s predictions.
        There are some things here, which I can’t assess.
        – systems theory approach – the more complex system, the more sudden collapse,
        – long supply chains to maintain production of almost everything,
        – local riots and revolts.

        Any thoughts how TPTB is going to achieve control over these issues?

    • Paul says:

      Central banking gimmicks can kick the can — as we have seen over the last 6+ years…

      But these gimmicks do nothing to decrease the production costs of a barrel of oil.

      Central banks can play all the games they want but this does not attack the disease.

      The symptoms of the disease are mostly financial in nature — even if you could fix those — that changes nothing.

      I would argue that you do not want to meddle with what the central banks are doing — because they are doing EXACTLY what is expected of them — and that is keep this hamster running as long as possible – print money — throw money from helicopters — do whatever it takes — because once they change course — the symptoms go terminal — we get a financial implosion the likes the world has never seen…

      The global economy collapses – the supply chain collapses — and the oil that is in the ground – stays in the ground — and the die-off begins.

  9. Christian says:

    Very interesting posts. I have the joy to say Argentina brings good news. Excess sovereign debt jubilee has begun


    • kesar says:

      Either “developing countries” go bankrupt and cut off from financing or they risk stability of the overleveraged financial sector (hedge funds, banks and stock exchange). Not an easy choice, I would say.

    • John Doyle says:

      Seriously good news indeed!!! Respondents to the article criticise the UK for likely not supporting the debt jubilee, but Argentina today, the UK and USA etc tomorrow, so they are fools to block the movement for restructuring debt. It’s also a grand poke in the eye of the wealthy elite criminals.

    • Stefeun says:

      Salut Christian,
      not to spoil the fun -you know I’m wholeheartedly with you- but when I read the last paragraph of the article:
      “Eric LeCompte, executive director of the religious anti-poverty group, Jubilee USA said that the new framework was a promising sign. “The ICMA shows there is a global consensus against predatory funds and holdouts. It’s an important step, but we need actual laws in the United States and across Europe to end the behaviour,” he said.”,
      I really hope you don’t rely on Washington & Brussels’ approval for validation of the process. I hardly imagine the lobbyists there enthusiastic with such idea.
      That being said, it’s not a sufficient argument to cease the fight. Hold out!

  10. John Doyle says:

    Here by the way, is “Thriving in the Age of Collapse” written by Dmitri Orlov in 2005.
    It’s relevant to the collapse scenario we paint in this blog.

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